India vs AON Consulting: CASE SUMMARY
Case Information
- Court: High Court of Delhi
- Case No: ITA 244/2024
- Applicant: AON Consulting Pvt. Ltd. (Successor Entity of AON Services (I) Pvt. Ltd.)
- Defendant: Principal Commissioner of Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... More – 1 and Ors.
- Judgment Date: 06 February 2025
- Download the FULL JUDGMENT
Judgment Summary
The High Court of Delhi, in its ruling on AON Consulting Pvt. Ltd. v. Principal Commissioner of Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... More – 1 and Ors. (ITA 244/2024), addressed a crucial transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... More (TP) dispute concerning the application of Mutual Agreement Procedure (MAP) to transactions not covered under the agreement. The judgment clarifies that MAP-based TP adjustments, which are negotiated between competent authorities of contracting states, cannot be unilaterally extended to transactions beyond their scope.
The case originated from a TP adjustment made by the Transfer PricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... More Officer (TPO) in respect of international transactions of Hewitt Associates (India) Pvt. Ltd., later merged into AON Consulting Pvt. Ltd. The TPO had initially made an upward TP adjustment of ₹44,06,38,092, consisting of:
- ₹41,79,89,294 for US Transactions, which were settled through the MAP process under Article 27 of the India-US Double TaxationDouble Taxation occurs when the same income or financial transaction is taxed twice, typically in different jurisdictions. It can arise in two primary contexts: economic double taxation, where the same income is taxed twice in the hands of different taxpayers, and juridical double taxation, where the same taxpayer is taxed on the same income in more than one country. Double... More Avoidance Agreement (DTAA).
- ₹2,26,48,798 for Non-US Transactions, which remained disputed.
The Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... More Appellate Tribunal (ITAT), while hearing the case, ruled in favour of the Revenue and remanded the Non-US Transactions to the TPO, directing that the same framework agreed upon under MAP for US Transactions be applied to Non-US Transactions as well.
AON Consulting challenged this order before the High Court of Delhi, arguing that MAP is a consensual dispute resolution mechanism between two contracting states, and its principles cannot be imposed unilaterally on transactions outside its purview. The core issue was whether the TP framework settled between the US and Indian tax authorities under MAP could be extended to unrelated Non-US Transactions.
The High Court ruled in favour of AON Consulting, holding that:
- MAP settlements are voluntary, case-specific, and dependent on negotiations between competent authorities.
- The ITAT’s decision to extend MAP principles to Non-US Transactions was legally flawed as there was no agreement with other jurisdictions for such an application.
- Transfer pricing adjustmentsTransfer Pricing Adjustments are modifications made to the pricing of transactions between related entities within a multinational enterprise (MNE) by tax authorities or the MNE itself. These adjustments are carried out to ensure compliance with the arm’s length principle, which stipulates that prices for intercompany transactions should reflect what independent parties would have agreed upon under similar circumstances. The arm’s... More must be determined independently under Section 92C of the Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... More Act, 1961, and Rule 10B of the Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... More Rules, 1962.
The court emphasised that MAP settlements cannot be used as a binding precedent for unrelated transactions, especially when there is no bilateral agreement with the tax authorities of the respective Non-US jurisdictions. The Revenue’s approach, which sought to impose a negotiated MAP outcome onto transactions outside its jurisdiction, was rejected.
As a result, the High Court overturned the ITAT’s order and restored AON Consulting’s appeal, directing the ITAT to assess the TP adjustments independently, without relying on the MAP framework used for US Transactions.
