AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 42
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....onomic analysis for the determination of the arms length price in connection with the international transaction of pharma support services. (b) Not providing the detailed search process undertaken for identifying comparable companies. (c) Considering those companies as comparable that are functionally different from the Appellant for the international transaction of provision of Pharma support services. (d) By erroneously computing the margins of some of the comparable companies identified by the learned TPO. (e) By not adding the comparable companies identified by the Appellants with comparable companies identified by the learned TPO (f) In not considering the segmental margins adopted by the Appellant without providing any reasons and by using entity level margins to determine the arms length nature of international transaction of provision of pharma support services undertaken by the Appellant. (g) By not considering the +/- 5% variation from the arm's length price permitted to the Appellant under the proviso to section 92C(2) of the Act. (h) By ignoring the provisions of Rule 10B(3) of the Income-tax Rules, 1962, which envisage usage of multiple year data of comparab....
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....ppropriate method for bench marking its international transaction involving provision of pharma support service. The assessee has selected 13 comparables and arrived at the mean margin of 9.15% as profit level indicator (PLI) of OP/OC. Thus the assessee claimed that its transaction with the AE is at arms length which is 15% on the operating cost. The TPO rejected the economic analysis undertaken by the assessee and adopted different set of comparables and arrived at the mean margin of 22.49%. Thus the TPO proposed an upward adjustment of Rs. 7,38,74,935/- based on the difference between the ALP at the rate of 22.49% and the entity level margin of the assessee at 14.09%. The assessee objected the proposed transfer pricing adjustment before the DRP but could not succeed. 3. Before us the grievance of the assessee is restricted only in respect of three comparables which are part of the set of comparables selected by the TPO for determination of arms length price. The Ld. A.R. of the assessee has pointed out that if the three comparables namely Rites Ltd., Vapi Waste & Effluent Mgmt. Co. Ltd. and WAPCOS Limited are excluded from the set of comparables considered by the TPO then no adj....
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....tion and Testing, (iv) Engineering Design, Drawings and Tender Process, (v) Contract Management and Construction of Supervision, (vi) Operation and Maintenance and (vii) Institutional/Human Resource Development. Thus, the Ld. A.R. has submitted that this company is not functionally comparable with the assessee as it is engaged in the different nature of functions and activities. He has relied upon the decision of this Tribunal in the case of "Actis Advisors Pvt. Ltd." (supra) as well as "Nortel Networks India Pvt. Ltd." dated 25.02.14 in ITA No.4765/11 and 427/13. The Ld. A.R. has pointed out that if these three companies are excluded from the set of comparable considered by the TPO then the mean margin of the comparables comes at 18.03% in comparison to the assessee's segmental level margin at 15.50% which is within the range of + 5% and consequently no adjustment is required in this respect. 6. On the other hand, the Ld. D.R. has submitted that if these three companies are excluded on the ground of functionally non comparability then all other companies are also to be decided on the similar criteria because the other remaining companies are also functionally not comparable with....
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....see's margin at segmental level and not at entity level. The assessee claimed that the segmental level margin is at 15.50%. The assessee has disputed only three comparables selected by the TPO and seeking exclusion of these three from the set of comparables of the TPO. We will discuss these three comparables as under: i) Rites Ltd. The Revenue has not disputed that Rites Ltd. is a government company established under the Ministry of Indian Railways and is providing the services in the field of architecture and planning, bridge and tunnel engineering, construction project, electrical engineering etc. to the government organizations and public section undertakings. The functions performed and carried out by Rites Ltd. are entirely different from the functions and services provided by the assessee to its AE. The assessee is providing the support service in the field of pharmaceutical and medical support service, therefore on the face of it, this company cannot be a functionally comparable with the assessee. An identical issue has come up before Delhi Benches of this Tribunal in the case of "Nortel Networks India Pvt. Ltd." (supra) wherein the Tribunal has observed in para 11 and 11....
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....ability of this company in para 6.1 as under: "6.1. Coming back to the issue of comparability the inclusion/ exclusion of Vapi and WAPCOS, the ITAT in the cases of M/s MCI Com India P. Ltd. and M/s Verizon India P. Ltd. (supra) has held that companies like EIL, Rites, Wapsos and TCE are engineering companies and provide end to end solutions and therefore they cannot be compared with those assessee who were into providing marketing support services to the parent company. They were held to be functionally not comparable with thee engineering companies. The case of Vapi also falls on the same footing. Therefore, respectfully following the order of the ITAT in the cases of M/s MCI Com India P. Ltd. and M/s Verizon India P. Ltd. (supra) and Estel in ITA no.584/Banglore/06 we are of the view that Vapi and WAPCOS are functionally not comparable to the assessee. Therefore, they are to be excluded. The issue of turn over does not arise in this case. In view of these facts, the matter will go back to the file of AO /TPO who will determine the T.P. adjustments by excluding Vapi and WAPCOS comparables. This ground of the assessee is accordingly allowed." Apart from the finding of Delhi Bench....
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....nd findings, we direct the TPO/AO to recompute/determine the arms length price after exclusion of three companies as discussed above. The assessee has claimed that after the exclusion of these three companies the mean margin of the remaining comparables comes to 18.03% in comparison to the segmental level margin of the assessee at 15.50% which is in the tolerance range of + 5%, therefore it is claimed that no adjustment is called for. The TPO/AO is directed to consider this aspect at the time of recomputation of the arms length price. 10. Ground No.2 is regarding the addition made under section 41(1) on account of creditors outstanding for more than three years. During the course of assessment proceedings, the Assessing Officer (AO) noted that some of the creditors amounting to Rs. 8,00,869/- are outstanding for more than three years and accordingly added the same under section 41(1) by treating this amount as cessation of liability. The assessee challenged the action of the AO before the DRP but could not succeed as the DRP has confirmed the addition proposed by the AO. 11. Before us the Ld. A.R. of the assessee has submitted that the creditors amounting to Rs. 8,00,869/- which ....
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....s. The Ld. A.R. of the assessee has pointed out that out of these four creditors the amount of Rs. 7,32,698/- in respect of M/s. Wander Pvt. Ltd. is involved in the dispute and a legal case is going on with the said party. Since this aspect has not been properly examined and verified by the authorities below, therefore if the said amount is part of a dispute between the parties, then till the dispute is settled it cannot be said that any part of the liability in respect of the said amount ceased to exist. The Ld. A.R. has further pointed out that a sum of Rs. 25,340/- is payable to an employee of the assessee and the settlement is pending. We are of the view that the relevant record in this respect is required to be examined before arriving to a decision whether the said amount is no more payable to the employee and therefore can be treated as ceased liability of the assessee. As regards the remaining two parties namely Scientico Instruments and Electrolab, the assessee has claimed that the outstanding amount has already been paid on 08.10.09 and the assessee has produced before the AO the relevant ledger extract to show the said payment made to the parties. Since all these facts a....
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.....R. has submitted that for allowing the expenditure incurred on computer software as revenue in nature it has to pass the test as laid down by the special bench of this Tribunal in the case of "Amway India Enterprises". He has relied upon the orders of the authorities below. 17. Having considered the rival submissions as well as relevant material on record, at the outset, we note that an identical issue has been considered by this Tribunal for the A.Y. 1995-96 vide order dated 25.09.13 in para 45 as under: "45. Ground 1 relates to the deletion of the disallowance of Rs. 8,33,946/- on account of computer software purchases. This issue has been considered by the AO at page 29 on para 6 of its order. The AO found that out of the total expenditure of Rs. 11,56,786/-, Rs. 8,33,946/- has been stated to be on account of application software's claimed as revenue expenditure. The AO was of the opinion that the benefits of the software are long term or of enduring nature and accordingly treated this expenditure as capital and allowed the depreciation and disallowed the remainder. Assessee strongly agitated this issue before CIT(A). The CIT(A) has considered this grievance of the assess....
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....he entire sale consideration is offered to long term capital gain tax. The AO did not accept the claim of the assessee and held that as per section 28(va)(b) of the Act, brand/trade mark has been identified as income taxable under the head "Income from business or profession". Accordingly the AO was of the view that as per the agreement of assignment of trade mark the assessee has agreed to not selling trade mark and such trade mark for any purpose as it is exclusively being granted to the assignee against a sum of Rs. 1,17,50,000/-. The AO thus assessed the said amount as business income instead of long term capital gain offered by the assessee. The DRP has confirmed the action of the AO by giving the similar reasons. 20. Before us, the Ld. A.R. of the assessee has submitted that the sale of commercial right and brand are in the nature of capital receipts arising from sale of intangible assets. The sale of these intangible assets is offered to long term capital gain since the same are pertaining to the business which is four years old. He has referred section 2(29B) as well as section 55(2)(a) of the Act and submitted that the gain arising from the capital asset held for more tha....
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....nly in respect of the receipts in the nature of non compete fee and fee for exclusivity of right. Thus the Ld. A.R. has submitted that the amount received by the assessee on transfer of brand and trade mark has to be charged as capital gain. In support of his contention he has relied upon the judgment of the Hon'ble Supreme Court in the case of "CIT vs. D.P. Sandu Bros. Chembur P. Ltd." 273 ITR 1 as well as judgment of Hon'ble Jurisdictional High Court in the case of "Cadell Weaving Mill Co. P. Ltd." 249 ITR 265. He has also relied upon the judgment of Hon'ble Delhi High Court in the case of "CIT vs. Mediworld Publications Pvt. Ltd." 337 ITR 178. 21. On the other hand, the Ld. D.R. has submitted that the receipt in question is covered under section 28(va) of the Act and therefore the same is assessable as income from business. He has contended that the amount is received by the assessee under an agreement for not sharing the trade mark with anyone else than the assignee to whom it was assigned. He has relied upon the order of the authorities below. 22. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessee has re....
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....rticle or thing or right to carry on any business, which is chargeable under the head "Capital gains" ; (ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India. Explanation.-For the purposes of this clause,- (i) "agreement" includes any arrangement or understanding or action in concert,- (A) whether or not such arrangement, understanding or action is formal or in writing; or (B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings; (ii) "service" means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging;" 24. The AO has....
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....Delhi High Court, in the case of "CIT vs. Mediworld Publications Pvt. Ltd." (supra) the issue of business income vis-à-vis capital gain on transfer of trade mark, copy right etc. fell for consideration of their lordship and after considering the various relevant provisions of the Act including section 2(14), section 2(11) as well as section 28(va) and 55(2A) of the Act, it was observed and held as under: "11. The CIT(A) as well as ITAT have rightly held that in this backdrop provisions of section 28(va) would not apply to the instant case. In this behalf, it is to be borne in mind that the clinical trial business which the assessee continues to carry on was distinct and separate from the business of Healthcare Journals and Communication. As far as Healthcare Journal and Communication business is concerned, it had been given up in entirety in favour of the transferee. Therefore, the Assessing Officer was wrong in holding that the assessee had given up only one of the activities in relation to its business. In such circumstances, the proviso to section 28(va) becomes applicable which stipulates that section 28(va) was not applied to any sum received on account of transfer of ....
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....r with effect from the closing date: (a) the Periodicals; (b) the Products; (c) the Business Intellectual Property Rights alongwith the Goodwill and all interests and benefits attached and appurtenant to the Business Intellectual Property Rights; (d) the Customer Database; (e) The Records; (f) the Editorial Materials; and (g) the Contracts. 2.2 The Seller as the beneficial owner, agrees to assign, transfer and convey to CMP Medica all is rights, title, and interests to the Specified Assets including other intangible benefits and, or, rights related to the Specified Assets to the end and intent the CMP Medica shall be the sole, full and undisputed owner of the Specified Assets effective as at the close of the business hours on the Closing Date and entitled as such effective as at the close of the business hours on the Closing Date and entitled as such to deal with the Specified Assets in the manner deemed fit by CMP Medica without any hindrance, interference or disturbance or objections from the seller and, or any person claiming on behalf of or in trust for the seller in any manner whatsoever subject to CMP Medica fulfilling its obligations under Clause 3 hereunder". 13. S....