TaxTMI 
TaxTMI 
TaxTMI 
2016 (10) TMI 57
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....ds of appeal:- "2.1 The DRP has directed the AO to assess the entire sale consideration of Rs. 49,98,97,967/- as determined by the TPO under the head capital gain as per the provisions of sec SOB of the act instead of 'Business Income' assessed by AO. 2.2. The DRP has not verified the facts of the case that of as per copy of business transfer agreement, it is found that what is being transferred by the assessee is the business a such along with even the working personnel also. Assessee has treated its personnel as assets. Personnel cannot be treated as 'assets' as defined as per the provision of section 2( 14) of IT ACT. 2.3. The learned DRP fails to note that in the valuation at the time of transfer, personnel have been valued separately, which is clearly in contravention to the provisions of the section 2(42C). The stand taken by the assessee itself is contradictory because on one hand it treats personnel as assets and on the other hand it valuates them separately. Hence this transaction cannot be consider simply as a slump sale as per the provisions of Section 5OB of IT ACT 1961 2.4. The learned DRP held that there was no 'element of non-competitio....
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....ion Panel considered the information determined value of business and sale consideration for transferring the business as going concern of Associated Enterprise as determined by the ld. TPO as reasonable and upheld the same. 3.2 In respect of second objection of B2,10,13,546/- on account of sales to Associated Enterprises, the ld. Dispute Resolution Panel found that action of the ld. TPO justifying the upward adjustment as assessee's international transactions of sales towards Associated Enterprise at B21,18,54,204/- as against B19,08,40,658/- and upheld the action of the ld. TPO on sale to Associated Enterprise. 3.3 On third objection, the gains of transfer sale of business were the ld. Assessing Officer treated as Business income were the contention of the assessee being capital gains and the ld. Dispute Resolution Panel relying on the value determined by the ld. TPO were entire sale consideration B49,98,97,967/- was assessed under capital gains u/s.50B of the act and objections of the assessee were favoured. 3.4 The ld. Assessing Officer made addition towards Associated Enterprise sales B2,10,13,546/- as computed by the ld. TPO vide order dated 28.01.2014 and further as dealt....
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....,97,967/- under the head Capital Gains held at para 3.3.2 of order as under:- ''3.3.2 The above conclusion of the Assessing Officer is not correct, for two reasons. Firstly, there were no clauses of "non-competition" in the agreement of transfer of the business as a going concern. In the absence of any such explicit clauses, it is not proper to conclude that there was an element of non-competition in consideration. Secondly, almost the entire business of the assessee is from its AE (holding company). As mentioned in the earlier paragraphs, the assessee is a captive software developer for its AE. The AE has 99.99% share holding in the assessee company. The present sale of the business as a going concern was to the Indian branch of the AE only. When the assessee has transferred its entire business with "stock-lock-barrel" to another concern where the holding company is directly interested, the assessee can no longer carry on the business, as it has neither any infrastructure facility (after the transfer) nor has the decision making power to do so. In such a case, the presence or absence of non-competition will not arise. Therefore, in our opinion, there was no element of noncompeti....
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....sment Year 2003-04. Therefore the provision of non compete fee terminology cannot be accepted and we dismiss the ground of the Revenue and upheld the findings of the ld. DRP in treating as income from Capital Gains. 3.8 In the result, the appeal of the Revenue in ITA No.557/Mds/2015 of assessment 2010-2011 is dismissed. 4. C.O.No.45/Mds/2015 in ITA No.557/Mds/2015:- The assessee has filed the Cross objection and raised the following grounds:- 1 The learned AO/TPO/DRP ought to have appreciated that the customer of the assessee had decided to carry on business by itself through its Branch and has in effect stopped giving work to the assessee and in such circumstances the amount paid by the customer was towards compensation for impairment of the profit making apparatus and is a capital receipt NOT subject to tax in the hands of the Appellant 2 The AO/TPO/DRP ought to have appreciated that when the amount received is not taxable in the hands of the Appellant provisions of TP are not applicable. 3 In any event, the learned AO/TPO/DRP ought to have appreciated that the normal valuation methods for transfer of business were not applicable to the facts of the case. 4 Without p....
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....comparable instances of similar transactions, a Valuation study was commissioned to ensure that the consideration for giving-up the software undertaking is in accordance with Arm's Length Principle. Further, Without prejudice to the grounds raised in its appeal, it is submitted that by takingover assessee's Software undertaking and carrying out the Software services on its own, the assessee's customer (i.e. SSB), had effectively stopped giving work to the assessee. The Transaction had the effect of impairing the profit-making apparatus of the assessee, and the Honorable DRP has also specifically noted the aforesaid facts at 3.1.3. It is also important to mention here that the assessee has sold its entire business as a going concern, i.e. with stock- lock- barrel. The assessee is not having any other business activities or any other establishments. Hence, after the sale of the above business as a going concern, the assessee has become a shell company with no assets /Iiabilities left. In other words, the present sale of the assessee's business as a going concern is almost equivalent to the takeover of a company by another company. As mentioned the assessee is a ca....
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....ng structure of the company. The Department challenged the stand of the assessee on the ground that there was no transfer of assets which as normally the case in such type of business transfers. Further, the CIT(A) noted that the assessee was carrying on backoffice and software development activity and pursuant to termination of the contract with its customer IClCI Bank for back-office operations, the assessee had closed the back-office business and did not enter into contract for similar services with any other customer. In effect, the assessee had given up one source of income completely and the compensation received was held to be a capital receipt. The stand of CIT(A) was also upheld by the Honorable ITAT relying on the ruling of the Honorable Supreme Court in the case of Kettlewell Bullen & Co. Vs CIT [1965 AIR 65](SC) and It is also submitted that the aforesaid ruling is squarely applicable to the assessee's case. Further, in light of the Department contention in the aforesaid ruling that the entire business should have been transferred, it is submitted that the assessee's case stood on an even better footing inasmuch that the entire undertaking lock-stock-barrel was ....
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....or the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arm's length price in relation to an international transaction [or a specified domestic transaction]shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts.'' We also rely on decision of DCIT vs. IJM (India) Infrastructure Ltd in ITA No.43/Hyd/2014, dated 29.04.2014 held as under :- ''ITAT have heard both the parties and perused the material on record, The issue in dispute is identical as considered by this Tribunal in assessee's own case for A.Y. 2008-09 reported in 147 ITD 437 wherein the Tribunal held as follows: ''PE should be tread as resident in India. Moreover, under the provisions of DTAA with Malaysia, PE is treated as a separate legal entity, independent of its foreign principal enterprise. Further, Article 24 of the DTAA contains a nondiscrimination provision. It prohibits a Contracting State from making any discrimination in the matter ....
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....nsidering the entire facts and circumstances of the present case and the findings of the DRP, we are of the opinion that the transactions taken piece are with domestic enterprises and at least one among the AEs are not non-resident. Both the assessee and other parties which whom the assessee entered into transactions are the residents for the purpose of Indian Taxation. Any transaction between them will not constitute an international transaction. The transactions between the assessee and IJMIs do not fall under section 92B(2) of the Act and same is the position in case of other entities with whom assessee carried on the impugned transactions. In ITAT's opinion, the argument of the is devoid of merit. Accordingly, the legal ground raised by the assessee is allowed. In support of the claim of the assessee that the business transfer are not covered under Rule 10AB. The ld. Authorised Representative filed a preamble of legislature intent and judicial decisions. We found from the decisions that the provisions of Rule 10AB are effective from assessment year 2012-2013. Therefore, the action of the TPO irrespective of the fact that objections have been filed is not justified in maki....
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....ted it and substituted with own analysis. The ld. TPO has erroneously made some comparables by applying arbitrary and incorrect filters and also ld. TPO erred in not considering the foreign exchange loss as an operational item while computing TNM method. Further, the ld. TPO has not computed proper margin and working capital adjustment and risk adjustment. The ld. TPO also erred in not considering levy of 5% as provided in proviso u/sec. 92C(2) while determining Arms Length Price and prayed to include comparables and other issues. 6.2 Contra, the ld. Departmental Representative relied on the orders of the TPO and DRP and vehemently opposed to the grounds. 6.3 We heard the rival submissions and perused the material on record. The comparables obtain by the assessee and ld. TPO has been considered. The assessee filed a chart alongwith comparables to be excluded and included in determining Arms Length Price. The ld. TPO while determing the Arms Length Price has considered the following comparables. 1. Kals Information Systems Ltd 2. Spry Resources India Pvt. Ltd, 3. ICRA Techno Analytics Ltd 4. CTIL Limited, 5. Taksheel Solutions Limited, 6. Thinksoft Global Services Ltd. 7, Persiste....
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....software. However, no further segmental is available to show sale of software. Hence, the financial statements are not reliable. 6.7 We heard the rival submissions, perused the material on record. As per the Annual report of the company, the company has earned Revenue from Software consultancy and sale of software products and there is no breakup of Revenue segment wise between software products and software services. The operating income @16% from work in progress and the software consultancy and products functions differ from software development activities carried out by the assessee. Since there is no segmental income and company is not functionally in comparables, we are inclined to accept the contention of the ld. Authorised Representative and company should be excluded from the comparables. Accordingly, we direct the ld. TPO to exclude the company from comparables. 6.8 In ICRA Techno Analytics Ltd, the ld. TPO worked out margin at 25.79. The Company is engaged in diverse activities such, as income from sales software development & consultancy, licensing & sub-licensing fee, web development and hosting. However, no segmental data is available within the broad head of servic....
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....2279/PN/2012 and Emptoris Technologies India Pvt. Ltd in ITA No.436/PN/2013. 6.13 We heard the rival submissions, perused the material on record. The comparable company should have similar services and activity of the assessee whereas the comparable company is the business of IT consulting education based on internet and infrastructure management working on remote net management data backup as per Annual report produced. Out of the above broad category of services lines the transaction can be comparable only with IT services comparables and the company derives only 42% of Revenue from the IT consulting. Therefore, the company has not provided segment to ascertain accurate profitability of service lines. Considering the apparent facts, we direct the ld. TPO to compare the comparable company to the extent of segment reporting of only IT consulting and we remit the issue to the ld. TPO. 6.14 In the case of Quintegra Solutions Ltd the assessee has margin of (9.42) and was rejected on the basis that there is persistent loss. However, the same is not factually correct and the ld. Authorised Representative relied on the judicial decisions of Goldman Sachs (India) Securities Pvt. Ltd in ....
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....judication :- The Brief facts of the case are that the assessee company is a 127 year old group comprising of 19 companies, active in many different geographical areas and offering a wide range of banking and financial products and services relating to Banking, Savings Management and Stock Brokerage, Insurance, Corporate Finance Leasing, Consumer Finance. Ranca Sella SpA (Formerly known as Sella Servizi Bancari S,C,P,A) was setup In February 2010 as an offshore development centre of Banca Sella throuqb a business transfer arrangement from Sella Synergy India Private Limited (Sella India) Banca Sella S,p A (BSE India or the Company or the Assessee) was set up primarily for providing software development, support and maintenance services in Financial and Banking Domain for exclusive deployment and production by Banca Sella. The assessee company is assessed to tax, For the AY 2010-11, BSE India filed a return of Income on 04 September 2010 declaring a total income of B30,39,894/-. and paid a tax of B12,52,437/-. A notice under section 143(2) of the Act was Issued to the Assessee company for initiation of assessment proceedings. During the course of the assessment proceedings the Infor....
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....viding 3D animation software content as a captive service provider to its Associated Enterprise. The company is providing software development activities and quality assurances services to its Associated Enterprise on an exclusive basis and also provides software maintenance support functions like documentation of the programmed code, IT integration and configuration management to its Associated Enterprise and it is a produce development company and relied on the judicial decisions Ikanos Communication India P. Ltd in ITA No./137/Bang/2015, CNO IT Services (India) P. Ltd in ITA No.336/Hyd/2015, M/s. Lionbridge Technologies P. Ltd in ITA No.7415/Mum/2014, Obopay Mobile Technology India P. Ltd (46 ITR(T) 42, Parexel International (India) P. Ltd (66 taxmann.com 150), pegasystems Worldwide India (P) Ltd - Lexreported and Prana Studios Pvt. Ltd in ITA No.2077/Mum/2014. 7.4 The company is not functionally comparable to the assessee company as the company is in providing 3D animation as captive service provider and also provide software development activities and segmental information is not available. Hence, we accept the contention of the ld. Authorised Representative and this company ....
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....f development and consultancy, licensing and sub-licensing fee. The Revenue is recognized to the extent of services are performed. However, there is no breakup of Revenue development software development services and other services. The assessee company has not disclosed separate segments for ascertaining profitability and also cannot be regarded for the purpose of TNM analysis. We are of the opinion that the said company should be excluded from the list of comparables and we direct the ld. TPO to exclude. 7.9 In the case of Taksheel Solutions Limited, the ld. TPO worked out margin at 41.87 and the TPO himself sought to reject comparable companies which earned revenues from predominately onsite services RS Software is rejected based on the Onsite Revenue filter. Even Taksheel Solutions Limited earns significant margins from onsite services. 7.10 We heard the rival submissions, perused the material on record. We found that the comparable company having compressive IT solutions by providing software development services for the enterprises engaged in financial services. The arguments of the ld. Authorised Representative that it has significant onsite Revenue and segmental comparabl....