TaxTMI 
TaxTMI 
2020 (5) TMI 458
X X X X Extracts X X X X
X X X X Extracts X X X X
....ries in Europe as well as India. The company also provides Information Technology Enabled Services (ITES) in the nature of back- office process outsourcing and inbound and outbound voice-based services. 2.1 The assessee company filed its return of income declaring an income of Rs. 108,61,33,970/-. The case was selected for limited scrutiny through CASS. Since, during the year under consideration, the assessee had undertaken 'international transactions' with its AE and the total transactions in this regard had been shown at Rs. 45,44,780,336/-, reference was made to the Ld. Transfer Pricing Officer (TPO) in terms of provisions of Sec.92CA of the Act for determining the Arm's Length Price (ALP) of the international transactions entered into by the assessee with the Associated Enterprises (AE). The details of the international transactions entered into by the assessee company are as under: S. No. Nature of International transaction Method Adopted by Assessee PLI Amount in Rs. 1. Provision of IT services TNMM OP/TC 2,775,946,466 2. Availing of Technical & Consultancy Services TNMM OP/TC 18,178,256 3. Receipt of Marketing Services ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the final assessment order. 2.6 However, still being aggrieved, the assessee is now before this Tribunal and has challenged the final assessment order by raising the following grounds of appeal: 1. That the assessing officer erred on facts and in law in completing assessment under section 143(3) read with section144C of the Income-tax Act, 1961 ('the Act') at an income of Rs. 1,82,85,79,390 as against the returned income of Rs. 1,08,61,33,970 under normal provisions of the Act. 1.1. That on the facts and circumstances of the case and in law, the impugned order passed by the assessing officer is barred by limitation and therefore, is liable to be quashed. Re: Transfer Pricing adjustment in IT Enabled Service Segment 2. That the assessing officer erred on facts and in law in making an addition on account of transfer pricing adjustment of Rs. 27,05,66,054on account of the alleged difference in the arm's length price of the 'international transaction' of provision of IT enabled services on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer ('TPO'). 2.1. That the DRP/TPO erred on facts and in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntention of the appellant regarding risk adjustment, allegedly holding that in absence of robust and reliable data, no risk adjustment can be allowed. 2.11. That the DRP/TPO erred on facts and in law in not allowing adjustments to the appellant to account for the differences in the working capital position of the appellant vis-à-vis the comparable companies. Re: Transfer Pricing adjustment in Software Development Service Segment 3. That the assessing officer erred on facts and in law in making an adjustment of Rs. 27,72,61,982 to the arm's length price of the 'international transaction' of provision of software development services on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer ('TPO'). 3.1. That the DRP/TPO erred on facts and in law in resorting to cherry picking and considering following companies in the final set of comparable companies allegedly holding them to be functionally comparable to the appellant: (i) Cybage Software Private Limited (ii) BhilwaraInfotechnologyPvt. Ltd (iii) Clogeny Technologies Private Limited (iv) Infobeans Technologies Limi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dance Agreement ('DTAA') read with Protocol thereto. 5.2. That the DRP/ assessing officer erred on facts and in law in erroneously relying upon the order of the Authority for Advance Ruling ('AAR') without appreciating that the findings of AAR are perverse in light of the favorable order passed by the jurisdictional Delhi High Court in appellant's own case. 5.3. That the DRP/assessing officer erred on facts and in law in not appreciating that the Protocol to India-France DTAA is an integral part of the treaty and does not require separate notification to be issued by Government of India for its implementation. 5.4. That the DRP/assessing officer erred on facts and in law in not appreciating that the payment for managerial services to Steria France is not covered under the term "technical" or "consultancy" services, in terms of Paragraph 7 of the Protocol read with Article 13 of the India-UK DTAA. 5.5. That the DRP/ assessing officer erred on facts and in law in not appreciating that the said services provided by Steria France does not 'make available' technical knowledge, experience, or skill to the appellant, in order to be taxed as FTS in terms....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tative (AR) for the assessee submitted that ground no.1 was general not requiring specific adjudication and that ground No.1.1 alleging that the impugned order passed by the Assessing Officer was barred by limitation had been considered by the ITAT Delhi Bench in the case of Religare Capital Markets Ltd. Vs. ACIT in ITA Nos. 1881/Del/2014, 1583/Del/2015, 753/Del/2016 & 1763/Del/2017 vide order dated 10.10.2019 wherein the Tribunal had held that the provisions contained in Sec.144C of the Act were a self-contained code and cannot be subjected to the time limit prescribed u/s 153 of the Act. Thus, the Ld. AR fairly accepted that ground No.1.1 of the assessee's appeal was liable to be dismissed in view of binding to the judicial precedent of the Co-ordinate Bench. 3.1 With respect to Ground No.2 challenging the Transfer Pricing Adjustment with respect to IT Enabled Services segment, the Ld. AR submitted that the assessee had considered nine companies for computing the Arms' Length Price in the segment and that in the TP documentation it had computed their average at 13.67% whereas the assessee's average was 13.61%. It was further submitted that since the assessee is a cost-plus ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in the case of New River Software Services Pvt. Ltd. in ITA No.924/2016 had approved the exclusion of Infosys BPO from the list of comparable companies. Reliance was also placed on the judgment of the Delhi High Court in the case of Pr. CIT Vs. Oracle (OFSS) BPO Services Pvt. Ltd. in ITA No 124/2018 wherein the Hon'ble Delhi High Court had upheld the exclusion of the entity on the basis of significant brand presence and brand value. It was submitted that this order of the Hon'ble Delhi High Court had been upheld by the Hon'ble Apex Court in SLP (CC) No.32469/2018. Reliance was also placed on numerous other judicial precedents for the argument that BPO Infosys Ltd. had to be excluded on account of its non comparability to a small service provider, on account of this company having a huge turn over and on account of BPO Infosys Ltd. having economies of scale. 3.4 The Ld. AR submitted that foreign exchange fluctuation has to be considered as an operating item in terms of judgment of the Hon'ble Delhi High Court in the case of BC Management Services Pvt. Ltd. in ITA No.1064/2017 and another judgment of Pr. CIT Vs. Ameriprise India Pvt. Ltd. in ITA 2065/2016. The Ld. AR further ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ia France wherein it was agreed to provide various management services to the assessee with a view to rationalize and standardize the business conducted by the assessee in India in accordance with the international best practices and pursuant to this agreement, the assessee had paid the impugned amount during the year under consideration. It was further submitted that the assessee had filed an application before the Authority for Advance Rulings (AAR) to pronounce a ruling on the issue as to whether this payment made by Steria India to Steria France would not be taxable in India in the hands of Steria France in view of the provisions of India-France Double Taxation Avoidance Agreement (DTAA) and on the aspect as to whether if Steria France was not taxable in India for the managerial services provided to Steria India, whether Steria India will not be liable to withhold tax as per the provisions of Section 195 of the Act. It was further submitted that the Ld. AAR pronounced a ruling against the assessee holding that the payments made to Steria France were in the nature of Fee for Technology Services (FTS) against which the assessee filed a writ petition before the Hon'ble Delhi Hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... relating to deduction of tax at source would not get triggered. It was submitted that Steria France is resident of France with which there exists a DTAA entered into by the Government of India. It was further submitted that section 90(2) of the Act provided that in case where a DTAA exists between India and the country of residence of the non-resident, the provisions of the Act shall be overridden by the provisions of the treaty to the extent the latter are more beneficial to such non-resident. It was submitted that the assessee had purchased hardware and software licenses under the impugned transactions under which the assessee had acquired a non-exclusive non-transferable right to use the software and that further the assessee was prohibited for copying, modifying or further developing the software. It was submitted that this purchase of software in terms of the agreement only resulted in the transfer of the copyrighted article and not the copy right and, therefore, the same was not in the nature of royalty in the hands of Steria France for the purposes of deduction of tax at source. Reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of DCIT Vs. Infr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and submitted that the observations and conclusions arrived at by these two authorities should be duly considered while arriving at a decision. 5.0 We have heard the rival submissions and have also perused the material on record as well as the orders of the lower authorities. We now take up the issues one by one for adjudication:- 5.1 Ground No.1.1 agitates the impugned order as being barred by limitation. The Ld. Authorized Representative has fairly conceded that this ground is covered against the assessee by the order of the ITAT, Delhi Bench in the case of Religare Capital Markets Ltd. Vs. ACIT in ITA NO.1881/Del/2014, 1583/Del/2015, 753/Del/2016 & 1763/Del/2017 vide order dated 10.10.2019 wherein the Tribunal has held that the provisions contained in section 144C of the Act are a self contained code and that the same cannot be subjected to the time limit prescribed u/s 153 of the Act. Accordingly, ground No.1.1 is dismissed by respectfully following the ratio of the decision rendered by Co-ordinate Bench of the Tribunal as aforesaid. 5.2 With respect to the Transfer Pricing Adjustment in respect of IT Enabled Segment, although the assessee has challenged selection ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ignificant brand presence and brand value of an entity. This decision of the Hon'ble High Court of Delhi was later upheld by the Hon'ble Apex Court in SLP (CC) No.32469/2018. On identical lines, the Hyderabad Bench of ITAT in the case of Hyundai Motors India Engineering. Vs. ITO in ITA NO.1850/Hyd/2012 directed the exclusion of Infosys BPO Ltd. from the final set of comparables by holding that, "....'presence of a brand commands premium price and the customers would be willing to pay, for the services/produced of the company. Infosys BPO is a established player who is not a only a market lead but also a company employing sheet breath in terms of economies of scale and diversity and geographical dispersion of customers. The presence of the aforesaid factories will take this company out of the list of comparables. We therefore accept the contention of the assessee that this company cannot be regarded as a comparable. Similar view was also taken in case of Symphony Marketing Solution India (Pvt.) Ltd. (supra) by the Banglore Bench. Therefore, we direct the Assessing Officer/TPO to exclude the same." 5.4 Accordingly, in view of the judicial precedents cited above we direct the AO....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....7 With respect to the Transfer Pricing Adjustment in the Software Development Segment, the assessee has agitated inclusion of four comparables by the Ld. TPO. However, the main thrust of the assessee's arguments has been that if the foreign exchange fluctuations are considered as operating item, the margin of the assessee so computed will be 13.59% and the 35th percentile of the comparable companies would come to 11.51% and the 65th percentile would come 25.64% and, therefore, since the margin of the assessee would lie between the 35th and 65th percentile, no Transfer Pricing Adjustment would be required. The Ld. CIT-DR has submitted that the AO/TPO should verify the computation of this 35th and 65th percentile before the Transfer Pricing Adjustment in this segment is to be deleted. The Ld. Authorized Representative has no objection to the same. Accordingly, the issue of Transfer Pricing Adjustment in the Software Development Segment is restored to the file of the AO/Ld. TPO for the limited purposes of verifying the computation of 35th and 65th percentiles and if the same is found correct then no Transfer Pricing Adjustment would have to be made. The Assessing Officer/Ld. TPO is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....echnical services and further that the payments made to Steria France were not liable to withholding of tax under the provisions of section195 of the Act. Thereafter, for Assessment Years 2010-11 and 2011-12, the Hon'ble Delhi High Court went on to decide the issue in favour of the assessee in ITA No.762/2017 and 382/2017 respectively. In assessment year 2011-12, the question framed by the Hon'ble Delhi High Court was: "whether on facts and in the circumstances of the case, ITAT was correct in law in holding that the assessee was not liable to withhold tax u/s 195 of the Act on payments made by it to Steria France for management services fee and consequently deleting the disallowance made by the Ld. Assessing Officer u/s 40(a) (i) of the Act ?" 5.10 This question was answered against the Revenue and in favour of the assessee. Therefore, in light of the settled judicial precedent in favour of the assessee on the issue by the Hon'ble Delhi High Court in assessee's own case, there is no reason for us to sustain this disallowance. Accordingly, respectfully following the judgment of the Hon'ble Delhi High Court, as aforementioned, in assessee's own case, we direct the deleti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 5.12 It has been submitted that payments made to Steria France were in respect of software licenses only and, were not towards use of copyright in the software covered within the meaning of 'royalty' under section 9(1 )(vi) of the Act. 5.13 It is seen that under Section 195 of Act, an obligation is cast on a person making payment to a non-resident of any sum, which is chargeable under the provisions of the Act, to deduct tax at the rates in force, at the time of payment of such sum or at the time of credit thereof to the account of the payee, whichever is earlier. As per the aforesaid provision, tax is required to be withheld in respect of payment made to a nonresident. [Refer GE India Technology Centre (P) Ltd v. CIT: 327 ITR 456]. Further, if we consider the ambit of definition of 'royalty' as defined in section 9(1)(vi) of the Act, it is seen that clause (v) of explanation to section 9(l)(vi) provides that consideration paid for transfer of inter alia all or any rights in respect of any copyright as falling within the meaning of royalty. In the present case, considering that the issue under consideration is payment made towards software, which is a copyrighted articl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been defined in section 14 of the Copyright Act as an exclusive right to reproduce including storing in any medium by electronic mean, to issue copies of the work to public, to make any adaptation, etc. in relation to a literary work including computer programme. In other words, in terms of the aforesaid section, in order for a person to be considered as having a copyright in a literary work, including computer programme, such person must have an exclusive right to reproduce or to issue copies or to adapt, or to sell or give on commercial rental the computer program. In the present case, the software purchased by the assessee are standardized and not customized products and in terms of the contracts with the external suppliers/ Steria France of such software, the assessee acquires a non-exclusive, nontransferable right to distribute the software and is prohibited from copying, modifying or further development of the software. Therefore, the purchase of software by the assessee in terms of the Agreement only results in the transfer of a copyrighted article rather than a copyright right and payment received for the same would not be in the nature of royalty in the hands of Steria ....