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2019 (10) TMI 1580

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.... support and manpower & design services to AEs and rendering engineering services to third parties. It filed its return of income on 28.11.2011 declaring total loss of Rs. 3,67,18,795/-. Since the assessee had entered into international transactions with various associated enterprises as per Form No. 3CEB filed along with the return of income, the Assessing Officer referred the matter to the TPO for determination of the arm's length price of the international transaction u/s. 92CA(3) of the IT Act. The TPO analysed the functions performed, assets employed and the risk assumed by the assessee and noted that the segment of market support services has been benchmarked by the assessee using TNMM as the most appropriate method and operating profit/total cost (OP/TC) as the PLI. He noted that the assessee was showing OP/TC at 10.75%. Based on three years' data, the assessee had used four comparables weighted average margin of which comes to 7.33%. He noted that the assessee has selected the following comparables whose OP/TC using the current year data was 11.20%:- S.No. Company Name OP/TC (%) 1. Quadrant Communication Ltd. 14.58 2. Cyber Media Research Ltd. (IDC India Ltd....

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.... the India-Finland DTAA but the services availed outside the purview of technical services either on the ground that they are managerial in nature and, hence, outside the fees for technical services as defined in the India-Finland DTAA. So even if they are assumed to be technical in nature, they do not 'make available' any technology, know-how, skill, etc. to the recipient during the course of rendition of such services. It was accordingly submitted that the provision of services by the assessee would not fall under the definition of FTS provided under the India-Finland DTAA and hence not taxable as FTS. 7. However, the Assessing Officer was not satisfied with the explanation advanced by the assessee. He noted that the services provided by Outotec Oyj is very well covered under the 'Fee for technical services' as defined in the Indo-Finland Treaty. Therefore, the contention of the assessee that as per the provisions of section 90(2) of the Act Outotec Oyj is allowed to take the benefit of the beneficial provision of DTAA is not correct. He referred the provisions of section 195 of the Act, according to which any person responsible for paying to any non-resident not....

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.... certain arbitrary filters in determining the arm's length price with respect to international transaction pertaining to rendering of MSS, without providing any cogent reasons. 3. Without prejudice to Ground 2 and on the facts and circumstances of the case the Ld. Panel had erred in confirming the adjustment made by the Ld. AO and selecting comparable companies which are engaged in rendering services other than MSS and are therefore functionally not comparable with the assessee. 4. That the appellant craves leave to add to and to alter, amend, rescind or modify the grounds raised hereinabove before or at the time of hearing of the appeal." 9. Aggrieved with the order of the DRP, the Revenue is in appeal before the Tribunal by raising the following grounds:- 1. On the facts and in the circumstances of the case, the Hon'ble DRP-II has erred in excluding M/s. Global Procurement Consultants Ltd. from the list of comparables. 2. On the fact and under the circumstances of the case, Hon'ble DRP-2 has erred in deleting the addition made by the AO on account of payment of Rs. 1,62,88,677/- made to Outotex Oyj which was chargeable to tax in India and was liable for TDS u....

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.... in the case of H&M Mauritz India Pvt. Ltd. vs. DCIT, vide IT(TP)A No. 282/Bang/2015, order dated 19th August, 2016, he submitted that the Tribunal in the said decision has directed the TPO to exclude Aptico Ltd. and TSR Darashaw Ltd., from the list of comparables. He accordingly submitted that the four companies included by the TPO and upheld by the DRP should be excluded from the list of comparables. 11.1. So far as the comparable, namely, M/s. Global Procurement Consultants Ltd., is concerned, he submitted that the DRP has rightly excluded the said company from the list of comparables. Referring to the decisions cited earlier, he submitted that M/s. Global Procurement Consultants Ltd., has been held to be not a good comparable by the coordinate Benches of the Tribunal. So far as the deletion of Rs. 1,62,88,677/- by the DRP is concerned, the Ld. counsel for the assessee drew the attention of the Bench to the decision of the Kolkata Bench of the Tribunal in the case of Outotec Oyj vs. DCIT reported in 76 taxman.com 33/(2016) 162 ITD 541 and submitted that the Tribunal at para 8.8 of the order has held that the amounts received by the assessee from Outotec India Pvt. Ltd. does not....

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....the inclusion of four comparables, namely, (i) Aptico Ltd.; (ii) Info Edge (India) Ltd.; (iii) MMTV Ltd.; and (iv) TSR Darashaw Ltd. 15. We find the coordinate Bench of the Tribunal in the case of Adobe Systems India Pvt. Ltd. vs. ACIT (supra), while discussing the inclusion/exclusion of certain comparables in the provision of market support services segment, has directed the A.O./TPO to exclude MMTV Ltd., Aptico Ltd., Global Procurement Consultants Ltd., TSR Darashaw Ltd. and Info Edge (India) Ltd. The relevant observations of the Tribunal while excluding each comparable are as under:- "25. We have considered the rival arguments made by both the sides and perused the material available on record. So far as MMTV Limited is concerned, the DRP excluded this company from the list of comparables on the ground that this is functionally different entity and does not make a good comparable to the assessee in MSS function. Further, the submission of the assessee that it has significant intangibles could not be converted by the Ld. DR. Since the above company is engaged in the business of television broadcasting and related operations and it has got significant intangibles, there....

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....ted was included by the TPO holding that it is functionally comparable which has been upheld by the DRP. We find the Tribunal in the case of Rolls-Royce India Pvt. Ltd. (supra) while directing the TPO to exclude this company as comparable from the market support services segment has observed as under:- 21. Regarding Infoedge India Pvt. Ltd. we are of the view that this company has been included by the TPO holding that it is functionally comparable. Assessee contended before the Ld. TPO as well as DRP that this company is functionally not comparable in view of it engaged in management of online portals and also has major sources of revenue as advertisement income. Both the lower authorities rejected the contention of the assessee. We have carefully considered the rival contentions. It is apparent that the comparable selected by TPO is engaged in online portal activities such as employment website, matrimonial website and its major revenue is advertisement and subscriptions. It has diversified services such as recruitment related, real estate related, matrimonial related services and owns significant Rolls Royce India Private Limited v. DCIT ITA No. 6636 Del 2015 A.Y. 2011-12 intan....

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....t this company cannot be compared with that of the assessee company. The order of the DRP is accordingly upheld. ..................................................... 31. So far as TSR Darashaw Ltd. is concerned, we find this company is engaged in share registry and transfer services, depository services, record management, payroll and provident fund management and corporate fixed deposit management which are in the nature of IT enabled services as evident from page 21 of the annual report. WE, therefore, uphold the order of the DRP in holding that this is functionally different entity. Further, this company was rejected by the Tribunal in assessee's own case for Assessment Year 2009-10 and the DRP in assessee's own case for Assessment Year 2010-11 and no appeal was filed by the Revenue before the Tribunal. We, therefore, uphold the order of the DRP in excluding the company from list of comparables. The Ground No. 2 by the Revenue is accordingly dismissed. .................................................................................. 40. After hearing both the sides, we find the Info Edge (India) Ltd. was included by the TPO holding that it is functionally compa....

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....monstrate that the functional profile of these comparables is similar to that of assessee company. Therefore, the appeal filed by the Revenue is dismissed." 17. Similarly, the Bangalore Bench of the Tribunal in the case of H & M Mauritz India Pvt. Ltd. (supra), while directing to exclude Aptico Ltd., Global Procurement Consultants Ltd., and TSR Darashaw Ltd., from the list of comparables, has observed as under:- "10. We have considered the rival submissions. We find that as per para-13 of the TPO's order, he has considered six companies as good comparables having average profit of 27.74%. On page-3 of the TPO's order, the assessee's profit margin has been noted as 12.06%. Now as per arguments of the Ld. AR of the assessee, two companies M/s. Aptico Ltd., (Supra) and M/s. Global Procurement Consultants Ltd., (Supra) should be excluded from the list of final comparables on the basis of functional dissimilarity in view of the Tribunal order rendered in the case of M/s. Adidas Technical Services Pvt. Ltd., (Supra). 11. The Ld. DR of the revenue could not point out any difference in facts in the present case and in that case i.e. of M/s. Adidas Technical Services Pvt. L....

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....emently contended that functionally, this company is not a comparable, as it works with in the field of power, water resources, transportation industry such as economic, textile, mining, cement, leather, health education, environment, InfoTech etc. The pith and substance of the submission are that the areas in which this company provides support services is totally different from the type of support services provided by the assessee. He placed reliance on the decision of the Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Limited vs. CIT, ITA No. 102/2015 judgment dated 10/08/2015 for the proposition that functionally dissimilar companies cannot be taken as comparables. He pointed out that decision of the Spl. Bench of the Tribunal in the case of Global India Pvt. Limited has been overruled by the Hon'ble Delhi High Court in ITA No. 7466/M/11 judgment dated 07/03/2004. 12.7 The Ld. Departmental Representative on the other hand, pointed out that Global Procurement Limited is not a 100% Government of India owned company and that it is being promoted by export import bank of India, as a private sector company in partnership with Leading corporate groups like....

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....ken as functionally comparable. But this company is also undertaking many other activities such as valuation etc. The issue for consideration would be as to whether segmental data is available. If such data is available then the company has to be taken as a comparable. As the argument of the Ld. Counsel for the assessee is that there are no segmental results available, this company is directed to be excluded as a comparable. ............................................................................................... (d) TSR Darashaw Ltd.:- The TPO included this company on the ground that the company is providing business out sourcing services to clients in India. These services are provided to local clients and not the foreign clients and hence they are not similar to ITES services. The TPO observed that ITES companies have the advantage of location savings, while the business service companies do not have advantage. Since in this case the services are predominantly provided in India, the company is a correct comparable. He also held that the assessee had not gone into the verticals or high end or low end distinctions while selecting the comparables and has selected companie....

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....12. Respectfully following this Tribunal order, and the absence of any difference in facts having been pointed out by the Ld. DR of the revenue, we direct the AO/TPO to exclude these three companies i.e. M/s. Aptico Ltd., M/s. Global Procurement Consultants Ltd., and M/s. TSR Darashaw Ltd. from the list of final comparables and since, the average profit of the remaining three comparable i.e. M/s. Cyber Media Research Ltd.,14.85%, M/s. HCCA Business Services Pvt. Ltd., 20.05% and M/s. Quadrant Communications Ltd., 1.11% is around 16% which is within += 5% range of the assessee's profit margin of 12.06%, no TP adjustment is required to be made. We hold accordingly." 18. Respectfully following the decisions cited (supra), we hold that Aptico Ltd.; Info Edge (India) Ltd.; MMTV Ltd.; TSR Darashaw Ltd. and Global Procurement Consultants Ltd., cannot be considered as comparables with that of the assessee company. Accordingly, the TPO is directed to exclude these comparables. The grounds raised by the assessee are accordingly allowed and the ground of appeal No. 1 raised by the Revenue is accordingly dismissed. 19. So far as the ground of appeal No. 2 of the Revenue is concerned, it ....

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.... respective laws for entry into force, of the said Agreement, in accordance with paragraph 2 of Article 29 of the said Agreement; And, whereas, sub-paragraph (b) of paragraph 2 of Article 29 of the said Agreement provides that the provisions of the said Agreement shall have effect in India in respect of the taxes withheld at source, for amounts paid or credited on or after 1st April of the calendar year next following the year in which the Agreement enters into force; and in respect of taxes on income, for any fiscal year beginning on or after 1 April of the calendar year next following the year in which the Agreement enters into force; 6.2 Perusal of above provisions reveals that Indo-Finland DTAA (2010) is applicable to income arising in FY beginning on or after 01.04.2011 ie AY 2012-13 onwards. In present case, AY involved is 2011-12 and therefore, it shall be governed by provisions of Indo-Finland Protocol (1998) wherein management services are not included in definition of FTS and also definition of FTS is subject to 'make available' clause. 6.3 As per provisions of section 195 of the Act, liability to deduct tax arises if any payment made to non-resident is char....