TII BRIEF

CBDT's APA Program crosses the 200 mark

CASE LAWS

2018-TII-12-HC-DEL-TP

PR CIT Vs EVALUESERVE SEZ (GURGAON) PVT LTD: DELHI HIGH COURT (Dated: February 26, 2018)

Income tax - Writ - ALP - captive service provider - IT enabled services - selection of comparables

The assessee company is engaged in IT-enabled services such as research activities in terms of agreements with its AEs and primarily concerns itself with business information, market research and intellectual property research. As soon as the matter for determination of ALP of this international transaction was referred to the TPO, he, while carrying out the ALP determination procedure took into account the profitability and margins of ten comparable entities. Consequently, draft assessment order was finalized by the AO. On appeal, the ITAT directed exclusion of the six comparables.

On Writ, the HC held that,

Whether functional differentiation and unavailability of segmental data is sufficient ground to render a BPO service provider as not comparable from companies engaged in KPO sector - YES: ITAT

+ this Court notices that as far as the exclusion of three comparables namely M/s. TCS E-Serve Limited; M/s. TCS E-Serve International Limited and M/s. Infosys BPO Ltd. is concerned, the ITAT was cognizant of and took note of the circumstances that these entities had a high brand value and, therefore, were able to command greater profits; besides, they operated on economic upscale. This approach cannot be faulted having regard to the decision of this Court in Pr. Commissioner of Income Tax v. B.C. Management Services Pvt. Ltd - 2017-TII-101-HC-DEL-TP, wherein it was observed that functional differentiation and unavailability of segmental data is sufficient ground for not comparing a BPO service provider from companies engaged in KPO sector;

+ it is seen that the ITAT has noted that M/s. Accentia Technologies Ltd. was mainly performing medical transcription services. It was of the opinion that its service was similar to the one that the assessee was engaged in. However, it also noted that there was no segmented data and on that account, directed the exclusion of that entity from the list of comparables. Likewise, in the case of M/s. ICRA Techno Analysis Ltd., it was found that the said entity was engaged in business intelligence and analytics supplies, software development, consultancy services, engineering services, web development and hosting services. Besides functional dissimilarity, the ITAT also noted that there was no segmented data to compare its activity with the assessee. Likewise, in the M/s. eClarx Services, the ITAT noted that its activity was functionally dissimilar because it performed KPO function whereas the assessee was classifiable as BPO.

Revenue's petition dismissed

2018-TII-13-HC-DEL-INTL

CIT Vs ALCATEL LUCENT ENTERPRISE: DELHI HIGH COURT (Dated: February 23, 2018)

Income tax - Explanation 4 to Section 9(1)(vi)

Keywords - retrospective amendment - royalty - software embedded in equipment

The Revenue Department preferred present appeal challenging the order of ITAT, whereby it was held that income from supply of software embedded in the hardware equipment or otherwise to customers in India amounted to royalty u/s 9(1)(vi) of Income Tax Act.

On appeal, the HC held that,

Whether retrospective amendment have the effect of implementing the provisions of a treaty, which has substantially similar or identical cause with provisions of law - NO: HC

+ it is noticed that the Revenue’s main grievance is premised upon the retrospective amendment to Section 9(1)(vi) Explanation 2 by Finance Act, 2012 with retrospective effect from June 01, 1976, which inserted Explanation 4 to Section 9(1)(vi). This issue whether such retrospective amendment have the effect of implementing the provisions of a treaty, which has substantially similar or are identical cause with the provisions of law has been gone into in two judgments of this Court in DIT Vs. Ericsson A.B. - 2011-TII-46-HC-DEL-INTL and DIT Vs. Nokia Networks OY & Others - 2012-TII-49-HC-DEL-INTL. This issue was again re-considered in the judgment of the Division Bench as well as the other judgment in Director Of Income Tax vs New Skies Satellite BV, (2016) 382 ITR 114. Furthermore, this court had on identical ground rejected the Revenue’s appeal in Commissioner of Income Tax vs. Alcatel Lucent Canada in a batch of appeals - 2015-TII-09-HC-DEL-INTL. For these reasons, the appeals of Revenue is dismissed.

Revenue's appeal dismissed