The Delhi High Court has ruled that TCS International's Software Development Services cannot be considered comparable in the case because the assessee is engaged in the business of Indian Information Technology-enabled services (ITES) or business process outsourcing (BPO). The court, presided by Justice Rajiv Shakdher and Justice Tara Vitasta Ganju, observed that TCS International primarily provides software development services, which include maintenance and updates of software as per user requirements.
Brief Facts:
The case involved a dispute between The Commissioner of Income Tax and GE India Business Services Pvt. Ltd regarding transfer pricing adjustments. The respondent filed its income tax return, revealing international transactions involving Information Technology Enabled Services (ITES)with its associated enterprises. The Assessing Officer referred the matter to the Transfer Pricing Officer, who recommended an upward adjustment of Rs. 4,80,19,591/-. The respondent appealed to the Tribunal, which excluded four comparables from the Transactional Net Margin Method (TNMM) list. The appellant contested this exclusion, leading to the current appeal.
The Tribunal upheld the exclusion of these four comparables for the following reasons:
- ATPL: It was found that ATPL had undergone an amalgamation with another entity, Ascent Infoserve Ltd., during the relevant period, making it unsuitable for comparison.
- Gate: An amalgamation with I-Gate Global Solutions Sdn. Bhd. had taken place, and the financials included the results of the amalgamating company, making I-Gate unfit for comparison.
- Infosys: Infosys acquired McCamish Systems LLC, which was considered an extraordinary financial event, leading to its exclusion from the final set of comparables.
- TCS International: The Tribunal noted that TCS International's business of software development services, including maintenance and updating, was functionally different from the respondent/assessee's non-development software services involving software provisioning.
Contentions of the Appellant:
The appellant contended that four comparables wrongly excluded by the Tribunal should have been considered, arguing that the functional profile of the respondent was different from Rampgreen Solutions Pvt. Ltd. The appellant also claimed that the Tribunal improperly discarded TCS International without providing adequate reasons and should have considered factors mentioned in Rule 10B of the Income Tax Rules.
Contentions of the Respondent:
On the other hand, the respondent argued that it was engaged in ITES/BPO services and the excluded comparables were unsuitable due to extraordinary events. The Tribunal's decision in Rampgreen Solutions Pvt. Ltd. was upheld in a separate case. The respondent emphasized that the proposed questions of law did not raise substantial issues requiring the Court's intervention.
Observations of the Court:
The court considered the exclusion of four comparables (ATPL, I-Gate, Infosys, and TCS International) by the Tribunal to determine the Arm's Length Price (ALP) concerning international transactions. The Tribunal excluded these entities due to extraordinary financial events or functional dissimilarity. Additionally, TCS International's functional dissimilarity with the respondent/assessee justified its exclusion as well. The court upheld the Tribunal's decision, stating that the issue was a matter of fact and not a substantial question of law. The appellant's argument that the Tribunal did not provide reasons was rejected, and no grounds were found to conclude that the Tribunal's findings were perverse.
The decision of the Court:
Consequently, the court dismissed the appeal, and each party will bear their respective costs.
Case Name: The Commissioner Of Income Tax -4 Versus GE India Business Services Pvt. Ltd
Coram: Hon’ble Mr. Justice Rajiv Shakdher and Hon’ble Mrs. Justice Tara Vitasta Ganju
Case No.: ITA No. 1068 of 2018
Advocates of the Petitioners: Mr Shlok Chandra, Jr. Standing Counsel
Advocates of the Respondent: Mr Sachit Jolly with Mr Rohit Garg and Ms Disha Jham, Advocates.
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