Income Tax Appellate Tribunal - Mumbai
Wns Global Services P.Ltd, Mumbai vs Ito 10(2)(4), Mumbai on 16 January, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
"K" BENCH, MUMBAI
BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND
SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER
ITA no.7378/Mum/2012
(Assessment Year :2008-09)
WNS Global Services Pvt. Ltd.
Gate-4, Godrej & Boyce Complex
................ Appellant
Pirojshah Nagar, Vikhroli (West)
Mumai 400 079 PAN - AAACW2598L
v/s
Income Tax Officer
................ Respondent
Ward-10(2)(4), Mumbai
ITA no. 396/Mum/2011
(Assessment Year : 2005-06)
WNS Global Services Pvt. Ltd.
Gate-4, Godrej & Boyce Complex
................ Appellant
Pirojshah Nagar, Vikhroli (West)
Mumai 400 079 PAN - AAACW2598L
v/s
Dy. Commissioner of Income Tax
................ Respondent
Circle-10(2), Mumbai
2
WNS Global Services Pvt. Ltd.
ITA no. 631/Mum/2011
(Assessment Year : 2005-06)
Asstt. Commissioner of Income Tax
Circle-10(2), Mumbai ................ Appellant
v/s
WNS Global Services Pvt. Ltd.
Gate-4, Godrej & Boyce Complex
................ Respondent
Pirojshah Nagar, Vikhroli (West)
Mumai 400 079 PAN - AAACW2598L
Assessee by : Shri Porus Kaka, Sr. Counsel a/w
Shri Manish Kanth
Revenue by : Shri Jayant Kumar, CIT
Date of Hearing - 14.12.2018 Date of Order - 16.01.2019
ORDER
PER SAKTIJIT DEY, J.M.
This bunch consists of three appeals. There are cross appeals arising out of order dated 15th November 2010, passed by the learned Commissioner (Appeals)-15, Mumbai, for the assessment year 2005-
06. Whereas, appeal pertaining to assessment year 2008-09 is filed by the assessee against the final assessment order dated 10 th September 2012, passed under section 143(3) r/w 144C(13) of the Income Tax Act, 1961 (for short "the Act") in pursuance to the directions of the Dispute Resolution Panel (DRP).
2. Since these appeals pertain to the same assessee and involve common issues, as a matter of convenience, they are heard together and are being disposed of by way of this consolidated order. 3
WNS Global Services Pvt. Ltd.
ITA no.631/Mum./2011 Revenue's Appeal - A.Y. 2005-06
3. In grounds no.1 and 2, the Revenue has challenged the decision of the learned Commissioner (Appeals) in accepting assessee's plea that international transaction with AEs should be benchmarked separately and the AE should be treated as tested party instead of the assessee.
4. Brief facts are, the assessee, an Indian company, is a wholly owned subsidiary of WNS Mauritius Ltd., which in turn, is a wholly owned subsidiary of WNS Holdings Ltd., U.S.A. In the relevant previous year, the assessee has provided Information Technology Enabled Services (ITES) in the nature of management and marketing services to clients through its Associated Enterprises, WNS Global Services (U.K) Ltd., U.K., and WNS North America (NA) Inc., U.S.A. For the assessment year under dispute, the assessee filed its return of income on 30th October 2005, declaring loss of ` 81,35,80,754. Noticing that in the relevant previous year the assessee has entered into a number of international transactions with its AEs, the Assessing Officer made a reference to the Transfer Pricing Officer for determining the arm's length price of the international transactions with AEs. In course of proceedings before him, the Transfer Pricing Officer while examining the transfer pricing study report submitted by the assessee 4 WNS Global Services Pvt. Ltd.
found that WNS U.K. is providing marketing, account handling and sale support for the assessee in European Market, whereas, WNS North America is providing similar services to the assessee in North American markets. From the transfer pricing study report he found that WNS U.K. and WNS N.A. identify and pursue potential customers for the assessee, negotiate terms on behalf of the assessee and enter into contract with the customers. They perform on-going customer relationship, management and business development for identifying more business opportunities for the assessee. They provide management services to the assessee. For rendering such services, WNS U.K. and WNS N.A. received from the assessee marketing and management fee at cost plus 6%. From the transfer pricing study report, the Transfer Pricing Officer found that the assessee has benchmarked the provision of marketing services by the AE by applying transactional net margin method (TNMM) as the most appropriate method by treating the AE as the tested party. He found that in case of WNS U.K., the assessee after undertaking a search in One Source data base for the companies providing marketing and management services in Europe and has identified three comparable companies providing marketing services and four comparable companies providing management services. Thus, in total, the assessee had chosen seven foreign comparables with average margin 5 WNS Global Services Pvt. Ltd.
of 6.90%. He found that adopting the same method / process, the assessee has selected 10 foreign comparables with average margin of 7.28% for benchmarking the international transaction with WNS N.A. Since the assessee had remunerated WNS U.K. at cost plus 6%, as against the average margin of 6.90% of the comparables, the transaction was claimed to be at arm's length. Similarly, in respect of WNS N.A., since the assessee has remunerated the AE at cost plus 6% as against the average margin of comparables at 7.28% the transaction was claimed to be at arm's length. The Transfer Pricing Officer after perusing the transfer pricing study report observed that similar methodology adopted by the assessee for benchmarking the international transactions with AEs for assessment year 2004-05 was rejected by the Transfer Pricing Officer by holding that instead of AEs the assessee has to be treated as the tested party. He observed that in assessment year 2004-05, the Transfer Pricing Officer has aggregated all the international transactions with AEs for benchmarking purpose. Following the approach adopted by him in assessment year 2004-05, the Transfer Pricing Officer held that the foreign AEs cannot be treated as tested party as they are not performing least complex functions. Accordingly, he treated the assessee as the tested party for functional analysis. Further, the Transfer Pricing Officer aggregated all the international transactions for 6 WNS Global Services Pvt. Ltd.
benchmarking purpose. Being aggrieved with the aforesaid approach of the Transfer Pricing Officer the assessee preferred appeal before the first appellate authority.
5. The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record as well as the appeal order passed for the assessment year 2004-05, held that the contract revenue earned by the assessee from a third / independent / unaffiliated party is functionally different from marketing and management fees paid to the two AEs, hence, because of difference in nature of the two transactions they cannot be clubbed. Further, the learned Commissioner (Appeals) after analyzing in detail the functions, assets and risk (FAR) held that the AEs carry out simpler function, employ lesser assets and assume lower risk as their activities are limited to marketing and account management, whereas, the activities of the assessee are more complex. Thus, he held that in the given circumstances, the AEs have to be treated as tested parties and accordingly upheld selection of foreign comparables by the assessee considering the fact that they are situated in same geographical location as the tested parties. The learned Commissioner (Appeals) observed that since the margin at which the assessee pays fees to the AEs are lesser than the average margin of the comparables selected by the assessee, the transactions with AEs are at arm's length. Without 7 WNS Global Services Pvt. Ltd.
prejudice to the aforesaid conclusion the learned Commissioner (Appeals) also observed that even if the assessee is treated as the tested party, the margin shown by the assessee is more than the average margin of 13 comparable selected by the Transfer Pricing Officer if the cost of services of Travelocity contract is not considered as a part of the operating cost. Accordingly, he decided the issue in favour of the assessee.
6. The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted, none of the comparables selected by the assessee are performing both the functions like the AEs. He submitted, the learned Commissioner (Appeals) has not gone into the benchmarking issues of comparables selected by the assessee since they are having different financial years. He submitted, the issue of tested party has to be determined not only on the basis of complexity alone but on the basis of availability of data of foreign comparables. He submitted, the learned Commissioner (Appeals) since has not considered these aspects, the issue may be restored back to the Assessing Officer for a fresh analysis.
7. The learned Sr. Counsel for the assessee drawing our attention to the observations of the Transfer Pricing Officer submitted, he has 8 WNS Global Services Pvt. Ltd.
neither questioned the functionality of the comparables nor their suitability to be treated as comparable due to different financial year ending. Referring to the observations of the Transfer Pricing Officer in Para-5.1.3 of his order, he submitted, the Transfer Pricing Officer has not disputed the comparable but has only applied their margin by selecting the assessee as the tested party. He submitted, the assessee has considered the margin of comparables selected separately for both the AEs. He submitted, the Transfer Pricing Officer having not raised the issue of different financial year ending of the comparables, learned Departmental Representative cannot raise such issue and request for restoring the issue to the Assessing Officer after lapse of so many years. In this context, he relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s M/s. Maersk Global Services Centre (India) Pvt. Ltd., ITA no.692 and 693/2012, dated 22nd August 2015. The learned Sr. Counsel submitted, in the subsequent assessment years the Transfer Pricing Officer himself has not only accepted the AEs as the tested party but has also accepted the foreign comparables proposed by the assessee for benchmarking purpose. In this context, he drew our attention to the Transfer Pricing Officer's order for assessment years 2011-12 to 2014-15. He submitted, even in the advance pricing agreement dated 3rd August 2015, the Department has accepted the AEs as the tested parties. Without prejudice to the 9 WNS Global Services Pvt. Ltd.
aforesaid submissions, the learned Sr. Counsel submitted, while deciding identical issue in assessee's own case for assessment year 2004-05, the Tribunal in ITA no.2318 and 1886/Mum./2009, dated 4th May 2018, has not only accepted the approach of the assessee in treating the AEs as tested party but also separately benchmarking the transactions with the A.Es. In this content, he drew our attention to the relevant observations of the Tribunal.
8. We have considered rival submissions and perused materials on record. As could be seen from the order of the Transfer Pricing Officer, primarily relying upon his decision in assessment year 2004-05, he has held that the assessee has to be treated as tested party and all international transactions have to be aggregated for bench marking purpose. However, it is observed, while deciding identical issue in assessee's own case for the assessment year 2004-05, the Tribunal has upheld learned Commissioner (Appeals)'s decision in treating the AEs as the tested party on the following observations: -
"15. While deleting the addition made by TPO disregarding the benchmarking approach, CIT(A) observed as under:-
i. The Appellant has changed the business model to increase its turnover which require the risk free environment to its marketing companies i.e., its A.Es as risks and rewards from customers are passed on to the Assessee under the new business model.
ii. The two business models of the Appellant are entirely different in functional analysis:10
WNS Global Services Pvt. Ltd.
a. In Business Model I, the risks and rewards is with the Appellant. The A.Es which are remunerated on a cost plus fees are insulated from the risks which is borne by the Appellant as entrepreneur. The AEs render only marketing and management services and are least complex party in the transaction.
b. In Business Model 2, the major risks are borne by WNS UK. It functions as the entrepreneur, it bears the risk and the appellant is only a captive service provider bearing limited risks.
iii. In Business Model I, the AEs were least complex parties and they were rightly used as tested party for the marketing and management fees paid to the AEs on cost plus basis, unlike in Business Model 2.
iv. Each international transaction has to be benchmarked separately and the assessee has different functional profiles for the two business models, one as an entrepreneur and the other as a captive service provider.
v. Such different transactions cannot be clubbed together as laid down in :
a. Aztec Software and Technical Services Ltd v/s ACIT, (107 ITD 141) b. Development Consultants Pvt. Ltd. v/s DCIT, {115 TTJ 577) c. Star India Pvt. Ltd. v/s ACIT, ITA no.3585/Mum./2006)
16. In view of the above findings of CIT(A), we accept assessee's contention that the foreign AE should be considered as the tested party, accordingly all other grounds of appeal in the Department's appeal with respect to transfer pricing related issues become academic in nature."
9. As regards the issue relating to separate benchmarking of international transactions with the AEs, the Tribunal has held as under:-
"21 We have considered rival contentions and find from the nature of the transactions mentioned above that they are not 11 WNS Global Services Pvt. Ltd.
interlinked as the various transactions form part of different business models adopted by the assessee. Thus, the learned TPO's approach of aggregating these international transactions and benchmarking the assessee at an entity level is not appropriate since the FAR profile of WNS India is different in both the transactions and hence, aggregating these international transactions and considering WNS India as the tested party is wholly misplaced and contrary to the TP regulations. In view of these factual position, the Hon'ble CIT(A) has correctly upheld the benchmarking approach adopted by the assessee.
22. For this purpose reliance may be placed on decision of the Hon'ble High Court of Punjab & Haryana in the case of Knorr- Bremse India Pvt. Ltd., ITA No.172 & 182 of 2013) wherein the Hon'ble Court has upheld the principle that only closely linked transactions which are components of single composite transaction can constitute a transaction.
23. In view of the above, we observe that the aforesaid transactions do not form a single composite transaction and the terms of each transactions have been agreed separately by the assessee with its AEs. Thus, the learned TPO's approach of aggregating the international transactions is not appropriate and the learned DR's claim of following the learned TPO's claim is not acceptable. Furthermore, detailed findings given by CIT(A) are as per material on record, which has not been controverted by Department by bringing any positive material on record. Accordingly, we do not see any justifiable reason to interfere in the findings of CIT(A) which resulted into deletion of addition made on account of international transaction."
10. The learned Departmental Representative having not brought any material difference in fact in the impugned assessment year, respectfully following the decision of the Tribunal as referred to above, we uphold the decision of the learned Commissioner (Appeals) with regard to the issues raised in this ground. Furthermore, as brought to our notice by the learned Sr. Counsel for the assessee, the Transfer Pricing Officer himself in the orders passed in assessee's own case for 12 WNS Global Services Pvt. Ltd.
assessment years 2011-12 to 2014-15, has not only accepted the AEs as the tested party but also accepted the foreign comparables proposed by the assessee. Even, in the advance pricing agreement dated 3rd August 2015, the Department has accepted the AEs as the tested parties insofar as it relates to fees paid towards management and marketing services rendered by them.
11. As regards the contention of the learned Departmental Representative that the learned Commissioner (Appeals) has not properly considered the comparability of the foreign comparables on account of different financial years, it is relevant to observe, the Transfer Pricing Officer never rejected the foreign comparables proposed by the assessee on the issue of different financial year ending. In fact, the Transfer Pricing Officer has not at all gone into far analysis of the foreign comparables proposed by the assessee since he treated the assessee as the tested party and, therefore selected separate sets of comparables. Therefore, we are unable to accept the submissions of the learned Departmental Representative for restoring the issue to the Assessing Officer / Transfer Pricing Officer for reconsideration. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) on these issues by dismissing the grounds raised.
13
WNS Global Services Pvt. Ltd.
12. In ground no.3, the Department has challenged the decision of the learned Commissioner (Appeals) in holding that the contract migration cost should not be considered for calculating the operating margin.
13. Brief facts are, in course of proceedings before him, the Transfer Pricing Officer noticed that the assessee has paid an amount of ` 90,44,55,398 to WNS N.A. in respect of Travelocity contract. After verifying the details, he found that WNS N.A. has entered into a contract with Travelocity.com L.P. to outsource their back office and contract centre operation. The aforesaid contract entered into in January 2004, was to subsist for a period of seven years. However, Travelocity desired that certain non-core operations and functions currently performed internally be performed and managed by a third party experienced in such operations and functions to achieve economic efficiencies and other advantages from outsourcing. Thus, it was agreed between WNS N.A. and Travelocity that WNC N.A. would reimburse Travelocity for the cost associated with the use of Travelocity assets and Travelocity personnel during the migration period. These costs to be incurred by WNS N.A. have been passed on to the assessee, because, WNS N.A. had entered into back-to-back contract with the assessee wherein all the functions / rewards / risks associated with the contract were passed on to the assessee. Thus, it 14 WNS Global Services Pvt. Ltd.
was submitted by the assessee that as the Travelocity contract is with a third party, the transaction has to be treated at arm's length since the costs have been passed on to the assessee on back-to-back basis. It was submitted, the assessee has claimed these costs as reimbursement paid to WNS N.A., hence, not a part of international transaction to be bench marked. The Transfer Pricing Officer, however, did not find merit in the submissions of the assessee and held that since the cost incurred by the assessee in respect of Travelocity contract is inter related with the main function of the assessee and the contract receipts by the assessee is towards provisions of ITES, the cost incurred has to be benchmarked on an aggregate basis along with the provisions of ITES services. Being aggrieved with the aforesaid decision of the Transfer Pricing Officer, the assessee preferred appeal before the first appellate authority.
14. The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record observed that the Travelocity contract was a very prestigious contract and was the single largest contract secured by the group in the U.S. market. For securing this contract, it was agreed by the American AE as well as the assessee that till the time all processes are fully migrated to India, whatever costs are incurred by Travelocity would be reimbursed. The learned Commissioner (Appeals) observed, 15 WNS Global Services Pvt. Ltd.
since the reimbursement of cost was a pre-condition of the contract, the assessee and the AE had to take a commercial decision to agree to such term in order to secure the contract. The learned Commissioner (Appeals) observed, though initially the assessee had to incur the migration cost, however, in subsequent years, the contract generated good profit for the assessee. Thus, the learned Commissioner (Appeals) relying upon his decision on identical issue in assessment year 2004-05, held that the migration cost relating to Travelocity contract being an exceptional and onetime cost, should not be treated as part of operating cost for computing the profitability of the assessee.
15. The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted, learned Commissioner (Appeals) without properly analysing the issue has held that the migration cost will not form part of the operating cost. He submitted, if the learned Commissioner (Appeals) was unable to accept the benchmarking of the Transfer Pricing Officer, he himself should have done the correct benchmarking. The learned Departmental Representative submitted, learned Commissioner (Appeals)'s reasoning for excluding the migration cost is not on sound basis.
16
WNS Global Services Pvt. Ltd.
16. The learned Sr. Counsel for the assessee submitted, from assessment year 2004-05 onwards all the contracts were assigned to the assessee and the assessee became the major entrepreneur, whereas, the AEs were only supporting the assessee. He submitted, earlier the assessee was only rendering BPO services to British Airways which completely changed after assignment of all contracts to the assessee. He submitted, since the Travelocity contract was a big contract and the assessee initially did not have the infrastructure to execute the work, it asked the AEs to do the work and reimbursed the cost as onetime expenditure. The learned Sr. Counsel submitted, while deciding identical issue arising in assessee's own case for assessment year 2004-05, the Tribunal has allowed the claim of the assessee.
17. We have considered rival submissions and perused materials on record. Notably, identical issue came up for consideration before the Tribunal in assessee's own case for assessment year 2004-05. The Tribunal while deciding the issue in the order referred to above, has held that the cost incurred by the assessee is purely in the nature of reimbursement without any mark-up. Hence, cannot be treated as part of operating cost. Thus, the Tribunal ultimately upheld the decision of the learned Commissioner (Appeals) on the issue. There being no difference in fact brought to our notice by the learned Departmental Representative in the impugned assessment year, 17 WNS Global Services Pvt. Ltd.
respectfully following the decision of the Tribunal in assessee's own case as referred to above, we uphold the decision of the learned Commissioner (Appeals) on the issue. The ground raised is dismissed.
18. In ground no.4, the Department has challenged the decision of the learned Commissioner (Appeals) in restricting the arm's length price of guarantee fee to 0.5% of the guarantee value.
19. Brief facts are, the Transfer Pricing Officer noticing that the assessee had provided a guarantee against loan advanced by Travelocity to one of the AEs called for the necessary details. After examining the details, he found that the loan was provided to the AE at the interest rate of 5%. He also noticed that all the subsidiaries of the WNS group had individually given subsidiary guarantee to Travelocity for the loan. The Transfer Pricing Officer noticed that the main purpose of loan was to make adequate cash flow available to WNS India i.e., the present assessee to execute the services outsourced to it by Travelocity. When the Transfer Pricing Officer called upon the assessee to explain why no commission was charged for providing guarantee against the loan, it was submitted by the assessee that since the assessee itself is the end user of the loan and no service client was involved, guarantee commission was not charged. However, the Transfer Pricing Officer did not accept the claim 18 WNS Global Services Pvt. Ltd.
of the assessee and made an adjustment of ` 65,59,545 on account of guarantee commission computed @ 1.5% of the guarantee amount. Being aggrieved of the aforesaid Transfer Pricing adjustment, the assessee preferred appeal before the first appellate authority.
20. The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts on record, restricted the guarantee commission to 0.5% of the guarantee amount. Thus, he sustained the addition of ` 21,86,515.
21. The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted that the guarantee commission computed @ 1.5% of the guarantee value by the Transfer Pricing Officer is reasonable, hence, should be restored.
22. The learned Sr. Counsel for the assessee, though, strongly supported the decision of the learned Commissioner (Appeals) insofar as it relates to determination of arm's length price of guarantee commission @ 0.5%, however, he submitted that in the facts of the present case guarantee commission is not at all chargeable considering the fact that the assessee itself utilised the loan for its own benefit. Further, he submitted, it is not an international transaction under section 92B of the Act. In support, he relied upon some decisions of the Tribunal as submitted in the legal paper book. 19
WNS Global Services Pvt. Ltd.
23. We have considered rival submissions and perused materials on record. The facts and material on record clearly reveal that the loan from Travelocity was availed by WNS (Holding) Ltd., one of the AEs of the assessee. It is also not disputed that the assessee has provided guarantee for such loan. Thus, it cannot be denied that some amount of benefit / service was provided by the assessee to its AE towards guarantee for loan which may not have been provided to an unrelated party. In these circumstances, in our view, determination of arm's length price @ 0.5%, is reasonable. It is necessary to observe, though, there is a cleavage in the opinion of different benches of the Tribunal whether provision of corporate guarantee comes within the purview of international transaction or not, however, the Hon'ble Jurisdictional High Court in case of Everest Kanto Cylinder ltd. vs. DCIT (Income Tax Appeal no.1165 of 2013, dt.08.05.2015) has upheld determination of ALP of guarantee commission @0.5%. Accordingly, we uphold the order of the learned Commissioner (Appeals) on this issue. Ground raised is dismissed.
24. In ground no.5, the Department has challenged the decision of the learned Commissioner (Appeals) in deleting the addition of `4,02,55,828, on account of determination of arm's length price of interest for extended credit period.
20
WNS Global Services Pvt. Ltd.
25. Brief facts are, from the transfer pricing study report as well as other documents available before him, the Transfer Pricing Officer noticed that an amount of ` 156,12,05,562, was appearing as sundry debtors in the name of WNS U.K. and WNS N.A., two AEs of the assessee. Noticing this, the Transfer Pricing Officer called upon the assessee to explain why interest should not be charged for extended credit period allowed to the AEs, since, according to the Transfer Pricing Officer an independent enterprise would have charged interest for such extended credit period. He also called upon the assessee to furnish month-wise figures of the balance in the hands of both the AEs. In response, the assessee furnished the details called for and also submitted that no interest should notionally be charged as neither any loan nor any advance was given to the AEs. It was submitted by the assessee that it receives money from the AEs as and when they receive money from the third party. It was submitted, the delay in making payment on some instances may be for the reason that the AEs must not have realised money from the clients in time. It was submitted, no extended credit period was granted to the AEs apart from those arising in course of business. It was submitted, the debt collection period in respect of AEs is 24 days which is within the usual industry norm. After considering the submissions of the assessee as well as material on record, the Transfer Pricing Officer noted that the 21 WNS Global Services Pvt. Ltd.
assessee has allowed excess credit period to the AEs for 149 days. Accordingly, he charged interest @ 5.9% by applying LIBOR plus 250 basis point as on 31st March 2005. This resulted in adjustment of ` 4,02,55,828. The assessee challenged the aforesaid transfer pricing adjustment before the first appellate authority.
26. The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record observed that the assessee has not only received contract revenue from the AEs but it has also paid marketing fees to them. He observed, while calculating the debt collection period, the credit balances i.e., amounts payable to the AEs on account of marketing fees was not taken note of by the Transfer Pricing Officer. The learned Commissioner (Appeals) observed, had there not been a restriction from foreign exchange regulatory prospective requiring keeping of receipts and payments from each other if they emanate from separate transactions, the assessee could have netted off the receipts and payment arising from transactions with AEs and in which case the issue relating to extended credit period would have not arisen. Thus, he held that the Transfer Pricing Officer could not have charged interest for extended credit period ignoring the fact that the assessee has also made late payment of the credit balances of the AEs. Accordingly, he deleted the addition.
22
WNS Global Services Pvt. Ltd.
27. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer. Whereas, the learned Sr. Counsel for the assessee strongly supported the decision of the learned Commissioner (Appeals). Further, he relied upon the following decisions:-
i) Evonik Degussa India Pvt. Ltd. v/s ACIT, ITA no.7653/ Mum./2011, dated 21.11.2012;
ii) GSS Infotech Ltd. v/s ACIT, 70 taxmann.com 356 (Hyd.);
iii) Ingersoll-Rand Ltd v/s ACIT, 57 taxmann.com 413 (Bang.);
iv) Ingersoll-Rand Ltd v/s ACIT, 67 taxmann.com 328 (Bang.);
v) CIT v/s Indo American Jewellery Ltd., 44 taxmann.com 223; and
vi) Det Norske Veritas A/S v/s ADIT, ITA no.200/Mum./2014 dated 29.02.2016.
28. We have considered rival submissions and perused materials on record. It is evident from the facts on record, not only the assessee receives payment from AEs towards services rendered but the AEs also receive payment from the assessee on account of provision of marketing support services. It is a fact on record that in some instances there is a delay in receiving payments from the AEs. The assessee has explained such delay to be on account of late receipt of payment by the AEs from the overseas customers. It is also evident, the assessee has also made delayed payment to AEs towards marketing support services rendered by them. Therefore, there is 23 WNS Global Services Pvt. Ltd.
delay in making payments from both sides. As observed by the learned Commissioner (Appeals), after factually verifying the outstanding creditor and debtor position on account of payment / receipts relating to the AEs there is no loss to the assessee in real terms. As could be seen, the Transfer Pricing Officer while charging notional interest on the extended credit facility to the AEs has completely ignored the delayed payment made by the assessee to the AEs. Thus, as could be seen, no extra benefit has been provided to the AEs on account of extended credit facility. Further, it is the contention of the assessee before us that as a matter of policy, the assessee does not charge any interest either from the AEs or from the third parties towards extended credit period. Therefore, on over all consideration of facts and materials on record we do not find any reason to interfere with the decision of the learned Commissioner (Appeals). Ground raised is dismissed.
29. In grounds no.6, 7 and 11, the Department has challenged allowance of assessee's claim of deduction u/s 10A of the Act.
30. Brief facts are, during the assessment proceedings, the Assessing Officer found that during the financial year relevant to assessment year 2003-04, WNS Mauritius Ltd., the holding company of the assessee had acquired the entire share capital of the assessee from 24 WNS Global Services Pvt. Ltd.
British Airways resulting in change in ownership of the assessee company. Referring to section 10A(9) of the Act the Assessing Officer observed that as a result of change in ownership or beneficial interest, deduction under section 10A of the Act is not allowable. After calling upon the assessee to explain why the deduction claimed under section 10A of the Act should not be disallowed and examining the submissions of the assessee the Assessing Officer disallowed the deduction claimed under section 10A of the Act amounting to ` 48,70,20,062. Being aggrieved of such disallowance the assessee preferred appeal before the first appellate authority.
31. The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record held that omission of sub-section (9) of section 10A of the Act by Finance Act, 2003, w.e.f. 1st April 2004, will have retrospective application, since, it is curative in nature. In this regard, the learned Commissioner (Appeals) relied upon a number of judicial precedents including the decisions of the Hon'ble Supreme Court in Allied Motors Pvt. Ltd. v/s CIT, 224 ITR 677 (SC) and Alom Extrusions Ltd., 319 ITR 306 (SC). Accordingly, he allowed the deduction claimed by the assessee under section 10A of the Act.
25
WNS Global Services Pvt. Ltd.
32. The learned Departmental Representative fairly submitted that while deciding identical issue in assessee's own case for assessment year 2003-04 and 2004-05, the Tribunal has allowed assessee's claim of deduction under section 10A of the Act.
33. The learned Sr. Counsel for the assessee strongly supporting the decision of the learned Commissioner (Appeals) submitted, the issue stands settled in favour of the assessee by virtue of the decisions of the Co-ordinate Bench in assessee's own case for assessment year 2003-04 and 2004-05.
34. We have considered rival submissions and perused materials on record. It is evident, the Assessing Officer referring to the provisions of section 10A(9) of the Act has disallowed assessee's claim of deduction under section 10A of the Act. Whereas, learned Commissioner (Appeals) relying upon certain judicial precedents as referred to above, has allowed assessee's claim of deduction by holding that the omission of section 10A(9) of the Act will operate retrospectively as if the said sub-section never existed in the statute. It is relevant to observe, when identical issue came up for consideration before the Tribunal in assessee's own case in assessment year 2003-04, the Tribunal in the order passed in ITA no.4520/Mum./2013, dated 17th February 2016, has held that the omission of sub-section (9) of section 10A of the Act, 26 WNS Global Services Pvt. Ltd.
would effectively mean that the said provision never existed in the statute and accordingly allowed assessee's claim under section 10A of the Act. Further, while deciding assessee's appeal against order passed under section 263 of the Act for assessment year 2004-05, the Tribunal in its order passed in ITA no.2566/Mum./2009 dated 10 th August 2012, upheld the decision of the Assessing Officer in allowing assessee's claim of deduction under section 10A of the Act by holding that omission of sub-section (9) of section 10A of the Act by Finance Act, 2003, would effectively mean that the provision never existed in the statute. Facts being identical, respectfully following the decisions of the Co-ordinate Bench in assessee's own case, we uphold the decision of the learned Commissioner (Appeals) on the issue. Grounds raised are dismissed.
35. In grounds no.8 and 9, the Department has challenged the decision of the learned Commissioner (Appeals) in allowing assessee's claim of depreciation on intangibles representing acquisition of business contract.
36. Brief facts are, during the assessment proceedings, the Assessing Officer while examining assessee's claim of depreciation noticed that the assessee by virtue of an agreement executed on 13 th January 2004, with WNS U.K. has acquired a company, namely, M/s. Town and 27 WNS Global Services Pvt. Ltd.
Country Assistance Ltd., earlier owned by WNS U.K. for a consideration of 17,50,000 pound. He also noticed that by acquiring the business of M/s. Town and Country Assistance Ltd., the assessee also acquired various contracts of the said company with third parties. He further noticed that the amount paid by the assessee for acquiring the aforesaid company from WNS U.K. was capitalised in the books of account and the assessee treated it as an intangible asset and also claimed depreciation @ 25% on such asset which worked out to ` 2,77,76,245. After calling upon the assessee to justify the claim of depreciation and examining assessee's submissions the Assessing Officer ultimately disallowed assessee's claim of depreciation by holding that the right acquired by the assessee is not in the nature of commercial right as mentioned in Explanation 3 to section 32 of the Act to treat it as an intangible asset. Being aggrieved with the aforesaid decision of the Assessing Officer the assessee preferred appeal before the first appellate authority.
37. After considering the submissions of the assessee learned Commissioner (Appeals) held that the right acquired by the assessee on assignment of contract is an intangible asset and accordingly allowed assessee's claim of depreciation.
28
WNS Global Services Pvt. Ltd.
38. The learned Departmental Representative, though, fairly submitted that the issue has been decided in favour of the assessee by the Tribunal in assessment year 2004-05, however, he relied upon the observations of the Assessing Officer.
39. The learned Sr. Counsel for the assessee relied upon the findings of the learned Commissioner (Appeals).
40. We have considered rival submissions and perused materials on record. Insofar as factual aspect of the issue is concerned, there is no dispute that by virtue of acquisition of M/s. Town and Country Assistance Ltd., various contracts executed by the said concern with third party clients were assigned to the assessee. It is also a fact that such acquisition took place by virtue of an agreement executed on 13 th January 2004. It is also a fact on record that in assessment year 2004-05, the assessee for the first time claimed depreciation by treating the capitalized value of the amount paid towards acquiring M/s. Town and Country Assistance Ltd., as an intangible asset and claimed depreciation @ 25%. Notably, the Assessing Officer while completing assessment under section 143(3) of the Act also allowed assessee's claim of depreciation. However, learned Commissioner of Income Tax revised the assessment order under section 263 of the Act. Subsequently, while deciding assessee's appeal against the said 29 WNS Global Services Pvt. Ltd.
order the Tribunal quashed the order passed under section 263 of the Act and restored the assessment order. Thus, in effect, assessee's claim of depreciation in respect of intangible asset became final. In any case of the matter, there is no dispute that by acquiring M/s. Town and Country Assistance Ltd. the assessee has also acquired contractual rights which, no doubt, is a valuable commercial right. Therefore, it comes within the meaning of intangible asset as per section 32(1)(ii) r/w Explanation 3(b) of the Act. Hence, depreciation claimed by the assessee is allowable. The decisions relied upon by the learned Sr. Counsel for the assessee also supports our aforesaid view. Accordingly, we uphold the decision of the learned Commissioner (Appeals) by dismissing the grounds raised.
41. In ground no.10, the Revenue has challenged the decision of learned Commissioner (Appeals) in deleting the disallowance made under section 40(a)(i) of the Act on account of payment of marketing and management fees to WNS N.A. and WNS U.K.
42. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that in the relevant previous year, the assessee has debited an amount of ` 57,90,92,900, to the Profit & Loss account towards payment of marketing and management fees to WNS N.A. and WNS U.K. After calling for necessary details and examining them, the 30 WNS Global Services Pvt. Ltd.
Assessing Officer noticed that while making such payment the assessee has not deducted tax at source as per section 195(1) of the Act. Therefore, he called upon the assessee to explain why the payment made should not be disallowed under section 40(a)(i) of the Act. Though, the assessee objected to the proposed disallowance by making elaborate submissions, however, the Assessing Officer rejecting the submissions of the assessee held that the payment made by the assessee is in the nature of fees for technical services, hence, the assessee was required to deduct tax at source while making such payment. Since, the assessee has not deducted any tax at source, the Assessing Officer disallowed the payment under section 40(a)(i) of the Act. The assessee challenged the disallowance before the first appellate authority.
43. Learned Commissioner (Appeals) after examining the provisions of Double Taxation Avoidance Agreement (DTAA) between India and U.SA. as well as India and U.K. held that the payment made cannot be treated as fees for technical services under the respective tax treaties. Further, he observed that in assessee's own case for assessment year 2004-05 he has decided the issue in favour of the assessee by holding that the provisions of section 195(1) of the Act is not applicable to the payments made, as, such payment cannot be treated as fees for 31 WNS Global Services Pvt. Ltd.
technical services. Accordingly, he deleted the disallowance made under section 40(a)(i) of the Act.
44. The learned Departmental Representative, though, fairly submitted that the issue has been decided in favour of the assessee by the Tribunal in assessment year 2004-05, however, he relied upon the observations of the Assessing Officer.
45. The learned Sr. Counsel for the assessee relying upon the observations of the learned Commissioner (Appeals) submitted that the issue stands decided in favour of the assessee by the Tribunal in assessee's own case for assessment year 2004-05.
46. We have considered rival submissions and perused materials on record. It is clear from the assessment order, the Assessing Officer has made the disallowance under section 40(a)(i) of the Act simply on the reasoning that the marketing and management fee paid by the assessee to the overseas AEs are in the nature of fees for technical services requiring deduction of tax under section 195(1) of the Act. It is relevant to observe, the aforesaid issue came up for consideration before the Tribunal for the first time in ITA no.5451 and 5452/Mum/2005, while deciding an appeal filed by the Department arising out of orders passed under section 195 of the Act. The Tribunal while deciding the aforesaid appeal of the Revenue held that the 32 WNS Global Services Pvt. Ltd.
payments made by the assessee are not for making available any technical services by the AEs. Thus, it was held by the Tribunal that the payment made cannot be treated as fees for technical services under the relevant tax treaties. It is also relevant to observe, while deciding appeals relating to WNS N.A. and WNS U.K. concerning taxability of marketing and management fees paid by the assessee, the Tribunal in ITA no.1214/ Mum./2010 &Ors. dated 14th March 2012, has held that such payment not being in the nature of fees for technical services is not taxable. The aforesaid decision of the Tribunal was also upheld by the Hon'ble Jurisdictional High Court. The same view was again expressed by the Tribunal while deciding the appeal of WNS N.A. in ITA no.8621/Mum./ 2010, dated 14th December 2012, for assessment year 2006-07. In fact, the Assessing Officer himself while completing the assessment in assessee's own case for assessment year 2006-07 and 2007-08 in pursuance to the directions of the DRP has not made any disallowance under section 40(a)(i) of the Act for non-deduction of tax at source on account of payment of marketing and management fees. In view of the aforesaid, we hold that the order passed by the learned Commissioner (Appeals) requires no interference. Ground raised is dismissed.
47. In ground no.12, the Department has challenged the decision of the learned Commissioner (Appeals) in directing the Assessing Officer 33 WNS Global Services Pvt. Ltd.
to allow deduction under section 10A of the Act in respect of the profits of eligible units without setting-off losses relating to other non- eligible units.
48. While completing the assessment the Assessing Officer disallowed assessee's claim of deduction under section 10A of the Act on the ground that the assessee has shown a profit of ` 1.29 crore, in respect of one eligible unit under section 10A of the Act, whereas, there are losses in respect of all other units and the net effect after grossing of income of all the units, there is loss, hence, no deduction under section 10A of the Act is allowable.
49. When the assessee challenged the aforesaid decision of the Assessing Officer before the first appellate authority, the learned Commissioner (Appeals) held that if the assessee has more than one unit, deduction under section 10A of the Act is to be computed for different undertakings separately and not by grossing up the income / loss of all the units. He also held that deduction under section 10A of the Act is to be granted at the source and not after computing gross total income. Accordingly, he allowed assessee's claim of deduction u/s 10A of the Act without setting-off the losses of other units.
50. The learned Departmental Representative relied upon the observations of the Assessing Officer.
34
WNS Global Services Pvt. Ltd.
51. The learned Sr. Counsel for the assessee submitted, the issue has now been settled by the decision of the Hon'ble Supreme Court in CIT v/s Yokogawa India Ltd., [2016] 97 CCH 144 (SC). He also relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s J.P. Morgan Services India Pvt. Ltd., in ITA no.2188/2013, dated 21stMarch 2016. Further, the learned Sr. submitted that in assessee's own case for assessment year 2012-13, the DRP has expressed similar view as has been expressed by the learned Commissioner (Appeals).
52. We have considered rival submissions and perused materials on record. In our considered opinion, the issue does not required deliberation at length in view of the ratio laid down by the Hon'ble Supreme Court in Yokogawa India Ltd. (supra). In fact, the DRP following the aforesaid decision of the Hon'ble Supreme Court has decided the issue in favour of the assessee in assessment year 2012- 13, vide order dated 26th December 2016. In view of the aforesaid, we do not find any infirmity in the decision of the learned Commissioner (Appeals) on the issue. Ground raised is dismissed.
53. In the result, Revenue's appeal is dismissed. 35
WNS Global Services Pvt. Ltd.
ITA no.396/Mum./2011 Assessee's Appeal - A.Y. 2005-06
54. In ground no.1, the assessee has challenged ad-hoc disallowance made out of administrative expenses.
55. In course of assessment proceedings the Assessing Officer noticing that the assessee has debited an amount of ` 33,95,656, towards expenses under various heads called upon the assessee to furnish supporting evidence and also justify the claim of deduction. After examining the explanation of the assessee the Assessing Officer held that the assessee was unable to prove that the expenses were incurred wholly and exclusively for the purpose of business as provided under section 37(1) of the Act. Accordingly, he disallowed the expenditure. The assessee challenged the disallowance before the learned Commissioner (Appeals) who sustained the disallowance at 50% of the total expenditure claimed by the assessee.
56. The learned Counsel for the assessee submitted, while deciding identical issue in assessee's own case for assessment year the Tribunal has restricted the disallowance to 10% of the total expenditure claimed. Thus, he submitted, similar direction may be given in the impugned assessment year.
36
WNS Global Services Pvt. Ltd.
57. The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals).
58. Having considered rival submissions and perused material on record, we find that while deciding identical issue in assessment year 2004-05, the Tribunal has restricted the disallowance to 10% of the total expenditure claimed by the assessee. Facts being identical, following the aforesaid decision of the Tribunal in ITA no.2318/Mum./ 2009, dated 4th May 2018, we restrict the disallowance to 10% of the total expenditure claimed by the assessee under the head "Others".
59. Ground no.2, the assessee has challenged the decision of the learned Commissioner (Appeals) in determining the arm's length price of guarantee commission @ 0.5%.
60. This ground raised by the assessee is corresponding to ground no.4 of Revenue's appeal in ITA no.631/Mum./2011. In view of our decision therein in the earlier part of the order, separate adjudication of the ground raised by the assessee is not required. Accordingly, learned Commissioner (Appeals)'s decision on this issue is upheld.
61. In the result, assessee's appeal is partly allowed. 37
WNS Global Services Pvt. Ltd.
ITA no.7378/Mum./2012 Assessee's Appeal - A.Y. 2008-09
62. Ground no.1, relates to disallowance of deduction claimed under section 10A of the Act by referring to the provisions of section 10A(9) of the Act.
63. This issue is identical to the issues raised by the Department in ground nos.6, 7 and 11 of ITA no.631/Mum./2011. Following our decision therein, we allow assessee's claim of deduction.
64. In grounds no.2, the assessee has challenged disallowance of depreciation on intangible asset.
65. This ground is similar to ground no.8 and 9 of Revenue's appeal in ITA no.631/Mum./2011. Following our decision therein, we allow assessee's claim of depreciation.
66. In view of our decision in ground no.2 above, ground no.3, having become redundant is dismissed.
67. Grounds no.4 and 5, are identical to ground no.12, of Revenue's appeal in ITA no.631/Mum./2011. In view of aforesaid, we direct the Assessing Officer to allow assessee's claim of deduction under section 10A of the Act in terms with our directions therein. 38
WNS Global Services Pvt. Ltd.
68. Grounds no.7 and 8, are against disallowance of set-off and carry forward of unabsorbed loss and depreciation of earlier years.
69. While completing the assessment the Assessing Officer disallowed assessee's claim of set-off and carry forward of unabsorbed depreciation and business loss. The DRP also upheld the aforesaid decision of the Assessing Officer.
70. The learned Sr. Counsel for the assessee submitted that while deciding identical claim of the assessee in assessment year 2001-02 to 2003-04 the Tribunal has decided the issue in favour of the assessee. He further submitted, the same view was expressed again by the Tribunal while deciding assessee's appeal in A.Y. 2004-05.
71. The learned Departmental Representative relied upon the observations of the DRP and the Assessing Officer.
72. We have considered rival submissions and perused materials on record. As could be seen, the aforesaid dispute arose for the in assessee's own case in assessment years 2001-02 2002-03 and 2003-04. The Tribunal, while deciding the issue held that the provisions of section 10A(6)(ii) of the Act are applicable only after the holiday period is over and directed the Assessing Officer to allow the claim of the assessee. The same view was expressed by the Tribunal 39 WNS Global Services Pvt. Ltd.
while deciding assessee's appeal in ITA no.1886/Mum./2009, dated 4 th May 2018, in assessment year 2004-05. Accordingly, we direct the Assessing Officer to factually verify and allow assessee's claim as per the directions of the Tribunal in the earlier assessment years, as referred to above.
73. Ground no.9, being general in nature is not required to be adjudicated independently.
74. Ground no.10 is identical to grounds no.1 and 2 raised by the Revenue in ITA no.631/Mum./2011. In terms of our decision given in the earlier part of the order, we direct the Assessing Officer to treat the AEs as the tested party and benchmark the international transactions separately without aggregating them.
75. In grounds no.11 and 12, the assessee has challenged selection / rejection of certain comparables by the Transfer Pricing Officer and upheld by the DRP.
76. Before we deal with the issues relating to each comparable disputed before us by the assessee, it is necessary to briefly discuss the factual background relating to the issue.
77. As stated earlier, in the relevant previous year, since, the assessee had entered into international transactions, the Assessing 40 WNS Global Services Pvt. Ltd.
Officer made a reference to the Transfer Pricing Officer for determining the arm's length price of the international transaction. During the proceedings before him, the Transfer Pricing Officer on examining the transfer pricing study of the assessee found that the assessee has provided services to its overseas AEs in two segments viz. Information Technology Enabled Services (ITES) and Software Development Services (SDS). He observed that the assessee has benchmarked the international transaction by applying transactional net margin method (TNMM) as the most appropriate method with operating profit / operating cost (OP/OC) as the profit level indicator (PLI). He found that in the ITES segment, the assessee has selected 14 comparables with average margin of 14.91%. As against the margin shown by the assessee @ 9.82%, since, the margin shown by the assessee is within ±5% of the average margin of the comparables, the assessee has treated the transaction in ITES segment to be at arm's length. Similarly, as regards the international transaction relating to software development services segment the Transfer Pricing Officer found that in the transfer pricing study report, the assessee has benchmarked the transaction following TNMM with operating profit / total cost as the PLI. He noticed that the assessee has selected 16 companies as comparables with average PLI of 10.66%. Since, the PLI of the SDS segment shown by the assessee is within ±5% of the comparables 41 WNS Global Services Pvt. Ltd.
selected, the price charged for the international transaction was treated to be at arm's length. The Transfer Pricing Officer, however, did not find the transfer pricing study report submitted by the assessee reliable due to various deficiencies pointed out in his order. After rejecting the transfer pricing study report, the Transfer Pricing Officer proceeded to bench mark the international transactions under both the segments independently. Though, he accepted TNMM as the most appropriate method as selected by the assessee as also the PLI shown by the assessee, however, he did not accept the comparables selected by the assessee. Accordingly, he rejected the transfer pricing study report. In course of the proceedings, the Transfer Pricing Officer proposed his own set of comparables and after considering the submissions / objections of the assessee, the Transfer Pricing Officer finally selected 22 comparables in the ITES segment with average PLI of 27.53% against PLI of 9.62% shown by the assessee. Accordingly, he made an adjustment of ` 118,88,88,500, to the price charged by the assessee. As regards software development services, the Assessing Officer after rejecting the transfer pricing study report proceeded to select comparables independently. Out of the 16 comparables selected by the assessee, the Transfer Pricing Officer retained seven while rejecting the rest of the comparables. In addition to the aforesaid seven comparables from the assessee's list of 42 WNS Global Services Pvt. Ltd.
comparables, the Transfer Pricing Officer himself added 10 more comparables. Thus, the total comparables finally selected by the Transfer Pricing Officer was 17 with average PLI of 22.90%. Since, the assessee has shown the margin of 9.62%, the Transfer Pricing Officer made an upward adjustment of ` 44,46,046. On the basis of transfer pricing adjustment made by the Transfer Pricing Officer, the Assessing Officer made addition to the income of the assessee. Though, the assessee challenged the aforesaid addition before the DRP contesting them on various ground, however, it did not get the desired result and in pursuance to the directions of the DRP, the Assessing Officer completed the final assessment order.
78. Before us, the major issue relating to transfer pricing adjustment is, with regard to selection / rejection of comparables under both the segments. At first, we will deal with assessee's objections with regard to selection / rejection of comparables under ITES segment.
COMPARABLES UNDER ITES SEGMENT
i) HCL COMNET SYSTEMS AND SERVICES LTD. (SEGMENT)
79. Objecting to the selection of the aforesaid company, the learned Sr. Counsel for the assessee submitted, the Transfer Pricing Officer while selecting / rejecting comparables has applied related party transaction (RPT) filter and has rejected all companies which has RPT 43 WNS Global Services Pvt. Ltd.
of more than 25% of the Revenue. He submitted, applying the aforesaid filter the Transfer Pricing Officer has rejected some of the comparables selected by the assessee. He submitted, applying the same logic, this company has to be rejected as the RPT of the company is more than the threshold limit of 25% applied by the Transfer Pricing Officer. He submitted, the RPT of this company as a percentage of the revenue works out to 28.19%. Therefore, it cannot be treated as a comparable. In support of such contention, he relied upon the decision of the Tribunal, Delhi Bench, in H&S Software Development and Knowledge Management Centre Pvt. Ltd., ITA no.436 and 496/Del./2013, dated 20th March 2018. Without prejudice to the aforesaid contention, the learned Sr. Counsel submitted, the company's accounting year ends on 30th June, whereas, assessee's accounting year ends on 31st March. Thus, he submitted, the company cannot be treated as a comparable due to different accounting year ending. For such proposition, he relied upon the decision of the Tribunal, Mumbai Bench, in Dialogic Network India Pvt. Ltd. v/s ACIT, ITA no.7280/Mum./2012, dated 27th July 2018.
80. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 44
WNS Global Services Pvt. Ltd.
81. We have considered rival submissions and perused material on record. As could be seen from Para-7 of the order passed by the Transfer Pricing Officer, for selecting / rejecting comparables independently he has applied certain filters which include rejection of companies having RPT of more than 25% of the operating revenue as well as companies having different financial year ending. In other words, he has rejected companies which do not have their financial year ending on 31st March 2008. It is the specific contention of the learned Sr. Counsel before us that not only the RPT of this company as a percentage of operating revenue works out to 28.19% thereby exceeding the threshold limit of 25% fixed by the Transfer Pricing Officer, but, the company has a different accounting year ending which is 30th June. It is noticed that in case of H&S Software Development and Knowledge Centre Pvt. Ltd. (supra), the Tribunal, Delhi Bench, taking note of the fact that the RPT of the company exceeds the threshold limit of 25% fixed by the Transfer Pricing Officer himself and further it has a different financial year ending has held that it cannot be treated as a comparable. The Tribunal, Mumbai Bench, in Dialogic Network India Pvt. Ltd. (supra) has also rejected this company as a comparable since it has a different financial year ending. Since, the aforesaid decisions of the Tribunal pertain to the very same 45 WNS Global Services Pvt. Ltd.
assessment year, respectfully following the ratio laid down therein, we exclude this company from the list of comparables.
ii) GENESYS INTERNATIONAL CORPORATION LTD.
82. Objecting to the selection of this company learned Sr. Counsel for the assessee submitted that it is engaged in engineering (CAD/CAM) and geographic Information Services (GIS) which are in the nature of Knowledge Process Outsourcing (KPO) services. Further, he submitted, the company also deals in computer software which is its only segment i.e., GIS. He submitted, as per the Safe Harbour Rule notified by the CBDT vide notification no. S.O. 2810(E), dated 18 th September 2013, GIS services has been classified as KPO service requiring application of knowledge and advanced analytical and technical skill. In support of his contention, the learned Sr. Counsel relied upon the following decisions:-
i) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/Mum./ 2012, dated 20.07.2018;
ii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
iii) HSBC Electronic Data Processing India Pvt. Ltd., v/S ACIT, ITA no.1647/Hyd./2012, order dated 24.10.2014;
iv) Symphony Marketing India Pvt. Ltd., ITTPA no.1316/ Bang/2012, dared 14.08.2013;
v) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann.com 150 (Mum.); and 46 WNS Global Services Pvt. Ltd.
vi) M/s. Mercer Consulting India Pvt. Ltd. v/s CIT, dated 24.08.2016 (P&H HC).
83. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer.
84. We have considered rival submissions and perused material on record. On a perusal of the annual report and other materials concerning the aforesaid companies as placed in the paper book, it is noticed that the company is engaged in rendering GIS services and caters to the needs of consumer mapping, navigation etc. It provides geographical information service, photogrammetry, remote sensing, cartography, data conversion related computer based services and other related services. Thus, from the aforesaid facts available on record, it is very much clear that this company is functionally different from the assessee as it provides KPO services which cannot be comparable to routine ITE services provided by the assessee. Considering the aforesaid factual aspect, the Tribunal in a number of decisions has consistently held that this company cannot be a comparable to ITE service provider like the assessee. Since, most of these decisions, as cited by the learned Sr. Counsel, pertain to the impugned assessment year including the decision of the Tribunal, Mumbai Bench, in Dialogic Network India Pvt. Ltd. (supra), we 47 WNS Global Services Pvt. Ltd.
respectfully follow the ratio laid down in these decisions and exclude this company from the list of comparables.
iii) E-CLERX SERVICS LTD.
85. Objecting to the selection of this company, learned Sr. Counsel for the assessee submitted, the company is functionally different from the assessee as it provides data analytics and data process solution which are in the nature of KPO services. In this context, he drew our attention to the information given in the annual report of the company. He submitted, considering the nature of services provided by this company, not only different Benches of the Tribunal but also the Hon'ble Delhi High Court in Rampgreen Solution Pvt. Ltd. v/s CIT, [2015] 377 ITR 533 (Del.) has held that since this company provides KPO services, it cannot be a comparable to ITE service provider. In support of such contention, he relied upon the following decisions:-
i) Rampgreen Solutions Pvt. Ltd. v/s CIT, ITA no.102/2015 (Del.), dated 10.08.2015;
ii) Maersk Global Centres India Pvt. Ltd. v/s ACIT, ITA no.7466/ Mum./2012, dated 07.03.2014;
iii) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/ Mum./2012, dated 20.07.2018;
iv) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
v) Goldman Sachs (I) Securities Pvt. Ltd. v/s ACIT, ITA no.6912/ Mum./2012, daed 29.07.2016;48
WNS Global Services Pvt. Ltd.
vi) HSBC Electronic Data Processing India Pvt. Ltd., order dated 24.10.2014, A.Y. 2008-09;
vii) H&S Software Development & Knowledge Management Centre Pvt. Ltd. v/s DCIT, ITA no.436 & 496/Del./2013, dated 20.03.2018;
viii) Lionbridge Technologies Pvt. Ltd. v/s ITO, ITA no.7498/ Mum./2012, dated 09.07.2014;
ix) Symphony Marketing Solutions India Pvt. Ltd., 37 CCH 253; &
x) Stream International Services Pvt. Ltd. v/s ACIT, ITA no. 8290/ Mum./2011, dated 10.10.2014.
86. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer.
87. We have considered rival submissions and perused material on record. From the functional profile of the aforesaid company, as contained in the annual report, it is evident that it provides data analytics and data processing solutions which the company itself admits to be in the nature of KPO services. In fact, this company as per the information contained in the annual report provide services to the banking, finance, manufacturing, retail, travel and hospitality verticals using a mix of custom, design, process and delivery teams. It appears, the company also has intangibles. Considering the aforesaid facts, the Hon'ble Delhi High Court in Rampgreen Solution Pvt. Ltd. (supra), having found that this company is functionally different as it is a KPO service provider, has treated it as non-comparable to ITE 49 WNS Global Services Pvt. Ltd.
service provider. In fact, in the Tribunal decisions cited by the learned Sr. Counsel for the assessee, the same view has been expressed while excluding the company as comparable. Since, a majority of the aforesaid decisions of the Tribunal pertain to the very same assessment year, respectfully following the consistent view of the Tribunal, we hold that this company cannot be a comparable to the assessee.
iv) CORAL HUBS LTD.
(VISHAL INFORMATION TECHNOLOGIES LTD.)
88. Objecting to the selection of this company, learned Sr. Counsel for the assessee submitted, the business model of this company is totally different from the assessee as it outsources all its work to third party vendors. Further, he submitted, the fact that it has shown inventories in the Balance Sheet suggests that it is functionally different, as, an ITES provider does not hold inventories. Thus, he submitted, the company cannot be treated as comparable. In support, he relied upon the following decisions:-
i) PCIT v/s Aptara Technology Pvt. Ltd., [2018] 92 taxmann.com 240;
ii) PCIT v/s BNY Mellon International Operations India Pvt. Ltd.
ITA no.1226/2015, dated 23.04.2018;
iii) Rampgreen Solutions Pvt. Ltd. v/s CIT, [2015] 60 taxmann. com 355;
50
WNS Global Services Pvt. Ltd.
iv) PCIT v/s New River Software Services Pvt. Ltd. ITA no.924/ 2016, dated 22.08.2017;
v) CIT v/s Mercer Consulting India Pvt. Ltd. ITA no.101/2015, dated 21.08.2016;
vi) Maersk Global Services Pvt. Ltd. v/s ACIT, ITA no.7466/ Mum./2012, dated 07.03.2014;
vii) Goldman Sachs (I) Securities Pvt. Ltd. v/s ACIT, ITA no.6912/ Mum./2012, daed 29.07.2016
viii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
ix) M/s. Capital IQ Information Systems Pvt. Ltd. v/s DCIT, ITA no.196/Hyd./2011, dated 23.11.2012;
x) Symphony Marketing Solutions India Pvt. Ltd. v/s ITO, ITA no.1316/Bang./2012; dated 14.08.2013;
xi) Stream International Services Pvt. Ltd. v/s ACIT, [2015] 53 taxmann.com 19 (Mum.);
xii) Willis Processing Services India Pvt. Ltd. v/s ACIT, [2017] 83 taxmann.com 198;
xiii) H&S Software Development and Knowledge Management Centre Pvt. Ltd., ITA no.436 and 496/Del./2013, dated 20.03.2018; and
xiv) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann. com 150.
89. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer.
90. We have considered rival submissions and perused material on record. From the materials placed in the factual paper book including the annual report of the company, it appears that this company outsources most of its work to third party vendors. Therefore, the 51 WNS Global Services Pvt. Ltd.
business model of the company is totally different from the assessee. Considering the aforesaid aspect, the Hon'ble Delhi High Court in Rampgreen Solution Pvt. Ltd. (supra) and different Benches of the Tribunal have consistently held that this company being functionally different from a routine ITES provider cannot be treated as comparable. Since, most of these decisions pertain to the impugned assessment year and no difference in fact has been brought to our notice, following the aforesaid decisions we hold that this company cannot be a comparable to the assessee.
v) MOLD-TEK TECHNOLOGIES LTD.
91. Objecting to the selection of this company, learned Sr. Counsel for the assessee submitted, since in the annual report the company has stated that it is engaged in providing KPO services, it cannot be treated as comparable to the assessee. Referring to the annual report of the company, he submitted that it is engaged in providing structural engineering services which is a high end segment. Further, he submitted, the company has earned abnormally high profit in the impugned assessment year. Thus, he submitted, it cannot be treated as comparable. In support, he relied upon the following decisions:-
i) Maersk Global Centres India Pvt. Ltd. v/s ACIT, ITA no.7466/Mum./ 2012, dated 07.03.2014;52
WNS Global Services Pvt. Ltd.
ii) Goldman Sachs (I) Securities Pvt. Ltd. v/s ACIT, ITA no.6912/ Mum./2012, dated 29.07.2016;
iii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
iv) ix) M/s. Capital IQ Information Systems Pvt. Ltd. v/s DCIT, 32 taxmann.com 2 (Hyd.);
v) Lionbridge Technologies Pvt. Ltd. v/s ITO, ITA no.7498/Mum./ 2012, dated 09.07.2014;
vi) Symphony Marketing Solutions India Pvt. Ltd. 37 CCH 253 (Bang.);
vii) Willis Processing Services India P. Ltd. v/s ACIT, [2017] 83 taxmann.com 198;
viii) Stream International Services Pvt. Ltd. v/s ACIT, [2015] 53 taxmann.com 19 (Mum.); and
ix) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann.com 150 (Mum.).
92. The learned Departmental Representative relied upon the observation of the DRP and the Transfer Pricing Officer.
93. We have considered rival submissions and perused material on record. From the information furnished in the annual report of the company, a copy of which is placed in the factual paper book, it is seen that the company has categorized itself as a KPO service provider. It is also seen that it offers services in the area of civil and structural engineering, mechanical product design, plant engineering and GIS service. These services certainly cannot be categorized as routine BPO service as they require different skill set. Thus, from the 53 WNS Global Services Pvt. Ltd.
aforesaid facts it is evident that the company is functionally different from the assessee as it provides high end services which are in the nature of KPO services. The decisions cited by the learned Sr. Counsel for the assessee, many of which pertain to the impugned assessment year, expresses similar view. Thus, respectfully following the consistent view expressed by the different benches of the Tribunal in the decisions referred to above, we hold that this company cannot be a comparable to the assessee.
vi) ACCENTIA TECHNOLOGIES LTD.
94. Objecting to the selection of this company, learned Sr. Counsel for the assessee submitted, the company had an exceptional year of operation, as in the relevant previous year, two other companies viz. Geosoft Technologies (Trivandrum) Ltd. and Iridium Technologies India Pvt. Ltd. merged with the company. Further, the company also purchased businesses of various other companies as mentioned in Schedule-10(B)(3) of the annual report. Thus, he submitted, since such merger / acquisition must have impacted the financial results of the company, it cannot be treated as comparable. Further, he submitted, the company is engaged in software development and coding activities which are different from routine ITES. He submitted, relevant segmental data is also not available in the annual report. Further, referring to the annual report he submitted that the company 54 WNS Global Services Pvt. Ltd.
owns various products which make it functionally different from the assessee. He submitted, the employee cost of the company is very low compared to the employee cost of the assessee at 11.22%. Thus, he submitted, the company cannot be treated as comparable to the assessee. In support , the learned Sr. Counsel for the assessee relied upon the following decisions:-
i) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/Mum./ 2012, dated 20.07.2018;
ii) HSBC Electronic Data Processing India Pvt. Ltd. v/s DCIT, ITA no.247 & 295/Hyd./2014, order dated 24.10.2014, A.Y. 2008-
09;
iii) Goldman Sachs (I) Securities Pvt. Ltd. v/s ACIT, ITA no. 6912/Mum./2012, dated 29.07.2016;
iv) Hapag-Lloyd Global Services Pvt. Ltd. v/s DCIT, ITA no.2300 and 7539/Mum./2014, dated 16.01.2016;
v) PCIT v/s Aptara Technology Pvt. Ltd., [2018] 02 taxmann.com 240 (Bom.);
vi) Symphony Marketing Solutions India Pvt. Ltd. v/s ITO, ITA no.1316/Bang./2012; dated 14.08.2013;
vii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; and
viii) Stream International Services Pvt. Ltd. v/s ACIT, ITA no. 8290/Mum./2011, dated 10.10.2014.
95. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 55
WNS Global Services Pvt. Ltd.
96. We have considered rival submissions and perused material on record. The documents submitted in the paper book including annual report of the company clearly reveal that it is engaged in the software development / software product development. However, no segmental details are available. Further, the annual report reveals that in the relevant financial year there are mergers / acquisitions which might have impacted the financial results of the company. Considering the aforesaid aspects, different benches of the Tribunal have held that this company cannot be treated as comparable to an ITE service provider. Since, majority of the aforesaid decisions of the Tribunal pertain to the impugned assessment year, respectfully following them, we hold that this company cannot be treated as comparable.
vii) ACROPETAL TECHNOLOGIES LTD. (SEGMENT)
97. Objecting to the selection of this company learned Sr. Counsel for the assessee submitted, as per the information available in the annual report, the company is engaged in the development of computer software. Further, it is also engaged in the business of engineering design services and information technology services. He submitted, the Transfer Pricing Officer has selected the engineering design segment as comparable to the assessee which is totally incorrect. Further, he submitted, about 71% of the total expenditure of 56 WNS Global Services Pvt. Ltd.
the company is in foreign currency under the head "Employee Related and On-site Development Expenses" which indicate that the company provides substantial on-site services and could also have outsourced the services. He submitted, as per the safe harbour rules notified by the CBDT, engineering and design services have been classified as KPO services. Therefore, the company being functionally different cannot be a comparable. In support, he relied upon the following decisions:-
i) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/ Mum./2012, dated 20.07.2018;
ii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
iii) Goldman Sachs (I) Securities Pvt. Ltd. v/s ACIT, ITA no.6912/ Mum./2012, dated 29.07.2016;
iv) HSBC Electronic Data Processing India Pvt. Ltd., v/S ACIT, ITA no.1647/Hyd./2012, order dated 24.10.2014;
v) H&S Software Development & Knowledge Management Centre P. Ltd. v/s DCIT, ITA no.436 & 496/Del./2013, dated 20.03.2018;
vi) Symphony Marketing Solutions India Pvt. Ltd., 37 CCH 253; &
vii) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann.
com 150 (Mum.);
98. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer.
99. We have considered rival submissions and perused material on record. From the facts on record it is evident that the nature of services provided by the company is different from the assessee, as it 57 WNS Global Services Pvt. Ltd.
requires application of knowledge and advanced analytical and technical skills. Even otherwise also, the company provides substantial on-site services as compared to the assessee. For the aforesaid reasons, different benches of the Tribunal including the Mumbai bench, have held that this company is not comparable to an ITE service provider. Since, all such decisions cited by the learned Sr. Counsel pertain to the impugned assessment year and no factual difference has been brought to our notice, following the aforesaid decisions, we hold that this company cannot be treated as comparable.
viii) CROSSDOMAIN SOLUTIONS LTD.
100. Objecting to the selection of this company, the learned Sr. Counsel for the assessee submitted, as per the information available in the website of the company, it is engaged in rendering software development and KPO services relating to software development and maintenance services, software testing services, infrastructure set-up and management, consulting services, architecture, configuration and installation, etc. Thus, it was submitted, the company being functionally different cannot be treated as comparable to the assessee. Further, the learned Sr. Counsel submitted, the financials of the company provided by the Transfer Pricing Officer do not contain the director's report, management discussion and analysis. He submitted, 58 WNS Global Services Pvt. Ltd.
these information are also not available in the public domain. He submitted, in the absence of complete annual report, the assessee cannot verify comparability of this company, hence, it should be rejected. In support of his contention, the learned Sr. Counsel relied upon the following decisions:-
i) PCIT v/s Aptara Technology Pvt. Ltd., ITA no.1209 of 2015, (Bom.);
ii) PCIT v/s BNY Mellon International Operations India Pvt. Ltd., [2018] 93 taxmann.com 363 (Bom.);
iii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/ Mum./2012, dated 27.07.2018;
iv) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/ Mum./2012, dated 20.07.2018;
v) H&S Software Development & Knowledge Management Centre Pvt. Ltd. v/s DCIT, ITA no.436 & 496/Del./2013, dated 20.03.2018;
vi) Symphony Marketing India Pvt. Ltd., ITTPA no.1316/ Bang/2012, dared 14.08.2013;
vii) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann. com 150 (Mum.);
viii) CIT v/s Tata Power Solar Systems Ltd., ITA no.1120/ 2014, dated 16.12.2016;
ix) M/s. Quark Systems India Pvt. Ltd. v/s DCIT, [2010] 38 SOT 307 (Chandi.); and
x) Tata Power Solar Systems Ltd. v/s DCIT, ITA no. 6657/Mum./2012, dated 15.01.2014.
101. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 59
WNS Global Services Pvt. Ltd.
102. We have considered rival submissions and perused materials on record. A reference to the Profit & Loss account of the company at Page-112 of the paper book along with Schedule-10, reveals that though the company has earned revenue from different activities, however, the segmental details are not available. Further, the information available in the Annual Report as placed at Page-1188 of the paper book reveals that the company is not into normal ITES / BPO services. The Hon'ble Jurisdictional High Court in PCIT v/s Aptara Technology Pvt. Ltd., while considering the acceptability of this company as a comparable in assessment year 2008-09, has held that the company being involved in providing KPO services cannot be considered to be a comparable to BPO service provider. In several decisions of different Benches of the Tribunal, as cited by the learned Sr. Counsel for the assessee, this company has been rejected as comparable since it is a KPO service provider. Since, these decisions are for the very same assessment year, consistent with the view taken in these decisions, we direct the Assessing Officer to exclude this company.
ix) WIPRO LTD.
103. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it is a leading market player with 60 WNS Global Services Pvt. Ltd.
significant intangibles. He submitted, the company operates as a full risk bearing entrepreneur having significant intellectual property. Therefore, he submitted, it cannot be compared to a risk mitigated captive service provider like the assessee. He submitted, the company incurs significant selling, marketing and brand building expenses. Further, it has a brand value associated with it which has significant influence over the pricing policy and ultimately impacts the margin. He submitted, as per the director's report the company has been granted 40 patents and has 62 pending patents application which shows that it is into high end activity. He submitted, the company undertakes significant research and development activities which is evident from the financials. Finally, he submitted, that as per the director's report, there is merger of three companies during the relevant previous year. Thus, he submitted, the aforesaid factors make this company non- comparable to the assessee. In support of such contentions, he relied upon the following decisions:-
i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
ii) Hinduja Global Solutions Ltd.v/s DCIT, [2017] 78 taxmann.com 199 (Mum.);
iii) Capgemini India Pvt. Ltd. v/s ITO, [2016] 66 taxmann.com 163 (Mum.);
iv) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann.com 150 (Mum.);61
WNS Global Services Pvt. Ltd.
v) Sunquest Information Systems India Pvt. Ltd. v/s JCIT, [2017] 80 taxmann.com 42 (Bang.);
vi) CIT v/s Pentair Water India Pvt. Ltd., ITA no.18 of 2015, dated 16.09.2015; and
vii) PCIT v/s New River Software Services Pvt. Ltd., ITA no.924 of 2016, dated 22.08.2017.
104. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer.
105. We have considered rival submissions and perused material on record. No doubt, this company has a significant brand value associated with it. Further, the material placed on record including the annual report indicates that the company owns significant intangibles and is into multifarious activities. It has also been granted 40 registered patents which indicate that it is engaged in high end activity unlike the assessee. Considering the aforesaid factual differences different Benches of the Tribunal held that this company cannot be held to be comparable to a BPO service provider. As a majority of these decisions pertain to the impugned assessment year, following the consistent view of the Tribunal, we hold that this company cannot be comparable to the assessee.
x) INFOSYS BPO LTD.
106. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it cannot be treated as 62 WNS Global Services Pvt. Ltd.
comparable to the assessee as it is engaged in rendering a variety of services which are not comparable to ITE services provided to the assessee. He submitted, being part of Infosys Group this company enjoys the goodwill and brand value of the group. Therefore, the company is in a position to charge premium pricing for its services and has a better bargaining power as compared to its competitors. He submitted, the company incurs selling, marketing and brand building expenses and owns significant intangibles. Thus, he submitted, the company is not functionally comparable to a captive service provider like the assessee. In support of such submissions, he relied upon the following decisions:-
i) Hinduja Global Solutions Ltd.v/s DCIT, [2017] 78 taxmann.com 199 (Mum.);
ii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
iii) Hapag-Lloyd Global Services Pvt. Ltd. v/s DCIT, ITA no.2300 and 7539/Mum./2014, dated 16.01.2016;
iv) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann.com 150 (Mum.);
v) Aegis Ltd. v/s DCIT, [2017] 78 taxmann.com 275 (Mum.);
vi) CIT v/s Pentair Water India Pvt. Ltd., ITA no.18 of 2015, dated 16.09.2015; and
vii) PCIT v/s New River Software Services Pvt. Ltd., ITA no.924 of 2016, dated 22.08.2017.
63
WNS Global Services Pvt. Ltd.
107. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer.
108. We have considered rival submissions and perused material on record. From the material available on record we find that this company is not only rendering a variety of services but it also owns significant intangibles. Further, being part of Infosys Group it enjoys the goodwill and the brand value of the group which gives it more bargaining power and advantageous position with regard to pricing compared to a captive service provider like the assessee. Considering the aforesaid aspects, the Tribunal in a number of decisions, as cited by the learned Sr. Counsel, has held that this company cannot be a comparable to a routine ITE service provider. Following the consistent view of the Tribunal in the decisions referred to above, we hold that this company cannot be a comparable to the assessee.
xi) DATAMATICS FINANCIAL SERVICES LTD.
109. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it is engaged as a registrar to the public issue and carries out registration and share transfer works. He submitted, as per the revenue details in the Profit & Loss Account it earns revenue through processing and printing, export of ITES and other income. Drawing our attention to the working showing the 64 WNS Global Services Pvt. Ltd.
percentage of different revenue streams to the total revenue earned during the year, the learned Sr. Counsel submitted, revenue earned from ITES is only 33.23%. Therefore, it fails the ITES revenue filter of less than 75% of the total revenue applied by the Transfer Pricing Officer. He submitted, the information provided by the company in pursuance to the notice issue under section 133(6) of the Act is not available in public domain, hence, remains unreliable and unverifiable. Thus, he submitted, the company cannot be treated as comparable. In support of his contention, learned Sr. Counsel relied upon the decision in case of Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.18
109. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer.
110. We have considered rival submissions and perused material on record. From the financial statement of the company submitted in the paper book it is evident that revenue earned from ITES during the relevant financial year constitutes 36.23% of the total revenue earned during the year. Therefore, it fails the export revenue filter of more than 75% applied by the Transfer Pricing Officer. Further, though the company provides various other services, however, segmental data relating to all these services are not available in the annual report. For 65 WNS Global Services Pvt. Ltd.
the aforesaid reasons, the Tribunal, Mumbai Bench, in Dialogic Network India Pvt. (supra), has excluded this company as a comparable. Facts being similar, following the aforesaid decision of the Co-ordinate Bench, we exclude this company as a comparable.
xii) MAPLE-E- SOLUTIONS LTD.
111. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, the promoter of this company i.e., Rastogi Group is under serious indictment as the Rastogi family had cheated the Government of India to the tune of ` 54 crore in the late 1980s and mid 1990s. Therefore, the financials of the company cannot be relied upon. Without prejudice to the aforesaid submissions, he submitted, the company otherwise fails the export turnover filter of more than 75%. In support of his contention, the learned Sr. Counsel relied upon the following decisions:-
i) M/s. Capital IQ Information Systems Pvt. Ltd. v/s DCIT, ITA no.196/Hyd./2011, dated 23.11.2012;
ii) Stream International Services Pvt. Ltd. v/s ACIT, ITA no. 8290/ Mum./2011, dated 10.10.2014; and
iii) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann.com 150 (Mum.).
112. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 66
WNS Global Services Pvt. Ltd.
113. We have considered rival submissions and perused material on record. From the material on record it is evident that the promoters of this company were indicted for fraud and misappropriation. Moreover, as per the working submitted by the assessee, the revenue earned from export of ITES works out to 52.80% which is less than export revenue filter of more than 75% applied by the Transfer Pricing Officer. For the aforesaid reasons, this company cannot be treated as comparable to the assessee. The decisions relied upon by the learned Sr. Counsel also support this view. Accordingly, we exclude this company as a comparable.
COMPARABLES UNDER SOFTWARE DEVELOPMENT SERVICES SEGMENT
i) LGS GLOBAL LTD.
(FORMERLY - LANCO GLOBAL SYSTEMS LTD.
114. The learned Sr. Counsel for the assessee submitted, this is one of the companies selected by the assessee also. He submitted, while examining the acceptability of assessee's comparables the Transfer Pricing Officer has found this company as a comparable, hence, accepted it. He submitted, while selecting his own additional comparables the Transfer Pricing Officer has again included this company as a comparable resulting in the company being considered twice in the final set of comparables.
67
WNS Global Services Pvt. Ltd.
115. The learned Departmental Representative also agreed with the aforesaid submissions of the learned Sr. Counsel for the assessee.
116. Having considered rival submissions in the context of facts and material on record, we find that the aforesaid company was selected by the assessee as a comparable in its transfer pricing study report. The Transfer Pricing Officer while verifying the transfer pricing study report also accepted it as a comparable. However, while selecting additional comparables independently, the Transfer Pricing Officer again selected this company as a comparable. In the process, this company appears twice in the final list of comparables selected by the Transfer Pricing Officer. In view of the aforesaid, we direct the Assessing Officer / Transfer Pricing Officer to rectify the mistake by including the aforesaid company as a comparable only once.
ii) FCS SOFTWARE SOLUTIONS LTD.
117. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, looking at the profit margin earned by the company in the impugned assessment year compared to the preceding two years, it is an exceptional year of operation for the company. He submitted, the revenue from software activity in the impugned assessment year is ` 86.73 crore as compared to ` 143.43 68 WNS Global Services Pvt. Ltd.
crore in the immediately preceding year. Whereas, the expenditure incurred on software development is ` 30.44 crore as against ` 104.35 crore in the immediately preceding year. Therefore, it is an exceptional year of operation for the company. He submitted, this company provides diversified services such as application support services, infrastructure management services, e-learning and digital consulting and I.T. consulting services. He submitted, none of these services are comparable to software development services provided by the assessee. Without prejudice to the aforesaid submissions, he submitted, as per the annual report of the company, the revenue earned from software development services does not satisfy the more than 75% service income filter applied by the Transfer Pricing Officer. Thus, he submitted, the company cannot be treated as comparable. In support of his contention, the learned Sr. Counsel for the assessee relied upon the following decisions:-
i) PCIT v/s Barclays Technology Centre India Pvt. Ltd., ITA no.
1384 of 2015, dated 07.08.2018;
ii) Adobe Systems India Pvt. Ltd. v/s JCIT, ITA no.5963/Del./ 2012, dated 29.10.2014;
iii) PTC Software India Pvt. Ltd. v/s ACIT, ITA no.2546/Pn./2012, dated 11.09.2017; and
iv) Barclays Technology Centre v/s ACIT, ITA no.2279/Pn./2012, dated 28.01.2015.
69
WNS Global Services Pvt. Ltd.
118. The learned Departmental Representative submitted, since this comparable is selected by the assessee himself and the Transfer Pricing Officer has accepted it, assessee's contention for rejecting the company as comparable should not be accepted.
119. In rejoinder, the learned Sr. Counsel for the assessee submitted, even if the assessee has selected it as a comparable in the transfer pricing study, however, it cannot be precluded from seeking removal of the company as a comparable if there are valid reasons for doing so. In support of such contention, he relied upon the following decisions:-
i) CIT v/s Tata Power Solar Systems Ltd., ITA no.1120/2014, dated 16.12.2016; and
ii) DCIT v/s M/s. Quark Systems India Pvt. Ltd. [2010] 132 TTJ 001.
120. We have considered rival submissions and perused material on record. No doubt, this company was selected by the assessee itself in the transfer pricing study report and the Transfer Pricing Officer also accepted it as a comparable. Assessee's stand on this comparable before the DRP is also unclear as there is no deliberation / discussion of the DRP on the acceptability or otherwise of this comparable. Therefore, we are not sure whether the arguments advanced on behalf of the assessee for exclusion of this comparable was ever made before 70 WNS Global Services Pvt. Ltd.
the departmental authorities and, if at all they were made, whether they were considered by the DRP. Though, we appreciate the contention of the learned Sr. Counsel for the assessee that the assessee is not precluded from contesting the acceptability of a comparable selected by it if there are valid reason to do so, however, since the assessee itself has selected this company as a comparable and the Transfer Pricing Officer accepted it, we are of the view that to provide a fair opportunity to the department, issue relating to acceptability or otherwise of this company as a comparable requires to be restored to the Assessing Officer / Transfer Pricing Officer for fresh examination keeping in view the submissions made by the assessee and the decisions relied upon. Accordingly, we restore the issue relating to the selection of this company as a comparable to the Assessing Officer / Transfer Pricing Officer for deciding afresh after due opportunity of being heard to the assessee.
iii) BODHTREE CONSULTING LTD.
121. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it is engaged in providing a wide range of software services and standard software solution. He submitted, segmental data relating to the different varieties of services rendered by the company are not available. He submitted, as per the 71 WNS Global Services Pvt. Ltd.
information available in the website of the company, it offers a wide array of services which include product engineering, analytic services, cloud services, enterprise services, etc. He submitted, as per the website, the company is also engaged in providing software solutions like Share Tree, Tele Tree, Secure Tree, Apps Scale and MIDAS. He submitted, due to the aforesaid factors this company is not comparable to the assessee as it is functionally different. The learned Sr. Counsel submitted, though the assessee had selected this company as comparable in the transfer pricing study, however, it is not precluded from seeking removal of this company as a comparable if there are valid reasons to do so. In support of his contention, the learned Sr. Counsel relied upon the following decisions:-
i) PCIT v/s Barclays Technology Centre India Pvt. Ltd., ITA no.
1384 of 2015, dated 07.08.2018;
ii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
iii) John Deere India Pvt. Ltd. v/s DCIT, ITA n o.827/Ph./2014, dated 27.10.2016;
iv) UCB India Pvt. Ltd. v/s ACIT, ITA no.7691/Mum./20112, 29.07.2016, [2016] 73 taxmann.com 389 (Mum.);
v) Nihilent Technologies Pvt. Ltd. v/s ITO, ITA no.2428/Pn./2012, dated 10.05.2018;
vi) Aircom International India Pvt. Ltd. v/s DCIT, ITA no.6402/ Del./2012, dated 02.08.2017;
vii) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013;
72
WNS Global Services Pvt. Ltd.
viii) NTT DATA india Enterprise Application Services Pvt. Ltd. v/s DCIT, ITA no.1862/Hyd./2012, dated 02.01.2015;
ix) SAP Labs India Pvt. Ltd. v/s ACIT, ITA no.981/Bang./2013, dated 06.04.2018;
x) Tata Power Solar Systems Ltd. v/s DCIT, ITA no.6657/Mum./ 2012, dated 15.01.2014.
xi) M/s. Quark Systems India Pvt. Ltd. v/s DCIT, [2010] 38 SOT 307 (Chandi.); and
xii) Tata Power Solar Systems Ltd. v/s DCIT, ITA no.6657/Mum./ 2012, dated 15.01.2014.
122. The learned Departmental Representative submitted, since the assessee itself has selected this company as comparable and the Transfer Pricing Officer has accepted it, the assessee cannot at this stage be permitted to seek exclusion of this company.
123. We have considered rival submissions and perused material on record. Undisputedly, this company was selected by the assessee as a comparable in the transfer pricing study report and it was accepted by the Transfer Pricing Officer. There is not much discussion by the DRP on the comparability of this company. Therefore, following our reasoning in respect of FCS Software (supra), we restore the issue to the Assessing Officer / Transfer Pricing Officer for deciding afresh keeping in view the submissions of the assessee and the decisions to be relied upon.
73
WNS Global Services Pvt. Ltd.
iv) ACROPETAL TECHNOLOGIES LTD.
124. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, the employee cost of the company works out to 8.20% of its revenue. Therefore, it fails the employee cost filter of 25% applied by the Transfer Pricing Officer himself. Further, he submitted, as per Schedule-5 of the financial statement, the company owns substantial intangible assets which work out to 13.68% of the total fixed assets of the company. Therefore, he submitted, the company cannot be treated as comparable. In support of his contention, learned Sr. Counsel relied upon the following decisions:-
i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
ii) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/Mum./ 2012, dated 20.07.2018;
iii) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann.com 150 (Mum.); and
iv) Ness Technologies India Pvt. Ltd., ITA no.7016/Mum./2012, dated 24.09.2014.
125. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP. 74
WNS Global Services Pvt. Ltd.
126. We have considered rival submissions and perused material on record. From the facts on record, including the financial statement of the company, it is evident that the employee cost of the company works out to 8.2% of the total revenue. Therefore, it fails the employee cost filter of 25% applied by the Transfer Pricing Officer himself. For this reason alone, the company cannot be treated as comparable to the assessee. Even otherwise also, the company owns substantial intangible asset which makes it functionally different from the assessee. For the aforesaid reasons, the Tribunal in the decisions cited by the learned Sr. Counsel has excluded this company as a comparable. Following the consistent view of the Tribunal in the aforesaid decisions, we exclude this company as a comparable.
v) E-ZEST SOLUTIONS LTD.
127. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, as per the information available in the website of the company it is engaged in product engineering, software development, CRM product development, ERP, web designing, wireless application, e-business solutions, total development, etc. Whereas, segmental details are not provided. He submitted, due to the aforesaid activities carried out by the company, it is functionally dissimilar to the assessee. Further, he submitted, in 75 WNS Global Services Pvt. Ltd.
the annual report of the company, details of related party transactions are not available which is absolutely necessary for evaluating the comparability of the company. He submitted, for the aforesaid reasons this company cannot be treated as a comparable. In support of such submissions, he relied upon the following decisions:-
i) PCIT v/s Barclays Technology Centre India Pvt. Ltd., ITA no.
1384 of 2015, dated 07.08.2018;
ii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
iii) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/Mum./ 2012, dated 20.07.2018;
iv) UCB India Pvt. Ltd. v/s ACIT, ITA no.7691/Mum./20112, 29.07.2016, [2016] 73 taxmann.com 389 (Mum.);
v) Net Cracker Technology Solutions India Pvt. Ltd. v/s ACIT, ITA no.86/Hyd./2013, dated 17.06.2015; and
vi) Invensys Development Centre India Pvt. Ltd. v/s ACIT, ITA no. 1692/Hyd./2012, dated 12.11.2014.
128. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP.
129. We have considered rival submissions and perused material on record. As could be seen from the facts on record, this company is rendering product development services and high end technical services which come under the category of KPO services. Considering the aforesaid aspect the Tribunal in various decisions, as cited by the learned Sr. Counsel, has excluded this company as a comparable. 76
WNS Global Services Pvt. Ltd.
Facts being identical, following the decisions cited before us, we exclude this company from the list of comparables.
v) HELIOS AND MATHESON INFORMATION TECHNOLOGY LTD.
130. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, the company is engaged in the activity of research and development of new services, designs, frameworks and methodologies. Further, referring to Schedule-L of the notes to accounts, he submitted, the company derives its revenue from software sales and software services and in the absence of adequate segmental break-up of software development services and software sales the company cannot be considered as a comparable. Without prejudice to the aforesaid submissions, he submitted, employee cost of the company amounts to 1.30% of its revenue. Therefore, it fails the employee cost filter of 25% applied by the Transfer Pricing Officer. In support of such contentions, he relied upon the following decisions:-
i) CIT v/s PTC Software India Pvt. Ltd. v/s ACIT, ITA no. 732/ 2014, dated 26.09.2016;
ii) PTC Software India Pvt. Ltd. v/s ACIT, ITA no.2546/Pn./2012, dated 11.09.2017; and
iii) Nihilent Technologies Pvt. Ltd. v/s ITO, ITA no.2428/Pn./ 2012, dated 10.05.2018.77
WNS Global Services Pvt. Ltd.
131. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP.
132. We have considered rival submissions and perused materials on record. The primary ground on which the assessee objects to selection of this company is, it is involved in development of products. Notably, in case of CIT v/s PTC Software India Pvt. Ltd. (supra), the Hon'ble High Court upheld the decision of the Tribunal rejecting this company as a comparable on the ground that it is involved in development of software products. The same view has been expressed by the Tribunal in various other decisions as cited by the learned Authorised Representative. Since, the majority of the aforesaid decisions, including the decision of the Hon'ble Jurisdictional High Court, pertain to the impugned assessment year, respectfully following the ratio laid down in these decisions, we exclude this company from the list of comparables.
vi) INFOSYS TECHNOLOGIES LTD.
133. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, the company is engaged in diversified operation. He submitted, it provides comprehensive end- to-end solutions that leverage technology. He submitted, these include custom application development, maintenance and production support, 78 WNS Global Services Pvt. Ltd.
package enabled consulting and implementation, technology consulting and other solutions, product engineering services, infrastructure maintenance services, operations and business process consulting, testing solutions and system integration services, etc. He submitted, the company also provides a core banking solution 'Finacle' and provides customization and implementation services around this solution. He submitted, as per the annual report the revenue from software products grew 11% in the impugned assessment year which demonstrates that the company is engaged in sale of software products. He submitted, the company is not comparable due to its scale of operation. He submitted, considering a number of economic factors and market dynamics the company having significantly high turnover cannot be considered as comparable. He submitted, the turnover of Infosys for financial year 2007-08 is ` 15,648 crore as against ` 2.59 crore of the assessee. He submitted, this company incurs significant marketing expenditure which in the financial year 2007-08 was to the tune of ` 730 crore. The learned Sr. Counsel submitted, the company as per the annual report is engaged in significant research and development activities which have led to creation of significant intellectual property. He submitted, the company has established a dedicated research and renovation group known as Software Engineering and Technology Labs. He submitted, in financial 79 WNS Global Services Pvt. Ltd.
year 2007-08, the company has spent ` 201 crore on research and development expenses. He submitted, the company owns significant intangibles as it was granted two patents in financial year 2007-08 with 119 patent applications pending in USA and India. Finally, learned Sr. Counsel submitted, this company being an industry leader, has gained enormous advantage on account of its brand value which allows it to make high margins. Therefore, it cannot be compared to a captive service provider like the assessee. In support of his contention, the learned Sr. Counsel relied upon the following decisions:-
i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
ii) CIT v/s Agnity India Technologies Pvt. Ltd. ITA no.1204/2011, dated 10.07.2013;
iii) UCB India Pvt. Ltd. v/s ACIT, ITA no.7691/Mum./2012, dated 29.07.2016, [2016] 73 taxmann.com 389 (Mum.);
iv) Net Cracker Technology Solutions India Pvt. Ltd. v/s ACIT, ITA no.86/Hyd./2013, dated 17.06.2015;
v) Capgemini India Pvt. Ltd. v/s ITO, ITA no.7099/Mum./2012, dated 10.12.32015;
vi) Invensys Development Centre India P. Ltd. v/s ACIT, ITA no. 1692/Hyd./2012, dated 12.11.2014;
vii) M/s. NTT Data India Enterprise Application Services Pvt. Ltd. v/s DCIT, ITA no.1862/Hyd./2012, dated 02.01.2015;
viii) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013; and
ix) John Deere India Pvt. Ltd. v/s DCIT, ITA no.827/Ph./2014, dated 27.10.2016.
80
WNS Global Services Pvt. Ltd.
134. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP.
135. We have considered rival submissions and perused materials on record. After carefully examining the material on record, we are of the view that under no circumstances, this company can be held as comparable to the assessee. As could be seen from the facts on record, Infosys is involved in diversified operation and provides end- to-end solutions relating to custom application development, maintenance and production support, package enabled consulting and implementation, technology consulting and other solutions, product engineering services, infrastructure maintenance services, operations and business process consulting, testing solutions and system integration services, etc. It also develops software products and has ownership right over "Finacle". It has incurred significant marketing as well as research and development expenditure and owns intangibles. As seen from the materials placed on record, it has been granted two patents in financial year 2007-08 and 119 patent applications are pending in USA and India. Further, it is a reputed company and it has enormous brand value. Moreover the turnover of this company in financial year 2007-08 at ` 15,648 crore makes it a giant company compared to the miniscule turnover of ` 2.59 crore of the assessee. 81
WNS Global Services Pvt. Ltd.
The aforesaid factors, cumulatively, make this company non- comparable to the assessee. In a number of decisions of different Benches of the Tribunal, as cited by the learned Sr. Counsel, it has been consistently held that Infosys cannot be treated as a comparable to a small captive service provider. In view of the aforesaid, we hold that this company cannot be a comparable to the assessee.
vii) KALS INFORMATION SYSTEMS LTD.
136. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, as per the information available in the annual report the company is engaged in providing software services as well as sale of software product. He submitted, as per the annual report, the company holds inventory amounting to 39.02% and 54.04% of its total asset in financial year 2007-08 and 2006-07 respectively. He submitted, as per segmental information in the annual report, the company derives income from two segments viz. application software and training segment. However, there is no separate segment to account for the product sale which demonstrates that revenues from product sale are also included in the application software segment. Thus, he submitted, in absence of adequate segmental break-up of software development services, the company cannot be considered as a comparable. Further, he submitted, as per 82 WNS Global Services Pvt. Ltd.
the information available in the website of the company it owns proprietary products such as CMSS, EDMS, Shine ERP, Virtual Insure. He submitted, as per the website, the company offers different products such as Virtual Insure, LA-Vision, Consultant Management Sales System, Docuflo, Shine ERP etc. He submitted, since it is also a product company it cannot be treated as comparable to the assessee. In support, he relied upon the following decisions:-
i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
ii) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/Mum./ 2012, dated 20.07.2018;
iii) UCB India Pvt. Ltd. v/s ACIT, ITA no.7691/Mum./20112, 29.07.2016, [2016] 73 taxmann.com 389 (Mum.);
iv) Net Cracker Technology Solutions India Pvt. Ltd. v/s ACIT, ITA no.86/Hyd./2013, dated 17.06.2015;
v) Invensys Development Centre India Pvt. Ltd. v/s ACIT, ITA no. 1692/Hyd./2012, dated 12.11.2014;
vi) CIT v/s PTC Software India Pvt. Ltd., ITA no. 732/2014, dated 26.09.2016;
vii) PTC Software India Pvt. Ltd. v/s ACIT, ITA no.2546/Pn./2012, dated 11.09.2017; and
viii) Nihilent Technologies Pvt. Ltd. v/s ITO, ITA no.2428/Pn./ 2012, dated 10.05.2018.
137. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP. 83
WNS Global Services Pvt. Ltd.
138. We have considered rival submissions and perused materials on record. The main plank on which the assessee has challenged selection of the aforesaid comparable is, it is engaged in development of software products. Notably, in case of PTC Software India Pvt. Ltd. (supra), the Hon'ble High Court upheld the decision of the Tribunal in rejecting this company as a comparable to a software development service provider on the ground that it is engaged in the development of product. The other decisions cited by the learned Sr. Counsel also express similar view. Since, most of these decisions cited by the learned Sr. Counsel, including the decision of the Hon'ble Jurisdictional High Court in PTC Software India Pvt. Ltd. (supra), pertain to the impugned assessment year, respectfully following them we exclude this company from the list of comparables.
viii) PERSISTENT SYSTEMS LTD.
139. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it cannot be treated as comparable since it is primarily engaged in development and sale of software products, though, it also provides software services. He submitted, the financial statement of the company does not provide sufficient segmental information to determine profitability from sale of products and provision of services respectively. He submitted, unlike 84 WNS Global Services Pvt. Ltd.
assessee, the company undertakes substantial research and development activities and has developed and acquired several intellectual properties. Thus, he submitted, for the aforesaid reasons the company cannot be treated as comparable. In support, he relied upon the following decisions:-
i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
ii) Aircom International India Pvt. Ltd. v/s DCIT, ITA no.6402/ Del./2012, dated 02.08.2017;
iii) SAP Labs India Pvt. Ltd. v/s ACIT, ITA no.981/Bang./2013, dated 06.04.2018;
iv) DCIT v/s M/s. Century Link Technologies India Pvt. Ltd., IT(TP)A no.292/Bang./2013, dated 06.04.2018; and
v) DCIT v/s Verifone India Technology Pvt. Ltd., IT(TP)A no.292/ Bang./2013, dated 06.04.2018.
140. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP.
141. We have considered rival submissions and perused materials on record. The primary and fundamental reason on the basis of which assessee seeks rejection of the aforesaid comparable is, it is also engaged in the development of product and segmental details are not available. Notably, in case of Dialogic Networks (India) Pvt. Ltd. (supra), the Co-ordinate Bench while examining the comparability of the aforesaid company to a software development service provider, 85 WNS Global Services Pvt. Ltd.
has rejected this company as a comparable considering the fact that it is engaged in product development and product design services. The same view has been reiterated by the Tribunal in the other decisions cited by the learned Sr. Counsel. Since, many of these decisions pertain to the impugned assessment year, respectfully following the aforesaid decisions of the Tribunal, we direct the Assessing Officer to exclude this company from the list of comparables.
ix) TATA ELXSI LTD.
142. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it is engaged in the business of providing product design and engineering services to the consumer electronics, communication and transportation industry and systems integration and support services for enterprise customers. It also provides digital content creation for media and entertainment industry. He submitted, the company is engaged in diversified operation that includes embedded product design, industrial design, animation and visual computing labs and system integration services. In this context he drew our attention to the information available in the annual report of the company. He submitted, though, the Transfer Pricing Officer has stated that he has considered software development and services segment for comparability purpose, however, as per the director's 86 WNS Global Services Pvt. Ltd.
report, the software development services segment constitutes embedded product design, industrial design and visual computing labs. He submitted, a detailed description of this services as provided in the annual report suggests that they are not in the nature of software development services provided by the assessee. Further, he submitted, no segmental break-up is available for the software development, ITES and sale of software product undertaken by the company. He submitted, the company undertakes research and development activity and owns significant intellectual property rights. He also submitted, the company fails the export earning filter of 75% applied by the Transfer Pricing Officer. Thus, he submitted, for the aforesaid reasons this company cannot be selected as comparable. In support, he relied upon the following decisions:-
i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
ii) UCB India Pvt. Ltd. v/s ACIT, ITA no.7691/Mum./20112, 29.07.2016, [2016] 73 taxmann.com 389 (Mum.);
iii) Net Cracker Technology Solutions India Pvt. Ltd. v/s ACIT, ITA no.86/Hyd./2013, dated 17.06.2015;
iv) Invensys Development Centre India Pvt. Ltd. v/s ACIT, ITA no. 1692/Hyd./2012, dated 12.11.2014;
v) Aircom International India Pvt. Ltd. v/s DCIT, ITA no.6402/ Del./2012, dated 02.08.2017;
iv) SAP Labs India Pvt. Ltd. v/s ACIT, ITA no.981/Bang./2013, dated 06.04.2018; and 87 WNS Global Services Pvt. Ltd.
vii) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013.
143. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP.
144. We have considered rival submissions and perused materials on record. On a perusal of the documents placed in the paper book it appears that this company is engaged in various activities including development of niche product and development services. Thus, the company is functionally different from the assessee. Considering the aforesaid aspect, the Co-ordinate Bench in case of Dialogic Networks (India) Pvt. Ltd. (supra), which is for the very same assessment year, has excluded this company as a comparable. Similar view has also been expressed in the other decisions cited by the learned Sr. Counsel. Thus, keeping in view the decisions of the Tribunal referred to above, we hold that this company cannot be a comparable to the assessee.
ix) THIRDWARE SOLUTIONS LTD.
145. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, the annual report of the financial year 2007-08 does not provide a clear picture of the functional profile of the company. He submitted, as per the information available in the annual report, the company is engaged in implementation and 88 WNS Global Services Pvt. Ltd.
consulting services of software based on ERP and business intelligence. He submitted, as per the annual report the company's operations comprise of three divisions i.e., software development, implementation and support services. However, the annual report does not provide segmental bifurcation of the aforesaid divisions. He submitted, as per the annual report, the company has earned an amount of ` 1.32 crore from sale of licenses and subscriptions. Thus, he submitted, since the company is also engaged in development and sale of products, it cannot be treated as a comparable. Further, he submitted, the information provided by the company in response to notice issued under section 133(6) of the Act by the Transfer Pricing Officer is not available in public domain, hence, cannot be verified. Thus, he submitted, for the aforesaid reasons the company cannot be treated as comparable to the assessee. In support, he relied upon the following decisions:-
i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
ii) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/ Mum./2012, dated 20.07.2018;
iii) NTT DATA india Enterprise Application Services Pvt. Ltd. v/s DCIT, ITA no.1862/Hyd./2012, dated 02.01.2015;
iv) Aircom International India Pvt. Ltd. v/s DCIT, ITA no.6402/ Del./2012, dated 02.08.2017;
v) SAP Labs India Pvt. Ltd. v/s ACIT, ITA no.981/Bang./2013, dated 06.04.2018; and 89 WNS Global Services Pvt. Ltd.
vi) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013.
146. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP.
147. We have considered rival submissions and perused materials on record. The grievance of the assessee is, the company is involved in development of products and no segmental details are available in the annual report, hence, it cannot be treated as comparable. The Co- ordinate Bench in case of Dialogic Networks (India) Pvt. Ltd. (supra)having found this company to be involved in development of software product and trading in software licenses has held that it cannot be a comparable to a software development service provider. Similar view has been expressed in the other decisions cited before us by the learned Sr. Counsel. Since, many of these decisions relate to the very same assessment year, following the ratio laid down in these decisions, we hold that this company cannot be a comparable to the assessee.
x) WIPRO LTD.
148. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it is engaged in diversified operations. He submitted, the company is a leading provider of 90 WNS Global Services Pvt. Ltd.
information technology, business process outsourcing and product engineering services to customers globally. It provides integrated business technology and process solution on a global delivery platform and employs over 94,000 people across 56 nations. He submitted, as per information available in the annual report, the company offers consulting, package implementation, application development and maintenance, testing services, technology infrastructure, business process outsourcing and product engineering services. He submitted, in absence of suitable segmental details, the company cannot be considered as a comparable as software development and non- software development services cannot be compared for benchmarking purposes. Further, he submitted, the turnover of Wipro Ltd. from I.T. services segment for financial year 2007-08 is ` 11955.06 crore as against ` 2.59 crore of the assessee. He submitted, the company with such a huge turnover cannot be compared to the assessee. He submitted, the company undertakes research and development activities and owns significant intellectual properties. Further, it has a huge brand value of 'Wipro' which puts it in an advantageous position with regard to pricing, etc. He submitted, the company owns significant intangibles which is evident from 38 patents already granted and many more patent applications pending. Thus, he submitted, the company cannot be treated as comparable to the 91 WNS Global Services Pvt. Ltd.
assessee. In support of his contention, the learned Sr. Counsel relied upon the following decisions:-
i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018;
ii) UCB India Pvt. Ltd. v/s ACIT, ITA no.7691/Mum./20112, 29.07.2016, [2016] 73 taxmann.com 389 (Mum.);
iii) Net Cracker Technology Solutions India Pvt. Ltd. v/s ACIT, ITA no.86/Hyd./2013, dated 17.06.2015;
iv) Invensys Development Centre India Pvt. Ltd. v/s ACIT, ITA no. 1692/Hyd./2012, dated 12.11.2014;
v) Capgemini India Pvt. Ltd. v/s ITO, ITA no.7099/Mum./2012, dated 10.12.32015;
vi) Aircom International India Pvt. Ltd. v/s DCIT, ITA no.6402/ Del./2012, dated 02.08.2017;
vii) NTT DATA india Enterprise Application Services Pvt. Ltd. v/s DCIT, ITA no.1862/Hyd./2012, dated 02.01.2015; and
viii) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013.
149. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer.
150. We have considered rival submissions and perused material on record. As could be seen from the annual report of the company as well as other materials placed in the paper book, this company is into diversified activities and owns substantial intangibles by way of patents and intellectual properties. The company has a huge brand value and it is a giant company having a huge turnover. Therefore, for 92 WNS Global Services Pvt. Ltd.
the detailed reasoning on the basis of which we excluded Infosys Technologies Ltd. (supra) as a comparable also equally applies to this company. Therefore, we hold that this company cannot be a comparable to a captive service provider like the assessee. The decisions relied upon by the learned Sr. Counsel for the assessee also supports our aforesaid view. Accordingly, the Assessing Officer is directed to exclude this company from the list of comparable.
xi) AKSHAY SOFTWARE TECHNOLOGIES LTD.
151. Objecting to the rejection of this company the learned Sr. Counsel for the assessee submitted, the only reason on which the Transfer Pricing Officer rejected this company is, its on-site information is not available. He submitted, during the Transfer Pricing proceedings, in the show cause notice the Transfer Pricing Officer has not explained the rationale adopted by him to exclude this company. He submitted, in any case of the matter, the Transfer Pricing Officer has not applied the on-site revenue filter. Therefore, for that reason alone the company cannot be rejected as a comparable.
152. The learned Departmental Representative submitted, no details were provided with regard to on-site revenue earned by the company. He submitted, since there will be difference in cost between on-site 93 WNS Global Services Pvt. Ltd.
and off-site development, relevant information is necessary for considering the comparability of this company.
153. We have considered rival submissions and perused material on record. As could be seen from Para-3 of the Transfer Pricing Officer's order, he has rejected this company on the reasoning that on-site revenue information is not available in the annual report. It is a fact on record that the Transfer Pricing Officer has not applied on-site revenue filter while selecting comparables. Therefore, in our view, for that reason only, the company cannot be rejected as a comparable. However, since there is no detailed discussion regarding the functional similarity or otherwise of this company either by the Transfer Pricing Officer or by the DRP, we restore the issue to the Assessing Officer / Transfer Pricing Officer for fresh examination and if this company is found to be functionally similar to the assessee it can be treated as a comparable.
xii) PSI DATA SYSTEMS LTD.
154. Objecting to the rejection of this company the learned Sr. Counsel for the assessee submitted, while applying the RPT filter of 25%, the Transfer Pricing Officer has included reimbursement which is improper and erroneous. He submitted, if the reimbursement is excluded, then the RPT as a percentage of revenue would be only 94 WNS Global Services Pvt. Ltd.
5.06%. Therefore, the company cannot be rejected as a comparable. In support, he relied upon the Co-ordinate Bench decision in case of Jacobs Engineering India Pvt. Ltd. v/s DCIT, ITA no.7194/Mum./2012, dated 17th May 2017.
155. The learned Departmental Representative relying upon the observation of the Transfer Pricing Officer and the DRP submitted that reimbursement since forms part of international transaction has to be included for the purpose of RPT.
156. We have considered rival submissions and perused material on record. It is evident, the Transfer Pricing Officer has rejected this company only on the reasoning that the RPT is more than 25%. In other words, the Transfer Pricing Officer finds the company to be functionally similar to the assessee. While doing so, he has observed that the company has made reimbursement of expenditure amounting to ` 22 crore to the AEs against ` 78.80 crore of revenue. In case of Jacobs Engineering India Pvt. Ltd. (supra) the Co-ordinate Bench has held that mere reimbursement of expenses having no profit element incurred by a group concern cannot be considered as a commercial transaction. However, the facts relating to this aspect in case of the assessee as to whether the reimbursement made by the assessee were actually on account of actual cost incurred by the AEs on behalf 95 WNS Global Services Pvt. Ltd.
of the assessee having no profit element requires to be examined. In case, the assessee is able to demonstrate that ` 22 crore paid to the AEs is on account of reimbursement of actual expenditure incurred by the AEs on behalf of the assessee without any profit element, in our view, it should not be considered for computing RPT. Only for the limited purpose of verifying this aspect, we restore the issue to the Assessing Officer / Transfer Pricing Officer for deciding afresh after due opportunity of being heard to the assessee.
xiii) SIP TECHNOLGIES AND EXPORTS LTD.
157. Objecting to the rejection of this company the learned Sr. Counsel for the assessee submitted, the only reason on which this company has been rejected by the Transfer Pricing Officer is, it is a loss making company. The learned Sr. Counsel submitted, the reasoning of the Transfer Pricing Officer is factually incorrect as the net cost plus margins of the company for financial year 2005-06 is 21.14% and for financial year 2006-07 is (-17.60%). Thus, he submitted, since the company has not incurred loss consistently in the impugned assessment year as well as the preceding two years, it cannot be rejected as a comparable. He submitted, since the Transfer Pricing Officer has not made any adverse comment with regard to 96 WNS Global Services Pvt. Ltd.
functional similarity of the company with the assessee it should be included as a comparable.
158. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer.
159. We have considered rival submissions and perused material on record. It is evident from the facts on record, the only reason on which the Transfer Pricing Officer has rejected this company is, it is a loss making company. Thus, the Transfer Pricing Officer accepts that the company is otherwise functionally similar to the assessee. It is the specific contention of the learned Sr. Counsel that only persistent loss making companies i.e., the companies which have shown loss in three succeeding assessment years can be treated as loss making companies, hence, not comparable. It has been submitted before us that this company has made a profit in assessment year 2006-07. Therefore, it does not come within the category of persistent loss making company. We find merit in the aforesaid submissions of the learned Sr. Counsel. Therefore, we direct the Assessing Officer to verify whether this company has incurred loss in the impugned assessment year as well as the preceding two assessment years. In case, it is found that it has not incurred loss in three consecutive assessment years, as stated above, it cannot be rejected as a 97 WNS Global Services Pvt. Ltd.
comparable by treating it as a consistent loss making company. Therefore, we restore the issue to the Assessing Officer for deciding afresh after due opportunity of being heard to the assessee.
160. Accordingly, the Assessing Officer / Transfer Pricing Officer is directed to determine the ALP of the international transactions with the AEs under ITES and Software Development Services segments keeping in view our observations made herein above.
161. In the result, assessee's appeals are partly allowed and Revenue's appeal is dismissed.
Order pronounced in the open Court on 16.01.2019 Sd/- Sd/-
MANOJ KUMAR AGGARWAL SAKTIJIT DEY
ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 16.01.2019
Copy of the order forwarded to:
(1) The Assessee;
(2) The Revenue;
(3) The CIT(A);
(4) The CIT, Mumbai City concerned;
(5) The DR, ITAT, Mumbai;
(6) Guard file.
True Copy
By Order
Pradeep J. Chowdhury
Sr. Private Secretary
(Sr. Private Secretary)
ITAT, Mumbai