Delhi High Court - Orders
The Pr. Commissioner Of Income Tax -3 vs D.E Shaw India Advisory Services P. Ltd on 17 September, 2024
Author: Yashwant Varma
Bench: Yashwant Varma
$~5 to 7
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 70/2019
THE PR. COMMISSIONER OF INCOME TAX -3
.....Appellant
Through: Mr. Anant Mann, JSC, Mr.
Abhishek Anand and Mr.
Pranjal Singh, Advocates for
Mr. Ruchir Bhatia, SSC
versus
D.E SHAW INDIA ADVISORY SERVICES P. LTD.
.....Respondent
Through: Mr. Yash Varmani, Adv.
6
+ ITA 74/2019
THE PR. COMMISSIONER OF INCOME TAX -3
.....Appellant
Through: Mr. Anant Mann, JSC, Mr.
Abhishek Anand and Mr.
Pranjal Singh, Advocates for
Mr. Ruchir Bhatia, SSC
versus
D.E. SHAW INDIA ADVISORY SERVICES P. LTD.
.....Respondent
Through: Mr. Yash Varmani, Adv
7
+ ITA 75/2019
THE PR. COMMISSIONER OF INCOME TAX -3
.....Appellant
Through: Mr. Anant Mann, JSC, Mr.
Abhishek Anand and Mr.
Pranjal Singh, Advocates for
Mr. Ruchir Bhatia, SSC
versus
D.E. SHAW INDIA ADVISORY SERVICES P. LTD.
.....Respondent
Through: Mr. Yash Varmani, Adv
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE RAVINDER DUDEJA
ITA 70/2019 & connected matters Page 1 of 6
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
The Order is downloaded from the DHC Server on 27/09/2024 at 22:21:51
ORDER
% 17.09.2024 CM APPL. 2636/2024 (Change the Name of Res./Applicant) in ITA 70/2019 CM APPL. 2633/2024 (Change the Name of Res./Applicant) in ITA 74/2019 CM APPL. 2641/2024 (Change the Name of Res./Applicant) in ITA 75/2019 Bearing in mind the disclosures made in the applications, the same are allowed.
The applications stand disposed of.
ITA 70/2019, ITA 74/2019 and ITA 75/2019
1. These three appeals which pertain to Assessment Years1 2010- 11, 2011-12 and 2012-13 impugn the order of the Income Tax Appellate Tribunal2 dated 04 September 2017.
2. The Principal Commissioner of Income Tax posits the following questions of law for our consideration:
"2.1 Whether on the facts and circumstances of the case, the Ld. ITAT was right in excluding M/s Brescon Advisors & Holding Ltd. as a comparable failing to note and appreciate that the Indian Law and the International jurisprudence recognize the reality that there cannot be exact comparable in a given situation and a very strict comparability will defeat the purpose of flexibility provided in comparability analysis for determination of ALP. 2.2 Whether on the facts and circumstances of the case, the Ld. ITAT was right in excluding M/s. MotilalOswal Investment Advisors Pvt. Ltd. asa comparable failing to note and appreciate that the Indian Law and the International jurisprudence recognize the reality that there cannot be exact comparable in a given situation and a very strict comparability will defeat the purpose of flexibility provided in comparability analysis for determination of ALP.
2.3 Whether on the facts and circumstances of the case, the Ld. ITAT was right in excluding M/s. Keynote Corporate Services Ltd., as a comparable failing to note and appreciate that the Indian 1 AY 2 Tribunal ITA 70/2019 & connected matters Page 2 of 6 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/09/2024 at 22:21:51 Law and the International jurisprudence recognize the reality that there cannot be exact comparable in a given situation and a very strict comparability will defeat the purpose of flexibility provided in comparability analysis for determination of ALP.
2.4 Whether the impugned order is sustainable in law inasmuch as the directions passed by the ld. ITAT on selection/ exclusion of comparable are contrary to the basic principles in this regard and based on extraneous factors, which are not warranted in law and/or in facts."
3. Before us, and insofar as the inclusion of M/s Keynote Corporate Services, M/s Motilal Oswal Investment Advisors Pvt. Ltd. and Almondz Global Securities Ltd. is concerned, Mr. Mann, learned counsel appearing in support of the appeals could not establish that the findings of fact as rendered by the Tribunal suffer from any perversity or patent illegality.
4. We consequently find that the appeals fails to raise any substantial questions of law in so far as the aforenoted comparables are concerned.
5. Before us, submissions were principally addressed with respect to M/s Brescon Corporate Advisors and Holdings Ltd. Learned counsel appearing for the respondent-assessee has drawn our attention to the following observations which came to be rendered by the Mumbai Bench of the Tribunal in the matter of M/s Blackstone Advisors India (P) Ltd. vs. Deputy Commissioner of Income-tax, Circle-6(1)3. The relevant extracts of that decision are reproduced hereinbelow:
"10. As regard Brescon Corporate Advisors Pvt Ltd. he submitted that, this company is one of the India's leading corporate advisor companies that assist companies in Special Situations through resolution, recapitalization, mergers & acquisitions, infusion of private equity or direct investment. It also assists the 3 2016 SCC OnLine ITAT 4520 ITA 70/2019 & connected matters Page 3 of 6 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/09/2024 at 22:21:51 small and medium enterprises in providing financial solutions advisory and access to capital. During the financial year 2007-08, the company has earned income from following:-
Particulars Amount in (Rs.) % of total
income
Financial restructuring & 100,078,982 70.33
recapitalization
Debt syndication 21,850,000 15.35
Equity related 20,381,000 14.32
advisory/M & A advisory
Thus, it can be seen that, its main revenue is from debts syndication, financial restructuring and corporate finance and capital market service. Thus, this company cannot be held to be comparable at all with the assessee."
6. We note that the aforesaid judgment of the Mumbai Bench of the Tribunal thereafter came to be affirmed by the Bombay High Court in Pr. Commissioner of Income Tax-3, Mumbai v. M/s Blackstone Advisors India Pvt. Ltd.4 and which dismissed the appeal in terms of an order dated 11 March 2019 with the Court observing as follows:
"3. The Respondent - Assessee is held to be an investment sub-advisor by the Tribunal, with respect to which the Revenue has not raised any dispute in this Appeal. The dispute raised by the Revenue relates to either inclusion or exclusion of certain comparables by the Tribunal while carrying out FAR in case of the Assessee. The Tribunal discarded two entities namely Motilal Oswal Investment Advisory Pvt. Ltd. and Brescon Corporate Advisors Pvt. Ltd. on the ground that these companies were merchant bankers or investment bankers and cannot be compared with the Assessee who was investment sub-advisor. The third instance of comparable is of ICRA Management Consulting Services Ltd. The Tribunal accepted the Assessee's contention that ICRA Management provided a safe comparable. The Revenue disputes these three findings of the Tribunal.
4. Through Judgment in the case of Commissioner of Income Tax-10, Mumbai Vs. Carlyle India Advisors (P) Ltd., this Court 4 2019: BHC-OS: 6387-DB ITA 70/2019 & connected matters Page 4 of 6 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/09/2024 at 22:21:51 has confirmed the Tribunal's view that the case of investment advisor or sub-advisor cannot be compared with a merchant banker or investment banker. The first two instances discarded by the Tribunal, therefore, do not call for any interference.
5. Insofar as the comparison with ICRA Investment is concerned, here also, the issue is covered against the Revenue in the decision of The Commissioner of Income Tax-3 Vs. Temasek Holdings Advisors India Pvt. Ltd.
6. In the result, the Income Tax Appeal is dismissed."
7. The Special Leave Petition taken against the aforesaid decision also came to be dismissed by the Supreme Court on 04 October 2019.
8. Mr. Mann, learned counsel, however, draws our attention to the decisions rendered in Chryscapital Investment Advisors (India) P. Ltd. vs. Deputy Commissioner of Income-tax5 and Avenue Asia Advisors Pvt. Ltd. vs. Deputy Commissioner of Income-tax6.
9. We note that in so far as Chryscapital Investment is concerned, the issue of whether M/s Brescon Advisors & Holding Ltd. should have been included as a comparable ultimately came to be remanded for fresh consideration.
10. In Avenue Asia Advisors Pvt. Ltd. the assessee had posited the following questions for the consideration of the Bench:
"(i) Was the Income-tax Appellate Tribunal ('ITAT') justified in recharacterising the function of the assessee as a merchant banker and was this in conformity with the sub-advisory agreement dated February 1, 2006""
11. That question ultimately came to be answered in favour of the appellant as would be manifest from the following discussion which forms part of that judgment:
"22. Broadly, it appears that the Income-tax Appellate Tribunal has gone on the usage of several terms such as debt syndication, debt 5 2015 SCC OnLine Del 9065 6 2017 SCC OnLine Del 10650 ITA 70/2019 & connected matters Page 5 of 6 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/09/2024 at 22:21:51 financing, IPO advisory, corporate restructuring, mergers, acquisitions etc, appearing in the annual reports of the comparable to hold that the Assessee and the said comparables perform similar functions. The analysis at such a broad level, based upon the appearance of such similar terminologies, does not by itself make the functions similar in nature.
23. The argument of the assessee appears to be that while the assessee was merely advising on these issues and providing advisory services to its associated enterprise, these three comparables appear to be actually involved in the providing of services relating to debt restructuring, debt financing, issuance of IPOs, mergers and de-mergers, etc. There is a difference between giving advice on these matters and actually undertaking the said services. A similar illustration, in the context of litigation, would be the difference between giving advice on what to argue in court and actually arguing the matter in the court. This difference needs to be borne in mind and the mere appearance of similar sounding words does not by itself constitute similar functions. Further, as laid down in Rampgreen Solutions (supra), all these three companies demonstrated a wide deviation in the percentage of margins. Thus, it requires a deeper analysis to determine as to whether they were in fact comparables to be retained for the purpose of fixing the arm's length price.
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25. In this backdrop, when sub-advisory agreement dated July 1, 2006 along with the addendum thereto, is examined, the services of the assessee cannot be termed as that of merchant banking though there may be some overlap in the advisory segment of the services provided by merchant bankers. In view of the services rendered by the assessee, question (i) is answered in the negative i.e. in favour of the assessee and against the Revenue."
12. Bearing in mind the aforesaid, we find that the appeals fail to raise any substantial questions of law. It shall consequently stand dismissed.
YASHWANT VARMA, J.
RAVINDER DUDEJA, J.
SEPTEMBER 17, 2024/ib ITA 70/2019 & connected matters Page 6 of 6 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/09/2024 at 22:21:51