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TMI Blog2015 (8) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... olly owned subsidiary of Ameriprise, US, which parent company is engaged in the business of insurance, annuities, asset management and brokerage. The primary object of Ameriprise US is to provide services towards financial planning and other areas like institutional asset management and advisory, pension fund management, the management and administration of certain plans. The assessee was incorporated in August, 2005 and started operations in October, 2005. It is engaged in providing Information Technology (IT) enabled services to Ameriprise US. The assessee reported two international transactions, including remuneration from the `Provision of IT-enabled back office services' with transacted value of Rs. 41,78,36,037/-. The assessee applied the Transactional Net Margin Method (TNMM) as the most appropriate method for benchmarking the international transaction of provision of IT enabled back office support services. Profit level indicator (PLI) of Operating Profit/Total Cost (OP/TC) was computed by the assessee at 14.66%. Six companies were considered as comparable which have been listed on page 10 of the Transfer Pricing Officer's (TPO) order. It was shown that their arithmetic mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support in client data entry for assistance in preparation of draft reports for customers. The third broad category is `General counsel office' services, which includes E-discovery, Compliance, Profit and loss relations, Intellectual property claims and contracts drafting. This category refers to the assistance provided by the assessee in sorting legal cases and classifying them on the basis of reasons entailed therein and also assistance in drafting contracts for intellectual property claims. The next broad category is `Data analytics services', which involves scrambling and assembling of data into a more meaningful form to enable Ameriprise, US to review the performance of various products offered to its customers and other related activities. The next broad category is `Vendor management services' which means performing data processing services in respect of call centres and back office operations of certain companies, outsourced by Ameriprise US. The assessee is required to convert the data into presentable form to enable Ameriprise, US to evaluate the performance of its outsourced call centres and back office operations. Next category is `Procurement services'. Under this cate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dors appointed by Ameriprise USA in India for rendering of outsourced call centre and back office services. This would include: i. Collection of data on performance of back office operations in India; ii. Analyse, evaluate and process such data into specified formats by applying information technology tools and provide suitable observations thereof. f. To the extent necessary or desirable, the Parties shall be free to add one or more schedules to this Agreement to describe in greater detail the Specified Products and Services." 10. A perusal of the clause 3 of the Agreement between the assessee and Ameriprise, US reveals that the assessee is to collect and then process the data received/sourced from Ameriprise US and thereafter send the reports to Ameriprise US in the desired form. The other services referred to in this Agreement also are essentially in the nature of collection of data in one form or the other and then, sending reports to Ameriprise US. In other words, the assessee is involved in providing back office support services to Ameriprise US without any direct involvement in the conduct of business of Ameriprise US. With the above background of the assessee's nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ysCapital (supra), this issue has now shed the character of controversy insofar as the jurisdiction of the authorities under the Hon'ble Delhi High Court is concerned. Now, an otherwise comparable company cannot be excluded on the strength of high or low turnover. It is significant to note that the Tribunal in its later order dated 6.7.2015 in Techbooks International Pvt. Ltd. vs. DCIT (ITA No.240/Del/2015) has simultaneously considered the impact of the judgments of the Hon'ble Delhi High Court in CIT vs. Agnity India Technologies Pvt. Ltd. (2013) 219 Taxman 26 (Del) and later case of ChrysCapital Investment Advisors (I) Pvt. Ltd. (supra). After making a comparative study, the Bench has held that a company with a high turnover cannot be excluded on this criteria, if it is functionally similar. In the light of the judgment of the Hon'ble jurisdictional High Court in the case of ChrysCapital Investment Advisors (I) Pvt. Ltd., it becomes clear that the view taken in the case of Mercer (supra), on the exclusion of Cosmic Global on the consideration of low turnover, can no more be treated as a precedent. Law is not a static phenomenon. It keeps on evolving over a period with the arriva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO considered this company as comparable. The assessee's objections about the functional dissimilarity were brushed aside. Now, the assessee challenges the inclusion of this company in the final set of comparables. 13.2. After considering the rival submissions and perusing the Annual accounts of this company for the year in question, it is observed that apart from rendering IT enabled services, this company is also having software products and the revenue from both these streams has been merged. As the segmental figures in relation to the business of rendering ITES are not available and the TPO has taken its entity level figures, it ceases to be comparable. The obvious reason for the exclusion of this company is the pooling of income from software products in its overall profitability, which cannot be separated with precision, thereby rendering it incomparable. We, therefore, direct to remove this company from the list of comparables. iv) e- Clerx Services Ltd. 14.1. The TPO treated this company as comparable and the assessee's objections about the functional dissimilarity were ignored. 14.2. After considering the rival submissions and perusing the relevant material on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een entered into." It is obvious from the language of sub-rule (4) that the comparability of an uncontrolled transaction can be analyzed only with the "data relating to the financial year" in which the international transaction has been entered into. In other words, if the tested party has March year ending, then, the comparables must also have the data relating to the financial year ending 31st March itself. If such a data is not available, then, a company albeit functionally comparable, disqualifies. Espousing the facts of the extant case, we find that insofar as the functional comparability of this company is concerned, the TPO has not disputed the same. The only reason given for its exclusion is the non-availability of data for the relevant financial year. The ld. AR contended that though the year ending of the above company was different, yet, the assessee was in a position to put forward the data of this company for the financial year 1.4.2008 to 31.3.2009 from their Annual reports only. It was so stated on the basis of the availability of the quarterly data from the Annual reports of this company, which could be adjusted for the financial year ending 31.3.2009. If the conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequent to sale but prior to realization. It went on to add that when goods are exported and invoice is raised in currency of the country where such goods are sold and subsequently when the amount is realized in that foreign currency and then converted into Indian rupees, the entire amount is relatable to the exports. In fact, it is only the translation of invoice value from the foreign currency to the Indian rupees. The Special bench held that the exchange rate gain or loss cannot have a different character from the transaction to which it pertains. The Bench found fallacy in the submission made on behalf of the Revenue that the exchange rate difference should be detached from the exports and be considered as an independent transaction. Eventually, the Special Bench held that such exchange rate fluctuation gain/loss arising from exports cannot be viewed differently from sale proceeds. 16.4. In the context of transfer pricing, the Bangalore Bench of the Tribunal in SAP Labs India Pvt. Ltd. Vs ACIT (2011) 44 SOT 156 (Bangalore) has held that foreign exchange fluctuation gain is part of operating profit of the company and should be included in the operating revenue. Similar view has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26 of its direction. It was held that since direction for allowing of working capital adjustment was given by it, the issue of any interest element pertaining to the receivables would be subsumed in the same. It was accordingly held that no separate transfer pricing adjustment was called for. The Revenue is aggrieved against this direction given by the DRP. 20. The ld. AR supported the impugned order by relying on a Tribunal order dated 31.3.2015 passed in Kusum Healthcare Pvt. Ltd. vs. ACIT (ITA No.6814/Del/2014) in which it has been held that no additional imputation of interest on the outstanding receivables is warranted if the pricing/profitability is more than the working capital adjusted margin of the comparables. In the opposition, the ld. DR relied on a later order dated 6.7.2015 passed by the Tribunal in the case of Techbooks International Pvt. Ltd. (supra), in which the transfer pricing adjustment on account of the delayed realization of invoices from AEs has been upheld. The ld. DR contended that the order in the case of Kusum Healthcare Pvt. Ltd. (supra), has been passed without considering the amendment to section 92B carried out by the Finance Act, 2012 with retrospe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislature as an international transaction, it is, but, natural that if there is any delay in the realization of such debt arising during the course of business, it is liable to be visited with the TP adjustment on account of interest income short charged or uncharged. Under such circumstances, the contention taken by the assessee before the TPO that it is not an international transaction, turns out to be bereft of any force. 23. The Hon'ble Bombay High Court in the case of CIT vs. Patni Computer Systems Ltd., (2013) 215 Taxmann 108 (Bom.) dealt, inter alia, with the following question of law:- "(c) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises?" 24. While answering the above question, the Hon'ble High Court noticed that an amendment to section 92B has been carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date of invoice. As we have noticed above that all the invoices stood realized within a period of 60 days, there can be no question of charging any interest as a separate transfer pricing adjustment. 28. We do not approve the reasoning given by the DRP about the subsuming of such interest in the working capital adjustment. It is axiomatic that the working capital adjustment is in respect of international transaction of rendering services to the AE. Interest for the credit period allowed as per the Agreement is factored in the price charged for the rendering of services. Au contraire, the non-realization of invoice value beyond the stipulated period is a separate international transaction, whose ALP is required to be determined. Granting of working capital adjustment is confined to the international transaction of rendering of services, whose ALP is separately determinable. On the other hand, the international transaction of interest receivable from its AEs for late realization of invoices beyond such stipulated period is a separate international transaction. Allowing working capital adjustment in the international transaction of rendering services can have no impact on the deter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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