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TMI Blog2017 (4) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... and adjudication would be qua the four comparables only. 4. The brief facts of the case are that the assessee, M/s Open Solutions Services Pvt. Ltd is rendering software development research and other related services to its parent company, 'Open Solutions Inc.', USA, (Associated Enterprise) and is a captive service provider. As per the service agreement, for rendering of such services, the assessee is compensated at cost plus 15% mark-up. The brief profile and functions of the assessee has been described by the Ld.Transfer Pricing Officer (TPO) in his order in the following manner:- '0pen Solution India (OSI) is involved in development of computer software and provision of related services. OSI was setup as a separate entity in India to provide software development, research and other services to OS Inc., OSI is involved in developing software components that can be integrated into OS Inc.'s new products or improvisations and other customization requirements on existing products. In addition, OSI is also slated to develop and maintain software utilities and test suites for software components developed locally and by OS Inc. Being primarily a software research & development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osys Ltd. is that, firstly, Infosys Ltd. is functionally different from the assessee, because it is into various diversified field ranging between product conceptualisation, core design, research and development, marketing, sales and post sales services, none of which is performed by the assessee; secondly, the asset profile of the Infosys Ltd. consists of significant brand and intangibles which is evident from the fact that intangibles are more than Rs. 1,00,000 crores, whereas in case of assessee it is none; thirdly, Infosys Ltd. assumes huge entrepreneurial risk, market risk, commercial risk, project liability risk, technology risk and credit risk, whereas assessee is risk mitigated captive service provider; and lastly, it was pointed out that the turnover of the Infosys is Rs. 21,140 crores; sales, advertisement and brand building expenses are over Rs. 25 crores; and research & development expenses are Rs. 437 crores. As compared to the Infosys Ltd., the assessee being capitive service provider is completely confined to software development services for the A.E. There are no intangibles and no research & development expenditure. Hence, the Infosys Ltd. cannot be compared with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le laid down by the Hon'ble Delhi High Court, we direct the TPO/AO to remove 'Infosys Ltd' from the final list of comparables. (ii) Wipro Technology Services Ltd.:- 6. Regarding the exclusion of Wipro Technology Services Ltd., it has been pointed out by the Ld.Counsel before us that, this company had an extra ordinary event during the year and hence it should not be selected as comparable. It was explained that this company was part of the Citi Group and rendered services to various entities of the Citi Group worldwide and was known as 'City Technology Services Ltd' and with effect from 21.1.2009; this company was acquired by 'Wipro Ltd' and was subsequently renamed as 'Wipro Technology Services Ltd'. Further as part of the acquisition it was agreed that the company will be provided business of at least $500 million over a period of 6 years by the Citi Group. This pre-arrangement between Citi group and Wipro Ltd. would make the subsequent rendition of services by the company to the Citi group as deemed international transaction u/s 92B(2) of the Act; and accordingly, this income should be included in the RPT threshold, thereby making the company as an unviable comparable. Ld. Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in CTS and signed Master Service Agreement with Citi Group Inc., for the delivery of similar technology, infrastructure, services and application, development and maintenance service for the period of 6 years, which was provided by erstwhile CTS. The MSA provided that at least $500 million in service revenues over the period of contract should be paid. This prearrangement between the Citi group and Wipro Ltd. would make the subsequent rendition of services by this company to the Citi group fall within the meaning of deemed international transaction as defined u/s 92B(2) which reads as under. "S.92B(2): A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise." The aforesaid provision clearly envisages that, if a transaction has been entered into by an enterprise with un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court vide judgment dated 7.10.2016 in ITA 602/2016. Further in another group company's case, i.e. Cash Edge India Pvt.Ltd. (order dt. 23.9.2015 in ITA 64/Del/15) for the A.Y. 2010-11 again this company was held to be incomparable. This judgement of the Tribunal too has been confirmed by Hon'ble High Court vide order in ITA 279/2015. 8.1 On the other hand the Ld.D.R. drew our attention to functional analysis of PSL pointing out that in the course of its software development functions it gets into product development segment also. Here in case of assessee also once the concept of the product is determined, then A.E. contracts with the assessee to execute the design and software development products on a module/part of the final product. Thus, to say that during the course of its providing software development services there is no element of product would not be a correct statement. The overall functions performed by the PSL is exactly the same and there is no trading by the said company. This company is also into outsource software product development. Hence, this comparable company has rightly been included by the TPO. 9. We have heard the rival submissions, perused relevant find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90,633/- c) Revenue from subscription - Rs.1,53,13,736/- d) Sale of licences - Rs.1,51,38,618/- e) Sale of software services - Rs.5,72,23,072/- Rs. 67,56,06,505/- From the above it is not clear as to what constitutes the sale of exports, whether it is product or software development services. Revenue from subscription and sale of licence also indicate that there is income from products also which would indicate different business model and consequently the profit margin. Without any proper segmental information regarding revenues from software development and software products, it would be very difficult to accept that the proper comparability analysis can be carried out with the assessee which is purely providing software development services. Apart from above it is noticed that in the case of Fiserve, this comparable company has been excluded precisely on the same ground and the said order of the Tribunal stands affirmed by the Hon'ble High Court also. Accordingly, we direct the TPO to exclude the said comparable from the list of comparables. 12. In view of our finding given above, we direct the TPO to carry out the comparability analysis from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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