9911796707
TMI Blog2018 (2) TMI 1147X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to transfer pricing adjustment resulting from the transactions entered into by the assessee with its associated enterprises (AEs) based at USA, both for the Software Development Services (IT Segment) and Information Technology Services (ITeS segment) have been adjudicated and settled under the "Mutual Agreement Procedure" (MAP) in terms of Rule 44H of the Income Tax Rules. Now the issue which remains for adjudication is on account of transfer pricing adjustment on account of these two segments related to non-USA AEs. The revised grounds of appeal as raised by the assessee now reads as under:- 1. "That the order of the Deputy Commissioner of Income Tax, Circle 11(1), New Delhi ('Assessing Officer' or 'AO') to the extent prejudicial to the Appellant, is bad in law, contrary to facts and circumstances of the case and liable to the quashed. 2. That the AO and the Dispute Resolution Panel ('Panel') erred in upholding the rejection of the Appellant's Transfer Pricing (TP) documentation by the Addl Commissioner of Income-tax (Transfer Pricing)-1 (2), New Delhi ("Transfer Pricing Officer" or "TPO") 3. That the AO and the Panel erred in both in facts and in law in confirmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self assessment tax of Rs. 53,36,223 in the assessment order 9. That the AO erred in levying interest of Rs. 18,87,61,258 under section 234B of the Act." 3. The only effective ground is ground No. 3, which relates to transfer pricing adjustments on the provisions of services relating to 'Software Development Services' rendered to Fidelity Investments Management (HK) Ltd., Hong Kong and KVH Systems Solutions Ltd., Bermuda; and 'Information Technology Services' provided to same AEs. The assessee company, i.e., M/s. Fidelity Business Services India Private Limited is a subsidiary of FID Holding (Mauritius) Limited which is part of the Fidelity Group. The assessee provides services to both FMR group of companies and the FIL, group of companies mainly providing IT services (software development) and ITeS services. The functions performed under the segment of IT enabled services have been highlighted in the TP study report in the following manner:- "4.3.27 The software development activity is undertaken for FIL group of companies' global requirements. The basic requirement analysis of the projects is undertaken at Fidelity Group, which incorporates the various requirements of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany based in Mumbai. The Indian entity is catering to the retail side (Le. individual investors) of Fidelity Group business. The back-office operations are segregated into onshore and offshore activity. Various functional owners of specific processes are spread globally. However, functions like UK Service Centre are undertaken in UK. 4.3.37 India Service Centre: It provides customer support services vide phones wherein it resolves issues and concerns of customers in terms of their individual portfolio of investments. Further, it also provides support to various individual investors whose funds are being managed by Fidelity, brokers, financial advisors etc. resolving various queries and issues on specific funds. The teams may provide e-mail support in certain cases to queries raised by customers. 4.3.38 Fidelity has own funds (Le. customers who have invested into Fidelity's own mutual funds) and customer funds (Le. customers having investments in non-Fidelity mutual funds transfers their various portfolio funds into Fidelity for managing and administration). 4.3.39 Transaction Process: For getting income tax benefit, professionals in UK are required invest in certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articular deal or client's account. A team also undertakes regular quality checks in terms of whether the processes are being correctly followed and also undertakes to study and implement for process improvements. 4.3.42 Central Finance: The operations include UK account payable, account payable for the asset management companies, overall group controlling including account reconciliation, update bank data bases, inter-company accounting, balance sheet control and UK accounting - B shares (an investment management product for the Far East countries). The B-Share product undertakes control and revenue accounting, management accounting (various algorithms to split management accounting for cost and revenue). 4.3.43 The team in India is involved in inter-company settlements between the various FIL companies. The activities include group controlling that means whether controls are adequate in relation to settlements and inter-company reconciliation, compliance with policies." 4. As per the agreement with the AEs the assessee was compensated with cost plus mark up of 13% for provision of services under both the segments. The assessee has given following segmental details:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntangibles; and secondly, revenue from software products which in the case of assessee's absent. In support he relied upon various judgments of the Tribunal for which he has filed a separate chart. In the case of Persistent System Ltd., he submitted that there was a merger of a subsidiary into the company in this year and this factor alone is sufficient for not taking into as comparable company. For Wipro Ltd., he submitted that, firstly, it is functionally different; secondly, non availability of standalone financial data for financial year 2006-07; thirdly, it owns huge intangibles; and lastly, it is engaged in both software development and software product and development services for which no segmental bifurcation are available. In the case of other comparables also, he pointed out that firstly, they are mainly into software products; and secondly, segmental information/data for the sale of software products were not available in the public domain. Thus, these comparables also cannot be taken for comparability analysis. Lastly, regarding Megasoft Ltd., he submitted that there was an acquisition during the year and thus this company also needs to be excluded. 7. Similarly for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usal of the material placed on record, we find that the total international transaction with all the AEs including those covered under the MAP settlement is as under:- 1. Software Development Services: Sl. No. Name of Associated Enterprise Value of international transaction (Rs.) Covered under MAP settlement 1. Fidelity Investment Institutional Services Company, USA 4,516,850,248 Yes 2. Fidelity Broadband Group, USA 87,810,554 Yes 3. Fidelity Investments Management (HK) Ltd., Hongkong 1,348,771,361 No 4. KVH Systems Solutions Ltd. Bermuda 14,449,348 No Total 5,967,881,511 2. IT enabled Services: S. No. Name of Associated Enterprise Value of International transaction (Rs.) Covered under MAP settlement 1. Fidelity Employer Services Company LLC, USA 2,148,806,297 Yes 2. Fidelity Investments Management (HK) Ltd. Hongkong 1,517,646,305 No 3. KVH Co. Ltd. Japan 78,363,455 No Total 3,744,816,057 11. Thus, here we have a situation where part of the same transaction both in IT segment as well as ITEs Segment margins of 15.70% and 14.68% have been accepted by the assessee and by the revenue authorities. Now for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
