9911796707
TMI Blog2019 (11) TMI 1438X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the taxpayer is a low end marketing support service provider on cost plus mark up basis by creating customer awareness for the Microsoft products and also in certain cases, training and back up for the use of such products and software and not creating any market intangibles for its AE. So, the view taken by the TPO that the taxpayer is into providing high end marketing services leading to creation of high end tangibles for its AE is not sustainable. Comparable selection - CRISIL exclusion from the final set of comparables - Decision rendered by the coordinate Bench of the Tribunal in taxpayer s own case [ 2020 (9) TMI 185 - ITAT DELHI ] in the similar facts and circumstances wherein there is no change in the business model and taxpayer is providing services under the same master service agreement, Crisil being owner of huge intangibles having been employed in order to achieve its target and that it is a high risk profile entity cannot be a suitable comparable vis- -vis the taxpayer who is a non-risk bearing routine marketing service provider to its AE working on cost plus mark up basis, hence ordered to be excluded. ICRA is not a suitable comparable vis- -vis the taxpaye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to how the same can be allowed as business loss. AO shall also determine the year of allowability if otherwise proved - corporate grounds are allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... ty deposits for rental premises of INR 10,00,000 written off by the Appellant claimed as business loss under section 28 read with section 29 of the Act. 8.1 That the Ld. CIT(A) erred on facts and in law in not appreciating that the amount so written off was non-recoverable in nature being a trading loss on a revenue account and was incidental to the business of the Appellant. 9. That on the facts and in the circumstances of the case, the Ld. AO has erred in charging interest under section 234B & 234C of the Act. 10. That the Ld. AO erred on facts and in law in initiating the penalty proceedings against the Appellant under section 271 (1)(c) of the Act." 3. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Microsoft Corporation (India) Private Limited (MCIPL), the taxpayer is a wholly owned subsidiary of Microsoft Corporation, US. The taxpayer creates awareness of Microsoft products in India in general through seminars, conferences, advertising in public media and promotional campaigns. Microsoft software in India is sold through a network of independent unrelated distributors. The taxpayer does not sell software in India on its own acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the taxpayer. 7. The taxpayer carried the matter before the ld. CIT (A) by way of filing appeal, who has partly allowed the same. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 9. Ld. TPO in order to benchmark the international transactions viz. marketing support services transactions computed average at 16.13% after taking into account the adjustment qua economic cost of owning net working capital and the effect of such cost of operating income which is as under :- S. No. Name of the Company Adjusted Operating Profit Margin (weighted average for 99-00 and 00-01) 1 CRISIL Ltd. 48.49% 2 Gilcon Project Services Ltd. -2.90% 3 ICRA Ltd. 39.67% 4 E I L 17.16% 5 KITCO Ltd. -.89% 6 NIS Sparta Ltd. 7.59% 7 Water & Power Consultancy (I) Ltd. 14.37% 8 Vimta Labs Ltd. 23.50% 9 Priya International Ltd. 11.39% 10 Rites Limited 18.05% 11 Ujjawal Limited 1.05% ARITHMETIC MEAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RVICES 3.1 Services: MSFT and subsidiary acknowledge that MSFT and/or its affiliated companies may from time to time provide corporate and other services to subsidiary and subsidiary may from time to time provide corporate and other services to MSFT and/or its affiliated companies. 3.2 Sales: MSFT and subsidiary acknowledge that MSFT and/or its affiliated companies may from time to time provide sales and sales related services to subsidiary and subsidiary may from time to time provide sales and sales related services to MSFT and/or its affiliated companies. The payment terms are defined in the agreement as under : 4. FEE: PAYMENT TERMS 4.1 Marketing; Research and Development In consideration of Subsidiary's research and development activities under Article 2 MSFT shall pay subsidiary a fee equal to one hundred and ten percent (110%) of Subsidiary's actual expenses, less revenues, incurred in connection with its duties provide such expenses comply with subsidiary budget, as adjusted from time to time, and provide, further such expenses are not already compensated pursuant to another section of this Agreement or another agreement between Subsidiary and MSFT and an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any agreements with customers regarding Microsoft products, but shall instead promptly submit written customer orders to MO or its affiliates as appropriate, for its acceptance or rejection.' The nature of services provided by the assessee to Microsoft Corporation, USA is also that of marketing research and development. Thus, it can be seen that the assessee is basically engaged in creating awareness of Microsoft products amongst existing and potential users of Microsoft products in India through seminars, conferences, advertisement in public media and promotional campaigns. All the expenses incurred by the assessee on such sales promotion activities have been completely reimbursed to the assessee with a mark-up of 15% by Singapore AE. Even though some marketing intangibles get created by the assessee's spending on advertisement and marketing expenses, such intangibles belong to its AEs because the assessee is not indulging in any sale or purchase activities of Microsoft products at its own. 14. The TPO has referred to certain clippings, mostly relating to the period of October/November, 2008 to bring home his point that the assessee is providing high-end marketing services afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the taxpayer. 15. So, following the decision rendered by the coordinate Bench of the Tribunal in AYs 2006-07 and 2007-08, we are of the considered view that the taxpayer is a low end marketing support service provider on cost plus mark up basis by creating customer awareness for the Microsoft products and also in certain cases, training and back up for the use of such products and software and not creating any market intangibles for its AE. So, the view taken by the TPO that the taxpayer is into providing high end marketing services leading to creation of high end tangibles for its AE is not sustainable. 16. Now, the next contention raised by the ld. AR for the taxpayer that by treating marketing support services being provided by the taxpayer to its AE as high end services, the ld. TPO proceeded to include CRISIL Ltd., ICRA Ltd., Vimta Labs Ltd., Water and Power Consultancy Services (India) Ltd. (WAPCOS) and Rites Ltd. as comparables which approach is not sustainable because high end companies cannot be compared vis-à-vis routine low end marketing support services provider. We would proceed to examine the suitability of aforesaid comparables chosen by the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son has been brought on record by the TPO/CIT (A) to depart from the consistent view taken in the succeeding years. Moreover, the company providing advisory services cannot be compared with the taxpayer who is into providing routine marketing support services to its AEs. 25. Moreover, audited financial of CRISIL, available at page 426 of the paper book (Annual Report), shows that 74% of its income is from rating services. Rating services have been explained in the annual report, available at page 411 of the paper book, as under :- "Some landmarks achieved by the Ratings division in 2001-02 are highlighted below : • Grading of healthcare institutions launched with the announcement of grades assigned to three hospitals • Introduction of a new rating symbol (with "r" subscript) to indicate non-credit risk • First rated debt transaction for an acquisition • Two new State Government ratings • Government of India guaranteed debt ratings • First rated take-out cum guarantee facility by an infrastructure development finance institution. Corporate Sector Rating Services (CSRS) Revenue growth in corporate sector ratings was mainly driven by r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial advisory services as the rate of its employee cost is extremely high indicating that its personnel are key drivers of these businesses. Moreover, coordinate Bench of the Tribunal in taxpayer's own case for AYs 2002-03 and 2007-08 (supra) has excluded ICRA from the final set of comparables. The relevant findings returned in AY 2002-03 (supra) is reproduced for ready perusal as under :- "ICRA LIMITED (ICRA) 27. …………Undisputedly, ICRA has been rejected as a valid comparable by the Revenue on the objection of functional dissimilarity raised by the taxpayer in AYs 2006-07 to 2009-10, as per compilation given by the taxpayer during the course of arguments available on record. 28. Moreover, perusal of the annual report, available at pages 547, 553 & 557 of the paper book, shows that there is no segmental information available and keeping in view the diversified function performed by ICRA, it cannot be taken at entity level. Moreover, under TNMM, the TPO has a wide discretion of choosing comparables as there is wide range of such comparables available for benchmarking the international transactions. 29. Furthermore, ICRA has been held to be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal excluded WAPCOS from the final set of comparables in taxpayer's own case for AY 2006-07 by returning following findings :- "18.2. We find that this company operates in two segments, namely, Consultancy & engineering projects and Lumpsum turnkey projects. This company provides consultancy services, such as, pre-feasibility report of hydroelectric projects, field investigation drilling of tube wells, etc. From the above description of the nature of activities performed by this company, it can be seen that the same is engaged in providing engineering and consultancy services, which can be of no match to the assessee's marketing support services. This company is also directed to be excluded from the list of comparables." 28. Keeping in view the facts and circumstances of the case, WAPCOS is into providing distinct services and is a 100% Government owned company, being not driving by profit motive and following the decision of the coordinate Bench of the Tribunal in taxpayer's own case for AY 2006-07 (supra), it cannot be a suitable comparable vis-à-vis the taxpayer, hence ordered to be excluded. RITES LTD. (RITES) 29. The taxpayer sought exclusion of Rites ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitoring and impact assessment. Perusal of schedule forming part of the Accounts at page 527 of the paper book shows that it has displayed high proportion of plant and machinery. 34. Coordinate Bench of the Tribunal in AY 2007-08 in taxpayer's own case excluded Vimta in taxpayer's own case on ground of functional dissimilarity by returning following findings:- "22. We do not find any force in the functional comparability of this company with the assessee. Spectrum of the services rendered by this company covers analytical food and drugs; clinical reference lab services to address the specialties and central lab services for clinical trials; clinical trials phase-I-IV and BA/BE studies; pre-clinical safety assessments; and environmental assessments. A cursory look at the nature of services provided by this company divulges that the same is functionally dissimilar from the assessee. How a company conducting clinical trials on foods and drugs can be considered as comparable with the assessee undertaking marketing support services, is anybody's guess. This company being in the nature of business totally alien to that of the assessee, cannot be considered as a comparable. Similar vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
