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2020 (5) TMI 458 - AT - Income TaxTransfer Pricing Adjustment with respect to IT Enabled Services segment - comparable - HELD THAT:- Infosys BPO Ltd. cannot be considered as a comparable to the assessee company for the simple reason that the assessee company is engaged in rendering system integration, enterprise solutions and software development services to the clients of its Associated Enterprises (AE) and also to independent customers in the United Kingdom, the United State of America and others countries in Europe as well as India while being a subsidiary of Steria (UK). On the other hand Infosys BPO Ltd. is a part of the Infosys Group, a giant in the field of Information Technologies Services and being a part of the Infosys Group, ‘Infosys’, it thus enjoys significant brand presence and brand value plays a significant role in its ability to generate profit. We direct the AO/Ld. TPO to exclude BPO Infosys Ltd from the final set of comparables. Foreign exchange fluctuations gains/losses should be treated as operating item if the same are in relation to the trading items emanating from the international transactions - HELD THAT:- It only remains to be verified as to whether the foreign exchange fluctuations incurred by the assessee relate to the trading items emanating from the international transactions or not. Therefore, for the limited purposes of verifying that the foreign exchange fluctuations of the assessee relate to the trading activities of the assessee, the issue is restored to the file of the Assessing Officer/Ld. TPO to verify the same and if it is found that the foreign exchange fluctuation relate to trading with the associate enterprises the Assessing Officer/Ld. TPO is directed to treat the same as operating item. Thus, this issue stands allowed for statistical purposes. Transfer Pricing Adjustment in the Software Development Segment - HELD THAT:- The issue of Transfer Pricing Adjustment in the Software Development Segment is restored to the file of the AO/Ld. TPO for the limited purposes of verifying the computation of 35th and 65th percentiles and if the same is found correct then no Transfer Pricing Adjustment would have to be made. AO/Ld. TPO is also directed to verify as to whether the foreign exchange fluctuation in this segment relates to the trading activities with the AEs and if it is so found then the same is to be treated as operating item. TDS u/s 195 - management services fees u/s 40(a)(i) - HELD THAT:- Beneficial provision in the DTAA between India and UK can be automatically incorporated in India-France DTAA by applying the Most Favoured Nation clause present in the Protocol to India-France (DTAA). It was also held that the services rendered by Steria France were managerial in nature and were, therefore, outside the ambit of definition of fee for technical services and further that the payments made to Steria France were not liable to withholding of tax under the provisions of section 195 of the Act. Thereafter, for Assessment Years 2010-11 and 2011-12, the Hon’ble Delhi High Court went on to decide the issue in favour of the assessee [2017 (11) TMI 200 - DELHI HIGH COURT] - Decided in favour of the assessee. TDS u/s 195 - Payments made to Steria France for purchase of computer software licenses for the reason of failure to deduct tax at source - HELD THAT:- In the present case, considering that the issue under consideration is payment made towards software, which is a copyrighted article/asset, it needs to be considered whether the payment made is for obtaining rights in respect of copyright in the software, which is governed by the provisions of Copyright Act, 1957. Further, it would be pertinent to note that the Steria France is a resident of France (TRC and no PE certificates are placed in the paper book). As per section 90(2) of the Act, the provisions of the Act shall be overridden by the provisions of the DTAA, to the extent the latter are more beneficial to a nonresident assessee. In the present case, Article 13 of India - France DTAA deals with taxability of royalty paid by an Indian resident to French resident. Accordingly, respectfully following the ratio in DIT vs. Infra Soft Ltd [2013 (11) TMI 1382 - DELHI HIGH COURT] we are of the considered the opinion that tax was not required to be deducted at source in respect of the payment made to Steria France for the purchase of computer software license/s and therefore, in view of the above cited judgment we direct the AO/TPO to delete the disallowance. - Decided in favour of assessee.
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