TMI Blog2015 (7) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... ood comparable of the assessee. WAPCOS Limited company provides consultancy in the domestic and international water and power sector. WAPCOS Limited is a government company with a Mini Ratna-I status and the primary function of the company is to provide consultancy in the field of water, power and infrastructure development for a total project solution. This company is not functionally comparable with the service providing companies in the other fields. As it is apparent from the nature of functions and activities performed by this company that the functions of the company are not comparable with the services provided by the assessee to its AE. Thus we direct the TPO/AO to recompute/determine the arms length price after exclusion of three companies as discussed above. Addition made under section 41(1) on account of creditors outstanding for more than three years - Held that:- The Ld. A.R. of the assessee has pointed out that out of these four creditors the amount of ₹ 7,32,698/- in respect of M/s. Wander Pvt. Ltd. is involved in the dispute and a legal case is going on with the said party. Since this aspect has not been properly examined and verified by the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess any article or things or right to carry on any business which is chargeable under the head “Capital gain”. Therefore, in our view, the AO as well as the DRP has committed an error by misinterpreting the provisions of section 28(va) as well as the clauses of the deed of assignment dated 01.07.07 whereby the assessee has transferred the trade mark “SPERT” to the assignee. It is a simple case of transfer of trade mark and not the case of receipt of any non compete fee. As following the judgment of CIT vs. Mediworld Publications Pvt. Ltd [2011 (4) TMI 503 - DELHI HIGH COURT ] we hold that the amount in question received by the assessee as a consideration for transfer/assignment of trade mark to the assignee is in the nature of capital receipt and to be taxed as capital gain and not as business income. - Decided in favour of assessee. Non granting of TDS credit - Held that:- Objection was raised by the assessee before the DRP seeking directions for grant of TDS credit of ₹ 13,44,25,277. The DRP has directed the AO to allow the TDS claim after due verification. Before us the assessee has further pleaded the TDS credit amounting to ₹ 9,86,392/- and submitted that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egmental margins adopted by the Appellant without providing any reasons and by using entity level margins to determine the arms length nature of international transaction of provision of pharma support services undertaken by the Appellant. (g) By not considering the +/- 5% variation from the arm's length price permitted to the Appellant under the proviso to section 92C(2) of the Act. (h) By ignoring the provisions of Rule 10B(3) of the Income-tax Rules, 1962, which envisage usage of multiple year data of comparable companies for the purpose of determination of the arms length price and using single year data for computing arms length price. GROUND NO. 2 The learned AO erred in making an addition of ₹ 8,00,869 under section 41(1) of the Act on account of creditors outstanding for more than three years by treating the same as cessation of liability. GROUND NO. 3 The learned AO erred in disallowing expenditure on annual license fee and / or computer software of ₹ 28,17,425 on the ground that the same is capital expenditure of enduring nature as well as holding that they are in the nature of intangible assets as specified in section 32 of Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the rate of 22.49% and the entity level margin of the assessee at 14.09%. The assessee objected the proposed transfer pricing adjustment before the DRP but could not succeed. 3. Before us the grievance of the assessee is restricted only in respect of three comparables which are part of the set of comparables selected by the TPO for determination of arms length price. The Ld. A.R. of the assessee has pointed out that if the three comparables namely Rites Ltd., Vapi Waste Effluent Mgmt. Co. Ltd. and WAPCOS Limited are excluded from the set of comparables considered by the TPO then no adjustment is required to be made in respect of the international transaction in question. The Ld. A.R. has submitted that the company Rites Ltd. is not functionally comparable with the assessee as the said company is a government company established under aegis of Indian Railways and is providing services such as architectural and planning, bridge and tunnel engineering construction projects, electrical engineering etc. to various government organizations and the public sector undertakings. Thus the Ld. A.R. has submitted that this company is engaged in a different functions and activities whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A.R. has pointed out that if these three companies are excluded from the set of comparable considered by the TPO then the mean margin of the comparables comes at 18.03% in comparison to the assessee s segmental level margin at 15.50% which is within the range of + 5% and consequently no adjustment is required in this respect. 6. On the other hand, the Ld. D.R. has submitted that if these three companies are excluded on the ground of functionally non comparability then all other companies are also to be decided on the similar criteria because the other remaining companies are also functionally not comparable with the assessee. He has relied upon the order of the DRP and submitted that the DRP has made a specific observation about the functional non comparability of the other comparables. Since the assessee has not objected inclusion of the other companies in the Comparables Act it should not be allowed to seek exclusion of the selective companies whose margins are higher than the other comparables. He has relied upon the orders of the authorities below. Thus the Ld. D.R. has submitted that the authorities below have considered the broad comparability while deciding the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction project, electrical engineering etc. to the government organizations and public section undertakings. The functions performed and carried out by Rites Ltd. are entirely different from the functions and services provided by the assessee to its AE. The assessee is providing the support service in the field of pharmaceutical and medical support service, therefore on the face of it, this company cannot be a functionally comparable with the assessee. An identical issue has come up before Delhi Benches of this Tribunal in the case of Nortel Networks India Pvt. Ltd. (supra) wherein the Tribunal has observed in para 11 and 11.1 as under: 11. We have heard the rival contentions and perused the material available on record. Apropos the issue of comparability and the exclusion of Choksi, Rites and WAPCOS, Delhi Tribunal in the cases of M/s MCI Com India P. Ltd. and M/s Verizon India P. Ltd. has held that companies like EIL, Rites, Wapsos and TCE are engineering companies which provide end to end solutions and therefore they cannot be compared with assessees who provide marketing support services to the parent company. They were held to be functionally not comparable with thee eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies. The case of Vapi also falls on the same footing. Therefore, respectfully following the order of the ITAT in the cases of M/s MCI Com India P. Ltd. and M/s Verizon India P. Ltd. (supra) and Estel in ITA no.584/Banglore/06 we are of the view that Vapi and WAPCOS are functionally not comparable to the assessee. Therefore, they are to be excluded. The issue of turn over does not arise in this case. In view of these facts, the matter will go back to the file of AO /TPO who will determine the T.P. adjustments by excluding Vapi and WAPCOS comparables. This ground of the assessee is accordingly allowed. Apart from the finding of Delhi Benches of this Tribunal in the case of Actis Advisors Pvt. Ltd. (supra) the comparability of this company was also considered by the Tribunal in the case of CISCO Systems (India) Pvt. Ltd. (supra) and found that this company cannot be considered as a good comparable. In view of the findings of this Tribunal as well as the nature of functions performed by this company, we find that this company cannot be considered as a good comparable of the assessee. Accordingly, we direct the AO/TPO to exclude this company from the set of the comparables. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Ground No.2 is regarding the addition made under section 41(1) on account of creditors outstanding for more than three years. During the course of assessment proceedings, the Assessing Officer (AO) noted that some of the creditors amounting to ₹ 8,00,869/- are outstanding for more than three years and accordingly added the same under section 41(1) by treating this amount as cessation of liability. The assessee challenged the action of the AO before the DRP but could not succeed as the DRP has confirmed the addition proposed by the AO. 11. Before us the Ld. A.R. of the assessee has submitted that the creditors amounting to ₹ 8,00,869/- which are outstanding for more than three years have not been written back by the assessee in the books of accounts, therefore no liability can be brought to tax under section 41(1) unless the assessee has derived some benefit by way of remission or cessation of that liability. The Ld. A.R. has pointed out that to the extent of ₹ 7,32,698/- payable to M/s. Wander Pvt. Ltd. the assessee is involved in a dispute and a legal case is going on with the party. Accordingly, the liability in respect of the same has not been ceas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined and verified by the authorities below, therefore if the said amount is part of a dispute between the parties, then till the dispute is settled it cannot be said that any part of the liability in respect of the said amount ceased to exist. The Ld. A.R. has further pointed out that a sum of ₹ 25,340/- is payable to an employee of the assessee and the settlement is pending. We are of the view that the relevant record in this respect is required to be examined before arriving to a decision whether the said amount is no more payable to the employee and therefore can be treated as ceased liability of the assessee. As regards the remaining two parties namely Scientico Instruments and Electrolab, the assessee has claimed that the outstanding amount has already been paid on 08.10.09 and the assessee has produced before the AO the relevant ledger extract to show the said payment made to the parties. Since all these facts as well as the relevant record has not been properly examined by the authorities below, therefore we are of the considered view that the AO shall verify and examine the relevant record and details to be filed by the assessee and then decide the issue in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the authorities below. 17. Having considered the rival submissions as well as relevant material on record, at the outset, we note that an identical issue has been considered by this Tribunal for the A.Y. 1995-96 vide order dated 25.09.13 in para 45 as under: 45. Ground 1 relates to the deletion of the disallowance of ₹ 8,33,946/- on account of computer software purchases. This issue has been considered by the AO at page 29 on para 6 of its order. The AO found that out of the total expenditure of ₹ 11,56,786/-, ₹ 8,33,946/- has been stated to be on account of application software's claimed as revenue expenditure. The AO was of the opinion that the benefits of the software are long term or of enduring nature and accordingly treated this expenditure as capital and allowed the depreciation and disallowed the remainder. Assessee strongly agitated this issue before CIT(A). The CIT(A) has considered this grievance of the assessee at para 8 and para 30 of its order. The CIT(A) was convinced that the application software of computers get outdated in no time. Hence, such expenditure cannot be treated as capital expenditure. The CIT(A) further observed that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the head Income from business or profession . Accordingly the AO was of the view that as per the agreement of assignment of trade mark the assessee has agreed to not selling trade mark and such trade mark for any purpose as it is exclusively being granted to the assignee against a sum of ₹ 1,17,50,000/-. The AO thus assessed the said amount as business income instead of long term capital gain offered by the assessee. The DRP has confirmed the action of the AO by giving the similar reasons. 20. Before us, the Ld. A.R. of the assessee has submitted that the sale of commercial right and brand are in the nature of capital receipts arising from sale of intangible assets. The sale of these intangible assets is offered to long term capital gain since the same are pertaining to the business which is four years old. He has referred section 2(29B) as well as section 55(2)(a) of the Act and submitted that the gain arising from the capital asset held for more than three years is long term capital gain and the cost of acquisition of commercial right of the business and brand is taken at nil in view of the provisions of section 55(2)(A). Thus, the entire consideration is offere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged as capital gain. In support of his contention he has relied upon the judgment of the Hon ble Supreme Court in the case of CIT vs. D.P. Sandu Bros. Chembur P. Ltd. 273 ITR 1 as well as judgment of Hon ble Jurisdictional High Court in the case of Cadell Weaving Mill Co. P. Ltd. 249 ITR 265. He has also relied upon the judgment of Hon ble Delhi High Court in the case of CIT vs. Mediworld Publications Pvt. Ltd. 337 ITR 178. 21. On the other hand, the Ld. D.R. has submitted that the receipt in question is covered under section 28(va) of the Act and therefore the same is assessable as income from business. He has contended that the amount is received by the assessee under an agreement for not sharing the trade mark with anyone else than the assignee to whom it was assigned. He has relied upon the order of the authorities below. 22. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessee has received a some of ₹ 1,17,50,000/- against the sale of brand or the trade mark namely SPERT to SOCIETE DES PRODUCTS NESTLE, S.A. vide sale of agreement dated 01.07.07. It is manifest from the deed of assign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India. Explanation. -For the purposes of this clause,- ( i ) agreement includes any arrangement or understanding or action in concert,- ( A ) whether or not such arrangement, understanding or action is formal or in writing; or ( B ) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings; ( ii ) service means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging; 24. The AO has made an attempt to bring the amount received by the assessee under sub clause (b) of clause (va) of section 28. It is pertinent to note that the object an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trade mark, copy right etc. fell for consideration of their lordship and after considering the various relevant provisions of the Act including section 2(14), section 2(11) as well as section 28(va) and 55(2A) of the Act, it was observed and held as under: 11. The CIT(A) as well as ITAT have rightly held that in this backdrop provisions of section 28( va ) would not apply to the instant case. In this behalf, it is to be borne in mind that the clinical trial business which the assessee continues to carry on was distinct and separate from the business of Healthcare Journals and Communication. As far as Healthcare Journal and Communication business is concerned, it had been given up in entirety in favour of the transferee. Therefore, the Assessing Officer was wrong in holding that the assessee had given up only one of the activities in relation to its business. In such circumstances, the proviso to section 28( va ) becomes applicable which stipulates that section 28( va ) was not applied to any sum received on account of transfer of right to carry on any business which is chargeable under the head capital gains . Section 55(2)( a ) of the Act has to be read in conjunction wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Property Rights alongwith the Goodwill and all interests and benefits attached and appurtenant to the Business Intellectual Property Rights; ( d ) the Customer Database; ( e ) The Records; ( f ) the Editorial Materials; and ( g ) the Contracts. 2.2 The Seller as the beneficial owner, agrees to assign, transfer and convey to CMP Medica all is rights, title, and interests to the Specified Assets including other intangible benefits and, or, rights related to the Specified Assets to the end and intent the CMP Medica shall be the sole, full and undisputed owner of the Specified Assets effective as at the close of the business hours on the Closing Date and entitled as such effective as at the close of the business hours on the Closing Date and entitled as such to deal with the Specified Assets in the manner deemed fit by CMP Medica without any hindrance, interference or disturbance or objections from the seller and, or any person claiming on behalf of or in trust for the seller in any manner whatsoever subject to CMP Medica fulfilling its obligations under Clause 3 hereunder . 13. So much so, the Customer Data Base held by the assessee was also shared with the transf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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