TMI Blog2021 (3) TMI 1403X X X X Extracts X X X X X X X X Extracts X X X X ..... ce - HELD THAT:- This issue is covered by the latest judgment of the Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. [ 2021 (3) TMI 138 - SUPREME COURT] wherein it was held that transaction relating to software are in the nature of sale and not license, no copyright or part of any copyright is licensed to the assessee. The non-resident owner continues to have proprietary rights in the software and use of software by the Indian company is limited to making back-up copy and redistribution. So payment received for sale of computer software is business income. As such, software purchased is in the nature of purchase and sale of product and no TDS is deductible. Accordingly, we allow this ground of appeal by the assessee. Nature of expenditure - expenditure on purchase of software - HELD THAT:- As software expenditure has to be treated as revenue expenditure. Accordingly there is no question of granting any depreciation and purchase of software has to be allowed as a deduction, though there was no TDS made by the assessee. - IT(TP)A No.1842/Bang/2016 - - - Dated:- 10-3-2021 - SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . confirmed selection of Vishal Information Technology Ltd. having margin of 48.84%. (iii) The ITAT Mumbai in the case of M/s. BP India Services Pvt. Ltd. (ITA No.4425/Mum/2010) did not reject companies having margin of 75.6% (Datamatics Technologies Ltd.) and 68.7% (Hinduja TMT Ltd.). (iv) In the case of Exxon Mobil, the ITAT Mumbai upheld Alpha Geo India Ltd. having margin of 47.79% and Vimta Lab having margin of 57.68%. (v) In the case of Trilogy E-Business Software India Pvt. Ltd. v. DCIT (2013) 29 taxmann.com 310 the Bangalore Tribunal held that there is no bar to consider companies with either abnormal profits or losses as comparable to tested parties as long as they are functionally comparable. The existence of any abnormal factor which could have caused the high profit margin is for the tax payer to demonstrate. This decision was followed in the case of Autodesk (India) Pvt. Ltd. v. DCIT in ITA No.1108/Bang/2010 and Yodlee Infotech Pvt. Ltd. v. ITO (2013) 31 taxmann.com 230 (ITAT BANG). (vi) The Mumbai ITAT in the case of BP India Services Pvt. Ltd. in ITA No.4425/Mum/2010 and Rusabh Diamonds v. ACIT (TS-91-ITAT-2013-MUM-TP) held that only principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as a routine service provider with out hardly bother about the brand of the AE. Thus, these companies cannot be excluded from the list of comparables merely because they have a brand value, as the assessee also stands on the same footing. 9. We have heard both the parties and perused the material on record on this issue. As rightly pointed out by the ld. AR, these companies were held to be not comparable in the case of Verisign Services India (P) Ltd. (supra) wherein the Tribunal observed as under:- a) Infosys Ltd., was excluded from the list of comparable companies by following the decision of the Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd. [2013] 36 taxmann.com 289/219 Taxman 26 (Delhi). The discussion is contained in paragraphs 4.5 to 4.7 of the Tribunal's order. The Tribunal accepted that Infosys Ltd. is a giant risk taking company and engaged in development and sale of software products and also owns intangible assets and therefore not comparable with a software development service provider such as the Assessee in that case. 13. The CIT(A) has in the impugned order has opined that companies like Mindtree Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted as a comparable by the TPO. On the other hand, the ld. DR submitted that since the applicability of high turnover filter has itself been rejected by the jurisdictional bench of ITAT, as discussed supra, as such this comparable cannot be excluded. As regards assessee's claim that the company is having intangible assets, the financials clearly show that the same is on account of purchase of software etc. by the company. Further the company is developing software for its customers, who in turn are in business of software product development and outsourcing the work of software development to this company. Thus the assessee has wrongly inferred that the M/s Persistent Systems Ltd itself is in software product development. In fact, the assessee itself is similarly placed as it is developing software for its AE, which in turn is finally using it in software products being marketed by it. 15. We have heard both the parties on the issue. The Tribunal in the case of Verisign Services India (P) Ltd. (supra) has excluded this company holding as follows:- (c) Persistent Systems Ltd., was excluded from the list of comparable companies on the ground that this company was a soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be excluded. However, it is observed that the overseas staff costs are Rs.947.35 crore, which is about 40% of the total expenditure of Rs.2340 crores. Hence this contention is rejected. 23. Accordingly, we confirm the order of DRP on this issue. 24. Akshay Software Technologies Ltd.: As regards inclusion of this company sought by the assessee in the comparables, the ld. DR submitted that as per the Director's report, the revenue consists from software services and product and nowhere in the annual report there is any indication that software services mean software development services. Further, segmental details are also not available and it is not possible to ascertain separate profits from sale of software products and software services. So assessee's claim is not found to be correct that this company is functionally comparable. Further, from examination of the annual report it is noticed that the expenditure in foreign currency is Rs 11.64 crore (page 28 of the annual report) against total revenue of Rs 14.70 crore, which makes it clear that company is pre-dominantly functional on on-site basis and therefore, cannot be retained as comparable to the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm the same. 30. Ground No.4(i) is with regard to reducing the communication expenses of Rs.73,48,385 and insurance charges of Rs.1,21,582 from the export turnover while determining the adjusted export turnover for computing the eligible deduction u/s 10AA of the Act. The DRP following the jurisdictional High Court judgment in the case of CIT v. Tata Elxsi Ltd., 349 ITR 98 (Karn) directed the AO to reduce the impugned expenses both from the export turnover as well as the total turnover. Further, the judgment of the Hon ble Karnataka High Court has been upheld by the Hon ble Supreme Court in the case of CIT v. HCL Technologies Ltd. in Civil Appeal No.8489-98490 of 2013 Ors. dated 24.04.2018. We therefore uphold the directions of the DRP on this issue. 31. Ground No.4.(ii) reads as follows:- The learned Assessing Officer erred in quantifying a disallowance of Rs.3,59,439 by invoking the provisions of section 40(a)(i) of the Act, for the alleged reason that, on import of software taxes were deductible at source u/s. 195 of the Act, ignoring the position of law that, since the software was purchased for use, the transaction was in the nature of purchase of product and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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