9911796707
TMI Blog2024 (10) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that it is a KPO service company whereas KPO service is part of ITES. Further, this company cannot be treated as suitable comparable merely on the ground that it is making significant amount of expense under the head marketing and advertisement and was possessing intangible of significant amount? 3.2 Whether in the facts and circumstances of the case the Hon'ble ITAT was right in law in considering TCS E Serve, as functionally non comparable without considering the findings of the TPO with respect to the fact that the assessee company is also enjoying brand name SBI like in the case of the comparable company i.e. TATA. Further, can brand value of a company be treated as selecting criteria of suitable comparable? 3.3 Whether in the facts and circumstances of the case the Hon'ble ITAT was right in law in considering BPO Infosys Pvt. Ltd. as functionally non comparable without considering the findings of the TPO with respect to the fact that the business of the comparable company is also covered in the ITeS business and this company passes all the filters applied by the TPO. Further, should acquisition and investment made by the comparable company be treated as an extraordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue in the present financial year (of Rs. 183.11 crores) is earned from unrelated parties. In order to provide these services, the assessee had obtained software licenses, data server '"management services, CIS training from its Associated Enterprises ("AE") located in Australia and USA. xxxx xxxx xxxx The Transfer Pricing addition made by the Transfer Pricing Officer ("TPO") is in respect to services mentioned at S.No.2. There has been no Transfer Pricing dispute in the preceding years. For purposes of benchmarking the transaction of ITeS Services, the assessee used three-year weighted average of 7 comparables and the OP/TC was calculated at 4.91% (working capital adjusted margin was 0.95%) while the OP/TC of the assessee was 2.95%. The transactions were considered to be at arm's length on the basis of permissible range of 5%. The TPO vide order dated January 21, 2016 rejected the comparability analysis in respect to transaction of ITeS Services and conducted a fresh benchmarking study on the basis of additional/ modified quantitative filters. The TPO arrived at a final list of 10 comparables out of which 3 comparables were chosen by the assessee and fresh 7 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case, the payment of licnese fee, connectivity charges and co-ordination charges amounting to Rs. 2,19,60,467/- made by the assessee to GECC(USA) under the end-user agreement shall fall within the category of capital expenditure or revenue expenditure? The stand of the assessee is that it is in the nature of revenue expenditure and deductible u/s 37(1) of the Act whereas the Id. Authorities below have put it in the category of capital expenditure and disallowed the claim of assessee. The basic reasons of Assessing Officer for giving the license fee a treatment of capital expenditure are that the agreement provides exclusive right to use vision plus software which provides enduring benefits to the assessee; that the consideration is in respect of grant of licnese and that the information was not only in relation to use of license, but co-ordination and connectivity services were also provided by GECC (USA). He, therefore, held that the acquisition of license granted by the licensor in itself is a capita asset, being "intangible asset", which having long validity is capital in nature. We have gone through the End-User license agreement dated 07.07.2000 and we d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivered to GECC or purged and that the use of the Licensed Program and any portion thereof has been discontinued." Under clause 3.1, the license agreement allows GECC to receive license fee from assessee on quarterly basis as mutually agreed upon. The agreement provides for periodic payment for use of software to GECC, which is subject matter of renewal and revision every calendar year. No case is made out by the department to assume that the periodic payment made by the assessee were the installments for acquisition of such software and the payment was not for mere usage of software. It is a matter of fact on record that M/s GECC(USA) itself has received the right to use the software internally including its group entities for its business and it does not have any right to commercially exploit the software. The assessee is vested with limited right to use the licensed program during the currency of license agreement. The agreement nowhere provides any exclusive right to the assessee, but the assessee was vested with the right to use the licensed program for facilitating its business operations enabling the assessee day-to-day management of business and to work with more effic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguishable on facts inasmuch as in that case the agreement between the assessee and the foreign collaborator was in relation to setting up of a new business and the foreign collaborator besides furnishing information and technical know-how, rendered valuable assistance in setting up of the factory itself. No such situation arises in the present case. In view of this discussion and relying on various decisions cited by assessee, we are of the considered opinion that the license fee etc. paid by the assessee to M/s GECC(USA) is revenue expenditure deductible u/s 37 of the Act. The appeal of the assessee is accordingly allowed." This view was again taken in A.Y. 2010-11, 2011-12 by the Tribunal and allowed this issue in favour of the assessee. For A.Y. 2007-08, the Hon'ble High Court has affirmed the order of the Tribunal in favour of the assessee (ITA No.766/2014 & CM 20436/2014 CIT vs. GE Capital Business Process Management Services Pvt. Ltd. order dated 24.12.2014), but this issue was not contested by the Revenue in the High Court. Thus, the issue of disallowance of license fee is attains finality and is in favour of the assessee as held by the Tribunal. Hence, Ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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