Infosys & TCS Subsidiaries not ‘Comparables’ for ALP Determination in A.Y. 2010-11 for Cadence Design Systems: Delhi HC [Read Order]
The impugned ITAT Order being challenged upheld the views expressed by the Transfer Pricing Officer and the Dispute Resolution Panel
Delhi High Court – TCS – Infosys- ALP – Determination – Taxscan
Delhi High Court – TCS – Infosys- ALP – Determination – Taxscan
The Delhi High Court in a recent Income Tax Appeal directed the exclusion of Tata Consultancy Services ( TCS ) E-Serve International Ltd., TCS E-Serve and Infosys BPO Limited from the list of comparables for the purposes of undertaking the Arm’s Length Price ( ALP ) for Assessment Year (A.Y.) 2010-11 for Cadence Design Systems.
The Appellant Cadence Design Systems, is an American enterprise involved in the provision of IT Software Development Services, Information Technology back office support services together with pre-sales marketing and post-sales technical support services to its group entities.
The matter was scrutinized in Appeal by the Income Tax Appellate Tribunal (ITAT) who found that the services provided by the Appellant includes but is not limited to Back Office IT operations comprising of UNIX/ Windows Administration and Support; Information Technology – Enabling of Services (ITes) and Business Process Outsourcing ( BPO ).
The above observations service qualifies the TCS and Infosys as valid comparables for the purpose therein. Furthermore, the ITAT found that the Appellant company generates an annual turnover to the tune of Rs.1,126 Crores, thereby making them a valid comparable for all the purposes ascribed therein.
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The factors for determining the commonalities between the Appellant companies and the proposed comparables were manifold, including principal business engaged in, auxiliary functions, marketing and economic stature among other determinants.
Counsel for the Appellant, Nageswar Rao submitted that the Appellant is a captive contract service provider, that is compensated on a cost-plus mark-up basis for services provided to its Associated Enterprises (AE) and that no cost is incurred for promoting the brand of its AE. Additionally, the Appellant referred to the huge expenditure incurred by TCS and Infosys in brand building and advertisement which was in stark contrast with the resources utilized by the Appellant.
The Division Bench of the Delhi High Court constituted by Justice Yashwant Varma and Justice Ravinder Dudeja referred the decision of the same Court in PCIT v. Evalueserve Sez (Gurgaon) Pvt. Ltd (2018) wherein it was held that the comparables i.e., M/s. TCS E-Serve Limited; M/s. TCS E-Serve International Limited and M/s. Infosys BPO Ltd possessed very high brand value, commanded greater profits and operated on economic upscale.
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In light of the observations, the Delhi High Court allowed the Appeal, quashing the ITAT Order while directing the exclusion of TCS E-Serve International Ltd., TCS E-Serve and Infosys BPO Limited from the list of comparables for the purposes of undertaking the ALP for AY 2010- 11.
To Read the full text of the Order CLICK HERE
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