PR. CIT-9, MUMBAI vs. E-CLINICAL WORKS INDIA PVT LTD, MUMBAI

In various grounds of appeal, Revenue has mainly challenged inclusion and exclusion of three parties, firstly, FCS Software Solutions; secondly inclusion of Informed Technologies India Ltd; and lastly exclusion of comparable M/s. MPS Limited. Before us, ld. Counsel for the assessee at the outset submitted that even if one comparable, i.e., M/s. MPS Limited is excluded, then other two comparables even if they are not to be included will become purely academic because assessee would be within the arm’s length price.

The brief facts are that E-Clinical Works India Pvt. Ltd. is engaged in providing IT-enabled services to the clients of its AE in the form of providing certain post sales customer care services like technical support, information queries, issues with new products, trouble-shooting through email and voice platforms, etc.). In the TP study report the assessee has given detailed analysis of functions, assets and risks wherein it has been stated that it provides IT enabled services to the client of its AEs for which it is remunerated by AEs. It is the AE which is responsible for developing the business and developing systems and methods, doing software research and development, carrying out further improvement in the software design and software capabilities, apart from coordinating with the various Customer Interaction Centers, for rendering the IT enabled services. The detailed functions performed by AE and E-Clinical Works India Pvt. Ltd in the TP study report has been highlighted in the following manner:-

E-Clinical Works India Pvt. Ltd. a) Development of Services 4.8.2 Initially the integrated EMR/ PM solutions of e-Clinical Works are offered by providing the software solutions using the Software as a Service (SaaS) Model. The original concept of outsourcing post-sales services and more specifically, software installation and technical support services was developed by eClinicalWorks LLC. eClinicalWorks India has inherited operational intangibles and know-how from eClinicalWorks LLC. Currently, several IT enabled services companies participate in this market, and the concept of outsourcing IT enable services is no longer a cutting-edge idea. 4.8.3 All new services and service concepts are developed by eClinicalWorks LLC/AES. b) Sales and Marketing Activities 4.8.4 The highly experienced marketing team of AEs is responsible for selling and marketing activities. 4.8.5. AES focus its marketing efforts on the development of new service offerings and products for its targeted clientele such as doctors, hospitals and physicians to manage patient flow, access patient records in-house or remotely and securely share Information among physicians. Once a potential client is identified or approaches an AE, an analysis is conducted to define the service needs of the potential client. c) Drafting of Proposals and Contracts 4.8.6. Drafting initial proposals to clients involves establishing a service package for the client specifying the contents of the service, procedures for operation, fee structures, training measures to ensure quality, data to be migrated from legacy system, terms of remote access and facilities/fixed assets to be utilized. 4.8.7. The above process is critical and time consuming. The proposal is highly customized to the client and involves a E-Clinical Works India Pvt. Ltd. significant amount of effort and co-ordination among various service departments. A signed document is entered between the client as 'Purchase Order for software' stating all the terms and conditions. d) Initial Set-up of Operation ✔The System will focus on interconnecting healthcare providers for quality care and further use eClinicalWorks Electronics Health exchange (eEHXX®) community health record to connect public schools, foster care programs and mobile vans, along with immunizations registries, commercial labs and other regional health care providers. ✓ Before the installation of the software, the responsible team at ECW US, conducts the initial verification and performs the required tasks such as data collection, data migration from the legacy system, preparing the client's site ready for the installation services etc. 4.8.8 AEs staff is responsible for the implementation and set-up of the telecommunications and Information technology platform. This function involves selection of the location and capital investment. 4.8.9. Each site uses a standard operating environment developed by the AES. This includes the telephone communications systems, desktops and software. 4.8.10 All assets situated in India are purchased and owned by eClinicalWorks. 4.8.11 eClinicalWorks works in co-ordination with its AEs to resolve any client connectivity issues at eClinicalWorks site and customization of any software, if required. e) Training Customer Interaction agents 4.8.12 A critical success factor for eClinicalWorks is its service by well-trained Service Support Representatives (SSRS). eClinicalWorks has a training department which provides two to three weeks of basic training to all newly hired SSRS.

Thus, the major functions are being carried out by AE, whereas E-Clinical Works India Pvt. Ltd. mostly carries out service by well trained service support representatives and training of the staff. The assets are mostly required infrastructure including its premises at both locations, computers and networks equipment etc. and does not have any significant tangible assets and even the intangible assets are owned by AE. The assessee in so far as risk is concerned is a very limited risk back office service provider rendering software support, call centre and ITES to its AEs. The international transaction entered with its AE was purely in respect of provision of IT enabled services of Rs.120,42,18,944/-. The assessee

The ld. TPO proposed six more comparables and finally he adopted following three comparables:-

TPO had worked out the PLI after taking depreciation and forex loss / income as non-operating in nature and the PLI was worked out at 10.33%. As stated above, the ld. Counsel has submitted that if only one comparable namely M/s. MPS Ltd. is excluded, then assessee’s margin would be at arm’s length and whereas other two comparable with the department need not to be adjudicated.

Before the ld. TPO regarding M/s. MPS Ltd assessee submitted that it is engaged in the business of providing publishing solutions and providing publishing services relating to type setting of books and journals, data coding, conversion, editing, indexing etc. and hence, same is not functionally comparable. However, the ld. TPO rejected the contention of the assessee and held that since it is in the business of outsourcing

The ld. CIT (A) has directed to exclude the said comparable after observing as under:- 11. Perusal of annual report reveal that the company is not a comparable as they operates in a different profile. As per annual report the company is "engaged in the business of providing publishing solutions viz, type setting and data digitization services for overseas publishers and supports international publishers through every stage of the author-to-render publishing process and provides a digital-first strategy for publishers across content production, enhancement and transformation, delivery and customer support This digital focus spans across STM/academic, Ingher education, trade and directory markets". Annual report (page 30) also reflects that activity is more than real BPO/IT enables services, more into publishing services. Hence Transfer Pricing Officer/Assessing Officer is directed to eliminate the case as a comparable.

After hearing both the parties and on perusal of the relevant material referred to before us at the time of hearing and orders of the authorities below on the issue of inclusion of one comparable M/s. MPS Limited, we find that in so far as FAR of the assessee is concerned, we have already incorporated in detail and it can be seen that assessee is just providing well trained service support representatives and train them for providing services to E-Clinical Works India Pvt. Ltd. particular clients of the AE and does not carry out any other functions or assume any kind of risk or have any significant assets deployed. Now, in so far as M/s. MPS Ltd. is concerned from the perusal of the annual reports it is seen that it is engaged in business of providing publishing solutions viz., typesetting and data digitization services for publishers. As per the report of MPS, it provides publishing services relating to typesetting of books and journals, composing of yellow page advertisement and catalogues, data coding, conversion, indexing, editing, copy editing, editorial services, software development, maintenance and support to global publishers. It is also engaged in web-site designing & development and provides various software and cloud-based digital publishing platform developed by it called "MPS DigiCore’. As per its website, it is largely engaged in providing content solution like content authoring and development, content production, content transformation, etc. As per the website at 50% of its business activities comprises of content solution.

Furthermore, the annual report also mentions that it carries out various R&D activities in relation to cloud based digital publishing platform and the various benefits derived by it due to such R&D activities and these services are much more than IT enabled services and is more into publishing services and providing content solutions, content product and content transformation. It also carries out significant R & D activities in relation to cloud base digital publishing platforms. Thus, this E-Clinical Works India Pvt. Ltd. comparable has rightly been excluded by the ld. CIT (A) while carrying out comparative analysis with the assessee company which is pure IT enabled services. Further, in the balance sheet of M/s. MPS Ltd. there is an inventory of Rs.7.82 Crores and there is also work-in-progress shown as inventory and if one sees the mark-up of Revenue recognition, it is seen that Revenue is from website designing and development as well as Revenue from website posting. It has also outsourcing cost of Rs.10.78 Crores. Thus, segmental information provides that the company operates in one business segment of providing publishing solutions, typesetting and data digitalization services which is considered to constitute a single segment. Thus, this company nowhere is a comparable to the assessee company and accordingly, we hold the order of the ld. CIT (A). In so far as other comparables are concerned as agreed by both the parties, they became purely academic and need not to be admitted and adjudication on these two comparables are left open. Accordingly, the Revenue’s appeal is partly allowed.

In the result, appeal of the Revenue is partly allowed. Order pronounced on 31st July, 2023.