OPEN TEXT CORPORATION INDIA PRIVATE LIMITED(FORMERLY KNOWN AS CORDYS SOFTWARE INDIA PRIVATE LIMITED), HYDERABAD,HYDERABAD vs. ITO, WARD-16(3), HYDERABAD, HYDERABAD

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ITA 152/HYD/2017Status: DisposedITAT Hyderabad19 May 2021AY 2012-134 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the ALP adjustment was not sustainable because the benchmark rates used (SBI prime lending and domestic deposit rates) were not appropriate for international transactions. It also noted the lack of comparable uncontrolled transactions for the segment and the period involved.

What were the facts?

The assessee's appeal concerned an Arm's Length Price (ALP) adjustment of Rs. 7,32,48,576/- made by the lower authorities on interest on receivables from an overseas Associated Enterprise. The adjustment was made using SBI's prime lending rate and domestic deposit rates, which the assessee argued was inappropriate for international transactions.

What were the issues?

Whether the ALP adjustment on interest on receivables from an overseas AE was correctly made using domestic interest rates as a benchmark. Whether interest on receivables constitutes an international transaction covered by Explanation (c) to Section 92B.

Which sections of the Income-tax Act were involved?

Section 92B,Section 143(3),Section 144C(13)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” : HYDERABAD

Before: SHRI S.S.GODARA & SHRI LAXMI PRASAD SAHU

Assessment Year: 2012-13 Open Text Corporation India Income Tax Officer, Private Limited, Vs Ward-16(3), (formerly known as Cordys HYDERABAD Software India Private Limited), HYDERABAD [PAN: AAACB8264E] (Appellant) (Respondent) For Assessee : Shri Prashant Meharchandani, AR For Revenue : Shri R.Dipak, DR Date of Hearing : 26-04-2021 Date of Pronouncement : 19-05-2021 O R D E R PER S.S.GODARA, J.M. : This assessee’s appeal for AY.2012-13 arises against the ITO, Ward-16(3), Hyderabad’s assessment dated 20-12-2016 framed in furtherance to the Dispute Resolution Panel (‘DRP’)- 1, Bengaluru’s directions dt.25-10-2016 in F.No.148/DRP-1/ BNG/2016-17, involving proceedings u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 [in short, ‘the Act’]; respectively. Heard both the parties. Case file perused.

2.

The assessee’s sole substantive grievance pleads that the learned lower authorities have erred in law and on facts in making Arm’s Length Price (ALP) adjustments of Rs.7,32,48,576/- pertaining to interest on receivables qua its international transactions with the overseas Associated Enterprise (AE). Suffice to say, it transpires at the outset that we need not dwell deeper qua the relevant facts pertaining to the instant issue. We find that assuming but not accepting the learned lower authorities have rightly found the assessee’s interest receivables as beyond the period involving un- controlled transactions, the impugned adjustment is not liable to be sustained for the sole reason that the same has been made not as per LIBOR rate applicable in case of international loans but after taking State Bank of India’s prime lending rate @14.75% in the Transfer Pricing Officer’s (TPO) order and upheld to that @ 4% to 9.25% as applicable in case of the very bank’s domestic short term deposits involving 7 – 554 days; as the case may be.

2.1. Learned CIT-DR’s vehement contention is that the TPO as well as the DRP have rightly taken the foregoing SBI rate’s benchmark involving the short term deposits.

2.2. We find no merit in the instant argument as such a short term deposit cannot be taken at par with an international transaction u/s.92B of the Act since the latter involves foreign currency and overseas market conditions. In addition to this, learned lower authorities have also not adopted any un- controlled party/comparable in the very segment as well so as to come to the conclusion that the assessee’s receivables in case of overseas AEs involved more than the market practice of reasonable time period. We keep in mind all these clinching aspects and direct the TPO to delete the impugned ALP adjustment in issue. The assessee’s former substantive ground stands accepted in the above terms.

3.

The assessee’s next argument is that such interest on receivables ought not to have been treated as an international transaction covered under Explanation(c) to Section 92B of the Act, inserted in the Act vide Finance Act, 2012 w.e.f.01-04- 2001 is rejected as per the hon'ble Madras high court’s decision in Redington India Pvt. Ltd., Vs. DCIT, in Tax Appeal No.590 and 591 of 2019 dt.10-12-2020 holding that a corporate guarantee indeed forms an international transaction and covered by the explanation to section 92B with retrospective effect.

3.1. There is hardly any issue that the departmental authorities have applied the foregoing Explanation with retrospective effect qua issue of a corporate guarantee which also included the impugned interest on receivables. The assessee’s legal argument is declined therefore. Necessary computation to follow as per law. No other ground has been pressed before us. 4. This assessee’s appeal is partly allowed.

Order pronounced in the open court on 19th May, 2021

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