THOMSON REUTERS INTERNATIONAL SERVICES PRIVATE LIMITED(SUCCESOR IN INTEREST TO THOMSAN REUTERS INTERNATIONAL SERVICES PRIVATE LIMITED),MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-13(3)(2), MUMBAI

The brief facts of the case are that the assessee, Thomson Reuters International Services Pvt. Ltd. (in short TRISPL) is a subsidiary of Worldscope Disclosure LLC, US, and Thomson Reuters Holdings BV. TRISPL based on the intercompany agreements is primarily engaged in providing software development and ITeS to Thomson Reuters‟s affiliates. For the services rendered, the company is compensated on the basis of a mark-up on cost.

The AO referred the matter to TPO, wherein transfer pricing adjustment was made. The AO also disallowed assessee‟s claim of deduction under Section 10A in respect of UB Plaza Software Technology Parks of India (STPPI) Unit.

At the outset the learned A.R. placed on record order of the Tribunal in assessee‟s own case for A.Y. 2007-08, wherein deduction under Section 10A was allowed in respect of UB Plaza Software Technology Parks of India Unit.

The learned D.R. also fairly conceded that the issue is covered by the order of the Tribunal in assessee‟s own case for A.Y. 2007-08 vide order dated 06.04.2017.

We have considered the rival contentions and found that exactly similar issue was decided by the Tribunal in A.Y. 2007-08 in assessee‟s favour, respectfully following the same we do not find any merit for disallowance of deduction under Section 10A of the Act.

We have considered the rival contentions and found that during A.Y. 2008-09 the assessee started a new Titanium unit and obtained STPI approval for the same. The Titanium unit is a new unit and since being an STPI unit it is independently eligible for Section 10A benefit. However, the AO observed that Titanium unit was only an expansion of UB Plaza Software Technology Parks of India Unit and not a newly established undertaking and hence not eligible for deduction under Section 10A of the Act. We find that the issue is squarely covered by the decision of the Tribunal in assessee‟s own case for A.Y. 2008-09. We have carefully gone through the order of the Tribunal for A.Y. 2008-09 passed by the ITAT Bangalore Bench dated 06.04.2017 wherein under similar facts and circumstances the Tribunal has allowed assessee‟s claim in respect of Titanium (STPI) unit under Section 10A of the Act. Respectfully following the same, we do not find any merit for disallowance of deduction under Section 10A in respect of STPI unit.

The AO also declined assessee‟s claim under Section 10A in respect of unit acquired from Reuters India Pvt. Ltd. The order of the AO was confirmed by the CIT(A). Assessee is in further appeal before us.

We have considered the rival contention and four that during A.Y. 2009-10 the assessee has taken over the business relating to IT enabled services from Reuters India Pvt. Ltd. (in short „RIPL‟) as a going concern on slump sale basis. The AO declined assessee‟s claim by observing that acquisition of STPI unit of RIPL under slump sale arrangement would result in splitting up or reconstruction of business already in existence, since non-STPI unit is not transferred. The AO also observed that the unit was formed by acquisition of previously used assets and there by the unit does not fulfil the conditions for claiming deduction under Section 10A(2) of the Act. We found that deduction of RIPL unit is covered on the principle

The next grievance of assessee relates to depreciation on goodwill in respect of undertaking acquired from TBI during A.Y. 2006-07 and from RIPL during A.Y. 2009-10.

We have heard the rival contentions and found that during A.Y. 2006-07 the assessee company has recorded goodwill amounting to `2.01 crore in its books of account arising as a result of acquisition of business of TBI under slump sale. The effective WDV as on 01.04.2010 was Rs. 47,92,033/-. During A.Y. 2009-10 the assessee has recorded goodwill amounting to Rs. 47,22,51,519/- arising as a result of acquisition of business relating to IT enabled services from RIPL under slump sale. The assessee has put its claim of goodwill first time in A.Y. 2009-10 for the above acquisition. However, during A.Y. 2011-12, the year under consideration the company had claimed depreciation on goodwill in revised return of income relying on the decision of Hon'ble Supreme Court in the case of Smifs Securities Ltd. 348 ITR 302, since the appeal for A.Y. 2009- 10 is pending wherein for the first time the assessee has made claim for goodwill. Thus, allowability of claim of depreciation during the year under consideration depends on the outcome of A.Y. 2009-10 i.e. the first year in which claim of goodwill was lodged. Accordingly, we direct the AO to decide the issue of claim of depreciation on goodwill only after the decision of the Tribunal in A.Y. 2009-10. We direct accordingly.

Next grievance of assessee relates to reduction of telecommunication expense and expenditure incurred in foreign currency from export turnover without deducting the same from total turnover while computing deduction under Section 10A of the Act.

We have considered the rival contentions and found that the issue is covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. HCL Technologies (Civil Appeal Nos. 8489-8490 of 2013. We also found that in assessee‟s own case for assessment years 2007-08 and 2008-09, the issue stands decided in favour of the assessee. Furthermore, the DRP itself has decided this issue in favour of the assessee by not accepting AO‟s contention. The issue is also covered by the Hon'ble Bombay High Court in the case of Gems Plus Jewellery India Ltd. 194 Taxman 192. Accordingly there is no merit in the order of lower authorities.

The assessee is also aggrieved for not granting credit for TDS of Rs. 5.07.821/-

We found that credit was claimed by assessee in respect of TDS in its revised return. We direct the AO to verify the actual credit of TDS and to decide the same afresh.

Charging of interest under Section 234B, 234C and 234D is consequential in nature

In the result, appeal of the assessee is allowed.

Revenue in its appeal is aggrieved by the decision of the DRP in holding that the AO/TPO while verifying comparability analysis failed to exclude the companies which have large scale of operations.

We have heard the rival contentions and found that the issue is decided by the ITAT Bangalore Bench in favour of the assessee in the case of Genesys Engineering Systems. The preside observation of the DRP is as under: -

We have considered the rival contentions and carefully gone through the orders of the authorities below and found that issue under consideration is covered by the decision of Bangalore ITAT in case of Genisys Integrating Systems (supra), wherein a guideline in the matter of turnover of filter was suggested. The ld. DRP after following the same held that companies with turnover lower than Rs. 200 crores and higher than Rs. 2000 crores should be excluded from the comparability analysis. We do not find any infirmity in the order of DRP.

In the result, the appeal of the assessee is allowed in part whereas appeal of the Revenue is dismissed.