Case Law Details
Transfer Pricing: Companies in software development services not comparable with those in development of software products and services
Brief of the Case
ITAT Bangalore held in the case of GXS India Technology Center Pvt. Ltd. vs. ITO that a company which is engaged in development of software products and services cannot be compared to a company which is purely software development services provider. Also, company operates in the segments of software development services which comprises of embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment. and no sub-services break up /information provided in the annual report or the databases based on which the margin from software services activity only could be computed, it cannot be considered as comparable to any other software services company because of its complex nature.
Facts of the Case
The assesses is a company incorporated in India and was established as 100% EOU registered under Software Technological Parks of India (SWTPI) at Bangalore. The assesses is a company primarily engaged in designing and development of software for its parent company. The assesses reported international transactions with its AE on account of provision of software development services of Rs.27,42,51,262/-. The assesses has reported profit before tax on cost at 10.28%. The assesses selected 18 comparable in its TP study report to bench mark its international transactions and arrived at 10.98% of mean margin in comparison to the assessee’s operating margin at 10.28%. Out of the 18 comparable selected by the assesses 14 were rejected by the TPO. The TPO finally selected 20 companies as comparables including 4 companies from the list of assessee’s comparable.
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