Orange Business Services India Solutions Private Ltd. Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT) Delhi has set aside previous orders concerning the transfer pricing assessment of Orange Business Services India Solutions Private Ltd., remanding the matter back to the Transfer Pricing Officer (TPO) for fresh evaluation. The key directive from the Tribunal is to independently benchmark the taxpayer’s ‘Software Development’ (IT Services) and ‘IT Enabled Services’ (ITES) segments, departing from the earlier aggregated approach. The ITAT also stipulated the application of the “head count” method for allocating common expenses between these segments.
The decision, pronounced on July 15, 2021, follows a specific directive from the Hon’ble Punjab & Haryana High Court, which had previously intervened in the dispute.
Background of the Dispute
Orange Business Services India Solutions Private Ltd., an Indian subsidiary of the French multinational telecommunication corporation Orange S.A., provides both IT-enabled network management/technical support services and routine Contract Software Development Services (CSDS) for internal group applications. For the assessment years (AYs) 2010-11 and 2011-12, the Tax Authorities (Assessing Officer and TPO) had accepted the company as engaged in both IT Services (software development) and ITES.
However, for AY 2013-14, the TPO characterized the taxpayer solely as an ITES provider, rejecting its claim of distinct software development activities. This characterization significantly impacted the benchmarking of international transactions with its Associated Enterprises (AEs). The taxpayer had applied the Transactional Net Margin Method (TNMM) with Operating Profit/Operating Cost (OP/OC) as the Profit Level Indicator (PLI) for both ITES and CSDS segments, concluding its transactions were at arm’s length.
