INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determination of ALP - Assessee claimed exclusion of sub-contracting charges from operating cost and income -

Assessee-company provided software development services to its AE. It claimed that sub-contracting charges incurred by it should be given pass-through status and hence, should be excluded from the operating cost and income while computing arm's length price. Held: Undisputedly, assessee was charging a mark-up on the software development services provided to the AE being captive service provider. Therefore, the assessee was not acting as an agent or distributor of the AE but was a provider of services of its own. Further, the cost of sub-contracting in software development services was also charged with mark-up to the AE. When the margin on the cost of sub-contracting charges is part of the operating revenue of the assessee, then, only the cost of subcontracting activity cannot be excluded as pass through. Further, as outsourcing cost in software development services activity was part and parcel of cost of providing the service to the AE, the same could not be separated from the operating cost and operating revenue of the said segment of services. Accordingly, the cost of software development services could not be treated in the fashion as claimed by the assessee.

Followed:M/s. Applied Materials India (P) Ltd. v. Asstt. CIT [I.T. (T.P) A. No.17/Bang/2016, I.T. (T.P) A. No.39/Bang/2016, dt. 21-9-2016]

REFERRED :

FAVOUR : Against the assessee

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 92C

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