India: Multiple-year data allowed, transfer pricing rules satisfied

India: Multi-year data allowed, tp rules satisfied

The Delhi Bench of the Income Tax Appellate Tribunal upheld a decision of the Commissioner of Income Tax (Appeals) to allow the taxpayer to use multiple-year data in determining the arm’s length price, given that the taxpayer’s case was directly covered under a proviso to Rule 10B(4) of the Income Tax Rules, 1962. DCIT v. Innodata Isogen India Pvt. Ltd. [ITA 1528/Del/2011]


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The tribunal distinguished this taxpayer’s case from that of a typical cost-plus service provider.

Also, the tribunal found that considering the project-based revenue model of the taxpayer—pursuant to which the customer price was agreed upfront for a fixed number of years, and the margins fluctuated on a year-to-year basis—the use of multiple-year data allowed for an accurate and true reflection of the arm’s length nature of the transfer prices.


The taxpayer provided content-related services to its parent company. The taxpayer was also engaged in various international transactions with related entities, and all but one of these transaction (the provision of IT-related services) were accepted by the Transfer Pricing Officer as being at arm’s length.

To benchmark the taxpayer’s provision of IT-related services, the taxpayer had applied the Transactional Net Margin Method (TNMM) and used multiple-year data in its transfer pricing documentation.

The Transfer Pricing Officer rejected the use of multiple-year data and determined the arm’s length price using the current year data. The Transfer Pricing Officer based this finding on the fact that the taxpayer earned only 60% of the overall profit, whereas the related party retained the remaining 40%—which the Transfer Pricing Officer found was not commensurate with the functions performed (the related party was involved in marketing and coordination activities, while the taxpayer performed all other major functions in India).

The Commissioner of Income Tax (Appeals), however, rejected the transfer pricing adjustment; upheld the taxpayer’s use of multiple-year data; and clarified that the taxpayer was not a “back office” or a captive unit, but that it faced market and other related risks / uncertainties. It was also noted that both the taxpayer and the related party were exposed to volume fluctuations in the business. Thus, the conclusion was that the taxpayer was not a risk-free service provider that would typically be compensated on a cost-plus basis and earned a low and consistent return on a year-to-year basis.

The tribunal basically agreed with the taxpayer’s contentions and with the determination to apply multiple-year data.


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