In a recent landmark ruling (
Facts
During the relevant financial year, assessee provided investment advisory and support services to its associated enterprise ('AE') at a cost plus mark-up. Assessee provided research reports and other material to assist AE in carrying out assessment of potential investment opportunities in
Issues
The key issues revolved around inclusion of three comparables namely (i)
Decision
Sumedha Fiscal Services Limited - ITAT clearly acknowledged the Company earned substantial revenue from management of rights issues. Despite this fact, ITAT restored the matter to TPO to examine whether Sumedha was comparable to assessee.High Court held that such an approach of ITAT was not correct. Starting the entire exercise of comparability analysis from the stage of TPO would result in an unending cycle of proceedings especially when the relevant material in the form of annual reports etc. was available on the record.High Court held that ITAT itself should have determined whether Sumedha was to be retained.Brescon Advisors Limited - ITAT analysed the annual reports and noticed that income of Brescon was from fee based financial services, from debt resolution and debt syndication. Brescon also earned revenue from sale of investments.High Court ruled that ITAT equated 'Advisory services related to debt financing' with 'financial services from debt resolution and debt syndication'.
These two were not identical services. Whereas the former is advisory in nature, the latter is executory in nature. While there could be some overlap between the former and latter, the matter required deeper analysis and examination.Ladderup Corporation Limited - ITAT noticed that Ladderup had shown operational income from financial and management consultancy services as also fee based activities such as 'Debt Syndication, IPO Advisory, Private Equity Placement, Merger and Acquisitions, Corporate Restructuring and a host of other corporate advisory services.' The ITAT, thereafter, simply held that Ladderup had similar functions as that of the Assessee and deserved to be retained.
Comments
The Ruling is a welcome decision that reaffirms similar rulings in the past that have held that mere advisory or research service providers cannot be equated with full-fledged financial service companies providing broking services, debt syndication, mergers & acquisition etc (refer Carlyle Ruling,
Footnote
1. Avenue Asia Advisors Pvt. Limited v/s Deputy Commissioner of Income Tax
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
110014
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