On 7 November 2017, the High Court(HC) in the case of: (CIT v. ESPN Software India Limited [ITA Nos. 882, 890 and 891 of 2017]) decided that two closely related separate business segments can be combined for arm’s length price determination. In this case, the question was whether the taxpayer should permitted two different and distinct business segments for benchmarking purposes.
The High Court upheld the decision given by the Income Tax Appellate Tribunal (ITAT) in favor of the taxpayer. The HC agreed with the ITAT that closely related business segments can be aggregated for benchmarking purposes, even if the taxpayer has maintained segmental records.
Additionally, the HC agreed that losses arising in one of the segments, on account of a change in business model, would not prevent the taxpayer from aggregating the two segments for determining arm’s length remuneration. It is a settled proposition that whether or not two transactions should be segregated is entirely a fact-dependent exercise that cannot in itself be treated as a question of law. The findings on facts given by the ITAT are binding and cannot be interfered with unless they are found to be perverse. The HC found that, based on present facts, it would not interfere with the ITAT’s decision and accordingly, dismissed the appeal.
