High Court of Karnataka · Judgments and reasoned final orders
The Pr. Commissioner of Income Tax & Anr. v. M/s. Applied Materials India Pvt. Ltd.
Income Tax Appeal No. 36 of 2021 ·
Transfer pricing comparability under section 92C and Rule 10B: exclusion of Mindtree Ltd., Persistent Systems Ltd., and Larsen & Toubro Infotech Ltd. from captive service provider's comparable set upheld as functionally dissimilar and non-perverse.
1. FACTS OF THE CASE
For AY 2013-14, the Transfer Pricing Officer included Mindtree Limited, Persistent Systems Limited, and Larsen & Toubro Infotech Limited as comparables while benchmarking the international transactions of the assessee, Applied Materials India Pvt. Ltd., which rendered limited captive software/engineering services to its Associated Enterprise. Following the DRP's confirmation of the TPO's order, the ITAT Bengaluru (by order dated 13.05.2020 in IT(TP)A No. 2687/Bang/2017) directed the TPO to exclude all three companies on grounds of functional dissimilarity. The Revenue appealed under section 260A, framing three substantial questions of law alleging that the Tribunal had ignored Rule 10B and rendered a perverse finding.
2. DISCUSSION BY THE COURT
Examining each of the three disputed comparables on the record, the Division Bench held that the Tribunal's reasons were proper and warranted no interference: (1) Mindtree Limited carried out substantial Research and Development (R&D) activities and had created huge intangibles, making it functionally incomparable to the limited captive services rendered by the assessee; (2) Persistent Systems Limited earned income from licensing/royalty fees and was engaged in software product development, unlike the assessee which neither developed proprietary products nor earned royalty income; and (3) Larsen & Toubro Infotech Limited operated as a full-fledged software development enterprise performing broad functions incomparable to the assessee's limited captive functions. As the Revenue produced no additional material to show perversity or violation of Rule 10B, the Tribunal's factual findings were upheld.
3. JUDICIAL DECISION
Answering all three substantial questions of law in favour of the assessee and against the Revenue, the High Court held that the Tribunal's order was neither perverse nor contrary to the Act or Rules and dismissed Income Tax Appeal No. 36 of 2021.
4. OUTCOME
In favour of the assessee (M/s. Applied Materials India Pvt. Ltd.). The Revenue's appeal was dismissed and the exclusion of Mindtree Ltd., Persistent Systems Ltd., and Larsen & Toubro Infotech Ltd. for AY 2013-14 stood affirmed.
5. AKHB REVIEW POINT
AKHB analysis: when challenging large IT/software companies (such as Mindtree, Persistent Systems, and L&T Infotech) in captive SDS transfer pricing benchmarking under Rule 10B, extract three specific annual-report markers for the record: (a) R&D spend and intangible asset creation, (b) software product development and royalty/licensing revenue streams, and (c) absence of audited segmental break-up between full-risk product/enterprise solutions and routine captive coding.
Source and verification
Six-page official High Court of Karnataka judgment PDF (2026:KHC:50875-DB); paragraphs 1-7 span PDF pages 1-6.
Original PDF: 6 pages · SHA-256: 751f4b678659228aa3ae0145d9d8ca8f5809457fb58f94247c371bce4469dbb8
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Applies sections 92, 92C and 260A of the Income-tax Act, 1961 read with Rule 10B of the Income-tax Rules, 1962 for AY 2013-14. Income-tax Act, 2025 equivalence is not verified.
Full judgment checked. Comprehensive subsequent judicial treatment has not been verified.
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