CORNERSTONE ONDEMAND INTERNATIONAL LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-2(1)(1), MUMBAI

ITA 4558/MUM/2023Status: DisposedITAT Mumbai16 October 2026AY 2021-2226 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal decided to remit the issue of Permanent Establishment (PE) and attribution of profits to the Assessing Officer (AO) for fresh examination and adjudication. The Tribunal noted that the remuneration of CSOD India, comprising a cost-plus mark-up of 17% for support services and a margin of 5% on software sales, was accepted without transfer pricing adjustment. However, this acceptance does not automatically mean all functions and risks relevant to attribution were adequately remunerated. The AO is directed to examine the true nature of the relationship between the assessee and CSOD India, including who determines customer prices, bears credit risk, assumes contractual obligations, and is responsible for performance. The AO must also verify customer details, the role of CSOD India in soliciting and processing orders, and the applicability of Article 5(4) of the India-UK DTAA. The examination should also cover the relationship between CSOD India and Cornerstone OnDemand Limited in earlier years and any realignment from AY 2020-21. The AO must independently examine the applicability of Article 5(2)(f) and Article 5(2)(k) of the India-UK DTAA, without importing MLI amendments. If a PE is found, profit attribution must be based on functions performed, assets employed, and risks assumed, considering the principle in DIT v. Morgan Stanley & Co. Inc., and not on an ad-hoc percentage. Grounds 3 to 16 were allowed for statistical purposes, as they were interconnected with the substantive grounds concerning PE and attribution. Grounds 3 and 5 were considered interconnected with PE and attribution issues and did not require separate adjudication. Grounds 11 and 12 (interest and penalty) were deemed consequential and did not require adjudication. The appeals were allowed for statistical purposes.

What were the facts?

The assessee, Cornerstone Ondemand International Limited, a UK-registered company engaged in cloud-based learning and talent-management software, filed appeals against the final assessment orders for Assessment Years (AY) 2020-21, 2021-22, and 2022-23. These orders were passed by the Assistant Commissioner of Income Tax (International Taxation)-2(1)(1) under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961, pursuant to directions from the Dispute Resolution Panel (DRP). The appeals were heard together due to common issues and similar facts. The assessee's Indian sister concern, CSOD India, provides support services and acts as a distributor/reseller of the assessee's software in India.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the Final Assessment Order for AY 2020-21 was passed beyond the time limit provided under Section 153 of the Act (Ground 1). 2. Whether the Final Assessment Order was bad in law due to the Learned AO not following the directions of the Learned DRP (Ground 2). 3. Whether the Learned AO and DRP erred in assessing the total income for AY 2020-21 at INR 2,27,20,560 instead of INR NIL (Ground 3). 4. Whether the assessment proceedings were invalid due to non-issuance of a valid notice under Section 143(2) of the Act (Ground 4). 5. Whether the assessment was based on erroneous findings, conjectures, and surmises (Ground 5). 6. Whether the Appellant has a dependent agent Permanent Establishment (PE) under Article 5(5) of the India-UK Tax Treaty, considering no on-ground sales/marketing activity was undertaken by CSOD India (Ground 6). 7. Whether the Learned DRP erred in applying its directions from a previous case to the Appellant, attributing 30% of total receipts as taxable income on an ad-hoc basis (Ground 7). 8. Whether the Learned AO erred in not following Explanation (a) to Section 9(1)(i) of the Act regarding the restriction of taxable profits to income reasonably attributable to business operations in India (Ground 8). 9. Whether the Learned AO erred in computing taxable income without considering functions performed, assets used, and risks assumed by the PE as required under Article 7(2) of the India-UK tax treaty (Ground 9). 10. Whether the Learned AO erred in attributing 30% of revenues to India without considering the arm's length remuneration to CSOD India for its collection function (Ground 10). 11. Whether interest under Sections 234A, 234B, 234C, and 234D was erroneously levied (Ground 11). 12. Whether penalty proceedings under Section 270A(2) read with Section 274 were erroneously initiated (Ground 12). 13. Whether the DRP erred in stating that the jurisdiction of NaFAC was not brought to notice (Ground 13). 14. Whether the DRP erred in holding that the Appellant has a fixed place PE or service PE under Article 5(2)(f) or 5(2)(k) of the India-UK Tax Treaty (Ground 14). 15. Whether the DRP erred in not following global financial statements and global margin, and in not appreciating that the Appellant is not required to maintain books of accounts in India (Ground 15). 16. Whether the DRP erred in relying on directions from a previous case without appreciating material in the Appellant's own case (Ground 16). Assessee's Contentions: - The assessment order was passed beyond the time limit (Ground 1). - The AO failed to follow DRP directions (Ground 2). - Income should be NIL, not INR 2,27,20,560 (Ground 3). - Assessment was invalid due to non-issuance of a valid notice u/s 143(2) (Ground 4). - Assessment was based on conjectures and surmises (Ground 5). - No dependent agent PE existed as CSOD India did not undertake on-ground sales/marketing (Ground 6). - DRP's ad-hoc attribution of 30% was erroneous and applied incorrectly from another case (Ground 7). - Attribution should be restricted as per Section 9(1)(i) (Ground 8). - Attribution should consider functions, assets, and risks as per Article 7(2) (Ground 9). - Further attribution is unwarranted as CSOD India's remuneration is at arm's length (Ground 10). - Interest and penalty proceedings are consequential (Grounds 11 & 12). - Jurisdiction of NaFAC was brought to notice (Ground 13). - No fixed place or service PE existed (Ground 14). - Global financial statements and margins should be considered (Ground 15). - DRP wrongly relied on previous case directions (Ground 16). Revenue's Contentions: No specific contentions for the revenue were recorded in the provided text.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 153,Section 143(2),Section 9(1)(i),Section 7(2),Section 5(5),Section 5(2)(f),Section 5(2)(k),Section 5(4),Section 234A,Section 234B,Section 234C,Section 234D,Section 270A(2),Section 274

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Heard together (2 matters)

ITA 3228/MUM/2023
ITA 4558/MUM/2023

Read from the judgment's own cause title. This page is filed under one of them.

आयकर अपीलीय अिधकरण, मुंबई पीठ", मुंबई INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: I BEFORE SMT. BEENA PILLAI, HON’BLE JUDICIAL MEMBER AND SHRI ARUN KHODPIA, HON’BLE ACCOUNTANT MEMBER ITA 3228/MUM/2023 (िनधा"रण वष"/Assessment Year: 2020-21) CORNERSTONE ONDEMAND ASSISTANT COMMISSIONER INTERNATIONAL LIMITED OF INCOME TAX (INTERNATIONAL 14 TH FLOOR, THE RUBY, 29 TAXATION)-2(1)(1) SENAPATI BAPAT MARG, DADAR WEST., -400028, ASSISTANT COMMISSIONER MAHARASHTRA OF INCOME TAX Vs. (INTERNATIONAL TAXATION)- 2(1)(1), 17 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT. -400021, MAHARASHTRA अपीलाथ" Appellant ""थ" Respondent

PAN of Assessee: AAHCC3361N

अपीलाथ" "ारा/Appellant represented by: Shri Hiten Thakkar, AR ""थ" "ारा/Respondent represented by: Shri Sridhar G. Menon (SR DR )

ITA 4558/MUM/2023 (िनधा"रण वष"/Assessment Year: 2021-22) CORNERSTONE ONDEMAND ASSISTANT COMMISSIONER INTERNATIONAL LIMITED OF INCOME TAX (INTERNATIONAL 14 TH FLOOR, THE RUBY, 29 TAXATION)-2(1)(1) SENAPATI BAPAT MARG, DADAR WEST. MUMBAI, - ASSISTANT COMMISSIONER 400028, MAHARASHTRA OF INCOME TAX Vs. (INTERNATIONAL TAXATION)- 2(1)(1), 17 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT. -400021, MAHARASHTRA अपीला

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