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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI & SHRI SANDEEP SINGH KARHAIL
The aforesaid cross appeals have been filed by either parties challenging the impugned order dated 12th February 2015, passed by the Commissioner of Income Tax (Appeals)–57, Mumbai, under section 250 of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for the assessment year 2009–10.
./2015 Assessee’s Appeal– A.Y. 2009–10
2. At the outset, Shri Ajit Jain, learned Authorised Representative (hereinafter referred to as “the learned A.R.”), appearing for the assessee submitted that the assessee, vide letter dated 27th January 2022, filed before the Tribunal has prayed for withdrawal of its appeal being ITA No.2837/Mum./2015, for the assessment year 2009–10, as the assessee has received the communication dated 10th October 2022 of resolution / closure of dispute under Mutual Agreement Procedure (‘MAP’) amongst Competent Authorities of India and U.S.A. for the relevant assessment year. The learned A.R. further submitted that the assessee has decided to accept the aforesaid resolution communicated vide letter dated 10th January 2022 by CBDT.
The letter dated 10th January 2022 issued by CBDT is placed on 3. record and the same reads as under:–
Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015 “F.No. 480/09/2016-APA-1 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes Foreign Tax & Tax Research Division - I APA- I Section 906B, 9th Floor, C Wing, Hudco Vishala Building, 14, Bhikaji Cama Place, New Delhi - 110066 Dated: January 10, 2022 M/s Oracle (OFSS) Processing Services Limited, Oracle Park, Nirlon Compound, Off Western Express Highway, Goregaon (East), Mumbai - 400063 Madam/Sir, Subject: Communication of resolution/closure of dispute under MAP with the U.S.A. in the case of Oracle Processing Services Limited (PAN: AABCI4610G) for assessment year 2009-10 in accordance with rule 44G(6) of Income Tax Rules, 1962- reg. Please refer to the subject cited above.
In accordance with rule 44G(6) of the Income Tax Rules, 1962 ('Rules'), I am directed to state that the Indian and USA Competent Authorities (CAs) have agreed to resolve the MAP in your case for AY 2009-10 for the transaction of provision of Business process outsourcing services to its US AE, Oracle Financial Services Software America, Inc.
As per the MAP resolution agreed upon by the two CAs, the computation of MAP relief and the retained TP adjustment is as follows:
Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015 Calculations for A.Y. 2009–10 Operating Cost 169674000 Price received (A) 201695000 Price received (related to US) (B) 181453430 % of transaction with US (C) 89.96% Operating Cost (US related) 152645972 Percentage margin as per applicant 18.87% % margin as per TPO 25.39% ALP as per TPO 212574000 ALP as per TPO (US related) 191240643 Adjustment 10879000 Adjustment (US related) 9787213 Margin as determined by India CA 18.87% ALP as per Indian CA 201695000 ALP as per India CA (US related) 181453430 Adjustment as per India CA (US related) 0 Relief to be provided by Indian CA (US 9787213 related) 4. As per rule 44G(7) of the Rules, you are requested to communicate your acceptance or non– acceptance of the above resolution in writing to the Competent Authority in India. Further, the said acceptance shall be communicated within thirty days of receipt of this communication under sub–rule (6) of rule 44G.
5. In case of acceptance of the above resolution, you are requested to enclose with it the proof of withdrawal of appeal, if any, pending on the transaction that is the subject matter of this resolution, in accordance with sub–rule (8) of rule 44G. You may also email your response on the following email id: vijit.patel@ gov.in.
Notwithstanding anything above, it may be noted that the MAP resolution is subject to the condition that no ITAT order has been passed before implementation of the resolution and the resolution shall not result in lowering of returned ALP. Yours faithfully Sd/- (Dr. Vijit Patel) DCIT(OSD), APA-I FT&TR-1, CBDT Email: vijit.patel@gov.in”
Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015 4. In view of the above, we accept the request of the assessee for withdrawal of its appeal for the assessment year 2009-10.
In the result, appeal by the assessee is dismissed as withdrawn. ./2015 Revenue’s Appeal – A.Y. 2009-10
6. The Revenue has filed the present appeal on the following grounds:–
“1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of 40(a)(ia) without appreciating that the provisions of section 194 are attracted in respect of payments made to the group entities. 2. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the A.O. be restored.”
The only issue raised by the Revenue in its appeal is regarding deletion of disallowance under section 40(a)(ia) of the Act.
The brief facts of the case pertaining to this issue as emanating from the records are: The assessee is engaged in the business of providing Knowledge Process Outsourcing services to the financial services (capital markets) industry abroad. On 1st April 2007, the assessee entered into “Marketing Service Agreement” with I–Flex Solutions Inc. In terms of the said agreement, I–Flex Solutions Inc. has sub–contracted to the assessee certain works under contracts entered into by I–Flex Solutions Inc. with its customers outside India viz.
Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015 transaction processing, accounting helpdesk, other back office services. For rendering the services to I–Flex Solutions Inc. in relation to the work sub–contracted under the aforesaid agreement, the assessee utilised, inter–alia, premises, facilities and employees of I–Flex Solution Ltd. (India), its holding company, which is the company resident in India. As per assessee’s claim, the cost incurred by I–Flex Solution Ltd. (India), towards salary, travelling, communication, rent, etc., are charged back to the assessee on pure cost–to–cost basis. As a result, the assessee had paid Rs. 4,38,34,699 and Rs. 6,62,222 (totalling to Rs. 4,44,96,921) as reimbursement of expenses to I–Flex Solution Ltd. (India) and Equinox Global Services Ltd., respectively, during the year under consideration. The details of aforesaid payment are as under:–
Sr. Equinox Global I–Flex Solutions Particulars no. Services Ltd. Ltd. 1. Salary – – 33354391 2. Communication – – 4122718 Travelling 3. 661827 2796607 expenses 4. Rent – – 818752 5. Professional Fees – – 780953 Other Expenses (Repairs & maintenances, 6. employee welfare, 395 1961277 stationary supplies, courier charges, etc.) Total: 662222 43834698
During the course of assessment proceedings, the Assessing Officer issued show cause to assessee as to why the said expenditure should not be disallowed under section 40(a)(ia) of the Act for non-deduction of TDS.
Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015 In response, the assessee submitted that the payments made to Equinox Global Services Ltd. and I–Flex Solution Ltd. (India), were not for doing any ‘work’ or for provision of any „Professional / Technical Service’ by Equinox Global Services Ltd. / I–Flex Solution Ltd. (India) to the assessee. Further, the payments were mere reimbursement of actual costs incurred by Equinox Global Services Ltd. / I–Flex Solution Ltd. (India) on behalf of the assessee, and thus, do not represent expenditure for any work or service in respect of which tax is deductible as per the provisions of the Act. Accordingly, the assessee was not liable for withholding any tax on such payments.
The Assessing Officer, vide order dated 18th April 2013, passed under section 143(3) r/w section 144C(3) of the Act rejected the claim of the assessee and held that the assessee failed to substantiate that the payments made to the aforesaid two entities were mere reimbursement. The Assessing Officer further held that the payments were made in pursuance to a sub-contractual relationship (as per Marketing Service Agreement dated 1st April 2007) with I–Flex Solution Ltd. (India) and Equinox Global Services Ltd., and thus the amounts paid by the assessee were liable to TDS under section 194C of the Act. Accordingly, the Assessing Officer disallowed the entire payment of Rs. 4,44,96,921 under section 40(a)(ia) of the Act.
In appeal against the aforesaid disallowance, the CIT(A), vide order dated 12th February 2015, following its earlier decision in assessee’s own
Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015 case for the assessment year 2010–11, deleted the disallowance under section 40(a)(ia) of the Act. Being aggrieved by the relief granted by the CIT(A), Revenue is in appeal before us.
During the course of hearing, the learned Departmental Representative, Shri Tejinder Pal Singh, appearing for the Revenue, vehemently relied upon the order passed by the Assessing Officer and prayed that the same be upheld on the issue of disallowance under section 40(a)(ia) of the Act.
On the other hand, the learned A.R. submitted that the issue arising in Revenue’s appeal has been decided by the Co–ordinate Bench of the Tribunal in assessee’s own case for assessment year 2010-11, wherein the Tribunal has upheld the deletion of disallowance under section 40(a)(ia) of the Act.
We have considered the rival submissions and perused the relevant material available on record. We find that on identical issue the Co– ordinate Bench of the Tribunal in assessee’s own case vide order dated 24th January 2018, passed in ACIT v/s Oracle (OFSS) Processing Services Pvt. Ltd., ITA No. 7325/Mum./2015, for the assessment year 2010–11, dismissed the Revenue’s appeal by observing as under:–
“6. We have heard rival contentions and perused the material available on record. At the outset, it needs to be observed, the subject matter of dispute in ground no.1 is restricted to the disallowance under section 40(a)(ia) of the Act of the following payments made by the assessee.
Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015
Oracle Financial Services Software Ltd., India – Rs. 22,91,773 Oracle (OFSS) BPO Services, India – Rs. 69,736 7. As far as the payment of Rs. 22,91,773 to Oracle Financial Services Software Ltd. is concerned, such payment is towards salary cost of some employees of I– Flex Processing Services Ltd. which is evident from the debit note dated 30th June 2009. From the evidence brought on record, it is evident that the assessee has reimbursed the expenditure incurred by the original employer of the concerned employees on cost–to–cost basis. Even, the Assessing Officer has not disputed the fact that the reimbursement is on cost to cost basis. The only reason for which the Assessing Officer has disallowed the payment under section 40(a)(ia) of the Act is, the payment made is towards work as envisaged under section 194C of the Act. We are unable to agree with the aforesaid reasoning of the Assessing Officer. When the material on record clearly establish that the salary cost of Rs. 22.91 lakh was reimbursed on cost to cost basis without any profit element, the payments so made cannot be considered to be of the nature covered under section 194C of the Act. Therefore, there is no requirement for assessee to deduct tax under the said provision. As far as the amount of Rs. 69,736 is concerned, on perusal of material on record, it is evident that such payment was towards reimbursement of expenditure incurred towards purchase of air tickets, gift vouchers, etc. Thus, the nature of payment indicates that they are not of the nature as covered under section 194C of the Act. That being the case, there is no liability on the assessee to deduct tax at source on such payment. Therefore, in our considered opinion, the learned Commissioner (Appeals) was justified in deleting the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act. Ground no.1, is dismissed.”
As the facts and circumstances of the present case are similar to the assessment year 2010–11, respectfully following the decision of the Co–ordinate Bench rendered in assessee’s own case cited supra, we hold
Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015 that the nature of payments made by the assessee to I–Flex Solution Ltd. (India) and Equinox Global Services Ltd. are not in the nature as covered under section 194C of the Act and thus there was no liability on the assessee to deduct tax at source on such payments. Accordingly, the order passed by the CIT(A) deleting the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act is affirmed.
In the result, appeal by the Revenue is dismissed in terms of our aforesaid findings.
Order pronounced in the open court on 16.02.2022