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Income Tax Appellate Tribunal, “L” BENCH, MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
आयकर अपील सं/ (िनधा�रण वष� / Assessment Year: 2011-12) बनाम/ Dy. Commissioner of M/s. WNS Global Services Income Tax (IT) 4(3)(2) (UK) Ltd. Vs. R.No.116, Scindia House, PL-10, Gate-4, Ballard Pier, N.M.Road, Godrej & Boyce Complex, Mumbai – 400 038 Pirojshanagar, Vikhroli (W), Mumbai - 400079 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACW5544Q (अपीलाथ� /Appellant) (��थ� / Respondent) .. Revenue by: Shri Jasbir Chauhan (CIT-DR) Assessee by: Shri Porus Kaka & Shri Manish Kanth सुनवाई की तारीख / Date of Hearing: 13.02.2017 घोषणा की तारीख /Date of Pronouncement: 28.02.2017 आदेश / O R D E R PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 08.12.2014 passed by the Disputes Resolution Panel-II, Mumbai [hereinafter referred to as the “DRP”] relevant to the A.Y.2011-12.
The revenue has raised the following grounds:-
ITA No.1505/M/2015 A.Y.2011-12 “1. On the facts and in the circumstances of the case and in law, the Hon’ble DRP erred in holding that the reimbursement of lease line charges amounting to Rs.3,41,29,271/- by WNS India does not qualify as “Royalty” Under Article 13 of the India UK DTAA? 2. On the facts and in the circumstances of the case and in law, the Hon’ble DRP erred in holding that reimbursement of expenses amounting to Rs.2,87,33,305/- are to be taxed as business profits when it is part of the marketing and management services rendered by the assessee resulting in total receipts of Rs.2,87,33,305/- and which are in the nature of fees for technical services.
3. The appellant prays that the order of the DRP be set aside on the above ground(s) and the draft order of the Assessing Officer be restored.
4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
The assessee filed its return of income for A.Y.2011-12 on 29.09.2011 declaring total income as Nil. The case was selected for scrutiny and notice u/s.143(2) of the Income Tax Act, 1961 ( in short “the Act”) was issued on 29.08.2012 and duly served upon the assessee. Thereafter the notice u/s.142(1) of the Act was also issued. The assessee company was a company incorporated in the United Kingdom (UK). It is engaged in the business of providing outsourced information technology enabled services to its customers directly or through subcontracting the same to its Associated Enterprises (AE) located across various parts of the world, who were engaged in providing similar services to their customers. The assessee has entered into a subcontracting agreement with its associated enterprise viz WNS Global Services P. Ltd. (WNS India), pursuant which the assessee has subcontracted work to WNS India for ITA No.1505/M/2015 A.Y.2011-12 providing IT enabled technology services to its clients in the European market. The assessee is a tax resident of UK and has submitted the Tax Residency Certificate in support of the same.
Draft order u/s.144C(1) r.w.s143(3) of the Act was passed in which reimbursement of international tele-communication charges amounting to Rs.3,41,29,271/- was held to be taxable under article 13 of the Act and DTAA @ 10% on gross basis and reimbursement of expenses amounting to Rs.2,87,33,305/- was held as FTS under the Act as well as article 13 of the India UK DTAA and the income was assessed @ 50% on the gross basis under the Act and the total income was assessed as under:-
Particulars Rs. International telecom connectivity expenses 3,41,29,271 considered as Royalty under Article 13(3)(b) of the India UK Tax Treaty (Tax rate @ 10%) Reimbursement of expenses considered as Fees for 2,87,33,305 Technical Services as per Article 13(4) of the India US Treaty (Tax rate @ 15% under the treaty) TOTAL TAXABLE INCOM 6,28,62,576 Thereafter, the assessee filed its objection with DRP against the Draft Assessment Order and the DRP passed the directions vide order dated 08.12.2014 in which the objections raised by the assessee were accepted and accordingly tax liability was treated as Nil. Feeling aggrieved, the revenue has filed the present appeal before us.
ISSUE NO.1:-
ITA No.1505/M/2015 A.Y.2011-12
5. Under this issue the revenue has challenged the directions of DRP that the reimbursement of lease line charges taxed as royalty income amounting to Rs.3,41,29,271/- by WNS India does not quality as record under article 13 of the India UK DTAA. Before going further, it is necessary to advert the finding of the DRP in this regard:-
“4. The objection No.1 reads as under “Reimbursement of lease line charges taxed as royalty income” The learned AO has factually and legally erred in holding that reimbursement of lease line charges amounting to INR 3,41,29,271 incurred by the assessee on behalf of WNS India during A.Y.2011-12 are taxable as royalty income in India in the hands of the assessee under Article 13 of the India-UK DTAA The first objection relates to reimbursement of lease line charges which has been taxed as royalty income by the A.O. The total amount in this regard is Rs.3,41,29,271/-. In this connection, it is explained by the assessee that WNS India provides I.T. enables BPO services to its clients outside India. To transmit the voice data from India, WNS India uses the services of international telecom services providers. The transmission of data generated by WNS India is taken over by international telecom service providers based outside India and then transferred to the customers located outside India. For the purpose of these services the international telecom service providers have entered into an arrangement with the assessee under which they raise invoice for services
ITA No.1505/M/2015 A.Y.2011-12 on the assessee in turn recovers the charges from WNS India. The relevant amount in this regard is the sum of Rs.3.40 crores which has been brought to tax by the AO as royalty. The assessee has contended that the impugned amount is in the nature of pure reimbursement of actual expenses incurred without any markup. Hence it is submitted that being in the nature of reimbursement there is no element of profit or income embedded therein and hence nothing is taxable as royalty. Alternatively the assessee has also submitted that the impugned sum is not in the nature of royalty as no knowledge, skill or experience is made available by the assessee in respect of these payments. It is also contended that the payment is not for the use of or right to use industrial commercial scientific equipment.
The assessee further relied upon the decision in its own case passed by the Hon’ble Tribunal at Mumbai as well as the Bombay High Court deciding the issue in its favour. Relying on all the above factual material as well as the decisions in its own case, the assessee submitted that the impugned amount is neither in the nature of royalty nor is it in the nature of income chargeable to tax.
Directions of the DRP
ITA No.1505/M/2015 A.Y.2011-12
The assessee’s submissions have been considered. A reference to the decisions passed in assessee’s own case by the Mumbai ITAT for A.Yrs 2005-06 and 2006-07 and the decision of the Bombay High Court affirming the decision of the ITAT for A.Yrs 2003-04 and 2004-05 clearly shows that the impugned amounts have been treated as pure reimbursement not liable to tax in India. The ITAT has also held that the impugned sums are not in the nature of royalty as they do not permit the use of or right to use any industrial, commercial or scientific equipment. Respectfully following the various decision in assessee’s own case, rendered by the Hon’ble ITAT and Bombay High Court, the DRP in its order for A.Y.2010-11 held that the amount received by the assessee on account of lease line charges are in the nature of reimbursement and the same is neither taxable as royalty nor as any income of the assessee. Respectfully following the decision of the ITAT and Bombay High Court, the AO is hence directed to delete the proposed addition to assessee’s income.”
6. On appraisal of the above mentioned directions passed by the DRP it came into the notice that the DRP has placed reliance upon the order passed by the ITAT in the assessee’s own case for A.Y.2005-06
ITA No.1505/M/2015 A.Y.2011-12 and the decision of the Hon’ble Bombay High Court affirming the decision of the ITAT for the A.Y.2003-04 and 2004-05 which speaks that the said amount was treated as pure reimbursement not taxable in India. It has been held that the impugned sums are not in the nature of royalty as they do not permit the use of or right to use any industrial, commercial or scientific equipment. The matter has also been decided by the ITAT in the assessee’s own case for the A.Y.2008-09, 2009-10 and 2010-11 by virtue of order dated 18.11.2016 vide which the said amount was treated as non-taxable in India. Nothing contrary law was produced by the Departmental Representative and facts and circumstances are not different as discussed in the orders, nature of the business is also the same. In view of the said circumstances, we are of the view that the DRP has passed the order on this issue judiciously and correctly which is not required to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue.
ISSUE NO.2:-
So far as the issue no.2 is concerned, the revenue has challenged the reimbursement of expenses amounting to Rs.2,87,33,305/- are to be taxed as business profit when it was a part of marketing and management services rendered by the assessee resulting in total receipt of Rs.2,87,33,305/- which is in nature of the ITA No.1505/M/2015 A.Y.2011-12 fees for technical services. It is also necessary to advert the finding of the DRP on record on this issue:-
The objection No.2 reads as under:- “7.
“Reimbursement of expenses amounting to INR 2,87,33,305 incurred on behalf of WNS India, WNS India taxed as Fees for Technical Services (FTS) 1. On the facts and circumstances of the case and in law, the learned AO has erred in holding that reimbursement of expenses amounting to INR 2,87,33,305 are taxable in India as FTS under Article 13(4) of the India-UK DTAA. It is prayed that the learned AO be directed to hold that reimbursement of expenses received by the assessee from WNS group companies are not taxable in India.
2. Without prejudice to above, on the facts and circumstances of the case and in law, the learned AO has factually and legally erred in taxing the entire receipt of reimbursement of expenses as FTS @15% under India-UK DTAA. It is prayed that if the reimbursement of expenses are held to be taxable as FTS, the learned AO be directed to tax the same @ 10% (plus applicable surcharge and education cess) on gross basis under the Act. The Objection No.2 is against the treatment given by the AO to a sum of Rs.2,87,33,305/-being reimbursement of expenses received from various WNS group companies India. The AO has treated this sum as fee for included services and brought the same to tax under Article 13(4) of the India UK DTAA. The assessee has explained that during the P.Y. various employees of WNS group companies situated in India visited US from time to time and expenses on their travel, accommodation, computer maintenance, telecommunication charges, printing and ITA No.1505/M/2015 A.Y.2011-12
stationery, telephone expenses etc. were incurred outside India on behalf of these employees. The assessee has explained that the expenses were initially incurred by the assessee and subsequently recovered from these WNS group companies in India. It is submitted by the assessee that these amounts are purely in the nature of reimbursement of cost without any markup and hence they do not constitute income in the hands of the assessee. The AO however has held these amounts as FTS under the Indo UK DTAA and brought the same to tax in the hands of the assessee. The assessee has submitted that the transactions did not amount to FTS as no knowledge, skill or experience was made available by the assessee to the Indian companies for which the payment was received. In this connection, the assessee has placed reliance upon various decision of the ITAT which was explained the scope of FTS under Article 13 of the India UK DTAA.
Directions of DRP
8. Identical issue arose in assessee’s own case for last year. Respectfully following the decision of DRP dt. 19.12.2013 for A.Y.2010-11, the AO is directed not to tax the impugned sum as FTS.”
ITA No.1505/M/2015 A.Y.2011-12
On appraisal of the above said finding, It came into notice that this issue has been decided by the present DRP in view of the decision dated 19.12.2013 in the assessee’s own case for the A.Y.2010-11 in which the Assessing Officer has been directed to not to tax the impugned sum as FTS. This issue was decided by the present DRP on the basis of the decision of the earlier DRP. However, in appeal the said issue was confirmed in the favour of the assessee by the ITAT in ITA No.1406/Mum/2014. The facts of the present case are not in dispute. No order contrary to the said finding was given by the Departmental representative. The said payment was considered as purely reimbursement of cost and was not treated as income in the hand of the assessee. In view of the said circumstances, it quite clear that the case of the assessee has fully been covered by the above mentioned case of the ITAT in ITA No.1406/Mum/2014. Hence finding nothing contrary view to the facts of the present case, we are of the view that the DRP has decided this issue judiciously and correctly which is not required to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue.
ISSUE NO.3 & 4:-
Issue no.3 and 4 are general in nature which nowhere require any adjudication at all.
ITA No.1505/M/2015 A.Y.2011-12