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Facts
Manpower Group Services India Private Limited (assessee) claimed a deduction under Section 80JJAA for additional employee costs for AY 2020-21, including carry-forward claims from prior years. The Assessing Officer (AO) disallowed this deduction, citing a lack of employer-employee relationship and a one-day delay in filing Form 10DA. Additionally, the AO/TPO made a transfer pricing adjustment by classifying the assessee's IT/ITeS services as Knowledge Process Outsourcing (KPO) and enhancing income.
Held
The tribunal held that an employer-employee relationship existed, fulfilling the conditions for Section 80JJAA, and condoned the one-day delay in filing Form 10DA due to the Covid-19 pandemic and judicial precedents. The tribunal also directed the AO to verify and allow the carry-forward 80JJAA claims. Regarding the Transfer Pricing adjustment, the issue of comparables and the classification of services was remitted back to the TPO for fresh adjudication. Consequential relief for MAT credit, interest, and penalty will follow.
Key Issues
Whether the assessee was eligible for deduction under Section 80JJAA, particularly regarding the existence of an employer-employee relationship and the condonation of a one-day delay in filing Form 10DA. Whether the Transfer Pricing Officer correctly characterized the assessee's IT/ITeS services as KPO and used appropriate comparables for arm's length price determination.
Sections Cited
143(3), 144C(13), 80JJAA, 92CA(3), 92D, 115JAA, 234D, 270A(9)(a), 271B, 271AA, 274, 139(1), 36(1)(va), 192, 33B, 288, 44AB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI ‘I’ BENCH,
Before: SHRI MAHAVIR SINGH, & SHRI NAVEEN CHANDRA
This appeal by the assessee is directed against the order dated 30.07.2024 framed u/s 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] pertaining to A.Y 2020-21.
Page 1 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT
At the very outset, it has been concurred by both the parties that the Stay Application will be disposed of alongwith the appeal.
Accordingly, we decided to proceed with the adjudication of the appeal.
Grounds raised by the assessee read as under:
1. That on the facts and in the circumstances of the case and in law, the AO and Dispute Resolution Panel ('DRP') have erred in not allowing the deduction of Rs. 24,16,27,837 claimed u/s 80JJAA of the Act by arbitrarily challenging the employer-employee relationship between the assessee and its employees, without appreciating the fact that all the eligibility tests laid down for claim of deduction u/s 80JJAA of the Act is satisfied by the assessee.
1.1. The AO and DRP have arbitrarily disregarded the existence of employer-employee relationship existing between the assessee and its employees without providing any reasonable basis or logical reasoning and thus, this ad-hoc disallowance warrants vacation.
1.2. The AO and DRP have disregarded the fact that the assessee satisfies all the eligibility criteria prescribed under the provisions of Section 80JJAA of the Act and accordingly is eligible for the claim of deduction.
2. That on the facts and in the circumstances of the case and in law, the AO and DRP have erred in not allowing the deduction claimed u/s 80JJAA of the Act on a technical ground that filing of Form 10DA was delayed by I day, without appreciating the fact that the reason of marginal delay was bonafide and due to the Page 2 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT
reasons beyond the control of the assessee and a procedural delay of 1 day should not be the basis for disallowance u/s 80JJAA of the Act.
3. That on the facts and in the circumstances of the case and in law, the AO and DRP have erred in denying the entire claim of deduction u/s 80JJAA of the Act without appreciating the fact that the claim is a consolidated claim of 3 consecutive years, hence the claim pertaining to the preceding years (i.e., AY 2018-19 and AY 2019-20) and now carried forward to AY 2020-21 cannot be denied in the instant year.
That on the facts and in the circumstances of the case and subject to allowance of Ground No. 1 to 3 above, the Assessee prays for consequential relief of deduction u/s 80JJAA of the Act to the extent of assessed Gross Total income.
5 . That on the facts and in the circumstances of the case and in law, the AO, Transfer Pricing Officer ('TPO') and DRP erred in enhancing the income of the Assessee by Rs. 97,97,336 on account of Transfer Pricing ("TP") adjustment u/s 92CA(3) of the Act by holding that the international transaction pertaining to provision of Information Technology ("IT") services and Information Technology enabled services ("ITeS") to its associated enterprise ("AE") are in the nature of Knowledge Process Outsourcing ("KPO") services and do not satisfy the arm's length principle envisaged under the Act. In doing so, the DRP/AO/TPO have grossly erred in:
5.1. Misconstruing the business profile of the Assessee engaged in providing IT and ITeS services and thereby comparing the services
Page 3 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT provided by the Assessee to that of a knowledge process outsourcing service provider on the basis of salary, educational qualification, experience and job role description of the employees of the Assessee;
5.2. Rejecting the functional, asset and risk ("FAR") analysis and economic analysis as undertaken in the TP documentation maintained by the Assessee in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("the Rules") on the basis of alleged distinguished functions performed by the employees of the Assessee engaged in rendering services under the IT segment and ITeS segment;
5.3. Violating the principles of natural justice by not sharing the search strategy adopted in this regard with the Assessee and thereby selecting comparable companies with dissimilar functional profile and having diversified activities along with lacking segmental information;
5.4. Conducting a fresh comparability analysis and cherry picking a set of high margin companies engaged in diverse activities unrelated to the functions performed by the Assessee viz. IT and ITeS services;
5.5. Not considering the functionally comparable companies selected by the Assessee in its TP documentation which are engaged in similar functional profile with some of the comparables proposed by the TPO;
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5.6. Without prejudice to the above grounds, the DRP/TPO disregarded the fresh benchmarking analysis undertaken by the Assessee and comparables proposed functioning as KPO service provider;
6. That on the facts and in the circumstances of the case, the assessee is eligible for Set off of brought forward MAT Credit entitlement u/s 115JAA of the Act which should have been allowed while cell computing the net tax payable.
That on the facts and in the circumstances of the case, where the above-mentioned grounds are decided in favor of the assessee, it is eligible for consequential relief from interest u/s 234D.
8. That on the facts and in the circumstances of the case and in law, the AO has erred in initiating penalty proceedings u/s 270A(9)(a), 271B and 271AA read with section 274 of the Act.
9. The Assessee prays for leave to add, alter, amend and/ or' modify any of the grounds of appeal at or before the hearing of the appeal.”
4. Ground Nos 1 to 4 pertain to the deduction u/s 80JJAA of the Act.
Brief facts of the issue are that Manpower Group Services India Private Limited (hereinafter referred to as 'MSPL' or 'the assessee'), a Company incorporated under the provisions of Companies Act, 1956.
MSPL is a wholly owned subsidiary of Manpower Holdings Inc, USA. MSPL
Page 5 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT is engaged in the business of providing staffing services to its customers for supervising, co-ordination and to meet other client needs.
The assessee filed its return u/s 139(1) on 15.02.2021 declaring nil income. The assessee filed a revised return on 31.03.2021 declaring nil income. In the assessment year 2020-21, the assessee in the return of income claimed following deduction u/s 80JJAA, being 30% of salary paid to new additional employees in the respective assessment years:
AY Year of claim Dedn u/s 80JJAA in (Rs.) 2018-19 3rd Year 30,36,38,164 2nd Year 2019-20 64,81,198 1st Year 2020-21 5,27,13,485 Total 36,28,32,847 Dedn restricted to gross 24,16,27,837 total income
7. The TPO vide transfer pricing order dated 29 July 2023 and the AO vide draft/final assessment order dated 30 September 2023, made certain additions/denied claims made by the Assessee and assessed the total income at Rs. 25,71,69,208/- which was upheld by the DRP. Details of additions made / claims disallowed are as under:
SI. Section Adjustment/disallowance Amount (Rs.) No 1 80JJAA Disallowance of deduction u/s 80JJAA 24,16,27,837 2 36(1)(va) Addition for delay in deposit of employees 57,44,035 contribution to provident fund
Page 6 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT
3 TP ITeS services performed by the appellant 97,97,336 adjustment considered to be in the nature of KPO and a higher margin of 21.19% applied. Total 25,71,69,208
The Assessing Officer disallowed deduction u/s 80JJAA, on the following grounds:
a) Deduction u/s 80JJAA is available only in respect of 'Regular employees' whereas, new employees hired by the assessee are temporary and on contract basis. b) Temporary employees hired by the assessee are deputed on assignment or let out to customers for working at customer's premises under their supervision and instructions, per normal working hours and rules and regulations of the customers. c) Attendance sheet is maintained primarily by the customers which is then submitted to the assessee for payment of salary by the assessee. d) There is no element of continuity. If no assignment is available or if the customer to whom the employees are deputed stops paying, the employee's service may be terminated by the assessee by giving one day notice. e) The Ld. AO held that the fixed term employment contract with the employees are not same as signed with the regular employees. f) The Ld. AO held that Employer-employee relationship does not exist between the assessee and the employees hired by the assessee and disallowed the deduction u/s 80JJAA.
Aggrieved by the Final order as approved by the DRP, the assessee is in appeal before us.
Page 7 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT
10. Before us, the ld. counsel for the assessee vehemently stated that the assessee complies with all the requirements of the amended Section 80JJAA of the Act and is eligible for deduction of 30% of additional salary of the new employees hired, for a period of three years. The assessee placed copies of evidence to demonstrate that the employees, hired on fixed term contract, are the employees of the assessee. The employees satisfy the test of employer-employee relationship as the assessee undertakes decisions related to employment relationship. The assessee also deducts TDS from salary, and deposits social security of the employees. The Ld AR contended that the assessee charges service fees including GST from its customer for providing its personnel.
The ld AR of the assessee stressed the fact that the provisions of section 80JJAA has been amended w.e.f 01.04.2016 which has expanded the scope of deduction u/s 80JJAA. The ld AR submitted that the AO had issued 133(6) to the customers of the assessee who confirmed that no deduction u/s 80JJAA was claimed by them against the employees of the assessee. The ld AR submitted that the deduction u/s 80JJAA was allowed by the AO in the preceding AY 2019-20. The ld AR further submitted the following evidences in support of its claim for the deduction:
Page 8 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT
• Service agreement with its customers for deputing its employees from page no. 118 to 306 of PB volume I which have similar terms and conditions. • Fixed term employment contract with the employees on sample basis from page no. 309 to 368 of PB volume I. • Sample copies of salary slips issued to employees from page no. 369 to 389 of PB volume I. • Extracts of TDS return on salaries (Form 24Q) filed by the assessee from page no. 397 to 427 of PB volume I. • Sample copies of Form 16 issued by the assessee to the employees from page no. 428 to 477 of PB volume I. • Extracts of Provident Fund remittances of employees made by assessee from page no. 478 to 488 of PB volume I. • Extracts of ESIC remittances of employees made by the assessee from page no. 489 to 501 of PB volume I • Sample copy of time sheet shared by the customers of the assessee from page no. 502 to 508 of PB volume I. • E-mail declaration by a customer of assessee acknowledging that deputed staff are employees of the assessee from no. 509 to 511 of PB volume I. compensating the actual loss suffered by them on account of such acts."
Per contra, the ld DR stressed the fact that there doesn’t exist any employer-employee relationship and is based on long term contract between two principals i.e., the assessee and the employee. The ld DR also submitted that PF/ESIC deduction is not the criteria for establishing employee-employer relationship. There is no master servant relationship and that the AO has to calculate the period of 240 days for each employee. With respect to filing of Audit report under Rule 19 AB in Form 10DA, the ld DR pointed out that there is a delay of one day,
Page 9 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT and since filing Form 10DA is a mandatory requirement and not merely procedural, the assessee is not eligible for deduction u/s 80JJAA. The ld DR relied on the hon’ble Supreme Court in the case of Wipro Ltd and the case of Dilip Singh.
We have heard the rival submissions and have perused the relevant material on record. A Co-joint reading of the terms of service agreements between the assessee and its customer and the fixed term employment contract between the assessee and its employees shows that the assessee, in its capacity of the employer of its employees, has the authority to deploy/assign employees for provision of services at its customer's premises. Post assignment, the customer of the assessee, has the authority restricted only to supervise and instruct the work of the deployed employee. The customer cannot take any disciplinary action against the erring employee and can only seek replacement of such employees from the assessee. As per Service Contract, the supervision and control of the employees lies with the assessee company. Upon completion of the task at the customer's premise or under any other circumstances, the employees return to the assessee, who may then reassign them to a different location or customer premise.
Page 10 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT
We find from the Service Contract and Service Agreement with the Customers that the customer supervision and instruction to the deputed employees is in relation to operations or work to be performed as per requirements of the customer. The assessee company has the supervision and control required to meet the test of employer-employee relationship. The assessee controls assignment of roles and responsibilities, deputation, relocation, imposition of disciplinary sanction, remuneration or termination of its employees. Accordingly, the assessee is the employer qua the employees employed by it and there is an established relationship of employer-employee between them which should not be intertwined with the service arrangement which only provides a mechanical and temporary right to the customer to supervise the work performed by the employees of the assessee.
In so far as the eligibility of the assessee under the provision of section 80JJAA of the Act is concerned, the same is reproduced below:
[Deduction in respect of employment of new employees. 80JJAA. (1) Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional employee cost incurred in the course of such business in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.
Page 11 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT (2) No deduction under sub-section (1) shall be allowed,— (a) if the business is formed by splitting up, or the reconstruction, of an existing business: Provided that nothing contained in this clause shall apply in respect of a business which is formed as a result of re-establishment, reconstruction or revival by the assessee of the business in the circumstances and within the period specified in section 33B; (b) if the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation; (c) unless the assessee furnishes alongwith the return of income the report of the accountant, as defined in the Explanation to section 288 giving such particulars in the report as may be prescribed. Explanation.—For the purposes of this section,— (i) "additional employee cost" means the total emoluments paid or payable to additional employees employed during the previous year: Provided that in the case of an existing business, the additional employee cost shall be nil, if— (a) there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year; (b) emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account: Provided further that in the first year of a new business, emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost; (ii) "additional employee" means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year, but does not include— (a) an employee whose total emoluments are more than twenty-five thousand rupees per month; or (b) an employee for whom the entire contribution is paid by the Government under the Employees' Pension Scheme notified in accordance with the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952); or Page 12 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT (c) an employee employed for a period of less than two hundred and forty days during the previous year; or (d) an employee who does not participate in the recognised provident fund: 34[Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel, the provisions of sub-clause () shall have effect as if for the words "two hundred and forty days", the words "one hundred and fifty days" had been substituted;] (iii) "emoluments" means any sum paid or payable to an employee in lieu of his employment by whatever name called, but does not include— (a) any contribution paid or payable by the employer to any pension fund or provident fund or any other fund for the benefit of the employee under any law for the time being in force; and (b) any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like. (3) The provisions of this section, as they stood immediately prior to their amendment by the Finance Act, 2016, shall apply to an assessee eligible to claim any deduction for any assessment year commencing on or before the 1st day of April, 2016.]
16. We find that the section 80JJAA was introduced in 1998 with an intent of encouraging employers to generate more employment opportunities. However, these provisions were meant for the manufacturing industry and its scope was limited to regular workman employed by industrial undertakings. Subsequently the provisions of Section 80JJAA of the Act were relaxed vide Finance Act 2016 to extend the scope of deduction to all taxpayers. Following relaxations were made in Sec. 80JJAA of the Act effective from AY 2017-18:
Page 13 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT a. The deduction is not limited to the manufacturing activity, rather it is allowed to every assessee having profits and gains from business; b. The words 'additional wages' and 'new regular workman' has been replaced by 'additional employee cost' and 'additional employee'; c. The earlier requirement of new workman in excess of 50 workmen is dispensed with. After the amendment, the deduction is allowable in respect of additional employee cost i.e., total emoluments paid to additional employees. d. The section before amendment specifically provided that a regular workman does not include: i. A casual workman or ii. A workman employed through contract labor or iii. Workman employed for a period of less than 300 days. e. After the amendment the term additional employees mean an employee employed during the previous year but does not include:
(i) An employee employed for a period of less than 240 days, (ii) An employee who does not participate in the recognized Provident Fund.
A comparative tabulation of the relevant provisions of the erstwhile Section 80JJAA and the provisions amended vide Finance Act 2016 is as under:
Erstwhile Provision of Section 80JJAA Amended Provision of Section 80JJAA (Before amendment vide Finance Act (After amendment vide Finance Act 2016) 2016 w.e.f. 01 April 2017)
Page 14 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT
80JJAA. (1) Where the gross total 80JJAA. (1) Where the gross total income of an appellant includes any income of an appellant to whom profits and gains derived from the section 44AB applies, includes any manufacture of goods in a factory, profits and gains derived from there shall, subject to the conditions business, there shall, subject to the specified in sub-section (2), be allowed conditions specified in sub-section (2), a deduction of an amount equal to thirty be allowed a deduction of an amount per cent of additional wages paid to equal to thirty per cent of additional the new regular workmen employed by employee cost incurred in the course of the appellant in such factory, in the such business in the previous year, for previous year, for three assessment three assessment years including the years including the assessment year assessment year relevant to the relevant to the previous year in which previous year in which such employment such employment is provided. is provided.
Explanation. For the purposes of this section, the expressions, Explanation For the purposes of this section,- i "additional wages" means the wages paid to the new regular workmen in i "additional employee cost" means excess of fifty workmen employed total emoluments paid or payable to during the previous year additional employees employed during the previous year: Provided that in the case of an existing business, the additional employee cost shall be nil, if ii. "regular workman", does not include- a) there is no increase in the number of employees from the total number of a) a casual workman; or employees employed as on the last day of the preceding year; b) a workman employed through contract labour; or b) emoluments are paid otherwise than by an account payee cheque or account c) any other workman employed for a payee bank draft or by use of electronic period of less than three hundred days clearing system through a bank account: during the previous year; ✓ ii. "additional employee" means an employee who has been employed ii. "ade emp emp of er of th during the previous year and whose employment has the effect of increasing iii. "workman" shall have the meaning the total number of employees assigned to it in clause (s) of section 211 employed by the employer as on the last of the Industrial Disputes Act, 1947 (14 day of the preceding year, but does not of 1947); include,) a) b)
Page 15 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT a) an employee whose total emoluments iv. "factory" shall have the same are more than twenty-five thousand meaning as assigned to it in clause (m) rupees per month; or of section 2 of the Factories Act, 1948 (63 of 1948). b) an employee for whom the entire contribution is paid by the Government under the Employees' Pension Scheme notified in accordance with the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952); or c) an employee employed for a period of less than two hundred and forty days during the previous year; or d) an employee who does not participate in the recognized provident fund:
We find from the amended Sec. 80JJAA of the Act that there is no condition of 'regular workman', as construed by the AO, rather the section specifically provides for deduction in respect of employees employed for 240 days or more which indicates that the deduction is allowable in respect of fixed period employment. The thrust of the amended section is that the employee should participate in recognized provident fund. We further find that admittedly all these conditions are complied with in assessee's case and the action of Assessing Officer in disallowing the deduction is based on considerations which were the requirements of erstwhile section before amendment.
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We also find that the Assessing Officer view that the employer- employee relationship does not exist between the assessee and the employees hired by the assessee is without any foundation. The AO has not correctly appreciated the terms of Service agreements with the customers, fixed term employment contract with the employees, and the amended provisions of Section 80JJAA of the Act applicable to this assessment year.
It is important to note that the provisions of Income Tax Act do not define the term 'Employer' or 'Employee' or 'Employer-employee relationship'. Therefore, meaning of the term 'Employer-employee relationship' needs to be derived from its general context and prevalent judicial precedents. We find substantial force in the reliance placed by the ld. counsel for the assessee on the following judicial precedents to evaluate existence of Employer-Employee relationship:
• Hon'ble Supreme Court of India in Balwant Rai Saluja v. Air
India Ltd (AIR 2015 SC 375), on similar question of law i.e., whether workmen engaged in statutory canteens, through a contractor, can be treated as employees of the establishment
(Air India) in which such canteen is situated, held that the mere fact that Air India had a certain degree of control over the Page 17 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT employees does not mean that the employees were Air India's employees. It was held that the control exercised by Air India was in the nature of supervision, in which Air India was entitled to have an opinion or say in ensuring effective utilization of resources, monetary or otherwise. The said supervision is merely to ensure due maintenance of standards and quality in the said canteen. Thus, it was held that contractor's workmen could not be said to be under effective and absolute control of Air India, as Air India merely had the control of supervision over the working of the contractor's employee. • Hon'ble Supreme Court also referred to its earlier decision in the case of Haldia Refinery Canteen Emps. Union & others - vs.- M/s. Indian Oil Corporation Ltd. 2005 (5) SCC 51 wherein under similar circumstances it was held that the control exercised by the respondent management is to ensure that the canteen is run in an efficient manner, however, this does not mean that the employees working in the canteen have become the employees of the management. Relevant extracts of the order of Hon'ble Supreme Court are produced as under:
"14. no doubt, the respondent management does exercise effective control over the contractor on certain matters in Page 18 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT regard to the running of the canteen but such control is being exercised to ensure that the canteen is run in an efficient manner and to provide wholesome and healthy food to the workmen of the establishment. This however does not mean that the employees working in the canteen have become the employees of the management.
The management has kept with it the right to test, interview otherwise assess or determine the quality of the employees/workers with regard to their level of skills, knowledge, proficiency, capability etc. so as to ensure that the employees/workers are competent and qualified and suitable for efficient performance of the work covered under the contract. This control has been kept by the management to keep a check over the quality of service provided to its employees. It has nothing to do with either the appointment or taking disciplinary action or dismissal or removal from service of the workmen working in the canteen. Only because the management exercises such control does not mean that the employees working in the canteen are the employee of the management. Such supervisory control is being exercised by the management to ensure that the workers employed are well qualified and capable of rendering the proper service to the employees of the management"
The ld AR has further drawn reference to the Hon'ble Supreme Court from its earlier decision in the case of International Airport Authority of India -vs.- International Air Cargo Workers 2009 (13) Page 19 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT SCC 374, wherein it was held that if the contract is for supply of labour, necessarily, the labour supplied by the contractor will work under the directions, supervision and control of the recipient entity, however, that would not make the worker a direct employee of the recipient entity, if the salary is paid by the contractor, if the right to regulate the employment is with the contractor and the ultimate supervision and control lies with the contractor.
We thus find that in all the above rulings, it is held that mere exercise of operational supervision on the assigned employees pursuant to a contractual arrangement, cannot be read as the recipient entity is the employer of such contracted employees. In determining the relationship of employer and employee, all relevant facts and circumstances have to be considered including the terms of the contract. Further, what is imperative is to see, whether the person was fully integrated into the employer's concern or remained independent of it. Thus, where the contractor had the power to select, dismiss, pay remuneration, deduct insurance contributions, organize the work, and the establishment merely had the 'control to supervise' and not complete control, it was held that the contractor was the employer of the employees and not the establishment.
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In the present factual matrix of the case in hand of the assessee, all the relevant criteria to establish the employer-employee relationship such as the right to appoint, pay remuneration, work schedule regulation, relocation, reassignment, disciplinary actions and termination is undertaken by the assessee. The assessee also fulfills obligations related to statutory withholdings, and social security contributions. Further, the administrative control over such employees is exercised by the assessee and it is merely the supervision and instruction, which is exercised by the customers in order to ensure that the work assigned is given effect to in an efficient manner. In fact, the assessee appoints a coordinator to facilitate supervision and instruction at the customer's premises which further supports the assessee's control over its deputed employees even in the customer's premises.
We find from the Fixed term contract between the assessee and its employees, that there exists an employer-employee relationship where the assessee has the right to appoint, and decide the employees remuneration as well as regulate work schedule and take disciplinary/termination action. A perusal of the service contract between the assessee and its customer also demonstrate that contrary to the AO’s view, it provides for control and supervision of the deputed employees with the assessee. We have seen some of the Service
Page 21 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT agreements of the assessee with its customers like Ericsson India Pvt Ltd which in clause 7.3 and 7.5 of the agreement, provides that “The personnel deployed by the Resource Provider (MSPL) will work under the sole supervision and control of the Resource Provider, including the manner and method of carrying out the services. Similarly, the service agreement with DLF Ltd provides for at clause 1.1 as follows:
The MPG will provide the services at the premises, by deputing / deploying at the premises, a reasonable number of qualified and experienced concierge…….. under its direct employment, control and supervision along with such items/apparatus/vehicles etc., as required and are necessary according to the assessment and in the judgement of the MPG.
Likewise with E.I.Dupont India Pvt Ltd in clause 1.2 provides "ManpowerGroup Services India Pvt. Ltd. shall deploy its own employee / personnel, or performing the services as per Statement of Work who shall be supervised and controlled by ManpowerGroup Services India Private Limited.”
In view of the above discussion, we are of the considered view that the assessee is the employer qua the employees employed by it and there is an established relationship of employer-employee between them. The fact is established from the declaration by customer acknowledging deputed personnel as employees of assessee. The Page 22 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT payments towards salaries to the employees is subject to Tax withholding u/s 192 of the Income Tax Act, 1961 and TDS certificate in Form 16 is issued by the assessee to its employees on an annual basis.
Not only salary, the accompanied obligations of employees towards Provident Fund and Employee State Insurance are discharged by the assessee. We also note that the Department accepted the claim of deduction u/s 80JJAA in the immediately preceding AY 2019-20 after due enquiry u/s 143(3). We therefore hold that the assessee satisfies all the eligibility criteria under amended section 80JJAA of the Act and the AO is directed to allow the deduction u/s 80JJAA. Ground 1 is allowed.
Regarding technical Ground No. 2 the Assessing Officer found that the assessee has not filed Form No.10DA before the due date of filing of the return of income and there is delay of one day. The ld. counsel for the assessee submitted that A.Y 2020-21 was an exceptional year as it was plagued with Covid, hence the delay of only one day and, therefore, could not comply with the provisions of Section 80 JJAA of the Act.
We have heard the rival submissions and have perused the relevant material on record. The statutory extended due date of filing of return of income was 15 February 2021. Accordingly, as per the amended Section 80JJAA, filing of Form 10DA r.w. Rule 19AB of the Income Tax Rules, 1962 for AY 2020-21, was due to be filed by 15 January 2021.The
Page 23 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT appellant filed Form 10DA claiming deduction u/s 80JJAA on 16 January 2021 with a minor delay of 1 day. The reasons for this inadvertent delay is the Revision in timelines for filing of Form 10DA effective AY 2020-21 and the Global pandemic of Covid-19. The ld AR has relied on the Hon'ble Delhi Tribunal in the case of Shivalik Prints Ltd. (ITA No.
2296/Del/2017) which allowed admission of similar deduction u/s 80JJAA as an additional claim raised for the first time before the 1" appellate authority (even though there was a delay of 4 years in filing such claim) with a direction to the assessing officer that correctness of the claim may kindly be verified as per Section 80JJAA of the Act and if the Ld. AO finds the claim as correct then the same would be allowed to the assessee. The assessee also relied on the Hon'ble Delhi Tribunal while adjudicating similar case of Sai Computers Ltd. (2023) 155 taxmann.com 607 (Delhi-Trib.) also ruled that belated filing of prescribed Form 10DA is not fatal in the sense that the requirement of Rule 19AB and Rule 12(2) are not mandatory per se but are essentially directory in nature. Similarly, reliance was also placed on the decision of Hon'ble Madras High Court in Svasti Microfinance (P.) Ltd. (2024)
164 taxmann.com 229 (Madras) wherein Hon'ble HC dealing with an identical case of delay of 38 days in filing Form 10DA considered the genuine hardship caused to the assessee company and condoned the Page 24 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT delay in filing Form 10DA. Following the above judicial precedent, we condone the delay of one day in filing Form 10DA. Ground 2 is allowed.
The ground no 3 raises the issue of allowance of 30% of additional employee cost as deduction for three consecutive years under Section 80JJAA. The assessee during AY 2020-21, the assessee has claimed deduction u/s 80JJAA of Rs. 36,28,32,847 which has been restricted to the Gross Total Income of Rs. 24,16,27,837. Details of deduction claimed u/s 80JJAA is as under:
AY Year of claim Dedn u/s 80JJAA in (Rs.) 2018-19 3rd Year 30,36,38,164 2nd Year 2019-20 64,81,198 1st Year 2020-21 5,27,13,485 Total 36,28,32,847 Dedn restricted to gross 24,16,27,837 total income The assessing officer has denied the entire claim made u/s 80JJAA and the assessee’s grievance is that the AO has done that without appreciating the fact that total claim represents a consolidated sum of 3 consecutive years.
We have examined the issue and find that the assessee is eligible for deduction u/s 80JJAA. As per assessee, the carry forward of deduction claims u/s 80JJAA for AY 2018-19 and 2019-20 has not been allowed. We are of the considered view that the assessee, being eligible
Page 25 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT for deduction u/s 80JJAA, the AO needs to verify the claim as per the requirements of the provisions of section 80JJAA with regard to the 3rd and 2nd year of claim u/s 80JJAA and allow the same upon verification.
The ground 3 is allowed for statistical purpose.
The next grievance of the assessee vide Ground No. 5 is the enhancing the income of the assessee by Rs. 97,97,336/- on account of Transfer Pricing adjustment u/s 92CA(3) of the Act.
Brief facts relating to this ground are that the Assessing Officer in his final order enhanced the income of the assessee by Rs 97,97,336/- on account of Transfer Pricing adjustment u/s 92CA(3) of the Act by holding that the international transaction pertaining to provision of Information Technology ("IT") services and Information Technology enabled services ("ITeS") to its associated enterprise ("AE") are in the nature of Knowledge Process Outsourcing ("KPO") services and do not satisfy the arm's length principle envisaged under the Act.
When the assessee went in appeal before the DRP, the DRP confirmed the action of the Assessing Officer.
Now the assessee is in appeal before us and submitted that the Assessing Officer and the DRP misconstrued the business profile of the assessee as being engaged in providing IT and ITeS services and thereby
Page 26 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT comparing the services provided by the assessee to that of a Knowledge Process Outsourcing (KPO) service provider on the basis of salary, educational qualification, experience and job role description of the employees of the assessee. The ld AR submitted that the TPO rejected the functional, asset and risk ("FAR") analysis and economic analysis as undertaken in the TP documentation maintained by the assessee in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 on the basis of functions performed by the employees of the assessee engaged in rendering services under the IT segment and ITeS segment.
The ld counsel of the assessee continued by saying that the authorities below violated the principles of natural justice by not sharing the search strategy adopted in this regard with the assessee and thereby selecting comparable companies with dissimilar functional profile and having diversified activities along with lacking segmental information.
The ld. counsel for the assessee contended that conducting a fresh comparability analysis and cherry picking a set of high margin companies engaged in diverse activities unrelated to the functions performed by the assessee viz. IT and ITes services is not justified. The authorities below did not consider the functionally comparable companies selected by the assessee in its TP documentation which are engaged in similar
Page 27 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT functional profile with some of the comparables proposed by the TPO.
It is the further say of the ld. counsel for the assessee that the DRP /TPO disregarded the fresh benchmarking analysis undertaken by the assessee and comparables proposed functioning as KPO service provider.
Per contra, the ld DR submitted that the functions of the assessee and functions performed by the assessee for their AE is that of a KPO. It is submitted that the personnel are getting fees which is at par with fees given to highly technical services and highly qualified personnel. The ld DR relied on the decision of the hon’ble Delhi High Court in the case of Rampgreen Solutions P Ltd (2015) 60 taxmann.com 355(Del) for the proposition that KPO are only ITeS where the service providers have to employ advanced level of skills and knowledge. The ld DR emphasized that the assessee is making value addition and the dominant service provided is that of KPO.
We have heard the rival submissions and perused the materials on record. We find that the assessee main grievance is that the assessee be considered as ITeS and not KPO. The assessee however, without prejudice, contends that the comparables identified by the AO which are KPO service provider and are also undertaking functions of IT and ITeS services, be compared with companies with similar functions
Page 28 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT identified by the assessee as well. The assessee has filed a revised list of comparables including assessee’s TP study comparables as follows:
List 1:
Company Name Weighted Selected Average by
Digical Global Private Limited (10.39%) Appellant 2. Rhea Software Limited (5.08%) Appellant 3. KALS Information Systems Limited (1.58%) Appellant 4. Cameo Corporate Services Limited 1.73% Appellant 5. Yudiz Solutions Private Limited 2.60% Appellant 6. Isummation Technologies Private Limited 3.83% Appellant 7. Happiest Minds Technologies Private Limited 6.21% Appellant 8. One Point One Solutions Limited 6.96% Appellant 9. Infomile Technologies Limited 7.40% Appellant 10. Microland Limited 8.41% Appellant 11. Sundaram Business Services Limited 8.55% Appellant 12 DKM Online Private Limited 8.83% Appellant 13 CES Limited 10.98% Appellant 14 R Systems International Limited -IT segment 11.38% Appellant 15 Datamatics Business Solutions Limited 13.16% TPO and Appellant 16 Athena BPO Private Limited 13.71% Appellant 17 Bureau Veritas India Private Limited 14.24% ΤΡΟ 18 R Systems International Limited -BPO Services 15.03% Appellant segment 19 E-Zest Solutions Limited 15.06% Appellant 20 Liquidhub Analytics Private Limited 15.86% ΤΡΟ 21 Surevin BPO Services Limited 16.46% Appellant 22 Tech Mahindra Business Services Limited 16.60% Appellant 23 Reliable Data Services Limited 16.73% Appellant 24 Allsec Technologies Limited 17.62% Appellant 25 Sasken Technologies Limited 18.75% Appellant 26 SagarSoft (India) Limited 19.86% Appellant 27 Caliber Interconnect Solutions Private Limited 20.11% ΤΡΟ 28 Ultramarine & Pigments Limited 21.51% Appellant Page 29 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT
29 Associated Building Co Limited 22.27 ΤΡΟ 30 Syngene International Limited 24.74% ΤΡΟ 31 InfoBeans Technologies Limited 24.89% Appellant 32 Tata Elxsi Limited 28.19% Appellant 33 Vitae International Accounting Services Private 31.90% ΤΡΟ Limited 34 Domex E-Data Private Limited 33.06% ΤΡΟ 35 Inteq Software Private Limited 41.05% Appellant 36 Jindal Intellicom Limited-BPO segment 54.13% Appellant
The assessee has further submitted that it has undertaken a fresh economic and comparability analysis and has identified additional comparables companies engaged in providing similar functional services of KPO activities with available data in the public domain. The assessee has proposed to club the KPO comparables identified by it with the comparables engaged in KPO services identified by the Ld. TPO/ Ld. AO as follows:
List 2: Company Name Weighted Selected Average by 1. Marvel Gospel Solutions Private Limited 4.10% Appellant 2. Aabsys InformationTechnologies Pvt Limited 4.41% Appellant 3. Cheers Interactive India Pvt Limited 6.42% Appellant 4. Siligate Solutions Limited 7.54% Appellant 5. Datamatic Business Solutions Limited 13.16% TPO and Appellant 6. Bureau Veritas India Private Limited 14.24% TPO 7. Suma Soft Private Limited 14.57% Appellant 8. Cosmic Global Limited 15.37% Appellant 9. Liquidhub Analytics Pvt Limited 15.86% TPO
Page 30 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT
Caliber Interconnect Solutions Pvt Limited 20.11% TPO 11. Associated BuildingCo. Limited 22.27% TPO 12 Syngene International Limited 24.74% TPO 13 Vitae InternationalAccounting Services Pvt 31.90% TPO Limited 14 Domex E-Data Pvt Ltd 11.38% TPO We are therefore of the considered view that the issue of comparables be remitted back to the TPO for a fresh adjudication in the light of assessee’s proposed comparables who are engaged in the business of KPO and are into IT and ITeS services also. The TPO is directed to examine the comparables which are functionally similar and having segmental information, as proposed above, and arrive at a finding with regard to the Transfer Pricing adjustment to be made, if any, on this regard. The ground 5 is allowed for statistical purposes.
With respect to ground no 3, we direct that the assessee will get the consequential relief of deduction u/s 80JJAA to the extent of assessed total income. Ground no 6,7 and 9 are consequential in nature, hence needs no adjudication.
In the result, the appeal of the assessee in is partly allowed.
Page 31 of 33 [A.Y. 2020-21] Manpower Group Service Vs. ACIT SA No. 371/DEL/2024
In view of the fact that the appeal of the assessee on substantive issue is allowed and on T.P. issue is set aside for statistical purposes, the stay petition has become academic.
The order is pronounced in the open court on 25.09.2025.