Deputy Commissioner Of Income Tax, Circle- 2(1)(1), Bangalore V. M/s. Cerner Healthcare Solutions Private Limited, Bangalore

ITA 218/BANG/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 7512 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 16-02-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMER SINGH MEENA
• Keywords: Transfer pricing; International transaction; TDS
• Section: 10AA; 260A; 195; 13; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A Nos. 217 & 218/Bang/2020 Assessment Years: 2013-14 & 2014-15 The Deputy Commissioner of Income Tax, Circle – 2(1)(1), Bangalore. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., Ground Floor, Wing B, Block H2, Mountain Ash, Manyata Embassy Business Park, Nagawara, Bengaluru – 560 045. PAN: AACCC3795R APPELLANT RESPONDENT Assessee by : Shri Sumit Khurana, CA Revenue by : Shri Sumer Singh Meena, CIT DR Date of Hearing : 14-07-2022 Date of Pronouncement : 14-07-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeals are filed by revenue against two separate orders both dated 28/11/2019 passed by Ld.CIT(A)-2, Bangalore for A.Ys. 2013-14 & 2014-15. Assessment Year 2013-14: “1. Whether the CIT(A) was correct in holding that payments made by the assessee to M/s Cerner USA for the employers executing certain works for the assessee company would not amount to income in the hands of M/s Cerner India and no TDS was liable to be made by treating Page 2 of 13 IT(TP)A Nos. 217 & 218/Bang/2020 this as re-imbursements and holding Sec 40(a)(i) of the Act as not applicable.” The issues alleged by revenue in A.Y. 2014-15 are also similar on identical facts and therefore the same is not reproduced herewith. 2. Brief facts of the case are as under: 2.1 We refer to A.Y. 2013-14 for sake of convenience. The assessee filed its return of income on 29/11/2013 for A.Y. 2013-14. On 02/09/2014, the case was selected for scrutiny. The Ld.AO observed that, there was international transaction of assessee with the AE, and accordingly, reference was made to the transfer pricing officer. An order u/s. 92CA of the Act was passed by the Ld.TPO on 01/09/2016, wherein, no adjustment was made in respect of the international transactions. On receipt of the transfer pricing order, the Ld.AO while passing draft assessment order made disallowance u/s. 40(a)(i) of the Act in respect of the expenses claimed as reimbursement of cost amounting to Rs.5,62,89,400/-. Aggrieved by the addition made, the assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) while considering the issue observed and held as under: Page 3 of 13 IT(TP)A Nos. 217 & 218/Bang/2020 Page 4 of 13 IT(TP)A Nos. 217 & 218/Bang/2020 Page 5 of 13 IT(TP)A Nos. 217 & 218/Bang/2020 Page 6 of 13 IT(TP)A Nos. 217 & 218/Bang/2020 Page 7 of 13 IT(TP)A Nos. 217 & 218/Bang/2020 Page 8 of 13 IT(TP)A Nos. 217 & 218/Bang/2020 2.2 Aggrieved by the order of Ld.CIT(A), revenue has filed the present appeal before this Tribunal. 3. At the outset, the Ld.AR submitted that this issue stands squarely covered by following decisions.  Decision of Hon’ble Karnataka High Court in case of DIT(IT) vs. Abbey Business Services India (P.) Ltd. reported in [2020] 122 taxmann.com 174 Page 9 of 13 IT(TP)A Nos. 217 & 218/Bang/2020  Decision of Hon’ble Karnataka High Court in case of M/s. Flipkart Internet Pvt. Ltd. vs. DCIT (IT) in W.P. No. 3619/2021(T-IT) by order dated 24.06.2022  Decision of Hon’ble Pune Tribunal in case of M/s. Faurecia Automotive Holding vs. DCIT (IT) in ITA No. 784/PUN/2015 by order dated 08.07.2019  Coordinate Bench of this Tribunal in case of M/s. Toyota Boshoku Automotive India Pvt. Ltd. vs. DCIT in IT(TP)A No. 1646/Bang/2017 by order dated 13.04.2022 and  Coordinate Bench of this Tribunal in the case of Goldman Sachs Services Pvt. Ltd. vs. DCIT in IT(IT)A Nos. 362 to 369 & 338 to 345/Bang/2020 by order dated 29.04.2022.  Decision of Coordinate Bench of this Tribunal in case of M/s. Scania CV AB vs. DCIT in IT(IT)A No. 3432/Bang/2018 by order dated 06/07/2022 4. The Coordinate Bench of this Tribunal in the recent decision in case of M/s. Scania CV AB vs. DCIT (supra), observed as under: “2.3 It is submitted that identical issue has been considered at length and in detail in the above decisions. The Ld.AR referred to the recent decision of Hon’ble Karnataka High Court in case of M/s. Flipkart Internet Pvt. Ltd. vs. DCIT (IT) (supra) wherein Hon’ble Court observed as under: “(viii) The Revenue has relied upon the judgment of the Apex Court in C.C., C.E. & S.T.-Bangalore (Adjudication) etc. v. M/s.Northern Operating Systems Pvt. Ltd.12 where the Apex Court has interpreted the concept of a secondment agreement taking note of the contemporary business practice and has indicated that the traditional control test to indicate who the employer is may not be the sole test to be applied. The Apex Court while construing a contract whereby employees were seconded to the assessee by foreign group of Companies, had upheld the demand for service tax holding that in a secondment arrangement, a secondee would continue to be employed by the original employer. (ix) The Apex Court in the particular facts of the case had held that the Overseas Co., had a pool of highly skilled employees and having regard to their expertise were seconded to the assessee and upon cessation of the term of secondment would return to their overseas employees, while returning Civil Appeal Nos.2289- 2293/2021 such finding on facts, the assessee was Page 10 of 13 IT(TP)A Nos. 217 & 218/Bang/2020 held liable to pay service tax for the period as mentioned in the show cause notice. (x) It needs to be noted that the judgment rendered was in the context of service tax and the only question for determination was as to whether supply of man power was covered under the taxable service and was to be treated as a service provided by a Foreign Company to an Indian Company. But in the present case, the legal requirement requires a finding to be recorded to treat a service as 'FIS' which is "make available" to the Indian Company. (xi) Accordingly, any conclusion on an interpretation of secondment as contained in the M.S.A. to determine who the employer is and determining the nature of payment by itself would have no conclusive bearing on whether the payment made is for 'FIS' in light of the further requirement of "make available."” 3. On the contrary, the Ld.DR placed reliance on orders passed by authorities below. 4. We have perused the submissions advanced by both sides in the light of records placed before us. 4.1 We note that the evidences filed by assessee has not been considered by the revenue authorities. 4.2 We therefore remand this issue to the Ld.AO to consider the claim in accordance with the decision of Hon’ble Karnataka High Court in case of M/s. Flipkart Internet Pvt. Ltd. vs. DCIT (IT) (supra) and Coordinate Bench of this Tribunal in the above referred cases M/s. Toyota Boshoku Automotive India Pvt. Ltd. vs. DCIT (supra) Goldman Sachs Services Pvt. Ltd. vs. DCIT(supra) having regard to the evidences filed by the assessee. Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law. Accordingly this ground raised by assessee stands allowed for statistical purposes.” 5. Respectfully following the above, we remand this issue to the Ld.AO to consider the claim in accordance with the decision of Hon’ble Karnataka High Court in case of M/s. Flipkart Internet Page 11 of 13 IT(TP)A Nos. 217 & 218/Bang/2020 Pvt. Ltd. vs. DCIT (IT) (supra) and Coordinate Bench of this Tribunal in the above referred cases M/s. Toyota Boshoku Automotive India Pvt. Ltd. vs. DCIT (supra) Goldman Sachs Services Pvt. Ltd. vs. DCIT(supra) having regard to the evidences filed by the assessee. 6. Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law. Accordingly this ground raised by revenue stands allowed for statistical purposes. Accordingly the appeal filed by the revenue for A.Y. 2013-14 stands partly allowed for statistical purposes. Assessment Year 2014-15 7. On perusal of the records, we note that the disallowance made by the Ld.AO in the assessment order is in respect of section 10AA amounting to Rs. 15,54,416/- and disallowance of reimbursement of expenses u/s. 40(a)(i) r.w.s 195 amounting to Rs.6,64,36,243/-. The Ld.CIT(A) while considering the issue of cost reimbursed by the assessee, deleted the disallowance by observing as under: “6.2 Ground nos. 5 to 8 are on the disallowance made u/s 40 (a)(i) of the Act. of expenses claimed as reimbursement expenses. The Assessing Officer observed that the appellant company has shown to have incurred the reimbursement expense under various heads to M/s Cerner Corporation USA of the amount tuning to Rs.6,64,36,243/- though no services were rendered by the Cerner Corporation (the holding company) to M/s Cerner Health Solutions (the assessee company)and the payments being made to the holding company are for meeting the business expenses of the assessee company, and it was under obligation to reimburse the same to the holding company and that such payments are treated as reimbursement of expenses, therefore were not income in the hands of non-resident. The assessing officer had treated as "fee for technical services" and as no withholding of taxes were effected on such payments disallowed u/s 40(a)(i) of the Act. Further stated that for Page 12 of 13 IT(TP)A Nos. 217 & 218/Bang/2020 the AY 2006-07 the decision of ITAT in ITA.No.627/Bang/2011 is assessee's own case has not been accepted by the department and appeal u/s 260A is filed before the Hon'ble High Court of Karnataka. During the course of appeal proceedings the appellant submitted that there were no services being rendered by Cerner Corp to Cerner Healthcare and what is remitted is a mere reimbursement of certain business expenses of Cerner Healthcare which were paid by Cerner Corp on behalf of Cerner Healthcare. Accordingly, as the expenses incurred by Cerner Corp pertained to the expenses of Cerner Healthcare, the Appellant was under the obligation to reimburse the same to Cerner Corp. and therefore submitted that, the recoupment of expenses by Cerner Corp from Cerner Healthcare would qualify as reimbursement and would not be in the nature of 'income'. Further submitted that Cerner Healthcare had reimbursed expenses of similar nature to Cerner Corp for the AY 2006- 07, AY 2007-08 & AY 2008-09 on which the Income Tax Appellate Tribunal for the AY 2006-07 to AY 2008-09 have upheld the contention of Cerner Healthcare and held that reimbursement of expenses cannot be liable to tax. The relevant para of Hon'ble ITAT order for AY 2006-07 is reproduced as under: 16. We have heard rival submissions and perused the material on record. The CIT(A) at para 16.1 of his impugned order held that payments made by assessee to Cerner, USA are reimbursement of expenses and cannot be "fees for technical services " (FTS). However he held that the reimbursement is taxable under the provision of the Act. The relevant finding of the CITA() at para 16.1 reads as follows: "In short even if technical services has been provided by the Cerner USA through its employees, no fees for such work is charged on the appellant and therefore this ground is allowed. Nevertheless since the reimbursement is held to be taxable under the provisions of IT Act and since admittedly no tax has been deducted by the payer appellant from the same, the same deserves to be disallowed u/s 40(a)(i) of IT Act." Both parties had agreed that the reimbursement payment cannot be liable to tax and the issue is covered by the order of the Tribunal in the case of IDS Software Solutions (India) Pvt. Ltd. (122 TTJ 410). Since the facts being identical, respectfully following the decision of the co- ordinate Bench of the Tribunal, we hold that the AO is not justified in making disallowance of Rs.2, 74,59,496/- u/s 40(a)(i) of the Act. Hence, ground nos. 9 to 13 are allowed. Page 13 of 13 IT(TP)A Nos. 217 & 218/Bang/2020 Respectfully following the aforesaid Hon'ble ITAT order for AY 2006-07 I hereby allow the grounds raised by the appellant on the disallowance of reimbursement expenses u/s.40(a)(i) of the Act.” 9. As this issue is remanded hereinabove while considering assessment year 2013-14, applying the same view mutatis mutandis, the present appeal for A.Y. 2014-15 also stands remanded to the Ld.AO, with the direction to verify the claim in accordance with the principles laid down in various decisions passed by Hon’ble High Court as well as Hon’ble Pune Tribunal and Coordinate Bench of this Tribunal referred to hereinabove. Accordingly, the appeals filed by the revenue for A.Ys. 2013-14 & 2014-15 stands partly allowed for statistical purposes. In the result, both the appeals filed by revenue stands partly allowed for statistical purposes. Order pronounced in the open court on 14 th July, 2022. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 14 th July, 2022. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore