ORACLE (OFSS) PROCESSING SERVICES LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 2837/MUM/2015

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8756 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 11-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Gift; TDS; Set aside
• Section: 143(3); 40(a)(ia); 194C; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA no.2837/Mum./2015 (Assessment Year : 2009–10) Oracle (OFSS) Processing Services Ltd. Oracle Park, Off Western Express Highway, Goregaon (East) Mumbai 400 063 PAN – AABCI4610G ................ Appellant v/s Dy. Commissioner of Income Tax Circle–8(2), Mumbai ................ Respondent ITA no.2635/Mum./2015 (Assessment Year : 2009–10) Asstt. Commissioner of Income Tax Circle–10(3)(1), Mumbai ................ Appellant v/s Oracle (OFSS) Processing Services Ltd. Oracle Park, Off Western Express Highway, Goregaon (East) Mumbai 400 063 PAN – AABCI4610G ................ Respondent Assessee by : Shri Ajit Jain, a/w Shri Siddhesh Chaugule Revenue by : Shri Tejinder Pal Singh Date of Hearing – 31.01.2022 Date of Order – 16.02.2022 Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015 2 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The aforesaid cross appeals have been filed by either parties challenging the impugned order dated 12 th 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. ITA No.2837/Mum./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 27 th 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 10 th 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 10 th January 2022 by CBDT. 3. The letter dated 10 th January 2022 issued by CBDT is placed on record and the same reads as under:– Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015 3 “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. 2. 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. 3. 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 4 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 related) 9787213 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. 6. 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: [e-mail]” Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015 5 4. In view of the above, we accept the request of the assessee for withdrawal of its appeal for the assessment year 2009-10. 5. In the result, appeal by the assessee is dismissed as withdrawn. ITA No. 2635/Mum./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.” 7. The only issue raised by the Revenue in its appeal is regarding deletion of disallowance under section 40(a)(ia) of the Act. 8. 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 1 st 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 6 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. no. Particulars Equinox Global Services Ltd. I–Flex Solutions Ltd. 1. Salary – – 33354391 2. Communication – – 4122718 3. Travelling expenses 661827 2796607 4. Rent – – 818752 5. Professional Fees – – 780953 6. Other Expenses (Repairs & maintenances, employee welfare, stationary supplies, courier charges, etc.) 395 1961277 Total: 662222 43834698 9. 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 7 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. 10. The Assessing Officer, vide order dated 18 th 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 1 st 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. 11. In appeal against the aforesaid disallowance, the CIT(A), vide order dated 12 th February 2015, following its earlier decision in assessee’s own Oracle (OFSS) Processing Services Ltd. ITA No. 2837/Mum./2015 and 2635/Mum./2015 8 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. 12. 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. 13. 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. 14. 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 24 th 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 9 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 30 th 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.” 15. 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 10 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. 16. 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 Sd/- PRASHANT MAHARISHI ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 16.02.2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai