Income Tax Appellate Tribunal - Mumbai
Spender Stuart (I) O,Ktd, Mumbai vs Asst Cit Cir 3(3), Mumbai on 27 June, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL "K ", BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM ITA No.7117/Mum/2012 (Assessment Year :2008-09) ITA No.1680/Mum/2014 (Assessment Year :2009-10) ITA No.922/Mum/2015 (Assessment Year :2010-11) ITA No.1832/Mum/2016 (Assessment Year :2011-12) M/s. Spencer Staurt (India) Private Vs. Assistant CIT CIR 3(3) Limited Mumbai Avantha House, 11th Floor Dr. Annie Besant Road Worli, Mumbai - 400 030 PAN/GIR No.AAJCS4721Q Appellant) .. Respondent) Assessee by Shri Mukesh Butani & Shri Shreyash Shah Revenue by Shri Jayant Kumar Date of Hearing 06/06/2018 Date of Pronouncement / /2018 आदे श / O R D E R PER R.C.SHARMA (A.M):
These are the appeals filed by the assessee against the order of DRP-II, Mumbai dated 30/07/2012 passed u/s. 144C(5) and the consequential order passed by AO u/s.144C(13) of the IT Act in respect of A.Y.2008-09 to 2011-12.
2. Rival contentions have been heard and record perused. 2 ITA No. 7112/Mum/2012 and other appeals
M/s. Spencer Staurt (I) Pvt. Ltd.,
3. Facts in brief are that the assessee is a subsidiary of Spencer Stuart International BV. It is in the business of high end executive search services i.e., recruitment of senior personnel through a direct approach to potential candidates.
4. The international transactions during A.Y.2008-09 were as under:-
Nature Method for, Value
Benchmarking
Payment of License fees CUP 2,51,34,745
Search fees reed Profit Split Method(PSM) 3,14,87,717
Client billed Expenses reed Profit Split Method(PSM) 8,56,018
Multicountry Execution Assignment reed Profit Split Method(PSM) 1,02,84,090
Services fee paid Profit Split Method(PSM) 2,90,51,116
Multicountry Execution Profit Split Method(PSM) 1,28,92,226
Assignment payment
5. The TPO did not agree to the ALP determined by the assessee and recomputed the ALP with regard to the payment of license fees and multi country execution fees paid resulting in adjustments of Rs 2,38,10,137 and 26,08,136 respectively.
6. By the impugned order, DRP confirmed the additions proposed by the TPO against which assessee is in further appeal before us.
7. Common grievance of assessee in all the years pertains to transfer pricing (TP) adjustment in respect of transactions pertaining to cross 3 ITA No. 7112/Mum/2012 and other appeals M/s. Spencer Staurt (I) Pvt. Ltd., border executive search fee (Multi Country Execution Fee) and payment of license fee. These Ground of Appeals is common for the captioned appeals for four years.
8. The issue with regard to cross border executive search fee (Multi Country Execution fee) has been raised vide ground No.3 in the A.Y.2009- 10, 2010-11 and 2011-12 and ground No.7 in A.Y.2008-09.
9. The issue with regard to payment of license fee has been raised through ground No.4 in the A.Y.2009-10, 2010-11 and 2011-12 and vide ground No.6 in the A.Y.2008-09.
10. At the outset, it was contended by learned AR that the assessee has entered in to an APA (Advance Pricing Agreement),on August 30,2016 with the Central Board of Direct Tax ('CBDT). The APA is applicable to five consecutive years for AY 2014-15 to AY 2018-19 and also applies to four consecutive rollback years for AY 2010-11 to AY 2013-14. The modified return of income was filed in pursuance to section 92CD of the Income Tax Act, 1961 ('the Act") r.w. Rule 10RA of the Income Tax Rules 1962. He further invited our attention to the fact that the APA has laid down the application of the Most Appropriate Transfer Pricing Method and the Arm's Length Price for the captioned transactions. The APA has discussed, in detail, the Functions performed, assets employed and risk undertaken (FAR Analysis) by the Assessee and its Associated Enterprises (AEs).
11. Learned AR also placed on record the order of Co-ordinate Bench in case of AE of the assessee in the case of Spencer Stuart International 4 ITA No. 7112/Mum/2012 and other appeals M/s. Spencer Staurt (I) Pvt. Ltd., B.V. ('SS1 BV or "AE of the Assessee') [ITA. No 1696/Mum/2016], the Hon'ble Mumbai Income Tax Appellate Tribunal) vide order dated 01/06/2018 has examined the aforesaid APA and held the issues in favour of SSI BV. He further submitted that the Department has not till date made the mandatory order giving effect u/s 92CD(5) of the Act which was supposed to be made by March 31, 2018. Learned AR also requested to direct the Department to pass an order giving effect to the modified return of income filed for AY 2010-11 & AY 2011-12 as there is a refund accruing to the Assessee and delay in passing the order u/s 92CD (5) of the Act is causing a financial hardship to the Assessee.
12. From the record, we found that For the Assessment Years AY 2008- 09 & AY 2009-10, the Assessee had filed a letter dated December 20, 2016 before us with a request that although the said Assessment years does not get covered by the APA, the principles laid down in the APA for benchmarking/comparability analysis in respect of the international transactions shall have a guidance value since there is no change in the said Assessment Years in the nature of the international transactions, Functional, Asset and Risk ('FAR") profile of the Assessee and the AEs Reliance in this regard can be placed on the following cases where in the High Court / ITAT have held that the APA holds persuasive value even in respect of the years which does not get covered by the term of the agreement and the benchmarking mechanism suggested in the 5 ITA No. 7112/Mum/2012 and other appeals M/s. Spencer Staurt (I) Pvt. Ltd., agreement should necessarily be followed in determining the ALP of the transactions.
- 3i India Private Limited v. DCIT (Mumbai ITAT - ITA No. 581/Mum/2015)
- Pr. Commissioner of Income Tacx v. Ameriprise India Pvt Ltd (Delhi High Court - ITA 206/2016)
- AXA Technologies Shared Services Pvt Ltd vs DCIT (Bangalore ITAT - IT (TP) A No. 659/Bang/2012)
- JP Morgan Services Pvt Ltd vs DCIT (Mumbai ITAT- ITA No. 8987/Mum/210)
- Ranbaxy Laboratories Ltd v. ACIT (Delhi ITAT - ITA No. 196/Del/2013)
13. We have considered rival contentions and carefully gone through the orders of the authorities below, APA dated 30th August 2016, as well as the order passed by the Tribunal dated 01/06/2018 in case of assessee‟s AE. We found that APA has laid down the application of most appropriate transfer pricing method and the arm‟s length price for these transactions. We also found that after having a great discussion, the Functions performed, assets employed and risk undertaken by the assessee and its associated enterprises was found to be reasonable. Accordingly, we allow assessee to withdraw these grounds for the A.Y.2008-09 and 2009-10 in so far as these grounds are covered by the APA, the principle laid down in the APA for benchmarking analysis in respect of the international transactions being guidance value since there is no change in the said assessment years in the nature of international transactions. We also direct the Department to pass an order giving effect u/s.92 CD (5) of the Act in the A.Y. 2010-11 & 2011-12. Whereas for 6 ITA No. 7112/Mum/2012 and other appeals M/s. Spencer Staurt (I) Pvt. Ltd., A.Y.2008-09 and A.Y.2009-10, we observe that the principles laid down in the APA for benchmarking/comparability analysis in respect of the international transactions shall have a guidance value since there is no change in the said Assessment Years in the nature of the international transactions, functional, Asset and Risk („FAR‟) profile of the assessee and the AEs. We direct accordingly.
14. Vide ground No.5 in the A.Y.2009-10, 2010-11 and 2011-12, assessee has agitated transfer pricing adjustment in respect of transactions pertaining to taxability of reimbursement of expenses and taxability of reimbursement for purchase of fixed assets. In the A.Y.2011- 12 vide ground No.6, assessee has agitated taxability of reimbursement for purchase of fixed assets.
15. We have considered rival contentions and found that the assessee had made payments to Spencer Stuart International B.V. (SSI BV) towards reimbursement of expenses The expenses reimbursed to SSI BV by the assessee were mainly towards travel and stay, video conferencing charges, insurance, reimbursement for purchase of fixed assets and other miscellaneous expenses The same were in the nature of pure reimbursement without any mark-up and also supported by third party invoices. We had also carefully gone through clauses 2(a)(i) to 2(a)(v) of the Service Agreement defining what will be forming part of the search services. Further, clause 2(a)(v) of the Service Agreement provides that the reimbursement related to search services will form part of the search 7 ITA No. 7112/Mum/2012 and other appeals M/s. Spencer Staurt (I) Pvt. Ltd., fees. Para 2(a)(vi) of the Service Agreement specifically states that SSI BV may from time to time incur certain expenses on behalf of the assessee and shall separately bill the same These expenses are not part of search services and hence the same are not related to search fees. The reimbursements under consideration do not form part of paragraph 2(a)(v) of the Service Agreement, some of them are covered by paragraph 2(a)(vi) of the Service Agreement. We also found that the assessee has produced the invoices before TPO & DRP. The DRP has erred in treating the reimbursement of expenses as intra group services. From the record we also found that in the Paperbook Volume II (Part 1 &
2) filed in respect for AY 2011-12 (similar Paperbooks have also been filed for AY 2010-11 & AY 2009-10) where in vide letter dated 18th December 2014 & 15lh January 2015, the assessee has shown to TPO (as well as to DRP) that reimbursement of expenses and reimbursement for purchase of Fixed Assets does not have any element of mark-up charged by SSI BV to the assessee and the said expenses are backed by third party invoices.
16. We have also carefully gone through the decision of the Co- ordinate Bench in case of assessee‟s AE dated 01/06/2018 in ITA No.1696/Mum/2016, wherein the ITAT has examined these grounds and held as under:-
"4.2. We find the assessee had received payments from SSIPL towards reimbursement of expenses amounting to Rs.70.36,912,that the expenses reimbursed to the assessee by SSJPL were mainly towards travel and stay, video conferencing charges, insurance, reimbursement for purchase of fixed assets 8 ITA No. 7112/Mum/2012 and other appeals M/s. Spencer Staurt (I) Pvt. Ltd., and other miscellaneous expenses, that the reimbursement of the expenses were supported by third-party invoices, that the reimbursements related to service agreement behveen the assessee and SSIPL for sharing the company services,that the services provided by the assessee were purely passed on as reimbursement of actual cost without any markup. We hold that marketing services are primarily in the nature of travel and stay abroad for Indian employees visiting overseas for global meetings, that Insurance coverage for employees is totally unrelated to search fees, that reimbursement of software license cannot be linked to search fees, that the QUEST NT software formed pan of LA and the license fees were already offered to tax as royalties., that a confirmation letter dated 6/3/2014 submitted to the AO by SSIPL pertaining to purchase of fixed assets amounting to Rs. 16,58,018 is part of the PB. In our opinion, reimbursement of expenses would not constitute FTS as per Article 12 of the tax treaty.
Here, we would also like to refer to the judgment of AP Mollar(supra).Facts of that case were that the assessee was a foreign company engaged in shipping business and was a tax resident of Denmark, that it had agents working for it, who booked cargo and acted as clearing agents for the assessee, that in order to help all its agents across the globe, the assessee had set up and maintained a global telecommunication facility called Maersk net system which was a vertically integrated communication system. The agents would pay for the system on pro rata basis. According to the assessee it was merely a system of cost sharing and the payments received by the assessee from its agents in India were in the nature of reimbursement of expenses. The AO, however did not accept this contention and held that the amounts paid by these three agents to the assessee were FTS rendered by the assessee and held them taxable in India under Article I3(4)of the Double Taxation Avoidance Agreement(DTAA)between India and Denmark and brought them to tax at 20% u/s.115A of the Act.FAA dismissed the assessee's appeal, but the Tribunal allowed its further appeal. The Eon 'ble High Court dismissed the Department's appeal holding that the Tribunal had rightly observed that the Maersk-net-communication-system was an automated software based communication system which did not require the assessee to render any technical services, that it was merely a cost sharing arrangement between the assessee and its agents to efficiently conduct its shipping business, that it was part of the shipping business and could not be captured under any other 9 ITA No. 7112/Mum/2012 and other appeals M/s. Spencer Staurt (I) Pvt. Ltd., provisions except under the DTAA, The Hon'ble Supreme Court dismissing the appeal held as under:
"....... the facts that the assessee had its information technology system, that the assessee had appointed agents in various countries ' for booking of cargo and servicing customers in those countries, preparing documentation, etc., through these agents, that for the sake of convenience of all these agents, a centralised system was maintained to avoid unnecessary cost, that the system comprised booking and communication software. hardware and a data communications network and was, thus, an integral part of the international shipping business of the assessee and ran on a combination of mainframe and non- mainframe servers located in Denmark, that the expenditure incurred for running this business was shared by all the agents and that the systems enabled the agents to co-ordinate cargos and ports of call for its fleet were findings of fact. Once these were accepted, by no stretch of imagination, could the payments made by the agents be treated as fees for technical services. The payments were in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. Neither the Assessing Officer nor the Commissioner (Appeals) had slated that there was any profit element embedded in the payments received by the assessee from its agents in India. Once the character of the payment was in the nature of reimbursement of the expenses, it could not be income chargeable to tax. Moreover, freight income generated by the assessee in the assessment years in question was accepted as not chargeable to tax as it arose from the operation of ships in international waters in terms of article 9 of the DTAA. Once that was accepted and it was also found that the Maersk net system was an integral pan of the shipping business which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, and the business could not be conducted without it, it could not be treated as any technical services provided to the agents. "
Considering the above, we decide second ground of appeal in favour of the assessee."
17. Furthermore, the Supreme Court in the case of DIT vs A.P. Moller Maersk AS: /2017/ 392 ITR 186 (SC) held that once the character of the 10 ITA No. 7112/Mum/2012 and other appeals M/s. Spencer Staurt (I) Pvt. Ltd., payment is found to be in the nature of reimbursement of the expenses, it cannot be income chargeable to tax.
18. Following judicial pronouncements also supports our view.
CIT v. Siemens Aktiongesellschaft [2009] (310 ITR 320) (Bom) DIT v. Krupp Udhe GmbH (354 ITR 1 73) (Bom) CIT v. Industrial Engineering Projects Pvt. Ltd. (202 ITR 10 14) (Del) CIT v. Dunlop Rubber Co Ltd (142 ITR 493) (Cat) CIT vs Tejaji Farasram Kharawalla Ltd.: [1968] 67 ITR 95 (SC) Societe Generate [2017] (81 taxmann.com 244) ( Mumbai - 1TAT) British Gas India (P.) Ltd. v. DCIT ( 1 1 taxmann.com 304) (Delhi - ITAT) Fortis Healthcare Ltd. v.DDIT (45 SOT 190) (Chandigarh)
19. In the following decisions Mumbai Tribunal has held that payment of expenses at cost to group entity which paid the expenses on behalf of the assessee is in the nature of reimbursement if it involves no margin or value addition:
ITO vs Vishinda Diamonds: [2014] 146 ITD 745 (Mumbai) Onward e-services Limited vs ACIT: [2012] 52 SOT 66 (Mumbai)
20. In view of the above and respectfully following the decision of the Co-ordinate Bench in case of assessee‟s AE, we hold that reimbursements paid being backed by third party invoices without any element of mark- up, cannot be benchmarked at NIL as done by TPO. Accordingly, we delete the addition so made by the AO.
11ITA No. 7112/Mum/2012 and other appeals
M/s. Spencer Staurt (I) Pvt. Ltd.,
21. Assessee has also agitated short credit of taxes deducted at source in the A.Y.2009-10 vide ground No.6 and in A.Y.2011-12 vide ground No.7.
22. We have considered rival contentions and found that the assessee had claimed TDS credit in the return of income for the subject assessment years. The AO, while calculating the demand payable, gave short credit for tax deducted at source and determined the amount payable. We observe that the AO, while giving credit, failed to consider the TDS certificate which pertains to TDS deducted by the Department in relation to payment of interest under section 244A of the Act. In this regard, we found that the assessee had paid tax on the interest received under section 244A of the Act, however, the corresponding credit of tax deducted by the Department in this regard has not been granted to the assessee.
23. In the following judicial pronouncements, it has been held that TDS credit should be allowed to the taxpayer on the basis of the TDS Certificates issued by the payer bearing details of the taxes so deducted on behalf of the taxpayer:
Sumit Devendra Rajani vs ACIT [2014] 369 ITR 673 (Gujarat HC) Rakesh KumarGupta vs UO1 [2014] 365 ITR 143 (Allahabad HC) LSG Sky Chef [2014] 163 TTJ 808 {Mumbai ITAT) Citicorp Finance (India) Private Limited vs ACIT (ITA No. 8532/Mum/2011 (Mumbai ITAT) 12 ITA No. 7112/Mum/2012 and other appeals M/s. Spencer Staurt (I) Pvt. Ltd.,
24. In view of the above discussion, the AO is directed to give effect for short TDS credit granted to the assessee, after due verification. We direct accordingly.
25. In the result, appeals are allowed in part in terms indicated hereinabove.
Order pronounced in the open court on this 27/06/2018
Sd/- Sd/-
(AMARJIT SINGH) (R.C.SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated 27/06/2018
Karuna Sr.PS
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
DR, ITAT, Mumbai
5.
BY ORDER,
6. Guard file.
सत्यापित प्रतत //True Copy//
(Asstt. Registrar)
ITAT, Mumbai