Income Tax Appellate Tribunal - Hyderabad
Dcit, Circle-3(1), Hyd, Hyderabad vs Regus Business Centre (Hyderabad) Pvt ... on 10 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B" (SMC), HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 501/HYD/2015
Assessment Year: 2011-12
The Deputy Commissioner M/s. Regus Business Centre
of Income Tax, Vs (Hyderabad) Pvt. Ltd.,
Circle-3(1), HYDERABAD
HYDERABAD [PAN: AADCR2556C]
(Appellant) (Respondent)
For Revenue : Shri K.J. Rao, DR
For Assessee : Shri K.R. Vasudevan, AR
Date of Hearing : 31-01-2017
Date of Pronouncement : 10-02-2017
ORDER
This is an appeal by Revenue against the order of the Commissioner of Income Tax (Appeals)-3, Hyderabad, dated 06-02-2015 for the AY. 2011-12. The issue in this appeal is on the allowance of management fee paid to two associate concerns of Rs. 46,09,454/-.
2. Briefly stated, in the scrutiny assessment completed, Assessing Officer (AO) disallowed inter alia the management fee paid to two associate concerns - Regus Asia Pacific Management Ltd., - Rs. 22,20,767/- and Regus Service Centre Phillipines BV - Rs. 23,88,687/-, totaling to Rs. 46,09,455/-. It was the :- 2 -:
I.T.A. No. 501/Hyd/2015 M/s. Regus Business Centre (Hyderabad) Pvt. Ltd., submissions of assessee that Regus was a large multinational group spread all over the world, that in order to achieve its business goals, it had been considered necessary to have common resources to manage and control the global operations and to decide business strategies for the entire group, that with this in mind, Regus group was maintaining certain resources which provide common services to the entire group, that the total cost for these resources were finally allocated to all companies in the group and the management fees had been paid to Regus Asia Pacific Management Ltd., for this purpose.
2.1. Assessee also submits that Regus Service Centre, Philippines B.V.(RSC) was one of the group companies duly licensed to operate the groups regional operating head quarters in the Philippines and payment of management fees had been made for services provided to assessee relating to billing support, debt management and collection services, accounting support, information and technical assistance, consultancy on DTAA and other services.
2.2. AO held that assessee had failed to substantiate the expenditure claimed towards management fees, that assessee had not established the nexus between the management fees and its business activities, that assessee had not demonstrated that the management fee charge was commensurate with the relevant benefits for the services obtained, that the mere existence of service agreements or invoice was not sufficient to justify the payment, that neither the agreement nor the invoice demonstrated the services actually rendered. The AO therefore disallowed the sum of Rs. 22,20,767/- paid to Regus Asia Pacific Management Ltd., Rs.
:- 3 -:
I.T.A. No. 501/Hyd/2015 M/s. Regus Business Centre (Hyderabad) Pvt. Ltd., 23,88,687/- paid to Regus Service Centre Philippines B.V., aggregating to Rs. 46,09,454/-.
3. Before the CIT(A) assessee while submitting the service agreements and business model relied on the order of ITAT in the case of Regus Business Centre (Nagpur) Pvt. Ltd., in ITA No. 6424/Mum/2012, dt. 10-09-2014.
4. Ld.CIT(A) after analyzing the service agreement and order of the ITAT has deleted the addition made by the AO stating as under:
"7.5 In the decision cited above, the Assessing Officer had disallowed expenses of Rs.23,21,589 paid as management fees on the ground that the assessee had failed to adduce any supporting evidence. On appeal, the CIT(A) noted that the assessee had debited this amount in respect of costs charged by international headquarters and regional office at Asia Pacific level which was binding on the appellant in accordance with an agreement dated 01.01.2008, that the appellant had also deducted tax on the management fees. The CIT(A) held that the assessee had incurred such cost in view of the agreement with its overseas offices from time to time and therefore, allowed the appellant's claim holding that the expenses were incurred for the assessee's liability for meeting its business activity and commercial expediency. In its order, the ITAT upheld the order of the CIT(A).
7.6 In the light of the observations in the ITAT order in the case of the sister concern of the appellant, the appellant was directed to furnish a copy of the agreement dated 01.01.2008 referred to in the above decision, in order to ascertain whether the nature of services for which management fees had been paid was similar to those for which such fees had been paid by the appellant. Annexure-I to the agreement dated 01.01.2008 between Regus Australia Management Pty Ltd and Regus Business Centre Nagpur Pvt Ltd lists the following services:
"This agreement covers all intercompany services as appropriate and may include, but is not limited to, the following:
:- 4 -:
I.T.A. No. 501/Hyd/2015 M/s. Regus Business Centre (Hyderabad) Pvt. Ltd.,
1. Information Technology Services • Providing information regarding new intranet technologies. • Technical assistance with set-up and software installations. • Helpdesk support on technical issues.
2. Marketing and Public Relations Services. • Publicise/provide information to the local market regarding available services.
• Monitoring significant local professional events. • Creating/developing new professional service programmes • Consistency of approach across the group on marketing.
3. Property Services • Research in relation to the local property market • Advice and guidance in relation to property maintenance requirements • Advice and guidance in relation to property investments • Assistance and advice in relation to furnishing new centres • Inventory maximization (workstations & furniture)
4. Finance and Legal Services • Provision of intelligence regarding the local real estate market • Advice in relation to market prices for real estate • Advice and guidance in relation to the local price policy for professional services • Financial analysis related to new centre openings and expansions as well as centre closures • Tax advice regarding strategy and tax planning. • Legal assistance on property and legal structure issues as well as related to business acquisitions and disposals.
5. Human Resources and Training Services • Advice and support in relation to hiring local professional staff. • Creation of testing programmes for local recruitment • Creation of personnel rating system • Creation and delivery of local training programmes. •Centralized training programmes for sales personnel. (school of excellence) • Assistance with succession planning
6. Sales Support Services • Assistance with the creation of annual sales plans • Assistance and guidance in implementing the annual sales plans. • Advising on local sales strategy and development of local sales techniques.
• Pricing analysis, advice on discount levels.
:- 5 -:
I.T.A. No. 501/Hyd/2015 M/s. Regus Business Centre (Hyderabad) Pvt. Ltd.,
7. New Centre Opening Team • Assistance with opening of new centres-floor planning, furnishings. • Negotiation with building owners.
• Co-ordination and marketing of openings
8. Various Ad Hoc General Support Services.
7.7 These services are largely similar to the services as per the agreement dated 22.04.2009 between the appellant and Regus Asia Pacific Management Ltd. and the agreement dated 01.01.2010 with Regus Service Centre Phillipines B.V. The agreement with Regus Service Centre Phillipines B.V. also lists certain additional services. The payment of management fees of Rs.46,09,454 is, therefore, directed to be allowed. The fourth ground of appeal is allowed".
5. Ld. DR reiterated the stand of AO whereas Ld. Counsel explained the business model, sharing of common expenditure and the terms of service agreements in support of the order of Ld.CIT(A).
6. After considering the rival contentions and perusing the service agreement, I am of the opinion that the Revenue has not made out any case for disallowance of the expenditure under the head management fee. Assessee group business model incorporates a separate company for each of the business centres and the common expenditure is shared by the group companies as per the agreement. The cost of providing services - group and regional headquarter charges and shared services fees are allocated, basically on turnover basis and there is mark up of 5.5% on actual cost in services shared. The agreements are similar in the group cases. The findings of the CIT(A) that the services are largely similar is not countered by Revenue. As seen from the agreements also, the services specified in grounds that they are not being provided, is not correct. The ground itself is wrongly taken.
:- 6 -:
I.T.A. No. 501/Hyd/2015 M/s. Regus Business Centre (Hyderabad) Pvt. Ltd., I do not find any reason either to differ from the order of the CIT(A) or to differ from the decision of the Co-ordinate Bench (supra) given in the group cases on similar facts. There is no merit in grounds raised.
7. In the result, appeal of Revenue is dismissed.
Order pronounced in the open court on 10th February, 2017 Sd/-
(B. RAMAKOTAIAH) ACCOUNTANT MEMBER Hyderabad, Dated 10th February, 2017 TNMM Copy to :
1. The Deputy Commissioner of Income Tax, Circle-3(1), Hyderabad.
2. M/s. Regus Business Centre (Hyderabad) Pvt. Ltd., Level 1, Mid Town Plaza, Road No. 1, Banjara Hills, Hyderabad.
3. Commissioner of Income Tax(Appeals)-3, Hyderabad.
4. The Commissioner of Income Tax-3, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.