Management Service Fees paid to Non Resident AEs eligible for Deduction u/s 37(1) of Income Tax Act: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ) of Delhi held that management service fees paid to non-resident Associate Enterprises are eligible for deduction under Section 37(1) of the Income Tax Act, 1961.

The Assessee Iris Worldwide Integrated Marketing Pvt. Ltd is the subsidiary of Iris Nation Worldwide Limited, the holding company which provides assistance in various matters to its subsidiaries in return in which the holding company charges some fees to recover the cost which has been incurred while providing the above services. The services include the Human Resource ( HR ), finance, technology and legal support to the subsidiary company.

Similarly another agreement was entered into by the assessee with another AE -Iris Singapore and Iris -Uk. During the assessment proceedings the assessee pleaded that the transactions of payment of management service fees were not subject matter of reference to Learned Transfer Pricing Officer ( TPO ) for determination of Arm‟s Length Price ( ALP ).

Accordingly, the  assessee pleaded that the transactions of payment of management service fees were not subject matter of reference to Learned Transfer Pricing Officer ( TPO ) for determination of Arm‟s Length Price ( ALP ).

Aggrieved by the order assesee filed appeal before the CIT(A). The  CIT(A) has dismissed the appeal of the assessee. Therefore the assessee filed another appeal before the tribunal.

During the adjudication Upvan Gupta, the counsel for assessee argued that payment of management service fees was made for taking the various services listed in the scope of services referred supra by the assessee company and it is based on group recharge cost made by the AE on the assessee.

Further the assessee counsel argued that The said expenditure was being allowed by the revenue in earlier as well as in subsequent years and hence there is no need to take a divergent stand during the year under consideration

Siddharth B. S. Meena, Department representatives argued that assessee could not establish what services were actually required by it from the AEs. Even Though, all the services are mentioned in the agreement, out of which, what services were actually rendered by the AEs to the assessee were not established by the assessee.

It is observed that commercial expediency of the transaction needs to be looked into from the angle of the businessman and not from the point of the revenue. Hence the bench concluded that In the instant case, the assessee had duly furnished all the copies of master service agreement together with the invoices raised by the AEs on it towards management service fees. The scope of services has been defined elaborately in the master service agreement. The assessee had also furnished the sample e-mails exchanged between the assessee and the AEs proving the rendition of services for which management service fees is paid

Therefore the bench comprising Anubhav Sharma ( Judicial Member ) and M. Balaganesh, ( Accountant Member )  observed that the common administration costs incurred by the parent group would be recharged on all the subsidiaries spread across the globe. Hence it was held that the management service fees paid by the assessee would be squarely allowable deduction under Section 37(1) of the Income Tax  Act.

To Read the full text of the Order CLICK HERE

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