Relief to Dell: ITAT allows the benefit of Deduction for Amounts settled under Indo-U.S.A. MAP

In a major relief to Dell International Services India Private Limited, the Income Tax Appellate Tribunal (ITAT), Bangalore Bench allowed the benefit of deduction under Section 10A of Income Tax Act for amounts settled under Indo-U.S.A. Mutual Agreement Procedure (MAP).

The Assessee, M/s. Dell International Services India Private Limited is a wholly owned subsidiary of Dell International Inc. The Assessee provides support services to its group entities. The services provided by the Assessee are Call Centre, Shared services and Offshore development Centre (testing and support).

The assessee was rendering Software Development Services (SWD) as well as Information Technology Enabled Services (ITES) to its AE. As far as international transaction of rendering ITES services is concerned, the assessee received a consideration of Rs.629,43,81,078 towards call centre services and Rs.149,59,17,786 towards back-office support services. Both the aforesaid services were classified as ITES.

As regards the ITES segment, the TPO found that there was a shortfall in the price received by the assessee from AE and the shortfall was added to the total income of the assessee as an adjustment under Section 92 of the Act. Against the aforesaid addition, the assessee preferred an appeal before the CIT(Appeals).

During the pendency of the Assessee’s appeal before the CIT(A), the Assessee’s AE in the USA had approached the Competent Authority under Article 27 of the Double Taxation Avoidance Agreement (DTAA) between India and the USA seeking resolution as per MAP for determining the Arm’s Length Price in relation to the transaction between the Company and its Associated Enterprises in USA.

The competent authorities of the USA and India mutually arrived at terms with respect to the markup on cost to be earned by the Assessee for the ITE services rendered to US tax residents.

The CIT(A) passed an order inter alia rejecting the additional ground raised by the Assessee and held that the upward adjustment made as per MAP is undisclosed in books of accounts and hence the same cannot be allowed as deduction.

The issue raised in this case was whether CIT(A) has erred in not allowing deduction under section 10A of the Act on the enhanced export income amounting to Rs. 310,517,297 determined as per Mutual Agreement between the Competent Authorities of India and USA and as accepted by the Appellant.

The tribunal headed by the Vice President, N.V. Vasudevan while setting aside the order of CIT(A), allowed the deduction under section 10A of the Act on the income determined as per Mutual Agreement between Competent Authorities of India and USA.