WNS Global Services (P) Ltd. v. ITO

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The Tax Publishers2019 TaxPub(DT) 2419 (Mum-Trib) IN THE ITAT, MUMBAI BENCH SAKTIJIT DEY, J.M. & MANOJ KUMAR AGGARWAL, A.M. WNS Global Services (P) Ltd. v. ITO ITA No. 7378/Mum/2012, ITA No. 396/Mum/2011 & ITA No. 631/Mum/2011 16 January, 2019 A.Y. 2005-06 to 2008-09 Appeal Allowed Assessee by : Porus Kaka, Sr. Counsel a/w Manish Kanth Revenue by : Jayant Kumar, CIT ORDER *Saktijit Dey, J.M.* This bunch consists of three appeals. There are cross appeals arising out of order dt. 15-11-2010, passed by the learned Commissioner (Appeals)-15, Mumbai, for the assessment year 2005-06. Whereas, appeal pertaining to assessment year 2008-09 is filed by the assessee against the final assessment order dt. 10-9-2012, passed under section 143(3) read with 144C(13) of the Income Tax Act, 1961 (for short the Act) in pursuance to the directions of the Dispute Resolution Panel (DRP). 2. Since these appeals pertain to the same assessee and involve common issues, as a matter of convenience, they are heard together and are being disposed of by way of this consolidated order. ITA No. 631/Mum/2011-Revenues Appeal-assessment year 2005-06 3. In grounds no. 1 and 2, the revenue has challenged the decision of the learned Commissioner (Appeals) in accepting assessees plea that international transaction with AEs should be benchmarked separately and the AE should be treated as tested party instead of the assessee. 4. Brief facts are, the assessee, an Indian company, is a wholly owned subsidiary of WNS Mauritius Ltd., which in turn, is a wholly owned subsidiary of WNS Holdings Ltd., U.S.A. In the relevant previous year, the assessee has provided Information Technology Enabled Services (ITES) in the nature of management and marketing services to clients through its Associated Enterprises, WNS Global Services (U.K) Ltd., U.K., and WNS North America (NA) Inc., U.S.A. For the assessment year under dispute, the assessee filed its return of income on 30-10-2005, declaring loss of Rs. 81,35,80,754. Noticing that in the relevant previous year the assessee has entered into a number of international transactions with its AEs, the assessing officer made a reference to the Transfer Pricing Officer for determining the arms length price of the international transactions with AEs. In course of proceedings before him, the Transfer Pricing Officer while examining the transfer pricing study report submitted by the assessee found that WNS U.K. is providing marketing, account handling and sale support for the assessee in European Market, whereas, WNS North America is providing similar services to the assessee in North American markets. From the transfer pricing study report he found that WNS U.K. and WNS N.A. identify and pursue potential customers for the assessee, negotiate terms on behalf of the assessee and enter into contract with the customers. They perform on-going customer relationship, management and business development for identifying more business opportunities for the assessee. They provide management services to the assessee. For rendering such services, WNS U.K. and WNS N.A. received from the assessee marketing and management fee at cost plus 6%. From the transfer pricing study report, the Transfer Pricing Officer found that the assessee has benchmarked the provision of marketing services by the AE by applying transactional net margin method (TNMM) as the most appropriate method by treating the AE as the tested party. He found that in case of WNS U.K., the assessee after undertaking a search in One Source data base for the companies providing marketing and management services in Europe and has identified three comparable companies providing marketing services and four comparable companies providing management services. Thus, in total, the assessee had chosen seven foreign comparables with average margin of 6.90%. He found that adopting the same method/process, the assessee has selected 10 foreign comparables with average margin of 7.28% for benchmarking the international transaction with WNS N.A. Since the assessee had remunerated WNS U.K. at cost plus 6%, as against the average margin of 6.90% of the comparables, the transaction was claimed to be at arms length. Similarly, in respect of WNS N.A., since the assessee has remunerated the AE at cost plus 6% as against the average margin of comparables at 7.28% the transaction was claimed to be at arms length. The Transfer Pricing Officer after perusing the transfer pricing study report observed that similar methodology adopted by the assessee for benchmarking the international transactions with AEs for assessment year 2004-05 was rejected by the Transfer Pricing Officer by holding that instead of AEs the assessee has to be treated as the tested party. He observed that in assessment year 2004-05, the Transfer Pricing Officer has aggregated all the international transactions with AEs for benchmarking purpose. Following the approach adopted by him in assessment year 2004-05, the Transfer Pricing Officer held that the foreign AEs cannot be treated as tested party as they are not performing least complex functions. Accordingly, he treated the assessee as the tested party for functional analysis. Further, the Transfer Pricing Officer aggregated all the international transactions for benchmarking purpose. Being aggrieved with the aforesaid approach of the Transfer Pricing Officer the assessee preferred appeal before the first appellate authority. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2019 TaxPub(DT) 2419 (Mum-Trib)

IN THE ITAT, MUMBAI BENCH

SAKTIJIT DEY, J.M. & MANOJ KUMAR AGGARWAL, A.M.

WNS Global Services (P) Ltd. v. ITO

ITA No. 7378/Mum/2012, ITA No. 396/Mum/2011 & ITA No. 631/Mum/2011

16 January, 2019 A.Y. 2005-06 to 2008-09

Appeal Allowed

Assessee by : Porus Kaka, Sr. Counsel a/w Manish Kanth

Revenue by : Jayant Kumar, CIT

ORDER

Saktijit Dey, J.M.

This bunch consists of three appeals. There are cross appeals arising out of order dt. 15-11-2010, passed by the learned Commissioner (Appeals)-15, Mumbai, for the assessment year 2005-06. Whereas, appeal pertaining to assessment year 2008-09 is filed by the assessee against the final assessment order dt. 10-9-2012, passed under section 143(3) read with 144C(13) of the Income Tax Act, 1961 (for short the Act) in pursuance to the directions of the Dispute Resolution Panel (DRP).

2. Since these appeals pertain to the same assessee and involve common issues, as a matter of convenience, they are heard together and are being disposed of by way of this consolidated order.

ITA No. 631/Mum/2011-Revenues Appeal-assessment year 2005-06

3. In grounds no. 1 and 2, the revenue has challenged the decision of the learned Commissioner (Appeals) in accepting assessees plea that international transaction with AEs should be benchmarked separately and the AE should be treated as tested party instead of the assessee.

4. Brief facts are, the assessee, an Indian company, is a wholly owned subsidiary of WNS Mauritius Ltd., which in turn, is a wholly owned subsidiary of WNS Holdings Ltd., U.S.A. In the relevant previous year, the assessee has provided Information Technology Enabled Services (ITES) in the nature of management and marketing services to clients through its Associated Enterprises, WNS Global Services (U.K) Ltd., U.K., and WNS North America (NA) Inc., U.S.A. For the assessment year under dispute, the assessee filed its return of income on 30-10-2005, declaring loss of Rs. 81,35,80,754. Noticing that in the relevant previous year the assessee has entered into a number of international transactions with its AEs, the assessing officer made a reference to the Transfer Pricing Officer for determining the arms length price of the international transactions with AEs. In course of proceedings before him, the Transfer Pricing Officer while examining the transfer pricing study report submitted by the assessee found that WNS U.K. is providing marketing, account handling and sale support for the assessee in European Market, whereas, WNS North America is providing similar services to the assessee in North American markets. From the transfer pricing study report he found that WNS U.K. and WNS N.A. identify and pursue potential customers for the assessee, negotiate terms on behalf of the assessee and enter into contract with the customers. They perform on-going customer relationship, management and business development for identifying more business opportunities for the assessee. They provide management services to the assessee. For rendering such services, WNS U.K. and WNS N.A. received from the assessee marketing and management fee at cost plus 6%. From the transfer pricing study report, the Transfer Pricing Officer found that the assessee has benchmarked the provision of marketing services by the AE by applying transactional net margin method (TNMM) as the most appropriate method by treating the AE as the tested party. He found that in case of WNS U.K., the assessee after undertaking a search in One Source data base for the companies providing marketing and management services in Europe and has identified three comparable companies providing marketing services and four comparable companies providing management services. Thus, in total, the assessee had chosen seven foreign comparables with average margin of 6.90%. He found that adopting the same method/process, the assessee has selected 10 foreign comparables with average margin of 7.28% for benchmarking the international transaction with WNS N.A. Since the assessee had remunerated WNS U.K. at cost plus 6%, as against the average margin of 6.90% of the comparables, the transaction was claimed to be at arms length. Similarly, in respect of WNS N.A., since the assessee has remunerated the AE at cost plus 6% as against the average margin of comparables at 7.28% the transaction was claimed to be at arms length. The Transfer Pricing Officer after perusing the transfer pricing study report observed that similar methodology adopted by the assessee for benchmarking the international transactions with AEs for assessment year 2004-05 was rejected by the Transfer Pricing Officer by holding that instead of AEs the assessee has to be treated as the tested party. He observed that in assessment year 2004-05, the Transfer Pricing Officer has aggregated all the international transactions with AEs for benchmarking purpose. Following the approach adopted by him in assessment year 2004-05, the Transfer Pricing Officer held that the foreign AEs cannot be treated as tested party as they are not performing least complex functions. Accordingly, he treated the assessee as the tested party for functional analysis. Further, the Transfer Pricing Officer aggregated all the international transactions for benchmarking purpose. Being aggrieved with the aforesaid approach of the Transfer Pricing Officer the assessee preferred appeal before the first appellate authority.