Management support services as business expenditure is allowed
Facts and Issues of the case
The assessee is a private limited company and a subsidiary company of Multi Transport Und Logistik Holding AG which is engaged in the business of providing freight and other cargo forwarding services managed organizationally as a single unit headquartered in Vienna, Austria. The company has expertise in supply chain management.
The assessee moved an application under Section 154 of the Act stating that learned AO had made an apparent mistake and has not given the correct effect of the directions of learned DRP. Learned AO observed that there was an apparent mistake and the transfer pricing adjustment was only required to be made towards managerial and technical services at Rs. 2,47,69,939/- and accordingly corrected the assessed income at Rs. 2,41,24,200/- after adjusting the loss of Rs. 6,45,739/- declared by the assessee.
Observations by the Court
The court has heard rival contentions and perused the records placed before us. The assessee received management support services from its AE-CPA and the sum of Rs. 3,23,05,716/- was paid out of which Rs. 2,47,69,939/- have been disallowed and for the purpose of transfer pricing the said disallowance is framed as transfer pricing adjustment but without applying any method of calculating the ALP .
DRP has held that the assessee failed on the benefit test in respect of such management services paid to its AE-CPA. Before us the dispute is not with regard to the method to be adopted for valuing the management services nor that such services are stewardship services but the issue is that the assessee failed to prove the benefit received by it by making payment to its AE-CPA for management support services.
We observe that the management services which the assessee is availing are not only from the AE-CPA but from other companies also and the payment to such other companies are not disputed by the Revenue. On one hand, Revenue has accepted the claim of management services paid to other companies but has doubted only with regard to payment made to AEs.
We find that the alleged management services are merely 2% of the total revenue of the company which is even less than 2% of the revenue of the company and the said sum paid by the assessee has also been offered to tax by AE-CPA. Also the nature of services rendered by AE-CPA to the assessee is not specific but provided on day to day basis whenever needed.
The AE-CPA has expertise in the overseas freight and forwarding business and there are various types of issues and problems attached in such services and the AE being an expertise in the international business – the assessee company is taking regular service through the personnel of AE-CPA to get guidelines on various fronts including the marketing, commercial management, corporate sales, invoicing, finance, other connected issues on various courses. In other words, for day to day smooth and effective working of business and for trying to keep an error free working environment, such management support services have been taken.
We, therefore, under the given facts and circumstances of the case and respectfully following the ratio laid down by the decisions and in view of the discussions made hereinabove, are of the considered view that the alleged management charges at Rs. 2,47,69,939/- paid towards management support services to the AE-CPA are allowable as business expenditure incurred for the purpose of business of carrying out freight and other cargo forwarding services and by paying the alleged charges the assessee has been able to run the business smoothly and effectively. We, therefore, delete the transfer pricing adjustment made at Rs. 2, 47, 69,939/-.
The payment made towards management support services is allowable as business expenditure as the same is paid for smooth and effective running of the business.Cargo-Partner-Logistics-India-Private-Limited-Vs-ITO-ITAT-Kolkata