Motricity India Private Limited Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, delivered a significant ruling on January 10, 2025, in the case of Motricity India Pvt. Ltd. v. DCIT (ITA No. 1092/DEL/2023), addressing critical aspects of transfer pricing, winding-up costs, and the taxation of deemed income under the Income Tax Act, 1961.
The case, involving Motricity India Pvt. Ltd., a wholly-owned subsidiary of Motricity Pte. Ltd., Singapore, sets a significant precedent for companies terminating service agreement with their AE and / or ceasing operations under adverse business conditions. Motricity India was incorporated in December 2010 as a captive service provider to its Associated Enterprise (AE), Motricity Inc., USA, providing software services under a cost-plus 20% markup model governed by a service agreement for 2011. The agreement was not renewed during the year due to challenging business circumstances, and the parent company decided to wind up the Indian entity’s operations. For the assessment year 2012-13, Motricity India declared income only for the operational period till the date it provided the services to its AE and excluded all the expenses incurred post-date of termination of its service agreement with its AE—including exceptional cost such as retrenchment costs and asset impairments—from its transfer pricing analysis. However, the Transfer Pricing Officer (TPO) contended that these costs should also attract a 20% markup and income be also added for such period thus addition of deemed/notional income for the winding-up period in the company’s taxable income.
