Management Service Fees paid to non-resident AEs is Deductible Expenses

Iris Worldwide Integrated Marketing Pvt. Ltd Vs DCIT (ITAT Delhi)

Introduction: The case of Iris Worldwide Integrated Marketing Pvt. Ltd vs. DCIT (ITAT Delhi) revolves around the eligibility of management service fees paid to non-resident Associated Enterprises (AEs) under section 37(1) of the Income Tax Act. This article provides a detailed analysis of the ruling and its implications.

Detailed Analysis: The appellant contested the addition of management service fees to their income, arguing that the expenses were genuine, necessary for business, and properly verified. Despite furnishing agreements and invoices, the Assessing Officer (AO) doubted the genuineness of the expenditure. However, the appellant highlighted the consistent payment of fees, aligned with global policies, and provided evidence of services rendered.

The key contention was whether the services rendered justified the fees paid. The appellant demonstrated the necessity of services like HR, finance, technology, and legal support, as outlined in agreements and emails exchanged with AEs. They emphasized the common practice of recharging costs within multinational groups for common policies and administration.

The Income Tax Appellate Tribunal (ITAT) ruled in favor of the appellant, allowing the deduction of management service fees under section 37(1) of the Act. ITAT emphasized the principle of consistency, acknowledging the past allowance of similar expenses by the revenue. They underscored the importance of commercial expediency, viewing transactions from the perspective of the businessman.

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