BDA Partners Limited Vs DCIT (ITAT Mumbai)
Mumbai ITAT Rejects Excess PE Attribution: Revenue Sharing with UK Office Upheld in Cross-Border M&A Deals
The Mumbai ITAT deleted an addition of ₹6.49 crore made on account of profit attributed to the Indian Permanent Establishment (PE) of a Hong Kong-based M&A advisory firm, holding that the Revenue had wrongly ignored the significant role played by the UK office in executing two cross-border merger and acquisition transactions.
The assessee, engaged in global M&A advisory services, followed a revenue allocation model under which deal revenues were divided equally between origination (50%) and execution (50%) functions. In two specific transactions—Smartcube and Acuity—the assessee allocated only 25% of the execution revenue to the Indian branch and the remaining 25% to the UK branch, contending that the UK team had played a substantial role in executing the deals.
The Assessing Officer rejected the allocation and attributed the entire execution revenue to the Indian PE, resulting in an addition of ₹6.49 crore. The DRP also upheld the adjustment, observing that in most other transactions the execution revenue had been fully attributed to India.
Before the Tribunal, the assessee produced detailed evidence, including email communications, demonstrating active involvement of the UK team headed by Jonathan Aiken in the execution process. The Tribunal noted that the communications clearly showed participation by the UK office and further observed that the buyers involved in the transactions were located outside India, particularly in the UK and USA, making the UK office’s involvement commercially significant.
The ITAT found merit in the assessee’s contention that while full execution revenue had been attributed to India in other deals, the two disputed transactions were materially different because another branch had substantially contributed to the execution function. The Tribunal also noted that the Revenue had already accepted allocation of a major portion of the origination revenue to overseas branches in the same transactions.
Holding that the documentary evidence adequately established the UK office’s role in the successful consummation of the deals, the Tribunal ruled that the departmental authorities were not justified in attributing the entire execution revenue to the Indian PE. Accordingly, the addition of ₹6.49 crore was deleted. The Tribunal also directed the Assessing Officer to verify and grant MAT credit under Section 115JAA in accordance with law.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
