IN THE ITAT MUMBAI BENCH ‘L’
ACIT vs. First Advantage (P.) Ltd.
IT Appeal Nos. 3029 and 3030 (Mum.) of 2010
[Assessment years 2008-09 and 2009-10]
May 18, 2012
ORDER
J. Sudhakar Reddy, Accountant Member – The present appeals preferred by the Revenue, are directed against impugned separate but identical order dated 28th January 2010, passed by the Commissioner (Appeals)-X, Mumbai, for assessment years 2008-09 and 2009-10 respectively.
2. The facts, as brought out by the Commissioner (Appeals) vide Paras-1.1 to 1.1.2, in his order, are extracted below:-
“1.1 Brief facts are that the appellant is a resident company, incorporated under the Companies Act, 1956. It is primarily engaged in providing employment background screening services to its clients, which consists of checks such as education screening, employment screening, address verification, criminal check/verification, reference check, database verification, hiring management services, assessment solution which the clients can choose from.
1.1.1 The appellant has entered into a Reimbursement Agreement with First Advantage Corporation, United States of America (‘FADV US’). It has been agreed between FADV India and FADV US that FADV India shall reimburse to FADV US at actual cost (with no profit mark-up) for various purchases / upgrades by FADV US which include data cards, application, support software and OS/OS upgrades amounting to Rs. 83,75,075/- for the financial year ended 31 March 2008.
1.1.2 The AO has stated that the purchase/upgrades by FADV US which include data cards, application, support software and OS/OS upgrades are squarely covered under Section 9(1)(vi) and hence are in the nature of royalty as defined under the Act. The AO relied on Supreme Court decision in Transmission Corporation of AP & Anr. v. CIT (239 ITR 587) (SC) to contend that the purpose of section 195(1) is to see that sum is chargeable u/s. 4 of the Act, and the said provision is tentative in nature and rights of parties are not affected. Accordingly the AO passed an order under Section 195(2) of the Act holding payments as Royalty under the Act and directing to withhold taxes at 10.56% on gross basis as per Section 115A of the Act.”
3. Before the first appellate authority, the assessee contended as follows:-
