ITAT Delhi Deletes Tax Addition on Myntra Manpower Services to Flipkart

The assessee company, Myntra Inc, challenged two main additions made by the assessing officer. The first one was an addition of Rs 24,72,38,630, which Myntra received from Flipkart for rendering the manpower support services. The assessee had claimed the receipts as exempt from tax under the India-US DTAA, but the AO held that the receipts were Fee for Technical Services (FTS). As per the AO and DRP, the consultancy services given by the assessee to Flipkart help Flipkart in studying behaviour to better target customers in future and the make available condition is satisfied because the assessee facilitates collaboration with an academic institution in the US.

Myntra argued that without any technology, skill, knowledge or know-how transfer, the ‘make available’ condition is not satisfied.

The Tribunal also agreed with Myntra’s contention that holding a service is qualified as ‘make available’ if it involves the transfer of technical skill, expertise or know-how to the recipients. The Tribunal disagreed with the AO and said that just because the assessee facilitates the collaboration with academic institutions in the US does not mean the assessee is “making available” any know-how, technical knowledge or skill. Therefore, the Tribunal deleted the addition of Rs 24,72,38,630.

The second addition challenged by Myntra was of Rs 5,22,61,934, received from PhonePe for the reimbursement of costs. The AO held that it is also FTS under section 9(1)(vii) and under Article 12(4) of the India-US Double Taxation Avoidance Agreement (DTAA), assuming secondment of employee.

The Tribunal noted that payments received from PhonePe are in respect of the secondment of employees to PhonePe. It noted that Myntra, before the AO and DRP, had accepted that it was a secondment arrangement, but before ITAT, it argued that there was no secondment. Additionally, Myntra only submitted the Cost Reimbursement Agreement, which was not enough. Since the facts of this issue were unclear, the Tribunal remanded the matter to the Assessing Officer for fresh examinations.

Other grounds relating to interest and TDS credit were treated as consequential and partly sent back for verification. The penalty challenge was dismissed as premature.