WeWork India Management Private Ltd vs DCIT (TP): ITAT Bangalore Deletes Transfer Pricing Adjustments of ₹8,94,53,562 for AY 2018-19

1. Background and Procedural History

WeWork India Management Private Ltd, a private limited company incorporated on 13 May 2016 and operating as a subsidiary of Embassy Buildcon LLP, carried on the business of leasing a network of shared workspaces comprising fully or partly equipped premises. For Assessment Year 2018-19, the assessee filed its return of income under the normal provisions of the Income Tax Act, 1961, disclosing a total loss of ₹78,77,80,649.

The case was selected for scrutiny, and a notice under Section 143(2) of the Act dated 22 September 2019 was duly issued. In the course of assessment proceedings, a reference was made under Section 92CA of the Act to the Transfer Pricing Officer (TPO) for determination of the arm's length price (ALP) of all international transactions reported by the assessee. The TPO, by order dated 31 July 2021 passed under Section 92CA, proposed an aggregate transfer pricing adjustment of ₹8,94,53,562 comprising two components — ₹7,09,23,425 on account of payment of management fees, and ₹1,85,30,137 on account of interest paid on Compulsorily Convertible Debentures (CCDs).

The Assessing Officer incorporated these adjustments in a draft assessment order dated 23 September 2021 without proposing any further additions. The assessee filed objections before the Dispute Resolution Panel (DRP) on 22 October 2021. The DRP, vide its directions dated 29 June 2022, rejected the assessee's objections in their entirety, consequent to which the final assessment order dated 15 July 2022 was passed under Section 143(3) read with Section 144C(13) read with Section 144B of the Act. Dissatisfied, the assessee preferred an appeal before the Income Tax Appellate Tribunal, Bangalore Bench.

2. Transfer Pricing Adjustment on Management Fees

(i) The Operations and Management Agreement and the Nature of Services

The assessee entered into an Operations and Management Agreement (OMA) dated 17 November 2016 with WeWork, Netherlands. The rights under this OMA were subsequently assigned to WeWork, UK. Under the terms of the OMA, the assessee was authorised to operate its shared workspace business in India under the "WeWork" trade name and was granted access to intellectual property, proprietary and third-party software, trademarks, franchise rights, digital platforms, design services, real estate site selection tools, training services, billing platforms and comprehensive operational support — all owned or controlled by WeWork Global.

During Assessment Year 2018-19, the assessee paid management fees under the OMA at an effective rate of 12.5% of gross revenue, amounting to ₹7.09 crores in aggregate — ₹3.42 crores to WeWork Netherlands and ₹3.67 crores to WeWork UK — after deducting applicable taxes in accordance with the relevant Double Taxation Avoidance Agreement (DTAA).

The range of services rendered by WeWork Global to the assessee can be understood across several functional categories:

  • Digital Services: WeWork Global extended access to its proprietary digital member network, applications, and a suite of operational digital support tools, including platforms for seat selection, desk reservations, room bookings, community event management, billing and invoicing.
  • Real Estate Services: Strategic site selection support was provided, employing a systematic methodology factoring in size, location, proximity to services, pricing and suitability for future tenants.
  • Design Services: Interiors and exteriors of workspace premises were designed by the AE's team, covering systematic design phases and development services.
  • Corporate Services: Centralised support functions including branding, marketing, enterprise solutions, and design and development services were extended to the assessee.
  • Implementation Services: The AEs monitored and advised on the implementation of operating principles, including operational support, marketing, events, community-building, digital services, maintenance and other operational matters.
  • Training Services: Training was provided for community and hospitality team members, with all expenses (excluding travel, accommodation and personnel compensation) borne by the AEs.
  • Billing Services: Access to AE-owned software systems for global reservation, space management and member billing was provided, through which all billing, collections tracking and overdue management were conducted.
  • Brand and Trademark Access: The assessee was permitted to use the entire intellectual property portfolio of WeWork Global — patents, copyrights, business names, domain names and trademarks — essential for running its operations in India.