2020 (2) TMI 1678 - AT - Income Tax

Taxability of Home Office Allocation receipts - FTS receipts - HELD THAT - As decided in assessee own case 2017 (12) TMI 299 - ITAT KOLKATA receipt in question is not FTS and cannot be charged to tax in the hands of the Assessee. Nevertheless, we are of the view that it would be just and appropriate to direct the AO to examine the claim of the Assessee in this regard and if the claim of the Assessee is found to be correct, then the receipt in question cannot be taxed as FTS. We hold and direct accordingly. Thus the relevant grounds of Cross objections by the Assessee are allowed. Agreement between the appellant and TIL was purely advisory services and such advisory services rendered cannot be treated as fees for included services under Article 12(4)(b) since there is no make available of technology. Home office receipts during the year under consideration are pursuant to the same agreement between the appellant and TIL which has already been considered by the Hon ble ITAT while adjudicating the appeals for A.Ys 2002-03 to AY 2007-08. Thus we uphold the same and dismiss this ground of the revenue for all the Assessment Years. Taxability of charge back of receipts - assessee had received an amount on account of charges from TIL/Timken Engineering and Research India Private Limited (TERI). These receipts were reimbursements of payments made by the assessee to third parties towards, provision of various services to TERI, TIMPL and TIL - HELD THAT - As decided in assessee own case 2017 (12) TMI 299 - ITAT KOLKATA the sums received by the appellant in question are pure reimbursements on actual with no mark up and the appellant is not the ultimate beneficiary of the sum in question. The appellant has not rendered any service to TIL and there is no basis on which the sum in question can be considered as FTS in the hands of the appellant. Further, even assuming it is FTS, the services rendered does not make available any technical skill, knowledge, etc. to the service recipient.

Summary

Issues:
1. Taxability of Home Office Allocation receipts
2. Taxability of charge back of receipts

Analysis:

Issue 1: Taxability of Home Office Allocation receipts
The appeals filed by the revenue were directed against orders of the Commissioner of Income Tax (Appeals) for various Assessment Years. The main issue was the taxability of Home Office Allocation receipts received by the assessee from providing services to another company. The Assessing Officer added the amount received as income, but the CIT(A) and ITAT held that such receipts cannot be considered as fees for included services under the India-US treaty. The ITAT emphasized that the agreement was for advisory services and did not involve the transfer of technical knowledge or skill. The Kolkata ITAT's decision in the assessee's own case for previous years was followed, leading to the deletion of the addition on account of home office allocation for the current Assessment Years.

Issue 2: Taxability of charge back of receipts
The second issue involved the taxability of charge back receipts received by the assessee from reimbursements made by third parties for services provided to other entities. The Assessing Officer considered these receipts as fees for technical services under the DTAA between India and the USA. However, the CIT(A) and ITAT held that the reimbursements were pure reimbursements without any mark-up and that the assessee was not the ultimate beneficiary of the sum. The ITAT concluded that the sum in question was not taxable as fees for technical services in the hands of the assessee. The decision of the ITAT in the assessee's own case for previous years was followed, resulting in the deletion of the addition on account of charge back receipts for the current Assessment Years.

In conclusion, both issues were decided in favor of the assessee based on the findings of the ITAT in the assessee's own case for previous years. Therefore, the appeals filed by the revenue were dismissed by the ITAT Kolkata on February 19, 2020.