2017 (1) TMI 1806 - AT - Income Tax

Fee for Technical Service ( FTS ) - treating the reimbursements received from various customers as income - Contention of Appellant that the reimbursements received by the Appellant do not quality as income under the Act being pure reimbursements that do not contain mark up - HELD THAT - The assessee has given the details of the reimbursement of expenses in detail - There is a mention that the company has received the fee as well as the reimbursement of expenses - The travel within India is also to be reimbursed separately and is not included in the reimbursement cap of USD 350, 000. The interpretation of Section 9(1)(vii) of the Income-tax Act along with Article 13 of DTAA between India UK clearly mention that reimbursement charges/expenses will not be considered as fees for Technical Services. CIT(A) has overlooked these aspect. Thus this ground No. 2 is allowed for both Assessment Years. Exemption for introductory educational programmes/workshops - HELD THAT - Assessee is not an educational institution or teaching in an educational institute - The consideration was in the nature of Fee for Technical Services only. Thus the Assessing Officer was rightly made and addition which was confirmed by the CIT(A). There is no need to interfere with the order of the CIT(A) in respect of this issue. Ground No. 3 for A.Y. 2006-07 is dismissed. Applicability of Section 44B and 44BB of the Act were not at all the issues before the CIT(A) and was never part of the Assessment Order. Therefore the judgments relied upon by the CIT(A) are not relevant at all to the present case.

Summary

Issues:
- Appeal against orders dated 18/7/2011 & 3/10/2011 passed by CIT(A)-XI, New Delhi and CIT(A)-XXIX, New Delhi for the Assessment Years 2006-07 & 2008-09 respectively.

Detailed Analysis:

Assessment Year 2006-07:
- The assessee challenged the addition of reimbursements as income by CIT(A).
- The CIT(A) upheld the Assessing Officer's decision on reimbursements being Fee for Technical Services (FTS).
- CIT(A) also supported the initiation of proceedings u/s 201(1) and 201(1A) and the charge of interest u/s 234B.
- The CIT(A) dismissed the appeal for A.Y. 2006-07.

Assessment Year 2008-09:
- The assessee contested the addition of reimbursements as income by CIT(A).
- CIT(A upheld the Assessing Officer's decision on reimbursements being FTS.
- The CIT(A) dismissed the appeal by applying principles from previous cases.
- The CIT(A) observed similarities with taxation of royalty/FTS under the treaty or the act.
- The CIT(A) dismissed the appeal for A.Y. 2008-09.

Arguments and Decision:
- The AR argued that reimbursement expenses should not be considered as FTS.
- Cited a Special Bench Judgment supporting the exclusion of reimbursement charges as FTS.
- The Tribunal found the reimbursements were not FTS based on the agreement details.
- Ground No. 2 allowed for both Assessment Years.
- The AR claimed an exemption for educational programs income, but it was deemed FTS.
- The addition by the Assessing Officer was upheld for A.Y. 2006-07.
- CIT(A)'s findings on Section 44B and 44BB for A.Y. 2008-09 were deemed irrelevant.
- Other grounds in both Assessment Years were considered consequential and not addressed in the order.
- Both appeals were partly allowed for statistical purposes.

This judgment addressed the classification of reimbursements as Fee for Technical Services, the application of tax provisions, and the interpretation of relevant legal principles and agreements. The Tribunal ruled in favor of the assessee regarding the treatment of reimbursements, citing specific clauses from the agreement and legal precedents to support its decision.