2018 (11) TMI 1260 - HC - Income Tax

Travel expenses claimed as a deduction from the technical know-how fees - claim prohibited by Section 115A(3) - Held that - The expenditure incurred is a direct consequence of the agreement for supply of technical services. The technical collaboration agreement necessitated deputation of technical personnel from the foreign company to the KSEB to work within India and in the facilities of the KSEB. The expenditure now claimed is of the travel expenses incurred by the assessee with respect to the technical personnel so deputed by the foreign company to the KSEB. This expenditure incurred has a direct nexus with the technical services supplied and deduction thereof is specifically prohibited under sub-section (3) of Section 115A. In such circumstances, we do not see any reason to interfere with the order of the Tribunal. We answer the question of law raised, against the assessee and in favour of the Revenue.

Summary

Issues:
- Whether travel expenses for technical personnel can be claimed as a deduction from technical know-how fees under Section 115A(3) of the Income Tax Act, 1961.

Analysis:
1. The case involved appeals for the years 2000-01, 2001-02, and 2002-03 concerning the reimbursement of travel expenses for technical personnel in an agreement with the Kerala State Electricity Board (KSEB) for technical services. The Assessing Officer, first appellate authority, and Tribunal disallowed the claim based on Section 115A(3) of the IT Act. The Tribunal relied on a previous decision with identical facts.

2. The appellant had a technical collaboration agreement with KSEB, deputing technical staff whose travel expenses were claimed as a deduction from technical know-how fees.

3. Section 115A(3) of the IT Act prohibits deductions for expenditure or allowance under specified sections. The appellant argued citing a Supreme Court case where reimbursement of expenses was not considered as income from technical services.

4. In the Supreme Court case, the reimbursement was for a global telecommunication facility used in the shipping business, not technical services. The Court found no technical services provided, only access to the facility, leading to the reimbursement not being considered income from technical services.

5. However, in the present case, the travel expenses were directly related to the technical collaboration agreement, necessitating deputation of technical personnel to work with KSEB. The expenses had a direct connection to the technical services provided, making the deduction prohibited under Section 115A(3). The Court upheld the Tribunal's decision in favor of the Revenue.

6. Consequently, the appeals were rejected, and each party was directed to bear their respective costs.