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2008 (1) TMI 477 - AT - Income TaxLiable for deduction of TDS u/s 195 - Payment on Reimbursement of expenses to Non-resident towards air fare accommodation and subsistence cost for the personnel - Entered into agreement for rendering technical services - HELD THAT - The assessee did not have any PE in India. There is absolutely no dispute on this point. But this fact is relevant if the income in question bears the character of business income. It is not relevant in the context of chargeability of tax on fees for technical services. The agreement was entered into for rendering technical services. The services of the experts of the foreign company were requisitioned in that connection. There is absolutely nothing on record to indicate that how such reimbursement could be termed as business income of the assessee. The payments of reimbursement were made in the process of executing the agreement. The expenditure in question was part and parcel in the process of advice of technical character. As such the payment on account of reimbursement also attracts the provisions of s. 195 of the Act. We have gone through the reasonings adduced in the impugned order. In our opinion the CIT(A) took a correct view in the matter and his order calls for no interference on this count. Accordingly we uphold the same. In the result the appeal of the assessee stands dismissed.
Issues:
1. Interpretation of Section 195 of the Income Tax Act, 1961 regarding reimbursement of expenses to a foreign company. 2. Application of Double Taxation Avoidance Agreement (DTAA) between India and Austria. 3. Determination of whether reimbursement of expenses constitutes business income or technical fees. 4. Assessment of tax liability on reimbursement of expenses under Section 195. Issue 1: Interpretation of Section 195 of the Income Tax Act, 1961 The primary issue in this case revolves around whether the reimbursement of expenses to a foreign company falls under the purview of Section 195 of the Income Tax Act, 1961. The assessee contended that reimbursement of expenses should not be construed as income chargeable to tax, citing relevant legal precedents. The Revenue authorities argued that the reimbursement amounts constituted fees for technical services, thus necessitating tax deduction at the source under Section 195(2) of the Act. Issue 2: Application of Double Taxation Avoidance Agreement (DTAA) Another aspect of the case involved the application of the DTAA between India and Austria. The assessee argued that even if the reimbursement amounts were treated as income, they should be taxed only in Austria as per the provisions of the DTAA. Reference was made to specific articles of the DTAA dealing with business profits to support this argument. Issue 3: Characterization of Reimbursement as Business Income or Technical Fees The debate further delved into whether the reimbursement of expenses should be categorized as business income or technical fees. The Departmental Representative contended that the expenses were integral to the implementation of the agreement and formed part of technical fees, emphasizing the nexus between the payments and technical services. Legal precedents were cited to support the argument that such reimbursements should be considered as part of technical services and therefore subject to tax under the Act. Issue 4: Assessment of Tax Liability under Section 195 The final issue pertained to the assessment of tax liability on the reimbursement of expenses under Section 195. The Tribunal upheld the view that the reimbursement payments were indeed part of technical fees, necessitating tax deduction at the source. It was emphasized that the provisions of Section 195 apply to sums chargeable to tax under the Act, and in this case, the reimbursement amounts were deemed taxable. The absence of a Permanent Establishment (PE) in India by the assessee was deemed irrelevant in the context of determining tax liability on fees for technical services. In conclusion, the Tribunal dismissed the appeal of the assessee, affirming the decision that the reimbursement of expenses to the foreign company constituted technical fees subject to tax deduction at the source under Section 195 of the Income Tax Act, 1961.
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