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2024 (12) TMI 978 - AT - Income TaxAddition u/s 28(iv) - treatment of free of cost of assets benefits derived from the business and considering depreciation costs as operating expenses - assets received by the assessee on returnable basis for the purposes of carrying out the work of assessee s AE - CIT(A) deleted addition - HELD THAT - These assets are used by the assessee for providing services to its AEs. The assessee is remunerated on cost plus basis. The depreciation value of these assets are also considered in the cost base of the assessee on which after mark-up, remuneration of the assessee is decided. The assessee has entered into Advance Pricing Agreement, depreciation of the same are considered in cost base and accordingly the assessee has received remuneration from its AE which is already offered for taxation. Further, identical issue is decided in the case of 2022 (8) TMI 1556 - ITAT BANGALORE for AY 2015-16 wherein addition made u/s. 28(iv) on assets received from AEs charged to tax by the revenue authorities was deleted. Decision of Mahindra Mahindra Limited 2018 (5) TMI 358 - SUPREME COURT (SC) was on issue of waiver of loan whether taxable u/s 41 (1) of the Act or u/s 28 (iv) of The Act. The issue before us is not related to waiver of loan but, assets received by the assessee on returnable basis for the purposes of carrying out the work of assessee s AE. Provisions of section 28 (iv) taxes value of any benefit or perquisites arising from exercise of business or profession. In this case the assets are provided by the AE to assessee for carrying out of the work of the assessee and assessee is remunerated by considering the depreciation in the cost basis as per APA. Even otherwise what is the benefit to the assessee when a prototype is provided by the principal recipient of the services to the assessee being provider of the services for carrying on the work of service recipient according to that proto type. We confirm the order of the ld. CIT(A) in deleting the addition in the hands of assessee and accordingly ground no.1 of the appeal of revenue is dismissed. Reimbursement made by the assessee to seconded employees - We do not find any such addition made in the assessment order or in the order of the ld. CIT(A). The only ground relating to non-deduction of tax at source is with respect to disallowance of workshop expenses paid to J L Services Consultancy for training expenses. As this issue is not arising out of the order of the AO, ground nos. 2 to 4 are dismissed. Appeal filed by the revenue is a low tax effect appeal - We find that the issue involved in this appeal is with respect to applicability of provisions of DTAA of India-Singapore concerning Article 14 is one of the matter before the ld. CIT(A). Therefore, the issue was not with respect to TDS/TCS, but applicability and interpretation of provisions of DTAA. Therefore, we dismiss the argument of the ld. AR that it is low tax effect appeal.
Issues Involved:
1. Treatment of free of cost assets under Section 28(iv) and its impact on operating profit margin under Transfer Pricing (TP). 2. Liability of Tax Deducted at Source (TDS) on reimbursement to seconded employees under Section 195. 3. Disallowance under Section 40(a)(i) concerning reimbursement payments to seconded employees. 4. Taxability of amounts reimbursed to overseas companies and employees under the secondment agreement as fees for technical services. Issue-wise Detailed Analysis: 1. Treatment of Free of Cost Assets under Section 28(iv): The primary issue was whether the assets received free of cost by the assessee from its Associated Enterprises (AEs) should be considered as a benefit arising from business and taxed under Section 28(iv) of the Income Tax Act. The Assessing Officer (AO) added Rs. 1,44,73,422 to the assessee's income, arguing that the assets provided a benefit. However, the assessee contended that these assets were prototypes for testing purposes, returned or discarded after use, and did not provide any taxable benefit. The CIT(A) deleted the addition, referencing a similar decision in the case of Tesco Bengaluru Pvt. Ltd., where it was determined that considering depreciation on such assets in the cost base for Transfer Pricing purposes would result in double taxation. The Tribunal upheld the CIT(A)'s decision, confirming that the assets were used for providing services to AEs and were not a taxable benefit. 2. Liability of TDS on Reimbursement to Seconded Employees: The second issue involved the applicability of TDS under Section 195 on reimbursements made to seconded employees. The AO argued that these reimbursements amounted to fees for technical services and were taxable in India, thus requiring TDS deduction. The CIT(A), however, found that these payments did not constitute fees for technical services and were not taxable under the India-Singapore Double Taxation Avoidance Agreement (DTAA). The Tribunal supported the CIT(A)'s view, emphasizing that the services provided were not technical, managerial, or consultancy in nature, and no TDS was required. 3. Disallowance under Section 40(a)(i): The AO disallowed Rs. 9,59,334 paid to M/s. J L Services & Consultancy for training services, citing non-deduction of TDS. The assessee argued that the payments were not taxable in India under Article 14 of the India-Singapore DTAA, as the service provider had no fixed base in India. The CIT(A) deleted the disallowance, aligning with the decision in Tesco Bengaluru Pvt. Ltd., which clarified that such training services do not qualify as technical services. The Tribunal upheld this decision, confirming that no TDS was necessary, and the disallowance was unwarranted. 4. Taxability of Reimbursements under Secondment Agreement: The revenue's appeal contended that reimbursements to overseas companies and employees under a secondment agreement should be treated as fees for technical services, thus requiring TDS deduction. However, the Tribunal found no such addition in the assessment order or CIT(A)'s order related to seconded employees. The only issue of non-deduction of TDS pertained to the training expenses, which was resolved in favor of the assessee. Consequently, the Tribunal dismissed the revenue's grounds related to this issue. Additional Observations: The assessee also argued that the revenue's appeal should be dismissed due to low tax effect, as the total tax effect was only Rs. 53,40,968. However, the Tribunal dismissed this argument, noting that the appeal involved the interpretation of the DTAA, not merely TDS/TCS issues. Ultimately, the revenue's appeal was dismissed, and the cross-objection filed by the assessee was allowed, confirming the CIT(A)'s decisions on all contested issues.
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