2012 (10) TMI 816 - AT - Income Tax

Whether reimbursement of traveling expenses taxable as fees for technical services Assessee is a non-resident, received a sum in lieu of reimbursement of traveling expenses AO argued that such reimbursement is taxable as fees for technical services Held that - Following the decision in case of SIEMENS AKTIONGESELLSCHAFT (2008 (11) TMI 74 - BOMBAY HIGH COURT) that reimbursement of expenses is not liable to tax. Therefore, reimbursement does not have any element of income comprised therein and hence not liable to tax. In favour of assessee Whether payment of living allowance by the Indian company to expatriates as fees for technical services Non-resident assessee deputed its personnel for rendering services to Indian companies Indian company reimburse the living allowances as per the agreement - AO included this amount in fees for technical services Held that - Reimbursement does not have any element of income comprised therein and hence not liable to tax. In favour of assessee

Summary

Issues:
1. Taxability of reimbursement of traveling expenses as fees for technical services for assessment year 2003-2004.
2. Reimbursement of traveling expenses for assessment year 2004-2005.
3. Treatment of living allowance as fees for technical services for assessment year 2004-2005.

Assessment Year 2003-2004:
The primary issue in this appeal pertains to the taxability of Rs. 1,24,06,210, representing the reimbursement of traveling expenses, claimed as fees for technical services. The Assessing Officer considered this amount as taxable fees for technical services at a rate of 10%. However, upon review, it was found that the reimbursement of traveling expenses was distinct from the fees for technical services as per the agreement between the assessee and the companies involved. The expenses were incurred by the assessee for sending personnel to India for technical services, and the reimbursement did not include any element of profit. The Tribunal analyzed the relevant clauses of the agreements and invoices, concluding that the reimbursement was not taxable as fees for technical services, in line with previous legal precedents.

Assessment Year 2004-2005:
The issue for this assessment year revolved around the reimbursement of traveling expenses amounting to Rs. 82,17,160. Following the decision for the previous year, it was held that the reimbursement of traveling expenses could not be considered as fees for technical services. Another issue concerned the treatment of a sum of Rs. 1,37,49,302, representing living allowances paid by Indian companies to expatriates for services rendered. The Tribunal determined that the living allowance was directly paid by the companies to the personnel deputed by the assessee and was independent of the technical fees. Citing the decision of the Dispute Resolution Panel for a different assessment year, it was held that the living allowance should not be treated as fees for technical services. Consequently, the Tribunal ruled in favor of the assessee on both issues, allowing the appeals for both assessment years.

In conclusion, the Tribunal held that the reimbursement of traveling expenses and living allowances should not be treated as fees for technical services, based on the specific agreements and circumstances of the cases. The judgments were made in line with established legal principles and precedents, ultimately ruling in favor of the assessee for both assessment years.