2015 (10) TMI 477 - AT - Income Tax

Disallowance under section 40(a)(ia) - secondment of employees to the assessee in India and the reimbursement of expenses to the associated enterprise in US - CIT(a) allowed the claim - Held that - The issues against which the Revenue has filed this appeal before us are covered in favour of the assessee by the decision of this Tribunal in assessee s own case for the earlier assessment year. As regards the disallowance under section 40(a)(ia) is concerned, we find that the Tribunal had followed the decision of Coordinate Bench of this Tribunal in the case of IDS Software India P. Ltd. 2009 (1) TMI 363 - ITAT BANGALORE-A wherein the issue of secondment of employees to the assessee in India and the reimbursement of expenses to the associated enterprise in US has been considered at length and it has been held that such reimbursement of expenses are not income in the hands of the non-resident and therefore, TDS provisions are not applicable. Further, it has also been held that it is also not in the nature of fees for technical services. - Decided in favour of assessee. Disallowance under section 10A - Held that - This issue is covered by the decision of the Jurisdictional High Court in the case of Tata Elxsi 2011 (8) TMI 782 - KARNATAKA HIGH COURT wherein it was held that if any item is reduced from export turnover, then the same has to be reduced from total turnover also for computation of deduction under section 10A of the Act. Merely because the department has filed an appeal before the Hon ble Supreme Court, it does not loose its precedential value. As the Ld. CIT(A) has followed the judicial precedent on the issue in giving relief to the assessee, we do not see any reason to interfere with the same.- Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act.
2. Computation of deduction under section 10A of the Income Tax Act.

Detailed Analysis:

1. Disallowance under section 40(a)(ia):

The primary issue in this case is whether the payments made by the assessee to M/s. Cerner Corporation, USA, amounting to Rs. 4,09,77,678, should be disallowed under section 40(a)(ia) for non-deduction of tax at source (TDS) under section 195. The Assessing Officer (A.O.) contended that the payments constituted "fees for technical services" and thus were liable for TDS, rejecting the assessee's claim that they were mere reimbursements of expenses and not income.

The assessee argued that the expenses, including salaries, staff welfare, communication, and travelling expenses, were incurred by Cerner Corporation, USA, on behalf of the assessee for administrative convenience and reimbursed at cost without any markup. The A.O. disallowed these payments, treating them as fees for technical services and brought them to tax under section 40(a)(ia).

The CIT(A) granted relief to the assessee by deleting the disallowance, relying on the Tribunal's decision in the assessee's own case for A.Y. 2006-2007, where it was held that such reimbursements do not constitute income in the hands of the non-resident and are not liable for TDS. The Tribunal reaffirmed this stance, citing the case of IDS Software India P. Ltd., where it was established that secondment of employees and reimbursement of expenses do not attract TDS provisions.

2. Computation of deduction under section 10A:

The second issue pertains to the computation of deduction under section 10A, specifically whether communication and travelling expenses should be reduced from both the export turnover and the total turnover.

The A.O. reduced these expenses only from the export turnover while computing the deduction under section 10A, which the assessee contested. The CIT(A) directed the A.O. to recompute the deduction by reducing these expenses from the total turnover as well, following the decision of the Jurisdictional High Court in the case of Tata Elxsi Limited.

The Tribunal upheld the CIT(A)'s decision, emphasizing that if any item is reduced from the export turnover, it must also be reduced from the total turnover for a fair computation of deduction under section 10A. This approach was supported by the precedent set in Tata Elxsi, which remains binding despite the department's appeal to the Supreme Court.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s orders on both issues. The disallowance under section 40(a)(ia) was rejected, as the payments were deemed reimbursements not subject to TDS. Additionally, the computation of deduction under section 10A was to be done by reducing the relevant expenses from both the export and total turnover, in line with judicial precedents. The appeal was thus decided in favor of the assessee.