2018 (6) TMI 1107 - AT - Income Tax

Taxability towards reimbursement of expenses - assessment of income - Held that - Tribunal in previous AY after analyzing the different terms of the agreement and examining the facts on record have recorded a factual finding that the agreement clearly envisages that fee for technical services is different from the expenses incurred on third party cost. Further, it has recorded a finding of fact that there is a clear bifurcation in the agreement between the internal cost incurred by the assessee and external cost borne or paid by the assessee on behalf of GIA India. Thus, on the basis of aforesaid facts, the Tribunal has applied the ratio laid down in case of DIT v/s A.P. Moller Maersk 2017 (2) TMI 993 - SUPREME COURT and held that the amount received towards reimbursement of cost cannot be taxed at the hands of the assessee. Therefore, the observation of the learned DRP that Tribunal has not addressed the issue is baseless. Departmental Representative has not been able to convince us that there is any difference in facts as involved in the impugned assessment year and assessment years 2009 10 and 2011 12 on the basis of which the Tribunal has decided the issue - unless and until the decision of the Tribunal is reversed or set aside by the higher Appellate Court, it is not only binding on the subordinate authorities but judicial discipline demands that it should be followed by the other Benches of the Tribunal. More so, if such decision is rendered in assessee s own case and under identical facts and circumstances - Decided in favour of assessee

Summary

Issues Involved:
1. Taxability of ?15,43,815 received towards reimbursement of expenses.
2. Levy of surcharge and education cess.

Issue-wise Detailed Analysis:

1. Taxability of ?15,43,815 received towards reimbursement of expenses:

The assessee, an American company engaged in gem grading services, filed its return of income for the assessment year 2014-15, declaring a total income of ?1,29,27,970. During the assessment proceedings, the Assessing Officer (AO) found that the assessee received ?15,43,815 towards travel costs but did not offer it as income, claiming it was a reimbursement without any profit element and hence not taxable. The AO, unconvinced, issued a show cause notice and subsequently held that the amount was taxable income, framing a draft assessment order accordingly.

The assessee objected before the Dispute Resolution Panel (DRP), citing past Tribunal decisions in its favor for the assessment years 2009-10 and 2011-12. However, the DRP upheld the AO's decision, stating that the Tribunal had not addressed whether the gross amount for services could be bifurcated for tax purposes. The DRP referred to judicial precedents and observed that the receipts, including reimbursements, should be considered on a gross basis under Article 12 of the India-USA Double Taxation Avoidance Agreement (DTAA).

The Tribunal examined the agreement dated 1st November 2008, which specified separate fees for services and reimbursement of travel and meal costs on an actual basis without profit. The Tribunal noted that it had previously ruled in favor of the assessee, distinguishing between fees for technical services and third-party costs. The Tribunal referenced the Supreme Court judgment in DIT vs. A.P. Moller Maersk (392 ITR 186), which held that reimbursements without profit elements are not taxable. Consequently, the Tribunal found no reason to deviate from its earlier decisions and deleted the addition of ?15,43,815, allowing the assessee's ground.

2. Levy of surcharge and education cess:

Given the Tribunal's decision to delete the addition made by the AO in ground no.1, the issue of surcharge and education cess became infructuous and was dismissed.

Conclusion:

The Tribunal allowed the appeal partly, deleting the addition of ?15,43,815 and dismissing the ground related to surcharge and education cess. The order was pronounced in the open court on 20.06.2018.