2018 (6) TMI 1186 - AT - Income Tax

Income accrued in India - FTS - reimbursement received by the assessee for rendering advisory services/technical services for managing the affairs of CIPL - DTAA - Held that - There does not exist any service agreement between appellant and CIPL. The appellant is also not in business of providing any services. The payments in dispute are made in relation to employment of Mr. Jitesh Avlani who was on payroll of CIPL. Payment of salary costs to Mr. Jitesh was responsibility of CIPL. Part of such costs has been paid by the appellant to Jitesh which were later on reimbursed by CIPL. All the salary costs including those paid by the appellant have been offered to tax in India. The payments made by the appellant to Mr. Jitesh were infact obligations of CIPL and therefore subsequent payments made by CIPL to the appellant are reimbursement in nature. Therefore it cannot be held that appellant has provided any technical service within meaning of section 9(1)(vii) of the Act or Article 12(4) of DTAA. The impugned payments are not in nature of FTS and hence not taxable in India. Interest u/s 234B of the Act is not leviable in this case as payments made to the appellant were subject to withholding tax u/s 195 of the Act. The ground of appeal is allowed. - Decided against revenue

Summary

Issues:
1. Taxability of reimbursement received for advisory/technical services.
2. Deletion of interest u/s. 234B.

Issue 1: Taxability of reimbursement received for advisory/technical services:
The case involved an appeal by the Revenue against the order of the ld. CIT(A)-42, New Delhi for the assessment year 2009-10. The assessee, a company incorporated in Singapore, received reimbursement of expenses from Cargill India Pvt. Ltd. (CIPL) for services provided by its employee. The Assessing Officer considered these payments as Fees for Technical Services (FTS) and taxable in India. The ld. CIT(A) allowed the appeal of the assessee on both issues. The Revenue challenged this decision before the Tribunal.

The Assessing Officer argued that the payments made by the assessee on behalf of CIPL were in the nature of managing services and thus constituted FTS, relying on sections 91(7) and 115A(1b) along with the India-Singapore Tax Treaty. The ld. CIT(A) analyzed the situation and concluded that the payments were reimbursement in nature and not FTS. The employee was on CIPL's payroll, and the expenses were CIPL's obligations, making subsequent payments by CIPL to the assessee reimbursement. The Tribunal found no infirmity in the ld. CIT(A)'s order and dismissed the Revenue's appeal.

Issue 2: Deletion of interest u/s. 234B:
The appellant contended that interest u/s. 234B was not leviable as payments were subject to withholding tax u/s. 195. The ld. CIT(A) agreed, citing various case laws supporting the proposition. The Tribunal upheld this decision, noting that interest u/s. 234B was not applicable since payments were subject to withholding tax u/s. 195. The ld. CIT(A)'s reasoned order was based on jurisdictional High Court decisions and other authorities, leading to the dismissal of the Revenue's appeal on both issues.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the ld. CIT(A)'s order regarding the taxability of reimbursement for services and the deletion of interest u/s. 234B. The decision was based on a thorough analysis of the facts, legal provisions, and precedents, ensuring a fair and just outcome in the matter.