9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (7) TMI 1614 - AT - Income TaxAdjustment of Transfer Pricing - determine the Arms Length Price (ALP) on account of reimbursement of personnel costs - FTS - income of the recipient chargeable under the head salary in view of the expenses - Held that - The payment in question being reimbursement of salary is not fee for technical services in the light of relevant provisions of the Act and India-Singapore DTAA. Further there is no dispute that the assessee has made payment towards the reimbursement of salary expenditure which clearly shows that there is no element of profit in the said payment. The agreement clearly supports this fact. Even otherwise the entire amount of salary received by Shri Vineet Nagrani has been subjected to tax in India and there is no dispute on this. Accordingly we are of the view that it cannot be taxed in the hands of the assessee. Accordingly this main issue is decided in favour of assessee. As regards to other alternative issues we need not to adjudicate as we have decided the main issue in favour of assessee.
Issues Involved:
1. Transfer Pricing Adjustment on Reimbursement of Personnel Costs 2. Mark-up on Reimbursement of Personnel Costs 3. Classification of Reimbursement as Fees for Technical Services (FTS) Detailed Analysis: 1. Transfer Pricing Adjustment on Reimbursement of Personnel Costs: The primary issue was whether the reimbursement of personnel costs by Morgan Stanley Advantage Services Pvt. Ltd. (MSAS) to the assessee should be considered the assessee's income and subject to transfer pricing provisions to determine the Arm’s Length Price (ALP). The assessee argued that the reimbursement was merely a cost incurred on behalf of MSAS and should not be treated as income. The Tribunal concluded that the reimbursement of salary costs is not income in the hands of the assessee but rather a reimbursement of expenses. The Tribunal relied on the definition provided in section 9(1)(vii) of the Income Tax Act, which excludes salary payments from the definition of Fees for Technical Services (FTS). 2. Mark-up on Reimbursement of Personnel Costs: The Tribunal examined whether the mark-up of 23.23 percent levied by the Additional Commissioner of Income-tax, Transfer Pricing, on the reimbursement of personnel costs was appropriate. The Tribunal found that the mark-up was not justified as the reimbursement was purely a cost incurred by the assessee on behalf of MSAS without any profit element. The Tribunal referred to previous judicial precedents, including the case of Additional Director of Income Tax (IT) Vs. Mark & Spencer Reliance India (P) Ltd., which supported the view that part reimbursement of expenses does not constitute income. 3. Classification of Reimbursement as Fees for Technical Services (FTS): The Tribunal analyzed whether the reimbursement of personnel costs could be classified as Fees for Technical Services (FTS) under section 9(1)(vii) of the Act and Article 12 of the India-Singapore Double Taxation Avoidance Agreement (DTAA). The Tribunal noted that for a service to be classified as FTS, it must "make available" technical knowledge, skill, know-how, etc., to the recipient. The Tribunal concluded that the services rendered by the deputed employee did not result in the transfer of technical knowledge or skills to MSAS that could be independently applied by MSAS. Therefore, the reimbursement did not qualify as FTS under the DTAA. The Tribunal also referred to the decision in the case of United Hotels Ltd. Vs. ITO, which held that reimbursement of salary does not constitute FTS. Conclusion: The Tribunal ruled in favor of the assessee, holding that the reimbursement of personnel costs by MSAS does not constitute income and should not be subject to transfer pricing adjustments or classified as FTS. The Tribunal directed the Assessing Officer to delete the additions made on this account. The appeals were partly allowed, providing relief to the assessee on the primary issues raised.
|
