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TMI Blog2007 (12) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... pensation is also only to the extent of 50 per cent. Initially when the expenses were incurred by the non-resident company, it was not answerable to any of the provisions of section 5 or section 9 of the Act. The benefit that the promoters received in the shape of legal advice, technical advice and other things was only to provide them the necessary input to decide to go ahead or not to go ahead with the project. Such services even in the remotest possibility would have no connection whatsoever with the project and all the de tails were so provided so as to satisfy that the expenses as incurred were justified and reimbursable. As a passing reference we may observe that one of the bidders of the project viz., Hochtief Airport GmbH, which bid was not accepted, also had incurred certain expenses and was reimbursed to the extent of 50 per cent. The Department vide its NOC dated 12-9-2003 had permitted the reimbursement to the tune of 50 per cent without any deduction of tax. There is absolutely no difference between the bidder who had gone off and the bidder who has continued because he was accepted. Thus, we are of the opinion that the assessee is justified in claiming that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C and AAI were to have 13 per cent each. 3. The shareholders agreement as above covered development costs which were pre-agreement development cost, State promoters pre-agreement development cost, reimbursement of development cost to the private promoters in certain circumstances and reimbursement of development cost to the State promoters in certain circum stances. On the basis of such agreement, the board of directors of the assessee company in their meeting on 8-7-2002 passed the resolution that read. The offshore expenses shall be advanced by private promoters. All expenses will be reimbursed and capitalized after financial close . 4. The arrangement between the shareholders and promoters also required promoters pre-agreement development costs, etc., in accordance with the shareholders agreement shall be examined, verified and certified by independent auditors and the same would be placed for capitalization by the assessee company. The two foreign companies, Siemens and Unique incurred expenses from March, 2000 to August, 2004 and these were to be reimbursed to the two parties. Similarly, L T also incurred expenses which also came for consideration for financial clos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services Amount paid in home currency (Euro) Consultancy legal services 11,56,814.34 Consultancy engineering 8,32,839.94 Consultancy business planning 1,16,070.03 Consultancy technical 39,099.03 Consultancy financial planning 1,771.71 Consultancy real estate development study 4,955.42 Stationery 16,607.24 Animation 9,976.35 Advertisement 5,310.63 Travel 3,207.89 Translation 816.42 Courier 591.85 Others 14,315.69 Total 22,02,376.91 Note : These were services rendered by the service providers to Siemens. Annexure 2 BANGALORE INTERNATIONAL AIRPORT LTD. UNIQUE ZURICH AIRPORT LTD. Nature of services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of amount being paid much after the expenses have been incurred by those promoters. However, since the amounts so paid included certain element of technical services and so on, he was of the opinion that tax should have been deducted or should be deducted. For this purpose, the Assessing Officer was of the opinion that since the expenses were incurred after the agreement between the shareholders in January, 2002, it would fall within the ambit requiring deduction of tax at source. The Assessing Officer was confronted with the decision of the Authority for Advance Rulings in Hyder Consulting Ltd. v. CIT [1999] 236 ITR 640 (AAR - New Delhi) and when it was specifically drawn to his attention that reimbursement of actual expenses incurred in no way involves any element of profit. Further, since the expenses were incurred by the foreign company out of India with regard to services rendered by another foreign company to the non-resident company, the provisions of tax deduction at source is not attracted. The Assessing Officer was, however, not impressed and his conclusions are reproduced below : 6. Conclusion. The following are the conclusions from the analysis made in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eimbursement of expenses. He also noted that the reimbursement was only to the extent of 50 per cent of the cost incurred and as certified by the auditors. He was, however, of the view that the Assessing Officer was justified in his conclusions. His observations are as under : To sum up, the main points of this case in support of Assessing Officer s action in the light of the dispute raised are ( i )The nature of services are such as would be prima facie covered by the definition of FTS in Income-tax Act as well as respective DTAAs; ( ii )Adequate support in respect of quantification of costs in particular the audit report mentioned in shareholders agreement has not been furnished by the appellant. ( iii )As specific tax exemption has been granted under original or subordinate legislation despite the concession agreement mentioning that no withholding tax would apply in respect of these payments. 8. The notes on accounts of the assessee company on the balance sheet for the year ending 31-3-2005 in regard to the above are reproduced below for the sake of convenience : 10. Notes on Accounts. contd. Rs. in 000 3. Development costs ( i )Pre-agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rection or otherwise along with the input in the shape of finance and other technical information. The benefit that the promoters received in the shape of legal advice, technical advice and other things was only to provide them the necessary input to decide to go ahead or not to go ahead with the project. Such services even in the remotest possibility would have no connection whatsoever with the project and all the de tails were so provided so as to satisfy that the expenses as incurred were justified and reimbursable. As a passing reference we may observe that one of the bidders of the project viz., Hochtief Airport GmbH, which bid was not accepted, also had incurred certain expenses and was reimbursed to the extent of 50 per cent. The Department vide its NOC dated 12-9-2003 had permitted the reimbursement to the tune of 50 per cent without any deduction of tax. There is absolutely no difference between the bidder who had gone off and the bidder who has continued because he was accepted. For the aforesaid reasons, we are of the opinion that the assessee is justified in claiming that reimbursement of expenses in the circumstances of the case to the extent of 50 per cent did not a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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