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TMI Blog2012 (8) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the case of Mahindra & Mahindra Ltd. v. Dy. CIT [2009 (4) TMI 207 - ITAT BOMBAY-H ] that in respect of reimbursement of expenses there is no obligation to deduct tax at source and there was no element of income involved in such payments - in favour of assessee. - IT Appeal Nos. 643 & 957 (Bang.) of 2010 - - - Dated:- 4-7-2012 - N. Barathvaja Sankar And N. V. Vasudevan, JJ. Sriram Seshadri for the Appellant S. K. Ambastha for the Respondent ORDER N. V. Vasudevan, Judicial Member These are appeals by the assessee against the common order passed by the CIT(A)-IV, Bangalore u/s 201(1) and 201(1A) of the IT Act, 1961 ('The Act') relating to assessment year 2007-08. 2. The assessee is engaged in the business of providing data processing and other IT enabled services to M/s Hewlett Packard entities. Another company by name M/s Hewlett Packard, AP (Hong Kong Ltd.,) (HK) herein after referred to as HP AP(HK), a company incorporated under the laws of Hong Kong and having office at Hong Kong. HP AP (HK) is also part of the HP Co., world wide group and it provides services to various members of the HP Co., world wide group. There was an agreement d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices rendered 5,295.64 1,40,956.33 Break up for remittances made on 28.12.2006 Particulars Amt. in US $ Reimbursement of relocation expenses (benefits and FSE taxes) 37,470.19 Reimbursement of license fee for website access 4,122.36 Reimbursement of employee awards 36,557.41 Reimbursement relocation expenses and and FSE Taxes 38,579.89 Reimbursement of relocation expenses (benefits and taxes) 57,715.50 174,445.35 3. On the aforesaid payments made to HP, AP(HK) who was a non-resident assessee has not deducted tax at source at the time of making payments. The assessee submitted that the aforesaid payments were reimbursement of relocation expenses (Benefits and taxes of Indian employees) and reimbursement of payments made towards employees awards. It was the claim of the assessee that there was no elem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , given that the expense has to be booked in the books of Assessee, HP AP(HK) raises an invoice for such amounts on the Assessee, which is duly paid by the Assessee. 5. The other major component of impugned payment is reimbursement of relocation related expenses of employees of the Assessee. The Assessee explained that were various employees of the Assessee who are required to travel to other HP Group entities overseas either on short term or long terms assignments for the purpose of carrying on the business of the Assessee. In this regard, relocation related expenses, FSE taxes, etc. are borne by overseas HP entities and then through HP AP (HK) are charged to the Assesssee. The expenses cross charge to HP AP (HK) by the Assessee with respect to above are primarily on account of outbound assignees, who travel abroad to customer sites for process transitioning etc. but it could also include a few in bound assignees, who would travel into India to Assessee's operations. 6. Copies of the sample invoices evidencing above reimbursements were also filed. It was submitted that the said sample of invoices without any doubt clearly demonstrates that the subject payment made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts needs to be hired who are experienced in the line of taxation and accountancy. This is specialized and professional service. These services can be rendered only with the help of experienced consultants. Thus, the services rendered by the foreign company collectively falls in the category of consultancy services therefore charges paid towards these services are nothing but FTS. The gross receipts in the hands of the foreign company is only relevant at this juncture for the purpose of charging FTS. As per service agreement the foreign company has charged @ cost+10% to the Indian company to render these services. Thus, the charges paid towards these services are nothing but FTS in the hands of foreign company. 6.2 Employees Awards: During the course of hearing, the AR submitted that these awards have been given to the Indian employees in the form of monetary incentive. Further, he AR stated that these awards have been given at the instruction of the M/s HP(AP), Hong Kong and the same were reimbursed to M/s HP (AP) subsequently. The submissions of AR are contradictory. At the first instance, she said that the payments were made to the Indian employees by the Indian company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenged the order of CIT(A) whereby the CIT(A) has levied interest u/s 201(1A) of the Act on the tax due, consequent to the assessee being treated as 'an assessee in default' u/s 201(1) of the IT Act. 14. The revenue's contention was that it was not open to the assessee to raise issues regarding chargeability of tax on payments in question in proceedings u/s 201(1) of the Act. In our view this stand of the revenue will no longer survives. The Hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234/7 taxmann.com 18 has held that the liability to deduct tax at source does not arise unless, remittances contain wholly or partly taxable income. The Hon'ble Supreme Court held that the liability to deduct tax at source while making payment to non-resident u/s 195 of the Act, will arise only if the remittances comprises of income chargeable to tax under the Act. In other words, the liability to deduct tax at source is only on the income component of the remittances to the non-resident and not on the gross remittances. In view of the decision of the Hon'ble Supreme Court it is permissible for the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the revenue authorities and which have been filed in the form of paper book filed before us amply demonstrates the plea of the assessee that the remittances were purely reimbursement of expenses with no element of income embedded in such payments. The question in such circumstances, will be as to whether the obligation to deduct tax at source can be said to exists on such payments. The law in this regard is very clear. The Special Bench of ITAT, Mumbai in the case of Mahindra Mahindra Ltd . v. Dy. CIT [2009] 30 SOT 374 examines this issue and have held that in respect of reimbursement of expenses there is no obligation to deduct tax at source and there was no element of income involved in such payments. 17. Thus, on the facts of the present case, we are of the view that there was no obligation to deduct tax at source and consequently, the assessee could not be treated as 'an assessee in default' u/s 201(1) of the Act and consequently, the levy of interest u/s 201(1A) of the Act, cannot also be sustained. 18. The learned counsel for the assessee as well as the revenue also advanced arguments as to whether the payments in question would be in the nature of FTS ..... X X X X Extracts X X X X X X X X Extracts X X X X
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