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TMI Blog2017 (6) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... 97, 86, 310/- ITA/519/Mum/2013, AY. 2008-09: 2. First ground of appeal, raised by the AO, is about treatment of licence fee, IT recharge and 50%of management services as head officer expenditure covered by section 44C of the Act. During the assessment proceedings, the AO found that as per the licence agreement dated 16/ 07/2003between Lloyds Register(LR)and Lloyds Register Quality Assurance Ltd. (LRQAL) , LR had granted licence to use brand LR for royalty and that licence fee was payable as per Schedule 6 of the agreement, that LRQAL in turn allocated the royalty attributable to its Indian branch and the Indian branch paid the same to LRQAL which in turn had been paid to LR, that another management service agreement was entered into on 16/07/2003 between LR and LRQAL, that on 01/05/2007 IT Recharge Agreement was entered into between LR and LRQAL for providing services to various regional offices as per the Schedule 3 of the said agreement, that it included different kind of services such as data centre operations, manage - ment of WAN and telecom services, PC management and support services as well as data base-management. He held that payment of management fees and IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de India, that it included expenditure incurred in respect of rent, rate taxes, repairs or insurance of any premises outside used for the purpose of business/profession, salary, wages, annuity, pension, fees etc. , that it also included expenditure incurred on travelling by any employee or other person in managing the affairs of any office outside India, that royalty/licence fee paid by the assessee was not hit by the definition of HO expenditure as envisaged by section 44C. He directed the AO not to consider royalty/license fee expenditure incurred by the assessee as HO expenditure. With regard to IT recharge, the FAA held that the nature of expenditure included services provided for data centre operation, management of WAN/Telecom services, PC management/support services and data base management, that all these services were technical in nature as per the provisions of section 9(1)(vii) of the Act, that same could not be included as administrative services. He directed the AO not to consider the IT recharge expenditure as HO expense. With regard to management fee he held that the nature of expenditure included corporate communications, corporate finance, global quality, legal mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee as is attributable to the business or profession of the assessee in India, whichever is less". The meaning of the term "head office expenditure" for the purpose of section 44CC has been enumerated in clause (iv) of Explanation to section 44CC. The said clause reads as under: "iv) "head office expenditure" means executive and general administration expenditure incurred by the assessee outside India, including expenditure incurred in respect of - (a) rent, rates, taxes, repairs or insurance of any premises outside India used for the purposes of the business or profession; (b) salary wages, annuity, pension, fees, bonus, commission, gratuity, perquisites or profits in lieu of or in addition to salary, whether paid or allowed to any employee or other person employed in, or managing the affairs of, any office outside India; (c) travelling by any employee or other person employed in, or managing the affairs of, any office outside India; and (d) such other matters connected with executive and general administration as may be prescribed. From the aforesaid definition/illustration of the scope of head office expenditure, it is evident that it is in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bined reading of the Explanatory Memorandum explaining the provisions of the Finance Bill, 1976, introducing section 44C in the Income-tax Act, 1961, as well as Circular No. 202 dated 5/07/ 1976 (105 ITR (St. )17), issued by the Central Board of Direct Taxes, it is clear that the section is intended to be made applicable only in the cases of those non-residents who carry on businesses in India through their branches. The section was introduced with a view to getting over difficulties in scrutinising and verifying claims in respect of 'general administrative expenses' incurred by the foreign head office in so far as such expenses can be related to their business or profession in India having regard to the fact that foreign companies operating through branches in India sometimes try to reduce the incidence of tax in India by inflating their claims in respect of head office expenses. In our opinion, the FAA has rightly held that IT recharge does not fall under the head administrative expenses and therefore provisions of section 44C will not be applicable. 2. 3. 2. Now, we would like to deal with the management fees. We find that the FAA had bifurcated the expenses claimed under the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO held that the assesse had to deduct tax at source on all the payments unless he had approached the AO and had obtained certificates for NIL TDS. The FAA dismissed the appeal filed by the assessee in that regard. 6. 1. Before us, the DR supported the order of the AO . The AR contended that the Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. (327ITR456) had held that obligation to deduct tax at source would arise only when an amount was chargeable to tax, that it was not necessary to obtain nil withholding tax certificate, that tax had not to be deducted at source in each case, that the India Branch office had reimbursed the payments towards management charge to its HO in UK, that it in turn had made the payment to LR in UK. He further argued that the issue stands decided in favour of the assessee by the judgment of the Hon'ble Delhi High Court in the case of Herbalife International India P. Ltd. (384 ITR 276). 6. 2. We have heard the rival submissions and perused the available material. We find that in the case of Herbalife International India P. Ltd. (supra)the Honble Delhi High Court has dealt the issue as under: "Section 40 of the Act is in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctfully, following the above judgment, we allow grounds no. 3-4. 7. Last ground of appeal (GOA-5) is about exchange rate to be applied. During the assessment proceedings the AO observed that license fee was paid as the percentage of profit and not as percentage of sales, that the assesse had passed on the benefits derived by it on account of its own efficiencies and caused deduction to the licensor, that expenses were paid on the basis of Debit notes in bonds raised on 31/3/2008, that bond was to be multiplied by Rs. 80. 12 for converting it into Indian currency, that the rate of conversion as on 31. 3. 2008 was Rs. 80. 12 for selling, that the assesse did not sell pound on 31. 3. 2008, that it had purchased the British currency for payment of license and other expenses, that purchasing rate of pound was Rs. 74/-on 31. 3. 2008. He worked out the excess claim on account of difference in the currency rates and made disallowance of Rs. 2. 60 lakhs. 7. 1. The FAA after considering the assessment order and the submissions of the assessee, held that the conversion rate of remittance in foreign currency for TDS purpose was the rate at which such currency was made available to banks thro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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