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TMI Blog2020 (4) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... unts reimbursed to it cannot be treated as its income and the stand taken by the Assessing Officer / the Dispute Resolution Panel in this regard is illegal, incorrect, erroneous and misconceived. 1:3 The Appellant submits the Assessing Officer be directed to delete the addition so made by him and to re-compute its total income accordingly. 2:0 Re.: Lew of surcharge and education cess: 2:1 The Assessing Officer has erred in levying surcharge and education cess on the Appellant. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject no surcharge and education cess is leviable and the stand taken by the Assessing Officer in this regard is misconceived, incorrect, erroneous and illegal. 2:3 The Appellant submits that the Assessing Officer be directed to delete the surcharge and education cess so levied on it and to re-compute its tax liability accordingly." 3. Learned Senior Advocate Shri J.D. Mistry appearing for the assessee submits that the issue in Ground No.1 of grounds of appeal is relating to the action of the Assessing Officer in treating the travel expenses reimbursed to the assessee by GIA India Labo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke travel expenses, meals, etc. While it is the claim of the assessee that the reimbursement of cost of travel and meals by GIA India is on actual basis without any profit element, hence, not to be included in the income, it is the stand of the Department that there is no scope for bifurcation of the amount received by the assessee under the agreement, as it has to be taxed on gross basis as fee for technical services. There is no dispute that the agreement under which the assessee has received the disputed amount is continuing from assessment year 2009-10. While deciding identical dispute in assessee's own case for assessment year 2009-10 and 2011-12, in ITA no.4659/Mum./2014 and ITA no.385/Mum./2016, dated 9th May 2017, the Tribunal has held as under:- "8. We have gone through the orders passed by the lower authorities and arguments made before us by both the sides. 9. The brief facts are that the assessee company incorporated in USA is engaged in grading and certification of diamonds. GIA India, (i.e. the company incorporated in India) entered into an agreement with the assessee company for availing training and technical services. The terms regarding payment of fee and reim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to receive by way of fee only the amount incurred by way of cost to "employ‟ the individuals plus mark-up of 6.5%. Clearly speaking, the expression cost to "employ‟ individuals is different from the expression cost incurred to "depute‟ a person. The cost of employment would clearly mean and include only internal costs as are incurred by an organisation to employ an individual in the organisation. Any cost incurred over and above that to depute the individual for a particular assignment which is not internal assignment of the assessee would be additional cost. Thus, in the case before us, costs and expenses incurred by the assessee on travel and insurance etc on the persons deputed in India for providing training and technical services to GIA India was in the nature of cost incurred over and above the cost of employment. This interpretation is further re-enforced when we read the next clause, i.e. clause 1.3 which says that GIA India shall reimburse to the assessee any expenses incurred on account of thirty party costs. The drafting of the agreement and manner of placements the clauses in the agreement clearly make out a case that FTS is different from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that no technical services are provided by the assessee to the agents. Once these are accepted, by no stretch of imagination, payments made by the agents can be treated as fee for technical service. It is in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. It is reemphasised that neither the AO nor the CIT(A) has stated that there was any profit element embedded in the payments received by the assessee from its agents in India. Record shows that the assessee had given the calculations of the total costs and pro rata division thereof among the agents for reimbursement. Not only that, the assessee have even submitted before the Transfer Pricing Officer that these payments were reimbursement in the hands of the assessee and the reimbursement was accepted as such at arm‟s length. Once the character of the payment is found to be in the nature of reimbursement of the expenses, it cannot be income chargeable to tax........" (Emphasis supplied in bold) Thus, from the above judgement it is clear that the amount received by the assessee on account of reimbu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. In view of the aforesaid, considering the fact that the Co-ordinate Bench has decided the disputed issue in favour of the assessee in A.Y. 2009-10 and 2011-12 as referred to above, respectfully following the same we delete the addition of Rs..15,43,815 made by the Assessing Officer. Ground raised is allowed." 6. Thus, respectfully following the said decision, we delete the addition of Rs..49,68,247/- made by the Assessing Officer. This ground is allowed. 7. Coming to Ground No.2 of grounds of appeal, the Ld. Senior counsel submits that once the DTAA rates are applied education cess and surcharge cannot be levied separately. Ld. Counsel for the assessee submits that the rate applied as per DTAA is inclusive of education cess and surcharge. Reliance was placed on the following decisions: - (i) M/s. Epcos Electronic Components S.A v. Union of India & Others in W.P. (C) 10417/2018 dated 10.07.2019. (ii) Soregam SA v. DDIT [101 taxmann.com 94 (Delhi-Trib)] (iii) R.A.K. Ceremics, UAE v. DDIT [104 taxmann.com 380 (Hyd-Trib)] (iv) Parke Davis and Company LLC v. ACIT [41 taxmann.com 193 (Mum-Trib)] (v) Sunil V. Motiani v. ITO [33 taxmann.com 252 (Mum-Trib)] 8. Ld. DR veheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es surcharge. Further, nature of education cess and surcharge being same as held by the Tribunal in the case of DIC Asia Pacific Pte Ltd.(supra), in our view education cess and surcharge cannot be levied separately and will be included in tax rate of 12.5%. The judgment of Hon'ble High Court of Uttarakhand in the case of Arthusa Offshore Co. (supra), is not applicable to the facts of the present case as the Hon'ble High Court was concerned with taxability of income under Article 14(2) of the DTA between India and USA. The Hon'ble High Court was not concerned with interpretation of tax payable on interest income under DTAA. The judgment of AAR in the case of Airports Authoritiy of India, IN RE (supra), is also distinguishable as in that the court was concerned with taxability of business income and it was held that under Article 5(3) of DTAA with USA, preparatory and auxiliary type of work was excluded from the purview of PE and therefore, there being no PE it was held that income from software maintenance was liable to be taxed in India. The high Court was not concerned with taxability of interest income as per the treaty. 5.1 In view of the fore-going discussion, we ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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