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TMI Blog2021 (10) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee; however, relying upon a solitary amendment made to the agreement between the parties and distinguishing the decisions of the Tribunal in assessee s own case, learned DRP has upheld the addition made by the assessing officer. On a careful perusal of the amended clause 1.2 of the agreement as referred to by learned DRP, we do not find much difference, except, the mode and manner of quantification of the FTS. Thus, in our considered opinion, the spirit of the old clause 1.2 has not undergone any substantial change by the amendment. Be that as it may, even after the amendment to the agreement was effected from 01-04-2012, the Tribunal has consistently decided the issue in favour of the assessee from assessment years 2009-10 onwards. In the latest order passed for assessment year 2015-16 [ 2020 (4) TMI 752 - ITAT MUMBAI] , the Tribunal following its order in assessee s own case in assessment year 2014-15 has deleted the addition - Thus we delete the addition made by the assessing officer. This ground is allowed. Rate of tax u/s 115A - Incorrect tax rate applied by the assessing officer on the income offered by the assessee - As there are certain conditions set out in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I/Central Government but must also examine the applicability of decisions to be relied upon by the assessee - This ground is allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... years 2009-10 and 2010-11, the Tribunal has decided the issue in favour of the assessee; however, relying upon a solitary amendment made to the agreement between the parties and distinguishing the decisions of the Tribunal in assessee's own case, learned DRP has upheld the addition made by the assessing officer. On a careful perusal of the amended clause 1.2 of the agreement as referred to by learned DRP, we do not find much difference, except, the mode and manner of quantification of the FTS. Thus, in our considered opinion, the spirit of the old clause 1.2 has not undergone any substantial change by the amendment. Be that as it may, even after the amendment to the agreement was effected from 01-04-2012, the Tribunal has consistently decided the issue in favour of the assessee from assessment years 2009-10 onwards. In the latest order passed for assessment year 2015-16 in ITA No.6381/Mum/2018 dated 19-02-2020, the Tribunal following its order in assessee's own case in assessment year 2014-15 has deleted the addition with the following observations:- "5. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. On a careful per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication 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 reimbursement of expenses read as under- "1.2 Fees and Payment Terms for Training and Technical Services. Customer will pay Service Provider the costs incurred by the Service Provider to employ the individuals(s) performing the training or technical service plus a markup of six and onehalf percent (6.5%). Service Provider will invoice Customer the fees due for the services and Customer will pay such invoices within forty~five(45) days after receipt of the invoice. Such invoices may be monthly or quarterly as specified by Service Provider. 1.3. Reimbursement of Third Party Costs Customer will reimburse Service Provider for (i) fees paid by Service Provider to third party service providers, advisors and consultants in connection with or related to the performance of the services rendered under the Agreement, including without limitations accountants, attorneys, marketing consultants and agencies and information technology service providers, etc) and (ii) software, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the expenses incurred on third party costs. Thus, there is a clear bifurcation in the agreement between the internal cost incurred by the assesses and external cost borne or paid by the assesses on behalf of GIA India. In our mind, there is no confusion in this regard and the lower authorities have unnecessarily made an issue out of that. 12. With regard to the taxability of FTS on gross basis, it has been fairly admitted by the Ld. Counsel of the assesses that there is no dispute on the proposition that FTS has to be taxed on gross basis. However, the issue that arise here for our consideration is whether the expenses incurred on cost to cost basis will also be included in the amount of FTS. We find that this controversy has now been put to rest by Hon"ble Supreme Court by way of its latest judgment in the case of DITvsA.P, Moller Maersk 392 ITR 186(SC). Relevant part of the judgement is reproduced hereunder- "10. The facts which emerg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reimbursement which has been received over and above the amount of FTS cannot be included and taxed as part ofFTS. Our attention has been drawn on the Transfer Pricing Study report and Transfer Pricing orders passed in the case of GIA India from where it can be made out that no profit element has been included in the expenses reimbursed. Thus, taking into account the totality of facts and circumstances of the case, we find that addition made by the AO is contrary to facts and therefore, is directed to be deleted." 8. On a careful reading of the order of the Co-ordinate Bench reproduced herein above, it is evident that the Tribunal after analyzing the different terms of the agreement and examining the facts on record have recorded a factual finding that the agreement clearly envisages that fee for technical services is different from the expenses incurred on third party cost. Further, it has recorded a finding of fact that there is a clear bifurcatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act as the aforesaid provision is more beneficial to the assessee compared to the tax rate of 15% under the tax treaty. In course of assessment proceedings, the assessing officer referring to note 2 of the note appended to the return of income observed that the applicable tax rate for FTS under section 115A of the Act is 26.265%. Whereas, the tax rate under the tax treaty is 15%. Accordingly, he proceeded to compute tax @15% in terms of tax treaty. In its objection before learned DRP, the assessee submitted that the assessing officer has committed a mistake by incorrectly referring to note 2 of the note appended to the return of income. It was submitted by the assessee that as per section 115A(b), the applicable tax rate is 10% as against 26.265% mentioned by the assessing officer. After considering the submissions of the assessee, learned DRP observed that the provisions of section 115A(b) would apply only if the foreign company has entered into an agreement with an Indian concern and such agreement has been approved by the Central Government or where it relates to a matter included in the industrial policy and the agreement is in accordance with that policy. Further, learned D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of 10% tax rate. Finally, he submitted, various arguments advanced by the assessee, by referring to mast direction and some other rules/regulations are being canvassed for the first time before the Tribunal and have never been taken before the departmental authorities. Thus, neither the assessing officer nor learned DRP had any occasion to verify assessee's claim having regard to the RBI rules, regulations/guidelines relied upon by the assessee. 12. In rejoinder, learned counsel for the assessee submitted, the tax rate of 10% under section 115(1)(b)(B) has been made applicable from 01-04-2016. Hence, it would apply to assessment year 2016-17. Further, he submitted, while the assessing officer has applied the tax rate of 15% by incorrectly mentioning note 2 to the return of income, learned DRP, while considering the issue of applicability of section 115A(1) has never allowed any opportunity to the assessee to have its say on the fulfillment of conditions of the said provision. 13. We have considered rival submissions and perused materials on record. The short issue arising for consideration is whether, the tax rate of 10% provided u/s 115A(1)(b)(B) would be applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment; or II. Where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement should be in accordance with such policy. 15. In this regard, assessee's contention is - the amount by way of FTS received by the assessee is little more than ₹ 41 lakhs. Therefore, there is no need for any specific approval from the Central Government. On a perusal of paragraph 4.3 of the master direction dated 01-01-2016 (updated from time to time) issued by the RBI, a copy of which is at page 54 of the paper book, we find that prior approval of RBI would be necessary, if remittances exceed USD 10,00,000 per project for 'other consultancy services' procured from outside India. As per Foreign Exchange Management (Current Account Transaction) Rules, 2000, remittances in certain instances are prohibited as per schedule 2 and schedule 3. Prima facie, it appears, the amount received by way of FTS by the assessee does not come within the prohibited items. Though, there are certain conditions set out in section 115A(1); however, it has to be considered whether such conditions are mandatorily required to be fulfilled, even, in a case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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