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TMI Blog2004 (5) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... Danfoss Singapore), is another member of the group, which provides the following services: * advice and assistance on the preparation and conduct of market research, surveys and strategies, advertising campaigns and public promotion; * Review, analyse and give recommendations on improvement of management and business activities; * Advice and assistance on financial matters including but not limited to budgeting and long-term financial planning; and * Assistance regarding seminars, customer training, employee relations and product application training. Danfoss Singapore provides the aforementioned services to help the group companies in the region to effectively carry out their business and to ensure that all Danfoss Group companies follow the procedures relating to Human Resource, Accounting, Finance etc. uniformly. The applicant says that to carry out business operation in a more economic and efficient manner and to maintain the global standards set by Danfoss Group it proposes to enter into an agreement with Danfoss Singapore to avail the said services. The consideration for availing those services is on the basis of allocation key which is determined on a proportional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention to the consideration clause of the proposed agreement to submit that the applicant would be reimbursing only the cost incurred by the Danfoss Singapore and that there is no profit in providing the services, therefore, no tax is deductible. The jurisdictional Commissioner would contend, what is payable under the agreement is not reimbursement of the cost; had it been recoupment of cost the terminology in the agreement would have been different. Paras second and third of clause (2) of the proposed service agreement, it is submitted, would show that the amount in question is not reimbursement of the actual cost as pleaded by the applicant. The parties did not refer to the DTAA entered into between the Government of the Republic of India and the Government of the Republic of Singapore in their submissions. 4. Inasmuch as the answer to the question revolves around the provisions of section 195, it will be useful to refer to it here, as it stands now, (in so far as it is relevant for our purpose): "195(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest [* not being interest on securities] or any other sum c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial ingredient of a receipt to be taxable as an income. Notwithstanding the fact that neither Danfoss Singapore nor all the relevant record like its balance sheet and profits loss account etc. is before us, we have to determine whether the amounts payable by the applicant to Danfoss Singapore have an income element or represent reimbursement of costs. This takes us to the consideration clause in the proposed agreement. Clause 2 of the proposed service agreement which deals with the consideration reads as follows: "2. Service Fee: As a consideration for the services rendered by the Service Company, Danfoss shall pay to the Service Company a service fee based on the portion of the services it receives in relation to the total costs of the Service Company in providing such services. The fee for each individual Danfoss company is calculated on the basis of an allocation key which is based on a proportional percentage of budget turnover weighted by growth rate and market maturity. The weighting may be modified on the basis of the previous year's results, at the request by either party to the agreement. The weighting may also be modified at the request of any remaining Danfoss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct nexus between the actual costs incurred by the Danfoss Singapore in providing the said services to a Danfoss group Company and the fees payable by each individual company which avails the services. In the absence of the break-up of the cost incurred by Danfoss Singapore in providing such services and fees payable by each individual company, the aforementioned conclusion, in our view, is unassailable. It is, therefore, not possible to conclude that the service fee payable by the applicant is nothing but reimbursement of costs incurred by Danfoss in providing services to the applicant. 6. Now we shall advert to the case law relied upon by Mr. Gupta. In the case of Commissioner of Income-tax, West Bengal-IV, v. Dunlop Rubber Co. Ltd. (142 ITR 493), the assessee was a non-resident English company, which was having world wide subsidiaries and associated companies. The assessee company maintained extensive technical research establishments in the U.K. The assessee company entered into agreements with its subsidiary Indian company which, inter alia, provided that all costs and expenses incurred by the assessee company in connection with the communication of the information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al cooperation funds to be administered by Decta through its project office in Delhi, was taxable in India". The applicant was established by Overseas and Development Administration (ODA) of the British Government; later it became autonomous body, with the object of establishing and providing information and advisory services and undertaking research and promotional activities for the benefit of Third World countries. It opened a liaison office in Delhi to aid administration of the programme and to facilitate communication between DECTA and various governmental and official bodies which will be involved in the projects. At the instance of ODA the participating companies made a rupee contribution towards the costs of the assistance they received from the organization. The Government of U.K. made available substantial amount by way of technical cooperation fund to meet the expenses of the projects carried on by the DECTA. The Authority ruled that DECTA was merely implementing an agreement between the British Government and the Indian Government under which all kind of assistance was extended to Indian companies for developing their products, their export potential and their export ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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