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TMI Blog2023 (1) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... of any technical consultancy certificates which make available technical knowledge, experience, skill, know-how or process or development and transfer of a technical plan or design. Now the AO instead of following the direction of the Tribunal has proceeded to treat the payment in the nature of royalty which cannot be sustained at the threshold. CIT (A) though has accepted this fact, but having a co-terminus power with the AO, he has chosen not to decide the issue albeit has set aside the issue to the file of the AO - On this fact alone, the entire assessment order as well as the order of the CIT(A) is unsustainable and deserves to be quashed. In any case as explained, the lotus note which was a kind of facility given to the group of companies with a view to smoothen the day-to-day work increase the overall efficiency level. It has been sated that a Foseco group companies have taken lotus note which is a software purchase from IBM for the use of entire establishment for co-ordinated activity/administration for the benefit of all the facilities too subsidiaries of the assessee-company. The cost of services have been recovered and raised by Foseco group without any markup. Now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore said expenses constitutes reimbursement, is beyond the scope of his power under section 250. He ought not to have done so. 1.2. The learned Commissioner of Income-tax (Appeals) further erred in this connection in holding that Rs. 5,37,266 is fees for technical services. He ought not to have done so. 1.3. The learned Commissioner of Income-tax (Appeals) further erred in this connection in not applying the India-UK Double Taxation Avoidance Agreement to the above amount of Rs. 5,37,266. He ought not to have done so. 1.4. The learned Commissioner of Income-tax (Appeals) further erred in this connection in setting aside to the learned Assessing Officer to decide whether the sum of Rs. 26,63,267 is fees for technical services either under the Act or Indo-UK Double Taxation Avoidance Agreement. He ought not to have done so. 2. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in confirming the taxing of reimbursements treated as royalties and fees for technical services, at the rate of 15 per cent., instead of 10.455 per cent. being the beneficial rate, under section 115A of the Income-tax Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort the assessee's contention regarding reimbursement and not in the nature of fees for technical services, the Commissioner of Income-tax (Appeals) had confirmed the disallowance. In the absence of such agreement the nature of services rendered and reimbursement of the same cannot be verified, so as to hold that it was not in the nature of fees for technical services. Since, it was alleged to be mere reimbursement, onus is on the assessee to demonstrate the actual amount incurred on behalf of the associated enterprises on the basis of entries passed in the books of account and supporting bills/vouchers of such expenses. The Commissioner of Income-tax (Appeals) has confirmed the disallowance after having following observations : '1.3. I have considered the facts and perused the material on record. It is seen that lotus note is powerful multifaceted application software that helps to complete the work. It exchanges the information and bring all information to a person though internet. It establishes the connectivity therefore payment received in consideration of use of lotus note is technical nature. It is also noticed that no copy of agreement for providing lotus note se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant case are distinguishable from the case law relied by the appellant.' 11. It is clear from the above that in the absence of agreement, it cannot be inferred as to whether the invoice raised by the assessee was on account of reimbursement merely or otherwise. We also found that the Assessing Officer has not given any finding to the effect that it does not partake the nature and character of included services as defined in the Double Taxation Avoidance Agreement on the concept of article 13(4)(c) of the Double Taxation Avoidance Agreement between Indian and UK. Accordingly, we set aside both the orders of lower authorities and matter is restored back to the file of the Assessing Officer for deciding afresh in terms of our above observations. 12. As the issue involved in all the three years are exactly same, we, therefore, restore all these appeals to the file of the Assessing Officer for deciding afresh in terms indicated hereinabove. 8. Now in the second round of appeal, the Assessing Officer after noting down all the background of the case and the direction of the Income-tax Appellate Tribunal that it was only with regard to examining whether the reimburse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided by the Assessing Officer in the assessment order to hold as royalty. The appellant has filed a lengthy submission before me. I have on technical grounds held that the assessment as royalty is impermissible in this case. 13. The hon'ble Income-tax Appellate Tribunal outlined scope of action by the Assessing Officer. He is to decide as to whether the impugned sum is fees for technical services or not. Any action beyond same is not in conformance with decision of the hon'ble Income-tax Appellate Tribunal. 14. Since the appellant objected to classification as royalty, the Assessing Officer was asked to give a report on the relevant portion of submission before me. No report was received despite reminders. I have option to cancel the addition as such for deviation from direction of the hon'ble Income-tax Appellate Tribunal or revert the matter to Assessing Officer (not set aside per pre-amended section 251(1)(a)) or take a suo motu decision as to whether sum is fees for technical services or not. I resort to the second option which I found most appropriate since a specific direction went to the Assessing Officer from the hon'ble Income-tax Appellate Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 23,61,203 as income chargeable to tax under head fees for technical services. 12. Before us, the learned counsel submitted that, firstly, in this case in so far as reimbursement of expenses are concerned, the Transfer Pricing Officer to whom matter was referred for determination of arm's length price for all the international transaction including the reimbursement of expenses, has found to be at arm's length price and no adjustment has been made. Now here is a situation where in the first round the Assessing Officer held that the reimbursement of expenses are in the nature of fees for technical services under section 9(1)(vii) and article 13(4). The Tribunal had also set aside the issue to the file of the Assessing Officer only to examine with respect to, whether such reimbursement falls within the ambit and scope of fees for technical services as defined in Double Taxation Avoidance Agreement under article 13(4)(c) as whether the make available clause is applicable on such reimbursement and nowhere there was issue of 'royalty' . 13. Now the Assessing Officer with the second round proceedings has completely transgressed his jurisdiction and held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax (Appeals) has held that whether this reimbursement of expenses of marketing falls within the ambit of fees for technical services under the Double Taxation Avoidance Agreement. 16. On the other hand, the learned Departmental representative submitted that matter should be restored back to the file of the Assessing Officer to decide whether the payment made to the associated enterprises for use of software and global certificates (GSC) is fee for article 13(4) as Assessing Officer has not examined this issue. 17. We have heard the rival submissions and on perusal of the material placed on record as well as findings given in the impugned order. First of all, the mandate of the Assessing Officer was to follow the directions of the Tribunal whereby the matter was set aside to the Assessing Officer for specific adjudication. The scope of set aside was circumscribed to see, whether the payment made for reimbursement falls within the ambit and scope of fees for technical services under article 13(4)(c) which stipulates that fees for technical services means payment of any kind to any person in consultation of rendering of any technical consultancy certificates which make availab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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