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TMI Blog2024 (2) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s head office i.e. BYK Singapore is the customer to BYK Germany. Therefore, we find no force in the argument of ld. AR that the assessee is responsible for paying expenses actually incurred by the BYK in connection with the delivery of IT services. Having failed to bring on record the necessary evidences in support of assessee s contention inspite of reasonable opportunity, we hold that the assessee failed to place cogent evidences for our adjudication. Therefore, we treat the same as there were no evidences - significant accounting policies under revenue recognition is clearly mentioned revenue from services rendered is recognized on the basis of an agreed mark-up on net costs incurred, and in accordance with arrangements entered into with the parent company. Indian BO was allowed mark-up on such expenses of Rs. 1.22 crore, which was duly offered for taxation . Thus, in view of the above, the contention of assessee and the arguments of ld. AR are rejected. A cursory look at the provision transpires that deduction of tax at source is warranted, inter alia, on any other sum chargeable under the provisions of this Act. Thus, the chargeability of amount to tax in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t dispute concerning ground Nos. 3 and 4 is in second round of litigation before this Tribunal. The assessee placed on record order dated 24-03-2021 passed in first round of litigation by the Tribunal in assessee s own case in ITA No. 2110/PUN/2019 for A.Y. 2016- 17, wherein, the Tribunal remanded the issue of IT expenses to the file of AO for examination of true nature of transactions under which the assessee paid IT expenses of Rs. 36,44,508/- on monthly basis, further to determine whether or not tax is deductible at source u/s. 195 of the Act leading to disallowance u/s. 40(a)(i) of the Act. The relevant part of the said order is reproduced as under for ready reference : 14. The fifth item in the tally of expenses disallowed by the AO is `IT Expenses amounting to Rs. 36,44,508/-. This expenditure stands on a little different footing vis- -vis the other expenses as discussed supra. Break-up of this amount has been given at page 69 of the paper book, which shows that there are twelve transactions, all taking place on the first day of every month. On enquiry from the ld. AR, it turned out to be monthly payments by the Indian BO to the Singapore HO. The assessee s stand on thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount is paid as mobilization fee, which may be more or less than the actual expenses, it cannot be treated as `Reimbursement 16. An attempt was made by the Bench to ascertain the exact nature of IT expenses and its relation with the carrying on of the income generating activity of the Indian BO as the AO has treated it as a payment in the nature of fees for technical services. At this stage, it would be relevant to note that the AO analysed the nature of work done by the assessee which is undisputedly of providing technical support services in the Asia Pacific region to the customers of BYK Germany. The assessee allows the customers of BYK Germany to test the effect of the formulations on the customers products at its testing facilities. It provides the customers with the basic guidelines as to how to use the formulations on BYK Germany and provide technical support to the customers. Thus, the nature of work done by the assessee is that of providing technical analysis and testing of its parent company s additives used by Indian customers in their products. In order to find out a link, if any, between the payment of IT expenses by the assessee on one hand and the rendering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, we find the Tribunal observed by examination of break-up of IT expenses that there are 12 transactions taking place on the first day of every month and the said monthly payments made by the Indian BO to the Singapore HO. By referring to invoice value of 14857 Euros, the Tribunal found the assessee has been charged 6826 Euros by invoice dated 01-02- 2016 making it clear that BYK Germany rendered IT Services to the Indian BO on a regular basis and a monthly charge was raised there against. 7. It is clear from para 15 of the reproduced portion above that the Tribunal held that AR could not lead any evidence to demonstrate that the allocation of IT expenses to the Indian BO was without any markup in the given facts and held that the burden lies on the assessee to prove a particular expenditure as reimbursement. Having held so, the AO conducted giving effect proceedings in pursuance of the direction given by the Tribunal vide order dated 24-03-2021. The AO requested the assessee to furnish supporting cogent evidence such as copies of invoice, agreement dated 01-01-2007 and nature of services rendered by the BYK Germany on account of IT services. In response to which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of a business, such as payroll, inventory purchasing, and billing. Front-office BPO focuses on activities external to the company, such as marketing and customer service. 6.2 With reference to the aforesaid meaning of the BPO services, it has been observed that Information Technology service agreement was executed BYK Germany and BYK Singapore on 1st Day of January 2007. a. The Background of such agreement is as under: BYK and Customer are members of the ALTANA Chemie qroup. The ALTANA Chemie group recently reorganized the worldwide supply of services by members of the AL TANA Chemie group to other members of the ALTANA Chemie group. Due to this reorganization, BYK will provide worldwide information technology services to the other members of the AL TANA Chemie group. Therefore Customer desires to obtain from BYK, and BYK desires to provide to Customer certain information technology services during the term of, and subject to the terms and conditions of this Agreement. b. The schedule 1 of the agreement has provided that such IT information services constitutes BYK CRM, Archiving OMS TP3 Email, SAP User BW incl. 3rd Level Support, SAP License starti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide technical support to the customers. Further, it provides training to the customers explaining the manner of usage of the products so as to achieve optimum results. Thus, it has been observed that the BYK group as such is engaged in highly technical field of additives, formulations, etc. Thus, in such type of business, a service like BPO we generally refers to data-entry is ruled out. 6.4 Thus, in the background of the facts and circumstances and on the basis of material available on record, it is held that the services rendered by the BYK Germany are not in the nature of mere BPO but the same constitutes FEES FOR TECHNICAL SERVICES within the meaning of section 9(1 )(vii) r.w. explanation inserted below subsection 2 of section 9 and also in terms of article 12 of the DTAA with the Germany. 8. On perusal of the AO s decision here-in-above, we note that the assessee contended that the services rendered by the BYK Germany are in the nature of BPO, therefore, does not fall under FTS. Further, the correct applicability of DTAA being Singapore, payment made to BYK Singapore is in the nature of reimbursement and payment on account of software license is not royalty. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty to the said agreement. We find nowhere in the agreement in the definitions, no specific clause that the payments made by the assessee to BYK Singapore are in the nature of reimbursement. The said agreement, as discussed above entered between BYK Germany and BYK Singapore. Therefore, the said agreement does not come to the rescue of the assessee in supporting the claim of payment made to Singapore as reimbursement. 12. The ld. AR specifically relied on Point No. 5 where the expenses are defined. Point No. 5.1 explains the customer is responsible for paying the expenses actually incurred by BYK in connection with the delivery of the IT Services. Further, Point No. 5.3 explains expenses shall include costs of any third party software or hardware acquired for use in connection with IT Services delivered to customer. On careful reading of Point No. 5 etc., we note that the customer is responsible for paying the expenses actually incurred by BYK in connection with the delivery of the IT services relating to acquisition of third party software and hardware in connection with the IT services delivered to customer. Admittedly, the assessee is not the customer of BYK Germany and we fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated parties. There is no dispute with regard to revenue from operations at Rs. 7.49 crore (i.e. all the expenses incurred plus mark-up) were credited to the Profit and loss account and resultant profit was offered for taxation. To put simply, the Indian BO was allowed mark-up on such expenses of Rs. 1.22 crore, which was duly offered for taxation . Thus, in view of the above, the contention of assessee and the arguments of ld. AR are rejected. 14. Since, we held the IT expenses are not reimbursement, we reiterate the reasons recorded by the ITAT in the first round of litigation in para 7, the case of the AO is that the assessee violated the provisions of section 195 and ex consequenti exposed itself to the rigor of u/s. 40(a)(i) of the Act. Relevant part of section 195(1) clearly states that: `Any person responsible for paying to a non-resident, not being a company, or to a foreign company, . any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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