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TMI Blog2024 (4) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has deducted the tax at source under section 192 of the Act and deposited the same into the Govt. Account within specified time as prescribed under the Act, provisions of section 40(a)(i) of the Act are not applicable. Thus disallowance of salary cost reimbursement by Branch Office to the assessee by the Ld. AO under section 40(a)(i) is not justified as TDS has been duly deducted on entire salary payments to the expats and deposited into the Govt. Account within the prescribed time limit. Appeal of the assessee is allowed. - Shri G.S. Pannu, Hon ble Vice President And Ms. Astha Chandra, Judicial Member For the Assessee : Shri Vivek Sarin, Advocate, Shri D.P.Singh, Advocate, Shri D D Gupta, Advocate For the Department : Shri Vizay B. Vasanta, CIT-DR ORDER PER ASTHA CHANDRA, JM Both the appeals filed by the assessee are directed against two separate final assessment orders dated 31.05.2023 and 30.05.2023 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act ) in pursuance to the directions of Ld. Dispute Resolution Panel ( DRP ) pertaining to the Assessment Years ( AYs ) 2020-21 and 2021-22 respectively. Since common issues are involved in both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AO has erred in ignoring the part of the submission of the appellant made on 07.12.2022 which is against the principle of natural justice, hence the action of the Ld. AO is completely unjustified and illegal, additions proposed in draft assessment order are liable to be deleted. 8. That in the facts and circumstances of the case, the entire salary amount payable to expatriate employees has suffered withholding tax under Section 192B of the Income Tax Act, 1961 and the same cannot be again subjected to withholding tax under Section 195 of the Income Tax Act. 9. That in facts and circumstances of the case, the Ld. AO completely fails to appreciate that even if services are in nature of Fees for Technical Services, it is a matter of deducting TDS under wrong head which cannot lead to disallowance u/s 40(a)(i) of Income Tax Act, 1961 and appellant cannot be treated as assessee in default u/s 201 of Income Tax Act, 1961. AY 2021-22 1. That in facts and circumstances of the case, the Ld. AO erred in law in making the addition of Rs. 2,53,00,714/- to the returned income of the appellant which is liable to be deleted. 2. That in the facts and circumstances of the case, the entire salar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natural justice, hence the action of the Ld. AO is completely unjustified and illegal, additions proposed in draft assessment order are liable to be deleted. 3. The assessee company is registered under the laws of Spain and operates in India through its branch office. The branch office is engaged in the business of providing engineering consultancy services to public and private bodies that are involved in the creation or renovation of all kinds of infrastructure such as transport infrastructure, water management, environment, architecture, town planning and renewable energy etc. The services of branch office are restricted to India only. For AY 2020-21 the assessee filed its return on 08.02.2021 and for AY 2021-22 on 15.03.2022 declaring total income at Rs. 5,08,46,350/- and Rs. 4,53,48,160/- under normal provisions of the Act and income of Rs. 3,97,93,333/- and Rs. 4,51,21,310/- under section 115JB of the Act respectively. The case of the assessee was selected for scrutiny through CASS and statutory notice(s) were issued and served upon the assessee. During the scrutiny proceedings from the perusal of Form 3CEB the Ld. Assessing Officer ( AO ) observed that the assessee (Branch O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essable in the hands of the assessee which have not been offered to tax. 3.1 Aggrieved, the assessee filed objections before the Ld. DRP who vide its direction dated 13.04.2023 concurred with the views of the Ld. AO for the reasons that - a) no strict employer/employee relationship between the Indian entity and expatriate employee; b) the reimbursement fee takes the nature of fees for technical services; c) payments are being made by the Branch Office to the Head office for getting quality technical services; d) the payments made to the expatriate employees has not suffered TDS since it is a case of cost to cost reimbursement from the Branch Office to Head Office; e) the objection on account of non-discrimination clauses under Article 26 of DTAA between India-Spain is not tenable and f) the objection on account of Most Favoured Nation is not applicable in absence of any separate notification with respect to the same. 3.2 Pursuant to the directions of the Ld. DRP, the Ld. AO passed the final assessment order under section 143(3) r.w. section 144C(13) of the Act making an addition of Rs. 1,83,71,951/- and Rs. 2,53,00,714/- to the returned income of the assessee for AY 2020-21 and 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AO/DRP. 8. We have heard the Ld. Representative of the parties and perused the records. The assessee has challenged the disallowance made by the Ld. AO under section 40(a)(i) of the Act on account of failure to withhold tax under section 195 of the Act on salary cost reimbursement to Head Office by the Branch Office treating such receipt of Head Office as FTS. It is an undisputed fact that the impugned payments made by Branch Office to Head Office are the reimbursement of salary cost of the expats working in the Branch Office in India on cost to cost basis without any mark-up. The entire salary payments made to the expats in India as well as outside India have been subject to TDS under section 192 of the Act which fact has been corroborated by Form 16 issued to the expats. We also note that the assessee has duly filed its return of income in India for the relevant AYs a copy of acknowledgment of which has been placed on record on page 1-2 of compilation of documents in respect of its business income attributable to its Branch Office in India. It is the case of the Revenue that the assessee has received the reimbursement amount for technical services and therefore it is FTS subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 192 of the Act, in which the Assessee has deducted the TDS. Secondly such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in subsection (1) of section 139, which is not the case here. For clarity, we reiterate that the Assessee in this case has deducted the tax at source u/s 192 of the Act and deposited with the Government Account, within specified time as prescribed in the Act, hence not covered under the provisions of section 40(a)(i) of the Act. 21.1 The Hon ble tribunal in ACIT, Circle-1(1)(1), Bangaluru vs. AON Specialist Services (P.) Ltd. [2020] 116 taxmann.com 368 (Bangalore Trib.) (PB-695 to 702)[Para 22 of the order] also dealt with the identical issue and held as under: In this case also the Assessee has reimbursed payment of salary of employees made by M/s AON Limited, UK and the Assessee had deducted tax at source on the salary expenses u/s 192 of the Act. According to the Assessing Officer, these payments were in the nature of Fees for Technical Service rendered and therefore, the Assessee ought to have deducted tax at source u/s 195 of the Act. Since, the Assessee did not deduct tax at source u/s 195, the AO di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the view that the order of CIT(A) has to be upheld. Therefore, the question whether the payment in question has to be regarded as fees for technical services rendered or mere reimbursement of expenses does not call for any adjudication. Accordingly, ground no. 7 to 9 raised by the revenue are dismissed. 21.2 In Pr. CIT-2 v. M/s Boeing India Pvt. Ltd. [2023] 146 taxmann.com 131 (Delhi) [PB 912 to 920] [Para 11 of the judgment], the Hon ble Court on the identical facts as involved in this case, has held as under: 11. As far as disallowance under section 40(a)(ia) of the Act is concerned, this Court finds that there is no dispute that the Assessee has deducted tax at source under section 192 of the Act. This Court is in agreement with the opinion of the ITAT that Section 195 of the Act has no application, once the nature of payment is determined as salary and deduction has been made under section 192 of the Act. 21.3 The Hon ble Courts in various cases including mentioned above, consciously held that even where tax has been deducted, under bona fide belief, under wrong provisions of TDS, the provisions of section 40(a)(i) cannot be invoked. Even if there is a difference of opinion a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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