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TMI Blog2024 (9) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were remitted would fall within the ambit of any technical, managerial or consultative service that had been rendered. Having perused the relevant clauses of the Agreement, we find ourselves unable to sustain that submission. No substantial question of law arises. - HON'BLE MR. JUSTICE YASHWANT VARMA AND HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV For the Appellant: Mr. Abhishek Maratha, SSC with Ms. Nupur Sharma Mr. Parth Semwal, Advs. For the Respondent: Mr. Ajay Vohra, Sr. Adv. with Ms. Kavita Jha, Mr. Vaibhav Kulkarni, Mr. Udit Naresh Mr. Himanshu Aggarwal, Advs. ORDER 1. The instant appeals assail the judgment rendered by the Income Tax Appellate Tribunal [ ITAT ] dated 08 May 2019, and raise the following common questions of law:- (i) Whether in the facts and circumstances of the case and the prevailing law, the Hon ble Tribunal has erred in deleting the disallowance of Rs. 21,58,139/- made under Section 40(a)(i) of the Act by the AO on account of reimbursement of expenses made under section 195 of the Act, to the non-resident association enterprises? (ii) Whether in the facts and circumstances of the case and the prevailing law, the Tribunal has erred in uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the local Law may call for. 3.6 The Agent shall arrange and effect documentation of cargo in accordance with the standing instructions of the Principal's Line Management Office, or as the Principal may otherwise require, in writing. 3.7 Agent will account for all sums paid and received by them, on behalf of the Principal and for all balances held by them. Agents shall collect all revenues due to the Principal, such as freight, Terminal Handling charges, Transportation charges, etc. 3.8 Save as expressly authorized by the principal in writing the Agent shall not without the Principal's prior express approval incur any liabilities on behalf of the Principal nor pledge the credit of the Principal nor make any representations nor give any warranty on behalf of the Principal. 3.9 The Agent has no authority to and shall not take part in any dispute or institute or defend any proceedings or settle or attempt to settle or make any admission concerning any dispute proceedings or other claim relating to the affairs of the Principal generally. The Agent will immediately inform the Principal of any of the foregoing and will act in relation thereto only upon and in accordance with the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2010. The submissions contain inter alta details of reimbursement made to non-residents associate enterprises. The same is reproduced as under: - Name of the Company Country Amount Nature of Services JAS Forwarding Worldwide (PTY. Ltd.) USA 13780 Reimbursement of Server Maintenance cost JAS Worldwide Management LLC USA 199089 Reimbursement of netting charges JAS Worldwide Management LLC USA 1012859 Reimbursement of management expenses JAS Jet Air Service SPA, Milan, Italy Italy 38797 Reimbursement of Travelling Cost JAS (UK) Ltd. London UK UK 8800 Reimbursement of Travelling Cost JAS Forwarding (USA) INC. USA 50507 Reimbursement of Travelling Cost JAS Forwarding GMBH Frankurt, Germany Germany 20224 Reimbursement of Travelling Cost JAS Forwarding (USA) INC. USA 755655 Reimbursement of NVOCC Insurance Expenses JAS Forwarding (USA) INC. USA 58428 Reimbursement of NVOCC Tarrif filing Expenses TOTAL 2158139 4.1. Vide order sheet entry dated 08.12.2010, the assessee was asked to justify non deduction of tax at source on these payments. The assessee vide reply dated 13.12.2010 has stated):- The assessee is a Multinational Enterprise (MNE) and in MNE it is common to have one member of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the foreign company to whom the payment has been made by the associate enterprises at the instance of the assessee is material and not that of the associate enterprises. Therefore, it is the statutory provision which would determine the liability of the assessee in this regard and not an internal arrangement made by the assessee 4.7. Considering this, all the payments, whether the same are shown as reimbursement of expenses or other wise, are consideration for rendering of services. This issue has been the matter of debate by judicial authorities in a number of cases. The following are worth noting: 4.8. In the case of Cochin Refineries. ltd. vs. Commissioner of Income Tax [1996) 222 ITR 0354 [Kerala High Court] the Hon'ble Kerala High Court held that reimbursement of payments made to the personnel of the consultant would be part and parcel in the process of advice of a technical character and would fall for coverage only within the meaning of the Explanation to Section 9(1)(vii) of the Income Tax Act, 1961 and the amounts were assessable to tax in India. 4.9 In the case of Steffen, Robertson and Kirsten Consulting Engineers and Scientists vs. Commissioner of Income Tax. [1998 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58,139/- is disallowed and added back to the total income of the assessee. I am satisfied that the assessee filed inaccurate particulars of its income and thereby concealed its income to the tune of Rs.21,58,139/-. Penalty proceedings under section 271 (1)(c) are initiated separately for furnishing inaccurate particulars of income. (Addition of Rs.21,58,1391-) 4. As would be evident from the above, the AO took the position that the reimbursement of expenses would fall under Section 9(1)(vii) of the Income Tax Act, 1961 [ Act ] and thus liable to be classified as fee for technical services . When the matter reached the level of the Commissioner of Income Tax (Appeals) [ CIT(A) ], it disagreed with the view as expressed by the AO and held that while the expenses so incurred would not fall within the ambit of fee for technical services , in the absence of the respondent/assessee having established the same would be liable to be disallowed in terms of Section 37 of the Act. Those conclusions of the CIT(A) had been duly noted by the ITAT in Para 25 of the order impugned. The said findings are reproduced hereinbelow: 25. The CIT (A) thereafter admitted the additional evidence and Noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement expenses, referred to above, the Assessee has not made available any technical knowledge, experience, skill, know-how, or processes, or the alleged services does not consist of the development and transfer of a technical plan or technical design and mere rendering of services is not roped in unless the person utilizing the service is able to make use of the technical knowledge etc by himself in his business or for his own benefit and without recourse to the performer of the; services in future. In our case, the services rendered are not left with the Assessee but it is a mere reimbursement of expenses incurred by non-residents on the activities performed by it. For all the said activities, netting centre at USA incurred some cost which they distributed amongst the netting participants, i.e. members of the Group Companies and accordingly the Assessee was required to reimburse its portion of the expenses. (iii) Reimbursement of Management Expenses amounting to Rs. 10,12,859: Jas Worldwide Management LLC, situated in Atlanta, USA perform administrative, business development activity for common interest of the JAS Group which in-turn help the entities to grow their businesses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) though, accepted the stand of the Assessee that it does not fall within the domain of fees for technical services. Which is evident from his following observations: - It is the case of the A. O. that all the payments in question are fees for technical services paid to the non-resident associate enterprises. However, no finding has been made by him as to what was the nature of service-managerial, technical or consultancy, rendered by the non-resident associate enterprises to the assessee. On perusal of the material placed on record, I am of the considered opinion that the payments in question do not fall within the ambit of section 9(1)(vii) of the Act . 6. The ITAT while dealing with the aforesaid aspect has observed as follows: 30. We have heard the rival submission and have perused the material placed before us which includes the submissions filed by both the parties and the paper book placed on record. We find that the nature of reimbursement is of such expenses which are purely in the nature of day-to-day expenses of the business activities of the Assessee. The copy of the invoices, ledger accounts etc. have been filed before us. We find that the nature of expenses includes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1. For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation 2. For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient, or consideration which would be income of the recipient chargeable under the head Salaries . 10. It was, therefore, incumbent upon the appellants to establish that the fee or amounts which were remitted would fall within the ambit of any tec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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