2013 (8) TMI 446 - AT - Income Tax

ITAT remands issues for detailed examination, emphasizes thorough investigation. Reimbursement, interest reassessed, penalty dismissed.

The ITAT remanded the main issues back to the AO for a detailed examination and reassessment, emphasizing the need for a thorough investigation into the ... Term ‘make available’ in DTAA - 'Fees for Technical Service' is a consideration received in the hands of the recipient, provided, those technical knowledge or know-how etc – Held that:- 'Make available' means to allow somebody to make use of the know- how or knowledge. This has been further expanded that 'make available' means that the person receiving the services has been enabled to utilise that knowledge or the receiver has become wiser to utilise that knowledge independently – Relying upon the various judgments, mere rendering of services is not enough unless the person utilising the knowledge is able to make use of that technical knowledge by himself for his own benefit independently i.e without the guidance of the said service provider. The term of the agreement is for period of 10 years - In this long period that knowledge shall become part of the system and the persons using that knowledge may themselves become expert. So the technical persons using that knowledge are required to be interrogated - All these questions can only be answered by a thorough investigation at the level of the assessment. The A.O. shall therefore examine the bills and vouchers prepared by the assessee in support of the claim of expenditure to ascertain the nature of services rendered and then find out that whether could have been made available for the business purpose of those parties. Taxing the reimbursement of expenses as 'Fees for technical services' under Article 12 of the India-Netherlands Tax Treaty – Held that:- In the written submission, the learned A.R., MR. Dhinal Shah has submitted that the appellant has received ₹ 95,10,671/- as reimbursement of expenditure from SHGPL in the course of rendering services. The assessee has, therefore, required to establish that those expenditures were first incurred out of pocket expenses then only the question of reimbursement can be decided. The assessee is, therefore, required to furnish the details of the bills through which the reimbursement was claimed since all those facts were not earlier examined by the Revenue Authorities, therefore, the natural justice demands to restore this issue back to the stage of the AO to be decided de novo as per law. Higher of the amounts mentioned in the transfer pricing certificate – Held that:- Information was gathered by AO under Section 133(6) from all those parties and thereafter arrived at a figure - If there was a difference due to foreign exchange fluctuation, the same is a matter of simple rectification. Since, no legal issue has been raised through this ground, therefore, no force is found in this ground of the assessee - Decided against the Assessee. Issues Involved:1. Classification of amounts received under the Support Service Agreement (SSA) as 'Fees for Technical Services' (FTS) under Article 12 of the India-Netherlands Tax Treaty.2. Taxability of reimbursement of expenses as 'Fees for Technical Services' under Article 12 of the India-Netherlands Tax Treaty.3. Correct quantum of total receipts considered for tax purposes.4. Charging of interest under sections 234A, 234B, and 234D of the Income Tax Act.5. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act.Detailed Analysis:1. Classification of Amounts Received under SSA as 'Fees for Technical Services' (FTS):The primary issue was whether the amounts received by the assessee for rendering support services under the SSA qualify as 'Fees for Technical Services' (FTS) under Article 12 of the India-Netherlands Tax Treaty. The assessee, a foreign company registered in the Netherlands, argued that the services rendered were commercial in nature and did not fall under the definition of FTS. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the services were technical and consultancy in nature and thus taxable as FTS at 10% under the treaty. The ITAT noted that the AO's order lacked detailed reasoning and required a thorough examination of whether the services rendered were indeed technical and if they 'made available' technical knowledge, experience, skill, or know-how to the Indian entities. The matter was remanded back to the AO for a detailed investigation and reassessment.2. Taxability of Reimbursement of Expenses:The assessee received Rs. 95,10,671 as reimbursement of expenses from Shell Hazira Gas Private Limited (SHGPL) for out-of-pocket expenses like travel, lodging, and boarding of employees. The CIT(A) did not decide on this issue, and the ITAT noted that the assessee needed to establish that these were indeed out-of-pocket expenses. The ITAT restored this issue to the AO for a fresh examination and decision.3. Correct Quantum of Total Receipts:The AO computed the total receipts based on information provided by Hazira Port Private Limited (HPPL), Hazira LNG Private Limited (HLPL), and SHGPL, which differed from the amounts reported by the assessee. The CIT(A) upheld the AO's computation. The ITAT noted that the issue could be resolved by examining the accounts of the Hazira entities and any differences due to foreign exchange fluctuations could be rectified. Since no legal issue was raised, this ground was dismissed by the ITAT.4. Charging of Interest under Sections 234A, 234B, and 234D:The CIT(A) upheld the charging of interest under sections 234A, 234B, and 234D. The ITAT noted that these grounds were consequential and would be addressed during the reassessment process. The issues were allowed for statistical purposes.5. Deletion of Penalty under Section 271(1)(c):The AO had levied a penalty of Rs. 1,08,00,000 under Section 271(1)(c) on the income determined under Section 143(3). The CIT(A) deleted the penalty. The ITAT noted that since the main issues had been remanded back to the AO, the penalty issue did not survive. The ITAT dismissed the Revenue's appeal on this ground.Conclusion:The ITAT remanded the main issues back to the AO for a detailed examination and reassessment, emphasizing the need for a thorough investigation into the nature of services rendered and the correct quantum of receipts. The issues of reimbursement of expenses and charging of interest were also sent back for reassessment, while the penalty issue was dismissed. The appeals were partly allowed for statistical purposes.