2015 (5) TMI 42 - AT - Income Tax

Revenue appeal dismissed, assessee's Cross Objection partly allowed. Tribunal rules on mutuality, income, expenses, interest.

Dy. DIT (IT) Versus M/s Societe International De Telecommunications Aeronautiques SC

Dy. DIT (IT) Versus M/s Societe International De Telecommunications Aeronautiques SC - TMI Issues Involved:1. Principle of Mutuality2. Reimbursement of Costs as Income3. Estimating Profit from Non-Member Transactions4. Applicability of Section 44C of the Income Tax Act5. Exclusion of Matching Cost Recoveries6. Interest Income and Principle of Mutuality7. Interest under Section 234B of the Income Tax ActDetailed Analysis:1. Principle of Mutuality:The Revenue challenged the CIT(A)'s decision that the assessee is covered by the principle of mutuality despite transactions with non-members and lack of documentary evidence for expenses. The Tribunal upheld CIT(A)'s decision, referencing its earlier orders for the assessment years 1996-97, 2006-07, 2007-08, and 2008-09, which concluded that the assessee's transactions with members are covered by the principle of mutuality, while transactions with non-members are not.2. Reimbursement of Costs as Income:The assessee contended that reimbursements should not be treated as income. The Tribunal reiterated its previous stance from the assessment year 1996-97, stating that while reimbursement of expenses without profit markup is not income, the basis of allocation of costs and revenues by the head office was unverifiable. Thus, the reimbursement was considered income.3. Estimating Profit from Non-Member Transactions:The Tribunal upheld the lower authorities' decision to estimate the profit of the assessee at 5% of the gross amount recovered from non-members. This was consistent with the Tribunal's previous orders for the assessment years 2007-08 and 2008-09, where it was determined that due to unverifiable allocation of expenses and revenues, estimating profit at 5% was justified.4. Applicability of Section 44C of the Income Tax Act:The assessee argued that certain head office expenses should not fall under the definition of 'head office expenditure' in Section 44C. The Tribunal dismissed this argument, referencing its earlier decisions for the assessment years 2006-07 and 2007-08, which applied Section 44C to the assessee's head office expenses.5. Exclusion of Matching Cost Recoveries:The assessee claimed that if head office costs are disallowed, matching cost recoveries should also be excluded from taxable income. The Tribunal dismissed this ground, following its decision for the assessment year 2008-09, where it was deemed that this issue becomes academic in light of the findings on other grounds.6. Interest Income and Principle of Mutuality:The assessee argued that interest income should be covered by the principle of mutuality. The Tribunal dismissed this ground, consistent with its decisions for the assessment years 2007-08 and 2008-09, which held that interest income does not fall under the principle of mutuality.7. Interest under Section 234B of the Income Tax Act:The Tribunal ruled in favor of the assessee, stating that as a non-resident, the assessee is not liable for interest under Section 234B if the payer fails to deduct tax at source. This decision was based on the Tribunal's earlier order for the assessment year 1996-97 and supported by judgments from the jurisdictional High Court.Conclusion:The appeal by the Revenue was dismissed, and the Cross Objection by the assessee was allowed in part, following the Tribunal's consistent application of its previous rulings on similar issues. The Tribunal's detailed analysis reaffirmed the principle of mutuality for member transactions, treated reimbursements as income, upheld the 5% profit estimation for non-member transactions, applied Section 44C to head office expenses, and ruled out interest under Section 234B for the assessee.