Cost-sharing IT reimbursements not taxable as royalty or fee for included services; TDS credit claim sent back for verification.

Reimbursement under a cost-sharing arrangement for corporate IT services was treated as non-taxable where the receipts were recovered at actual cost without mark-up and there was no material showing transfer of a secret process, commercial information, or right to use equipment. The same reasoning also excluded fee for included services because the arrangement did not satisfy the make-available requirement under the India-USA treaty. Applying consistency with earlier accepted years, the Tribunal declined to take a different view. The separate claim for tax deducted at source credit required factual verification and was restored to the Assessing Officer for examination on evidence to be produced.

---

---

Issues: (i) Whether reimbursement received under the cost sharing arrangement for corporate IT-related services was taxable as royalty or fee for included services under the India-USA treaty. (ii) Whether the claim for credit of tax deducted at source required verification and restoration to the Assessing Officer.

Issue (i): Whether reimbursement received under the cost sharing arrangement for corporate IT-related services was taxable as royalty or fee for included services under the India-USA treaty.

Analysis: The appeals for the earlier years involved the same agreement and the same nature of receipts as the later years in which the appellate authority had accepted the assessee's claim. The disputed receipts were recovered on a cost-to-cost basis without mark-up. The arrangement was for centralized corporate IT facilities, and there was no material to show transfer of any secret process, commercial information, or right to use equipment. The same reasoning also negatived the characterization as fee for included services because the services did not satisfy the make available requirement. Applying the rule of consistency, and noting that the Revenue had not challenged the favourable later orders, the Tribunal declined to take a different view for the years under appeal.

Conclusion: The receipts were not taxable as royalty or fee for included services, and the issue was decided in favour of the assessee.

Issue (ii): Whether the claim for credit of tax deducted at source required verification and restoration to the Assessing Officer.

Analysis: The claim for tax deducted at source credit was treated as a matter requiring factual verification on the basis of evidence to be produced by the assessee.

Conclusion: The matter was restored to the Assessing Officer for verification and was allowed for statistical purposes.

Final Conclusion: The consolidated decision granted substantive relief to the assessee on the main taxability issue, remanded the tax credit issue for verification, and disposed of the remaining grounds as infructuous.

Ratio Decidendi: Where identical receipts under a continuing cost-sharing arrangement are recovered at actual cost without mark-up and no material shows transfer of technical knowledge, secret processes, or a right to use equipment, such receipts are not taxable as royalty or fee for included services; consistency in later accepted years is a relevant factor against taking a contrary view.

---