Reimbursement on actuals without profit element cannot be taxed as technical service fees under a clear service agreement

Reimbursement of travel and meal expenses under a service agreement was held not to form part of taxable fee for technical services because the agreement separately bifurcated service fees from reimbursements, and the reimbursements were charged on actuals without any profit element. The Tribunal treated the amounts as external costs borne or paid on behalf of the Indian entity and applied the principle that a genuine reimbursement is not income chargeable to tax. The addition was therefore deleted in favour of the assessee.

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Issues: Whether reimbursement of travel and meal expenses received under the service agreement formed part of taxable fee for technical services.

Analysis: The agreement separately provided for fees for training and technical services and for reimbursement of specified costs on actual basis. The Tribunal found that the reimbursement represented external costs borne or paid on behalf of the Indian entity and did not contain any profit element. Following the earlier coordinate bench decision in the assessee's own case and the principle that a payment found to be reimbursement cannot be treated as income chargeable to tax, the addition could not be sustained.

Conclusion: The reimbursement amount was not taxable as part of fee for technical services, and the addition was deleted in favour of the assessee.

Ratio Decidendi: Where the agreement clearly bifurcates service fees from reimbursements and the reimbursement is on actuals without profit element, the reimbursed amount cannot be included in taxable fee for technical services.

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