2020 (4) TMI 752 - AT - Income Tax

Tribunal Rules Reimbursements Not Taxable Income, Removes Surcharge

The appeal was allowed in its entirety. The Tribunal ruled that the reimbursement of expenses should not be treated as income and directed the removal of ... Treating the reimbursement of the expenses as income for the year - DRP treating the travel expenses reimbursed to the Appellant by 'GIA India Laboratory P. Ltd.' as the income of the Appellant - HELD THAT:- We find that the issue and facts are identical to this year and the Coordinate Bench for the immediately preceding assessment year i.e. A.Y. 2014-15 in [2018 (6) TMI 1107 - ITAT MUMBAI] held that the fee for technical services is different from the expenses incurred on third party cost and there is a clear bifurcation in the agreement between the internal cost incurred and external cost paid by the assessee on behalf of GIA India Laboratory Pvt. Ltd. The Tribunal applying the ratio of the decision of the Hon'ble Supreme Court in the case of DIT v. A.P. Moller Maersk [2017 (2) TMI 993 - SUPREME COURT] held that amount received towards reimbursement of cost cannot be taxed in the hands of the assessee. Levy of surcharge and education cess - whether once the DTAA rates are applied education cess and surcharge cannot be levied separately? - HELD THAT:- As relying on M/S. EPCOS ELECTRONIC COMPONENTS S.A [2019 (7) TMI 708 - DELHI HIGH COURT] and SUNIL V. MOTIANI [2013 (12) TMI 1105 - ITAT MUMBAI] direct the Assessing Officer to delete the education cess and surcharge levied on the assessee. This ground is allowed. Issues Involved:1. Treating the reimbursement of expenses as income.2. Levy of surcharge and education cess.Detailed Analysis:Issue 1: Treating the reimbursement of expenses as incomeThe primary issue in this appeal is whether the travel expenses reimbursed to the assessee by GIA India Laboratory Pvt. Ltd. should be treated as income. The assessee argued that these reimbursements, amounting to Rs. 49,68,247/-, should not be considered income as they were purely reimbursements without any profit element. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) had treated these reimbursements as income.The assessee's counsel referred to previous decisions by the Coordinate Benches of the Tribunal for the assessment years (A.Ys.) 2009-10 to 2014-15, where similar reimbursements were not treated as income. The Tribunal had noted that the agreement between the assessee and GIA India clearly bifurcated the fee for technical services and the expenses incurred on third-party costs. The Tribunal had applied the ratio of the Hon'ble Supreme Court's decision in DIT v. A.P. Moller Maersk [392 ITR 186], which held that reimbursements of cost without any profit element cannot be taxed as income.The Tribunal found the facts for the current year identical to those of the previous years and reiterated that the reimbursement of costs should not be included in the taxable income of the assessee. Therefore, the addition of Rs. 49,68,247/- made by the AO was deleted, and this ground of appeal was allowed.Issue 2: Levy of surcharge and education cessThe second issue pertains to the levy of surcharge and education cess on the assessee. The assessee contended that once the tax rate as per the Double Taxation Avoidance Agreement (DTAA) is applied, no separate surcharge and education cess should be levied. The counsel for the assessee cited several decisions supporting this view, including those from the Delhi High Court and various benches of the Tribunal.The Tribunal examined these precedents and found that the tax rate under the DTAA is inclusive of surcharge and education cess. Specifically, in the case of Sunil V. Motiani v. ITO, the Tribunal held that the tax rate specified under the DTAA includes surcharge and education cess and cannot be levied separately. The Hon'ble Delhi High Court in M/s. Epcos Electronic Components S.A. v. Union of India & Ors. also held that once the tax rate under the DTAA is applied, no additional surcharge or cess is required.Respectfully following these decisions, the Tribunal directed the AO to delete the surcharge and education cess levied on the assessee. Consequently, this ground of appeal was also allowed.Conclusion:The appeal filed by the assessee was allowed in its entirety. The Tribunal deleted the addition of Rs. 49,68,247/- related to the reimbursement of expenses and directed the AO to remove the surcharge and education cess levied on the assessee. The order was pronounced in the open court on 19th February 2020.