2023 (4) TMI 33 - AT - Income Tax

Tribunal rules in favor of assessee, reimbursement not taxable as technical services. Invalid re-adjudication and interest levy.

Owens Corning Insulating Systems Canada LP C/o Owens Corning (India) Pvt. Ltd. Versus Dy. Commissioner of Income Tax International Taxation, Circle–3 (2) (2), Mumbai

The Tribunal allowed the assessee's appeal, directing the AO to delete the addition for the reimbursement of salary and related costs. The Tribunal found ... Validity of assessment order passed u/s 143(3) r/w section 254 r/w section 144C(13) - Reimbursement of salary and other related costs by Owens Corning (India) Pvt Ltd (OCIPL) to the Appellant treated as 'Fees for Technical Services' - HELD THAT:- In the 1st round of assessment proceedings, the assessee was asked to show cause as to why the reimbursement of expenses shown as salary and other related costs should not be brought to tax as fees for technical services. It is evident from the record, the AO did not agree with the submissions of the assessee and held the reimbursement of expenses to be nothing but fees for included services under the provisions of the India Canada DTAA as well as fees for technical services under section 9(1)(vii) of the Act. Tribunal remanded the matter to the AO for re-appreciation of correct facts and re-adjudication of the matter in the light of the submissions made on behalf of the assessee It is pertinent to note that the order passed by the AO in the 2nd round of proceedings is pursuant to the remand by the Tribunal and same was not pursuant to any revisionary order or order passed under reassessment proceedings and therefore was required to be confined to the directions of the Tribunal vis-à-vis the subject matter of appeal before the Tribunal. It is trite that the appellant cannot be placed in a worse position as a result of filing an appeal It is also trite that the Tribunal has no power under the Act to enhance the assessment in an appeal. In Sanmar Speciality Chemicals Ltd. [2018 (4) TMI 745 - MADRAS HIGH COURT] held that since the Tribunal has no power under the Act to enhance the assessment in an appeal, equally, it cannot be done on an order of remand being passed by the Tribunal to the AO. What cannot be done directly cannot be done indirectly. In the present case, there was no finding of the Tribunal, while remanding the matter, as regards the Service PE of the assessee in India and the said finding was an altogether fresh conclusion reached by the AO in an order passed under section 143 (3) r/w section 254 r/w section 144C(13) of the Act, which in our consideration is beyond the direction of the Tribunal and therefore is bad in law and is accordingly set aside. Characterisation of the receipt of reimbursement of expenses as fees for technical services/fees for included services - We find that a similar issue came up for consideration before the coordinate bench of the Tribunal in M/s Google LLC [2023 (3) TMI 89 - ITAT BENGALURU] noted that the tax at source under section 192 of the Act against the salary and other allowances paid/payable to the seconded employees were deducted by the Indian company. The coordinate bench further noted that the salaries of such seconded employees were deposited in their overseas bank accounts, which were reimbursed by the Indian entity on a cost-to-cost basis and the seconded employees were working solely under the control and supervision of the Indian entity, thus hold that the amounts paid by GIPL to the assessee with reference to seconded employees does not come within the 'FTS' or 'FIS' under the Act or under DTAA. Thus we direct the AO to delete the impugned addition on account of reimbursement of salary and other related costs received by the assessee. Levy of interest under section 234B - As in view of the decision of Hon’ble Supreme Court in DIT v. Mitsubishi Corporation,[2021 (9) TMI 875 - SUPREME COURT] the same is rendered consequential in nature and therefore is allowed for statistical purposes. Issues Involved:1. Reimbursement of salary and other related costs treated as 'Fees for Technical Services.'2. Re-adjudication beyond the scope of remand.3. Secondment of employee constituting Service PE in India.4. Levy of interest under section 234B of the Income-tax Act, 1961.Summary:Reimbursement of Salary and Other Related Costs:The assessee challenged the treatment of reimbursed salary amounting to Rs. 1,49,96,676 as 'fees for technical services' under section 9(1)(vii) of the Income-tax Act, 1961, and Article 12 of the India-Canada DTAA. The assessee argued that the reimbursement does not fall under 'fees for technical services' as it is purely a reimbursement without any markup or profit element. The Tribunal, referencing a similar case (Google LLC vs JCIT), concluded that the reimbursement of salary and related costs did not constitute 'fees for technical services' or 'fees for included services' under the provisions of the Act or the DTAA. The Tribunal directed the AO to delete the impugned addition.Re-adjudication Beyond Scope:The assessee contended that the AO/DRP erred by re-adjudicating the secondment of the employee as constituting a Service PE, which was beyond the scope of the Tribunal's remand order. The Tribunal agreed, noting that the AO's findings on Service PE were new and not part of the original assessment or the Tribunal's remand directions. The Tribunal held that the AO's conclusion on Service PE was beyond the scope of the remand and thus invalid.Secondment of Employee Constituting Service PE:The AO concluded that the secondment of the employee constituted a Service PE in India under Article 5 of the India-Canada DTAA. The Tribunal found that this issue was not part of the original assessment or the Tribunal's remand directions. Therefore, the Tribunal set aside the AO's finding on Service PE as it was beyond the scope of the remand.Levy of Interest Under Section 234B:The assessee contested the levy of interest under section 234B amounting to Rs. 15,14,665. The Tribunal, referencing the Hon'ble Supreme Court's decision in DIT v. Mitsubishi Corporation, held that the issue is consequential in nature and allowed it for statistical purposes.Conclusion:The appeal by the assessee was allowed for statistical purposes, with directions to the AO to delete the addition on account of reimbursement of salary and other related costs and to re-compute the tax liability accordingly.