TaxTMI 
TaxTMI 
2007 (12) TMI 315
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....angalore International Airport project was conceived as the project of public and private participation. Since the project was located at Bangalore, the Karnataka State Industrial Investment and Development Corporation ('KSIIDC' for short) on behalf of the State of Karnataka was included as one of the parties and accordingly there was an understanding between the Airports Authority of India ('AAI' for short), who was the supervising authority for setting up of all airports in India to the effect that KSIIDC shall have a shareholding of 26 per cent in the project. In 1999, a public and private participation programme was carried further by inviting private partners in the remaining 74 per cent stake in the project. By applying the law of elimination, the AAI zeroed in three parties, viz. Siemens Project Ventures GmbH, Germany (Siemens), Swiss airport operator-Flughafen Zuerich AG, Switzerland (Unique) and Larsen & Toubro Ltd., India (L&T). At this point, a limited company was floated called Bangalore Inter national Airport Ltd. ('BIAL' for short) for the sole purpose of developing the international airport at Devanahalli, Bangalore. The shareholders, who are four in number entered i....
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....mens (Euro) Unique (Swiss Franc) External costs (see Attachments 1 and 2) 61,237.00 6,62,092.37 Total (C) 2,33,406.40 9,19,876.86 Internal costs 16,32,089.46 31,54,638.35 Travel costs 3,25.901.00 5,93,769.77 External costs (see Attachments 1 and 2) 22,02,376.91 23,85,863.96 Total (A+B+C) 41,60,367.37 61,34,272.08 Annexure1 BANGALORE INTERNATIONAL AIRPORT LTD. SIEMENS PROJECT VENTURES GMBH Nature of services Amount paid in home currency (Euro) Consultancy-legal services 11,56,814.34 Consultancy-engineering 8,32,839.94 Consultancy-business planning 1,16,070.03 Consultancy-technical 39,099.03 Consultancy-financial planning 1,771.71 Consultancy-real estate development study 4,955.42 Stationery 16,607.24 Animation 9,976.35 Advertisement 5,310.63 Travel 3,207.89 Translation 816.42 Courier 591.85 Others 14,315.69 Total 22,02,376.91 Note : These were services rendered by the service providers to Siemens. Annexure 2 BANGALORE INTERNATIONAL AIRPORT LTD. UNIQUE ZURICH AIRPORT LTD. Nature of services Amount paid in home currency....
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....d with the decision of the Authority for Advance Rulings in Hyder Consulting Ltd. v. CIT [1999] 236 ITR 640 (AAR - New Delhi) and when it was specifically drawn to his attention that reimbursement of actual expenses incurred in no way involves any element of profit. Further, since the expenses were incurred by the foreign company out of India with regard to services rendered by another foreign company to the non-resident company, the provisions of tax deduction at source is not attracted. The Assessing Officer was, however, not impressed and his conclusions are reproduced below :- "6. Conclusion.-The following are the conclusions from the analysis made in para Nos. 05 (a) to (t). (a )The foreign shareholders of the applicant company had provided certain services to the applicant company. (b)The contention that part of these services were obtained from other parties is of no consequence. (c )All these services which are proposed to be paid for by the applicant company now, have been utilized by the applicant company in India. (d)All these services called by the applicant as 'consultancy services' fall squarely within the meaning of fees f....
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....d by the definition of FTS in Income-tax Act as well as respective DTAAs; (ii)Adequate support in respect of quantification of costs in particular the audit report mentioned in shareholders' agreement has not been furnished by the appellant. (iii)As specific tax exemption has been granted under original or subordinate legislation despite the concession agreement mentioning that no withholding tax would apply in respect of these payments." 8. The notes on accounts of the assessee company on the balance sheet for the year ending 31-3-2005 in regard to the above are reproduced below for the sake of convenience :- "10. Notes on Accounts.-contd. Rs. in 000 3. Development costs (i )Pre-agreement development costs ****** The pre-agreement development costs are to be reimbursed by the company within 30 days of Financial Close (FC) (i.e., the date on which the financing projected to be necessary to achieve commercial operations is available to the company). The FC was achieved on 23-6-2005. (ii)Pre-financial close development costs As per SHA, the costs incurred by promoters and their affiliates on ....