TaxTMI 
TaxTMI 
2017 (11) TMI 501
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....e action of the Assessing Officer in disallowing under section 40(a)(i) of the Income tax Act, 1961 ('the Act') the fees for technical services paid to Medunet Europe B.V. towards copyright and printable file amounting to Rs. 50,553. 1.2. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing under section 40(a)(i) of the Act the reimbursement of expenses paid to Pfizer Corporation Hong Kong Limited towards various inter-company invoices amounting to Rs. 13,67,801. 1.3. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in not giving any finding on disallowance of scholarship fees paid to doctor under section 40(a)(i) of the Act amounting to Rs. 1,90,315 inasmuch as the same is not taxable by virtue of Article 7 of the Double Taxation Avoidance Agreement in the absence of any Permanent Establishment in India." 3. Briefly put, the relevant facts are that the assessee is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of trading ....
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....ement of expenses to M/s. Pfizer Corporation Hongkong Ltd. towards inter-company invoices and there is no element of income so as to require the deduction of tax at source. The CIT(A) in para 2.3.8 of his order noted that though assessee contended that the payments have been made to M/s. Pfizer Corporation Hongkong Ltd. towards various expenses incurred on its behalf, but no such details have been furnished to substantiate that it was merely in the nature of reimbursement of actual expenditure incurred by M/s. Pfizer Corporation Hongkong Ltd. 6. Before us, the learned representative for the assessee pointed out that the disallowance has been upheld by the CIT(A) on a wrong footing inasmuch as the relevant details, copies of which are placed in the Paper Book, were very much on record, which clearly brings out that the payments are in the nature of reimbursement of expenses. In this context, the learned representative has referred to page 23 of the Paper Book wherein is placed the details of the various inter-company invoices raised by M/s. Pfizer Corporation Hongkong Ltd. towards the reimbursement of expenses amounting to Rs. 13,67,800/-, i.e., the amount in question. The learned ....
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....e accepted the same while dealing with the disallowance out of cross charges paid, which was disallowed by the Assessing Officer for non-deduction of tax at source. In any case, this aspect of the matter we shall discuss in detail while taking-up the cross appeal of the Revenue a little later. 10. Be that as it may, having regard to the objection of the CIT(A) that there was non-substantiation of the payments to M/s. Pfizer Corporation Hongkong Ltd. being reimbursements, a plea which we have not found tenable on the basis of the material on record, we direct that the disallowance of Rs. 13,67,800/- made u/s 40(a)(i) of the Act be set-aside. We hold so. 11. The issue in Ground of appeal no. 1.3 relates to a disallowance of Rs. 1,90,315/-, which represents scholarship fee paid to Doctor. The said expenditure has been disallowance u/s 40(a)(i) of the Act on the ground of absence of requisite deduction of tax at source. The plea of the assessee has been that the said amount is not taxable in India so as to require tax deduction at source because of Article 7 of the Double Taxation Avoidance Agreement in the absence of any Permanent Establishment of the recipient in India. 12. On thi....
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....n of the CIT(A) deleting the disallowance of cross charges of Rs. 14,51,77,000/- which had been made by the Assessing Officer by invoking Sec. 40(a)(ia) of the Act. In brief, the relevant facts are that in the course of assessment proceedings, assessee-company was required to explain the nature of payment of cross charges of Rs. 14,51,77,000/- to M/s. Pfizer Ltd. Assessee was also required to explain as to why the expenditure was not liable to be disallowed u/s 40(a)(ia) of the Act in the absence of requisite deduction of tax at source. In response, it was explained that the assessee-company was using the field force facilities of M/s. Pfizer Ltd., a sister concern, in order to promote its products in the market, and that the impugned sum represented the expenses reimbursed to M/s. Pfizer Ltd. It was also pointed out that the assessee had entered into a cost sharing agreement with M/s. Pfizer Ltd. and the sum of Rs. 14,51,77,000/- reflected the expenses incurred on account of personnel cost, travelling, advertising & promotion and miscellaneous expenses and that the impugned payment was in the nature of reimbursement of expenses without any mark-up. It was, therefore, explained tha....
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.... the CIT(A) also referred to the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Siemens Aktiongesellschaft, 310 ITR 320 (Bom.) as well as the judgment of the Hon'ble Delhi High Court in the case of CIT vs Industrial Engineering Projects, 202 ITR 1014 (Delhi) in coming to his decision to delete the addition. Against such a decision of the CIT(A), Revenue is in appeal before us. 17. Before us, the ld. DR contended that the arrangement with M/s. Pfizer Ltd. clearly showed that assessee was availing of administrative and other services and, therefore, the payments made were liable to be subjected to tax deduction at source. For the said reasons, he has assailed the decision of the CIT(A). 18. On the other hand, the learned representative for the respondent-assessee has taken support of the findings arrived at by the CIT(A) and pointed out that in the assessee's own case for Assessment Year 2007-08, vide ITA No. 3158/Mum/2012 dated 09.10.2013 read with order in MA No. 291/Mum/2014, it has been held that there is no element of profit in cases where there is reimbursement of travelling expenses. On the same analogy, the impugned expenses being in the nature of ....
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....0582 has noted that where the cost sharing agreement envisaged exact reimbursal of the costs without any mark-up or margin, there was no element of income in the hands of the payee so as to require the payer to deduct tax at source. In our considered opinion, having regard to the fact-situation brought out by the CIT(A), which is not assailed, the ratio of the decision of the Mumbai Bench of the Tribunal in the case of Bayer Material Science Pvt. Ltd. (supra) as well as the reasoning approved by the Hon'ble Bombay High Court in the case of CIT vs. Siemens Aktiongesellschaft (supra) clearly supports the conclusion drawn by the CIT(A) that there was no default on the part of the assessee in not deducting tax at source on the impugned payments to M/s. Pfizer Ltd. In this view of the matter, we, therefore, find no reasons to interfere with the ultimate conclusion of the CIT(A) in setting-aside the disallowance made by the Assessing Officer by invoking Sec. 40(a)(ia) of the Act. Thus, on this aspect, Revenue fails in its appeal. 20. Before parting, we may also refer to another aspect noted by the CIT(A). The CIT(A) noted the second proviso to Sec. 40(a)(ia) of the Act inserted by t....