AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 1011
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany in Germany, known as BYK Germany. The Indian BO is engaged in providing technical support services in the Asia Pacific region to the customers of its parent company, namely, BYK, Germany. It is primarily engaged in providing services in the field as BYK Group's additives used by Indian customers in their products. The Indian BO allows the customers of BYK Germany to test the effect of the formulations on the customer's products at its testing facilities and provides technical support to such customers. The Indian BO also provides technical analysis and troubleshooting exercises for the queries raised and technical problems faced by the customers in the Asia Pacific region. The Indian BO does not charge any service fee from the customers to whom technical services are provided. It is the Singapore HO that reimburses the Indian BO with all actual expenses incurred with 10% mark-up. The Indian BO has treated itself as Permanent Establishment (PE) of the Singapore HO and offered for taxation the amount it received as mark-up on the cost of services provided. During the course of assessment proceedings, the AO observed that the assessee claimed deduction, inter alia, of Rs. 1,2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rore, which was duly offered for taxation. 7. The case of the AO is that the assessee violated the provisions of section 195 and ex consequenti exposed itself to the rigor of u/s.40(a)(i) of the Act. Relevant part of section 195(1) clearly states that: `Any person responsible for paying to a non-resident, not being a company, or to a foreign company, .... any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.' A cursory look at the provision transpires that deduction of tax at source is warranted, inter alia, on "any other sum chargeable under the provisions of this Act." Thus, the chargeability of amount to tax in India in the hands of recipient is sine-qua-non so as to trigger deduction of tax at source u/s.195 of the Act. Chargeability under the provisions of the Act pre-supposes some profit element involved in the receipt. If the recipient simply recovers the amount spent by it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urred for and on behalf of the Indian BO. There was an identifiable amount incurred for the assessee, which was recovered as such without any mark-up from the assessee. The transaction is without any mark-up and is accordingly in the nature of reimbursement of costs in the hands of the Singapore HO. 9. The next item under the head `Seminar expenses' is invoice with value of Rs. 26,47,747/-. This invoice was raised by BYK, Germany on the Singapore HO. This also refers to certain expenses for seminar. The expenses are in the nature of business entertainment, overnight accommodation and others. This also evidences that the expenses were incurred by a third party and the assessee was charged with the amount without any markup. Similar is the position regarding other two expenses under the head 'Seminar expenses'. 10. Now we turn to `Training Expenses' amounting to Rs. 1,45,780/-. Pages 133 and 134 of the paper book are invoices raised by Dale Carnegie Training on the Singapore HO. Page 135 indicates that 22 persons attended Dale Carnegie Training, out of which 3 persons were from the Indian BO and remaining 19 persons were either from Singapore or Thailand or Vietnam or Japan etc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rdingly. 14. The fifth item in the tally of expenses disallowed by the AO is `IT Expenses' amounting to Rs. 36,44,508/-. This expenditure stands on a little different footing vis-à-vis the other expenses as discussed supra. Break-up of this amount has been given at page 69 of the paper book, which shows that there are twelve transactions, all taking place on the first day of every month. On enquiry from the ld. AR, it turned out to be monthly payments by the Indian BO to the Singapore HO. The assessee's stand on this expenditure before the DRP, as reproduced on page 5 of the Direction, was that: "BYK, Germany develops/purchase and maintains common applications, software and other IT Infrastructure for the BYK Group. The total cost of such IT Support services is recharged to BYK Group entities including BYK, Asia Pacific Pte Ltd., i.e. head office based on numbers of users etc. Thereafter, the head office apportions the corresponding cost to the assessee in relation to the usage of IT Support services for the India activities". Page 131 of the paper book is a copy of the invoice raised by BYK Germany on the Singapore HO having value of Euro 14857. Under the Remarks column,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... test the effect of the formulations on the customers' products at its testing facilities. It provides the customers with the basic guidelines as to how to use the formulations on BYK Germany and provide technical support to the customers. Thus, the nature of work done by the assessee is that of providing technical analysis and testing of its parent company's additives used by Indian customers in their products. In order to find out a link, if any, between the payment of IT expenses by the assessee on one hand and the rendering of technical support services to the customers of BYK Germany on the other hand, by testing the effect of formulations at its testing facilities, the ld. AR was required to submit a copy of the IT Support services Agreement dated 01-01-2007 under which the payment in question was made. The ld. AR expressed his inability to produce the same. Such an Agreement has also not been considered by the authorities below. In our considered opinion, the question as to whether or not TDS was required in the instant case on this payment cannot be decided without examining the nature of IT expense and its correlation with the income earning activity of the assessee. In....