TaxTMI 
TaxTMI 
TaxTMI 
2021 (10) TMI 675
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....e assessment year under dispute, assessee filed its return of income on 26-07-2016 declaring total income of Rs. 41,44,650/-. In course of assessment proceedings, the assessing officer, while verifying the return of income filed by the assessee noticed that the assessee has not offered to tax an amount of Rs. 10,61,365/- being travel cost. When called upon to explain, it was submitted by the assessee that the travel cost not being in the nature of fees for technical services (FTS) and purely reimbursement of expenditure incurred, is not taxable either under the provisions of the Act or under the India-USA Double Taxation Avoidance Agreement (DTAA). Further, the assessee submitted that the Tribunal has decided the issue in favour of the assessee in the preceding assessment years. However, the assessing officer was not convinced with the submissions of the assessee. He opined, payment for travel being intrinsically linked for providing training and technical services, has to be regarded as FTS. For coming to such conclusion, the assessing officer also relied upon the observations of learned DRP and Commissioner (Appeals) in assessment years 2009-10, 2010-11 and 2011-12. Thus, ultimat....
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....vations:- "5. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. On a careful perusal of the order of the TPO as well as the DRP and the order of the Coordinate Bench for the earlier assessment years, 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 ITA.No. 6556/Mum/2017 dated 20.06.2018 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 [392 ITR 186] held that amount received towards reimbursement of cost cannot be taxed in the hands of the assessee. While holding so the Tribunal observed as under: "7. We have considered rival submissions and perused materialson record. Undisputedly, the assessee has entered into a training and technical service agreement with GIA India on 1st Novemb....
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.... accountants, attorneys, marketing consultants and agencies and information technology service providers, etc) and (ii) software, materials and items paid for by service Provider in connection with or related to the performance of the Services (collective, (i) and (ii) are referred to as "Third Party Costs"). If Third Party Costs are incurred by Service Provider for the benefit of Customer and other customers, then Service Provider will allocate the Third Party Costs between and among Customer and such other customers in a manner determined by Service Provider in its sole discretion. Service Provider will invoice Customer the third Party Costs and Customer will pay such invoices within forty-five(45) days after receipt of the invoice. Such invoices may be monthly or quarterly as specified by Service Provider." 10. Thus, from the perusal of the above, it may be noted that assessee offered to tax only the amount of fee received for providing training and technical services and amount of expenses received by way of reimbursement on cost to cost basis were not shown as taxable in the hands of the assessee. The AO was of the view that whole of the amount including the amount reimburs....
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....). Relevant part of the judgement is reproduced hereunder- "10. The facts which emerge on record are that the assessee is having its IT System, which is called the Maersk Net. As the assessee is in the business of shipping, chartering and related business, it has appointed agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation etc. through these agents. Aforementioned three agents are appointed in India for the said purpose. All these agents of the assessee, including the three agents in India, used the Maersk Net System. This system is a facility which enables the agents to access several information like tracking of cargo of a customer, transportation schedule, customer information, documentation system and several other informations. For the sake of convenience of all these agents, a centralised system is maintained so that agents are not required to have the same system at their places to avoid unnecessary cost The system comprises of booking and communication software, hardware and a data communications network. The system is, thus, integral part of the international shipping business of the assessee and runs on ....
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....rther, it has recorded a finding of fact that there is a clear bifurcation in the agreement between the internal cost incurred by the assessee and external cost borne or paid by the assessee on behalf of GIA India. Thus, on the basis of aforesaid facts, the Tribunal has applied the ratio laid down by the Hon'ble Supreme Court in case of DIT v/s A.P. Moller Maersk, 392 ITR 186 (SC) and held that the amount received towards reimbursement of cost cannot be taxed at the hands of the assessee. Therefore, the observation of the learned DRP that Tribunal has not addressed the issue is baseless. 9. The learned Departmental Representative has not been able to convince us that there is any difference in facts as involved in the impugned assessment year and assessment years 2009-10 and 2011- 12 on the basis of which the Tribunal has decided the issue. The correctness of the decision rendered by the Tribunal is subject to judicial scrutiny before the higher Appellate Court and the aggrieved party, which is the Department in the present case, hasevery right to challenge the decision of the Tribunal before the Higher Appellate Court. However, unless and until the decision of the Tribunal ....
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.... the agreement is in accordance with that policy. Further, learned DRP observed, since the assessee failed to establish that the conditions of section 115A(1) have been satisfied, it cannot avail the benefit of section 115A(1)(b). Accordingly, learned DRP upheld the decision of assessing officer in applying the tax rate of 15%. 10. Before us, learned counsel for the assessee submitted, as per the master direction dated 01-01-2016 issued by Reserve Bank of India (RBI), prior approval of RBI is required only if the remittance for consultancy service exceeds USD 10,00,000 per project for consultancy services procured from outside India. In this context, he drew our attention to paragraph 4.3 of the master direction. Further, drawing our attention to Foreign Exchange Management (Current Account Transaction) Rules, 2000 to the master direction, he submitted, payment received by the assessee did not fall within the prohibitory list requiring specific approval of the Central Government. Thus, he submitted, when the rules, regulations/guidelines did not require any specific approval for the payment received, it has to be construed that the remittances to the assessee are deemed to have be....
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.... the tax rate of 10% provided u/s 115A(1)(b)(B) would be applicable to the payments received by the assessee towards FTS. Apparently, the assessing officer has referred to note 2 to the note appended by the assessee to the return of income to conclude that the tax rate under the Act being 26.265% is more than the tax rate of 15% under the tax treaty; hence, the treaty provision being more beneficial would be applicable to the assessee. However, on a perusal of note 2 of the note appended to the return of income, a copy of which is at page 44 of the paper book, we find, the note reads as follows:- "2. Training and Technical Fees are in nature of 'fees for technical services' as defined under section 9(l)(vii) of the Income-tax Act,1961 and taxable at the rate of 10%(plus Surcharge and Education cess) in terms of section 115A. As per Article 12 of the Double Tax Avoidance Agreement ('DTAA') entered into and subsisting between India and the United States of America, royalty received is taxable at the rate of 15%. Accordingly, the tax rate considered for computation is @10% taking benefit of sec 115A of Income-tax Act,1961." 14. On a reading of the aforesaid, we do ....
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....itions are mandatorily required to be fulfilled, even, in a case where specific approval is neither required nor contemplated as per the extant rules/regulations/guidelines of RBI or Central Government. In case, the Government has not laid down any guidelines or procedure for approval for the subject transaction, the assessee cannot be expected perform an impossible task. In our view, if strict and literal interpretation of a statutory provision leads to undesirable consequences and not only renders it unworkable but also causes harassment to the taxpayer, then, it has to be avoided and the provision has to be construed harmoniously to make it workable. However, it is a fact on record that all these aspects have not been examined either by the assessing officer or by learned DRP while deciding the disputed issue. 16. As regards the contention of learned departmental representative that the 10% rate would be applicable from assessment year 2017-18, we do not find any merit in such submission. Undisputedly, by way of Finance Act, 2015, the applicable tax rate of 10% in place of 15% has been brought to the statute w.e.f. 01-04-2016. Therefore, in our view, the tax rate of 10% would b....