TaxTMI 
TaxTMI 
2004 (5) TMI 58
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....ted to budgeting and long-term financial planning; and * Assistance regarding seminars, customer training, employee relations and product application training. Danfoss Singapore provides the aforementioned services to help the group companies in the region to effectively carry out their business and to ensure that all Danfoss Group companies follow the procedures relating to Human Resource, Accounting, Finance etc. uniformly. The applicant says that to carry out business operation in a more economic and efficient manner and to maintain the global standards set by Danfoss Group it proposes to enter into an agreement with Danfoss Singapore to avail the said services. The consideration for availing those services is on the basis of allocation key which is determined on a proportional percentage of budget turn over weighted by growth rate and market maturity of the group company availing the services and any increase or shortfall in the actual turn over would proportionately increase or decrease the portion of cost to be absorbed by the group company which avails services from Danfoss Singapore. The cost is reimbursable on a monthly basis. Though the applicant believes that no tax is....
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.... in the agreement would have been different. Paras second and third of clause (2) of the proposed service agreement, it is submitted, would show that the amount in question is not reimbursement of the actual cost as pleaded by the applicant. The parties did not refer to the DTAA entered into between the Government of the Republic of India and the Government of the Republic of Singapore in their submissions. 4. Inasmuch as the answer to the question revolves around the provisions of section 195, it will be useful to refer to it here, as it stands now, (in so far as it is relevant for our purpose): "195(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest [* not being interest on securities] or 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 ." * The bracketed words are omitted by the Finance Act, 2003 w.e.f. 1.6.2....
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....se 2 of the proposed service agreement which deals with the consideration reads as follows: "2. Service Fee: As a consideration for the services rendered by the Service Company, Danfoss shall pay to the Service Company a service fee based on the portion of the services it receives in relation to the total costs of the Service Company in providing such services. The fee for each individual Danfoss company is calculated on the basis of an allocation key which is based on a proportional percentage of budget turnover weighted by growth rate and market maturity. The weighting may be modified on the basis of the previous year's results, at the request by either party to the agreement. The weighting may also be modified at the request of any remaining Danfoss company at any time in case a Danfoss company departs from the cooperation. Regulation of the fee paid for the current year can be made if there is a discrepancy between the budgeted costs which serve as the basis for the service fee and the actual costs incurred. The shortfall or overage is reimbursed once annually in the following year in the payment for the month following the month in which the accounts of the Service Compan....
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....ble to conclude that the service fee payable by the applicant is nothing but reimbursement of costs incurred by Danfoss in providing services to the applicant. 6. Now we shall advert to the case law relied upon by Mr. Gupta. In the case of Commissioner of Income-tax, West Bengal-IV, v. Dunlop Rubber Co. Ltd. (142 ITR 493), the assessee was a non-resident English company, which was having world wide subsidiaries and associated companies. The assessee company maintained extensive technical research establishments in the U.K. The assessee company entered into agreements with its subsidiary Indian company which, inter alia, provided that all costs and expenses incurred by the assessee company in connection with the communication of the information, process and inventions and/or the grant of any licence and/or the giving of any advice or assistance provided for by the assessee company to the Indian company shall be paid by it. It was also provided that the Indian company would also pay to the assessee company a proportionate costs and expenses incurred by the assessee company in the acquisition, discovery and development of information, processes and inventions. In accordance with the ....
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....elhi to aid administration of the programme and to facilitate communication between DECTA and various governmental and official bodies which will be involved in the projects. At the instance of ODA the participating companies made a rupee contribution towards the costs of the assistance they received from the organization. The Government of U.K. made available substantial amount by way of technical cooperation fund to meet the expenses of the projects carried on by the DECTA. The Authority ruled that DECTA was merely implementing an agreement between the British Government and the Indian Government under which all kind of assistance was extended to Indian companies for developing their products, their export potential and their export markets in Europe and other Western countries. In substance and reality the contributions made by Indian companies could not be described as consideration for the technical services provided by DECTA. The contribution was not really payment to DECTA but to a common fund to enable it to defray a part of the expenses of the project carried out by DECTA on behalf of the company in question. Therefore, the amount of contribution received/ receivable to re....