TaxTMI 
TaxTMI 
2024 (9) TMI 1129
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....prevailing law, the Tribunal has erred in upholding the direction of Ld. CIT(A) deleting the disallowance of Rs. 21,05,07,858/- made under Section 40(a)(i) of the Act by the Ld. AO on account of payment made to non-resident association enterprises for freight and forwarding services? 2. We note that the first issue which stands posited is with respect to reimbursement of expenses which the respondent/assessee made to Non-Resident Associated Enterprises ["NRAE"]. The relationship between the Indian assessee and its NRAE stood comprised in an agreement dated 12 December 2005, relevant parts whereof are extracted hereinbelow: "2.0 GENERAL CONDITIONS 2. 1 This Agency Agreement covers the Agency work for and on behalf of the Principal and includes the duties of marketing the services of the Principal and other activities as desired by the Principal. 2.2 Whereas both parties are fully organized and equipped to perform all the services customarily associated with international sea and air transportation of goods and property as legally obligated in accordance to the Bill of Lading/Airway Bill so issued. 2.3 Where as both parties are mutually desirous....
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....irs of the Principal generally. The Agent will immediately inform the Principal of any of the foregoing and will act in relation thereto only upon and in accordance with the instructions of the Principal but so that the Principal will indemnify the Agent against any cost expenses or liabilities incurred by reason of the Agent's own negligence or default. 3.10 The Agent shall inform the Principal, prior to quoting various charges such as CAF/BAF/FSC etc, applicable from time to time. They shall also notify of any changes in the trade practices to the Principal periodically. 4.0 Duties of the Principal 4.1 The Principal shall support the Agent in his efforts to promote services at all times with timely and appropriate information with reasonable limits of his infrastructure. 4.2 The Principal shall pay the remuneration to the agents at the rates so agreed, in accordance to this Agreement (Clause 5.2). 5.0 PAYMENT & ACCOUNTING PROCEDURE 5.1. Payments of collect freight less Profit share will be settled as agreed mutually by both the parties. 5.2. Profit share between the Principal and the Agent shall be on a 50/50 basi....
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....655 Reimbursement of NVOCC Insurance Expenses JAS Forwarding (USA) INC. USA 58428 Reimbursement of NVOCC Tarrif filing Expenses TOTAL 2158139 4.1. Vide order sheet entry dated 08.12.2010, the assessee was asked to justify non deduction of tax at source on these payments. The assessee vide reply dated 13.12.2010 has stated):- "The assessee is a Multinational Enterprise (MNE) and in MNE it is common to have one member of the group to give services to other members of the group in the interest of the whole group. These arrangements are commonly referred as "intra- group services". Therefore, the services are provided by one member to other member and later on a bill for reimbursement of expenses is cross changed". The submission of the assessee company were duly examined, considered and however, not found acceptable. 4.2. At the outset, it is to be noted that the sums were paid by way of expenses to non-resident third parties who had rendered services to the assessee. These payments there fore fall within the purview of section 9(1)(vii) and are there fore taxable in India as fee for technical servic....
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.... Refineries. ltd. vs. Commissioner of Income Tax [1996) 222 ITR 0354 [Kerala High Court] the Hon'ble Kerala High Court held that reimbursement of payments made to the personnel of the consultant would be part and parcel in the process of advice of a technical character and would fall for coverage only within the meaning of the Explanation to Section 9(1)(vii) of the Income Tax Act, 1961 and the amounts were assessable to tax in India. 4.9 In the case of Steffen, Robertson and Kirsten Consulting Engineers and Scientists vs. Commissioner of Income Tax. [1998] 230 ITR 0206 [Authority for Advance Ruling], the Hon'ble Authority for Advance Ruling in its order dated 29.10.1997 held that "the living allowance paid to the foreign. technicians will form an integral part of the fees payable to SRK under the agreement and will also be taxable in India." 4.10. In Danfoss Industries P. Ltd. vs. Commissioner of Income Tax [2004] 268 ITR 0001 [Authority for Advance Ruling], the Hon'ble Authority in its order dated 14.05,2004 held that "the payments to be made by the applicant pursuant to the agreement proposed to be entered into between the said Danfoss Singapore for....
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....be classified as "fee for technical services". When the matter reached the level of the Commissioner of Income Tax (Appeals) ["CIT(A)"], it disagreed with the view as expressed by the AO and held that while the expenses so incurred would not fall within the ambit of "fee for technical services", in the absence of the respondent/assessee having established the same would be liable to be disallowed in terms of Section 37 of the Act. Those conclusions of the CIT(A) had been duly noted by the ITAT in Para 25 of the order impugned. The said findings are reproduced hereinbelow: "25. The CIT (A) thereafter admitted the additional evidence and Noted that the AO has also not made any adverse comment with regard to admission of additional evidence. Before the CIT (A), the, Assessee preferred written submissions explaining the nature of reimbursements. Relevant extracts of the submission which also find mention in the order of the CIT (A) are reproduced herein below- "The Assessee carried out certain transactions during the year under appeal with overseas JAS Group of Companies and other domestic entities. In this regard JAS Group of Companies incurred certain expenses total....
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....n our case, the services rendered are not left with the Assessee but it is a mere reimbursement of expenses incurred by non-residents on the activities performed by it. For all the said activities, netting centre at USA incurred some cost which they distributed amongst the netting participants, i.e. members of the Group Companies and accordingly the Assessee was required to reimburse its portion of the expenses. (iii) Reimbursement of Management Expenses amounting to Rs. 10,12,859: Jas Worldwide Management LLC, situated in Atlanta, USA perform administrative, business development activity for common interest of the JAS Group which in-turn help the entities to grow their businesses. In this procedure, they incur some cost which they allocate within the group members which are benefited by the said activity, directly or indirectly. The Assessee was also charged its share of expenses, for which the assessee made the payment. Further, the expenses only represented proportionate expenses incurred by the non-resident to avail administrative, business development activity. (iv) Reimbursement of Traveling Cost amounting to Rs.1,18,328:The said expenses were incurred by th....
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....-resident associate enterprises to the assessee. On perusal of the material placed on record, I am of the considered opinion that the payments in question do not fall within the ambit of section 9(1)(vii) of the Act". 6. The ITAT while dealing with the aforesaid aspect has observed as follows: "30. We have heard the rival submission and have perused the material placed before us which includes the submissions filed by both the parties and the paper book placed on record. We find that the nature of reimbursement is of such expenses which are purely in the nature of day-to-day expenses of the business activities of the Assessee. The copy of the invoices, ledger accounts etc. have been filed before us. We find that the nature of expenses includes server maintenance Cost, netting charges, management expenses, travelling cost, insurance expense etc., which are an integral part of running of a business and for undertaking day-to-day activities. The Ld. AO/CIT(A) have not doubted the genuineness of the expenses. In fact, even the nature of the expenses stands accepted. Thus, the domain of commercial expediency cannot be entered into. We find that this issue in principle is cov....