TaxTMI 
TaxTMI 
2025 (12) TMI 668
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....ions bad in law and on facts The order passed by the Joint Commissioner of Income Tax, Special Range -3 ['the A01, under section 143(3) read with section 144C of the Income-tax Act, T 961 ['the Act') is bad in law and on facts. NA 2. Addition of reimbursement received towards foreign exchange fluctuation loss on repayment of External Commercial Borrowing amounting to INR 4,88,45,724 a) The Assessing Officer {, AO'] erred in adding to the total income INR 4,88,45,724 for reimbursement received towards foreign exchange fluctuation loss on External Commercial Borrowing ('ECB'). b) The AO erred in not appreciating the fact that the Appellant had disallowed the unrealised foreign exchange fluctuation loss in the earlier years and adding the same in the current year would lead to double taxation. c) The AO erred in considering the reimbursement of foreign exchange fluctuation loss as income under section 28(iv) of the Act, thus ignoring the fact that it is merely a reimbursement of expense without any markup and does not represent any benefit or perquisite. d) The Appellant also relics on the recent decision of the Hon'ble Supreme Court in ....
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....TeS services for a consideration of Rs. 600,191,927/- and marketing support services for a consideration of Rs. 271,230,118/-. As the assessee has entered into an international transaction, the reference was made to the learned transfer pricing officer [TPO] to determine the arm's length price of the international transactions. The ld. TPO proposed an adjustment of Rs. 214,441,168/- and accordingly the draft assessment order was passed on 11/12/2017 wherein the above transfer pricing adjustment was included. The ld. AO made a further adjustment/addition to the total income of the assessee wherein he made an addition u/s. 28(iv) of Rs. 48,845,724/-, further disallowance was made of Rs. 150,000 u/s. 37 and further disallowance was made under section 40(a)(iii) of Rs. 3,768,805. The total income was determined at Rs. 69,80,21,969/-. 4. The assessee filed an objection before the learned Dispute Resolution Panel - 1 (DRP) against the draft order dated 11 December 2027. The ld. DRP passed the direction on 18 September 2018 and consequently the learned TPO revised the adjustment under section 92CA with respect to the software development services to Rs. 90,299,978/-, to the IT enab....
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....sed by the associated enterprises and accordingly loss of Rs. 48,850,000/- arising on the repayment of such borrowing was reimbursed by its associated enterprises. Since the loss incurred in the previous year was disallowed by the assessee, the above reimbursement was reduced by it while computing the taxable income. This is so because of the reason that assessee did not claimed the expenditure in the earlier years and therefore the reimbursement received for those expenditure could not be the income of the assessee. The ld. AO proposed to add the above amount under section 28(iv) of the Act. The ld. DRP also upheld the same. And therefore assessee is in appeal in ground No. 2 of appeal. 8. The assessee submitted that as the unrealised losses arising on the restatement of the loan in the previous year was disallowed by it, the reimbursement of the same loss in the current year should not be added to the total income of the assessee u/s. 28 of the Act. The ld. AR submitted that on actual receipt of reimbursement of realised foreign exchange losses, it was reduced while computing the taxable income in the year of receipt in financial year 2013 - 14 for the reason that assessee has....
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....he taxable income for the assessment year 2014 - 15. The facts also shows that the reimbursement is received from the parent company as per the agreement. The Ld. AO has treated it as any benefit or perquisite taxable under section 28(iv) of the Act and therefore he held that this sum is the benefit received by the company which is required to be taxed under section 28(iv) of the Act. The ld. AO relied upon the decision of the Hon'ble Madras High Court in case of CIT v. Romney Home Private Limited (2016) 384 ITR 530. The facts placed before us clearly show that the external commercial borrowing availed by the assessee in the financial year 2011 - 12 was Rs. 221,950,000/-. For the year ended on 31st March, 2012 unrealised loss on restatement of the ECB was accounted for at Rs. 32,428,000/-. Similarly loss for the year ended on 31st of March 2013 was also computed at Rs. 17,572,000 and similarly gain also realised on repayment of external commercial borrowing on 8th of May 2013 was accounted at 11,50,000. The amount of ECB was repaid by Rs. 270,800,000. Therefore there is a net realised loss on repayment of ECB loan of Rs. 48,850,000 which was reimbursed by the associated enterprises....
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....es by the assessee company during the year, the ld. AO found that assessee has paid an amount of Rs. 3,768,805/- to PT Business Intelligence Technologies. The assessee company has not deducted any tax at source on the same. Therefore the assessee was asked to explain that why the above amount should not be disallowed for non-deduction of tax. The assessee explained that it is engaged in the business of providing software development services and market support services to its holding company. The assessee has sent certain employees to Indonesia for such services. The assessee company entered into an agreement with PT Business Intelligence Technologies [PBIT] to obtain suitable work/entry permit as per that country's law. In this regard PBIT charged a service fee on the assessee company. The assessee company has utilised the services of this company for the purpose of earning income from Indonesia and hence service fees payable to that international company was not taxable in India as per the provisions of section 5 and section 9(1) of the Act. The assessee company also relied on the decision in case of Lufthansa cargo India. The ld. AO was also supplied with secondment agreement da....
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....that that the provisions of section 40(a)(iii) of the Act has no application in the present case. It was submitted that for the section 2 to apply the payment made ought to be chargeable under the head salaries in terms of section 9(1)(ii) of the Act. In order for a payment to be in the nature of salaries as perquisite condition, an employer-employee relationship ought to exist between the payer and the payee. In the present case there exists no employer- employee relationship between the appellant and the International entity and the payments made by the appellant to Indonesian entity can by no stretch of imagination be treated as salaries. It was further stated that since the payment is not made towards any services rendered in India, the provisions of section 9(1) (ii) of the Act are not applicable. The assessee relied upon the decision of Mother Dairy Fruit Vegetables Private Limited v. CIT (198 Taxman 33) and Ecorys Netherlands BV v. ACIT (ITA No. 6494/Del/2016 dated 11/11/2020). It was the claim of the assessee that since the payments made by the appellant are to a third party and the essential requirements of employee/employee relationship and services being rendered in Indi....
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....any after getting funds from the assessee company. iii. PBIT will have only limited management control over these seconded employees. After the expiry of secondment the employees shall revert to the assessee company. Therefore, it is clear that the assessee company exerts real control over its employees though the employees are under the temporary pay roll of PBIT and the assessee company is the real employer. iv. It is to be noted that the PBIT, non-resident company charges the assessee company, a service fee of 15% of all payments made by the assessee company to its seconded employees. v. It is fact that the assessee company makes the payments of salary and other to its seconded employees through PBIT, a non-resident company. Hence, it is necessary to refer how salaries are taxed as per India-Indonesia DTAA. Relevant article is re-produced for the reference; ARTICLE 15 Dependent Personal Services Dependent Personal Services 1. Subject to the provisions of articles 16, 17, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable o....