TaxTMI 
TaxTMI 
2025 (1) TMI 1747
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....under section 147 of the Act 2. 1 The Assessing Officer erred in reopening the assessment under section 147 of the Act. 2.2 The Assessing Officer having issued reopening notice under section 148 under the old provisions ought not to have continued and completed the reassessment proceedings post amendment of such provisions with effect from 1 April 2021. 2.3 The Assessing Officer erred in initiating the reassessment proceedings under the old provisions and completing the same under the new provisions. 2.4 The Assessing Officer ought to have appreciated that the approvals and sanctions under the old provisions and new provisions are different and as such the entire reassessment proceedings is invalid. 2.5 The Assessing Officer ought to have appreciated that merechange of opinion cannot per se be the reason for re-opening under section 147 since there was no fresh material on record which merits such re opening. 2.6 The Assessing Officer erred in reopening the assessment based on certain information which was available in a different AY. 2.7 The Assessing Officer erred in reopening the assessment without reason to believe ....
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.... from SAME India and as such the reimbursement cannot be treated as fees for technical services. 3. 7 The CIT(A) failed to note that the Appellant is not rendering any technical service to SAME India. 3.8 The CIT(A) ought to have appreciated that the dealers of SAME Italia are rendering service to third party customers outside India for rectifying the manufacturing defects in respect of the Tractors sold by it and since it relates to manufacturing defects the Appellant claims reimbursements from SAME India. 3.9 The CIT(A) has erred in not considering the arrangement between the appellant and its subsidiary company wherein SAME India provides warranty reimbursement to the appellant for the cost of rectifying manufacturing defects which is the blueprint of its business model as signified by its long-standing agreement. 3.10 The CIT(A) has not appreciated the substance of this agreement which separates the warranty reimbursement payment made by SAME India to SAME Italia and the warranty cost payment made by SAME Italia to third party dealers as independent contracts. 3.11 Without prejudice to the above even assuming that the reimbursement c....
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....alysis and codification, investigation of claim by vehicle manufacturer and these services are technical in nature and would fall under the category of Fees for Technical services (FTS) as per the India and Italy DTAA and thus the AO issued a notice u/s.147 of the Act stating that the assessee had failed to disclose fully and truly all material facts for reopening the assessment. After considering the submissions of the assessee, the AO passed an order u/s.147 r.w.s.144C(3) of the Act dated 12.05.2022 for the A.Y.2016-17 by rejecting the claim of the assessee and brought to tax Rs. 1,99,03,858/- as the payment received by the assessee is towards a contractual payment for obtaining technical services from the dealers for servicing the Tractors and the said receipt is treated as a FTS as per the Act and the DTAA and was treated as liable to be offered to tax as income in India by holding as under: "The responsibility is cast on the assessee and SAME India to provide warranty services to the customers at its own cost for which amounts were collected at the time of original sale itself For this purpose, assessee will enter into agreements with dealers to carry out the....
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....rise with whom international transaction was entered into by M/s. SAME Deutz India Pvt Ltd, was only Rs. 1,99,03,858. As there was discrepancy between the two figures, it was required to be verified. In order to verify the assessee's claim that it had received remittances under the head Warranty amounting to Rs. 1,99,03,858, a notice u/s.133(6) was issued to M/s. SAME Deutz India Pvt Ltd seeking information on Warranty expenses account for the financial year 2015-16 relevant to the AY 2016-17. It was replied on 21.02.2022, that the amount paid to the assessee during the year was Rs. 1,99,03,858 and the remaining Rs. 3,65,12,141 was paid to many other parties. Hence, it is concluded that the remittances received by the assessee during the year under the head Warranty Expenses from a related party was Rs. 1,99,03,858. Further, it is seen that the assessee has relied upon the decision of the Hon'ble ITAT, Chennai in the case of Nissan Motor India Pvt Ltd (NIMPL) and has mentioned that its case is squarely covered in its favour. In the NIMPL case, the assessee was a manufacturer of motor cars in India and exports the motor cars to other countries and sells them in thos....
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....obtaining technical services from the dealers for servicing the Tractors and the said receipt is treated as a Fee for Technical Services as per the Act and the DTAA and was treated as liable to be offered to tax as income in India." Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld.CIT(A). 4. The CIT(A) after considering the Assessment order and the submissions of the Appellant, concurred with the Assessing Officer by making a specific finding as under by passing an order on 07.02.2024: 3.4 Thus a perusal of the facts in the case as elaborated by the Assessing Officer, go on to establish, that "reimbursement of warranty" is nothing but fees for Technical Services" Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before us. 5. Ld.AR for the assessee submitted that the company purchases Tractors as well as Semi Knock Down (SKD) of Tractors from its subsidiary company SAME Deutz Fahr India Private Limited ('SAME India') on a principal-to-principal basis and assembles the same with other parts to sell the assembled/finished product/Tractors to the dealers as a part of their business activity. The deale....
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....ore this Hon'ble Bench. 5.2 The conclusion of the lower authorities is that the repair of tractor is technical service and therefore it is taxable is Fees for Technical Services. Further, it is held that jurisdictional decision is not applicable because in that case it was complete car for which warranty service was rendered whereas in the instant case it was for SKD of tractor and therefore it was held to be factually distinguishable. 5.3 Technical repair is not technical service: It is pertinent to note that there is a difference between technical service and technical repairs. Mere repair work would not be in the nature of fee for technical service and referred to section 9(1)(vii) of the Act. Hence, we wish to highlight that such warranty payments being reimbursement of repair/ replacement cost may not be in the nature of FTS. We wish to highlight the decision of the jurisdictional Tribunal in case of BHELGE-Gas Turbine Servicing (P) Limited (24 taxmann.com 25) (Hyderabad Tribunal) where the assessee had work orders with third parties in respect of repair and refurbishment of its product (turbines). It was held that routine repairs including assembly, disassembly, ....
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....arning any income from any source outside India then such payment does not constitute as fees for technical service. In the given case the source of income arises outside India as the sale of Tractors to customers take place outside India. 5.7 The Ld.AR submitted that the following decisions are squarely covered in favor of the Assessee: A. Tractors and Farm Equipment Limited Vs DCIT Chennai ITAT in ITA.No.1069/Chny/2019 "6. Upon careful consideration of material fact, it could be gathered that the assessee is primarily engaged as manufacturer of agricultural Tractors. It has sold Tractors overseas through non-resident distributors. As part of the sales obligations, the assessee has to provide warranty. This warranty expenditure is incurred by the overseas distributors and the same are later on reimbursed by the assessee. The submissions of Ld. AR are that warranty expenditure is part of overall sales obligations and the expenditure is reimbursed on actual basis. The warranty obligation being part and parcel of sales transactions and therefore, the same could not be held to be 'fees for technical services'. Another line of argument is that services have been ....
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.... facts of the case of the assessee. In the case SPX India Pvt. Ltd., the issue was with respect to deduction of tax at source on the amount reimbursed as ISO audit fee to parent company. In the case of Ashok Leyland Ltd., the company was engaged in the business of manufacture of motor vehicles in India and the issue was with respect to reimbursement of expenditure towards air fare, accommodation and subsistence cost of personal disputed by foreign company. Accordingly, the issue is decided in favour of the assessee." 5.8 Reimbursement The AO has given a categorical finding that the amount received by the Assessee is a reimbursement at page 10 of the Assessment order: "For this purpose, assessee will enter into agreements with dealers to carry out the actual services towards which assessee will make the payments and subsequently get it reimbursed from SAME India." The Assessee relies on the Supreme Court decision in the case of GE India Technology Cen. (P.) Ltd. vs. Commissioner of Income-tax [2010] 193 Taxman 234 (SC) wherein it is held at para 9 that when there is no element of income, then remittances cannot be held to be chargeable to tax in India. 5.9 SKD V....
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....e the cost relating to SKD parts of tractor supplied by it, which impliedly means that Same India will not reimburse the warranty cost relating to other parts procured by the Assessee for the purpose of assembling the tractor. 5.11 In view of the above, ld.AR submitted that the reimbursement for warranty was only for parts of tractor exported by Same India and as such it is submitted that reimbursement is in relation to business carried on outside India or for the purpose of earning income from a source outside India. Therefore, ld.AR submitted that the decision of the Chennai ITAT in Tractors and Farm Equipment Ltd and Nissan Motors (supra) is squarely applicable to the facts of the case. 5.12 The Assessee also relies on the following decisions in relation to Source of Income and exclusion under section 9(1)(vii)(b) of the Act. 1. DIT Vs. Lufthansa Cargo India [2015] 60Taxmann.com 187(Delhi) "Thus, it is evident that the "source" rule, i.e the purpose of the expenditure incurred, i.e for earning the income from a source in India, is applicable. This was clearly stated by the Supreme Court, when it later held that: "The exception carved out in the l....
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....in the case of GVK Industries Ltd. (supra) the advice of a Company called NRC8 was taken by GVK Industries Ltd. 's case (supra)for financial structure and with its advice GVK Industries had approached Indian Financial Institutions with IDBI9 Bank acting as lead financier for its Rupee loan requirement and for a part of its foreign currency. 20. In view of the admitted fact that the services were utilized in USA, we are persuaded to accept the authority in Lufthansa's Cargo India's Case. (supra)" The SLP (3 nos) has been dismissed in [2024] 158 taxmann.com 432 (SC); [2023] 157 taxmann.com 205 (SC) and [2024] 158 taxmann.com 408 (SC) with the following observation: "High Court by impugned order held that in view of admitted fact that services were utilized in USA, findings returned by Tribunal did not call for any interference - Whether SLP filed by revenue against said impugned order was to be dismissed - Held, yes" 3. [2009] 318 ITR 237 (Bombay) Clifford Chance Vs. DCIT 47. With the above understanding of Law laid down by the Apex Court, if one turns to the facts of the case in hand and examines them on the touchstone, sectio....
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....g or earning any income from any source outside India. In the present case, on perusal of contract between the assessee and the non-resident services providers, it is clear that payment made by the assessee to non-residents is directly related to services rendered to the customers outside India and income earned from such customers, in turn form part of the business of the assessee. Therefore, in our considered view it falls under the category of services utilized for a business or profession carried on by such person outside India. Further, the second aspect of exception as per clause (b)to section 9(1)(vii) of the Act is that services utilized for the purpose of making income from any source outside India. In the instant case, services were carried on outside India by non-residents for offshore customers, because the customers of the assessee are situated outside India and services were utilized for earning income from source outside India. Therefore, in our considered view, the second part of exception as per section 9(1)(vii)(b) of the Act is also satisfied. Thus, from the above it is undoubtedly clear that the services were not rendered in India, the person to whom the payment....
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....vii)(b)." (emphasis supplied) 5.13 The ld.AR stated that the dealers have rendered warranty service and the Assessee acted as a conduit to facilitate the entire transaction. Further, the dealers have rendered warranty service outside India to foreign customers. Therefore, it cannot be deemed to be FTS under the Act. 5.14 In light of the above submissions and judicial precedents, the ld.AR prayed to consider the submissions on record and delete the additions made by the assessing officer and allow the appeal in favor of the Assessee. 6. Per contra, the ld.DR submitted that the assessee, M/s. Same Deutz Fahr Italia Spa, a foreign company and tax resident of Italy is also in receipt of an amount of Rs. 1,99,03,858/- from India being re-imbursement towards warranty payments which was not offered to tax for the reason that the said amount was not chargeable to tax in India as (a) The cost incurred on account of warranty claim is recharged by M/s. Same Deutz Fahr India Pvt Ltd at cost without any mark-up i.e. made without any element of profit. (b) Mere repair work would not constitute a managerial, technical or consultancy services as defined under th....
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.... collected as part of the sale price by M/s. Same Deutz Fahr India Pvt Ltd for which M/s. Same Deutz Fahr India Pvt Ltd has to render Warranty services for the product sold by it. For the reason that there is no presence of M/s. Same Deutz Fahr India Pvt Ltd in Italy, M/s. Same Deutz Fahr India Pvt Ltd for the sake of convenience grants exclusive right for the performance of warranty services with regard to the products sold by M/s. Same Deutz Fahr India Pvt Ltd to Mis. Same Deutz Fahr Italia Spa i.e. Same Deutz Fahr India Pvt Ltd engages the services of M/s. Same Deutz Fahr Italia Spa for rendering its warranty obligations. Hence, the present payment towards warranty is Fee for Technical Services in the form of repairs and replacement of parts carried out by M/s. Same Deutz Fahr Italia Spa as part of its service obligation as per the terms of the supply agreement between M/s. Same Deutz Fahr India Pvt Ltd and M/s. Same Deutz Fahr Italia Spa dated 02nd January 2008. And M/s. Same Deutz Fahr Italy Spa in- turn incurs the above expenditure by carrying out of the above work through its distribution network in the form of dealers etc. As part of this commitment, M/s. Same Deutz Fahr It....
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....gh the present company as a re-imbursement, that does not extinguish the element of income from the receipts. It is just an arrangement for the sake of convenience. M/s. Same Deutz Fahr Italia Spa by virtue of the supply agreement between M/s. Same Deutz Fahr India Pvt Ltd and M/s. Same Deutz Fahr Italia Spa has undertaken to render this technical service for M/s. Same Deutz Fahr India Pvt Ltd and the amount received there-in are clearly Fee for Technical Services in nature. 6.4 For instance, a contractor sub-contracts a work and the subcontractor in turn gets the work done through third parties, incurs expenditure and gets the contract payment for the contractor, that does not alter the nature of income in the hands of the sub-contractor. If assessee's argument were to be upheld in respect of reimbursements by holding that no income is embedded in reimbursements, all Non-Residents will receive the income accrued from AEs as reimbursements and evade taxes in India. Reliance in this regard is placed on the decision of the Delhi Bench of the Tribunal in the case of SPX India (P) Ltd Vs Commissioner of Income-tax (Appeals)-X/1, New Delhi where-in the Hon'ble Tribunal in the....
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....anty is Fee for Technical Services in the form of repairs and replacement of parts" It is submitted that the services are rendered outside India in respect of SKD exported by Same India. Further, the warranty service is undertaken by dealers to ultimate customer as acknowledged by the DR in the very same para 5: "January 2008. And M/s. Same Deutz Fahr Italy Spa in-turn incurs the above expenditure by carrying out of the above work through its distribution network in the form of dealers etc. b) Not a reimbursement At para 5 the DR has alleged that the payment received by the assessee is not a reimbursement: "As part of this commitment, M/s. Same Deutz Fahr Italy Spa gets paid an amount of 26 Euro per hour as labour charge and current net price plus 10% handling fee on the parts replaced. Incidentally the present payment is more than a mere reimbursement but for the nomenclature used. It is just and necessary to note that warranty repair services to the customers was undertaken by dealers and if at all these are charges were incurred, it would be collected by the dealers from the Assessee. This fact is also impliedly acknowledged by the DR at Para ....
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....without appreciating that nowhere in the assessment order there is a finding that Assessee has rendered services to Same India. e) Source of income The ld.DR has relied on Regen Power Tech and Havells India and submitted that source of income and not the receipts should be situated outside India. In this context, the ld.DR has submitted that in the instant case source of income is in India because the Tractors were manufactured in India. The relevant excerpt is as under: "In the case on hand also, the source of income for M/s. Same Deutz Fahr India Pvt Ltd from whom M/s. Same Deutz Fahr Italia Spa has received the Fee for Technical Services is manufacture of the tractor which is situated only in India. Hence, this argument of the Assessee also fails. It is crucial to note that the income under scanner is not the income of Same India and as such taking into consideration where the tractor is manufactured is of no relevance. The issue for consideration is determination of source of reimbursement received by the Assessee. The back-to-back reimbursement received by the Assessee is for warranty repair service undertaken by dealers of the Assessee outside India an....
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....ilable on record and gone through the decisions of the Hon'ble courts and orders of the lower authorities. It is admitted fact that the assessee is a non-resident and filed its return of income for the A.Y.2016-17 and offered tax the income from other sources being the Royalty and Fees for technical services. The AO has reopened the assessment and passed an order u/s.147 of the Act by bringing the reimbursement of expenses towards warranty payments which was not offered to tax, made by the M/s. Same Deutz Fahr India Pvt Ltd to the assessee as Fees for Technical Services under the head income from other sources. The same has been upheld by the ld.CIT(A) in his order dated 07/02/2024. 8.1 The assessee has raised legal issue as grounds of appeal by questioning the validity of the reopening of the assessment in ground No.2 and the grounds have been raised on merits in respect of taxability of warranty expenses reimbursed by an entity to the assessee on cost to cost basis in Ground No.3. Firstly, we will adjudicate this appeal on merits of the case. 8.2 In the present case, the assessee purchases Tractors as well as Semi Knock Down (SKD) of Tractors from its subsidiary company ....
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....ssessee to assist/facilitate in rendering warranty services through dealers to third party customers located outside India. Pursuant to the above, the assessee has requested third party dealers outside India to carry out warranty service to the ultimate customer outside India with regard to sale of Tractors made outside India. The assessee has reimbursed the dealers and later the same amount was claimed as reimbursement from SAME India. In this entire gamut of the transaction, the assessee's role is limited to acting as a conduit/facilitator and the assessee does not render any repair service to the end customers. 8.5 As per the ld.AR mere repair work would not be in the nature of fee for technical service and referred to section 9(1)(vii) of the Act. In the present case warranty payments being reimbursement of repair/ replacement cost may not be in the nature of FTS and relied on the decision of the jurisdictional Tribunal in case of BHELGE-Gas Turbine Servicing (P) Limited (24 taxmann.com 25) (Hyderabad Tribunal) where the assessee had work orders with third parties in respect of repair and refurbishment of its product (turbines). It was held that routine repairs including....
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....hile assembling the remaining parts, the Assessee will ensure that it will assemble in a manner which in no way affects the SKD produced by SAME India. The relevant extracts are as under: "c) SDFI undertakes to complete, at its own risk, the SKD by independently purchasing the remaining parts. The assembly of the remaining parts shall be performed by the SDFI according to the best techniques in a manner which in no way may affect SKD produced by SDF India." Further, we also note that the supply agreements also restrict the warranty to parts of assembled tractor by Same India. The warranty clause in the agreement is as under: "8. Warranty a) Period of base warranty ----- ----- Concerning the furniture of SKD, the warranty is limited to the parts of the assembled Tractors manufactured and assembled by SDF India and therefore does not cover any equipment, parts or component not manufactured or not assembled by SDF India or any defect or malfunctioning arising in the products due to any equipment parts or component not manufactured" b) Warranty service SDFI shall have the exclusive right to perform or arrange fo....