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2026 (4) TMI 569
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....the Act as legally valid? 2. Whether on the facts and circumstances of the case, the Tribunal erred in law in holding the appellant as liable to tax in India in respect of sum of Rs. 11,53,52,883/- being expenses incurred by the appellant which were reimbursed by VOACZ, considering the same to be income in the nature of 'fees for technical services' under Section 9(1)(vii) of the Act and Article 12(5)(b) of the provisions of the India- Netherlands DTAA? 3. Whether on the facts and circumstances of the case, the Tribunal erred in law in not appreciating that reimbursement of expenses could in no circumstances, be regarded as income of the recipient? 4. Whether on the facts and circumstances of the case, the Tribunal erred in law in observing that the aforesaid amounts reimbursed were towards allocation of costs for services rendered by the appellant to VOACZ., under the "Cost Allocation Agreement", not appreciating that the same were specific expenses directly incurred in connection with the project executed by the latter entity in India and did not relate to services referred to under Cost Allocation Agreement? 5. Whether on the facts and circums....
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....an Company was not required to deduct tax at source. 8. However, since the assessment of the appellant had been subject to re-assessment at that juncture, such conclusion in the hands of the Indian entity was made subject to the decision to be taken in the hands of the appellant in reassessment. 9. The High Court made it clear that if the appellant was assessable to tax on the remittances received, the Indian subsidiary would consequently be treated as an assessee-in-default. The aforesaid order was confirmed by the Supreme Court by judgment dated 23.03.2023 in C.A.No.5089 of 2011. Hence the questions raised in the present appeal would have a bearing both on the taxability of the appellant and the Indian company. 10. Mr.Easwar would submit that the remittances constitute pure reimbursement of the expenses incurred by the appellant. All particulars to establish the fact that the reimbursements were back to back, had been provided before the assessing authority. Hence, there is no question of any income arsing to the appellant to justify the deduction of tax at source. 11. Alternatively, the conclusion of the assessing authority to the effect that the remittances are in t....
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.... A reading of the draft assessment order makes it very clear that the classification of the amount as a business profit treating the Indian subsidiary as an agent is not lost sight of by the assessing authority, who has, in the course of the order, referred to both aspects. 17. Having done so, he concludes at paragraph 5.14 after having examined the possibility of taxation under various heads that the proper head to bring the amounts to tax would be 'fees for technical services'. In the computation of tax also, he categorizes the amount of Rs. 11.53 crores only as fees for technical services. Hence there arises no avenue for the Department to consider the same under any other head at this juncture of time. 18. The mere fact that the appellant has raised grounds relating to dependent agent and business profits before the DRP and ITAT would not entitle the Department to rewrite the assessment at this stage. This would pave the way for closure of Question No. 5 relating to dependent agent permanent establishment, as this issue does not emanate from the orders of the authorities. 19. Finally, Mr.Ramanakumar relies upon Sedco Forex International INC v CIT, Meerut [(2017) 87 tax....
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....at 42% on estimated profit of 11% on the Contract. (iii) From a perusal of the documents accompanying the return of income, it is seen that during the relevant previous year the assessee had a project office in India. The contract was executed in India. The cost allocation agreement filed by the assessee that the Indian Company, the assignee of the Contract, though engaged in the Business of Marine Construction, are not sufficiently staffed and equipped to carry out certain activities deemed necessary for efficient and profitable conduct of their business. The involvement of the assessee in the project is sufficient to establish 'business connection' as per section 9 of the Income Tax Act and the assessee is liable to tax for its business income in India. The assessee, in the facts of the case has a business connection and permanent establishment in India. Though cost allocation agreement indicate the payments as 'direct reimbursable expenses' and 'pooled reimbursable expenses', the nomenclature of 'reimbursement' per se does not establish that there is no profit element in the receipts of the company. (iv) On the other hand, the business connection leads to the b....
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....s:- 2.Nature and Extent of Services a) All services to be rendered by the SERVICE GROUP will be advisory and consultative, and the RELATED COMPANY shall have the final responsibility for the implementation of all advice and assistance received; b) The SERVICE GROUP may, at its election, engage other firms or persons to assist it in the rendition of services hereunder or to perform all or any part of such services; 28. Under Article 4, dealing with 'Compensation', the parties agree that as compensation for the services rendered by the Service Group, the Related Company shall pay their pro-rata share of the reimbursable expenses as determined and allocated under Article 3. Article 3 dealing with reimbursement expenses states that expenses identified to be reimbursable expenses shall be allocated in the manner set out under clauses (a) to (d) of that Article. 29. We do not wish to refer any further to the Cost Allocation Agreement, as that Agreement is, in our view, not relevant to the present case, being a general Agreement that deals with allocation of costs incurred by the holding company. Though learned Senior Counsel has referred to the CAA, and t....
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....ceipts do not constitute fees for technical services. We are hence not inclined to intervene at this stage in regard to the aspect of reimbursement of costs and accordingly, Question nos. 3 and 4 are answered in favour of the revenue, barring our conclusion in regard to the expenses on freight, travel, accommodation and meals, at paragraph 36 of this order. 35. Coming to Question No.2 relating to the classification of services in consideration of which the remittances were made, the assessing authority has proceeded on the basis that the services rendered are of the nature of fees for technical services. 36. We are of the view that the expenses on freight, meals, accommodation and travelling can, by no stretch of the imagination, be classified as technical services. In all probability, such expenditures were incurred, and have been reimbursed by the Indian entity. Some material has been furnished by the Appellant before the assessing authority in the course of the reassessment proceedings. Hence, and to this limited extent, in relation to the aforesaid items of expenditure only, we answer Question Nos. 3 and 4 in favour of the Assessee. 37. Mr.Ramanakumar has referred to t....
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.... deficiency. What is 'make available' has been discussed by the Karnataka High Court in the case of DeBeers (supra) in the following terms:- 'What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the pr....