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2007 (2) TMI 354 - AT - Income TaxLiability to deduct tax u/s 195(1) - reimbursement of pre-bid expenses paid to non-resident company - nature of fee for technical services in view of section 44D - whether the amount remitted by the assessee to the HK company contained any income element so as to fasten liability upon the assessee to deduct tax thereon at the appropriate rate - HELD THAT:- As pointed out by the learned counsel for the assessee, there is no evidence on record to show that the HK company and the agency firm engaged by it were connected in any manner or that the entire transaction was a pre-planned or pre-meditated arrangement devised in order to avoid the provisions of tax deduction at source. Therefore, it is not possible to hold that the remittance was in truth and reality consideration for technical services disguised as reimbursement of the expenses. In the present case, there is no dispute about the genuineness or bona fide of the terms of arrangement between the partners of the consortium. The relevant clause under which a consortium partner is entitled to defray his share of the pre-bid expenses and get the same reimbursed by the joint venture vehicle has also been placed before the departmental authorities and no question has been raised about the existence of the clause. Since the HK company lacked the expertise to draw up the pre-bid documents, it had to engage the services of another consultancy firm. It paid the consultancy firm and raised an invoice for the amount on the assessee-company, under the terms of the consortium arrangement, to get reimbursed. The argument of the department is that the nature of the remittance as FTS does not change merely because the HK company had to engage another agency to prepare the pre-bid documents. In our view, the argument cannot be accepted having regard to the objective of the consortium and the agreement between the partners of the consortium to the effect that the pre-bid expenses incurred by them will be reimbursed by the joint venture vehicle. Furthermore, in our view, in the light of the authorities cited above, reimbursement per se cannot bear the character of income. Thus, the preliminary question, namely, whether the amount remitted would in its entirety or partly be considered as income of the HK company has to be resolved in favour of the view that it being a mere reimbursement it cannot be so considered. As held in the case of Hyderabad Industries Ltd.[1991 (1) TMI 134 - KARNATAKA HIGH COURT], the purpose of deduction of tax at source is not to collect a sum which is not a tax levied under the Act. It is only to facilitate the collection of tax lawfully leviable under the Act. The interpretation put on the statute by the income-tax authorities, as pointed out in the judgment, would result in collection of amounts which are not qualitatively to be considered as a tax. The evidence brought on record by the assessee to show that what it wanted to remit abroad to the HK company was only by way of reimbursement without any element of profit or income imbedded therein has been complied at paper book. The break up of the pre-bid expenses incurred by the HK company for the assessee-company has been given in these pages. It is these expenses which have been reimbursed by the assessee-company. No material has been brought on record to show that the expenses included an income element. Section 44D has no relevance to the present case as it is concerned with the computation of income by way of royalties etc. in the case of foreign companies. It is relevant at the assessment stage and not at the stage of remittance. The reference made by the learned CIT(DR) in the course of his arguments to the fact that the investment by the HK company in the assessee-company was routed through a Mauritian subsidiary does not turn the case in any manner in favour of the revenue. Thus, we are unable to hold that there was any income element in the remittance made by the assessee to the HK company. Accordingly, we allow the cross objection of the assessee and dismiss the appeal filed by the revenue.
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