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2007 (12) TMI 315 - AT - Income TaxDeduction of tax at source u/s 195 - Reimbursement of development cost to the private promoters and state promoters - Project of international airport - technical consultation undertaken by the non-residents - applicability of provisions of section 5 or section 9 of the Act - HELD THAT:- In the instant case, the technical consultation and various other consultations undertaken by the non-residents in their capacity as promoters were incurred by them out of India and at that time when they had consultation; section 9 was inapplicable to them because it was not a payment by Indian resident to a non-resident. It is a case of reimbursement of various expenses incurred and in this case it is also limited to only 50 per cent. The expenses as incurred by the promoters compensated to them would not involve any profit element also, especially as is seen in the instant case, the compensation is also only to the extent of 50 per cent. Initially when the expenses were incurred by the non-resident company, it was not answerable to any of the provisions of section 5 or section 9 of the Act. The benefit that the promoters received in the shape of legal advice, technical advice and other things was only to provide them the necessary input to decide to go ahead or not to go ahead with the project. Such services even in the remotest possibility would have no connection whatsoever with the project and all the de tails were so provided so as to satisfy that the expenses as incurred were justified and reimbursable. As a passing reference we may observe that one of the bidders of the project viz., Hochtief Airport GmbH, which bid was not accepted, also had incurred certain expenses and was reimbursed to the extent of 50 per cent. The Department vide its NOC dated 12-9-2003 had permitted the reimbursement to the tune of 50 per cent without any deduction of tax. There is absolutely no difference between the bidder who had gone off and the bidder who has continued because he was accepted. Thus, we are of the opinion that the assessee is justified in claiming that reimbursement of expenses in the circumstances of the case to the extent of 50 per cent did not attract the provisions of section 195(2) of the Act. The appeals are allowed.
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