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2019 (5) TMI 1882 - AT - Income TaxTDS u/s 195 - addition u/s 40 (a)(i) being the payment made to non resident associate enterprise - Whether Income in question accrued in India and is liable for TDS? - HELD THAT:- It can be clearly inferred that the Assessee and Associated Enterprises though being AEs, are operating on a principal to principal model and there is no ‘Principal-Agent’ relationship between JAS India and its AEs/Affiliates. From the documentary evidences depicting negotiations, quotations, contracts and exchange of e-mail correspondence between JAS India and end-customers in India along with underlying invoices which have been placed on record pursuant to our directions, it is seen that the terms of contracts with clients distinctively specify the principal-to principal relationship between the parties. Mere use of the word ‘agency’ is not sufficient to conclude that the Assessee and the AEs do not operate on principal-to-principal basis and nomenclature is not the determinative factor. The above mentioned evidences filed clear show that JAS India has not been impelled by any instructions from AEs/Affiliates and the specific clause to this effect has been mentioned in the agreement. It has also been informed to us that above principle of 50:50 Profit Split are a widely accepted pricing formula prevalent across the global freight-forwarding industry at large. We find that there is merit in the alternate plea of the Assessee is that since the above transactions are at arm’s length for the aforesaid year, no further attribution can be made even if PE is established. TPO’s order u/s 92CA (3) dated 26.10.2010, has been placed before us wherein no adverse inference was drawn in respect of the international transactions undertaken by the Assessee during the relevant year. It is now a settled principle that even if there is a business connection, no further income can be chargeable to tax in India on account of PE since the transaction between the Assessee and its AE has been found at arm’s length. The payments made to non-resident are not on account of rendering any services in the nature of technical or professional services or fees for technical services or getting any income on account of royalty, albeit the nature of activities performed by the non-resident are purely business activities. The AEs are carrying on the business of freight forwarding services in their respective jurisdictions which are mirror reflection of the business activities carried on by the Assessee - As there is no ‘business connection in India’, therefore, we hold that the Assessee was not under an obligation to deduct tax u/s 195 of the Act. Correspondingly, no disallowance could be made u/s 40(a)(i) of the Act. Thus, we uphold the order of the CIT (A) and the appeal filed by the Revenue accordingly is dismissed. Reimbursement of expenses - Allowable business expenses or not? - HELD THAT:- We find that the nature of reimbursement is of such expenses which are purely in the nature of day-to-day expenses of the business activities of the Assessee. The copy of the invoices, ledger accounts etc. have been filed before us. We find that the nature of expenses includes server maintenance Cost, netting charges, management expenses, travelling cost, insurance expense etc., which are an integral part of running of a business and for undertaking day-to-day activities. The Ld. AO/CIT(A) have not doubted the genuineness of the expenses. In fact, even the nature of the expenses stands accepted. Thus, the domain of commercial expediency cannot be entered into. We find that this issue in principle is covered in the case of S.A. Builders [2006 (12) TMI 82 - SUPREME COURT] and is directly applicable on the facts of the present case as the evidences have already been filed by the Assessee and as stated above, the expenses being reimbursed are regular business expenses. Thus, the appeal filed by the Assessee succeeds.
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