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2016 (1) TMI 171 - ITAT KOLKATA

2016 (1) TMI 171 - ITAT KOLKATA - TMI - Addition u/s 40(a)(ia) - withholding of tax - liability to deduct TDS u/s 195 - expenses in the form of reimbursement cost incurred - CIT(A) deleted the addition - Held that:- Reimbursement cost incurred by the assessee is out of the purview of the TDS provision as it does not generate any income in the hands of the recipient and consequently the provisions of section 40(a)(ia) could not be invoked. Hence this ground of appeal of the revenue is dismissed. .....

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11-12 dated 05.02.2013 & 15.03.2013. Assessments were framed by ACIT, Kolkata Range-11/DCIT Circle-11, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide their orders dated 30.12.2011 and 27.12.2010 for assessment years 2008-09 and 2004-05 respectively. First we take up Revenue s appeal in ITA No.1160/Kol/2013 A.Y.08-09 2. Only issue raised by Revenue is as regard that Ld. CIT(A) has deleted the addition of ₹ 1,59,95,287/- u/s 40(a)(ia) of the Act .....

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nt countries, including India. The different companies with whom such arrangements have been entered into by AT & S Austria are - Austrian Telecom for WAN Satellite link between Austria and India, T systems DSS GmbH for Lotus products (software), Microsoft Ireland Operations Ltd. for Microsoft products (software), SAP Osterreich GmbH for SAP software, IBM Osterreich GmbH for SAP software, Symantec for Norton Antivirus software. During the year under consideration, assesseecompany has claimed .....

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ee and added the same to the total income of assessee for violating the provision of Sec. 40(a)(ia) of the Act. Aggrieved, assessee preferred appeal before Ld. CIT(A). 4. Before Ld. CIT(A) it was submitted by Ld. AR of assessee that TDS arises only if the same were chargeable to tax in India. In the present case, amount was not chargeable to tax in India. So the provision of the section for withholding of tax does not apply. The liability to deduct TDS u/s 195 of the Act arise only if the income .....

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Oord ACZ India (P) Ltd. v. CIT (2010) TIOL 187 v) CIT v. Fortis Health Care Ltd. 181 Taxman 257 vi) DCIT v. Lazard India Pvt. Ltd. (2010) 41 SOT 72 (Mum) vii) Nathpa Jhakri Joint Venture v. ACIT (2010) 5 ITR 75 (Mum) viii) Mahindra and Mahindra Ltd. v. DCIt (2009) 313 ITR (AT) 263 (Mum) It was also submitted that the section 90(2) of the Act provides that in case of double taxation avoidance agreement with the Govt. of another country, the provision of this act will apply only to the extent if i .....

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Kharawalla Ltd. (1968) 67 ITR 95 (SC) f) Skycell Communication Ltd. v. DCIT 251 ITR 53 g) Wipro Ltd. v. ITO (2003) 80 TTJ (Bang) h) BSES Telecom Ltd. v. DCIT (ITA No. 9281/Bang/2002) i) Tata Consultancy Services v. State of Andhra Pradesh 271 ITR 401 (SC) j) Cholamandalam MS General Insurance Co. Ltd. (2009) 309 ITR 356 k) CIT v. Industrial Engineering Projects Pvt. Ltd. (1993) 202 it 1014 (Cal) l) Rolls Royce India Ltd. v. ITO (1998) 25 ITD 127 (Del) m) ACIT v. Modicon Network Pvt. Ltd. (2007) .....

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ative appearing on behalf of Revenue and Shri Soumitra Chowdhury, Ld. Authorized Representative appearing on behalf of assessee. 6. We have heard rival parties and perused the materials available on record. Before us Ld. DR supported the order of AO whereas Ld AR supported the order of Ld. CIT(A) and he stated that Ld. CIT(A) passed order by virtue of the order passed by this Tribunal in assessee s own case in various assessments including 2005-06- ITA 1262-186/Kol/2010, 2006-07- ITA 2071/Kol/20 .....

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uld not be taxable in the hands of the person receiving the reimbursements. Further Hon'ble Karnataka High Court in a recent judgment in the case of DIT v. Sun Microsystems India P. Ltd. (2014) 369 ITR 63(Karn) exactly on the similar issue interpreting article 7 of the DTAA between India and Signapore, which is identically worded to article 7 of DTAA between India and Austria, and held as under:- the material on record discloses that the assessee entered into an agreement for availing of log .....

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n Singapore from outside India. Sun Singapore is not engaged in the business of providing logistic services in India. Sun India the assessee avails of services of Sun Singapore for which a service fee is paid. From the business description of the assessee, it is clear that the assessee is engaged in marketing and support system of hardware and software products. The material on record do not disclose that Sun Singapore has made available to the assessee its technical knowledge, experience or ski .....

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ng available inventory physical movement and self-control process, assistance to enable, inventory transactions and management and business planning to address service level relating to the local business and customer needs. However, the assessee is not utilizing the said services in order to avoid deduction tax at source. This court had an occasions to consider this agreement in the case of CIT v. De Beers India Minerals P. Ltd. Reported in [2012] 346 ITR 467 (Karn), where after referring to va .....

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le the technology which they used in rendering services, then it falls within the definition of fees for technical services as contained in the DTAA. However, if technology is not made available along with technical services what is rendered is only technical services and the technical knowledge is withheld, then such a technical service would not fall within the definition of technical services in the DTAA and the same is not liable to tax. From the facts of this case, it is clear that Sun Sing .....

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the appellant authority cannot be found fault with. In that view of the matter, the substantial question of law is answered in favour of the assessee and against the Revenue. From the above judgment of Hon'ble Karnataka High Court it is clear that the parent company has not made available to the assessee the technology or the technological services which was required to provide the distribution,, management and logistic se5rivedes. In view of this judgment and perusal of the order of the AO .....

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gh the orders of the coordinate Bench of this Tribunal in the assessee s own case in ITA Nos. 1448& 1449/Kol/2008 dated 24.07.2009 for AYs 2002-03 and 2003-04 and ITA No. 1450/Kol/2008 dated 31.03.2010 for the AY 2004- 05, wherein it has been held as under: 2.1. The fats of the case are that the assessee is a company which is deriving income from manufacture and sale of professional grade printed circuit boards. During the accounting year relevant to assessment year under consideration, the .....

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. AT & S, Austria has entered into different agreements with different providers of services. Apart from these services rendered by the service providers relates to business operation of the assessee and are utilized by the assessee. 2.2 At the time of hearing before us, the learned counsel for the assessee argued at length. His arguments were of two folds, viz.- (i) That the payment made by the assessee to M/s AT &S, Austria was only reimbursement. He pointed out that M/s. AT & S, A .....

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e same on page 6 of his order. He submitted that there is no liability of TDS for reimbursement of the expenditure. In support of this contention, he relied upon the following decisions:- 309 ITR 356 (AAR) - Cholamandalam Ms General Insurance Co. Ltd. 142 ITR 493 (Cal.) - CIT- vs.- Dunlop Rubber Co. Ltd. (ii) That the services received by the assessee were in the nature of user of the copy right products. The licence to use copy right products does not amount to rendering of technical services w .....

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relied upon the following decisions:- 251 ITR 53 (Mad/.) - Skycell Communications Ltd. - vs.- DCIT; 95 ITD 269 (Del-SB) - Motorola Income. -vs.- DCIT,Non-resident Circle; 94 ITD 91 (Bang.)-Samsusng Electronics Co. Ltd.-vs.- ITO (TDS). 2.3 The ld. Departmental Representative, on the other hand, relied upon the orders f the authorities below. He submitted that the assessee has utilized the services being provided by various service provider companies. The assessee made the payments for such servi .....

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it. Since the assessee had failed to deduct tax at source, sec. 40(a)(ia) of the Act was attracted. The same should be sustained. The ld. DR also stated that the facts of various cases relied upon by the ld. Counsel for the assessee are altogether different. 2.4 In the rejoinder, it is stated by the ld. Counsel that the various service providers had an agreement with M/s. AT & S. Austria and not with the assessee-company. Therefore, the contention of the revenue that the payment is made by t .....

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the process, no income has accrued to M/s. AT & S. Austria. It has only recovered the actual expenditure incurred from all group concerns. 2.5 We have carefully considered the arguments of both the sides and perused the material placed before us. M/s AT & S. Austria had entered into agreements with several companies for utilizing their products. In turn, it permitted its group concerns to utilize those products and the total payments made to the service providers were allocated to the gr .....

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soft Medien 4 Services provided by SAP Osterreich GMbH, see contract with AT&S, Austria SAP Maintenance, charges will be passed on the number of SAP users per legal entity Wartung my SAP.com 1N6 3 181,794 22,388 Yes 5 Services provided by 1BM Osterreich GmBH International Buromaschinen Gessels chaft A. SAP maintenance. Charges will be passed on the number of SAP users per legal entity mySAP.com Lizenzvertrag 1N7 3 20,315 2,502 No SAP R/3 Lizenzgebuhr 1N8 3 84,417 10,396 No SAP R/3 Einfuhurun .....

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ices provided by SAP, Austria were allocated on the basis of number of SAP users. In view of the above, we are of the opinion that the amount paid by M/s AT & S. Austria for using the products of various service provider companies was allocated amongst the group companies including the assessee on the basis of services actually utilized by them.Therefore, the nature of payment by the assessee to M/s. AT & S. Austria was in the nature of reimbursement of the expenditure actually incurred .....

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ubsidiary concerns. It was for the sharing of the expenses of the research which was utilized by the subsidiaries as well as the head office organization that the payments were made by the Indian company and received by the assessee-company. The fact that after the termination what was to happen to the information gathered was not mentioned, indicated that it could not be anything but sharing of the expenses. But the fact that the technical data was jointly obtained and the expenses were shared .....

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Ltd. (supra), wherein their Lordships held as under:- That the amount paid by the applicant could not be said to be in the nature of consideration for offering the services of I. The parties had entered into a mutually beneficial agreement, and incidental thereto, the applicant reimburse a part of the salary of the employee payable by HMFICL. What the applicant paid went to reimbursement of the cost borne by HMFICL on account of employment 1, that too, partly. In this process no income could be .....

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ppeal is allowed. As the facts are similar for the AY 2005-06 considering the fact that for the AY 2004-05 the AO has accepted the claim of the assessee that the reimbursement of the warranty expenses is not liable for TDs u/s 195 of the Act and as the Revenue has not been able to dislodge this finding, the finding of CIT(A) deleting the disallowance mad on account of nondeduction of TDS in respect of warranty expenses stands confirmed. This issue of revenue s appeal is dismissed. So from the af .....

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f Income-Tax (Appeals)[ Ld. CIT(Appeals) ] under section 250 of the Income-tax Act, 1961 ( Act ), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in upholding the disallowance of ₹ 10,128,788/- made by the Learned Deputy Commissioner of Income Tax [ AO'], being reimbursement of rework costs by the Appellant to AT&S Austria by applying the provisions of section 4 .....

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the Ld. CIT(Appeals) and the Ld. AO erred in not following the decision of the Hon'ble Kolkata ITAT in Appellant s own case (ITA No.s 1448 & 1449(Kol) of 2008 dated July 24,2009) for AY 2002-03 and AY 2003-04, wherein it was held that reimbursement of Information technology costs does not result in income in the hands of the recipient an hence, the payments are allowable deductions and not fall within the mischief of section 40(a)(i) read with section 195. 4. That the Ld. AO erred in co .....

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O also relied on the judgment Hon ble Delhi Tribunal in the case of Sahara Airlines Ltd. Vs DCIT( 2002) 83 ITD 11, 41(Delhi) and Hon ble ITAT Hyderabad in the case of Mannesmann Demag Launchhammer Vs. CIT (1988) 26 ITD 198, 202-03( Hyd.). Aggrieved assessee preferred an appeal before CIT(A) who has upheld the order of the AO. 9. Now aggrieved assessee is in second appeal before us. The Ld AR submitted that the decision of the Hon'ble Kolkata ITAT in Appellant s own case (ITA No.s 1448 & .....

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ecided by the Hon ble Kolkata ITAT bench in favour of the assessee in the case of DCIT v. M/s AT&S India Pvt. Ltd. In ITA No. 1262/Kol/2010, 186/Kol/2011, 2071/Kol/2010 & 779/Kol/2012 for AYs 2005-06, 2006-07 & 2007-08 vide dated 29-01-2015. The relevant portion of the order is extracted below : 18. We have considered the rival submissions and gone through facts and circumstances of the case. A perusal of the decision of the Coordinate Bench of this Tribunal referred to supra for the .....

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