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2016 (3) TMI 920 - ITAT MUMBAI

2016 (3) TMI 920 - ITAT MUMBAI - TMI - Disallowance of reimbursement of expenses - non deducted tax at source with regard to such payments - withholding of tax - Held that:- FAA had rightly held that section 40(a)(i)had no role to play regarding the payments made by the assessee to overseas companies. Secondly, services in the nature of recruitment or placement agency do not come under the purview of fees for included services within the meaning of Art.12(4)(b)of the DTAA.

We would al .....

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for the payment made. Considering the above, we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity. So, confirming his order, we decide effective ground of appeal against the AO. - ITA No. 7688/Mum/2012, CO.41/Mum/2014, ITA/7688/Mum/2012,AY.-2007-08 - Dated:- 19-2-2016 - Sh. Rajendra, Accountant Member and Ram Lal Negi,Judicial Member For The Assessee : Shri Paras Sawala and Harsh Kapadiya For The Revenue : Shri Ajay Modi Order u/s.254(1)of the Inco .....

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found that the assessee had made certain payments to its overseas group companies, that it had not deducted tax at source with regard to such payments. He observed that payments made by the assessee were in nature of the Technical/Managerial services, that the assessee was liable to deduct tax as per the provisions of section 195(1)r.w.s.9(1)(vii)of the Act. He issued a notice to the assessee asking it as to why not same should be disallowed as per the provisions of Section 40(a)(ia)of the Act .....

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see had handed over the job of recruitment in foreign territories to them, that the payments were in the nature of technical services as it required technical expertise, that it was Fees for Technical Services(FTS), that as per the amended provisions of section 9(1)(vii)income would deemed to arise or accrue in India even if payment was made outside India/the services were rendered outside India. Finally, he made a disallowance of ₹ 97,95,014/-invoking the provisions of section 40(a)(ia)of .....

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and professional charges, recruitment charges and repairs / maintenance cost, that the overseas group companies initially incurred the expenses by way of payment to third parties, that the payment were made on behalf of the assessee, that the expenses were booked at cost and there was no mark-up, that no income had accrued to the overseas group companies from the amounts reimbursed by the assessee. It was further stated the complete details of reimbursement of expenses to overseas group compani .....

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id / payable would not qualify as make available services under the DTAA, that while disallowing the amount in question, u/s 40(a)(ia) of the Act, the AO had not considered the provisions of section 90(2) of the Act, that as per the Article 12(4) of the Indo-USA Tax Treaty services will qualify as FDS only if it made available technical knowledge, experience, skill, know-how to the person receiving the services. After considering the submission of the assessee and the assessment order, the FAA h .....

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ning expenses (1.15 lacs assessee 97.95 lakhs - 96.43 lakhs) were towards communication expense (Rs.3,252/-legal & professional charges (47,800), printing & stationery expenses (Rs. 12,226) and repairs / maintenance cost (Rs.88,065), that all these expenses were reimbursement only and were not in the nature of FTS, that there was no element of income/ profit embedded in such payments, that the provisions of section 195(1)were not attracted. Finally, he held that the disallowance made by .....

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erused the material before us.We find that the assessee had incurred an expenditure of ₹ 97.95 lakhs towards reimbursement, that out of the above amount ₹ 96.95 lakhs were paid for recruitment charges, that it had reimbursed the foreign entities who had undertaken search process for recruiting employees on its behalf, that expense was paid at cost price and there was no mark up, that the TPO in his order had not disturbed the claim made by the assessee, that vide its letter dated 28. .....

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s entities, that payment was pure and simple reimbursement, that provisions of section 195 were not attracted for reimbursements. Here, we would like to refer to the relevant portion of the judgment of Seimens Aktiongesellschaft (supra) delivered by the Hon ble Bombay High Court and same reads as under: 33. That leaves us with the last contention as to whether the amounts by way of reimbursement are liable to tax. To answer that issue, we may gainfully refer to the judgment of a Division Bench o .....

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(supra). The learned Division Bench was answering the following question : "Whether, on the facts and in the circumstances of the case, the amounts received by the assessee (English company) from M/s Dunlop Rubber Co. (India) Ltd. (Indian company) as per agreement dt. 29th Jan.,1957 constituted income assessable to tax ?" On considering the issue the learned Bench noted that the Tribunal was of the view that what was recouped by the English company was part of the expenses incurred by .....

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