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TMI Blog2017 (5) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance amounts reimbursed to the Appellant by 'GIA India Laboratory P. Ltd.' as the income of the Appellant for the year. 1: 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the travel and group health insurance amounts reimbursed to it cannot be treated as its income and the stand taken by the Assessing Officer in this regard is illegal, incorrect, erroneous and misconceived and the Commissioner of Income-tax (Appeals) ought to have held as such. 1: 3 The Appellant submits the Assessing Officer be directed to delete the addition so made by him and to re-compute its total income accordingly." 3. The assessee is mainly aggrieved by the actions of the lower authorities in treating the amount of travel, group health insurance and other incidental expenses received by it by way of reimbursement from M/s GIA India Laboratory P Ltd (hereinafter called GIA) as income of the assessee for the year under consideration. 4. We have heard at length submissions of both the parties and decide this issue as under. 5. The brief background is that assessee is a non-resident company incorporated in USA and duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice provided by the appellant to an Indian company. Further to that, even I have no hesitation to hold here that the claim of the appellant is completely incorrect and justified as there is no such provision of any clause in the said agreement entered into by the appellant and its Indian company that any such payment has to be made in connection with the services availed by Indian company. In view of the same, I am in complete agreement with the A.O's finding that the changing of the name of such payment, which is not having any support of any agreement clause or by any business parlance, the liability of such payment on account of Indian company for incurring such expenditure. Therefore, I consider it proper and appropriate to hold that the A.O has rightly taxed the said payment under the head 'Fee for technical services'. Accordingly, the addition so made by the A.O is confirmed." 6. Aggrieved, assessee filed appeal before the Tribunal. During the course of hearing before us, Ld. Counsel of the assessee vehemently contested the orders passed by the lower authorities. It was inter-alia submitted that agreement entered into by the assessee with GIA India clearly lays down tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld. 8. We have gone through the orders passed by the lower authorities and arguments made before us by both the sides. 9. The brief facts are that the assessee company incorporated in USA is engaged in grading and certification of diamonds. GIA India, (i.e. the company incorporated in India) entered into an agreement with the assessee company for availing training and technical services. The terms regarding payment of fee and reimbursement of expenses read as under:- "1.2 Fees and Payment Terms for Training and Technical Services. Customer will pay Service Provider the costs incurred by the Service Provider to employ the individuals(s) performing the training or technical service plus a markup of six and one-half percent (6.5%). Service Provider will invoice Customer the fees due for the services and Customer will pay such invoices within forty-five(45) days after receipt of the invoice. Such invoices may be monthly or quarterly as specified by Service Provider. 1.3. Reimbursement of Third Party Costs Customer will reimburse Service Provider for (i) fees paid by Service Provider to third party service providers, advisors and consultants in connection with or related to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia was in the nature of cost incurred over and above the cost of employment. This interpretation is further re-enforced when we read the next clause, i.e. clause 1.3 which says that GIA India shall reimburse to the assessee any expenses incurred on account of thirty party costs. The drafting of the agreement and manner of placements the clauses in the agreement clearly make out a case that FTS is different from the expenses incurred on third party costs. Thus, there is a clear bifurcation in the agreement between the internal cost incurred by the assessee and external cost borne or paid by the assessee on behalf of GIA India. In our mind, there is no confusion in this regard and the lower authorities have unnecessarily made an issue out of that. 12. With regard to the taxability of FTS on gross basis, it has been fairly admitted by the Ld. Counsel of the assessee that there is no dispute on the proposition that FTS has to be taxed on gross basis. However, the issue that arise here for our consideration is whether the expenses incurred on cost to cost basis will also be included in the amount of FTS. We find that this controversy has now been put to rest by Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese payments were reimbursement in the hands of the assessee and the reimbursement was accepted as such at arm's length. Once the character of the payment is found to be in the nature of reimbursement of the expenses, it cannot be income chargeable to tax........" (Emphasis supplied in bold) Thus, from the above judgement it is clear that the amount received by the assessee on account of reimbursement which has been received over and above the amount of FTS cannot be included and taxed as part of FTS. Our attention has been drawn on the Transfer Pricing Study report and Transfer Pricing orders passed in the case of GIA India from where it can be made out that no profit element has been included in the expenses reimbursed. Thus, taking into account the totality of facts and circumstances of the case, we find that addition made by the AO is contrary to facts and therefore, is directed to be deleted. 13. It was jointly stated by both the parties that facts and issues involved in AY 2011-12 ITA No.385/M/16) are same as in AY 2009-10. Therefore, following our order for AY 2009-10 , addition made by the AO is directed to be deleted for AY 2011-12 also. 14. In the result, both the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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