TMI Blog2017 (5) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... n the internal cost incurred by the assessee and external cost borne or paid by the assessee on behalf of GIA India. There is no confusion in this regard and the lower authorities have unnecessarily made an issue out of that. whether the expenses incurred on cost to cost basis will also be included in the amount of FTS ? - Taxability of FTS on gross basis, it has been fairly admitted 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 . We find that this controversy has now been put to rest by Hon’ble Supreme Court by way of its latest judgment in the case of DIT vs A.P. Moller Maersk (2017 (2) TMI 993 - SUPREME COURT ). 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 circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnical services to GIA India, which happens to be a group company of the assessee company. In this regard, the assessee had entered into a training and technical service agreement dated 1-11-2008 (hereinafter referred to as agreement) with GIA India for training the employees of GIA India and providing technical services for the implementation of grading policies, procedures and processes. In pursuance to the said agreement, the assessee raised separate debit notes for fee for training and technical services rendered by it to GIA India and also on account of reimbursement of travel expenses, group health insurance and other minor incidental expenses incurred by it pertaining to the aforesaid assignment. The assessee filed its return of income declaring total income of ₹ 10,61,84,934. The assessee excluded from its income, the amount received by way of reimbursement of aforesaid expenses for the reason that these constituted actual cost borne by the assessee, and therefore, these were not in the nature of income. The AO was of the view that the total amount so received by the assessee from GIA India was liable to be included in the income of the assessee including the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separately entitled for reimbursement of expenses in addition to fee received on account of technical services. It was submitted that there is no quarrel on the legal proposition that if the FTS is taxable on gross basis, no deduction is allowable against that. However, if an amount is not part of FTS and if the amount is merely on account of reimbursement of expenses wherein no profit element is embedded, then it cannot be taxed as part of FTS. In support of this proposition, he relied upon a very recent judgement of Hon ble Supreme Court in the case of DIT vs A.P. Moller Maersk 392 ITR 186 (SC). It was further submitted that as per terms of the agreement, the assessee was entitled to receive from GIA India fee on account of cost incurred by the assessee to employ the individuals for performing the training and technical services plus a mark up of 6.5%. In addition to that, assessee was entitled to recover from GIA India by way of reimbursement the expenses incurred by it, on account of third party cost and expenses. The parties to the agreement have also understood the terms in the manner that FTS is separate from reimbursement of third party cost and expenses etc. The AO was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmance of the services rendered under the Agreement, including without limitations accountants, attorneys, marketing consultants and agencies and information technology service providers, etc) and (ii) software, materials and items paid for by service Provider in connection with or related to the performance of the Services (collective, (i) and (ii) are referred to as Third Party Costs ). If Third Party Costs are incurred by Service Provider for the benefit of Customer and other customers, then Service Provider will allocate the Third Party Costs between and among Customer and such other customers in a manner determined by Service Provider in its sole discretion. Service Provider will invoice Customer the third Party Costs 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. 10. Thus, from the perusal of the above, it may be noted that assessee offered to tax only the amount of fee received for providing training and technical services and amount of expenses received by way of reimbursement on cost to cost basis were not shown as taxable in the hands of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt by way of its latest judgment in the case of DIT vs A.P. Moller Maersk 392 ITR 186 (SC). Relevant part of the judgement is reproduced hereunder:- 10. The facts which emerge on record are that the assessee is having its IT System, which is called the Maersk Net. As the assessee is in the business of shipping, chartering and related business, it has appointed agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation etc. through these agents. Aforementioned three agents are appointed in India for the said purpose. All these agents of the assessee, including the three agents in India, used the Maersk Net System. This system is a facility which enables the agents to access several information like tracking of cargo of a customer, transportation schedule, customer information, documentation system and several other informations. For the sake of convenience of all these agents, a centralised system is maintained so that agents are not required to have the same system at their places to avoid unnecessary cost. The system comprises of booking and communication software, hardware and a data communications network. The syste ..... X X X X Extracts X X X X X X X X Extracts X X X X
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