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A.D.I.T. (International Taxation) -3 (1) And D.D.I.T. (International Taxation) -3 (1) , Kolkata Versus The Timken Company And Vice-Versa

2017 (12) TMI 299 - ITAT KOLKATA

Nature of receipt from TIL - payment of reimbursements - receipt in nature of FTS - India USA DTAA - payment by TIL to a third party service provider - Held that:- A perusal of the details in Annexure-3 & 4 to this order would go to show that it was third parties who had rendered services to TIL. The actuals billed by the third parties were paid by the Assessee in USA and were later on reimbursed by TIL to the Assessee in India. We are of the view that there is no basis for the AO to conclude th .....

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by the Assessee makes available technical knowledge, experience or skill that the sum in question can be taxed in the hands of the Assessee. There is no evidence brought on record to show that the technical skill, knowledge etc., were made available to TIL by the Assessee. At best the sum in question is taxable only in the hands of the persons who provided the services to TIL and not in the hands of the Assessee. The Transfer Pricing Officer scrutinized the details of reimbursements while examin .....

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A Nos. 2140 & 2141/Kol/2013 - Dated:- 29-11-2017 - Sri N. V. Vasudevan, JM And Shri M.Balaganesh AM For The Department : Shri N.B.Som, Addl. CIT, Sr.DR For the Assessee : Shri Ravi Sharma, AR ORDER N.V. Vasudevan, Judicial Member - These appeals relating to the same Assessee for different Assessment Years involve common issues that arise under identical facts and circumstances. These appeals were heard together. We deem it convenient to pass a common order. 2. We shall first take up for consider .....

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g an addition of ₹ 87,65,928 in AY 2002-03 & a sum of ₹ 1,65,07,400/- in AY 2003-04 on the ground that the aforesaid sums paid by Timken India Limited (TIL) a subsidiary of the Asssessee by way of reimbursement of certain expenses incurred out of India which were paid by the Assessee and which were reimbursed by TIL to the Assessee in India without any mark up. The only issue that arises for consideration in the Cross-Objections filed by the Assessee is as to whether the CIT(A) w .....

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hall first take up for consideration the issue raised in the COs by the Assessee with regard to taxing a sum of ₹ 1,11,74,863 in AY 2002-03 and ₹ 73,19,280 in AY 2003-04 treating the same to be payment of Fees for Technical Services rendered or Fees for Included Services (FTS). The Assessee, is a company incorporated in the United States of America (USA) and is a tax resident of USA. It is engaged in the business of manufacturing and sale of bearings. Multi National Enterprise (MNE) .....

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group company. These services are referred to as Home Office Allocation receipts in the order of assessment and the submissions made by the Assessee before the revenue authorities as well as the Tribunal. Such services rendered to group companies are generally referred to as Intra Group Services (IGS). 4. On 2nd Aug., 2000, the Assessee entered into an agreement with TIL, pursuant to which the Assessee agreed to render various services to TIL in USA and no part of the same was to be rendered in .....

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t of Recipient s corporate objectives. These services and materials may include management services, management information services, such as information resources, systems development and computer. usage, communication services, engineering services, product, process and tool design services, manufacturing services, capital, planning and inventory management services, metallurgical Services, quality assurance services, damage and failure analysis, marketing, sales and customer services, adverti .....

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ness, or it may engage independent service providers or consultants who may also provide these services or materials. Custodial/Stewardship/Governance cost incurred by Provider shall not be invoiced to Recipient and shall remain expenses of Provider. In addition, Provider s costs related to research and development activities will not be invoiced to Recipient pursuant to this Agreement so long as Recipient compensates Provider for the use of any intangible asset produced by virtue of Provider s .....

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t, global availability, development and manufacture of price list capacity support, Emergency Engineering Services, Application of product Engineering, Global Account Management for Deere & Co., Customer Engineering Industrial, S & M Assistance, Evaluation of Manufacturing Processes, process development and capital planning, consulting on facilities issue engineering, Services related to tooling & metrology, tool design, Detail tool design, quality direction and support, EM-Managemen .....

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, others like communications, develop strategy BP, Marketing, Marketing communications, Metallurgical services. All these services have been grouped as Business Strategy Development and Business Strategy Development special projects at Page-6 of Annexure-1. These expenses are on account of services provided by Centralised Unit which are initially borne by Centralized Unit. The same are incurred at a centralised level for all the subsidiaries and associated companies, which have been mentioned in .....

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/- from TIL for AY 2003-04. 6. As we have already seen the sum of ₹ 1,11,74,863 was payable by TIL to the Assessee during the previous year relevant to AY 2002-03. TIL had to deduct tax at source on the aforesaid payment. TIL was of the view that since there was no income chargeable to tax in the hands of the Assessee it was not under any obligation to deduct tax at source on the sums payable to the Assessee. It therefore moved the Authority for Advance Ruling(AAR) for a ruling under Sec.2 .....

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dance Agreement entered into by the Government of India with the Government of USA (hereinafter referred to as DTAA ). It was the further plea of TIL before AAR that even assuming that the payment by TIL to the Assessee constitutes fees for technical services within the meaning of s. 9(1)(vii) of the Act, s. 44D r/w s. 115A of the Act, provide for a gross basis for taxation of such fees in the hands of the Assessee, being a non-resident corporate assessee, at the rate of 20 per cent of such fees .....

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n on admitted facts that there was no element of mark up in the charges paid by TIL to the Assessee, there would be no income and there would be no obligation to deduct tax at source by TIL. 7. The AAR in its ruling on the above questions reported as Timken India Ltd. In Re 273 ITR 67 (Authority for Advance Ruling) took the view that the principle laid down by the Hon ble Supreme Court in the case of A.Sanyasi Rao (supra) in interpreting s. 44AC cannot be called in aid in interpreting s. 44D. Th .....

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tion v. ITO, Bench-D, Mumbai-in ITA No. 4740/Bom/1978 and ITA No. 2888/Bom/1988 (unreported), in which following the decision of Supreme Court in Sanyasi Rao s case (supra) the Tribunal held that an option in respect of deductions under ss. 28 to 43C should also be read in s. 44D and an option to the assessee to avail benefit of those sections should be given. The AAR did not agree with the aforesaid decision and preferred to hold that the principle laid down in the decision of the Hon ble Supre .....

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as was declared in the return of income originally filed. In the return of income, the Assessee specifically pointed out in Note No.1 & 2 to the computation of income (copy at page-17 of the paper book) that the sum of ₹ 1,11,74,863 received by it from TIL was not in the nature of income for the following reason: Note : 1. The aforesaid payments do not constitute fees for included services within the meaning Article 12(4) of the Indo-US Double Taxation Avoidance Agreement (DTAA) since .....

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NIL taxable income after deduction of expenses of matching amount following the principles laid down by the Hon ble Supreme Court of India in Union of India v. A Sanyasi Rao & Others reported in 219 ITR 330 (SC) and that jurisdictional High Court in CIT vs. Dunlop Rubber & Co. Ltd., reported in 142 ITR. 10. The AO brought the sum of ₹ 1,11,74,863 to tax by following the ruling of the AAR referred to earlier in the case of TIL. The following were the relevant observations of the AO .....

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egard to Article 12 of the Indo-US Treaty. While deciding the issue, Ld. Authority observed that Sanyasi Rao s case, 219 ITR 330(SC), will not apply in the facts of the present case. Therefore, respectfully following the above. Ruling, sum of money received for so called reimbursement of services provided is also charged to tax in India as per Article 12 of the Treaty. 11. Before CIT(A) the Assessee reiterated its submission that the sum in question is reimbursement of actual cost incurred by th .....

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id not make available technical knowledge, experience, skill etc., the receipt in question cannot be brought to tax. The Assessee relied on certain judicial pronouncements in support of the above contention. The Assessee further submitted that the sum in question, if it is regarded as income from business, cannot be brought to tax since under Article 5 read with Article 7 of DTAA, because business income can be brought to tax only if the Assessee has a Permanent Establishment (PE) in India. Sinc .....

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; 11174863/- and ₹ 7319280 for the A. Yrs.2002-03 and 2003-04 respectively stated to be reimbursement of cost of services is actually the consideration for various services rendered to the Timken India, like Management services ; Management Information services, System Development Communication Services, Engineering Services Tool design services, manufacturing services, capital planning and inventory managing services, procurement services, advertisement services etc. The compensation for .....

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tax Treaty VT between India and USA. Further, the appellant has not substantiated its claim that the above payments were merely reimbursement of expenses incurred by it. …………………………… I have also carefully agreement the appellant has entered into with the TIMKEN India. It has listed the following services to be rendered by the appellant as detailed below:- (vii) Management services (viii) Management Information Services - .....

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vices and Legal Services. As well as any materials related any of these functions which are necessary. As can be seen from the above, all the above services are mainly coming under the category of technical services. Therefore, the payments for the above has to be categorized as payment of technical fee. Considering the above facts I am of the considered view that the appellant has made payments towards technical fees. In view of the above, the Assessing Officer has rightly treated the receipts .....

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val submissions. The issue for consideration is as to whether the receipt by the assessee from TIL can be said to be in the nature of FTS. We have already set out the details of services rendered by the Assessee to TIL. We shall now examine the relevant clauses of the DTAA to see if the sum received by the Assessee a tax resident of USA can be brought to tax as FTS under the Treaty. The relevant articles in the treaty are as follows: ARTICLE 12: Royalties and fees for included services : (1) Roy .....

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sting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use or disposition thereof and ; (b) payment of any kind received as consideration for the use of or the right to use, the industrial, commercial or scientific equipment other than payments derived by an enterprise in paragra .....

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h a payment described in para 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. 15. A plain reading of the above clause makes it clear that only such technical and consultancy services are covered by Article 12(4) as either (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information referred to in Article 12(3), or (b) ma .....

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payment should be in consideration for rendering of technical or consultancy services, but in addition to the payment being consideration for rendering of technical services., the services so rendered should also be such that make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 16. The definition of fees for technical services as given in Explanation 2 to section (1)(vii) of the I.T. Ac .....

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e head salaries . Section 9(1)(vii) Explanation 2, stops with the rendering of technical services. The DTAA goes further and qualifies such rendering of services with words to the effect that the services should also make available technical knowledge, experience, skill etc. to the person utilizing the services. The meaning of the expression make available were considered by the Tribunal in the case of Raymond Ltd. Vs. DCIT (2003) 80 TTJ (Mum) 120. The Tribunal after elaborate analysis of all th .....

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ibed or defines more clearly the antecedent noun (services ) but also gives additional information about the same in the sense that it requires that the services should result in making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed is that a mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge, etc. by himself in his business .....

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saged which will remain at the disposal of the person utilizing the services. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience skill etc. 17. In the Raymond s case (supra), the Tribunal also held that rendering of technical services cannot be equated with making available the technical services. In the case of CESC Ltd. v. DCIT [2003] 80 TTJ (Cal) (TM) 806: (2003) 87 ITD 653 (Cal)(TM) also the q .....

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to result in making the technology available to person receiving the technical services in question. The Tribunal also referred to with approval the extracts from protocol to the Indo-US tax treaty to the effect that generally speaking, technology will be considered made available, when the person acquiring the service is enabled to apply the technology. 18. We have already set out the nature of services to be rendered by the assessee to TIL. A perusal of the clauses of Agreement dated 2.8.2000 .....

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rm has mastered the science of producing cholesterol free oil and wishes to market this product worldwide. It hires an American Marketing consultancy firm to do computer simulation of the world market for such oil and to advise it on marketing strategies. Are the fees paid to the US company for included services ? Analysis : the fees would not be for included services. The American company is providing a consultancy which involves the use of substantial technical skill and expertise. It is, howe .....

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US governments, also makes it clear that consideration for advisory services rendered cannot be treated as fees for included services under Article 12(4)(b). 19. The learned DR placed reliance on a decision of the ITAT Cochin Bench in the case of US Technology Research Pvt.Ltd. v. ACIT 61 SOT 19 (Cochin). We have perused the said decision and find that in para-37 of the order, the Tribunal has found as a fact that technology or technique was made available to the recipient. On the facts of the p .....

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eaty does not have make available clause. We are of the view that this argument is fallacious because we are in the present case dealing with a payment made to Assessee who is admittedly a tax resident of USA. The receipt in question by the Assessee therefore cannot be looked at from the point of DTAA between France and India. 20. For the reasons set out above, we are of the view that learned CIT(A) indeed erred in holding that the monies received by the assessee from TIL constitute fees for inc .....

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, the Assessee filed a writ petition before the Hon ble Calcutta High Court in WP 13932 (W) of 2005 in M/S Timken India Limited And Others v. Deputy Commissioner of Income Tax, Circle - 8, KOLKATA AND OTHERS. The Hon ble Calcutta High Court by its judgement dated 28.3.2016 was pleased to hold that s. 44D r/w s. 115A of the Act, provide for a gross basis for taxation of such FTS in the hands of the Assessee, being a non-resident corporate assessee, at the rate of 20 per cent of such fees. A simil .....

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mark up in the charges paid by TIL to the Assessee, there would be no income and there would be no income chargeable to tax in the hands of the Assessee. On the above submission, the learned DR s plea was that the decision of the Hon ble Calcutta High Court has not attained finality and further no such examination regarding absence of mark up on the charges levied by the Assessee on TIL has been undertaken by the revenue authorities. We are of the view that this plea of the AR is only academic, .....

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e conclusions in para-20 & 21 would hold good for AY 2003-04 also as the facts and circumstances are similar. The nature of services rendered for which TIL paid Assessee the sums in question for AY 2003-04 is given as Annexure-2 (Pages 1 to 7). 22. Now we shall deal with the grounds raised by the revenue in its appeals viz., challenging the correctness of the order of CIT(A) deleting the addition of ₹ 87,65,928 in AY 2002-03 & a sum of ₹ 1,65,07,400/- in AY 2003-04 on the gro .....

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acted only as a conduit and derived no income from such reimbursements which were at actual amounts spent by the Assessee on behalf of TIL, with no profit element. The plea of the Assessee was that the amount received/receivable from TIL was only reimbursements, without having any element of income is not taxable in India. The sum so received/receivable by the Assessee from TIL for AY 2002-03 & 2003-04 was ₹ 87,65,928 and ₹ 73,19,280 respectively. These are referred to as Charge .....

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of services that are availed by TIL inter alia, includes Legal, Inspection and survey, Global Cargo Insurance, Internet usage, courier, vehicle leasing and rental, usage of various application software, travelling etc. The Legal expense forms the major head under which most of the expenses are booked. The in-house attorneys provide services on Indian law, antitrust advice, affiliation and assistance risks, advice on intellectual property etc. The second main head is the inspection and survey cha .....

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ssee in Note-3 highlighted that the sum of ₹ 87,65,928 was reimbursements and therefore not chargeable to tax, as follows: 3. The Company has received reimbursements from Timken India Limited (TIL) on account of certain services rendered to TIL by some third parties for which the company has acted only as a conduit. The amount received/receivable from TIL was only reimbursements and without any mark up on the amounts charged by such third parties. Such reimbursements, without having any el .....

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w that the fees received for imparting Training, certainly made available technical know-how, experience, skill etc., and therefore was nothing but fees for included services within the meaning of Article 12 of the respective Treaty. He also held that Legal expenses and Inspection & Survey Expenses were incurred for providing Technical Services to Timken-India, These are part and parcel of the Technical Assistance fees paid to the assessee. Since consolidated amount of fees inclusive of all .....

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e AO brought to tax the sum of ₹ 87,65,928 as fees for included services. The break of the reimbursement and heads under which expenses were incurred for AY 2003-04 are given in Annexure-4 (Page-1 to 3 ) to this order. 26. Before CIT(A) the Assessee submitted that no services were rendered by the Assessee in consideration of the sum paid as reimbursement by TIL. The Assessee reiterated that the sum in question was merely recovery of actual expenditure incurred by the Assessee on behalf of .....

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the Assessee. Without prejudice to the above submissions, the Assessee submitted that at best the sum in question is taxable only in the hands of the persons who provided the services to TIL and not in the hands of the Assessee. The Assessee also pointed out that the Transfer Pricing Officer scrutinized the details of reimbursements while examining the international transaction of reimbursement by TIL to the Assessee u/s.92 of the Act and found that the Assessee made no profit on such reimburse .....

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d them as reimbursement and not subjected them to tax. The CIT(A) held that the expenses claimed as reimbursement of actual expenses of ₹ 8765928/- and Rs.l,65,07,4001 for AY 2002-03 & 2003-04 cannot be categorized as technical services or any other services rendered for the purpose of making profit. Accordingly, he held that taxing them was not justified. The A.O. was directed to delete the addition of ₹ 87,65,928/- and Rs..1,65,07,400/- for the assessment Years 2002- 03 and 200 .....

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t the remaining sum claimed as reimbursements to tax. According to him in AY 2002-02 & 2003-04, the Assessee has not produced evidence to show that the sums received as charge back from TIL were actual reimbursements. 29. He submitted that in the context of obligation to deduct Tax at source, if TIL had made payments directly to the person who rendered services, they would be obliged to deduct tax at source. If the Assessee pays the sums to the person rendering service who is admittedly not .....

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context of obligation to deduct tax at source. For the very same reason we are of the view that the reliance placed by the learned DR on ITAT Kolkata Bench decision in the case of Ershisanye Construction ITA No.756/Kol/2015 cannot be accepted. 30. The learned DR relied on the decision of the Chennai ITAT in the case of Van Ord ACZ Marine Limited Vs. ADIT ITA No.1733/Mds/2011 for AY 2003-04 in which similar claim of the Assessee that monies received were not accepted by the Tribunal for the reaso .....

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is no merit in this appeal by the Revenue. A perusal of the details in Annexure-3 & 4 to this order would go to show that it was third parties who had rendered services to TIL. The actuals billed by the third parties were paid by the Assessee in USA and were later on reimbursed by TIL to the Assessee in India. We are of the view that there is no basis for the AO to conclude that the payment of reimbursements were in the nature of FTS. As rightly contended on behalf of the Assessee, the Asse .....

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of the Assessee. There is no evidence brought on record to show that the technical skill, knowledge etc., were made available to TIL by the Assessee. At best the sum in question is taxable only in the hands of the persons who provided the services to TIL and not in the hands of the Assessee. The Transfer Pricing Officer scrutinized the details of reimbursements while examining the international transaction of reimbursement by TIL to the Assessee u/s.92 of the Act and found that the Assessee mad .....

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peals of the Revenue for AY 2002-03 & 2003-04. 32. In view of the conclusions on merits as above, we are of the view that Gr.No.1 to 3 raised in CO No.32/Kol/10 for A.Y.2002-03 challenging the validity of initiation of reassessment proceedings, is academic and does not require any adjudication for the present. 33. In the result, ITA No. 397 & 398/Kol/2010 are dismissed while CO No.32/Kol/2010 is partly allowed, while CO No.31/Kol/2010 is allowed. 34. ITA No.2139/Kol/2013, ITA 1268/Kol/20 .....

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tively. The issues involved in all these appeals are identical to the issues which we have already dealt with in ITA No. 397 & 398/Kol/2010 and CO No.32/Kol/2010 & CO No.31/Kol/2010 for AY 2002-03 & 2003-04. 35. Ground No.1.0 to 1.5 in all the appeals by the Assessee are with regard to the action of the Revenue authorities in bringing to tax a sum of ₹ 2,25,29,728 in AY 2004-05, ₹ 2,70,33,020 in AY 2005-06, ₹ 1,98,94,143 in AY 2006-07 & ₹ 2,30,99,350 in AY .....

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the revenue authorities as well as the Tribunal. Such services rendered to group companies are generally referred to as Intra Group Services (IGS). 36. The nature of the services rendered by the Assessee to TIL are set out in the annexures to this order as follows: For AY 2004-05 For AY 2004-05 the Assessee disclosed receipts from TIL of only ₹ 1,90,23,485 and this the actual services provided by Assessee to TIL as per Annexure-5. The AO noticed that in Form 3CEB a figure of ₹ 2,25,2 .....

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aper book filed for AY 2004-05. For AY 2005-06: It can be seen from Annexure-6 that the total amount is ₹ 2,66,64,632 whereas as per the order of assessment as well as grounds of appeal before Tribunal the sum in question is shown as ₹ 2,70,33,020. According to the AO as per the TDS certificate the total comes to ₹ 2,70,33,020. The Assessee s explanation was that the difference arises on account of exchange rate fluctuation. Annexure-6 gives the details of the Debit Notes and t .....

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or AY 2007-08. 37. The case of the revenue for regarding the payments received from the Assessee from TIL as FTS is the same reason as was given in AY 2002-03 & 2003-04. We have perused the details and the nature of the expenses set out in Annexure 5 to 8 and the relevant bills in the paper book filed by the Assessee for AY 2004-05 to 2007-08. We find the nature of services is identical as the services rendered in AY 2002-03 and 2003-04. We have already dealt with this issue elaborately in t .....

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04-05 to 2007-08. 38. The next issues that arise for consideration in appeals by the Assessee is with regard to taxing some of the items of reimbursement of expenses by TIL to the Assessee as FTS. The Assessee had received payments from TIL on account of certain services rendered to TIL by some third parties for which the Assessee made payments and which TIL reimbursed to the Assessee. It is the plea of the Assessee that it acted only as a conduit and derived no income from such reimbursements w .....

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ho rise invoice on the Assessee directly. The same are charged back to back by the Assessee to the service recipients including TIL. The kind of services that are availed by TIL inter alia, includes Legal, Inspection and survey, Global Cargo Insurance, Internet usage, courier, vehicle leasing and rental, usage of various application software, travelling etc. The nature of expenses in all these AYs 2004-05 to 2007-08 is same as it was in AY 2002-03 & 2003-04. We have already seen that in AY 2 .....

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rgeable to tax. However, the AO picked up some of the items of reimbursement of expenses and held that those were in the nature of FTS chargeable to tax in the hands of the Assessee. The CIT(A) confirmed the orders of the AO for AY 2004-05 to 2007-08. Aggrieved by those additions, the Assessee is in appeal for AY 2004-05 to 2007-08. We will now discuss the nature of the sums claimed as reimbursement by the Assessee which were considered as FTS by the AO/CIT(A) in AY 2004-05 to 2007-08. 41. In AY .....

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r this head included the following: Table -II Sl. No. Item Description Amount (Rs.) (i) Equipment Maintenance 3,15,453.34 (ii) Purchase of Software 5,54,288.94 (iii) Consultancy Charges 9,941.96 (iv) Salary payments 4,14,579.30 (v) Training Expenses 75,923.89 Total 1,37,0187.90 Items as noted above are such that they indicate that some services were rendered by Timken USA to Timken India within the holistic framework of the Service Agreements, The items shown above are also not in the nature of .....

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ssessee, the CIT(A) confirmed the order of the AO except for the sum of ₹ 75,923 which is the last item in the chart given in the earlier paragraph towards training expenses as he found that it was cost of printing study material provided training of employees of TIL in USA. The relevant observations of the CIT(A) are contained in para25 to 40 of his order. 43. We have perused the orders of the revenue authorities on this issue. The AO has not given any basis as to how and why the sum of & .....

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t has submitted further written submissions vide letter dated 20-03-2012 against the remand report issued. I have considered the submissions made by the appellant and the Assessing Officer s comments in the remand report. It is observed that out of the various chargeback payment made by Timken India, the Assessing Officer has identified chargeback receipts in the nature of Equipment Maintenance, Purchase of Software, Consultancy Charges, Salary Payments and Training Expenses as taxable on the co .....

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f appellant, the said receipts could only be reimbursement but the taxability in its hands needs to be checked based on taxability of the receipts in the hands of ultimate recipient and the appellant. 23. The Assessing Officer in the remand report has observed that the above payments made by Timken India Ltd. are not in the nature of day to day activities and the payments stand in same footing as home office allocation as taxable in India as fees for included services. The observations of the As .....

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pellant directly under service agreement dated 02-08-2000 to TIL. 24. In the facts and circumstances the taxability in the hands of appellant needs to be examined based on taxability of such receipts in hands of ultimate recipient/service provider. The Assessing Officer has failed to consider the taxability of each item of receipts in India under the Income Tax Act or under the provisions of Treaty (DTAA) and has considered the specified receipts as taxable as fees for technical services general .....

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ing the sum in question in the hands of the Assessee and that taxability of the said sum should be considered only in the hands of the service provider. We agree with the submission of the Assessee and are of the view that on this short ground the addition sustained by the CIT(A) should be deleted and the same is hereby deleted. In view of the aforesaid conclusion, we are of the view that there is no need to look into the description of the service and find out whether it is in the nature of FTS .....

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sums to the total income of the Assessee treating the same as payment of FTS by TIL to the Assessee. The following were the relevant observations of the AO. 5.3. Details of the receipts under this category were called for. On analysis of the items, it was found that. the amounts received under this head included the following: Table -II Sl. No. Item Description Amount (Rs.) (i) Purchase of Software 8023 (ii) Consultancy Charges 4543 (iii) Salary payments 534540 (iv) Training Expenses 8299 Total .....

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own under the description Chargeback stands on the same footing as home office allocation .Therefore out of the total amount of R.s. 4708040/-, ₹ 5554005/- is held to be taxable as Included Services . 46. On appeal by the Assessee, the CIT(A) confirmed the order of the AO. The relevant observations of the CIT(A) are contained in para 4.3 to 4.8 of his order. 47. We have perused the orders of the revenue authorities on this issue. The AO has not given any basis as to how and why the sum of .....

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and circumstances of the case, the taxability in the hands of appellant needs to be examined based on taxability of such receipts in hands of ultimate recipient/service provider. The Assessing Officer has failed to consider the taxability of each item of receipts in India under the Income Tax Act or under the provisions of Treaty (DTAA) and has considered the specified receipts as taxable as fees for included services generally. Hence, taxability of each of the items is to be examined specifical .....

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ity of the said sum should be considered only in the hands of the service provider. We agree with the submission of the Assessee and are of the view that on this short ground the addition sustained by the CIT(A) should be deleted and the same is hereby deleted. In view of the aforesaid conclusion, we are of the view that there is no need to look into the description of the service and find out whether it is in the nature of FTS or not and as to whether it would be taxable under DTAA or not and a .....

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of FTS by TIL to the Assessee. The following were the relevant observations of the AO. 5.4. Details of the receipts under this category were called for. On analysis of the items, it was found that. the amounts received under this head included the following: Table -II Sl. No. Item Description Amount (Rs.) (i) Equipment Maintenance 95,985 (ii) Purchase of Software 1,52,349 (iii) Consultancy Charges 1953 (iv) Salary payments 70,28,407 (v) Training Expenses 2,70,131 Total 75,48,825 Items as noted .....

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on Chargeback stands on the same footing as home office allocation .Therefore out of the total amount of R.s. 16,046,673//- ₹ 75,48,825/- is held to be taxable as Included Services . 50. On appeal by the Assessee, the CIT(A) confirmed the order of the AO to the extent of ₹ 2,50,287. The relevant observations of the CIT(A) are contained in para 18 to 39 of his order. 51. We have perused the orders of the revenue authorities on this issue. The AO has not given any basis as to how and w .....

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The appellant has submitted its submissions supporting non-taxability of the said amounts in the remand proceedings as well as in the submissions filed during appellate proceedings. I have considered the details submissions made by the appellant and the observations in the remand report. The appellant contention that chargeback receipts constitute mere reimbursement of expenses and hence cannot be taxed in its hands is not correct. Though from the standpoint of appellant, the said receipts coul .....

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same footing as home office allocations and hence liable to tax as fees for technical services does not appear to be fully true & correct since the chargeback payment represents services provided by third party in which appellant acted as conduit and claimed as reimbursement by the appellant in some cases and in others it is the allocation of expenses on proportionate basis whereas home office expenses represented services given by the appellant directly under service agreement dated 02-08- .....

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amined specifically. 52. From the above observations of the CIT(A) it is clear that the Assessee is not the recipient of the sums in question and it was only a conduit for payment by TIL to a third party service provider. In such circumstances, we fail to see how it can be charged to tax in the hands of the Assessee. In this regard in Ground No.2.0 of the grounds of appeal the Assessee has specifically challenged the action of the CIT(A) in taxing the sum in question in the hands of the Assessee .....

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DTAA or not and also the effect of the ruling of the AAR in the case of Timken India Ltd (supra) which was overruled by the Hon ble Calcutta High Court. The addition of ₹ 2,50,287 made in AY 2006-07 is directed to be deleted. 53. In AY 2007-08, the AO considered certain items payment towards reimbursements as falling within the ambit of services contemplated under the service agreement dated 2.8.2000. The AO therefore added the aforesaid sums to the total income of the Assessee treating th .....

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Laboratory expenses 685849 TIMPL (i) Professional/Legal Fees 34214 (ii) -do- 11927 (iii) -do- 7538 (iv) -do- 13678 TIL (i) Salary 11908399 (ii) Professional Fees 243451 (iii) Computer Software 125666 (iv) Internet Charges 168277 (v) Driving Lesson Charges 29672 (vi) Advertising 604295 (vii) Storage Charges 679290 (viii) Internet Transaction charges 55443 (ix) Communication expense 371120 Total 27090862 Items as noted above are such that they indicate that some services were rendered by Timken US .....

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ut of the total amount of R.s. 42317937/-, ₹ 24268627/- is held to be taxable as Included Service. 54. On appeal by the Assessee, the CIT(A) confirmed the order of the AO partially to the extent of ₹ 1,23,90,515 and another sum of ₹ 5,14,705. The relevant observations of the CIT(A) are contained in para 16 to 79 of his order. 55. We have perused the orders of the revenue authorities on this issue. The AO has not given any basis as to how and why the sum of ₹ 2,42,68,627 i .....

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submissions supporting non-taxability of the said amounts in the remand proceedings as well as in the submissions filed during appellate proceedings. I have considered the details submissions made by the appellant and the observations in the remand report. The appellant contention that chargeback receipts constitute mere reimbursement of expenses and hence cannot be taxed in its hands is not correct. Though from the standpoint of appellant, the said receipts could only be reimbursement but the t .....

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cations and hence liable to tax as fees for technical services does not appear to be fully true & correct since the chargeback payment represents services provided by third party in which appellant acted as conduit and claimed as reimbursement by the appellant in some cases and in others it is the allocation of expenses on proportionate basis whereas home office expenses represented services given by the appellant directly under service agreement dated 02-08-2000 to TIL. 19. In the facts and .....

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