TMI Blog2019 (8) TMI 1723X X X X Extracts X X X X X X X X Extracts X X X X ..... depicted as 'Administration charges' by BIPL in its books of account. Quite clearly, payments by way of reimbursement of expenses incurred on behalf of the payer cannot be construed as income chargeable to tax in the hands of the payee, a proposition which is approved by the Hon'ble Bombay High Court in the case of Siemens Aktiongesellschaft [ 2008 (11) TMI 74 - BOMBAY HIGH COURT ] . In view of the above discussion, we direct the Assessing Officer not to treat any part of reimbursement of expenses received by the assessee as income of the assessee. The assessee gets the relief accordingly on Ground no. 2 of the aforesaid appeal. - ITA Nos. 1750 to 1753/MUM/2015 - - - Dated:- 21-8-2019 - G.S. Pannu, Vice President And Ravish Sood, Member (J) For the Appellant : Percy Pardiwalla and Vasanti Patel. For the Respondents : Narendra Kumar. ORDER G.S. Pannu, Vice President 1. The captioned four appeals are preferred by the assessee for Assessment Years 2006-07 to 2008-09 and 2011-12 and involve common issues. As a consequence, the appeal in ITA No. 1750/Mum/2015 pertaining to Assessment Year 2006-07 is taken as the lead case in order to appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eimbursement Agreement and Rebate Agreement with Peacock Stores Limited which were not resolved or explained. Ground No. 3: Levy of interest under section 234B of the Act On the facts and in the circumstances of the case and in law, the learned AO has erred in levying interest under section 234B of the Act. Ground No. 4: Not granting credit of tax paid by the payer against 201 demand On the facts and in the circumstances of the case and in law, the learned AO has erred in not granting credit for taxes partly discharged by BIPL in pursuance to the order passed under section 201 of the Act. Ground No. 5: Levy of demand for recovery of tax already raised on deductor On the facts and in the circumstance of the case and in law, the learned AO erred in recovering tax on same income i.e., from the payer (BIPL) by passing an order under section 201(1) and 201(1A) of the Act and from payee (the Appellant) by passing an order under section 147 of the Act. 4. As a perusal of the aforesaid Grounds of appeal reveal, the sum and substance of the dispute relates to the characterization of amount received by assessee from M/s. Braitrim India Pvt. Ltd. (in short 'BIPL&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration, assessee-company received a sum of ₹ 26,22,036/- on this count. Such receipts from BIPL have been held to be taxable in the hands of the assessee-company in India as royalty. 6. On the contrary, the stand of the assessee, which has been consistently raised before the lower authorities and also reiterated before us, is to the effect that the receipt from BIPL represent mere reimbursement of administrative charges which is not chargeable to tax in India. At the time of hearing, the learned representative for the assessee explained in detail that initially the retailer raised invoices on assessee computing the rebate due, based on the volume of purchases made by them during a specified period from Braitrim group concerns worldwide, which is met by the assessee-company. Thereafter, the assessee-company raises a consolidated invoice on its group companies worldwide including BIPL specifying the amount of rebate due from each of the concerns based on the volume of sales made by them to the respective retailers during the period to which the invoice relates to. It has been explained that on the strength of such invoicing made by the assessee-company, the Indian subsidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CRA prescribes that no royalty or licensing fee shall be charged or paid separately pursuant to this agreement. It has been emphasised before us that use of the word separately in clause 5.3 shows that the sums payable under the CRA can be understood as in the nature of royalty. Thus, as per the lower authorities, BIPL is nothing but an agent of the assessee in India and the impugned receipts from BIPL are taxable in India in terms of Sec. 9(1)(vi) of the Act. It has also been pointed out that BIPL sells the garment hangers together with labels, etc., to the retailers which establishes that BIPL possessed right to manufacture the Braitrim garment hangers in India. It has also been pointed out that it is the assessee who enters into supply arrangements with retailers worldwide and BIPL is able to get business, then the moot question is as to what does the assessee-company gain from BIPL for providing it the clients to whom sales are made by BIPL? According to the Revenue, the basic idea behind giving the so-called rebate/discount is to get orders from retailers in bulk and, in turn, the profits of the assessee would enhance and therefore it is argued that the entire transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plea, which has been raised before us, is based on the position of assessment in the case of BIPL for Assessment Year 2007-08. It has been pointed out that the transaction for reimbursement of administrative charges by BIPL to the assessee-company was a subject matter of transfer pricing proceedings in the assessment of BIPL for Assessment Year 2007-08. In this context, it was explained that in the course of proceedings before the TPO, the commercial expediency of BIPL having paid administrative charges to the assessee-company was questioned and its arm's length price was determined at NIL. In the course of such proceedings, the TPO accepted the position that the administrative charges were in the nature of price rebate on sale price of hangers calculated on the total units sold by BIPL. The issue of determination of arm's length price at NIL by the TPO was carried before the DRP, and the DRP vide order dated 29.9.2011, copy of which has been placed in the Paper Book at pgs. 113 to 121, appreciated the factual matrix that the expenses were nothing but reimbursement of expenses incurred by the Associated Enterprise of BIPL (i.e., the assessee-company) for the discount to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tside India. Based on the sale of these hangers by the assessee, Braitrim UK has to pay to the retailers at the rate of 1% on these sales made by the taxpayer to retailers through garment manufacturers. Before the DRP, the taxpayer also produced invoices raised by third party retailers against Braitrim UK to show that the said discount @ 1% on sale of hangers by the Indian entity was passed on to the retailers. Thus, it is seen that Braitrim UK is passing on 100% of discount payable by the taxpayer to the retailers. Further, keeping in view the margin of the taxpayer at 15.82% on sales for the FY 2006-07 and also lower/hardly any marketing and advertisement expenses, the payment made is qualified by the benefit received from the AE, Braitrim UK .............. As part of the arrangement between Braitrim UK and the retailers, Braitrim UK agrees to pass on benefit to the retailers in the form of incentive computed at the rate of 1% of sale value of hangers used by the retailers. Thus, in this transaction, there is no role to pay for Indian garment manufacturers. In view of the above discussion, we are satisfied that the discount given by the AE, Braitrim UK to the retailers is helping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context, a tabulated working was furnished of major clients to whom sales have been made by BIPL in relation to the 4 years under consideration. The said tabulation clearly brings out that whereas sales have been made to the retailers, where rebate/discount have been allowed in the form of administrative charges payable to the assessee-company, at the same time sales have been made to other independent parties also on which no administrative charges or rebate/discount is payable to assessee-company. The learned representative pointed out that if BIPL was found paying rebate/discount in terms of the agreement of assessee with the retailers on its entire sales, then it could have been inferred that there was an element of royalty, but the details clearly show that the payment of administrative charges is pertaining only to the sales made to the parties which are governed by the agreement of the assessee-company with the retailers worldwide. 12. At the time of hearing, the learned representative also pointed out that there is no justification in the stand of the DRP in finding fault with the report of the independent Chartered Accountant giving details of payment to retailers as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as the understanding of the parties to the CRA is concerned, the same has been understood to be in the nature of reimbursement of the rebate/discount passed on by the assessee to the retailers. Factually speaking, it has also been established that there is no mark-up retained by the assessee while recovering from BIPL the rebate/discount given to the retailers. It is also clear that BIPL has also made sales to other independent parties for which no discount/rebate or administrative charges are payable to the assessee-company. The aforesaid undisputed features of the arrangement clearly bring out that the transaction in question cannot be construed to be 'royalty' as understood by the income-tax authorities. This becomes even more pertinent once the nature of such payments by BIPL to the assessee has been admitted as such in the assessment of BIPL for assessment year 2007-08. 16. Pertinently, the assessee stated that the transaction for reimbursement of administrative charges by BIPL to the assessee was subject to transfer pricing proceedings during the assessment year 2007-08, wherein the TPO questioned the commercial expediency of the transaction of payment for admin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retailers by the AE. However, the DRP revised the arm's length price as computed by the TPO on account of the timing difference between the recognition of administration charges/rebate in the books of account of BIPL, vis- -vis the amount recognized by the assessee in its accounts; and, accordingly, the assessment was finalised. When BIPL filed appeal before the Tribunal, the Tribunal, while accepting the payments to be reimbursements, restored the issue to the file of the DRP for examination of the reconciliation of invoices raised by the assessee and the invoices recorded by BIPL. The TPO, in response to the remand report called for by the DRP, as directed by this Tribunal, had accepted the contentions of BIPL and found the same to be in order. 18. From the aforesaid, it follows that for the assessment year 2007-08 there is a concurrent acceptance of the claim of BIPL that the payments are in the nature of reimbursement by all the authorities, viz. the TPO, the DRP and the Tribunal. Therefore, in the face of such concurrent acceptance of the nature of payment as being a mere reimbursement, it is untenable for the Revenue to contend in the captioned cases that the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, but the Tribunal allowed its further appeal. The Hon'ble High Court dismissed the Department's appeal holding that the Tribunal had rightly observed that the Maersk-net-communication-system was an automated software based communication system which did not require the assessee to render any technical services; that it was merely a cost sharing arrangement between the assessee and its agents to efficiently conduct its shipping business; and, that it was part of the shipping business and could not be captured under any other provisions except under the DTAA. The Hon'ble Supreme Court, dismissing the appeal held as under:- . the facts that the assessee had its information technology system, that the assessee had appointed agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation, etc., through these agents, that for the sake of convenience of all these agents, a centralised system was maintained to avoid unnecessary cost, that the system comprised booking and communication software, hardware and a data communications network and was, thus, an integral part of the international shipping business of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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