Case Law Details
ACIT Vs. Louis Berger International Inc. (ITAT Hyderabad)- Referring to article 12(4) of the Double Taxation Avoidance Agreement between Government of India and USA, the learned counsel submitted that any amount other than the amount received as consideration for services rendered cannot form part of fee for technical service. Therefore, the reimbursable expenditure cannot constitute fee paid/payable for the services rendered by the assessee. The learned counsel submitted that the reimbursable expenditure by the Government or its department cannot be treated as income of the assessee.
Referring to section 44D of the Act, the learned counsel submitted that this section is applicable in respect of any sum received towards technical services and it is not applicable for reimbursable expenditure. According to the learned counsel, reimbursable expenditure would not be part of fee for technical services. Referring to article 12 of the Double Taxation Avoidance Agreement between the Government of India and USA, learned counsel submitted that what is stated in the article 12 of the agreement between Government of India and USA is only gross amount of fees. It does not refer to any reimbursable expenditure to be incurred by the clients. Therefore, the learned counsel submitted that the reimbursable expenditure cannot be considered to be an expenditure incurred by the assessee for its business. The learned counsel placed reliance on the judgment of the Bombay High Court in the case of CIT v. Siemens Aktiongesellschaft (2009) 310 ITR 320 (Bom) : (2009) 177 Taxman 81 (Bom) and submitted that the claim of reimbursement of expenditure was not taxable in India. The learned counsel also placed reliance on the decision of the Special Bench of this Tribunal in ITO v. Prasad Production (IT Appeal No. 663 (Mad.) of 2003, dated 9-4-2010) [reported in (2010) 33 (II) ITCL 504 (Chenn ‘B’-Trib)] and submitted that reimbursement expenditure need not be subjected to deduction of tax at source within the meaning of section 195(1) of the Act. The learned counsel also placed reliance on the decision of this Tribunal in the case of Cairn Energy (India) (P.) Ltd. v. Asstt. CIT (IT Appeal Nos. 208 to 211 (Mad.) of 2006, dated 20-2-2009) [reported in (2010) 31 (II) ITCL 210 (Chenn-Trib)]. The learned counsel again placed reliance on the decision of Delhi Bench of this Tribunal in the case of Asstt. CIT v. Modicon Network (P.) Ltd. (2007) 14 SOT 204 and submitted that reimbursement of expenditure does not amount to payment for technical services. The learned counsel also placed reliance on the judgment of the Apex Court in the case of CIT v. Tejaji Farasram Kharawalla Ltd. (1968) 67 ITR 95 (SC) and submitted that any amount received in respect of expenses incurred, would be exempt from taxation. Referring to the Calcutta High Court judgment in the case of Sandersons & Morgans (supra) and submitted that when the solicitors received money on behalf of his client, the same cannot be considered to be a revenue receipt. He also placed reliance on the judgement in the case of Bombay High Court in Tanubhai D. Desai’s case (supra). The learned counsel also placed reliance on the decision of the Authority for Advance Ruling – Danfoss Industries (P.) Ltd., In re (2004) 268 ITR 1 (New Delhi) and submitted that there is no direct nexus between the actual cost incurred by the foreign company in providing services and fee payable to each individual company availing services. Therefore, the Authority of Advance Ruling held that the amount does not represent reimbursement of expenditure. Therefore, according to the learned counsel, this decision is not applicable to the facts of the case. Referring to the decision in the case of Progressive Constructions Ltd. (supra), the learned counsel submitted that this decision has no application to the facts of this case. In the case of Progressive Constructions Ltd. (supra), the entire payment was made otherwise than by way of crossed cheque/demand draft and the question was whether section 40A(3) are applicable or not. Referring to the exemption claimed by the assessee under section 10(6A) of the Act, the learned counsel submitted that for the purpose of exemption any one of the conditions shall be fulfilled. According to the learned counsel, when the agreement is with regard to a matter which was included in the Industrial Policy, approval of the Central Government was not required. Referring to Industrial Policy of Government of India 1991, the learned counsel submitted that item No. 11 of the Industrial Policy speaks of providing infrastructure facilities. Therefore, providing infrastructure facility is one of the policy of Government of India declared in the Industrial Policy. Referring to section 80-IA of the Act, the learned counsel submitted that the infrastructure facility includes development of roads. The agreement with Government of India and other Government departments are only for the purpose of providing infrastructure facility such as development of roads. Therefore, according to the learned counsel, the agreement with National Highway Authority of India and other Government department is in line with industrial policy declared by Government of India Moreover, according to the learned counsel, the agreement itself was entered into with Government departments and National Highway Authority of India which is a limb of the Government of India. Therefore, further approval of the agreement by the Central Government does not require. According to the learned counsel, specific approval of Government of India may be required, in case the assessee entered into agreement for providing technical service with any company which is not connected or associated with Government of India. Since the agreement itself with the Government and Government departments, no specific approval is required. Therefore, according to the representative, both the conditions laid down to section 10(6A) are fulfilled. Referring to the argument of the learned Departmental Representative with regard to the industrial policy declared in 1991, the learned counsel submitted that the Assessing Officer himself referred to the very same industrial policy for the assessment year 2003-04. The assessing officer for the assessment year 2003-04 has not referred any other industrial policy. Therefore, according to the learned representative, the revenue may not be correct in saying that the industrial policy declared in 1991 is outdated. According to the learned counsel, in the absence of any other industrial policy, the policy declared in 1991 has to be taken as such. Therefore, according to the counsel, the assessee is entitled for exemption under section 10(6A) of the Act.
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH’ B’, HYDERABAD
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
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GOOD ORDER FROM Honorable q S RAMA RAO