Global E-Business Operations Vs DDCIT (ITAT Bangalore)
Explore the ITAT Bangalore judgment on global e-business operations vs. DDCIT. Learn about tax implications and obligations for reimbursement payments.
When a claim was made by the assessee that there was no income of element embedded in the remittances, the AO has not examined the claim of the assessee in a proper perspective. They have merely said only few evidence have been filed. Another reason given was that no independent audit was carried out in respect of the remittances. We are of the view that the evidence filed by the assessee before the revenue authorities and which have been filed in the form of paper book filed before us amply demonstrates the plea of the assessee that the remittances were purely reimbursement of expenses with no element of income embedded in such payments. The question in such circumstances, will be as to whether the obligation to deduct tax at source can be said to exists on such payments. The law in this regard is very clear. The Special Bench of ITAT, Mumbai in the case of Mahindra & Mahindra Ltd., 30 SOT 374 examines this issue and have held that in respect of reimbursement of expenses there is no obligation to deduct tax at source and there was no element of income involved in such payments.
FULL TEXT OF THE ITAT JUDGEMENT
These are appeals by the assessee against the common order passed by the CIT(A)-IV, Bangalore u/s 201(1)( and 201(1A) of the IT Act, 1961 (‘The Act’) relating to assessment year 2007-08.
2. The assessee is encaged in the business of providing data processing and other IT enabled services to M/s Hewlett Packard entities. Another company by name M/s Hewlett Packard, AP (Hong Kong Ltd., ) (HK) herein after referred to as HP AP(HK), a company incorporated under the laws of Hong Kong and having office at Hong Kong. HP AP (HK) is also part of the HP Co., world wide group and it provides services to various members of the HP Co., world wide group. There was an agreement dated 01-06-2004 between HP, AP(HK) and the assessee whereby HP,AP(HK) agreed to provide the following services to the assessee.
1. Workforce development services
2. Logistics services
3. IT Support services
4. Financial services support
5. Facilities management services
6. Relocation services
7. Tax services
8. Stationery charges
9. Overseas travel services
10. Other services that may be rendered from time to time
The consideration payable by the assessee to HP,A P(HK) to provide the aforesaid services is mentioned in clause-II of the agreement and it reads as follows;
“ Costs, billing, payment;
The costs of services (costs) are the total direct and indirect costs incurred by service provider to perform the services. Such costs are incurred by the service provider in cost of sales or operating expense accounts.
Billing for services may be based partly or wholly on forecast costs, provided adjustments are made thereafter to reflect actual costs. Service provider will invoice user monthly (or, if agreed to in writing, quarterly) for the compensation due hereunder or on some other periodic basis agreed to by the parties. User shall make all remittances under this agreement within 30 days of receipt of an invoice, or in accordance with other payment terms agreed to in writing by the parties. Unless otherwise agreed, all invoices and remittances shall be in U.S.Dollars. In its reasonable discretion, service provider may utilize related parties in the HP world wide group as billing intermediaries for amount due hereunder.
In consideration for providing the services, user shall pay service provider for the costs plus mark up of 10% on such costs”.
During the previous year, the assesseee made the following payments to HP, AP(HK)
Break up for remittance made on 27.9.2006
