American Express (India) Pvt. Ltd. Vs JCIT (ITAT Delhi)
Conclusion: In present facts of the case, the Hon’ble Tribunal held that reimbursements cannot be termed as Fees for Technical Services under section 9(1)(vii) of the Act and Article 12 (4) of India US DTAA.
Facts: In the said case, there were different appeals filed by both assessee and revenue. But the main issue was in ITA No.2714/Del/2018 [Assessment Year 2012-13], wherein the facts were that Income Tax return declaring income of Rs.2,12,33,10,464/- was e-filed on 29.11.2012 which was subsequently revised and a return declaring income of Rs.2,12,92,84,620/- was filed on 31.03.2014. The case was selected for scrutiny assessment. The Assessing Officer observed that the assessee company was a wholly owned subsidiary of American Express International Inc., USA and was engaged in the global business processing and support services and Travel & Travel related services. During the previous year relevant to the Assessment Year, the assessee had undertaken international transaction with its Associated Enterprises (“AE”) amounting to more than Rs.15,00,00,000/-. Therefore, in terms of section 92CA of the Act, the international transactions entered into by the assessee with AE were referred to the Transfer Pricing Officer (“TPO”) for determining the Arm’s Length Price (“ALP”) with the previous approval of the CIT, Delhi-1, New Delhi. The TPO vide order dated 15.01.2016 suggested adjustment in respect of receivables of Rs.10,73,12,034/-. It was observed by the Assessing Officer that the assessee had shown receivables from its AE in its books of accounts. It was noticed by the Assessing Officer that the assessee company was in receipt of payment for services rendered to its AEs after expiry of period specified in the respective service agreements but did not charge any interest on such delayed payments by the AE. Therefore, the TPO suggested upward adjustments of Rs.10,73,12,034/- to the income of the assessee u/s 92CA of the Act. The Assessing Officer following the reasoning of the TPO made addition of Rs.10,73,12,034/- on account of upward adjustment for Arm’s Length Price. Further, it was noticed by the Assessing Officer that the assessee had debited a sum of Rs.3,92,81,738/- on account of Relocation expenses reimbursed to American Express Travel related services and CO. (“AETRSCO”). It was noticed that these expenses were on account of payments to assessee’s employees who worked for assessee outside India. The expenses form part of the same secondment contracts by which these employees were paid salaries. The Assessing Officer was of the view that the assessee was required to deduct tax at source which was not done by the assessee. Therefore, the Assessing Officer vide order sheet entry dated 04.03.2016 called upon the assessee as to why the Relocation charges of Rs.3,92,81,738/- should not be disallowed and added back as was done in the last year on account of non-deduction of TDS. The Assessing Officer was further of the view that having deducted tax u/s 195 of the Act, on payment of reimbursement of salaries of employees on secondment, the assessee ought to have deducted correctly relocation expenses which formed part of the same secondment contracts. Therefore, the Assessing Officer made addition of Rs.3,92,81,738/-. Hence, the Assessing Officer computed the income at Rs.2,27,58,78,390/- against the profit before tax as declared by the assessee of Rs.1,82,76,28,525/-.
The Ld.CIT(A) affirmed the view of TPO that the transaction of the appellant-assessee with the AEs with regard to receivable is an international transaction which would come under the purview of transfer pricing regulations. Any delay in receipt of money by the appellant leads to decrease its profitability and there is an opportunity cost of money received after a delay which has correctly been treated by the TPO as loan advance to the AE hence, an international transaction. The Ld.CIT(A) following the direction of the DRP and the judgement of Hon’ble Delhi High Court in the case of Kusum Healthcare Pvt.Ltd. in ITA No.6814/Del/2014 dated 26.03.2015, directed the Assessing Officer to allow working capital adjustment to the appellant by calculating its profit margin in accordance with formula stipulated by DRP for Assessment Year 2009-10 and give relief to the appellant, if any. The Ld.CIT(A) agreed with the conclusion drawn by the Assessing Officer/TPO that the payment towards travel expenses constitutes fee for technical services in terms of section 9(1)(vii) of the Act and Article 12 (4) of India US DTAA. It was further held that the appellant was required to deduct TDS on the payment made to AE hence, non-deduction of tax would attract disallowance u/s 40(a)(i) of the Act. Further, the disallowance of travelling expenses made in respect of the employees who travelled aboard for training or business purposes, did not accept the finding of the Assessing Officer and held that such expenditure do not constitute FTS under either the Act or the Treaty.
Aggrieved against this order, both the assessee and the Revenue filed separate cross-appeals before this Tribunal.
The ground of the assessee pertaining to the transfer pricing that Ld.CIT(A) failed to give clear direction allowing the relief sought by way of deletion of adjustment of outstanding receivables from AEs. The Hon’ble Tribunal while allowing this ground relied on the case of assessee itself for Assessment Year 2010-11 in ITA No.1426/Del/2015 vide order dated 17.07.2019 wherein it was held as under:-
37. “Now coming to Ground No.14, this is to the effect that the interest of credit period granted by the company under normal trade practices was unjustly charged, having heard both the counsel, we are of the considered opinion that if working capital adjustment is granted, then no separate adjustment or interest receivables is required.We are fortified in our decision by the decision of the Hon’ble Delhi High Court in ITA No.765/2016 in the case of Kusum Healthcare P. Ltd.”
Then, Ground raised by the assessee in respect of addition made by invoking the provision of section 40(a)(i) of the Act. It was contended that the Assessing Officer disallowed a sum of Rs.3,92,81,378/- stating that reimbursement of relocation expenses form part of secondment contract and as assessee had deducted tax on source u/s 195 of the Act for the reimbursement of salaries so should have been the case for reimbursement of relocation expenses. It was also submitted that the Assessing Officer treated the same in the nature of FTS and thus chargeable to tax u/s 9(1)(vii) and Article 12(4) of the DTAA between India and USA. He further submitted that Ld.CIT(A) relied upon the decision of Hon’ble Delhi High Court in the case of Centrica Offshore Pvt. Ltd. vs CIT bearing WP(C) No.6807/2012 to hold that payment towards travel expenses constitute fees for technical services. Ld. Counsel for the assessee submitted that Ld.CIT(A) partly allowed the appeal of the assessee by observing that “the entire disallowance pertained to two separate heads namely, relocation expenses occurred by assessee’s employees who travelled aboard and expenses of employees of AEs who travelled to India”. Based on this observation held that reimbursement of expenses pertaining to relocation for assessee’s own employees do not constitute FTS under the Act or DTAA and thus, it is to be allowed. Ld. Counsel for the assessee submitted that that as far as deduction for reimbursement made to AE towards expenses relating to assessee’s employees visit is concerned, Ld.CIT(A) has rightly granted deduction as the same could not be FTS by any stretch of imagination and no disallowance u/s 40(1)(i) of the Act is justified. Ld. Counsel for the assessee submitted that in respect of reimbursement to AE towards relocation charges of employees seconded to assessee entity from AE. it is submitted that firstly, there is no estoppels against law and it would be incorrect to contend that as assessee had deducted tax on salary reimbursement for same seconded employees it was necessary for assessee to deduct tax on reimbursement of relocation charges also relating to same seconded employees. He submitted that in law, the assessee is not liable to deduct tax. The assessee cannot be forced to deduct tax by estoppels merely on the ground that the assessee has deducted tax in earlier year. He submitted undisputedly, the make available clause of India US DTAA is not satisfied in present case and reimbursement cannot be characterized as FTS. Hence, no tax is deductible in law and no disallowance could be made u/s 40(a)(i) of the Act. Reliance was placed on the decisions of Hon’ble Karnataka High Court in DIT vs Abbey Business Services Pvt.Ltd. in ITA No.214 of 2014 and the judgement of Hon’ble Bombay High Court in the case of DIT vs Marks & Spencer Reliance India Pvt.Ltd. bearing ITA No.893 of 2014. Ld. Counsel for the assessee submitted in view of the aforesaid decisions and more particularly, when the clause make available, is not satisfied of India US DTAA. The authorities below were not justified in making the disallowance.
The Hon’ble Tribunal observed that Ld.CIT(A) confirmed the view of the Assessing Officer by relying on the decision of the Hon’ble Delhi High Court in the case of Centrica Offshore Pvt.Ltd. vs CIT (supra) dated 25.04.2014. It is contended by the Ld. Counsel for the assessee that as per India US DTAA, the make available clause is not satisfied in the present case. Therefore, the reimbursement cannot be characterized as FTS. We find that this aspect has not been examined by Ld.CIT(A), therefore, the finding of Ld.CIT(A) is set aside and this issue is restored to Ld.CIT(A) to decide it afresh after having considered the submissions of the assessee regarding make available clause in terms of India US DTAA.
In ground pertaining to Education cess, it was contended by the assesse that education cess is allowable expenditure u/s 37(1) of the Act. By relying on the judgment of Hon’ble High Court of Rajasthan in the case of CIT vs Chambal Fertilizers & Chemicals in ITA No.52 of 2018 and the judgement of the Hon’ble Bombay High Court in the case of Sesa Goa Ltd. vs JCIT in ITA Nos.17, 18 of 2013 and the clarification as made by the CBDT Circular F.No.91/58/66-ITJ(19) dated 18.05.1967 it was contended that that no disallowance could be made.
The Hon’ble Tribunal held that the Revenue has not disputed about the Circular issued by CBDT which has been relied by Ld. Counsel for the assessee. Moreover, the Hon’ble Bombay High Court has considered all the case laws on this point and has ruled in favour of the assessee. On this contentions, this ground was allowed in favour of the Assessee.
