Case Law Details
Synamedia Ltd. [formerly known as ‘NDS Limited’] Vs ACIT (ITAT Bangalore)
It is the case of the Assessee that the receipts in question are pure reimbursement of expenses incurred by the Assessee for and on behalf of NDS Pay TV. It is the case of the revenue that (Para 2.1 of AO’s order) that reimbursement of expenses may be made by the service provider at actual or alternatively, the agreement may provide a fixed amount towards reimbursement and that the issue that generally arises in such cases is to see whether such reimbursements of expenses is purely reimbursement or for rendering services. Therefore according to the revenue the nature of reimbursement of expenses has to be examined and if the receipts for services rendered then whether the charge for the services is equivalent to the cost or not becomes immaterial. Therefore, if the receipts fall within the ambit of Sec.9(1)(v) (vi) or (vii) of the Act, then it would constitute income in the hands of the assessee chargeable to tax. Thereafter the AO has in paragraph 2.5 of his order proceeded to hold that on perusal of same copy of invoices furnished along with the submission dated 2.11.2012 and 13.12.2012, the assessee is providing business support services to NDS Pay Tv, though the invoices show that the same were in relation to purchase of fixed assets and reimbursement of expenses. He thereafter went ahead and held that the assessee is providing procurement services for plant and machinery, capital assets, computers to be used by NDS Pav Tv in its projects and that the procurement services extended from creating, approval, confirmation of purchase order to the receipt of material, invoicing and payment release and also equipment maintenance services. He also held that services of providing information technology will include identifying appropriate software and solutions for NDS Pav TV to successfully utilize cost advantaged locations and resources for application development. In so far as reimbursement of expenses is concerned, the AO has held that the assessee is providing human resources services in terms of managing overseas accommodation of NDS Pav TV employees, insurance benefits, travel plans, immigration services etc. He also held that the assessee is providing Marketing assistance support to NDS Pav TV employees who travel abroad for business purposes and that the services include arrangement of business meetings, marketing capabilities of NDS Pay TV to potential customers etc.,
Having made the above observations (which are in our opinion purely on surmises and without first giving a finding that there is no one to one tally between the actual cost and actual sum reimbursed by NDS Pav TV to the assessee and that there is an element of mark up in such payments) he also observed that there is no written agreement between the parties regarding Cost Contribution Agreement (CCA) in relation to AY 2010-11 but such agreement existed from 1.4.2011 (i.e., from AY 2011-12 onwards). He went on to analyze the terms of the said agreement and found that the preamble to the Agreement provided that the agreement is being entered into to obtain benefits of corporate purchasing contracts and for administrative simplicity. The AO has thereafter referred to cases where the factual finding (in the case of Van Oord Acz Marine Contractors (52 SOT 423 (Chennai ITAT) was that the assessee could not show that the price reflected in the invoices were comparable to similar services provided by international parties. He also referred to decisions rendered in the context of TDS provisions and cases where there were agreements for secondment of employees and where employees costs were reimbursed. He thereafter proceeded to hold that reimbursements are in the nature of FTS.
The DRP made a reference to the preamble to the agreement dated 1.4.2011 and held that the same did not exist for AY 2010-11 and is not relevant. The DRP however concluded that the AO has given valid reasons for treating the receipts by the Assessee as FTS. With regard to the argument that under the DTAA, taxability of FTS is subject to the condition that the FTS should make available technical knowledge to the person to whom services were rendered, the DRP by merely observing that the AAR in the case of Perfetti Vam Melle Ltd., 342 ITR 200 (AAR) and Mersen India Pvt.Ltd. 249 CTR 345(AAR) held that make available also includes providing expert advice and including one time assistance. The DRP thereafter observed that the Assessee also provided maintenance and support services and finally concluded that the except payment for software which was held to be in the nature of royalty, the remaining payment constituted FTS taxable in India under the provisions of the DTAA.
We are of the view that in principle we hold that pure reimbursement does not give rise to any income and the decisions cited by the learned AR in this regard lay down the above principle. We find that the revenue authorities have not firstly held that as to whether there was one-to-one tally of sums spent by the Assessee that was reimbursed by NDS Pay Tv. Once this factual finding is rendered then there has been no payment for any services whatsoever. The question is can one infer that the sums reimbursed were for services rendered by Assessee when there is one to one tally. In our view it cannot be said so. As we have already mentioned the AO has proceeded to draw inferences on surmises and conjectures. Firstly there is no evidence to show that services were rendered which can be termed as FTS. Under the DTAA FTS can be taxed only when it makes available technical knowledge to the person making payment. On the application of “make available” clause of the DTAA, there is no finding whatsoever as to what was the technical service made available to NDS Pay TV. We, therefore, deem it fit to set aside this issue and remand the same for consideration by the AO in the light of the observations made above (in particular with regard to actual tally of expenses incurred and reimbursed by NDS Pay Tv to Assessee), in accordance with law, after affording assessee opportunity of being heard
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