Horiba India Private Limited Vs Assessment Unit (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, allowed the assessee’s appeal against the final assessment order for Assessment Year 2020-21, which had made corporate tax additions of ₹1,75,33,346 and a transfer pricing adjustment of ₹1,36,723. The dispute primarily related to reimbursements made to overseas group entities towards IT infrastructure and software costs, salary expenses, and travel expenses, which the Assessing Officer had treated as Fees for Technical Services (FTS) and disallowed for non-deduction of tax at source under Section 40(a)(i).
The assessee submitted that during the relevant year it had reimbursed ₹42,14,619 towards IT infrastructure and software costs, ₹1,18,52,585 towards salary expenses, and ₹14,66,142 towards travel expenses to its overseas group entities, aggregating ₹1,75,33,346. It contended that all these payments were cost-to-cost reimbursements without any mark-up or profit element and, therefore, did not constitute income chargeable to tax in India. It further pointed out that similar reimbursements had been accepted by the Assessing Officer in preceding and subsequent assessment years.
Regarding IT infrastructure and software reimbursements, the assessee explained that its parent company incurred common expenses on servers, networks, software platforms and other IT infrastructure for the benefit of the entire group. These costs were allocated among group entities on a per-user basis in accordance with the relevant agreements and without any profit mark-up. According to the assessee, the payments represented reimbursement of actual expenditure incurred by the parent company on behalf of group entities and were not consideration for technical services. It relied upon agreements, invoices, allocation workings and judicial precedents, including the Supreme Court’s decision in A.P. Moller Maersk A/S, to contend that use of a common facility does not amount to rendering technical services and reimbursement of actual costs without any profit element is not taxable.
