Reimbursements cannot be termed as Fees for Technical Services under India US DTAA

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.

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