BYK Asia Pacific Pte. Limited Vs ACIT (ITAT Pune)
On going through the documents/material as discussed above, it is evident that Seminar expenses, Training expenses, Printing expenses and Staff welfare expenses are amounts paid by the Indian BO to the Singapore HO, which satisfy the twin conditions of `reimbursement’ as discussed supra, viz., one-to-one direct correlation between the outgo and inflow of the Singapore HO; and the inflow of the identical amount without any profit element. Since the Singapore HO recovered the same amount from the Indian BO as was incurred by it to third parties without any profit element, the receipt cannot be construed as “other sum chargeable under the provisions of this Act” so as to warrant deduction of tax at source /s.195 of the Act by the Indian BO. Once it is held that TDS was not necessary, there can be no question of disallowance u/s.40(a)(i) of the Act. We order accordingly.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee is directed against the final assessment order dated 23-10-2019 passed by the Assessing Officer (AO) u/s.143(3) r.w.s.144C(13) of the Income-tax Act, 1961 (hereinafter called ‘the Act’) in relation to the assessment year 2016-17.
2. The only issue raised in this appeal is against the disallowance of Rs.1,22,43,873/- u/s. 40(a)(i) on account of non-deduction of tax at source u/s 195 of the Act.
3. Succinctly, the factual matrix of the case is that the assessee, BYK Asia Pacific Pte. Limited (hereinafter called `the Singapore HO’), is a tax resident of Singapore having branches in several countries, including a branch office in India (hereinafter called `the Indian BO’). It is a part of a group of companies with a parent company in Germany, known as BYK Germany. The Indian BO is engaged in providing technical support services in the Asia Pacific region to the customers of its parent company, namely, BYK, Germany. It is primarily engaged in providing services in the field as BYK Group’s additives used by Indian customers in their products. The Indian BO allows the customers of BYK Germany to test the effect of the formulations on the customer’s products at its testing facilities and provides technical support to such customers. The Indian BO also provides technical analysis and troubleshooting exercises for the queries raised and technical problems faced by the customers in the Asia Pacific region. The Indian BO does not charge any service fee from the customers to whom technical services are provided. It is the Singapore HO that reimburses the Indian BO with all actual expenses incurred with 10% mark-up. The Indian BO has treated itself as Permanent Establishment (PE) of the Singapore HO and offered for taxation the amount it received as mark-up on the cost of services provided. During the course of assessment proceedings, the AO observed that the assessee claimed deduction, inter alia, of Rs.1,22,43,873/- towards certain expenses paid to the Singapore HO without deducting tax at source u/s 195 of the Act. On being called upon to explain as to why disallowance u/s 40(a)(i) be not made, the assessee contended that the amount paid was in the nature of `reimbursement of expenses’ and not fees for technical services as alleged by the AO. Not convinced, the AO made disallowance u/s section 40(a)(i) of the Act. No reprieve was allowed by the Dispute Resolution Panel (DRP), which finally led to the addition in the impugned order. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.
4. We have heard both the sides and gone through the relevant material on record. The point in question is the disallowance of Rs.1,22,43,873/- u/s.40(a)(i) of the Act for non-deduction of tax at source on the following payments made by the Indian BO to the Singapore HO:
