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Income Tax Appellate Tribunal, DEHRADUN CIRCUIT BENCH: DEHRADUN
Before: SHRI SUDHANSHU SRIVASTAVA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is filed by the assessee against the order of the ld CIT (A)-2, Noida dated 27.09.2016 for the AY 2012-13 where appeal filed by the assessee against the order dated 11/file/2015 u/s 143 (3)/144C of the income tax act passed by Deputy Commissioner of income tax (International taxation), Circle 2, Dehradun was partly allowed.
The assessee has raised the following grounds of appeal:- “Ground No. 1 - Reimbursement of expenditure incurred on behalf of client: Not in the nature of income 1.1 That the Ld. CIT(A) erred in affirming the action of the Assessing Officer (hereinafter referred to as 'the AO') in holding that receipts on account of reimbursement of expenditure from Non-PSC partners was in the nature of fees for technical services and hence includible in the gross receipts for the purpose of estimation of income u/s 44DA of the Income Tax Act, ig6i(hereinafter referred to as 'the Act'). 1.2 That the Ld. CIT(A) erred in affirming the action of the AO in holding that receipts on account of reimbursement of expenditure from PSC partners was includible in the revenue chargeable to tax u/s 44BB of the Act. 1.3 That the Ld. CIT(A)/AO erred in not appreciating that reimbursement of expenses is devoid of any element of profit is therefore neutral for the purpose of estimation of income. Ground No. 2 - Denial of Double Taxation Avoidance Agreement ('DTAA') benefit in respect of interest income on Income-tax refund Page | 1 2.a. The Ld. CIT(A) erred in affirming the action of the Assessing Officer in holding that interest income amounting to INR 4,338,860 on account of Income-tax refund from the Income-tax department is taxable at Maximum Marginal Rate of forty percent. 2.2. That the Ld. CIT(A)/AO failed to appreciate that the appellant being a tax resident of the United Kingdom ('UK'), the interest income ought to be taxed in terms of the Indo-UK DTAA.”
Briefly, facts show that assessee is a company having a registered office in Scotland. It is engaged in the business of providing services and facilities in connection with exploration and production of mineral oil in India and supplying plant and machinery on hire. Assessee filed its return of income for impugned assessment year on September 29, 2011 at ₹ 248,425,025/–. The assessee offered the taxable income under the head profits and gains of business and computed the tax under the presumptive tax scheme u/s 44 BB of the income tax act.
The learned assessing officer on examination of the return of income passed an assessment order on 11th may 2015 at an income of ₹ 309,129,490/–. The dispute involved in this appeal which has reached us is with respect to (1) The receipt on account of reimbursement of expenditure which is not includable in the revenue chargeable to tax u/s 44 BB of the income tax act by the assessee as it does not have any character of income whereas according to the assessing officer same is chargeable to tax as fees for technical services. (2) The second dispute involved in this appeal is with respect to chargeability to tax of interest income amounting to ₹ 4,338,860/– on account of income tax refund, which according to assessee is not chargeable to tax, in view of the Double Taxation Avoidance Agreement,. According to learned assessing officer same is chargeable to tax as business income, as assessee has a permanent establishment in India. The AO charged it at the maximum marginal rate.
Assessee preferred appeal before learned CIT – A who held that reimbursement of expenditure is includable in the income to be computed u/s 44 BB of the income tax act. He also confirmed the order of the learned assessing officer with respect to chargeability of income tax refund to tax at maximum marginal rate in view of the fact that assessee has a permanent establishment in India. Therefore, assessee is in appeal before us on these two grounds.
The learned authorised representative fairly submitted that the issue of reimbursement of expenditure is squarely covered against the assessee by the decision of the honourable Supreme Court. On chargeability of tax on income tax refund interest, He submitted assessee is eligible for benefit of Double Taxation Avoidance Agreement and therefore the orders of the lower authorities are not correct on this issue. Page | 2
The learned departmental representative supported the order of the learned lower authorities and submitted that the first issue is covered against the assessee by the decision of the honourable Supreme Court whereas the second issue is also covered against the assessee by the decision of the honourable jurisdictional High Court. Therefore, the appeal of the assessee deserves to be dismissed.
We have heard the rival contentions and perused the orders of the lower authorities. The first ground of appeal
is with respect to inclusion of reimbursement of expenditure in the gross income u/s 44BB of the income tax act. We find that this issue is squarely covered against the assessee by the decision of the honourable Supreme Court in case of Sedco Forex International Incorporation Versus Commissioner Of Income Tax (2018) 94 taxmann.com 119 (SC) and 87 taxmann.com
29. So we uphold the order of the learned CIT – A holding that reimbursement of expenditure is includible in the gross income u/s 44 BB of the income tax act. Thus ground number 1 of the appeal of the assessee is dismissed.
9. Ground number 2 is with respect to the chargeability of tax on interest income on income tax refund of ₹ 4,338,860/–, whether it is chargeable to tax at maximum marginal rate of 40% in view of the fact that assessee has a permanent establishment in India or not. The above issue has also been adjudicated by the honourable jurisdictional High Court against the assessee in B J services company Middle East Ltd versus Asst Commissioner of income tax (2016) 380 ITR 138 dated 19 May 2015 wherein it has been held that where assessee is carrying on business through a permanent establishment in India, interest on tax refund is taxable as business income. Thus, we respectfully following the decision of the honourable jurisdictional High Court, confirm the orders of the lower authorities, holding that interest on income tax refund would be chargeable to tax at the rate of maximum marginal rate in the hence of the assessee as assessee has a permanent establishment in India and article dealing with ‘interest’ income of Double Taxation Avoidance Agreement between India and United Kingdom do not apply. Accordingly, ground number 2 of the appeal of the assessee is dismissed.
10. In the result, appeal filed by the assessee is dismissed. Order pronounced in the open court on 08.06.2021.