M/S.SNC LAVALIN INC., CANADA, vs. THE ASSISTANT COMMISSIONER OF INCOME TAX,

Shorn of details, on basic facts, the appellant-assessee had entered into a technical collaboration agreement with the KSEB. In pursuance of the agreement, the assessee-appellant had deputed some of its technical staff to - 5 - the KSEB and the reimbursement of their travel expenses was claimed as a deduction from the technical know-how fees.

Section 115A is extracted hereunder: "S.115A(1): Where the total income of - (b) a foreign company, includes any income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions of sub-sections (1A) and (2), the income-tax payable shall be the aggregate of - (B) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of thirty per cent if such fees for technical services are received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such fees for technical services are received in pursuance of an agreement made after the 31st day of May, 1977. (3) No deduction in respect of any expenditure or allowance shall be allowed to the assessee under - 6 - sections 28 to 44C and section 57 in computing his or its income referred to in sub-section (1)". By sub-section (3), any deduction in respect of any expenditure or allowance under Sections 28 to 44C and Section 57 has been specifically prohibited.

The assessee-appellant relies on a decision of the Hon'ble Supreme Court in Director of Income Tax v. A.P.Moller Maersk [(2017) 5 SCC 651]. Therein the foreign company, who was assessed to tax, was carrying on the business of shipping within India. Whether the income from the use of Global Telecommunication Facility, called "Maersk Net", could be classified as income arising out of shipping business and not as fees for technical services was the question raised. The assessee claimed the income to be reimbursement of expenses but the assessing officer treated it as income for providing technical services.

On the facts of that case, it has to be noticed that the assessee, while carrying on the shipping business, was entitled to the Double Taxation Avoidance Agreement, being a resident of Denmark. The assessee was also engaging agents within India for booking cargo, who also acted as clearing agents. To co-ordinate the functioning of the - 7 - various agents, globally, the assessee had set up a global telecommunication facility, called "Maersk Net System", which is a vertically integrated communication system. The facility consisted of a communication system connected to a mainframe and computer services in each of the countries of operation. It provided a virtual data base of the activities of the assessee enabling booking, tracking of the goods in transit and so on and so forth. There was an installation made in the premises of the agents to provide access to the facility, for which pro rata payments were made by the agents, to the assessee for reimbursing the expenses towards such facility. The question arose as to whether the amounts paid by the agents to the assessee can be considered as a reimbursement of expenses, incurred for the supply of technical services or for deriving business income from shipping . The Hon'ble Supreme Court found that there was absolutely no technical services supplied by the assessee to the agents. Only an access was provided to a telecommunication facility; the installation of which necessitated an expenditure, which was reimbursed by the agents who had access to such facility. This was held to be not reimbursement of the expenses incurred in the supply of technical services nor income earned on providing technical services.

In the present case, the facts are quite distinguishable. The expenditure incurred is a direct consequence of the agreement for supply of technical services. The technical collaboration agreement necessitated deputation of technical personnel from the foreign company to the KSEB to work within India and in the facilities of the KSEB. The expenditure now claimed is of the travel expenses incurred by the assessee with respect to the technical personnel so deputed by the foreign company to the KSEB. This expenditure incurred has a direct nexus with the technical services supplied and deduction thereof is specifically prohibited under sub-section (3) of Section 115A. In such circumstances, we do not see any reason to interfere with the order of the Tribunal. We answer the question of law raised, against the assessee and in favour of the Revenue. The appeals stand rejected. Parties are left to suffer their respective costs. K.VINOD CHANDRAN JUDGE ASHOK MENON JUDGE Vku/- - 9 -