M/S AMD FAR EAST LTD., vs. THE JOINT DIRECTOR OF INCOME-TAX

The matter was admitted to consider the following substantial questions of law: “1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in denying deduction of expatriate costs under Section 37[1] of the IT Act?

Is not the finding of the Tribunal that the Appellant could not establish the commercial expediency in incurring expatriate costs perverse?”

The assessee is a foreign company incorporated under the laws of Delaware and has its principal office in Sunnyvale, California, USA. The assessee has set up a branch office in India for providing marketing support services to group entities. The assessee filed its return of income for the Assessment year 2007-08 declaring loss of Rs.2,30,62,274/- but paid Minimum Alternate Tax [MAT] under Section 115JB. The assessee’s case was referred to Transfer Pricing Officer [TPO] for determining arm’s length price under Section 92CA of the Act. On receipt of the order passed under Section 92CA Act, the respondent passed the draft assessment order under Section 143[3] read with Section 144C of the Act, making certain disallowances of expenditure. Objection was filed by the assessee against the draft assessment order before the Dispute Resolution Panel [DRP]. Certain directions were issued under section 144C [5] of the Act by the DRP. Pursuant to which final assessment order was passed disallowing

Learned counsel for the assessee argued that the expatriate employees of the head office were monitoring the marketing activities of the branch. This cost was included in the operational cost on which marked up has been earned by the branch and offered for tax, the TPO has not excluded this expense from the cost base. Drawing the attention of the Court to Profit and Loss Account, submitted that the personal cost of Rs.6,87,99,704/- was included in the operational costs wherein the expenditure was shown as Rs.35,75,71,614/- in the order of TPO. Thus, an expenditure amounting to Rs.1,35,12,070/- towards expatriate costs disallowed by the Authorities,

Learned counsel for the Revenue would point out that in M/S. Rambus Chip Technologies [India] Pvt. Ltd., supra, there was an agreement between the assessee and the employees wherein it was agreed that the income tax liability on the salary to be paid to the employees, shall be borne by the assessee-company but no such contractual liability has been established by the assessee in the present case. Hence, the case on hand is

We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.

Adverting to the arguments advanced by the learned counsel for the parties, it is beneficial to refer to the relevant substantial question of law considered by this Court in M/s Rambus Chip Technologies [India] Pvt. Ltd., supra, and the same is extracted hereunder:

The said question is answered referring to the findings of the High Court of Jharkhand in the case of TATA Yadogawa Ltd., V/s. Commissioner of Income Tax [(2011) 335 ITR 53]. This Court in para 4, has held thus: “4. From the findings of the learned Tribunal, it is clear that on the Agreement between the Assessee and the Employee Mr.Prakash Bare, contemplates that the income tax liability on the salary to be paid to the employee Mr.Prakash Bare, shall be borne by the company and this contractual liability agreed upon by the assessee is liable for deduction u/s.37 of the Act. No prohibition in law is pointed out by the learned counsel for the Revenue to deduct the expenditure towards the contractual income tax liability paid by the assessee as an allowable expenditure u/s.37 of the Act.”

Learned counsel for the assessee strongly argued that the department having accepted the order

Given the circumstances, the matter requires re-consideration by the Assessing Officer in the light of the ruling of this Court in M/s Rambus Chip Technologies [India] Pvt. Ltd., referred to supra. More particularly, in the orders impugned, no adjudication is made on the aspect of any existing contractual liability between the assessee and its employees inasmuch as the income tax liability. Hence, setting aside the impugned order, we restore the matter to the file of the Assessing Officer to re-consider the matter sans answering the substantial questions of law raised herein.

For the reasons aforesaid, we pass the following: ORDER i] Appeal filed by the assessee is allowed and the impugned order dated 29.04.2016 passed by the Income Tax Appellate Tribunal, Bengaluru Bench bearing ITA No.1282/Bang/2011 is set aside sans answering the substantial questions of law raised.