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Income Tax Appellate Tribunal, “L” Bench, Mumbai
O R D E R Per B.R. Baskaran, AM :-
The appeal filed by the Revenue is directed against the order dated 14.12.2010 passed by learned CIT(A)-11, Mumbai and it relates to A.Y. 2005- 06.
The Revenue is aggrieved by the decision of learned CIT(A) in holding that the reimbursement of travelling expenses of expatriates received by it from its clients and also “living allowance” paid by the clients to expatriates (employees deputed by the assessee) do not constitute income in the hands of the assessee.
Facts relating to the above said issue are stated in brief. The assessee, a foreign company, is engaged in the business of providing personnel having experience in construction projects. The assessee’s group concerns named Hazira Marine Engineering & Construction Management Pvt. Ltd. (HME) and 2 M/s. Saipem S.A.
Hazira Cryogenic & Construction Management Private Limited (HCE) are Indian companies operating in India. The assessee has sent its employees to the group companies stated above for carrying out certain works. As per the agreement entered into between the assessee and the companies cited above, Indian group Companies are required to reimburse travelling expenses of the personnel and also they are required to give living allowance to those personnel. The assessee did not consider those payments as its income and accordingly did not offer them also in its return of income. The Assessing Officer, however, held that both the above said amounts should taken as forming part of fee for services received by the assessee and accordingly held that they are liable for taxation. For the sake of convenience we extract below relevant observations made by the Assessing Officer:-
“4.4 I have pursued the submissions made by the assessee vis-à-vis the facts of the case. The assessee has been providing personnel and management services to HME and HCE. The revenues received by the assessee from HME and HCE have been offered by the assessee as fees for technical services and taxed @10% in accordance with Article 13 of the DTAA between India and France. The assessee has received a total amount of Rs. 38,46,666/- as reimbursement of travel expenses and Rs.1,23,95,185/- as payment of living allowance of these employees who have provided the personnel and management services to NME and HCE. Since, these expenses were incurred on the employees who were providing the management services, it forms part of the receipt in respect of technical services provided by the assessee company.
4.5 It has been held by the Authority for Advance Ruling in the case of Danfoss Industries Pvt. Ltd.(268 ITR 1) that the fees charged by the foreign company to the applicant company in providing these, vices was in the nature of Quid Pro Quo for the services and not reimbursement of expenses and, therefore, the payment of fees had to be made by the Indian company only after withholding tax u/s 195.
4.6 It has also been held in the case of Steffen, Robertson and Kirsten Consulting Engineers & Scientists (230 ITR 206) by the Authority for Advance Rulings that there was no difference between the fees for engineering services and the fees relatable to living allowances or traveling charges of the employees who would rendered the services.
3 M/s. Saipem S.A.
4.7 It has been held in the case of Cochin Refineries Ltd. ( 222 ITR 354) by the Kerala High Court that the services rendered by the foreign company which were in the nature of technical services and the nature of reimbursement of payments made to the personnel, no different situation would be available because these payments would be part and parcel in the process of advise of a technical character and would fall for coverage within the meaning of Explanation to section 9(1 )(vii) of the Income-tax Act, 1961.
4.8 It has been held in the case of Clouth Gummiwerke Aktiengesellschaft Vs. CIT (Andhra Pradesh)(238 ITR 861) in which it has held that the fees paid to foreign company for the services of engineers for supervising the erection of project was taxable as fees paid for technical services and the amount paid towards the charges for providing free boarding, lodging and transport facilities to the engineers was also taxable u/s 9(1 )(vii) of the Income-tax Act, 1961.
4.8 Furthermore, looking to the details filed by the assessee in the course of these proceedings the following points are worth of mention.
A single invoice is raised by the assessee on the Indian company showing the total amount. For eg, the assessee has produced a copy of the Invoice No. 6080401443 which reads as under:
Date: 19.11.2004 INVOICE N* 6080401445 Invoicing as per the agreement for the supply of personnel from April 04 to June 04 between SAIPEM S.A and Hazira Marine Engineering and Construction Management Private Limited (HME) TOTAL AMOUNT 1,381,829,68 EUR Thus it is seen that the primary invoice raised by the assessee does not show any break up of expenses. A supplementary appendix then seeks to explain the bifurcation of the various expenses. From this it is apparent that in the case of the travel expenses there is a single invoice which is raised which supports the conclusion that these expenses are nothing but a part of the fees for technical services rendered by the assessee. Subsequently, it has been sought to segregate the travel expenses from gross amount and claim that the same is not chargeable to tax.
Furthermore, there in the absence of the global accounts of the assessee it is not possible to verify whether the alleged reimbursements are in fact expenses which have been actually paid by the assessee and are not 4 M/s. Saipem S.A. income.
In view of the above, it is not possible to accept the contention of the assessee that the amount received by it in the nature of reimbursement of costs or as living allowance of the employees cannot be treated as part of the Fees for Technical Services received by it from the Indian concerns. The decisions, on which the assessee has relied upon in its submissions, do not help the assessee's case as they are distinguishable on facts. Therefore, the amount of Rs. 38,46,666 as reimbursement of travel expenses and Rs 1,23,95,185 as payment of living allowance which is reimbursed by HME and HCE to the assessee company is treated as fees for technical services and charged to tax a 10% on gross basis.
In the appellate proceedings learned CIT(A) noticed that the Dispute Resolution Panel has held in the succeeding year, i.e., in AY 2006-07 and 2007-08 that reimbursement of travelling expenses is not liable to tax in assessee’s hand. The DRP placed reliance on the decision of Hon'ble Bombay High Court in the case of Krupp Udhe GMBH (ITA No. 2626 of 2009) and Seimens Aktiogesellschaft (310 ITR 320) in this regard. Accordingly, the learned CIT(A) directed the Assessing Officer to delete the addition relating to reimbursement of travelling expenses. With regard to living allowance paid to expatriates, learned CIT(A) deleted the same with following observations :-
6.3 It was further submitted that the Indian companies make payments directly of the living allowance to the expatriates. It is not a case where living allowance is a component of the fee paid to the assessee. The issue regarding taxability of living allowance paid by the Indian companies will arise in the hands of the expatriates and not in the hands of the assessee. It was the obligation of the Indian company to pay living allowance in term of the above said agreement between the appellant and the Indian company. Accordingly, the reimbursement of expenses to the assessee by the Indian companies is not in the nature of income and the same is not liable to tax. Further, the Dispute Resolution Panel for assessment year 2006-07 and 2007-08, in appellant's own case has held that as the payments made directly to the expatriates cannot be disallowed relying on the decisions of the Bombay high Court in the case of Krupp Udhe GMBH and Siemens Aktiongesellschaft. Therefore, the Assessing Office may be directed to delete the addition on this issue.
6.4 After carefully examining the legal position on this issue, I am of the 5 M/s. Saipem S.A. view that this is a covered issue in view of the judgment of the Hon'ble Mumbai High Court in the case of CIT v. Siemens Aktiongesellschaft [2009] (310 ITR 320)(Bom), therefore, the Assessing Officer is directed to delete the addition made and this ground of appeal is allowed.
Aggrieved by the order passed by Ld CIT(A), the revenue has filed this appeal before us.
The Ld D.R submitted that the assessee herein and the two Indian companies are related to each other and the fee for services rendered by the assessee has been split up according to the convenience of the assessee with the motive of reducing the tax liability. He submitted that the expenses pertaining to the employees deputed by the assessee should normally be borne by it, in which case the fees charged by it shall be increased proportionately to take care of expenses also. However, the assessee has split the fees into different components, viz., fees, living allowance of employees and reimbursement of travelling expenses of employees. Accordingly he submitted that the assessing officer was justified in treating the reimbursement of travelling expenses as well as living allowances given to the employees as part of “fee received by the assessee”. He submitted that the decisions rendered by Hon’ble Bombay High Court in the cases of Krupp Udhe GMBH (ITA No. 2626 of 2009) and Seimens Aktiogesellschaft (310 ITR 320) are not applicable to the facts prevailing in the instant case, since the transactions have been entered between the related parties. He submitted that the deputed employees, i.e., the expatriates remained as employees of the assessee company even after their deputation to India. He submitted that the Hon’ble Delhi High Court has held in the case of Centrica India Offshore (364 ITR 336) has held that the salary paid to expatriates shall be taken as part of fee for services. Accordingly he submitted that the splitting up of the fees into several components like Fees, living allowances and reimbursement of expenses should be ignored and entire receipts should be taken as forming part of fees only.
6 M/s. Saipem S.A.
On the contrary, the Ld A.R submitted that the DRP has held in the subsequent years that these two items cannot be considered to be the receipts of the assessee. He submitted that the contract entered by the assessee with the Indian Companies provided that the travelling expenses of the expatriates shall be borne by the Indian Companies. Further the contract also provides that the Indian Companies should pay living allowance to the expatriates. However, the assessee was constrained to book travelling tickets of the employees sent to India and hence the assessee got reimbursement of the travelling expenses from Indian Companies, since they had to incur those expenses as per the contract. The living allowances are paid to the employees directly and the assessee does not have any benefit or interest therein.
We heard the parties and perused the record. It is an admitted fact that the DRP has held in AY 2006-07 and 2007-08 that these receipts, viz., reimbursement of travelling expenses and living allowance paid to expatriates, are not to be considered as forming part of fees received by the assessee. The co-ordinate bench of Tribunal has held in AY 2003-04 and 2004-05 that these items are not taxable in the hands of the assessee. However, we notice that the Tribunal has held so in AY 2003-04 and 2004-05 on the understanding that the assessee herein and Indian companies are not related parties. The Ld D.R has pointed out that they are related parties, which fact was not disputed by the assessee.
We have noticed that the addition made by the assessing officer has been deleted by DRP in AY 2006-07 and 2007-08. Identical additions made in AY 2003-04 and 2004-05 have also been deleted by the Tribunal, even though there was misunderstanding about the facts. But the fact remains that the order of the Tribunal passed for AY 2003-04 and 2004-05 remains in operation as of now. We are dealing with AY 2005-06, which falls in between the above said years. Even though there is merit in the contentions of the Ld D.R yet, in order to maintain consistency in the matter, we are inclined to uphold the view
7 M/s. Saipem S.A. taken by the Ld CIT(A), since the same is consistent with the view taken by the DRP in the succeeding years. Accordingly, we uphold the order of Ld CIT(A).
In the result, the appeal filed by the revenue is dismissed.
Order has been pronounced in the Open Court on 17.6.2016.