In a major relief to American Express, the Delhi Bench of Income Tax Appellate Tribunal (ITAT) ruled that the payment of travelling expenses to its own employee could not fall within the ambit of Fees for technical services (FTS).
The CIT(A) agreed with the conclusion drawn by the Assessing Officer/TPO that the payment towards travel expenses constitutes fee for technical services in terms of section 9(1)(vii) of the Act and Article 12 (4) of India US DTAA. It was further held that the appellant was required to deduct TDS on the payment made to AE hence, non-deduction of tax would attract disallowance under section 40(a)(i) of the Act.
The disallowance of travelling expenses made in respect of the employees who travelled abroad for training or business purposes did not accept the finding of the Assessing Officer and held that such expenditure does not constitute FTS under either the Act or the Treaty.
It was contended by the assessee that the Assessing Officer disallowed a sum of Rs.3,92,81,378/- stating that reimbursement of relocation expenses form part of secondment contract and as the assessee had deducted tax on source u/s 195 of the Act for the reimbursement of salaries so should have been the case for reimbursement of relocation expenses. It was also submitted that the Assessing Officer treated the same in the nature of FTS and thus chargeable to tax u/s 9(1)(vii) and Article 12(4) of the DTAA between India and the USA.
The Coram of Accountant Member, R.K. Panda and Judicial Member Kul Bharat affirmed the view of CIT(A) on the issue of allowability of payment of travelling expenses in respect of its own employees. The court did not found any reason to disturb the finding of CIT(A) as payment of travelling expenses to its own employee could not fall within the ambit of FTS.
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