The Mumbai bench of Income Tax Appellate Tribunal (ITAT) held that reimbursement of expenses on cost to cost basis related to fee for technical service would not be subject to Tax Deduction at Source.
Assessee Micromesh Developer Ltd. Was engaged in the business of land development and construction of real estate properties. When the assessing proceeding was conducted by the assessing officer he demanded one crore rupees under section 201(1) Income Tax Act 1961 and interest of seventy eight lakh under section 201(1A) of the Income Tax Act 1961 on account of not withholding tax under section 195 of the Income Tax Act 1961 pertaining to payment made reimbursement of expenses along with other expenses. Against the order the assessee filed an appeal before ITAT.
Section 195 Of Income Tax Act 1961 specifies the TDS ,If an Individual making any payment by way of interest or amount to an Non Resident Indian or Non Resident Foreign Company shall be liable to pay TDS.
Soumendu Kumar Dash counsel for the assessee submits that,
“There was no component of income embedded on the reimbursement of expenses made by the assessee and provision of Sec. 195 of the Act is not applicable since no income arose to the non-resident out of reimbursement (being cost to cost basis) without any markup and the same was not taxable in India”
Counsel for the revenue contented that,
“Reimbursement made for the services was in the nature of FTS taxable both as per the act as well as DTAA”
After considering the contentions of the both parties the division bench of ITAT comprising Amarjit Singh (Accountant Member) and Aby T Varkey (Judicial Member) dismiss the appeal filed by the revenue and observed that,
“The assessee has made remittances to foreign parties towards reimbursement of expenses incurred by them. The expenses were incurred by such parties on account of travel, meal, hotel stay etc. Reimbursement was made in respect of actual expenditure incurred on a cost to cost basis without any markup.”
Further the bench determined that the Assessing officer had neither brought any relevant material on record to substantiate that reimbursement of expenses was in the nature of FTS nor disproved the claim of the assessee based on back to back invoices that no profit element was embedded in the reimbursement of such expenses.
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