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Judgment
Per Renu Jauhri, Accountant Member:
These appeals filed by the assessee are directed against the final Assessment Order (AO) passed u/s 143 (3)/263/144C of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 04.03.2014 and 13.04.2015for A.Ys. 2009-10 and 2010-11.
The assessee has raised common grounds in both these appeals and the only differe nce is in the amount involved. In ITA No. 2992/Del/2016 which is taken as the le ad case, the assessee has raised the follow ing grounds:
“1 . Whet her o n the fact s and i n the circumsta nces of the case, t he Id. C IT (A ) has err ed in upholding the assessment of Rs 4,59,28,842/- as FTS (fee for t echnical servic es) t axed @ 10% on gr oss basi s , whi c h was paid / reim bursed by t he Appellant to its Head Office in Australia on account of t he time input by t heir staff from Australia?
2.Whether on t he facts and i n the ci r cumstances of the case, the Id. CIT (A) has e rred in law in tre ati ng the reim bursement of Rs 4,59,28,842/- mad e by the Appellant to its Head Office at Australia, on account o f actual staff costs of the H ead Office at Australia (HO) for their ti me i nput, holdi ng it as FTS (f ee for t echnical servic es) in the hands of HO and i n maki ng a s epar ate assessment at Rs 4,59,28,842/- as FTS a nd whe ther It bei ng reimburs ement of HO staff at cos t at actuals and the nomenclatur e i n t he accounts of the Appellant as sub consulti ng do es not cha nge t he substance of the tr ansaction?
3.Whether on t he facts and i n the ci r cumstances of the case, t he Id. CIT (A) has erred in law i n upholdi ng the assessment at Rs 4,59,28,842/-, as FTS i n t he ha nds of the HO and taxi ng it a t 10 % of gross rec ei pts , contrary t o t he DTAA between India and Austral ia, accordi ng to which the said i nc ome could be assess ed only as busi ness profits under Artic le 7, because of the Appellant bei ng a PE in India, and that the exp enses incurred being the cost o f s taff has to be allo wed at actuals to deter mine net i nco me?
4.Whether on t he facts and i n the ci r cumstances of the case, t he Id. CIT (A) has erred in law i n upholdi ng frami ng of t he assessm ent at Rs. 4,59,28,842/- as FT S (fee for technical services) and not al lowi ng s et off of brought f orward l osses ?”
Subsequently vide application dated 28.10.2025, the assessee has sought admission of the following additional grounds:
Additiona l Ground No . 5:
“That the AO/ CIT(A) er red i n law in not appr eciati ng tha t the total receipts had already been off ered to tax under sectio n 44DA of the Act and any additi on made on acco unt of any application of s uch income woul d only amo unt to double taxati on”.
Additiona l Ground No . 6:
"That the ass essment order dated 0 4.03.2014 i s non-est having been passed in gross vi olation ofprovisions of section 144C of the Act.”
Additiona l Ground No . 7:
"That the AO / CIT(A) grossly erred in ta xi ng payments rec eiv ed by the HO of the Appellant f rom the PO of t he Appellant in complete ignorance of the fact that reim bursement of expe nses t o HO could not giv e any ri se to any i ncome not wi thstandi ng t hat payment t o self also does not gi ve rise to any income”.
After hearing both the parties, we are inclined to accept the argument that these are purely legal gro und s requiring no further submission of facts. Accordingly, additional grounds raised by the assessee are hereby admitted in the light of settled legal position enunciated by the Hon’b le Apex Court in the case of NTPC Vs. CIT (1998) 229 ITR 383.
Brief facts are that the assessee company is a tax resident of Australia and has a project office (PO) in India which constitutes its PE as per Article 5 of the India-Australia Do uble Taxation Avo idance Agreeme nt (DT AA). Assessee is an engineering consultant primarily engaged in consultancy services in road constructio n & maintenance, water & environme nt, power and hydroelectric proje ct sectors.
During the year, it provided services to various Indian parties thro ugh its PO and paid tax on the receipts u/s 44DA of the Act. W hile rendering these services, the assessee had utilized the inp uts rece ived from the employees of the Head Office (HO). It was claimed that the cost of such inputs is recovered by the HO from the PO on actuals without any mark-up. Thus, the reimburse ment paid by PO to the HO of Rs.4 ,59,28,842/- during the year was claimed as a deduction in terms of clause (ii) of Proviso to section 44DA.
Ld. AO, vide assessment order dated 04.03 .2014, allowed the se expenses u/s 44DA while calculating the taxable profits on the ground that co st of staff paid by PO to HO is reimbursement of expenses. However, the AO also held that the reimbursement received by the HO was fee for technical services (FT S) as per provisions of Act as well as the DTAA and the same was held to be taxable in the hands of the HO.
Aggrieved, the asse ssee preferred an appeal before the Ld. CIT(A). Vide order dated 28.03.2016, Ld. CIT(A) uphe ld the action o f the AO. Further aggrieved, the assessee is in appeal before the Tribunal.
Before us ld. AR has submitted that altho ugh to tal 7 grounds have been raised, the tw o additio nal legal grounds No. 5 & 6 are being taken up first without prejudice to the other grounds.
Ground No . 5: Additio n of Rs.4,59,28,842/-:- amounts to double ta xation as total rec eipts have already been taxed u/s 44DA.
Ground No . 7: Reimbursement of expens es to HO could not give any rise to any inc ome notwithstanding that payment to s elf also does not give rise to a ny income.
In this regard, elaborate arguments have been made by the ld. AR which are reproduced below:
“Additional Ground No.5
(a)As per section 44DA of the Act, income by way of FTS receiv ed by a forei gn c ompany carr yi ng on business in India through its PE from an Indian concer n is to be computed und er the head “Pro fi ts and gains of business or profession”, if such i ncome is effectively co nnected with t he PE. Further, as per sec tion 44DA of the Act, no deduction is allowable i n r esp ect of amo unts , if a ny, paid (ot herwis e than t owards rei mburseme nt of act ual expenses) by t he PE to its HO or to any of i ts ot her offic es.
(b)Ther efore, where reimbursement is made of actual expenses by the PE t o its HO , the same is an allo wable expense whil e co mputi ng i ncome under section 44DA of the Act. This position, as well as the i ncome offered by the Appellant under secti on 44DA of the Act, has been accepted by the A O in the prese nt case for bot h y ears .
(c ) Accordi ngly, when the consolidat ed receipts from Indi a were offered to tax i n India by the Appel lant under section 44DA of t he Act, out of which t he PE of the Appellant made c ertai n reimbursements back to the HO of t he Ap pellant, the same bei ng appli cation of the taxabl e r ecei pts, cannot be t axed agai n i n the hands of the HO of the Appell ant as i ncome . D oing s o would be doubl e taxation, which is impermissi ble i n la w. (ii)………
Additional Grou nd No. 7
(a)As sta ted i n para 2 and 3 above, it i s an admitted position t hat the AO/ CIT(A) have bro ught to tax pay ments i n the hands of t he HO of t he Appellant located in Australia, whic h have been rec eived from the PE/ PO of the Appellant in India on a cost-to-cost basis. Ther efore, the said payment has been undertaken by different parts of the same entity.
(b)Special Bench of this Hon’ble Tribunal i n S umit omo Mits ui Banki ng Corpn. v. DD IT, (2012) 16 ITR(T) 116 (Mumbai ), whil e de aling with the issue of payment of inte rest from the Indian Branch Office / PE o f the non-resident to its HO [or as referred t o i n the judgment as Gener al Enterprise (“GE”)] has hel d that si nce PE and HO /GE is par t of the same ent erprise, no pay ment from the PE to t he HO/GE can be brought t o tax i n India, as the same being payment to s elf cannot gi ve rise t o any income. ...
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(c ) Followi ng the above deci sion, the co ordi nate bench of this Hon’bl e Tribunal in BNP Paribas SA v. ADIT, ITA No. 3541/Mum/2014, judgment dat ed 31.03.2016 (Mumbai -Tri bunal ), whil e de aling wit h da ta proc essi ng fees paid by the PE of a non-resident to a foreign branc h of t he non-resident, which was ot herwis e char acterized as FTS, held the same to be not taxabl e in India, bei ng payment to self. ...
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(d)At the cos t o f rep etiti o n, it i s being reiterated that in BNP Paribas (S upra ), the payment from PE to its HO was consid ered as FTS and while dealing wi th t he taxabil ity thereof, the coordi nate bench has c ome to conclusi on that irrespective of the nat ure o f suc h pay ment, an i nte rnal charge between the PE and HO of the same entity, c annot give rise to income charge abl e to tax under the A ct in the ha nds of the non-resi dent assessee. This decision in BNP Paribas (Supra), has been followed by the coor dinate benches i n the same assessee’s case until rec entl y, with the l atest decision bei ng B NP Paribas SA v. ACIT, [2024] 163 taxma nn.com 601 (Mum bai - Trib.). A copy of the said decision is attac hed herewi th as Anne xure - 1.
(e)Similarly, in the present cas e as well, the amount bei ng subj ected to tax by the AO/ CIT(A ) in t he hands of the HO of the Appellant, has been paid by the PO/ PE of the Appellant in India and therefore, s uch an i nternal charge wi thi n the Appellant company, i rrespecti ve of i ts nat ure and characterization, cannot give rise to any income i n the hands of the Appellant.”
Ld. DR on the o ther hand has str ongly relied on the orders of the lower authorities. He has submitted that the ld . C IT( A) has r ightly he ld the imp ugned payments as FTS in the hands of the HO.
We have heard the r ival submissio ns and perused the material placed o n record as well the relevant judicial citations. The sole issue for consideration is whether the payment by the BO to the HO in the instant case on a/c o f salary of staff o f HO is reimburse ment (with no mark up) and if so whether the same is taxable. In other words, the issue involved is whether the assessee can make any profit out of the transaction made with itself. In this regard, the decision of the Special Bench of the Tribunal in the case of Sumitomo Mitsui Banking Corpn. vs. DDIT (supra) has been relied upon by the ld. AR wherein it has been held that the PE and HO being part of the same enterprise , the payment from branch office to the HO being payment to self canno t give rise to any income. Respectfully following the decision of the Special Be nch, we hold that payment on a/ c of re imbursement of salary of staff of Rs.4 ,59,28,842/- to the HO being a transaction o f the assessee with itse lf cannot result in any taxable income in the hands of the assessee. In the result, addition made by the AO of Rs.4 ,59,28,842/- treating it as FTS is hereby deleted. Assessee’ s appeal is accordingly allowed.
In ITA No. 299 3/Del/2016 for A.Y . 2010-11, the issues involved and facts and circumstances are identical, therefore, the above decision w ill apply mutatis mutandis to this year also.
In the result, both the appeals o f the asse ssee are hereby allowed.