ASHOK LEYLAND LTD Vs. DEPUTY COMMISSIONER OF INCOME TAX
INCOME TAX APPELLATE TRIBUNAL
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M.K. Chaturvedi, Vice-President -
(1.) THIS appeal by the assessee is directed against the order dated 17-4-2006 passed by the Commissioner(Appeals)-XI, Chennai and relates to the assessment year 2005-06.
(2.) The solitary issue raised in this appeal relates to the question as to whether the reimbursement of expenses to M/s. AVL List GmbH, Austria comes within the ken of Section 195 of the Income-tax Act, 1961.
We have heard the rival submissions in the light of the material placed before us and the precedents relied upon. The assessee is a company manufacturing motor vehicles, etc. It entered into a technical assistance agreement with M/s. AVL List GmbH, Austria for supply of designs, drawings and consultancy in the development of engines. As per the terms of the agreement in addition to fees for technical knowhow the assessee was required to reimburse expenditure towards air fare, accommodation and subsistence cost for the personnel deputed by the Austrian firm to India. The personnel were deputed to assist the assessee in India for imparting their technical expertise. The Austrian firm raised four invoices on the assessee towards reimbursement on items of expenses. The assessee applied for a certificate for non deduction of tax at source on such reimbursements under Section 195(2) of the Act. The Assessing Officer declined to grant the exemption and directed the assessee to deduct tax at 10% on such reimbursements. The matter was assailed in appeal before the Commissioner (Appeals). The Commissioner(Appeals) confirmed the order of the Assessing Officer. Being aggrieved of the said order the assessee is in appeal. The Revenue authorities took the view that the amount sought to be reimbursed in terms of the agreement would constitute fees for technical services. As such the assessee is duty-bound to deduct tax at source in accordance with the prescription of Section 195(2) of the Act.
(3.) SHRI R. Vijayaraghavan, the learned Counsel for the assessee invited our attention on the prescription of Section 195 and submitted that it is applicable only in the context of such sums which are chargeable to tax under the Act. At the outset it was contended that reimbursement of expenses cannot be construed to be the income chargeable to tax. Reliance was placed on the decision of the Hon'ble Delhi High Court rendered in the case of CIT v. Industrial Engineering Projects Pvt. Ltd. 202 ITR 1014 (Del). In this case the assessee had an agreement with a foreign company ETAG whereby some services were to be rendered by the assessee to ETAG for which the assessee would receive a minimum sum of Rs. 1,20,000/- per year. The agreement also provided that certain costs and expenses incurred by the assessee would be reimbursed. The Assessing Officer disallowed some of the expenses incurred which were in the nature of entertainment and traveling expenses on the ground that they were more than the permissible limit. On reference the Hon'ble High Court has held that reimbursement of expenses can under no circumstances be regarded as revenue receipt. Reference was also made to the decision rendered by the Delhi Bench-A of the Tribunal in the case of HNS India VSAT Inc. v. Deputy Director of Income-tax, International Taxation, Circle 1(1) 95 ITD 157. In this case the Tribunal held that in the facts of the case the amount paid on account of reimbursement of actual expenses incurred by sub-contractors could not be treated as income of the sub-contractors chargeable to tax in India. As such the provisions of Section 195 are not attracted.;
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