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Transfer of funds from the Head Office to the Overseas Branch are in the nature of reimbursements and therefore taxing such transfers is not contemplated by the Finance Act, 1994.
Facts
The Appellant was an exporter of information technology and software services had established network of branches outside the country. These branches acted as salary disbursers of staff deputed from India to client locations and carried out other assigned activities. The funds were transferred by the Head Office to the Branch for undertaking the aforesaid activities. Proceedings were initiated by revenue to tax these payments as a consideration for “business auxiliary services” considering the head office and the branch as different persons.
Held
The Tribunal noted that the branch and head office are distinct entities for the purpose of taxation. However, whether the branch renders any service in India within the meaning of the statutory provisions is required to be examined and a forced disaggregation merely for the purpose of tax is not the intention of the law. It was observed that any service rendered to the other contracting party by branch as a branch of the service provider would not be within the scope of section 66A of the Finance Act, 1994. Consequently, mere existence as a branch for the overall promotion of the objectives of the primary establishment in India which is essentially an exporter of services, does not render the transfer of financial resources to the branch taxable u/s. 66A. Accordingly, it was held that there is no independent existence of the overseas branch as a business and its economic survival is entirely contingent upon the will of the head office and therefore taxing of transfer of funds viz. reimbursements is not contemplated by the Act.
