[2018] 89
taxmann.com 445 (Chennai – Trib.)
Tractors &
Farm Equipment Ltd. vs. ACIT
A.Y. 2006-07,
Date of Order: 27th September, 2017
Facts
The Taxpayer
was engaged in manufacture and sale of tractors and farm equipment. It had
established a subsidiary In USA (“US Co”) for sale of tractors in USA. The
Taxpayer had entered into agreement with US Co to provide assistance for
promoting sale of tractors through advertisement, to provide market inputs to
enable increased sale of its tractors and maintain stock. The Taxpayer was
reimbursing promotional activity expenses to US Co on the basis of supporting
documents. The Taxpayer had also set up overseas representative offices in
London, Vienna and Belgrade for sale of tractors and had remitted funds towards
reimbursement of expenses to overseas representative office. The remittances
were made to the account of an employee of the Taxpayer. The employee had
periodically submitted detailed accounts with supporting documents in respect
of expenses incurred.
The Taxpayer contended that none of the
payments made to US Co were fee for technical/consultancy services. Further,
they being reimbursements, there was no element of profit. Hence, the
remittances were not taxable in India.
The AO
held that as the Taxpayer did not withhold tax while making payments to US Co
and overseas representative offices, such payments were to be disallowed u/s.
40(a)(i) of the Act.
With respect to payment to overseas
representative office, the Taxpayer contended that the payment was merely a
reimbursement towards periodic maintenance expenses incurred by the
representative office and hence, was not taxable in India.
The
CIT(A) confirmed the order of the AO in respect of payments made to US Co but
deleted disallowance in respect of payments made to overseas representative
offices.
Held
– The
Taxpayer had paid US Co for expenses for two kinds of services. One, sales
promotion and two, market development.
– As
per Distribution Agreement between the Taxpayer and US Co, the payments were
made “to provide inputs for new Product Development – Improvements in the
present range of products” to US Co “towards the market survey expenses to be
incurred in USA”. Thus, these payments were towards services rendered by US Co
to provide inputs for new product development including market survey in USA.
Such services were covered within the definition of ‘Fees for included
services’ in Article 12(4) of DTAA.
– The
debit note issued by US Co showed that reimbursement was for expenses incurred
towards detailed review of specifications of compact tractors, obtaining
feedback of dealers/end users, consulting experts/professional engineers
regarding current use and future requirements and evolving broad specifications
for a new range of compact utility models. The debit note also supports the
fact that the services fell within the definition of ‘Fees for included
services’ in Article 12(4) of DTAA.
– As
regards remittance towards expenses of overseas representative offices, the AO
had neither doubted the genuineness of the expenditure nor had he brought any
material on record for supporting disallowance. Merely because the employee
acted as an authorized signatory in another entity, does not mean that the
payment was not towards reimbursement of expenses of overseas offices of the
Taxpayer.
