BYK ASIA PACIFIC PTE LIMITED, PUNE V. ACIT(IT), CIRCLE-1, PUNE

ITA 2110/PUN/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 8950 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 27-12-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Permanent establishment; Onus to prove; TDS; Set aside
• Section: 195; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.2110/PUN/2019 / ASSESSMENT YEAR : 2016-17 BYK ASIA PACIFIC PTE. LIMITED, 147, BECK INDIA LTD COMPOUND, MUMBAI-PUNE ROAD OFF PMC, PIMPRI, PUNE 411 018 PAN : AACCB5950H VS. ACIT (IT), CIRCLE-1, PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 23-10-2019 PASSED BY THE ASSESS ING OFFICER (AO) U/S.143(3) R.W.S.144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) IN RELATION TO THE ASSESSMENT YE AR 2016-17. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE DISALLOWAN CE OF RS.1,22,43,873/- U/S. 40(A)(I) ON ACCOUNT OF NON-DE DUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. ASSESSEE BY SHRI KETAN VED REVENUE BY SHRI MAHADEVAN A.M.KRISHNAN DATE OF HEARING 22-03-2021 DATE OF PRONOUNCEMENT 24-03-2021 ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 2 3. SUCCINCTLY, THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSESSE E, BYK ASIA PACIFIC PTE. LIMITED (HEREINAFTER CALLED `THE SINGAPORE HO), IS A TAX RESIDENT OF SINGAPORE HAVING BRANCHES IN SEVERAL C OUNTRIES, INCLUDING A BRANCH OFFICE IN INDIA (HEREINAFTER CALLED `THE I NDIAN BO). IT IS A PART OF A GROUP OF COMPANIES WITH A PARENT COMPANY IN GERMANY, KNOWN AS BYK GERMANY. THE INDIAN BO IS ENGAG ED IN PROVIDING TECHNICAL SUPPORT SERVICES IN THE ASIA PACIFIC REGION TO THE CUSTOMERS OF ITS PARENT COMPANY, NAMELY, BYK, GERMANY. I T IS PRIMARILY ENGAGED IN PROVIDING SERVICES IN THE FIELD AS BYK GROUPS ADDITIVES USED BY INDIAN CUSTOMERS IN THEIR PRODUCTS . THE INDIAN BO ALLOWS THE CUSTOMERS OF BYK GERMANY TO TEST THE EF FECT OF THE FORMULATIONS ON THE CUSTOMERS PRODUCTS AT ITS TESTING FACILITIES AND PROVIDES TECHNICAL SUPPORT TO SUCH CUSTOMERS. THE INDIAN BO ALSO PROVIDES TECHNICAL ANALYSIS AND TROUBLESHOOTING EXERCISES FOR THE QUERIES RAISED AND TECHNICAL PROBLEMS FA CED BY THE CUSTOMERS IN THE ASIA PACIFIC REGION. THE INDIAN BO DOES NO T CHARGE ANY SERVICE FEE FROM THE CUSTOMERS TO WHOM TECHNIC AL SERVICES ARE PROVIDED. IT IS THE SINGAPORE HO THAT REIMBURS ES THE INDIAN BO WITH ALL ACTUAL EXPENSES INCURRED WITH 10% MARK-UP. THE INDIAN BO HAS TREATED ITSELF AS PERMANENT ESTABLISHMENT (P E) ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 3 OF THE SINGAPORE HO AND OFFERED FOR TAXATION THE AMOUNT IT R ECEIVED AS MARK-UP ON THE COST OF SERVICES PROVIDED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE CLAIMED DEDUCTION, INTER ALIA, OF RS.1,22,43,873/- TOWARDS CERTAIN EXPENSES PAID TO THE SINGAPORE HO WITHOUT DEDUCTING TAX AT SOURCE U/S 19 5 OF THE ACT. ON BEING CALLED UPON TO EXPLAIN AS TO WHY DISALLOWANCE U/S 40(A)(I) BE NOT MADE, THE ASSESSEE CONTENDED THAT THE AM OUNT PAID WAS IN THE NATURE OF `REIMBURSEMENT OF EXPENSES AND NO T FEES FOR TECHNICAL SERVICES AS ALLEGED BY THE AO. NOT CONVINCED, THE AO MADE DISALLOWANCE U/S SECTION 40(A)(I) OF THE ACT. NO REPRIE VE WAS ALLOWED BY THE DISPUTE RESOLUTION PANEL (DRP), WHICH FINALLY LE D TO THE ADDITION IN THE IMPUGNED ORDER. AGGRIEVED THEREBY, THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE R ELEVANT MATERIAL ON RECORD. THE POINT IN QUESTION IS THE DISALLOWANCE OF RS.1,22,43,873/- U/S.40(A)(I) OF THE ACT FOR NON-DEDUCTIO N OF TAX AT SOURCE ON THE FOLLOWING PAYMENTS MADE BY THE INDIAN BO TO THE SINGAPORE HO: I . SEMINAR EXPENSES RS.83,85,562.72 II. IT EXPENSES RS.36,44,507.64 III. TRAINING EXPENSES RS.1,45,779.75 IV. PRINTING EXPENSES RS.46,682.32 ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 4 V. STAFF WELFARE EXPENSES RS.21,335.04 5. IT IS NOT DISPUTED THAT THE INDIAN BO, IS CHARGEABLE TO TAX IN INDIA IN RESPECT OF ITS TRANSACTIONS, INTER ALIA, WITH THE SINGAPORE HO. THUS, ANY TRANSACTION BETWEEN THE INDIAN BO AND THE SINGAPORE HO IS LIABLE TO BE CONSIDERED AS A TRANSACTION BETW EEN TWO SEPARATE INDEPENDENT ENTITIES INSOFAR AS THE TAXABILITY IN IND IA IS CONCERNED. THE MOOT QUESTION IS WHETHER THE AMOUNT PAID BY THE INDIAN BO TO THE SINGAPORE HO IS LIABLE FOR DEDUCTION OF TAX A T SOURCE U/S 195 OF THE ACT? 6. THE CASE OF THE ASSESSEE BEFORE THE AO HAS BEEN THAT THE ABOVE FIVE EXPENSES TOTALING RS.1.22 CRORE WERE IN THE NATURE OF `REIMBURSEMENT OF EXPENSES IN THE HANDS OF THE SINGAPOR E HO AND HENCE, NO DEDUCTION OF TAX AT SOURCE WAS CALLED FOR IN IT S HANDS. HERE WE WANT TO CLARIFY THAT THE ASSESSEE INCURRED TOTAL EXPEN SES AT RS.6.81 CRORE, DEBITED TO ITS PROFIT AND LOSS ACCOUNT, WHICH INCLUDE THE EXPENSES OF RS.1.22 CRORE UNDER CONSIDERATION. MARK -UP AT 10% WAS CHARGED ON ALL THE EXPENSES INCLUDING RS.1.22 CRORE. REVENUE FROM OPERATIONS AT RS.7.49 CRORE (I.E. ALL THE EXPENSES I NCURRED PLUS MARK-UP) WERE CREDITED TO THE PROFIT AND LOSS ACCOUNT AND RE SULTANT PROFIT WAS OFFERED FOR TAXATION. TO PUT SIMPLY, THE INDIAN BO WAS ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 5 ALLOWED MARK-UP ON SUCH EXPENSES OF RS.1.22 CRORE, WH ICH WAS DULY OFFERED FOR TAXATION. 7. THE CASE OF THE AO IS THAT THE ASSESSEE VIOLATED THE PROV ISIONS OF SECTION 195 AND EX CONSEQUENTI EXPOSED ITSELF TO THE RIGOR OF U/S.40(A)(I) OF THE ACT. RELEVANT PART OF SECTION 195(1) CLE ARLY STATES THAT: ` ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT, NOT B EING A COMPANY, OR TO A FOREIGN COMPANY, . ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES') SHALL, AT THE TIME OF CREDIT OF SUCH INCO ME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WH ICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE. A CURSORY LOOK AT THE PROVISION TRANSPIRES THAT DEDUCTION OF TAX AT SOUR CE IS WARRANTED, INTER ALIA, ON ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT. THUS, THE CHARGEABILITY OF AMOUNT TO TAX IN INDIA IN THE HANDS OF RECIPIENT IS SINE-QUA-NON SO AS TO TRIGGER DEDUCTION OF TAX AT SOURCE U/S.195 OF THE ACT. CHARGEABILITY U NDER THE PROVISIONS OF THE ACT PRE - SUPPOSES SOME PROFIT ELEMENT INVOLVED IN THE RECEIPT. IF THE RECIPIENT SIMPLY RECOVERS THE AMOUN T SPENT BY IT WITHOUT ANY PROFIT ELEMENT, SUCH A RECEIPT, BEING REIMBURSE MENT, ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 6 CANNOT BE CHARACTERIZED AS ANY ` SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT AND HENCE WOULD BE IMMUNE FROM TAX DEDUC TION AT SOURCE. TWO FUNDAMENTAL CONDITIONS MUST CO-EXIST IN ORDER TO FALL WITHIN THE DOMAIN OF REIMBURSEMENT. THE FIRST IS THAT ONE-TO -ONE DIRECT CORRELATION BETWEEN THE OUTGO OF THE PAYMENT AND INFLOW OF THE RECEIPT MUST BE ESTABLISHED; AND THE SECOND IS THAT THE RE CEIPT AND PAYMENT MUST BE OF IDENTICAL AMOUNT. THE FIRST CONDITION G ETS SATISFIED WHEN THERE IS A DIRECTLY IDENTIFIABLE AMOUNT WHICH IS S PENT ON BEHALF OF ANOTHER AND LATER ON IT IS RECOVERED AS SUC H FROM THE LATTER. IT MEANS THAT INCURRING OF THE EXPENDITURE, AT THE STAGE OF INCURRING ITSELF, IS KNOWN TO BE FOR THE BENEFIT OF THE OTHE R AND NOT THE PAYER. THE SECOND CONDITION GETS SATISFIED WHEN THE RE CEIPT BACK OF THE AMOUNT ORIGINALLY SPENT IS NOT LACED WITH ANY MARK-UP INASMUCH AS EXACT AMOUNT INCURRED IS RECOVERED. PER CONTRA , RECEIPT OF A FIXED AMOUNT, WHICH MAY BE MORE OR LESS THAN THE ACTU AL OUTGO, CANNOT BE DESIGNATED AS `REIMBURSEMENT. 8. NOW WE ESPOUSE THE ITEMS OF EXPENSES AD SERIATIM FOR CONSIDERATION WHETHER OR NOT THEY CONSTITUTE REIMBURSEMENT OF EXPENSES BY THE SINGAPORE HO. THE FIRST ITEM IS SEMINAR EXPE NSES AMOUNTING TO RS.83,85,562/-. DETAILS OF SUCH EXPENSES HA VE BEEN ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 7 PLACED AT PAGE 71 ONWARDS OF THE PAPER BOOK. THE FIRST ITEM UNDER THIS HEAD IS A SUM OF RS.1,55,982/- WITH EQUIVALENT EURO 2 131, THAT WAS INCURRED ON 23-04-2015. PAGE 71 IS A COPY OF INVOIC E RAISED BY ISLANDWIDE MARKETING SERVICES (PVT) LTD. ON BYK, GERMANY W ITH VALUE OF EURO 2131. THE NARRATION GIVEN IS TRAVELLING EXPE NSES (FOR THE CUSTOMER SEMINAR HELD IN GERMANY IN JUNE 2014). THE N, FOUR NAMES HAVE BEEN GIVEN, WHICH ARE STATED TO BE OF THE CUSTO MERS OF THE ASSESSEES PARENT COMPANY TO WHOM THE ASSESSEE WAS RENDERING SERVICES. THE NARRATION IN THE INVOICE INDICATES THAT SOME SEM INAR WAS CONDUCTED IN GERMANY WHICH WAS ATTENDED BY CERTAIN CUSTOMERS OF BYK, GERMANY WHO OPERATE FROM INDIA IN AS SOCIATION WITH THE ASSESSEE. IT IS SEEN THAT THERE IS A BACK-TO-BACK TR ANSACTION, NAMELY, ISLANDWIDE MARKETING PURCHASED AIR TICKETS, BILLED IT TO BYK GERMANY AND THEN EVENTUALLY THE ASSESSEE WAS CHARGE D BY THE SINGAPORE HO WITH THE EQUAL AMOUNT. IT SHOWS THAT AT THE TIME OF INCURRING EXPENSE, IT WAS VERY WELL KNOWN THAT IT WAS BEING IN CURRED FOR AND ON BEHALF OF THE INDIAN BO. THERE WAS AN IDENTIFIA BLE AMOUNT INCURRED FOR THE ASSESSEE, WHICH WAS RECOVERED A S SUCH WITHOUT ANY MARK-UP FROM THE ASSESSEE. THE TRANSACTION IS W ITHOUT ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 8 ANY MARK-UP AND IS ACCORDINGLY IN THE NATURE OF REIMBUR SEMENT OF COSTS IN THE HANDS OF THE SINGAPORE HO. 9. THE NEXT ITEM UNDER THE HEAD `SEMINAR EXPENSES IS INVO ICE WITH VALUE OF RS.26,47,747/-. THIS INVOICE WAS RAISED BY BYK, GERMANY ON THE SINGAPORE HO. THIS ALSO REFERS TO CERTAIN EXPENSES FOR SEMINAR. THE EXPENSES ARE IN THE NATURE OF BUSINESS ENTERTAINMENT, OVERNIGHT ACCOMMODATION AND OTHERS. THIS ALSO EVIDENCES THAT THE EXPENSES WERE INCURRED BY A THIRD PARTY AND THE ASSESSEE WAS CHARGED WITH THE AMOUNT WITHOUT ANY MARKUP. SIMILAR IS THE POSITION REGARDING OTHER TWO EXPENSES UNDER THE HEAD SEMINAR EXPENSES. 10. NOW WE TURN TO `TRAINING EXPENSES AMOUNTING TO RS.1,45,780/-. PAGES 133 AND 134 OF THE PAPER BOOK A RE INVOICES RAISED BY DALE CARNEGIE TRAINING ON THE SINGAPORE HO. PAG E 135 INDICATES THAT 22 PERSONS ATTENDED DALE CARNEGIE TRAINING, OUT OF WHICH 3 PERSONS WERE FROM THE INDIAN BO AND REMAINING 19 PERSONS WERE EITHER FROM SINGAPORE OR THAILAND OR VIETNAM OR JAPAN ETC., BEING, THE OTHER ENTITIES OF THE SINGAPORE HO. THE ASSESSEES SHARE IN SUCH EXPENSES REPRESENTING THREE PERSONS FROM THE IND IAN BO, BILLED ORIGINALLY BY DALE CARNEGIE, COMES TO RS.1,45,780/-, WHICH ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 9 HAS BEEN RECOVERED AS SUCH BY THE SINGAPORE HO WITHOUT A NY MARKUP. HERE AGAIN THERE IS A ONE-TO-ONE CORRELATION BETWE EN THE AMOUNT SPENT BY THE SINGAPORE HO AND THAT RECOVERED FROM TH E INDIAN BO WITHOUT ANY MARK-UP. THIS EXPENDITURE ALSO SATISF IES THE CONDITIONS OF `REIMBURSEMENT AND HENCE DID NOT REQUIRE ANY DEDUCTION OF TAX AT SOURCE AT THE TIME OF MAKING PAYMENT. 11. THE NEXT ITEM IS `PRINTING EXPENSES AMOUNTING TO RS.46,682/-, WHOSE DETAILS HAVE BEEN PLACED AT PAGE 137 ONWARDS OF THE PAPER BOOK. PAGE 137 IS INVOICE OF ARTBOARD & YOUN G RAISED ON THE SINGAPORE HO TOWARDS PRINTING OF CERTAIN VISITING CARDS BY THE EMPLOYEE OF THE INDIAN BO. THE EXACT AMOUNT WHICH WAS BI LLED BY ARTBOARD AND YONG ON BYK, SINGAPORE WAS RECOVERED FROM THE ASSESSEE AS SUCH WITHOUT ANY MARKUP. SIMILAR IS THE POSITION REGARDING OTHER VOUCHERS UNDER THE HEAD OF PRINTING EXPEN SES, WHICH REPRESENT THE PRINTING OF VISITING CARDS BY THE EMPLOYEE S OF THE INDIAN BO. 12. THE NEXT ITEM IS `STAFF WELFARE EXPENSES AMOUNTING TO 21,335/-. SUN XIAHONG, SINGAPORE SUPPLIED SOME GOLD COIN S TO THE SINGAPORE HO. ONE GOLD COIN WAS GIVEN AS REWARD TO MR. VINAYAK WORKING WITH THE INDIAN BO. INVOICE VALUE OF SUCH GOLD CO IN IS 463 ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 10 DOLLARS, WHICH WAS RECOVERED BY THE SINGAPORE HO FROM THE INDIAN BO AS SUCH WITHOUT ANY PROFIT ELEMENT. 13. ON GOING THROUGH THE DOCUMENTS/MATERIAL AS DISCUSSED A BOVE, IT IS EVIDENT THAT SEMINAR EXPENSES, TRAINING EXPENSES, PRINTING EXPENSES AND STAFF WELFARE EXPENSES ARE AMOUNTS PAID BY THE INDIAN BO TO THE SINGAPORE HO, WHICH SATISFY THE TWIN CONDITIONS OF `REIMBURSEMENT AS DISCUSSED SUPRA , VIZ ., ONE-TO-ONE DIRECT CORRELATION BETWEEN THE OUTGO AND INFLOW OF THE SINGAPORE HO; AND THE INFLOW OF THE IDENTICAL AMOUNT WITHOUT ANY PROFIT ELEMENT. SINCE THE SINGAPORE HO RECOVERED THE SAME AMOUNT FROM THE INDIA N BO AS WAS INCURRED BY IT TO THIRD PARTIES WITHOUT ANY PROFIT ELEMENT, THE RECEIPT CANNOT BE CONSTRUED AS OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT SO AS TO WARRANT DEDUCTION OF TAX AT SOURCE U/S.195 OF THE ACT BY THE INDIAN BO. ONCE IT IS HELD THAT TDS WAS NOT NECESSARY, THERE CAN BE NO QUESTION OF DISALLOWANCE U /S.40(A)(I) OF THE ACT. WE ORDER ACCORDINGLY. 14. THE FIFTH ITEM IN THE TALLY OF EXPENSES DISALLOWED BY THE A O IS `IT EXPENSES AMOUNTING TO RS.36,44,508/-. THIS EXPEND ITURE STANDS ON A LITTLE DIFFERENT FOOTING VIS--VIS THE OTHER EXPENSES AS DISCUSSED SUPRA . BREAK-UP OF THIS AMOUNT HAS BEEN GIVEN AT PAGE 69 ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 11 OF THE PAPER BOOK, WHICH SHOWS THAT THERE ARE TWELVE TRAN SACTIONS, ALL TAKING PLACE ON THE FIRST DAY OF EVERY MONTH. ON ENQUIRY FROM THE LD. AR, IT TURNED OUT TO BE MONTHLY PAYMENTS BY THE INDIAN BO TO THE SINGAPORE HO. THE ASSESSEES STAND ON THIS EXPENDITURE BEFORE THE DRP, AS REPRODUCED ON PAGE 5 OF THE DIRECTION, WAS THA T: BYK, GERMANY DEVELOPS/PURCHASE AND MAINTAINS COMMON APPLICATIONS, SOFTWARE AND OTHER IT INFRASTRUCTURE FOR THE BYK GROUP. THE TOTAL COST OF SUCH IT SUPPORT SERVICES IS RECHARGED TO BYK GROU P ENTITIES INCLUDING BYK, ASIA PACIFIC PTE LTD., I.E. HEAD OFFICE BASED O N NUMBERS OF USERS ETC. THEREAFTER, THE HEAD OFFICE APPO RTIONS THE CORRESPONDING COST TO THE ASSESSEE IN RELATION TO THE USAGE OF IT SUPPORT SERVICES FOR THE INDIA ACTIVITIES. PAGE 131 OF THE PAPER BOOK IS A COPY OF THE INVOICE RAISED BY BYK GERMANY ON TH E SINGAPORE HO HAVING VALUE OF EURO 14857. UNDER THE REM ARKS COLUMN, IT HAS BEEN MENTIONED AS MONTHLY RECURRING AMOUNT REGARDING EXPENSES FOR IT-SERVICES (REF. IT-SERVICES AG REEMENT). THE AGREEMENT REFERRED TO HEREIN IS THE SAME AGREEMENT AS POINTED OUT BY THE ASSESSEE BEFORE THE DRP ON PAGE 16 OF THE DIRE CTION, NAMELY, IT-SERVICE AGREEMENT DATED 01.01.2007. AS AGAINST THE INVOICE VALUE OF 14857 EUROS, THE ASSESSEE HAS BEEN CHA RGED 6826 ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 12 EUROS BY INVOICE DATED 01-02-2016. THUS, IT IS CLEAR THAT BYK GERMANY RENDERED IT SERVICES, INTER ALIA, TO THE INDIAN BO ON A REGULAR BASIS AND A MONTHLY CHARGE WAS RAISED THERE AGAI NST. 15. IT GOES WITHOUT SAYING THAT THE BURDEN TO PROVE A PARTIC ULAR EXPENDITURE AS `REIMBURSEMENT IS ALWAYS ON THE ASSESSE E. WE HAVE DISCUSSED ABOVE THE TWIN CONDITIONS FOR GETTING COVERED WITHIN THE AMBIT OF `REIMBURSEMENT. ON A CONSIDERATION OF THE ENTIRE CONSPECTUS, THERE REMAINS NO DOUBT THAT IT EXPENSES ARE PAYMENT FOR RECEIPT OF INTRA-GROUP SERVICES. AS REGARDS THE SECON D CONDITION OF `REIMBURSEMENT REQUIRING NO PROFIT ELEMENT IN THE PAYME NT, UNLIKE THE OTHER EXPENSES AS DISCUSSED ABOVE, THE LD. AR C OULD NOT LEAD ANY EVIDENCE TO DEMONSTRATE THAT THE ALLOCATION OF IT EXP ENSES TO THE INDIAN BO WAS WITHOUT ANY MARKUP IN THE GIVEN FACTS. I N SEDCO FOREX INTERNATIONAL INC VS. CIT (2017) 399 ITR 1 (S C), THE ASSESSEE ENTERED INTO CONTRACT WITH ONGC FOR HIRE OF THEIR RIG FOR CARRYING OUT OIL EXPLORATION ACTIVITIES IN INDIA, FOR WHICH IT WAS PAID MOBILIZATION FEE. THE AO INCLUDED SUCH AMOUNT FOR COMPUTATION OF DEEMED PROFITS U/S 44BB. THE ASSESSEE, INTER ALIA, CONTENDED BEFORE THE HONBLE SUPREME COURT THAT THE RECEIPT WAS IN THE NATURE O F REIMBURSEMENT OF EXPENSES AND HENCE SHOULD BE EXCLUDED . ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 13 REJECTING SUCH A CONTENTION, IT WAS HELD WHERE A `FIXED AMOUN T IS PAID AS MOBILIZATION FEE, WHICH MAY BE MORE OR LESS THAN THE ACTUAL EXPENSES, IT CANNOT BE TREATED AS `REIMBURSEMENT 16. AN ATTEMPT WAS MADE BY THE BENCH TO ASCERTAIN THE EXACT NATURE OF IT EXPENSES AND ITS RELATION WITH THE CARRYING ON OF THE INCOME GENERATING ACTIVITY OF THE INDIAN BO AS THE AO HAS TREA TED IT AS A PAYMENT IN THE NATURE OF FEES FOR TECHNICAL SERVICES. AT THIS STAGE, IT WOULD BE RELEVANT TO NOTE THAT THE AO ANALYSED THE N ATURE OF WORK DONE BY THE ASSESSEE WHICH IS UNDISPUTEDLY OF PRO VIDING TECHNICAL SUPPORT SERVICES IN THE ASIA PACIFIC REGION TO THE CUSTOMERS OF BYK GERMANY. THE ASSESSEE ALLOWS THE CUSTO MERS OF BYK GERMANY TO TEST THE EFFECT OF THE FORMULATIONS ON THE CUSTOMERS PRODUCTS AT ITS TESTING FACILITIES. IT PROVIDES THE CUSTOMERS WITH THE BASIC GUIDELINES AS TO HOW TO USE THE FORMULATIONS ON BYK GERMANY AND PROVIDE TECHNICAL SUPPORT TO THE CUSTOMERS. THUS, THE NATURE OF WORK DONE BY THE ASSESS EE IS THAT OF PROVIDING TECHNICAL ANALYSIS AND TESTING OF ITS PARENT COMPANYS ADDITIVES USED BY INDIAN CUSTOMERS IN THEIR PRODUCTS. IN OR DER TO FIND OUT A LINK, IF ANY, BETWEEN THE PAYMENT OF IT EXPENSES BY THE ASSESSEE ON ONE HAND AND THE RENDERING OF TECHNICAL SUP PORT SERVICES ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 14 TO THE CUSTOMERS OF BYK GERMANY ON THE OTHER HAND, BY TE STING THE EFFECT OF FORMULATIONS AT ITS TESTING FACILITIES, THE LD. AR WAS REQUIRED TO SUBMIT A COPY OF THE IT SUPPORT SERVICES AGRE EMENT DATED 01-01-2007 UNDER WHICH THE PAYMENT IN QUESTION WAS M ADE. THE LD. AR EXPRESSED HIS INABILITY TO PRODUCE THE SAME. SUCH AN AGREEMENT HAS ALSO NOT BEEN CONSIDERED BY THE AUTHORITIES B ELOW. IN OUR CONSIDERED OPINION, THE QUESTION AS TO WHETHER OR NOT T DS WAS REQUIRED IN THE INSTANT CASE ON THIS PAYMENT CANNOT BE DECIDED WITHOUT EXAMINING THE NATURE OF IT EXPENSE AND ITS CORRELATION WITH THE INCOME EARNING ACTIVITY OF THE ASSESSEE. IN CASE, THE IT EXPENSES PAID ARE FOR AVAILING IT SERVICES TO BE UTILIZED IN ITS ACTIVITY OF RENDERING TECHNICAL SERVICES TO THE CUSTOMERS IN ASIA PACIFIC RE GION, THEN THE MATTER WOULD COME TO STAGE TWO REQUIRING FURTHER ANALY SIS FOR EXAMINING IF THE PAYMENT FALLS IN THE CATEGORY OF `FEES FOR TECHNICAL SERVICES. ON THE OTHER HAND, IF THE IT SERVICES ARE UTILISED BY THE INDIAN BO TOWARDS BUSINESS PROCESS OUTSOURCING, PA YMENT FOR THE SAME CANNOT BE TREATED AS FEES FOR TECHNICAL SERVIC ES. AGAIN, IT IS RELEVANT TO NOTE THAT DEDUCTION OF TAX AT SOURCE U/S 195 IS WARRANTED NOT ONLY IF THE PAYMENT IS TOWARDS FEES FOR TECH NICAL SERVICES. IN CASE THE AMOUNT IS CHARGEABLE TO TAX IN THE HA NDS OF ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 15 NON-RESIDENT IN ANY OTHER MANNER, DEDUCTION OF TAX AT SOURC E IS WARRANTED AND NON-DEDUCTION WOULD LEAD TO THE CONSEQUENTIAL E FFECT OF DISALLOWANCE. IN THE GIVEN CIRCUMSTANCES, WHEN WE DO NO T HAVE THE BENEFIT OF THE RELEVANT AGREEMENT AND OTHER ATTENDING DETA ILS, WE CONSIDER IT EXPEDIENT TO SET ASIDE THE IMPUGNED ORDER PRO TANTO AND SEND THIS ISSUE BACK TO THE FILE OF AO FOR EXAMINING THE TRUE NATURE OF TRANSACTION UNDER WHICH THE ASSESSEE PAID IT EXPENSES OF RS.36,44,508/- ON MONTHLY BASIS AND THEREAFTER DETERMINE W HETHER OR NOT TAX IS DEDUCTIBLE AT SOURCE U/S. 195 OF THE ACT AND CONSEQUENTIAL DISALLOWANCE U/S.40(A)(I), IF ANY. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED REASONABLE OPPORTUNITY OF BEING HEA RD IN SUCH FRESH PROCEEDINGS. 17. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH MARCH, 2021. SD/- SD/- ( PARTHA SARATHI CHAUDHURY ) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 24 TH MARCH, 2021 ITA NO.2110/PUN/2019 BYK ASIA PACIFIC PTE LIMITED 16 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. 6. THE PR.CIT-V, PUNE , , / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 22-03-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 24-03-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *