M/S.SNC LAVALIN INC., CANADA, V. THE ASSISTANT COMMISSIONER OF INCOME TAX,

ITA/1744/2009

AI Insights

The case involves SNC Lavalin Inc., a Canadian company, which entered into a technical collaboration agreement with the Kerala State Electricity Board (KSEB). Under this agreement, SNC Lavalin deputed technical personnel to KSEB and claimed the reimbursement of their travel expenses as a deduction from the technical know-how fees. The Income Tax Department disallowed this claim, citing Section 115A(3) of the Income Tax Act, 1961, which prohibits deductions in respect of any expenditure or allowance in computing income referred to in sub-section (1). The Tribunal and the High Court upheld this decision, referencing a similar case involving M/s.SNC Shawinigan Inc. Canada.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 755079 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 14-11-2018
• Assessment Year: misc
• Other Referred Cases: Director of Income Tax v. A.P.Moller Maersk [(2017) 5 SCC 651]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH; P K R MENON
• Assessee Lawyers: E K NANDAKUMAR; P BENNY THOMAS
• Keywords: Deduction; Income tax appeal; Reimbursement; Technical Services; Travel Expenses
• Section: 115A(3)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON WEDNESDAY, THE 14TH DAY OF NOVEMBER 2018 / 23RD KARTHIKA, 1940 I.T.A.No.1731 of 2009 AGAINST THE ORDER IN ITA NO.20/COCH/2005 DATED 24-09-2007 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 2000-01] APPELLANT/APPELLANT IN ITA: M/S.SNC LAVALIN INC., CANADA, REP. BY KERALA STATE ELECTRICITY BOARD, PATTOM, THIRUVANANTHAPURAM. BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.P.BENNY THOMAS RESPONDENT/RESPONDENT IN ITA: THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), THIRUVANANTHAPURAM. BY ADVS. SRI.JOSE JOSEPH, SC FOR INCOME TAX. OTHER PRESENT: SRI P.K.R. MENON, SENIOR COUNSEL FOR GOI (TAXES) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14.11.2018, ALONG WITH ITA.1745/2009, ITA.1744/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1731 of 2009 & - 2 - connected cases IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON WEDNESDAY, THE 14TH DAY OF NOVEMBER 2018 / 23RD KARTHIKA, 1940 I.T.A.No.1745 of 2009 AGAINST THE ORDER IN ITA NO.1267/COCH/2005 DATED 18.01.2008 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 2002-03] APPELLANT/APPELLANT IN ITA: M/S.SNC LAVALIN INC., CANADA, REP. BY KERALA STATE ELECTRICITY BOARD, PATTOM, THIRUVANANTHAPURAM. BY ADV. SRI.E.K.NANDAKUMAR (SR.) RESPONDENT/RESPONDENT IN ITA: THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), THIRUVANANTHAPURAM. BY ADVS. SRI P.K.R. MENON, SENIOR COUNSEL FOR GOI (TAXES) SRI.JOSE JOSEPH, SC FOR INCOME TAX. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14.11.2018, ALONG WITH ITA.1731/2009, ITA.1744/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1731 of 2009 & - 3 - connected cases IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON WEDNESDAY, THE 14TH DAY OF NOVEMBER 2018 / 23RD KARTHIKA, 1940 I.T.A.No.1744 of 2009 AGAINST THE ORDER IN ITA NO.21/COCH/2005 DATED 24-09-2007 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 2001-02] APPELLANT/APPELLANT IN ITA: M/S.SNC LAVALIN INC., CANADA, REP. BY KERALA STATE ELECTRICITY BOARD, PATTOM, THIRUVANANTHAPURAM. BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS RESPONDENT/RESPONDENT IN ITA: THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), THIRUVANANTHAPURAM. BY ADVS. SRI.P.K.R. MENON, SENIOR COUNSEL FOR GOI (TAXES) SRI.JOSE JOSEPH, SC FOR INCOME TAX. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14.11.2018, ALONG WITH ITA.1745/2009, ITA.1731/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1731 of 2009 & - 4 - connected cases JUDGMENT [ ITA.1731/2009, ITA.1745/2009, ITA.1744/2009 ] Vinod Chandran, J. The appeals, for the years 2000-01, 2001-02 and 2002-03, raises the very same question with respect to reimbursement of expenses for the travel of technical personnel in pursuance of an agreement with the Kerala State Electricity Board [for brevity \"KSEB\"], for supply of technical services. Whether such travel expenses could be claimed as a deduction from the technical know-how fees, is the question raised in the appeals. The Assessing Officer [for brevity \"AO\"] found such claim to be prohibited by Section 115A(3) of the Income Tax Act, 1961 [for brevity \"IT Act\"]. The first appellate authority and the Tribunal affirmed the said view. The Tribunal relied on an order of the very same Tribunal in I.T.A.No.440/Coch/1998 in M/s.SNC Shawinigan Inc. Canada v. Additional Commissioner of Income - tax (Assmt.). The facts in the cited decision and the present appeals are identical. 2. Shorn of details, on basic facts, the appellant-assessee had entered into a technical collaboration agreement with the KSEB. In pursuance of the agreement, the assessee-appellant had deputed some of its technical staff to ITA.1731 of 2009 & - 5 - connected cases the KSEB and the reimbursement of their travel expenses was claimed as a deduction from the technical know-how fees. 3. Section 115A is extracted hereunder: \"S.115A(1): Where the total income of - (b) a foreign company, includes any income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions of sub-sections (1A) and (2), the income-tax payable shall be the aggregate of - (B) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of thirty per cent if such fees for technical services are received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such fees for technical services are received in pursuance of an agreement made after the 31st day of May, 1977. (3) No deduction in respect of any expenditure or allowance shall be allowed to the assessee under ITA.1731 of 2009 & - 6 - connected cases sections 28 to 44C and section 57 in computing his or its income referred to in sub-section (1)\". By sub-section (3), any deduction in respect of any expenditure or allowance under Sections 28 to 44C and Section 57 has been specifically prohibited. 4. The assessee-appellant relies on a decision of the Hon'ble Supreme Court in Director of Income Tax v. A.P.Moller Maersk [(2017) 5 SCC 651]. Therein the foreign company, who was assessed to tax, was carrying on the business of shipping within India. Whether the income from the use of Global Telecommunication Facility, called \"Maersk Net\", could be classified as income arising out of shipping business and not as fees for technical services was the question raised. The assessee claimed the income to be reimbursement of expenses but the assessing officer treated it as income for providing technical services. 5. On the facts of that case, it has to be noticed that the assessee, while carrying on the shipping business, was entitled to the Double Taxation Avoidance Agreement, being a resident of Denmark. The assessee was also engaging agents within India for booking cargo, who also acted as clearing agents. To co-ordinate the functioning of the ITA.1731 of 2009 & - 7 - connected cases various agents, globally, the assessee had set up a global telecommunication facility, called \"Maersk Net System\", which is a vertically integrated communication system. The facility consisted of a communication system connected to a mainframe and computer services in each of the countries of operation. It provided a virtual data base of the activities of the assessee enabling booking, tracking of the goods in transit and so on and so forth. There was an installation made in the premises of the agents to provide access to the facility, for which pro rata payments were made by the agents, to the assessee for reimbursing the expenses towards such facility. The question arose as to whether the amounts paid by the agents to the assessee can be considered as a reimbursement of expenses, incurred for the supply of technical services or for deriving business income from shipping . The Hon'ble Supreme Court found that there was absolutely no technical services supplied by the assessee to the agents. Only an access was provided to a telecommunication facility; the installation of which necessitated an expenditure, which was reimbursed by the agents who had access to such facility. This was held to be not reimbursement of the expenses incurred in the supply of technical services nor income earned on providing technical services. ITA.1731 of 2009 & - 8 - connected cases 6. In the present case, the facts are quite distinguishable. The expenditure incurred is a direct consequence of the agreement for supply of technical services. The technical collaboration agreement necessitated deputation of technical personnel from the foreign company to the KSEB to work within India and in the facilities of the KSEB. The expenditure now claimed is of the travel expenses incurred by the assessee with respect to the technical personnel so deputed by the foreign company to the KSEB. This expenditure incurred has a direct nexus with the technical services supplied and deduction thereof is specifically prohibited under sub-section (3) of Section 115A. In such circumstances, we do not see any reason to interfere with the order of the Tribunal. We answer the question of law raised, against the assessee and in favour of the Revenue. The appeals stand rejected. Parties are left to suffer their respective costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE Vku/- ITA.1731 of 2009 & - 9 - connected cases APPENDIX OF ITA 1731/2009 APPELLANT'S ANNEXURES: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER FOR 2000-01 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 18/02/2004. ANNEXURE B TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT DATED 23/09/2004. ANNEXURE C TRUE COPY OF THE TRIBUNAL ORDER DATED 24/09/2007 ISSUED TO THE APPELLANT. ITA.1731 of 2009 & - 10 - connected cases APPENDIX OF ITA 1745/2009 APPELLANT'S ANNEXURES: ANNEXURE-A TRUE COPY OF THE ASSESSMENT ORDER FOR 2002-03 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 16.12.2004 ANNEXURE-B TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT DATED 16.09.2005 ANNEXURE-C TRUE COPY OF THE TRIBUNAL ORDER DATED 18.01.2008 ISSUED TO THE APPELLANT. ITA.1731 of 2009 & - 11 - connected cases APPENDIX OF ITA 1744/2009 APPELLANT'S ANNEXURES: ANNEXURE A: TRUE COPY OF THE ASSESSMENT ORDER FOR 2001-02 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 18.02.2004. ANNEXURE B: TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT DATED 23.09.2004. ANNEXURE C: TRUE COPY OF THE TRIBUNAL ORDER DATED 24.09.2007 ISSUED TO THE APPELLANT. Vku/- [ true copy ] "