Briefly stated facts
are that the assessee claimed deduction for Rs.6,88,12,554/- and Rs.23,78,781/-
being amount payable to EYGS LLP and Ernst & Young LLP, UK
respectively towards reimbursement of costs for providing access to system
& management audit methodology updates, knowledge updates through web etc. assistance in
development of common programs and policies, endeavoring to ensure that professional
and to other people resources are available to assist the firm or its clients
in all jurisdiction. But the AO disallowed both these amounts claimed by way of
reimbursement of cost for services utilized in the assessee’ s business.
According to him assessee is laible to deduct tax but it has failed to deduct
tax under section 195 of the Act. He, accordingly, disallowed a sum of
Rs.7,11,91,335/- paid towards ‘Cost of Reimbursements’ u/s. 40(a)(ia) of the
Act. Aggrieved assessee preferred appeal before CIT(A) , who deleted
the disallowance by following the decision of ITAT, Kolkata in assessee’s own
case for AY 2003-04 in ITA No. 1750/Kol/2006 vide order dated 16th Nov.
2007, wherein it has been held as under:
“10. We went through the
rival submissions of both the parties and perused the documents. In
our considered view as per the provisions of section 195, we agree with the view
taken by the Delhi Branch of the Tribunal that before a TDS is required to be charged
on any sum, it has to be shown that it is an income as per the provisions of section
195 because the very wording under section 195 “any other sum chargeable under the
provisions of the Act” means that chargeable as income as per section 4 of the Income-tax
Act. Unless and until it is chargeable, there is no requirement of withholding tax
by any India person responsible for paying to any non-resident , not being a
company, or to a foreign company, any sum payable on any account. There is
no rebuttal frorn the side of the department that the expenses are relating
to reimbursement of expenses for supply of data as per the agreement
stated to have been made amongst the global firms to which the assessee company
is treated as one of the members. Apart from this factual aspect it has been
observed that in the case law reported in 142 ITR 493 in the case of Dunlop
India Ltd. the facts appear to be identical to that of the present case in
hand. Therefore, both factually as well as legally the assessee has a case and
on this issue the assessee, therefore. should succeed in our considered opinion
as the amount is towards the reimbursement and with the passage of time, now
globalization has been adopted by different countries for facilitating data and
technical skill of different countries. Simply because thee supply of data
pertains to technical services, the department should not be rigid for
application of section 195 without examining the actual factual aspect of
the matter that it is a result of an agreement in between the parties for
sharing the data amongst the members firms in the globalization process. This
aspect, in parlicular, has not been controverted by the ddepartment at any
stage of the proceeding. Hence, we decide this issue in favour of the assessee
and against the Revenue.
Aggrieved revenue came in appeal before us.
We have heard rival
submissions and gone through facts and circumstances of the cxase. Before us,
Ld. Counsel for the assessee stated that the issue is squarely
covered in favour of assessee and against revenue. We find that the Tribunal is
consistently deleting this disallowance as reproduced above one of the
Tribunal’s decision in AY 2003-04. We find the factual position that
the assessee company is a member of the international organization of Ernst
& Yound and its several associate concerns worldwide. Ernst & Young
Global Services LLP and Ernst Young UK LLP provide administrative and
management support services in connectionwith technology updates,
system and methodology and upgrades, training through webs etc. to the
assessee and to other associate concerns of the Group. The assessee and its
other associate concerns share the costs. A sum of Rs.6,88,12,554 was
reimbursed to Ernst & Young Global Services LLP and a sum of Rs.23,78,781
to Ernst & Young UK LLP by the assessee during the current assessment year
on account of its share of costs for such services. The said concerns were set
up by member firms of Ernst & Young for providing resources to obtain best
methodologies at a lower cost which in the present days of globalisation was
imperative for any professional firm. Development of such methods by anyone
concern would have been cost prohibitive apart from lacking
uniformity and mutual compatibility. Accordingly, arrangement was arrived at
for such services to be developed in pool by the said two concerns to which the
member firms would have access to it and reimbursing their respective shares of
cost incurred therefor. Such reimbursement was agreed on the basis of
respective turnover of the member firms. These facts are not denied by revenue
even now before us and these are reimbursement of expenses. Once these are
reimbursement of expenses the assessee is not liable to deduct TDS u/s. 195 of
the Act. Accordingly, we confirmthe order of CIT(A) and this issue of
revenue’s appeal is dismissED
DCIT vs. Ernst &
Young Pvt. Ltd (ITAT Kolkata),I.T.A No.1159/Kol/2012, Date of pronouncement:
30.04.2014
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