Bombay H.C : Charges towards reimbursement of expenses cannot be included in income

High Court Of Bombay

Director Of Income-Tax (International Taxation) vs. Krupp Udhe Gmbh

Assessment Year : 1998-99

Section : 9, 5

Dr. D.Y. Chandrachud And J.P. Devadhar, JJ.

IT Appeal No. 2626 Of 2009

March 9, 2010

JUDGMENT

Dr. D. Y. Chandrachud, J. – Admit.

2. The appeal by the Revenue against the order of the Income-tax Appellate Tribunal for the assessment year 1998-99 raises the following three questions of law :

“(i)  Whether, on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was justified in holding that charges towards reimbursement of expenses cannot be included in income?

(ii)  Whether when income is taxed on gross basis, non-inclusion of charges towards reimbursement of expenses would be in violation of law as it would tantamount to taxation of income partly on net basis?

(iii)  Whether, on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was justified in approving the deletion of levy of interest under section 234B of the Act?”

3. The learned counsel, appearing on behalf of the Revenue, has stated that the first and the second questions relate to the same issue, namely, whether reimbursement of expenses would be liable to be included in the income and, hence, they are taken up together.

4. The assessee had entered into a contract with M/s. EID Parry (India) Ltd. (EID Parry) for the supply of a compressor for an ammonia storage tank. The compressor was found to be in a damaged condition. The assessee deputed two technicians from Germany to the establishment of EID Parry in India. EID Parry remitted an amount of DM 202,433,37 comprising (i) inspection fees in the amount of DM 170,701.37 for technicians ; and (ii) reimbursement of expenses for air tickets for travel between Germany and India in the amount of DM 11,732. The Commissioner of Income-tax, on the question of reimbursement of expenses, followed the decision of the Andhra Pradesh High Court in the case of Elkem Technology v. Dy. CIT [2001] 250 ITR 164/117 Taxman 382 and of the Kerala High Court in the case of Cochin Refineries Ltd. v. CIT [1996] 222 ITR 354 and held that the decision of the Assessing Officer to treat the reimbursement of expenses as part of taxable income was correct.

5. In appeal, the Tribunal dealt with the issue as regards the payment of fees received by the assessee and of the reimbursement of expenses separately. In so far as the receipt of fees was concerned, the Tribunal noted that the assessee had deputed its technicians for inspection of the equipment. Inspection could not be done unless the personnel deputed had technical knowledge in respect of the equipment to be inspected. Consequently the fees received by the assessee were held to amount to fees for technical services. In so far as the issue of reimbursement is concerned, the Tribunal held that though there was a conflict between the judgment of the Kerala High Court, which was relied upon by the Commissioner of Income-tax (Appeals) and the judgment of the Calcutta High Court in the case of CIT v. Dunlop Rubber Co. Ltd. [1983] 142 ITR 493/[1982] 10 Taxman 179, it would follow a view which was favourable to the assessee, consistent with the judgment in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC).

6. The question as to whether a reimbursement for expenses would form part of the taxable income is not res integra in so far as this court is concerned. In CIT v. Siemens Aktiongesellschaft [2009] 310 ITR 320/177 Taxman 81, a Division Bench of this court held that it was in agreement with the view taken by the Calcutta High Court in Dunlop Rubber Co. Ltd. case (supra) and by the Delhi High Court in CIT v. Industrial Engineering Projects (P.) Ltd. [1993] 202 ITR 1014 (Delhi). The observations of this court in Siemens Aktiongesellschaft (supra) are as follows (page 340):

“That leaves us with the last contention as to whether the amounts by way of reimbursement are liable to tax. To answer that issue, we may gainfully refer to the judgment of a Division Bench of the Delhi High Court in CIT v. Industrial Engineering Projects (P.) Ltd. [1993] 202 ITR 1014 (Delhi). The learned Division Bench of the Delhi High Court was pleased to hold that reimbursement of expenses can, under no circumstances, be regarded as a revenue receipt and in the present case the Tribunal had found that the assessee received no sums in excess of expenses incurred. A similar issue had also come up for consideration before the Division Bench of the Calcutta High Court in CIT v. Dunlop Rubber Co. Ltd. [1983] 142 ITR 493 (Cal). The learned Division Bench was answering the following question:

‘Whether, on the facts and in the circumstances of the case, the amounts received by the assessee (English company) from M/s. Dunlop Rubber Co. (India) Ltd. (Indian company) as per the agreement dated January 29, 1957, constituted income assessable to tax ?’

On considering the issue the learned Bench noted that the Tribunal was of the view that what was recouped by the English company was part of the expenses incurred by it. The learned court upheld the said finding. The learned Bench was pleased to hold that sharing of expenses of the research utilised by the subsidiaries as well as the head office organisation would not be income which would be assessable to tax. A similar view was taken in CIT v. Stewarts and Lloyds of India Ltd. [1987] 165 ITR 416 (Cal).”

7. Consequently, in view of the judgment in Siemens, the first and second issue would not raise any substantial question of law since they are covered against the Revenue.

8. Insofar as the third question is concerned, the learned counsel appearing on behalf of the Revenue has fairly stated that it is covered against the Revenue by the judgment of the Division Bench in DIT (International Taxation) v. NGC Network Asia LLC [2009] 313 ITR 187 (Bom.). In view of the statement, the third question would also not raise any substantial question of law.

The appeal is accordingly dismissed. There shall be no order as to costs.

[Citation : 354 ITR 173]

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