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 confirm the 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
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 confirm the 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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