ITAT : Third party reimbursements routed through parent not taxable absent rendering of services

Kolkata ITAT rules that payment received by assessee (a US company engaged in manufacturing and sale of bearings) from its Indian subsidiary (‘TIL’) towards reimbursement of expenses for the services provided by third parties, not taxable during AYs 2002-03 to 2007-08, as assessee was not the ultimate beneficiary of the sum in question nor did it render any service to TIL; ITAT notes that expenses claimed as reimbursement included legal expenses, training, inspection & survey expenses, airfare, local conveyance, etc., further notes that the actuals billed by the third parties were paid by the assessee in USA and were later on reimbursed by TIL to assessee; ITAT remarks that “there is no basis for the AO to conclude that the payment of reimbursements were in the nature of FTS”, furthermore ITAT notes that the assessee made no profit on such reimbursements; Separately, ITAT holds that payment received by assessee for rendering intra group services to TIL was not taxable, notes that pursuant to agreement with TIL, assessee agreed to render various services (like management services, information resources, communication services, engineering services, Metallurgical services, tool design services, planning and inventory management services, quality assurance services, etc.) on cost basis to TIL, which were purely advisory in nature; Further observes that nothing was made available to TIL, cites MOU to India USA DTAA to hold that consideration for advisory services cannot be treated as fees for included services (‘FIS’) under Article 12(4)(b), moreover, absent PE in India, ITAT holds that income cannot be taxed under Article 7 as ‘business profits’ either:ITAT