Reimbursement of Expenses by Indian Associate for Training and Workshops for its New Joiners is not Fees for Included Services: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal has held that reimbursement of expenses by Indian Associate for training and workshops for its new joiners is not Fees for Included Services.

The Appellant M/s. Russell Reynolds, was incorporated under the laws of the United States of America and is engaged in the business of providing human resources advisory services to its clients, on recruiting and retaining senior level executives and further assisting them in mitigating the risks associated with senior level appointment. It also provides management support services to its group companies.

The Income-tax return filed by the appellant shows only the  royalty income received from Russell Reynolds Associates India Private Limited (RRAIPL) in terms of ‘Licensing Agreement’ for use of Intellectual Property Rights. AO u/s 143(3) added the amount of reimbursement of expenses as per ‘Cost Reimbursement Agreement" as Fees for Included Services (FIS) under Article 12(4)(b) of India-USA DTAA by holding that such services meet the condition of “make available” of technical knowledge, experience, skill, knowhow, etc. The CIT (A) upholds the addition and aggrieved assessee filed appeal before the ITAT.

The appellant submitted that the training and workshops organized on behalf of the Indian Associate was essentially and on boarding programming for its new joiners to understand these job profile and business model. The costs incurred on boarding, travelling upon the trainees were recovered. Therefore, there was no income elements embedded in the receipts. Further submitted by the appellant that, the purpose of training is merely familiarize the employees of Associates company with operation and business model, there is no element of “made available” for the purpose of Article 12.

The Tribunal observed that training was not part of the main contract of licensing agreement for royalty and there was no corresponding recital in the licensing agreement, which required the Indian Associates and the assessee to enter into any agreement for providing the training. Further observed that training cannot strictly be even called managerial or leadership training so as to enhance any productivity or profits, but were more of an orientation program at the time of introduction of the new recruit.

The Coram of Sri Anil Chaturvedi, Accountant Member and Sri Anubhav Sharma, Judicial Member while allowing the appeal has held that “Merely because the training program was of boarding nature, that cannot change the nature of program to fall in the purview of services, for which consideration should be FIS. Rather the consideration was in the form of reimbursement of expenses on actual basis of constituents like travelling, food, boarding and lodging of consultants employed by Indian Counterpart”.

To Read the full text of the Order CLICK HERE

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