The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that reimbursement of expenses is not taxable as FTS under Article 13(4) of the India-UK Treaty.
The assessee, Jefferies International Ltd. is a corporate entity that is a tax resident of the UK and has a subsidiary in India, Jefferies India Private Ltd. (JIPL). It was observed by the assessing officer (AO) that the assessee had provided administrative support services to the Indian subsidiary during the year under consideration.
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The AO noted that the assessee had incurred certain expenses on behalf of its Indian subsidiary, Jefferies India Private Limited (JIPL). These expenses were later reimbursed by JIPL to the assessee.
The assessee argued that the reimbursements were made on a pure cost-to-cost basis, with no markup or profit element, and therefore, could not be taxed as FTS. However, the A.O. rejected this contention and proceeded to tax the reimbursed amount as FTS.
The ITAT referred to the decision of a co-ordinate bench in the assessee’s own case for the Assessment Year (AY) 2012-13, in which the tribunal had held that reimbursement of expenses at cost, without any markup, does not constitute FTS since there is no element of income attached to the transaction.
The bench had relied on the Supreme Court’s decision in DIT v. AP Moller Maersk (392 ITR 116), where it was held that payments made for reimbursement of expenses, without any profit element, cannot be treated as income chargeable to tax.
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The ITAT observed that the expenses incurred by the assessee on behalf of JIPL were for third-party services such as Bloomberg Finance LLC, Dow Jones & Company Inc., and others, which were essential for JIPL’s operations. These expenses were reimbursed by JIPL to the assessee without any markup. The ITAT noted the nature of these payments was purely reimbursement of costs and did not involve any technical knowledge, skill, or processes being made available to JIPL, as required under Article 12 of the India-US tax treaty.
The order was passed by Padmavathy S. (accountant member) and Saktijit Dey (vice president).
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