Relief to American Express: ITAT Allows Relocation Expenses u/s 40(a)(i) of Income Tax Act [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) grants relief to American Express by allowing the deduction of relocation expenses under Section 40(a)(i) of the Income Tax Act, 1961.

The assessee faced scrutiny regarding expenses related to reimbursing relocation costs to American Express Travel Related Services Company In, USA (AETRSCO). These expenses covered relocation for both the assessee's employees and those of AETRSCO seconded to the assessee. While tax was deducted on salary expenses, certain relocation costs like travel and accommodation were not subjected to tax deduction.

During assessment, the Assessing Officer argued that tax should have been deducted on all relocation expenses, considering them akin to Fees for Technical Service (FTS) under section 9(1)(vii) and Article 12(4) of the India – USA Double Taxation Avoidance Agreement (DTAA).

The Assessing Officer also referenced a previous decision by the Dispute Resolution Panel (DRP) in 2011-12, which directed a disallowance of similar expenses due to non-deduction of tax at source. Consequently, the Assessing Officer disallowed a reimbursement of relocation expenses totaling Rs. 4,21,13,153/-. The assessee appealed this disallowance before the first appellate authority.

The counsels for the assessee Nageshwar Rao and Parth reviewed the case and noted a similar issue had been addressed in the assessee's own case during the assessment year 2013-14. In that instance, it was established that the assessee was obligated to deduct tax at the source on expenses related to seconded employees, considering such payments as falling under the category of Fees for Technical Service (FTS).

However, concerning the reimbursement of relocation expenses for the assessee's own employees traveling abroad for training or business purposes, it was determined that such payments did not qualify as FTS either under the Act or the Treaty. Consequently, no tax deduction was deemed necessary under section 195 of the Act. As a result, the appellate authority directed the Assessing Officer to permit the deduction concerning payments made for relocation expenses of its own employees.

The bench observed that since the facts were identical to those previously considered, and in line with the stance taken by the Coordinate Bench, the issue should be revisited by the first appellate authority for a fresh adjudication.

The bench emphasized the importance of providing the assessee with a fair and reasonable opportunity to present their case. The grounds for this decision are allowed for statistical purposes.

The two member bench of the tribunal comprising Pradip Kumar Kediya (Accountant member) and Saktijit Dey (Vice President) Allowed of relocation expenses under Section 40(a) (i) of the Income-tax Act, 1961.

In the result, appeal was allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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