Relocation expenses in respect of Salary paid to employees who traveled abroad for business of American Express needs to be verified, says ITAT

The Income Tax Appellate Tribunal (ITAT), Delhi Bench directed the matter back to the AO for its examination and said that the relocation expenses in respect of salary paid to employees who traveled abroad for business of the American Express needs to be verified.

The appellant company, American Express (I) P. Ltd. is a wholly-owned subsidiary of American Express International Inc. USA and is engaged in data management, information analysis, and control activities for export to various American Express Affiliates worldwide. During the year under consideration, the gross turnover of the assessee was Rs. 794.70 crores with Net Profit of Rs. 150.71 crores.

In accordance with the provisions of Section 92CA of the Act, the international transactions entered into by the assessee with the Associate Enterprises was referred to the TPO for determination of arm’s length price.

The assessee chose 11 comparable companies to demonstrate that its international transactions relating to the provisions of IT enables services was at arm’s length.

However, the TPO choose only 3 comparables out of 11 chosen by the assessee and added five more comparables and finally came to the selection of 8 comparable companies and finally computed ALP by making an upward adjustment of Rs. 1,03,08,58,566/-.

The Assessing Officer and DRP observed that the assessee had made payments in respect of certain amounts, such as technology service, fee charge out, receipt of services, professional charges, and relocation expenses.

The Assessing Officer/DRP was of the view that such payments required TDS in terms of section 195 of the Act. Details of such payments relate to relocation charges of Rs. 1,86,68,714/- which were treated as FTS/royalty as per the India-USA Double Taxation Avoidance Agreement (DTAA).

The Assessing Officer was of the strong belief that reimbursement of relocation expenses for seconded employees is a part and parcel of same secondment agreement and terms and salary and service agreements are in the nature of FTS and are charged to tax, both under Section 9(1)(vii) and under Article 12(4) of India USA DTAA, thus liable to TDS which has not been done by the assessee. Accordingly, an addition of Rs. 1,86,68,714/- was made.

The assessee knocked the doors of the tribunal to address the issue in respect of the transfer pricing adjustment, denial of deduction u/s 10A of the Act, disallowance of relocation expenses under section 40(a)(i) of the Act and non granting of tax deducted at source.

The Tribunal consists of Judicial Member Suchitra Kamble and Accountant Member, N.K. Billaiya directed the AO to examine very details in respect of the question that whether the payments have been made by the assessee to its own employees who traveled abroad and decide the issue afresh after giving reasonable opportunity of being heard to the assessee.

“In so far as the issue relating to grant of TDS is concerned, we direct the Assessing Officer to give credit of TDS as per provisions of law,” the tribunal said.