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TAxAbiliTy of reimburSemenT of buSineSS exPenSeS under inCome-TAx ACT
element, it could not be regarded as income
chargeable to tax in hands of Abbey UK.
Abbey Business Services (India) (P.) Ltd. v.
Dy. CIT [2012] 23 taxmann.com 346 (Bang.)
Similar view was taken in another case, Dy.
DIT v. Tekmark Global Solutions LLC [2010]
38 SOT 7 (MUM.)
For taxing income in the hands of NRE, the
reimbursement of salary of the seconded
employees, it is necessary to establish an
employer-employee relationship between the
Indian company and the seconded employees.
Target Corpn. India (P.) Ltd., In re [2012] 24
taxmann.com 152/209 Taxman 601 (AAR)
Where in the DTAA, it is provided that both
the parties will benefit from the services
rendered by the seconded employees then
reimbursement of the cost of the salary not
carrying any income element will not be
taxable in India in terms of Section 9(1)(vii),
read with Article 13.4 of the India-Korea
DTAA. Cholamandalam MS General Insurance
Co. Ltd., In re [2009] 178 Taxman 100 (AAR)
In any case, it is necessary to ascertain exact
nature of expenses incurred by NRE and
services rendered for which reimbursement
was made by Indian concern for the visit of
employees of NRE to the Indian company.
WNS Global Services (UK) Ltd. v. Asstt. DIT
(IT) [2012] 22 taxmann.com 65 (Mum.)
Whether reimbursement of business
expenditure is part of total income?
3. Ordinarily there is no element of profit
in reimbursement. If there is no mark-up
in recovery, there can be no question of
imputing any income on this issue in the
hands of recipient. However, the onus to
prove that there is no element of profit in
such reimbursement is always on the assessee.
The basic requirement in taxing reimbursement
by an Indian concern of expenditure incurred
by NRE in India is to find out whether
expenditure so incurred in India is business
expenditure and whether the NRE had a
January 20 To January 26, 2018 u Taxmann’s Corporate Professionals Today u Vol. 41 u 13
PE in India? For example: reimbursement of
expenditure incurred towards air fare, lodging,
food, etc., incurred by personnel of NRE during
their visits to India, will be business income
and not royalty, but will not be taxable as
NRE did not have any PE in India. Jt. DIT
(OSD) v. Harvard Medical International, USA
[2011] 16 taxmann.com 69 (Mum.)
Similarly, amount paid to its non-resident
associate enterprise towards bank guarantee
commission, social insurance for expatriates
who worked for execution of the contract and
software charges was towards reimbursement
of actual expenses. It was held, following
the decision in Mahindra & Mahindra Ltd. v.
Dy. CIT [2009] 30 SOT 374/[2010] 122 ITD
216 (Mum.) (SB) that it is not chargeable to
income-tax in the hands of payee, Nathpa
Jhakri Joint Venture v. Asstt. CIT [2010] 37
SOT 160 (MUM.)
Whether TDS is required on
reimbursement of expenses?
4. For determining whether TDS is required
to be made u/s 195 on reimbursement of
expenses it is necessary to find out whether
the reimbursement is chargeable to tax in
India in the hands of NRE? A sum can
be said to be chargeable to tax only when
it contains element of profit. If element of
profit is embedded in any payment, then the
assessee is bound to deduct the tax at source
at the rate prescribed or at a lesser rate
allowed by the AO. However, if there is no
element of profit embedded in such payment
then it cannot be said that the sum so paid
is chargeable to tax and, consequently, the
provisions of section 195 of the Act would
not be applicable. Cairn Energy India Pty. Ltd.
v. Asstt. CIT [2009] 126 TTJ 226 (Chennai);
CIT v. Siemens Aktiongesellschqft [2009] 177
Taxman 81 (Bom.)
Where it was only a simple case of reimbursement
of expenses on account of purchases made
by the sister concern, an NRE, on behalf of
the assessee, an Indian company, and there
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