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TAxAbiliTy of reimburSemenT of buSineSS exPenSeS under inCome-TAx ACT

not be taxable in India either as management [2012] 19 taxmann.com 214/206 Taxman 545
services or business income. DIT v. WNS (AAR - New Delhi)
Global Services (UK) Ltd. [2013] 32 taxmann.
com 54 (Bom.) Whether reimbursement is a part of
operational cost in TNMM?
Whether reimbursement of salary will
create PE? 7. For purpose of determining ALP of international
transactions under TNM method, reimbursement
6. For taxing reimbursement, a finding has to of expenditure was not considered as part of
be given whether any service PE was formed. operational cost. HSBC Electronic Data Processing
If yes, then such reimbursement was taxable India Ltd. v. Dy. CIT [2013] 37 taxmann.com
in India and if no PE was formed then it 129/[2014] 148 ITD 427 (Hyderabad - Trib.)
would not be taxable.

Where, as per facts of the case, it was found Conclusion
that Indian company became the economic 8. Reimbursement means paying back the
employer, a service PE of the NRE was found expenses incurred for the self. If no mark-
to exist in India, such reimbursement by the up is provided in the reimbursement, it will
Indian company to the NRE was held taxable not be taxable in India. Reimbursement of
under Article 7 of the India-USA DTAA. salary/remuneration will be taxable in India
Morgan Stanley International Incorporated v. only when employer-employee relationship
Dy. DIT [2015] 53 taxmann.com 457/153 ITD exists between seconded employees and the
403 (Mum. - Trib.) Indian company. Even then if TDS is already
Similarly, when NRE, engaged in business made and paid at the time of payment
of supplying gas & electricity floated in of salary, then further TDS at the time of
India an associate company, for assisting reimbursement is not required. Reimbursement
it in back office support services such as cannot be taxed as FTS, unless it is shown
consumers billing, debt collection, etc., to that make available condition as provided
third party vendors in India and it was found under concerned DTAA is satisfied. Also,
that Indian company was exercising control where reimbursement relates to business
and supervision over them and reimbursing expenditure it cannot be taxed in India,
NRE on cost plus 15% of the profit, it was unless it is proved that service PE of the NRE
held that a service PE was formed within exists in India. TDS on reimbursement will
the meaning of Article 5(2)(k) of the India- be required only when it is established that
UK DTAA and, therefore, reimbursement reimbursement is chargeable to tax in India.
and payment of profit was held taxable in lll
India. Centrica India Offshore (P.) Ltd., In re

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