The order of the Bench was delivered by
1. Anil Chaturvedi (Accountant Member).-These two appeals filed by the Revenue are against the order of the Commissioner of Income-tax (Appeals), Gandhinagar, Ahmedabad dated December 1, 2010 and November 11, 2011 for the assessment years 2007-08 and 2008-09 respectively.
2. At the outset, before us, both parties submitted that though the appeal of the assessee relates to two different assessment years but the facts and circumstances of both the years are similar except for the assessment years and amounts and the submissions are also common for both appeals and therefore both appeals can be heard together. We therefore proceed to dispose of both appeals together for the sake of convenience and proceed with the facts in I. T. A. No. 726/Ahd/2011 for the assessment year 2007-08.
3. The assessee is stated to be a company incorporated in the U.S.A. having a permanent establishment in India and stated to be engaged in providing consulting engineering services for various infrastructure projects in India. The assessee filed its return of income for the assessment year 2007-08 on March 29, 2008 declaring total income of Rs. 7,23,59,010. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated December 29, 2009 and total income was determined at Rs. 8,99,54,322. Aggrieved by the order of the Assessing Officer the assessee carried the matter before the learned Commissioner of Income-tax (Appeals) who vide order dated December 1, 2010 granted substantial relief to the assessee. Aggrieved by the aforesaid order of the learned Commissioner of Income-tax (Appeals), the Revenue is now in appeal before us and has raised the following effective ground :
"4. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in not treating reimbursement of expenses as part of 'fees for technical services' under section 44D."
4. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had undertaken various projects in pursuance of agreements with the Governments entered into after March 31, 1996 but before April 1, 2003. He also noticed that the assessee had received income by way of royalty or fees for technical services which were assessable under section 44D(b) of the Act. The Assessing Officer also noticed that the assessee has considered the amount of Rs. 5,40,05,878 as fees for technical services covered under section 44D(b) as income liable to tax at 20 per cent. under section 115A of the Act as against Rs. 6,98,39,579 received by the assessee from the Government under projects. He also noticed that the reimbursement of expenses which were received by the assessee were not considered by the assessee to be in the nature of fees for technical services for the purpose of section 44D. The Assessing Officer was of the view that section 44D is an overriding provision and as per the provisions, no deduction in respect of any expenditure under sections 28 to 44C shall be allowed therefore the expenditure of Rs. 6,98,39,579 which was shown by the assessee under the head "consulting fee, management fee, exchange profit/loss and reimbursement of expenses" received was liable to be held as "fees for technical services" for the purpose of section 44D of the Act. He accordingly held the same as part of income. Aggrieved by the order of the Assessing Officer, the assessee carried the matter before the learned Commissioner of Income-tax (Appeals) who decided the issue in favour of the assessee by holding as under :
"3.2 I have gone through the assessment order ; submissions of the assessee, the case law relied on by the Department as well as the assessee and the facts and circumstances of the case. As submitted by the assessee during the assessment proceedings, the reimbursement of expenses in its case is not only as per the agreement but also is on actual basis. The hon'ble Income-tax Appellate Tribunal, Cuttack Bench has decided in favour of the assessee in the assessment year 2002-03 on this issue when it confirmed the order of the Commis sioner of Income-tax (Appeals) on similar facts where reimbursement of expenses was held to be not part of 'fees for technical services'. The facts of the case in Cochin Refineries Ltd. v. CIT [1996] 222 ITR 354 (Ker) relied on by the Assessing Officer are distinguishable because in that case reimbursement of expenses was given where the services provided by the third parties were in the nature of 'fees for technical services' only which are reimbursed in that case. This is not the case in the present case. It has been submitted by the assessee that reimbursement of expenses is neither (a) fees for technical services nor (b) lump sum consideration nor (c) provision for services of technical or other personnel. The assertions of the assessee have not been rebutted by the Assessing Officer.
In the light of the above, following the decision of the hon'ble Income-tax Appellate Tribunal, Cuttack Bench in the assessee's case, I hold that reimbursement of expenses is not part of 'fees for technical services' under section 44D of the Income-tax Act. Therefore, the Assessing Officer is directed to recompute the 'fees for technical services'. This ground of appeal is therefore allowed."
5. Aggrieved by the aforesaid order of the learned Commissioner of Income-tax (Appeals), the Revenue is now in appeal before us.
6. Before us, the learned Departmental representative submitted that section 44D is an overriding provision which lays down that no deduction in respect of any expenditure or allowance under sections 28 to 44C shall be allowed in computing the income by way of royalty or fees for technical services received by foreign company and therefore the expenditure/allowance claimed by the assessee on the project was rightly disallowed by the Assessing Officer. She thus supported the order of the Assessing Officer. The learned authorised representative on the other hand reiterated the submissions made before the Assessing Officer and the learned Commissioner of Income-tax (Appeals) and further submitted that the facts in the present case are identical to the facts of the case for the assessment year 2002-03 and the issue in the present case is directly covered in the assessee's favour by the decision of the hon'ble Income-tax Appellate Tribunal Cuttack Bench in the assessee's own case for the assessment year 2002-03. She thus supported the order of the learned Commissioner of Income-tax (Appeals).
7. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to computation of income under section 44D of the Act. The assessee's contention is that the amount of reimbursement is not to be considered as part of the income whereas the Revenue's contention is that while computing the income under section 44D, no deduction of expenditure is to be allowed. We find that the learned Commissioner of Income-tax (Appeals) while deciding the issue in favour of the assessee has relied on the decision of the hon'ble Cuttack Bench in the assessee's own case for the assessment year 2002-03. We find that the learned Commissioner of Income-tax (Appeals) vide order dated December 12, 2005 for the assessment year 2002-03 had decided the issue in favour of the assessee by holding as under :
"6.1 The learned authorised representative's argument that, if the receipts of the appellant are treated as fees for technical services, then, the total receipts of Rs. 7,47,37,250 credited to profit and loss account, which is inclusive of Rs. 75,36,398 received by the appellant towards reimbursement of expenses, may be excluded, found to be logical and correct. It is specifically mentioned in the contract, as to which expenses would be reimbursed and at what rate. Considering this clause of the agreement with NHAI and the definition of 'fees for technical services', under the Income-tax Act, as well as, the definition of 'fees for technical services', under the Double Taxation Avoidance Agreement, the receipts in the nature of reimbursement of expenses, cannot be treated as, fees for technical services. Hence, I hereby direct the Assessing Officer to exclude Rs. 75,56,398 being reimbursable expenses, from the gross receipt of Rs. 7,47,34,250, while taxing the 'fees for technical services', but he should include Rs. 2,77,779 being fluctuation of exchange rate, which is appurtenant to the "fees for technical services".
8. The aforesaid decision of the Commissioner of Income-tax (Appeals) was upheld by the co-ordinate Bench of Cuttack Tribunal vide order dated January 18, 2008 in I. T. A. No. 140/Ctk/2006 (the copy of which is placed at pages 17 to 24 of the paper book). During the course of hearing, the Bench inquired from both the parties as to whether the aforesaid order of Cuttack Bench in the assessee's own case for the assessment year 2002-03 has attained finality or has been reversed by the higher authorities to which the learned authorised representative submitted that on the case being transferred from the Deputy Commissioner of Income-tax, Bhubaneswar to Ahmedabad, the assessee vide letter dated June 6, 2013 addressed to the concerned officer at Ahmedabad, had requested the Department to inform as to whether any appeal has been preferred by the Department against the Income-tax Appellate Tribunal's order of the Cuttack Bench for the assessment year 2002-03 (the copy of the aforesaid letter is placed at page 378 of the paper book). She submitted that the aforesaid letter has remained un-replied till date which leads to the conclusion that no appeal has been preferred by the Revenue against the order of the Income-tax Appellate Tribunal for the assessment year 2002-03 and therefore the order in the case of the assessee in the assessment year 2002-03 has attained finality. Before us, the Revenue has not placed any material on record to demonstrate as to whether the decision of the Income-tax Appellate Tribunal for the assessment year 2002-03 in the assessee's own case has been overturned by the High Court nor could point out any significant distinguishing feature of the case when compared to the facts of the assessment year 2002-03. In view of the aforesaid facts and in the absence of any distinguishing feature, we find no reason to interfere with the order of the learned Commissioner of Income-tax (Appeals) and thus the ground of the Revenue is dismissed.
9. In the result, the appeal of Revenue is dismissed.
10. Now we take up I. T. A. No. 418/Ahd/2012 for the assessment year 2008-09.
11. In the present cases, since both parties have admitted that the facts and circumstances of the case are identical to that in the assessment year 2007- 08, we therefore for the reasons stated hereinabove while deciding the appeal for the assessment year 2007-08 in I. T. A. No. 726/AHD/2011 (supra) and for similar reasons dismiss the grounds of the Revenue in the present appeal.
12. In the result, both the appeals of the Revenue are dismissed.
The order pronounced in the open court on July 17, 2015.