The Mumbai Bench of the Income-tax Appellate Tribunal held that amounts received by the taxpayer as reimbursements of training-related travel expenses, group health insurance, and other incidental expenses under a technical service agreement were not taxable as fees for technical services. Relying in part on the transfer pricing study and transfer pricing order, the tribunal found that there was no element of profit embedded in the expense reimbursements, and thus, the reimbursements were not taxable.
In other words, the tribunal concluded that the pure reimbursement of costs without an element of profit was not taxable.
The case is: Gemological Institute International Inc. v. DCIT (ITA 4659/Mum/2014 and ITA 385/Mum/2016)
The taxpayer (a U.S. incorporated, non-resident company) agreed to a training and technical service agreement with a group company in India. The taxpayer was to train the employees of the India group company and to provide technical services with respect to implementing certain processes and procedures.
On its return, the taxpayer did not report the amount of the expense reimbursements as income. The Assessing Officer, however, determined that the total amount received by the taxpayer from the India group company for the expense reimbursements ought to have been included in income because these amounts were fees for technical services.
The tribunal rejected this position of the tax administration. The tribunal held that pure reimbursement of costs when an element of profit has not been embedded does not trigger taxability. The tribunal looked to the transfer pricing study to find that no profit element had been included in the reimbursed expenses.
Read a May 2017 report [PDF 329 KB] prepared by the KPMG member firm in India
© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.