At the time of ensuring the additions towards the cost reimbursements as fees for technical services (FTS), the Mumbai Bench of Income Tax Appellate Tribunal observed that the taxpayer does not have any foundation for the allocation or actual cost incurred for affiliates.
Aby T. Varkey (Judicial Member) and S. Rifaur Rahman (Accountant Member), presiding over the bench, noted that the taxpayer had entered into a support services agreement to offer assistance through multiple cost centres.
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However, they failed to furnish any specifics, relevant factors, or a systematic allocation method for categorizing the support service charges received from or provided to various affiliates.
The appellant, a U.S. tax resident, received a payment of Rs. 5.18 crore from Heinz India for cost allocation or expense recovery. This amount was considered non-taxable, constituting a straightforward reimbursement without any markups.
However, the tax department rejected this claim due to the absence of supporting documentation for the cost allocation. They emphasized that the provided services were of a technical nature and met the “make available” criterion, thereby rendering them subject to taxation as FTS.
Services encompassed supply chain and manufacturing business development, general management, internal audit, communication, human resources, finance and treasury, data processing and information technology, food safety, quality control, and corresponding areas.
The tribunal observed that the assessee needed to establish that the cost allocations qualified as reimbursements to claim an exemption under income tax or treaty provisions. This requirement was not met.
The assessee submitted a consolidated invoice for all expenses incurred by various cost centres. Still, the support service agreement mandated the determination of each allocable cost through the application of specific allocation factors.
The tribunal upheld the department’s conclusions, asserting that the assessee had offered services to its Indian affiliates, categorizing some as taxable and others as non-taxable without any substantiated rationale.
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The collection of charges indicated that they were gathered in a comprehensive or arbitrary manner, failing to adhere to the agreed-upon accounting method in the contract.
The absence of a proper basis for allocation or documentation of actual costs incurred by the affiliates indicated that the assessee’s claim was unsubstantiated and unsupported by any documents.
| Case Title | Kraft Foods Group Brands LLC V/S ACIT (International Taxation) |
| Citation | ITA NO. 2495/MUM/2022(A.Y: 2019-20) |
| Date | 27.09.2023 |
| Assessee Represented by | Shri M.P. Lohia |
| Department Represented by | Shri Anil Sant |
| Calcutta High Court | Read Order |
