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"7. Under this issue the assessee has challenged the disallowance of reimbursement of expenses u/s 40(a)(ia) of the Act. The assessee claimed the reimbursement of demurrage expenses of Rs.2,59,99,105/-. The said amount was disallowed u/s 40(a)(ia) of the Act. The said amount was disallowed u/s 40(ia) of the Act on account of non-deduction tax at source u/s 195 of the Act. The AO characterizing such reimbursement of demurrage repayment costs as fee for technical services taxable u/s 9(1)(vii) of the Act. It is argued by the Ld. Representative of the assessee that the assessee company nowhere indulge in any service element and the said amount was purely reimbursement and the said issue has been covered in the assessee's favour by the decision of the Bombay High Court in the case of CIT Vs. Dempo and Co. P. Ltd. (381 ITR 303) and also by the decision of the Hon'ble ITAT Mumbai Bench in the case of Kuloday Technopack (P) Ltd. Vs. ITO (86 Taxmann.com 74). Therefore, the claim of the Assessee is liable to be allowed. On the other hand, the Ld. Representative of the revenue has refuted the said contention. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.: -

8.2.2 The claim of the appellant that the amount represents pure reimbursement of expenses has also been examined and is not found to be in order. This is not reimbursement of a cost incurred by TOTSA. I lad TOTSA incurred certain expenses with reference to the appellant, for example, stay arrangements for appellant's employees etc. these would have been accepted as pure cost reimbursement. However, in the present case, a payment was due to slime third parties (ship owners or port authorities) and the payment was to be made by the appellant. This payment has been made by TOTSA and subsequently recharged. "Ibis is nor pure cost reimbursement. This is payment on behalf of the appellant. Hence, for the purpose of examination limn the angle of deduction of TDS u/s 195, it is the payment to the third party which needs to be examined and not payment to TOTSA. If the appellant, while making payment to the third parties, was liable to deduct IDS, such liability cannot be waived merely by routing the payments through a related foreign party. In all its submission, the appellant has merely harped on the character of payment made by it to its associate without discussing whether the amount, with reference to the actual beneficiary represented a sum having income component in it.

9.3 The submission made by the appellant on this issue is summarized as below;
9.3.1 The Appellant had availed services of personnel/employees who were oil payrolls of its Associated Enterprises ('AE'), and in lieu of the same, salary, relocation and other related charges were subsequently recharged (by way of reimbursements) by the AEs to the Appellant. It may be noted that for the purposes of administrative convenience, the employees remained on the payrolls of the AEs and their salary and other related costs were reimbursed by the Appellant to the AEs, instead of paying to the employees. Accordingly, time Appellant had reimbursed a sum of us 6,37,87,105 to its AEs towards salary and related costs of such personnel and Rs 10,09,452 towards relocation expenses. The appellant has contended that it had discharged its TDS obligations under section 192 of the Act on salary amount payable to the employees (paid through the AEs and not to employees directly due to administrative convenience).
3. For the sake of administrative convenience, Total SA will continue to pay the salary of the expatriates, for and on behalf of Total Petroleum India Private Limited in respect of the services rendered to by the expatriates in India to Total Petroleum India Private Limited
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3. Total Petroleum Indio Private Limited agrees that it shall reimburse/ repay to Total SA the actual cost of reimbursement and other costs related to the Indian assignment incurred by Total SA in respect of said expatriates during the period of their secondment to India. The said reimbursement/ repayment shall be without any markup/ profit"