M/S SNC LAVALIN INC., CANADA, REP. BY KERALA STATE ELECTRICITY BOARD, PATTOM, THIRUVANANTHAPURAM v. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), THIRUVANANTHAPURAM
Case Details & Bench
- Court
- High Court of Kerala
- Hon'ble Judges
- The Hon. Justice Vinod Chandran
- The Hon. Justice Ashok Menon
- Judgment Date
- 2018-11-14
- Court Decision / Holding
- Appeals dismissed; the travel expenses incurred in deputing technical staff have a direct nexus to the provision of technical services and are prohibited from deduction under Section 115A(3). The High Court of Kerala upholds the Tribunal and orders, in favour of the Revenue.
- Final Disposition
- Appeals dismissed; Revenue’s position upheld.
Parties to the Case
Appellants / Petitioners
- M/S SNC Lavalin Inc., Canada, rep. by Kerala State Electricity Board, Pattom, Thiruvananthapuram
Respondents
- The Assistant Commissioner of Income Tax, Circle 1(1), Thiruvananthapuram
Legal Representation & Advocates
Counsels for Petitioners
- • Sri. E.K. Nandakumar (Sr.)
- • Sri. P. Benny Thomas
- • Sri. K. John Mathai
Counsels for Respondents
- • Sri. P.K.R. Menon, Senior Counsel for GOI (Taxes)
- • Sri. Joseph, SC for Income Tax
Case Synopsis & Summary
This is a set of connected Income Tax Appeals filed in the Kerala High Court (I.T.A. Nos. 1731/2009, 1745/2009 and 1744/2009) by SNC Lavalin Inc., Canada, represented by Kerala State Electricity Board, challenging an Income Tax Appellate Tribunal order denying a deduction claimed for travel expenses of deputed technical personnel under a technical collaboration with KSEB for the assessment years 2000-01, 2001-02 and 2002-03. The central issue is whether such travel costs can be claimed as a deduction from the fees for technical services, under Section 115A(3) of the IT Act, or whether they are prohibited as expenditure under 28 to 44C and Section 57. The AO and the First Appellate Authority (CAA) and the Tribunal held against the assessee, aligning with the Revenue’s view. The appellant cites Director of Income Tax v. A.P. Moller Maersk (2017) to support that reimbursed expenses, linked to technical services, should be deductible; the Tribunal’s earlier reliance on SNC Shawinigan’s order is noted. In a Division Bench judgment, the court reasons that the travel expenditure has a direct nexus to the supply of technical services and, being prohibited by sub-section 3 of 115A, the appeals are dismissed. Maersk is distinguished on facts; the case thus upholds the Revenue’s position.
Provisions of Law Cited
Submissions & Arguments
Contentions of Appellants / Petitioners
The appellant contends that the travel expenses incurred for deputed technical personnel under the technical collaboration with KSEB are reimbursements that arise out of the provision of technical services and should be deductible from the technical know-how fees. Relying on the Supreme Court’s decision in Director of Income Tax v. A.P. Moller Maersk (2017) 5 SCC 651, the appellant argues that the expenditure is not a disbursement that must be taxed as income and should be treated as a deduction, especially where the expenditure has a direct nexus to the supply of technical services. It is further argued that the Tribunal’s reliance on the SNC Shawinigan order (I.T.A. No. 440/Coch/1998) should be weighed against the facts of this case and that distinguishable facts may render the previous ruling persuasive rather than binding. The appellant contends that the facts differ materially from the Maersk and SNC Shawinigan scenarios, and the relationship between the foreign supplier and KSEB merits a different treatment under Section 115A. The pleas emphasize that the prohibition in Section 115A(3) must be applied with regard to the nature and nexus of the expenses with the core activity of providing technical services.
Contentions of Respondents
The respondents contend that Section 115A(3) expressly prohibits any deduction in respect of expenditure or allowances under Sections 28 to 44C and Section 57 when computing income under sub-section (1) of 115A, and that the travel expenses in question have a direct nexus with the provision of technical services. They argue that the travel costs are incidental expenses connected to deputed technical personnel and form part of the cost structure associated with the supply of technical services, and therefore cannot be deducted from the fees for technical services under the tax regime. The respondents also argue that the Maersk decision is distinguishable on facts and that the Tribunal’s reliance on the SNC Shawinigan order does not override the statutory prohibition. They emphasize that the statutory scheme aims to prevent deduction of such expenditures in computing income under 115A, and that the Tax Tribunal and the Appellate authorities correctly applied this principle to uphold the Revenue’s position.
Cited Precedents (2)
| Case Name | Citation | Treatment | Explanation |
|---|---|---|---|
| Director of Income Tax v. A.P. Moller Maersk | 2017 (5) SCC 651 | Distinguished | Facts in Maersk involved shipping business; the Court held the reimbursed facility did not constitute reimbursement for technical services and the facts are distinguishable from the present case. |
| SNC Shawinigan Inc. Canada v. Additional Commissioner of Income-tax (Assmt.) | I.T.A.No.440/Coch/1998 | Mentioned Only | Tribunal referenced this order; the judgment notes the reliance but does not adopt its conclusions as controlling, given differing factual context. |
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