The assessee, JAS Forwarding (P.) Ltd., made reimbursements to its non-resident associated enterprises (AEs) for various expenses, including server maintenance, netting charges, management expenses, insurance, tariff filings, and travel costs. The AO held that these reimbursements were in the nature of a fee for technical services (FTS) under Section 9(1)(vii), liable for TDS under Section 195, and accordingly disallowed the amounts under Section 40(a)(i). The CIT (A) and ITAT reversed the disallowance, accepting the assessee’s contention that these were pure reimbursements without any income element and did not qualify as FTS.

The Delhi High Court upheld the ITAT’s decision, holding that the Revenue failed to establish that the amounts reimbursed involved any managerial, technical, or consultancy services. The agreement clauses and nature of expenses showed that the payments were routine business reimbursements and not payments for services rendered. Since the requirements of Section 9(1)(vii) were not satisfied, there was no obligation to deduct tax at source, and thus the disallowance under Section 40(a)(i) was not justified.(AY. 20007-08)