BUNGE AGRIBUSINESS SINGAPORE P. LTD, MUMBAI V. ADIT (IT) 3(2), MUMBAI

CO 237/MUM/2009

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7500 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 18-10-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 18-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KUMAR
• Assessee Lawyers: V MOHAN
• Keywords: Business income; Transfer pricing; Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L, MUMBAI BEFORE SHRI I.P.BANSAL (J.M) & SHRI P.M.JAGTAP (A.M) ITA NO. 6116/MUM/2008(A.Y. 2003-04) ITA NO.6117/MUM/2008(A.Y.2004-05) THE ADIT (IT) 3(2), SCINDIA HOUSE, R. NO.132, 1 ST FLOOR, N.M.ROAD, MUMBAI - 38. (APPELLANT) VS. M/S. BUNGE AGRIBUSINESS SINGAPORE PTE LTD. C/O. RSM & CO., 449, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI -13. PAN: AACCB 3251F (RESPONDENT ) C.O.NO.236/MUM/2009(ARISING OUT OF ITA NO.6116/MUM/ 08,A.Y.2003-04) C.O. NO.237/MUM/2009(ARISING OUT OF ITA NO.6117/MUM /08,A.Y.2004-05) M/S. BUNGE AGRIBUSINESS SINGAPORE PTE LTD. C/O. RSM & CO., 449, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI -13. PAN: AACCB 3251F (CROSS OBJECTOR) VS. THE ADIT (IT) 3(2), SCINDIA HOUSE, R. NO.132, 1 ST FLOOR, N.M.ROAD, MUMBAI - 38. (APPELLANT IN APPEAL) REVENUE BY : SHRI NARENDRA KUMAR ASSESSEE BY : SHRI V.MOHAN DATE OF HEARING : 21/06/2012 DATE OF PRONOUNCEMENT : 27/06/2012 ORDER PER I.P.BANSAL, J.M THESE APPEALS ARE FILED BY THE REVENUE AND CROSS OBJECTIONS ARE FILED BY THE ASSESSEE AGAINST THE ORDERS OF LD. CIT(A)-3 3, MUMBAI DATED 29/05/2008 AND 13/06/2008 FOR ASSESSMENT YEARS 200 3-04 AND 2004-05 RESPECTIVELY. ITA NO. 6116/MUM/2008(A.Y. 2003-04) ITA NO.6117/MUM/2008(A.Y.2004-05) C.O.NO.236& 237/MUM/2009 2 2. GROUNDS OF APPEAL ORIGINALLY TAKEN BY THE REVENU E FOR ASSESSMENT YEAR 2003-04 ARE STATED TO BE ERRONEOUS AND HAVE BE EN MODIFIED VIDE LETTER DATED 03/06/2011 AND THEY READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED WHILE HOLDING THAT ONLY 25% OF PA YMENT OF RS. 2,37,69,750/- IS FEE FOR TECHNICAL SERVICES AND R EST 75% OF PAYMENT IS BUSINESS RECEIPT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) ERRED BY NOT TREATING THE ENTIRE PAYMEN T OF RS. 2,37,69,750/- AS FEE FROM TECHNICAL SERVICES. 2.1 GROUND OF APPEAL RAISED BY THE REVENUE FOR ASSE SSMENT YEAR 2004-05 READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) WHILE UPHOLDING THE ESTIMATION OF 25% OF PAYMENT OF RS.2,24,14,290/- FOR INFORMATION SYSTEM ERRED IN DIRECTING THE ASSESSING OFFICER TO TAX @ 25% OF RS.1 ,68,L0,718/- ( BEING 75% OF THE RECEIPTS OF RS.2,24,14,290/- I.E. RS 42,02,679/-) A S INCOME FROM BUSINESS AND TAX THE SAME AS PER THE ACT WITHOUT AP PRECIATING THE FACT THAT - I) AS PER THE ASSESSES SUBMISSION DATED 07.01.2008 THEY CONFIRMED THAT THE STAY OF THEIR PERSONNEL IN INDIA WAS MORE THAN 30 DAYS IN THE ACCOUNTING YEAR RELEVANT TO AY 2004-05; II) IN ACCORDANCE WITH ARTICLE 5(6)(B) OF THE DTAA BETWEEN INDIA AND SINGAPORE, A SERVICE PERMANENT ESTABLISHMENT WAS CR EATED BY THE ASSESSE IN INDIA; III) ASSSESSE HAS NOT FURNISHED THE DETAILS OF EXPE NSES RELATING TO FEES IV) THERE IS NO BASIS FOR ADOPTION OF THE RATE OF 2 5% 2.2 THE GROUNDS OF CROSS OBJECTION FOR ASSESSMENT Y EAR 2003-04 READ AS UNDER: EACH OF THE FOLLOWING GROUNDS ARE INDEPENDENT OF A ND WITHOUT PREJUDICE TO ONE ANOTHER. ITA NO. 6116/MUM/2008(A.Y. 2003-04) ITA NO.6117/MUM/2008(A.Y.2004-05) C.O.NO.236& 237/MUM/2009 3 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, BOTH THE ASSESSING OFFICER AND LD. CIT(A) ERRED IN NOT C ONSIDERING THE REPORT ISSUED BY THE TRANSFER PRICING OFFICER AND DETAILED REPORT ISSUED BY INTERNATIONAL FIRM OF AUDITORS CERTIFYING THAT THER E WAS NO SUM IN THE NATURE OF MARK UP OVER AND ABOVE THE ACTUAL COST IN CURRED IN REIMBURSEMENT OF EXPENSES AMOUNTING TO RS.2,37,69,7 50/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN CONSIDERING ARBITRARILY 25% OF THE REIMBURSEMENT RECEIVED AS FEES FOR TECHNICAL SERVICES AND ACCORDI NGLY BRINGING THE SAME TO TAX. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN CONSIDERING 75% OF REIMBURSEME NT OF EXPENSES AS INCOME ATTRIBUTABLE TO SERVICE PERMANENT ESTABLISHM ENT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E LEARNED CIT(A) ERRED IN CONFIRMING ESTIMATION OF 25% OF THE GROSS RECEIPT AS BEING PROFIT ON THE TRANSACTION LIABLE TO TAX. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E LEARNED CIT(A) ERRED IN BRINGING TO TAX THE PORTION OF THE INTERES T THAT STOOD WAIVED. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE LEVY OF TAX ON T HE INTEREST AMOUNT THE RECOVERY OF WHICH WAS WAIVED, UNDER SECTION 115 A OF INCOME TAX ACT, 1961 WITHOUT GIVING BENEFIT OF LOWER RATE OF T AX AS PROVIDED IN DOUBLE TAXATION AVOIDANCE AGREEMENT WITH GOVERNMENT OF REPUBLIC OF SINGAPORE 7. APPELLANT CRAVES LEAVE TO ADD FURTHER GROUNDS OR AMEND OR ALTER EXISTING GROUNDS AT THE TIME OF HEARING. 2.3 THE GROUNDS OF CROSS OBJECTION FOR ASSESSMENT Y EAR 2004-05 ARE SAME AS ASSESSMENT YEAR 2003-04 EXCEPT DIFFERENCE OF F IGURE STATED IN GROUND NO.1, WHICH IS SUM OF RS.2,24,14,290/-. 3. THE MAIN ISSUE ARISE IN THESE APPEALS BY THE R EVENUE AND CROSS OBJECTIONS BY THE ASSESSEE RELATES TO RECEIPTS OF T HE SERVICE FEES AMOUNTING TO US $ 4,92,000 (EQUIVALENT TO RS. 2,37,69,750/- ) FOR ASSESSMENT YEAR 2003-04 FROM M/S BUNGE AGRIBUSINESS INDIA PVT. LT D., WHICH IS 100% ITA NO. 6116/MUM/2008(A.Y. 2003-04) ITA NO.6117/MUM/2008(A.Y.2004-05) C.O.NO.236& 237/MUM/2009 4 SUBSIDIARY OF THE ASSESSEE. THE AFOREMENTIONED FEE IS RECEIVED IN RESPECT OF TWO AGREEMENTS AS FOLLOWS: (A) GENERAL SERVICES AND COST SHARING ARRANGEMENT (B) LEGAL AND ACCOUNTING SERVICES AND COST SHARIN G ARRANGEMENT. 3.1 FOR ASSESSMENT YEAR 2004-05 ALSO UNDER SIMILAR AGREEMENT ASSESSEE HAD RECEIVED US $ 4,92,000 (EQUIVALENT TO RS. 2,24, 14,290/-). 3.2 THE NATURE OF SERVICES MADE AVAILABLE BY THE AS SESSEE TO ITS ASSOCIATED ENTERPRISES ARE DESCRIBED IN PARA 8.3 TO 8.4 OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2004-05 AND RENDERING OF THESE SERVICES IS NOT DISPUTED BY THE ASSESSEE ALSO. THE AO TREATED THOS E SERVICES TO BE TAXABLE UNDER ARTICLE 12(4) OF INDO -SINGAPORE DTAA. THE FACT THAT ASSESSEE IS GOVERNED BY THE PROVISIONS OF INDO - SINGAPORE DTA A IS ALSO NOT DISPUTED AND IS ACCEPTED BY BOTH THE PARTIES. BY MAKING REF ERENCE TO ARTICLE 12(4) AO HAS TREATED THE PAYMENTS RECEIVED BY THE ASSESSEE A S FEES FOR INCLUDED SERVICES AND HAS HELD THAT THE SAME WILL BE LIABLE TO BE TAXED UNDER THE PROVISIONS OF ARTICLE 12(4)(B) OF THE DTAA. 3.3 IN PARA-9 OF ASSESSMENT FOR ASSESSMENT YEAR 2 004-05 THE AO HAS ALSO MENTIONED THAT THE ASSOCIATED CONCERN OF THE ASSESSEE NAMELY M/S BUNGE AGRIBUSINESS INDIA PVT. LTD. CONSTITUTES SERV ICE PERMANENT ESTABLISHMENT IN VIEW OF ARTICLE 5.6(B), AS THE B UNGE SINGAPORES PERSONNEL VISITS BUNGE INDIA FROM TIME TO TIME TO PROVI DE SUPPORT SERVICES AND US $ 4,92,000 CAN ALSO BE TAXED AS BUSINESS PROFIT UND ER ARTICLE-7 OF DTAA BETWEEN INDIA & SINGAPORE. ACCORDINGLY TAKING TH E STAND TAKEN BY AO IN ASSESSMENT YEAR 2003-04 HE ESTIMATED THE PROFITS O F THE ASSESSEE AT 25% OF THE RECEIPTS OF RS. 2,24,14,290/- AND COMPUTED THE INCOME AT RS. 56,03,572/- WHICH HE HAS HELD TAXABLE @ 40%. HOWE VER, IT IS THE ALTERNATIVE PLEA OF THE AO AND HE HAS ASSESSED THE ENTIRE RECEIPTS OF THE ITA NO. 6116/MUM/2008(A.Y. 2003-04) ITA NO.6117/MUM/2008(A.Y.2004-05) C.O.NO.236& 237/MUM/2009 5 ASSESSEE BEING IN THE NATURE OF FEES FOR TECHNICAL SERVICES. IN ADDITION TO THE ABOVE TREATMENT GIVEN TO THE SERVICE FEE ANOTHER IS SUE RELATES TO INTEREST INCOME WHICH HAS ALSO BEEN ADDED TO THE ABOVE REC EIPTS AMOUNTING TO RS.66,94,333/- AND RS.25,30,777/- FOR ASSESSMENT YE AR 2003-04 AND 2004- 05 RESPECTIVELY. ON THE ABOVE MENTIONED FACTS BOT H THE PARTIES HAVE ARGUED THEIR APPEALS AND CROSS OBJECTIONS. 4. NEITHER LD. A.R NOR LD. D.R HAD DISPUTED THE E XISTENCE OF PERMANENT ESTABLISHMENTS OF THE ASSESSEE IN INDIA. THEREFOR E, LD. A.R OF THE ASSESSEE SUBMITTED THAT DESPITE THE PAYMENTS RECEIVED BY THE ASSESSEE MAY BE OF FEE FOR INCLUDED SERVICES BUT IN VIEW OF PARA -6 OF ART ICLE-12 OF DTAA BETWEEN REPUBLIC OF INDIA AND REPUBLIC OF SINGAPORE THE R ECEIPTS OF THE ASSESSEE ARE REQUIRED TO BE TAXED UNDER ARTICLE -7 OR ARTICLE - 14 AS THE CASE MAY BE. ARTICLE - 14 DEALS WITH THE INDEPENDENT PERSONNEL S ERVICES. THEREFORE, HE PLEADED THAT ASSESSEE BEING A COMPANY, AND HAVING P ERMANENT ESTABLISHMENT IN INDIA, ITS RECEIPTS WILL BE LIABL E TO BE ASSESSED AS PER PROVISIONS OF ARTICLE-7 OF THE ABOVE DTAA. HE SUBM ITTED THAT THE AO MAY BE DIRECTED TO ASSESS THE ASSESSEE BY CONSIDERING THE SAID RECEIPT OF SERVICE FEES UNDER ARTICLE - 7 OF THE DTAA. 4.1 ON THE OTHER ISSUE RELATING TO INTEREST IT IS THE SUBMISSION OF LD. A.R THAT AS PER THE DECISION OF DELHI ITAT IN THE CASE OF CSC TECHNOLOGY SINGAPORE PTE LTD. VS. ASSTT. DIT,DELHI, 50 SOT 39 9, SUCH INCOME CANNOT BE CONSIDERED IN THE SOURCE COUNTRY UNLESS THIS AMOUNT HAD BEEN RECEIVED BY THE FOREIGN COMPANY. THEREFORE, HE SUBMITTED THAT THIS MATTER MAY ALSO BE RESTORED BACK TO THE FILE OF AO WITH A DIRECTION T O TAX ONLY THAT PART OF INTEREST WHICH HAS BEEN RECEIVED BY THE FOREIGN COM PANY. 5. LD. D.R RELIED UPON THE ASSESSMENT ORDER AND PLE ADED THAT THE ACTION OF AO SHOULD BE SUSTAINED. HOWEVER, HE ACCEPTED T HE EXISTENCE OF SERVICE ITA NO. 6116/MUM/2008(A.Y. 2003-04) ITA NO.6117/MUM/2008(A.Y.2004-05) C.O.NO.236& 237/MUM/2009 6 PERMANENT ESTABLISHMENT OF THE ASSESSEE IN INDIA A ND APPLICABILITY OF INDO- SINGAPORE DTAA TO THE CASE OF ASSESSEE IS NOT DENI ED AS THE AO HAS ACCEPTED THESE FACTS IN THE ASSESSMENT ORDER. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF MATERIAL PLACED BEFORE US. THE AO HAS TAXED THE AF OREMENTIONED RECEIPTS OF SERVICE FEES AS INCOME OF THE ASSESSEE BEING FEE FO R TECHNICAL SERVICES. AT THE SAME TIME, THE AO ALTERNATIVELY IN THE ORDER FOR AS SESSMENT YEAR 2004-05 HAS MENTIONED THAT M/S BUNGE AGRIBUSINESS INDIA P VT. LTD. CONSTITUTES SERVICE PERMANENT ESTABLISHMENT IN VIEW ARTICLE 5.6 (B) AS M/. BUNGE SINGAPORES PERSONNEL VISITS M/S BUNGE AGRIBUSIN ESS INDIA PVT. LTD. FROM TIME TO TIME TO PROVIDE SUPPORT SERVICES. THUS, TH OSE RECEIPTS ARE ALSO TO BE TAXED AS BUSINESS PROFIT UNDER ARTICLE -7 OF DTAA B ETWEEN INDIA AND SINGAPORE. ACCORDINGLY HE ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING RULE-10 AND REFERRED TO STAND TAKEN BY THE DEPARTME NT IN ASSESSMENT YEAR 2003-04 WHICH THE AO APPLIED FOR A.Y 2004-05 ALSO AND HAS HELD THAT ASSESSEES PROFIT IS ESTIMATED AT 25% OF THE RECE IPTS WHICH IS COMPUTED AT RS.56,03,572/- AND HAS BEEN HELD TO BE TAXABLE @40% . THUS, IT HAS BEEN MADE CLEAR IN THE ASSESSMENT ORDER ITSELF THAT ASSE SSEE HAS A PERMANENT ESTABLISHMENT IN INDIA TO WHICH AFOREMENTIONED REC EIPTS BELONG IN BOTH THE YEARS. HERE THE CONTENTION OF THE LD. A.R IS THAT UNDER THE PROVISIONS OF ARTICLE -12, EVEN IF THE RECEIPTS ARE ROYALTY FOR FEE FOR TECHNICAL SERVICES THEN ALSO, IF THE ASSESSEE HAS A PERMANENT ESTABLISH T HE RECEIPTS WILL BE ASSESSED UNDER ARTICLE-7 OR ARTICLE 14 OF THE DTA A. FOR THE SAKE OF CONVENIENCE PARA-6 OF ARTICLE 12 OF AFOREMENTIONED DTAA IS REPRODUCED BELOW. 6. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT APPLY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHN ICAL SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINES S IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES OR FEES FO R TECHNICAL SERVICES ITA NO. 6116/MUM/2008(A.Y. 2003-04) ITA NO.6117/MUM/2008(A.Y.2004-05) C.O.NO.236& 237/MUM/2009 7 ARISE, THROUGH A PERMANENT ESTABLISHMENT SITUATED T HEREIN, OR PERFORMS IN THAT OTHER STATE INDEPENDENT PERSONAL S ERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT, PROPERT Y OR CONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICA L SERVICES ARE PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISH MENT OR FIXED BASE. IN SUCH CASE, THE PROVISIONS OF ARTICLE 7 OR ARTICLE 14, AS THE CASE MAY BE, SHALL APPLY. 6.1 A PLAIN READING OF THE AFOREMENTIONED PARAGRAP H WILL REVEAL THAT PROVISIONS OF PARAGRAPH 1 & 2 WHICH REGULATES THE TAXABILITY OF ROYALTY FOR FEE FOR TECHNICAL SERVICES IN THE STATE IN WHICH I T ARISE ON THE GROSS AMOUNT AT THE SPECIFIED RATE WILL NOT BE APPLICABLE IF T HESE RECEIPTS ARE EFFECTIVELY CONNECTED WITH PE OR FIXED BASE. IN THAT CASE P ROVISIONS OF ARTICLE -7 OR ARTICLE -14 WILL APPLY. IT HAS ALREADY BEEN MENTI ONED THAT ARTICLE-14 WILL NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE AND THUS THESE RECEIPTS OF THE ASSESSEE ARE LIABLE TO BE ASSESSED UNDER ARTICLE-7 OF THE AFOREMENTIONED DTAA FOR WHICH THE LD. COUNSEL FOR THE ASSESSEE ALS O DOES NOT HAVE ANY OBJECTION. 6.2 IN VIEW OF AFOREMENTIONED DISCUSSIONS IT IS CON SIDERED JUST AND PROPER TO RESTORE THE ISSUE TO THE FILE OF AO WITH A DIRE CTION TO ASSESS THE ASSESSEE ON THESE RECEIPTS UNDER ARTICLE-7 OF THE DTAA AFTER GIVING THE ASSESSEE REASONABLE OPPORTUNITY OF HEARING. THE AMOUNT REC EIVED BY THE ASSESSEE, THOUGH IS FOR TECHNICAL SERVICES BUT BY VIRTUE OF PARA -6 OF ARTICLE-12 THE INCOME OF THE ASSESSEE IS ASSESSABLE UNDER ARTICLE- 7 OF THE AFOREMENTIONED DTAA. WE ORDER ACCORDINGLY. FOR STATISTICAL PURPO SES THE GROUND RELATING TO SUCH RECEIPTS IN THE APPEALS FILED BY THE REVENUE AND IN THE CROSS OBJECTION FILED BY THE ASSESSEE ARE TREATED TO BE ALLOWED IN THE MANNER AFORESAID. 6.3 NOW COMING TO THE OTHER GROUND RAISED BY THE A SSESSEE REGARDING TAXABILITY OF THE INTEREST WE CONSIDER IT JUST AND PROPER TO RESTORE THE SAID GROUND ALSO TO THE FILE OF AO WITH A DIRECTION TO R EADJUDICTE THE ISSUE AFRESH IN THE LIGHT OF THE AFOREMENTIONED DECISION OF TRIBUNAL RELIED UPON BY THE LD. A.R ITA NO. 6116/MUM/2008(A.Y. 2003-04) ITA NO.6117/MUM/2008(A.Y.2004-05) C.O.NO.236& 237/MUM/2009 8 AND ALSO AS PER LAW AFTER GIVING THE ASSESSEE A REA SONABLE OPPORTUNITY OF HEARING. WE DIRECT ACCORDINGLY. THUS THE GROUNDS RAISED BY THE ASSESSEE IN CROSS OBJECTIONS ARE CONSIDERED TO BE PARTLY ALLOWE D FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 7. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES AND CROSS OBJECTIONS FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON THE 27TH DA Y OF JUNE,2012. SD/- SD/- ( P.M.JAGTAP) (I.P.BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 27 TH JUNE, 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.R L BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.