Motif India Infotech Pvt. Ltd., Ahmedabad V. The Dy.CIT, Circle-4, Ahmedabad

CO 87/AHD/2014

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3659 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-04-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 26-04-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 17-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Double taxation relief; Permanent establishment
• Section: 143(3); 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHR I MAHAVIR PRASAD , JUDICIAL MEMBER AND SHRI MANISH BORAD , ACCOUNTANT MEMBER THE DCIT, CIRCLE - 4, AHMEDABAD (APPELLANT /RESPONDENT ) VS MOTIF INDIA INFOTECH(P) LTD. 502 , WALL S TREET, NR. GUJARAT COLLEGE, ELLIS BRIDGE, AHMEDABAD - 380006 PAN: AACCM1005A (RESPONDENT /CROSS OBJE CTOR ) REVENUE BY : S H RI V.K. SINGH , SR. D . R. ASSESSEE BY: S H RI SANJAY R. SHAH, A.R. DATE OF HEARING : 05 - 04 - 2 018 DATE OF PRONOUNCEMENT : 09 - 04 - 2 018 / ORDER P ER : MANISH BORAD , ACCOUNTANT MEMBER : - THIS APPEAL OF REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) - VIII, AHMEDABAD DATED 19 - 07 - 2013 IS ARISING OUT OF THE ORDER U/S. 143(3) O F THE INCOME TAX ACT IN SHORT , THE ACT FRAMED ON 26 - 12 - 20 11 BY ACIT , (OSD) - I, RANGE - 4, AHMEDABAD PERTAINING TO ASSESSMENT YEAR 2009 - 10. I T A NO . 2385 / A HD/20 13 & CO NO. 87/ AHD/2014 A SSESSMENT YEAR 200 9 - 10 I.T.A NO. 2385 /AHD/20 13 & 87/AHD/2014 A.Y. 2009 - 10 PAGE NO DCIT VS. MOTIF INDIA INFOTECH(P) LTD 2 2. REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE OF RS. 5,51,24,572/ - MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF 40(A)(I) OF THE I.T. ACT WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FINDINGS GIVEN BY THE A.O. IN THE ASSESSMENT ORDER O N THE DISALLOWANCE ON ACCOUNT OF 40(A)(I) OF THE I.T. ACT. 3. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECORDS THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF EXPORT OF SOFTWARE AND SUPPORT SERVICES. INCOME OF RS. 6793400/ - DECLARED IN T H E RETURN OF INCOME FILED O N 30 TH SEP, 2009. CASE SELECTED FOR SCRUTINY AND NECESSA RY NOTICES U/S. 143(2) AND 142(1 ) OF THE ACT WERE DULY SERVED UPON THE ASSESSEE. DURING THE COURSE OF APPELLATE PROCEEDINGS, LD. ASSESSING OFFICER OBSERVED TH AT AN AMOUNT OF RS. 5,51,24,572/ - HAS BEEN DEBITED AS SERVICES CHARGES PAID TO OVERSEAS DIVISION UNDER THE HEAD OPERATING EXPENSES. REPLY WAS CALLED FROM THE ASSESSE ABOUT THE APPLICATION OF THE PROVISION UNDER SECTION 195 OF THE ACT WHICH CASTS AN OBLIGA TION ON A PERSON TO DEDUCT TAX AT SOURCE WHILE MAKING A PAYMENT TO A NON - RESIDENT ON SUCH A SUM WHICH IS CHARGEABLE TO TAX IN INDIA. IT WAS CONTENDED BY THE ASSESSEE THAT THE SERVICES WERE PROVIDED OUTSIDE INDIA AND THE PAYMENTS WERE ALSO RECEIVED OUTSIDE INDIA AND THERE IS NO PERMANENT ESTABLISHMENT (PE) O F THE PAYEE LOCATED IN INDIA AND THEREFORE, IT IS NOT REQUIRED TO DEDUCT TAX AT SOURCE. HOWEVER, LD. ASSESSING OFFICER W A S NOT CONVINCED WITH THE SUBMISSIONS AND WENT AHEAD TO COMPLETE THE ASSESSMENT AF TER MAKING DISALLOWANCE U/S. 40(A)(I ) OF THE ACT AT I.T.A NO. 2385 /AHD/20 13 & 87/AHD/2014 A.Y. 2009 - 10 PAGE NO DCIT VS. MOTIF INDIA INFOTECH(P) LTD 3 RS. 5 , 51 , 24 , 572/ - AND THEREB Y ASSESSING INCOME AT RS . 6,19,17,17 , 972/ - . 4. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) AND SUCCEEDED AS THE I MPUGNED DISALLOWANCE U/S. 40(A)(I ) OF THE ACT WA S DELETED . 5. REVENUE IS NOW IN APPEAL BEFORE THE T RIBUNAL AND ASSESSEE HAS FILED CROSS OBJECTION. LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED SUPPORTING T H E ORDER OF THE ASSESSING OFFICER WHEREAS THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE SU BMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND RELIED ON THE FINDINGS OF THE LD. CIT(A) AND FURTHER SUBMITTED THAT THE GROUNDS RAISED IN THE CROSS OBJECTION ARE SUPPORTIVE TO THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD S PLACED BEFORE US. ISSUE RAISED BY THE REVENUE RELAT ES TO DISALLOWANCE U/S. 40(A)(I ) OF THE ACT WHICH PERTAINS TO PAYMENT MADE BY THE COMPANY TO M/S PACIFIC HUB CORPORATI ON COMPANY INCORPORATED IN PHILIPP IN E S FOR OBTAINING SERVICES FOR HUMAN RESOU RCE AND INFRASTRUCTURE . ASSESSEE COMPANY TOOK THE SERVICES OF M/S. PHC IN ORDER TO PROVIDE THE SERVICES TO ITS OVERSEAS CUSTOMER. DURING THE YEAR UNDER CONSIDERATION, SUM OF RS. 5 , 51 , 24 , 572/ - WAS DEBITED A S SERVICE CHARGES PAYABLE TO M/S. PHC. WE FURTHE R OBSERVED THAT LD. CIT(A) DELETED THE IMPUGNED DISALLOWANCE OBSERVING AS FOLLOWS: - 2.3 DECISION: I.T.A NO. 2385 /AHD/20 13 & 87/AHD/2014 A.Y. 2009 - 10 PAGE NO DCIT VS. MOTIF INDIA INFOTECH(P) LTD 4 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER, THE SUBMISSION MADE BY THE APPELLANT. IN THE PRESENT CASE, ADMITTEDLY THERE IS N O DEDUCTION OF TAX FROM THE PAYMENT MADE TO PACIFIC HUB CORPORATION, A RESIDENT OF PHILIPPINES. FURTHER, THERE IS NO DISPUTE THAT SERVICES ARE IN THE NATURE OF TECHNICAL SERVICES. AS PER PROVISION OF SECTION 195 OF IT ACT, IT IS OBLIGATORY FOR EVERY PERSON TO DEDUCT THE TAX WHEN A PAYMENT IS MADE TO NON - RESIDENT IF THE INCOME IS CHARGEABLE UNDER PROVISION OF I.T ACT. THE CONTENTION OF THE APPELLATE IS THAT THE INCOME IS NEITHER LIABLE TO TAX IN INDIA UNDER PROVISION OF I.T ACT NOR UNDER THE DTAA BETWEEN IND IA AND PHILIPPINES. AS PER THE PROVISION OF SECTION 5(2) OF I.T ACT, IN THE CASE OF NON - RESIDENT, SCOPE OF TOTAL INCOME INCLUDES ALL INCOME FROM WHATEVER SOURCE WHICH ARE RECEIVED OR DEEMED TO BE RECEIVED IN INDIA OR WHICH ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO SUCH NON - RESIDENT IN INDIA. IN THE PRESENT CASE, THE PAYMENT IS MADE TO PACIFIC HUB CORPORATION, WHICH IS SITUATED OUTSIDE INDIA AND THEREFORE, IT IS NECESSARY TO EXAMINE WHETHER SUCH INCOME CAN BE SAID TO BE DEEMED TO ACCRUE OR ARISE I N INDIA. SINCE THE SERVICES ARE IN THE NATURE OF 'FEES FOR TECHNICAL SERVICES' IT IS NECESSARY TO EXAMINE PROVISION OF SECTION 9(1)(VII) OF I.T ACT ALSO. SECTION 9(1)(VII)(B) PROVIDE THAT IF FEES FOR TECHNICAL SERVICES ARE PAID BY RESIDENT IT WOULD BE DEEM ED TO ACCRUE AND ARISE IN INDIA. HOWEVER, IT ALSO PROVIDE AN EXCEPTION THAT IF SUCH FEES ARE PAID IN RESPECT OF SERVICES UTILIZED OUTSIDE INDIA IN A BUSINESS OR PROFESSION CARRIED ON OUTSIDE INDIA OR FOR THE PURPOSE OF EARNING ANY INCOME FOR SAME OUTSIDE I NDIA I.E. IN THESE CIRCUMSTANCES THE DEEMING PROVISIONS WILL NOT BE APPLICABLE. IN THE PRESENT CASE, THE ASSESSEE HAS CERTAIN CONTRACTS FOR RENDERING OUTSOURCING SERVICES IN PHILIPPINES. FOR RENDERING SUCH SERVICES IT HAS AVAILED SERVICES OF PACIFIC HUB CO RPORATION IN PHILIPPINES. THEREFORE, THE SERVICES HAVE BEEN RENDERED OUTSIDE INDIA AND THE PAYMENT HAS ALSO BEEN MADE TO OUR NON RESIDENT THAT IS THE PERSON WHICH IS NOT ASSESSED TO TAX IN INDIA, THE INCOME IS ACCORDINGLY EARNED OUTSIDE INDIA. THUS THE PRE SENT CASE IS FULLY COVERED BY EXCEPTION I.E. SUCH FEES PAID ARE IN RESPECT OF SERVICES UTILIZED OUTSIDE INDIA IN A BUSINESS CARRIED ON OUTSIDE INDIA OR FOR THE PURPOSE OF EARNING ANY INCOME FOR SAME OUTSIDE INDIA. THE REASONING GIVEN BY THE ASSESSING OFFIC ER THAT SINCE THE PAYMENT IS MADE BY INDIAN COMPANY, THE ULTIMATE SOURCE IS INDIA IS NOT CORRECT AND WILL HAVE NO IMPACT ON THE APPLICABILITY OF SECTION 9(1)(VII)(B). IT IS ALSO NOTED THAT THE RATIO OF AHMEDABAD ITAT DECISION IN THE CASE OF ADANI ENTERPRIS E (SUPRA) CLEARLY SUPPORT THE CONTENTION OF ASSESSEE. IN THE SAID CASE AHMEDABAD ITAT WHILE DEALING WITH INTEREST ON FCCB BOND HELD THAT SPECIFIC EXCLUSION IS PROVIDED IN CLAUSE (B) OF SECTION 9(1)(V) TO EXCLUDE INTEREST PAYMENT TO NON - RESIDENT INVESTORS B Y AN INDIAN RESIDENT IF SUCH INTEREST PAYMENT IS IN RESPECT OF AMOUNT BORROWED OUTSIDE INDIAN AND IS USED OUTSIDE INDIA FOR INVESTMENT OR FOR BUSINESS CARRIED OUT OUTSIDE INDIA. I.T.A NO. 2385 /AHD/20 13 & 87/AHD/2014 A.Y. 2009 - 10 PAGE NO DCIT VS. MOTIF INDIA INFOTECH(P) LTD 5 IN VIEW OF ABOVE, I FIND FORCE IN THE CONTENTION OF LEARNED AR THAT THE INCOME IS NOT LIABLE TO TAX U/S 9(1)(VII) OF IT ACT. SINCE INCOME IS NOT LIABLE TO TAX, EITHER IN THE REGULAR PROVISIONS OR IN DEEMING PROVISIONS NO TAX IS REQUIRED TO BE DEDUCTED U/S 195 OF IT ACT. THE LEARNED A.R HAS ALSO STRONGLY OBJECTED THE A.O'S ORDER AS R EGARDS TAXABILITY UNDER TREATY AND RAISED VARIOUS CONTENTIONS APART FROM BASIC ISSUE OF DEALING WITH DTAA BETWEEN INDIA AND AUSTRALIA RATHER THAN APPLYING DTAA BETWEEN INDIA AND PHILIPPINES AS THE TRANSACTION IS WITH PHILIPPINES ENTITY. HOWEVER, SINCE I HA VE ALREADY HELD IN THE PRECEDING PARA THAT SERVICE CHARGES PAID ARE NOT LIABLE TO TAX IN INDIA UNDER PROVISION OF IT ACT, THE SECOND LIMB BECOMES ACADEMIC AND THEREFORE, I HAVE NOT DEALT WITH THIS ISSUE. IN VIEW OF ABOVE, I AM OF THE VIEW THAT THERE IS NO FAILURE OF DEDUCTION OF TAX U/S. 195 AND HENCE THERE IS NO JUSTIFICATION IN MAKING DISALLOWANCE U/S 40(A)(I) OF THE ACT FOR RS. 5,51,24,572/ - AND SAME IS DIRECTED TO BE DELETED. THE GROUND OF APPEAL IS ACCORDINGLY, ALLOWED. 7. WE FURTHER OBSERVE THAT REV ENUE HAS NOT DISPUTED THE FACT THAT THE PAYEE M/S PHC , PHILIPPINES DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA AND FURTHER THE SERVICES WERE PROVIDED OUTSIDE TO THE OVERSEAS CLIENTS OF THE ASSESSEE IN ORDER TO PERFORM THE SERVICES OF PROVIDING HUMAN R ESOURCES AN D INFRASTRUCTURE SERVICES. F URTHER UNDER THE PROVISION OF SECTION 9(1 ) (VI I)(B) OF THE ACT, AN EXCEPTION IS PROVIDED , WHEREIN IF THE FEES FOR TECHNICAL SERVICES ARE PAID IN R ESPECT OF SERVICES UTILIZED OUTSIDE INDIA IN A BUSINESS OR PROFESSION C ARRIED ON OUTSIDE INDIA OR FOR THE P URPOSE OF EARNING ANY INCOME FROM OUTSIDE INDIA , THEN , IN SUCH CIRCUMSTANCES , THE DEEMING PROVISIONS OF SECTION 9(1)(VII)(B) OF THE ACT WILL NOT BE APPLICABLE. IN THE INSTANT CASE, THE ASSESSEE HAS CERTAIN CONTRACTS FOR RENDERING OUTSOURCE IN PHILIP PINES AND FOR PROVIDING SUCH SERVICES IT AVA ILED THE SERVICES ON PHC PHILIPP IN E S. I.T.A NO. 2385 /AHD/20 13 & 87/AHD/2014 A.Y. 2009 - 10 PAGE NO DCIT VS. MOTIF INDIA INFOTECH(P) LTD 6 8. WE THEREFORE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AS WEL L AS IN VIEW OF THE LUCID FIN DINGS OF THE LD. CIT(A) GIVEN AFTER TAKING INTO CONSIDERATION THE PROVISION OF SECTION 5(2) OF THE ACT AS WELL AS SECTION 9(1)(VI I)(B) OF THE ACT FIND NO ERROR AND INFIRMITY IN THE ORDER OF LD. CIT(A) AND WE UPHOLD T HE SAME. IN TH E RESULT, GROUND NO. 1 & 2 OF THE REVENUE ARE DISMISSED A ND THE GRO UND NO S. 3 AND 4 BEING GENERAL IN NATURE NEED S NO ADJUDICATION. APPEAL OF THE REVENUE STANDS DISMISSED. 9 . APROPOS TO THE THREE GROUNDS RAISED IN CROSS OBJECTION FILED BY THE ASSESSEE, W E FIND THEM TO BE MERELY SUPPORTIVE TO T HE ORDER OF LD. CIT(A) . T HEREFORE, THESE THREE GROUNDS OF CROSS OBJECTION BECOME INFRUCTUOUS IN VIEW OF FACT THAT THE APPEAL OF THE REVENUE STANDS ALREADY DISMISS ED AND ACCORD INGLY ALL THE GROUNDS RAISED IN CROSS O BJECTION ARE DISMISSED AS INFRUCTUOUS 10 . IN THE RESULT, BOTH THE REVENUE AS WEL L AS ASSESSEE S CROSS OBJECTION ARE DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 09 - 04 - 201 8 SD/ - SD/ - ( MAHAVIR PRASAD ) ( MANISH BORAD ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 09 /04 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE I.T.A NO. 2385 /AHD/20 13 & 87/AHD/2014 A.Y. 2009 - 10 PAGE NO DCIT VS. MOTIF INDIA INFOTECH(P) LTD 7 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,