M/s D & H Secheron Electrodes Pvt. Ltd, Inidore V. ITO (IT & TP), Bhopal

ITA 104/Ind/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3437 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2016-2017
• Appeal Filed On: 10-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed to accrue or arise in india; Permanent establishment; Non-deduction of tax; TDS; Set aside
• Section: 90; 195; 250

Judgement Text

1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HONBLE KUL BHARAT, JUDICIAL MEMBER AND HONBLE MANISH BORAD, ACCOUNTANT MEMBER ITA NO.104/IND/2018 ASSESSMENT YEAR 2016-17 REVENUE BY SHRI R.S. AMBEDKAR, SR.DR ASSESSEE BY S/SHRI S.N. AGRAWAL & PANKAJ MOGRA, ARS DATE OF HEARING 0 4.2.2020 DATE OF PRONOUNCEMENT 0 6 . 3 .2020 O R D E R PER MANISH BORAD, AM THE ABOVE CAPTIONED APPEAL FILED AT THE INSTANCE OF THE ASSESSEE PERTAINING TO ASSESSMENT YEAR 2016-17 IS DIRECTED AGAINST THE ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEA LS)-3 (IN SHORT LD.CIT(A)], AHMEDABAD DATED 17.01.2018 WHICH IS A RISING OUT OF THE ORDER U/S 250 OF THE INCOME TAX ACT 1961(IN SHO RT THE ACT) DATED 20.01.2016 FRAMED BY ITO (IT & TP), BHOPAL. M/S. D&H SECHERON ELECTRODES PVT. LTD, 44-46, INDUSTRIES ESTATE, KILA MAIDAN, INDORE VS. ITO (IT & TP), BHOPAL (APPELLANT) (RESPONDENT ) PAN NO.BPLD00066D 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEA L; 01]. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED. CIT(A) ERRED IN CONFIRMING THE ACTION OF T HE ASSESSING OFFICER BY TREATING THE ASSESSEE COMPANY AS ASSESSEE IN DEF AULT IN RESPECT OF NON-DEDUCTION OF TAX AT SOURCE U/S 195 OF THE INCOM E TAX ACT OF RS.1,55,009/- IN RESPECT OF PAYMENT MADE TO M/S KOR EA SEARCH OF RS. 6,01,974/- DURING THE YEAR UNDER CONSIDERATION AND ALSO INTERE ST CHARGED BY THE A.O. U/S 201/201(LA) OF THE INCOME TAX ACT OF RS. 22,718/- WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CAS E AND SUBMISSIONS MADE BEFORE HER EVEN WHEN THE ASSESSEE WAS NOT LIAB LE TO DEDUCT TDS ON T HIS PAYMENT. 02]. THE ASSESSEE RESERVE ITS RIGHT TO ADD, ALTER, MODIFY OR AMEND THE GROUNDS OF APPEAL AS AND WHEN REQUIRED. 3 . BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF WELDING ELECTRO DES. THE ASSESSEE IS RESPONSIBLE FOR DEDUCTING TAX AT SOURCE UNDER CHAPTER XVII OF THE INCOME TAX ACT, 1961 AND IT IS AN ASSES SEE-DEDUCTOR FOR THE PURPOSE OF TAX DEDUCTIBLE AT SOURCE AND PAYABLE TO CENTRAL GOVT. ACCOUNT UNDER THE ACT. THE LD. A.O ISSUED LET TER DATED 6.5.2015 TO ASSESSEE FOR VERIFICATION OF PAYMENTS M ADE TO NON RESIDENTS DURING FINANCIAL YEAR 2014-15 AND 2015-16 WITHOUT DEDUCTING TAX AT SOURCE U/S 195 OF THE ACT. FOR FI NANCIAL YEAR 2015-16 RELEVANT TO ASSESSMENT YEAR 2016-17 LD. A.O OBSERVED THAT THE ASSESSEE COMPANY IN ORDER TO SEARCH ENGINE ER FOR NEW PRODUCT DEVELOPMENT CONTACTED HEAD HUNTING CONCERN LOCATED IN SOUTH KOREA WITH THE NAME M/S KOREA SEARCH AND AGRE EMENT WAS 3 ENTERED WITH THIS KOREAN CONCERN FOR SUPPLY OF ENGI NEERS AS PER JOB DESCRIPTION WHICH WILL BE EMPLOYED BY THE ASSESSEE COMPANY. FOR THIS WORK ASSESSEE REMITTED RS.1,31,670/- AND RS.4 ,70,304/- ON 21.09.2015 AND 24.12.2015 RESPECTIVELY TO M/S. KORE A SEARCH, SOUTH KOREA. NO TAX WAS DEDUCTED U/S 195 OF THE AC T ON THESE PAYMENT. THE REMITTANCES WAS MADE AFTER OBTAINING A CERTIFICATE ON FORM NO. 15CB FROM A CHARTERED ACCOUNTANT. THE ASSE SSEE WHEN SHOW CAUSED SUBMITTED THAT THE ALLEGED PAYMENT IS M ADE TO THE NON RESIDENT HAVING NO PERMANENT ESTABLISHMENT IN I NDIA AND PAYMENT IS NOT IN THE NATURE OF ANY TECHNICAL SERVI CES. HOWEVER LD. A.O WAS OF THE CONSIDERED VIEW THAT THE ALLEGED PAY MENT TO M/S KOREA SEARCH IS THE FEES FOR TECHNICAL SERVICES AND THUS LIABLE FOR TAX DEDUCTION AT SOURCE U/S 195 OF THE ACT AND ACCO RDINGLY GROSSED UP AN AMOUNT OF PAYMENT AT RS.7,52,468/- AS AGAINST RS.6,01,974/- PAID BY THE ASSESSEE AND COMPUTED THE DEFAULT OF TAX DEDUCTED AT SOURCE AT RS.1,55,009/- AND ALSO LEVIED INTEREST U/S 201(1A) AT RS.22,718/-. 4. AGGRIEVED BY THE ORDER OF LD. A.O ASSESSEE PREFERRE D APPEAL BEFORE CIT(A) BUT COULD NOT SUCCEED. 5. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4 6. LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE SYNO PSIS PLACED ON RECORD FIRSTLY BRIEFED ABOUT THE FACTS OF THE CA SE AND THEREAFTER TOOK US THROUGH THE PROVISIONS OF SECTION 195 OF TH E ACT SECTION 5 OF THE ACT AND SECTION 9(1)(VII) OF THE INCOME TAX ACT . HE ALSO MADE SUBMISSIONS FOR EXPLAINING THE WORDS MANAGERIAL, TECHNICAL AND CONSULTANCY. HE ALSO REFERRED TO DOUBLE TAXATIO N AVOIDANCE AGREEMENT BETWEEN INDIA AND SOUTH KOREA UNDER SECT ION 90 OF THE I.T. ACT INCLUDING ARTICLE 12, 14 AND 15 OF THIS D TAA AGREEMENT. SIMILARLY HE SUBMITTED THAT THE AMOUNT PAID BY THE ASSESSEE COMPANY TO M/S KOREA SEARCH DO NOT FALL UNDER THE P ROVISIONS OF EITHER TECHNICAL FEE OR MANAGERIAL FEE. THE SERVIC ES WERE PROVIDED BY M/S KOREA SEARCH OUTSIDE INDIA AND THEREFORE THE ASSESSEE COMPANY WAS NOT LIABLE TO DEDUCT TDS ON THE SAME. 7. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE VEHEMEN TLY ARGUED SUPPORTING THE ORDERS OF BOTH THE LOWER AUTH ORITIES. 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RE CORDS PLACED BEFORE US. THE SOLE ISSUE FOR ADJUDICATION B EFORE US IS TO EXAMINE THAT WHETHER THE PAYMENT FOR SERVICES TAKEN BY THE ASSESSEE IN THE NON RESIDENT FOREIGN COMPANY M/S. K OREA SEARCH WERE LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT AND 5 WHETHER THE LD. A.O WAS JUSTIFIED IN TREATING ASSES SEE IN DEFAULT FOR NON DEDUCTION OF TAX AT SOURCE AT RS. 1,55,009 AND CHARGING INTEREST THEREON U/S 201(1A) OF THE ACT AT RS.22,71 8/-. 9. WE OBSERVE THAT THE ASSESSEE COMPANY ENTERED INTO AN AGREEMENT WITH SOUTH KOREAN CONCERN M/S. KOREA SEAR CH FOR PROVIDING ENGINEERS FIT FOR THE JOB DESCRIPTION REQ UIRED BY THE INTERNAL PRODUCTION TEAM OF THE COMPANY. FOR PROVI DING THIS SERVICE ASSESSEE MADE PAYMENT OF RS.6,01,974/- DURING THE F INANCIAL YEAR 2015-16. ASSESSEE DID NOT DEDUCT TAX AT SOURCE U/S 195 OF THE ACT AND OBTAINED CERTIFICATE FROM CHARTERED ACCOUNTANT IN FORM NO.15CB OF THE I.T. RULES. WHEN THE MATTER WAS EXA MINED BY THE LD. A.O HE WAS OF THE VIEW THAT THE ALLEGED SERVICE S ARE TECHNICAL SERVICES IN NATURE AND FALLS UNDER THE PROVISIONS O F SECTION 9(1)(VII) OF THE ACT AND THUS LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT AND ACCORDINGLY TREATED THE ASSESSEE IN DEF AULT. 10. NOW WE HAVE TO EXAMINE THE TYPE OF SERVICES RENDER ED BY M/S. KOREA SEARCH TO THE ASSESSEE COMPANY. FOR THIS WE NEED TO GO THROUGH THE AGREEMENT AND THE TERMS AND CONDITIONS MENTIONED THEREIN. IN THE PAPER BOOK DATED 8.7.2019 COPY OF AGREEMENT IS PLACED AT PAGE 8 & 9 . IN THIS AGREEMENT THE CLIENTS RESPONSIBILITY, 6 GUARANTEE, TERMS OF PAYMENT AND PLACEMENT FEE FOR C ONTINGENCY BASE SEARCHES ARE MENTIONED AND THE SAME IS REPRODU CED BELOW:- ARTICLE 3. (CLIENT'S RESPONSIBILITY) THE CLIENT WILL PROVIDE A DETAILED JOB DESCRIPTION OF THE REQUIRED POSITION. THE CLIENT WILL PROVIDE FEEDBACK TO KOREA SEARCH WI THIN 5 WORKING DAYS UPON RECEIPT OF-THE CANDIDATE'S PROFILE. KOREA SEARCH WILL REQUIRE A COPY OF THE SIGNED LETT ER OF OFFER FOR DOCUMENTATION AND BILLING PURPOSES, THE CLIENT AGREES TO NOTIFY TO THE KOREA SEARCH IMMEDIATELY UPON HIRING OR COMPLETION OF ASSIGNMENT. ARTICLE 4. (GUARANTEE) SHOULD A CANDIDATE RECRUITED AND PLACED AS PERMANEN T EMPLOYEE WITH THE CLIENT VOLUNTARILY LEAVE THE JOB FOR FIRST 90 DAYS .FROM THE DATE OF EMPLOYMENT, KOREA SEARCH WILL ENDEAVOR TO PROVIDE A SUITABLE REPLACEMENT AT NO ADDITIONAL COST. IT IS NECESSARY THAT THE CLIENT UNDERSTANDS THAT KOREA SEARCH WILL NOT OFFER A REPLACEMENT FOR A CANDIDATE WHO HAS BEEN TE RMINATED BY THE CLIENT WITHIN FIRST 90 DAYS OF EMPLOYMENT. ARTICLE 5. (TERMS OF PAYMENT) INVOICES WILL BE RAISED ON THE FIRST DAY OF WORK BY SELECTED CANDIDATE AND SHOULD BE SETTLED WITHIN 14 (FOURTEEN )DAYS FROM TH AT DATE IN ORDER FOR GUARANTEED SERVICE TO APPLY. ARTICLE 6 (PLACEMENT FEE FOR CONTINGENCY BASE SEARC HES ) UPON APPOINTMENT OF THE SUCCESSFUL CANDIDATE, THE C LIENT WILL PAY KOREA SEARCH A PLACEMENT FEE ACCORDING TO FOLLOWING STRUC TURE. (ANNUAL GROSS INCOME (AGI) INCLUDES BASE SALARY AND BONUS) VAT WI LL BE ADDED UNLESS THE CLIENT DOES NOT HAVE LEGAL ENTITY IN KOREA (10% OF PLACEMENT FEE) FEE RATE IS 13% OF ANNUAL GROSS INCOME (AGI) OF SE LECTED CANDIDATE. 7 11. NOW BEFORE MOVING FURTHER WE ALSO WOULD LIKE TO GO THROUGH SECTION 9(1)(VII) OF THE I.T. ACT WHICH RELATES TO THE INCOME BY WAY OF FEES OR TECHNICAL SERVICES DEEMED TO ACCRUE ARISE I N INDIA. SEC. 9(1)(VII) OF THE ACT 9. (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA :- (VII) INCOME BY WAY O(FEES (OR TECHNICAL SERVICES PAYABLE BY- (A) THE GOVERNMENT; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE F EES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROF ESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF M AKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROF ESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA: PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY I N RELATION TO ANY INCOME BY WAY OF FEES FOR TECHNICA L SERVICES PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE THE 1ST D AY OF APRIL, 1976, AND APPROVED BY THE CENTRAL GOVERNMENT. EXPLANATION 1. =FOR THE PURPOSES OF THE FOREGOING PROVISO, AN AGREEMENT MADE ON OR AFTER THE 1ST DAY OF APRIL, 1 976, SHALL BE DEEMED TO HAVE BEEN MADE BEFORE THAT DATE IF THE A GREEMENT IS MADE IN ACCORDANCE WITH PROPOSALS APPROVED BY THE CENTRAL GOVERNMENT BEFORE THAT DATE. EXPLANATION 2.-FOR THE PURPOSES OF THIS CLAUSE, '' FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY L UMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL , TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF S ERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERA TION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UND ERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME O F THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES . 8 12. NOW WE EXAMINE THE TYPE OF SERVICES. DETAILED JOB DESCRIPTION IS PROVIDED BY THE ASSESSEE COMPANY TO M/S. KOREA S EARCH WHICH HAS A DATA BASE OF PROFILES OF VARIOUS ELIGIBLE CAN DIDATES. AFTER EXAMINING THE PROFILE AND MATCHING IT WITH THE CLIE NTS JOB DESCRIPTION CANDIDATES ARE REFERRED TO THE ASSESSEE COMPANY WITH GUARANTEE THAT IF THE CANDIDATES SO RECRUITED LEAVE S THE JOB FOR FIRST 90 DAYS FROM THE DATE OF EMPLOYMENT, SUITABLE REPLA CEMENT WILL BE MADE AT NO ADDITIONAL COST. THERE IS NO SPECIFICAT ION FOR ANY TECHNICAL EXPERTISE WHICH THE ASSESSEE COMPANY HAS SOUGHT FROM M/S. KOREA SEARCH. FROM ALL THE ANGLES THE AGREEME NT SHOWS THAT M/S KOREA SEARCH (WHICH IS A FOREIGN COMPANY) HAVE NO PERMANENT ESTABLISHMENT IN INDIA IS WORKING ONLY AS A PLACEME NT SERVICES HAVING DATA BASE OF VARIOUS PERSONS WHO WANT JOB. M/S. KOREA SEARCH HAS VARIOUS CLIENTS BASED ACROSS THE GLOBE W HO NEED SUCH EXPERTS WHO ARE WELL VERSED AND EXPERT IN THEIR FIE LDS. M/S. KOREA SEARCH AFTER MATCHING REQUIREMENT OF THE CLIENT WIT H THE JOB PROFILE OF THE CANDIDATE REFERS IT TO THE CLIENT AFTER CHAR GING FEES AS AGREED. 13. NOW TO DECIDE WHETHER THE CANDIDATE WHO IS REFERRE D BY M/S KOREA SEARCH, IS TECHNICAL EXPERT OR NOT IN THE PAR TICULAR FIELD IS ON THE SOLE DISCRETION OF THE ASSESSEE COMPANY WHO INT ERVIEW AND TEST 9 THE CANDIDATE AND APPOINTS AS AN EMPLOYEE FOR THE P ERIOD AND CONDITIONS TO BE DECIDED OR IT REQUESTS FOR REPLACE MENT. 14. AS FAR AS SECTION 9(1)(VII) OF THE ACT (AS REPRODU CED ABOVE), EXPLANATION 2 PROVIDES THAT FEES FOR TECHNICAL SERV ICES MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION ) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL O R OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUC TION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE U NDER THE HEAD 'SALARIES . 15. AFTER EXAMINING THE AGREEMENT, NATURE OF SERVICES PROVIDED BY M/S. KOREA SEARCH TO THE ASSESSEE AND THE PROVIS IONS OF SECTION 9(1)(VII) OF THE ACT WE ARE OF THE CONSIDERED VIEW THAT THE SERVICES TAKEN BY THE ASSESSEE COMPANY FROM M/S KOREA SEARCH DO NOT FALL UNDER THE CATEGORY OF TECHNICAL SERVICES AND IT IS MERELY FEE PAID FOR PLACEMENT SERVICES WHICH BY NO CANON REQUIRE ANY TE CHNICAL EXPERTISE. THEREFORE SINCE THE SERVICES IN QUESTIO N PROVIDED BY M/S. KOREA SEARCH TO THE ASSESSEE COMPANY DO NOT FALL IN THE CATEGORY OF FEES FOR TECHNICAL SERVICES AS PROVIDED UNDER SECTI ON 9(1)(VII) OF THE 10 ACT THERE WAS NO LIABILITY OF THE ASSESSEE TO DEDUC T TAX AT SOURCE U/S 195 OF THE ACT. WE THEREFORE SET ASIDE THE ORD ER OF BOTH THE LOWER AUTHORITIES AND DIRECT THE REVENUE AUTHORITIE S TO DELETE THE DEMAND RAISED FOR DEFAULT OF DEDUCTION OF TAX AT SO URCE AT RS.1,55,009/-. INTEREST LEVIED U/S 201/201(1A) AT RS.22,178/- ALSO DESERVES TO BE DELETED BEING CONSEQUENTIAL IN NATUR E. GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 16. IN THE RESULT APPEAL OF THE ASSESSEE STANDS ALLOWE D. THE ORDER PRONOUNCED IN THE OPEN COURT ON 06.03.2 020. SD/- SD/- ( KUL BHARAT) (MANI SH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 06 MARCH , 2020 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER, ASSTT.REGISTRAR, I.T.A.T., INDORE