DCIT 17(1), MUMBAI V. SHM SHIPCARE, MUMBAI

ITA 1047/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4235 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 27-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 06-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Retrospective amendment
• Section: 143(3)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI L BENCH BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAM LAL NEGI,JUDICIAL MEMBER /.ITA NO.1047/MUM/2013, /ASSESSMENT YEAR-2008-09 DCIT-17(1) 1 ST FLOOR, ROOM NO.113 PIRAMAL CHAMBERS, LALBAUG PAREL, MUMBAI. VS. SHM SHIPCARE 16-A, PRESS BUILDING MAGAZINE STREET, DARUKHANA, MAZGAON,MUMBAI-400 010. PAN:AARFS 8910 L ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY : NONE / REVENUE BY : SHRI PANKAJ KUMAR / DATE OF HEARING : 28.01.2016 / DATE OF PRONOUNCEMENT : 10.02.2016 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 21.11.2012 OF THE CIT-3 4, THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.ASSESSEE-FIRM, ENGAGED IN THE BUSINE SS OF SUPPLY AND SERVICE OF FIRE FIGHTING AND LIFE SAVING EQUIPMENTS ON BOARD SHIPS FILED ITS RET URN OF INCOME,ON 29.9.2008,DECLARING TOTAL INCOME AT RS.3.28 CRORES. THE AO COMPLETED THE ASSE SSMENT ON 28.12.2010, U/S. 143(3) OF THE ACT,DETERMINING THE INCOME OF THE ASSESSEE AT RS.3, 67,69,030/-. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE AD DITIONS OF RS.37.84 LACS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESS EE HAD MADE PAYMENTS TO NON-RESIDENTS UNDER THE HEADS TRAINING FEE(RS.20.68 LACS),SERVICE FEE (RS.12.04 LACS AND ROYALTY PAYMENT (RS.5.11 LACS),THAT IT HAD NOT DEDUCTED TAX AT SOUR CE WHILE MAKING THE ABOVE MENTIONED PAYMENTS. HE HELD THAT THE ASSESSEE WAS HIT BY THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT.HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENDI TURE CLAIMED BY IT SHOULD NOT BE DISALLOWED. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO HELD THAT THE ASSESSEE HAD PAID TRAINING FEE, SURVEY CHARGES AND ROYALTY TO NON-RESIDENTS FOR SE RVICES TO BE UTILISED FOR ITS BUSINESS, THAT AS PER SECTION 9(1)(I), 9(1)(VII) AND 9(1)(VI) THE INCOME WOULD DEEM TO OR ACCRUE IN INDIA, THAT THE PAYMENTS MADE BY THE ASSESSEE ATTRACTED PROVISIONS OF CHAPTER XVII-B OF THE ACT.FINALLY, HE DISALLOWED A SUM OF RS.37,84,750/- AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSION O F THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT THE NON-RESIDENT ENTITIES HAD NO BUSI NESS PRESENCE IN INDIA FOR EARNING THEIR SERVICE CHARGES, THAT THE ASSESSEE WOULD PROVIDE SE RVICES TO MARINE VESSELS AND NOT ON BEHALF OF THE NON-RESIDENTS, THAT THE TRANSACTION OF PROVIDIN G SERVICE FEE WAS ON A PRINCIPAL TO PRINCIPAL BASIS BETWEEN THE ASSESSEE AND THE NON RESIDENTS, T HAT THE NON-RESIDENTS WERE DOING BUSINESS WITH INDIA FROM OUTSIDE INDIA, THAT THEY WERE NOT CARRYI NG OUT ANY BUSINESS OPERATION IN INDIA, THAT SERVICE CHARGES WERE RECEIVED FROM THEM FOR GETTING BUSINESS, THAT THE ASSESSEE PROVIDED SERVICES ITA/1047/M/13,AY.08-09-SHM SHIPCARE 2 TO SUPPLIERS OF DIFFERENT COUNTRIES, THAT IT WAS GE TTING REFERENCES FOR INSPECTION AND SERVICING OF EQUIPMENTS,THAT FOR GETTING REFERENCE IT HAD TO PAY A FIXED SUM TO THE EQUIPMENT MANUFACTURERS/ SUPPLIERS, THAT THE REFERENCE WAS SUPPLIED BY THE S UPPLIER TO THE ASSESSEE OUTSIDE INDIA, THAT THE INCOME TO THE SUPPLIER AROSE OUTSIDE INDIA AND WAS NOT TAXABLE AS PER PROVISIONS OF THE ACT, THAT THE INCOME RECEIVED BY THE NON RESIDENTS WAS NOT TA XABLE IN INDIA IN VIEW OF CLAUSE(A) TO EXPLANATION 1 OF SECTION 9(1)(I), THAT THE EQUIPMEN T MANUFACTURERS HAD NO BUSINESS OPERATION WITH INDIA, THAT NO INCOME HAD ACCRUED OR ARISEN IN INDIA TO THE NON-RESIDENTS, THAT THE SERVICE CHARGES RECEIVED BY THE ASSESSEE WOULD NOT AMOUNT T O TRANSFER OF ANY RIGHT IN RESPECT OF ANY PATENT, INVENTION ETC., THAT THE SUPPLIERS BY GIVIN G REFERENCE WERE NOT IMPARTING ANY INFORMATION WHICH WAS IN NATURE OF TECHNICAL/INDUSTRIAL/COMMERC IAL/SCIENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL., THAT THEY WERE ALSO NOT RENDERING ANY SERVICES IN C ONNECTION WITH THE ACTIVITIES REFERRED IN THE SUB CLAUSES OF EXPLANATION 2 TO SECTION 9(1)(VI).HE REF ERRED TO THE CASE OF CUSHMAN AND WAKEFIELD (S) PTE.LTD.(305 ITR 208) AND SHERATON INTERNATIONA L INC.(313ITR267), THAT THE ASSESSEE WAS NOT OBLIGED TO DEDUCT TDS ON SERVICE CHARGES.FINALLY,HE DELETED THE ADDITION MADE TOWARD SERVICE CHARGES.WITH REGARD TO TRAINING FEE,THE FAA HELD TH AT PERSONNEL OF THE ASSESSEE WERE TRAINED BY THE SUPPLIERS OF THE EQUIPMENTS,THAT THE STAFF MEMB ERS WERE SENT ABROAD FOR TRAINING, THAT THE RAINING FEE INCLUDED COST OF CONVEYANCE,CERTIFICATI ON COST AS WELL AS THE ACTUAL TRAINING COST, THAT ACCOMMODATION AND CONVEYANCE WERE REIMBURSEMENT OF THE EXPENSES BY THE ASSESSEE,THAT THE PROVISIONS OF TDS WERE NOT APPLICABLE TO SUCH PAYME NTS,THAT THE TRAINING FEE PAID TO THE NON- RESIDENTS WAS NOT COVERED BY THE PROVISIONS OF SECT ION 9,THAT THE TRAINING FEE WAS ALSO NOT COVERED BY THE WORD ROYALTY AS ENVISAGED BY THE S ECTION 9(1)(VII). 4. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE (DR)CONTE NDED THAT PAYMENT MADE FOR TRAINING WAS FEE FOR TECHNICAL SERVICES BY NATURE,THAT THE ROYAL TY PAYMENT IS ALSO COVERED BY PROVISIONS OF SECTION 9, THAT THE AMENDMENT TO SECTION 9 WAS RETR OSPECTIVE IN EFFECT.AS STATED EARLIER,NONE WAS PRESENT ON BEHALF OF THE ASSESSEE. 5. WE HAVE HEARD THE DR AND PERUSED THE MATERIAL BEFOR E US. WE FIND THAT THE ASSESSEE IS ENGAGED IN SALES AND SERVICES OF SAFETY EQUIPMENTS INSTALLE D ON BOARD MARINE VESSELS, THAT IT WOULD GET BUSINESS FROM THE EQUIPMENT MANUFACTURERS, THAT AFT ER COMPLETING THE SERVICING OF SAFETY EQUIPMENTS IT WOULD ISSUES A CERTIFICATE TO THE VES SELS OPERATING IN INTERNATIONAL WATERS, THAT IT WOULD PURCHASE BLANK CERTIFICATES FROM EQUIPMENT MA NUFACTURERS,THAT IT ALSO UNDERTOOK SERVICING OF LIFE BOATS AND ITS LUNCHING APPLIANCES,THAT TO C ARRY OUT THE SERVICING OF SUCH EQUIPMENTS SERVICE PERSONNEL WOULD BE SENT OUTSIDE INDIA FOR TRAINING, THAT THE TRAINING FEE INCLUDED ACCOMMODATION AND CONVEYANCE, THAT BOTH THESE PAYMENTS WERE REIMB URSEMENT OF ACTUAL EXPENDITURE, THAT NO TDS IS REQUIRED TO BE DEDUCTED FOR SUCH PAYMENTS.WE FIND THAT THE FAA HAS GIVEN A CATEGORICAL FINDING OF FACT THAT NONE OF THE PAYMENTS IN QUESTI ON ARE COVERED BY THE PROVISIONS OF SECTION 9, THAT THE NON RESIDENTS HAD NO PE IN INDIA, THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FOR THESE PAYMENTS.WE ARE OF THE OPINION THAT HIS O RDER DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.HERE ,WE WOULD ALSO LIKE TO MENTION THAT THE ISSUE OF TAXABILITY OF THESE THREE PAYMENTS HAD ARISEN BECAUSE OF THE RETROSPECTIVE AMENDMENT T O SECTION.THE ASSESSEE HAD MANAGED ITS AFFAIRS AS PER THE PROVISIONS OF EXISTING LAW AND A T THE TIME OF FILING OF RETURN,IT HAD NOT TO DEDUCT THE TAX. THE SETTLED PRINCIPLE OF JURISPRUDENCE STI PULATES THAT IMPOSSIBLE ACTS CANNOT BE EXPECTED TO BE PERFORMED BY AN ASSESSEE.IN THE CASE OF IDBI CAPITAL MARKET SERVICES LTD.(ITA NO. 1404/ MUM/2013-DTD.08.05.2015)THE TRIBUNAL HAS,IN ALMOST SIMILAR CIRCUMSTANCES,HELD THAT IF AT THE ITA/1047/M/13,AY.08-09-SHM SHIPCARE 3 TIME OF FILING OF ITS RETURN THE ASSESSEE IS NOT RE QUIRED TO DEDUCTED TAX AS PER THE EXISTING PROVISIONS AND LATER ON BECAUSE OF THE RETROSPECTIV E AMENDMENT OR JUDGMENT OF A COURT LIABILITY TO DEDUCT TAX AT SOURCE ARISES,THE ASSESSEE CANNOT BE HELD RESPONSIBLE FOR NOT DEDUCTING OF TAX AT THE TIME OF FILING OF RETURN. CONSIDERING THE ABOVE DISCUSSION,WE CONFIRM THE ORD ER OF THE FAA AND DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY, 2016. 10 ,2016 SD/- SD/- ( /RAM LAL NEGI) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 10.02. 2016 . . . .. . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.