MARUBENI CORPORATION, MUMBAI V. ADDL DIT (IT) 4(1), MUMBAI

ITA 1086/MUM/2012

• Counselvise Citation: 108619914 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Assessment Year: 2008-2009
• Appeal Filed On: 15-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SAXENA
• Assessee Lawyers: V K DUGGAL
• Keywords: Business income; Depreciation; Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI , !' # $## #% , & !' ' BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 1087/ / / 2012 2007-08 . : 1086 / / 2012 2008-09 ITA NO. : 1087/MUM/2012 (ASSESSMENT YEAR: 2007-08) ITA NO. : 1086/MUM/2012 (ASSESSMENT YEAR: 2008-09) ------------------------------------------ M/S. MARUBENI CORPORATION, C/O MARUBENI INDIA PVT. LTD., 25, MITTAL CHAMBERS, 2 ND FLOOR, NARIMAN POINT, MUMBAI -400 021 PAN: AAACM 7682 D VS ADDL DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)- 4(1), ROOM NO. 133, SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI -400 038 (APPELLANT) (RESPONDENT) APPELLANT BY : MR. V.K. DUGGAL RESPONDENT BY : MR. V. SAXENA /DATE OF HEARING : 13-08-2013 / DATE OF PRONOUNCEMENT : 28-08-2013 ! + O R D E R $## #% , : PER VIVEK VARMA, JM: THE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE COMMON ORDER PASSED BY THE CIT(A) 11, MUMBAI, DATED 30.11.2011, S INCE THE GROUNDS IN ASSESSMENT YEAR 2008-09 ARE IDENTICAL TO THE GROUNDS IN ASSESSMENT YEAR 2007-08, WE, FOR THE SAKE OF CONVENIENCE PASS A CONSOLIDATED ORDER, BY TAKING ASSESSMENT YEAR 2007-08 FIR ST, ITA NO. 1087/MUM/2012. ITA NO. 1087, ASSESSMENT YEAR 2007-08 : M/S. MARUBENI CORPORATION ITAS 1087 & 1086/M/2012 2 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: THE ADDITION AMOUNTING TO RS. 170,022,100 UNDERTAK EN BY THE LEARNED ADDITIONAL DIRECTOR OF INCOME-TAX, INTERNATIONAL TA XATION, 4(1), MUMBAI (THE ID. AC) VIDE FINAL ASSESSMENT ORDER DATED JANUARY 31, 2011 (RECEIVED BY THE APPELLANT ON FEBRUARY 2, 2011) PASSED UNDER SECTION 143 (3) READ WITH SECTION 144C (3) OF THE INCOME TAX ACT, 1961 (THE ACT) IS NOT IN ACCORDANCE WITH THE LAW AND THEREFORE NOT SUSTAINABLE. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) WAS NOT JUSTIFIED ON FACTS AND CIRCUMSTANCES OF THE CASE AND ERRED IN LA W IN SUSTAINING DISALLOWANCE OF THE SET OFF OF ASSESSED BROUGHT FOR WARD LOSS AND DEPRECIATION. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) WAS NOT JUSTIFIED ON FACTS AND CIRCUMSTANCES OF THE CASE AND ERRED IN LA W IN SUSTAINING THE ADITS ORDER IN RECOMPUTING THE INCOME OF THE PRECE DING YEARS AND NOT GRANTING REFUND IN RESPECTIVE ASSESSMENT YEARS 1999 -2000 TO 2006- 2007. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) WAS NOT JUSTIFIED ON FACTS AND CIRCUMSTANCES OF THE CASE AND ERRED IN LA W SUSTAINING ADIT ORDER IN TAXING THE AMOUNTS OF RS. 907,631 AND 1,20 1,455 RECEIVED DURING ASSESSMENT YEAR 2008-09 AS INCOME OF THE ASS ESSMENT YEAR 2007-2008. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) WAS NOT JUSTIFIED ON FACTS AND CIRCUMSTANCES OF THE CASE AND ERRED IN LA W IN SUSTAINING ADIT ORDER TAXING TECHNICAL SERVICE OF RS. 2,10,89,420/- RECEIVED FROM ESSAR OIL LTD. AT 20% INSTEAD OF LO.455%, THE TAX RATES A PPLICABLE ON ALL AGREEMENT/INVOICES ENTERED IN TO/PREPARED AFTER 1ST JUNE 2005 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) WAS NOT JUSTIFIED ON FACTS AND CIRCUMSTANCES OF THE CASE AND ERRED IN LA W IN SUSTAINING ADIT ORDER FOR ASSESSING THE AMOUNT OF SERVICE TAX AS RE CEIPTS AND CONSEQUENTLY LEVYING TAX HEREON. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) WAS NOT JUSTIFIED ON FACTS AND ERRED IN LAW IN SUSTAINING ADIT ORDER FOC APPLYING TAX RATE OF 41.82% ON BANK INTEREST INSTEAD OF TAX RATE OF 20% AS PROVIDED IN THE SECTION 115(A)(II) READ WITH EXPLANATION B. 7. WITHOUT PREJUDICE THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) WAS NOT JUSTIFIED ON FACTS AND ERRED IN LAW IN RELA TING ENTIRE BANK INTEREST TO THE PERMANENT ESTABLISHMENT OF ASSESSEE IN INDIA AND IN NOT APPORTIONING IT WITH DUE CONSIDERING FOR THE EXCHAN GE CURRENCY RISK AND COST INCURRED BY HEAD OFFICE ON FUNDS DEPLOYED. 8. THE ABOVE GROUNDS OF APPEAL ARE ALL INDEPENDE NT AND WITHOUT PREJUDICE TO ONE AND ANOTHER. THE APPELLANT CRAVES LEAVE TO SUPPLEMENT, TO CANCEL, AMEND, ADD AND/OR OTHERWISE ALTER/MODIFY ANY OR ALL THE GROUNDS OF THE APPEAL STATED HEREINABOVE. 3. THE FACTS ARE THAT THE ASSESSEE IS A RESIDENT AND T AX RESIDENT IN JAPAN AND IS IN THE BUSINESS OF PROVIDING TECHNICAL SERVICES AND ERECTION OF POWER PLANTS IN INDIA. THE ASSESSEE IS REGULAR LY ASSESSED TO TAX AS IT IS HAVING A PE AND RIGHT FROM THE ASSESSMENT Y EAR 1999-2000 TO 2006-07, EXCEPT FOR ASSESSMENT YEAR 2005-06, THE AS SESSMENT HAVE BEEN FRAMED U/S 143(3). M/S. MARUBENI CORPORATION ITAS 1087 & 1086/M/2012 3 4. IN THE YEAR UNDER CONSIDERATION, THE AO REWORKED OUT THE DEPRECIATION AND UNABSORBED BUSINESS LOSSES FROM ASSESSM ENT YEAR 1999-2000 TO 2006-07 AND REDUCED THE CARRIED FORWARD BUSINESS LOSS OF RS. 17,70,10,061/- AND CARRIED FORWARD DEPRECIATION OF RS . 70,81,086/- TO ARRIVE AT A FIGURE OF RS. 8,65,07,302/-. 5. THE GRIEVANCE OF THE ASSESSEE IS THAT IF THE RECOMPU TATION IS BEING MADE IN THE PRECEDING YEARS THEN THE ENTIRE ASSES SMENT HAS TO BE DISTURBED AND CONSEQUENTIAL RELIEFS, IF ALLOWABLE, SHOULD ALSO BE GIVEN, WHICH THE REVENUE AUTHORITIES IGNORED. THE AR SUBMI TTED THAT THE APPROACH OF THE REVENUE AUTHORITIES WAS NOT IN ACCO RDANCE WITH LAW. 6. THE DR, ON THE ABOVE SUBMISSIONS MADE BY THE AR SUB MITTED THAT THE ISSUE MAY BE RESTORED TO THE FILE OF THE AO TO COME TO APPROPRIATE AND CORRECT LEGAL POSITION. 7. WE HAVE EXAMINED THE ISSUE AND WE ARE ALSO OF THE CO NSIDERED OPINION THAT THE REVENUE AUTHORITIES APPROACHED THE ISSU E ON INFIRM REASONING`, I.E. HOW THE AO COULD HAVE ALTERED THE SETTLED ISSUES WITHOUT DISTURBING THE ASSESSMENTS THAT HAD BEEN FRAMED . WE, THEREFORE ARE OF THE VIEW THAT THE ISSUE BE LOOKED AFRES H BY THE AO IN ACCORDANCE WITH LAW AND AS PER THE JUDICIAL DECISIONS RELEV ANT TO THE ISSUE IMPUGNED BEFORE US. 8. WE, THEREFORE, SET AIDE THE ORDER OF THE CIT(A) AND DIR ECT THE AO TO DECIDE THE ISSUE AFRESH, DE NOVO , NEEDLESS TO MENTION THAT THE ASSESSEE SHALL BE PROVIDED REASONABLE AND ADEQUATE OPPO RTUNITY TO PRESENT ITS CASE. 9. GROUND NO. 2 IS ALTERNATIVE GROUND TAKEN TO COVER GR OUND NO. 1. SINCE WE HAVE RESTORED THE ISSUE TO THE AO, GROUND NO. 2 BECOME REDUNDAND. M/S. MARUBENI CORPORATION ITAS 1087 & 1086/M/2012 4 10. GROUND NO. 1 IS THEREFORE, ALLOWED FOR STATISTICAL PURPOS ES, AND GROUND NO. 2 IS DISMISSED AS INFRUCTUOUS. 11. GROUND NO. 3 PERTAINS TO ADJUSTMENT OF TDS, VIZ.A.VIZ WORK DONE . 12. THE FACTS ARE THAT THE ASSESSEE PROVIDED TECHNICAL SERVICES TO ITS CLIENTS IN THE CURRENT ASSESSMENT YEAR, AGAINST WHICH THE VENDORS DEDUCTED TAX AT SOURCE AS ON 31.03.2007. HOWEVER, THE ASSESSEE RA ISED THE BILL AND RECEIVED THE PAYMENTS IN THE SUBSEQUENT FINAN CIAL YEAR AND AS A CONSEQUENCE THE ASSESSEE BOOKED THE INCOME IN ASSESSMENT YEAR 2008-09. THE AO, WHILE DEALING WITH THIS ISSUE HELD THAT THE INCOME PERTAINED TO THE CURRENT YEAR, AS THE TAX DEDUC TED AT SOURCE ON THE PROVISIONS MADE AND SERVICES RENDERED PERTAINED TO THE CURRENT YEAR. 13. THE AR SUBMITTED THAT THE ASSESSEE IS MAINTAINING CA SH SYSTEM, IN SO FAR AS RENDERING THE SERVICES AND BECAUSE OF WHICH, THE ASSESSEE RECEIVED THE PAYMENT, WHEN THE BILL WAS RAISED, WHICH WAS THE SUBSEQUENT FINANCIAL YEAR AND HAS BOOKED ITS INCOME IN THA T YEAR. THE AR, THEREFORE, SUBMITTED THAT THE AO SHOULD HAVE ACCEPTE D THE RECEIPTS OF THE ASSESSEE. 14. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 15. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E MATERIAL. THE AR ACCEPTED THAT THE SERVICES WERE RENDERED IN TH E CURRENT YEAR AND THE TDS CERTIFICATES SENT BY ITS VENDORS PERTAINED T O THE PROVISIONAL INCOME ENDING FINANCIAL YEAR 2006-07. IN OUR OPINIO N, THE AO WAS CORRECT TO BRING TO TAX THE INCOME IN THE CURRE NT YEAR, AS THE INCOME PERTAINED TO THE CURRENT YEAR. 16. THE GROUND IS, THEREFORE, REJECTED. 17. GROUND NO. 4 PERTAINS TO APPLICABILITY OF RATE OF TAX. M/S. MARUBENI CORPORATION ITAS 1087 & 1086/M/2012 5 18. THE FACTS ARE THAT THE ASSESSEE PROVIDED TECHNICAL SERVICES TO ESSAR OIL LTD. AS PER AGREEMENT DATED 15.09.2005, WHEREIN THE RATE OF TAX TO BE APPLIED IS 10.455%. THE REVENUE AUTHORITIES ADOP TED THE RATE AT 20%. THE AR SUBMITTED THAT THE DTAA PROVIDED THAT IF THE AGREEMENT IS AVAILABLE AND DATED ON OR AFTER 01.06.2005, TH E RATE SHALL BE 10.455%, WHICH THE ASSESSEE APPLIED. HENCE, THE REVENUE AUTHORITIES WERE WRONG. 19. THE DR SUBMITTED THAT THIS BEING FACTUAL MATTER, DETA ILS ALONG WITH AGREEMENTS HAVE TO BE BOOKED INTO. IN THESE CIRCUM STANCES, THE ISSUE BE RESTORED TO THE FILE OF THE AO. 20. AFTER PERUSING THE DETAILS AND THE IMPUGNED ORDERS, W E ARE OF THE CONSIDERED OPINION THAT THE ORDER OF THE CIT(A) BE SET ASIDE ON THIS ISSUE AND BE RESTORED TO THE FILE OF THE AO, WHO SHALL EXAMINE THE CLAIM OF THE ASSESSEE IN DETAIL ALONG WITH AGREEMENTS. NEEDLESS TO MENTION THAT ADEQUATE AND REASONABLE OPPORTUNITY SHALL BE PROVID ED TO THE ASSESSEE. 21. GROUND NO. 4 IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 22. GROUND NO. 5 PERTAINED TO INCLUSION OF SERVICE TAX AS PART OF THE TRADING RECEIPTS. 23. THE AR EXPLAINED THAT THE AO WHILE CONSIDERING THE RE CEIPTS OF THE ASSESSEE AS PER TDS CERTIFICATES HAS NOT ALLOWED DED UCTION FOR SERVICE TAX COLLECTED BECAUSE SERVICES TAX, AS SUCH IS NO T THE INCOME OF THE ASSESSEE, THOUGH IT IS INCLUDED IN THE INVOICE. THE FACT IS THAT THE ASSESSEE HAS TO COLLECT THE SERVICE TAX AND DEPOSIT TH E SAME ON BEHALF OF THE VENDOR, THEREFORE, SERVICE TAX RECEIPT IS NEVER TH E INCOME OF THE ASSESSEE. THE AR FURTHER SUBMITS THAT THE ISSUE IS COVE RED BY THE DECISION OF THE COORDINATE BENCH IN MUMBAI IN THE CASE OF A DIT V HALDOR TOPSOE A/C, ITA NO. 4431/MUM/2005 & 6868/MUM/2 007, WHEREIN IT WAS HELD, M/S. MARUBENI CORPORATION ITAS 1087 & 1086/M/2012 6 6. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUT HORITIES BELOW AND SUBMISSIONS OF REPRESENTATIVES OF BOTH THE PART IES. WE HAVE ALSO GONE THROUGH THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF VEOLIA EA-COMPAGNIE (SUPRA) . WE OBSERVE THAT IN THE SAID CASE, SIMILAR ISSUE AROSE I.E. AS TO WHETHER THE SERVICE TAX CHARGED AND COLLECTED BY THE ASSESSEE, WHICH IS A FRANCE BASED FOREIGN COMPANY ENGAGED IN PROVIDING CONSULTANCY SERVICE TO CHENNAI METROPOLITAN WATER S UPPLY AND SEWERAGE BOARD (CMWSSB), IS ITS BUSINESS RECEIPTS S UBJECT TO TAX ON GROSS BASIS UNDER SECTION 115A R.W. 44D OF T HE ACT. THE TRIBUNAL VIDE PARA 8 HAS HELD THAT REIMBURSEMENT OF SERVICE TAX COULD NOT FORM PART OF TAXABLE INCOME OF THE ASSESS EE. FEE FOR TECHNICAL SERVICES IS FOR THE SERVICES RENDERED BY THE ASSESSEE AND SERVICE TAX WOULD NOT FORM PART OF FEE FOR TECH NICAL SERVICES. THAT SERVICE TAX IS NOT EXPENDITURE INCURRED BY THE ASSESSEE AND IT IS A STATUTORY LEVY ON THE PERSON WHO AVAIL SERV ICES FROM THE ASSESSEE. IT WAS HELD THAT IT WOULD HAVE BEEN A DI FFERENT CASE IF THE ASSESSEE HAD COLLECTED SERVICE TAX AND NOT PAI D THE SAME TO GOVERNMENT ACCOUNT BUT THAT WAS NOT THE CASE AND IT WAS ONLY REIMBURSEMENT OF SERVICE TAX PAID BY THE ASSESSEE T O THE GOVERNMENT ACCOUNT. THUS, THE RECEIPT CANNOT BE TRE ATED AS A TRADING RECEIPT. HENCE, REIMBURSEMENT OF SERVICE TA X CANNOT FORM PART OF TOTAL INCOME OF THE ASSESSEE. IT WAS HELD T HAT SECTION 44D PROVIDES FOR DEDUCTION FROM RECEIPTS IN THE NAT URE OF ROYALTY AND FEE FOR TECHNICAL SERVICES ETC., WHICH IS CHARG EABLE @ 20% AS PER PROVISIONS OF SECTION 115A(1)(B)(B) OF THE INCO ME TAX ACT, IF FEE IS CHARGED PURSUANT TO AN AGREEMENT MADE AFTER 31.5.1997 BUT BEFORE 1.6.2005. THE AMOUNT IN QUESTION IS THE AMOUNT OF SERVICE TAX COLLECTED BY THE ASSESSEE ON WHICH THE GOVERNMENT HAS OVERRIDING RIGHT ON THE SAME, CANNOT BE CONSIDE RED FOR LEVY OF TAX IN THE HANDS OF THE ASSESSEE. IT IS RELEVANT TO STATE THAT IN THE SAID CASE, ITAT ALSO PLACED RELIANCE ON THE DEC ISION OF ITAT HYDERABAD BENCH IN THE CASE OF ACIT VS. LOUIS BERGE R INTERNATIONAL INC,(2010) 40 SOT 370(HYD) AND IN THE SAID CASE THE DECISION OF HONBLE APEX COURT IN THE CASE OF C HOWRINGHEE SALES BUREAU (P) LTD (SUPRA) WAS ALSO CONSIDERED AN D DISTINGUISHED. ON BEHALF OF THE DEPARTMENT, NO CONT RARY DECISION WAS BROUGHT TO OUR NOTICE. 24. THE CIT(A), IN HIS ORDER MENTIONS THAT NO DETAILS HAD B EEN PROVIDED AND THEREFORE, THE AO WAS CORRECT TO NOT GIVE ANY CREDIT. 25. THE DR ALSO PLACED RELIANCE ON THE ORDERS OF THE RE VENUE AUTHORITIES. 26. AFTER HEARING THE ARGUMENTS, WE ARE OF THE CONCERNE D VIEW THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION IN THE CAS E OF HALDOR TOPSOE. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE OR DER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION MADE. M/S. MARUBENI CORPORATION ITAS 1087 & 1086/M/2012 7 27. GROUND NO. 5 IS, THEREFORE ALLOWED. 28. GROUND NO. 6 & 7 PERTAINS TO ATTRIBUTION OF AND TAXA BILITY OF INTEREST ON FDRS. THE CIT(A) HELD THAT INTEREST IS DIRECTLY CONNECTED WITH THE INCOME OF THE PE. THOUGH THE AR ARGUED THAT TH E HO TAKES CARE OF ALL TYPES OF EXPENSES AND RISKS, THEREFORE, THE RAT E APPLICABLE SHOULD BE 20% & NOT 41.82% AS APPLIED BY THE AO. IT IS A FACT THAT THE INTEREST INCOME PERTAINS TO DEPOSITS MADE BY THE PE ON BEHALF OF ITS PARENT, I.E. THE ASSESSEE. SINCE THE COST IS ATTRIBUTABLE TO THE ASSESSEE, THE ASSESSEE SHALL NOT BE ENTITLED TO THE PREFERENTIAL RAT E AS CLAIMED BY THE ASSESSEE, AS PER INDIA JAPAN DTAA. 29. WE HAVE HEARD THE ARGUMENTS AND WE ARE OF THE CO NSIDERED VIEW THAT THERE IS NO INFIRMITY IN THE ORDERS OF THE REVENUE AUTHORITIES, WHICH WE SUSTAIN. GROUND NO. 6 & 7 ARE THEREFORE REJECTED. 30. GROUND NO. 8 IS GENERAL AND DO NOT NEED ANY ADJUDICATION. ITA NO. 1086, ASSESSMENT YEAR 2008-09 : 31. GROUND NO. 1 IS THE SAME AS GROUND NO. 1 IN ITA NO. 1087/MUM/2012, SAME ORDER IS TO BE MADE APPLICABLE. 32. GROUND NO. 2 IS SAME AS GROUND NO. 5, WHEREIN WE HAV E DELETED THE ADDITION, WE THEREFORE, FOLLOW THE SAME ORDER. 33. GROUND NO. 3 IS THE SAME AS GROUNDS NO. 6 & 7, WE FO LLOW THE SAME ORDER. 34. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2013. SD/- SD/- ( ) ( $## #% ) !' !' (RAJENDRA SINGH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 28 TH AUGUST, 2013 M/S. MARUBENI CORPORATION ITAS 1087 & 1086/M/2012 8 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT(A) -11, MUMBAI. 4) ! !' /DIT (IT)-II, , MUMBAI / THE DIT/DIT(IT)-II, MUMBAI 5) #$% & ' , ! & , ()* / THE D.R. L BENCH, MUMBAI. 6) %+ , COPY TO GUARD FILE. !-./ / BY ORDER / / TRUE COPY / / [ 0 / 1 )2 ! & , ()* DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *451 . . * CHAVAN, SR. PS