DCIT, Pondicherry V. Integra Software Services P. Ltd., Pondicherry

ITA 1099/CHNY/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7710 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 11-05-2015
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: S SRIDHAR
• Keywords: Double taxation relief; Opportunity of being heard; Additional evidence; Non-deduction of tax; Condonation of delay
• Section: 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , !'. . # $ % , ' () BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AN D SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.1099/MDS/2015 * +* /ASSESSMENT YEAR: 2010-11 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-I, D.P.THOTTAM, MUTHIALPET, PUDUCHERRY-605 003. VS. M/S.INTEGRA SOFTWARE SERVICES P. LTD., NO.51, 2 ND CROSS STREET, JAWAHAR NAGAR, PONDICHERRY. [PAN: AAACI 6193 B] ( ,- /APPELLANT) ( ./,- /RESPONDENT) ,- 0 1 / APPELLANT BY : MR.SHIVA SRINIVAS, JCIT ./,- 0 1 /RESPONDENT BY : MR.S. SRIDHAR, ADV. # 0 2' /DATE OF HEARING : 02.02.2017 34+ 0 2' /DATE OF PRONOUNCEMENT : 28.02.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 20.02.2015 OF COMMISSIONER OF INCOME TAX (APPEALS), PUDUCHERRY, IN ITA NO.702/PDY/13-14 FOR THE AY 2010-11 AND RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE CIT(A) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FAC T THAT THE ASSESSEE COMPANY ITSELF HAD ADMITTED THAT THE FOREIGN VENDORS HAVE RENDERED TRANSLATION SERVICES WHICH INVOLVE ITA NO.1099/MDS/2015 :- 2 -: COPY, EDITING, INDEXING WHICH ARE ALL ESSENTIALLY K NOWLEDGE DRIVEN SERVICES AND LISTED OUT THE SERVICES RENDERED BY THE VENDORS WHICH INCL UDE PROJECT MANAGEMENT AND OTHER ANCILLARY SERVICES LIKE ART ALTERATION, DESIGN ALT ERATION ETC WHICH WOULD FALL WITHIN THE MEANING OF TECHNICAL SERVICES AS DEFINED IN SEC 9. 3. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FAC T THAT IF THE WHOLE OF THE SERVICES DO NOT CONSTITUTE AS TECHNICAL SERVICE, THE ASSESSE E SHOULD HAVE MADE AN APPLICATION AS PER SEC 195(2) TO DETERMINE THE APPROPRIATE PORTION OF THE SUM CHARGEABLE UNDER THE ACT. 4. THE LEARNED CIT(A) OUGHT TO HAVE REMITTED THE ISSUE TO THE ASSESSING OFFICER AS PER RULE 46A, SINCE THE DETAILS SUBMITTED BEFORE THE CI T(A) FOR THE AMOUNTS PAID WITHIN THRESHOLD LIMITS LAID DOWN BY SECTION 194C WHICH WE RE NOT AVAILABLE IN THE RECORDS. 5. FOR THE ABOVE AND FOR ANY OTHER REASONS THAT MAY BE ADDUCED AT THE TIME OF HEARING THE ORDER OF THE CIT(A) MAY BE CANCELLED AND THAT O F THE AO MAY BE RESTORED. CONDONATION OF DELAY : THERE WAS DELAY OF 3 DAYS IN FILING THE APPEAL BY T HE REVENUE AND THE ASSESSING OFFICER FILED PETITION REQUESTING FOR CONDONATION OF DELAY. WE HEARD BOTH THE PARTIES AND LD.AR DID NOT OBJECT FOR CONDONATION OF DELAY. WE ARE CONVINCED WITH THE EX PLANATION OFFERED BY THE REVENUE AND CONDONE THE DELAY. 2.0 GROUND NOS.1 & 5 ARE GENERAL IN NATURE WHICH DO NOT REQUIRE SPECIFIC ADJUDICATION. 3.0 GROUND NOS.2 & 3 ARE RELATED TO THE DISALLOWAN CE U/S.40(A)(I) OF INCOME TAX ACT. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS AO) FOUND THAT THE ASSESSEE HAS MADE PAYMENTS TO NON-RESIDENT INDIVIDUALS AND F OREIGN COMPANIES FOR OUTSOURCING CHARGES WITHOUT DEDUCTION OF TAX AT SOU RCE AMOUNTING TO 5,47,68,636/- U/S.195 OF INCOME TAX ACT. THE ASSES SEE EXPLAINED BEFORE THE AO THAT THE PAYMENTS WERE MADE TO NON-RESIDENT INDIVIDUALS FALLS IN ITA NO.1099/MDS/2015 :- 3 -: TWO CATEGORIES. ONE IS FOR PAYMENT MADE TO INDIVID UALS WHO ARE CLAIMED TO BE NON-RESIDENT INDIVIDUALS AND THE OTHER ONE IS FOR FOREIGN COMPANIES. THE ASSESSEE RELIED ON THE DTAA WITH UNITED KINGDOM FOR NON-DEDUCTION OF TAX AT SOURCE IN RESPECT OF NON-RESIDENT INDIVID UALS UNDER ARTICLE-15 AND IN RESPECT OF PAYMENTS MADE TO THE ASSESSEE COMPAN IES THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD. V. CIT (2010) 327 ITR 456 (SC) WHEREIN IT WAS HELD THAT OBLIGATION REGARDING THE DEDUCTION OF TAX AT SOURCE ARISES ONLY ON SUCH REMITTANCES CHARGEABLE UNDER THE INCOM E TAX ACT. THE ASSESSEE SUBMITTED THAT THE PAYMENTS MADE TO FOREIG N COMPANIES ARE NOT CHARGEABLE TO TAX IN INDIA AND THUS TDS IS NOT DEDU CTIBLE AND ACCORDINGLY NO DEDUCTION IS REQUIRED TO BE MADE U/S.195 OF INCO ME TAX ACT. THE REMITTANCES WERE MADE BASED ON THE DECLARATIONS U/S .15CB ALONG WITH CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANT U/S. 15CB IN TERMS OF RULE 37B. FOR THE TRANSLATION SERVICES CARRIED OUT BY T HE NON-RESIDENT FREELANCERS OR BUSINESS ENTITIES PAYMENTS ARE MADE OUTSIDE INDIA, THEY WERE NOT ACTUALLY RECEIVED IN INDIA AND THERE WAS N O PE OR BUSINESS ESTABLISHMENT IN INDIA. THE KNOWLEDGE DRIVEN SERVI CES OF THE ASSESSEE WERE CARRIED OUT BY NON-RESIDENT OUTSIDE INDIA. HE NCE, THE ASSESSEE CONTENDED BEFORE THE AO THAT THE ASSESSEE WAS OUTSO URCING THE JOB OF INDEXING, TRANSLATION PROJECT MANAGEMENT WHICH INVO LVE COPY OF EDITING, PROOFING, ETC ARE NOT IN THE NATURE OF TECHNICAL S ERVICES, THUS SECTION 195 HAS NO APPLICATION IN ITS CASE AND CONSEQUENT ADDI TION U/S40(A)(I) IS NOT CALLED FOR. NOT BEING IMPRESSED WITH THE EXPLANATI ON OFFERED BY THE ITA NO.1099/MDS/2015 :- 4 -: ASSESSEE, THE AO HELD THAT THE PAYMENTS MADE TO FOR EIGN INDIVIDUALS ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES AND RE QUIRED TO BE TAXED IN INDIA U/S.9(1)(VII) OF INCOME TAX ACT. SINCE THE A SSESSEE HAS NOT DEDUCTED THE TAX AT SOURCE AS REQUIRED U/S.195, THE AO DISALLOWED THE SAME OF RS.5,47,68,636/- U/S 40(A)(I)AND BROUGHT TO TAX. 4.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) (HEREINAFTER REFERRED TO AS LD.CIT(A)) AND THE LD.CIT(A) ALLOW ED THE ASSESSEES APPEAL HOLDING THAT THE ASSESSEE HAS NOT RENDERED ANY TECHNICAL SERVICES AND THE PROVISIONS OF SEC.195 DOES NOT ATTRACT FOR THE PAYMENTS MADE TO NON-RESIDENT INDIVIDUALS AND FOREIGN BODY CORPORATE . 5.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE REVENU E IS ON APPEAL BEFORE US. APPEARING FOR THE REVENUE, LEARNED DEPAR TMENTAL REPRESENTATIVE (HEREINAFTER REFERRED TO AS LD.DR) ARGUED THAT THE ASSESSEE HAS MADE THE PAYMENTS TO FOREIGN INDIVIDUA LS AND THE FOREIGN BODY CORPORATE TOWARDS THE KNOWLEDGE DRIVEN SERVICE S SUCH AS FOREIGN INDEXING, COPY EDITING, TRANSLATION, AND PAYMENTS W HICH WERE IN THE NATURE OF FEE FOR FOREIGN TECHNICAL SERVICES AND LI ABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF INCOME TAX ACT. THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE AND THE PROVISIONS OF SEC.195 CLEARLY APPLIES AND THE AO HAS RIGHTLY MADE THE ADDITION U/S.40(A)(IA). ON THE OT HER HAND, THE LD.AR RELIED ON THE ORDERS OF THE LD.CIT(A) AND ALSO THE DECISION OF THIS TRIBUNAL ITA NO.1099/MDS/2015 :- 5 -: IN M/S.COSMIC GLOBAL LIMITED V. ACIT IN ITA NO.744 /MDS/2014 DATED 30.07.2014. 6.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. CERTIFICATES FROM THE QUALIFIED CHARTERED A CCOUNTANTS IN THE FORM OF 15CA AND15CB WERE CALLED FOR BY THE AO BUT NOT F ILED BY THE ASSESSEE AND THE VERIFICATION/REQUIREMENTS U/S 195(6) HAVE N OT BEEN CARRIED OUT. THE SAID INFORMATION OF 15CA AND THE 15CB WERE FILE D BEFORE THE LD.CIT(A), BUT THE LD.CIT(A) HAS NOT GIVEN AN OPPO RTUNITY TO THE AO. NON-SUBMISSION OF FORM-15CA/CB WAS DISCUSSED IN THE ASSESSMENT ORDER. THEREFORE, THE ISSUE REQUIRES VERIFICATION AT THE L EVEL OF THE AO REGARDING SUBMISSION OF FORM-15CA/CB AND SATISFACTORY COMPLIA NCE OF THE REQUIREMENT OF SEC.195(6) TO VERIFY THE APPLICATION OF TDS UNDER SECTION 195 OF INCOME TAX ACT. THEREFORE, WE ARE OF THE CO NSIDERED OPINION THAT THE ISSUE SHOULD BE REMITTED BACK TO THE FILE OF TH E AO TO VERIFY THE SATISFACTORY COMPLIANCE OF FORM-15CA/CB. ACCORDING LY, THE ISSUE REGARDING THE PAYMENTS MADE TO BE FOREIGN COMPANIES /INDIVIDUALS IS SET- ASIDE TO THE FILE OF THE AO TO DECIDE THE ISSUE AFR ESH ON MERITS AND GROUND NOS.2 & 3 OF THE REVENUES APPEAL ARE ALLOWE D FOR STATISTICAL PURPOSES. 7.0 GROUND NO.4 IS RELATED TO THE DISALLOWANCE OF EXPENDITURE U/S 40(A)(IA) FOR NON DEDUCTION OF TAX AT SOURCE. U/S.1 94C. THE AO DISALLOWED A SUM OF RS.1,01,85,791/- U/S.40(A)(IA) OF INCOME T AX ACT IN RESPECT OF ITA NO.1099/MDS/2015 :- 6 -: THE PAYMENTS MADE TO THE LOCAL CONTRACTORS FOR CARR YING OUT THE WORKS WITHOUT DEDUCTION OF TAX AT SOURCE. THEREFORE THE A O MADE THE ADDITION. 8.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) ALLOWED THE ASSESSEES APPEAL. BEFORE THE LD.CIT(A), THE ASSESSEE FILED EVIDENCES REGARDING NON APPLICATION OF TDS ON PAYMENTS MADE TO CERTAIN LOCA L PERSONS SINCE THE PAYMENT WAS WITHIN THE THRESHOLD LIMIT. THEREFORE, THE REVENUE HAS CHALLENGED THE ORDER UNDER RULE 46A OF INCOME TAX R ULES. THE LD.DR ARGUED THAT SINCE THE LD.CIT(A) HAS ACCEPTED THE FR ESH EVIDENCE AND NOT PLACED BEFORE THE AO, THE CASE SHOULD BE REMITTED BACK TO THE AO. ON THE OTHER HAND, THE LD.AR RELIED ON THE ORDER OF TH E LD.CIT(A). 9.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL PLACED ON RECORD. THE ASSESSEE HAS FILED FRESH EVI DENCE RELATING TO NON- DEDUCTION OF TAX AT SOURCE NOT EXCEEDING THE THRESH OLD LIMITS. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS NOT FURNIS HED THE ABOVE DETAILS TO THE A.O. THE LD.CIT(A) HAS NOT GIVEN AN OPPORTUN ITY TO THE AO TO DEFEND THE CASE. THEREFORE, IN THE INTEREST OF JUS TICE WE ARE OF THE CONSIDERED OPINION THAT THE CASE SHOULD BE REMITTED BACK TO THE FILE OF AO TO EXAMINE THE ADDITIONAL EVIDENCES SUBMITTED BEFOR E THE LD.CIT(A) AND DECIDE THE ISSUE AFRESH ON MERITS. IT IS NEEDLESS T O SAY THAT THE ASSESSEE ITA NO.1099/MDS/2015 :- 7 -: SHOULD BE GIVEN AN OPPORTUNITY OF BEING HEARD. THE REVENUES APPEAL ON THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 10.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( !' . . # $ % ) (D.S.SUNDER SINGH) ' /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 28 TH FEBRUARY, 2017. TLN 0 .2$6 76+2 /COPY TO: 1. ,- /APPELLANT 4. # 82 /CIT 2. ./,- /RESPONDENT 5. 69 .2 /DR 3. # 82 ( ) /CIT(A) 6. '* < /GF