M/s. Servall Engineering Works P.Ltd., Coimbatore V. DCIT, Coimbatore

ITA 1250/CHNY/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8623 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 05-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Double taxation relief
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1250/MDS/2012 ' (' / ASSESSMENT YEAR :2008-09 & ./ ITA NO.45/MDS/2013 ' (' / ASSESSMENT YEAR : 2009-10 M/S SERVALL ENGINEERING WORKS PVT. LTD., 31, BHARATHI PARK ROAD VIII CROSS, SAIBABA COLONY, COIMBATORE 641 011. PAN : AAECS 2949 H V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), COIMBATORE. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE ,-*+ . / / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT 0 . 1$ / DATE OF HEARING : 15.06.2016 2!( . 1$ / DATE OF PRONOUNCEMENT : 12.09.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, COIMBATORE, FOR THE ASSESSMENT YEARS 2 008-09 AND 2 I.T.A. NO.1250/MDS/12 I.T.A. NO.45/MDS/13 2009-10. SINCE COMMON ISSUE ARISES IN BOTH THESE A PPEALS, WE HEARD THESE APPEALS TOGETHER AND DISPOSING OF THE S AME BY THIS COMMON ORDER. 2. THERE WAS A DELAY OF 33 DAYS IN FILING THE APPEA L BY THE ASSESSEE IN I.T.A. NO.45/MDS/2013. THE ASSESSEE HA S FILED A PETITION FOR CONDONATION OF DELAY. WE HAVE HEARD T HE LD. REPRESENTATIVE AND THE LD. D.R. WE FIND THAT THERE WAS SUFFICIENT CAUSE FOR NOT FILING THE APPEAL BEFORE THE STIPULAT ED TIME. THEREFORE, WE CONDONE THE DELAY AND ADMIT THE APPEAL. 3. THE FIRST GROUND OF APPEAL IS WITH REGARD TO DED UCTION OF TRAVELLING EXPENDITURE TO THE EXTENT OF ` 4,14,826/-. THIS GROUND WAS RAISED ONLY FOR ASSESSMENT YEAR 2008-09. 4. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE HAS PAID A SUM OF ` 26,13,446/- TO MICHAEL MEYCKE VETRIEBSBURO, GERMANY TOWARDS COMMIS SION. OUT OF THIS, A SUM OF ` 4,14,826/- WAS TOWARDS TRAVELLING EXPENDITURE. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE A SSESSEE ON THE GROUND THAT THE AGREEMENT DOES NOT PERMIT THE PAYME NT OF TRAVELLING 3 I.T.A. NO.1250/MDS/12 I.T.A. NO.45/MDS/13 EXPENSES. THE LD.COUNSEL FURTHER SUBMITTED THAT SI NCE THE ASSESSEE INCURRED EXPENDITURE, IT HAS TO BE ALLOWED . 5. ON THE CONTRARY, SHRI A.V. SREEKANTH, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE CLAIM OF TRAVELL ING EXPENDITURE TO THE EXTENT OF ` 4,14,826/- WAS NOT SUBSTANTIATED BY PRODUCING ANY MATERIAL. THE AGREEMENT ENTERED INTO BETWEEN THE A SSESSEE AND MICHAEL MEYCKE VETRIEBSBURO OPERATING IN GERMANY DO ES NOT PROVIDE FOR PAYMENT OF TRAVELLING EXPENSES. SINCE THE LUMP SUM PAYMENT OF ` 26,13,466/- WAS PAID, THE ASSESSEE CANNOT CLAIM THE TRAVELLING EXPENDITURE IN ADDITION TO PAYMENT OF CO MMISSION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE APPEARS TO HAVE CLAIMED TRAVELLING EXPENDITURE UNDE R SECTION 37 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). THE CIT(APPEALS) FOUND THAT UNLESS AND UNTIL THE EXPENDITURE WAS INC URRED FOR THE PURPOSE OF BUSINESS, IT CANNOT BE ALLOWED WHILE COM PUTING THE TAXABLE INCOME. THE ASSESSEE CLAIMED BEFORE THE AU THORITIES BELOW THAT THE EXPENDITURE WAS INCURRED ON A FOREIGN AGEN TS TRIP TO INDIA. THE CIT(APPEALS) FOUND THAT FOREIGN AGENT IS NOT AN EMPLOYEE OF ASSESSEE-COMPANY BUT HE WORKS FOR COMMISSION. WHEN THE 4 I.T.A. NO.1250/MDS/12 I.T.A. NO.45/MDS/13 ASSESSEE PAID COMMISSION TO AN AGENT, THE TRAVELLIN G EXPENDITURE OF THAT AGENT CANNOT BE CLAIMED AS DEDUCTION. THIS TR IBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE ASSESSEE HAS MADE COMPREHENSIVE PAYMENT OF COMMISSION, WHICH INCLUDED TRAVELLING EXPENDITURE, DEDUCTION TOWARDS TRAVELLING EXPENDITU RE OF FOREIGN AGENT CANNOT BE CLAIMED. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 7. THE NEXT ISSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS IS WITH REGARD TO DISALLOWANCE OF ` 2,89,70,704/- UNDER SECTION 40(A)(IA) OF THE ACT. 8. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE ENGAGED THE SERVICES OF WALMSLEYS LTD., UK FOR ENGINEERING DRAWINGS. ACCORDING TO TH E LD. COUNSEL, THE UK COMPANY PREPARED ENGINEERING DRAWINGS IN UK AND NO PART OF SERVICE WAS RENDERED IN INDIA. THE ENGINEERING DRAWINGS WERE MADE IN RESPECT OF NEW WINDER PROJECT. THE LD.COUN SEL FURTHER SUBMITTED THAT THE FOREIGN COMPANY DESIGNS FOR NEW WINDER PROJECT. IN FACT, THE PROJECT WAS IMPLEMENTED BY THE ASSESSE E FOR BINDAL PROJECT IN INDIA. ACCORDING TO THE LD. COUNSEL, TH E DRAWINGS AND 5 I.T.A. NO.1250/MDS/12 I.T.A. NO.45/MDS/13 DESIGNS WERE MADE ONLY IN UK, THEREFORE, THE PAYMEN T MADE BY THE ASSESSEE CANNOT BE TAXED. IF THERE IS A COMPOSITE SERVICE RENDERED BOTH IN INDIA AND UK, THEN THE SERVICE RELATABLE TO INDIA ALONE IS TAXABLE IN INDIA. SINCE THE DESIGNS AND DRAWINGS W ERE MADE EXCLUSIVELY IN UK, ACCORDING TO THE LD. COUNSEL, IT IS NOT SUBJECTED TO TAXATION IN INDIA. 9. ON THE CONTRARY, SHRI A.V. SREEKANTH, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSING OFFICE R SPECIFICALLY FOUND THAT THE AGREEMENT BETWEEN THE PARTIES IS A C OMPOSITE ONE. M/S WALMSLEYS LTD., UK HAD TO IMPLEMENT BY WAY OF E RECTION IN INDIA. UNLESS AND UNTIL THE DRAWINGS AND DESIGNS W ERE PREPARED IN INDIA, ACCORDING TO THE LD. COUNSEL, THE AGREEMENT IS NOT CONCLUDED, THEREFORE, THE ASSESSEE HAS TO NECESSARILY DEDUCT T AX UNDER SECTION 195 OF THE ACT SINCE THE WALMSLEYS LTD. UK HAS REND ERED TAXABLE SERVICE IN INDIA. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE ENGAGED THE SERVICES OF M/S WALMSLEYS LTD. UK FOR D ESIGN, MANUFACTURING AND START-UP OF PAPER MACHINES. FROM THE MATERIAL AVAILABLE ON RECORD IT APPEARS EVEN FOR THE CIVIL F OUNDATION FOR THE 6 I.T.A. NO.1250/MDS/12 I.T.A. NO.45/MDS/13 MACHINERY, THE BASIC ENGINEERING OUTPUTS WERE GIVEN BY M/S WALMSLEYS LTD., UK. THE CIT(APPEALS), AFTER EXAMIN ING THE AGREEMENT BETWEEN THE PARTIES, HAS OBSERVED AS FOLL OWS:- DURING THE PERIOD OF THIS AGREEMENT, M/S WALMSELYS AGREES TO REFRAIN FROM SUPPLYING KNOW-HOW OR TECHNI CAL SERVICES TO THE COMPETITORS OF SERVALL WITHIN INDIA . THE CO- OPERATION AGREEMENT WILL BE INITIALLY VALID FOR A P ERIOD OF THREE YEARS AND AFTER THE INITIAL THREE YEARS THE V ALIDITY OF THE AGREEMENT SHALL BE AUTOMATICALLY CONTINUES UNLE SS TERMINATED IN WRITING BY EITHER PARTY. DURING THE COURSE OF APPELLATE PROCEEDINGS MR. BALAKRISHNAN, SENIOR MANAG ER (DESIGNS) APPEARED AND EXPLAINED THE DETAILS. IT W AS EXPLAINED BY MR. BALAKRISHNAN THAT THE BASIC ENGINEER ING INPUT FOR THE 800 MTS SPEED OF THE MACHINE AND THE BAS IC MACHINERY DRAWING WAS GIVEN BY WALMSLEYS AND THEN F OR SPECIFIC MACHINE PARTS, THE APPELLANT COMPANY PREPA RED THE DRAWINGS AND SEND IT TO WALMSLEYS UK FOR APPROVAL. ONCE THE APPROVAL IS GIVEN, THEN THE APPELLANT COMPANY MANUF ACTURED THE PART. AT EVERY STEP OF ENGINEERING THE APPELLA NT COMPANY REQUIRES THE HELP OF WALMSLEYS LTD. UK. IT WAS STA TED BY THE SENIOR MANAGER (DESIGNS) THAT EVEN FOR CIVIL FOUNDA TION FOR THE MACHINERY THE BASIC ENGINEERING INPUTS WILL BE GIVEN BY M/S WALMSLEYS REGARDING THE AMOUNT OF WATER REQUIRE D ETC. DURING ERECTION OF THE MACHINE THE ENGINEERS FROM WALMSLEYS WILL COME TO THE SITE AND SUPERVISE THE E RECTION. THIS CLEARLY PROVES THAT THE ENGINEERING SERVICES W ERE RENDERED IN INDIA. THE DESIGN AND DRAWINGS WERE PR EPARED BY THE UK COMPANY IN UK AND WERE SENT TO THE APPELLANT COMPANY AND THE EXECUTION AND THE DRAWINGS WERE COMPLETELY SUPERVISED BY M/S WALMSLEYS LTD. UK. THE UK COMPAN Y MADE AVAILABLE TO THE APPELLANT COMPANY THEIR TECHNICAL KNOWLEDGE AS DISCUSSED FROM THE FACTS STATED ABOVE. IT IS CL EARLY PROVED THAT THE SERVICES RENDERED AND THE AMOUNT PA ID FOR THIS SERVICES FALLS WITHIN THE DEFINITION OF FEE FO R TECHNICAL SERVICES UNDER ARTICLE 13(4) OF DTAA WITH UK. THE AP PELLANT 7 I.T.A. NO.1250/MDS/12 I.T.A. NO.45/MDS/13 COMPANY DID ACQUIRE TECHNICAL KNOWLEDGE FROM THE DR AWINGS AND DESIGNS SUPPLIED BY THE UK COMPANY. THE FEES P AID BY THE APPELLANT COMPANY CLEARLY COMES WITHIN THE DEFI NITION OF FEES FOR TECHNICAL SERVICES. THE ENGINEERS FROM UK WERE SUPERVISING THE INSTALLATION OF THE MACHINERY MADE BY THE APPELLANT COMPANY AND ALSO MAJOR SECTION ASSEMBLY C HECK- OUTS WERE MADE IN SERVALLS MANUFACTURING FACILITY WITH A WALMSELYS SPECIALIST IN ATTENDANCE. THESE ACTS CLE ARLY PROVES THAT THE FEES PAID WAS ONLY FOR TECHNICAL SE RVICES WHICH ARE LIABLE TO TAX IN INDIA IN THE HANDS OF THE UK COMPANY. 10. FROM THE ABOVE OBSERVATION OF THE CIT(APPEALS), IT IS OBVIOUS THAT ERECTION OF THE MACHINE WAS DONE BY TH E ENGINEERS OF M/S WALMSLEYS LTD. UK IN INDIA. IN FACT, THE ENGIN EERS CAME DOWN TO INDIA TO THE SITE OF THE ASSESSEE TO SUPERVISE T HE ERECTION PERSONALLY. THIS CLEARLY DEMONSTRATES THAT THE ENG INEERING SERVICE WAS RENDERED IN INDIA BY M/S WALMSLEYS LTD. UK. EV EN THOUGH THE DESIGN AND DRAWINGS WERE SAID TO BE PREPARED IN UK, MERE PREPARING DESIGN AND DRAWINGS WOULD NOT COMPLETE TH E SERVICE RENDERED BY M/S WALMSLEYS LTD. UK. THE WALMSLEYS L TD. UK HAS TO NECESSARILY EXECUTE THE PROJECT AND SUPERVISE TH E SAME IN INDIA. THEREFORE, THE UK COMPANY NOT ONLY MADE AVAILABLE O F DESIGN AND DRAWINGS TO THE ASSESSEE-COMPANY BUT ALSO ERECTED T HE ENTIRE PROJECT IN INDIA UNDER THE PERSONAL SUPERVISION. T HEREFORE, THE SERVICES RENDERED BY M/S WALMSLEYS LTD. UK IS VERY MUCH TAXABLE 8 I.T.A. NO.1250/MDS/12 I.T.A. NO.45/MDS/13 IN INDIA. IN OTHER WORDS, THE PROFIT ON THE PAYMEN T MADE BY THE ASSESSEE TO WALMSLEYS LTD. UK IS TAXABLE IN INDIA. HENCE, THE ASSESSEE HAS TO NECESSARILY DEDUCT TAX UNDER SECTIO N 195 OF THE ACT. SINCE, ADMITTEDLY, THE TAX WAS NOT DEDUCTED, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RI GHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. THEREF ORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 11. THE NEXT GROUND ARISES FOR CONSIDERATION FOR AS SESSMENT YEAR 2008-09 IS WITH REGARD TO DISALLOWANCE OF ` 28,10,527/-. 12. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE A SSESSEE, SUBMITTED THAT THESE AMOUNTS WERE RECEIVED FROM THR EE CONCERNS, NAMELY, M/S BILT INDUSTRIAL PACKAGING, M/S NEWQUEST CORPORATION AND M/S NAVA BHARAT IN THE EARLIER ASSESSMENT YEARS . SINCE THESE AMOUNTS WERE RECEIVED IN THE EARLIER ASSESSMENT YEA RS, ACCORDING TO THE LD. COUNSEL, THE SAME IS NOT TAXABLE. 13. ON THE CONTRARY, SHRI A.V. SREEKANTH, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THOUGH THE ASSESSEE CLAIMS THAT THE PAYMENT WAS RECEIVED IN THE EARLIER ASSESSMENT YEAR S, THE 9 I.T.A. NO.1250/MDS/12 I.T.A. NO.45/MDS/13 ASSESSEE COULD NOT FILE ANY DETAILS REGARDING THE S UPPLIES MADE TO THESE PARTIES. THE ASSESSEE COULD NOT FILE ANY DET AILS WITH REGARD TO THE BILLS THAT WERE RAISED. THE ASSESSEE HAS NOT S AID ANYTHING ABOUT THE ADVANCES SAID TO BE RECEIVED AND IT IS AL SO NOT DISCLOSED WHETHER IT WAS REFUNDED DURING THE YEAR UNDER CONSI DERATION. THE SO-CALLED RECONCILIATION STATEMENT FILED BY THE ASS ESSEE DOES NOT REFLECT THESE AMOUNTS. THEREFORE, THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER MADE ADDITION UNDER SECTION 28(IV) OF THE A CT. THE ASSESSEE APPEARS TO HAVE EXPLAINED BEFORE THE AUTHO RITIES BELOW THAT THESE ARE ADVANCES RECEIVED FROM VARIOUS PARTI ES AGAINST THE SUPPLIES MADE TO THEM. THE ASSESSEE COULD NOT FURN ISH ANY DETAILS WITH REGARD TO SO-CALLED ADVANCE SAID TO BE RECEIVE D AND DETAILS OF THE SUPPLIES MADE TO THE ABOVE PARTIES. EVEN THOUG H THE ASSESSEE INCURRED AN EXPENDITURE OF ` 14,92,200/- IN EXECUTING THE ORDERS, WHICH WAS SHOWN AS WORK IN PROGRESS, THE ASSESSEE C OULD NOT PRODUCE ANY MATERIAL BEFORE THE AUTHORITIES BELOW R EGARDING WORK IN PROGRESS. IN THE ABSENCE OF DETAILS, THIS TRIBUNAL IS OF THE 10 I.T.A. NO.1250/MDS/12 I.T.A. NO.45/MDS/13 CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTL Y CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 15. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE DISMISSED. ORDER PRONOUNCED ON 12 TH SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 12 TH SEPTEMBER, 2016. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-I, COIMBATORE 4. 0 81 /CIT-I, COIMBATORE 5. 69 ,1 /DR 6. :' ; /GF.