ADIT( Intl. Taxnb)-I, Hyderabad V. M/s. Louis Berger International Inc., Hyderabad

ITA 1250/HYD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53716 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 30-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Assessee Lawyers: S RAMA RAO
• Keywords: Double taxation relief
• Section: 44AD; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & ASHA VIJAYARAGHAVAN, JM ITA NO.1250/HYD/2011 ASSESSMENT YEAR 2006- 07 THE ASST. DCIT (INTL. TAXN.)-I, HYDERABAD VS. M/S LOUIS BERGER INTERNATIONAL INC., HYDERABAD. (PAN AAACL4067F) APPELLANT RESPONDENT APPELLANT BY : SMT. K. MYTHILI RANI RESPONDENT BY : SHRI S. RAMA RAO DATE OF HEARING : 25.10.2011 DATE OF PRONOUNCEMENT : 25.10.2011 ORDER PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER PASSED BY THE CIT(A)-V, DATED 15.4.2011 A ND PERTAINS TO THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 1.12.2006 ADMITTING TOTAL INCOME AT RS.14,78,07,194/- (RS.13,61,50,010 + RS.1,16,57,184 ). ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED DETE RMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.18,86,95,273/-. A. AGGRIEVED BY THE ASSESSMENT, THE ASSESSEE PREFE RRED APPEAL BEFORE THE CIT(A) WITH THE FOLLOWING GROUNDS : 1. THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS BO TH ON FACTS AND IN LAW. ITA NO.1250/H/2011 M/S LOUIS BERGER INTERNATIONAL INC. HYDERABAD 2 2. THE ASSESSING OFFICER ERRED IN ADDING RS.5,25,45,26 4/- BEING THE REIMBURSABLE EXPENDITURE IN RESPECT OF TH E PROJECTS COMMENCED PRIOR TO 1.4.2003 AS INCOME OF T HE ASSESSEE. THE ASSESSING OFFICER ERRED IN DETERMINI NG THE INCOME FROM SUCH PROFITS AT RS.18,86,95,273/-. 3. THE ASSESSING OFFICER ERRED IN HOLDING THAT THE REIMBURSABLE EXPENDITURE OF RS.5,25,45,264/- IS ALS O TAXABLE. HE OUGHT TO HAVE CONSIDERED THE FACT THAT THE SAID AMOUNT WAS TREATED AS EXEMPT BY THE CIT(A) FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. 4. THE ASSESSING OFFICER ERRED IN CHARGING INCOME FROM PROJECTS COMMENCED PRIOR TO 1.4.2003 AT 20% AS AGAI NST 15% IN ACCORDANCE WITH THE PROVISIONS OF THE LAW. 3. BRIEF FACTS ARE THAT THE ASSESSEE IS A NON RESI DENT FOREIGN COMPANY INCORPORATED UNDER THE LAWS OF USA. IT IS IN THE BUSINESS OF RENDERING CONSULTING SERVICES IN INDIA IN RESPECT OF VARIOUS ROAD PROJECTS ETC., AND ENTERS INTO AGREEME NTS WITH THE NATIONAL HIGHWAY AUTHORITY OF INDIA AND DIFFERENT S TATE GOVERNMENTS. THE ASSESSEE ALSO MAINTAINS A PERMANE NT ESTABLISHMENT IN INDIA IN THE FORM OF PROJECT AND S ITE OFFICES. THE ASSESSEE PRESENTED ITS FINANCIAL STATEMENTS IN TWO PARTS I.E. PROJECTS STARTED BEFORE 1.4.2003 AND PROJECTS START ED AFTER 1.4.2003. THE ASSESSEE COMPUTED ITS PROFITS AND GA INS OF BUSINESS AS PER SECTION 44D OF THE ACT IN RESPECT O F PROJECTS STARTED BEFORE 1.4.2003 AND SECTION 44AD OF THE ACT IN RESPECT OF PROJECTS STARTED AFTER 1.4.2003, AS THE ASSESSEE IS RENDERING CONSULTANCY SERVICES AND RECEIVES FEES FOR TECHNICA L SERVICES IN INDIA. HOWEVER, WHILE COMPUTING THE TOTAL INCOME F ROM PROJECTS STARTED BEFORE 1.4.2003, THE ASSESSEE OFFERED TO TA X THE REMUNERATION INCOME RECEIVED IN FOREIGN CURRENCY, L OCAL CURRENCY AND OTHERS AMOUNTING TO RS.13,61,50,009/- (FOREIGN CURRENCY RS.7,98,89,239/- + LOCAL CURRENCY RS.3,78,24,605/- + TDS RECEIPTS RS.1,84,36,165/- AND CHOSE TO PAY TAX ON T HESE PROJECTS ITA NO.1250/H/2011 M/S LOUIS BERGER INTERNATIONAL INC. HYDERABAD 3 AS PER SECTION 115A(1)(B) OF THE ACT READ WITH ARTI CLE 12 OF DTAA WITH USA AND COMPUTED TAX @ 15% PLUS APPLICABLE SUR CHARGE AND EDUCATION CESS. FOR THE PROJECTS STARTED AFTER 1,4,2003, THE ASSESSEE COMPUTED THE PROFITS AND GAINS OF BUSINESS AS PER SECTION 44AD OF THE ACT AFTER CLAIMING THE DEDUCTIO NS/EXPENSES ALLOWABLE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND RETURNED RS.1,24,55,776/- AS TAXABLE BUSINESS PROFI TS. THE ASSESSING OFFICER FURTHER NOTICED THAT WITH RESPECT TO THE PROJECTS STARTED BEFORE 1.4.2003, THE ASSESSEE HAD NOT INCLU DED REIMBURSABLE EXPENSES IN ARRIVING AT GROSS AMOUNT O F FEE FOR TECHNICAL SERVICES. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ENQUIRED AS TO WHY THE REIMBURSAB LE EXPENSES SHOULD NOT BE TREATED AS A PART OF FEE FOR TECHNICA L SERVICES. THE ASSESSING OFFICER HELD THAT FEE FOR TECHNICAL SERVI CES INCLUDED THE REIMBURSABLE EXPENSES AND SUCH EXPENSES SHOULD FORM PART OF THE GROSS AMOUNT FOR TECHNICAL SERVICES FOR THE PUR POSE OF SECTION 44D OF THE ACT. 4. ON FURTHER APPEAL, THE CIT(A) HELD AS FOLLOWS W ITH RESPECT TO GROUND RAISED BY ASSESSEE THAT ASSESSING OFFICE R ERRED IN HOLDING THAT THE REIMBURSABLE EXPENDITURE OF RS.5,2 5,45,264 IS ALSO TAXABLE: IT IS CLEAR THAT REIMBURSABLE EXPENDITURE CANNOT F ORM A PART OF FEE FOR TECHNICAL SERVICES IN THE CASE OF T HE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HONBLE TRIBUNAL AND IN VIEW OF THE PRINCIPLE OF ST ATE DECISIONS, WE HOLD THAT THE ADDITIONS MADE BY THE ASSESSING OFFICER BY INCLUDING REIMBURSABLE EXPENSE S IN THE GROSS AMOUNT OF FEES FOR TECHNICAL SERVICES AND MAK ING THE SAME TAXABLE RECEIPT IS NOT IN ORDER. THEREFORE, T HE ADDITION IS DELETED. 5. THE NEXT GROUND OF APPEAL RELATES TO THE RATE O F TAX. THE ASSESSING OFFICER STATED THAT THE GROSS RECEIPTS AR E TO BE TAXED AT 20% UNDER ARTICLE 7 OF DTAA R.W.S 44D AND SECTION 1 15A OF THE ACT. THE ASSESSEE, HOWEVER RELIED ON THE JUDGEMENT OF THE ITA NO.1250/H/2011 M/S LOUIS BERGER INTERNATIONAL INC. HYDERABAD 4 HONBLE TRIBUNAL IN ITS OWN CASE CITED (SUPRA) I.E. BEFORE THE CIT(A) ON FURTHER APPEAL. AFTER CAREFULLY GOING TH ROUGH THE ABOVE MENTIONED JUDGEMENT THE CIT(A) HELD AS FOLLOWS: THE NEXT GROUND OF APPEAL IS THE RATE OF TAX. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO CAREFULLY GON E THROUGH THE PROVISIONS OF DTAA AND THE PROVISIONS OF SECTIO N 115A OF THE ACT. THE CONTENTION OF THE DR IS THAT TAX HAS TO BE LEVIED AT 20% U/S 115A R/W ARTICLE 7 OF DTAA. AS OBSERVED BY THE CIT(A), FEE RECEIVED BY THE ASSESSEE TOWARDS TECHNI CAL SERVICES/CONSULTANCY WOULD FALL UNDER ARTICLE 12 AN D NOT UNDER ARTICLE 7. THEREFORE, IN OUR OPINION, TAX HA S TO BE LEVIED ONLY AT 15% AND NOT AT 20%. THEREFORE, WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHOR ITY. ACCORDINGLY, THE SAME IS UPHELD. 6. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US, WE HEARD BOTH PARTIES. 7. WE FIND THAT IN ASSESSEES OWN CASE THE HONBLE ITAT VIDE ITS ORDER DATED 30.6.2010 IN ITA NOS.1073 & 1074/HY D/2004 FOR THE ASSESSMENT YEARS 2000-01, 2001-02 AND IN ITA NO S.720 & 721/HYD/2005 DATED 30.6.2010 FOR THE ASSESSMENT YEA RS 2002- 03 AND 2003-04 HAS HELD AS FOLLOWS: WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGEMENT OF THE BOMBAY HIGH COURT IN CIT VS. TANUBAI D. DESAI (1972 ) 84 ITR 713. IN THE CASE BEFORE THE BOMBAY HIGH COURT, THE ASSESSEE WAS A PRACTISING SOLICITOR. IN THE COURSE OF CARRYING ON HIS PROFESSION THE ASSESSEE USED TO REC EIVE MONEY FROM OR ON BEHALF OF HIS CLIENTS. THE MONEY RECEIVED WAS DEPOSITED BY HIM IN SEPARATE CURRENT ACCOUNT WI TH IMPERIAL BANK OF INDIA. SUBSEQUENTLY THE ASSESSEE ITA NO.1250/H/2011 M/S LOUIS BERGER INTERNATIONAL INC. HYDERABAD 5 WITHDREW A SUM OF RS.3.25 LAKHS AND PLACED THE SAME IN FIXED DEPOSIT WITH CHARTERED BANK. THE ASSESSEE REN EWED THE ACCOUNT FROM TIME TO TIME TOGETHER WITH INTERES T EARNED THEREON. THE ASSESSEE EARNED INTEREST ON THE FIXED DEPOSIT. THE INTEREST EARNED ON THE FIXED DEPOSIT WAS NOT AD JUSTED BY APPORTIONING IT TO DIFFERENT CLIENTS WHOSE MONEY S WERE DEPOSITED IN THE BANK ACCOUNT. THE ASSESSEE DID NO T SHOW THE INTEREST IN THE RETURN OF INCOME. THE QUESTION AROSE BEFORE THE BOMBAY HIGH COURT WAS WHETHER THE INTERE ST ACCRUED IN THE FIXED DEPOSIT WITH CHARTERED BANK WA S THE INCOME OF THE ASSESSEE OR NOT. THE BOMBAY HIGH COU RT AFTER ELABORATELY EXAMINING THE ISSUE FOUND THAT TH E MONEYS RECEIVED BY THE SOLICITOR FROM HIS CLIENTS ARE HELD BY HIM IN FIDUCIARY CAPACITY. EVEN THE INCOME RECEIVED FROM SUCH MONEY MUST EQUALLY BE HELD BY THE SOLICITOR IN THE FIDUCIARY CAPACITY. WHAT THE SOLICITOR ACTUALLY DOES WITH TH E INCOME, I.E., WHETHER HE APPROPRIATES IT TO HIMSELF OR NOT IS A MATTER OF NO CONSEQUENCE. IF THE SOLICITOR APPROPRIATES T HE INTEREST ACCRUED ON SUCH DEPOSIT TO HIMSELF THAT WOULD AMOUN T TO A BREACH OF HIS FIDUCIARY RELATIONSHIP AND WHATEVER M AY BE THE CONSEQUENCES IN LAW WOULD FOLLOW. BUT HIS UNAUTHORISED ACT OF CONVERTING ANY PART OF THE CORP US OR EVEN THE INCOME DERIVED THERE FROM WOULD NOT CONVER T THOSE MONEYS HELD BY HIM FOR HIS BENEFIT. ACCORDINGLY, I T WAS HELD THAT THE INTEREST INCOME WHICH WAS NEITHER DIS CLOSED IN THE RETURN OF INCOME NOR ADJUSTED TO THE CLIENTS WA S HELD TO BE NOT TAXABLE. IN THE CASE BEFORE US THE FACTS AR E ALMOST SIMILAR. THE ASSESSEE RECEIVED THE MONEY AS A REIMBURSEMENT AFTER INCURRING THE EXPENDITURE. IN THE CASE BEFORE THE BOMBAY HIGH COURT, THE MONEY WAS RECEIVE D BY THE SOLICITOR IN ADVANCE. IN THE CASE BEFORE US TH E MONEY WAS RECEIVED AFTER INCURRING THE EXPENDITURE BY WAY OF REIMBURSEMENT. THEREFORE, THE REIMBURSABLE EXPENDI TURE RECEIVED BY THE ASSESSEE CANNOT FORM PART OF THE TO TAL ITA NO.1250/H/2011 M/S LOUIS BERGER INTERNATIONAL INC. HYDERABAD 6 INCOME. IN VIEW OF THE ABOVE DISCUSSION, IN OUR OP INION, THE REIMBURSABLE EXPENDITURE RECEIVED BY THE ASSESSEE C ANNOT FORM PART OF THE TOTAL INCOME. THEREFORE, WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACC ORDINGLY THE SAME IS CONFIRMED. 8. WITH RESPECT TO THE SECOND ISSUE, SINCE THE IS SUE INVOLVED IS IDENTICAL, KEEPING IN VIEW THE AFOREMENTIONED RA TIO AND IN VIEW OF THE PRINCIPLE OF STARE DECISIS, WE HOLD THAT THE FEE FOR TECHNICAL SERVICES FALL UNDER ARTICLE 12 OF DTAA AND NOT UNDE R ARTICLE 7 OF DTAA. TAX HAS TO BE LEVIED AT 15%. ACCORDINGLY, T HIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 25.10.2011 SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 25 TH OCT., 2011 COPY FORWARDED TO: 1. THE ACIT(INTL.TAXN.)-I, HYDERABAD 2. M/S LOUIS BERGER INTERNATIONAL INC. 8-2-684/3/30, 2 ND FLOOR, BANJARA GREEN, ROAD NO.12, BANJARA HILLS, HYDERABAD 3. THE CIT(A) V, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/