ACIT, CHENNAI V. M/s. Poompuhar Shipping Corpn. Ltd., CHENNAI

ITA 1254/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61236 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-05-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 06-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: R VIJAYARAGHAVAN; ARVIND P DATAR
• Keywords: Reopening of assessment; Double taxation relief; Retrospective amendment; Permanent establishment; Non-deduction of tax; Difference of opinion; Change of opinion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NOS.1252 TO 1254/MDS/2011 (ASSESSMENT YEARS: 2003-04, 2005-06 & 2008-09) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(2), CHENNAI-600 034. VS. M/S. POOMPUHAR SHIPPING CORPORATION LTD., M/S.SUBBARAYA AIYAR PADMANABHAN & RAMAMANI, ADVOCATES NEW NO.75A OLD NO.105A, DR.RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI-4. PAN:AAACP4383J . (APPELLANT) (RESPONDENT) & ITA NOS.2063 & 2064/MDS/2011 (ASSESSMENT YEARS: 2003-04 & 2005-06) M/S. POOMPUHAR SHIPPING CORPORATION LTD., M/S.SUBBARAYA AIYAR PADMANABHAN & RAMAMANI, ADVOCATES NEW NO.75A OLD NO.105A, DR.RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI-4. PAN:AAACP4383J VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(2), CHENNAI-600 034. (APPELLANT) (RESPONDENT) ASSESSEE BY : MR. ARVIND P.DATAR, SR. ADVOC ATE & MR. R.VIJAYARAGHAVAN, ADVOCATE REVENUE BY : DR. S.MOHARANA, CIT DR DATE OF HEARING : 8 TH MAY, 2012 DATE OF PRONOUNCEMENT : 5 TH JULY, 2012 O R D E R PER BENCH: THE PRESENT SET OF APPEALS I.E. ITA NOS.1252 TO 1254/MDS/2011 RELEVANT TO THE ASSESSMENT YEARS 2003 -04, ITA NOS.1252 TO 1254, 2063 & 2064/MDS/2011 2 2005-06 AND 2008-09 RESPECTIVELY HAVE BEEN FILED BY THE REVENUE AND ITA NOS. 2063 & 2064/MDS/2011 RELEVAN T TO THE ASSESSMENT YEARS 2003-04 AND 2005-06 RESPECTIVE LY HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER O F THE CIT(A)-V , CHENNAI DATED 21.04.2011. SINCE ALL THE APPEALS HAVE COMMON ISSUES, THE SAME ARE BEING TAKEN UP TOG ETHER AND DECIDED BY THIS COMMON ORDER. 2. THE ASSESSEE IS A STATE GOVERNMENT UNDERTAKING ESTABLISHED EXCLUSIVELY TO TRANSPORT COAL FROM VARI OUS PORTS IN INDIA REQUIRED FOR VARIOUS THERMAL STATIONS OF TNE B (NOW KNOWN AS TAMIL NADU GENERATION & DISTRIBUTION COMPA NY LTD.) . THE ASSESSEE IS HAVING ITS OWN VESSELS FOR TRANSPORTATION OF COAL. APART FROM ITS OWN VES SELS, THE ASSESSEE IS ALSO HIRING VESSELS FROM INDIAN AND FOR EIGN SHIPPING COMPANIES. 3. THE ASSESSING OFFICER HAD MADE DISALLOWANCES ON ACCOUNT OF DRY DOCK EXPENSES PAID BY THE ASSESSEE. THE ASSESSING OFFICER FURTHER MADE DISALLOWANCE UNDER S ECTION 40(A)(IA) ON ACCOUNT OF CHARTER HIRE PAYMENT MADE BY THE ASSESSEE TO THE FOREIGN SHIPPING COMPANIES. AGGRIEV ED ITA NOS.1252 TO 1254, 2063 & 2064/MDS/2011 3 AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASS ESSEE PREFERRED APPEALS BEFORE THE CIT(A). THE CIT(A) VID E IMPUGNED ORDER HELD THAT THE ASSESSEE IS ENTITLED F OR THE DRY DOCK EXPENSES ON ACCOUNT OF THE MAINTENANCE OF THE SHIPS WHICH IS MANDATORY IN NATURE. SINCE DRY DOCKING OF THE SHIPS WAS DONE IN CHINA, UNDER ARTICLE 7 OF THE DOUBLE TA XATION AVOIDANCE AGREEMENT BETWEEN INDIA AND CHINA, THE BU SINESS PROFITS OF A CHINESE RESIDENT IS TAXABLE ONLY IN CH INA, UNLESS IT CARRIES ON BUSINESS THROUGH A PERMANENT ESTABLISHME NT IN INDIA. WITH REGARD TO CHARTER HIRE CHARGES, THE CI T(A) HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER. AGGR IEVED AGAINST THE ORDER OF THE CIT(A) BOTH THE ASSESSEE A S WELL AS THE REVENUE HAS COME IN SECOND APPEAL BEFORE THE TR IBUNAL. 4. THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT (A) ON THE FOLLOWING GROUNDS:- 1. THE CIT(A) ERRED IN UPHOLDING THE REOPENING OF ASSESSMENT U/S.147 OF THE ACT. 2. THE CIT(A) FAILED TO APPRECIATE THAT ORIGINAL ASSESSMENT WAS MADE U/S.143(3) ON 28.02.2006 AND HENCE REOPENING OF ASSESSMENT BEYOND 4 YEARS FROM THE END OF THE ASSESSMENT YEAR IS ITA NOS.1252 TO 1254, 2063 & 2064/MDS/2011 4 BARRED BY LIMITATION AS PER PROVISO TO SEC.147 OF T HE ACT. 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT DURING THE COURSE OF ASSESSMENT U/S.143(3), ASSESSING OFFICER CALLED FOR THE DETAILS OF DRY DOC K EXPENSES WHICH WERE FURNISHED AND HENCE REOPENING OF ASSESSMENT WOULD AMOUNT TO CHANGE OF OPINION. 4. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF CHARTER HIRE CHARGE PAID TO FOREIGN SHIPPING COMPANIES U/S.40(A)(I) FOR NON-DEDUCTION OF TAX AT SOURCE. 5. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE CHARTER HIRE CHARGES PAID TO NON-RESIDENTS ARE NOT LIABLE TO TAX IN INDIA AND HENCE NOT LIABLE TO TAX IN INDIA AND HENCE NOT LIABLE TO TAX DEDUCTION AT SOURCE. 5. ON THE OTHER HAND, THE REVENUE HAS ASSAILED THE ORDER OF THE CIT(A) ON THE FOLLOWING GROUNDS:- 1. THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS NOT OBLIGED TO DEDUCT AT SOURCE ON DRY DOCK EXPENSES AS THE CHINESE CONCERN DID NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA. 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE PRIMARY OBLIGATION OF THE ASSESSEE AS PER THE PROVISIONS OF SECTIONS 195(1) AND 195(2) IS TO ITA NOS.1252 TO 1254, 2063 & 2064/MDS/2011 5 DEDUCT TAX AND THE PROVISIONS OF DTAA SHALL COME INTO PLAY ONLY SUBSEQUENTLY. 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE DID NOT COMPLY WITH THE PROVISIONS OF SECTION 195(2) AND THUS THE CLAIM OF EXPENDITURE ON WHICH TAX WAS NOT DEDUCTED IS NOT ALLOWABLE. 4. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT EXPLANATION TO SECTION 9(1) INTRODUCED BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1.4.1976 HAS WIDENED THE SCOPE OF SECTIONS 9(1)(V)(VI) AND (VII) TO INCLUDE THE INCOME OF PERSONS WHO HAVE RENDERED SERVICE IN INDIA WHETHER OR NOT THEY HAVE A PERMANENT ESTABLISHMENT. IT IS SUBMITTED THAT CIRCULAR NO.1/2011 IS ALSO APPLICABLE IN THIS REGARD. 6. SHRI R.VIJAYARAGHAVAN, COUNSEL APPEARING ON BEHA LF OF THE ASSESSEE SUBMITTED THAT IN THE PRESENT SET OF A PPEALS, HE IS PRESSING THE APPEALS ON THE FOLLOWING TWO GROUN DS:- (I) FOR DISALLOWANCE OF THE CHARTER HIRE CHARGES P AID TO FOREIGN COMPANIES UNDER SECTION 40(A)(I); AND (II) REOPENING OF THE ASSESSMENT BEYOND FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR BEING BARRED BY LIMITATI ON. ITA NOS.1252 TO 1254, 2063 & 2064/MDS/2011 6 THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT WITH RE GARD TO DISALLOWANCE OF THE CHARTER HIRE CHARGES, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. A CIT., REPORTED AS 2012-TIOL-184-ITAT-VIZAG(SB). ON THE SE COND ISSUE OF REOPENING, THE LEARNED COUNSEL SUBMITTED T HAT THE REASONS FOR REOPENING RELEVANT TO THE ASSESSMENT YE AR 2003- 04 AND ASSESSMENT YEAR 2005-06 ARE AT PAGE 1 AND 14 RESPECTIVELY OF THE PAPER BOOK. A PERUSAL OF THE SAME WOULD SHOW THAT THE REASONS FURNISHED BY THE ASSESSING OF FICER FOR REOPENING ARE NOT VALID . MERELY ON CHANGE OF OPINI ON THE ASSESSMENT CANNOT BE REOPENED AND THAT TOO AFTER FO UR YEARS. IN SUPPORT OF HIS CONTENTIONS, REOPENING OF ASSESSM ENT BEYOND 4 YEARS, HE RELIED ON THE JUDGEMENT OF THE H ONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. KELVI NATOR OF INDIA LTD., REPORTED AS 320 ITR 561(SC). THE LEARNE D COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT SHIPS WERE SENT OUTSIDE INDIA FOR MANDATORY MAINTENANCE ON WORK CON TRACT BASIS. NEITHER ROYALTY NOR ANY FEES FOR SERVICE WAS PAID BY THE ASSESSEE. THE FOREIGN COMPANIES HAD NO PERMANENT ITA NOS.1252 TO 1254, 2063 & 2064/MDS/2011 7 ESTABLISHMENT IN INDIA, THEREFORE, NO TAX WAS DEDUC TED ON THE PAYMENTS MADE TO THE COMPANIES. IN SUPPORT OF HIS SUBMISSIONS, THE LEARNED COUNSEL RELIED ON THE ORDE R OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF LUFTHANSA CARG O INDIA (P) LTD. VS. DCIT., REPORTED AS 91 ITD 133(DEL). 7. ON THE OTHER HAND, DR. S.MOHARANA, CIT DR APPEAR ING ON BEHALF OF THE DEPARTMENT SUBMITTED THAT THE DEPA RTMENT IS ASSAILING THE ORDER OF THE CIT(A) ON THE GROUND THA T THE CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE IS NOT LIABL E TO DEDUCT TAX AT SOURCE ON DRY DOCK EXPENSES AS THE CHINESE C ONCERN DID NOT HAVE PERMANENT ESTABLISHMENT IN INDIA. HE S UBMITTED THAT SITUS OF SERVICE IS NOT RELEVANT BUT IT IS THE SITUS OF SERVICE RECEIVER WHICH IS RELEVANT FOR DETERMINING THE TAXABILITY OF THE PAYMENT . HE SUBMITTED THAT THE DRY DOCK EXP ENSES PAID BY THE ASSESSEE FALL WITHIN THE AMBIT OF SECT ION 9(1)(V), (VI) , & (VII). HE FURTHER RELIED ON CIRCULAR NO.1/ 2011 TO SUPPORT HIS CONTENTIONS. THE D.R. FURTHER SUBMITTED THAT TH E FACT THAT DRY DOCK CHARGES WERE INCURRED IN CHINA, THIS INFOR MATION WAS NOT AVAILABLE WITH THE ASSESSING OFFICER, THEREFORE , THE CASES WERE REOPENED FOR ASSESSMENT. ITA NOS.1252 TO 1254, 2063 & 2064/MDS/2011 8 8. WE HAVE HEARD RIVAL SUBMISSIONS MADE BY THE PART IES AND HAVE GONE THROUGH THE ORDER OF THE CIT(A) AS WE LL AS JUDGEMENTS RELIED ON BY THE COUNSEL FOR THE ASSESSE E. WE ARE OF THE CONSIDERED OPINION THAT DRY DOCK EXPENS ES WERE PAID BY THE ASSESSEE TO THE CHINESE SHIP YARD FOR C ARRYING OUT MAINTENANCE AND REPAIRS TO THE SHIP TO MAKE IT SEA WORTHY. THE CHINESE SHIP YARD DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA, THEREFORE THE ENTIRE AMOUNT OF DRY DOCK EXPENSES PAID TO CHINESE SHIP YARD COMPANIES IS NOT TAXABLE IN INDIA. SINCE NO PART OF THE PAYMENT IS TAXABLE I N INDIA, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS. OUR VIEW IS FURTHER FORTIFIED BY THE DEC ISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF LUFTHANS A CARGO INDIA (P) LTD. VS. DCIT REPORTED AS 91 ITD 133, WHE REIN, IT HAS BEEN HELD THAT PAYMENT FOR REPAIRS MADE OUTSID E INDIA, THEREFORE SUCH ITEMS WOULD FALL WITHIN THE PURVIEW OF EXCLUSIONARY CLAUSE OF SECTION 9(1)(VII)(B). THUS, EVEN ASSUMING THAT PAYMENT FOR SUCH MAINTENANCE REPAIRS WERE IN THE NATURE OF FEES FOR TECHNICAL SERVICES, IT WOULD NOT BE CHARGEABLE TO TAX. THE TRIBUNAL FURTHER HELD THAT THE ITA NOS.1252 TO 1254, 2063 & 2064/MDS/2011 9 PAYMENTS FOR REPAIRS OF AIRCRAFTS WERE MADE FOR EAR NING INCOME FROM SOURCES OUTSIDE INDIA AND WERE THEREFOR E, TO BE EXCLUDED FROM FEES FOR TECHNICAL SERVICES UNDER SE CTION 9(1)(VII)(B). THE CIT(A) IN THE IMPUGNED ORDER HAS OBSERVED THAT UNDER ARTICLE 7 OF DOUBLE TAXATION AVOIDANCE ACT A GREEMENT BETWEEN INDIA AND CHINA, THE BUSINESS PROFITS OF CH INESE RESIDENT IS TAXABLE ONLY IN CHINA UNLESS IT CARRIES ON BUSINESS THROUGH PERMANENT ESTABLISHMENT IN INDIA. THE CIT(A ) RELIED ON THE ORDER OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF LUFTHANSA CARGO INDIA (P) LTD.(SUPRA) AND HAS DIRE CTED THE ASSESSING OFFICER TO DELETE THE ADDITION MADE TOWAR DS DRY DOCK EXPENSES. WE FIND THAT IN THE INSTANT CASE S HIPS WERE SENT BY THE ASSESSEE OUTSIDE INDIA (I.E TO CHINESE SHIP YARDS) FOR MAINTENANCE AND REPAIRS ON WORK CONTRACT BASIS. SINCE THERE WAS NO PERMANENT ESTABLISHMENT OF CHINESE SHI P YARDS IN INDIA, THEREFORE, NO TAX AT SOURCE IS TO BE DEDU CTED ON THE PAYMENTS MADE BY THE ASSESSEE TO CHINESE SHIP YARD S. WE, THEREFORE, UPHOLD THE FINDING OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THE APPEALS OF THE REVENUE ARE DISMISS ED. ITA NOS.1252 TO 1254, 2063 & 2064/MDS/2011 10 9. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE IS DISALLOWANCE OF PAYMENT MADE TO FOREIGN SHIPPING CO MPANIES TOWARDS CHARTER HIRE CHARGES UNDER SECTION 40(A)(I) . VIDE DETAILED ORDER IN THE ASSESSEES OWN CASE IN ITA NO S.145 TO 148/MDS/2012 DATED 29 TH JUNE, 2012, REASONS HAVE BEEN GIVEN BY US, WHEREIN IT HAS BEEN HELD THAT THE ASSE SSEE IS LIABLE TO DEDUCT TAX ON THE PAYMENTS OF HIRE CHARGE S MADE TO FOREIGN SHIPPING COMPANIES. IT WOULD NOT BE OUT OF PLACE TO MENTION HERE THAT FOREIGN SHIPPING COMPANIES HAD NO T FILED RETURNS OF INCOME. THE ASSESSEE HAD FILED RETURN OF INCOME ON BEHALF OF THE FOREIGN SHIPPING COMPANIES AS REPRES ENTATIVE ASSESSEE, SHOWING NIL INCOME. THE SAID RETURNS WER E FILED BY THE ASSESSEE UNDER PROTEST. THOUGH THE CASE OF THE ASSESSEE IS COVERED BY THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN MERILYN SHIPPING & TRANSPORTS VS. ACIT., (SUPRA), B UT AT THE SAME TIME, THIS DOES NOT IN ANY MANNER RESTRICT THE REVENUE AUTHORITIES TO INITIATE PROCEEDINGS UNDER SECTION 2 01 FOR NOT DEDUCTING TAX AT SOURCE AGAINST THE ASSESSEE. RESP ECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN ITA NOS.1252 TO 1254, 2063 & 2064/MDS/2011 11 MERILYN SHIPPING & TRANSPORTS(SUPRA), WE ALLOW THIS GROUND OF THE ASSESSEE. 10. AS REGARDS THE ISSUE OF REOPENING IS CONCERNED, THE SAME HAS BEEN DEALT IN DETAIL IN THE ASSESSEES OWN CASE IN ITA NO.145 TO 148/MDS/2012 DECIDED ON 29 TH JUNE, 2012, ACCORDING TO WHICH REOPENING OF ASSESSMENT IS HELD TO BE VALID IN THE CASE OF THE ASSESSEE. THUS, THIS GROU ND OF APPEAL OF THE ASSESSEE IS DISMISSED. 11. IN THE RESULT, ALL THE THREE APPEALS OF THE REV ENUE ARE DISMISSED AND BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED IN THE ABOVE SAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, T HE 5 TH DAY OF JULY, 2012 AT CHENNAI. SD/- SD/- ( ABRAHAM P.GEORGE ) ( VIKAS AWASTHY ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 5 TH JULY, 2012. SOMU COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F .