John Deere India Pvt.Ltd, Pune V. Assistant Commissioner of Income tax, Pune

ITA 1254/PUN/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7845 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: IS DIRECTED AGAINS T PASSED
• Keywords: Transfer pricing; Non-deduction of tax; Reassessment proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.1254/PUN/2017 / ASSESSMENT YEAR : 2007-08 JOHN DEERE INDIA PVT. LTD., TOWER-XIV, CYBERCITY, MAGARPATTA CITY, HADAPSAR, PUNE-411013 PAN: AAACJ4233B VS. ACIT, CIRCLE-14, PUNE (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 20-03-2017 IN RELATION TO THE ASSESSMENT YEAR 2007-08. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESS EE FILED ITS RETURN DECLARING LOSS OF RS.76,890/-. THE ASSESSMEN T WAS COMPLETED U/S.143(3) R.W.S. 144C OF THE INCOME-TAX ACT, 1 961 (HEREINAFTER ALSO CALLED `THE ACT) ON 12-09-2011. SUBSEQ UENTLY, IT ASSESSEE BY SHRI NIKHIL PATHAK & MS. SUKHADA CHOUDHARY REVENUE BY SHRI SARDAR SINGH MEENA, CIT DATE OF HEARING 22-07-2019 DATE OF PRONOUNCEMENT 22-07-2019 ITA NO.1254/PUN/2017 JOHN DEERE INDIA PVT. LTD., 2 WAS OBSERVED THAT THE ASSESSEE HAD MADE PAYMENTS TO THE TUNE OF RS.5,19,28,969/- ON ACCOUNT OF VARIOUS I.T. SUPPOR T SERVICES, USE OR RIGHT TO USE SOFTWARE, ACCESS TO SERVER (SCIENTIFIC EQUIPMENT) AND LEASED LINE CHARGES TO DEERE & CO., USA, ITS ASSOCIATED ENTE RPRISE (AE), WITHOUT COMPLYING WITH THE PROVISIONS RELATING TO DEDUCTIO N OF TAX AT SOURCE. SUCH AN AMOUNT WAS GROSSED UP U/S 195A TO RS.6,10,92,905/-. NOTICE WAS ISSUED U/S.148 OF THE ACT ON 29-03-2014, WHICH WAS FOLLOWED BY THE ASSESSMENT ORDER DATED 16-02-2015, MAKING AN ADDITION OF RS.6,10,92,905/- U/S .40(A)(I) OF THE ACT. THE ASSESSEE ASSAILED THE ASSESSMENT ORDER MAK ING DISALLOWANCE U/S.40(A)(I) OF THE ACT. THE LD. CIT(A) NOT ON LY SUSTAINED THE DISALLOWANCE BUT ALSO MADE FURTHER ENHANCEMEN T IN RESPECT OF TWO MORE PAYMENTS, TOTALING RS.5,22,59,060/-, MADE BY THE ASSESSEE TO DEERE & CO., USA TOWARDS REIMBURSEMENT OF EXPATRIATE SALARY (RS.4,58,66,353/-) AND PAYMENT MADE O N ACCOUNT OF WEB BASED TRAINING (RS.63,92,707/-) WITHOUT TAX WITHHOLDING . THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER. 3. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. THE AO HAS NOTED THAT THE ASSESSEE MA DE PAYMENT OF RS.5,19,28,969/- TO DEERE & CO., USA TOWARD S I.T. ITA NO.1254/PUN/2017 JOHN DEERE INDIA PVT. LTD., 3 SUPPORT SERVICES, USE OR RIGHT TO USE SOFTWARE, ACCESS TO SERVER (SCIENTIFIC EQUIPMENT) AND LEASED LINE CHARGES ON WHICH NO DEDUCTION OF TAX AT SOURCE WAS MADE. THIS CONSTITUTED THE B ASIS FOR THE PRESENT ADDITION U/S.40(A)(I) OF THE ACT. THE AO WAS INS PIRED TO INITIATE THE REASSESSMENT PROCEEDINGS ON THE BASIS OF AN ORDE R PASSED IN THE CASE OF THE ASSESSEE U/S.201(1)/201(1A) OF THE ACT FOR THE YEAR UNDER CONSIDERATION, BY WHICH THE ASSESSEE WAS TREATE D AS ASSESSEE IN DEFAULT IN RESPECT OF THE ABOVE REFERRED PAYM ENTS. WHEN THE ASSESSEE PREFERRED APPEAL AGAINST THE ORDER PASSED U/S.201(1)/(1A) BEFORE THE LD. CIT(A), THE LD. FIRST APPELLATE AUTHORITY, SIMILAR TO THE ACTION TAKEN IN THE IMPUGNED ORDER, ALSO RESORTED TO ENHANCEMENT WITH REFERENCE TO THE AMOUNT OF TAX DEDUCTIBLE ON REIMBURSEMENT OF EXPATRIATE SALARIES AND PAYME NT MADE ON ACCOUNT OF WEB BASED TRAINING. THUS, IT IS SEEN TH AT THE EXTANT ASSESSMENT ORDER AS WELL AS THE IMPUGNED ORDER, M AKING DISALLOWANCE U/S.40(A)(I), ARE BASED ON THE RESPECTIVE OR DERS PASSED IN THE PROCEEDINGS U/S.201(1)/(1A) OF THE ACT FOR THE SAM E YEAR. IT IS A MATTER OF RECORD THAT THE ASSESSEE PREFERRED AN APPE AL AGAINST THE ORDER PASSED BY THE LD. CIT(A) IN RELATION TO SECTION 201(1 )/(1A) BEFORE THE TRIBUNAL, WHICH HAS SINCE BEEN DECIDED IN ITA N OS. 905 & 906/PUN/2015 VIDE ORDER DATED 23-01-2019, A COPY OF WH ICH HAS ITA NO.1254/PUN/2017 JOHN DEERE INDIA PVT. LTD., 4 BEEN PLACED ON THE RECORD. RELEVANT DISCUSSION REGARDING LEASED LINE CHARGES HAS BEEN MADE AT PAGE 81 PARA 95 ONWARDS OF THE ORDER. AFTER CONSIDERING THE LEGAL POSITION ON THIS ISSUE, THE TRIBUNAL H AS COME TO A CONCLUSION IN PARA 101 OF ITS ORDER THAT THE ASSES SEE DID NOT DEFAULT IN NON-DEDUCTION OF TAX AT SOURCE OUT OF THE PAY MENTS MADE FOR LEASED LINE CHARGES AND FURTHER THE SAID LEASED LIN E CHARGES WERE IN THE NATURE OF REIMBURSEMENT OF EXPENSES. IN S OFARAS THE PURCHASE OF SOFTWARE LICENSE IS CONCERNED, THE TRIBUNAL HAS DISCUSSED THIS ISSUE ON PAGE 78 PARA 90 BY HOLDING THAT IT W AS A CASE OF PURCHASE OF COPYRIGHTED ARTICLE WHICH COULD NOT BE CONSID ERED AS ROYALTY. AS REGARDS THE THIRD PAYMENT OF I.T. SUPPORT SER VICE CHARGES, THE TRIBUNAL HAS DISCUSSED THIS ISSUE AT PAGE 79 P ARA 91 OF ITS ORDER. IT HAS BEEN HELD THAT THE PAYMENT OF I.T. SUPPOR T CHARGES, I.E. INTERNET CHARGES, USE OF E-MAIL CHARGES AND BACKUP SUPPORT SERVICES ETC. COULD NOT BE CONSIDERED AS ROYALTY AS NO TE CHNOLOGY WAS MADE AVAILABLE TO THE ASSESSEE AND IT WAS ONLY A SERVIC E PROVIDED TO THE ASSESSEE BY ITS USA ASSOCIATED ENTERPRISE. 4. IN SOFARAS THE ITEMS OF ENHANCEMENT MADE BY THE LD. CIT(A) ARE CONCERNED, WE FIND THAT THE FIRST ITEM IS REIMBURSEMENT OF SALARY PAID TO EXPATRIATES. THE TRIBUNAL DISCUSSED THIS ISSUE ON PAG E 88 ITA NO.1254/PUN/2017 JOHN DEERE INDIA PVT. LTD., 5 PAGE 107 OF ITS ORDER AND CAME TO THE CONCLUSION THAT SUCH AN AMOUNT WAS NOT IN THE NATURE OF `FEES FOR TECHNICAL SERVICES AS THE ASSESSEE HAD DEDUCTED TAX AT SOURCE FROM SUCH SALARY PA YMENTS U/S.192 OF THE ACT. ON THE LAST ITEM OF ENHANCEMENT, NAMEL Y, PAYMENT MADE ON ACCOUNT OF WEB BASED TRAINING, THE TRIBUNA L DISCUSSED THIS ISSUE ON PAGES 87 AND 88 OF ITS ORDER AND FINALLY HELD IN PARA 106 THAT NO TECHNICAL KNOWLEDGE WAS IMPARTED BY THE SERVICE PROVIDER AND HENCE, THERE WAS NO LIABILITY UPON THE ASSESSEE TO DEDUCT TAX AT SOURCE ON THE AFORESAID PAYMENTS. 5. CRUX OF THE MATTER IS THAT ALL THE ITEMS OF DISALLOWANCE U/S.40(A)(I) OF THE ACT IN THE INSTANT PROCEEDINGS, INCLUDING THE ENHANCEMENT MADE BY THE LD. CIT(A) ON TWO SCORES, HAVE EMANATED FROM THE ORDER PASSED BY THE AUTHORITIES U/S.201(1)/201(1A) OF THE ACT. SINCE THE TRIBUNAL IN ITS AFORENOTED ORDER HAS HELD THAT T HE ASSESSEE IS NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE, THE SEQUITUR IS THAT THERE CANNOT BE ANY DISALLOWANCE U/S.40(A)(I) OF THE AC T AS THE SAME CAN BE MADE ONLY WHEN A PERSON RESPONSIBLE FOR PA YING ANY SUM INCLUDING ROYALTY AND FEES FOR TECHNICAL SERVICES ETC., O UTSIDE INDIA OR IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY O R A FOREIGN COMPANY, FAILS TO DEDUCT TAX AT SOURCE, ON WHICH TAX IS DED UCTIBLE. ITA NO.1254/PUN/2017 JOHN DEERE INDIA PVT. LTD., 6 AS THE DISALLOWANCE U/S.40(A)(I) IS A COROLLARY OF LIABILITY OF THE ASSESSEE TO DEDUCT TAX AT SOURCE, NO DISALLOWANCE UNDER TH IS SECTION CAN STAND ONCE THE ASSESSEE HAS BEEN HELD TO BE NOT RES PONSIBLE FOR DEDUCTION OF TAX AT SOURCE ON SUCH AMOUNTS. IN VIEW OF TH E FOREGOING DISCUSSION, WE ARE SATISFIED THAT THE DISALLOWANCE MADE BY THE AO AND AS FURTHER ENHANCED BY THE LD. CIT(A), HAS NO LEGAL LEGS TO STAND ON. THE SAME IS, THEREFORE, DELETED. 6. THE LD. AR DID NOT PRESS THE GROUND CHALLENGING THE INITIATIO N OF RE-ASSESSMENT PROCEEDINGS, WHICH IS HEREBY DISMISSED. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JULY, 2019. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 22 ND JULY, 2019 ITA NO.1254/PUN/2017 JOHN DEERE INDIA PVT. LTD., 7 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-7, PUNE 4. 5. 6. THE PR.CIT-6, PUNE , , / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 22-07-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 22-07-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *