M/S LINK EXPORTERS, V. THE DCIT CIR 2(6),

ITA 1354/MUM/2004

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8032 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 23-06-2014
• Assessment Year: 1997-1998
• Appeal Filed On: 04-03-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR SRIVASTAVA
• Assessee Lawyers: S E DASTUR SR
• Keywords: Transfer pricing; Double taxation relief; Permanent establishment; Validity of assessment
• Section: 234B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) .. , , ./I.T.A. NO.1711/MUM/2004 ( !' #$! / ASSESSMENT YEAR : 1997-98) INCOME TAX OFFICER, (INTERNATIONAL TAXATION)-3(1), GROUND FLOOR, SCINDIA HOUSE, N M ROAD, BALLARD ESTATE, MUMBAI-400038 / VS. LINKLATERS & PAINES (NOW LINKLATERS), C/O C C CHOKSHI AND CO., PLOT NO.12, DR.ANNIE BESANT ROAD, OPP. SHIVSAGAR ESTATE, WORLI, MUMBAI- 400018 ( %& / APPELLANT) .. ( '(%& / RESPONDENT) ./I.T.A. NO.1354/MUM/2004 ( !' #$! / ASSESSMENT YEAR : 1997-98) LINK LATERS (FORMERLY LINKLATERS & PAINES), C/O C C CHOKSHI AND CO., PLOT NO.12, DR.ANNIE BESANT ROAD, OPP. SHIVSAGAR ESTATE, WORLI, MUMBAI-400018 / VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 2(6), 1 ST FLOOR, AYAKAR BHAVAN M K ROAD, MUMBAI-400020. ( %& / APPELLANT) .. ( '(%& / RESPONDENT) % ./ )* ./PAN/GIR NO. : GIR NO.39-044-CX-1480 %& + / REVENUE BY : SHRI AJAY KUMAR SRIVASTAVA '(%& , + /ASSESSEE BY: S/SHRI S E DASTUR, SR. COUNSEL AND NIRAJ SHETH #- , . / DATE OF HEARING : 23.6.2014 /0$' , . /DATE OF PRONOUNCEMENT : 8.8.2014 I.T.A. NO.1711/MUM/2004 I.T.A. NO.1354/MUM/2004 2 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 29-12-2003 PASSED BY LD CIT(A)-XXXIII, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEAR 1997-98. 2. THE ASSESSEE HEREIN IS A PARTNERSHIP FIRM FO RMED IN UNITED KINGDOM AND IS ENGAGED IN THE PROFESSION OF PRACTICE OF LAW. ITS HEAD OFFICE IS LOCATED IN U.K AND IS HAVING BRANCHES AROUND THE WORLD. DURING TH E YEAR UNDER CONSIDERATION, THE ASSESSEE HEREIN PROVIDED PROFESSIONAL SERVICES TO CERTAIN PERSONS, WHOSE OPERATIONS EXTENDED TO INDIA. SINCE THESE PERSONS HAD DEDUCTED TAX AT SOURCE FROM THE PAYMENTS MADE TO THE ASSESSEE HEREIN, IT F ILED ITS RETURN OF INCOME DECLARING NIL INCOME AND THUS CLAIMED REFUND OF TAX OF RS.43,21,218/-. THE ASSESSEE CLAIMED BEFORE THE AO THAT IT DOES NOT HAV E A PERMANENT ESTABLISHMENT IN INDIA AS DEFINED IN ARTICLE 5 OF THE DOUBLE TAXA TION AVOIDANCE AGREEMENT ENTERED BETWEEN INDIA AND UNITED KINGDOM AND ACCORD INGLY CLAIMED THAT NO PART OF ITS INCOME IS CHARGEABLE TO TAX IN INDIA. WITHO UT PREJUDICE TO THE ABOVE CONTENTION, THE ASSESSEE ALSO PREPARED A PROFIT AND LOSS ACCOUNT SHOWING REVENUES WHICH COULD BE REASONABLY ATTRIBUTED TO TH E WORK PERFORMED IN INDIA. HOWEVER, WHILE DOING SO, THE ASSESSEE HAD COMPUTED THE REVENUES BY ADOPTING FEE RATES ESTIMATED ON THE BASIS OF AMOUNT THAT COU LD HAVE BEEN PAID TO CORRESPONDING PROFESSIONALS WORKING IN INDIA FOR AV AILING SIMILAR KIND OF SERVICES. THUS, ALTERNATIVELY, THE ASSESSEE SEEMS TO HAVE CON TENDED THAT THE PROFIT DECLARED IN THE ABOVE SAID PROFIT AND LOSS ACCOUNT IS CHARGEABLE TO TAX IN INDIA. I.T.A. NO.1711/MUM/2004 I.T.A. NO.1354/MUM/2004 3 3. THE ASSESSING OFFICER NOTICED THAT THE TOTAL STAY OF ITS PARTNERS AND STAFFS EXCEEDED 90 DAYS IN INDIA DURING THE FINANCIAL YEAR 1.4.1996 TO 31.3.1997. HENCE, THE AO HELD THAT THE ASSESSEE IS HAVING PERM ANENT ESTABLISHMENT IN INDIA. IN THE IMMEDIATELY PRECEDING YEAR, THE AO H AD REJECTED THE ALTERNATIVE CONTENTION OF THE ASSESSEE, I.E., THE CLAIM TO ASSE SS THE PROFIT COMPUTED IN THE PROFIT AND LOSS ACCOUNT RELATING TO INDIAN OPERATIO NS. HENCE, IN THIS YEAR ALSO, THE AO REJECTED THE SAID CLAIM. ACCORDINGLY, THE A O PROCEEDED TO ASSESS THE ENTIRE AMOUNT RECEIVED FROM INDIAN CLIENTS, WHICH I S DETAILED AS UNDER IN THE ASSESSMENT ORDER:- PROFESSIONAL FEE IN UK POUNDS 2,844,868.31 REIMBURSEMENT OF EXPENSES:- IN UK POUNDS 939,220.53 IN JAP. YEN 11,756,233.00 IN SINGAPORE $ 52,608.47 THE AO ASSESSED THE ENTIRE AMOUNT OF PROFESSIONAL R ECEIPTS AS WELL AS THE REIMBURSEMENT OF EXPENSES CITED ABOVE AS THE INCOME OF THE ASSESSEE. FURTHER, THE AO ALSO NOTICED FROM THE TDS CERTIFICATES FURNI SHED BY THE ASSESSEE THAT IT HAS RECEIVED A SUM OF RS.2,21,199/- FROM M/S SERUM INSTITUTE OF INDIA AND THE SAME WAS NOT INCLUDED IN THE TOTAL RECEIPTS. HENCE , THE AO INCLUDED THE ABOVE SAID AMOUNT OF RS.2,21,199/- ALSO IN THE TOTAL INCO ME OF THE ASSESSEE. THE AO ALLOWED A DEDUCTION 5% OF THE TOTAL RECEIPTS CITED ABOVE UNDER SEC. 44C OF THE ACT. ACCORDINGLY, THE AO DETERMINED THE TOTAL INCO ME OF THE ASSESSEE AT RS.21,54,31,390/-. 4. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER B Y FILING APPEAL BEFORE LD CIT(A) AND THE FIRST APPELLATE AUTHORITY ALLOWED TH E APPEAL PARTLY. WHILE I.T.A. NO.1711/MUM/2004 I.T.A. NO.1354/MUM/2004 4 DECIDING THE ISSUES CONTESTED BEFORE HIM, THE LD CI T(A) FOLLOWED THE DECISION RENDERED BY HIS PREDECESSOR IN THE ASSESSEES OWN C ASE IN THE EARLIER YEARS. AGGRIEVED BY THE ORDER PASSED BY LD CIT(A), BOTH TH E PARTIES HAVE FILED APPEALS BEFORE US ON THE ISSUES DECIDED AGAINST EACH OF THE M BY THE FIRST APPELLATE AUTHORITY. 5. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE ASSESSEE. GROUNDS NUMBERED AS 1, 10 & 11 ARE GENERAL IN NATURE AND HE NCE THEY REQUIRE NO ADJUDICATION. AT THE TIME OF HEARING, THE LD COUNS EL APPEARING FOR THE ASSESSEE DID NOT PRESS THE GROUNDS NUMBERED AS 5 & 6. ACCOR DINGLY THESE TWO GROUNDS ARE DISMISSED AS NOT PRESSED. 6. IN GROUND NO.2, THE ASSESSEE IS CONTESTING THE DECISION OF LD CIT(A) IN HOLDING THAT THE ASSESSEE HAS GOT PERMANENT ESTABL ISHMENT IN INDIA. BOTH THE PARTIES ADMITTED THAT THIS ISSUE IS DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF REVENUE BY THE CO-ORDINATE BENCHES OF TRIBUNAL IN T HE ORDERS PASSED BY THEM FOR ASSESSMENT YEARS 1995-96 AND 1996-97. IN THE ORDER PASSED BY THE CO-ORDINATE BENCH OF TRIBUNAL IN THE ASSESSEES HANDS FOR ASSES SMENT YEAR 1995-96, WHICH IS REPORTED IN (2010) 40 SOT 51)(MUM) AS LINKLATERS LL P VS. ITO, THE ABOVE SAID ISSUE IS DISCUSSED IN PARAGRAPHS 80 TO 107 OF THE O RDER. THE FINAL CONCLUSION IS GIVEN IN PARAGRAPHS 106 TO 107 OF THE ORDER AND THE SE TWO PARAGRAPHS ARE EXTRACTED BELOW (PGS.35 AND 36):- 106 . WE ARE IN CONSIDERED AGREEMENT WITH THIS ANALYSIS IN THE UN MODEL CONVENTION COMMENTARY. WE ARE THUS OF THE CONSIDERE D VIEW THAT, IN A SITUATION LIKE THE ONE THAT WE ARE IN SEISIN OF, I.E., IN WHICH SPECIFIC PROVISIONS FOR PROFESSIONAL SERVICES OR INDEPENDENT PERSONAL SERVICES OR INCLUDED SERVICES EXIST UNDER ARTICLE 15, WHEN SERV ICES ARE RENDERED BY THE ENTERPRISE, ARTICLE 5(2)( K ) WILL COME INTO PLAY, AND WHEN SERVICES ARE RENDERED BY AN INDIVIDUAL, ARTICLE 15 WILL FIND APP LICATION. THEREFORE, WHILE I.T.A. NO.1711/MUM/2004 I.T.A. NO.1354/MUM/2004 5 WE AGREE WITH THE LEARNED COUNSEL THAT ARTICLE 15 W ILL NOT BE APPLICABLE ON THE FACTS OF THE PRESENT CASE, THIS FINDING DOES NO T REALLY COME TO THE RESCUE OF THE ASSESSEE SINCE, AS WE HAVE ALREADY HE LD, THE ASSESSEE DID HAVE A PE IN INDIA UNDER ARTICLE 5(2)( K ) OF THE INDIA-UK TAX TREATY, AND, ACCORDINGLY, PROFITS ATTRIBUTABLE TO THE PE ARE TAX ABLE UNDER ARTICLE 7 OF THE INDIA-UK TAX TREATY. 107 . IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE UNABLE TO UPHOLD THE PLEA SO STRENUOUSLY ARGUED BY THE LEARNED COUNSEL FOR TH E ASSESSEE, AND WE HOLD THAT THE AUTHORITIES BELOW HAVE RIGHTLY INVOKE D THE PROVISIONS OF ARTICLE 5(2)( K ). WE APPROVE THE SAME, AND DECLINE TO INTERFERE IN THE MATTER. WE NOTICE THAT THE ABOVE SAID FINDING IS FOLLOWED B Y THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006-07. HE NCE, CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCHES IN THE EARLIE R YEARS, WE ALSO UPHOLD THE ORDER OF LD CIT(A) IN CONFIRMING THE ORDER OF THE A O IN HOLDING THAT THE ASSESSEE DID HAVE PERMANENT ESTABLISHMENT IN INDIA. 7. THE GROUNDS NUMBERED AS 3 & 4 RELATE TO THE COMPUTATION OF INCOME, I.E., ACCORDING TO THE ASSESSEE THE TAX AUTHORITIES ARE N OT JUSTIFIED IN IGNORING THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT THE INC OME SHOULD BE ASSESSED AS PER THE PROFIT AND LOSS ACCOUNT RELATING TO INDIAN OPER ATIONS, WHICH WAS DISCUSSED SUPRA. BOTH THE PARTIES ADMITTED THAT THIS ISSUE I S DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF REVENUE BY THE TRIBUNAL IN THE ASS ESSMENT YEARS 1995-96 AND 1996-97. IN ASSESSMENT YEAR 1995-96, THE TRIBUNAL HAS DISCUSSED THIS ISSUE IN PARAGRAPHS 108 TO 130. IN PARAGRAPH 130 OF THE ORD ER, THE TRIBUNAL HAS HELD THAT THE PLEA PUT FORTH BY THE ASSESSEE PROCEEDS ON FALLACY THAT ARMS LENGTH PRICE ADJUSTMENT CAN BE MADE IN RESPECT OF THE TRAN SACTIONS WITH THE CLIENTS OF THE ASSESSEE. ACCORDINGLY THE TRIBUNAL HELD THAT T HE REVENUES EARNED BY THE I.T.A. NO.1711/MUM/2004 I.T.A. NO.1354/MUM/2004 6 ASSESSEE ARE TO BE TAKEN AT ACTUAL FIGURES AND NO A DJUSTMENT IS PERMISSIBLE IN RESPECT OF THE SAME. ACCORDINGLY, THE TRIBUNAL UPH ELD THE ACTION OF THE TAX AUTHORITIES IN ADOPTING THE REVENUES AT ACTUAL FIGU RES. IN ASSESSMENT YEAR 1996- 97, THE CO-ORDINATE BENCH HAS FOLLOWED THE DECISION RENDERED BY THE TRIBUNAL FOR ASSESSMENT YEAR 1995-96. ACCORDINGLY, THESE TWO GR OUNDS ARE LIABLE TO REJECTED BY FOLLOWING THE RATIO OF DECISION RENDERED BY THE TRIBUNAL IN ASSESSMENT YEAR 1995-96. ACCORDINGLY WE UPHOLD THE ORDER OF LD CIT (A) ON THIS ISSUE. 8. THE GROUNDS NUMBERED AS 7 & 8 RELATE TO THE VALIDITY OF ASSESSMENT OF RECEIPTS RELATING TO REIMBURSEMENT OF EXPENSES AS INCOME OF THE ASSESSEE. THE AO REJECTED THE CLAIM OF THE ASSESSEE THAT IT H AD RECEIVED REIMBURSEMENT OF EXPENSES ON ACTUAL BASIS AND HENCE THERE IS NO ELEM ENT OF INCOME EMBEDDED THEREIN. ACCORDINGLY, THE ASSESSING OFFICER ASSESS ED ENTIRE AMOUNT OF REIMBURSEMENT OF EXPENSES AS THE INCOME OF THE ASSE SSEE. THE LD CIT(A), BY FOLLOWING THE DECISIONS CITED ABOVE, UPHELD THE ACT ION OF THE AO. (A) ELKEM TECHNOLOGY VS. DCIT (250 ITR 164)(AP) (B) COCHIN REFINERIES LTD (222 ITR 354)(KERALA) HOWEVER, THE LD CIT(A), IN PRINCIPLE, ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE SAID RECEIPTS RELATE TO THE EXPENSES ACTUALLY INCUR RED AND HENCE THE SAID OF EXPENSES ARE ELIGIBLE FOR DEDUCTION. HOWEVER, THE LD CIT(A) NOTICED THAT THE ASSESSEE WAS NOT ABLE TO PRODUCE ALL SUPPORTING IN RESPECT OF THE EXPENDITURE INCURRED AND ACCORDINGLY OPINED THAT SOME DISALLOWA NCE IS CALLED FOR. IN THE PRECEDING YEARS, THE LD CIT(A) HAD DISALLOWED 15% O F THE CLAIM. ACCORDINGLY, THE LD CIT(A) DISALLOWED 25% OF THE EXPENSES (TERME D AS DISBURSEMENT CLAIM) PROPORTIONATE TO THE FEE RELATING TO SERVICES RENDE RED IN INDIA AS COMPARED TO THE TOTAL FEES. I.T.A. NO.1711/MUM/2004 I.T.A. NO.1354/MUM/2004 7 9. BOTH THE PARTIES ADMITTED THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE TRIBUNAL IN AY 1995-96 [(2010) 40 SOT 51 (MUM)]. THE DISCUSSIONS RELATING TO THIS ISSUE FINDS PLACE IN PARAGRAPHS 131- 133 OF THE ORDER PASSED BY THE TRIBUNAL HAS HELD A S UNDER (PARA 133, PG.40):- 133 . HAVING HEARD THE RIVAL SUBMISSIONS AND HAVING PERU SED THE MATERIAL ON RECORD, WE ARE INCLINED TO UPHOLD THE GRIEVANCE OF THE ASSESSEE. THE REIMBURSEMENTS RECEIVED BY THE ASSESSEE ARE IN RESP ECT OF SPECIFIC AND ACTUAL EXPENSES INCURRED BY THE ASSESSEE AND DO NOT INVOLVE ANY MARK UP, THERE IS REASONABLE CONTROL MECHANISM IN PLACE TO E NSURE THAT THESE CLAIMS ARE NOT INFLATED, AND THE ASSESSEE HAS FURNI SHED SUFFICIENT EVIDENCE TO DEMONSTRATE THE INCURRING OF EXPENSES. THERE IS THUS NO GOOD REASON TO MAKE ANY ADDITION TO INCOME IN RESPECT OF THESE REI MBURSEMENTS OF EXPENSES. THE ACTION OF THE CIT(A), AS LEARNED COUN SEL RIGHTLY CONTENDS, ON PURE SURMISES AND CONJECTURES. IN VIEW OF THE AB OVE DISCUSSIONS, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOW ANCE OF EXPENSES AS SUSTAINED BY THE CIT(A) AND HOLD THAT NO PART OF RE IMBURSEMENTS OF EXPENSES RECEIVED BY THE ASSESSEE, ON THE FACTS OF THIS CASE, BE TREATED AS INCOME OF THE ASSESSEE. THE ASSESSEE GETS THE RELIE F ACCORDINGLY . WE NOTICE THAT THE ABOVE SAID VIEW HAS BEEN FOLLOWE D BY THE TRIBUNAL IN AY 1996-97 ALSO. WE NOTICE THAT THE TRIBUNAL HAS GIVE N A SPECIFIC FINDING IN THE ASSESSMENT YEAR 1995-96 THAT THESE REIMBURSEMENTS A RE MADE ON ACTUAL BASIS AND THEY DO NOT INVOLVE ANY MARK UP, SINCE THE ASSE SSEE HAS SHOWN THAT THERE IS REASONABLE CONTROL MECHANISM IN PLACE TO ENSURE THA T THESE CLAIMS ARE NOT INFLATED. THE TRIBUNAL HAS ALSO NOTICED THAT THE A SSESSEE HAS FURNISHED SUFFICIENT EVIDENCE TO DEMONSTRATE THE INCURRING OF EXPENSES. THE LD A.R, BEFORE US, SUBMITTED THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES SURROUNDING THIS ISSUE IN THE INSTANT YEAR VIS--VIS AY 1995-96 . THE LD D.R. ALSO DID NOT FURNISH ANY DOCUMENT TO PROVE THE CONTRARY. I.T.A. NO.1711/MUM/2004 I.T.A. NO.1354/MUM/2004 8 10. EVEN IF THE ENTIRE AMOUNTS REPRESENTING REIMB URSEMENT OF EXPENSES IS CONSIDERED AS THE INCOME OF THE ASSESSEE AS PER THE DECISION RENDERED IN THE CASES RELIED ON BY LD CIT(A), VIZ., ELKEM TECHNOLOG Y VS. DCIT (250 ITR 164)(AP) AND COCHIN REFINERIES LTD (222 ITR 354)(KERALA), TH ERE SHOULD NOT BE ANY CONTROVERSY THAT THESE EXPENSES HAVE TO BE ALLOWED AS DEDUCTION, SINCE THEY HAVE BEEN INCURRED FOR THE PURPOSE OF PROFESSION. HENCE, IN EFFECT, THE NET INCOME WILL BE NIL. IN ASSESSMENT YEARS 1995-96 & 1996-97, THE TRIBUNAL HAS HELD THE REIMBURSEMENT OF EXPENSES IS NOT ASSESSABL E AS INCOME. THUS, IN EFFECT, THE ASSESSEE WOULD NOT BE LIABLE TO BE ASSE SSED IN RESPECT OF REIMBURSEMENT OF EXPENSES UNDER BOTH THE METHODS. IN VIEW OF THE FOREGOING DISCUSSIONS, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE AMOUNTS RELATING TO REIMBURSEMENT OF EXPENSES FROM THE TOTAL INCOME OF THE ASSESSEE. 11. THE GROUND NUMBER 9 RELATES TO THE DIFFERENCE IN THE AMOUNTS RELATING TO REIMBURSEMENT OF EXPENSES ASSESSED BY THE ASSESSING OFFICER. THE LD A.R SUBMITTED THAT CONSIDERATION OF THIS ISSUE WOULD AR ISE ONLY IF THE ISSUE RELATING TO THE ASSESSMENT OF REIMBURSEMENT OF EXPENSES IS DECI DED AGAINST THE ASSESSEE. IN THE EARLIER PARAGRAPHS, WE HAVE DECIDED THE ISSU E RELATING TO THE ASSESSMENT OF REIMBURSEMENT OF EXPENSES IN FAVOUR OF THE ASSES SEE. HENCE, THERE ARISES NO NECESSITY TO ADJUDICATE THIS ISSUE. 12. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE R EVENUE. THE GROUNDS NUMBERED AS 1 & 4 RELATE TO THE ASSESSMENT OF PROFE SSIONAL RECEIPTS. THE LD CIT(A) HAD HELD THAT, ONLY THAT PORTION OF THE INCO ME RELATING TO THE SERVICES PERFORMED IN INDIA IS ASSESSABLE. BOTH THE PARTIE S ADMITTED THAT THE TRIBUNAL I.T.A. NO.1711/MUM/2004 I.T.A. NO.1354/MUM/2004 9 HAS CONSIDERED IDENTICAL ISSUE IN AY 1995-96 AND HA S HELD THAT THE ENTIRE PROFITS DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO THE PERMANEN T ESTABLISHMENT IS ASSESSABLE AND ACCORDINGLY UPHELD THE ORDER OF THE ASSESSING O FFICER. CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN AY 1995-96, WE REVERS E THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICE R. 13. GROUND NO.2 RELATES TO THE CHARGING OF INTE REST U/S 234B OF THE ACT. THE INTEREST CHARGED BY THE AO U/S 234B OF THE ACT WAS DELETED BY THE LD CIT(A) BY HOLDING THAT THE ASSESSEE IS NOT LIABLE TO PAY ADVA NCE TAX, SINCE THE TAX IS DEDUCTIBLE AT SOURCE ON THE ENTIRE AMOUNT RECEIVED BY THE ASSESSEE. THE LD D.R PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX VS. ALCATEL LUCENT USA IN C. (2014)(264 CTR (DEL) 240), WHEREIN THE HONBLE DELHI HIGH COURT HAS EXPR ESSED THE VIEW THAT THE ASSESSEE, HAVING DENIED ITS LIABILITY TO PAY INCOME TAX RIGHT FROM THE BEGINNING, SHOULD NOT TAKE THE PLEA THAT THE INDIAN PAYERS SHO ULD HAVE DEDUCTED TAX AT SOURCE FROM THE REMITTANCES MADE TO IT. ACCORDINGL Y THE HONBLE DELHI HIGH COURT HAS HELD THAT, WHERE THE REVENUE HAS BEEN DEP RIVED OF USE OF MONIES AND THEREBY PUT TO LOSS FOR NO FAULT ON ITS PART AND WH ERE LOSS AROSE AS A RESULT OF VACILLATING STANDS TAKEN BY THE ASSESSEE, IT IS NOT EXPECTED OF ASSESSEE TO SHIFT RESPONSIBILITY TO INDIAN PAYERS. ACCORDINGLY, THE HONBLE DELHI HIGH COURT HAS UPHELD LEVY OF INTEREST U/S 234B OF THE ACT. 14. ON THE CONTRARY, THE LD A.R PLACED STRONG R ELIANCE ON THE DECISION RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF DIT VS. NGC NETWORK ASIA LLC (313 ITR 187)(BOM), WHEREIN THE HONBLE JU RISDICTIONAL HIGH COURT HAS I.T.A. NO.1711/MUM/2004 I.T.A. NO.1354/MUM/2004 10 HELD THAT WHEN A DUTY IS CAST ON THE PAYER TO PAY T AX AT SOURCE, ON FAILURE, NO INTEREST CAN BE IMPOSED ON THE PAYEE. 15. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THOUGH THE REASONING GIVEN BY THE HONBLE DELHI HIGH COURT (REFERRED SUP RA) IS APPEALING, YET WE ARE UNABLE TO FOLLOW THE SAID DECISION IN VIEW OF THE B INDING DECISION RENDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF NGC NETWOR K ASIA LLC (REFERRED ABOVE). ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A) ON TH IS ISSUE. 16. IN GROUND NO.3, THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN SUSTAINING THE ASSESSMENT OF REIMBURSEMENT OF EXPEN SES (DISBURSEMENTS) ONLY TO THE EXTENT OF 25%. THIS ISSUE WAS ADDRESSED BY US IN PARAGRAPHS 8 TO 10 WHILE ADJUDICATING THE GROUNDS URGED BY THE ASSESSE E. SINCE WE HAVE HELD THAT NO PART OF REIMBURSEMENT OF EXPENSES IS ASSESSABLE TO TAX, WE ARE CONSTRAINED TO REJECT THIS GROUND URGED BY THE REVENUE. 17. IN GROUND NO.5, THE REVENUE IS URGING THAT TH E LD CIT(A) SHOULD HAVE DENIED THE BENEFIT OF INDO-UK DTAA TO THE ASSESSEE, AS THE ASSESSEE IS A PARTNERSHIP FIRM IN UK WHERE IT IS NOT TAXED. THE FACTS RELATING TO THIS ISSUE IS SET OUT IN BRIEF. AS PER THE INDO-UK TREATY, THE BENE FITS OF TREATY WOULD APPLY TO PERSONS WHO ARE RESIDENTS OF ONE OR BOTH OF THE CONTRACTING STATES . UNDER THE TAX PROVISIONS OF UK, A PARTNERSHIP FIRM IS A FISCA LLY TRANSPARENT ENTITY AND IT IS NOT TAXABLE ON ITS OWN RIGHT, BUT TAX IS COMPUTED B Y TAKING THE TAX PAYABLE BY THE PARTNERS. IN THIS BACK DROP, IT IS BEING CONTE NDED BY THE REVENUE THAT THE ASSESSEE, NOT BEING A TAXABLE ENTITY, CANNOT BE CON SIDERED AS A RESIDENT OF CONTRACTING STATE AND HENCE IT IS NOT ENTITLED FOR DTAA BENEFITS. I.T.A. NO.1711/MUM/2004 I.T.A. NO.1354/MUM/2004 11 18. WE NOTICE THAT THIS ISSUE WAS ALSO ADDRESSED BY THE TRIBUNAL IN ASSESSMENT YEAR 1995-96 AND THE RELEVANT DISCUSSION S FIND PLACE IN PARAGRAPHS 21 TO 79 OF THE ORDER. THE CO-ORDINATE BENCH OF TR IBUNAL, IN PARAGRAPH 79 OF ITS ORDER, HAS HELD THAT THE ASSESSEE IS ELIGIBLE FOR T HE BENEFITS OF INDIA-UK TAX TREATY, AS LONG AS ENTIRE PROFITS OF THE PARTNERSHI P FIRM ARE TAXED IN UK- WHETHER IN THE HANDS OF THE PARTNERSHIP FIRM THOUGH THE TAX ABLE INCOME IS DETERMINED IN RELATION TO THE PERSONAL CHARACTERISTICS OF THE PAR TNERS OR IN THE HANDS OF PARTNERS DIRECTLY. BY FOLLOWING THE DECISION RENDERED BY TH E TRIBUNAL FOR AY 1995-96, WE REJECT THIS GROUND URGED BY THE REVENUE. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 8TH AUGUST, 2014. /0$' 1 2 3 8TH AUGUST, 2014 0 , 4- 5 SD SD ( / AMIT SHUKLA ) ( .. / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER - MUMBAI: 8TH AUGUST, 2014. # . . ./ SRL , SR. PS I.T.A. NO.1711/MUM/2004 I.T.A. NO.1354/MUM/2004 12 ! '#$%& '&($ / COPY OF THE ORDER FORWARDED TO : 1. %& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ( ) / THE CIT(A)- CONCERNED 4. / CIT CONCERNED 5. 7#84 ' 9 , . 9 ' , - / DR, ITAT, MUMBAI CONCERNED 6. 4:! ;- / GUARD FILE. / BY ORDER, TRUE COPY < ) (ASSTT. REGISTRAR) . 9 ' , - /ITAT, MUMBAI