Deputy Commissioner of Income-tax, New Delhi V. New York Life Insurance Company, New Delhi

ITA 1400/DEL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4571 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 10-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M GUPTA MS SHILPI VERMA
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DLEHI BEFORE SHRI N.K. SAINI, HONBLE VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER I.T.A. NO.2125/DEL/2015 ASSESSMENT YEAR: 2010-11 NEW YORK INSURANCE CO., VS DY. COMMISSIONER OF INCOME-TAX, C/O PRICEWATER HOUSE COOPERS CIRCLE 2(2)(2),INTERNATIONAL TAXATION, SUCHETA BHAWAN, GATE NO.2, NEW DELHI. 11A, VISHNU DIGAMBER MARG, NEW DELHI. PAN: AACCN7235M AND I.T.A. NO.1400/DEL/2015 ASSESSMENT YEAR: 2010-11 DY. COMMR. OF INCOME-TAX, VS NEW YORK INSURANCE CO., CIRCLE 2(2)(2),INTERNATIONAL TAXATION, C/O PRICEWATER HOUSE COOPERS, NEW DELHI. SUCHETA BHAWAN, GATE NO.2, 11A, VISHNU DIGAMBER MARG, NEW DELHI. PAN: AACCN7235M (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI K.M. GUPTA, ADVOCATE MS SHILPI VERMA, CA RESPONDENT BY: SHRI G.K. DHALL, CIT DR, INTLL. TAXATION DATE OF HEARING: 18.10.2018 DATE OF PRONOUNCEMENT: 30 .10.2018 2 ORDER PER NARASIMHA K. CHARY, JM THESE TWO APPEALS BY THE REVENUE AND THE ASSESSEE RESPECTIVELY ARE FILED AGAINST THE DIRECTIONS OF THE LEARNED DISPUTE RESOLUTION PANEL (DRP) DATED 13.11.2014. 2. BRIEF FACTS OF THE CASE ARE THAT M/S NEW YORK LIFE INSURANCE COMPANY GENERAL FUNDS IS AN US BASED COMPANY AND IS PRIMARILY ENGAGED IN THE BUSINESS OF LIFE INSURANCE. FOR THE ASSTT. YEAR 2010-11, THE ASSESSEE FILED THEIR RETURN OF INCOME ON 22.9.2010 DECLARING THE TAXABLE INCOME OF RS.63,34,93,811/- AND SUBSEQUENTLY, REVISED THE SAME ON 28.3.2012 BY DECLARING THE TOTAL INCOME AT RS.57,43,37,091/-. DURING THE ASSESSMENT PROCEEDINGS, LEARNED ASSESSING OFFICER (LD. AO) OBSERVED THAT IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANY LICENSED ITS COMPLETELY OWNED TRADEMARK NEW YORK LIFE TO AN INDIAN COMPANY NAMED AS MAX NEW YORK LIFE INSURANCE COMPANY LTD. (FOR SHORT MNYL) THROUGH AN AGREEMENT ENTERED ON 15.7.2008, AND ON THAT ACCOUNT RECEIVED AN AMOUNT OF RS.63,34,93,811/- AS ROYALTY FROM THE INDIAN COMPANY MNYL. 3. SINCE THE ASSESSEE WAS HOLDING 26% SHARE OF ITS INDIAN COUNTERPART M/S MNYL THROUGH ITS MAURITIUS BASED SUBSIDIARY, TRANSACTION WAS TREATED AS AN INTERNATIONAL TRANSACTION WITH ASSOCIATE ENTERPRISE. LEARNED TPO BY ORDER DATED 30.11.2013, HELD THAT THE ASSESSEE UNDERTOOK INTERNATIONAL 3 TRANSACTION IN THE FORM OF RECEIPT OF BRAND LICENSE AND TECHNICAL FEE AMOUNTING TO RS.63,34,93,811/- BUT DID NOT DRAW ANY ADVERSE INFERENCE. 4. ASSESSEE SUBMITTED BEFORE THE LEARNED AO THAT THIS RS.63,34,93,811/- INVOLVES TWO COMPONENTS, VIZ., ROYALTY INCOME OF RS.57,43,31,091/- AND SERVICE TAX OF RS.5,91,56,720/-. THEY FURTHER SUBMITTED THAT IN RESPECT OF ROYALTY AMOUNT OF RS.57,43,37,091/-, TAX OF RS.6,68,77,942/- WAS DEDUCTED AND DEPOSITED THE SAME WITH THE CONCERNED AUTHORITIES, AND SO ALSO THE SERVICE TAX. 5. HOWEVER, LD. AO AFTER SEEKING CLARIFICATION FROM MNYL HELD THAT THE TOTAL AMOUNT OF RS.63,34,93,811/- IS THE ROYALTY AMOUNT AND PROPOSED IT TO BRING IT TO TAX BY WAY OF DRAFT ASSESSMENT ORDER. ASSESSEE PREFERRED OBJECTIONS AGAINST THE SAME BEFORE THE LEARNED DRP AND AFTER HEARING THE PARTIES, LEARNED DRP DIRECTED THE ASSESSEE TO PRODUCE THE CONCILIATION FROM MNYL TO THE LEARNED AO FOR VERIFICATION, SUBJECT TO WHICH LD. AO WAS DIRECTED TO TAX ROYALTY INCOME EXCLUSIVE OF THE SERVICE TAX ELEMENT IN THE HANDS OF THE ASSESSEE. 6. SUBSEQUENTLY, WHILE COMPLYING WITH THE DIRECTIONS OF THE LEARNED DRP, LEARNED AO, AFTER HEARING THE ASSESSEE AGAIN HELD THAT THE ENTIRE AMOUNT OF RS.63,34,93,811/- IS LIABLE TO TAX. ASSESSEE IS, THEREFORE, BEFORE US IN APPEAL NO.2125/DEL/2015 WHEREAS CHALLENGING THE DIRECTIONS OF THE LEARNED DRP, THE REVENUE PREFERRED ITA NO.1400/DEL/2015. 7. AT THE OUTSET, IT COULD BE SEEN THAT THOUGH THE LEARNED DRP DIRECTED THE LEARNED AO IN SPECIFIC TERMS THAT THE ROYALTY INCOME IN THE HANDS OF 4 THE ASSESSEE AT RS.57,43,37,091/- EXCLUSIVE OF THE SERVICE TAX ELEMENT OF RS.5,91,56,720/- ALONE HAD TO BE BROUGHT TO TAX, SUBSEQUENTLY , WHILE GIVING EFFECT TO SUCH AN ORDER, LEARNED AO PASSED THE ASSESSMENT ORDER BRINGING THE ENTIRE AMOUNT OF RS.63,34,93,811/- TO TAX. IT IS, THEREFORE, CLEAR THAT INASMUCH AS THE LEARNED AO DID NOT EXCLUDE THE SERVICE TAX ELEMENT OF RS.5,91,56,720/- FROM TAX, THE REVENUE CANNOT HAVE ANY GRIEVANCE BECAUSE ULTIMATELY THE LEARNED AO BROUGHT THIS AMOUNT OF ROYALTY TO SERVICE TAX ALSO TO TAX. IN OUR CONSIDERED OPINION, THE GRIEVANCE OF THE REVENUE IN ITA NO.1400/2015 IS A SPENT FORCE HAS BECOME INFRUCTUOUS. ON THIS SCORE ITA NO.1400/2015 NEEDS NO ADJUDICATION AND IS LIABLE TO BE DISMISSED. 8. NOW COMING TO THE ASSESSEES APPEAL, THE ASSESSMENT ORDER SPEAKS THAT IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE LEARNED AO THAT THE TOTAL ROYALTY AMOUNT WAS ONLY RS.57,43,37,092/- AND AFTER DEDUCTING THE TAX AT SOURCE MNYL PAID A SUM OF RS.50,74,59,146/- TO THE ASSESSEE. IT WAS FURTHER SUBMITTED BEFORE THE LEARNED AO THAT THE AMOUNT OF RS.63,34,93,811/- INCLUDES TWO AMOUNTS, VIZ. THE ROYALTY AND ALSO THE SERVICE-TAX AND THE SERVICE TAX WAS DIRECTED DEPOSITED BY MYNL WITH THE GOVERNMENT, AS SUCH, THE SAME CANNOT BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. 9. AFTER CONSIDERING THE CONTENTIONS OF THE PARTIES, LEARNED CIT(A) GAVE THE DIRECTION TO THE LEARNED AO TO VERIFY THE RECONCILIATION OF THE AMOUNTS OBTAINED FROM MNYL AND THEREAFTER, TO TAX THE ROYALTY INCOME OF RS.57,43,37,092/- IN THE HANDS OF THE ASSESSEE AND TO EXCLUDE THE SERVICE 5 TAX ELEMENT OF RS.5,91,56,720/-. BUT THE LEARNED AO DID NOT DO SO. WE, THEREFORE, NOW PROCEED TO LOOK AT THIS ASPECT. 10. THOUGH THE ASSESSEE SUBMITTED BEFORE THE LEARNED AO IN RESPECT OF THEIR RECEIVING ONLY RS.50,74,59,146/- OUT OF THE SUM OF RS.57,43,37,091/- AFTER DEDUCTING THE TAX OF RS.6,68,77,942/- AND THE SAID FACT WAS CONFIRMED BY MNYL IN THEIR LETTER DATED 22.1.2014, THE CONFUSION IN THIS MATTER HAD ARISEN BECAUSE OF THE DIFFERENCE IN THE FIGURES FURNISHED BY MNYL IN THEIR TWO LETTERS, NAMELY, 22.1.2014 AND 30.1.2014 RESPECTIVELY. THE FIGURES MENTIONED IN THE LETTER DATED 22.1.2014 ARE IN CONFORMITY WITH THE CASE OF THE ASSESSEE. HOWEVER, IN THE SUBSEQUENT LETTER MNYL STATED THAT AN AMOUNT OF RS.617,857,313/- HAS BEEN DEBITED IN ITS BOOKS OF ACCOUNTS AS ROYALTY PAID TO THE ASSESSEE. ON THIS, THE LEARNED AO ENTERTAINED A DOUBT AND BECAUSE OF THE DISCREPANCY OCCURRED IN THE FIGURES, AS STATED ABOVE, HE BROUGHT THE ENTIRE AMOUNT OF RS.63,34,93,811/-. IN ALL FAIRNESS, THE AO SHOULD HAVE CALLED FOR THE REASON FOR THE DISCREPANCY THAT OCCURRED ON THAT STAGE ITSELF BECAUSE NOWHERE MNYL HAD STATED THE FIGURE OF RS 63,34,93,811/- AS DEBITED IN THEIR BOOKS OF ACCOUNTS AS ROYALTY. 11. ACCORDING TO THE TWO LETTERS REFERRED TO BY THE LEARNED AO, THE ROYALTY AMOUNT AS MENTIONED IN THE BOOKS OF MNYL MUST BE EITHER RS.50,74,59,146/- OR RS.61,78,57,313/-. WE UNDERSTAND IF THE LEARNED AO BROUGHT THE HIGHER FIGURE TO TAX. BUT STRANGELY, LEARNED AO PICKED UP THE FIGURE OF RS.63,34,93,811/-, MAY BE BECAUSE IN THE ORIGINAL RETURN THAT WAS FILED ON 22.9.2010, THIS AMOUNT WAS MENTIONED AS THE TOTAL INCOME. HOWEVER, ACCORDING TO THE ASSESSEE, THIS AMOUNT OF RS.63,34,93,811/- 6 INCLUDES RS.5,91,56,720/- WHICH IS THE SALES-TAX COMPONENT WHICH THE ASSESSEE NEVER TOUCHED BUT WAS DEPOSITED DIRECTLY BY THE MNYL WITH THE GOVERNMENT. 12. THE ASSESSMENT ORDER FURTHER SPEAKS THAT AFTER THE LEARNED DRP DIRECTED THE LEARNED AO TO VERIFY THE RECONCILIATION FROM MNYL, EVEN AT THIS STAGE ALSO, LEARNED AO DID NOT STRAIN HIS NERVE TO GO FOR PROPER VERIFICATION OF THE FIGURES, AND INSTEAD STUCK TO HIS OLD ORDER WHICH WAS NOT FAVOURED BY THE LEARNED DRP. AT THIS STAGE, THE ASSESSEE MADE AN ATTEMPT TO RECONCILE THE TWO FIGURES THAT WERE SHOWN AS ROYALTY BY MNYL, VIZ., RS.57,43,37,091/- AND RS.61,78,57,313/-. THE ASSESSEE EXPLAINED BY LETTER DATED 15.12.2014 THAT THE DIFFERENCE BETWEEN RS.61,78,57,313/- AND RS.57,43,37,091/- IS THE AMOUNT OF RS.4,35,20,223/- WHICH WAS DEBITED IN THE ACCOUNTS OF MNYL TOWARDS PRE PAID EXPENSES CHARGED DURING THE YEAR. THE CONFIRMATION FROM THE MNYL ESTABLISHES THE SAME. EVEN AT THIS STAGE, IN ALL FAIRNESS, LEARNED AO SHOULD HAVE MADE ENQUIRIES INTO THE FIGURE OF RS.4,35,20,223/- INSTEAD OF BLINDLY SAYING THAT THIS NEW FACT THAT HAS EMERGED AT THAT STAGE WAS NOT BEFORE THE REVENUE AT THE SCRUTINY STAGE, AS SUCH, THE FRESH RECONCILIATION FILED BY MNYL U/S 133(6) OF THE INCOME-TAX ACT, 1961 DOES NOT PROVE THE CONTENTION OF THE ASSESSEE THAT MNYL PAID OR CREDITED ONLY THE AMOUNT OF RS.57,43,37,091/- EXCLUDING THE AMOUNT OF SERVICE TAX TO THE ASSESSEE AS PER MNYL BOOKS OF ACCOUNTS FOR THE RELEVANT PERIOD. THIS APPROACH OF THE LEARNED AO DOES NOT SEEM TO BE CORRECT. 7 13. THERE IS NO REASON FOR THE LEARNED AO TO DISREGARD THE DIRECTION OF THE LEARNED DRP TO BRING TO TAX ONLY THE ROYALTY AMOUNT AFTER EXCLUDING THE SERVICE TAX ELEMENT AFTER DUE VERIFICATION OF THE FACT. THE CONFIRMATION SUBMITTED BY THE MNYL SUBSEQUENT TO THE DIRECTIONS OF THE LEARNED DRP CLEARLY ESTABLISHES THAT THE ROYALTY AMOUNT THAT WAS PAID DURING THE YEAR WAS ONLY RS.57,43,37,091/- AND SERVICE TAX AMOUNT WAS RS.5,91,56,720/-. THE DEBITING OF RS.4,35,20,223/- BY MNYL TOWARDS PRE PAID EXPENSES CHARGED DURING THE YEAR DOES NOT NECESSARILY CHARACTERIZE THAT AMOUNT AS ROYALTY AND EVEN IN THAT CASE, THE ROYALTY FIGURE CANNOT BE RS.63,34,93,811/- TO BE TAXED IN THE HANDS OF THE ASSESSEE. 14. WE ARE, THEREFORE, OF THE CONSIDERED OPINION THAT IT IS A CLEAR CASE OF ROYALTY AMOUNT BEING RS.57,43,37,091/- OUT OF WHICH THE TAX OF RS.6,68,77,942/- WAS DEDUCTED AT SOURCE AND BALANCE OF RS.50,74,59,146/- WAS PAID TO THE ASSESSEE WHEREAS THE TAX DEDUCTED AT SOURCE VIZ. RS.6,68,77,942/- ALONG WITH SERVICE TAX AMOUNT OF RS.5,91,56,720/- WAS DEPOSITED WITH THE GOVERNMENT BY THE MNYL DIRECTLY. ON THE FACE OF THIS ESTABLISHED FACTS, WE FIND IT DIFFICULT TO SUSTAIN THE ADDITION OF RS.5,91,56,720/- TREATING IT AS ROYALTY. 15. LEARNED AR FURTHER SUBMITTED THAT SUCH QUESTION OF TREATING THE SERVICE TAX AS ROYALTY HAD NOT ARISEN IN THE AY 2009-10 WHEREAS IN THE SUBSEQUENT ASSTT. YEAR, NAMELY, 2011-12 WHILE PASSING THE ORDER U/S 143(3) OF THE ACT, LEARNED AO EXCLUDED THE SERVICE TAX COMPONENT INCLUDED IN THE TDS CERTIFICATE. ASSESSMENT ORDER FOR THE ASSTT. YEAR 2011- 12 IS PLACED ON RECORD. 8 16. IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT BRINGING THE SERVICE TAX ELEMENT OF RS.5,91,56,720/- TO INCOME TAX CANNOT BE SUSTAINED AND THE LEARNED AO IS DIRECTED TO DELETE THE SAME. APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED. 17. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2018. SD/- SD/- (N.K. SAINI) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER DATED: 30 TH OCTOBER, 2018 VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSTT. REGISTRAR 9 DRAFT DICTATED ON 23.10.2018 DRAFT PLACED BEFORE AUTHOR 24.10.2018 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON DATE OF UPLOADING ORDER ON THE WEBSITE FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.