Epcos AG., Nashik V. Assistant Commissioner of Income-tax, (IT), Circle-1, Pune

ITA 1440/PUN/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0272 (ITAT-PUNE)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 12-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S B PRASAD
• Assessee Lawyers: ABHISHEK TILAK
• Keywords: Principle of natural justice; Application of stay; Additional evidence; Permanent establishment
• Section: 143(3); 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 1440 /P U N/201 8 / ASSESSMENT YEAR : 201 4 - 1 5 EPCOS AG C/O EPCOS INDIA PVT. LTD., PLOT NO.E, 22 - 25, MIDC, SATPUR, NASHIK 422007 . / APPELLANT PAN: A A ACE9787H VS. THE ASST. COMMISSIONER OF INCOME TAX (INTE RNATIONAL TAXATION) , CIRCLE 1, PUNE . / RESPONDENT SA NO.113/PUN/2018 ARISING OUT OF ITA NO. 1440/PUN/2018 ASSESSMENT YEAR : 2014 - 15 EPCOS AG C/O EPCOS INDIA PVT. LTD., PLOT NO.E, 22 - 25, MIDC, SATPUR, NASHIK 422007 . APP LICANT PAN: AAACE9787H VS. THE ASST. COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), CIRCLE 1, PUNE . RESPONDENT ASSESSEE BY : SHRI ABHISHEK TILAK REVENUE BY : S HRI S.B. PRASAD, CIT / DATE OF HEARING : 0 6 . 1 2 .201 8 / DATE OF PRONOUNCEMENT: 11 . 1 2 .201 8 ITA NO. 1440 /P U N/20 1 8 SA NO.113/PUN/2018 EPCOS AG 2 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY ASSESSEE IS AGAINST ORDER OF A CIT (INTERNATIONAL TAXATION) , CIRCLE - 1, PUNE , DATED 01 . 08 .201 8 RELATING TO ASSESSMENT YEAR 201 4 - 1 5 PASSED UNDER SEC TION 143(3) R.W.S. 144C(13) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . THE ASSESSEE HAS ALSO FILED CAPTIONED STAY APPLICATION. 2. THE APPEAL OF ASSESSEE AND STAY APPLICATION WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND S OF APPEAL: - GROUND NO.1 - NON - CONSTITUTION OF PERMANENT ESTABLISHMENT ('PE') OF THE APPELLANT IN INDIA 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSISTANT COM MISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) - I , PUNE, ('AO') ERRED IN PROPOSING AND THE DISPUTE RESOLUTION PANEL ('DRP') FURTHER ERRED IN NOT INTERFERING WITH THE CONCLUSION OF THE AO THAT THE APPELLANT INDIAN SUBSIDIARY CONSTITUTES ITS 'BUSINESS CON NECTION' IN INDIA UNDER SECTION 9( 1 )(I) OF THE INCOME - TAX ACT, 1961('THE ACT') OR A 'PERMANENT ESTABLISHMENT' ('PE') IN INDIA UNDER ARTICLE 5(1), 5(2), 5(5) AND 5(6) OF THE INDIA - GERMANY TAX TREATY ('TAX TREATY'). 1.2 THE AO AND THE DRP FAILED TO APPRECIA TE THAT THE APPELLANT OPERATES ENTIRELY FROM OUTSIDE INDIA, HAS NO FIXED PLACE OF BUSINESS IN INDIA AS ENVISAGED UNDER SECTION 9(1)(I) OF THE ACT OR ARTICLE 5(1) OR 5(2) OF THE TAX TREATY DIRECTLY OR IN THE FORM ITS INDIAN SUBSIDIARY AND FURTHER ARTICLE 5( 5) AND 5(6) OF THE TAX TREATY DO NOT APPLY TO ITS CASE AS THEY RELATE ONLY TO LOCAL INDIAN AGENTS ENGAGED IN BUYING AND SELLING GOODS IN INDIA ON BEHALF OF THEIR OVERSEAS PRINCIPAL WHICH IS NOT THE FACT IN THE CASE OF THE APPELLANT AND THE APPELLANT CLAIMS RELIEF ACCORDINGLY. 1.3 IT IS PRAYED THAT THE AO BE DIRECTED TO TAX ITS INDIA SOURCE INCOME FROM ITS INDIAN SUBSIDIARY IN THE FORM OF FEES FOR TECHNICAL SERVICES AND INTEREST AT 10 % ON GROSS BASIS UNDER ARTICLES 11 AND 12 OF THE TAX TREATY AS OFFERED IN THE RETURN OF INCOME. GROUND NO. 2 - NO ATTRIBUTION OF INCOME DEEMED TO ACCRUE / ARISE IN INDIA POSSIBLE TO THE ALLEGED PE OF THE APPELLANT IN INDIA 2.1 WITHOUT PREJUDICE TO THE ABOVE AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO ERRED IN PROPOSING AND THE DRP FURTHER ERRED IN NOT INTERFERING WITH THE AO'S CONCLUSION THAT THE ITA NO. 1440 /P U N/20 1 8 SA NO.113/PUN/2018 EPCOS AG 3 APPELLANT'S INDIA SOURCE INCOME TAXABLE ON DEEMED ACCRUAL BASIS IS A TTRIBUTABLE TO THE ALLEGED PE IN INDIA UNDER ARTICLE 7 OF THE TAX TREATY. 2.2 THE AO AND THE DRP FAILED TO APPRECIATE THAT SINCE THE APPELLANT OPERATES ENTIRELY FROM OUTSIDE INDIA (GERMANY) AND CARRIES OUT NO OPERATIONS IN INDIA, NO INCOME CAN BE ATTRIBUTED TO THE ALLEGED PE IN INDIA UNDER ARTICLE 7 OF THE TAX TREATY, AND EVEN OTHERWISE PURSUANT TO AR TICLE 7(3) OF THE TAX TREATY, THE TAXATION ON GROSS BASIS AT HIGHER RATES OF 20 % ON GROSS BASIS UNDER SECTION 115A / 44D OF THE ACT IS UNWARRANTED AND THE TAXATION OUGHT TO BE AT 10% ON GROSS BASIS UNDER ARTICLES 11 AND 12 OF THE TAX TREATY AS OFFERED IN T HE RETURN OF I NCOME AND THE AO BE DIRECTED ACCORDIN G LY. GROU N D NO. 3 - DENIAL OF RECOURSE TO NON - DISCRIMINATION CLAUSE - ARTICLE 24 OF THE TAX 3.1. WITHOUT PREJUDICE TO THE ABOVE AND ON THE FACTS AND THE IN THE CIRCUMSTANCES OF THE CASE, THE AO HAS ERRED IN PROPOSING AND THE DRP HAS FURTHER ERRED IN NOT INTERFERING WITH THE AO'S CONCLUSION OF NOT GRANTING BENEFIT OF ARTICLE 24 OF THE TAX TREATY RELATING TO NON - DISCRIMINATION TO THE FACTS OF THE APPELLANT'S CASE. 3.2. THE AO AND THE DRP FAILED TO APPRECIA TE THAT UNDER ARTICLE 24 - 'NON - DISCRIMINATION OF THE TAX TREATY, THE APPELLANT AND ITS ALLEGED PE IN INDIA CANNOT BE SUBJECTED TO TAXATION REQUIREMENT WHICH IS MORE BURDENSOME THAN THE TAXATION OF RESIDENT IN INDIA FOR ITS ALLEGED PE AND THE AO BE DIRECTE D TO TAX THE INCOME ON NET BASIS BASED ON AUDITED FINANCIAL STATEMENTS AS AGAINST 20 % ON GROSS BASIS UNDER SECTION 115A/44D OF THE ACT. GROUND NO. 4 - CONSTRUING REIMBURSEMENTS FROM INDIAN SUBSIDIARY AS INCOME OF THE ALLEGED PE IN INDIA - INR 49,85,935. 4.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO HAS ERRED IN CONSTRUING RE IMBURSEMENT OF EXPENSES FROM ITS INDIAN SUBSIDIARY AS INCOME OF THE APPELLANT AND MAK ING AN ADDITION OF INR 49,85,935 TO ITS TOTAL INCOME. 4.2 T HE AO FAILED TO APPRECI ATE THAT THE AMOUNTS RECOVERED FROM INDIAN SUBSIDIARY ARE FOR R EIMBURSEMENT OF EXPENSES AND HENCE NOT LIABLE TO TAX. 4.3 IT IS PRAYED THAT THE AO BE DIRECTED TO DELETE THE ADDITION OF INR 49,85,935 MADE TO ITS TOTAL IN COME. GROUND NO. 5 - NON GRANT OF CREDIT OF TDS DEDUCTED ON REIMBURSEMENT OF EXPENSES INR 510,826 5.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO FAILED TO GRANT CREDIT OF THE TAX WITHHELD BY THE INDIAN SUBSIDIARY ON A CONSERVATIVE BASIS ON THE REIMBURSEMENT OF EXPENSES. 5.2. IT IS PRAYED THAT THE AO BE DIRECTED TO GRANT THE CORRESPONDING CREDIT FOR TAX DEDUCTED AT SOURCE BY THE INDIAN SUBSIDIARY. GROUND NO.6 - LACK OF ADEQUATE OPPORTUNITY 6.1. WITHOUT PREJUDICE TO THE ABOVE AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN NOT GRANTING SUFFICIENT OPPORTUNITY TO THE APPELLANT BEFORE PASSING THE ORDER UNDER SECTION 144C(1) OF THE ACT AND THE DRP FURTHER ERRED IN NOT CONSIDERING THE OBJECTIONS / SUBMISSIONS OF THE APPELLANT WHILE GIVING DIR ECTIONS ITA NO. 1440 /P U N/20 1 8 SA NO.113/PUN/2018 EPCOS AG 4 UNDER SECTION 144C(5) OF THE ACT AND THE SAID ORDERS / DIRECTIONS BEING PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE BE KINDLY QUASHED OR SET ASIDE. 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT ORIGINAL GR OUNDS OF APPEAL NO.1 TO 3 RAISED ARE SQUARELY COVERED BY EARLIER ORDER OF TRIBUNAL. HOWEVER, THE ISSUE RAISED IN ORIGINAL GROUNDS OF APPEAL NO.4 AND 5 ARE ADDITIONAL ISSUES WHICH WERE NOT RAISED BEFORE THE CIT(A). HE THUS, SOUGHT PERMISSION TO FILE ADDIT IONAL GROUNDS OF APPEAL ALONG WITH ADDITIONAL EVIDENCE, WHICH WERE FILED ON THE NEXT DATE OF HEARING. THE ADDITIONAL GROUNDS OF APPEAL READ AS UNDER : - GROUND 4 CONSTRUING REIMBURSEMENTS FROM INDIAN SUBSIDIARY AS INCOME OF THE ALLEGED PE IN INDIA RS.49 ,85,935 4.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE AO HAS ERRED IN CONSTRUING REIMBURSEMENT OF EXPENSES FROM ITS INDIAN SUBSIDIARY AS INCOME OF THE APPELLANT AND MAKING AN ADDITION OF RS.49,85,935/ - TO ITS TOTAL INCOME. 4.2 TH E AO FAILED TO APPRECIATE THAT THE AMOUNTS RECOVERED FROM INDIAN SUBSIDIARY ARE FOR REIMBURSEMENT OF EXPENSES AND HENCE NOT LIABLE TO TAX. 4.3 IT IS PRAYED THAT THE AO BE DIRECTED TO DELETE THE ADDITION OF RS.49,85,935 MADE TO ITS TOTAL INCOME. GROUND 5 NON GRANT OF CREDIT OF TDS DEDUCTED ON REIMBURSEMENT OF EXPENSES RS.5,,10,826/ - 5.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO FAILED TO GRANT CREDIT OF THE TAX WITHHELD BY THE INDIAN SUBSIDIARY ON A CONSERVATIVE BASIS ON THE REIMBURSEME NT OF EXPENSES. 5.2 IT IS PRAYED THAT THE AO BE DIRECTED TO GRANT THE CORRESPONDING CREDIT FOR TAX DEDUCTED AT SOURCE BY THE INDIAN SUBSIDIARY. 5. THE ASSESSEE ALSO FURNISHED AN APPLICATION FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL ALONG WITH ADDIT IONAL EVIDENCE, ADMITTEDLY WHICH WERE NOT FILED BEFORE THE AUTHORITIES BELOW. 6. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS A NON - RESIDENT ENTITY OF GERMANY AND WAS RENDERING SERVICES TO THE INDIAN ENTITIES. THE ASSESSEE HAD RECEIVED SUPPORT SER VICE CHARGES AGAINST SERVICES RENDERED AND AS PER ITA NO. 1440 /P U N/20 1 8 SA NO.113/PUN/2018 EPCOS AG 5 PROVISIONS OF INDO - GERMAN TREATY HAD OFFERED THE RECEIPTS TO TAX @ 10%. THE ASSESSEE HAD ALSO OFFERED INTEREST INCOME SIMILARLY. THE ASSESSING OFFICER ON THE OTHER HAND, APPLYING PROVISIONS OF SECTION 115 A R.W.S. 44DA OF THE ACT HAD TAXED THE INCOME ATTRIBUTABLE TO PERMANENT ESTABLISHMENT (IN SHORT PE) @ 20%. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE TRIBUNAL HAS HELD THAT IN THE ABSENCE OF PE, THE PROVISIONS OF INDO - GE RMAN TREATY WOULD APPLY AND CONSEQUENTLY, RECEIPTS WERE SUBJECT TO TAX @ 10%. THE SAID ISSUE HAS BEEN DECIDED BY THE TRIBUNAL TILL ASSESSMENT YEAR 2013 - 14 BY DIFFERENT ORDERS AS UNDER: - SR. NO. DECISION CITATION DATE OF ORDER A.Y. 1 ACIT VS. EPCOS AG [ 2009] 120 TTJ 29 (PUNE) 30 JUNE 2008 2003 - 04 2 EPCOS AG VS. DY.CIT ITA NO.1413/PN/2010 6 APRIL 2011 2006 - 07 3 EPCOS AG VS. DDIT ITA NO.2535/PN/2012 31 JANUARY 2014 2008 - 09 4 DY.DIT VS. EPCOS AG ITA NOS.786 TO 790/PN/2012 26 MARCH 2014 2000 - 01 TO 2002 - 03 , 2004 - 05 & 2005 - 06 5 DDIT VS. EPCOS AG ITA NO.513/PN/2013 20 MARCH 2014 2007 - 08 6 DDIT VS. EPCOS AG ITA NO.846/PN/2014 24 SEPTEMBER 2015 2009 - 10 7 DDIT VS. EPCOS AG ITA NO.249/PN/2015 14 DECEMBER, 2016 2010 - 11 7. THE LEARNED DEPARTMENTAL REPRESENTAT IVE FOR THE REVENUE ON THE OTHER HAND POINTED OUT THAT THOUGH THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL BUT THE REVENUE IS IN APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT. 8. WE FIND THAT THE ISSUE IN THE PRESENT APPEAL IS SQUARELY COVERED BY DIFFERENT OR DERS OF TRIBUNAL AND THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY THE LATEST ORDER VIDE PARA 9 IN ITA NOS.496/PUN/2016, 222 & 223/PUN/2017 ALONG WITH SA NOS.123 & 124/PUN/2017, RELATING TO ASSESSMENT YEAR S 2011 - 12, 2012 - 13 & 2013 - 14, DATED 1 5.12.2017 , IN TURN, RELYING ON EARLIER DECISIONS AND HAVE HELD THAT THERE IS NO MERIT IN INVOKING ITA NO. 1440 /P U N/20 1 8 SA NO.113/PUN/2018 EPCOS AG 6 PROVISIONS OF SECTION 115A OF THE ACT IN RESPECT OF INTEREST AND 115A R.W.S. 44DA OF THE ACT IN RESPECT OF SUPPORT / ROYALTY SERVICES ; THE RECEIPTS ARE TO BE TAXED IN THE HANDS OF ASSESSEE UNDER INDO - GERMAN TREATY @ 10%. 9. THE ISSUE ARISING BEFORE US IS SQUARELY COVERED BY EARLIER ORDERS OF THE TRIBUNAL, ON WHICH WE ARE PLACING RELIANCE BUT FOR THE SAKE OF BREVITY, THE SAME ARE NOT BEING REPRODUCED. THE REVE NUE HAS FILED APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT . SINCE THE APPEAL AGAINST THE ORDER OF TRIBUNAL IS PENDING BEFORE THE HONBLE BOMBAY HIGH COURT, BUT THE REVENUE HAS NOT BROUGHT ON RECORD ANY CHANGE IN FACTS FOR THE YEAR UNDER CONSIDERATION . A CC ORDINGLY, FOLLOWI NG THE SAME PARITY OF REASONING AS IN EARLIER ORDER, GROUNDS OF APPEAL NO.1 TO 3 RAISED BY ASSESSEE ON THE ISSUE OF ASSESSABILITY OF ROYALTY INCOME AND INTEREST IS DECIDED IN FAVOUR OF ASSESSEE. 10. THE GROUNDS OF APPEAL NO.4 AND 5 RAISED IN ORIGINAL GROUNDS OF APPEAL DO NOT ARISE FROM THE ORDER OF CIT(A), HENCE THE SAME ARE DISMISSED. 11. NOW, COMING TO ADDITIONAL GROUNDS OF APPEAL, WHEREIN THE ASSESSEE HAS RAISED THE ISSUE IN RESPECT OF CERTAIN ADDITIONS MADE ON ACCOUNT OF REIMBURSEMENT OF EXPENSES. THE PLEA OF ASSESSEE IS THAT ONCE THE EXPENSES WE RE REIMBURSED BY ITS INDIAN SUBSIDIARY, THEN THE SAME CANNOT BE ADDED AS ITS INCOME. THE ASSESSEE HAS ALSO RAISED CONSEQUENTIAL ISSUE VIDE ADDITIONAL GROUND OF APPEAL NO.5 THAT CREDIT FOR TDS WHICH HAS BEEN DEDUCTED OUT OF THE AFORESAID REIMBURSEMENT OF EXPENSES TO THE TUNE OF 5,10,826/ - HAS NOT BEEN ALLOWED BY ASSESSING OFFICER THOUGH THE AMOUNT HAS BEEN ASSESSED IN THE HANDS OF ASSESSEE. ITA NO. 1440 /P U N/20 1 8 SA NO.113/PUN/2018 EPCOS AG 7 12. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE FIND THAT THE ISSUE RAISED BY ASSESSEE IS PURELY LEGAL IN NATURE AND THE SAME IS ADMITTED FOR ADJUDICATION. THE ASSESSEE HAS ALSO PLEADED THAT THE EVIDENCE IN THIS REGARD COULD NOT BE FURNISHED BEFORE THE ASSESSING OFFICER BUT THE SAME IS BEING FILED BEFORE THE TRIBUNAL BY WAY OF ADDITIONAL EVIDENCE. ADMITTING THE SAME, W E DIRECT THE ASSESSING OFFICER TO VERIFY THE COPIES OF INVOICES IN THIS REGARD AND ADJUDICATE THE ISSUE IN TURN, GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSEE IS IN ANY CASE, IS ENTITLED TO CLAIM THE CREDIT FOR TDS AGAINST THE AFORESAID RECEIPTS AND WE DIRECT THE ASSESSING OFFICER TO ALLOW THE SAME IN ACCORDANCE WITH LAW AFTER VERIFYING THE CLAIM OF ASSESSEE. THE ADDITIONAL GROUNDS OF APPEAL NO.4 AND 5 ARE THUS , REMITTED BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE ISSUE IN LINE WITH OUR DIRECTIONS. 13. THE ASSESSEE HAS ALSO MOVED STAY APPLICATION. SINCE, WE HAVE DECIDED THE PRESENT APPEAL, THE STAY APPLICATION OF ASSESSEE IS DISMISSED. 1 4 . IN THE RE SULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE AND THE STAY APPLICATION OF ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THIS 11 TH DAY OF DECEM B ER , 201 8 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 11 TH DECEM BER , 201 8 . GCVSR ITA NO. 1440 /P U N/20 1 8 SA NO.113/PUN/2018 EPCOS AG 8 / COPY OF THE ORDER IS FORWARDED TO : 1. THE APP ELLANT ; 2. THE RESPONDENT; 3. THE DRP, PUNE ; 4. THE DIT (TP/IT), PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE