DCIT (IT)-4(3)(2), MUMBAI V. WNS NORTH AMERICA INC, MUMBAI

ITA 1614/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1954 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2016
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 07-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 18-03-2015
• Court: TRIBUNAL
• Department Lawyers: JASBIR CHOUHAN
• Keywords: Double taxation relief; Opportunity of being heard; Retrospective amendment; Permanent establishment; Onus to prove
• Section: 143(3); 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NO.1614/MUM/2015 (ASSESSMENT YEAR: 2011-12) DY.CIT (INTERNATIONAL TAXATION) 4(3)(2), MUMBAI VS M/S WNS NORTH AMERICA INC C/O WNS GLOBAL SERVICES PVT LTD, PL- 10, GATE-4, GODREJ & BOYCE COMPLEX, PIROJSHANAGAR, LBS MARG, VIKHROLI (W), MUMBAI-079 PAN : AAACW5493Q (APPELLANT) (RESPONDENT) APPELLANT BY SHRI JASBIR CHOUHAN, CIT-DR RESPONDENT BY SHRI MANISH KANTH DATE OF HEARING : 08-11-2016 DATE OF ORDER : 25 -11-2016 O R D E R PER ASHWANI TANEJA, AM: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF DISPUTE RESOLUTION PANEL (HEREINAFTER CALLED AS DR P) DATED 08-12-2014 PASSED U/S 144C(5) OF THE ACT AS WELL AS THE FINAL ORDER OF THE ASSESSING OFFICER DATED 28-01-2015 PASSED U/S 144C(13) R.W.S. 143(3) OF THE ACT FOR A.Y. 2011-12 ON THE FOLLOWING GROUNDS: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HON'BLE DRP ERRED IN HOLDING THAT THE RECEIPT O F 2 I.T.A. NO.1614/MUM/2015 REIMBURSEMENT OF INTERNATIONAL TELECOM CONNECTIVITY CHARGES AMOUNTING TO RS.10,76,41,998/- DOES NOT QUALIFY AS 'ROYALTY' UNDER ARTICLE 12(3)(B) OF THE INDIA USA DTAA. EVEN WHILE ASSUMING THE ARGUMENT SAKE WITHOUT ADMIT TING THAT THE RECEIPTS OF RS. 10, 76,41,998/- DOES NOT QUALIF Y AS 'ROYALTY' UNDER ARTICLE 12 OF INDIA USA DTAA, THE SAME WOULD BE LIABLE TO BE TAXED AS BUSINESS PROFIT UNDER ARTICLE 7 READ WI TH ARTICLE 5 OF INDIA USA DTAA IN VIEW OF THE FORCE OF ATTRACTION R ULE. ' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE DRP ERRED IN HOLDING THAT THE RECEIPT O F REIMBURSEMENT OF EXPENSES AMOUNTING TO RS.15,21,74, 498/- DOES NOT QUALIFY AS FIS UNDER ARTICLE 12 (4)(B) OF THE INDIA-USA DTAA. EVEN WHILE ASSUMING FOR THE ARGUMENT SAKE WITHOUT A DMITTING THAT THE RECEIPTS OF SAME DOES NOT QUALIFY AS 'FIS' UNDER ARTICLE 12 (4) (B) OF INDIA USA DTAA, THE SAME WOULD BE LIA BLE TO BE TAXED AS BUSINESS PROFIT UNDER ARTICLE 7 READ WITH ARTICLE 5 OF INDIA USA DTAA IN VIEW OF THE FORCE OF ATTRACTION R ULE.' 3. THE APPELLANT PRAYS THAT THE ORDER OF THE DRP BE SET ASIDE ON THE ABOVE GROUND(S) AND THE DRAFT ORDER OF THE ASSE SSING OFFICER BE RESTORED. [ 2. GROUND 1: IN THIS GROUND, THE REVENUE IS AGGRIEVED BY THE ORD ER OF THE DRP IN HOLDING THAT RECEIPT OF REIMBURSEMENT OF INTERNATIONAL TELECOM CONNECTIVITY CHARGES AMOUNTING TO RS.10,76,41,998/- DOES NOT QUALIFY AS ROYALTY UNDER ARTICLE 12(3)(B) OF INDO-US DTAA. 3. DURING THE COURSE OF HEARING, IT WAS SUBMITTED JOIN TLY BY BOTH THE PARTIES THAT THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL AS WELL AS DRP IN EARLIER YEARS. 4. HAVING GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES, IT IS NOTED BY US THAT WHILE DECIDING THE ISSUE, THE DRP HELD AS UNDER:- 3 I.T.A. NO.1614/MUM/2015 7. DIRECTIONS OF THE DRP: THE ASSESSEE'S SUBMISSIONS HAVE BEEN CONSIDERED. A REFERENCE TO THE DECISIONS PASSED IN ASSESSEE'S OWN CASE BY THE MUMBAI ITAT FORA.YRS.2005-06 AND 2006-07 AND THE DECISION OF TH E BOMBAY HIGH COURT AFFIRMING THE DECISION OF THE ITAT FOR A .YRS.2003-04 AND 2004-05 CLEARLY SHOWS THAT THE IMPUGNED AMOUNTS HAVE BEEN TREATED AS PURE REIMBURSEMENT NOT LIABLE TO TA X IN INDIA. THE ITAT HAS ALSO HELD THAT THE IMPUGNED SUMS ARE H OT IN THE NATURE OF ROYALTY AS THEY DO NOT PERMIT THE USE OF OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT. RESPECTFULLY FOLLOWING THE VARIOUS DECISIONS IN ASSESSEE'S OWN C ASE, RENDERED BY THE HON'BLE ITAT AND BOMBAY HIGH COURT, THE AO I S HEREBY DIRECTED TO DELETE THE PROPOSED ADDITION TO ASSESSE ES INCOME. 5. IT HAS BEEN FURTHER NOTED BY US THAT RECENTLY WE HA D PASSED A COMMON ORDER DATED 18.11.2016 IN ASSESSEE S OWN CASE FOR ASSESSMENT YEARS 2008-09, 2009-10 AND 2010 -11 IN ITA NUMBERS 1406-07-08/ MUM/2014, 6410-11/MUM/2012 , WHEREIN IDENTICAL ISSUE HAS BEEN DECIDED IN ASSESSEES FAVO UR BY REJECTING THE GROUND OF THE REVENUE. IN OUR AFORES AID ORDER, WE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY H OLDING AS UNDER:- 7. DURING THE COURSE OF HEARING BEFORE US IT WAS SUBMITTED BY THE LD. COUNSEL THAT THE EARLIER YEARS DECISIONS OF THE TRIBUNAL HAVE BEEN SUBSEQUENTLY FOLLOWED BY THE TRIBUNAL IN ASSESSEES OWN CASE EVE N IN A.Y. 2006-07. HE PLACED BEFORE US COPY OF ORDER OF THE TRIBUNAL FOR A.Y. 2006-07 DELIVERED VIDE ORDER DATE D 14- 12-2012 IN ITA NO.8621/MUM/2010. LD. DR DID NOT MAKE ANY DISTINCTION ON LAW OR ON FACTS. 8. WE HAVE GONE THROUGH THE AFORESAID JUDGMENT. IT IS NOTED THAT IN THIS DECISION ALL THE ARGUMENTS RA ISED BY THE REVENUE HAVE BEEN DEALT WITH BY THE TRIBUNAL BE FORE DECIDING THIS GROUND IN FAVOUR OF THE ASSESSEE. WE FIND IT APPROPRIATE TO REPRODUCE RELEVANT PORTION OF THE OBSERVATIONS AND FINDINGS OF THE TRIBUNAL AS UNDER: - 4 I.T.A. NO.1614/MUM/2015 3.1. SECOND ISSUE RAISED IN THIS APPEAL IS AGAINST THE REIMBURSEMENT OF INTERNATIONAL TELECOM CONNECTIVITY CHARGES RECEIVED BY THE ASSESSEE FROM WNS INDIA WHI CH HAVE BEEN HELD BY THE AO TO BE TAXABLE UNDER ARTICL E 12 OF THE DTAA AS ROYALTY. THE FACTS APROPOS THIS ISSU E ARE THAT THE ASSESSEE RECEIVED REIMBURSEMENT OF LEASE L INE CHARGES AMOUNTING TO RS. 6,41,87,580 FROM WNS INDIA . THE A.O. CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE REIMBURSEMENT OF SUCH EXPENSES SHOULD NOT BE CONSIDERED AS ROYALTY LIABLE TO TAX UNDER ARTICLE 1 2 OF DTAA. THE ASSESSEE SUBMITTED THAT WNS INDIA IS IN T HE BUSINESS OF PROVIDING SOFTWARE AND IT ENABLED SERVI CES TO CLIENTS LOCATED OUTSIDE INDIA. FOR TRANSMITTING THE DATA FROM THE UNIT OF THE WNS INDIA TO THE CUSTOMER S LOCATED OUTSIDE INDIA, WNS INDIA AVAILED THE SERVIC ES OF THE DOMESTIC AS WELL AS INTERNATIONAL TELECOM OPERA TORS. THE ASSESSEE PAID THESE INTERNATIONAL TELECOM CONNECTIVITY CHARGES TO THE INTERNATIONAL TELECOM OPERATORS FOR THE SERVICES UTILIZED BY WNS INDIA OU TSIDE INDIA AND THE SAME WAS ACCORDINGLY REIMBURSED BY WN S INDIA TO THE ASSESSEE. IT WAS STATED THAT THESE REC OVERIES REPRESENTED REIMBURSEMENT AT COST OF THE EXPENSES INCURRED BY THE ASSESSEE FOR AND ON BEHALF OF WNS I NDIA WITHOUT ANY MARK UP. SIMILAR SUBMISSIONS WERE ALSO ADVANCED BEFORE THE DRP CONTENDING THAT THE REIMBURSEMENT OF INTERNATIONAL TELECOM CONNECTIVITY CHARGES WAS WITHOUT ANY PROFIT ELEMENT AND HENCE TH E SAME COULD NOT BE CONSIDERED AS ITS INCOME. NOT CONVINCED WITH THE ASSESSEES SUBMISSIONS, THE A.O. TREATED THE PAYMENT RECEIVED FROM WNS INDIA TOWARDS REIMBURSEMENT OF INTERNATIONAL TELECOM CONNECTIVITY CHARGES AMOUNTING TO RS. 6.41 CRORES AS ROYALTY TAX ABLE AS PER ARTICLE 12 OF THE DTAA. IN REACHING THIS CONCLUSION, THE A.O. FOLLOWED HIS ORDER FOR THE EAR LIER YEAR ON THIS ISSUE. THE ASSESSEE IS BEFORE US ASSAI LING THE TREATMENT GIVEN BY THE AUTHORITIES BELOW TO SUC H REIMBURSEMENT OF EXPENSES AS ROYALTY. 3.2. THE LD. AR RELIED ON THE ORDER PASSED BY THE T RIBUNAL FOR THE EARLIER YEAR DECIDING SUCH ISSUE IN FAVOUR OF THE ASSESSEE. PER CONTRA, THE LEARNED DEPARTMENTAL 5 I.T.A. NO.1614/MUM/2015 REPRESENTATIVE OPPOSED SUCH VIEW TAKEN BY THE TRIBU NAL AND INSISTED THAT THE SAME SHOULD NOT BE FOLLOWED D UE TO INSERTION OF EXPLANATION 5 BY THE FINANCE ACT, 2012 W.R.E.F. 1.6.1976 WHICH GIVES PROPER MEANING TO CLA USE (IVA) TO EXPLANATION (2) BELOW SECTION 9(1)(VI). HE SUBMITTED THAT THE CLAUSE (IVA) CLEARLY PROVIDES TH AT ROYALTY MEANS ANY CONSIDERATION FOR THE USE OR RIGH T TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT... INVITING OUR ATTENTION TOWARDS EXPLANATION (5) INSERTED BY THE FINANCE ACT, 2012 W ITH RETROSPECTIVE EFFECT, THE LD. DR STATED THAT THE SA ME CLARIFIES THAT THE ROYALTY INCLUDES CONSIDERATION IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION WHETH ER OR NOT -- (A) THE POSSESSION OR CONTROL OF SUCH RIGHT, PROPERTY OR INFORMATION IS WITH THE PAYER; (B) SUCH RIGHT, PROPERTY OR INFORMATION IS USED DIRECTLY BY THE PAY ER . IT WAS CONTENDED THAT THE INSERTION OF EXPLANATION (5) BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT ALS O COVERING THE YEAR UNDER CONSIDERATION HAS CHANGED T HE ENTIRE COMPLEXION OF THE CASE AND IT HAS NECESSITAT ED OBSERVING DEPARTURE FROM THE EARLIER ORDER OF THE TRIBUNAL WHICH WAS PASSED WITHOUT THE ASSISTANCE OF SUCH LEGISLATIVE AMENDMENT COMING ON THE STATUTE AF TER THE PASSING OF SUCH ORDER. THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE PAYMENT RECEIVED BY THE ASSESSEE IN THE INSTANT CASE IS IN RESPECT OF A LLOWING WNS INDIA THE USER OF THE EQUIPMENT WITHOUT TAKING ITS PERSONAL POSSESSION AND HENCE CONSIDERATION FOR SUC H USER AMOUNTS TO ROYALTY. IT WAS, THEREFORE, SUBMITT ED THAT THE ORDER PASSED BY THE TRIBUNAL FOR THE EARLI ER YEAR SHOULD NOT BE FOLLOWED BECAUSE OF INSERTION OF EXPLANATION (5) BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT COVERING THE PERIOD RELEVANT T O THE A.Y. UNDER CONSIDERATION. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD. HERE AGAIN IT IS N OTICED THAT SIMILAR ISSUE WAS RAISED BEFORE THE TRIBUNAL I N ASSESSEES OWN CASE FOR THE EARLIER YEAR. VIDE THE AFORE- NOTED ORDER, THE TRIBUNAL HAS HELD THAT THE REIMBURSEMENT OF LEASE LINE CHARGES RECEIVED BY THE 6 I.T.A. NO.1614/MUM/2015 ASSESSEE FROM WNS INDIA IS NOT CHARGEABLE TO TAX IN INDIA AS SUCH PAYMENT WAS NOT IN RESPECT OF USE OF ANY EQUIPMENT SO AS TO BE CALLED AS ROYALTY. FURTHER TH E TRIBUNAL HELD THAT IT WAS A CASE OF REIMBURSEMENT O F THE LEASE LINE CHARGES WHICH DID NOT INCLUDE ANY MARK U P OR PROFIT AND SUCH REIMBURSEMENT OF ACTUAL EXPENSES CO ULD NOT TREATED AS ROYALTY INCOME CHARGEABLE TO TAX. 3.4. NOW WE TAKE UP THE CONTENTION OF THE LD. DR U RGING US TO DEVIATE FROM THE VIEW CANVASSED BY THE TRIBUN AL IN THE EARLIER YEAR. THE CONTENTION OF THE LD. DR IS T WO-FOLD. FIRST, THAT ANY RETROSPECTIVE AMENDMENT TO THE PROVISIONS OF THE ACT IS RELEVANT FOR DETERMINING T HE TAXABILITY OR DEDUCTIBILITY OF AN AMOUNT EVEN UNDER THE PROVISION OF THE DTAA AND SECOND, THE AMOUNT IN QUESTION, WHEN EXAMINED IN THE LIGHT OF EXPLANATION 5 TO SEC. 9(1)(VI) INSERTED RETROSPECTIVELY CLEARLY, BRI NGS IT IN THE SCOPE OF `ROYALTY. 3.5. WE ESPOUSE THE FIRST SEGMENT OF THE CONTENTIO N OF THE LD. DR THAT THE RETROSPECTIVE AMENDMENT TO THE PROVISIONS OF THE ACT PER SE SHOULD BE CONSIDERED F OR DETERMINING THE TAXABILITY OF THE AMOUNT EVEN UNDER THE DTAA. IT IS TRITE THAT UNDER NORMAL CIRCUMSTANCES T HE RETROSPECTIVE AMENDMENT OF ANY PROVISION OF THE ACT MANDATES IT TO BE FOLLOWED FROM THE DATE FROM WHICH SUCH RETROSPECTIVE EFFECT IS GIVEN. IN SUCH A SITUA TION IT IS CONSIDERED AS IF FOR ALL PRACTICAL PURPOSES THE PROVISION WAS THERE ON THE STATUTE FROM SUCH EARLIE R DATE. ACCORDINGLY THE ASSESSMENTS AND OTHER PROCEEDINGS UNDER THE ACT HAVE TO MOVE WITH THE PRESUMPTION OF EXISTENCE OF SUCH PROVISION FROM THE EARLIER DATE. ANY ASSESSMENT ORDER, WHICH WHEN ORIGINALLY PASSED IN ACCORDANCE WITH THE LAW AS PREVAILING AT THAT POINT OF TIME, SHALL REQUIRE AMENDMENT IF THERE IS SOME RETROSPECTIVE AMENDMENT TO THE PROVISION GERMANE TO THE ISSUE, OF COURSE, SUBJ ECT TO OTHER PROVISIONS OF THE ACT. 3.6. HOWEVER, POSITION IS SLIGHTLY DIFFERENT WHEN T HERE IS A DOUBLE TAXATION AVOIDANCE AGREEMENT WITH ANOTHER COUNTRY. SUB-SECTION (1) OF SECTION 90 OF THE ACT P ROVIDES THAT THE CENTRAL GOVERNMENT MAY ENTER INTO AN 7 I.T.A. NO.1614/MUM/2015 AGREEMENT WITH THE GOVERNMENT OF ANY OTHER COUNTRY FOR THE GRANTING OF RELIEF OF TAX IN RESPECT OF INCOME ON WHICH TAX HAS BEEN PAID IN TWO DIFFERENT TAX JURISDICTIONS. SUB-SECTION (2) OF SECTION 90 UNEQUI VOCALLY PROVIDES THAT WHERE THE CENTRAL GOVERNMENT HAS ENTE RED INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTR Y OUTSIDE INDIA UNDER SUB-SECTION (1) FOR GRANTING RE LIEF OF TAX OR FOR AVOIDANCE OF DOUBLE TAXATION, THEN, IN R ELATION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APPLIES, RS. THE PROVISIONS OF THIS ACT SHALL APPLY TO THE EXTENT TH EY ARE MORE BENEFICIAL TO THAT ASSESSEE. THE CRUX OF SUB- SECTION (2) IS THAT WHERE A DTAA HAS BEEN ENTERED I NTO WITH ANOTHER COUNTRY, THEN THE PROVISIONS OF THE AC T SHALL APPLY ONLY IF THEY ARE MORE BENEFICIAL TO THE ASSESSEE. IN SIMPLE WORDS, IF THERE IS A CONFLICT B ETWEEN THE PROVISIONS UNDER THE ACT AND THE DTAA, THE ASSE SSEE WILL BE SUBJECTED TO THE MORE BENEFICIAL PROVISION OUT OF THE TWO. IF THE PROVISION OF THE ACT ON A PARTICULA R ISSUE IS MORE BENEFICIAL TO THE ASSESSEE VIS-A-VIS THAT I N THE DTAA, THEN SUCH PROVISION OF THE ACT SHALL APPLY AN D VICE VERSA. THE HONBLE SUPREME COURT IN THE CASE OF CIT V. P.V.A.L. KULANDAGAN CHETTIAR [(2004) 267 ITR 654 (S C)] HAS HELD THAT THE PROVISIONS OF SECTIONS 4 AND 5 AR E SUBJECT TO THE CONTRARY PROVISION, IF ANY, IN DTAA. SUCH PROVISIONS OF A DTAA SHALL PREVAIL OVER THE ACT AND WORK AS AN EXCEPTION TO OR MODIFICATION OF SECTIONS 4 AN D 5. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE JURISDIC TIONAL HIGH COURT IN CIT V. SIEMENS AKTIONGESELLSCHAFT [(2 009) 310 ITR 320 (BOM.)]. IN THE LIGHT OF THE ABOVE DISC USSION IT BECOMES VIVID THAT IF THE PROVISIONS OF THE TREA TY ARE MORE BENEFICIAL TO THE ASSESSEE VIS--VIS ITS COUNT ERPART IN THE ACT, THEN THE ASSESSEE SHALL BE ENTITLED TO BE RULED BY THE PROVISIONS OF THE TREATY. 3.7. WE COME BACK TO THE CONTENTION OF THE LD. DR THAT THE RETROSPECTIVE AMENDMENT TO THE PROVISIONS OF TH E ACT SHOULD BE CONSIDERED FOR DETERMINING THE TAXABI LITY OF THE AMOUNT EVEN UNDER THE DTAA. THIS CONTENTION, IN OUR CONSIDERED OPINION, IS PARTLY CORRECT. ANY AMENDMENT CARRIED OUT TO THE PROVISIONS OF THE ACT WITH RETROSPECTIVE EFFECT SHALL NO DOUBT HAVE THE EFFECT OF 8 I.T.A. NO.1614/MUM/2015 ALTERING THE PROVISIONS OF THE ACT BUT WILL NOT PER SE HAVE THE EFFECT OF AUTOMATICALLY ALTERING THE ANALO GOUS PROVISION OF THE TREATY. THERE ARE CERTAIN PROVISIO NS IN SOME TREATIES WHICH DIRECTLY RECOGNIZE THE PROVISIO NS OF THE DOMESTIC LAW. FOR EXAMPLE, ARTICLE 7 IN CERTAIN CONVENTIONS PROVIDES THAT THE DEDUCTIBILITY OF EXPE NSES OF THE PERMANENT ESTABLISHMENT SHALL BE SUBJECT TO THE PROVISIONS OF THE DOMESTIC LAW. IN SUCH A CASE, IF ANY RETROSPECTIVE AMENDMENT IS MADE TO THE PROVISIONS O F THE ACT GOVERNING THE DEDUCTIBILITY OF THE EXPENSES , THE SAME SHALL APPLY UNDER THE TREATY AS WELL. 3.8. ARTICLE 23 IN CERTAIN TREATIES INCLUDING THAT OF INDIA WITH MAURITIUS IS `ELIMINATION OF DOUBLE TAXATION. PARA 1 OF ARTICLE 23 IN MAURITIUS TREATY PROVIDES THAT: THE LAWS IN FORCE IN EITHER OF THE CONTRACTING STATES S HALL CONTINUE TO GOVERN THE TAXATION OF INCOME IN THE RESPECTIVE CONTRACTING STATES EXCEPT WHERE PROVISIO NS TO THE CONTRARY ARE MADE IN THIS CONVENTION. FIRST PA RT OF PARA 1 OF ARTICLE 23 MAKES OUT A GENERAL RULE THAT IF INCOME OF THE PERMANENT ESTABLISHMENT IS TO BE COMPUTED IN INDIA, THEN THE PROVISIONS OF THE ACT S HALL GOVERN THE TAXATION OF INCOME IN INDIA. HOWEVER, TH E SECOND PART OF PARA 1 OF ARTICLE 23 CONTAINS A QUALIFICATION, WHICH MAKES THE OPERATION OF THE FIR ST PART OF PARA 1 OF ARTICLE 23 SUBJECT TO THE FULFILM ENT OF SUCH STIPULATION. THE WORD EXCEPT IS THE DIVIDING CONTOUR BETWEEN THE MAIN PROVISION AND THE QUALIFICATION PART. THE PORTION STARTING THEREAFTER ENUMERATES THE QUALIFICATION, WHICH IS WHERE PROVI SIONS TO THE CONTRARY ARE MADE IN THIS CONVENTION. WHEN WE READ FULL TEXT OF PARA 1 OF ARTICLE 23, IT BECOMES MANIFEST THAT IF THERE IS SOME PROVISION IN THE TRE ATY CONTRARY TO THE DOMESTIC LAW, THEN IT IS THE PROVIS ION OF THE TREATY WHICH SHALL PREVAIL. THUS THE GENERAL RU LE CONTAINED IN THE FIRST PART OF PARA 1 OF ARTICLE 23 , BEING THE APPLICABILITY OF THE DOMESTIC LAW, HAS CAST A S HADOW ON ANY PROVISION TO THE CONTRARY IN THE TREATY. IN CASE THERE IS NO CONTRARY PROVISION IN THE TREATY, THEN IT IS THE DOMESTIC LAW WHICH SHALL APPLY. IF HOWEVER, THE RE IS SOME PROVISION IN THE TREATY CONTRARY TO THE DOMEST IC 9 I.T.A. NO.1614/MUM/2015 LAW THEN IT IS SUCH CONTRARY PROVISION OF THE TREAT Y WHICH SHALL OVERRIDE THE PROVISION IN THE DOMESTIC LAW IN THE COMPUTATION OF INCOME AS PER THE TREATY. COMING BACK TO OUR CONTEXT, IF THE RETROSPECTIVE AMENDMENT IS IN THE REALM OF A PROVISION OF WHICH NO CONTRARY PROVI SION IS THERE IN THE TREATY, THEN SUCH AMENDMENT WILL HA VE EFFECT EVEN UNDER THE DTAA AND VICE VERSA. 3.9. ARTICLE 3(2) IN MOST OF THE TREATIES INCLUDING THE INDIA-USA DTAA PROVIDES THAT ANY TERM NOT DEFINED I N THE CONVENTION SHALL UNLESS THE CONTEXT OTHERWISE REQUIRES, HAVE THE MEANING WHICH IT HAS UNDER THE L AWS OF THAT STATE CONCERNING TAX TO WHICH THE CONVENTIO N APPLIES. THE NITTY-GRITTY OF ARTICLE 3(2) IN THE PR ESENT CONTEXT IS THAT IF A PARTICULAR TERM HAS NOT BEEN D EFINED IN THE TREATY BUT THE SAME HAS BEEN DEFINED IN THE ACT AND FURTHER THERE IS A RETROSPECTIVE AMENDMENT TO T HAT TERM UNDER THE ACT, IT IS THIS AMENDED DEFINITION O F THE TERM AS PER THE ACT, WHICH SHALL APPLY IN THE TREAT Y AS WELL. IF HOWEVER A PARTICULAR TERM HAS BEEN SPECIFI CALLY DEFINED IN THE TREATY, THE AMENDMENT TO THE DEFINIT ION OF SUCH TERM UNDER THE ACT WOULD HAVE NO BEARING ON THE INTERPRETATION OF SUCH TERM IN THE CONTEXT OF THE CONVENTION. A COUNTRY WHO IS PARTY TO A TREATY CANN OT UNILATERALLY ALTER ITS PROVISIONS. ANY AMENDMENT TO TREATY CAN BE MADE BILATERALLY BY MEANS OF DELIBERA TIONS BETWEEN THE TWO COUNTRIES WHO SIGNED IT. IF THERE I S NO AMENDMENT TO THE PROVISION OF THE TREATY BUT THERE IS SOME AMENDMENT ADVERSE TO THE ASSESSEE IN THE ACT, WHICH PROVISION HAS BEEN SPECIFICALLY DEFINED IN TH E TREATY OR THERE IS NO REFERENCE IN THE TREATY TO TH E ADOPTION OF SUCH PROVISION FROM THE ACT, AGAIN THE MANDATE OF SECTION 90(2) SHALL APPLY AS PER WHICH T HE PROVISIONS OF THE ACT OR THE TREATY, WHICHEVER IS M ORE BENEFICIAL TO THE ASSESSEE SHALL APPLY. GOING BY SU CH RULE, THE AMENDMENT TO THE ACT SHALL HAVE NO UNFAVORABLE EFFECT ON THE COMPUTATION OF TOTAL INCO ME OF THE ASSESSEE. 3.10. REVERTING TO THE FACTS OF THE EXTANT CASE, W E OBSERVE THAT THE TERM ROYALTY HAS BEEN DEFINED IN THE DTAA AS PER ARTICLE 12(3). SUCH DEFINITION OF THE T ERM 10 I.T.A. NO.1614/MUM/2015 ROYALTY AS PER THIS ARTICLE IS EXHAUSTIVE. PURSUA NT TO THE INSERTION OF EXPLANATION (5) BY THE FINANCE ACT , 2012, NO AMENDMENT HAS BEEN MADE IN THE DTAA TO BRING THE DEFINITION OF ROYALTY AT PAR WITH THAT PR OVIDED UNDER THE ACT. SUBJECT MATTER OF THE EXPLANATION IS OTHERWISE NOT A PART OF THE DEFINITION OF ROYALTY A S PER ARTICLE 12. AS SUCH, IT IS CLEAR THAT THE CONTENTIO N OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE RETROSPECTIVE INSERTION OF EXPLANATION 5 TO SECTION 9(1)(VII) SHOULD BE READ IN THE DTAA ALSO, CANNOT B E COUNTENANCED. 4.1. BE THAT AS IT MAY, WE TAK E UP THE SECOND ASPECT OF THE CONTENTION OF THE LD. DR O N THIS ISSUE, AS PER WHICH HE STATED THAT ON MERITS, THE EXPLANATION 5 HAS MADE THE AMOUNT IN QUESTION AS ROYALTY. WE FIND THAT THE RECEIPT OF RS.6.41 CRORE CANNOT BE CONSIDERED AS ROYALTY EVEN UNDER THE AMENDED PROVISIONS OF THE ACT. THE FACTS ARE VERY BRIEFLY RECAPITULATED THAT THE ASSESSEE RECEIVED THE SAID S UM AS REIMBURSEMENT OF CHARGES FROM WNS INDIA WHICH WERE PAID BY IT FOR LEASE LINE TO MCI WORLDCOM ETC. IN O THER WORDS, THE LEASE LINE SERVICES WERE AVAILED BY WNS INDIA FROM MCI WORLDCOM ETC., FOR WHICH THE ASSESSEE ORIGINALLY MADE THE PAYMENT TO SUCH OPERATORS ON BE HALF OF WNS INDIA AND SUBSEQUENTLY RECOVERED THE SAME FR OM WNS INDIA AT COST WITHOUT ANY MARK UP. THE QUESTION IS WHETHER UNDER THESE CIRCUMSTANCES IT CAN BE SAID TH AT THE ASSESSEE GOT THIS CONSIDERATION OF RS.6.41 CROR ES IN THE NATURE OF ROYALTY? THE CASE OF THE LEARNED DEPARTMENTAL REPRESENTATIVE RESTS ON CLAUSE (IVA) O F EXPLANATION (2) TO SECTION 9(1)(VI) ALONG WITH EXPLANATION (5). IT HAS BEEN CONTENDED THAT THE AMO UNT BE CONSIDERED AS ROYALTY IN THE HANDS OF THE ASSESS EE BECAUSE IT IS FOR ALLOWING THE USE OF EQUIPMENT. WE ARE UNABLE TO COMPREHEND THIS POINT OF VIEW FOR THE REA SON THAT SUCH CHARGES WERE NOT RECOVERED BY THE ASSESSE E BECAUSE OF PROVIDING ANY ACCESS TO LEASE LINES OWNE D OR HELD BY IT. THE MANDATE OF CLAUSE (IVA) OF EXPLANAT ION 2 ALONG WITH EXPLANATION 5 TO SECTION 9(1)(VI) IS TRI GGERED WHEN THE CONSIDERATION IS RECEIVED FOR THE USE OR R IGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC 11 I.T.A. NO.1614/MUM/2015 EQUIPMENT. THE LD. DR VIGOROUSLY ARGUED THAT THE PAYMENT RECEIVED BY THE ASSESSEE IN THE INSTANT CAS E IS IN RESPECT OF ALLOWING WNS INDIA THE USER OF THE EQUIPMENT WITHOUT TAKING ITS PERSONAL POSSESSION AN D HENCE CONSIDERATION FOR SUCH USER AMOUNTS TO ROYALT Y. THERE IS A BASIC FALLACY IN THIS CONTENTION. THE INTERNATIONAL TELECOM OPERATORS WHO EVENTUALLY RECE IVED THE AMOUNT FOR ALLOWING THE USE OF EQUIPMENT ARE DIFFERENT PARTIES AND THE ASSESSEE SIMPLY GOT THE REIMBURSEMENT OF THE AMOUNT PAID BY IT TO SUCH TELE COM OPERATORS. THIS AMOUNT CAN BE CONSIDERED AS ROYALTY ONLY IN THE HANDS OF THE OWNER OR LESSOR OR ANY OTH ER PERSON ENTITLED TO PERMIT THE USE OF EQUIPMENT AND EARNING INCOME IN HIS OWN RIGHT FROM ALLOWING THE U SE OF SUCH EQUIPMENT TO OTHERS. BY NO STRETCH OF IMAGINAT ION AN INTERMEDIARY, WHO MAKES PAYMENT TO THE OWNER OF EQUIPMENT ON BEHALF OF SOME PERSON AND THEN GETS REIMBURSED FOR THE SAID PAYMENT, CAN BE CONSIDERED AS AN OWNER OR LESSOR ETC. OF THE EQUIPMENT SO AS TO B E CONSIDERED U/S 9(1)(VI). THE SAID AMOUNT MAY BE CONSIDERED AS ROYALTY IN THE HANDS OF MCI WORLDCOM AND OTHER INTERNATIONAL OPERATIONS UNDER THE PROVISIONS OF THE ACT, WHO OWN THE EQUIPMENT AND ALLOWED USE OR RIGHT TO USE SUCH EQUIPMENT TO WNS INDIA. THE ASSES SEE IN THE INSTANT CASE SIMPLY PAID A SUM OF RS.6.14 CR ORE TO MCI WORLDCOM ETC. IN THE FIRST INSTANCE AND THEN RECOVERED THE SAME FROM WNS INDIA. THUS IT IS EVIDE NT, THE SAID SUM IS NOT ROYALTY EVEN AS PER SECTION 9(1 )(VI) OF THE ACT. 5.1. HAVING HELD THAT THE AMOUNT IS NOT IN TH E NATURE OF ROYALTY IN THE HANDS OF THE ASSESSEE, THE NEXT QUESTION WHICH ARISES FOR OUR CONSIDERATION IS AS T O WHAT IS THE CORRECT NATURE OF THIS AMOUNT AND WHETHER IT IS TAXABLE AS BUSINESS PROFITS AS PER ARTICLE 7 ? THER E IS NO DISPUTE ON THE LEGAL ISSUE THAT THE REIMBURSEMENT O F EXPENSES WITHOUT ANY MARK UP CANNOT BE CONSIDERED A S INCOME IN THE HANDS OF THE ASSESSEE SO AS TO ATTRAC T TAXABILITY. 5.2. REIMBURSEMENT OF EXPENSES MEANS THAT THE EXPENSES EARLIER INCURRED BY A PERSON ON BEHALF OF 12 I.T.A. NO.1614/MUM/2015 ANOTHER ARE RECOVERED AS SUCH. ORDINARILY THERE IS NO ELEMENT OF PROFIT IN SUCH REIMBURSEMENT. SINCE THER E IS NO MARK-UP IN SUCH RECOVERY, THERE CAN BE NO QUESTI ON OF IMPUTING ANY INCOME ON THIS ISSUE IN THE HANDS OF RECIPIENT. HOWEVER, THE ONUS TO PROVE THAT THERE IS NO ELEMENT OF PROFIT IN SUCH REIMBURSEMENT IS ALWAYS O N THE ASSESSEE. MERE NOMENCLATURE OF REIMBURSEMENT IS NOT RELEVANT. THE ASSESSEE IS REQUIRED TO LEAD EVIDENCE TO SHOW THAT THE EXPENSES INCURRED ARE EQUAL TO THE AMOUNT RECOVERED. IF THE AO, ON EXAMINATION OF THE EVIDENCE, COMES TO THE CONCLUSION THAT THE RECEIPT IS HIGHER THAN THE AMOUNT SPENT, THEN THE EXCESS IS AL WAYS TAXABLE, NOTWITHSTANDING THE FACT THAT THE ASSESSEE NAMED AND CLAIMED IT AS REIMBURSEMENT OF EXPENSES. NOT ONLY THE REIMBURSEMENT OF EXPENSES SHOULD BE WITHOUT PROFIT ELEMENT, NO ATTEMPT SHOULD BE MADE T O BIFURCATE THE PRICE OF A CONTRACT INTO DIFFERENT PA RTS WITH THE INTENTION OF AVOIDING TAX BY SLICING AWAY A PAR T OF THE TOTAL CONSIDERATION OF A CONTRACT, WHEN THE TAX ATION IS ON GROSS BASIS AS A PERCENTAGE OF CONTRACT VALUE . THE ASSESSEE CANNOT BE ALLOWED TO SHOW SOME PART OF THE CONTRACT PRICE DISTINCTLY AS REIMBURSEMENT OF EXPEN SES, EVEN WITHOUT ANY MARK-UP, AND HENCE CLAIM EXEMPTION IN THIS REGARD, WHEN INCURRING OF EXPENSES FOR WHIC H SUCH REIMBURSEMENT IS CLAIMED, ARE TOWARDS THE PERFORMANCE OF CONTRACT 5.3. DIFFERENT CONSEQUENCES FOLLOW IN THE HANDS OF THE PAYER AND PAYEE FOR MAKING A CLAIM OF REIMBURSEMENT OF EXPENSES HAVING PROFIT ELEMENT; OR TREATING A PART OF CONTRACT VALUE AS REIMBURSEMENT OF EXPENSES EVEN WITHOUT ANY MARK-UP. WHEREAS IN SOME CASES SUCH CLA IM FOR REIMBURSEMENT MAY BE TAX NEUTRAL, WHILE IN OTHE RS IT MAY HAVE BEARING ON TAX LIABILITY. FROM THE ANGLE O F PAYEE, IT WILL BE TAX NEUTRAL IF THERE IS QUESTION OF COMPUTING BUSINESS PROFITS AS PER ARTICLE 7 BECAUSE OF COMPUTATION OF SUCH INCOME ON NET BASIS. BUT, IT WI LL AFFECT TAX LIABILITY, IF THE TAX IS TO BE COMPUTED AS PER ARTICLE 12 BY TREATING THE AMOUNT AS ROYALTY OR FEE S FOR TECHNICAL SERVICES WHEREIN THE TAX LIABILITY IS DET ERMINED ON THE GROSS AMOUNT ITSELF. IN THE HANDS OF NON-RES IDENT 13 I.T.A. NO.1614/MUM/2015 PAYER, THE CLAIM FOR TREATMENT OF HEAD OFFICE EXPENDITURE AS REIMBURSEMENT OF EXPENSES SHALL HAVE BEARING ON THE COMPUTATION OF DEDUCTION OF HEAD OFF ICE EXPENDITURE AS PER SECTION 44C OF THE ACT. IN THE L IKE MANNER, THERE ARE SEVERAL PROVISIONS INCLUDING CHAP TER X, WHICH AFFECT THE AMOUNT OF TOTAL INCOME OR THE T AX LIABILITY BY WRONG TREATMENT OF PAYMENT OF EXPENSES AS REIMBURSEMENT OF EXPENSES. THE CRUX OF THE MATTER I S THAT THE PAYMENT OF EXPENSES IS TO BE DISTINGUISHED FROM AND NOT INTERMINGLED WITH THE REIMBURSEMENT OF EXPENSES IN THE HANDS OF PAYER AS WELL AS PAYEE. IN FACT, IT IS THE SUBSTANCE OF THE TRANSACTION WHICH MATTER S. THE REAL CHARACTER OF A TRANSACTION CANNOT BE CLOAKED U NDER SOME SUPERFICIAL NAME. 5.4. ADVERTING TO THE FACTS OF THE INSTANT CASE WE FIND THAT THE ASSESSEE UNDERTOOK TO CARRY OUT THE MARKET ING AND SALES PROMOTION ACTIVITIES ON BEHALF OF WNS IND IA BY IDENTIFYING THE CUSTOMERS AND ESTABLISHING CONTACT; SOLICITING INQUIRIES FROM CLIENTS AND RENDERING SUC H SERVICES AS MAY BE REQUIRED TO PRESENT AND MARKET T HE BUSINESS OF WNS INDIA. ON THE OTHER HAND, THE PAYME NT CLAIMED AS REIMBURSEMENT IS ADMITTEDLY FOR THE USE OF INTERNATIONAL TELECOM CONNECTIVITY PAID BY THE ASSE SSEE TO THE INTERNATIONAL TELECOM OPERATORS, FOR TRANSMI TTING THE DATA BY WNS INDIA TO ITS CUSTOMERS LOCATED OUTS IDE INDIA. THE INTERNATIONAL TELECOM CONNECTIVITY CHARG ES ARE NOT RELATED IN ANY MANNER WITH THE RENDERING OF MARKETING AND MANAGEMENT SERVICES. BY NO STANDARD, SUCH A CLAIM FOR REIMBURSEMENT OF EXPENSES CAN BE CONSIDERED AS DIVISION OF THE CONTRACT PRICE SO AS TO GAIN SOME TAX ADVANTAGE. 5.5. NOW LET US SEE, WHETHER THE CLAIM FOR REIMBURSEMENT OF EXPENSES IN THE HANDS OF THE ASSES SEE IS WITH OR WITHOUT ANY PROFIT COMPONENT. IT GOES WI THOUT SAYING THAT IF REIMBURSEMENT INCLUDES SOME PROFIT ELEMENT, THEN THE TAX LIABILITY CANNOT ESCAPE. IT I S NOTICED THAT THE ASSESSEE MADE A CATEGORICAL CLAIM THAT THE INTERNATIONAL TELECOM CONNECTIVITY CHARGES WERE PAID TO THE INTERNATIONAL TELECOM OPERATORS FOR THE SERVICES UTILIZED BY WNS INDIA OUTSIDE INDIA AND TH E 14 I.T.A. NO.1614/MUM/2015 SAME WERE REIMBURSED BY WNS INDIA WITHOUT ANY MARK UP. THIS CONTENTION WAS RAISED NOT ONLY BEFORE THE A.O. BUT THE DRP AS WELL. SUCH CONTENTION HAS REMAINED UNCONTROVERTED BY THE AUTHORITIES BELOW. THIS SHOWS THAT THE ASSESSEE HAS DISCHARGED THE BURDEN CAST UP ON IT TO PROVE THAT THE LEASE LINE CHARGES RECOVERED BY I T FROM WNS INDIA WERE WITHOUT ANY MARK UP SO AS TO ATTRACT ANY POSSIBLE TAXATION UNDER ARTICLE 7 OF THE DTAA. ONE CAN POSSIBLY CONTEND THAT SINCE THE AO TAXED THE GR OSS AMOUNT OF SUCH REIMBURSEMENT AS ROYALTY, THERE COUL D HAVE BEEN NO OCCASION FOR HIM TO DEAL WITH THE CONTENTION OF THE ASSESSEE OF NOT HAVING EARNED ANY PROFIT IN SUCH REIMBURSEMENT TO FIND OUT AND THUS T AX SUCH PROFIT ELEMENT FROM SUCH REIMBURSEMENT. HOWEVE R, AN IMPORTANT FACTOR WHICH HAS PERSUADED US TO HOLD THAT THERE IS NO MARK UP IN SUCH REIMBURSEMENT IN THE PRESENT CASE IS THAT THE ASSESSING OFFICER FOLLOWED THE VIEW TAKEN BY HIM IN EARLIER YEAR ON THIS ISSUE. WH EN HIS ORDER FOR THE EARLIER YEAR CAME UP FOR ADJUDICATION BEFORE THE TRIBUNAL, A CATEGORICAL FINDING HAS BEEN RECORDED BY THE TRIBUNAL THAT THERE IS NO MARK UP I N REIMBURSEMENT OF LEASE LINE CHARGES. THERE IS NOTHI NG ON RECORD TO SHOW THAT EITHER THE FACTS OF THE CURRENT YEAR ARE DIFFERENT FROM THOSE OF THE PRECEDING YEAR OR T HE VIEW TAKEN BY THE TRIBUNAL HAS BEEN MODIFIED OR REV ERSED BY THE HONBLE HIGH COURT ON THIS ISSUE. FURTHER, T HERE IS NOTHING TO DEMONSTRATE THAT THE REVENUE PREFERRED A NY MISCELLANEOUS APPLICATION AGAINST SUCH ORDER, IF IT WAS CONVINCED THAT THE FINDING OF THE TRIBUNAL FOR WAS INCORRECT. IN VIEW OF THESE FACTS, WE ARE NOT INCLI NED TO ACCEPT THE CONTENTION OF THE LD. DR FOR REMITTING T HE MATTER TO THE FILE OF AO FOR VERIFYING IF THERE IS ANY PROFIT ELEMENT IN SUCH REIMBURSEMENT AND THEN DETERMINE TAX LIABILITY ACCORDINGLY. ONCE IT IS HEL D THAT THERE IS NO PROFIT ELEMENT IN SUCH REIMBURSEMENT, I T BECOMES MANIFEST THAT THE GROSS INCOME OF RS.6.14 C RORE RECOVERED BY THE ASSESSEE FROM WNS INDIA IS EQUAL T O THE SAME AMOUNT PAID BY IT TO MCI WORLDCOM ETC., THEREBY LEAVING NO SURPLUS LIABLE TO TAX UNDER ARTI CLE 7 OF THE DTAA. THIS ISSUE IS DECIDED IN ASSESSEES FA VOUR 15 I.T.A. NO.1614/MUM/2015 AND THE CONSEQUENTIAL GROUND IS ALLOWED. 9. IT IS FURTHER NOTED BY US THAT THIS JUDGMENT HAS BEEN SUBSEQUENTLY FOLLOWED BY TRIBUNAL IN A.Y. 2007 -08. IT IS ALSO NOTED BY US THAT ORDERS FOR A.Y 2003-04, 2004- 05, 2005-06 AND 2006-07 REACHED BEFORE THE HONBLE BOMBAY HIGH COURT WHEREIN THE ORDERS OF THE TRIBUNA L HAVE BEEN CONFIRMED. 10. IT HAS BEEN FURTHER BROUGHT TO OUR NOTICE BY TH E LD. COUNSEL THAT THE DISPUTE RESOLUTION PANEL (DRP) HAS ALSO DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN A.Y S 2010- 121, 2011-12 AND 2012-13. IT IS NOTED THAT THE ORD ER OF THE DRP FOR A.Y. 2012-13 DATED 26-08-2015 READS AS FOLLOWS: 6. THE ASSESSEES SUBMISSIONS HAVE BEEN CONSIDERED . A REFERENCE TO THE DECISIONS PASSED IN ASSESSEES O WN CASE BY THE MUMBAI ITAT FOR A.YS 2005-06 AND 2006-0 7 AND THE DECISION OF THE BOMBAY HIGH COURT AFFIRMING THE DECISION OF THE ITAT FOR A.YRS 2003-04 AND 2004-05 CLEARLY SHOWS THAT THE IMPUGNED AMOUNTS HAVE BEEN TREATED AS PURE REIMBURSEMENT NOT LIABLE TO TAX IN INDIA. THE ITAT HAS ALSO HELD THAT THE IMPUGNED SUMS ARE N OT IN THE NATURE OF ROYALTY AS THEY DO NOT PERMIT THE USE OF OR RIGHT TO USE ANY INDUSTRIAL COMMERCIAL OR SCIENT IFIC EQUIPMENT. RESPECTFULLY FOLLOWING THE VARIOUS DECI SIONS IN ASSESSEES OWN CASE RENDERED BY THE HON'BLE ITAT AND HON'BLE BOMBAY HIGH COURT AND THE ORDER OF THE DRP FOR A.Y. 2010-11 & 2011-12 WHEREIN IT WAS HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUNT OF LEASE LINE CHARGES ARE IN THE NATURE OF REIMBURSEMENT AND THE SAME IS NEITHER TAXABLE AS ROYALTY NOR AS ANY INCOM E OF THE ASSESSEE, HOWEVER, THE AO IS DIRECTED TO DELETE THE PROPOSED ADDITION TO ASSESSEES INCOME. 11. SIMILAR DIRECTIONS HAVE BEEN GIVEN BY DRP IN OT HER YEARS ALSO. THUS, IT IS FOUND THAT THIS ISSUE IS S ETTLED AND COVERED IN FAVOUR OF THE ASSESSEE AS ON DATE. ALL THE ARGUMENTS HAVE BEEN CONSIDERED BY THE TRIBUNAL AND THE ORDERS OF THE TRIBUNAL HAVE BEEN ACCEPTED BY TH E HON'BLE BOMBAY HIGH COURT. THE DRP HAS ALSO IN SUBSEQUENT YEARS DECIDED THIS ISSUE IN FAVOUR OF TH E ASSESSEE. THUS, IT IS HELD THAT THE IMPUGNED AMOUN T IS 16 I.T.A. NO.1614/MUM/2015 NOT TAXABLE AS ROYALTY IN THE HANDS OF THE ASSESSEE . GROUNDS 1 & 2 ARE ALLOWED. 6. THUS, IT IS NOTED FROM THE ABOVE THAT IT HAS BEEN CONSISTENTLY HELD IN ALL THE YEARS AT TRIBUNAL LEVE L OR BY THE DRP ITSELF THAT IMPUGNED WAS NOT TAXABLE AS ROYALT Y IN THE HANDS OF THE ASSESSEE. NO DISTINCTION HAS BEEN BROU GHT TO OUR NOTICE BY THE LD. DR, EITHER ON FACTS OR ON LAW . THUS, WE DO NOT FIND ANY FORCE IN THE GROUND RAISED BY THE R EVENUE, AND THEREFORE, THE SAME IS DISMISSED. 7. GROUND 2: IN THIS GROUND, THE REVENUE IS AGGRIEVED BY THE ACTION OF THE DRP IN HOLDING THAT RECEIPT OF REIMBURSEMENT OF EXPENSES AMOUNTING TO RS.15,21,74 ,498 DOES NOT QUALIFY AS FIS UNDER ARTICLE 12(4)(B) OF I NDO-US DTAA. IT IS NOTED BY US THAT THE DRP DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER:- 9. DIRECTIONS OF DRP IDENTICAL ISSUE AROSE IN THE ASSESSEES CASE FOR TH E EARLIER YEAR A.Y. 2010-11. RESPECTFULLY FOLLOWING THE DECISION OF DRP DATE 19.11.2013, THE AO IS DIRECTED NOT TO TAX THE IMPUGNED SUM AS FIS. 8. DURING THE COURSE OF HEARING IT WAS FAIRLY SUBMITTE D THAT FACTS AND CIRCUMSTANCES OF THE CASE REMAINS TH E SAME AND THEREFORE EARLIER YEARS ORDER OF THE TRIBUNAL MAY BE FOLLOWED. 9. IT IS NOTED THAT IN AY 2008-09 WE HAVE SENT THIS IS SUE BACK TO THE FILE OF AO VIDE OUR AFORESAID ORDER PAS SED IN ITA NO. 6410/MUM/ 2012 BY OBSERVING AS UNDER: 17 I.T.A. NO.1614/MUM/2015 17. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AS WELL AS THE ORDER OF THE TRIBU NAL FOR EARLIER YEARS. WE FIND IT RELEVANT TO REPRODUCE TH E DIRECTIONS OF THE DRP FROM ITS ORDER DATED 26-08-20 15 BELOW:- THE OBJECTION NO:2 IS AGAINST TI1E TREATMENT GIVEN BY THE AO TO A SUM OF RS.17.71,35.633/- BEING REIMBURSEMENT OF EXPENSES RECEIVED FROM VARIOUS WNS GROUP COMPANIES IN INDIA. THE AO HAS TREATED THIS SUM AS FEE FOR INCLUDED SERVICES AND BROUGHT T HE SAME TO TAX UNDER ARTICLE 12(4) OF THE INDIA USA DTAA. THE ASSESSEE HAS, EXPLAINED THAT DURING THE P . Y VARIOUS EMPLOYEES OF WNS GROUP COMPANIES SITUATED IN INDIA VISITED US FROM TIME TO TIME AND EXPENSES OF THEIR TRAVEL, ACCOMMODATION, COMPUTER MAINTENANCE, TELECOMMUNICATION CHARGES, PRINTING AND STATIONERY, TELEPHONE EXPENSES ETC WERE INCURRE D OUTSIDE INDIA ON BEHALF OF THESE EMPLOYEES. THE ASSESSEE HAS EXPLAINED THAT THE EXPENSES WERE INITIALLY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY RECOVERED FROM THESE WNS GROUP COMPANIES IN INDIA. IT IS SUBMITTED BY THE ASSESSEE THAT THESE ARE PURE LY IN THE NATURE OF REIMBURSEMENT OF COST WITHOUT ANY MARK-UP AND HENCE THEY DO NOT CONSTITUTE INCOME IN THE HANDS OF THE ASSESSEE. THE AO HOWEVER HAS HELD THESE AMOUNTS AS FIS UNDER THE LNDO USA DTAA AND BROUGHT THE SAME TO TAX IN THE HANDS OF THE ASSESSE E. THE ASSESSEE HAS SUBMITTED THAT THE TRANSACTIONS DI D NOT AMOUNT TO FIS AS NO KNOWLEDGE SKILI OR EXPERIENCE WAS MADE AVAILABLE BY THE ASSESSEE TO THE INDIAN COMPANIES FOR WHICH THE PAYMENT WAS RECEIVED. IN THIS CONNECTION, THE ASSESSEE HERS PLACED RELIANCE UPON VARIOUS DECISION OF THE HON'BL E ITAT WHICH HAS EXPLAINED THE SCOPE OF FIS UNDER ARTICLE 1 2 OF THE INDO USA DTAA. DIRECTIONS OF DRP: 8. LDENTICAL ISSUE AROSE IN ASSESSEE'S OWN CASE FOR 18 I.T.A. NO.1614/MUM/2015 LAST YEAR. RESPECTFULLY FOLLOWING THE DECISION OF DRP DATED 08.12.2014 FOR A.Y.2011-12THE AO IS DIRECTED NOT TO TAX THE IMPUGNED SUM AS FIS. 18. IT IS NOTED THAT IN EARLIER YEARS THIS ISSUE HAS B EEN SENT BACK TO THE FILE OF THE AO FOR VERIFICATION OF FACTS. IN A.Y. 2007-08, THE TRIBUNAL HELD AS UNDER: 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL THE CITED ORDER OF THE TRIBUNAL (SUPRA) AND THE RELEVAN T MATERIAL PLACED BEFORE US. AFTER HEARING BOTH THE PARTIES, WE FIND, THE SIMILAR ISSUE WAS RAISED BEFO RE THE ITAT AND THE TRIBUNAL ADJUDICATED THE SAME VIDE PARAS 6.1 AND 6.2 OF ITS ORDER DATED 14.12.2012 (SUPRA). FOR THE SAKE OF COMPLETENESS OF THIS ORDE R, THE SAID PARAS 6.1 AND 6.2 ARE REPRODUCED HEREUNDER : 6.1 NEXT ISSUE RAISED IN THIS APPEAL AGAINST TAXABILITY OF REIMBURSEMENT OF OTHER EXPENSES AMOUNTING TO RS.4,10,70,798/- FROM WNS INDIA. THIS AMOUNT REPRESENTS REIMBURSEMENT OF EXPENSES INCURRED ON EMPLOYEES OF WNS INDIA ON THEIR VISITS ABROAD. THE ASSESSEE CLAIMED THAT SINCE THESE AMOUNTS WERE PURE REIMBURSEMENT AND HENCE NOT TAXABLE. THE AO HELD SUCH AMOUNTS TAXABLE UNDER ARTICLE 12 AS FEES FOR INCLUDED SERVICES. 6.2 HAVING HEARD THE RIVAL SUBMISSIONS ON THIS ISSUE AND PERUSED THE RELEVANT MATERIAL ON RECORD, IT IS THE COMMON SUBMISSION BY BOTH THE SIDES THAT SIMILAR ISSUE WAS INVOLVED IN THE APPEAL FOR SOME OTHER YEARS AND THE TRIBUNAL HAS RESTORED THIS MATTER TO THE LOWER AUTHORITIES FOR DECIDING IT AFRESH AFTER VERIFYING THE RELEVANT DETAILS. AS THE ISSUE STANDS COVERED BY THE EARLIER ORDER OF THE TRIBUNAL, TO WHICH BOTH THE SIDES ARE AGREEABLE, WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMIT THE MATTER TO THE FILE OF AO FOR DECIDING IT AFRESH AS PER THE LAW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING 19 I.T.A. NO.1614/MUM/2015 HEARD TO THE ASSESSEE. 12. CONSIDERING THE SIMILARITY OF THE ISSUE INVOLVE D IN THE INSTANT GROUNDS WITH THAT OF THE ISSUE DECID ED BY THE TRIBUNAL (SUPRA), WE ARE OF THE OPINION THAT THE GROUND NOS.3 AND 4 OF THE PRESENT APPEAL SHOULD BE SET ASIDE TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH IN THE SAME LINES AS PER THE SAID TRIBUNALS ORDER (SUPRA) AFTER AFFORDING A REASONAB LE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NOS.3 AND 4 ARE ALLOWED FOR STATISTICAL PURPOSES. 19. DURING THE COURSE OF HEARING, THE LD. COUNSEL FAIR LY STATED THAT IN THIS YEAR ALSO THE ISSUE MAY BE SENT BACK TO THE FILE OF THE AO WITH THE SAME DIRECTIONS AS H AVE BEEN GIVEN FOR THE EARLIER YEARS. THEREFORE, WE SE ND THIS ISSUE BACK TO THE FILE OF THE AO. THE AO AS WELL A S THE ASSESSEE SHALL FOLLOW THE ORDER OF THE TRIBUNAL FOR EARLIER YEARS. THE AO SHALL ALSO KEEP IN MIND THE DIRECTIO NS GIVEN BY THE DRP IN OTHER YEARS. THUS, WITH THESE DIRECTIONS, GROUNDS 3 & 4 ARE SENT BACK TO THE FILE OF THE AO. 10. THUS, THIS GROUND WAS SENT BACK TO THE FILE OF AO W ITH CERTAIN DIRECTIONS. RESPECTFULLY FOLLOWING THE SAME WE SEND THIS ISSUE BACK TO THE FILE OF AO TO BE DECIDED AFR ESH IN THE LIGHT OF DIRECTIONS GIVEN IN EARLIER ORDER. THE ASS ESSEE IS DIRECTED TO FURNISH REQUISITE DETAILS AND DOCUMENTS TO ENABLE THE AO TO DECIDE THIS ISSUE PROPERLY. THE AO IS DIR ECTED TO FOLLOW OUR AFORESAID ORDER AND DECIDE THIS ISSUE AF RESH AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSES SEE TO FILE REQUISITE DETAILS AND DOCUMENTARY EVIDENCES. T HIS GROUND MAY BE TREATED AS PARTLY ALLOWED FOR STATISTICAL PU RPOSES. 20 I.T.A. NO.1614/MUM/2015 11. AS A RESULT, APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON THIS_25 TH DAY OF NOVEMBER, 2016. SD/- SD/- (AMIT SHUKLA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 25 TH NOVEMBER, 2016 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , L-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES