Louis Berger International Inc., Hyderabad V. Asstt. Director of Income-Tax-I (International Taxation)-I, Hyderabad

ITA 1658/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2828 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 07-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR REDDY
• Assessee Lawyers: RAVI SESHAGIRI RAO
• Keywords: Double taxation relief

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I.T.A. NO. 1658/HYD/2012 ASSESSMENT YEAR 2010-11 M/S. LOUIS BERGER INTERNATIONAL INC., HYDERABAD PAN: AAACL4067F VS. ASS. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION)-I HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI RAVI SESHAGIRI RAO RESPONDENT BY: SRI D. SUDHAKAR REDDY DATE OF HEARING: 29.04.2013 DATE OF PRONOUNCEMENT: 29.04.2013 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP), H YDERABAD DATED 13.9.2012. 2. THE FIRST GROUND IN THIS APPEAL IS AS UNDER: 2. THE ASSESSING OFFICER ERRED IN ADDING AN AMOUNT OF RS. 36,57,005/- BEING THE EXPENDITURE REIMBURSED AS THE INCOME OF THE APPELLANT WITHOUT CONSIDERING THE FAC T THAT IT DOES NOT REPRESENT THE INCOME AND IT WAS HELD BY THE HONBLE ITAT IN THE IMMEDIATELY PRECEDING YEARS THA T THE SAID AMOUNT DOES NOT REPRESENT INCOME. 3. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINI ON THAT SIMILAR ISSUE CAME FOR CONSIDERATION IN ASSESSEES OWN CASE IN ITA NOS. 1073/HYD/2004, 1074/HYD/2004, 720/HYD/05 A ND 721/HYD/05. THE TRIBUNAL VIDE ORDER DATED 30 TH JUNE, 2010 IN PARA 24 HELD AS FOLLOWS: '24. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGEMENT OF THE BOMBAY HIGH COURT IN CIT VS. I.T.A. NO. 1658/HYD/2012 M/S. LOUIS BERGER INTERNATIONAL INC. ========================== 2 TNUBAI D DESAI (1972) 84 ITR 713. IN THE CASE BEFORE THE BOMBAY HIGH COURT, THE ASSESSEE WAS A PRACTISING SOLICITOR. IN THE COURSE OF CARRYING ON HIS PROFESSION THE ASSESSEE USED TO RECEIVE MONEY FROM OR ON BEHALF OF HIS CLIENTS. THE MONEY RECEIVED WAS DEPOSITED BY HIM IN SEPARATE CURRENT ACCOUNT WITH IMPERIAL BANK OF INDIA. SUBSEQUENTLY, THE ASSESSEE WITHDREW A SUM OF RS. 3.25 LAKHS AND PLACED THE SAME IN FIXED DEPOSIT WITH CHARTERED BANK. THE ASSESSEE RENEWED THE ACCOUNT FROM TIME TO TIME TOGETHER WITH INTEREST EARNED THEREON. THE ASSESSE E EARNED INTEREST ON THE FIXED DEPOSIT. THE INTEREST EARNED ON THE FIXED DEPOSIT WAS NOT ADJUSTED BY APPORTIONING IT TO DIFFERENT CLIENTS WHOSE MONEYS WERE DEPOSITED IN THE BANK ACCOUNT. THE ASSESSEE DID NOT SHOW THE INTEREST IN THE RETURN OF INCOME. THE QUESTION AROSE BEFORE THE BOMBAY HIGH COURT WAS WHETHER THE INTEREST ACCRUED IN THE FIXED DEPOS IT WITH CHARTERED BANK WAS THE INCOME OF THE ASSESSEE OR NOT. THE BOMBAY HIGH COURT AFTER ELABORATELY EXAMINING THE ISSUE FOUND THAT THE MONEYS RECEIVED BY THE SOLICITOR FROM HIS CLIENTS ARE HELD BY HIM I N FIDUCIARY CAPACITY. EVEN THE INCOME RECEIVED FROM SUCH MONEY MUST EQUALLY BE HELD BY THE SOLICITOR IN A FIDUCIARY CAPACITY. WHAT THE SOLICITOR ACTUALLY DO ES WITH THE INCOME, I.E., WHETHER HE APPROPRIATES IT T O HIMSELF OR NOT IS A MATTER OF NON CONSEQUENCE. IF THE SOLICITOR APPROPRIATES THE INTEREST ACCRUED ON SUCH DEPOSIT TO HIMSELF THAT WOULD AMOUNT TO A BREACH OF HIS FIDUCIARY RELATIONSHIP AND WHATEVER MAY BE THE CONSEQUENCES IN LAW WOULD FOLLOW. BUT HIS UNAUTHORISED ACT OF CONVERTING ANY PART OF THE CORPUS OR EVEN THE INCOME DERIVED THEREFROM WOULD NOT CONVERT THOSE MONEYS HELD BY HIM FOR HIS BENEFI T. ACCORDINGLY, IT WAS HELD THAT THE INTEREST INCOME WHICH WAS NEITHER DISCLOSED IN THE RETURN OF INCOME NOR ADJUSTED TO THE CLIENTS WAS HELD TO BE NOT TAXA BLE. IN THE CASE BEFORE US THE FACTS ARE ALMOST SIMILAR. THE ASSESSEE RECEIVED THE MONEY AS A REIMBURSEMENT AFTER INCURRING THE EXPENDITURE. IN THE CASE BEFOR E THE BOMBAY HIGH COURT, THE MONEY WAS RECEIVED BY THE SOLICITOR IN ADVANCE. IN THE CASE BEFORE US TH E MONEY WAS RECEIVED AFTER INCURRING THE EXPENDITURE BY WAY OF REIMBURSEMENT. THEREFORE, THE REIMBURSABLE EXPENDITURE RECEIVED BY THE ASSESSEE CANNOT FORM PART OF THE TOTAL INCOME. IN VIEW OF T HE ABOVE DISCUSSION, IN OUR OPINION, THE REIMBURSABLE EXPENDITURE RECEIVED BY THE ASSESSEE CANNOT FORM I.T.A. NO. 1658/HYD/2012 M/S. LOUIS BERGER INTERNATIONAL INC. ========================== 3 PART OF THE TOTAL INCOME. THEREFORE, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED.' 4. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL, WE ARE INCLINED TO ALLOW THE GROUND TAKEN BY THE ASSES SEE. 5. THE NEXT GROUND (GROUND NO. 3) IS AS UNDER: '3. THE ASSESSING OFFICER ERRED IN ADDING RS. 27,60 , 262 BEING THE AMOUNT RECEIVED ON ACCOUNT OF REIMBURSEME NT OF SERVICE TAX WITHOUT CONSIDERING THE FACT THAT TH E SAID AMOUNT WAS HELD AS NOT TAXABLE FOR THE PRECEDING ASSESSMENT YEAR BY THE HONBLE ITAT.' 6. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINI ON THAT SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THIS TR IBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 1073/HYD/2004, 1074 /HYD/ 2004, 720/HYD/05 AND 721/HYD/05. THE TRIBUNAL VIDE ORDER DATED 30 TH JUNE, 2010 IN PARAS 30 AND 31 HELD AS FOLLOWS: '30. THE NEXT ISSUE ARISES FOR CONSIDERATION IS REIMBURSEMENT OF SERVICE TAX. SERVICE TAX HAS TO B E COLLECTED BY THE RESPECTIVE SERVICE PROVIDERS FROM THE CLIENTS AND IT HAS TO BE PAID TO THE GOVERNMENT ACCOUNT. THE LIABILITY OF THE ASSESSEE IS ONLY TO COLLECT AND PAY THE SAME TO THE GOVERNMENT. THE ASSESSEE NEED NOT PAY FROM HIS POCKET. THERE IS A LOT OF DIFFERENCE BETWEEN PAYMENT OF SERVICE TAX AND INCOME-TAX. SERVICE TAX IS JUST LIKE SALES TAX. I N THE CASE OF SALES TAX ALSO THE RESPECTIVE TRADER HAS TO COLLECT THE TAX AND REMIT THE SAME TO GOVERNMENT ACCOUNT. THEREFORE, THE LIABILITY TO PAY EITHER SA LES TAX OR SERVICE TAX IS NOT ON THE TRADER OR SERVICE PROVIDER. THE LIABILITY OF THE TRADER/SERVICE PROV IDER IS ONLY TO COLLECT FROM THE RESPECTIVE PERSONS. IN CASE OF DEFAULT, SERVICE PROVIDER/TRADER MAY BE HELD RESPONSIBLE TO PAY THE SAME. IN THE CASE BEFORE US THE AGREEMENT ENTERED INTO BETWEEN THE PARTIES CLEARLY SAYS THAT SERVICE TAX PAYABLE SHALL BE REIMBURSED SEPARATELY ON PRODUCTION OF ORIGINAL RECEIPT BY THE ASSESSEE. FOR THE PURPOSE OF CONVENIENCE, WE ARE REPRODUCING CLAUSE 1.10.3 IN TH E I.T.A. NO. 1658/HYD/2012 M/S. LOUIS BERGER INTERNATIONAL INC. ========================== 4 AGREEMENT WHICH IS AVAILABLE AT PAGE 36 OF THE PAPE R BOOK: 'HOWEVER, THE CONSULTANCY SERVICE TAX PAYABLE IN INDIA FOR PROVIDING THIS CONSULTANCY SERVICE SHALL BE PAID/ REIMBURSED BY THE CLIENT SEPARATELY. THE CONSULTANT SHALL PRODUCE THE ORIGINAL RECEIPT TO TH E CLIENT IN THIS REGARD AS EVIDENCE FOR CLAIM.' 31. IN VIEW OF THIS CLAUSE WHAT WAS RECEIVED BY THE ASSESSEE IS AFTER PAYING THE SERVICE TAX AND ON PRODUCTION OF THE ORIGINAL RECEIPT THE RESPECTIVE C LIENT REIMBURSES THE SAME. IN THE NORMAL CIRCUMSTANCES, THE ASSESSEE WOULD HAVE COLLECTED THE SERVICE TAX FROM THE RESPECTIVE CLIENTS AND WOULD HAVE PAID THE SAME. THEREFORE, IN OUR OPINION, REIMBURSEMENT OF THE SERVICE TAX CANNOT FORM PART OF THE TAXABLE INCOME OF THE ASSESSEE. FEE FOR TECHNICAL SERVICE IS FOR THE SERVICE RENDERED BY THE ASSESSEE. SERVICE TAX WOULD NOT FORM PART OF FEE FOR TECHNICAL SERVICES. IN OTHER WORDS, SERVICE TAX IS NOT AN EXPENDITURE INCURRED BY THE ASSESSEE. IT IS A STATUTORY LEVY ON THE PERSON WHO AVAILED THE SERVICE FROM THE ASSESSEE. THE MATTER WOULD STAND ENTIRELY ON A DIFFERENT FOOTING IN CASE THE ASSESSEE COLLECTED THE SERVICE TAX AND IT WAS NOT PAID TO THE GOVERNMENT ACCOUNT. THAT IS NOT THE CASE BEFORE US. ' 7. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL CITED SUPRA, WE ALLOW THE GROUND TAKEN BY THE ASSES SEE. 8. THE NEXT GROUND (GROUND NO. 4) IS AS FOLLOWS: 4. THE ASSESSING OFFICER ERRED IN HOLDING THAT THE INCOME FROM TECHNICAL SERVICES FOR THE PROJECTS UNDERTAKEN PRIOR TO 01.04.2003 ARE TAXABLE @ 20% AND NOT @ 15%. 9. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINI ON THAT SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THIS TR IBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 1073/HYD/2004, 1074 /HYD/ 2004, 720/HYD/05 AND 721/HYD/05. THE TRIBUNAL VIDE ORDER DATED 30 TH JUNE, 2010 IN PARA 34 HELD AS FOLLOWS: 34. THE NEXT GROUND OF APPEAL IS THE RATE OF TAX. W E HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SID E AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE PROVISIONS OF DTAA AND I.T.A. NO. 1658/HYD/2012 M/S. LOUIS BERGER INTERNATIONAL INC. ========================== 5 THE PROVISIONS OF SECTION 115A OF THE ACT. THE CONTENTION OF THE DR IS THAT TAX HAS TO BE LEVIED A T 20% U/S. 115A R/W ARTICLE 7 OF DTAA. AS OBSERVED BY THE CIT(A), FEE RECEIVED BY THE ASSESSEE TOWARDS TECHNICAL SERVICES/ CONSULTANCY WOULD FALL UNDER ARTICLE 12 AND NOT UNDER ARTICLE 7. THEREFORE, IN O UR OPINION, TAX HAS TO BE LEVIED ONLY AT 15% AND NOT A T 20%. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN TH E ORDER OF THE LOWER AUTHORITY. ACCORDINGLY THE SAME IS UPHELD.' 10. RESPECTFULLY FOLLOWING THE ABOVE ORDER THIS GROUND IS ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2013. SD/- (SAKTIJIT DEY) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 29 TH APRIL, 2013 TPRAO COPY FORWARDED TO: 1. M/S. LOUIS BERGER INTERNATIONAL INC., C/O. SRI S . RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYA'S ELEGANCE, D. NO. 3 -6-643, ST. NO. 9, HIMAYATHNAGAR, HYDERABAD-500 029. 2. THE ASST. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION)-I, HYDERABAD. 3. THE DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATI ON), HYDERABAD. 4. THE DISPUTE RESOLUTION PANEL, HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD