Verizon Communications Singapore Pte Ltd., CHENNAI V. ITO, CHENNAI

ITA 1722/CHNY/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7920 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 21-11-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 20-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G M DOSS IRSCIT
• Assessee Lawyers: N VENKATRAMAN
• Keywords: Double taxation relief
• Section: 234B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , !' . #$#% , & '' ( [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NOS. 1311/MDS/2006, 164/MDS/07, 1507/2010 & 1722/MDS/2011 / ASSESSMENT YEARS : 2002-03, 2003-04, 2007-08 & 2008-09 M/S. VERIZON COMMUNICATIONS SINGAPORE PTE LTD, C/O. S.R. BATLIBOI & CO., TPL HOUSE, II FLOOR, 3, CENOTAPH ROAD, TEYNAMPET, CHENNAI 600 018. VS. THE INCOME TAX OFFICER, INTERNATIONAL TAXATION I, CHENNAI. ( )* / APPELLANT) ( +,)* /RESPONDENT) C.O.NOS. 20 & 21/MDS/ 2009 ( IN I.T.A. NOS. 1311/MDS/2006, 164/MDS/07) / ASSESSMENT YEARS : 2002-03 & 2003-04 THE INCOME TAX OFFICER, INTERNATIONAL TAXATION I, CHENNAI VS. M/S. VERIZON COMMUNICATIONS SINGAPORE PTE LTD, C/O. S.R. BATLIBOI & CO., TPL HOUSE, II FLOOR, 3, CENOTAPH ROAD, TEYNAMPET, CHENNAI 600 018. [PAN AADCM 6355L] ( )* / APPELLANT) (CROSS OBJECTOR) ASSESSEE BY : SHRI. N. VENKATRAMAN, ADVOCATE REVENUE BY : SHRI. G.M. DOSS, IRS,CIT. /DATE OF HEARING : 21-11-2016 /DATE OF PRONOUNCEMENT : 30-11-2016 ITA NOS1311/06, 164/07, 1507/10 & 1722/11, CO 20 & 21/09. :- 2 -: / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE APPEALS FILED BY THE ASSESSEE AND CROSS OBJECTIONS BY THE REVENUE. THESE APPEALS AS WELL AS CROSS OBJ ECTION WERE EARLIER DISPOSED OF BY THIS TRIBUNAL VIDE ORDERS DA TED 07.01.2011, 13.1.2011 AND 10.01.2011. THE ASSESSEE HAD CARRIE D THE MATTER IN FURTHER APPEAL TO THE JURISDICTIONAL HIGH COURT U/S .260A OF THE INCOME TAX, ACT 1961(HEREIN REFERRED AS THE ACT). THE JURISDICTIONAL HIGH COURT WHILE CONFIRMING THE ORDER OF THE TRIBUNAL IN SO FAR AS IT RELATED TO THE ISSUE OF ROYALTY, HAD REMANDED THE QUESTION REGARDING LEVY OF INTEREST U/S.234A, 234B AND 234D BACK TO THIS TRI BUNAL FOR CONSIDERATION ON MERIT AND IN ACCORDANCE WITH LAW. RELEVANT PARA OF THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT I N T.C. NOS.147 TO 149/2011 AND 230/2012 IS REPRODUCED HEREUNDER:- 106. IN THE CIRCUMSTANCES, WE AFFIRM THE ORDER OF THE TRIBUNAL HOLDING THAT THE CONSIDERATION PAID BY THE CUSTOMER TO THE ASSESSEE IS ROYALTY WITHIN THE ME ANING OF EXPLANATION 2(IVA) OR IN THE ALTERNATIVE UNDER EXPL ANATION 2(III) OF SECTION 9(1) (VI) OF THE INCOME TAX ACT A ND ARTICLE 12(3) OF THE DTAA BETWEEN INDIA AND SINGAPORE. WIT H REGARD TO LEVY OF INTEREST UNDER SECTION 234A, 234B AND 234D OF THE INCOME TAX ACT, AS THE CASE MAY BE, WE REMAND THIS ISSUE ALONE TO THE INCOME TAX APPELLATE TRIBUNAL FOR ITS CONSIDERATION ON MERITS AND IN ACC ORDANCE WITH LAW. ACCORDINGLY, THE ABOVE TAX CASE (APPEALS ) ARE DISPOSED OF. NO COST. CONSEQUENTLY, CONNECTED MISCELLANEOUS PETITIONS ARE CLOSED. ITA NOS1311/06, 164/07, 1507/10 & 1722/11, CO 20 & 21/09. :- 3 -: 2. ACCORDINGLY, WHEN THE MATTER WAS TAKEN UP TODAY, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE HAD NO A RGUMENTS TO ADVANCE IN SO FAR AS IT RELATED TO INTEREST U/S.234 A AND 234D OF THE ACT. HOWEVER, ACCORDING TO HIM, INTEREST U/S.234B OF THE ACT COULD NOT BE LEVIED, SINCE ASSESSEE WAS A NON RESIDENT WITH ITS REGISTERED OFFICE IN SINGAPORE AND COULD NOT MAKE ANY ADVANCE PAYMEN T OF TAX ON SUMS RECEIVED BY IT. ACCORDING TO LD. AUTHORISED R EPRESENTATIVE WHERE THE PAYER WAS RESPONSIBLE TO DEDUCT TAX AT SOURCE U NDER THE ACT, ON A PARTICULAR TYPE OF PAYMENT, A NON-RESIDENT RECIPIEN T WOULD STAND ABSOLVED OF THE LIABILITY TO PAY ADVANCE TAX. AS P ER LD. AUTHORISED REPRESENTATIVE ASSESSEE WHICH WAS BASED IN SINGAPOR E HAD RECEIVED PAYMENTS FROM INDIAN CUSTOMERS FOR PROVIDING BAND WIDTH/ TELECOM SERVICES OUTSIDE INDIA. IT WAS FOR THE INDIAN CUST OMERS TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS, IF THEY CONSIDERED THE PAYMENTS EFFECTED TO THE ASSESSEE AS ROYALTY FOR THE USE OF OR THE R IGHT TO USE EQUIPMENT. RELYING ON THE JUDGMENT OF JURISDICTION AL HIGH COURT IN THE CASE OF CIT VS. MADRAS FERTILISERS LTD 149 ITR 703 , LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT LEGISLATURE NEVER CON TEMPLATED A SITUATION WHERE IN RESPECT OF TAX ON A PARTICULAR INCOME, TWO PERSONS WERE LIABLE. RELIANCE WAS PLACED ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF DIT(IT) VS. NGC NETWORK ASIA LLC (2009) 313 ITR ITA NOS1311/06, 164/07, 1507/10 & 1722/11, CO 20 & 21/09. :- 4 -: 0187, THAT OF HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. JACABS CIVIL MITSUBISHI CORPORATION 330 ITR 578, AND DIT V S. GE PACKAGED POWER INC. (2015) 373 ITR 65 AND THAT OF HONBLE UTTARANCHAL HIGH COURT IN THE CASE OF DIT VS. MAERSK CO. LTD 334 ITR 79. LD. AUTHORISED REPRESENTATIVE ALSO RELIED ON THE DECISION OF THE C O-ORDINATE BENCH IN THE CASE OF DE BEERS UK LTD VS. DDIT (2012) 53 SOT 319. 3. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUB MITTED THAT LEVY OF INTEREST U/S.234B OF THE ACT WAS MANDATORY IN NATURE. 4 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. JURISDICTIONAL HIG H COURT HAD UPHELD THE ORDER OF THE TRIBUNAL AFFIRMING THE VIEW TAKEN BY THE LD. ASSESSING OFFICER THAT PAYMENTS RECEIVED BY THE ASSESSEE FROM ITS INDIAN CUSTOMERS WAS ROYALTY UNDER SEC. 9(1)(VI) OF THE AC T AS WELL AS ARTICLE 12(3)(B) OF THE TREATY. HENCE, LIABILITY TO DEDUCT TDS ON PAYMENTS EFFECTED TO THE ASSESSEE WAS WITH INDIAN CUSTOMERS. WITH REGARD TO QUESTION WHETHER THERE COULD BE LEVY OF INTEREST F OR NON-PAYMENT OF ADVANCE-TAX, ON SUCH AMOUNTS BY THE RECIPIENTS, WE FIND THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MADRAS FERTILISERS LTD (SUPRA) HAD HELD AT PARA 7 OF ITS JUDGMENT AS UNDER:- 7. THAT SECTION SEEMS TO PROVIDE THAT THE TAX IN RESPECT OF A REGULAR ASSESSMENT IS PAYABLE EITHER B Y DEDUCTION AT SOURCE OR BY ADVANCE PAYMENT, AS THE ITA NOS1311/06, 164/07, 1507/10 & 1722/11, CO 20 & 21/09. :- 5 -: CASE MAY BE, IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII. THUS, THE DEDUCTION OF TAX AT SOURCE AND PAYMENT OF ADVANCE TAX HAVE BEEN TREATED AS TWO ALTERNATIVE MODES OF PAYMENT OF TAX IN ADVANCE. HENCE, WHERE THE STATUTE PROVIDES FOR DEDUCTION OF TAX AT SOURCE IN RESPECT OF A PARTICUL AR INCOME, THE CONCERNED ASSESSEE NEED NOT PAY ANY ADVANCE TAX IN RELATION TO THE SAID INCOME. IN THIS CASE, IT IS NOT IN DISPUTE THAT IN RESPECT OF THE INTEREST INCOME, DEDUCTION OF TAX AT SOURCE IS CONTEMPLATED UNDER S. 194A OF THE ACT. HOWEVER, THE DEDUCTION AT SOURCE HAS NOT BEEN EFFECTED BY THE BANKS WHICH PAID THE INTEREST TO THE ASSESSEE WHICH THEY SHOULD HAVE DONE AS PER THE PROVISIONS OF THE ACT. FOR THE DEFAULT OF COMPLIANCE WITH S. 194A, THE BANK CAN BE BROUGHT UNDER S. 201 AS AN ASSESSEE IN DEFAULT. SECTION 201(1A) SPECIFICALLY PROVIDES THAT IF A PERSON OR AUTHORITY WHO IS BOUND TO MAKE A DEDUCTION OF TAX AT SOURCE AS CONTEMPLATED BY THE STATUTE DOES NOT DEDUCT OR AFTER DEDUCTING FAILS TO PAY THE TAX, THEN SUCH A PERSON OR AUTHORITY IS LIABLE TO PAY SIMPLE INTERES T ON THE AMOUNT OF TAX NOT DEDUCTED FROM THE DATE ON WHICH SUCH TAX WAS DEDUCTIBLE TO THE DATE ON WHICH THE SAID TAX WAS ACTUALLY PAID. THUS, IN RESPECT OF INTEREST INCOME ON WHICH DEDUCTION OF TAX AT SOURCE SHOULD HAVE BEEN MADE, THE LIABILITY TO PAY INTERES T IS FASTENED ON THE PERSON OR AUTHORITY WHO FAILED T O MAKE DEDUCTION AS REQUIRED UNDER S. 194A. THEREFORE, IN RESPECT OF THE TAX PAYABLE ON THE SAI D INTEREST INCOME, THE ASSESSEE ALSO CANNOT BE TAKEN TO BE LIABLE TO PAY INTEREST. OTHERWISE, IT WILL ME AN THAT THERE ARE TWO PERSONS UNDER THE ACT TO PAY INTEREST ON TAX ON THE SAME INCOME. THE LEGISLATURE WOULD NOT HAVE CONTEMPLATED SUCH A SITUATION WHERE IN RESPECT OF THE TAX ON INTEREST INCOME, TWO PERSONS ARE LIABLE TO PAY INTEREST FOR THE DELAYED PAYMENT OF TAX. WE ARE, THEREFORE, INCLINED TO HOLD THAT WHEREVER THERE IS A POSSIBILITY OF A DEDUCTION OF TAX AT SOURCE, THE PERSON WHO HAD FAILED TO DEDUCT TAX AT SOURCE IS LIABLE TO PAY INTEREST AND NOT THE ASSESSEE, AS OTHERWISE, THERE WILL BE CHARGING OF INTEREST TWICE ON THE PAYMENT OF TAX IN RELATION TO THE SAME INCOME. SUCH AN INTERPRETATION SHOULD NORMALLY BE AVOIDED. IN THIS CASE, THEREFORE, THE TRIBUNAL APPEARS TO BE RIGHT IN HOLDING THAT IN TER MS OF S. 215 INTEREST COULD NOT BE LEVIED ON THE ITA NOS1311/06, 164/07, 1507/10 & 1722/11, CO 20 & 21/09. :- 6 -: ASSESSEE ON THE TAX WHICH IS DEDUCTIBLE AT SOURCE. WE ANSWER THE SAID QUESTIONS REFERRED TO US IN THE AFFIRMATIVE AND AGAINST THE REVENUE. THE REVENUE WILL PAY THE COSTS OF THE ASSESSEE. HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. JACABS CIVIL MITSUBISHI CORPORATION (SUPRA) IN RELATION TO A SIMILAR ISSUE HAD HELD AS UNDER AT PARA 7 TO 9 OF ITS JUDGMENT . 7. SECTION 2(1) OF THE ACT DEFINES 'ADVANCE TAX' TO MEAN THE ADVANCE TAX PAYABLE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII-C OF THE ACT. THESE PROVISIONS ARE CONTAINED FROM SECTION 207 ONWARDS. SECTION 209 FALLS UNDER THIS CHAPTER. SUB-SECTION ( 1) THEREOF DEALS WITH FOUR SITUATIONS UNDER WHICH THE ADVANCE TAX PAYABLE BY THE ASSESSEE IS TO BE COMPUTED. ADMITTEDLY, THESE CASES DO NOT CONCERN WI TH CLAUSES (A) TO (C). CLAUSE (D) OF SUB- SECTION (1) OF SECTION 209, WHICH IS RELEVANT READS AS UNDER : '(D) THE INCOME-TAX CALCULATED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) SHALL, IN EACH CASE, BE REDUCED BY THE AMOUNT OF INCOME- TAX WHICH WOULD BE DEDUCTIBLE OR COLLECTIBLE AT SOURCE DURING THE SAID FINANCIAL YEAR UNDER ANY PROVISION OF THIS ACT FROM ANY INCOME (AS COMPUTED BEFORE ALLOWING ANY DEDUCTIONS ADMISSIBLE UNDER THIS ACT) WHICH HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE CURRENT INCOME OR, AS THE CASE MAY BE, THE TOTAL INCOME AFORESAID ; AND THE AMOUNT OF INCOME- TAX AS SO REDUCED SHALL BE THE ADVANCE TAX PAYABLE.' 8. THIS CLAUSE CATEGORICALLY USES THE EXPRESSION 'DEDUCTIBLE OR COLLECTIBLE AT SOURCE' AND IT IS THI S CLAUSE WHICH IS INCORPORATED BY THE UTTARANCHAL HIGH COURT IN THE SAID JUDGMENT (SUPRA) IN THE MANNER ALREADY POINTED ABOVE. THE SCHEME OF THE ACT IN RESPECT OF NON-RESIDENTS IS CLEAR. SECTION 195 OF THE ACT PUTS AN OBLIGATION ON THE PAYER, I.E., ANY PERSON RESPONSIB LE FOR PAYING TO A NON-RESIDENT, TO DEDUCT INCOME-TAX AT ITA NOS1311/06, 164/07, 1507/10 & 1722/11, CO 20 & 21/09. :- 7 -: SOURCE AT THE RATES IN FORCE FROM SUCH PAYMENTS EXCLUDING THOSE INCOMES WHICH ARE CHARGEABLE UNDER THE HEAD 'SALARIES'. THEREFORE, THE ENTIRE TAX IS T O BE DEDUCTED AT SOURCE WHICH IS PAYABLE ON SUCH PAYMENT S MADE BY THE PAYEE TO THE NONRESIDENT. SECTION 201 O F THE ACT LAYS DOWN THE CONSEQUENCES OF FAILURE TO DE DUCT OR PAY. THESE CONSEQUENCES INCLUDE NOT ONLY THE LIABILITY TO PAY THE AMOUNT WHICH SUCH A PERSON WAS REQUIRED TO DEDUCT AT SOURCE FROM THE PAYMENTS MADE TO A NON-RESIDENT BUT ALSO PENALTIES ETC. ONCE IT I S FOUND THAT THE LIABILITY WAS THAT OF THE PAYER AND THE SAID PAYER HAS DEFAULTED IN DEDUCTING THE TAX AT SO URCE, THE DEPARTMENT IS NOT REMEDY-LESS AND THEREFORE CAN TAKE ACTION AGAINST THE PAYER UNDER THE PROVISIONS OF SECTION 201 OF THE INCOME-TAX ACT AND COMPUTE THE AMOUNT ACCORDINGLY. NO DOUBT, IF THE PERSON (PAYER) WHO HAD TO MAKE PAYMENTS TO THE NON-RESIDENT HAD DEFAULTED IN DEDUCTING THE TAX AT SOURCE FROM SUCH PAYMENTS, THE NONRESIDENT IS NOT ABSOLVED FROM PAYMENT OF TAXES THEREUPON. HOWEVER, IN SUCH A CASE , THE NON-RESIDENT IS LIABLE TO PAY TAX AND THE QUEST ION OF PAYMENT OF ADVANCE TAX WOULD NOT ARISE. THIS WOULD BE CLEAR FROM THE READING OF SECTION 191 OF THE ACT AL ONG WITH SECTION 209(1)(D) OF THE ACT. FOR THIS REASON, IT WOULD NOT BE PERMISSIBLE FOR THE REVENUE TO CHARGE ANY INTEREST UNDER SECTION 234B OF THE ACT. JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE O F DIT VS. GE PACKAGED POWER INC. (SUPRA) IS ALSO VERY RELEVANT. PARA 10 OF THIS JUDGMENT IS REPRODUCED HEREUNDER:- THE POSITION IN LAW, THEREFORE, WAS THAT THE ASSESSEE WAS ENTITLED TO, IN ITS COMPUTATION OF IT S ADVANCE TAX LIABILITY, TAKE A TAX CREDIT OF THAT AM OUNT WHICH WAS DEDUCTIBLE OR COLLECTIBLE, REGARDLESS OF WHETHER THE AMOUNT WAS ACTUALLY DEDUCTED OR COLLECTED. AS JACABS CIVIL INCORPORATED/ MITSBISHI CORPORATION (SUPRA) NOTED, THE REASON FOR THIS WAS BECAUSE, ADVANCE TAX IS TO BE COMPUTED EITHER BASED ON THE PREVIOUS YEARS ASSESSMENT, OR ON AN ESTIMATE OF THE INCOME TO BE EARNED THAT YEAR WHICH ITA NOS1311/06, 164/07, 1507/10 & 1722/11, CO 20 & 21/09. :- 8 -: IS TO BE MADE MUCH BEFORE THE FINAL ASSESSMENT. THERE IS NO POSSIBLE WAY IN WHICH THE PROVISION COULD ALLOW A TAX CREDIT OF THE AMOUNT DEDUCTED OR COLLECTED, BECAUSE THE ACTUAL DEDUCTION TAKES PLACE AT A LATER POINT IN TIME I.E. AT THE POINT AT WHICH THE PAYMENT IS ACTUALLY MADE TO THE ASSESSEE. 5 . WE FIND THAT SIMILAR VIEW WAS ALSO TAKEN BY MUMBA I BENCH OF THIS TRIBUNAL IN THE CASE OF DE BEERS UK LTD (SUPRA) AT PARA 7 OF ITS ORDER. THE GROUND NO.6 IS AGAINST CHARGING OF INTEREST U/S.234B. WE FIND THAT THIS GROUND IS COVERED BY T HE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF DIT (INTERNATIONAL TAXATION) VS. NGC NETWORK ASIA LLC (2009) 313 ITR 187 (BOM) HOLDING THAT INTEREST U/S.234B CANNOT BE CHARGED WHERE TAX IS DEDUCTIBLE AT SOURCE IN RELATION TO ROYALTY AND FTS . THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR HAS DIRECTED THE ASSESSING OFFICER T O COMPUTE INTEREST U/S.234B, IF ANY, AFTER REDUCING T HE AMOUNT OF TAX DEDUCTIBLE AT SOURCE IN RELATION TO ROYALTY AND FTS FROM THE ADVANCE TAX PAYABLE. RESPECTFULLY FOLLOWING THE PRECEDENT, WE HOLD ACCORDINGLY. 6 . THUS, WE ARE OF THE OPINION THAT ASSESSEE WAS NOT LIABLE FOR INTEREST U/S.234B OF THE ACT. HOWEVER, IN RESPECT OF INTEREST U/S.234A & 234D OF THE ACT, LD. COUNSEL FOR THE ASSESSEE FAI RLY ADMITTED THAT THESE WERE STATUTORY LEVIES FOR DEFAULT IN FURNISHI NG RETURN OF INCOME AND ON EXCESS REFUND GRANTED TO THE ASSESSEE. ACC ORDINGLY, WE ARE OF ITA NOS1311/06, 164/07, 1507/10 & 1722/11, CO 20 & 21/09. :- 9 -: THE OPINION THAT LEVY OF INTEREST U/S.234A AND 234D WERE JUSTIFIED. INTEREST LEVIED U/SEC. 234B OF THE ACT IS CANCELLE D. 7 . CROSS OBJECTION BEING NOT CONCERNED WITH THE REMI TTED ISSUE ARE TECHNICALLY TREATED AS DISMISSED. 8 . IN THE RESULT, APPEALS OF THE ASSESSEE ARE TREATE D AS PARTLY ALLOWED WHEREAS CROSS OBJECTIONS ARE DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 30TH DAY OF NO VEMBER, 2016, AT CHENNAI SD/- SD/- ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER / CHENNAI ! / DATED:30TH NOVEMBER, 2016 KV !' # $% &% / COPY TO: 1 . '( / APPELLANT 3. ) () / CIT(A) 5. %+, # - / DR 2. #.'( / RESPONDENT 4. ) / CIT 6. ,/ 0 / GF