Van Oord ACZ Marine Contractors BV, New Delhi V. ADIT, CHENNAI

ITA 1733/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61092 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-05-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 24-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA IRS
• Assessee Lawyers: RUPESH J AIN; MRS URMILA AJA Y MAHESWARI S
• Keywords: Search and seizure; Double taxation relief; Permanent establishment; Question of law; Reason to believe; Reassessment proceedings
• Section: 143(3); 234B; 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO.1733(MDS)/2011 ASSESSMENT YEAR : 2003-04 M/S.VAN OORD ACZ MARINE CONTRACTORS BV WATERMANWEG 64, 3067GG ROTTERDAM PO BOX 8574, 3009 AN ROTTERDAM, THE NETHERLANDS. PAN AABVC7075J. VS. THE ASSISTANT DIRECTOR OF INCOME-TAX, INTL. TAXATION-I, CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI AJAY VOHRA & RUPE SH JAIN AND MRS. URMILA AJA Y MAHESWARI, ADVOCATES RESPONDENT BY : DR. S.MOHARANA, IRS, CIT. DATE OF HEARING : 3 RD MAY, 2012 DATE OF PRONOUNCEMENT : 11 TH MAY, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2003-04. THE APPEAL IS DIRECTED AGAINST THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3), READ WITH - - ITA NO.1733 OF 2011 2 SECTIONS 147 AND 144C(13) OF THE INCOME-TAX ACT, 19 61. THE ASSESSMENT ORDER HAS BEEN PASSED IN THE LIGHT OF TH E DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP) AT CHE NNAI, THROUGH THEIR PROCEEDINGS DATED 25-8-2011. 2. THE FIRST ISSUE RAISED IN THIS APPEAL FILED BY THE ASSESSEE IS THAT THE ASSESSMENT ORDER IS BEYOND JUR ISDICTION, BAD IN LAW AND VOID AB INITIO FOR THE REASON THAT A SSUMING OF JURISDICTION BY THE ASSESSING OFFICER TO ISSUE NOTI CE UNDER SECTION 148 IS ILLEGAL AND BAD IN LAW. THE RELEVANT GROUND S RAISED IN THE GROUNDS OF APPEAL ON THIS ISSUE READ AS BELOW:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 144C(13)/143(3) READ WITH SECTION 147 OF TH E INCOME-TAX ACT, 1961 (THE ACT) IS BEYOND JURISDIC TION, BAD IN LAW AND VOID-AB-INITIO. 1.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE PROCEEDINGS UNDER SECTION 147 OF THE ACT HAVING BEEN INITIATED WITHOUT THERE BEING REAS ON TO BELIEVE THAT INCOME OF THE APPELLANT HAD ESCAPE D - - ITA NO.1733 OF 2011 3 ASSESSMENT, THE IMPUGNED ORDER IS ILLEGAL AND BAD I N LAW. 1.2. THAT THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, SINCE NO ADDITION HAS BEEN MADE ON THE GROUNDS/REASONS ON THE BASIS OF WHICH THE REASSESSMENT PROCEEDINGS WERE INITIATED, THE IMPUGNED ORDER IS ILLEGAL AND BAD IN LAW. 3. THE SECOND ISSUE RAISED IN THE PRESENT APPEAL I S THAT THE ASSESSING OFFICER HAS ERRED IN COMPUTING T HE INCOME OF THE ASSESSEE AT ` 11,53,52,883/- AS AGAINST NIL INCOME RETURNED BY THE ASSESSEE. THE RELEVANT GROUNDS ARE EXTRACTE D BELOW:- 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN COMPUTING THE INCOME OF THE APPELLANT FOR THE RELEV ANT ASSESSMENT YEAR AT ` 11,53,52,883/- AS AGAINST NIL INCOME RETURNED BY THE APPELLANT. 2.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THE APPELLANT AS LIABLE TO TAX IN INDIA IN RESPECT OF SUM OF ` 11,53,52,883/-, BEING EXPENSES INCURRED BY - - ITA NO.1733 OF 2011 4 THE APPELLANT WHICH WERE REIMBURSED BY VAN OORD ACZ INDIA PVT. LTD., CONSIDERING THE SAME TO BE INCOME IN THE NATURE OF FEES FOR TECHNICAL SERVICES UNDER SECTI ON 9(1)(VII) OF THE ACT AND THE ARTICLE 12(5)(B) OF TH E PROVISIONS OF THE INDIA-NETHERLANDS DTAA. 2.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THE AFORESAID AMOUNT REIMBURSED BY VAN O ORD ACZ INDIA PVT. LTD., TO BE INCOME IN THE NATURE OF FEES FOR TECHNICAL SERVICES, WITHOUT APPRECIATING THAT NO TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES WAS MADE AVAILABLE BY THE APPELLANT TO VA N OORD ACZ INDIA PVT. LTD. IN LIEU OF SUCH REIMBURSEM ENT. 2.3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ERRONEOUSLY ALLOWING THAT THE AFORESAID AMOUNTS REIMBURSED WERE TOWARDS ALLOCATION OF COSTS FOR SER VICES RENDERED BY THE APPELLANT TO VAN OORD ACZ INDIA PVT . LTD., UNDER THE COST ALLOCATION AGREEMENT, NOT APPRECIATING THAT THE SAME WERE SPECIFIC EXPENSES DIRECTLY INCURRED IN CONNECTION WITH THE PROJECT EX ECUTED - - ITA NO.1733 OF 2011 5 BY THE LATTER ENTITY IN INDIA AND DID NOT RELATE TO SERVICES REFERRED TO UNDER COST ALLOCATION AGREEMENT. 2.4. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT REIMBURSE MENT OF EXPENSES CAN, IN NO CIRCUMSTANCES, BE REGARDED A S INCOME OF THE RECIPIENT. 4. THE THIRD ISSUE RAISED BY THE ASSESSEE IS ON TH E QUESTION OF PERMANENT ESTABLISHMENT ATTRIBUTED TO T HE ASSESSEE. THE RELEVANT GROUND IS REPRODUCED BELOW:- 3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN ALLEGING THAT VAN OORD ACZ INDIA PVT. LTD., CONSTIT UTED DEPENDENT AGENT PERMANENT ESTABLISHMENT OF THE APPELLANT IN INDIA UNDER ARTICLE 5 OF THE DOUBLE TA XATION AVOIDANCE AGREEMENT BETWEEN INDIA AND THE NETHERLANDS WITHOUT PROVIDING ANY BASIS FOR HOLDING AS AFORESAID. - - ITA NO.1733 OF 2011 6 5. THE RESIDUAL GROUND IS ON THE QUESTION OF LEVY OF INTEREST. THE FOLLOWING ARE THE GROUNDS:- 4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN LEVYING INTEREST UNDER SECTIONS 234A, 234B AND 234D OF THE ACT. 4.1. THAT THE DISPUTE RESOLUTION PANEL WHILE CONFIR MING THE LEVY OF INTEREST UNDER THE AFORESAID SECTIONS, ERRED ON FACTS AND IN LAW IN OBSERVING THAT NO SPECIFIC OBJE CTION HAS BEEN RAISED BY THE APPELLANT IN THIS REGARD AND IN TREATING THE OBJECTION AS NOT PRESSED. 6. WE HEARD SHRI AJAY VOHRA, THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE, ALONGWITH SHRI RUPESH J AIN AND MRS. URMILA AJAY MAHESWARI. DR. S.MOHARANA, THE LE ARNED COMMISSIONER OF INCOME-TAX, APPEARED FOR THE REVENU E AND ARGUED THE CASE. 7. THE ASSESSEE IS A FOREIGN COMPANY. IT IS REGIS TERED IN THE NETHERLANDS. IT IS ENGAGED IN THE BUSINESS OF DREDGING, RECLAMATION AND OTHER MARINE AND PORT RELATED ACTIV ITIES. THE - - ITA NO.1733 OF 2011 7 ASSESSEE WAS AWARDED A DREDGING CONTRACT BY M/S.GUJ ARAT ADANI LTD. THE DREDGING WAS TO BE CARRIED OUT AT P ORT MUNDRA. AFTER THE AWARD OF THE CONTRACT, THE ASSESSEE-COMPA NY ASSIGNED THE CONTRACT TO ITS FULLY OWNED INDIAN SUBSIDIARY, NAMELY, VAN OORD ACZ INDIA PVT. LTD. THE PARTIES EXECUTED AN A SSIGNMENT AGREEMENT ON 18-7-2001. IN THE LIGHT OF THE ABOVE STATED ASSIGNMENT AGREEMENT, THE ASSESSEE COMPANY UNDERTOO K TO PROVIDE COORDINATING AND FACILITATING SERVICES TO I TS INDIAN SUBSIDIARY IN CARRYING OUT THE DREDGING WORK. THE ASSESSEE ACTED AS AN INTER-FACE BETWEEN ITS INDIAN SUBSIDIAR Y AND OTHER PROVIDERS OF FACILITIES. THE ASSESSEE BROUGHT THE DREDGERS TO THE SERVICES OF ITS SUBSIDIARY AND SUCH OTHER LOGISTIC AND COORDINATING SUPPORT TO ITS INDIAN SUBSIDIARY. 8. THE ASSESSEE-COMPANY HAD RECEIVED A TOTAL SUM O F ` 11,53,52,883/- FROM ITS INDIAN SUBSIDIARY AS FOLLO WS:- MOBILISATION AND DEMOBILISATION : ` 8,42,62,240/- FREIGHT & HIRE CHARGES : ` 2,48,18,171/- MEALS AND ACCOMMODATION CHARGES : ` 17,62,726/- TRAVELLING : ` 45,09,746/- ------------------- TOTAL : ` 11,53,52,883/- ============ - - ITA NO.1733 OF 2011 8 9. ACCORDING TO THE ASSESSEE-COMPANY, THE ABOVE STATED AMOUNTS WERE PAID BY ITS INDIAN SUBSIDIARY A S REIMBURSEMENT OF EXPENDITURE INCURRED BY THE ASSESS EE COMPANY IN PROVIDING THE VARIOUS FACILITIES TO ITS SUBSIDIARY. BUT, THE ASSESSING OFFICER TREATED THE ABOVE PAYMENTS AS FEE FOR TECHNICAL SERVICES RENDERED IN INDIA AND PROPOSED T O LEVY TAX IN THE LIGHT OF THE FACT THAT THE ASSESSEE HAD FILED I TS RETURN WITH NIL INCOME. THE PROPOSAL WAS TAKEN UP BEFORE DRP AT CH ENNAI AND THE DRP CONFIRMED THE PROPOSAL MADE BY THE ASSESSIN G OFFICER AND THEREAFTER THE ASSESSMENT WAS COMPLETED ACCORDI NGLY. 10. IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CA SE, WE MAY CONSIDER THE DIFFERENT GROUNDS RAISED BY THE ASSESSEE ONE AFTER THE OTHER. 11. FIRST WE WILL CONSIDER THE QUESTION OF LEGALIT Y OF JURISDICTION EXERCISED BY THE ASSESSING OFFICER TO ISSUE NOTICE UNDER SECTION 148 AND USURP JURISDICTION UNDER SECT ION 147 OF THE INCOME-TAX ACT, 1961. THE RETURN IN THE PRESENT CA SE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT ON 11-5-2 004. NO ASSESSMENT WAS SUBSEQUENTLY MADE UNDER SECTION 143( 3) OF THE ACT. THE CASE OF THE LEARNED COUNSEL APPEARING FOR THE - - ITA NO.1733 OF 2011 9 ASSESSEE IS THAT THERE WAS NO NEW MATERIAL IN THE H ANDS OF THE ASSESSING OFFICER TO HOLD ON A REASON TO BELIEVE TH AT INCOME HAD ESCAPED ASSESSMENT. IT IS HIS ARGUMENT THAT WHERE NO SUCH MATERIAL AFRESH IS AVAILABLE IN THE HANDS OF THE AS SESSING OFFICER, THERE CANNOT BE ANY GROUND TO LOCATE A REASON THAT INCOME HAS ESCAPED ASSESSMENT TO PROCEED THEREAFTER. THE LEAR NED COUNSEL HAS RELIED ON THE FOLLOWING DECISIONS IN SU PPORT OF THE ABOVE ARGUMENT:- 1. CIT VS. BATRA BHATTA COMPANY, 320 ITR 24(ST.) 2. SHIPRA SHRIVASTAVA VS. ACIT, 319 ITR 221 (DEL. ) 3. CIT VS. SFIL STOCK BROKING LTD., 325 ITR 285 ( DEL.) 4. CIT VS. JET AIRWAYS INDIA LTD., 331 ITR 236 (B OM.) 5. RANBAXY LABORATORIES LTD. VS. CIT, 336 ITR 136 (DEL.) HE ALSO RELIED ON A NUMBER OF DECISIONS RENDERED BY THE DIFFERENT BENCHES OF THE INCOME-TAX APPELLATE TRIBUNAL. 12. THE LEARNED COMMISSIONER OF INCOME-TAX APPEARI NG FOR THE REVENUE, ON THE OTHER HAND, RELIED ON THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ACIT VS. RAJES H JHAVERI STOCK BROKERS PVT. LTD., 291 ITR 500. - - ITA NO.1733 OF 2011 10 13. AS ALREADY MENTIONED ABOVE, THE RETURN WAS INI TIALLY PROCESSED UNDER SECTION 143(1) AND NO ASSESSMENT WA S COMPLETED UNDER SECTION 143(3) OF THE ACT. AS POIN TED OUT BY THE DRP, WHAT IS REQUIRED PRIOR TO THE ISSUE OF NOTICE UNDER SECTION 148 IS REASON TO BELIEVE, BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. WHETHER MATERIAL WOULD CONCL USIVELY PROVE ESCAPEMENT OF INCOME WAS NOT MATERIAL AT THE STAGE OF ISSUE OF NOTICE. THE REOPENING OF THE CASE FURTHER WAS NOT LIMITED TO THE ONLY ISSUE WHICH WAS PRIMA FACIE NOT ICED ON RECORD. THE ASSESSING AUTHORITY SEEMS TO HAVE RIGHTFULLY RE LIED ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF PRAFUL CHUNILAL PATEL VS. ACIT, 236 ITR 832. 14. THE LEARNED COUNSEL HAS VEHEMENTLY ARGUED ON T HE PROPOSITION THAT EVEN IN CASE OF INTIMATION UNDER S ECTION 143(1), AN ASSESSMENT UNDER SECTION 147 COULD BE MADE ONLY IF NEW MATERIALS HAVE COME TO THE KNOWLEDGE OF THE ASSESSI NG OFFICER. WE ARE AFRAID THAT THIS CANNOT BE A UNIVERSAL PROPO SITION APPLICABLE TO ALL CASES. IT DEPENDS UPON FACTS OF EACH CASE. IN THE PRESENT CASE, THE CONTRACT WAS INITIALLY AWARDE D TO THE ASSESSEE COMPANY AND THE ASSESSEE COMPANY HAD LATER ON - - ITA NO.1733 OF 2011 11 ASSIGNED THE CONTRACT TO ITS INDIAN SUBSIDIARY AND AS PER THE ASSIGNMENT AGREEMENT, STILL THE ASSESSEE HAD TO PLA Y A ROLE BY COORDINATING TECHNICAL SERVICES FOR THE INDIAN SUBS IDIARY AND IN ADDITION TO THE ABOVE, THERE IS ALSO AN AGREEMENT F OR ALLOCATION OF COST BETWEEN THE ASSESSEE AND THE SUBSIDIARY, ETC. WHEN THE FACTS OF THE CASE ARE SO COMPLICATED AND CUMBERSOME AND WHEN THE RETURN WAS ONLY PROCESSED UNDER SECTION 143(1), THE MATERIALS AVAILABLE ON RECORD ALONGWITH THE RETURN FILED BY THE ASSESSEE THEMSELVES CONSTITUTED SUFFICIENT MATERIAL S IN THE HANDS OF THE ASSESSING OFFICER TO HOLD A REASON THA T INCOME HAD ESCAPED ASSESSMENT. THE LEGAL VALIDITY OF SECTION 143(1) INTIMATION HAS TO BE CONSIDERED IN THE LIGHT OF THE SURROUNDING FACTS OF A CASE. IT IS THE ARGUMENT OF THE ASSESSE E THAT THE REASSESSMENT WAS DONE ONLY ON THE BASIS OF SUSPICIO N. IT IS NOT CORRECT. WHERE THE RETURN WAS PROCESSED UNDER SECT ION 143(1), THERE IS NO ROOM EVEN FOR AN EARLIER CONVICTION. 15. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED VIEW THAT THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS P . LTD., 291 ITR 500, IS EXACTLY APPLICABLE IN THE PRESENT CASE AND, THEREFORE, - - ITA NO.1733 OF 2011 12 THE ISSUE OF NOTICE AND PASSING OF ASSESSMENT ORDER UNDER SECTION 147 IS TO BE UPHELD. THEREFORE, WE REJECT THE GROUNDS RAISED BY THE ASSESSEE RELATING TO JURISDICTION ASS UMED BY THE ASSESSING OFFICER IN PASSING THE IMPUGNED INCOME ES CAPING ASSESSMENT ORDER. 16. THE SECOND GROUND IS REGARDING THE FEE FOR TEC HNICAL SERVICES. THE ASSESSING OFFICER HAS TREATED THE EN TIRE AMOUNT OF ` 11,53,52,883/- AS FEE FOR TECHNICAL SERVICES RECEI VED BY THE ASSESSEE IN INDIA. IT IS THE CASE OF THE ASSESSEE THAT THE PAYMENTS WERE MADE AGAINST MOBILIZATION AND DEMOBIL IZATION, FREIGHT AND HIRE CHARGES, MEALS AND ACCOMMODATION A ND TRAVELLING EXPENDITURE AND THE PAYMENTS WERE ONLY REIMBURSEMENT ON ACTUAL BASIS RAISED BY THIRD PARTY INVOICES AND THEY DID NOT GIVE RISE TO ANY INCOME CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. IT IS THE CASE OF THE ASSES SEE THAT NO TECHNICAL SERVICES HAVE BEEN RENDERED BY IT TO ITS INDIAN SUBSIDIARY. 17. IT IS ALSO THE ARGUMENT OF THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE THAT IN VIEW OF ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA - - ITA NO.1733 OF 2011 13 AND NETHERLANDS, THE ABOVE STATED REIMBURSEMENT OF EXPENDITURE WOULD NOT BE IN THE NATURE OF FEE FOR T ECHNICAL SERVICES. WHILE EXPLAINING THE RELEVANCE OF ARTICL E 12 OF INDIA- NETHERLANDS DTAA, THE LEARNED COUNSEL HAS ALSO PLAC ED MUCH RELIANCE ON INDIA-US DTAA AND INDIA-PORTUGAL DTAA. HE HAS ARGUED THAT AT ANY STRETCH OF IMAGINATION, THESE RE IMBURSEMENTS WOULD NOT BE IN THE NATURE OF ANY TECHNICAL SERVICE FEES, AS THE ASSESSEE IN FACT HAD NEVER RENDERED ANY TECHNICAL S ERVICES TO ITS INDIAN SUBSIDIARY. WHAT THE ASSESSEE HAS ARRANGED FOR ITS INDIAN SUBSIDIARY WAS ONLY THE SAILING IN AND THE SAILING OUT OF DREDGING VESSELS AND THE OTHER CONNECTED COORDINATING ACTIVI TIES, FOR WHICH PAYMENTS WERE MADE BY THE ASSESSEE, WHICH WERE LATE R REIMBURSED BY ITS INDIAN SUBSIDIARY. 18. THE LEARNED COMMISSIONER OF INCOME-TAX APPEARI NG FOR THE REVENUE, ON THE OTHER HAND, ARGUED THAT THE CASE IS TO BE VIEWED WITH DUE REGARD TO THE COST ALLOCATION AGREE MENT ENTERED INTO BETWEEN THE ASSESSEE AND ITS INDIAN SUBSIDIARY . THE COST ALLOCATION AGREEMENT LAYS DOWN THE ROLE OF THE ASSE SSEE DESCRIBED AS SERVICE GROUP IN CONNECTION WITH THE PROJECT. THE LEARNED COMMISSIONER OF INCOME-TAX HELD THAT IN VIE W OF THE COST - - ITA NO.1733 OF 2011 14 ALLOCATION AGREEMENT, THE ASSESSEE HAD IN FACT PROV IDED CONSIDERABLE KNOWHOW AND FACILITIES WITHIN ITS COMM AND IN THE FIELD OF PRODUCTION, TECHNOLOGY, MARKETING, FINANCE , BUSINESS ADMINISTRATION, DATA PROCESSING AND THE LIKE. THE AGREEMENT BETWEEN THE ASSESSEE AND ITS INDIAN SUBSIDIARY SHOW ED THAT THE SUBSIDIARY DID NOT HAVE AT ITS DISPOSAL ADEQUATE MA TERIAL AND HUMAN RESOURCE EXPERTISE TO EXECUTE THE PROJECT ON ITS OWN. THE COMMISSIONER OF INCOME-TAX, THEREFORE, ARGUED THAT THE ASSESSING OFFICER HAS RIGHTLY TREATED THE PAYMENTS AS FEE FOR TECHNICAL SERVICES AND BROUGHT THE SAME TO TAX IN I NDIA. 19. THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE HAS RELIED ON THE FOLLOWING DECISIONS TO SUPPORT HI S ARGUMENTS ON THE ISSUE OF FEE FOR TECHNICAL SERVICES:- 1. DIAMOND SERVICES INTERNATIONAL P. LTD. V. UNIO N OF INDIA AND OTHERS, 304 ITR 201 (BOM.) 2. RAYMOND LTD. VS. DCIT, 86 ITD 791 (MUM.) 3. ANAPHARM INC., 305 ITR 394 (AAR). 4. INTERTEK TESTING SERVICES INDIA P. LTD., 307 I TR 418 (AAR) 5. ERNST & YOUNG P. LTD., 323 ITR 184 (AAR) - - ITA NO.1733 OF 2011 15 6. BHARATI AXA GENERAL INSURANCE CO. LTD., 326 IT R 477 (ARR) 7. JOINT ACCREDITATION SYSTEM OF AUSTRALIA AND NE W ZEALAND, 326 ITR 487 (AAR) 8. FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUSTRY VS. DIT, 320 ITR 124. 20. THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE MORE SPECIFICALLY RELIED ON THE FOLLOWING DECISIONS WITH REFERENCE TO HIS ARGUMENTS ON THE ISSUE OF REIMBURSEMENT OF E XPENSES:- 1. VAN OORD ACZ INDIA P. LTD. VS. CIT, 323 ITR 13 0 (DEL) 2. MAHINDRA AND MAHINDRA LTD. VS DCIT, 313 ITR 26 3 (AT)(MUMBAI)(SB) 3. CIT VS. DUNLOP RUBBER CO. LTD., 142 ITR 493(CA L.) 4. CIT VS. INDUSTRIAL ENGG. PRODUCTS P. LTD., 202 ITR 1014(DEL) 5. CIT VS. FORTIS HEALTHCARE LTD., 181 TAXMAN 257 (DEL.). 21. WE CONSIDERED THIS CRUCIAL ISSUE IN THE LIGHT OF THE DETAILED ARGUMENTS ADVANCED FROM BOTH SIDES. IF TH E SUM OF ` 11,53,52,883/- WAS PAID BY THE INDIAN SUBSIDIARY T O THE ASSESSEE AS REIMBURSEMENT OF EXPENDITURE, NORMALLY THERE WOULD NOT BE ANY PROFIT ELEMENT IN SUCH REIMBURSEME NT AND THERE - - ITA NO.1733 OF 2011 16 CANNOT BE ANY INCOME ASSESSABLE IN THE HANDS OF THE ASSESSEE. REIMBURSEMENT OF EXPENDITURE IS NOT INCOME AS SUCH. BUT THE QUESTION IS WHETHER THE PAYMENT MADE BY THE INDIAN SUBSIDIARY TO THE ASSESSEE COMPANY WAS IN FACT REIMBURSEMENT O F EXPENDITURE OR NOT. THE CASE OF THE ASSESSING AUTH ORITY IS THAT THE PAYMENTS WERE NOT REIMBURSEMENT OF EXPENSES. T HEY WERE PAYMENTS MADE FOR TECHNICAL SERVICES RENDERED BY TH E ASSESSEE COMPANY IN INDIA IN FAVOUR OF ITS INDIAN SUBSIDIARY . IT IS THE CASE OF THE ASSESSING OFFICER THAT EVEN THOUGH THE CONTR ACT WAS ASSIGNED TO ITS INDIAN SUBSIDIARY, THE SUBSIDIARY H AS NO TECHNICAL EXPERTISE OR ANY OTHER WHEREWITHAL TO CARRY OUT THE CONTRACT. THEREFORE, THE ASSESSEE COMPANY ITSELF WAS PROVIDIN G ALL THE NECESSARY TECHNICAL SERVICES AND GUIDANCE TO ITS SU BSIDIARY TO EXECUTE THE DREDGING CONTRACT. IT IS BECAUSE OF TH E ABOVE REASON THAT THE ASSESSING OFFICER HAS HELD THAT THE ASSESS EE COMPANY HAD RENDERED TECHNICAL SERVICES IN INDIA TO ITS IND IAN SUBSIDIARY AND, THEREFORE, THE PAYMENTS MADE BY THE SUBSIDIARY COMPANY HAVE TO BE TREATED AS FEES PAID FOR TECHNICAL SERVI CES. 22. WE FIND GREAT FORCE IN THE ARGUMENTS OF THE REVENUE AND THE CONCLUSIONS ARRIVED AT BY THE ASSES SING OFFICER - - ITA NO.1733 OF 2011 17 AS WELL AS THE DRP. THE FINDING OF THE ASSESSING O FFICER HAS TO BE CONSIDERED NOT ONLY IN THE LIGHT OF THE CONTRACT ASSIGNMENT AGREEMENT, BUT ALSO IN THE LIGHT OF THE COST ALLOCA TION AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND ITS I NDIAN SUBSIDIARY. THE COST ALLOCATION AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND ITS INDIAN SUBSIDIARY HAS UNEQUIVOCALLY DECLARED THAT THE INDIAN COMPANY DOES NOT HAVE ANY SORT OF TECHNICAL EXPERTISE OR RESOURCES AND AB ILITY TO CARRY OUT THE DREDGING CONTRACT ASSIGNED TO IT. IT IS IN THE LIGHT OF THE ABOVE DECLARATION THAT THE ASSESSEE COMPANY HAS UND ERTAKEN TO PROVIDE ALL SORTS OF SERVICES TO ITS INDIAN SUBSIDI ARY, WHEREVER NECESSARY, TO EXECUTE THE DREDGING CONTRACT. SUCH SERVICES INCLUDE NOT ONLY ARRANGING THE DREDGERS FROM ABROAD , BUT ALSO APPLICATION OF TECHNICAL MIND TO SELECT AND CHOOSE APPROPRIATE PARTIES TO EXECUTE THE WORK ENTRUSTED TO ITS INDIAN SUBSIDIARY. THE ARGUMENT OF THE ASSESSEE COMPANY THAT THE PAYME NTS WERE MADE BY THE INDIAN SUBSIDIARY ONLY AS REIMBURSEMENT OF EXPENSES CANNOT BE ACCEPTED AT ITS FACE VALUE. THE FACILITIES ARRANGED AND COORDINATED OR OBTAINED BY THE ASSESSE E TO SUPPORT THE OPERATIONS OF ITS INDIAN SUBSIDIARY ARE NOT LAYMANS - - ITA NO.1733 OF 2011 18 ACTIVITIES. EVEN TO CHOOSE THE BEST DREDGER, IT IS NECESSARY TO HAVE ADEQUATE TECHNICAL KNOWHOW ABOUT THE NATURE AN D PLACE OF WORK TO BE CARRIED OUT BY ITS INDIAN SUBSIDIARY. I T IS NOT POSSIBLE TO SIMPLY SAY THAT THE ASSESSEE HAD ONLY BROUGHT DR EDGERS FROM OUTSIDE INDIA TO THE INDIAN PORT FOR DREDGING AND K EPT BACK ONCE THE WORK IS OVER. THESE ARE OVER-SIMPLIFIED STATEM ENTS. 23. APART FROM ARGUING THAT THE PAYMENTS WERE IN T HE NATURE OF REIMBURSEMENT OF EXPENSES, THE ASSESSEE H AS NOT EXPLAINED ANYTHING ABOUT THE PRICING OF THE SERVICE S, FOR WHICH THE SO-CALLED REIMBURSEMENTS WERE MADE BY THE INDIA N SUBSIDIARY TO THE ASSESSEE COMPANY. IT IS THE CASE OF THE ASSESSEE THAT EXPENSES WERE REIMBURSED BY THE INDIA N SUBSIDIARY AT PAR WITH THE INVOICES ISSUED BY THIRD PARTIES. BUT THERE IS NOTHING ON RECORD TO SHOW THAT THE PRICE N EGOTIATED BETWEEN THE ASSESSEE AND THE THIRD PARTIES AND THE AMOUNTS REFLECTED IN THE INVOICES ISSUED BY THE THIRD PARTI ES ARE PRICES COMPARABLE TO SIMILAR SERVICES PROVIDED BY INTERNAT IONAL PARTIES. THE ASSESSEE HAS NOT ESTABLISHED THAT IT HAD OFFERE D SERVICES TO THE SUBSIDIARY COMPANY ON COST TO COST BASIS AT BES T REASONABLE AND COMPETENT PRICES AVAILABLE AT THAT POINT OF TIM E. THEREFORE, IT - - ITA NO.1733 OF 2011 19 IS NOT PROPER TO RULE OUT AN ELEMENT OF PROFIT IN T HE INVOICES RAISED BY THIRD PARTIES THEMSELVES, EVEN THOUGH WHAT WAS P AID BY THE SUBSIDIARY COMPANY TO THE ASSESSEE IS THE SAME AMOU NT AS REFLECTED IN THE INVOICES. THEREFORE, THE ARGUMENT THAT WHAT HAS BEEN PAID BY THE SUBSIDIARY TO THE ASSESSEE COMPANY WAS ONLY THE AMOUNT REFLECTED IN THE INVOICES ISSUED BY THE THIRD PARTIES ALONE, DOES NOT GO TO SUPPORT THE ARGUMENT OF THE A SSESSEE COMPANY THAT THE PAYMENTS WERE ONLY REIMBURSEMENT O F EXPENDITURE AND THERE WAS NO ELEMENT OF PROFIT IN T HOSE AMOUNTS. AS THE ASSESSEE HAS NOT EXPLAINED THE PRICING FACTO R WITH REFERENCE TO THE SERVICES REFLECTED IN THE INVOICES ISSUED BY THE THIRD PARTIES, IT IS NOT POSSIBLE TO SAY THAT THE A SSESSEE HAD NOT RENDERED ANY SERVICE TO ITS INDIAN SUBSIDIARY IN IN DIA. 24. FURTHER, IT IS TO BE SEEN THAT THE ORIGINAL CO NTRACT WAS AWARDED TO THE ASSESSEE COMPANY ITSELF. THE CO NTRACT WAS THEREAFTER ASSIGNED TO ITS SUBSIDIARY ON THE BASIS OF AN ASSIGNMENT AGREEMENT. IT IS CLEAR FROM THE ORDER O F THE ASSESSING OFFICER THAT THE SUBSIDIARY COMPANY DOES NOT HAVE THE TECHNICAL, ORGANIZATIONAL AND MANAGERIAL COMPETENCE TO CARRY OUT THE CONTRACT WORK BY ITSELF. THEREFORE, IN FAC T, THE ASSESSEE - - ITA NO.1733 OF 2011 20 COMPANY ITSELF HAD, TO A GREAT EXTENT, EXECUTE THE CONTRACT WORK FOR AND ON BEHALF OF ITS SUBSIDIARY. 25. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, IT IS AN INEVITABLE CONCLUSION ON THE PART OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD RENDERED TECHNICAL SE RVICES TO ITS SUBSIDIARY IN INDIA AND THE PAYMENTS WERE IN THE NA TURE OF FEE FOR TECHNICAL SERVICES. THEREFORE, WE HOLD THAT THE AS SESSING OFFICER IS JUSTIFIED IN BRINGING THE SUM OF ` 11,53,52,883/- TO TAX IN THE HANDS OF THE ASSESSEE COMPANY. 26. THE ISSUE OF FEE FOR TECHNICAL SERVICES IS ALS O DECIDED AGAINST THE ASSESSEE. 27. THE THIRD ISSUE RAISED BY THE ASSESSEE IS REGA RDING THE FINDING OF THE ASSESSING OFFICER THAT THE INDIA N SUBSIDIARY WOULD CONSTITUTE A DEPENDENT AGENT OF THE ASSESSEE COMPANY AND THEREBY THE ASSESSEE COMPANY HAS PERMANENT ESTABLISHMENT IN INDIA. THIS GROUND IS ALMOST ACAD EMIC IN VIEW OF OUR FINDING THAT WHAT THE ASSESSEE RECEIVED FROM ITS SUBSIDIARY WAS FEE FOR TECHNICAL SERVICES. ON MERITS ALSO THE ASSESSING OFFICER IS JUSTIFIED IN HOLDING THAT THE ASSESSEE H AD A PERMANENT ESTABLISHMENT IN INDIA. THIS IS BECAUSE OF THE REA SON THAT WE - - ITA NO.1733 OF 2011 21 HAVE ALREADY STATED THAT, DE FACTO SPEAKING, THE AS SESSEE WAS CARRYING ON CONTRACT WORK FOR AND ON BEHALF OF THE INDIAN SUBSIDIARY. THEREFORE, IF WE PIERCE THE VEIL OF AS SIGNMENT CONTRACT AND GO TO THE ROOT OF THE CASE, WE FIND TH AT THERE IS INTERLACING OF ACTIVITIES AND INTERLOCKING OF FUNDS BETWEEN THE ASSESSEE AND ITS INDIAN SUBSIDIARY IN EXECUTING THE DREDGING CONTRACT. IN SUCH CIRCUMSTANCES, THE RELATIONSHIP OF AGENCY IS THERE AND THE EXISTENCE OF PERMANENT ESTABLISHMENT IS ALSO THERE. THIS GROUND HAS NECESSARILY TO BE DECIDED A GAINST THE ASSESSEE. 28. THE LAST ISSUE IS REGARDING THE LEVY OF INTERE ST UNDER SECTIONS 234A, 234B AND 234D OF THE ACT. INTEREST UNDER SECTION 234A IS CONSEQUENTIAL. IN RESPECT OF INTEREST LEVI ED UNDER SECTION 234B, THE ASSESSING OFFICER HAS NOT CONSIDE RED THE DUTY OF THE PAYER TO DEDUCT TAX AT SOURCE. IN THE CASE OF THE ASSESSEE, TDS HAS BEEN MADE. THEREFORE, THE ASSESS ING AUTHORITY IS DIRECTED TO REDO THE LEVY OF INTEREST UNDER SECTION 234B IN THE LIGHT OF THE RELEVANT JUDICIAL PRONOUNC EMENTS. AS FAR AS THE INTEREST UNDER SECTION 234D IS CONCERNED, IT IS ONLY PROSPECTIVE IN OPERATION AND, THEREFORE, WILL NOT A PPLY TO THE - - ITA NO.1733 OF 2011 22 IMPUGNED ASSESSMENT YEAR 2003-04. THEREFORE, THE A SSESSING OFFICER IS DIRECTED TO RECOMPUTE THE INTEREST LIABI LITY AFRESH. THE ASSESSEE SHALL BE HEARD BEFORE PASSING ORDER ON THI S POINT. 29. IN RESULT, THE SUBSTANTIAL GROUNDS OF THE ASSE SSEE RAISED IN THIS APPEAL ON QUESTION OF LAW AND FACTS ARE DISMISSED AND THE GROUNDS RAISED IN RESPECT OF LEVY OF INTERE ST UNDER SECTIONS 234B AND 234D ARE TREATED AS ALLOWED. 30. THE APPEAL FILED BY THE ASSESSEE IS THEREFORE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 11 TH OF MAY, 2012 AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 11 TH MAY, 2012. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.