Heinz India Pvt. Ltd., V. Addl. CIT, Range-12,

ITA 1786/DEL/2005

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53439 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 21-12-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 12-04-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI SENIOR
• Assessee Lawyers: MRS PRITY GOEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.1786/DEL./2005 (ASSESSMENT YEAR : 2001-02) M/S. HEINZ INDIA PRIVATE LIMITED, VS. ADDL.CIT, RA NGE 12, 1 ST FLOOR, A 19, KAILASH COLONY, NEW DELHI. NEW DELHI 110 048. (PAN : AAACH0667B) (APPELLANT) (RESPONDENT) ASSESSEE BY : MRS. PRITY GOEL, CA REVENUE BY : SHRI R.S. NEGI, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF THE ORDER OF CIT (APPEALS)-XV, NEW DELHI DATED 18.01.2005 FOR THE AS SESSMENT YEAR 2001-02. THE GROUNDS OF APPEAL READ AS UNDER :- 1. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XV, NEW DELHI ['THE CIT(A)'] ERRED IN CONFIRMING THE ST AND TAKEN BY THE ASSESSING OFFICER ('THE AO') BY DISALL OWING RS.8,113,276 UNDER SECTION 40(A)(I) OF THE INCOME T AX ACT ('THE ACT'), BEING EXPENSES IN THE NATURE OF REIMBURSEMENTS TO HEINZ USA, AT COST. THE CIT(A) ER RED IN NOT HOLDING THAT THE PAYMENTS ARE IN THE NATURE OF PURE REIMBURSEMENTS AND DO NOT INVOLVE ANY ELEMENT OF INCOME AND HENCE NO WITHHOLDING IS REQUIRED. ITA NO.1786/DEL./2005 2 THE CIT(A) ERRED IN HOLDING THAT THE PAYMENTS ARE TAXABLE AS 'FEES FOR TECHNICAL SERVICES' UNDER SECTION 9(1 )(VII) OF THE INCOME-TAX ACT, 1961. WITHOUT PREJUDICE 2. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN NOT CONSIDERING & EXAMI NING THAT THE PAYMENTS DO NOT 'MAKE AVAILABLE' ANY TECHN ICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESS A ND HENCE ARE NOT TAXABLE UNDER THE BENEFICIAL PROVISIO NS OF THE DOUBLE TAX AVOIDANCE TREATY BETWEEN INDIA AND UNITED STATES OF AMERICA. 2. THE ASSESSEE WAS DOING THE BUSINESS OF MANUFACTU RING AND MARKETING OF FOOD PRODUCTS AND OTHER CONSUMER PRODUCTS DURING THE RELEVANT PERIOD. THE ASSESSEE HAS REMITTED A SUM OF US $ 1,82,659.09 TO HEINZ, USA. IT IS CLAIMED THAT THESE AMOUNTS PAID FOR THE FOLLOWING :- NATURE OF SERVICE AMOUNT (IN USD) AMOUNT (IN RS.) CORPORATE ADVISORY BOARD 3200 140810.60 CORPORATE EXECUTIVE BOARD 2600 113698.00 COUNTERFEITING INVESTIGATION 145011 6773419.65 TAX ADVISORY SERVICES 2100 98511.00 CONSULTING ON TOMATO SEEDS 4412 192936.76 INFANT FEEDING 17000 793900.00 174323 8113276.01 THE ASSESSEE CLAIMED THAT IT WAS A REIMBURSEMENT, H ENCE PROVISIONS OF SECTION 195 OF THE INCOME-TAX ACT ARE NOT APPLICABLE FOR DE DUCTION OF TAX. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION AND DISALLOWED THE WHOLE OF ITA NO.1786/DEL./2005 3 THE EXPENSES BY APPLYING THE PROVISIONS OF SECTION 40(A)(I) OF INCOME-TAX ACT, 1961. 3. CIT (A) UPHELD THE ADDITION BY HOLDING AS UNDER :- 14.4 FROM THE ABOVE CASE LAWS, IT IS CLEAR THAT SE RVICES IN THE NATURE OF MANAGERIAL ADVICE, HUMAN RESOURCE ADVICE, TAX CONSULTANCY, COUNTERFEITING SERVICES AND EVEN TRAVE L COSTS RELATED TO PROVIDING TECHNICAL/MARKETING ADVISORY, WOULD FA LL WITHIN THE PURVIEW OF SECTION 9(1)(VII) EXPLANATION 2. IN THE CASE BEFORE ME, THE APPELLANT COMPANY NEEDED THE SERVICES RELAT ING TO TAX ADVISORY, COUNTERFEITING SERVICES, H.R. ADVICE ETC. THE SERVICES WERE PROVIDED BY VARIOUS PARTIES IN USA. THESE PART IES WERE PAID BY THE APPELLANT COMPANY, THROUGH A PROCESS OF REIMBURSEMENT TO HEINZ USA. 14.5 AT THIS POINT, IT WOULD BE USEFUL TO CONSIDER THE INTENT OF THE LEGISLATURE BEHIND INTRODUCING SECTION 40(A)(I) . THIS SECTION IS TARGETING AT PROTECTING THE EXCHEQUER FROM INCOM E EARNED FOR SERVICES UTILIZED IN INDIA, ESCAPING ASSESSMENT. TH ERE IS NO DENYING THE FACT THAT THE APPELLANT COMPANY UTILIZE D THE SAID SERVICES FOR THE BENEFIT OF ITS BUSINESS IN INDIA. CONSEQUENTLY, THE APPELLANT COMPANY WHEN IT WAS PAYING OUT THE MO NEY, MUST DEDUCT TAX AT SOURCE. HAVING FAILED TO DO SO, THE P ROVISIONS OF SECTION 40( A)(I) WOULD GET ATTRACTED AND THE PAYME NT DISALLOWED AS AN EXPENSE. 14.6 HAVING TAKEN THE VIEW THAT THE SERVICES WERE O F THE NATURE DESCRIBED IN SECTION 9(L)(VII) EXPLANATION (2) THE PROVISIONS OF SECTION 40(A)(II) WOULD GET ATTRACTED SINCE THE APP ELLANT HAS NOT DEDUCTED THE TAX AT SOURCE WHILE MAKING THE PAYMENT , AND AS PER THE PROVISION OF SECTION 40(A)(I), THE AMOUNT OF EX PENDITURE IN QUESTION CANNOT BE ALLOWED AS A DEDUCTION FROM THE PROFITS OF THE COMPANY. 14.7 ACCORDINGLY, THE ARGUMENT OF THE APPELLANT IS REJECTED AND ORDERS OF THE A.O. UPHELD ON THIS POINT. ITA NO.1786/DEL./2005 4 4. AT THE OUTSET, THE LEARNED AR SUBMITTED THAT THE ISSUE MAY BE SET ASIDE IN VIEW OF THE DECISION OF ITAT, DELHI BENCH I IN ASSESSEES OWN CASE IN ITA NO.4581/DEL/2005 FOR ASSESSMENT YEAR 2002-03 DA TED 07.05.2007. SHE ALSO PLEADED THAT THE JURISDICTION OF THE ASSESSEE HAS BEEN TRANSFERRED TO MUMBAI WHERE ITAT, MUMBAI BENCH L IN ITA NOS.4351 & 4350/MUM/2008 FOR ASSESSMENT YEARS 2003-04 & 2004-0 5 HAS ALSO RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER ON T HE BASIS OF THE DECISION OF ITAT, DELHI BENCH I, CITED SUPRA. THE LEARNED DR WAS ALSO NOT HAVING ANY OBJECTION TO THIS PROPOSITION. 5. WE HAVE HEARD BOTH THE SIDES. ITAT, DELHI BENCH I IN ASSESSEES OWN CASE, CITED SUPRA, HAS DECIDED THE ISSUE AS UND ER :- 13. THE LD. CIT(A) ALSO REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE REVENUE WAS NOT CONSIDERING TH E ASSESSMENT OF THE OVERSEAS COMPANIES. IN OUR OPINION, THE PROV ISIONS OF SECTION 195 ARE APPLICABLE ONLY WHERE PERSON RESPON SIBLE TO PAYING FOR A NON-RESIDENT ANY SUM WHICH IS CHARGEAB LE UNDER THE PROVISIONS OF THIS ACT. THEREFORE, THE PERSON REQUI RED TO DEDUCT TAX AT SOURCE CAN ALWAYS DEMONSTRATE THAT THE PAYME NT OF SUCH SUM IS NOT CHARGEABLE TO TAX IN THE HANDS OF NON-RE SIDENT COMPANY. THEREFORE, IF THE ASSESSEE IS ABLE TO PROV E THAT PAYMENT BY WAY OF FEES FOR TECHNICAL SERVICES IS NO T CHARGEABLE TO TAX AT ALL IN VIEW OF ARTICLE 12(4)(B) OF THE TR EATIES BETWEEN THE COUNTRIES MENTIONED ABOVE, THEN IT CANNOT BE SA ID THAT ASSESSEE WAS REQUIRED TO DEDUCT THE TAX AT SOURCE U NDER SECTION 195 OF THE ACT AND CONSEQUENTLY DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT CANNOT BE MADE. ACCORDINGLY, TH E OBSERVATIONS OF THE LD. CIT(A) MENTIONED ABOVE ARE HEREBY VACATED. 14. IN VIEW OF THE ABOVE DISCUSSION, THE ORDER OF T HE LD. CIT(A) IS HEREBY SET ASIDE AND THE MATTER IS RESTOR ED TO THE FILE ITA NO.1786/DEL./2005 5 OF THE CONCERNED ASSESSING OFFICER FOR FRESH ADJUDI CATION AFTER CONSIDERING THE VARIOUS AGREEMENTS BETWEEN THE PART IES AS WELL AS THE PROVISIONS OF TREATIES BETWEEN THE TWO COUNT RIES. IT IS HEREBY CLARIFIED THAT WE ARE NOT RESTRICTING THE AS SESSING OFFICER TO CONSIDER THE ISSUE ONLY WITH REFERENCE TO ARTICL E 12(4)(B) OF SUCH TREATIES. THE ENTIRE PROVISIONS OF SUCH TREATI ES WOULD BE OPEN TO THE ASSESSING OFFICER FOR CONSIDERING SUCH ISSUE. FURTHER, THE ASSESSEE SHALL BE GIVEN FULL OPPORTUNI TY OF BEING HEARD IN THIS REGARD. THE SAME HAS ALSO BEEN FOLLOWED BY THE ITAT, MUMBAI BENCH L IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2003-04 AN D 2004-05. KEEPING THESE FACTS IN VIEW, WE ALSO SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER CONSIDERING ALL THE RE LEVANT ASPECTS INCLUDING THE AGREEMENTS BETWEEN THE PARTIES AS WELL AS THE PROVI SIONS OF TAX TREATIES BETWEEN THE COUNTRIES. HENCE, THE ISSUE IS RESTORE D BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 21 ST DAY OF DECEMBER, 2011. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 21 ST DAY OF DECEMBER, 2011/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XV, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.