DCIT (IT) 3(2)(2), MUMBAI V. MERRILL LYNCH INTERNATIONAL, MUMBAI

ITA 1832/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2426 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 15-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Rule of consistency; Deemed to accrue or arise in india; Permanent establishment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH , JM ITA NO. 1832 / MUM/20 1 7 ( ASSESSMENT YEAR : 2012 - 13 ) DCIT (IT) 3(20(2) R.NO.1615, 16 TH FLOOR AIR INDIA BUILDING NARIMAN POINT MUMBAI 400 021 V S. M/S. MERRILL LYNCH INTERNATIONAL, C/O. M.S.G.M.KAPADIA & CO.1007 RAHEJA CHAMBERS 213, NARIMAN POINT MUMBAI 400 021 PAN/GIR NO. AABCM1026G ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI S. ANBUSELVAM ASSESSEE BY SHRI NITESH JOSHI DATE OF HEARING 16 / 10 /201 8 DATE OF PRONOUNCEMENT 13 / 11 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 57, MUMBAI DATED 28/11/2016 FOR A.Y.2012 - 13 IN THE MATTER OF ORDER PASSED U/S.1 43(3) R.W.S. 144C(3) OF THE IT ACT, 1961. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE: - 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT(A) HAS FAILED TO HOLD THAT AN AMOUNT OF US$403,136 BEING FEES RECEIVED FR OM INVESTMENT BANKING TRANSACTION WITH INDIAN COMPANIES OUTSIDE INDIA AS INCOME OF THE ASSESSEE DEEMED TO ACCRUE OR ARISE IN INDIA & LIABLE TO TAX IN INDIA AS 'FEES FOR TECHNICAL SERVICES' UNDER SECTION 9(I)(VII) OF THE ACT.' ITA NO. 1832/MUM/2017 M/S. MERRILL LYNCH INTERNATIONAL 2 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT(A) HAS ERRED IN NOT APPRECIATING THE MERITS OF THE CASE AS PUTFORTH BY THE AO AND ALLOWED THE APPEAL OF THE ASSESSEE BY SIMPLY FOLLOWING THE DECISION OF HIS PREDECESSOR.' 3. 'THE APPELLANT PRAYS T HAT THE ORDER OF THE LD.CLT(A) ON THE ABOVE GROUND(S) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED.' 4. 'THE APPELLANT PRAYS THAT THE APPEAL IS MAINTAINABLE IN THIS CASE IN VIEW OF CIRCULAR NO. 21/2015 DATED 10,12.2015 OF THE CBDT.' 5. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT T HE ASSESSEE IS A COMPANY INCORPORATED IN AND UNDER THE LAWS OF THE UNIT ED KINGDOM AND IS REGISTERED AS A FOREIGN INSTITUTIONAL INVESTOR (FII) WITH THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI).THE ASSESSEE HAS OBTAINED NECESSARY PERMISSION TO INVEST IN SECURITIES OF INDIAN COMPANIES. THE ASSESSEE ALSO ACTS AS LEAD MANAGER / MANAGER AND UNDERWRITER FOR ADRS/GDRS ISSUED BY INDIAN COMPANIES OUTSIDE INDIA. FOR ACTING AS AFORESAID THE ASSESSEE , RECEIVES COMMISSION / FEES FROM THE INDIAN COMPANIES OUTSIDE INDIA. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE FILED ITS RETURN OF INCOME RETURNING TOTAL INCOME AT NIL. THE ASSESSEE DECLARED BY WAY OF A NOTE IN ITS RETURN OF INCOME THAT AN AMOUNT OF US$403,136 HAS BEEN RECEIVED AS FEES FROM INVESTMENT BANKING TRANSACTIONS OUTSIDE INDIA AND THE SAME IS NOT LIABLE TO TAX IN INDIA. HOWEVER, THE LEARNED DEPUTY DIRECTOR OF INCOME - TAX (INTERNATIONAL TAXATION) 4(1), MUMBAI (HEREINAFTER ITA NO. 1832/MUM/2017 M/S. MERRILL LYNCH INTERNATIONAL 3 REFERRED TO AS 'THE ASSESSING OFFICER'), WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT, DETERMINED THE TAXABLE INCOME OF THE ASSESSEE AT A SUM OF RS.20,503,497/ - BY HOLDING AN AMOUNT OF US$403,136 BEING FEES RECEIVED FROM INVESTMENT BANKING TRANSACTION WITH INDIAN COMPANIES OUTSIDE INDIA AS INCOME DEEMED TO ACCRUE OR ARISE IN INDIA & LIABLE TO TAX IN INDIA AS 'FEE S FOR TECHNICAL SERVICES' UNDER SECTION 9 (I)(VII) OF THE ACT. 4. BY THE IMPUGNED ORDER CIT(A) DELETED THE ADDITION AFTER OBSERVING AS UNDER: - I HAVE GONE THROUGH THE FACTS OF THE ISSUE AND THE FINDING OF THE ASSESSING OFFICER' AS WELL AS THE SUBMISSIONS OF THE APPELLANT IN THIS REGARD, I FIND THAT THE ISSUE INVOLVED IN THIS GROUND HAS ALREADY BEEN DECIDED BY MY PREDECESSOR CIT(A) IN ASSESSMENT YEAR 2010 - 11 IN APPELLATE ORDER NO. CLT(A) - 55/ADIT(IT) - 4(L)/IT - 204/14 - 15 DATED 18.02.2015 IN FAVOUR OF THE APPELL ANT. FURTHER, I FIND THAT THE ISSUE INVOLVED IS CONFIRMED BY THE JURISDICTIONAL INCOME TAX APPELLATE TRIBUNAL, MUMBAI (ITAT) CONSISTENTLY FOR THE YEARS FROM ASSESSMENT YEAR 2005 - 06, 2007 - 08, 2008 - 09 AND 2009 - 10. THERE HAS BEEN NO CHANGE IN FACTS, THUS RESP ECTFULLY FOLLOWING THE RULE OF CONSISTENCY AND FOLLOWING THE DECISION OF JURISDICTIONAL ITAT, I DECIDE THE ISSUE INVOLVED IN THIS GROUND OF APPEAL IN FAVOUR OF THE APPELLANT. 5. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS IN FURTHER APPEAL BEFORE US. 6 . AT THE OUTSET, LEARNED AR PLACED ON RECORD THE ORDER OF THE TRIBUNAL FOR THE A.Y.2010 - 11 IN ASSESSEES OWN CASE DATED 13/0 4 /2017, WHEREIN SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AFTER HAVING FOLLOWING OBSERVATION: - ITA NO. 1832/MUM/2017 M/S. MERRILL LYNCH INTERNATIONAL 4 2. .1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM THE ORDER OF THE TRIBUNAL DATED 30/08/2011 FOR READY REFERENCE AND ANALYSIS: - THIS APPEAL FILED BY THE REVEN UE IS DIRECTED AGAINST THE ORDER OF CIT(A) - XXXII, MUMBAI, PASSED ON 25/02/2009 FOR THE ASSESSMENT YEAR 2005 - 06 WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A ) ERRED IN HOLDING THAT NEITHER THE UNDER WRITING COMMISSION NOR THE SELLING COMMISSION, RECEIVED FROM THE INDIAN COMPANIES WOULD AMOUNT TO FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF THE DTAA BETWEEN INDIA AND U.K. 2. THE APPELLANT PRAYS THAT TH E ORDER OF THE LD. CIT(A), MUMBAI ON THE ABOVE GROUNDS BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED IN AND UNDER THE LAWS OF THE UNITED KINGDOM AND IS REGISTERED AS A FOREIGN INSTITUTIONAL INVESTOR (FII) WITH THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI). THE ASSESSEE HAS OBTAINED NECESSARY PERMISSION TO CARRY OUT INVESTMENT ACTIVITY IN SHARES AND SECURITIES OF INDIA COMPANIES. DURING THE PREVIOUS YEAR RELEVANT TO AY UNDER APPEAL, THE ASSESSEE FILED ITS RETURN OF INCOME RETURNING TOTAL INCOME RS. NIL AND SHORT TERM LOSS OF RS. 23,218,968/ - TO BE CARRIED FORWARD TO THE SUBSEQUENT YEAR. THE ASSESSEE DECLARED BY WAY OF A NOTE IN ITS RETURN OF INCOME THAT AN AMOUNT OF RS. US $ 9,536,282/ - HAS BEEN RECEIVED AS FEES FROM INVESTMENT BANKING TRANSACTIONS OUTSIDE INDIA AND TOWARDS REIMBURSEMENT OF EXPENSES AND THE SAME IS NOT LIABLE TO TAX IN INDIA. HOWEVER, THE AO WAS NOT CONVINCED WITH THE EXPLANATIONS OFFERED BY THE AS SESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND DETERMINED THE TAXABLE INCOME OF THE ASSESSEE INCLUDING THE OF RS. US$ 9,536,282/ - , BY HOLDING THAT THE FEE RECEIVED FROM THE INVESTMENT BANKING SERVICES IN RELATION TO THE ISSUE OF ADRS/GDRS ARE EVENT UALLY UTILIZED IN INDIA SINCE THE BENEFIT OF THE SERVICES RENDERED BY THE ASSESSEE IS ULTIMATELY RECEIVED BY ISSUING INDIAN COMPANIES. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 3. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE INCOME RECEIVE BY THE ASSESSEE FROM ITS INVESTMENT BANKING TRANSACTIONS IS IN THE NATURE OF BUSINESS INCOME. UNDER ARTICLE 7 OF THE DTAA DEALING WITH BUSINESS PROFITS, BUSINESS PROFITS OF A RESIDENT OF THE ITA NO. 1832/MUM/2017 M/S. MERRILL LYNCH INTERNATIONAL 5 UK ARE LIABLE TO TAX IN INDIA ONLY IF SUCH PR OFITS ARE ATTRIBUTABLE TO A PERMANENT ESTABLISHMENT OF THE UK RESIDENT SITUATED IN INDIA AS DEFINED IN ARTICLE 5 OF THE DTAA. THE ASSESSEES INCOME FROM INVESTMENT BANKING TRANSACTIONS IS NOT ATTRIBUTABLE TO A PERMANENT ESTABLISHMENT OF THE ASSESSEE SITUAT ED IN INDIA AND, ACCORDINGLY THE AFORESAID INCOME IS NOT LIABLE TO TAX IN INDIA. THE ASSESSEE RELIED UPON VARIOUS CASE LAWS BEFORE THE CIT(A) INCLUDING THE DECISION OF ITAT, MUMBAI IN THE CASE OF RAYMOND LTD. V. DCIT (2003) 80 TTJ 120 (MUM.). AFTER CONSIDE RING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD AS UNDER: - 5.12..I HAVE CONSIDERED THE APPELLANTS SUBMISSION AND I AGREE WITH THE APPELLANT THAT IT HAD OPTED TO BE GOVERNED BY THE PROVISIONS OF THE DTAA AND THAT THE PROVISIONS OF THE DTAA OUG HT TO APPLY TO THE APPELLANT. SECTION 90(2) OF THE IT ACT MAKES IT VERY CLEAR THAT THE APPELLANT IS ENTITLED TO CLAIM THE BENEFITS UNDER THE IT ACT OR TREATY WHICHEVER IS MORE BENEFICIAL TO THE APPELLANT. THE ISSUE OF TAXABILITY OF THE AFORESAID FEES IN IN DIA AS PER THE INDIA - UK DTAA IS SQUARELY COVERED BY RAYMOND LTDS CASE (SUPRA). RESPECTFULLY FOLLOWING THE SAID DECISION OF THE JURISDICTIONAL TRIBUNAL, MORE SO AS THE SERVICE PROVIDER IN THE SAID CASE WAS THE APPELLANT ITSELF, I HOLD THAT THE SAID FEE AMO UNT IS NOT LIABLE TO TAX IN NDIA AS THE SAME DOES NOT CONSTITUTE FEES FOR TECHNICAL SERVICES UNDER THE INDIA - DTAA READ WITH THE MEMORANDUM OF UNDERSTANDING FORMING PART OF THE INDIA - USA DTAA AS THE TECHNICAL SERVICES WERE NOT MADE AVAILABLE BY THE APPELLAN T TO THE INDIAN COMPANIES. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE B Y THE DECISION OF ITAT, MUMBAI IN THE CASE OF RAYMOND LTD. VS. DCIT[2003] 80 TTJ 120 (MUM.). THE LEARNED DR HAS CONCEDED THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF ITAT MUMBAI BENCHES IN THE CASE OF RAYMOND LTD. V. DCIT (SUPRA), WHEREIN IT WAS HELD THAT NEITHER MANAGEMENT COMMISSION, N OR UNDERWRITING COMMISSION NOR EVEN SELLING COMMISSION/CONCESSION WOULD AMOUNT TO FEES FOR TECHNICAL SERVICES WITHIN MEANING OF DTA WITH UK AND, CONSEQUENTLY, THERE WAS NO OBLIGATION ON PART OF ASSESSEE - COMPANY TO DEDUCT TAX UNDER SECTION 195. THE CIT(A) FOLLOWING THE SAID DECISION HELD THAT THE FEE ITA NO. 1832/MUM/2017 M/S. MERRILL LYNCH INTERNATIONAL 6 RECEIVED BY THE ASSESSEE IS NOT LIABLE TO TAX IN INDIA AS THE SAME DOES NOT CONSTITUTE FEES FOR TECHNICAL SERVICES UNDER THE INDIA - UK DTAA READ WITH THE MEMORANDUM OF UNDERSTANDING FORMING PART OF THE INDIA USA DTAA AS THE TECHNICAL SERVICES WERE NOT MADE AVAILABLE BY THE ASSESSEE TO THE INDIAN COMPANIES. THEREFORE, WE FIND NO INFIRMITY IN THE FINDINGS OF THE CIT(A) AND HENCE, THE ORDER OF THE CIT(A) IS HEREBY UPHELD. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 2.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCLUSION DRAWN IN THE IMPUGNED ORDER, ORDER OF THE TRIBUNAL DATED 30/08/2011, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPEC TIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THE TRIBUNAL HAS CONSIDERED THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT YEAR 2005 - 06, ELABORATELY BY PLACING RELIANCE UPON THE DECISION IN THE CASE OF RAYMOND LTD. VS DCIT (2003) 80 TTJ 1 20 (MUM.) AND THEN CAME TO THE CONCLUSION BY HOLDING THAT THE FEE RECEIVED BY THE ASSESSEE IS NOT LIABLE TO TAX IN INDIA AS THE SAME DOES NOT CONSTITUTE FEE FOR TECHNICAL SERVICES UNDER THE INDIA U.K. DTAA READ WITH THE MOU FORMING PART OF INDIA USA DTAA. THEREFORE, FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL). FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. 7. WE HAD CAREFULLY GONE THROUGH THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE AS QUOTED ABOVE AND FOUND THAT FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, WHEREIN ASSESSEE HAS RECEIVED COMMISSION / FEE FROM INDIAN COMPANIES OUTSIDE INDIA WHICH WAS HELD TO BE NOT LIABLE TO TAX BY THE TRIBUNAL IN ASSES SEES OWN CASE FOR THE A.YS 2010 - 11 VIDE ORDER DATED 13/04/2017. WE FOUND THAT CIT(A) HAS ALSO ALLOWED ASSESSEES APPEAL BY FOLLOWING THE ORDER OF THE TRIBUNAL FOR A.Y.2005 - 06, 2007 - 08, 2008 - 09 AND 2009 - 10. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, WE DO NOT FIND ANY ITA NO. 1832/MUM/2017 M/S. MERRILL LYNCH INTERNATIONAL 7 INFIRMITY IN THE ORDER OF CIT(A) IN HOLDING THAT COMMISSION / FEES RECEIVED BY ASSESSEE FROM INDIAN COMPANIES OUTSIDE INDIA WAS NOT LIABLE TO TAX. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 / 11 /201 8 SD/ - ( PAWAN SINGH ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 13 / 11 /201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//