ASST CIT 11(2), MUMBAI V. BSR & CO, MUMBAI

ITA 1917/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3832 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 02-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 08-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Retrospective amendment; Permanent establishment; Non-deduction of tax
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 1917/MUM/2013 (ASSESSMENT YEAR : 2009-10) THE ASSTT. COMMISSIONER OF INCOME TAX 11(2), ROOM NO.479, 4 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 002 ... APPELLANT VS. M/S. BSR & CO. LOADHA EXCELUS, 1 ST FLOOR, APOLLO MILLS COMPOUND, N.M.JOSHI MARG, MAHALAKSHMI, MUMBAI 400 011 PAN: AAAFK 9852F .... RESPONDENT APPELLANT BY : SHRI VAIBHAV JAIN RESPONDENT BY : S/SHRI HARSH KAPADIA/ PAR AS SAVLA/VIRAJ MEHTA DATE OF HEARING : 27/04/2016 DATE OF PRONOUNCEMENT : ....../05/2016 ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEAL FILED BY THE REVENUE PERTAI NING TO THE A.Y. 2009-10 IS DIRECTED AGAINST AN ORDER PASSED B Y LD. CIT(A)-3, MUMBAI DATED 24/12/2012, WHICH IN TURN ARISES OUT OF AN ORDER PASSED 2 ITA NO. 1917/MUM/2013 (ASSESSMENT YEAR : 2009-10) BY ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 28/12/2011. 2. IN THIS APPEAL, REVENUE HAS RAISED A SOLITARY IS SUE ARISING FROM THE ACTION OF THE CIT(APPEALS) IN HOLDING THAT THE ASSE SSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING A SUM OF RS.1,45,89,345/- BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT . 2.1 BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE RE SPONDENT ASSESSEE IS A FIRM OF CHARTERED ACCOUNTANTS AND DURING THE YEAR UNDER CONSIDERATION, IT WAS FOUND TO HAVE PAID A SUM OF R S.1,45,89,345/- TO VARIOUS ENTITIES DETAILED IN PARA-3 OF THE ASSESSME NT ORDER ON ACCOUNT OF PROFESSIONAL FEE. ON BEING SHOW-CAUSED AS TO WH Y THE REQUISITE TAX WAS NOT DEDUCTED AT SOURCE, THE ASSESSEE FIRM EXP LAINED THAT THE PAYMENTS WERE MADE TO VARIOUS NON-RESIDENTS AND IT IS NOT IN THE NATURE OF INCOME CHARGEABLE TO TAX IN INDIA AND THU S, TAX WAS NOT REQUIRED TO BE DEDUCTED IN TERMS OF SECTION 195 OF THE ACT. THE ASSESSING OFFICER HOWEVER, DID NOT ACCEPT THE SUBMI SSIONS OF THE ASSESSEE AND INSTEAD HELD THAT TAX WAS REQUIRED T O BE DEDUCTED TAX AT SORUCE AND ON THE FAILURE TO DO SO, THE EXPENDITURE OF RS.1,45,89,345/- WAS DISALLOWABLE IN TERMS OF SECTION 40(A)(I) OF T HE ACT. 2.2 BEFORE THE CIT(APPEALS), ASSESSEE MADE VARIED S UBMISSIONS CONTENDING THAT INVOKING OF PROVISIONS OF SECTIO N 40(A)(I) WAS NOT JUSTIFIED. ASSESSEE CONTENDED THAT THE PAYMENTS MA DE TO VARIOUS NON- RESIDENT ENTITIES WAS GOVERNED BY THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) WITH THE RESPECTIVE COUN TRIES, IN TERMS OF WHICH SUCH PAYMENTS WERE NOT INCOME CHARGEABLE TO T AX IN INDIA. THE 3 ITA NO. 1917/MUM/2013 (ASSESSMENT YEAR : 2009-10) CIT(APPEALS) HAS SINCE UPHELD THE STAND OF THE ASSE SSEE AND DID NOT FIND ANY MERIT IN THE STAND OF THE ASSESSING OFFICER AND ACCORDINGLY, HE DELETED THE DISALLOWANCE MADE UNDER SECTION 40(A)(I ) OF THE ACT. 3. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS PRIMARILY CONTENDED THAT THE PLEA OF THE ASSESSEE THAT THE PA YMENTS COULD NOT BE CONSIDERED AS FEE FOR TECHNICAL SERVICES WAS NOT JUSTIFIED AS ASSESSEE HAD OBTAINED PROFESSIONAL SERVICES FROM THE RECIPI ENTS. 4. AT THE TIME OF HEARING, LD. REPRESENTATIVE FOR T HE ASSESSEE HAS FURNISHED A FACT SHEET, WHICH BRINGS OUT THE NATURE OF SERVICES RENDERED BY EACH OF THE RECIPIENTS OF INCOME. PRIMARILY, IT IS REVEALED THAT PROFESSIONAL SERVICES HAVE BEEN RENDERED BY SUCH EN TITIES FOR ASSISTANCE IN AUDIT, TAXATION, IT SERVICES, PROFESSIONAL SERVI CES IN RELATION TO TRANSFER PRICING, VAT, ETC. LD. REPRESENTATIVE FO R THE ASSESSEE HAS ALSO TABULATED THE RECIPIENT ENTITIES COUNTRY-WISE AND M ADE REFERENCE TO THE RESPECTIVE CLAUSES IN THE DOUBLE TAXATION AVOIDANCE AGREEMENTS. IN SUM AND SUBSTANCE, THE DISCUSSION MADE BY THE CIT(A PPEALS) ON EACH OF THE PAYMENTS, IN PARA 1.3 TO 1.3.4 BY THE CIT(APPEA LS) HAS BEEN RELIED UPON. 5. IN THE ABOVE BACKGROUND, WE HAVE CAREFULLY CONSI DERED THE RIVAL SUBMISSIONS. PERTINENTLY, THE ISSUE REVOLVES AROUN D THE PAYMENTS MADE BY THE ASSESSEE TO CERTAIN NON-RESIDENT ENTITIES FO R PROFESSIONAL SERVICES RENDERED BY THEM OUTSIDE INDIA. IT HAS BEEN CONSIS TENTLY EXPLAINED BY THE ASSESSEE THAT THE SERVICES OF SUCH ENTITIES WER E AVAILED DURING THE 4 ITA NO. 1917/MUM/2013 (ASSESSMENT YEAR : 2009-10) COURSE OF THE EXECUTION OF ENGAGEMENTS OF ASSESSEE FIRM. THE ASSESSEE FIRM DID NOT DEDUCT THE TAX AT SOURCE AND, THEREFOR E, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT AND DISALLOWED SUCH EXPENDITURE. THE DETAILS OF THE EN TITIES ALONGWITH THE AMOUNTS PAID HAVE BEEN CULLED OUT BY THE ASSESSING OFFICER IN PARA-3 OF THE ASSESSMENT ORDER AND THE SAME IS NOT BEING REPE ATED FOR THE SAKE OF BREVITY. THE PAYMENTS HAVE BEEN MADE TO 12 DIFF ERENT PROFESSIONAL ENTITIES BASED IN 10 DIFFERENT COUNTRIES. IN SO F AR AS THE PAYMENTS THAT ARE MADE TO KPMG LLP, USA AND KPMG LLP, CANADA ARE CONCERNED, THE SAME HAS BEEN MADE ON ACCOUNT OF PROFESSIONAL SERVI CES RENDERED IN RELATION TO TAXATION AND TRANSFER PRICING. UNDISP UTEDLY, THE PROFESSIONAL SERVICES HAVE BEEN RENDERED BY THE AFO RESAID ENTITIES OUTSIDE INDIA. THE STAND OF THE REVENUE IS THAT S UCH SERVICES ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES AND, THEREFO RE, TAX WAS LIABLE TO BE DEDUCTED AT SOURCE IN INDIA. FACTUALLY SPEAKING, THE AFORESAID STAND OF THE REVENUE IS DEVOID OF ANY SUPPORT BECAUSE THERE IS NO MATERIAL TO ESTABLISH THAT ANY TECHNICAL KNOWLEDGE, SKILL, ETC. HAS BEEN MADE AVAILABLE TO THE ASSESSEE SO AS TO CONSIDER IT AS F ALLING WITHIN THE PURVIEW OF ARTICLE-12 OF INDO-US DOUBLE TAXATION A VOIDANCE AGREEMENT. IT IS ALSO AN ESTABLISHED FACT THAT SUCH NON-RESIDENT RECIPIENTS DO NOT HAVE PERMANENT ESTABLISHMENT IN I NDIA AND, THEREFORE, IN THE SAID BACKGROUND THE SAME CAN, AT BEST, BE TREATED AS INDEPENDENT PERSONAL SERVICES COVERED BY ARTICLE-1 5 OF THE INDO-US DOUBLE TAXATION AVOIDANCE AGREEMENT. AS A CONSEQUE NCE AND IN THE ABSENCE OF ANY FIXED BASE IN INDIA, SUCH INCOME CAN NOT BE HELD CHARGEABLE TO TAX IN INDIA SO AS TO REQUIRE DEDUCTI ON OF TAX AT SOURCE. 5 ITA NO. 1917/MUM/2013 (ASSESSMENT YEAR : 2009-10) THEREFORE, INVOKING OF SECTION 40(A)(I) OF THE ACT TO DISALLOW SUCH EXPENDITURE IS NOT TENABLE. 5.1 IN SO FAR AS PAYMENTS TO KPMG LLP, UK AND KPMG USMCG LTD. UK ARE CONCERNED, HEREIN ALSO THE SAID ENTITIES DO NOT HAVE PERMANENT ESTABLISHMENT IN INDIA. THE CIT(APPEALS) HAS FOUND THAT SUCH ENTITIES ARE ELIGIBLE FOR THE BENEFIT OF ARTICLE -15 OF INDO -US DOUBLE TAXATION AVOIDANCE AGREEMENT DEALING WITH INDEPENDENT PERSO NAL SERVICES AND HENCE, PAYMENTS ARE NOT CHARGEABLE TO TAX IN INDIA SO AS TO REQUIRE DEDUCTION OF TAX AT SOURCE. THE AFORESAID FINDINGS HAVE NOT BEEN DISPUTED BEFORE US ON THE BASIS OF ANY COGENT MATER IAL AND, THEREFORE, WE HEREBY AFFIRM THE SAME. CONSEQUENTLY, INVOKING OF SECTION 40(A)(I) IN THE CONTEXT OF AFORESAID PAYMENTS IS ALSO NOT J USTIFIED. 5.2 IN THE CONTEXT OF PAYMENTS MADE TO KPMG TAX SER VICES PVT. LTD., SINGAPORE, KPMG LLP, SINGAPORE AND KPMG TAX ADVISO R, BELGIUM, THE CIT(APPEALS) NOTED THAT THEY ARE COMPANIES REGISTER ED IN THE RESPECTIVE COUNTRIES, WHO HAVE RENDERED SERVICES OUTSIDE INDI A. SUCH SERVICES RELATED TO ASSISTANCE IN AUDIT, TAXATION, INFORMATI ON TECHNOLOGY SERVICES, CONDUCING BACKGROUND CHECKS, ETC. CONSIDERING THE NATURE OF THE SERVICES RENDERED, WHICH IS NOT DISPUTED BY THE REV ENUE, IN OUR VIEW, THE CIT(APPEALS) MADE NO MISTAKE IN HOLDING THAT TH E PAYMENTS ARE NOT 'FEE FOR TECHNICAL SERVICES'. THE AFORESAID SERVI CES HAVE BEEN RIGHTLY HELD TO BE OUTSIDE THE PURVIEW OF ARTICLE-12 AND/OR ARTICLE-13 OF THE RESPECTIVE TAX TREATIES, AND INSTEAD SUCH INCOME FA LLS WITHIN THE SCOPE OF ARTICLE-7 THEREOF I.E. IN THE NATURE OF BUSIN ESS PROFITS. IT HAS ALSO 6 ITA NO. 1917/MUM/2013 (ASSESSMENT YEAR : 2009-10) NOT BEEN DISPUTED THAT SUCH ENTITIES DO NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA, THEREFORE, SUCH INCOMES ARE NOT CHARGEABLE TO TAX IN INDIA SO AS TO REQUIRE DEDUCTION OF TAX AT S OURCE. ON THIS ASPECT ALSO, WE AFFIRM THE STAND OF THE CIT(APPEALS) THAT SUCH PAYMENTS ARE NOT LIABLE FOR DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT. 5.3 WITH REGARD TO THE PAYMENTS TO KPMG, MAURITIUS, KPMG HAZEN HASSAN, EGYPT, KPMG DUBAI, UAE AND KPMG, SRI LANKA ARE CONCERNED, THE CIT(APPEALS) HAS NOTICED THAT THE TAX TREATIES WITH THE RESPECTIVE COUNTRIES DO NOT HAVE ANY ARTICLE DEFINING 'FEE FO R TECHNICAL SERVICES'; AND THAT THE SERVICES WERE BEING RENDERED IN RELATI ON TO TAXATION MATTERS. IN THIS BACK GROUND, THE CIT(APPEALS) H ELD THAT THE PAYMENTS FOR SUCH SERVICES FALL WITHIN THE SCOPE OF ARTICLE 14/15 OF THE RESPECTIVE TREATIES DEALING WITH INDEPENDENT PERSONAL SERVICES AND IN THE ABSENCE OF ANY FIXED PLACE OF BUSINESS OF THE RECIPIENT IN INDIA, INCOME FROM SUCH SERVICES WAS NOT CHARGEABLE TO TAX IN INDIA. THEREFORE, THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE AND ACCORDIN GLY THE INVOKING OF SECTION 40(A)(I) OF THE ACT HAS BEEN SET-ASIDE BY THE CIT(APPEALS). THE AFORESAID FACTUAL MATRIX BROUGHT OUT BY THE CIT(APP EALS) HAS NOT BEEN ASSAILED BY THE REVENUE BEFORE US ON THE BASIS OF A NY COGENT MATERIAL AND, THUS, THE SAME IS HEREBY AFFIRMED. 5.4 THE LAST ITEM REMAINING IS PAYMENT MADE BY ASSE SSEE TO KPMG, MALAYSIA FOR AUDIT SERVICES. IT IS NOT IN DISPUTE THAT THE SAID SERVICES HAVE BEEN RENDERED OUTSIDE INDIA AND THE SAME CANNO T BE CONSTRUED AS MANAGERIAL OR TECHNICAL SERVICES SO AS TO BE GOVERN ED BY ARTICLE-13 OF 7 ITA NO. 1917/MUM/2013 (ASSESSMENT YEAR : 2009-10) INDIA-MALAYSIA TAX TREATY, AS CONTENDED BY THE REVE NUE. CLEARLY, THEY ARE IN THE NATURE OF INDEPENDENT PERSONAL SERVICES FALLING FOR CONSIDERATION UNDER ARTICLE-14 OF INDO-MALAYSIA TAX TREATY AND, THEREFORE, IN THE ABSENCE OF ANY FIXED PLACE OF BUS INESS OF THE RECIPIENT IN INDIA, THE IMPUGNED INCOME IS NOT CHARGEABLE TO TAX IN INDIA. THEREFORE, IN SUCH A SITUATION, ASSESSEE IS NOT LIA BLE FOR DEDUCTION OF TAX AT SOURCE IN INDIA SO AS TO INVOKE THE PROVISIONS O F SECTION 40(A)(I) OF THE ACT. THE STAND OF THE CIT(APPEALS) ON THIS ASPEC T IS ALSO AFFIRMED BY US ON THE BASIS OF HIS FINDINGS, WHICH HAVE REMAINED UNCONTROVERTED BEFORE US BY THE REVENUE. 5.5 APART THEREFROM, EVEN IF WE WERE TO ACCEPT, FO R THE SAKE OF ARGUMENT, THAT THE SERVICES BY THE AFORESAID ENTIT IES ARE IN THE NATURE OF TECHNICAL SERVICES AND ARE RENDERED AND UTILIZED IN INDIA SO AS TO BE TAXABLE IN TERMS OF SECTION 9(1)(VII) OF THE ACT, E VEN THEN THE DISALLOWANCE IS NOT WARRANTED AS THE FOLLOWING DISC USSION WOULD SHOW. OSTENSIBLY, THE REQUIREMENT OF RENDERING SERVICES IN INDIA IN ORDER TO ATTRACT SECTION 9(1)(VII) OF THE ACT WAS REMOVED BY INSERTION OF EXPLANATION BY THE FINANCE ACT, 2010 WITH RETROSPEC TIVE EFFECT FROM 1/4/1976. THIS HAS BEEN UNDERSTOOD BY THE REVENUE TO SAY THAT INSPITE OF THE SERVICES HAVING BEEN RENDERED BY THE RECIPIE NTS OUTSIDE INDIA, THE SAME IS TAXABLE IN INDIA BY APPLYING THE AFORE SAID AMENDMENT. IN OUR VIEW, SUCH RETROSPECTIVE AMENDMENT WOULD BE DE TERMINATIVE OF THE TAX LIABILITY IN THE HANDS OF THE RECIPIENTS OF INCOME. SO HOWEVER, IN THE PRESENT CASE, WHAT IS HELD AGAINST THE ASSESSEE IS THE FAILURE TO DEDUCT TAX AT SOURCE AT THE TIME OF PAYMENT OF SUCH INCOME. 8 ITA NO. 1917/MUM/2013 (ASSESSMENT YEAR : 2009-10) OSTENSIBLY, DEHORS THE AFORESAID AMENDMENT, THE IMP UGNED INCOME WAS NOT SUBJECT TO TAX DEDUCTION AT SOURCE IN INDIA AS PER THE PREVAILING LEGAL POSITION. TAXABILITY OF A SUM IN THE HANDS O F RECIPIENT, ON ACCOUNT OF A SUBSEQUENT RETROSPECTIVE AMENDMENT WOULD NOT EXPOSE THE ASSESSEE-PAYER TO AN IMPOSSIBLE SITUATION OF REQ UIRING DEDUCTION OF TAX AT SOURCE ON THE DATE OF PAYMENT. THEREFORE, ON THIS COUNT ALSO THE ASSESSEE CANNOT BE HELD TO BE IN DEFAULT IN NOT DED UCTING TAX AT SOURCE SO AS TO TRIGGER THE DISALLOWANCE UNDER SECTION 40( A)(I) OF THE ACT. LD. REPRESENTATIVE FOR THE ASSESSEE HAS RELIED UPON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CHANNEL GUIDE INDIA LTD. VS. ACIT, 25 TAXMANN.COM 25 (MUM.) IN SUPPORT OF TH E ABOVE SAID PROPOSITION. IN THE ABSENCE OF ANY CONTRARY DECISI ON, THE SAID PLEA OF THE ASSESSEE IS ALSO LIABLE TO BE UPHELD AND THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION40(A)(I) OF THE ACT IS UNTENABLE. THE DISALLOWANCE HAS BEEN RIGHTLY DELETED BY THE CIT(A PPEALS), WHICH WE HEREBY AFFIRM. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 06/05/ 2016. SD/- SD/- (PAWAN SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 06/05/2016 VM , SR. PS 9 ITA NO. 1917/MUM/2013 (ASSESSMENT YEAR : 2009-10) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI