Appeal details
Counselvise Citation
[2019] 116 COUNSELVISE.COM (IT) 7794 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-07-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
Not Allotted
Assessment Year
2010-2011
Appeal Filed On
02-07-2015
Judgement Text
ITA NOS. 1954 & 2104/AHD/2015 DCIT VS. BURT HILL DESIGN P LTD & VICE VERSA ASSESSMENT YEAR: 2010-11 PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD BENCH D, AHMEDABAD [CORAM: JUSTICE P P BHATT, PRESIDENT, AND PRAMOD KU MAR, VICE PRESIDENT] ITA NO. 1954/AHD/2015 ASSESSMENT YEAR: - 2010-11 BURT, HILL DESIGN PRIVATE LIMITED ............ ..APPELLANT (NOW KNOWN AS STANTEC CONSULTING PVT LTD) 71-72, TITANIUM CORPORATE STREET, OPP. PRAHLADNAGAR GARDEN, SATELLITE AHMEDABAD 380 015 [PAN : AADCB 0953 H] VS DEPUTY COMMISSIONER OF INCOME-TAX .......... .......RESPONDENT CIRCLE-1, AHMEDABAD ITA NO. 2104/AHD/2015 ASSESSMENT YEAR: - 2010-11 DEPUTY COMMISSIONER OF INCOME-TAX ............ ..APPELLANT CIRCLE-1(1)(1), AHMEDABAD VS BURT, HILL DESIGN PRIVATE LIMITED .......... .......RESPONDENT (NOW KNOWN AS STANTEC CONSULTING PVT LTD) 71-72, TITANIUM CORPORATE STREET, OPP. PRAHLADNAGAR GARDEN, SATELLITE AHMEDABAD 380 015 [PAN : AADCB 0953 H] APPEARANCES BY VINOD TANWANI, FOR THE REVENUE TP HEMANI, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : 04.06.2019 DATE OF PRONOUNCEMENT : 11.07.2019 O R D E R PER BENCH : 1. THESE CROSS APPEALS ARE DIRECTED AGAINST LEARNED CIT(A)S ORDER DATED 6 TH APRIL 2015 IN THE MATTER OF ASSESSMENT UNDER SECTIO N 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2010-11. ITA NOS. 1954 & 2104/AHD/2015 DCIT VS. BURT HILL DESIGN P LTD & VICE VERSA ASSESSMENT YEAR: 2010-11 PAGE 2 OF 9 2. WE WILL FIRST TAKE UP THE APPEAL FILED BY THE AS SESSEE. 3. IN GROUND NO. 1, THE ASSESSEE HAS RAISED THE FOL LOWING GRIEVANCE:- 1. (A) THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING AN A MOUNT OF RS. 15,43,768/- BEING EXPENDITURE INCURRED ON PAY-ROLL (MAN POWER) COSTS OF ONE EMPLOYEE NAMED JOHN MANOHARAN, WHO WAS WORKING IN INDIA FOR THE APPELLANT COMPANYS BUSINESS OPERATIONS UNDER THE SECONDMENT , AGREEMENT, PAID BY WAY OF REIMBURSEMENT TO ITS PARENT FOREIGN COMPANY I.E. BURT, HILL INC, USA. (B) THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW A ND ON FACTS OF THE CASE IN CONFIRMING THE IMPUGNED DISALLOWANCE ON THE GROUND THAT NO TAX WAS DEDUCTED AT SOURCE U/S. 192 OR U/S. 195 OF THE INCO ME TAX ACT IN RESPECT OF PAY-ROLL COST OF SHRI JOHN MANOHARAN, WITHOUT APPRE CIATING THE FACT THAT THE PAY-ROLL COST IN THE CASE OF SHRI JOHN MANOHARAN WA S INCURRED BY THE PARENT COMPANY BURT HILL INC, USA AND THE APPELLANT HAS RE IMBURSED THE SAID EXPENDITURE AND THEREFORE THERE WAS NO LEGAL OBLIGA TION TO DEDUCT TAX AT SOURCE U/S. 192 OR 195 OF THE INCOME TAX ACT READ W ITH PROVISIONS OF DOUBLE TAXATION AVOIDANCE TREATY BETWEEN INDIA AND U.S.A. IN RESPECT OF SUCH REIMBURSEMENT. 4. IN A CONNECTED GRIEVANCE RAISED BY THE ASSESSING OFFICER, BY WAY OF FIRST GROUND OF HIS APPEAL, THE GRIEVANCE RAISED IS AS FO LLOWS:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,25,90,180/- BEING DISALLOWANCE U/S 40(A)(I) OF THE ACT MADE BY THE AO FOR NON DEDUCTION OF TAX U/S 195 OF THE ACT IN RESP ECT OF PAYMENTS MADE TO NON RESIDENT COMPANIES. 5. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE BEFORE US IS A SUBSIDIARY OF BURT HILL INC USA. THE ASSESSEE MADE PAYMENTS AGGREGATING TO RS.3,41,33,948/- TO BURT HILL INC USA IN RESPECT OF EMPLOYEES SECONDED TO THE ASSESSEE. THE ASSESSING OFFICER DISALLOWED THESE A MOUNTS UNDER SECTION 40(I) FOR THE SHORT REASON THAT THE ASSESSEE DID NOT DEDUCT T AX AT SOURCE FORM THESE PAYMENTS, AS, IN HIS OPINION, REQUIRED UNDER SECTIO N 195. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT COMPLETE SUCCESS. LEARNED CIT(A) DELETED THE DISALLOWANCE OF RS. 3,25 ,90,180/- ON THE BASIS THAT TAX UNDER SECTION 192 WAS DEDUCTED FROM THESE PAYMENTS, BUT CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS. 15,43,768/- AS TH E ASSESSEE DID NOT DEDUCT TAX AT SOURCE EITHER UNDER SECTION 192 OR UNDER SECTION 19 5. NONE OF THE PARTIES IS SATISFIED. WHILE THE ASSESSEE IS AGGRIEVED OF THE DISALLOWANCE OF RS. 15,43,768/- SUSTAINED BY THE CIT(A), THE ASSESSING OFFICER IS A GGRIEVED OF THE RELIEF OF RS.3,41,33,948/- GRANTED BY HIM. BOTH THE PARTIES ARE IN APPEAL BEFORE US. ITA NOS. 1954 & 2104/AHD/2015 DCIT VS. BURT HILL DESIGN P LTD & VICE VERSA ASSESSMENT YEAR: 2010-11 PAGE 3 OF 9 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 7. WE FIND THAT THESE ISSUES ARE SQUARELY COVERED, IN FAVOUR OF THE ASSESSEE, BY A CO-ORDINATE BENCH DECISION DATED 28.03.2017 IN AS SESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 WHEREIN IT HAS BEEN OBSERVE D, INTER ALIA , AS FOLLOWS:- 3. SO FAR AS THE FIRST GRIEVANCE OF THE ASSESSEE I S CONCERNED, WE FIND THAT THE ISSUE IS NOW COVERED, BY OUR ORDER OF EVEN DATE IN ASSESSEES OWN CASE IN RESPECT OF TAX WITHHOLDING DEMANDS UNDER SECTION 19 5 R.W.S 201, WHEREIN WE HAVE, INTER ALIA, OBSERVED AS FOLLOWS: 4. AS WE DEAL WITH THESE APPEALS, WE CONSIDER IT AP PROPRIATE TO REPRODUCE, FOR READY REFERENCE, THE RELATED STATUTO RY PROVISION SET OUT IN SECTION 195(1). THIS IS AS FOLLOWS: ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT , NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST (NOT BEING INTEREST ON SECURITIES) OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD SALARIES) SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THER EOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER M ODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE [EMPHASIS, BY UNDERLINING, SUPPLIED BY US] 5. QUITE CLEARLY, THEREFORE, AS LONG AS A PAYMENT T O NON-RESIDENT ENTITY IS IN THE NATURE OF PAYMENT CONSISTING OF INCOME CHARG EABLE UNDER THE HEAD INCOME FROM SALARIES, THE ASSESSEE DOES NOT HAVE ANY TAX WITHHOLDING OBLIGATIONS UNDER SECTION 195. 6. THERE IS NO, AND THERE CANNOT BE ANY, DISPUTE AB OUT THE FACTUAL ASPECT THAT THE PAYMENT MADE TO BURT HILL CO INC USA CONSI STS OF INCOME WHICH IS CHARGEABLE, AND HAS BEEN CHARGED, TO TAX IN INDIA U NDER THE HEAD INCOME FROM SALARIES. THERE IS ALSO NO DISPUTE THAT THE P AYMENTS FOR ALL THE FOUR YEARS BEFORE US ARE OF THE SAME NATURE, UNDER THE SAME AG REEMENT AND OF THE SAME CHARACTER. WHAT WAS HELD TO BE INCOME IN THE N ATURE OF SALARIES FOR THE ASSESSMENT YEARS 2008-09, 2010-11 AND 2011-12 CANNO T BE OF ANY DIFFERENT NATURE FOR THE ASSESSMENT YEAR 2009-10 JUST BECAUSE THE ASSESSEE, RATHER THAN DEDUCTING TAX AT SOURCE UNDER SECTION 192, PAI D THE ADVANCE TAXES ON BEHALF OF THE SECONDED EMPLOYEES IN THAT PARTICULAR ASSESSMENT YEAR. IT IS NOT THE FACT OF TAX DEDUCTION UNDER SECTION 192, BU T THE NATURE OF INCOME EMBEDDED IN RELATED PAYMENTS WHICH IS RELEVANT FOR DECIDING WHETHER OR NOT SECTION 195 WILL COME INTO PLAY. OF COURSE, THERE A RE SEPARATE SET OF CONSEQUENCES FOR NOT DISCHARGING TAX WITHHOLDING OB LIGATIONS UNDER SECTION 192. HOWEVER, THE ASSESSEE HAS DISCHARGED THESE OBL IGATIONS AND THERE ARE NO PENDING ISSUES ABOUT THE SAME. WHETHER THE SECON DED EMPLOYEES ITA NOS. 1954 & 2104/AHD/2015 DCIT VS. BURT HILL DESIGN P LTD & VICE VERSA ASSESSMENT YEAR: 2010-11 PAGE 4 OF 9 CONTINUE TO BE IN EMPLOYMENT OF THE FOREIGN ENTITIE S OR NOT IS WHOLLY IRRELEVANT FOR THIS PURPOSE. WHAT IS RELEVANT IS THAT THE INCO ME EMBEDDED IN THE PAYMENTS IN QUESTION IS TAXABLE IN INDIA UNDER THE HEAD SALARIES, AND IF THAT BE SO, THERE ARE NO TAX WITHHOLDING OBLIGATIONS UND ER SECTION 195. THAT PRECISELY IS THE UNDISPUTED POSITION ON THE FACTS O F THIS CASE- AS DULY ACCEPTED BY THE INCOME TAX AUTHORITIES. THE INCOME EMBEDDED IN THE IMPUGNED PAYMENTS BEING IN THE NATURE OF INCOME CHARGEABLE T O TAX UNDER THE HEAD INCOME FROM SALARIES, THE ASSESSEE CANNOT BE SAID TO HAVE ANY TAX WITHHOLDING OBLIGATIONS UNDER SECTION 195. FOR THIS SHORT REASON ALONE, WE MUST HOLD THAT THE IMPUGNED TAX WITHHOLDING DEMANDS , UNDER SECTION 201 R.W.S 195, ARE WHOLLY DEVOID OF ANY LEGALLY SUSTAIN ABLE MERITS. 7. THAT IS NOT, HOWEVER, THE ONLY REASON WHY THE RE VENUE MUST FAIL IN ITS CASE. 8. A LOT OF EMPHASIS HAS BEEN PLACED ON THE FACT TH AT THERE WAS A SERVICE PE IN THE PRESENT CASE. NOTHING, HOWEVER, TURNS ON THE EXISTENCE OF THE PE BECAUSE ADMITTEDLY WHATEVER HAS BEEN PAID TO BURT H ILL INC USA IS, IN TURN, PAID BY BURT HILL INC UA TO ITS EMPLOYEES SECONDED TO THE ASSESSEE. THERE CANNOT BE ANY PROFITS, THEREFORE, IN THE HANDS OF T HE SERVICE PE, AND WHAT IS TAXABLE IN THE HANDS OF THE PE UNDER ARTICLE 7(1) I S NOT THE GROSS RECEIPT BUT THE PROFITS ATTRIBUTABLE TO THE PE. THE EXISTENCE O F SERVICE PE, IN THE PRESENT CASE, WILL BE WHOLLY ACADEMIC INASMUCH AS WHATEVER IS THE AGGREGATE OF RECEIPTS SAID TO BE ATTRIBUTABLE TO THE PE, IS EXAC TLY THE SAME AS AGGREGATE OF EXPENDITURE ATTRIBUTABLE TO THE PE. IT IS NOT THE R EVENUES CASE THAT ANY OTHER RECEIPTS OF THE BURT HILL INC USA, OTHER THAN THE R ECEIPTS ON ACCOUNT OF REIMBURSEMENTS FOR SALARIES, OR ANY OTHER INCOME CO ULD BE ATTRIBUTED TO THE SO CALLED SERVICE PE. THE PAYMENTS IN QUESTION HAVE NO T RESULTED IN ANY INCOME TAXABLE IN THE HANDS OF THE ASSESSEE. BE THAT AS IT MAY, IN ANY EVENT, WHEN UNDISPUTEDLY THE PAYMENTS ARE IN THE NATURE OF THE REIMBURSEMENTS, AND, PARTICULARLY WHEN EVEN THE INCOME EMBEDDED IN THESE PAYMENTS HAS ALREADY BEEN BROUGHT TO TAX IN INDIA IN THE HANDS OF ULTIMA TE BENEFICIARIES- I.E. THE SECONDED EMPLOYEES, THERE CANNOT BE ANY TAX WITHHOL DING OBLIGATIONS UNDER SECTION 195. IT IS ONLY ELEMENTARY THAT THE TAX DED UCTION SOURCE LIABILITY UNDER SECTION 195 IS A VICARIOUS LIABILITY IN THE SENSE T HAT ITS SURVIVAL IN THE HANDS OF TAX-DEDUCTOR IS WHOLLY DEPENDENT ON EXISTENCE OF TA X LIABILITY IN THE HANDS OF RECIPIENT OF INCOME. WHEN A PAYMENT MADE BY, AN IN DIAN RESIDENT, TO A NON- RESIDENT, DOES NOT TRIGGER THE TAXABILITY OF THAT I NCOME IN THE HANDS OF RECIPIENT, THE TAX DEDUCTION LIABILITY DOES NOT COM E INTO PLAY AT ALL. THIS SCHEME OF THE ACT IS IMPLICIT FROM THE WORDINGS OF SECTION 195 (1) WHICH REFER TO ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD SALARIES) WHEN INCOME EMBEDDED IN A PAYMENT IS NOT TAXABLE UNDER THE INCO ME TAX ACT, 1961, THE TAX WITHHOLDING LIABILITY DOES NOT GET TRIGGERED A T ALL. THIS IS WHAT HONBLE SUPREME COURT HAS ALSO HELD IN THE CASE OF G E TECHNOLOGY CENTRE PVT LTD VS CIT [(2010) 327 ITR 456(SC)] . WHILE HOLDING SO, THEIR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLOWS: .THE SAID EXPRESSION IN SECTION 195(1) SHOWS THA T THE REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PART OF WHICH IS LIABLE TO TAX IN INDIA. THE PAYER IS BOUND TO DEDUCT TAX AT ITA NOS. 1954 & 2104/AHD/2015 DCIT VS. BURT HILL DESIGN P LTD & VICE VERSA ASSESSMENT YEAR: 2010-11 PAGE 5 OF 9 SOURCE ONLY IF THE TAX IS ASSESSABLE IN INDIA. IF T AX IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAX AT SOURCE B EING DEDUCTED. [SEE: VIJAY SHIP BREAKING CORPORATION AND OTHERS VS . CIT 314 ITR 309]. 9. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. SECTIO N 195 FALLS IN CHAPTER XVII WHICH DEALS WITH COLLECTION A ND RECOVERY. CHAPTER XVII-B DEALS WITH DEDUCTION AT SOURCE BY TH E PAYER. ON ANALYSIS OF VARIOUS PROVISIONS OF CHAPTER XVII ONE FINDS USE OF DIFFERENT EXPRESSIONS, HOWEVER, THE EXPRESSION SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT IS USED ONLY IN SE CTION 195. FOR EXAMPLE, SECTION 194C CASTS AN OBLIGATION TO DEDUCT TAX AT SOURCE IN RESPECT OF ANY SUM PAID TO ANY RESIDENT . SIMILARLY, SECTIONS 194EE AND 194F INTER ALIA PROVIDE FOR DEDU CTION OF TAX IN RESPECT OF ANY AMOUNT REFERRED TO IN THE SPECIFIE D PROVISIONS. IN NONE OF THE PROVISIONS WE FIND THE EXPRESSION S UM CHARGEABLE UNDER THE PROVISIONS OF THE ACT, WHICH AS STATED ABOVE, IS AN EXPRESSION USED ONLY IN SECTION 195(1) . THEREFORE, THIS COURT IS REQUIRED TO GIVE MEANING AND EFFECT T O THE SAID EXPRESSION. IT FOLLOWS, THEREFORE, THAT THE OBLIGAT ION TO DEDUCT TAX AT SOURCE ARISES ONLY WHEN THERE IS A SUM CHARGEABL E UNDER THE ACT. 9. THE DECISION TO WITHHELD TAX FROM A CREDIT OR P AYMENT TO A NON- RESIDENT IS NOT TAKEN DE HORSE THE TAXABILITY OF IN COME EMBEDDED IN THE RELATED PAYMENT. IT IS TAKEN IN THE LIGHT OF THE TA X LIABILITY OF THE NON-RESIDENT IN RESPECT OF THE AMOUNT IN QUESTION, AND, IF THERE WE RE ANY DOUBTS ON THIS PROPOSITION, THESE DOUBTS HAVE NOW BEEN SET AT REST BY THEIR LORDSHIPS. AS FOR THE PAYMENTS MADE BY THE ASSESSEE BEING IN NATU RE OF THE FEES FOR TECHNICAL SERVICES, THIS STAND OF THE ASSESSING OFF ICER IS EQUALLY FRIVOLOUS. THERE IS NOT EVEN AN EFFORT TO SHOW AS TO HOW ANY T ECHNICAL KNOWLEDGE, SKILLS, KNOWHOW OR PROCESSES ETC ARE MADE AVAILABLE BY TH ESE SERVICES INASMUCH AS THESE SERVICES CAN BE PERFORMED BY THE ASSESSEE WITHOUT ANY RECOURSE TO THE SERVICE PROVIDER. UNLESS THIS CONDITION, UNDER MAKE AVAILABLE CLAUSE UNDER ARTICLE 12(4)(B), IS SATISFIED THE FEES FOR TECHNICAL SERVICES CANNOT BE BROUGHT TO TAX IN INDIA IN THE HANDS OF ENTITIES FI SCALLY DOMICILED IN UNITED STATES. IT IS EVEN MORE ELEMENTARY THAT ONCE THESE PAYMENTS CANNOT BE BROUGHT TO TAX UNDER THE PROVISIONS OF THE INDIA US DTAA, THERE CANNOT BE ANY OCCASION TO INVOKE SECTION 9(1)(VII) OF THE ACT EITHER BECAUSE IT CANNOT BE MORE BENEFICIAL TO THE ASSESSEE- AS IS THE CONDITIO N PRECEDENT, UNDER SECTION 90(2), FOR INVOKING THE SAME. 10. FOR THE DETAILED REASONS SET OUT ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE DEMANDS RAISED ON THE ASSESSEE UNDER SECTI ON 201 R.W.S 195 ARE WHOLLY DEVOID OF ANY LEGALLY SUSTAINABLE MERITS. 4. IN VIEW OF THE VIEWS SO EXPRESSED BY US, THE ASS ESSEE DID NOT HAVE ANY TAX WITHHOLDING OBLIGATIONS SO FAR AS THESE REI MBURSEMENTS ARE CONCERNED. AS THE ASSESSEE DID NOT HAVE ANY TAX WIT HHOLDING OBLIGATIONS, THE VERY FOUNDATION OF IMPUGNED DISALLOWANCE UNDER SECT ION 40(A)(I), WHICH GET ITA NOS. 1954 & 2104/AHD/2015 DCIT VS. BURT HILL DESIGN P LTD & VICE VERSA ASSESSMENT YEAR: 2010-11 PAGE 6 OF 9 TRIGGERED BY THE LAPSES IN DISCHARGING SUCH OBLIGAT IONS, CEASES TO HOLD GOOD IN LAW. WE, THEREFORE, UPHOLD THE GRIEVANCE OF THE ASS ESSEE, AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWAN CE. 8. IN VIEW OF THE ABOVE DISCUSSIONS, WE DEEM IT FIT AND PROPER TO DELETE THE ENTIRE DISALLOWANCE. THE RELIEF GRANTED BY THE CIT(A) IS THUS FURTHER ENHANCED BY RS.15,43,768/-. 9. GROUND NO. 1 OF THE ASSESSEES APPEAL IS THUS AL LOWED AND GROUND NO. 1 OF THE ASSESSING OFFICERS APPEAL IS THUS DISMISSED. 10. IN GROUND NO. 2 THE ASSESSEE APPELLANT HAS RAIS ED THE FOLLOWING GRIEVANCE:- 2. THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AN D ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING AN A MOUNT OF RS.13,07,938/- BEING REIMBURSEMENT OF EXPENDITURE INCURRED ON PAYM ENT OF LEGAL AND PROFESSIONAL FEES BY ARBITRARILY HOLDING THAT THE P AYMENTS ARE IN THE NATURE OF FEES FOR TECHNICAL AND PROFESSIONAL SERVICES FALLIN G IN SECTION 9(1)(VII) OF THE I.T. ACT. 11. TO ADJUDICATE ON THIS ISSUE IT IS SUFFICIENT TO TAKE NOT OF THE FACT THAT THE ASSESSEE HAD MADE PAYMENTS OF RS. 13,07,988/- ON AC COUNT OF REIMBURSEMENT OF LEGAL AND PROFESSIONAL FEES. THE ASSESSING OFFICER NOTED THAT TAX HAS NOT BEEN DEDUCTED FROM THE SAID PAYMENTS. THE ASSESSING OFF ICER WAS OF THE VIEW THAT THESE AMOUNTS ARE TAXABLE IN INDIA UNDER SECTION 9(I)(VII ) OF THE ACT. ACCORDINGLY, HE PROCEEDED TO DISALLOW THE SAME UNDER SECTION 40(A)( I) ON ACCOUNT OF NON-DEDUCTION AT SOURCE. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LEARNED CIT(A) UPHELD THE DIS ALLOWANCE ON THE GROUND THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE U NDER SECTION 194C OR 194J, AND SINCE THE ASSESSEE DID NOT DO SO, THE AMOUNTS WERE DISALLOWABLE UNDER SECTION 40(A)(I). THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 12. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 13. IT IS ONLY ELEMENTARY THAT THE PROVISIONS OF SE CTION 194C AND 194J ARE NOT APPLICABLE WITH RESPECT TO PAYMENTS TO NON-RESIDENT S. AS LONG AS, THEREFORE, THE INCOME EMBEDDED IN THE PAYMENTS MADE TO NON-RESIDEN TS IS NOT EXIGIBLE TO TAX IN INDIA, THE TAX WITHHOLDING OBLIGATIONS DO NOT COME INTO PLAY AT ALL. THAT IS WHAT THE SCHEME OF SECTION 195 IS. LEARNED CIT(A), THEREFOR E, WAS COMPLETELY IN ERROR IN UPHOLDING THE IMPUGNED DISALLOWANCE BY REFERRING TO THE PROVISIONS OF SECTION 194C AND 194J. THE DISALLOWANCE IN QUESTION THUS HINGES ON TAXABILITY OF RELATED INCOME IN INDIA. COMING TO THIS ASPECT OF THE MATTER, AND HAVING NOTED THAT IT IS NOT EVEN THE CASE OF THE ASSESSEE THAT ANY TECHNICAL SERVICES AR E MADE AVAILABLE TO THE ASSESSEE INASMUCH AS THE RECIPIENT IS NOT ENABLED TO PERFORM THESE SERVICES ON ITS OWN WITHOUT ITA NOS. 1954 & 2104/AHD/2015 DCIT VS. BURT HILL DESIGN P LTD & VICE VERSA ASSESSMENT YEAR: 2010-11 PAGE 7 OF 9 RECOURSE TO THE SERVICE PROVIDER, WE FIND THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY A CO-ORDINATE BENCH DECISION (SUPRA ) IN ASSESSEES OWN CASE WHEREIN IT HAS BEEN OBSERVED AS FOLLOWS:- 9. THE DECISION TO WITHHELD TAX FROM A CREDIT OR PAYMENT TO A NON-RESIDENT IS NOT TAKEN DE HORSE THE TAXABILITY OF INCOME EMBE DDED IN THE RELATED PAYMENT. IT IS TAKEN IN THE LIGHT OF THE TAX LIABIL ITY OF THE NON-RESIDENT IN RESPECT OF THE AMOUNT IN QUESTION, AND, IF THERE WERE ANY D OUBTS ON THIS PROPOSITION, THESE DOUBTS HAVE NOW BEEN SET AT REST BY THEIR LOR DSHIPS. AS FOR THE PAYMENTS MADE BY THE ASSESSEE BEING IN NATURE OF TH E FEES FOR TECHNICAL SERVICES, THIS STAND OF THE ASSESSING OFFICER IS EQ UALLY FRIVOLOUS. THERE IS NOT EVEN AN EFFORT TO SHOW AS TO HOW ANY TECHNICAL KNOW LEDGE, SKILLS, KNOWHOW OR PROCESSES ETC ARE MADE AVAILABLE BY THESE SERVICE S INASMUCH AS THESE SERVICES CAN BE PERFORMED BY THE ASSESSEE WITHOUT A NY RECOURSE TO THE SERVICE PROVIDER. UNLESS THIS CONDITION, UNDER MAKE AVAILABLE CLAUSE UNDER ARTICLE 12(4)(B), IS SATISFIED THE FEES FOR TECHNI CAL SERVICES CANNOT BE BROUGHT TO TAX IN INDIA IN THE HANDS OF ENTITIES FISCALLY D OMICILED IN UNITED STATES. IT IS EVEN MORE ELEMENTARY THAT ONCE THESE PAYMENTS CANNO T BE BROUGHT TO TAX UNDER THE PROVISIONS OF THE INDIA US DTAA, THERE CA NNOT BE ANY OCCASION TO INVOKE SECTION 9(1)(VII) OF THE ACT EITHER BECAUSE IT CANNOT BE MORE BENEFICIAL TO THE ASSESSEE- AS IS THE CONDITION PRECEDENT, UND ER SECTION 90(2), FOR INVOKING THE SAME. 10. FOR THE DETAILED REASONS SET OUT ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE DEMANDS RAISED ON THE ASSESSEE UNDER SECTI ON 201 R.W.S 195 ARE WHOLLY DEVOID OF ANY LEGALLY SUSTAINABLE MERITS . 14. IN VIEW OF THE ABOVE DISCUSSIONS, AND BEARING I N MIND ENTIRETY OF THE CASE, WE UPHOLD THE PLEA OF THE ASSESSEE ON THIS POINT AS WE LL. WHEN THE INCOME IN QUESTION IS NOT TAXABLE IN INDIA, THERE IS NO QUESTION OF TA X WITHHOLDING REQUIREMENTS UNDER SECTION 195 AND THE CAUSE OF ACTION FOR DISALLOWANC E UNDER SECTION 40(A)(I). THE IMPUGNED DISALLOWANCE IS THUS DELETED. 15. GROUND NO. 2 IS THUS ALLOWED. 16. IN GROUND NO. 3, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE:- 3. THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING AN A MOUNT OF RS.13,48,461/- BEING REIMBURSEMENT OF EXPENDITURE INCURRED ON PAYM ENT OF MEDICAL INSURANCE PREMIUM IN RESPECT OF THE PERSONNEL PLACE D AT THE DISPOSAL OF THE APPELLANT COMPANY FOR ITS BUSINESS OPERATIONS, BY T HE PARENT COMPANY. 17. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY CO-ORDINATE BENCH DECISION IN ASSES SEES OWN CASE (SUPRA) WHEREIN IT HAS BEEN, INTER ALIA , OBSERVED AS FOLLOWS:- ITA NOS. 1954 & 2104/AHD/2015 DCIT VS. BURT HILL DESIGN P LTD & VICE VERSA ASSESSMENT YEAR: 2010-11 PAGE 8 OF 9 6. AS REGARDS THE SECOND ISSUE, I.E. GROUND NO. 3, THERE IS NO DISPUTE THAT THE INSURANCE PREMIUM OF RS 12,77,927 HAS BEEN PAID FOR MEDICAL AND OTHER INSURANCE OF THE EMPLOYEES OF BURT HILL INC USA WHO WERE ON SECONDMENT TO INDIA AND IN ACCORDANCE WITH STATUTORY OBLIGATIONS OF BURT HILL INC USA. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE EXPENSES ON THE GROUND THAT THESE PERSONS WERE EMPLOYEES OF BURT HILL INC USA, AND NOT THE ASSESSEE. THE ASSESSING OFFICER FURTHER NOTED THAT THERE IS N O EVIDENCE OF BUSINESS NEXUS BETWEEN THESE EXPENSES AND THE BUSINESS OF TH E ASSESSEE. THESE WERE ALSO HELD TO BE PERSONAL EXPENSES OF THE SECON DED EMPLOYEES. IT WAS IN THE BACKDROP OF THESE OBSERVATIONS BY THE ASSESSING OFFICER THAT THE IMPUGNED DISALLOWANCE OF RS 12,77,927 WAS MADE. AGG RIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. NOT SATISFIED, THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 7. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE ARE INCLINED TO UPHOLD THE GRIEVANCE OF THE ASSESSEE, FOR THE SIMPLE REASON THAT THE SECONDED EMPLOYEES, IN RESPECT OF W HICH THE IMPUGNED INSURANCE PREMIUM WAS PAID, WERE NOT ONLY DE FACTO EMPLOYEES OF THE ASSESSEE AT THE RELEVANT POINT OF TIME, THE ASSESSE E HAD THE OBLIGATION, UNDER SECONDMENT AGREEMENT, TO BEAR THESE COSTS. THE EXPE NSES SO INCURRED ARE IN THE NATURE OF EMPLOYEE BENEFITS, THOUGH PAID UNDER SECONDMENT AGREEMENT, IN RESPECT OF PERSONS WORKING FOR THE ASSESSEE. IT WAS IN THE FURTHERANCE OF LEGITIMATE BUSINESS INTERESTS OF THE ASSESSEE THAT THESE PAYMENTS WERE MADE, AND, THEREFORE, THE DEDUCTION WAS INDEED ADMI SSIBLE UNDER SECTION 37(1) OF THE ACT. WE UPHOLD THE GRIEVANCE OF THE AS SESSEE. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO GRANT DEDUCTION OF THE IMPUGNED AMOUNT OF RS.12,77,927. 18. RESPECTFULLY FOLLOWING THE VIEW SO TAKEN BY THE CO-ORDINATE BENCH, WE UPHOLD THE PLEA OF THE ASSESSEE AND DELETE THIS IMPUGNED D ISALLOWANCE AS WELL. 19. GROUND NO. 3 IS THUS ALLOWED. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. 21. WE WILL NOW TAKE UP THE APPEAL FILED BY THE ASS ESSING OFFICER. 22. GROUND NO. 1 OF ASSESSING OFFICER, FOR THE DETA ILED REASONS SET OUT IN PARAGRAPH 4, 5, 6, 7 AND 8 ABOVE, IS DISMISSED. 23. IN GROUND NO. 2, THE ASSESSING OFFICER HAS RAIS ED THE FOLLOWING GRIEVANCE:- 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,88,000/- U/S 40(A)(IA) OF THE ACT MADE BY THE AO FOR NON DEDUCTION OF TAX ON REIMBURSEMENT PAID TO THE EMPLOYEE. ITA NOS. 1954 & 2104/AHD/2015 DCIT VS. BURT HILL DESIGN P LTD & VICE VERSA ASSESSMENT YEAR: 2010-11 PAGE 9 OF 9 24. THIS DISALLOWANCE U/S. 40(A)(IA) WAS MADE BY TH E ASSESSING OFFICER THAT THE RENT REIMBURSEMENT WAS MADE TO THE DIRECTOR WITHOUT ANY TAX DEDUCTION AT SOURCE. IN APPEAL, LEARNED CIT(A) DELETED THE DISALLOWANCE BY HOLDING THAT THERE WAS NO TDS LIABILITY IN RESPECT OF THE SAME. THE ASSESSING OF FICER IS AGGRIEVED AND IS IN APPEAL BEFORE US. 25. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 26. WE FIND THAT THERE IS INDEED NOTHING TO SHOW TH AT THERE WAS ANY TAX WITHHOLDING REQUIREMENT FROM THIS REIMBURSEMENT OF RENT. LEARNED DEPARTMENTAL REPRESENTATIVE ALSO COULD NOT CONTROVERT FINDINGS T O THIS EFFECT BY THE CIT(A). IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIR ETY OF THE CASE, WE UPHOLD THE RELIEF GRANTED BY THE CIT(A) AND DECLINE TO INTERFE RE IN THE MATTER. 27. GROUND NO. 2 IS THUS DISMISSED. 28. IN THE RESULT, THE APPEAL OF THE ASSESSING OFFI CER IS DISMISSED. 29. TO SUM UP, APPEAL OF THE ASSESSEE IS ALLOWED AN D APPEAL OF THE ASSESSING OFFICER IS DISMISSED. PRONOUNCED IN THE OPEN COUR T TODAY ON THE 11 TH DAY OF JULY, 2019. SD/- SD/- JUSTICE P P BHATT PRAMOD KU MAR (PRESIDENT) (VICE PRESIDENT) AHMEDABAD, DATED THE 11 TH DAY OF JULY, 2019 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ETC TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: ..ORDER PREPARED AS PER 10 PA GES MANUSCRIPTS OF HONBLE VP - ATTACHED.11.7.19... 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 11.07.2019 ......... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: 11.07.2019... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 11.07.2019 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : .. 11.07.2019.... 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER : . 8. DATE OF DESPATCH OF THE ORDER: ......
