DELMAS FRANCE, MUMBAI V. ADIT (IT) 1(2), MUMBAI

ITA 1955/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84189 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 17-11-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 10-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK PERAMPURNA
• Assessee Lawyers: F IRANI
• Keywords: Transfer pricing; Double taxation relief; Retrospective amendment; Permanent establishment
• Section: 234B; 90

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BE NCH, MUMBAI . , !' , #$ %&'( , #) *+ # ' BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO.1955/MUM/2011 ( , , , , / ASSESSMENT YEAR : 2001-02 DELMAS FRANCE, C/O CMA CGM AGENCIES (INDIA) PVT. LTD., HAMILTON HOUSE, 8,J.N. HEREDIA MARG, BALLARD ESTATE, MUMBAI-400 038 / VS. THE ASSTT. DIRECTOR OF INCOME TAX,(INTERNATIONAL TAXATION)-1(2), 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, MUMBAI-400 038 +- #) ./ ./ ./ PAN/GIR NO. : AABCD 6672P ( -0 / APPELLANT ) .. ( 12-0 / RESPONDENT ) -0 3 # / APPELLANT BY: SHRI F. IRANI 12-0 4 3 # / RESPONDENT BY: SHRI VIVEK PERAMPURNA 4 5) / DATE OF HEARING :17.11.2014 6, 4 5) / DATE OF PRONOUNCEMENT :19.11.2014 *#7 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)-10, MUMBAI DT.31.12.2010 PERTAINING TO A.Y.2 001-02. 2. THE ASSESSEE HAS RAISED 5 SUBSTANTIVE GROUNDS OF APPEAL WHICH READ AS UNDER: ITA NO. 1955/M/2011 2 1. RELIEF UNDER ARTICLE 9 OF THE INDIA - FRANCE DO UBLE TAXATION AVOIDANCE AGREEMENT (DTAA) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-L0 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN RE JECTING THE APPELLANTS CLAIM FOR RELIEF UNDER ARTICLE 9 OF THE DTAA IN RESPECT OF ITS FREIGHT EARNINGS OF RS.4,20,47,559 ON THE BA SIS THAT THE CONNECTIVITY BETWEEN THE FEEDER VESSELS CARRYING TH E CARGO FROM THE INDIAN PORTS AND THE MOTHER VESSELS OWNED/CHARTERED BY THE APPELLANT, WAS NOT FURNISHED. THE APPELLANT SUBMITS THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THAT IT MAY NOT BE NECESSARY TO ESTABLISH THE MOTHE R VESSEL - FEEDER VESSEL CONNECTIVITY FOR EACH AND EVERY VOYAGE AS TH E CLAIM FOR RELIEF UNDER ARTICLE 9 OUGHT TO BE EXAMINED WITH RE FERENCE TO THE BUSINESS OF OPERATION OF SHIPS. THE APPELLANT PRAYS THAT THE ASSESSING OFFICER (AO) BE DIRECTED TO ALLOW RELIEF UNDER ARTICLE 9 OF THE DTAA IN RESPECT OF THE FREIGHT EARNINGS OF RS.4,20,47,559. 2. EXISTENCE OF A PERMANENT ESTABLISHMENT (PE) THE LEARNED C{T(A) ERRED IN HOLDING THAT THE FREIGH T EARNINGS OF RS.4,20,47,559 ARE ASSESSABLE AS BUSINESS PROFITS UNDER ARTICLE 7 OF THE DTAA AS THERE EXISTS A PE OF THE APPELLANT I N INDIA. THE APPELLANT SUBMITS THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THAT BARWIL FORBES SHIPPING SERVICES LTD (BFSSL) WA S ACTING IN THE ORDINARY COURSE OF ITS BUSINESS AND RENDERED SI MILAR SERVICES TO OTHER FOREIGN SHIPPING LINES BESIDES THE APPELLANT. BFSSL THEREFORE CANNOT CONSTITUTE A DEPENDENT AGENT OF THE APPELLAN T. THE APPELLANT PRAYS THAT THE AO BE DIRECTED ACCORDI NGLY. 3. TAXABILITY OF ANCILLARY CHARGES INTERALIA INLAND HAULAGE CHARGES (IHC) THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ANCILL ARY CHARGES INTERALIA IHC ARE LIABLE TO TAX IN INDIA. ITA NO. 1955/M/2011 3 THE APPELLANT SUBMITS THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ANCILLARY CHARGES INTERALIA IHC ARE NOT LI ABLE TO TAX IN INDIA AND PRAYS THAT THE AO BE DIRECTED ACCORDINGLY . 4. LEVY OF INTEREST UNDER SECTION 234B THE LEARNED CIT(A) ERRED IN CONFIRMING THE EARLIER DIRECTION THAT THE INTEREST UNDER SECTION 234B BE RECOMPUTED ON GI VING EFFECT TO THE DECISION RELATING TO THE OTHER ISSUES IN APPEAL . THE APPELLANT SUBMITS THAT THE PROVISIONS OF SECTIO N 234B ARE NOT APPLICABLE IN THE FACTS OF ITS CASE AND THEREFORE, THE AO BE DIRECTED TO DELETE THE INTEREST LEVIED. 5. RATE OF TAX THE LEARNED CIT(A) ERRED IN HOLDING THAT A HIGHER R ATE OF TAX IN THE CASE OF A NON-RESIDENT COMPANY DOES NOT AMOUNT TO DISCRIMINATION. THE APPELLANT SUBMITS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF ITS CASE, THE CIT(A) OUGHT TO HAVE HELD THAT THE TA X RATE APPLICABLE TO THE APPELLANT WOULD BE 35% AS IS APPLICABLE TO A DOMESTIC COMPANY AS AGAINST THE RATE OF 48% AS IS APPLICABLE TO A FOREIGN COMPANY. THE APPELLANT PRAYS THAT THE AU BE DIRECTED ACCORDI NGLY. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT ISSUES RAISED VIDE GROUND NO. 2 & 3 RELATES TO THE EXISTEN CE OF A PERMANENT ESTABLISHMENT WHICH ISSUE HAS BEEN DECIDED BY THE T RIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2006-07 VIDE ITA NO. 9001/M/2010. THEREFORE, ISSUE RAISED VIDE GROUND NO. 1 DOES NOT ARISE. 4. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONCE DED TO THIS. 5. THE ASSESSEE IS A NON RESIDENT COMPANY. RETURN OF INCOME FOR THE YEAR WAS FILED ON 30.10.2001. THE ASSESSEE CLAIMED EXEMPTION UNDER ITA NO. 1955/M/2011 4 ARTICLE 9 OF THE DOUBLE TAXATION AVOIDANCE AGREEMEN T WITH FRANCE. THE CLAIM OF THE ASSESSEE WAS EXAMINED BY THE AO VI DE ITS ORDER DT. 30.3.2004. IN SO FAR AS THE ISSUE RELATING TO THE PERMANENT ESTABLISHMENT IN INDIA, THE AO FOLLOWING THE DECISION OF THE TRI BUNAL, MUMBAI BENCH IN THE CASE OF ACIT VS DHL OPERATIONS B.V. NETHERL ANDS IN ITA NOS 7987 & 7988/BOM/92 CAME TO THE CONCLUSION THAT M/S. BARWIL FORBES SHIPPING SERVICES LTD IS THE AGENT PE IN INDIA. THE TRIBUNAL IN ITA NO. 9001/M/2010 IN A.Y. 2006-06 HAS CONSIDERED THIS ISS UE AT PARA-7 OF ITS ORDER AND AFTER CONSIDERING ARTICLE 5(5) AND ARTIC LE 5(6) OF THE INDO FRENCH DTAA AT PARA-9 OF ITS ORDER HELD AS UNDER: LET US NOW DEAL WITH THE SCOPE OF DEPENDENT AGENT PERMANENT ESTABLISHMENT (DAPE) AS SET OUT IN ARTICL E 5(5) AND ARTICLE 5(6) OF THE INDO FRENCH DTAA. ARTICLE 5(5) PROVIDES THE SITUATIONS IN WHICH BUSINESS BEING CARRIED ON THROU GH A DEPENDENT AGENT RESULTS IN CREATION OF PE IN THE SOURCE STATE . THE PROVISIONS OF ARTICLE 5(6) ARE, HOWEVER, SLIGHTLY AT VARIANCE WITH STANDARD TAX TREATY PROVISIONS, AND NEED TO BE ANALYSED IN SOME DETAIL . THE SIGNIFICANT FEATURE OF ARTICLE 5(6) OF INDO FRENCH DTAA, WHICH IS SOMEWHAT UNIQUE IN THE SENSE THAT THIS PROVISION IS IN CLEAR DEVIATION FROM THE STANDARD UN AND OECD MODEL CONVE NTIONS, IS THAT EVEN WHEN AN AGENT IS WHOLLY OR ALMOST WHOLLY DEPENDENT ON THE FOREIGN ENTERPRISE, HE WILL STILL BE TREATED AS AN INDEPENDENT AGENT UNLESS ADDITIONAL CONDITION OF THE TRANSACTIO NS BEING NOT AN ARMS LENGTH CONDITIONS IS FULFILLED. IT IS SO FOR THE REASON THAT ARTICLE 5(6) PROVIDES THAT EVEN WHEN AN AGENT IS WH OLLY OR ALMOST WHOLLY DEPENDENT ON THE PRINCIPAL, I.E. FOREIGN ENT ERPRISE, HE WILL NOT BE CONSIDERED AN AGENT OF AN INDEPENDENT STATUS WITHIN THE MEANING OF THIS PARAGRAPH IF IT IS SHOWN THAT THE T RANSACTIONS BETWEEN THE AGENT AND THE ENTERPRISE WERE NOT MADE UNDER AT ARMS LENGTH CONDITIONS ( EMPHASIS BY UNDERLINING SUPPLIED BY US). IN OTHER WORDS, AS LONG AS IT IS NOT SHOWN THA T THE TRANSACTIONS BETWEEN THE AGENT AND THE PRINCIPAL ARE NOT MADE UN DER ARMS LENGTH CONDITIONS, THE AGENT IS TREATED TO BE AN IN DEPENDENT AGENT. THE IMPLICATION OF THE AGENT BEING TREATED AS AN IN DEPENDENT AGENT IS THAT THE PROVISIONS OF DEPENDENT AGENT PE, AS SE T OUT IN ARTICLE 5(5), CAN NEVER COME INTO PLAY IN THE CASES IN WHIC H THE BUSINESS IS CARRIED OUT BY THE FOREIGN ENTERPRISE THROUGH AN IN DEPENDENT ITA NO. 1955/M/2011 5 AGENT, BECAUSE ARTICLE 5(5), WHICH OVERRIDES THE PR OVISIONS OF ARTICLE 5(1) AND 5(2), SPECIFICALLY PROVIDES THAT WHERE A PERSON OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WHO M PARAGRAPH 6 APPLIES ( EMPHASIS BY UNDERLINING SUPPLIED BY US) IS ACTIN G IN ONE OF THE CONTRACTING STATES ON BEHALF OF AN ENTERPRIS E OF THE OTHER CONTRACTING STATE, THAT ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE FIRST-MENTIONED CONT RACTING STATE SUBJECT TO FULFILMENT OF CERTAIN OTHER CONDITIONS W HICH ARE ADMITTEDLY FULFILLED IN THE PRESENT CASE. THEREFORE , AS LONG AS THE AGENT IS OF INDEPENDENT STATUS, THE PROVISIONS OF A RTICLE 5(5) CANNOT BE INVOKED. IT IS ALSO IMPORTANT TO BEAR IN MIND TH AT SINCE PROVISIONS OF ARTICLE 5(5) OVERRIDE THE PROVISIONS OF ARTICLE 5(1) AND 5(2), NO PERMANENT ESTABLISHMENT UNDER ARTICLE 5(1) AND (2) CAN BE SAID TO COME INTO EXISTENCE, SO FAR AGENCY S ITUATIONS ARE CONCERNED, UNTIL THE CONDITIONS OF ARTICLE 5(5) ARE ALSO SATISFIED. LEARNED DEPARTMENTAL REPRESENTATIVE FAIRLY DOES NOT DISPUTE, AND RIGHTLY SO, THAT THE PERMANENT ESTABLISHMENT IN THE PRESENT CASE WILL BE GOVERNED BY ARTICLE 5(5) READ WITH ARTICLE 5(6). LEARNED DEPARTMENTAL REPRESENTATIVES ONLY OBJECTION IS THA T SINCE AN IMPORTANT ASPECT, I.E. ASPECT RELATING TO THE TRANS ACTIONS HAVING BEEN DONE IN ARMS LENGTH CONDITIONS, HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER, THE MATTER SHOULD BE RESTORE D TO THE FILE OF THE ASSESSING OFFICER FOR SPECIFIC ADJUDICATION ON THE TRANSACTIONS BETWEEN PRINCIPAL AND AGENT HAVING BEEN DONE IN ARM S LENGTH CONDITIONS. WE ARE UNABLE TO SEE ANY MERITS IN THIS PLEA. AS HELD BY A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF AIRLINES ROTABLES LTD VS DDIT8, IT IS A SETTLED POSITION OF LAW, AS NOTED BY THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF M OTOROLA INC. 9, THAT THE ONUS IS ON THE REVENUE TO DEMONSTRATE THAT A PE OF THE FOREIGN ENTERPRISE EXISTS IN INDIA. IN THE PRESENT CASE, I.E. IN THE CASE OF DAPE IN ACCORDANCE WITH PROVISIONS OF INDO FRENCH DTAA, THE ONUS IS EVEN GREATER INASMUCH THE VERY FO UNDATION OF DAPE RESTS ON A NEGATIVE FINDING WITH RESPECT TO TH E WHOLLY DEPENDENT OR ALMOST WHOLLY DEPENDENT AGENT I.E. IF IT IS SHOWN THAT THE TRANSACTIONS BETWEEN THE AGENT AND THE ENTERPRI SE WERE NOT MADE UNDER AT ARMS LENGTH CONDITIONS. UNLESS THIS NEGATIVE FINDING IS ON RECORD, IT CANNOT BE INFERRED THAT TH E AGENT IS NOT OF AN INDEPENDENT STATUS. NO SUCH FINDING WAS GIVEN BY TH E ASSESSING OFFICER, OR EVEN BY THE DISPUTE RESOLUTION PANEL. E VEN IN THE PROCEEDINGS BEFORE US, NO MATERIAL HAS BEEN BROUGHT ON RECORD WHICH AT LEAST PRIMA FACIE DEMONSTRATES, OR EVEN IN DICATES, THAT THE TRANSACTIONS BETWEEN THE PRINCIPAL AND AGENT ARE NO T UNDER ARMS LENGTH CONDITIONS. ONCE THIS ONUS IS NOT DISCHARGED BY THE REVENUE ITA NO. 1955/M/2011 6 AUTHORITIES AT ANY OF THESE STAGES, AND IN ACCORDAN CE WITH THE LAW LAID DOWN BY SPECIAL BENCH DECISION IN THE CASE OF MOTOROLA INC 10, WE HAVE TO HOLD THAT THE ASSESSEE DID NOT HAVE ANY PE IN INDIA. WE ARE NOT INCLINED TO GRANT A FRESH INNING TO THE ASSESSING OFFICER FOR MAKING ROVING AND FISHING ENQUIRIES ON THE ASPE CT OF TRANSACTIONS NOT HAVING BEEN DONE IN ARMS LENGTH C ONDITIONS PARTICULARLY AS THERE IS NOTHING ON RECORD TO EVEN REMOTELY SUGGEST A PRIMA FACIE CASE IN THIS REGARD. A NEGATIVE FINDI NG IN THIS REGARD IS A SINE QUA NON FOR MAKING OUT A CASE FOR EXISTEN CE OF DAPE IN THE CONTEXT OF INDO FRENCH DTAA, AND THIS FINDING B EING ABSENT, WE HAVE TO HOLD THAT THE STAND OF THE ASSESSING OFFICE R, WITH REGARD TO EXISTENCE OF PE, IS NOT SUSTAINABLE IN LAW. AS REGA RDS REFERENCE TO HONBLE VISAKHAPATNAM PORT TRUSTS CASE11, THE OBSE RVATIONS MADE THEREIN DO NOT APPLY IN THIS CONTEXT AS IT WAS NOT DEALING WITH DEPENDENT AGENCY PERMANENT ESTABLISHMENT (DAPE) WHI CH IS NOW THE CASE BEFORE US. AS WE HAVE SEEN EARLIER, THE PR OVISIONS OF DAPE OVERRIDE THE PROVISIONS REGARDING FIXED PLACE PE, AND, THEREFORE, ANY OBSERVATIONS MADE IN THE CONTEXT OF FIXED PLACE PE DO NOT APPLY TO THE DAPE SITUATIONS. AS REGARDS THE REFERENCE TO THE OECD MODEL CONVENTION COMMENTARIES OR OTHER STA NDARD LITERATURE IN THE CONTEXT OF DAPE, IT CANNOT BE OF ANY HELP IN INTERPRETATION OF DAPE PROVISIONS IN INDO FRENCH DT AA BECAUSE OF A SOMEWHAT PECULIAR PROVISION IN ARTICLE 5(5) RE AD WITH ARTICLE 5(6), WHICH IS NOT PART OF OECD OR UN MODEL CONVENT ION, AND WHICH PROVIDES THAT HOWEVER, WHEN THE ACTIVITIES O F SUCH AN AGENT ARE DEVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF TH AT ENTERPRISE, HE WILL NOT BE CONSIDERED AN AGENT OF AN INDEPENDEN T STATUS WITHIN THE MEANING OF THIS PARAGRAPH IF IT IS SHOWN THAT T HE TRANSACTIONS BETWEEN THE AGENT AND THE ENTERPRISE WERE NOT MADE UNDER AT ARMS LENGTH CONDITIONS.. WE HAVE ALSO NOTED THAT THE DR P HAS HELD THAT THERE IS A PE ON THE SHORT GROUND THAT ASSESSEES C LAIM FOR APPLICABILITY OF ARTICLE 9 PRESUPPOSES EXISTENCE OF A PE, BUT IT IS DIFFICULT TO COMPREHEND AS TO HOW EXISTENCE OF A PE CAN BE INFERRED MERELY BECAUSE THE ASSESSEE HAS MADE A PARTICULAR C LAIM, WHICH IS REJECTED ANYWAY. THE ONUS OF ESTABLISHING THAT THER E IS A PE, AS WE HAVE NOTED EARLIER IN THE DISCUSSIONS, IS ON THE RE VENUE AUTHORITIES AND THERE IS NO ROOM FOR INFERENCES BEING DRAWN UP IN THIS RESPECT MERELY BECAUSE THE ASSESSEE HAS MADE A PARTICULAR C LAIM. SIMILARLY, REFERENCE TO AGENTS AUTHORITY TO CONCLU DE CONTRACTS, AS HAS BEEN MADE BY THE DRP, IS NOT DECISIVE TEST EITH ER BECAUSE EVEN WHEN AGENT HAS THE AUTHORITY TO CONCLUDE CONTRACTS, IT IS STILL TO BE ESTABLISHED THAT THE AGENT IS NOT AN INDEPENDENT AG ENT. THAT EXERCISE IS NOT EVEN CONDUCTED IN THIS CASE. THE AS SESSING OFFICERS ITA NO. 1955/M/2011 7 RELIANCE ON OECD COMMENTARY, THEREFORE, IS OF NO AV AIL EITHER. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE SET ASIDE AND VACATE THE ASSESSING OFFICER S FINDINGS WITH REGARD TO EXISTENCE OF ASSESSEES PE IN INDIA. WE MAY, AT THE COST OF REPETITION, CLARIFY THAT THESE CONCLUSIONS ARE ARRIVED AT IN THE LIGHT OF THE FACTUAL POSITION THAT THERE ARE NO FINDINGS BY THE ASSESSING OFFICER, OR THE DISPUTE RESOLUTION PANEL, TO THE EFFECT THAT THE TRANSACTIONS BETWEEN THE AGENT AND THE ASS ESSEE ARE NOT AT AN ARMS LENGTH PRICE, AND THAT, IN VIEW OF THE PROVISIONS OF ARTICLE 5(6) OF INDO FRENCH DTAA, SUCH A FINDING BY THE REVENUE IS A SINE QUA NON FOR EXISTENCE OF DAPE. TO THIS EXTEN T, OUR DECISION IS CONFINED TO THE FACTS OF THIS CASE FOR THE PARTI CULAR ASSESSMENT YEAR BEFORE US. 6. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FINDINGS OF THE TRIBUNAL. THE TRIBUNAL HAS GONE WITH THE FACTUAL MATRIX THAT THERE ARE NO FINDINGS BY THE AO OR THE DISPUTE RESOLUTION PANEL TO THE EFFECT THAT THE TRANSACTIONS BETWEEN THE AGENT AND THE ASSESSEE ARE NOT AT AN ARMS LENGTH PRICE WHICH IS SINE QUA NON IN VIEW OF THE PROVISI ONS OF ARTICLE 5(6) OF INDO FRENCH DTAA. THIS MEANS THAT THE TRIBUNAL HAD PROCEEDED ON PRESUMPTION. IN OUR CONSIDERED OPINION, THE TRIBUN AL IS ALSO A FACT FINDING AUTHORITY. NO DOUBT THE INITIAL ONUS IS UP ON THE REVENUE TO SHOW THAT THE TRANSACTIONS ARE NOT AT ARMS LENGTH PRICE , THIS ASPECT HAS NOT BEEN LOOKED UPON BY THE REVENUE AUTHORITIES, WE THE REFORE RESTORE THIS ISSUE TO THE FILES OF THE AO TO EXAMINE WHETHER THE TRANSACTIONS BETWEEN THE AGENT AND THE ASSESSEE ARE AT ARMS LENGTH PRIC E AND DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE PROVISIONS OF ARTICLE 5( 6) OF INDO FRENCH DTAA. IF THE AO FINDS THE TRANSACTIONS TO BE AT ARMS LEN GTH PRICE, THEN THE DECISION OF THE TRIBUNAL IN A.Y. 2006-07 SHALL PREV AIL IN THE PRESENT YEAR ALSO. 7. THE ABOVE FINDINGS WILL ALSO COVER THE ISSUE RAI SED VIDE GROUND NO. 3 RELATING TO THE TAXABILITY OF ANCILLARY CHARGES I NTER ALIA INLAND HAULAGE CHARGES. ITA NO. 1955/M/2011 8 8. GROUND NO. 4 RELATES TO LEVY OF INTEREST U/S. 23 4B OF THE ACT. 8.1. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY THE HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF DIT VS NGC NETWORK ASIA LLC IN 313 ITR 187 WHEREIN THE HONBLE HIGH COURT HAS HELD THAT WHEN A DUTY WAS CAST ON THE PAYER TO D EDUCT THE TAX AT SOURCE, ON FAILURE OF THE PAYER TO DO SO, NO INTEREST COULD BE IMPOSED ON THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, THE AO IS DIRECTED TO DE LETE THE INTEREST LEVIED U/S. 234B OF THE ACT. 9. GROUND NO. 5 RELATES TO THE RATE OF TAX. THE L D. CIT(A) AT PARA- 6.2. OF HIS ORDER HAS HELD AS UNDER: I HAVE CONSIDERED THE FACTS AND SUBMISSIONS OF THE APPELLANT. THE FINANCE ACT, 2001 INSERTED AN EXPLANATION TO SE CTION 90 OF THE ACT WHICH WAS FURTHER AMENDED BY FINANCE ACT, 2004 PROV IDING RETROSPECTIVE AMENDMENT WITH EFFECT FROM APRIL 1, 1 962. THIS EXPLANATION READS AS :EXPLANATION - FOR THE REMOVA L OF DOUBTS, IT IS HEREBY DECLARED THAT THE CHARGE OF TAX IN RESPECT O F A FOREIGN COMPANY AT A RATE HIGHER THAN THE RATE AT WHICH A DOMESTIC COMPANY IS CHARGEABLE, SHALL NOT BE REGARDED AS LESS FAVOURABL E CHARGE OR LEVY OF TAX IN RESPECT OF SUCH FOREIGN COMPANY, WHERE SUCH FOREIGN COMPANY HAS NOT MADE THE PRESCRIBED ARRANGEMENT FOR DECLARA TION AND PAYMENT WITHIN INDIA, OF THE DIVIDENDS (INCLUDING DIVIDENDS ON PREFERENCE SHARES) PAYABLE OUT OF ITS INCOME IN INDIA. THUS T HIS EXPLANATION HAS EXPLICITLY LAID DOWN AND CLARIFIED THE DOUBTS THAT AFTER INSERTION OF THIS EXPLANATION WITH RETROSPECTIVE EFFECT FROM 1.4.1962 THAT THE CHARGE OF TAX IN RESPECT OF A FOREIGN COMPANY AT A RATE HIGHE R THAN THE RATE AT WHICH A DOMESTIC COMPANY IS CHARGEABLE, SHALL NOT B E REGARDED AS LESS FAVOURABLE CHARGE OR LEVY OF TAX IN RESPECT OF SUCH FOREIGN COMPANY. IT IS FURTHER SEEN THAT AFTER INSERTION OF THIS EXPLAN ATION, THE HONBLE TRIBUNAL KOLKATA HAS RULED IN THE CASE OF ABN AMRO BANK (99 TTJ 1041) [SECOND ABN AMMO RULING].THE RULING OF THE FIRST ABN AMRO (ITA 692/CA/2000) CANNOT BE APPLIED AFTER THE INTR ODUCTION OF THE EXPLANATION TO SECTION 90 OF THE ACT. FURTHER THE J URISDICTION HONBLE TRIBUNAL IN CHOUHANG BANK V DDIT (2006) (6 SOT 44) MUM) HAS ELABORATELY DEALT WITH THE ISSUE AND HAS CONSIDERED THAT THE NON DISCRIMINATION CLAUSE IN DTAA BETWEEN INDIA AND SOU TH KOREA. IT HAS ALSO CONSIDERED THE EXPLANATION INTRODUCED WITH RETROSPECTIVE EFFECT FROM 1.4.1962 TO SECTION 90. THE HONBLE TRI BUNAL HAS HELD ITA NO. 1955/M/2011 9 THAT FOREIGN BANK AND THE INDIAN BANKS ARE NOT SIMI LARLY PLACED. THERE IS NO DISCRIMINATION IN APPLICATION OF DIFFER ENT RATE TO FOREIGN BANK COMPARED TO A DOMESTIC COMPANY. IT WAS ALSO HELD THAT EVEN A FOREIGN COMPANY CAN BE A DOMESTIC COMPA NY, IF IT SATISFIES THE CONDITIONS MENTIONED (TREATED AS DOME STIC COMPANY). SIMILARLY, IN CASE OF SHINHAN BANK (ERSTWHILE CHOUH ANG BANK) (ITA NO. 5793/MUM/2006) (AY-200304) (DTD 25.6.2009) (L-BENCH- MUMBAI) AGAIN HELD THAT ASSESSEE INCOME WAS TO BE T AXED AT 40% PLUS SURCHARGE AS AGAINST THE ASSESSEES CLAIM OF 3 5%. IN THE CASE OF P.16 OF 1998, ABC, IN RE (1999) 151 CTR (AAR) 35 : (1999) 236 ITR 103 (AAR) THE AAR HELD THAT FOREIGN COMPANIES B EING CHARGED A HIGHER RATE OF TAX CANNOT BE HELD TO BE COVERED B Y THE PROVISIONS ENSURING NONDISCRIMINATION UNDER THE INDO-FRENCH TA X TREATY. IN VIEW OF THE ABOVE FACTS AND FOLLOWING THE DECISION OF HONBLE ITAT AND CONSIDERING THE EXPLANATION TO SECTION 90(2), I T IS HELD THAT THERE IS NO DISCRIMINATION IN APPLICATION OF HIGHER RATE OF TAX TO FOREIGN COMPANY. THEREFORE, THIS GROUND OF APPEAL I S DISMISSED. 10. THOUGH THE LD. COUNSEL STATED THAT ONCE THE PE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE, THIS GRIEVANCE WOULD BE ONL Y OF ACADEMIC INTEREST. HOWEVER, TO COMPLETE THE ADJUDICATION, WE HAVE GIVE N A THOUGHTFUL CONSIDERATION TO THIS ISSUE. IT IS A SETTLED POSIT ION OF LAW AND THE JUDICIAL CONSENSUS IN INDIA HAS BEEN THAT SECTION 90 IS SPEC IFICALLY INTENDED TO ENABLE AND EMPOWER THE CENTRAL GOVERNMENT TO ISSUE A NOTIFICATION FOR IMPLEMENTATION OF THE TERMS OF A DOUBLE TAXATION AV OIDANCE AGREEMENT. WHEN THAT HAPPENS, THE PROVISIONS OF SUCH AN AGREEM ENT, WITH RESPECT TO CASES TO WHICH WHERE THEY APPLY, WOULD OPERATE EVEN IF INCONSISTENT WITH THE PROVISIONS OF THE INCOME-TAX ACT. IF IT WAS NO T THE INTENTION OF THE LEGISLATURE TO MAKE A DEPARTURE FROM THE GENERAL PR INCIPLE OF CHARGEABILITY TO TAX UNDER SECTION 4 AND THE GENER AL PRINCIPLE OF ASCERTAINMENT OF TOTAL INCOME UNDER SECTION 5 OF TH E ACT, THEN THERE WAS NO PURPOSE IN MAKING THOSE SECTIONS SUBJECT TO THE PROVISIONS OF THE ACT. THE VERY OBJECT OF GRAFTING THE SAID TWO SEC TIONS WITH THE SAID CLAUSE IS TO ENABLE THE CENTRAL GOVERNMENT TO ISSUE A NOTIFICATION UNDER SECTION 90 TOWARDS IMPLEMENTATION OF THE TERMS OF T HE DTAA WHICH ITA NO. 1955/M/2011 10 WOULD AUTOMATICALLY OVERRIDE THE PROVISIONS OF THE INCOME-TAX ACT IN THE MATTER OF ASCERTAINMENT OF CHARGEABILITY TO INCOME TAX AND ASCERTAINMENT OF TOTAL INCOME, TO THE EXTENT OF INCONSISTENCY WIT H THE TERMS OF THE DTAA. 11. SECTION 2(37A)(III) PROVIDES AS UNDER: SEC. 2(37A) RATE OR RATES IN FORCE OR RATES I N FORCE, IN RELATION TO AN ASSESSMENT YEAR OR FINANCIAL YEAR ME ANS - SEC. 2(37A)(III) FOR THE PURPOSES OF DEDUCTION OF TAX UNDER SECTION 195, THE RATE OR RATES OF INCOME TAX SPECIF IED IN THIS BEHALF IN THE FINANCE ACT OF THE RELEVANT YEAR OR THE RATE OR RATES OF INCOME-TAX SPECIFIED IN [AN AGREEMENT ENTERED INTO BY THE CENTRAL GOVERNMENT UNDER SECTION 90, OR AN AGREEMENT NOTIFI ED BY THE CENTRAL GOVERNMENT U/S. 90A, WHICHEVER IS APPLICABL E BY VIRTUE OF THE PROVISIONS OF SECTION 90, OR SECTION 90A, AS TH E CASE MAY BE] 12. LET US NOW SEE WHETHER ANY RATE OF TAX IS SPECI FIED IN THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION WITH FRA NCE. ARTICLE 2 OF INDO FRENCH DTAA READS AS UNDER: ARTICLE 2 TAXES COVERED 1. THE TAXES TO WHICH THIS CONVENTION SHALL APPLY ARE: (A) IN INDIA: (I) THE INCOME TAX INCLUDING ANY SURCHARGE THEREON; (II) THE SURTAX; AND (III) THE WEALTH-TAX (HEREINAFTER REFERRED TO AS INDIAN TAX) (B) IN FRANCE: ITA NO. 1955/M/2011 11 (I) THE INCOME-TAX (1 IMPOT SUR LE REVENU) INCLUD ING ANY WITHHOLDING TAX, PRE-PAYMENT (PRECOMPTE) OR ADVANCE PAYMENT WITH RESPECT THERETO; (II) THE CORPORATION TAX (1 IMPOT SUR LES SCIETES) INCLUDING ANY WITHHOLDING TAX, PREPAYMENT (PRECOMPTE) AND ADVANCE PAYMENT WITH RESPECT THERETO ; AND (III) THE WEALTH-TAX (1 IMPOT LE SOLIOARITESUR LA FORTUNE). (HEREINAFTER REFERRED TO AS FRENCH TAX). 2. THE CONVENTION SHALL ALSO APPLY TO ANY IDENTICAL OR SUBSTANTIALLY SIMILAR TAXES WHICH ARE IMPOSED BY EITHER CONTRACTI NG STATE AFTER THE DATE OF SIGNATURE OF THE PRESENT CONVENTION IN ADDITION TO. OR IN PLACE OF, THE TAXES REFERRED TO IN PARAGRAPH 1. THE COMPETENT AUTHORITIES OF THE CONTRACTING STATES SHALL NOTIFY EACH OTHER OF ANY SUBSTANTIAL CHANGES WHICH ARE MADE IN THEIR RESPECT IVE TAXATION LAWS. 13. ARTICLE 3K OF INDO FRENCH DTAA READS AS UNDER: IN THIS CONVENTION, UNLESS THE CONTEXT OTHERWISE R EQUIRES: (K)- THE TERM TAX MEANS INDIAN TAX OR FRENCH TAX AS THE CONTEXT REQUIRES. 2. AS REGARDS THE APPLICATION OF THE CONVENTION BY THE CONTRACTING STATE, ANY TERM NOT DEFINED THEREIN SHA LL, UNLESS THE CONTEXT OTHERWISE REQUIRES, HAVE THE MEANING WH ICH IT HAS UNDER THE LAW OF THAT CONTRACTING STATE CONCERN ING THE TAXES TO WHICH THE CONVENTION APPLIES. 14. SINCE NO SPECIFIC TAX RATE HAVE BEEN PROVIDED I N INDO FRENCH DTAA, THERE APPEARS TO BE NO CONFLICT BETWEEN THE D OMESTIC LAW AND THE DTAA. WE, THEREFORE, DO NOT FIND ANY ERROR IN THE FINDINGS OF THE LD. CIT(A). ITA NO. 1955/M/2011 12 15. THE LD. COUNSEL FOR THE ASSESSEE HAD STRONGLY P LACED RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF SIEMENS AKTIONESELLSCHAFT 310 ITR 320. 16. WE HAVE CONSIDERED THE DECISION OF THE HONBLE BOMBAY HIGH COURT. WE FIND THAT THE SAID DECISION IS NOT APPLI CABLE TO THE CASE IN HAND. IN THE SAID DECISION, THE HONBLE BOMBAY HIG H COURT HAS HELD THAT BY A UNILATERAL AMENDMENT IT IS NOT POSSIBLE FOR ON E NATION WHICH IS PARTY TO AN AGREEMENT TO TAX INCOME WHICH OTHERWISE WAS N OT SUBJECT TO TAX. SUCH INCOME WOULD NOT BE SUBJECT TO TAX UNDER THE E XPRESSION LAWS IN FORCE. THE DISPUTE IN THE CASE IN HAND RELATES TO THE RATE OF TAX. AS MENTIONED ELSEWHERE, THIS ISSUE IS ONLY FOR ACADEMI C INTEREST SO FAR AS THE FACTS OF THE CASE IN HAND ARE CONCERNED. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH NOVEMBER, 2014 SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !' /VICE PRESIDENT #) *+ / ACCOUNTANT MEMBER MUMBAI; 8* DATED : 19 TH NOVEMBER, 2014 . . ./ RJ , SR. PS ITA NO. 1955/M/2011 13 *#7 *#7 *#7 *#7 4 44 4 15% 15% 15% 15% 9#%,5 9#%,5 9#%,5 9#%,5 / COPY OF THE ORDER FORWARDED TO : 1. -0 / THE APPELLANT 2. 12-0 / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. %;< 15 , , / DR, ITAT, MUMBAI 6. < = / GUARD FILE. *#7 *#7 *#7 *#7 / BY ORDER, 2%5 15 //TRUE COPY// / . . . . (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI