UPS SCS (ASIA ) LTD, MUMBAI V. ASST DIT (IT) 2(2), MUMBAI

ITA 1987/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88295 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 12-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 24-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Keywords: Business income; Question of law
• Section: 143(3); 5(2); 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L, MUMBAI BEFORE SHRI N. K. BILLAIYA ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 1987/MUM/2014 ASSESSMENT YEAR: 2009-10 UPS SCS (ASIA) LIMITED C/O BSR AND COMPANY, LODHA EXCELUS, APOLLO MILLS COMPOUND, N. M JOSHI MARG, MAHALAXMI, MUMBAI 400 011 PAN:-AAACU 8509 M VS. ADIT (IT)-2(2) MUMBAI (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI SUNIL MOTI LALA & SHRI DHARAN GANDHI REVENUE BY : MS. S. PADMAJA DATE OF HEARING : 12 .02.2015 DATE OF ORDER : 20 .02.2015 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN PREFERRED BY THE ASS ESSEE, AGAINST FINAL ASSESSMENT ORDER DATED 28.01.2014, PASSED U/S 144C R.W.S. 143(3) BY ADIT (IT)-2(2) MUMBAI, IN PURSUANCE OF DIRECTION GIVEN BY DRP U/S 144C DATED 16.12.2013, FOR THE QUANTUM OF ASSESSMEN T FOR THE A.Y. 2009-10. 2. IN GROUND NO. 1 THE ASSESSEE HAS CHALLENGED THAT THE ASSESSING OFFICER HAS EARNED IN LAW AND ON FACTS INCOMING TO THE CONCLUSION THAT ASSESSEE HAS A BUSINESS CONNECTION IN INDIA U/S 9 (1)(I) IN THE FORM OF ITA NO. 1987/MUM/2014 ASSESSMENT YEAR: 2009-10 2 SUBSIDIARY UPS, SCS (INDIA) PVT. LTD (USIPL), AND THEREFORE, PROFITS ARE ATTRIBUTABLE TO INDIA. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE M ERITS OF THE ATTRIBUTION OF TAXABLE INCOME TO THE SO CALLED BUS INESS CONNECTION IN INDIA; IN GROUND NO. 3 THE ASSESSEE HAS CHALLENGED THE DI SALLOWANCE U.S 40(A)(IA) OF RS.16,29,50,324/- BEING PAYMENT MADE T O USIPL, DUE TO ALLEGED INFORMATION WITH HOLDING OF TAX U/S 194C; BESIDES THIS, THE ASSESSEE HAS ALSO RAISED ADDITION AL GROUND FOR CHALLENGING THE AOS ACTION FOR ADOPTING NET GLOBAL PROFITABILITY PERCENTAGE FOR CALCULATING THE INCOME ATTRIBUTABLE TO THE ALLEGED BUSINESS INCOME IN INDIA. 3. AT THE OUTSET, LEARNED COUNSEL, SHRI SUNIL M. LA LA SUBMITTED THAT, THE MAIN ISSUE OF TAXABILITY ON ACCOUNT OF BUSINESS CONNECTION U/S 9(1)(I) IN INDIA IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07. THIS DECISION HAS BE EN REITERATED BY THE TRIBUNAL IN A.Y. 2008-09 ALSO. HE FURTHER BROUGHT T O OUR NOTICE THAT THE DEPARTMENT AGAINST THE TRIBUNAL ORDER OF A.Y. 2006- 07 HAD PREFERRED ON APPEAL U/S 260A BEFORE THE HONBLE HIGH COURT, WHER EIN IT HAS RAISED THIS SPECIFIC QUESTION OF LAW BEFORE THE HIGH COURT HOWEVER THIS PARTICULAR QUESTION WAS NOT ADMITTED BY THE HONBLE HIGH COURT. THUS, ISSUE OF BUSINESS CONNECTION U/S 9(1)(I) SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. 4. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE TRI BUNAL WHILE RENDERING THE DECISION FOR A.Y. 2006-07 AND FOR A.Y . 2008-09 HAS NOT CONSIDERED ON EARLIER DECISION OF ITAT MUMBAI BENCH IN THE CASE OF ITA NO. 1987/MUM/2014 ASSESSMENT YEAR: 2009-10 3 ACIT VS. DHL POWERS DV REPORTED IN (2005) 142 TAXMA N(1) (MUM)(MAG), AND THEREFORE THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE IS VARIANCE WITH THE EARLIER DECISION OF T HE ITAT MUMBAI BENCH. 5. BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE IS FO REIGN COMPANY INCORPORATED UNDER THE LAWS OF HONG KONG AND IS ENG AGED IN THE BUSINESS OF PROVISION OF SUPPLY CHAIN MANAGEMENT IN CLUDING PROVISION OF FREIGHT AND FORWARDING AND LOGISTIC SERVICES. THE A SSESSEE HAD ENTERED INTO REGIONAL TRANSPORTATION SERVICES AGREEMENTS WITH UPS, SCS INDIA PVT. LTD. (USIPL) AN INDIAN COMPANY FOR PROVIDING F REIGHT AND LOGISTICS SERVICES TO EACH OTHERS. UNDER THE SAID AGREEMENT, THE UPS ASIA, I.E. ASSESSEE, PERFORMS FREIGHT AND LOGISTIC SERVICES OU TSIDE INDIA AND HAS APPOINTED USIPL TO PERFORM FREIGHT AND LOGISTIC SER VICES WITHIN INDIA FOR CUSTOMERS IN RESPECT OF IMPORT AND EXPORT OF CONSIG NMENT. THE COMPENSATION AS PER THE AGREEMENT FOR THE LOCAL SER VICES RENDERED BY USIPL WAS AT COST PLUS 5.5%. SIMILAR COMPENSATION W AS AGREED FOR SERVICES RENDERED BY THE ASSESSEE OUTSIDE INDIA WHE RE THE TRANSPORTATION FEE IS PAYABLE BY USIPL. THE AGREEME NT PROVIDES THAT RELATIONSHIP BETWEEN THE ASSESSEE AND USIPL SHALL B E THAT OF INDEPENDENT CONTRACTOR AND NO PARTY HAS ANY AUTHORI TY TO BIND OR ENTER INTO CONTRACT IN THE NAME OF THE OTHER PARTY. THE A SSESSING OFFICER OBSERVED THAT SERVICES PROVIDED BY THE ASSESSEE IN THIS YEAR, I.E. A.Y. 2009-10 ARE SIMILAR TO THOSE RENDERED IN THE EARLIE R YEARS AND THEREFORE LIKE IN EARLIER YEARS THE ASSESSING OFFICER HELD TH AT, ASSESSEE HAS A BUSINESS CONNECTION IN INDIA IN THE FORM OF USIPL A ND THEREFORE, IT IS LIABLE TO BE TAXED IN RESPECT OF INCOME ACCRUING UN DER THE TRANSPORTATION AGREEMENT. THE RELEVANT FINDING OF THE AO IN THIS R EGARD IS AS UNDER:- ITA NO. 1987/MUM/2014 ASSESSMENT YEAR: 2009-10 4 HOWEVER, THE ABOVE ARGUMENTS OF THE ASSESSEE ARC N OT ACCEPTABLE AS FOR THE CUSTOMER IT IS THE ASSESSEE W HO IS CONTRACTING PARTY FOR THE ENTIRE TRANSACTION. IT IS ONE SINGLE CONTRACT WHICH CANNOT BE ARTIFICIALLY BROKEN INTO D IFFERENT: PARTS SO AS TO SAY THAT THE PART WHICH IS DONE IN INDIA IS T HAT OF INDIAN COMPANY AND THE ONE CARRIED OUTSIDE IS THAT OF THE ASSESSEE. THEREFORE, WHATEVER ACTIVITY USIPL CARRIES OUT IN I NDIA IS ON BEHALF OF (HE ASSESSEE AS A PART OF THE ASSESSEE'S BUSINESS RELATING TO THE SHIPMENT OF GOODS FROM ONE COUNTRY TO ANOTHER AND CONSTITUTE BUSINESS CONNECTION EVEN UNDER AN IN DEPENDENT CONTRACT BASIS 8.12 THE ASSESSEE'S CONTENTION THAT ARM'S LENGTH PR ICE TO USIPL EXTINGUISHES ANY FURTHER ATTRIBUTION TO THE ASSESSE E IN INDIA IS ALSO NOT ACCEPTABLE AS THE CIRCULAR 23 OF 1969 CITE D BY THE ASSESSEE DOES NOT LAY DOWN THE CORRECT PRINCIPLE AN D HAS BEEN WITHDRAWN BY THE BOARD. THOUGH THE CIRCULAR WAS WIT HDRAWN AFTER THE FINANCIAL YEAR 2008-09 RELEVANT TO A Y 2009-10, THE SAME IS CLARIFICATORY IN NATURE AND SHOULD APPLY FOR A Y 20 09-10 AS WELL. 8.13 IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE ASS ESSEE HAS A BUSINESS CONNECTION IN INDIA AND THEREFORE IS LIABL E TO TAX IN RESPECT: F INCOME ACCRUING UNDER THE TRANSPORTATION AGREEMENT WITH USIPL. 6. THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER D ATED 22.02.2012 IN ITA NO. 2426/MUM/2010, AFTER CONSIDERING THE ENT IRE FACTS OF THE CASE, HELD THAT, THERE IS NO BUSINESS CONNECTION IN INDIA UNDER THE DEEMING PROVISION OF SECTION 9(1)(I). THE RELEVANT OBSERVATION AND THE CONCLUSION OF THE TRIBUNAL IS AS UNDER:- 18. SECTION 4 PROVIDES THAT THE INCOME TAX SHALL B E CHARGED ON THE TOTAL INCOME OF ANY ASSESSEE OF THE PREVIOUS YE AR FOR ANY ASSESSMENT YEAR AT THE 'RATES IN ACCORDANCE WITH AN D SUBJECT TO THE PROVISIONS OF THIS ACT. SCOPE OF TOTAL INCOME O F ANY PERSON HAS BEEN ENSHRINED IN SECTION 5. THE ASSESSEE IN QU ESTION IS A NON-RESIDENT COMPANY. SECTION 5(2) MANDATES THAT TH E TOTAL INCOME OF A NON-RESIDENT INCLUDES THE INCOME FROM W HATEVER SOURCE DERIVED WHICH IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA; OR ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE IN INDIA. THE ONLY POSSIBILITY OF THE RECEIPT BY THE A SSESSEE IN THE PRESENT FACTS AND CIRCUMSTANCES QUALIFYING FOR INCL USION IN THE ITA NO. 1987/MUM/2014 ASSESSMENT YEAR: 2009-10 5 TOTAL INCOME, CAN BE UNDER SECTION 9. WE HAVE OBSER VED THAT SECTION 9(1)(VII) IS NOT APPLICABLE. NOW LET US EX AMINE THE PRESCRIPTION OF SECTION 9(1)(I) WHICH DEALS WITH TH E INCOME ACCRUING OR ARISING FROM ANY BUSINESS CONNECTION IN INDIA. IT PROVIDES THAT WHERE AN INCOME ACCRUES OR ARISES WHE THER DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTI ON IN INDIA ETC., IT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDI A. EXPLANATION 1(A) STATES THAT IN THE CASE OF A BUSINESS OF WHICH ALL OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUS INESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA. THIS EXPLANATION MAKES IT PRO MINENT THAT ONLY THAT PART OF THE INCOME FROM BUSINESS OPERATIO NS CAN BE SAID TO BE ACCRUING OR ARISING IN INDIA, AS IS RELATABLE TO THE CARRYING ON OF OPERATIONS IN INDIA. IN OTHER WORDS, IF A NON -RESIDENT EARNS ANY INCOME FROM INDIA BY MEANS OF OPERATIONS CARRIE D ON OUTSIDE INDIA, THAT WILL NOT FALL WITHIN THE SCOPE OF SECTI ON 9(1))(I). EVEN EXPLANATION BELOW SECTION 9(2) AS, RELIED ON BY THE LD. DR, REQUIRING INCLUSION OF INCOME IN THE TOTAL INCOME O F THE NON- RESIDENT WHETHER OR NOT THE NON-RESIDENT HAS A RESI DENCE OR PLACE OF BUSINESS OR BUSINESS-CONNECTION IN INDIA OR THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA, IS APPLICABLE ONLY IN RESPECT OF CLAUSES (V) TO (VII). CLAUSE (I) OF SECTION 9 HAS N OT BEEN INCLUDED BY THE LEGISLATURE WITHIN THE AMBIT OF THIS EXPLANA TION. IT SHOWS THAT UNLESS A NON-RESIDENT EARNS INCOME FROM BUSINE SS OPERATIONS EARNED OUT IN INDIA, SUCH INCOME CANNOT BE DEEMED A SSURING OR ARISING IN INDIA. REVERTING TO THE FACT OF THE INST ANT CASE, IT IS CRYSTAL CLEAR THAT THE ASSESSEE RENDERED' INTERNATI ONAL SERVICES' OUTSIDE INDIA WHICH REQUIRED THE PAYMENT IN QUESTIO N. IF THIS IS THE POSITION, WHICH HAS NOT EVEN BEEN DISPUTED BY T HE LEARNED DEPARTMENTAL REPRESENTATIVE THEN THERE CAN BE NO QU ESTION OF ROPING SUCH INCOME WITHIN THE KEN OF SECTION 9(1)(I ). THE SAID DECISION WAS CHALLENGED BY THE DEPARTMENT BEFORE THE HONBLE HIGH COURT AND THIS SPECIFIC GROUND WAS TAKEN AS SU BSTANTIAL QUESTION OF LAW, WHICH HAS NOT BEEN ADMITTED BY THE HIGH COURT, WHICH IS EVIDENT FORM HIGH COURT ORDER DATED 11.01.2013 IN INCOME-T AX APPEAL NO. 90 OF 2013. NOT ONLY THAT, THIS DECISION HAS BEEN REIT ERATED BY THE TRIBUNAL IN A.Y. 2008-09 VIDE ORDER DATED 21.05.2014 ITA NO. 7319/MUM/2012. THUS, WITHOUT GOING INTO OTHER DECISION OF THE TRIB UNAL AS CITED BY LD. ITA NO. 1987/MUM/2014 ASSESSMENT YEAR: 2009-10 6 DR, WE RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDEN CE OF THE EARLIER YEARS, DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE BY HOLD ING THAT THE ASSESSEES INCOME FROM TRANSPORTATION AGREEMENT CANNOT BE TAXE D IN INDIA UNDER THE DEEMING PROVISION OF SECTION 9(1)(I) AS USIPL C ANNOT BE SAID TO CONSTITUTE BUSINESS CONNECTION IN INDIA. ACCORDINGL Y, GROUND NO. 1 AS RAISED BY THE ASSESSEE STANDS ALLOWED. 7. REGARDING ISSUE RAISED IN GROUND NO. 2 AND THE A DDITIONAL GROUND, IT HAS BEEN SUBMITTED BY THE LEARNED COUNSEL THAT T HE ISSUE INVOLVED ARE INDEPENDENTLY COVERED BY SERIES OF DECISIONS WHICH HAVE BEEN PLACED BEFORE US. HOWEVER, IT HAS BEEN ADMITTED BY BOTH TH E PARTIES, THESE GROUNDS WILL BECOME PURELY ACADEMIC, BECAUSE THESE GROUND PERTAIN TO ATTRIBUTION OF INCOME. ONCE IT HAS BEEN HELD THAT A SSESSEES INCOME IS NOT TAXABLE IN INDIA, THEN THERE IS NO QUESTION OF ATTRIBUTION OF INCOME. ACCORDINGLY, GROUND NO. 2 AND 3 AS WELL AS ADDITION AL GROUND IS TREATED AS INFRUCTUOUS BEING ACADEMIC IN NATURE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF FEBRUARY, 2015. SD/- SD/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 20.02.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR L BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.