M/s. Keppel FMO Pte Ltd., V. DDIT, New Delhi

ITA 1989/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5105 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 02-08-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 04-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T M SHIVAKUMAR
• Keywords: Recovery proceedings

Judgement Text

ITA NO. 1989/DEL/2014 ASSESSMENT Y EAR: 2010 - 11 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D BENCH NEW DELHI) BEFORE SHRI G.D. AGRAWAL, PRESIDENT & SHRI AMIT SHUKLA , JUDICIAL MEMB E R I N ITA NO. 1989 /DEL/201 4 ASSESSMENT YEAR: 20 10 - 11 KEPPEL FMO PTE. LTD. 108, PASIR PANJANG ROAD, #2 - 01, GOLDEN AGRI PLAZA, SINGAPORE - 118535 VS. D D IT CI RCLE - 3(1), INTERNATIONAL TAXATION, NEW DELHI (APPLICANT) (RESPONDENT) (PAN: A A D C K6103E ) ASSESSEE BY: SHRI P.C. YADAV, ADVOCATE REVENUE BY: T.M. SHIVA KUMAR, CIT DR DATE OF HEARING 0 2 / 0 8 /201 7 DATE OF PRONOUNCEMENT 0 8 / 0 8 /201 7 ORDER PER AMIT SHUKLA, JUDICIAL MEMBER : THE AFORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 23.1.2014 PASSED IN PURSUANCE OF DIRECTIONS GIVEN BY THE DRP IN THE ORDER DATED 20.12.2013. IN THE GROUNDS OF APPEAL THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: - 1. LEARNED DRP BENCH HAS ERRED IN LAW AND IN FACT IN NOT DE LETING AN UNJUSTIFIED ADDITION ON ACCOUNT OF SERVICE TAX OF RS. 32,91,365 DEPOSITED BY THE PAYER AS INCOME OF THE ASSESSEE, OBJECTION TO PARA 3 AND 4 OF THE DRAFT ORDER. PAGE 2 OF 8 SERVICE TAX IS NEVER PART OF INCOME, BUT LEARNED AO HAS GROSSLY NEGLECTED THIS FACT AN D ADDED BACK SERVICE TAX TO THE RETURNED INCOME OF THE ASSESSEE. 2. LEARNED DRP BENCH HAS ERRED IN LAW AND IN FACT IN NOT DELETING AN UNJUSTIFIED ADDITION OF RS. 1,05,03,694 OF SALARY EXPENSE UNDER SECTION 40(A), WHEREAS THE DUE TAX HAS ALREADY BEEN DEPOSITED WITH THE AUTHORITIES, OBJECTION TO PARA 5.5 OF THE DRAFT ORDER. 2. THE BRIEF FACTS ARE THAT THE ASSESSEE IS A CASE OF NON - RESIDENT COMPANY INCORPORATED IN SINGAPORE AND IS ENGAGED IN PROVIDING INTEGRATED FACILITIES MANAGEMENT SERVICES. DURING THE YEAR CONSIDER CONSIDERATION, THE ASSESSEE HAS STATED TO HAVE PROVIDED SERVICED IN RESPECT OF FACILITY MANAGEMENT CONTRACT AWARDED TO KEPPEL BRADY SERVICES PVT. LTD. BY DELHI INTERNATIONAL AIRPORT LTD. (DIA), NEW DELHI. THE ASSESSEE HAS ENTERED INTO A TE CHNICAL CONSULTANCY SERVICES AGREEMENT DATED 1.6.2008 WITH KEPPEL BRADY SERVICES PVT. LTD. FOR FURNISHING SUCH SERVICES. FOR RENDERING SUCH SERVICES THE ASSESSEE RECEIVED AN AMOUNT OF RS. 3,52,46,365/ - FROM KEPPEL BRADY SERVICES PVT. LTD. THIS AMOUNT WAS A LSO REFLECTED IN TDS CERTIFICATE IN FORM 16A ISSUED BY THE PAYER. THE TDS AMOUNT OF RS. 37,22,016/ - WAS ALSO DEDUCTED FROM THE GROSS PAYMENT OF RS. 3,52,46,365/ - AND CREDIT OF SUCH TDS HAS ALSO BEEN CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DECLARED AN AMOUNT OF RS. 3,19,55,000/ - IN HIS PROFIT AND LOSS ACCOUNT. THE ASSESSEE GAVE FOLLOWING EXPLANATION FOR THE SAID DIFFERENCE BEFORE THE ASSESSING OFFICER. REASONS AS TO WHY GROSS RECEIPTS AS PER FORM 16 FROM KEPPEL BRADY SERV ICES PRIVATE LTD, AMOUNTING TO RS. 3.52 CR. BE NOT CONSIDERED. PLEASE NOTE THAT AS PER OUR INVOICES, WE HAVE RAISED THE INCOME (GROSS RECEIPTS) EQUIVALENT TO INR PAGE 3 OF 8 RS.3,19,55,000 , BUT AS THE SERVICE WAS UNDER REVERSE CHARGE MECHANISM AS PER SERVICE TAX RULES , THE PAYER HAS PAID THIS SERVICE TAX WHICH WAS DUE ON THEM UNDER THE SAID MECHANISM. WHILE CALCULATING THE TDS ON GROSS AMOUNT, THEY HAVE ADDED THE INVOICE VALUE (RS. 3,19,55,000) AND SERVICE TAX UNDER REVERSE CHARGE (RS. 32,91,265). THEREBY THEY HAVE DED UCTED THE TDS ON RS. 35,246,365. WHEREAS THE AMOUNT RS.3,52,46,365 WAS NEVER OUR GROSS RECEIPTS AS SERVICE TAX, THAT TOO UNDER REVERSE CHARGE, IS NEVER A PART OF INCOME. WE HAVE DULY CLARIFIED THE SAME THING BY REFLECTING IN PROFIT & LOSS ACCOUNT. THEREFOR E, THE GROSS RECEIPTS OF RS.3,19,55,000 WHICH IS THE ACTUAL AMOUNT AS PER OUR INVOICE AND AS PER RECEIPTS IN THE BANK STATEMENT SHOULD ONLY CONSIDERED AS OUR GROSS RECEIPTS.' 3. THE ASSESSING OFFICER HAD REJECTED THIS CONTENTION THAT DIFFERENCE IN THE AMOUNT MENTIONED IN FORM 16 AND THE RETURN INCOME WAS ON ACCOUNT OF SERVICE TAX. THE DRP ALSO AFTER CONSIDERING THE ENTIRE OBJECTIONS OF THE ASSESSEE HAS UPHELD THE ORDER OF THE ASSE SSING OFFICER AND ALSO ANALYZED THE AGREEMENT WITH THE KEPPEL BRADY SERVICES PVT. LTD. WHEREIN THERE WAS CLAUSE 5 STATED THAT FIRSTLY, THE ASSESSEE HAS AGREED TO TAKE UP THE TAX LIABILITY ON INCOME TAX PERSONNEL DEPUTED TO INDIA; SECONDLY, THE AGREEMENT IS SILENT TO WHO BEAR THE COST OF SERVICE TAX DUE TO SERVICED RENDERED BY THE NON - RESIDENT ASSESSEE; AND LASTLY, AS PER THE SERVICE TAX RULES THE RECIPIENT OF THE SERVICE SHALL BE LIABLE TO PAY SERVICE TAX. THE DRP TO REJECT THE CLAIM OF THE ASSESSEE THAT TH E SERVICE TAX PAID BY KEPPEL BRADY SERVICES PVT. LTD. HAD PAID ON BEHALF OF THE ASSESSEE AND THEREFORE NET CONSIDERATION I.E. GROSS CONSULTANCY RECEIPT ( - ) SERVICE TAX SHALL BE DEDUCTED AS STARTING POINT FOR WORKING OUT THE NET INCOME CHARGEABLE TO TAX OF THE ASSESSEE MAINLY ON THE GROUND THAT PAGE 4 OF 8 THE ASSESSEE WILL NOT BEAR THE COST OF THE SERVICE OF THE AGREEMENT. AT THE TIME OF HEARING THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE CBDT HAS ISSUED A CIRCULAR NO. 1/2015 DATED 13.1.2014 WHEREIN THEY HAVE CL ARIFIED THAT WHEREVER IN TERMS OF AGREEMENT/CONTRACT BETWEEN THE PAYER AND THE PAYEE COMPRISES SERVICE TAX COMPONENT IN THE AMOUNT PAYABLE TO RESIDENT, THE TAX SHALL BE DEDUCTED ON THE AMOUNT PAID AND PAYABLE WITHOUT INCLUDED SUCH SERVICE TAX COMPONENT. IN LIGHT OF THIS CIRCULAR THE MATTER CAN BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE IN LIGHT OF THIS CIRCULAR. THE LD. DR TOO SUBMITTED THAT THE MATTER CAN BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE ISSUE ON THE LIGHT OF THE BOARD CIRCULAR. 4. AFTER CONSIDERING THE RELEVANT FINDING GIVEN IN THE IMPUG N ED ORDER , WE FIND THAT ONLY THE ISSUE INVOLVED IS ADDITION ON ACCOUNT OF SERVICE TAX OF RS. 32,91,3654/ - DEPOSITED BY THE PAYER WHICH HAS BEEN TREATED AS INCOME OF THE ASSESSEE. THE DRP HAS TREATED THE ASSESSEE INCOME ON THE GROUND THAT FIRSTLY, IT IS NOT BORNE OUT FROM THE AGREEMENT THAT THE ASSESSEE WAS TO BEAR THE COST OF SERVICE TAX AND SECONDLY, IT IS THE RECIPIENT OF THE SERVICES WHICH WAS RESPONSI BLE FOR THE PAYMENT OF SUCH TAX. HOWEVER, THIS REASONING OF THE DRP NEEDS TO BE EXAMINED IN THE LIGHT OF THE CBDT CIRCULAR WHICH HAS CLARIFIED THAT NO TDS IS REQUIRED TO BE MADE ON THE SERVICE TAX COMPONENT. ACCORDINGLY WE ARE SETTING ASIDE THIS ISSUE TO T HE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE MATTER IN LIGHT OF THE CBDT CIRCULAR NO. 1/2015 DATED 13.1.2014. THIS GROUND OF THE ASSESSEE IN GROUND NO. 1 IS ALLOWED FOR STATISTICAL PURPOSES. PAGE 5 OF 8 5. THE SECOND ISSUE RELATES TO THE ADDITION OF RS. 1,05 ,03,694/ - ON PAYMENT OF SALARY U/S 40(A). THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 2,65,64,730/ - AS SALARY IN PROFIT AND LOSS ACCOUNT WHICH HAS BEEN CLAIMED SUCH AMOUNT AS AN EXPENSE. THE ASSESSEE IS REQUIRED TO GIVE DETAI LS OF TDS ON SUCH SALARY PAYMENT. THE ASSESSEE IN RESPONSE TO THE SHOW CAUSE NOTICE HAS STATED AS UNDER: - REASONS AS TO WHY SALARY EXPENSES NOT BE DISALLOWED FOR NON PROVISION OF TDS ON THE SAME. AS WE GAVE ALREADY MENTIONED IN OUR PREVIOUS REPLY ALSO, T HAT SINCE THE COMPANY HAS NO INDIAN OFFICE ADDRESS, IT COULD NOT APPLY FOR TAN, HENCE IT WAS NOT POSSIBLE TO FILE TDS RETURNS FOR THE TDS DEDUCTED ON SALARIES OF EMPLOYEES. PLEASE NOTE THAT THE COMPANY HAS DULY DEPOSITED THE TAX DUE ON THE SALARIES OF EMPL OYEES BY DEPOSITING THE TAX THROUGH CHALLANS IN THEIR PANS DIRECTLY AND PROPER INCOME TAX RETURNS FOR THESE EMPLOYEES HAVE ALSO BEEN FILED, COPIES OF ACKNOWLEDGEMENT HAS BEEN SUBMITTED WITH YOU. WE WOULD LIKE TO DRAW YOUR ATTENTION TOWARDS THE FAMOUS CASE LAW OF ELI LILY & CO. LTD., 2009, WHERE AT THE HON BLE SUPREME COURT HAS MENTIONED THAT THE TDS PROVISIONS ARE IN THE NATURE OF MACHINERY PROVISIONS WHICH ENABLES EASY COLLECTION AND RECOVERY OF TAX. THE SAID PROVISIONS ARE INDEPENDENT OF THE CHARGING PROV ISIONS WHICH ARE APPLICABLE TO THE RECIPIENT OF INCOME WHEREAS THE TDS PROVISIONS ARE APPLICABLE TO THE PAYER OF THE INCOME...' 6. THE LD. ASSESSING OFFICER REJECTED THE ASSESSEE S CONTENTION AND HELD THAT THE ASSESSEE WAS LIABLE TO DEDUCT THE TDS ON THE SALARY. BEFORE THE DRP THE ASSESSEE HAS SUBMITTED THAT TAX ISSUED ON THE SALARY PAYMENT HAS BEEN ULTIMATELY PAID BY THE ASSESSEE ON BEHALF OF EMPLOYEES AND SINCE THERE WAS NO PROVISION OF APPLYING TAN FOR THE FOREIGN ADDRESS, THEREFORE, THE ASSESSEE COULD NOT OBTAIN THE TAN. BUT TO APPLY WITH THE REQUIREMENT OF THE PAYMENT OF TAX OF SALARY PAGE 6 OF 8 INCOME ON BY THE EXPATRIATE EMPLOYEES, THE ASSESSEE HAS PAID TAX ON BEHALF OF THE EMPLOYEES INCLUDING THE AMOUNT RELATING TO GROSSING UP. THE ASSESSEE HAS SUBMITTED AN INCOME COMPUTATION IN RESPECT OF EACH EXPATRIATE EMPLOYEE TO JUSTIFY THAT NOT ONLY THE RELEVANT TAXES BUT ALSO THE MANDATORY INTEREST U/S 234C HAS BEEN PAID BY THE ASSESSEE COMPANY. FURTHER, IT WAS SUBMITTED THAT THE PROVISION OF SECTION 40(A) (III) PROVIDES THAT DISALLOWANCE CAN BE MADE ONLY IF TAX HAS NOT BEEN PAID ON THE INCOME CHARGEABLE TO TAX UNDER THE HEAD SALARY OR NO TAX HAS BEEN DEDUCTED , O NCE THE ASSESSEE HAS MADE THE ENTIRE PAYMENT TAX OF THE SALARY SO NO DISALLOWANCE HAS BEEN MADE. THE DRP NOTED THAT THE TAX LIABILITY ON THE SALARY WAS RS. 77,03,967/ - OUT OF WHICH THE ASSESSEE PAID TAXES OF RS. 46,57,912/ - BEFORE THE END OF F.Y. 2009 - 10 BY WAY OF ADVANCE TAX AND NET TAX PAYABLE OUTSTANDING WAS RS. 30,46,055. THUS, IN VIEW OF THE PROV ISION OF SECTION 192(3) THE ASSESSEE WAS TO PAY ENTIRE TAX TO GOVERNMENT ACCOUNT TO RS. 77,03,942/ - BEFORE REMITTING THE SAME EXPATRIATE EMPLOYEES. ACCORDINGLY, THE DISALLOWANCE WAS WORKED OUT TO RS. 1,05,03,694/ - INSTEAD OF RS. 2,65,64,730/ - MADE BY THE A SSESSING OFFICER. 7. BEFORE US THE LD. COUNSEL SUBMITTED THAT THE ENTIRE TAXES HAVE BEEN PAID INCLUDING THE AMOUNT AS MENTIONED BY THE DRP. ON THE OTHER HAND THE LEARNED CIT DR SUBMITTED THAT MATTER CAN BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICE R TO EXAMINE THE CONTENTION OF THE ASSESSEE AS TO WHETHER THE TAXES ON ENTIRE SALARY PAID/PAYABLE TO EXPATRIATE EMPLOYEES HAVE BEEN PAID OR NOT. 8. AFTER CONSIDERING THE AFORESAID SUBMISSIONS, WE ARE OF THE OPINION THAT THIS MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE PAGE 7 OF 8 ASSESSING OFFICER WHO SHALL EXAMINE AS TO WHETHER THE ASSESSEE HAD PAID THE TAXES ON THE SALARY AND ITS EXPATRIATE EMPLOYEES. THE ASSESSING OFFICER SHALL GIVEN AN OPPORTUNITY TO THE ASSESSEE TO EXPLAIN ITS CASE AND FURNISH ALL THE RELEVA NT DOCUMENTS IN SUPPORT OF ITS CLAIM THAT TAXES DUE ON THE SALARY HAS BEEN PAID. THUS GROUND NO. 2 IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. 9 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER P RONOUNCED IN THE OPEN COURT ON 0 8 . 0 8 .201 7. S D / - S D / - ( G.D. AGRAWAL ) (AMIT SHUKLA) (PRESIDENT , ITAT ) (JUDICIAL MEMBER) DATED: 0 8 . 0 8 .2017 NARENDER COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT (APPEALS) 5) DR: ITAT ASSISTANT REGISTRAR PAGE 8 OF 8 DATE DRAFT DICTATED ON 02 .0 8 .2017 DRAFT PLACED BEFORE AUTHOR 03 . 0 8 .2017 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 8 . 8 .2017 KEPT FOR PRONOUNCEMENT ON 8 . 8 .2017 FILE SENT TO THE BENCH CLERK 8 . 8 .2017 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.