Appeal Details
Counselvise Citation
[2013] 140 COUNSELVISE.COM (IT) 72294 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-10-2013
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Assessment Year
2010-2011
Appeal Filed On
22-10-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.2040/PN/2012 A.Y. 2010-11 DEEPAK FERTILIZERS AND PETROCHEMICALS CORPORATION LIMITED, 10-B, BAKHTAWAR, NARIMAN POINT, MUMBAI 400021 PAN: AAACD1388D APPELLANT VS. DDIT, (INT. TAX)-I, PUNE RESPONDENT APPELLANT BY : SHRI R.D. O MKAR RESPONDENT BY : SHRI WAL IMBE DATE OF HEARING: 29.10.2013 DATE OF ORDER : 29.10.2013 ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-IT/TP [(IN SHORT CIT(A)- IT/TP], PUNE, DATED 07-08-2012 FOR A.Y. 2010-11 ON THE FOLLOWING GROUND: 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE AMOUNT OF 2,10,000/- REMITTED TO GPN ENGINEERING & PROCESS, FRANCE (GPN FOR SHORT) TOWARDS PART OF THE TOTAL LU MP SUM PRICE OF 3,00,000/- ON NET OF TAX BASIS FOR ACQUISITION OF PROCESS DESIGN DOCUMENTATION CALLED BASIC 2 ENGINEERING PACKAGE ON OUTRIGHT PURCHASE BASIS FOR AMMONIUM NITRATE PRILL PRODUCTION PURSUANT TO THE AGREEMENT ENTERED INTO WITH GPN WAS FEES FOR TECHNI CAL SERVICES AND THEREFORE LIABLE TO WITHHOLDING TAX IN INDIA. YOUR APPELLANT AFTER HAVING BORNE THE TAX AND PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT DENIES ITS LIABILI TY TO DEDUCT TAX ON THE SAID AMOUNT. IT IS PRAYED THAT T HE APPELLANT BE DECLARED TO BE NOT LIABLE TO MAKE SUCH DEDUCTION OF TAX ON THE SAID AMOUNT OF REMITTANCE A ND THE TAX PAID BY IT BE DIRECTED TO BE REFUNDED TO IT . 2. THE ASSESSEE IS A DOMESTIC COMPANY ENGAGED IN TH E BUSINESS OF MANUFACTURE AND SALE OF CHEMICALS, FERT ILIZERS. THE ASSESSEE EMBARKED UPON A PROJECT TO PRODUCE AMMONIU M NITRATE PRILL AT ITS FACTORY LOCATED AT TALOJA AS A PART OF ITS EXPANSION PROJECT OF ITS EXISTING BUSINESS. THE ASSESSEE ENT ERED INTO AN AGREEMENT WITH GPN, FRANCE FOR THIS PURPOSE. THE A GREEMENT DATED 09-12-2008 BETWEEN ASSESSEE AND GPN, FRANCE W AS EXECUTED IN FRANCE ON 26-01-2009. THIS AGREEMENT W AS IN TWO PARTS. PART I OF THE AGREEMENT DEALS WITH LICENSE AND KNOW-HOW WHEREAS PART II DEALS WITH THE SPECIFIC CONDITIONS. UNDER PART I OF THE SAID AGREEMENT, GPN, FRANCE HAD AGREED TO GRANT OF NON- TRANSFERRABLE AND NON-INCLUSIVE LICENSE TO USE TECH NICAL INFORMATION AND UNDER PART II FOR PROCESS FOR PRODU CTION OF AMMONIUM NITRATE PRILL. 3. THE PAYMENT OF CONSIDERATION TO GPN, FRANCE WAS AGREED TO BE MADE ON NET OF TAX BASIS UNDER ARTICLE 4.2.5 TA XES ON PAGE 13 OF THE SAID AGREEMENT. THE ASSESSEE HAS REMITTE D AN AMOUNT OF 2,10,000 BEING 70% OF THE TOTAL 3,00,000 AS STATED TOWARDS CONSIDERATION FOR SAID PROCESS BOOK PACKAGE AND PAI D TAX RS.15,20,644/- ON 30-04-2009. 3 4. THE STAND OF THE ASSESSEE HAS BEEN THAT AMOUNT R EMITTED BY IT IS NOT TAXABLE TO CHARGE AND REQUESTED TO GIVE R EFUND OF TAX DEDUCTED AND DEPOSITED BY ASSESSEE. THE ASSESSING OFFICER OBSERVED THAT OUT OF TOTAL PAYMENT OF 6,00,000, A SSESSEE PAID 3,00,000 TOWARDS LICENSE FEE, WHEREAS REMAINING 3 ,00,000 WERE PAYABLE TOWARDS BASIC ENGINEERING COST AND TECHNICA L ASSISTANCE FOR DETAILED ENGINEERING AS MENTIONED IN ARTICLE 4.1.2.B OF SAID AGREEMENT. THE GPN, FRANCE HAS PRO VIDED PROCESS ENGINEERING AND TECHNICAL SUPERVISORY AND A SSISTANCE SERVICES. THE ASSISTANCE SERVICES AS DESCRIBED IN A RTICLE 2 ARE TECHNICAL ASSISTANCE FOR DETAILED ENGINEERING ASSIS TANCE FOR ERECTION AND MECHANICAL COMPLETION, THE ASSISTANCE FOR START UP TEAM AND PERFORMANCE GUARANTEE AND PERSONNEL TRAINI NG. FURTHER, IT WAS OBSERVED ASSESSEE HAS NOT PURCHASED FROM PLANT GPN, FRANCE. THE ASSESSEE WAS TO ERECT AND COMMISS ION AMMONIUM NITRATE PRILL PLANT USING TECHNICAL ASSIST ANCE FOR ERECTION FOR ASSEMBLING AND PERFORMANCE OF THE PLAN T. THE PAYMENT OF 6,00,000 IS IN TWO COMPONENTS 3,00,0 00 FOR LICENSE FEE AND 3,00,000 FOR BASIC ENGINEERING CO ST AND TECHNICAL ASSISTANCE FOR DETAILED ENGINEERING. ACC ORDING TO REVENUE AUTHORITIES PAYMENT FOR BASIC ENGINEERING C OST AND TECHNICAL ASSISTANCE WAS NOT TOWARDS PURCHASE OF KN OW-HOW AS PATENT AND OTHER INTELLECTUAL RIGHTS BELONGING TO G PN, FRANCE CONTINUED TO REMAIN WITH GPN, FRANCE. MOREOVER, GP N, FRANCE HAS ALSO AGREED TO ASSIST FOR ERECTION AND MECHANIC AL COMPILATION OF PLANT. THE GPN, FRANCE AGREED TO SEND QUALIFIED PERSONS AT THE TIME OF STARTING OF PLANT AND HAS AGREED TO PRO VIDE TRAINING TO PERSONNEL OF ASSESSEE. THE DOCUMENTS, DRAWINGS, DE SIGN PROVIDED BY GPN, FRANCE WAS TO ENABLE THE ASSESSEE AND GPN, FRANCES ENGINEERS TO SUCCESSFULLY ERECT THE PLANT AND RUN MANUFACTURING PROCESS. THEREFORE, THESE ITEMS WERE NECESSARY FOR RENDERING OF ASSISTANCE SERVICES OF PLANT ERECT ION AND FOR GUARANTEEING PLANT PROCESS PERFORMANCE AS WELL. TH EREFORE, THIS 4 AGREEMENT COULD NOT BE CONSIDERED AS COMPOSITE AGRE EMENT ALONG WITH PURCHASE OF PLANT. IN VIEW OF ABOVE DISCUSSIO N, PAYMENT WAS TO BE CATEGORIZED AS FEES FOR TECHNICAL SERVIC ES AND CONSULTANCY SERVICES U/S. 9(1)(VII). AS IN THIS CASE PAYMENT WAS TAXABLE U/S. 9(1)(VII) AS SERVICES WERE RENDERED IN INDIA. ACCORDINGLY, IT WAS HELD THAT PART PAYMENT IS TAXAB LE AND FEE FOR TECHNICAL AND CONSULTANCY WAS UNDER INCOME TAX ACT AND UNDER RELEVANT ARTICLE OF DTAA. IT WAS ALSO OBSERVED THA T ASSESSEE HAS NOT PREFERRED AN APPEAL AGAINST TDS MADE ON PAYMENT OF REMAINING 80,000 OUT OF 3,00,000. ACCORDINGLY, IT WAS HELD BY CIT(A) THAT ASSESSEE HAS RIGHTLY DEDUCTED TAX ON PAYMENT OF 2,10,000 MADE TO GPN, FRANCE AND NO REFUND WAS DUE. 5. BEFORE US LEARNED AUTHORIZED REPRESENTATIVE OF A SSESSEE SUBMITTED THAT CIT(A) ERRED IN HOLDING THAT AN AMOU NT OF 2,10,000 REMITTED TO GPN, FRANCE TOWARDS PART OF TO TAL LUMP SUM PRICE OF 3,00,000 ON NET OF TAX BASIS FOR ACQUISI TION OF PROCESS DESIGN DOCUMENTATION CALLED BASIC ENGINEERING PACKA GE ON OUTRIGHT PURCHASE BASIS FOR AMMONIUM NITRATE PRILL PRODUCTION PURSUANT TO AGREEMENT ENTERED INTO WITH GPN, FRANCE , FEE FOR TECHNICAL SERVICES THEREFORE LIABLE TO WITHHOLDING TAX IN INDIA. IT WAS PRAYED THAT ASSESSEE BE DECLARED TO BE NOT LIAB LE TO MAKE SUCH DEDUCTION OF TAX ON SUCH AMOUNT OF REMITTANCE AND TAX PAID BY IT DIRECTED TO BE REFUNDED TO IT. IN THIS REGARD, ASSESSEE DREW ATTENTION TO VARIOUS ARTICLES OF AGREEMENT DIS CUSSED ABOVE. LEARNED AUTHORIZED REPRESENTATIVE OF ASSESSEE ALSO DREW OUR ATTENTION TO THE ORDER OF ITAT, PUNE A BENCH IN C ASE OF ITO VS. M/S. ROYLE EXTRUSION SYSTEMS LTD. IN ITA NO.591/PN/ 94 AND OTHERS, WHEREIN VIDE PARA 3, THE TRIBUNAL IN ITS FA CTS AND CIRCUMSTANCES DISMISSED THE REVENUES APPEAL BY OBS ERVING AS UNDER: 5 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY. THE SUM AND SUBSTANCE OF THE DISPUTE REVOLVES AROUN D THE LIABILITY OF THE ASSESSEE TO DEDUCT TAX AT SOURCE O N REMITTANCE OF US$ 120,000 TO FOREIGN COLLABORATOR. AS PER THE ASSESSEE, THE STATED REMITTANCE WAS IN TERMS OF A FOREIGN COLLABORATION AGREEMENT WITH FOREIGN COLLABORATOR A ND THE SAID CONSIDERATION RELATED TO THE SUPPLY OF DRAWING S, DESIGNS, AND DETAILED ENGINEERING SERVICES FOR EREC TION OF PLANT FOR MANUFACTURE OF LICENSED PRODUCTS. THE INC OME-TAX OFFICER, TDS-2 PUNE, HOWEVER, CONSIDERED THE SAME A S IN THE NATURE OF ROYALTY/TECHNICAL FEES AND ALSO OBSERVED THAT ASSESSEES PLEA THAT PAYMENT RELATES TO THE ACQUISITION OF TECHNICAL KNOW HOW FOR THE PURCHASE OF MACHINERY IS NOT CORRECT----- . ON THE CONTRARY, THE COMMISSIONER OF INCOME- TAX (APPEALS) HAS ACCEPTED THE PLEA OF THE ASSESSEE . WE HAVE ALSO PERUSED THE TECHNICAL-CUM-FINANCIAL COLLA BORATION AGREEMENT DATED 23.12.1991 AND THE SUPPLEMENTARY AGREEMENTS DATED 8.4.1992 AND 9.4.1992 AND FIND THA T THE STATED REMITTANCE IS PART OF A CONSIDERATION FOR SU PPLY OF TECHNICAL KNOW HOW FOR ERECTION OF PLANT FOR MANUFA CTURE OF LICENSED PRODUCTS BY WAY OF SUPPLY OF DRAWINGS, DES IGNS, AND DETAILED ENGINEERING SERVICES, AS BEING CONTEND ED BY THE ASSESSEE. FACTUALLY SPEAKING, WE FIND NO SUPPOR T OR MATERIAL TO AFFIRM THE STAND OF THE ASSESSING OFFIC ER THAT THE PAYMENT DOES NOT RELATE TO THE ACQUISITION OF TECHN ICAL KNOW-HOW FOR ERECTION OF PLANT/MACHINERY. 11. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTAT IVE HAS POINTED OUT THAT THE BREAK UP OF THE TOTAL CONS IDERATION OF US$ 360,000 STATED IN THE INITIAL AGREEMENT DATE D 23.12.1991 HAS BEEN SEGREGATED IN THE SUPPLEMENTARY AGREEMENT MERELY TO TAKE THE BENEFIT OF A JUDGMENT OF THE 6 HONBLE SUPREME COURT IN THE CASE OF SCIENTIFIC ENGINEERING HOUSE P. LTD. (SUPRA). THE ASSESSEE HA D PLEADED THAT THE IMPUGNED PORTION OF THE CONSIDERAT ION IS FOR THE SUPPLY OF DRAWINGS, DESIGNS AND DETAILED EN GINEERING SERVICES FOR THE ERECTION OF THE PLANT FOR THE MA NUFACTURE OF THE LICENSED PRODUCTS AND, THEREFORE, THE SAME CONSTITUTES A PLANT AND IN TERMS THEREOF NO INCOM E ACCRUES IN INDIA TO THE FOREIGN COLLABORATOR. THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT IN ORDER TO AVAIL SUCH BENEFIT, THE CONSIDERATION HAS BEEN BIFU RCATED IN THE SUPPLEMENTARY AGREEMENT. WE FIND THAT ALL THE THREE AGREEMENTS, NAMELY, THE INITIAL AGREEMENT DATED 23. 12.1991 AND THE SUPPLEMENTARY AGREEMENTS DATED 8.4.1992 AND 9.4.1992 WERE SUBJECT MATTER OF EXAMINATION BY THE INCOME- TAX OFFICER AS WELL AS THE COMMISSIONER OF INCOME-T AX (APPEALS). NO SUCH ALLEGATION, AS IS BEING MADE OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, IS FOUND IN AN Y OF THE ORDERS OF THE AUTHORITIES BELOW. THE LEARNED DEPART MENTAL REPRESENTATIVE HAS NOT REFERRED TO ANY INCRIMINATIN G MATERIAL OR EVIDENCE TO DEMONSTRATE THAT THE BIFURC ATION MADE OUT IN THE SUPPLEMENTARY AGREEMENTS WAS WITH A NY MALA FIDE INTENTIONS. IN VIEW OF THE AFORESAID AND CONSIDERING THAT THE PLEA OF THE LEARNED DEPARTMENT AL REPRESENTATIVE IS BASED ON MERE BALD ASSERTION, WE DO NOT FIND ANY MERIT IN HIS PLEA AND THUS FIND NO REASONS TO REMIT THE MATTER BACK TO THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR ADJUDICATION AFRESH. 6. NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE WITH REGARD TO DECISION OF M/S. ROYLE EXTRU SION SYSTEMS LTD. (SUPRA). FACTS BEING SIMILAR, SO FOLLOWING SA ME REASONING WE HOLD THAT CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT AN AMOUNT OF 2,10,000 REMITTED TO GPN ENGINEERING AND PROCESS, F RANCE AS 7 PART OF TOTAL LUMP SUM PRICE OF 3,00,000 ON NET O F TAX BASIS FOR ACQUISITION OF PROCESS, DESIGN, DOCUMENTATION CALLE D BASIC ENGINEERING PACKAGE ON OUTRIGHT PURCHASE BASIS FOR AMMONIUM NITRATE PRILL PRODUCTION PURSUANT TO AGREEMENT ENTE RED INTO WITH GPN FRANCE WAS FEE FOR TECHNICAL SERVICE, THEREFORE , LIABLE TO WITHHOLD TAX IN INDIA. IN VIEW OF ABOVE, WE HOLD T HAT ASSESSEE IS NOT LIABLE TO MAKE SUCH PAYMENT ON SUCH DEDUCTION O F TAX ON SAID AMOUNT OF REMITTANCE. ASSESSING OFFICER IS DI RECTED ACCORDINGLY. AS A RESULT, APPEAL FILED BY ASSESSEE IS ALLOWED AS INDICATED ABOVE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON THE DAY OF 29 TH OCTOBER 2013. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 29 TH OCTOBER 2013 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT(A)-IT/TP, PUNE 4) THE CIT-IT/TP, PUNE 5) THE DR, B BENCH, I.T.A.T., PUNE. 6) GUARD FILE //TRUE COPY// BY ORDER SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE
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