Tag Corporation, CHENNAI V. DCIT, Tambaram

ITA 2194/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8819 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-05-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 23-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Double taxation relief; Permanent establishment
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C BENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NOS.2192 TO 2194/MDS/2015 ( / ASSESSMENT YEARS: 2010-11 TO 2012-13) M/S. TAG CORPORATION, 91, THIRUNEERMALAI ROAD, CHROMPET, CHENNAI-600 044. VS THE DEPUTY COMMISSIONER OF INCOME TAX, TAMBARAM RANGE, TAMBARAM, CHENNAI-600 045. PAN: AAAFT1842P ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.G.SEETHARAMAN, C.A. /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 3 RD MAY, 2016 / DATE OF PRONOUNCEMENT : 15 TH JULY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE THREE APPEALS ARE FILED BY THE ASSESSEE AGGRIEVED BY THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-10, CHENNAI DATED 14.09.2015 & 21.09.2015 IN ITA.NOS. 38, 45 & 11 /2013-14 / 2014- 15 / 2015-16/CIT(A)-10 PASSED UNDER SECTION 143(3) R.W.S . 250(6) OF THE ACT. 2 ITA NO.2192 TO 2194/MDS/2015 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEALS AS WELL AS ADDITIONAL GROUNDS, HOWEVER, THE CRUX OF THE COMMON ISSUE IN ALL THESE THREE APPEALS IS TH AT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN SUSTAINING DISALLOWANCE OF `88,28,595/-, `71,46,160 /- `95,20,080/- FOR THE ASSESSMENT YEARS 2010-11, 2011 -12 & 2012-13 RESPECTIVELY MADE BY THE LEARNED ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTIO N OF TDS ON THE PAYMENTS MADE TOWARDS TESTING CHARGES TO TH E FOREIGN ENTITY. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING AND SUPPLY OF HARDWARE AND ACCESSORIES FOR EXTRA HIGH VOLTAGE TRA NSMISSION LINES FILED ITS RETURNS OF INCOME FOR THE ASSESSMEN T YEARS 2010-11 TO 2012-13. DURING THE SCRUTINY PROCEEDINGS , THE LEARNED ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED TESTING CHARGES PAID FOR `88,28,595/-, `71, 46,160/- `95,20,080/- FOR THE ASSESSMENT YEARS 2010-11, 2011 -12 & 2012-13 RESPECTIVELY AS EXPENDITURE AND DEBITED THE SAME TO THE PROFIT AND LOSS ACCOUNT WITHOUT DEDUCTING TAX A T SOURCE. 3 ITA NO.2192 TO 2194/MDS/2015 ON QUERY, THE ASSESSEE REPLIED BY STATING THAT THE PROVISIONS OF SECTION 195 WILL NOT BE APPLICABLE IN THE CASE O F THE ASSESSEE BECAUSE AS PER DTAA WITH CANADA, THE BUSIN ESS INCOME EARNED IN INDIA CAN BE TAXED ONLY IF THE CAN ADIAN ENTERPRISE HAVE ANY PERMANENT ESTABLISHMENT IN INDI A AND IN THE PRESENT CASE THE CANADIAN ENTITY DO NOT HAVE AN Y PERMANENT ESTABLISHMENT IN INDIA. HOWEVER, THE LEAR NED ASSESSING OFFICER OPINED THAT SUCH PAYMENTS WILL FA LL UNDER THE AMBIT OF ROYALTY / TECHNICAL FEES WHICH WILL BE TAXABLE IN INDIA AS PER THE TREATY AND THEREFORE HE WAS OF THE VIEW THAT THE PROVISIONS OF TAX DEDUCTED AT SOURCE WILL BE AP PLICABLE. ACCORDINGLY HE INVOKED THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT AND DISALLOWED THE TESTING CHARGES PAID TO THE FOREIGN ENTITY WITHOUT DEDUCTING TAX AT SOURCE. 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) ALSO HELD THAT THE TESTING CHARGES PAID B Y THE ASSESSEE TO THE CANADIAN ENTITY WILL FALL UNDER THE HEAD FEE FOR TECHNICAL SERVICES AS PER SECTION 9(1)(VII) OF THE ACT AND THEREFORE ACCORDING TO ARTICLE 12 OF DTAA ENTERED B ETWEEN INDIA AND CANADA SUCH INCOME WILL BE TAXABLE IN IND IA AND 4 ITA NO.2192 TO 2194/MDS/2015 HENCE PROVISIONS OF SECTION 195 OF THE ACT WILL BE APPLICABLE. THEREFORE HE CONFIRMED THE ORDER OF THE LD.A.O. 5. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE FOREIGN ENTITY WAS ONLY TESTING THE PRODUCTS MANUFACTURED BY THE ASSESSEE COMPANY IN THEIR DESIG NATE LABORATORY IN CANADA. PAYMENT MADE FOR SERVICES REN DERED IN THE NATURE OF TESTING THE PRODUCTS MANUFACTURED BY THE ASSESSEE CANNOT BE TREATED AS PAYMENT FOR ROYALTY O R PAYMENT TOWARDS TECHNICAL SERVICES. HENCE, IT WAS A RGUED THAT THE PROVISIONS OF TAX DEDUCTED AT SOURCE WILL NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. THEREFORE, IT WAS PLEADED THAT THE DISALLOWANCE MADE BY THE REVENUE I NVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT MAY BE DELETED. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND RELIED IN THE ORDERS OF THE REVENUE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE WE FIND THAT THE FOREIGN ENTITY HAS ONLY R ENDERED THE SERVICE OF TESTING THE PRODUCTS MANUFACTURED BY THE 5 ITA NO.2192 TO 2194/MDS/2015 ASSESSEE. WHILE DOING SO, THEY DID NOT MAKE AVAILAB LE ANY TECHNOLOGY TO THE ASSESSEE AND ALSO THERE IS A TREA TY BETWEEN INDIA AND CANADA. THEREFORE, THE SERVICE R ENDERED BY THE ASSESSEE CANNOT BE SAID TO BE TECHNICAL SERV ICE AND PAYMENT MADE FOR THE SAME WILL NOT AMOUNT TO PAYMEN TS MADE FOR FEES FOR TECHNICAL SERVICE. THE PAYMENT M ADE BY THE ASSESSEE WILL NOT AMOUNT TO PAYMENT TOWARDS ROY ALTY BECAUSE AS HELD BY THE JURISDICTIONAL MADRAS HIGH C OURT IN THE CASE OF CIT VS. NEYVELI LIGNITE CORPORATION REP ORTED IN 243 ITR 459, ROYALTY CONNOTES TO THE EXCLUSIVE RI GHT OVER A THING FOR ALLOWING ANOTHER TO MAKE USE OF THAT THIN G WHICH MAY BE EITHER PHYSICAL OR INTELLECTUAL PROPERTY OR THING. HENCE, IN THE CASE OF THE ASSESSEE THE PROVISIONS O F TDS WILL NOT APPLY AND THEREFORE THE PROVISIONS OF SECTION 4 0(A)(IA) OF THE ACT CANNOT BE INVOKED. FOR THE ABOVE STATED REA SONS, WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELE TE THE ADDITION OF `88,28,595/-, `71,46,160/- `95,20,080/ - MADE FOR THE ASSESSMENT YEARS 2010-11, 2011-12 & 2012-13 RESPECTIVELY BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 6 ITA NO.2192 TO 2194/MDS/2015 8. IN THE RESULT, ALL THE THREE APPEALS OF THE ASSE SSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 15 TH JULY, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.MOHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 15 TH JULY, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF