M/s. McCANN ERICKSON (INDIA) PVT. LTD, New Delhi V. ACIT, New Delhi

ITA 2252/DEL/2016

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1720 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT KHAN
• Assessee Lawyers: SANJESH KUMAR JAWARANI
• Keywords: Double taxation relief; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Non-deduction of tax; TDS
• Section: 195; 9(1); 9(1); 9(1); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI D BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & DR.B.R.R.KUMAR, ACCOUNTANT MEMBER ITA NO.2252/DEL/2016 ASSESSMENT YEAR : 2008-09 MCCANN ERICKSON (INDIA) PVT.LTD., 204-2016, TOLSTOY MARG, NEW DELHI-110001. PAN-AAACT0835D VS ACIT, RANGE-6(1), NEW DELHI-110002. APPELLANT RESPONDENT APPELLANT BY SH. SANJESH KUMAR JAWARANI, CA RESPONDENT BY SH. FARHAT KHAN, SR. DR DATE OF HEARING 03.06.2021 DATE OF PRONOUNCEMENT 02 .0 7 .2021 ORDER PER KUL BHARAT, JM : THIS APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMEN T YEAR 2008-09 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-20, NEW DE LHI DATED 31.03.2016. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD.CIT APPEAL HAS ERRED IN DISALLOWANCE U/S 40(A)(I) OF TH E ACT. 1.2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT APPEAL HAS ERRED IN TREATING THE GLOBAL ACCOUNT COO RDINATION COST AS FEES FOR TECHNICAL SERVICES. 1.3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT APPEAL HAS ERRED IN NOT APPRECIATING THAT RETROSPEC TIVE AMENDMENT IN LAW ITA NO.2252/DEL/2016 2 | P A GE CANNOT CHARGE THE TAX WITHHOLDING LIABILITY WITH RE TROSPECTIVE EFFECT UNLESS SUCH SERVICES WERE RENDERED IN INDIA. 2. THE FACTS GIVING RISE TO THE PRESENT CASE OF THE ASSESSEE ARE THAT THE CASE OF THE ASSESSEE WAS RE-OPENED FOR ASSESSMENT AND TH E ASSESSMENT WAS FRAMED U/S 147 OF THE INCOME TAX ACT, 1961 (THE ACT) VID E ORDER DATED 26.03.2014. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OFFERED BY THE ASSESSEE REGARDING NON-A PPLICABILITY OF PROVISION FOR DEDUCTION OF TAX, THEREFORE, HE PROCEEDED TO MAKE A DDITION OF RS.57,38,948/- ON ACCOUNT OF NON-DEDUCTION OF TAX IN RESPECT OF GL OBAL ACCOUNT COORDINATION COST. 3. AGGRIEVED AGAINST THIS, THE ASSESSEE PREFERRED A PPEAL BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS AND PERUSED M ATERIAL AVAILABLE ON RECORD, DISMISSED THE APPEAL OF THE ASSESSEE. 4. AGGRIEVED AGAINST THIS, THE ASSESSEE IS IN APPEA L BEFORE THIS TRIBUNAL. 5. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBM ISSIONS MADE IN THE APPELLATE PROCEEDINGS. HE CONTENDED THE APPEAL AS AGAINST THE ORDER OF ASSESSING OFFICER WHO MADE DISALLOWANCE BY INVOKIN G THE PROVISION OF 40(A)(I) OF THE ACT ON ACCOUNT OF TREATMENT OF GLOBAL ACCOUN T COORDINATION COST OF RS.57,38,948/- AS PER PROVISIONS OF SECTION 195 REA D WITH EXPLANATION 2 OF SECTION 9(1)(VII)(B) OF THE ACT. HE CONTENDED THAT SO FAR AS THE PROVISION OF SECTION 9(1)(VIII) AND RELEVANT ARTICLES OF DTAA IS CONCERNED, NO TAX SHOULD BE DEDUCTED UNDER SECTION 195 OF THE ACT HENCE, NO DIS ALLOWANCE CAN BE MADE ITA NO.2252/DEL/2016 3 | P A GE UNDER SECTION 40(A)(I) OF THE ACT. HE FURTHER SUBM ITTED THAT LD.CIT(A) FAILED TO CONSIDER THAT RETROSPECTIVE AMENDMENT IN LAW CANNO T CHARGE THE TAX WITHHOLDING LIABILITY WITH RETROSPECTIVE EFFECT UNL ESS SUCH SERVICES WERE RENDERED IN INDIA. HE PLACED RELIANCE ON THE DECIS ION OF TRIBUNAL RENDERED IN THE CASE OF M/S. EURO RSCG WORLDWIDE INC. VIDE ITA NO.7094/MUM/ 2010 FOR ASSESSMENT YEAR 2010-11 WHEREIN IT WAS HELD THAT COORDINATION FEE WAS NOT TAXABLE ON THE GROUND THAT THE ASSESSEE COMPANY DID NOT HAVE PERMANENT ESTABLISHMENT IN INDIA. HE FURTHER PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF M/S. VIROLA INTERNATIONAL VIDE ITA NO.256/AGR/2013 FOR ASSESSMENT YEAR 2008-09 . HE FURTHER PLACED RELIANCE ON THE JUDGEMENT OF HIGH COURT OF KARNATAKA RENDERED IN THE CASE OF M/S. JINDAL THERMAL POWER COMPANY LTD. VIDE ITA NO.3022/2005 TO 3025/2005. 6. ON THE CONTRARY, LD. DR OPPOSED THESE SUBMISSION S AND SUPPORTED THE ORDER OF AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT LD.CIT(A) HAS DECIDED THE ISSUE IN QUESTION BY OBSERVING AS UNDER:- {4.3.1}. I HAVE CONSIDERED THE APPELLANT'S SUBMISS ION AND THE ASSESSMENT ORDER. FOLLOWING FACTS HAVE EMERGED; 1. THAT THE APPELLANT COMPANY IS ENGAGED IN THE BUS INESS IN THE ADVERTISING INDUSTRY 2. THAT THE APPELLANT COMPANY IS A SISTER COMPANY O F M/S THE MCCANN-ERICKSON MARKETING, INC. NEW YORK WITH WHOM THE ASSESSEE ITA NO.2252/DEL/2016 4 | P A GE COMPANY ENTERED INTO A MULTINATIONAL CLIENT COORDIN ATION SERVICE AGREEMENT IS PROVIDER OF THE FOLLOWING SERVICES TO THE ASSESSEE : I) FOSTERING AND DEVELOPING CREATIVITY II) NEW BUSINESS TARGETING ASSISTANCE III) PUBLIC RELATION SERVICES AND STRATEGIC PLANNIN G ASSISTANCE IV) MEDIA SUPPORT SERVICES V) FINANCIAL ADMINISTRATION SERVICES. HR MANAGEMENT VI) INFORMATION TECHNOLOGY AND BUSINESS SERVICES. 3. THAT DURING THE YEAR UNDER CONSIDERATION THE APP ELLANT COMPANY HAD PAID AN AMOUNT OF RS.57,38,948/ ON ACCO UNT OF GLOBAL ACCOUNT COORDINATION COST LIKE EARLIER ASSESSMENT Y EAR WITHOUT DEDUCTION OF TDS . 4. THAT THE A.O IS OF THE OPINION THAT THE TDS IS R EQUIRED TO BE DEDUCTED UNDER THE ACT. AND NON-DEDUCTION ATTRACTS PROVISION OF SECTION 40(A) OF THE ACT. {4.3.2]. I HAVE CONSIDERED THE ABOVEMENTIONED FACTS . THE APPELLANT HAD CITED VARIOUS JUDGMENT IN ITS FAVOUR. THE CRUX OF T HE APPELLANT'S ARGUMENT IS THAT THE NATURE OF PAYMENT DOES NOT ATTRACT PROV ISIONS OF SECTION 195 OF THE ACT AND THAT THE NATURE OF PAYMENT DOES NOT COM E UNDER' TECHNICAL SERVICES' UNDER SECTION 9 OF THE ACT. THEREFORE. TH E PROVISION OF SECTION 195 IS NOT ATTRACTED. HOWEVER, THE A.O HAS ALSO GIVEN A NUMBER OF JUDGMEN TS AND ALSO ANALYSED THE NATURE OF SERVICES RENDERED WHICH ENTA ILS THE PAYMENT ON ACCOUNT OF GLOBAL ACCOUNT CO-ORDINATION COST. I HAVE ALSO TAKEN INTO ACCOUNT THE RATIONALE OF HON 'BLE ITAT JUDGMENT IN THE APPELLANT'S OWN CASE ON SIMILAR ISS UE FOR A. Y:2007-08. I HAVE ALSO CONSIDERED THE FACT THAT THE SERVICES REN DERED BY THE PARENT ITA NO.2252/DEL/2016 5 | P A GE COMPANY DOES COME UNDER THE PURVIEW OF TECHNICAL SE RVICES IF WE LOOK AT THE MULTILATERAL AGREEMENT. THE RELEVANT PART ABOUT THE SCOPE THE ARRANGEMENTS AS PER AGREEMENT IS REPRODUCED IN THE EARLIER PARA. THEREFORE, THE PAYMENT COMES UNDER THE PURVIEW OF S ECTION 195 OF THE ACT PARTICULARLY AFTER INSERTION OF THE FOLLOWING PROVI SION WHICH IS APPLICABLE FROM THE RETROSPECTIVE DATE 01/04/1976. THE FINANCE ACT 2010 HAS INSERTED AN EXPLANATION TO THE SECTION W.E.F 01/04/1976 WHICH IS GIVEN BELOW: EXPLANATION.-FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB- SECTION (1) AND SHALL BE INCLUDED IN THE TOTAL INCO ME OF THE NONRESIDENT, WHETHER OR NOT,- (III) THE BUSINESS OR BUSINESS CONNECTION IN INDI A; OR (IV) THE NON-RESIDENT HAS RENDERED SERVICES IN IN DIA. I HAVE FURTHER CONSIDERED THE FOLLOWING POINTS; FEE FOR TECHNICAL SERVICES(FTS) IS DEFINED IN EXPLA NATION 2 TO SECTION 9(1) (VII) OF THE ACT TO MEAN 'ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SE RVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY/MINING OR LIKE PROJECT UNDERTAKEN BY THE R ECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIEN T CHARGEABLE UNDER HEAD 'SALARIES' . AS PER ARTICLE 12(A) OF THE DTAA, THE TERM FTS MEAN S PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE REN DERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROV ISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES: ITA NO.2252/DEL/2016 6 | P A GE A) ARE ANCILLARY AND SUBSIDIARY .... ; OR B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES OR CONSISTS OF THE DEVELOPMENT AND TRANSF ER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THEREFORE, TAKING INTO ACCOUNT FACTUAL MATRIX OF TH E CASE, IT IS MY CONSIDERED VIEW THAT THE A.O IS JUSTIFIED IN DISALL OWING THE PAYMENT AS IT HAD ATTRACTED PROVISION OF SECTION 195 OF THE ACT W HICH THE APPELLANT COMPANY HAD FAILED TO DEDUCT TAX AT SOURCE. ACCORDI NGLY, THE DISALLOWANCE OF RS.57,38,948/- ON ACCOUNT OF GLOBAL ACCOUNT COOR DINATION COST UNDER SECTION 4O(A)(I) OF THE ACT IS UPHELD. APPELLANT'S GROUND OF APPEAL IS DISMISSED. 8. FROM THE ABOVE, WE FIND THAT THE LD.CIT(A) HAS R ELIED UPON THE AMENDMENT IN THE STATUTE. HOWEVER, THE CO-ORDINATE BENCH OF THIS TRIBUNAL AFTER HAVING CONSIDERED THE AMENDMENT HELD IN THE C ASE OF ASHAPURA MINICHEM LTD. VS ADIT 131 TTJ 291 THAT TILL 08.05.2010, THE PREVAILING LEGAL POSITION WAS THAT UNLESS THE TECHNICAL SERVICES WERE RENDERED IN INDIA, THE FEES FOR SUCH SERVICES COULD NOT BE BROUGHT TO TAX UNDER SECTION 9(1)(VII). THE LAW AMENDED WAS UNDOUBTEDLY RETROSPECTIVE IN NATURE BUT SO FAR AS TAX WITHHOLDING LIABILITY IS CONCERNED, IT DEPENDS ON THE LAW AS IT EXISTED AT T HE POINT OF TIME WHEN PAYMENTS, FROM WHICH TAXES OUGHT TO HAVE BEEN WITHH ELD, WERE MADE. THE TAX- DEDUCTOR CANNOT BE EXPECTED TO HAVE CLAIRVOYANCE OF KNOWING HOW THE LAW WILL CHANGE IN FUTURE. A RETROSPECTIVE AMENDMENT IN LAW DOES CHANGE THE TAX LIABILITY IN RESPECT OF AN INCOME, WITH RETROSPECTIVE EFFECT, BUT IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY, WITH RETROSPECTIVE EFFECT. T HE TAX WITHHOLDING OBLIGATIONS FROM PAYMENTS TO NON-RESIDENTS, AS SET OUT IN SECTI ON 195, REQUIRE THAT THE ITA NO.2252/DEL/2016 7 | P A GE PERSON MAKING THE PAYMENT 'AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, D EDUCT INCOME -TAX THEREON AT THE RATES IN FORCE'. WHEN THESE OBLIGATIONS ARE TO BE DISCHARGED AT THE POINT OF TIME WHEN PAYMENT IS MADE OR CREDITED, WHICHEVER IS EARLIER, SUCH OBLIGATIONS CAN ONLY BE DISCHARGED IN THE LIGHT OF THE LAW AS I T STANDS THAT POINT OF TIME. 9. WE ARE IN AGREEMENT WITH THE VIEW EXPRESSED BY T HE CO-ORDINATE BENCH. THEREFORE, WE HOLD THAT THE ASSESSING OFFICER WAS N OT JUSTIFIED IN FASTENING THE LIABILITY OF TAX DEDUCTION BY RELYING ON THE AMENDM ENT WHICH WAS INSERTED IN THE YEAR 2010 WITH RETROSPECTIVE EFFECT FROM 01.04. 1976. THE ASSESSMENT YEAR IN QUESTION IS 2008-09, THEREFORE, PROVISION OF SEC TION 40(A)(I) OF THE ACT OUGHT NOT TO HAVE BEEN INVOKED IN THE CASE OF THE ASSESS EE. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. THUS, GRO UNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ABOVE DECISION WAS PRONOUNCED ON CONCLUSION OF VIR TUAL HEARING IN THE PRESENCE OF BOTH THE PARTIES ON 02 ND JULY, 2021. SD/- SD/- (DR.B.R.R.KUMAR) (KUL B HARAT) ACCOUNTANT MEMBER JUDICIAL MEMB ER * AMIT KUMAR * ITA NO.2252/DEL/2016 8 | P A GE COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI