UPS SCS (ASIA) LTD, MUMBAI V. DCIT (IT) 4(3)(1), MUMBAI

ITA 2291/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0832 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 31-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Services rendered outside India; Permanent establishment; Question of law
• Section: 143(3); 5(2); 40(a)(ia); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.2291/MUM/2017 ASSESSMENT YEAR : 2012-13 UPS SCS (ASIA) LTD., C/O BSR & ASSOCIATES LLP, LODHA EXCELUS APOLLO MILLS COMPOUND, N M JOSHI MARG, MAHALAXMI, MUMBAI 400 011 PAN AAACU8509M VS. DCIT (IT) 4(3)(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI PURUSHOTTAM TRIPURI DATE OF HEARING : 2 0 . 11 .201 8 DATE OF PRONOUNCEMENT : 30 .11 .201 8 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER DATED 03.01.2017 PASSED U/S. 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2012-13, IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL -2 (DRP), MUMBAI. 2. THE ISSUES RAISED IN THE PRESENT APPEAL PERTAIN TO THE DECISION OF THE DEPARTMENTAL AUTHORITIES IN HOLDING THAT THE ASSESS EE HAS BUSINESS CONNECTION IN INDIA U/S. 9(1)(I) OF THE INCOME TAX ACT, AND, H ENCE, THE PROFITS ATTRIBUTABLE TO SUCH ACTIVITIES IS TAXABLE IN INDIA. ITA NO.2291/MUM/2017 UPS SCS (ASIA) LTD. 2 3. BRIEFLY, FACTS ARE, THE ASSESSEE, A TAX RESIDENT OF HONG KONG, IS ENGAGED IN THE BUSINESS OF PROVISION OF SUPPLY CHAI N MANAGEMENT INCLUDING THE PROVISION OF FREIGHT FORWARDING AND LOGISTICS S ERVICES. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN O F INCOME ON 29.11.2012 DECLARING INCOME OF ` 1,04,730/-. IN THE COURSE OF ASSESSMENT PROCEEDIN GS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD ENTERED INTO A REGIONAL TRANSPORTATION SERVICES AGREEMENT WITH UPS SCS (IND IA) PVT. LTD. (USIPL), AN INDIAN COMPANY, W.E.F. 01.04.2007, FOR PROVIDING FREIGHT AND LOGISTICS SERVICES TO EACH OTHER. UNDER THE SAID AGREEMENT, THE ASSESSEE ARRANGES TO PERFORM INTERNATIONAL FREIGHT TRANSPORTATION THROUG H THE OCEAN LINERS/AIRLINERS AND PROVIDES OVERSEAS SUPPORT SERVICES TO ITS INDIA N COMPANIES, WHICH PERFORMS FREIGHT AND LOGISTIC SERVICES IN INDIA TO ITS INDIAN CUSTOMERS. FROM THE TERMS OF THE AGREEMENT, THE ASSESSING OFFICER F OUND THAT THE INDIAN COMPANY IS REMUNERATED AT COST PLUS 5.5% FOR LOCAL SERVICES RENDERED IN INDIA. IN SO FAR AS THE SERVICES RENDERED OUTSIDE INDIA IS CONCERNED, THE TRANSPORTATION FEE PAYABLE BY INDIAN COMPANY IS WOR KED OUT AFTER DEDUCTING THE OPERATING COSTS INCURRED BY USIPL PLUS 5.5% OF THE OPERATING COST. THE ASSESSING OFFICER ALSO OBSERVED THAT AS PER THE TER MS OF THE AGREEMENT, THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE INDIAN CO MPANY SHALL THAT BE OF AN INDEPENDENT CONTRACTOR AND NOTHING IN THE AGREEMENT SHALL BE CONSTRUED TO CREATE A PARTNERSHIP, JOINT VENTURE, AGENCY, EMPLOY ER/EMPLOYEE, OR SIMILAR RELATIONSHIP BETWEEN THE PARTIES. AFTER GOING THRO UGH THE TERMS OF ITA NO.2291/MUM/2017 UPS SCS (ASIA) LTD. 3 AGREEMENT, THE ASSESSING OFFICER CALLED UPON THE AS SESSEE TO EXPLAIN AS TO WHY THE ADDITION MADE IN EARLIER YEAR I.E. A.Y. 201 1-12 TREATING USIPL AS A BUSINESS CONNECTION OF THE ASSESSEE IN INDIA U/S. 9 (1)(I) OF THE ACT SHOULD NOT BE MADE IN THE IMPUGNED ASSESSMENT YEAR AS WELL. T HOUGH THE ASSESSEE THROUGH A DETAILED WRITTEN SUBMISSIONS FILED BEFORE THE ASSESSING OFFICER OBJECTED TO THE PROPOSED ADDITION, HOWEVER, THE ASS ESSING OFFICER REJECTING THE EXPLANATION OF THE ASSESSEE TREATED THE INDIAN COMPANY AS A BUSINESS CONNECTION OF THE ASSESSEE IN INDIA AND PROCEEDED T O TAX THE PROFIT ATTRIBUTABLE TO THE BUSINESS IN INDIA AS PER SECTIO N 9(1)(I) OF THE ACT. IN THE SAID PROCESS, THE ASSESSING OFFICER ON ESTIMATE BAS IS HELD THAT 55% OF THE WORK DONE IS IN THE COUNTRY OF ORIGIN, 22.5% IN THE COUNTRY OF TRANSHIPMENT AND 22.5% IN THE COUNTRY OF DESTINATION. BY APPLYI NG THE AFORESAID METHODOLOGY, THE ASSESSING OFFICER HELD THAT THE RE VENUE OUT OF THE OPERATIONS IN INDIA HAS TO BE TAKEN AT 55% IN RESPE CT OF TOTAL DESTINATION FEES FOR OUTBOUND CONSIGNMENT AND 22.5% IN RESPECT OF IN BOUND CONSIGNMENTS. FURTHER, THE ASSESSING OFFICER HELD THAT SINCE THE ASSESSEE IS HAVING BUSINESS CONNECTION IN INDIA, IT IS TO BE TAXED ON NET PROFI T ATTRIBUTABLE TO THE BUSINESS CONNECTION, WHICH IN OTHER WORDS MEAN THAT THE ASSE SSEE MUST BE DEEMED TO HAVE BEEN ALLOWED DEDUCTION OF ALL EXPENSES ATTRIBU TABLE TO ITS PERMANENT ESTABLISHMENT (PE) IN INDIA. HE OBSERVED, ONE OF T HE CONDITIONS TO ALLOW EXPENSES IS, THE ASSESSEE SHOULD HAVE COMPLIED WITH THE TDS PROVISIONS. ACCORDINGLY, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE EXPENSES SHOULD ITA NO.2291/MUM/2017 UPS SCS (ASIA) LTD. 4 NOT BE DISALLOWED U/S. 40(A)(IA) OF THE ACT IN CASE NO TAX WAS DEDUCTED AT SOURCE. THOUGH, THE ASSESSEE OBJECTED TO THE PROPO SED DISALLOWANCE, HOWEVER, THE AO REJECTED THE OBJECTIONS OF THE ASSE SSEE AND HELD THAT THE PAYMENTS MADE BY THE ASSESSEE TO THE INDIAN COMPANY AMOUNTING TO ` 423,459,407 WITHOUT DEDUCTION OF TAX U/S 194C IS LI ABLE FOR DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. IN THE AFORESAID PROCESSES T HE ASSESSING OFFICER COMPLETED THE ASSESSMENT. BEING AGGRIEVED OF THE D RAFT ASSESSMENT ORDER SO PASSED, ASSESSEE RAISED OBJECTIONS BEFORE THE LEARN ED DRP. HOWEVER, THE LEARNED DRP CONFIRMED THE DRAFT ASSESSMENT ORDER. IN TERMS WITH THE DIRECTIONS OF THE DRP, THE ASSESSING OFFICER PASSED THE IMPUGNED ASSESSMENT ORDER. 4. AT THE OUTSET, SHRI NITESH JOSHI, LEARNED COUNSE L FOR THE ASSESSEE SUBMITTED THAT THE ISSUES ARISING IN THE PRESENT AP PEAL HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN THE PRECE DING ASSESSMENT YEARS I.E. 2006-07, 2009-10 AND 2011-12. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE ORDER PASSED IN ITA NO. 397/MUM/2016 DATED 17.11.2017 FOR A.Y. 2011-12. TH US, HE SUBMITTED, ALL THE ISSUES RAISED IN THE APPEAL ARE COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR PRECEDING ASSESSMENT YE ARS. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE (DR) THO UGH RELIED ON THE OBSERVATIONS OF THE DRP, HOWEVER, HE FAIRLY SUBMITT ED THAT THE ISSUES ARE ITA NO.2291/MUM/2017 UPS SCS (ASIA) LTD. 5 COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR PRECEDING ASSESSMENT YEARS. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE ASSESSMENT ORDER, IT IS EVIDENT THAT RELYING UPON THE ASSESSMENT ORDER PASSED FOR A.Y. 2011-12, THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT FOR THE YEAR UNDER APP EAL. IN FACT, LEARNED DRP HAS CATEGORICALLY STATED THAT BOTH THE ISSUES R ELATING TO BUSINESS CONNECTION U/S. 9(1)(I) AS WELL AS ATTRIBUTION OF P ROFIT TO THE BUSINESS CONNECTION IN INDIA ARE COVERED BY THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2006-07, 2009-10 AND 2011-12. IT IS FURTHER EVIDENT FROM THE ORDER OF THE LEARNED DRP, ONLY BEC AUSE THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE TRIBUNAL AND HAS R AISED SUBSTANTIAL QUESTION OF LAW BEFORE THE HONBLE BOMBAY HIGH COURT ON THE DISPUTED ISSUES, THE DRP HAS CONFIRMED THE DRAFT ASSESSMENT ORDER. FROM THE AFORESAID FACTS, IT IS VERY MUCH CLEAR THAT ALL THE ISSUES RAISED IN THE PRESEN T APPEAL HAVE BEEN CONSISTENTLY DECIDED IN FAVOUR OF THE ASSESSEE BY T HE TRIBUNAL IN SERIES OF ORDERS PASSED FOR THE PRECEDING ASSESSMENT YEARS. IN FACT WHILE DECIDED THE AFORESAID ISSUES THE TRIBUNAL IN ITS LATEST ORDER P ASSED FOR A.Y. 2011-12 (SUPRA), HAS HELD AS UNDER 4. WE ALSO FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1987/MUM/2014 FOR AY 2009-10 ORDER DATED 20-02-2015 HAS CONSIDERED ALL THE THREE ISSUES AND FOLLOWING TRIBUNALS DECIS ION IN ITA NO. ITA NO.2291/MUM/2017 UPS SCS (ASIA) LTD. 6 2426/MUM/2010 VIDE ORDER DATED 22-02-2012 HAS ADJUD ICATED ALL THE ISSUES AS UNDER: - 6. THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 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 QUESTI ON IS A NON- RESIDENT COMPANY. SECTION 5(2) MANDATES THAT THE TO TAL INCOME OF A NON-RESIDENT INCLUDES THE INCOME FROM WHATEVER SO URCE DERIVED WHICH IS RECEIVED OR IS DEEMED TO BE RECEIVED IN IN DIA; OR ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE IN INDIA. THE ONLY POSSIBILITY OF THE RECEIPT BY THE ASSESSEE IN THE P RESENT FACTS AND CIRCUMSTANCES QUALIFYING FOR INCLUSION IN THE TOTAL INCOME, CAN BE UNDER SECTION 9. WE HAVE OBSERVED THAT SECTION 9(1) (VII) IS NOT APPLICABLE. NOW LET US EXAMINE THE PRESCRIPTION OF SECTION 9(1)(I) WHICH DEALS WITH THE INCOME ACCRUING OR ARISING FRO M ANY BUSINESS CONNECTION IN INDIA. IT PROVIDES THAT WHERE AN INCO ME ACCRUES OR ARISES WHETHER DIRECTLY OR INDIRECTLY THROUGH OR FR OM ANY BUSINESS CONNECTION IN INDIA ETC., IT SHALL BE DEEMED TO ACC RUE OR ARISE IN INDIA. 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 BUSINESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARIS E IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY AT TRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA. THIS EXPLANATI ON MAKES IT PROMINENT THAT ONLY THAT PART OF THE INCOME FROM BU SINESS OPERATIONS 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 ME ANS OF OPERATIONS CARRIED ON OUTSIDE INDIA, THAT WILL NOT FALL WITHIN THE SCOPE OF SECTION 9(1))(I). EVEN EXPLANATION BELOW S ECTION 9(2) AS, RELIED ON BY THE LD. DR, REQUIRING INCLUSION OF INC OME IN THE TOTAL INCOME OF THE NON RESIDENT WHETHER OR NOT THE NON-R ESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS-CONNECTI ON IN INDIA OR THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA, IS APPLICABLE ONLY IN RESPECT OF CLAUSES (V) TO (VII). CLAUSE (I) OF S ECTION 9 HAS NOT BEEN INCLUDED BY THE LEGISLATURE WITHIN THE AMBIT O F THIS EXPLANATION. IT SHOWS THAT UNLESS A NON-RESIDENT EA RNS INCOME FROM BUSINESS OPERATIONS EARNED OUT IN INDIA, SUCH INCOME CANNOT BE DEEMED ASSURING OR ARISING IN INDIA. REVERTING T O THE FACT OF THE INSTANT CASE, IT IS CRYSTAL CLEAR THAT THE ASSESSEE RENDERED' ITA NO.2291/MUM/2017 UPS SCS (ASIA) LTD. 7 INTERNATIONAL SERVICES' OUTSIDE INDIA WHICH REQUIRE D THE PAYMENT IN QUESTION. IF THIS IS THE POSITION, WHICH HAS NOT EVEN BEEN DISPUTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE THEN THERE CAN BE NO QUESTION 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 S PECIFIC GROUND WAS TAKEN AS SUBSTANTIAL QUESTION OF LAW, WHICH HAS NOT BEEN ADMITTED BY THE HIGH COURT, WHICH IS EVIDENT FORM H IGH COURT ORDER DATED 11.01.2013 IN INCOME-TAX APPEAL NO. 90 OF 2013. NOT ONLY THAT, THIS DECISION HAS BEEN REITERATED BY THE TRIBUNAL IN A.Y. 2008-09 VIDE ORDER DATED 21.05.2014 ITA NO. 319/MUM /2012. THUS, WITHOUT GOING INTO OTHER DECISION OF THE TRIB UNAL AS CITED BY LD. DR, WE RESPECTFULLY FOLLOWING THE JUDICIAL PREC EDENCE OF THE EARLIER YEARS, DECIDE THIS ISSUE IN FAVOUR OF THE A SSESSEE BY HOLDING THAT THE ASSESSEES INCOME FROM TRANSPORTATION AGRE EMENT CANNOT BE TAXED IN INDIA UNDER THE DEEMING PROVISION OF SE CTION 9(1)(I) AS USIPL CANNOT BE SAID TO CONSTITUTE BUSINESS CONNECT ION IN INDIA. ACCORDINGLY, 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 COUNSE L THAT THE ISSUE INVOLVED ARE INDEPENDENTLY COVERED BY SERIES OF DECISIONS WHICH HAVE BEEN PLACED BEFORE US. HOWEVER, IT HAS B EEN ADMITTED BY BOTH THE PARTIES, THESE GROUNDS WILL BECOME PURE LY ACADEMIC, BECAUSE THESE GROUND PERTAIN TO ATTRIBUTION OF INCO ME. ONCE IT HAS BEEN HELD THAT ASSESSEES INCOME IS NOT TAXABLE IN INDIA, THEN THERE IS NO QUESTION OF ATTRIBUTION OF INCOME. ACCO RDINGLY, GROUND NO. 2 AND 3 AS WELL AS ADDITIONAL GROUND IS TREATED AS INFRUCTUOUS BEING ACADEMIC IN NATURE.. THERE BEING NO DIFFERENCE IN FACTS INVOLVED IN THE IMPUGNED ASSESSMENT YEAR BROUGHT TO OUR NOTICE BY THE LEARNED DR, RESPECTFUL LY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL IN ASSESSEES OWN CASE AS REFE RRED TO ABOVE, WE HOLD THAT THE ASSESSEE HAS NO BUSINESS CONNECTION IN IND IA U/S. 9(1)(I) OF THE ACT HENCE, NO PART OF ITS PROFIT IS ATTRIBUTABLE TO BUS INESS CONNECTION IN INDIA OR BRINGING IT TO TAX UNDER THE INDIAN INCOME TAX ACT. FOR THE VERY SAME REASON, THE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT DESERVES TO BE DELETED. ITA NO.2291/MUM/2017 UPS SCS (ASIA) LTD. 8 GROUNDS RAISED ARE ALLOWED. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 0 TH NOVEMBER, 2018. SD/- SD/- (RAJESH KUMAR) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED : 30 TH NOVEMBER, 2018. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI