Mercury Manufacturing Co. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 249/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4116 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 29-01-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S NATARAJA JCIT
• Assessee Lawyers: V S MANOJ
• Keywords: Double taxation relief; Services rendered outside India

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 249/MDS/2015 / ASSESSMENT YEAR : 2010-11 M/S. MERCURY MANUFACTURING CO. LTD., PLOT NO. 3-D, PHASE III, MEPZ, TAMBARAM, CHENNAI 600 045. [PAN: AACCM 4808M] VS. DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -4(1), CHENNAI. ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI V.S. MANOJ, ADVOCATE )*% & / RESPONDENT BY : SHRI S. NATARAJA, JCIT & /DATE OF HEARING : 04.07.2017 & /DATE OF PRONOUNCEMENT : 11.07.2017 /O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, CHENNAI IN ITA NO. 1409/13 -14/A-VI, DATED 14.11.2014. :-2-: I.T.A. N0. 249/MDS/2015 2. M/S. MERCURY MANUFACTURING CO. LTD., THE ASSESSE E, IS ENGAGED IN THE MANUFACTURE AND EXPORT OF STEEL FURNITURE. IN THE ASSESSMENT MADE FOR ASSESSMENT YEAR 2010-11, THE ASSESSING OFFICER DISA LLOWED RS. 27,43,333/- OF COMMISSION PAID ON FOREIGN AGENTS WITHOUT DEDUCTING TAX U/S. 40(A)(IA). AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A) THE ASSESSEE TOOK THE STAND THAT THE IMPUGNED PAYME NTS WAS NOT A COMMISSION AS STATED BY THE AO BUT THE PAYMENTS WER E MADE FOR ENTIRE PROFESSIONAL SERVICES RENDERED OUTSIDE INDIA BY A N ON-RESIDENT MR. JAMSHED UNWALLA, A QUALIFIED ENGINEER AND HAS VAST EXPERIEN CE IN ENGINEERING AND CONSULTANCY. FURTHER, IT STATED THAT SUCH PAYMENTS ARE COVERED UNDER ARTICLE 14 OF DTAA CANADA, FURNISHED COPIES OF 4 INVOICES R AISED FOR MAKING PAYMENTS TO THE NON-RESIDENT AND A DETAILED WRITTEN SUBMISSION TO THE CIT(A). THE CIT(A) AFTER CONSIDERING ALL OF THEM HELD AS UN DER: THE EXPLANATION FURNISHED BY THE APPELLANT VIDE L ETTER DATED 25.08.2014 AND ALSO THE COPIES OF THE 4 INVOICES RA ISED BY JAMSHED UNNWALA, THE NON-RESIDENT ARE EXAMINED CAREFULLY. T HE APPELLANT IS IN THE BUSINESS OF MANUFACTURING AND EXPORT OF STEEL O FFICE FURNITURE IN COMPLETELY KNOCK DOWN CONDITION. MR. JAMSHED UNNWAL A, THE NON- RESIDENT IS A QUALIFIED ENGINEER FROM INDIAN INSTIT UTE OF TECHNOLOGY, MUMBAI AND HAS BEEN INVOLVED IN THE DESIGN AND ENGI NEERING OF APPELLANT'S PRODUCTS. ON PERUSAL OF THE INVOICE RAI SED BY MR. JAMSHED UNNWALA, IT IS SEEN THAT THE SERVICES RAISED BY NON - RESIDENT ARE IN THE NATURE OF PROVIDING ENGINEERING GUIDANCE ON CORRECT ASSEMBLY, AND MAKING JIGS AND FURNITURES FOR STORAGE AND ASSEMBL Y OF MERCURY'S PRODUCTS AND FOR PROVIDING CONSULTANCY SERVICES. TH E DESCRIPTION OF THE SERVICES PROVIDED BY MR. JAMSHED UNNWALA IN ITS INV OICES RAISED ON :-3-: I.T.A. N0. 249/MDS/2015 02.05.2009, 23.06.2009, 14.10.2009 AND 22.01.2010 A RE SIMILAR AND THE DESCRIPTION GIVEN IN THE INVOICE DATED 02.05.2009 I S REPRODUCED FOR PROPER APPRECIATION OF THE CASE. 'PROFESSIONAL SERVICES DURING THE PERIOD INCLUDED T HE FOLLOWING: 1. ONSITE VISITS TO STURDYMET, TORONTO, FOR ENGINEE RING GUIDANCE ON CORRECT ASSEMBLY AND MAKING JIGS AND FI XTURES FOR STORAGE AND ASSEMBLY OF MERCURY'S PRODUCTS. 2. VIDEO CONSULTATIONS ON SKYPE, WITH ACCENT, WINNIPEG AND TRADEWEST, REGINA, ON PROBLEMS FACED B Y THEM IN WAREHOUSING AND ASSEMBLY OF PRODUCTS. 3. TELE CONSULTATIONS WITH SISTEMAS, VENEZUELA, ON UNDERSTANDING LATERAL FILING CABINETS, FEATURES, AN D BENEFITS, AND RE-PACKAGING AFTER ASSEMBLY.' PLEASE TRANSFER CAD 20,000.00 OUT OF THE ANNUAL FEE S OF CAD 60,000.00' I FIND FROM THE EVIDENCES ON RECORD THAT THE NATURE OF THE SERVICES RENDERED BY JAMSHED UNNWALA FALL IN THE CATEGORY OF INCLUDED SERVICES WITHIN THE MEANING OF THE CLAUSE (4) OF ARTICLE 12 OF THE DTAA BETWEEN INDIA AND CANADA. IN THE INSTANT CASE, JAMSHED UNNW ALA PROVIDES CONSULTANCY SERVICES IN THE FORM OF PROVIDING ENGIN EERING GUIDANCE AND ALSO PROVIDING TELE CONSULTATIONS SERVICES TO THE A PPELLANT. SEC.9(1)(VII)(B) PROVIDE FOR TAXABILITY OF THE INCO ME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY A RESIDENT. THE EXPLA NATION [2] CLAUSE (VII) OF SEC.9(1) PROVIDE FOR DEFINITION OF THE FEES FOR TECHNICAL SERVICES WHICH INCLUDED ANY LUMPSUM CONSIDERATION FOR RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISION OF SERVICES OF TECHNICAL OR OTHER PERSONAL). THE EXPERIENCE OF THE JAMSHED UNNWALA WAS UTILIZED BY THE APPELLANT COMPANY IN IMPROVING THE QUALITY OF THE PRODUCT. THE SERVICES PROVIDED BY JAMSHED UNNWALA D EFINITELY FALL IN THE CLAUSE] 4) OF ARTICLE 12 OF DTAA READ WITH CLAUSE ( 2) OF THE ARTICLE 12 OF DTAA BETWEEN INDIA AND CANADA WHICH PROVIDE FOR TAX ATION OF TECHNICAL OR CONSULTANCY SERVICES IN THE CONTRACTING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAWS OF THAT STATE. THE SERVICES P ROVIDED BY JAMSHED :-4-: I.T.A. N0. 249/MDS/2015 UNNWALA WOULD NOT FALL UNDER THE CLAUSE (2) OF ARTI CLE 14 OF DTAA BETWEEN INDIA AND CANADA AS CONTESTED BY THE APPELL ANT. THE APPELLANT HAS NOT DISCHARGED ITS BURDEN COMPLETELY TO PROVE T HAT THE SERVICES RENDERED BY JAMSHED UNNWALA FALL UNDER THE CATEGORY OF INDEPENDENT PERSONAL SERVICES AS PROVIDED UNDER ARTICLE 14 OF T HE DTAA BETWEEN INDIA AND CANADA. RATHER, THE SERVICES FALL UNDER T HE CATEGORY OF INCLUDED SERVICES UNDER CLAUSE (4) OF ARTICLE 12 OF DTAA. THOUGH AO PROCEEDED TO MAKE DISALLOWANCE OF RS.27,43,333/- ON THE GROUND OF EXPORT COMMISSION, THE SAME WAS REQUIRED TO BE TAXE D U/S 9(1)(VII) OF THE IT ACT IN THE HAND OF THE RECIPIENT AS DISCUSSE D ABOVE. THERE IS NO DISPUTE THAT NO TDS WAS MADE BY THE APPELLANT AT TH E TIME OF MAKING PAYMENT. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANC ES OF THE CASE, I AM OF THE CONSIDERED VIEW THAT THE PROVISIONS OF SEC 4 0(A)(I) IS ATTRACTED ON THE AMOUNT OF RS.27,43,333/-. THEREFORE, I CONFIRM THE DISALLOWANCE MADE BY THE AO. 3. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL BEFORE US, PLEADING THAT THE CIT(A) FAILED TO APPRECIATE THAT THE CONSULTANT IS NO WAY CONNECTED WITH THE DESIGN, MANUFACTURE OF THE PRODUCTS NAMELY STEEL FU RNITURE IN FACT, THE CONSULTANT PROVIDES THE ASSISTANCE DURING THE COURS E OF FINALIZATION OF ORDERS AND SOMETIMES AFTER DISPATCH OF THE GOODS. THE AR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPR ECIATE THAT THE ACTIVITY OF MANUFACTURE TAKES PLACE IN THE FACTORY OF THE APPEL LANT AND THE CONSULTANT IS ENGAGED TO PROVIDE ASSISTANCE IN TECHNICAL ASPECTS OF THE FINISHED PRODUCTS FOR BETTER UNDERSTANDING AND USE OF THE PRODUCTS. THE TECHNICAL CLARIFICATION THAT HAS BEEN PROVIDED TO A PROSPECTIVE CUSTOMER/A CUSTO MER WHO PROCURED THE GOODS CANNOT BE LINKED TO DESIGN OF THE PRODUCT BEC AUSE THE DESIGN AND :-5-: I.T.A. N0. 249/MDS/2015 MANUFACTURE HAPPENS MUCH EARLIER IN INDIA. THERE I S NO ASSISTANCE PROVIDED BEFORE OR DURING THE COURSE OF MANUFACTURE OR IN DE SIGN OF THE PRODUCT. THE PRODUCTS ARE DESIGNED AND MANUFACTURED ENTIRELY BY THE APPELLANT AND THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPR ECIATE THAT THE RELIANCE IN THE NARRATION OF THE INVOICE RAISED BY THE CONSU LTANT MAKES IT ABUNDANTLY CLEAR THAT THE SERVICE IS PROVIDED TO A CUSTOMER WH O INTENDED TO BUY THE PRODUCT OR TO A PERSON WHO PURCHASES THE PRODUCT. THIS ITSELF MAKES CLEAR THAT THE CONSULTANCY IS A POST MANUFACTURING/ POST EXPORT ACTIVITY. THE FINDING THAT THE ACTIVITY FALLS UNDER ARTICLE 12(4) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND CANADA IS THEREF ORE FACTUALLY AND LEGALLY INCORRECT ETC. PER CONTRA, THE DR INVITED OUR ATTENTION TO THE PAPER BOOK, WHEREIN A COPY OF PROFESSIONAL SERVICES AGREE MENT ENTERED BY THE ASSESSEE WITH SHRI J.A. UNWALLA (JAU) DATED 01.01. 2015 WAS PLACED. HE INVITED OUR ATTENTION TO THE SCOPE OF WORK WHICH IS EXTRACTED AS UNDER: THE SCOPE OF WORK OF JAU WOULD INCLUDE THE FOLLOWI NG SERVICES: A) REVIEW BUSINESS POTENTIAL FOR MERCURYS PRODUCTS IN U.S.A., CANADA AND OTHER MARKETS AND ADVISE ON VARIOUS ASPE CTS SUCH AS SPECIFICATIONS, CERTIFICATION AND OTHER MARKET R EQUIREMENTS. B) VISIT PROSPECTIVE CUSTOMERS AND PRESENT MERCURYS P RODUCT OFFERINGS AND ITS SUITABILITY TO MEET THEIR NEEDS, AND COMPETITIVE ADVANTAGES. C) ENGINEERING SUPPORT ON PRODUCT ASSEMBLE, STORAGE AN D HANDLING AND OTHER REQUIREMENTS FOR SHIPMENTS MADE TO CUSTOMERS. D) OTHER SERVICES TO BE SPECIFIED BY MERCURY AND IN RE LATION TO ITS BUSINESS IN THESE REGIONS. :-6-: I.T.A. N0. 249/MDS/2015 THE DR PLEADED THAT THE IMPUGNED PAYMENTS WERE MADE FOR THE SERVICES RENDERED IN CLAUSE A AND C OF THE ABOVE AGREEMENT. SHRI J A UNWALLA RENDERED ADVICE ON VARIOUS ASPECTS SUCH SPECIFICATI ONS, CERTIFICATION AND OTHER MARKET REQUIREMENT AND ENGINEERING SUPPORT ON PRODU CT ASSEMBLE, STORAGE AND HANDLING AND OTHER REQUIREMENTS FOR SHIPMENTS M ADE TO CUSTOMERS. FURTHER, HE PLEADED THAT FOR THE REASONS STATED BY THE CIT(A), THE DISALLOWANCE MADE MAY BE UPHELD. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS PO INTED OUT BY THE CIT(A), SHRI JAMSHED UNWALA HAS RENDERED SERVICES W HICH INCLUDE 1. ONSITE VISITS TO STURDYMET, TORONTO, FOR ENGINE ERING GUIDANCE ON CORRECT ASSEMBLY AND MAKING JIGS AND FI XTURES FOR STORAGE AND ASSEMBLY OF MERCURYS PRODUCTS. 2. VIDEO CONSULTATIONS ON SKYPE, WITH ACCENT, WINNI PEG AND TRADEWEST, REGINA, ON PROBLEMS FACED BY THEM IN WAR EHOUSING AND ASSEMBLY OF PRODUCTS. 3. TELE CONSULTATIONS WITH SISTEMAS, VENEZUELA, ON UNDERSTANDING LATERAL FILING CABINETS, FEATURES, AN D BENEFITS, AND RE-PACKING AFTER ASSEMBLY. WHEN WE READ THEM WITH CLAUSES (A) & (C) OF THE PRO FESSIONAL SERVICES AGREEMENT EXTRACTED, SUPRA IN PARA 3, IT IS CLEAR T HAT THE SERVICES RENDERED BY SHRI J. A. UNWALLA FALLS UNDER THE CATEGORY OF INCL UDED SERVICES WITHIN THE MEANING OF CLAUSE (4) OF ARTICLE 12 OF THE DTAA BET WEEN INDIA AND CANADA. :-7-: I.T.A. N0. 249/MDS/2015 THE ASSESSEE COULD NOT LAY ANY MATERIAL TO PROVE TH AT THE SERVICES RENDERED BY MR. J A UNWALLA FALLS UNDER THE CATEGORY OF INDE PENDENT PERSONAL SERVICES AS PROVIDED UNDER ARTICLE 14 OF THE DTAA BETWEEN DT AA INDIA AND CANADA AND HENCE THE ORDER OF THE CIT(A) DOES NOT REQUIRE ANY INTERFERENCE. 5. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. ORDER PRONOUNCED ON TUESDAY, THE 11 TH DAY OF JULY, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) ! ' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 11 TH JULY, 2017 JPV & )12 32 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2 ) /DR 6. 7 /GF