Nippon Paint (India) Pvt Ltd., Kancheepuram V. DCIT International Taxation 2(2), CHENNAI

ITA 2562/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0160 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 03-09-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Assessee Lawyers: N V LAKSHMICA
• Keywords: Double taxation relief; TDS
• Section: 201(1); 195

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER /I.T.A. NO.2562/CHNY/2018 !! /ASSESSMENT YEAR : 2010-11 M/S. NIPPON PAINT (INDIA) PVT.LTD K-8(1)PHASE 2,SIPCOT INDUSTRIAL PARK, MAMBAKKAM VILLAGE, SRIPERUMBUDUR,SUNGUVARCHATIRAM KANCHEEPURAM-602 106. VS THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION-2(2) CHENNAI. PAN: AACCN2352F ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MS.N.V.LAKSHMI,CA /RESPONDENT BY : MR. M.SRINIVASA RAO, CIT /DATE OF HEARING : 07.02.2019 / DATE OF PRONOUNCEMENT : 29.03.2019 /O R D E R PER S.JAYARAMAN, AM: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-16, CHENNAI, IN ITA NO. 07/ CIT(A)-16/2010-11 DATED 28.06.2018 FOR ASSESSMENT YEAR 2010-11. 2. WHILE MAKING THE ASSESSMENT FOR THE ASSESSMENT Y EAR 2010-11 IN THIS CASE, THE ASSESSING OFFICER NOTICED, INTER-A LIA, THAT THE ASSESSEE HAS MADE REMITTANCES OF 15,48,340/- TO A NON-RESIDENT ABROAD WITHOUT 2 ITANO.2562/CHNY/2018 DEDUCTING TDS. THE AO CONSIDERED THE ASSESSEEES EXPLANATIONS AND OTHER MATERIAL AND HELD, INTER ALIA, THAT THE IMP UGNED REMITTANCE IS TECHNICAL ASSISTANCES FEES FOR PROVIDING TECHNICAL SUPPORT, TRAINING AND ACCOMPANYING ACTIVITIES. FURTHER, THE AO NOTICED T HAT THE ASSESSEE HAS PAID SALARY REIMBURSEMENT TO FOREIGN NATIONALS TAKEN ON SECONDMENT FROM THE GROUP COMPANY WHO HAS TAKEN UP EMPLOYMENT IN INDIA. AFTER CONSIDERING THE ASSESSEEES EXPLANATIO NS AND OTHER MATERIAL AND RELYING ON THE RULING OF THE AAR IN THE CASE OF TARGET CORPORATION OF INDIA (P) LIMITED, THE AO HELD THAT THE NATURE OF THE IMPUGNED SALARY IS THE INCOME AND IT IS NOT IN NATURE OF REIMBURSEMENT OF SALARY, AND RELYING ON THE DECISION OF SUPREME COURT IN THE CASE OF CEN TRICA INDIA OFFSHORE (P) LIMITED, HELD THAT SALARY REIMBURSEMENT MADE FO R 29,62,869/- IS PAYMENT FOR FTS. SINCE THE ASSESSEE HAS NOT DED UCTED TDS ON THE ABOVE PAYMENTS U/S 195, THE A O HELD THAT THE ASS ESSEE WAS IN DEFAULT IN VIEW OF SECTION 201(1), THEREFORE LIABLE TO TAX AND INTEREST UNDER SECTIONS 201(1) AND 201(1A) AND LEVIED ACCORDINGLY . AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED APPEAL BEFORE THE C IT(A). THE LD CIT(A) DISMISSED THE APPEAL. AGGRIEVED AGAINST THE ORDER O F THE LD. CIT(A), THE ASSESSEE FILED THIS APPEAL. 3. THE LD A R SUBMITTED THAT THE REMITTANCESOF RS. 15,48,340/-WERE TRAVEL EXPENSES INCURRED BY VARIOUS TECHNICAL PERSO NAL DURING THEIR STAY 3 ITANO.2562/CHNY/2018 IN INDIA. THIS EXPENSES INCLUDE THEIR AIRFARE, FOOD EXPENSES, LOCAL CONVEYANCE ETC. IT HAS NO PROFIT ELEMENT IN IT .R ELYING ON THE CASE LAW DECIDED BY MUMBAI ITAT IN THE CASE OF SAIPEM SA VS DDIT (2012) 54 SOT 111 (MUMBAI), SHE PLEADED THAT SUCH ALLOWANCE C ANNOT BE TREATED AS FEES FOR TECHNICAL SERVICES AND CONTENDED THAT R EIMBURSEMENT OF EXPENSES DOES NOT PARTAKE THE NATURE OF INCOME, IN THE HANDS OF THE PAYEE OF SUCH EXPENSES. THEREFORE, THE LD CIT (A) E RRED IN HOLDING THAT TDS WAS REQUIRED TO BE MADE ON SUCH PAYMENTS. THE LD AR SUBMITTED THAT THE ENTIRE SUM OF SALARY PAID TO THE SECONDE D EMPLOYEES SUFFERED TDS U/S 192 , THEREFORE, THE ASSESSEE IS NOT LIA BLE TO TDS U/S 195 AND SUBMITTED THAT THE LD CIT (A) ERRED IN HOLDING THAT THIS PAYMENT IS COVERED U/S 9(1) (VII) AND HENCE TDS WAS REQUIRED TO BE MADE. THEREFORE, SHE PLEADED TO ALLOW THE APPEAL. 4. PER CONTRA, THE LD DR SUBMITTED THAT ON THE ISSU E OF THE REMITTANCES OF RS. 15,48,340/-, ON DUE EXAMINATION, THE LD CIT(A) HELD THAT IT IS EVIDENT THAT THE REQUIREMENT OF VISITS AND STAY OF THE PERSONNEL IS REQUIRED FROM FOREIGN SERVICE PROVIDERS AND THEY ARE A PRE-REQUISITE TO PERFORM THE SERVICES I.E THE PERSONNEL VISITS FORMS PART AND PARCEL OF THE SCOPE OF SERVICES TO BE RENDERED. THE NECESSITY OF VISIT OF SUCH PERSONNEL IS VERY MUCH PART OF THE SCOPE OF SERVICE RENDERED. BUT FOR THE VISITS OF THE PERSONNEL, THE SERVICES WOULD NOT HA VE BEEN RENDERED AT ALL 4 ITANO.2562/CHNY/2018 OR AT THE MOST COULD NOT HAVE BEEN PERFORMED TO THE EXTENT OF THE SERVICE REQUIREMENTS. THESE EXPENSES HAVE BEEN INCU RRED IN CONNECTION WITH TECHNICAL SERVICES AGREEMENT, THEY BEAR A CLEA R NEXUS WITH THE TECHNICAL SERVICES RENDERED AND PART AND PARCEL IN THE PROCESS OF SERVICE OF A TECHNICAL CHARACTER. THEREFORE, THE EXPENDITUR E HAS BEEN INCURRED FOR EARNING ROYALTY/ FTS. THE EXPENDITURE IS THAT O F SERVICE PROVIDERS AND NOT THAT OF THE ASSESSEE COMPANY. MOREOVER, ARTICLE 13 OF INDO JAPAN DTAA PROVIDES FOR TAXATION OF ROYALTY/FTS IN THE SO URCE COUNTRY ON GROSS BASIS AT A CONCESSIONAL RATE OF TAX. RELYING ON THE CASE LAWS DECIDED BY THE HONBLE COURT IN THE CASE OF ASHOK LEYLAND LTD VS DC1T (2009) .120 1TD 14 (CHENNAI) AND CSC TECHNOLOGY SINGAPORE (2012 ) 50 SOT 399 (DELHI) WHEREIN IT IS HELD THAT THE CONSIDERATION P AID TO MEET OUT TRAVEL AND LODGING NEEDS OF THE SERVICE PERSONNEL IS IN IT SELF TOWARDS THE TECHNICAL SERVICES RENDERED AND HENCE FORMS PART OF THE FEE FOR TECHNICAL SERVICES, THE LD CIT(A) HELD THAT THE AL LEGED EXPENSES FOR TRAVELLING ETC ARE EXPENSES OF M/S NIPPON PAINT CO. LTD, JAPAN AND THE REIMBURSEMENTS OF SAID EXPENSES ARE TO BE TREATED A S INCOME LIABLE TO TAX IN INDIA AND UPHELD THE ACTION OF THE AO TO LEV Y TAX AND INTEREST U/S.201(1) AND U/S. 201(1A) . 5 ITANO.2562/CHNY/2018 4.1 ON THE ISSUE OF REIMBURSEMENT OF SALARY COSTS O N SECONDED EMPLOYEES, THE LD D R RELIED ON THE ORDER OF THE LD . CIT (A), THE RELEVANT PORTION IS EXTRACTED AS UNDER : I HAVE CAREFULLY GONE THROUGH THE APPELLANT CONTEN TIONS ABOVE. THE CASE LAWSREFERRED BY THE APPELLANT ARE CLEARLY DISTINGUI SHABLE ON THE FACTS OF THE CASE OF THEASSESSEE. IN THE PRESENT CASE, THE EMPLO YEES HAD BEEN SENT TO EXCHANGE EXPERIENCE AND SKILL AS STATED BY ASSESSEE . EMPLOYEE IS SENT TO WORK SOMEWHERE ELSE TEMPORARILY ASSUMES SIGNIFICAN CE. IT IS THAT THE EMPLOYEES IS SENT TO WORK BY THE EMPLOYER. I.E. THE EMPLOYER IN THIS CASE IS THE ENTITY WHICH IS SECONDING. ONCE THE TERM OF THE SEC ONDMENT IS OVER THE EMPLOYEE WILL RETURN BACK TO THEIR ORIGINAL EMPLOYE R. IN THE RELEVANT ISSUE IN THE CASE OF TARGET CORPORATION INDIA (P) LTD, THE HONB LE AAR HELD THAT SECONDED EMPLOYEES SHALL CONTINUE TO HAVE THEIR PAY -ROLL PROCESSED BY T BUT APPLICANT IS TO REIMBURSE TFOR THOSE AMOUNTS AND AL SO PAY T A SERVICE CHARGE - RIGHT TO TERMINATE EMPLOYEE IS WITH T - WHETHER SIN CE APPLICANT HAS NOT BECOME EMPLOYER OF SECONDED EMPLOYEES, WHAT APPLICA NT PAYS TO T IS INCOME OF TAND NOT IN NATURE OF REIMBURSEMENT OF SALARY AN D WHILE PAYING AMOUNTS APPLICANT HAS OBLIGATION TO WITHHOLD TAXES UNDER SE CTION 195- HELD, YES (IN FAVOUR OF REVENUE], SIMILARLY, HONBLE SUPREME COUR T IN THE CASE OF CENTRICA INDIA OFFSHORE (P) LTD, AN INDIAN COMPANY, ENTERED INTO SECONDMENT AGREEMENT WITH OVERSEAS COMPANIES AND SOUGHT SOME EMPLOYEES ON SECONDMENT FROM OVERSEAS ENTITIES HELD THAT SINCE EMPLOYEES OF THOSE COMPANIES USED THEIR TECHNICAL KNOWLEDGE AND SKILLS WHILE ASSISTING ASSESSEE IN CONDUCTING ITS BUSINESS OF QUALITY CONTROL AND M ANAGEMENT, AMOUNTS REIMBURSED BY ASSESSEE TO OVERSEAS COMPANIES TOWARD S SALARIES OF SECONDED EMPLOYEES AMOUNTED TO FEE FOR TECHNICAL SERVICES L IABLE TO TAX IN INDIA AND THE CASE DECIDED BY ITAT BENGALURU IN THE CASE OF FOOD WORLD SUPERMARKETS LTD ASSESSEE ENTERED INTO AGREEMENT WITH DFCL IN TERMS OF WHICH DFCL AGREED TO ASSIGN ITS EMPLOYEES TO ASSESSEE - IT WAS AGREED BETWEEN PARTIES THAT DFCL WOULD PAY SALARY TO ASSIGNED PERSONNEL AND ASS ESSEE WOULD REIMBURSE SUCH AMOUNT TO DFCL - ASSESSEE MADE REIMBURSEMENT W ITHOUT DEDUCTION OF TAX AT SOURCE - ASSESSING OFFICER OPINED THAT REMIT TANCE MADE BY ASSESSEE CONSTITUTED FEE FOR TECHNICAL SERVICES UNDER SECTI ON 9(1)(VII) AND, THEREFORE, ASSESSEE WAS LIABLE TO DEDUCT TAX UNDER SECTION 195 - IT WAS CLEAR FROM RECORDS THAT ALL FIVE SECONDEES WERE NOT ORDINARY E MPLOYEES OR WORKERS BUT THEY WERE DEPUTED AT HIGH LEVEL MANAGERIAL/EXECUTIV E POSITIONS - WHETHER ONCE IT WAS FOUND THAT SECONDEES WERE RENDERING MAN AGERIAL AND HIGHLY EXPERTISE SERVICES TO ASSESSEE, PAYMENT FOR SUCH SE RVICES FELL WITHIN AMBIT OF FTS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VII) - HELD, YES - WHETHER, THEREFORE, IMPUGNED ORDER PASSED BY ASSESSING OFFIC ER WAS TO BE CONFIRMED - HELD, YES PARA 10] IN FAVOUR OF REVENUE]. IN VIEW O F THE ABOVE DISCUSSION, I HELD THAT ASSESSEE WAS IN DEFAULT IN VIEW OF SECTIO N 201(1) OF THE ACT HAVING ASSESSEE NOT DEDUCTED TDS ON REMITTANCES OF REIMBUR SEMENT OF SALARY COSTS INR 29,62,869/-, THEREFORE I UPHELD THE ACTION OF T HE AO TO LEVY TAX AND INTEREST U/S 201(1)AND U/S 201(1A) OF THE ACT. 6 ITANO.2562/CHNY/2018 5. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. ON BOTH THE ABOVE THE ISSUES, THE LD. CIT (A) ON DUE EXAMINATION HAS CLEARLY RECORDED THE ABOVE FINDINGS AND APPLIED THE LAW AS LAID DOWN BY COURTS/AAR/TRIBUNAL. ON THE ISSUE OF THE REMITTANCES OF 15,48,340/-, THE NECESSITY OF VISIT OF SUCH PERSONN EL IS VERY MUCH PART OF THE SCOPE OF SERVICE RENDERED. BUT FOR THE VISI TS OF THE PERSONNEL THE SERVICES WOULD NOT HAVE BEEN RENDERED AT ALL OR AT THE MOST COULD NOT HAVE BEEN PERFORMED TO THE EXTENT OF SERVICE REQUIR EMENTS. THE EXPENSES HAVE BEEN INCURRED IN CONNECTION WITH TECH NICAL SERVICES AGREEMENT , THEY BEAR A CLEAR NEXUS WITH THE TECHNI CAL SERVICES RENDERED AND PART AND PARCEL IN THE PROCESS OF SERVICE OF A TECHNICAL CHARACTER. THEREFORE, THE EXPENDITURE HAS BEEN INCURRED FOR EA RNING ROYALTY/ FTS. THE EXPENDITURE IS THAT OF SERVICE PROVIDERS AND NO T THAT OF THE ASSESSEE COMPANY. ON THE ISSUE OF THE ISSUE OF REIMBURSEMEN T OF SALARY COSTS ON SECONDED EMPLOYEES, THE LD. CIT(A) HELD, INTER-ALIA , THAT THE SECONDED TEMPORARILY EMPLOYEES EXCHANGED EXPERIEN CE AND SKILL TRAINING BY THE EMPLOYER. I.E. THE EMPLOYER IN THIS CASE IS THE ENTITY WHICH IS SECONDING AND ONCE THE TERM OF THE SECONDMENT I S OVER, THEY WILL RETURN BACK TO THEIR ORIGINAL EMPLOYER AND THEY DO NOT LOOSE THE EMPLOYER-EMPLOYEE RELATIONSHIP OF THE PARENT ORGANI ZATION. SINCE THE ASSESSEE HAS NOT BECOME EMPLOYER OF SECONDED EMPLO YEES, WHAT THE ASSESSEE PAID TO NIPPON PAINT COMPANY LIMITED AND WUTHELA HOLDINGS 7 ITANO.2562/CHNY/2018 PTE LIMITED AT INR 29,62,869/- IS THE INCOME OF TH OSE COMPANIES AND NOT IN NATURE OF REIMBURSEMENT OF SALARY. FURTHER, THE LD. CIT (A) APPLIED THE RATIOS OF THE APEX COURT/ HC/AAR AND TRIBUNAL, SUPRA. ALTHOUGH, THE ASSESSEE FILED THIS APPEAL, IT HAS NOT LAID ANY MA TERIAL TO DISLODGE THE FINDINGS RECORDED BY THE LD CIT(A) ON THE ABOVE IS SUES, SUPRA, AND HENCE WE DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LD CIT(A). THEREFORE, THE ASSESSEES APPEAL IS DISMIS SED. 6. IN THE RESULT, THE ASSESSEES APPEAL IS DISMIS SED. ORDER PRONOUNCED ON 29 TH MARCH, 2019 ( . . . ) ( . ) (N.R.S.GANESAN) (S.JAYARAMAN) ( /JUDICIAL MEMBER) ( / ACCOUNTANT MEMBER) /CHENNAI, ! /DATED 29 TH MARCH , 2019 SOMU %&'& /COPY TO: 1. APPELLANT 2. RESPONDENT 3. ( ( )/CIT(A) 4. ( /CIT 5. &+ /DR 6. . /GF