ITO (IT) (TDS) 4(1), MUMBAI V. PIPAVAV SHIPYARD LTD, MUMBAI

ITA 2603/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70655 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-07-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 05-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A PANT IZRFKHZ DH LS
• Assessee Lawyers: KESHAV BHUJLE; S K MATSADDI VKNSK VKNSK VKNSK
• Keywords: Period of limitation; Permanent establishment; Time period of passing order
• Section: 201(1)

Judgement Text

M/S PIPAVAV SHIPYARD LTD, - 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH JKTSUNZ FLAG YS[KK LNL; ,OA JH LAT; XXZ U;KF;D L NL; DS LE{K BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO.2603/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2005-06 INCOME TAX OFFICER (INTERNATIONAL TAXATION) (TDS)-4(1), 139, 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, MUMBAI CUKE@ VS. M/S PIPAVAV SHIPYARD LTD, SKILL HOUSE, 209, BANK STREET CROSS LANE FORT, MUMBAI 400023. VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA[;K /ITA NO.2604/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2005-06 INCOME TAX OFFICER (INTERNATIONAL TAXATION) (TDS)-4(1), 139, 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, MUMBAI CUKE@ VS. M/S PIPAVAV SHIPYARD LTD, SKILL HOUSE, 209, BANK STREET CROSS LANE FORT, MUMBAI 400023. VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY SHRI R.A PANT IZR;FKHZ DH VKSJ LS @ RESPONDENT BY SHRI KESHAV BHUJLE & SHRI S.K.MATSADDI VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH, AM THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST T HE ORDERS OF CIT(A) DATED 5.1.2011 AND 17.1.2011 RELATING TO ASSESSMENT ORDER AND THE PENALTY U/S 271 C LEVIED BY THE AO FOR ASSESSMENT YEAR 2005-06. LQUOKBZ DH RKJH[K@ DATE OF HEARING 30-7-2013 ?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT 7-8-2013 M/S PIPAVAV SHIPYARD LTD, - 2 - 2. WE FIRST TAKE UP THE APPEAL OF THE REVENUE IN ITA NO. 2603/MUM/2011 RELATING TO THE ASSESSMENT ORDER. THE ONLY DISPUTE RAISED BY THE AS SESSEE IS REGARDING TREATING THE ASSESSEE IN DEFAULT U/S 201 AND CONSEQUENTIAL LEVY OF INTEREST U/S 201(1A) FOR NON DEDUCTION OF TAX AT SOURCE. THE FACTS IN BRIEF ARE THAT THE AO DURING THE ASSES SMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD REMITTED A SUM OF RS. 122.65 LAKH TO OVERSEAS SHIP BUILDING CORPORATION CENTRE AS PAYMENT FOR CONSULTING FEES RELATING TO CONSULTATION AND SUPERV ISION. THE ASSESSEE HAD UNDERTAKEN A PROJECT TO ESTABLISH A MODERN SHIP BREAKING YARD AT PIPAVAV PORT LTD. IN THE STATE OF GUJARAT IN THE NAME OF PIPAVAV SHIP DISMANTLING & ENGINEERING CO. LTD. THE NAME OF THE COMPANY LATER ON HAD BEEN CHANGED TO PIPAVAV SHIPYARD LTD. THE ASSESSEE HAD T AKEN FINANCIAL ASSISTANCE FROM JAPAN BANK FOR INTERNATIONAL COOPERATION (JBIC) IN CONNECTION WITH THE SHIP BREAKING PROJECT. THE ASSESSEE HAD BOOKED AN AMOUNT OF RS. 122.65 LAKH TOWARDS THE CONSULTANCY CHARGES PAYABLE TO OVERSEAS SHIPBUILDING COOPERATION CENTRE AND THE AGENCY APPO INTED AND APPROVED BY JBIC. THE AO NOTED THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT THE TIME OF CREDIT/PAYMENT OF THE SAID SUM. THE AO, THEREFORE, TREATED THE ASSESSEE AS IN DEFAULT U/S 2 01 AND ALSO LEVIED CONSEQUENTIAL INTEREST U/S 201 (1A). 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUB MITTED BEFORE CIT(A) THAT EXCHANGE OF NOTES SIGNED BETWEEN THE GOVERNMENT OF INDIA AND G OVERNMENT OF JAPAN ON 11-1-1996, HAD EXEMPTED THE FUND FROM ALL FISCAL LEVIES OR TAXES I MPOSED IN INDIA IN CONNECTION WITH THE LOAN. THE ASSESSEE ALSO SUBMITTED THAT THE CONSULTATION U NDER TAKEN BY THE ASSESSEE WAS A STEP-IN-AID FOR CONSTRUCTION OF PORT FACILITIES. THE SERVICES RENDERED PERTAINED TO CONSULTANCY ADVICE GIVEN TOWARDS CONSTRUCTION, SUPERVISION WORK IN CONNECTIO N WITH SHIP BUILDING AND DISMANTLING YARD BEING PUT UP BY THE ASSESSEE COMPANY. THEREFORE, IT WAS ARGUED THAT THE SAME WAS EXCLUDED FROM THE DEFINITION OF FEES FOR TECHNICAL SERVICES. IT WAS ALSO SUBMITTED THAT THE ACTUAL PAYMENT OF THE AMOUNT WAS DEPENDENT ON CERTAIN REGULATORY COMP LIANCES WHICH WERE ENTIRELY OUTSIDE THE CONTROL OF THE ASSESSEE AND IT WAS NOT POSSIBLE FOR THE ASSESSEE TO REMIT THE AMOUNT ON ITS OWN UNTIL REGULATORY APPROVAL WAS RECEIVED. IT WAS SUBM ITTED THAT NO APPROVAL HAD BEEN RECEIVED IN THIS CASE. ASSESSEE HAD NEITHER MADE THE PAYMENT NO R HAD ANY EXPENDITURE BEEN CLAIMED. IT WAS THUS ARGUED THAT NO TAX WAS REQUIRED TO BE DEDUCTED . THE ASSESSEE PLACED RELIANCE ON THE JUDGMENTS OF HONBLE HIGH COURT OF BOMBAY IN CASE P FIZER CORPORATION (2003) ITR 391 IN WHICH IT WAS HELD THAT RIGHT TO RECEIVE INCOME ARISES TO THE NON-RESIDENT ONLY AFTER THE REGULATORY APPROVALS WERE RECEIVED. IT WAS ALSO SUBMITTED THAT M/S OVERSEAS SHIPBUILDING COOPERATION CENTRE WAS NOT LIABLE FOR TAXATION IN INDIA IN RESP ECT OF THE CONSULTING FEES AND, THEREFORE, THE M/S PIPAVAV SHIPYARD LTD, - 3 - SAME BEING NOT LIABLE TO BE TAXED. RELIANCE WAS PLA CED ON THE SEVERAL JUDGMENTS. IT WAS ALSO SUBMITTED THAT THE ORDER U/S 201 HAD BEEN PASSED ON 27-01-2010 WHEREAS THE DUE DATE OF TDS WAS 31-5-2005 WHICH WAS AFTER MORE THAN FOUR YEARS. THEREFORE IN VIEW OF THE DECISIONS OF TRIBUNAL ON SUBJECT, ORDER WAS BARRED BY LIMITATION . IT WAS ALSO POINTED OUT THAT THE LIMITATION PERIOD HAD ALSO BEEN PROVIDED IN THE ACT W.E.F 1.4. 2010 U/S 201(3)(II). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT THE ASSES SEE HAD NEITHER MADE THE PAYMENT NOR CLAIMED ANY EXPENDITURE AND, THEREFORE THE ASSESSEE WAS NOT LIABLE FOR DEDUCTION OF TDS. IT WAS ALSO HELD BY CIT(A) THAT THE ORDER WAS BARRED BY LI MITATION IN VIEW OF THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN CASE OF RAYMOND WOOLLEN MILLS LTD. (57 ITD 536). CIT(A) ACCORDINGLY CANCELLED THE ORDER PASSED BY AO U/S 201 AND 201(1A ). AGGRIEVED BY THE DECISION OF CIT(A), REVENUE IS IN APPEAL BEFORE TRIBUNAL. 4. BEFORE US THE LEARNED AR FOR THE ASSESSEE REITER ATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES THAT THE ASSESSEE HAD NEITHER MADE THE PAYMENT NOR CLAIMED EXPENDITURE AND, THEREFORE, NO INCOME ON THIS ACCOUNT HAD ACCRUED TO OVERSEAS SHIPBUILDING COOPERATION CENTRE. IT WAS ALSO SUBMITTED THAT THE SAID PARTY DID NOT HAVE ANY PERMANENT ESTABLISHMENT (PE) IN INDIA NOR HAS ANY BUSINESS CONNECTION IN INDIA. EVEN OTHE RWISE THE INCOME WAS NOT TAXABLE IN INDIA. THEREFORE, NO TAX WAS REQUIRED TO BE DEDUCTED. IT W AS ALSO SUBMITTED THAT THE ORDER WAS BARRED BY LIMITATION. LEARNED DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AO. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING TREATING THE ASSESSEE IN DEFAULT U/S 2 01 (1) AND CONSEQUENTIAL LEVY OF INTEREST U/S 201 (1A) FOR FAILURE TO DEDUCT TDS IN RESPECT OF AM OUNTS PAYABLE TO M/S OVERSEAS SHIPBUILDING COOPERATION CENTRE IN CONNECTION WITH CONSULTANCY WORK. THE ACTUAL PAYMENT OF THE AMOUNT WAS DEPENDENT ON CERTAIN REGULATORY COMPLIANCES AND APP ROVALS WHICH WERE ULTIMATELY NOT RECEIVED. THE PAYMENT HAD ALSO NOT BEEN MADE. THEREFORE IN SU CH A SITUATION NO INCOME ON ACCOUNT OF SUCH PAYMENT COULD SAID TO HAVE BEEN ACCRUED TO THE NON RESIDENT. THE ASSESSEE HAD NEITHER MADE THE PAYMENT NOR HAD CLAIMED ANY REVENUE EXPEND ITURE. THEREFORE ONLY ON THE BASIS OF ENTRY IN THE BOOKS OF ACCOUNTS, THE ASSESSEE COULD NOT BE HELD LIABLE FOR DEDUCTION OF TAX AT SOURCE WHEN ULTIMATELY THE AMOUNT WAS FOUND NOT PAY ABLE NOR IT WAS PAID, INCOME THEREFORE HAD NOT ACCRUED TO THE OVERSEAS SHIPBUILDING COOPERATIO N CENTRE. THE SAID COMPANY HAD ALSO NO PE IN INDIA NOR HAD ANY BUSINESS CONNECTION IN INDIA. THERE IS NO MATERIAL PLACED ON RECORD BEFORE US TO CONTROVERT THE CLAIM OF THE ASSESSEE THAT THE AS SESSEE HAD NO PE IN INDIA NOR ANY BUSINESS M/S PIPAVAV SHIPYARD LTD, - 4 - CONNECTION IN INDIA. THE INCOME ON THIS ACCOUNT EVE N IF PAID IS NOT TAXABLE IN INDIA. THEREFORE NO TAX WAS REQUIRED TO BE DEDUCTED. CONSIDERING THE FA CTS AND CIRCUMSTANCES OF THE CASE, WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) CANCELING ORDER OF AO PASSED U/S 201(1) 201(1A) AND THE SAME IS, THEREFORE, UPHELD. 6. NOW WE TAKE UP THE APPEAL OF THE REVENUE IN ITA NO.2604/MUM/2011 RELATING TO LEVY OF PENALTY U/S 271C. THE PENALTY HAD BEEN LEVIED FO R FAILURE TO DEDUCT TDS IN RESPECT OF AMOUNT PAYABLE TO M/S OVERSEAS SHIPBUILDING COOPERATION CE NTRE. THE AO HAD HELD THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX IN RESPECT OF THE AMOUNT P AYABLE TO THE SAID CONCERN AND SINCE THERE HAD BEEN FAILURE, THE AO TREATED THE ASSESSEE IN DEFAUL T U/S 201(1) AND LEVIED INTEREST U/S 201(1A). IN ADDITION PENALTY HAD ALSO BEEN LEVIED U/S 271C FOR SAID DEFAULT. WE HAVE ALREADY DEALT WITH THE ISSUE OF LIABILITY TO THE TO ASSESSEE TO DEDUCT TAX AT SOURCE IN RESPECT OF AMOUNT PAYABLE TO OVERSEAS SHIPBUILDING COOPERATION CENTRE AND WE HAV E ALREADY HELD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AND THUS UPHELD THE ORDER OF C IT(A) CANCELING THE ORDER OF AO U/S 201(1) AND 201(1A). THE PENALTY LEVIED BY THE AO, THEREFORE, C ANNOT SURVIVE. WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A) CANCELING THE PENALTY. 7. IN THE RESULT BOTH THE APPEALS OF THE REVENUE AR E DISMISSED. ORDER PRONOUNCED ON 7 -8-2013 SD/- SD/- (SANJAY GARG) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 7.8.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI