M/s Trellebarg Industrial Products India Pvt Ltd , Bangalore V. Deputy Commissioner of Income Tax Circle-7(1)(1), Bangalore

ITA 2645/BANG/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7814 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-08-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 07-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Keywords: Business income; Transfer pricing; Double taxation relief; International transaction; Non-deduction of tax; TDS; Set aside
• Section: 195

Judgement Text

ITA NO.2645/BANG/2017 M/S. TRELLEBORG INDIA PVT. LTD., BENGALURU IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.2645/BANG/2017 ASSESSMENT YEAR: 2013-14 M/S. TRELLEBORG INDIA PVT. LTD. (PREVIOUSLY KNOWN AS TRELLEBORG INDUSTRIAL PRODUCTS INDIA PVT. LTD.) (SUCCESSOR IN INTEREST TO TRELLEBORG SEALING SOLUTIONS INDIA PVT. LTD.) #22/9, BERETANA AGRAHARA HOSUR MAIN ROAD BENGALURU 560 100 PAN NO : AAECT1088L VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-7(1)(1) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI TATA KRISHNA, A.R. RESPONDENT BY : SHRI PRIYADARSHI MISHRA, D.R. DATE OF HEARING : 30.08.2021 DATE OF PRONOUNCEMENT : 01.09.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE DECISION OF LD. CIT(A) IN CONFIRMING THE ADDITION MADE BY THE A .O. U/S 40(A)(I) OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] AND I T RELATES TO ASSESSMENT YEAR 2013-14. ITA NO.2645/BANG/2017 M/S. TRELLEBORG INDIA PVT. LTD., BENGALURU PAGE 2 OF 7 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURE AND SALE OF SEALS AND BEARINGS. THE ASSESSEE HAS ENTER ED INTO AN INTERNATIONAL TRANSACTION OF PAYMENT OF COMMUNICATI ON CHARGES TO ITS ASSOCIATED ENTERPRISE (A.E.) THE TPO HELD THAT THE PAYMENT TO BE AT ARMS LENGTH AND ACCORDINGLY, DID NOT MAKE ANY T RANSFER PRICING ADJUSTMENT. THE A.O., HOWEVER, NOTICED THAT THE AS SESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THE AMOUNT OF RS.54 LAKHS PAID TO ITS A.E. ACCORDINGLY, THE A.O. ISSUED SHOW CAUSE NOTICE TO T HE ASSESSEE TO EXPLAIN WHY DISALLOWANCE U/S 40(A)(I) OF THE ACT SH OULD NOT BE MADE. IN THE REPLY, THE ASSESSEE SUBMITTED THAT IT IS COV ERED BY DTAA ENTERED BETWEEN INDIA AND SWEDEN. FURTHER, AS PER DTAA, THE IMPUGNED PAYMENT IS NOT ROYALTY OR FEE FOR TECHNICA L SERVICES. ACCORDINGLY, THE ASSESSEE CONTENDED THAT IT IS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF RS.54 LAKHS MADE TO I TS A.E. 3. THE A.O. SIMPLY OBSERVED THAT THE SUBMISSIONS MA DE BY THE ASSESSEE IS NOT SATISFACTORY AND ACCORDINGLY DISALL OWED THE AMOUNT OF RS.54 LAKHS AS PER PROVISIONS OF SECTION 40(A)(I )/40(A)(IA) OF THE ACT. 4. THE LD. CIT(A), IN THE INITIAL PART OF HIS ORDER , TOOK THE VIEW THAT THE PAYMENT IS IN THE NATURE OF FEE FOR TECHNICAL S ERVICES. THE LD. CIT(A) FURTHER NOTICED THAT THE ASSESSEE HAS PAID A SUM OF RS.1,57,99,276/- TO ITS A.E. AS COMMUNICATION EXPEN SES. OUT OF THE ABOVE AMOUNT, A SUM OF RS.52,67,660/- WAS RELATED T O MANAGEMENT FEE AND THE ASSESSEE HAS CLAIMED TO HAVE DEDUCTED T AX AT SOURCE. ACCORDINGLY, THE REMAINING AMOUNT OF RS.1,03,17,271 /- RELATING TO COMMUNICATION EXPENSES SHOULD HAVE BEEN SUBJECTED T O DISALLOWANCE U/S 40(A)(I) FOR NON-DEDUCTION OF TAX AT SOURCE. INSTEAD OF RS.54 LAKHS. ITA NO.2645/BANG/2017 M/S. TRELLEBORG INDIA PVT. LTD., BENGALURU PAGE 3 OF 7 5. THE LD. CIT(A) ALSO REFERRED TO THE DECISION REN DERED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS LTD. 203 TAXMAN 477, WHEREIN IT WAS HELD THAT THE P AYMENT MADE FOR PURCHASE OF SOFTWARE IS IN THE NATURE OF ROYALT Y. ACCORDINGLY, THE LD. CIT(A) DIRECTED THE A.O. TO DISALLOW PAYMENT OF RS.1,03,17,271/- FOR NON-COMPLIANCE OF TDS PROVISION AS THE PAYMENT IS NOTHING BUT FEES FOR TECHNICAL SERVICES LIABLE FOR TDS OR PAYME NT FOR PURCHASE OF SOFTWARE. HE ALSO OBSERVED THAT THE A.O. SHOULD VE RIFY THE DETAILS OF TDS DEDUCTED FROM THE PAYMENT OF MANAGEMENT FEE OF RS.52,67,660/-. IT CAN BE NOTICED THAT THE LD CIT (A) HAS HELD THAT THE IMPUGNED PAYMENT IS FEE FOR TECHNICAL SERVICES OR ROYALTY. AGGRIEVED BY THE ORDER PASSED BY LD. CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US. 6. THE LD. A.R. SUBMITTED THAT THE PARENT COMPANY ( AE) IS PROVIDING COMMON INFRASTRUCTURE FACILITIES AND TH E IMPUGNED PAYMENT HAS BEEN MADE BY THE ASSESSEE FOR USE OF TH OSE INFRASTRUCTURE FACILITIES. HE SUBMITTED THAT THE D ETAILS OF SERVICES PROVIDED BY THE AE ARE GIVEN IN A DOCUMENT TITLED A S GROUP I.T. SERVICES CATALOGUE. THE ABOVE SAID DOCUMENT IS PL ACED AT PAGE NOS.100 TO 112 OF THE PAPER BOOK. THE LD. A.R. SUB MITTED THAT THE GROUP COMPANY IS OFFERING VARIOUS SERVICES TO ALL T HE ENTITIES IN THE GROUP IN THE FOLLOWING FIELDS IN ORDER TO MAINTAIN UNIFORMITY IN THE OPERATIONS OF THE GROUP: 1. SERVICE DESK (AMER/APAC/EMEA) 2. WORKPLACE 3. EMAIL & INSTANT MESSAGING 4. AUDIO & WEB CONFERENCING 5. TRELLEBORG NETWORK SERVICES 6. WIDE AREA NETWORK 7. CENTRAL HOSTING SERVICES ITA NO.2645/BANG/2017 M/S. TRELLEBORG INDIA PVT. LTD., BENGALURU PAGE 4 OF 7 8. LICENSES 9. APPENDICES & DEFINITIONS THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS NEITHE R PURCHASED ANY SOFTWARE OR GOT THE LICENSE TO USE ANY OF THE SOFTW ARE BELONGING TO THE AE. ALL THE FACILITIES ARE OWNED BY THE AE AND THE PAYMENT HAS BEEN MADE FOR USE OF THOSE FACILITIES. HE FURTHER SUBMI TTED THAT THE USE OF INFRASTRUCTURE FACILITIES CANNOT BE TERMED AS PROVI SION OF TECHNICAL SERVICES BY AE TO THE ASSESSEE. ACCORDINGLY, HE S UBMITTED THAT THE IMPUGNED PAYMENTS WOULD NOT FALL UNDER THE CATEGORY OF EITHER ROYALTY OR FEE FOR TECHNICAL SERVICES WITHIN THE ME ANING OF INDIA SWEDEN DTAA. IT WOULD CONSTITUTE BUSINESS INCOME IN THE HANDS OF AE AND SINCE THE AE DOES NOT HAVE PERMANENT ESTA BLISHMENT, NO INCOME IS CHARGEABLE TO TAX IN INDIA IN THE HANDS O F AE. ACCORDINGLY, HE SUBMITTED THAT THE ASSESSEE IS NOT LIABLE TO DED UCT TAX AT SOURCE FROM THE ABOVE SAID PAYMENTS U/S 195 OF THE ACT. 7. THE LD. A.R. FURTHER SUBMITTED THAT THE LD. C IT(A) HAS ENHANCED THE DISALLOWANCE WITHOUT GIVING STATUTORY NOTICE AS PER PROVISIONS OF SECTION 251(2) OF THE ACT. FURTHER, HE SUBMITTED T HAT THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CAS E OF SAMSUNG ELECTRONICS LTD. (SUPRA) HAS SINCE BEEN REVERSED BY THE HONBLE SUPREME COURT IN THE CASE OF ENGINEERING ANALYSIS C ENTRE OF EXCELLENCE PVT. LTD. 8. ON THE CONTRARY, THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) HAS INCORPORATED THE SUBMISSIONS MADE BY THE ASSESSEE B EFORE THE A.O. AND BASED UPON THE SAME HAS COME TO THE CONCLUSION THAT THE SERVICES PROVIDED BY THE A.E. TO THE ASSESSEE ARE I N THE NATURE OF FEE FOR TECHNICAL SERVICES. FURTHER, BY PLACING RELIAN CE ON THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CAS E OF SAMSUNG ITA NO.2645/BANG/2017 M/S. TRELLEBORG INDIA PVT. LTD., BENGALURU PAGE 5 OF 7 ELECTRONICS LTD. (SUPRA), THE LD. CIT(A) HAS COME T O THE CONCLUSION THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE FROM THE IMPUGNED PAYMENT MADE BY THE ASSESSEE TO ITS A.E. EITHER AS FTS OR AS ROYALTY. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT EXPL AINED BEFORE BOTH THE TAX AUTHORITIES ABOUT THE NATURE OF SERVICES PR OVIDED BY THE AE TO IT. 9. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE R ECORD. ADMITTEDLY, THE AGREEMENT ENTERED BY THE ASSESSEE W ITH ITS A.E. AND ALSO THE NATURE OF SERVICES PROVIDED BY THE A.E. TO THE ASSESSEE HAVE NOT BEEN EXAMINED BY THE TAX AUTHORITIES. WE NOTIC E THAT THE A.O. HAS SIMPLY STATED THAT THE ASSESSEE IS LIABLE TO DE DUCT TAX AT SOURCE FROM THE IMPUGNED PAYMENT MADE TO THE AE, I.E., HE HAS NOT ADDRESSED THE SUBMISSIONS MADE BY THE ASSESSEE BEFO RE HIM THAT THE IMPUGNED PAYMENT WOULD NOT FALL UNDER THE CATEGORY OF ROYALTY OR FEE FOR TECHNICAL SERVICES. FURTHER, THE AO HAS ALSO N OT GIVEN ANY INDEPENDENT FINDING ON IT. THE AO HAS ALSO NOT DIS CUSSED ABOUT THE NATURE OF SERVICES PROVIDED BY THE AE TO THE ASSESS EE. UNLESS THE TYPE AND NATURE OF SERVICES ARE ANALYSED VIS--VIS RELEVANT DTAA PROVISIONS, IT WOULD NOT BE POSSIBLE TO COME TO A C ONCLUSION ON THIS ISSUE. 10. WE HAVE NOTICED THAT THE LD. CIT(A) HAS TAKEN THE VIEW THAT THE IMPUGNED PAYMENT MAY FALL UNDER BOTH CATEGORIES, I. E., IT MAY BE FTS OR ROYALTY. THERE SHOULD NOT BE ANY DISPUTE THAT TH E PAYMENT CAN EITHER FALL UNDER ANY ONE OF THE CATEGORIES I.E. EI THER IT CAN BE ROYALTY OR FEE FOR TECHNICAL SERVICES AND IT CANNOT BE TH E BOTH. WE NOTICE THAT THE LD CIT(A) HAS ALSO NOT EXAMINED THE TYPE A ND NATURE OF SERVICES. ITA NO.2645/BANG/2017 M/S. TRELLEBORG INDIA PVT. LTD., BENGALURU PAGE 6 OF 7 11. THE ABOVE SAID DISCUSSIONS WOULD SHOW THAT TH E TAX AUTHORITIES HAVE NOT EXAMINED THE FACTUAL ASPECTS PROPERLY TAKI NG INTO CONSIDERATION THE DEFINITION OF THE TERMS NAMELY R OYALTY AND FEE FOR TECHNICAL SERVICES AS GIVEN IN DTAA. SINCE TH E IMPUGNED PAYMENT IS COVERED BY DTAA, THE A.O. IS REQUIRED TO BE EXAMINED THE TAXABILITY OF THESE PAYMENTS AND LIABILITY TO DEDUC T TAX AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF DTAA UNLESS IT IS SHOWN BY THE ASSESSEE THAT THE PROVISIONS OF INDIAN INCOME TAX A CT IS MORE BENEFICIAL TO IT. IT HAS BEEN HELD SO BY HON'BLE S UPREME COURT IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE ( P) LTD (SUPRA). UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT T HIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE A.O. ACCORDIN GLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) AND RESTORE THIS ISSU E TO THE FILE OF A.O. FOR EXAMINING IT AFRESH. THE ASSESSEE IS ALSO DIRE CTED TO FURNISH REQUIRED INFORMATION AND EXPLANATIONS WITH REGARD T O THE TYPE AND NATURE OF SERVICES PROVIDED BY THE AE TO THE ASSESS EE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST SEPT, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 1 ST SEPT, 2021. VG/SPS ITA NO.2645/BANG/2017 M/S. TRELLEBORG INDIA PVT. LTD., BENGALURU PAGE 7 OF 7 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.