DDIT (IT) 4(1), MUMBAI V. MERRILL LYNCH INTERNATINAL, MUMBAI

ITA 2759/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55092 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 28-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MALATHI SRIDHARAN
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Business income; Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, A.M. AND SHRI V. DUR GA RAO, J.M. ITA NO. 2759/MUM/2009 ASSESSMENT YEAR : 2005-06 DY. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) APPELLANT 4(1), 133, SCINDIA HOUSE, BALLARD PIER, MUMBAI 400 038 VS. M/S MERRILL LYNCH INTERNATIONAL, RESPONDENT C/O M/S G.M. KAPADIA & CO., 1001, RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI 400 021. (PAN AABCM1026G) APPELLANT BY : MR. MALATHI SRIDHARAN RESPONDENT BY : MR. P.J. PARDIWALLA & MR. NITESH JOSHI DATE OF HEARING : 28/07/2011 DATE OF PRONOUNCEMENT: ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-XXXII, MUMBAI, PASSED ON 25/02/2009 FOR THE ASSESSMENT YEAR 2005-06 WHEREIN THE REVENUE HAS RAISED THE FOL LOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT NEITHER THE UN DER WRITING COMMISSION NOR THE SELLING COMMISSION, RECEIVED FRO M THE INDIAN COMPANIES WOULD AMOUNT TO FEES FOR TECHNICAL SERVI CES WITHIN THE MEANING OF THE DTAA BETWEEN INDIA AND U.K. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A), MUMBAI ON THE ABOVE GROUNDS BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. ITA NO. 2759/MUM/2009 M/S MERRILL LYNCH INTERNATIONAL 2 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A COMPANY INCORPORATED IN AND UNDER THE LAWS OF THE U NITED KINGDOM AND IS REGISTERED AS A FOREIGN INSTITUTIONAL INVEST OR (FII) WITH THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI). THE ASSESSEE HAS OBTAINED NECESSARY PERMISSION TO CARRY OUT INVESTME NT ACTIVITY IN SHARES AND SECURITIES OF INDIA COMPANIES. DURING TH E PREVIOUS YEAR RELEVANT TO AY UNDER APPEAL, THE ASSESSEE FILED ITS RETURN OF INCOME RETURNING TOTAL INCOME RS. NIL AND SHORT TERM LOSS OF RS. 23,218,968/- TO BE CARRIED FORWARD TO THE SUBSEQUEN T YEAR. THE ASSESSEE DECLARED BY WAY OF A NOTE IN ITS RETURN OF INCOME THAT AN AMOUNT OF RS. US $ 9,536,282/- HAS BEEN RECEIVED AS FEES FROM INVESTMENT BANKING TRANSACTIONS OUTSIDE INDIA AND T OWARDS REIMBURSEMENT OF EXPENSES AND THE SAME IS NOT LIABL E TO TAX IN INDIA. HOWEVER, THE AO WAS NOT CONVINCED WITH THE EXPLANAT IONS OFFERED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEE DINGS AND DETERMINED THE TAXABLE INCOME OF THE ASSESSEE INCLU DING THE OF RS. US$ 9,536,282/-, BY HOLDING THAT THE FEE RECEIVED F ROM THE INVESTMENT BANKING SERVICES IN RELATION TO THE ISSUE OF ADRS/G DRS ARE EVENTUALLY UTILIZED IN INDIA SINCE THE BENEFIT OF THE SERVICES RENDERED BY THE ASSESSEE IS ULTIMATELY RECEIVED BY ISSUING INDIAN C OMPANIES. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 3. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT T HE INCOME RECEIVE BY THE ASSESSEE FROM ITS INVESTMENT BANKING TRANSACTIONS IS IN THE NATURE OF BUSINESS INCOME. UNDER ARTICLE 7 OF T HE DTAA DEALING WITH BUSINESS PROFITS, BUSINESS PROFITS OF A RESIDE NT OF THE UK ARE LIABLE TO TAX IN INDIA ONLY IF SUCH PROFITS ARE ATT RIBUTABLE TO A PERMANENT ESTABLISHMENT OF THE UK RESIDENT SITUATED IN INDIA AS DEFINED IN ARTICLE 5 OF THE DTAA. THE ASSESSEES IN COME FROM INVESTMENT BANKING TRANSACTIONS IS NOT ATTRIBUTABLE TO A PERMANENT ESTABLISHMENT OF THE ASSESSEE SITUATED IN INDIA AND , ACCORDINGLY THE AFORESAID INCOME IS NOT LIABLE TO TAX IN INDIA. THE ASSESSEE RELIED UPON VARIOUS CASE LAWS BEFORE THE CIT(A) INCLUDING THE D ECISION OF ITAT, ITA NO. 2759/MUM/2009 M/S MERRILL LYNCH INTERNATIONAL 3 MUMBAI IN THE CASE OF RAYMOND LTD. V. DCIT (2003) 8 0 TTJ 120 (MUM.). AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE, THE CIT(A) HELD AS UNDER:- 5.12..I HAVE CONSIDERED THE APPELLANTS SUBMIS SION AND I AGREE WITH THE APPELLANT THAT IT HAD OPTED TO BE GOVERNED BY THE PROVISIONS OF THE DTAA AND THAT THE PROVISIO NS OF THE DTAA OUGHT TO APPLY TO THE APPELLANT. SECTION 90(2) OF THE IT ACT MAKES IT VERY CLEAR THAT THE APPELLANT IS ENTITLED TO CLAIM THE BENEFITS UNDER THE IT ACT OR TREATY WHICHEVER IS MO RE BENEFICIAL TO THE APPELLANT. THE ISSUE OF TAXABILITY OF THE AFORE SAID FEES IN INDIA AS PER THE INDIA-UK DTAA IS SQUARELY COVERED BY RAYMOND LTDS CASE (SUPRA). RESPECTFULLY FOLLOWING THE SAID DECISION OF THE JURISDICTIONAL TRIBUNAL, MORE SO AS THE SERVICE PRO VIDER IN THE SAID CASE WAS THE APPELLANT ITSELF, I HOLD THAT THE SAI D FEE AMOUNT IS NOT LIABLE TO TAX IN NDIA AS THE SAME DOES NOT CONS TITUTE FEES FOR TECHNICAL SERVICES UNDER THE INDIA-DTAA READ WITH T HE MEMORANDUM OF UNDERSTANDING FORMING PART OF THE IND IA-USA DTAA AS THE TECHNICAL SERVICES WERE NOT MADE AVAILA BLE BY THE APPELLANT TO THE INDIAN COMPANIES. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED I N FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI IN THE CAS E OF RAYMOND LTD. VS. DCIT[2003] 80 TTJ 120 (MUM.). THE LEARNED DR HA S CONCEDED THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW. WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF ITAT MUMBAI BENCHES IN THE CASE OF RAY MOND LTD. V. DCIT (SUPRA), WHEREIN IT WAS HELD THAT NEITHER MANAGEMENT COMMISSION, NOR UNDERWRITING COMMISSION NOR EVEN SE LLING COMMISSION/CONCESSION WOULD AMOUNT TO FEES FOR TECH NICAL SERVICES WITHIN MEANING OF DTA WITH UK AND, CONSEQUENTLY, TH ERE WAS NO OBLIGATION ON PART OF ASSESSEE-COMPANY TO DEDUCT TA X UNDER SECTION 195. THE CIT(A) FOLLOWING THE SAID DECISION HELD THAT T HE FEE RECEIVED ITA NO. 2759/MUM/2009 M/S MERRILL LYNCH INTERNATIONAL 4 BY THE ASSESSEE IS NOT LIABLE TO TAX IN INDIA AS TH E SAME DOES NOT CONSTITUTE FEES FOR TECHNICAL SERVICES UNDER THE IN DIA-UK DTAA READ WITH THE MEMORANDUM OF UNDERSTANDING FORMING PART O F THE INDIA- USA DTAA AS THE TECHNICAL SERVICES WERE NOT MADE AV AILABLE BY THE ASSESSEE TO THE INDIAN COMPANIES. THEREFORE, WE FIN D NO INFIRMITY IN THE FINDINGS OF THE CIT(A) AND HENCE, THE ORDER OF THE CIT(A) IS HEREBY UPHELD. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF AUGUST, 2011. SD/- SD/- (J. SUDHAKAR REDDY) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 30 TH AUGUST, 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, L BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.