ITO, New Delhi V. M/s. Karistorz Endoscopy India Pvt. Ltd, New Delhi

ITA 2929/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5721 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-02-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 17-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Assessee Lawyers: VK SABHARWAL
• Keywords: Double taxation relief; Wholly owned subsidiary
• Section: 2

Judgement Text

ITA NO. 2929/DEL/09 & CO NO. 289/DEL/09 A.Y. 2003-04 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2929/DEL/2009 (A.Y. 2003-04) ACIT- 5(1), VS. M/S KARLSTORZ ENDOSCOPY INDIA NEW DELHI PVT. LTD., C-126, OKHLA INDL. AREA, PHASE-I, NEW DELHI 110 020 (PAN: AAACK4816D) AND C.O. NO. 289/DEL/2009 (IN ITA NO. 2929/DEL/2009) (A.Y. 2003-04) M/S KARLSTORZ ENDOSCOPY INDIA VS. ITO WARD 5(2), PVT. LTD., C-126, OKHLA INDL. AREA, CR BLDG., ITO N EW DELHI PHASE-I, NEW DELHI 110 020 (PAN: AAACK4816D) [APPELLANT] (RESPONDENT) ASSESSEE BY : SH. VK SABHARWAL, ADV. DEPARTMENT BY : SH. B.K. GUPTA, SR. DR ORDER PER SHAMIM YAHYA, AM THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE EMANATE OUT OF ORDER OF THE LD. CIOT(A) DATED 1.4.2009 AND PERTAIN TO ASSESSMENT YEAR 2003-04. 2. THE ISSUE RAISED IN THE REVENUES APPEAL IS THA T ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS E RRED IN DELETING THE ADDITION OF ITA NO. 2929/DEL/09 & CO NO. 289/DEL/09 A.Y. 2003-04 2 RS. 71,21,298/- ON THE BASIS OF THE DECISION OF ITA T IN EARLIER ASSESSMENT YEAR IN THE ASSESSEES CASE WITHOUT APPRECIATING THE FACT T HAT THE ASSESSEE HAD FAILED TO DEDUCT PROPER TAX AT SOURCE ON PAYMENT MADE TO PARE NT COMPANY AT GERMANY AND THAT IT WAS IN NATURE OF TECHNICAL FEE. THE DI SALLOWANCE WAS RIGHTLY MADE INVOKING PROVISION OF SECTION 40(A)(I). 3. THE ASSESSEE COMPANY IN THIS CASE IS A 100% SUBSIDIARY OF M/S KARL STORZ VERTRIEBS GMBH, GERMANY. DURING THE COURSE OF ASS ESSMENT AO NOTED THAT A PAYMENT OF RS. 112.76 LACS WAS MADE TO THE FOREIGN COMPANY (KARL STORZ GMBH AND COMPANY, KG GERMANY) AS FEES FOR TECHNICAL SERV ICES RENDERED BY FOREIGN TECHNICIANS. AO FURTHER OBSERVED THAT AS PER PROV ISIONS WHILE MAKING THIS PAYMENT, TDS AT THE RATE 20.5% WAS REQUIRED TO BE D EDUCTED. HOWEVER TDS AMOUNTING TO RS. 8517453/- WAS DEDUCTED AS AGAINST THE REQUIRED AMOUNT OF RS. 2311619 (AND @ OF 20.5% OF RS. 4154892/-). THE BAL ANCE AMOUNT OF TECHNICAL FEES IS RS. 7121298/- ON WHICH TDS WAS NOT DEDUCTED WAS LIABLE TO BE DISALLOWED AND ADDED BACK IN THE TAXABLE LOSS. IN RESPONSE T HE ASSESSEE EXPLAINED THAT THE SAID TECHNICAL KNOW-HOW FROM GERMANY WAS IN FACT IN THE NATURE OF SALARY BECAUSE THE COMPANY FROM GERMANY HAD SENT A TECHNI CAL PERSON AND THE AMOUNT PAID TO THIS PERSON WAS DEBITED UNDER THE HEAD SALA RY. ASSESSEE ALSO EXPLAINED THAT IDENTICAL ISSUE WAS INVOLVED IN ASSESSMENT YEA R 2001-02 AND THE TRIBUNAL HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. AO DI D NOT ACCEPT THE CONTENTIONS. HE WAS OF THE OPINION THAT THE REPRESENTATIVE OF TH E GERMANY COMPANY CANNOT BE AN EMPLOYEE OF THE ASSESSEE AND SERVICES RENDERE D BY TECHNICAL PERSON ARE COVERED U/S 40(A)(1) AND ARE ALLOWABLE ONLY WHEN TD S ARE DEDUCTED AT SOURCE. AO FURTHER CONCLUDED THAT AS PER THE PROVISION OF L AW WHILE MAKING THE PAYMENT FOR TECHNICAL KNOW-HOW TDS @ 25.5 WAS REQUIRED TO B E DEDUCTED. SINCE THE ITA NO. 2929/DEL/09 & CO NO. 289/DEL/09 A.Y. 2003-04 3 ASSESSEE HAS DEDUCTED THE TDS OF RS. 851753/-, SO T HE BALANCE AMOUNT OF RS. 7121298/- ON WHICH TDS AMOUNT WAS NOT DEDUCTED, WAS ADDED BACK. 4. UPON ASSESSEES APPEAL LD. CIT(A) NOTED THE FOLL OWING SUBMISSIONS, IT WAS SUBMITTED THAT THE ASSESSEE IS A COMPANY AND IS A W HOLLY OWNED SUBSIDIARY OF A KARL STORZ GMBH AND CO. KG GERMANY AND IS ENGAGED I N MARKETING AND DISTRIBUTION OF MEDICAL EQUIPMENT IN INDIA. FOR T HE BETTER MANAGEMENT OF ITS SUBSIDIARY COMPANY, KARL STORZ GMBH AND CO. KG TUT TINGEN GERMANY DEPUTED ONE OF ITS EMPLOYEE AS MANAGING DIRECTOR OF ITS SUB SIDIARY COMPANY, SINCE THE EMPLOYEE IS WELL VERSED WITH THE PRODUCTS AND POLIC IES OF THE COMPANY. SALARY PAID TO THE DEPUTED EMPLOYEE IS TO BE PAID BY ITS S UBSIDIARY. THEREFORE, SALARY PAID TO THE DEPUTED EMPLOYEE BY THE KARLSTORZ GMBH & CO. KG TUTTINGEN GERMANY IS TO BE REIMBURSED TO THE GERMAN COMPANY B Y ITS SUBSIDIARY COMPANY ON COST BASIS. THERE WAS NO TECHNICAL COLLABORATION AGREEMENT O R TECHNICAL SERVICE AGREEMENT BETWEEN THE ASSESSEE AND THE GERMAN COMPA NY AND THE PAYMENT IS NOT FOR ANY SERVICE RECEIVED FROM BUILDING COMPANY BUT IT IS MERELY REIMBURSEMENT OF THE COST. SINCE THE AMOUNT REMIT TED TO THE GERMAN COMPANY WAS ONLY A REIMBURSEMENT OF EXPENSES AND THEREFOR E NO INCOME CHARGEABLE TO TAX ACCRUED TO THE GERMAN COMPANY AND THEREFORE TH ERE WAS NO LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT TAX. IT IS FURTHER SUBMITTED THAT THE AO HAS NOT DISPUT ED THAT IDENTICAL ISSUES WERE INVOLVED IN THE AYS. 1998-99 AND 2001-02 AND THERE WAS NO CHANGE IN THE FACTS OF THE CASE. HONBLE ITAT IN THEIR ORDER DATE D 15.6.2005 IN ITA NO. 2626/DEL/2002 FOR THE ASSESSMENT YEAR 1998-99 AND O RDER DATED 19.3.2007 IN ITA ITA NO. 2929/DEL/09 & CO NO. 289/DEL/09 A.Y. 2003-04 4 NO. 2301/DEL/2006 FOR A.Y. 2001-02, HAS HELD THAT T HE AMOUNT REMITTED TO THE GERMAN COMPANY BEING IN THE NATURE OF SALARY CANNOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES AND CORRESPONDINGLY THERE WAS NO LIABILITY UPON THE ASSESSEE TO DEDUCT TAX, IT WAS ACCORDINGLY HELD BY THE TRIBUNA L THAT SECTION 40(A)(I) WAS NOT ATTRACTED AND THE AMOUNT REIMBURSED TO THE GERMAN C OMPANY WAS ALLOWABLE AS A DEDUCTION. 5. UPON CONSIDERATION OF THE ABOVE, LD. CIT(A) REF ERRED TO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEA R 1998-99 AND 2001-02 AND OBSERVED THAT THE ISSUE HAD ALREADY BEEN DECIDED BY THE ITAT ON IDENTICAL FACTS. LD. CIT(A) DIRECTED THE AO TO DELETE THE ADDITION M ADE BY HIM. 6. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 7. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. IT TRANSPIRES THAT IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNA L IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998-99 IN ITA NO. 2626 AND ASSESSM ENT YEAR 2001-02 IN ITA 2301. IN ITA NO. 2301/DEL/2006 VIDE ORDER DAT ED 19.3.2007 THE TRIBUNAL HAD CONCLUDED AS UNDER:- 5. WE HAVE CAREFULLY GONE THROUGH THE AFORESAID ORD ER OF THE TRIBUNAL. IN THAT YEAR ALSO, THE PAYMENT REPRESENTE D REIMBURSEMENT OF SALARY PAID TO MR. PETER LASER BY THE GERMAN COMPANY. THE FACTS ARE IDENTICAL WITH THE FACTS OB TAINING IN THE PRESENT YEAR AND THIS IS NOT DISPUTED BEFORE US ON BEHALF OF THE REVENUE. THE TRIBUNAL HAS HELD THAT THE AMOUN T REPRESENTED MERE SALARY PAID TO MR. LASER IN INDIA AND CANNOT ITA NO. 2929/DEL/09 & CO NO. 289/DEL/09 A.Y. 2003-04 5 BE CONSIDERED TO BE FEES FOR TECHNICAL SERVICES AN D ON THIS GROUND THE PROVISIONS OF SECTION 40(A)(I) ARE NOT A TTRACTED. THE TRIBUNAL HAS ALSO HELD THAT UNDER ARTICLE 12.4 OF T HE DTAA WITH GERMANY READ WITH ARTICLE 15, ANY SALARY DERIVED BY A RESIDENT OF GERMANY FOR EMPLOYMENT IN INDIA IS TAXABLE IN I NDIA IF THE EMPLOYMENT IS EXERCISED IN INDIA. THE TRIBUNAL ALS O EXAMINED THE NATURE OF THE PAYMENT WITH REFERENCE TO EXPLANA TION 2 TO SECTION 9(1)(VII) OF THE IT ACT WHICH DEFINES THE E XPRESSION FEES FOR TECHNICAL SERVICES UNDER WHICH ANY AMOUNT WHIC H WOULD BE CHARGEABLE AS SALARY OF THE RECIPIENT SHALL NOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES. IT HAS ALSO BEEN OBS ERVED THAT THERE IS NO TECHNICAL COLLABORATION AGREEMENT OR TE CHNICAL SERVICE AGREEMENT BETWEEN THE ASSESSEE AND THE GERM AN COMPANY AND THEREFORE THE ASSESSEE WAS NOT LIABLE T O PAY ANY TECHNICAL FEES TO THE GERMAN COMPANY. IN THESE CIRCUMSTANCES, RESPECTFULLY FOLLOWING THE SAID ORDE R, WE HOLD THAT THE CIT(A) WAS RIGHT IN HOLDING THAT THE DISAL LOWANCE OF RSW. 36,59,416/- UNDER SECTION 40A)(I) WAS NOT JUSTI FIED. WE AFFIRM HIS ORDER AND DISMISS THE APPEAL FILED BY TH E REVENUE WITH NO ORDER AS TO COSTS. 7.1 SINCE THE FACTS ARE IDENTICAL. FOLLOWING THE AFORESAID PRECEDENT, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 8. IN THE RESULT THE REVENUES APPEAL STANDS DISMIS SED. ITA NO. 2929/DEL/09 & CO NO. 289/DEL/09 A.Y. 2003-04 6 9. IN THE CROSS OBJECTION FILED BY THE ASSESSEE, THE ASSESSEE HAS ONLY SUPPORTED THE ORDER OF THE LD. CIT(A). SINCE WE H AVE ALREADY UPHELD THE ORDER OF THE LD. CIT(A) IN REVENUES APPEAL ABOVE, THE CROSS OBJECTION FILED BY THE ASSESSEE STANDS INFRUCTUOUS AND IS DISMISSED AS SUCH. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND CROSS OBJECTION FILED BY THE ASSESSEE BEING INFRUCTUOUS IS ALSO DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/02/201 0. SD/- SD/- [C.L. SETHI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 10/02/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES