COTECNA INSPECTION INDIA P.LTD, MUMBAI V. ASST CIT RG 10(3), MUMBAI

ITA 3116/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84538 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 18-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 23-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK PERAMPURNA
• Assessee Lawyers: MAYUR R SHAH
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUM BAI .. , , BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO. 3116/MUM/2013 ( / ASSESSMENT YEAR: 2007-08) COTECNA INSPECTION INDIA PVT. LTD. A-302, DELPHI BUILDING, HIRANANDANI BUSINESS PARK, ORCHARD AVENUE, POWAI, MUMBAI-400 076 / VS. ASST. CIT, RANGE-10(3), MUMBAI ./ ./PAN/GIR NO. AACCC 4428 K ( /APPELLANT ) : ( !' / RESPONDENT ) # $ / APPELLANT BY : SHRI MAYUR R. SHAH !' # $ / RESPONDENT BY : SHRI VIVEK PERAMPURNA % &'( # )* / DATE OF HEARING : 18.12.2014 +,- # )* / DATE OF PRONOUNCEMENT : 18.12.2014 . / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-22, MUMBAI (CIT(A) FOR SH ORT) DATED 04.03.2013, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2007-08 VIDE ORDER DATED 30.11.2009. 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS THE VALIDITY OR OTHERWISE IN LAW OF THE DISALLOWANCE U/S.40(A)(I) IN THE SUM OF RS.18,1 8,202/- PAID BY THE ASSESSEE-COMPANY, 2 ITA NO. 3116/MUM/2013 (A.Y. 2007-08) COTECNA INSPECTION INDIA PVT. LTD. VS. ASST. CIT IN THE BUSINESS OF RENDERING INSPECTION, AUDITING, CERTIFICATION, CO-ORDINATION, TESTING, SAMPLING AND CONTROL OF GOODS EXPORTED OUTSIDE INDI A, TO AN AFFILIATE CONCERN, COTECNA PHILIPPINES INC. 3. THE ASSESSEES CASE IS THAT THE SAME BEING IN TH E NATURE OF REIMBURSEMENT OF EXPENDITURE TOWARD VARIOUS SERVICES RENDERED BY THE PAYEE-COMPANY, VIZ. FOR GENERAL ADMINISTRATION; BUSINESS DEVELOPMENT, PLANNING AND CO-ORDINATION; CORPORATE ADVISORY AND SUPPORT SERVICES; MARKETING CONTROL AND SALE PR OMOTION; HUMAN RESOURCES, TRAINING AND MANAGEMENT, ETC., WHICH LIST IS NOT EXHAUSTIVE, WAS NOT LIABLE FOR TAX DEDUCTION U/S.195 OF THE ACT AND, THEREFORE, THE PROVISION OF SECTION 40(A)(I) WOULD NOT APPLY. THE REVENUES CASE, ON THE OTHER HAND, IS THAT THE SAME IS ONLY IN THE NATURE OF INCOME IN THE HANDS OF THE PAYEE-COMPANY, I.E., EVEN IF CONSIDERE D TO BE BY WAY OF REIMBURSEMENT OF EXPENDITURE, IMPLYING PAYMENT FOR SERVICES TO THAT EXTENT, SO THAT THE PROVISION OF SECTION 195 WOULD APPLY. THE TAX HAVING ADMITTEDLY NOT BEEN DEDUCTED THEREON, THE SAME WAS LIABLE FOR DISALLOWANCE U/S.40(A)(I) OF THE ACT. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE ARE UNABLE TO PERSUADE OURSELVES TO BE IN AGREEM ENT WITH THE ASSESSEE THAT THE IMPUGNED PAYMENT IS ONLY BY WAY OF REIMBURSEMENT OF EXPENDITURE. FIRSTLY, THERE IS NOTHING IN THE TERMS OF THE SERVICE AGREEMENT (PB P GS. 1-4), GOVERNING THE PROVISION OF SERVICES AND PAYMENT IN LIEU THEREOF, THAT WOULD LE AD TO THAT INFERENCE; ALL THAT IT OBLIGES THE ASSESSEE TO IS THE PAYMENT OF ALL THE NECESSARY AND REASONABLE COSTS. IN THE ABSENCE OF ANY DATA OR INFORMATION WITH REGARD TO THE ACTUAL C OSTS INCURRED, HOW COULD IT BE SAID THAT THE SAME IS IN FACT A REIMBURSEMENT? AS REGARDS THE CLAIM OF IT BEING REASONABLE, THE SAME DOES NOT ADVANCE THE ASSESSEES CASE OF IT BEI NG A REIMBURSEMENT. REASONABILITY OF PAYMENT, WHICH WOULD AGAIN REQUIRE INFORMATION AS T O THE FAIR MARKET VALUE OF THOSE SERVICES, AS ALSO THE COST INCURRED IN THEIR RESPEC T, WOULD NOT PER SE EXCLUDE THE APPLICATION OF THE TDS PROVISION, SO THAT IT IS IRR ELEVANT. RATHER, AS WE SEE IT, THE PAYEE MAY AS WELL BE OPERATING AS A PROFIT CENTER, PROVID ING SUCH SERVICES TO OTHER GROUP 3 ITA NO. 3116/MUM/2013 (A.Y. 2007-08) COTECNA INSPECTION INDIA PVT. LTD. VS. ASST. CIT CONCERNS AS WELL. IT IS ONLY ITS ANNUAL ACCOUNTS, O R RATHER AN ANALYSIS THEREOF, THAT COULD THROW SOME LIGHT THEREON. TWO, IN PRINCIPLE, IT NEE DS TO BE APPRECIATED THAT THE PAYMENT FOR THE SERVICES AVAILED - WHICH IN THE PRESENT CAS E ARE IN THE NATURE OF SPECIALIZED SERVICES, EVEN AT COST, WOULD ONLY IMPACT THEIR VAL UATION, I.E., THE COST OF THOSE SERVICES TO THE ASSESSEE-PAYER, A RESIDENT, AND NOT THE CHARACT ER OF THE PAYMENT. ITS RECEIPT WOULD THUS ASSUME THE NATURE OF INCOME IN THE HANDS OF THE PAYEE-COMPANY. WE ARE, THEREFOR E, UNABLE TO AGREE WITH EITHER THE CLAIM OF IT BEING A REIMBURSEMENT, OR OF IT BEING NOT LIABLE, ON THAT GROUND, FOR DEDUCTION OF TAX AT SOURCE. THE ASSESSEES SECOND ARGUMENT, I.E., THAT EVEN SO, THE SAME IS NOT TAXABLE IN-AS- MUCH AS ALL THE PAYMENTS ARE GOVERNED BY THE INDO-P HILIPPINES TAX TREATY, HAS FORCE, THE REVENUES STANCE THAT THE TAX WOULD NEVERTHELESS ST AND TO BE DEDUCTED IN-AS-MUCH AS THE WORDS CHARGEABLE TO TAX UNDER THE PROVISIONS OF TH E ACT, AS OCCURRING IN SECTION 195(1), WOULD ONLY IMPLY CHARGEABILITY WITH REFERENCE TO TH E PROVISIONS OF THE ACT, SO THAT THE PROVISIONS OF THE DTA CANNOT BE CONSIDERED FOR THE PURPOSE, IS DIFFICULT TO AGREE WITH. SECTION 90(2) IS THE ONLY A PROVISION UNDER THE ACT . IT CLEARLY PROVIDES THAT THE PROVISIONS OF THIS ACT WOULD APPLY ONLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THE ASSESSEE. AS SUCH, IF AN INCOME IS NOT CHARGEABLE TO TAX UNDER T HE AGREEMENT (DTA) ENTERED INTO BY THE CENTRAL GOVERNMENT WITH THE GOVERNMENT OF ANY C OUNTRY OUTSIDE INDIA, AS PHILIPPINES IN THE INSTANT CASE, IT CAN ONLY BE SAI D TO BE NOT CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. THE TAXABILITY OF THE RESIDE NTS OF THAT COUNTRY WOULD THUS BE GOVERNED BY THE PROVISIONS OF THE SAID AGREEMENT, U NLESS OF-COURSE THE PROVISIONS OF THE ACT ARE MORE BENEFICIAL THERETO. THE APPLICATION OR OTHERWISE OF SECTION 195 WOULD THEREFORE HAVE TO BE SEEN WITH REFERENCE TO THE CHA RGEABILITY TO TAX OF THE IMPUGNED PAYMENTS TO A NON-RESIDENT, EITHER DIRECTLY UNDER T HE PROVISIONS OF THE ACT OR WITH REFERENCE TO THAT OF THE RELEVANT DTA. IN THE PRESE NT CASE, THERE HAS HOWEVER BEEN NO SUCH EXAMINATION BY THE AUTHORITIES BELOW IN THE MATTER, WHO PROCEEDED PRESUMING THE CHARGEABILITY OF THE SAME TO TAX, AND FOR WHICH THE PROVISIONS OF THE RELEVANT DTA, WITH REFERENCE TO WHICH THE ASSESSEES CASE WAS SOUGHT T O BE CANVASSED BEFORE US BY THE LD. AR, WOULD NEED TO BE EXAMINED. 4 ITA NO. 3116/MUM/2013 (A.Y. 2007-08) COTECNA INSPECTION INDIA PVT. LTD. VS. ASST. CIT WE, ACCORDINGLY, ONLY CONSIDER IT FIT AND PROPER TO RESTORE THIS MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THE TAX ABILITY OF THE IMPUGNED SUM WITH REFERENCE TO THE INDO-PHILIPPINES TAX TREATY, AND D ECIDE THE MATTER IN ACCORDANCE WITH LAW, ISSUING DEFINITE FINDINGS OF FACT. THE LAW IN THE M ATTER IS WELL SETTLED, AND FOR WHICH WE MAY REFER TO THE DECISION BY THE APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P.) LTD. VS. CIT [2010] 327 ITR 456 (SC), RELIED UPON BEFORE US, AND WHICH STANDS FOLLOWED REGULARLY BY THE TRIBUNAL, AS IN THE CASE OF ASST. CIT V. VILAS N. TAMHANKAR (IN ITA NO. 4522/MUM/2013 DATED 21.11.2014). 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. /-)0 &12/) # 3# 456 7 8 ' 9 ) # ) :; ORDER PRONOUNCED IN THE OPEN COURT ON DECEMBER 18, 2014 SD/- SD/- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % ( MUMBAI; <& DATED : 18.12.2014 '.&../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. % =) ( ) / THE CIT(A) 4. % =) / CIT - CONCERNED 5. @'AB !)&C1 , * C1- , % ( / DR, ITAT, MUMBAI 6. BD2 E( / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , % ( / ITAT, MUMBAI