DCIT, New Delhi V. M/s. Convergys Customer Management Group Inc., Gurgaon

ITA 3417/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3387 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 28-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MUDIT SHARMA
• Keywords: Permanent establishment; Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.3417/DEL/2015 ASSESSMENT YEAR : 2006-07 DCIT, CIRCLE- 1(1)(1), NEW DELHI. VS. CONVERGYS CUSTOMER MANAGEMENT GROUP INC., C/O. PRICEWATERHOUSECOOPERS PVT. LTD., BUILDING NO.10, 17 TH FLOOR, TOWER- C, DLF CYBER CITY, GURGAON. PAN : AACCC8989M (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI ATIQ AHMAD, SR.DR ASSESSEE BY : SHRI RAVI SHARMA, ADV. & SHRI MUDIT SHARMA DATE OF HEARING : 12-02-2018 DATE OF PRONOUNCEMENT : 23-02-2018 O R D E R PER R. K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 02.03.2015 OF THE CIT(A)- 42, NEW DELHI RELATING TO ASSESSMENT YEAR 2006-07. 2. DELETION OF PENALTY OF RS.23,90,093/- BY THE LD. CIT(A) WHICH WAS LEVIED BY THE ASSESSING OFFICER U/S 271(1)(C) OF THE I.T. ACT, 1961 IS THE ONLY ISSUE RAISED BY THE REVENUE IN THE GROUNDS OF APPEAL. 3. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMI TTED THAT THE GROUND RAISED BY THE REVENUE RELATES TO THE ORDER OF THE LD. CIT( A) IN QUASHING/DELETING THE PENALTY U/S 271(1)(C) AND 271AA OF THE I.T. ACT. H E SUBMITTED THAT THE LD. 2 ITA NO.3417/DEL/2015 CIT(A) HAS PASSED A CONSOLIDATED ORDER FOR DELETING THE PENALTIES LEVIED BY THE ASSESSING OFFICER U/S 271(1)(C) AND 271AA OF THE I. T. ACT. HOWEVER, THE REVENUE HAS FILED A SEPARATE APPEAL BEFORE THE TRIB UNAL VIDE ITA NO.3529/DEL/2015 CHALLENGING THE DELETION OF PENALT Y LEVIED U/S 271AA. THEREFORE, THIS APPEAL SHOULD BE CONFINED TO THE DE LETION OF PENALTY U/S 271(1)(C) OF THE I.T. ACT. 4. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMI TTED THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-0 7 SHOWING INCOME OF RS.40,006,350/-. THE ASSESSMENT ORDER U/S 143(3) O F THE I.T. ACT, 1961 WAS PASSED ON 29.12.2008 AT AN INCOME OF RS.2,944,673,9 64/-. THE ADDITIONS WERE MADE ON ACCOUNT OF PROFITS ATTRIBUTABLE TO PE RS.2, 844,567,544/-, SOFTWARE (TAXABLE @ 15%) RS.6,817,878/- AND IPLC CHARGES (TA XABLE @ 10%) RS.53,282,192/-. 5. THE TRIBUNAL DECIDED THE ASSESSEES APPEAL VIDE ORDER DATED 10.05.2013 IN ITA NO.1443/DEL/2012 AND ITA NO.1376/DEL/2012 IN WHICH THE TRIBUNAL HELD THAT THE ASSESSEE HAS A PERMANENT ESTABLISHMEN T (PE) IN INDIA. THIS PE IS IN THE FORM OF FIXED PLACE PE. THE TRIBUNAL ATTRIB UTED 15% PROFITS GENERATED BY THE ASSESSEE TO THE INDIA PE. ON THE ISSUE OF TAXA BILITY OF SOFTWARE (TAXABLE @ 15%) THE TRIBUNAL HELD IT TO BE NOT TAXABLE IN THE HANDS OF ASSESSEE. ON THE THIRD ISSUE OF TAXABILITY OF IPLC CHARGES AS EQUIPM ENT ROYALTY THE PAYMENT IS CONSIDERED NOT TAXABLE IN THE HANDS OF THE ASSESSEE . 6. REFERRING TO THE APPEAL FILED BY THE ASSESSEE BE FORE THE HONBLE HIGH COURT AND VICE-VERSA AGAINST THE ORDER OF THE TRIBU NAL, HE DREW THE ATTENTION OF 3 ITA NO.3417/DEL/2015 THE BENCH TO THE FOLLOWING QUESTIONS OF LAW THAT HA VE BEEN ADMITTED BY THE HONBLE HIGH COURT :- THE FOLLOWING QUESTIONS OF LAW ARISE IN ITA NOS.3 AND 4/2014: (9) WHETHER, THE INCOME TAX APPELLATE TRIBUNAL WAS CORRECT IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE HAD A FIXED PLACE PERM ANENT ESTABLISHMENT (PE) IN TERMS OF ARTICLE 5(1) OF THE INDO US TAX TREATY? (10) WHETHER, IN VIEW OF THE NATURE OF TRANSACTION WHICH WAS PROCURING OF COMPUTER SOFTWARE (IT ENABLED SERVICES) WITHIN THE MEANING OF SECTION 10A OF THE ACT FROM ITS INDIAN SUBSIDIARY FOR THE PURPOSES OF EXPO RT, ANY INCOME COULD ACCRUE OR ARISE IN THE HANDS OF THE ASSESSEE IN INDIA IN VIEW OF CLAUSE (B) OF EXPLANATION 1 OF SUB-SECTION (1) OF SECTION 9 OF THE ACT READ WITH A RTICLE 7(4) OF THE INDO US TAX TREATY? THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW ARISE IN ITA NOS.679, 680 AND 681/2014: (13) DID THE ITAT ERR IN REDUCING THE QUANTUM OF PR OFIT ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT (PE), IN THE CIRCUMSTANCES OF THE CASE; (14) WAS THE METHOD OF CALCULATED PROFIT ADOPTED BY THE ITAT JUSTIFIED AND CORRECT; (15) WHETHER THE REVENUE IS CORRECT IN CONTENDING T HAT THE PAYMENTS MADE ON ACCOUNT OF SOFTWARE EXPENSES IS ROYALTY AND WHETHER THE REVENUE IS JUSTIFIED IN ARGUING THAT THE FINDINGS OF THE ITAT OF ? LINK CHA RGES? NOT BEING ROYALTY ARE JUSTIFIED. ADMIT LIST FOR HEARING ON 29 TH APRIL, 2015. 7. REFERRING TO THE DECISION OF THE HONBLE DELHI H IGH COURT IN THE CASE OF CIT VS. LIQUID INVESTMENT AND TRADING CO. VIDE ITA NO.240/2009 DATED 05.10.2010, HE SUBMITTED THAT THE HON'BLE HIGH COUR T IN THE SAID DECISION HAS HELD THAT WHEN SUBSTANTIAL QUESTION OF LAW IS ADMIT TED BY THE HON'BLE HIGH COURT, THE ISSUE BECOMES DEBATABLE AND, THEREFORE, NO PENALTY U/S 271(1)(C) IS LEVIABLE. HE ACCORDINGLY SUBMITTED THAT IN VIEW OF THE ABOVE LEGAL POSITION PENALTY U/S 271(1)(C) CANNOT BE LEVIED. 8. LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 9. AFTER HEARING BOTH THE SIDES, WE FIND THE LD. CI T(A) WHILE DELETING THE PENALTY LEVIED BY THE ASSESSING OFFICER U/S 271(1)( C) HAS OBSERVED THAT THE HON'BLE HIGH COURT HAS ADMITTED THE SUBSTANTIAL QUE STION OF LAW. THEREFORE, IT IS CLEAR THAT THE ISSUE IS SUBJECT TO DIFFERENT INT ERPRETATION. WE DO NOT FIND ANY 4 ITA NO.3417/DEL/2015 INFIRMITY IN THE ORDER OF THE LD. CIT(A). AS MENTI ONED EARLIER, THE HON'BLE HIGH COURT HAS ALREADY ADMITTED THE SUBSTANTIAL QUESTION OF LAW WHICH HAS ALREADY BEEN REPRODUCED IN THE PRECEDING PARAGRAPHS. THERE FORE, IN VIEW OF THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF L IQUID INVESTMENT AND TRADING CO. (SUPRA), ACCORDING TO WHICH, PENALTY CA NNOT BE LEVIED WHEN SUBSTANTIAL QUESTION OF LAW HAS BEEN FRAMED AND ADM ITTED, THEREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD FEBRUARY, 2018. SD/- SD/- (BEENA A. PILLAI) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23-02-2018. SUJEET COPY OF ORDER TO: - 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT 4) THE CIT(A) 5) THE DR, I.T.A.T., NEW DELHI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, NEW DELHI