UPS JETAIR EXPRESS P. LTD, MUMBAI V. ADDL CIT 9(3), MUMBAI

ITA 3447/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88502 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 23-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 03-05-2013
• Court: TRIBUNAL
• Department Lawyers: VIVEK A PERAMPURNA
• Assessee Lawyers: KEERTHIGA R SHARMA
• Keywords: Depreciation; Transfer pricing; Double taxation relief; Retrospective amendment
• Section: 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA, AM & SHRI VIVEK VARMA , JM ITA NO S . 3311 / MUM/20 1 3 ( ASSESSMENT YEAR : 2008 - 09 ) DCIT 9(3), MUMBAI - 20 VS. UPS JETAIR EXPRESS PVT. LTD., PLOT NO.6A, SHYAM NAGAR, OFF. JVLR, MAJAS VILLAGE, JOGESHWARI (E), MUMBAI - 60 PAN/GIR NO. : A A AC U 43 22 N ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO S . 3 447 / MUM/20 13 ( ASSESSMENT YEAR : 2008 - 09 ) UPS JETAIR EXPRESS PVT. LTD., PLOT NO.6A, SHYAM NAGAR, OFF. JVLR, MAJAS VILLAGE, JOGESHWARI (E), MUMBAI - 60 V S. DCIT 9(3), MUMBAI - 20 PAN/GIR NO. : AAACU 4322 N ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : SHRI VIVEK A. PERAMPURNA /ASSESSEE BY : SHRI SUNIL MOTI LALA & SHRI KEERTHIGA R. SHARMA DATE OF HEARING : 23/ 0 2 /201 5 DATE OF PRONOUNCEMENT : 27 /0 2 /2015 O R D E R PER R.C.SHARMA ( A .M.) : TH ESE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE AGAIN ST THE ORDER OF CIT(A) DATED 5 - 2 - 2013 FOR THE ASSESSMENT YEAR 200 8 - 09, IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE I.T. ACT. ITA NO S . 3311&3447 /20 1 3 2 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE BRIEFLY STATED FACTS AND BACKGROUND OF THE CASE ARE THAT THE ASSE SSEE IS AN INDIAN COMPANY AND IS A JOINT VENTURE BETWEEN UPS INTERNATIONAL FORWARDING INC., USA AND JETAIR PRIVATE LIMITED WITH SHAREHOLDING OF 60% AND 40% RESPECTIVELY. IT IS ENGAGED IN THE BUSINESS OF INTERNATIONAL EXPRESS DELIVERY SERVICES. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR ( AY) 2008 - 09 ON 30 SEPTEMBER 2008 DECLARING A TOTAL INCOME OF RS.5,47,02,122 UNDER SECTION 139(1) OF THE ACT. IN THE ASSESSMENT, THE ASSESSING OFFICER ('AO') DISALLOWED THE FOLLOWING EXPENDITURE: I . REIMBU RSEMENTS OF RS.34,45,995 AT COST TO UPS WORLDWIDE FORWARDING INC. (UPSWWF') TREATED AS TAXABLE INCOME AND DISALLOWED UNDER SECTION 40 ( A) ( I ) OF THE ACT . II . REIMBURSEMENTS OF RS.36,69,834 AT COST TO UPSWWF TREATED AS TAXABLE INCOME AND DISALLOWED UN DER S ECTION 40( A)(I) OF THE ACT. III . ADVERTISEMENT AND PUBLIC RELATION EXPENSES OF RS.20,05,985 DISALLOWED UNDER SECTION 37(1) OF THE ACT. IV. DISALLOWANCE OF DEPRECIATION OF RS.22,22,745 CLAIMED UNDER SECTION 32 OF THE ACT' ON THE ASSETS PURCHASED FROM UPS WWF . 3. BY THE IMPUGNED ORDER THE CIT(A) DELETED DISALLOWANCE OF ADVERTISEMENT EXPENDITURE OF RS.20,05,985/ - BUT CONFIRMED THE ADDITION WITH RESPECT TO REIMBURSEMENT OF RS. 34,45,995/ - TO UPS WORLDWIDE FORWARDING INC. (UPS WWF) TOWARDS DEBTORS CO LLECTION S ERVICES FROM RMS, USA AS WELL AS LEGAL SERVICES OF RS.36,69,834/ - FROM TITUS, WHICH WAS DISALLOWED BY THE AO U/S.40(A)(I) . THE CIT(A) ALSO CONFIRMED THE ITA NO S . 3311&3447 /20 1 3 3 DISALLOWANCE OF DEPRECIATION OF RS. 22,22,745/ - U/S.32 ON THE ASSETS IMPORTED FROM UPSWWF. 4. AGAINST TH E ABOVE ORDER OF CIT(A), BOTH ASSESSEE AND REVENUE ARE IN APPEALS BEFORE US. 5. THE ASSESSEE IN ITS APPEAL (I.E. ITA NO. 3447/M/2013) HAS TAKEN FOLLOWING GROUNDS : - GROUND NO.1 - REIMBURSEMENTS OF RS.34,45,995/ - AT COST TO UPS WORLDWIDE FORWARDING, INC.(UPS WWF) , USA, TOWARDS DEBTORS COLLECTION SERVICES FROM RECEIVABLE MANAGEMENT SERVICES, USA (RMS) DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT. GROUND NO.2 - REIMBURSEMENTS OF RS.36,69,834/ - AT COST TO UPSWWF, USA, TOWARDS LEGAL SERVICES FROM TITUS DISALLOWE D UNDER SECTION 40(A)(I) OF THE ACT. GROUND NO.3 - DISALLWOANCE OF DEPRECIATION OF RS. 22,22,745/ - UNDER SECTION 32 OF THE ACT ON THE ASSETS IMPORTED FROM UPSWWF. 6. THE REVENUE IN ITS APPEAL (I.E. ITA NO.3311/M/2013) , HAS TAKEN SOLITARY GROUND, WHICH REA DS AS UNDER : - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ADVERTISEMENT EXPENSES OF RS.20,05,985/ - ON THE BASIS THAT THE ASSESSEE HAD PRODUCED EVIDENCES IN SUPPORT OF THE SAID EXPENSE S, EVEN THOUGH THE ASSESSEE COULD NOT CONCLUSIVELY ESTABLISH THAT THE ADVERTISEMENT SERVICES FOR WHICH PAYMENT WAS MADE, WERE ACTUALLY RECEIVED BY IT. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 7. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE ASSESSEE IS A JOINT VENTURE, ENGAGED IN THE BUSINESS OF INTERNATIONAL INTEGRATED TRANSPORTATION SERVICES. THE ASSESSEE COMPANY HAS BRANCHES SPREAD ACROSS SEVERAL LOCATIONS IN INDIA AND ALL ACCOUNTING ENTRIES RELATING TO RECEIVABLES/DEBTORS IS DONE IN MUMBAI HEAD OFFICE, BASED ON A GLOBAL ARRANGEMENT, RECEIVABLES MANAGEMENT SERVICES INC. (RMS), USA PROVIDED DEBTOR COLLECTION SERVICES TO ASSESSEE. THESE SERVICES WERE ITA NO S . 3311&3447 /20 1 3 4 RENDER ED BY RMS OUTSIDE INDIA. RMS HAS THEIR COLLECTION SCHEDULE ACCORDING TO WHICH THEY MAKE CALLS TO CUSTOMERS OF ASSESSEE, CHASE THEM FOR PAYMENTS, MAKE REMINDER CALLS, INFORM AND UPDATE THE ASSESSEE ABOUT THE STATUS OF COLLECTIONS ETC. UPS WORLDWIDE FORWARDI NG INC. INITIALLY MAKES PAYMENT TO RMS, WHICH IS THEN REIMBURSED BY THE ASSESSEE ON COST - TO - COST BASIS WITHOUT ANY MARK - UP. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE MADE PAYMENT OF RS. 34,45,995/ - TO UPSWWF FOR SERVICES RENDERED BY RMS. DURING THE COUR SE OF SCRUTINY ASSESSMENT THE AO OBSERVED THAT UPSWWF IS ONLY A CONDUIT OR A FACILITATOR AND ASSESSEE IS NOT EXONERATED FROM ITS OBLIGATION TO MAKE TDS AS PER SECTION 195 R.W.S9(1)(VII) AND EXPLANATION TO SECTION 9(2) . SINCE NO TAX WAS DEDUCTED, THE AO DIS A LLOWED THE PAYMENT U/S.40(A)(I). 8. BY THE IMPUGNED ORDER, THE CIT(A) HELD THAT PAYMENT BEING A MANAGERIAL SERVICES, IS TAXABLE U/S.9(1)(VII) AND THAT ARTICLE 12(4)(B) OF INDIA - USA DTAA IS NOT APPLICABLE SINCE THERE IS NO MAKE AVAILABLE OF TECHNICAL KNOW LEDGE OR EXPERIENCE. 9. IT WAS ARGUED BY LD. AR THAT SINCE THE INVOICES RAISED BY UPSWWF ON ASSESSEE CAN BE MATCHED BACK - TO - BACK WITH THE INVOICES RAISED BY RMS, THE PAYMENT IS REIMBURSEMENT IN NATURE, WITHOUT ANY PROFIT ELEMENT AND IS HENCE NOT TAXABLE. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS FOR THE PROPOSITION 'PAYMENT BY WAY OF REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF PAYER IS NOT INCOME CHARGEABLE TO TAX IN THE HANDS OF PAYEE AND HENCE THERE IS NO DISALLOWANCE . UNDER SECTION 40(A)(I) : I. CIT V. SIEMENS AKTIONGESELLSCHAFT [2009] 310 ITR 320 (BO M ) II. DIT (IT) V. WNS GLOBAL SERVICES (UK) LTD. [2013] 214 TAXMAN 317 (BO M ) ITA NO S . 3311&3447 /20 1 3 5 III. CIT V. ANGEL CAPITAL & DEBT MARKET LTD. ITA (L) NO. 475 OF2011 (BO M ) IV. NATHPA JHAKRI JOINT VENTURE VS. ACIT [2 010] 131 ITJ 702 (MUM) V. DCIT V. LAZARD INDIA PVT. LTD. [20 10 ] 4 I SOT 72 (MUM) VI. ACIT V. MODICON NETWORK (P) LTD. [2007] 14 SOT 204 (DEL) 10 . AS PER LD. AR, THE PAYMENT SO MADE IS NOT TAXABLE IN INDIA UNDER ARTICLE 12 OF INDIA - USA TREATY, INSOFAR AS SERVICES PROVIDED SHOULD ALSO MAKE AVAILABLE TECHNICAL KNOWLEDGE, SKILL, EXPERIENCE, KNOW - HOW OR PROCESS. 1 1 . LD. DR CONTENDED THAT HAD THE ASSESSE E FELT THAT PAYMENT WAS NOT CHARGEABLE TO TAX THEN HE WOULD HAVE RECOURSE TO SECTION 195(2)/195(3) AND 197 . HE FURTHER RELIED ON THE ORDERS OF THE LOWER AUTHORITIES FOR THE DISALLOWANCE SO MADE. 1 2 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. FROM THE RECORD, WE FOUND THAT INVOICES ISSUED BY UPSWWF ON ASSESSEE ARE MATCHED BACK TO BACK WITH THE INVOICES RAISED BY THE RMS . I T WAS A CLEAR CASE OF REIMBURSEMENT WITHOUT ANY PROFIT ELEMENT. WE ALSO FOUND THAT THERE WAS MERE PROVISION OF SERVICES WHICH IS NOT ENOUGH FOR BRINGING TO SAME IN THE TAX NET. THE SERVICES SHOUL D ALSO MAKE AVAILABLE TECHNICAL KNOWLEDGE SKILL, EXPERIENCE, KNOW OR PROCESS. IF THE ASSESSEE WOULD HAVE MADE DIRECT PAYMENTS TO RMS FOR DEBTORS COLLECTION SERVICES IT DOES NOT FALL WITHIN THE AMBIT OF ROYALTIES OR FEES FOR TECHNICAL SERVICES UNDER THE ACT AS WELL AS UNDER ARTICLE 13 OF THE INDIA - USA TAX TREATY AND HENCE PROVISIONS OF SECTION 195 DOES NOT GET ITA NO S . 3311&3447 /20 1 3 6 ATTRACTED. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE MADE BY THE AO U/S.40(A)(I) OF THE ACT. 1 3 . WITH REGARD TO DISALLOWANCE OF RS. 36 ,69,834/ - PAID TO THE UPSWWF FOR SERVICES RENDERED BY TITUS, WE FOUND THAT ASSESSEE HAS OBTAINED LEGAL SERVICES, PAYMENT FOR WHICH WAS INITIALLY MADE BY UPSWWF AND WERE LATER ON REIMBURSED BY ASSESSEE. THE AO OBSERVED THAT UPSWWF IS ONLY FACILITATOR. THE P AYMENT SO MADE IS SUBJECT TO TDS AS PER SECTION 195 R.W.S.9(1)(VII) AND EXPLANATION TO SECTION 9(2). ACCORDINGLY, DISALLOWANCE WAS MADE U/S.40(A)(I) . BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE DISALLOWANCE. 1 4 . IT WAS ALSO ARGUED BY LD. AR THAT TITUS BEING A RESIDENT LAW FIRM, IS LIABLE TO TAX IN INDIA. IN VIEW OF PROVISO TO SECTION 40(A)(I), IN CASE OF TAX HAS BEEN PAID BY PAYEE, NO DISALLOWANCE IS WARRANTED IN THE HANDS OF THE PAYER U/S.40(A)(I) OF THE ACT. 1 5 . WE HAVE CONSIDERED RIVAL CONTENTIONS A ND FOUND THAT INVOICES RAISED BY UPSWWF ON ASSESSEE CAN BE MATCHED BACK - TO - BACK WITH THE INVOICES RAISED BY TITUS, THE PAYMENT SO MADE WAS IN THE NATURE OF REIMBURSEMENT . HOWEVER, SINCE PAYMENT WAS MADE TO RESIDENT LEGAL FIRM, SAME WAS SUBJECT TO TDS AND L IABLE FOR DISALLOWANCE U/S.40(A)(I) . HOWEVER, KEEPING IN VIEW THE PURPOSE BEHIND INSERTION OF SECOND PROVISO BY FINANCE ACT, 2012 IN SECTION 40(A)(IA) , IT CAN BE SAID TO BE DECLARATORY AND CURATIVE IN NATURE AND THEREFORE, IT SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM 1 - 4 - 2005, BEING THE DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY FINANCE (NO.1) ACT, 2004. THIS VIEW I S PROPOUNDED BY VARIOUS BENCHES OF THE TRIBUNAL WHICH ARE AS UNDER : - ITA NO S . 3311&3447 /20 1 3 7 I) DR. ADI R.NAZIR VS. ACIT, ITA NO.10556/MUM/2011, DATED 26 - 11 - 2014; II) DCIT VS. ANANDA MARAKALA, (2014) 48 TAXMANN.COM402(BANG) , AND III) RAJEEV KUMAR AGARWAL VS. ACIT (2014) 45 TAXMANN.COM 555(AGRA) 16. IN VIEW OF THE ABOVE DISCUSSION, WE RESTORE THE MATTER BACK TO THE FILE OF AO TO VERIFY AS TO WHET HER THE TITUS HAS PAID TAX ON THE IMPUGNED PAYMENTS BY INCORPORATING THE SAME IN THEIR RESPECTIVE INCOME. IF THE AO FINDS THAT THE TITUS HAS ALREADY PAID TAX BY INCLUDING SUCH PAYMENTS IN ITS INCOME, NO FURTHER TAX CAN BE COLLECTED FROM ASSESSEE WHICH AMOU NTS TO DOUBLE TAXATION AND NO DISALLOWANCE CAN BE MADE IN THE HANDS OF THE ASSESSEE U/S.40(A)(IA). WE DIRECT ACCORDINGLY. 1 7 . WITH REGARD TO DISALLOWANCE OF DEPRECIATION ON ASSETS IMPORTED BY ASSESSEE IN THE FORM OF COMPUTERS, SCANNERS, PRINTERS FROM UPSWW F OF RS. 42,98,029/ - , THE AO DISALLOWED ASSESSEES CLAIM OF DEPRECIATION BY OBSERVING THAT ASSESSEE HAS NOT FURNISHED ANY EVIDENCE IN THE FORM OF CUSTOMS CLEARANCE CERTIFICATE, BILL OF ENTRY ETC. AS PER AO IT IS NOT VERIFIABLE AS TO WHETHER THE GOODS HAVE B EEN ACTUALLY IMPORTED BY ASSESSEE AND PAYMENT HAS BEEN MADE TO UPSWWF. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO, AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 1 8 . LD. A R DREW OUR ATTENTION TO THE STATEMENT OF FACTS EVIDENCI NG FURNISHING OF DOCUMENTS DISCUSSED BY THE AO. WE FOUND THAT PAYMENT HAS BEEN MADE BY ASSESSEE TO THE CUSTOM AUTHORITY WHILE IMPORTING THE ASSETS. THE PAYMENT FOR PURCHASE OF COMPUTERS SO MADE HAS BEEN ACCEPTED BY TPO. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE ACTION OF THE ITA NO S . 3311&3447 /20 1 3 8 LOWER AUTHORITIES FOR DECLINING THE CLAIM OF DEPRECIATION ON THE ASSETS SO IMPORTED. 1 9 . THE CIT(A) HAS DELETED DISALLOWANCE OF ADVERTISEMENT EXPENSES OF RS. 20,05,985/ - AFTER HAVING THE FOLLOWING OBSERVATIONS : - 6.3 I HAVE CONSIDERE D THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO THE RIVAL SUBMISSION OF THE APPELLANT VIS - A - VIS FINDING OF THE ASSESSING OFFICER, CAREFULLY. I FIND THAT LD. ASSESSING OFFICER HAS WRONGLY DISALLOWED SUCH GENUINE EXPENDITURE FOR WANT OF SOME EVIDENCES WHE REAS APPELLANT HAS RELEVANT EVIDENCES IN SUPPORT OF ITS CONTENTION. I ALSO FIND THAT TRANSFER PRICING OFFICER HAS CONSIDERED SUCH EXPENSES AND HAS NOT PASSED ANY ADVERSE REMARKS. APPELLANT IS ABLE TO DEMONSTRATE WITH THE EVIDENCES THE GENUINENESS OF THE EX PENDITURE. THE BILLS OF OGILVY PUBLIC RELATION WORLD WIDE REVEALS THE EXPENDITURE THEREFORE I FIND FORCE IN THE ARGUMENTS OF THE APPELLANT. APPELLANT ALSO GETS SUPPORT FROM THE DECISION OF HON'BLE DELHI ITAT IN THE CASE OF CUSHMAN & WAKEFIELD INDIA PVT. LT D. VS. ACIT (2012) 135 ITO 242 (DEL). THUS. CONSIDERING THE FACTS OF THE CASE AND GENUINENESS OF EXPENDITURE ADDITION SO MADE OF RS.20,05,985/ - IS DIRECTED TO BE DELETED FROM THE ASSESSMENT. 20 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ASSESSE E HAS PAID A SUM OF RS.20,05,985/ - TO UPSWWF FOR ADVERTISEMENT SERVICES RENDERED BY OGILVY. VIDE SUBMISSION DATED 25 - 11 - 2011 AND 7 - 12 - 2011, THE ASSESSEE HAS SUBMITTED ALL THE RELEVANT COPIES OF INVOICES, ARTICLES , MEDIA RELEASE PUBLISHED IN LEADING NEWSPAP ERS AND NEWS CHANNELS, DEMONSTRATING THE ADVERTISING SERVICES RENDERED BY OGILVY DURING THE YEAR AND THE SAME WAS FOR THE PURPOSE OF ASSESSEES BUSINESS. AFTER RECORDING DETAILED FINDING AT PARA 6.3, AS REPRODUCED ABOVE, THE CIT(A) HAS DELETED THE DISALLOW ANCE. THE FINDING OF THE CIT(A) HAS NOT BEEN CONTROVERTED BY LD. DR BY BRINING ANY POSITIVE MATERIAL ON RECORD. WE ALSO FOUND THAT SIMILAR PAYMENTS WERE MADE BY THE ASSESSEE IN THE A.Y.2007 - 08 AND 2010 - 11, WHICH WAS ALLOWED BY THE AO. ACCORDINGLY, WE DO NO T FIND ANY ITA NO S . 3311&3447 /20 1 3 9 INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE OF ADVERTISEMENT EXPENSES OF RS.20,05,985/ - . 2 1 . IN THE RESULT, A PPEAL OF THE ASSESSEE (ITA NO. 3447/M/2013) IS ALLOWED IN PART, WHEREAS APPEAL OF THE REVENUE (ITA NO. 3311 /M/2013) I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH FEB. 201 5 . SD/ - SD/ - ( ) ( VIVEK VARMA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT ME MBER MUMBAI ; DATED 27 / 0 2 /201 5 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//