M/s. Schlumberger Solutions Pvt. Ltd., Gurgaon V. ADIT, Dehradun

ITA 376/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65640 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 07-05-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 24-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DEBJOTI DAS
• Assessee Lawyers: PRIYANKA GENKA
• Keywords: Business income; Double taxation relief; Opportunity of being heard; Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH G GG G : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI A.D.JAIN A.D.JAIN A.D.JAIN A.D.JAIN, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.376/DEL/2012 376/DEL/2012 376/DEL/2012 376/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2008 2008 2008 2008- -- -09 0909 09 M/S SCHLUMBERGER SOLUTIONS M/S SCHLUMBERGER SOLUTIONS M/S SCHLUMBERGER SOLUTIONS M/S SCHLUMBERGER SOLUTIONS PRIVATE LIMITED PRIVATE LIMITED PRIVATE LIMITED PRIVATE LIMITED (AS AGENT OF M/S LO (AS AGENT OF M/S LO (AS AGENT OF M/S LO (AS AGENT OF M/S LOGINED BV), GINED BV), GINED BV), GINED BV), 14 1414 14 TH THTH TH FLOOR, TOWER C, FLOOR, TOWER C, FLOOR, TOWER C, FLOOR, TOWER C, BUILDING NO.10, BUILDING NO.10, BUILDING NO.10, BUILDING NO.10, DLF CYBER CITY, PHASE II, DLF CYBER CITY, PHASE II, DLF CYBER CITY, PHASE II, DLF CYBER CITY, PHASE II, GURGAON, GURGAON, GURGAON, GURGAON, HARYANA HARYANA HARYANA HARYANA 122 002. 122 002. 122 002. 122 002. PAN/GIR NO.: AAICS0296H. PAN/GIR NO.: AAICS0296H. PAN/GIR NO.: AAICS0296H. PAN/GIR NO.: AAICS0296H. VS. VS. VS. VS. ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, DEHRADUN. DEHRADUN. DEHRADUN. DEHRADUN. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ARIJIT CHAKRAVARTY, ADVOCATE AND MS. PRIYANKA GENKA, CA. RESPONDENT BY : SHRI DEBJOTI DAS, CIT-DR. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LEARNED DRP-II, NEW DELHI DATED 30 TH SEPTEMBER, 2011 FOR THE AY 2008- 09. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT RESPECTFULLY SUBMITS THAT : 1. THE IMPUGNED ORDER OF ASSESSMENT PASSED BY THE ASSISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL TAX ATION, DEHRADUN, (HEREINAFTER REFERRED TO AS DRP) IN PUR SUANCE TO THE DIRECTIONS OF THE HONBLE DISPUTE RESOLUTION PANEL ITA-376/DEL/2012 2 (HEREINAFTER REFERRED TO AS DRP) UNDER SECTION 14 3(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (ACT), IS A VITIATED ORDER HAVING BEEN PASSED IN VIOLATION OF PRINCIPLES NATURAL JUSTICE AND IS OTHERWISE ARBITRA RY AND IS THUS BAD IN LAW AND IS VOID AB-INITIO. 2. THE DRP HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW BY ISSUING DIRECTIONS ON A COMPLETE LY DIFFERENT BASIS PURELY PROCEEDING ON THEORETICAL NO TIONS WITHOUT CARRYING OUT ANY VERIFICATION OF BASIC FACT S. IN DOING SO, THE DRP HAS ISSUED DIRECTIONS WHICH ARE I N GROSS VIOLATION OF BASIC PRINCIPLES OF NATURAL JUSTICE, U LTRA-VIRES AND BEYOND THE POWERS VESTED IN ITS UNDER THE ACT. 3. THE LD.AO HAS GROSSLY ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW BY HOLDING THA T LOGINED BV (LOGINED) HAS A PERMANENT ESTABLISHMEN T (PE) IN INDIA AND SCHLUMBERGER SOLUTIONS PRIVATE LIMITED (SSPL) CONSTITUTES A DEPENDENT AGENT PE OF LOGINE D IN INDIA. 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.AO HAS FAILED TO APPRECIATE THAT SSP L IS A SEPARATE LEGAL ENTITY INCORPORATED UNDER THE INDIAN COMPANIES ACT, 1956, CONDUCTING ITS OWN BUSINESS AN D BEARING ALL THE RISKS AND REWARDS OF THE INDIAN BUS INESS. 3.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.AO HAS FAILED TO SATISFY THE DEPENDE NT AGENCY CONDITIONS AS PRESCRIBED IN ARTICLE 5 OF DOUBLE TAX ATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND ITA-376/DEL/2012 3 NETHERLANDS BEFORE CONCLUDING THAT SSPL CONSTITUTES A DEPENDENT AGENT PE OF LOGINED IN INDIA. 4. THE LD.AO/DRP HAS GROSSLY ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW BY NOT APPRECI ATING THE PROVISIONS OF DTAA BETWEEN INDIA AND NETHERLAND S AND BY HOLDING THAT SUO MOTO FILING OF RETURN IN THE CA PACITY OF AN AGENT BY ITSELF CONSTITUTES A DEPENDENT AGENT PE . 5. THE LD.AO HAS ERRED ON FACTS AND CIRCUMSTANCES O F THE CASE AND IN LAW BY TAXING THE ENTIRE INCOME OF RS.13,80,48,400 EARNED BY THE LOGINED UNDER ITS CON TRACT WITH SSPL AT 42.23 PERCENT. 5.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.AO HAS ERRED BY NOT COMPUTING THE IN COME ATTRIBUTABLE TO THE FOREIGN COMPANYS OPERATIONS CA RRIED OUT IN INDIA. 5.2 WITHOUT PREJUDICE TO ABOVE, THE LD.AO HAS ERRED BOTH ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW B Y NOT APPLYING THE PRINCIPLE OF LAW LAID DOWN BY THE HON' BLE SUPREME COURT IN THE CASE OF DIT VS. MORGAN STANLEY AND CO. INC. (292 ITR 416) THAT IT IS IMPERATIVE FOR RE VENUE AUTHORITIES TO CONDUCT A FUNCTIONAL, RISK AND ASSET ANALYSIS BEFORE ATTRIBUTION OF PROFITS TO A PE. 5.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.AO HAS ALSO ERRED BY NOT ALLOWING DE DUCTION OF EXPENSES INCURRED BY LOGINED IN SUPPLY OF SOFTWA RE UPGRADES AND SUPPORT SERVICES, WHILE COMPUTING THE TAXABLE INCOME OF ITS ALLEGED PE IN INDIA. ITA-376/DEL/2012 4 3. AT THE TIME OF HEARING BEFORE US, IT IS STATED B Y THE LEARNED COUNSEL THAT M/S SCHLUMBERGER SOLUTIONS PVT.LTD. (I N SHORT SSPL) FILED ITS RETURN OF INCOME AS AGENT OF M/S LOGINED B.V., NETHERLANDS (IN SHORT LBV) DECLARING NIL INCOME. THAT SSPL IS DERIVING INCOME FROM SALE OF SOFTWARE PURCHASED FROM LBV. THAT ON THE PAYMENT M ADE BY SSPL TO LBV WITHHOLDING TAX WAS DEDUCTED. THIS RETURN WAS FILED BY SSPL AS AN AGENT OF LBV ONLY FOR CLAIMING THE REFUND OF TAX WI THHELD BY SSPL BECAUSE LBV DOES NOT HAVE ANY TAXABLE INCOME IN IND IA. THAT THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER DAT ED 30 TH DECEMBER, 2010 TREATED THE ENTIRE RECEIPT FROM SALE OF SOFTWA RE AMOUNTING TO ` 13.80 CRORES AS FEES FOR TECHNICAL SERVICES. THAT ON APPEAL BY THE ASSESSEE, THE DRP AGREED WITH THE ASSESSEE THAT IT IS NOT THE FEES FOR TECHNICAL SERVICES. HOWEVER, THE DRP FURTHER ARRIV ED AT THE CONCLUSION THAT SSPL IS A DEPENDENT AGENT AND, THEREFORE, THE ENTIRE RECEIPT IS TAXABLE IN INDIA NOT AS FEES FOR TECHNICAL SERVICES BUT AS BUSINESS INCOME. THAT IN THE FINAL ASSESSMENT ORDER, THE AS SESSING OFFICER HAS TREATED THE ENTIRE RECEIPT FROM SALE OF SOFTWARE AS BUSINESS INCOME OF LBV. THE LEARNED COUNSEL ARGUED AT LENGTH. HOWEVE R, HIS ARGUMENTS CAN BE SUMMARIZED AS UNDER :- (I) THAT THE ISSUE BEFORE THE DRP WAS WHETHER THE RECEI PT FROM SALE OF SOFTWARE CAN BE TREATED AS FEES FOR TE CHNICAL SERVICES OR NOT. HOWEVER, THE DRP TRAVELLED TO THE ISSUE WHICH WAS NOT BEFORE IT AND HELD SSPL TO BE DEPENDE NT AGENT OF LBV. THAT WHILE DOING SO, THE ASSESSEE WA S NOT ALLOWED ANY OPPORTUNITY OF BEING HEARD. THE ORDER OF THE DRP IS VERY CRYPTIC. (II) THAT THE DRP HAS EXCEEDED ITS JURISDICTION BECAUSE THE JURISDICTION OF THE DRP UNDER SECTION 144C IS LIMIT ED TO CONFIRM, REDUCE OR ENHANCE THE VARIATION PROPOSED I N THE DRAFT ORDER. THE DRP IS NOT ENTITLED TO MAKE OUT E NTIRELY A ITA-376/DEL/2012 5 NEW CASE WHICH WAS NOT THE CASE OF THE ASSESSING OF FICER IN THE DRAFT ASSESSMENT ORDER. IN SUPPORT OF THIS CONTENTION, HE RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF GE INDIA TECHNO LOGY CENTRE (P) LTD. VS. DISPUTE RESOLUTION PANEL & ANR. 338 ITR 416. (III) THAT EVEN AS PER THE DIRECTION OF THE DRP, THE RECE IPT WAS TO BE TREATED AS BUSINESS INCOME. IT IS A SETTLED POSITION OF LAW THAT, UNDER THE INCOME-TAX ACT, WHAT IS CHARGEA BLE TO TAX, IS THE INCOME AND NOT THE GROSS RECEIPT. THAT IN THE FINAL ASSESSMENT ORDER, THE ASSESSING OFFICER HAS T REATED THE ENTIRE RECEIPT FROM THE SALE OF SOFTWARE BY LBV AS BUSINESS INCOME. 4. IN VIEW OF THE ABOVE, IT IS STATED BY THE LEARNE D COUNSEL THAT THE ORDER OF THE DRP MAY BE QUASHED AND THE ASSESSING O FFICER SHOULD BE DIRECTED TO DETERMINE THE INCOME AT NIL. ALTERNATI VELY, HE SUBMITTED THAT IF THE BENCH DOES NOT AGREE WITH THE ASSESSEE S CONTENTION THAT ITS INCOME IS TO BE ASSESSED AT NIL, THE MATTER SHOULD BE SET ASIDE EITHER TO THE FILE OF THE DRP OR TO THE ASSESSING OFFICER WIT H A DIRECTION TO GIVE ADEQUATE OPPORTUNITY TO THE ASSESSEE SO THAT THE EN TIRE ISSUE CAN BE EXPLAINED IN DETAIL TO THE LOWER AUTHORITIES. 5. THE LEARNED DR VEHEMENTLY OBJECTED TO THE DETERM INATION OF INCOME AT NIL. HOWEVER, HE HAS NO OBJECTION FOR SE TTING ASIDE OF THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR MAK ING THE ASSESSMENT DE NOVO . 6. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDE S AND THE FACTS OF THE CASE, IN OUR OPINION, IT WOULD MEET THE ENDS OF JUSTICE IF THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND T HE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. WE ORDER ACC ORDINGLY AND DIRECT THE ITA-376/DEL/2012 6 ASSESSING OFFICER TO ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND, THEREAFTER, READJUDICATE THE ISSUE IN ACCORDANCE WITH LAW AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AS WEL L AS THE JUDICIAL PRONOUNCEMENTS AS MAY BE PRODUCED BY THE ASSESSEE B EFORE HIM. 7. IN THE RESULT, THE ASSESSEES APPEAL IS DEEMED T O BE ALLOWED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 12 TH OCTOBER, 2012. SD/- SD/- ( (( (A.D.JAIN A.D.JAIN A.D.JAIN A.D.JAIN) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 12.10.2012 VK. COPY FORWARDED TO: - 1. APPELLANT : M/S SCHLUMBERGER SOLUTIONS PRIVATE L IMITED M/S SCHLUMBERGER SOLUTIONS PRIVATE LIMITED M/S SCHLUMBERGER SOLUTIONS PRIVATE LIMITED M/S SCHLUMBERGER SOLUTIONS PRIVATE LIMITED (AS AGENT OF M/S LOGINED BV (AS AGENT OF M/S LOGINED BV (AS AGENT OF M/S LOGINED BV (AS AGENT OF M/S LOGINED BV), ),), ), 14 1414 14 TH THTH TH FLOOR, TOWER C, BUILDING NO.10, FLOOR, TOWER C, BUILDING NO.10, FLOOR, TOWER C, BUILDING NO.10, FLOOR, TOWER C, BUILDING NO.10, DLF CYBER CITY, PHASE II, GURGAON, DLF CYBER CITY, PHASE II, GURGAON, DLF CYBER CITY, PHASE II, GURGAON, DLF CYBER CITY, PHASE II, GURGAON, HARYANA HARYANA HARYANA HARYANA 122 002. 122 002. 122 002. 122 002. 2. RESPONDENT : ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, DEHRADUN. DEHRADUN. DEHRADUN. DEHRADUN. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR