DCIT (IT) 3(2)(1), MUMBAI V. MERILL LYNCH INTERNATINAL, MUMBAI

ITA 3916/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1315 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 24-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURUSR
• Assessee Lawyers: YOGESH KADAM
• Keywords: Double taxation relief; Permanent establishment

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI , , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.3916/MUM /2015 ASSESSMENT YEAR-2010-11 DCIT(IT)-3(2)(1), MUMBAI / VS. MERRIL LYNCH INTERNATIONAL, C/O- M/S G.M. KAPADIA & CO 1101, RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400021 PAN NO. AABCM1026G ( / REVENUE) ( / ASSESSEE) / REVENUE BY SHRI M. V. RAJ GURU-SR.DR / ASSESSEE BY SHRI YOGESH KADAM / DATE OF HEARING : 13/04/2017 / DATE OF ORDER: 13/04/2017 ITA NO.3916/MUM/2015 M/S MERRIL LYNCH INTERNATIONAL 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 18/02/2015 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. THE ONLY GROUND RAISED IN THE PRESENT APPEA L PERTAINS TO HOLDING THAT UNDERWRITING COMMISSION AN D REIMBURSEMENT OF EXPENSES, RECEIVED BY THE ASSESSEE FOR THE ISSUE OF GDR/FCCB FROM INDIAN COMPANY IS NOT TAXABLE AS FEE FOR TECHNICAL SERVICES UNDER INDIA U K TREATY WITHOUT CONSIDERING THE FACTS ENUMERATED IN THE GROUND RAISED BY THE REVENUE. 2. DURING HEARING OF THIS APPEAL, AT THE OUTSET, SHRI YOGESH KADAM, LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE IMPUGNED ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 30/08/2011 (ITA NO.2759/MUM/2009). THE LD. SR. DR, SHRI M.V. RAJ GURU, THOUGH DEFENDED THE ADDITION BU T DID NOT CONTROVERT THE ASSERTION OF THE LD. COUNSEL FOR THE ASSESSEE. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM THE ORDER OF THE TRIBUNAL DATED 30/08/2011 FOR READY REFERENCE AND ANALYSIS:- ITA NO.3916/MUM/2015 M/S MERRIL LYNCH INTERNATIONAL 3 THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGA INST THE ORDER OF CIT(A)-XXXII, MUMBAI, PASSED ON 25/02/2009 FOR THE ASSESSMENT YEAR 2005-06 WHEREIN THE REVENUE HAS RAISED THE FOL LOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT NEITHER THE UNDER WRITING COMMISSION NOR THE SELLING COMMISSION, RECEIVED FROM THE INDIA N COMPANIES WOULD AMOUNT TO FEES FOR TECHNICAL SERVICES WITHI N THE MEANING OF THE DTAA BETWEEN INDIA AND U.K. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A), MUMBAI ON THE ABOVE GROUNDS BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED . 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A COMPANY INCORPORATED IN AND UNDER THE LAWS OF THE UNITED KINGDOM AND IS REGISTERED AS A FOREIGN INSTI TUTIONAL INVESTOR (FII) WITH THE SECURITIES AND EXCHANGE BOA RD OF INDIA (SEBI). THE ASSESSEE HAS OBTAINED NECESSARY PERMISSION TO CARRY OUT INVESTMENT ACTIVITY IN SHAR ES AND SECURITIES OF INDIA COMPANIES. DURING THE PREVIOUS YEAR RELEVANT TO AY UNDER APPEAL, THE ASSESSEE FILED ITS RETURN OF INCOME RETURNING TOTAL INCOME RS. NIL AND SHORT TERM LOSS OF RS. 23,218,968/- TO BE CARRIED FORWARD TO T HE SUBSEQUENT YEAR. THE ASSESSEE DECLARED BY WAY OF A NOTE IN ITS RETURN OF INCOME THAT AN AMOUNT OF RS. US $ 9,536,282/- HAS BEEN RECEIVED AS FEES FROM INVESTME NT BANKING TRANSACTIONS OUTSIDE INDIA AND TOWARDS REIMBURSEMENT OF EXPENSES AND THE SAME IS NOT LIABL E TO TAX IN INDIA. HOWEVER, THE AO WAS NOT CONVINCED WIT H THE EXPLANATIONS OFFERED BY THE ASSESSEE DURING THE COU RSE OF ASSESSMENT PROCEEDINGS AND DETERMINED THE TAXABLE INCOME OF THE ASSESSEE INCLUDING THE OF RS. US$ 9,536,282/-, BY HOLDING THAT THE FEE RECEIVED FROM THE INVESTMENT BANKING SERVICES IN RELATION TO THE ISSU E OF ITA NO.3916/MUM/2015 M/S MERRIL LYNCH INTERNATIONAL 4 ADRS/GDRS ARE EVENTUALLY UTILIZED IN INDIA SINCE TH E BENEFIT OF THE SERVICES RENDERED BY THE ASSESSEE IS ULTIMATELY RECEIVED BY ISSUING INDIAN COMPANIES. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 3. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT T HE INCOME RECEIVE BY THE ASSESSEE FROM ITS INVESTMENT BANKING TRANSACTIONS IS IN THE NATURE OF BUSINESS I NCOME. UNDER ARTICLE 7 OF THE DTAA DEALING WITH BUSINESS P ROFITS, BUSINESS PROFITS OF A RESIDENT OF THE UK ARE LIABLE TO TAX IN INDIA ONLY IF SUCH PROFITS ARE ATTRIBUTABLE TO A PE RMANENT ESTABLISHMENT OF THE UK RESIDENT SITUATED IN INDIA AS DEFINED IN ARTICLE 5 OF THE DTAA. THE ASSESSEES IN COME FROM INVESTMENT BANKING TRANSACTIONS IS NOT ATTRIBU TABLE TO A PERMANENT ESTABLISHMENT OF THE ASSESSEE SITUATED IN INDIA AND, ACCORDINGLY THE AFORESAID INCOME IS NOT LIABLE TO TAX IN INDIA. THE ASSESSEE RELIED UPON VARIOUS CASE LAWS BEFORE THE CIT(A) INCLUDING THE DECISION OF ITAT, M UMBAI IN THE CASE OF RAYMOND LTD. V. DCIT (2003) 80 TTJ 1 20 (MUM.). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD AS UNDER:- 5.12..I HAVE CONSIDERED THE APPELLANTS SUBMI SSION AND I AGREE WITH THE APPELLANT THAT IT HAD OPTED TO BE GO VERNED BY THE PROVISIONS OF THE DTAA AND THAT THE PROVISIONS OF T HE DTAA OUGHT TO APPLY TO THE APPELLANT. SECTION 90(2) OF THE IT ACT MAKES IT VERY CLEAR THAT THE APPELLANT IS ENTITLED TO CLAIM THE BENEFIT S UNDER THE IT ACT OR TREATY WHICHEVER IS MORE BENEFICIAL TO THE APPELLAN T. THE ISSUE OF TAXABILITY OF THE AFORESAID FEES IN INDIA AS PER TH E INDIA-UK DTAA IS SQUARELY COVERED BY RAYMOND LTDS CASE (SUPRA). RES PECTFULLY FOLLOWING THE SAID DECISION OF THE JURISDICTIONAL T RIBUNAL, MORE SO AS THE SERVICE PROVIDER IN THE SAID CASE WAS THE APPEL LANT ITSELF, I HOLD THAT THE SAID FEE AMOUNT IS NOT LIABLE TO TAX IN ND IA AS THE SAME DOES NOT CONSTITUTE FEES FOR TECHNICAL SERVICES UNDER TH E INDIA-DTAA READ ITA NO.3916/MUM/2015 M/S MERRIL LYNCH INTERNATIONAL 5 WITH THE MEMORANDUM OF UNDERSTANDING FORMING PART O F THE INDIA- USA DTAA AS THE TECHNICAL SERVICES WERE NOT MADE AV AILABLE BY THE APPELLANT TO THE INDIAN COMPANIES. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS SQU ARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT, MUMBAI IN THE CASE OF RAYMOND LTD. VS. DCIT[2003] 8 0 TTJ 120 (MUM.). THE LEARNED DR HAS CONCEDED THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION O F ITAT MUMBAI BENCHES IN THE CASE OF RAYMOND LTD. V. DCIT (SUPRA), WHEREIN IT WAS HELD THAT NEITHER MANAGEME NT COMMISSION, NOR UNDERWRITING COMMISSION NOR EVEN SE LLING COMMISSION/CONCESSION WOULD AMOUNT TO FEES FOR TECH NICAL SERVICES WITHIN MEANING OF DTA WITH UK AND, CONSEQUENTLY, THERE WAS NO OBLIGATION ON PART OF AS SESSEE- COMPANY TO DEDUCT TAX UNDER SECTION 195. THE CIT(A ) FOLLOWING THE SAID DECISION HELD THAT THE FEE RECEI VED BY THE ASSESSEE IS NOT LIABLE TO TAX IN INDIA AS THE SAME DOES NOT CONSTITUTE FEES FOR TECHNICAL SERVICES UNDER THE IN DIA-UK DTAA READ WITH THE MEMORANDUM OF UNDERSTANDING FORMING PART OF THE INDIA USA DTAA AS THE TECHNICAL SERVICES WERE NOT MADE AVAILABLE BY THE ASSESSEE TO THE INDIAN COMPANIES. THEREFORE, WE FIND NO INFIRMITY I N THE FINDINGS OF THE CIT(A) AND HENCE, THE ORDER OF THE CIT(A) IS HEREBY UPHELD. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 2.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION MADE TO THE TOTAL INCOME , CONCLUSION DRAWN IN THE IMPUGNED ORDER, ORDER OF TH E ITA NO.3916/MUM/2015 M/S MERRIL LYNCH INTERNATIONAL 6 TRIBUNAL DATED 30/08/2011, MATERIAL AVAILABLE ON RE CORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THE TRIBUN AL HAS CONSIDERED THE CASE OF THE ASSESSEE ITSELF FOR ASSE SSMENT YEAR 2005-06, ELABORATELY BY PLACING RELIANCE UPON THE DECISION IN THE CASE OF RAYMOND LTD. VS DCIT (2003) 80 TTJ 120 (MUM.) AND THEN CAME TO THE CONCLUSION BY HOLDING THAT THE FEE RECEIVED BY THE ASSESSEE IS NO T LIABLE TO TAX IN INDIA AS THE SAME DOES NOT CONSTITUTE FEE FOR TECHNICAL SERVICES UNDER THE INDIA U.K. DTAA READ W ITH THE MOU FORMING PART OF INDIA USA DTAA. THEREFORE, FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, W E AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL). FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 13/04/2017. SD/- S D/- (SHAMIM YAHYA) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER MUMBAI; ' DATED : 13/04/2017 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. $%&' / THE APPELLANT (RESPECTIVE ASSESSEE) 2. () &' / THE RESPONDENT. 3. * * + ( $% ) / THE CIT, MUMBAI. ITA NO.3916/MUM/2015 M/S MERRIL LYNCH INTERNATIONAL 7 4. * * + / CIT(A)- , MUMBAI, 5. ./0 (1 , * $% $12 , / DR, ITAT, MUMBAI 6. 03 4 / GUARD FILE. / BY ORDER, ) .% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI