DCIT RG 8(2), MUMBAI V. MOTECH SOFTWARE P.LTD, MUMBAI

ITA 3942/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0703 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 23-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J D MISTRY
• Keywords: Double taxation relief; Permanent establishment
• Section: 90

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE HONBLE S/SHRI VIJAY PAL RAO ( JM ) , AND B.R.BASKARAN (AM) , . . , ./ I.T. A. NO . 3942 / MUM/20 1 2 ( / ASSESSMENT YEAR : 200 8 - 09 ) THE DY. COMMISSIONER OF INCOME TAX - 8(2), ROOM NO. 2 16 - A,AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. M/S MOTECH SOFTWARE PVT.LTD., 56, MOGRA VILLAGE LANE, OFF OLD NAGARDAS ROAD, ANDH ERI (E), MUMBAI - 400069 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AACCM0039Q / : APPELLANT BY SHRI SANJAY PUNGLIA / RESPONDENT BY : SHRI J D MISTRY / DATE OF HEARING : 2 8 .0 5 . 201 5 / DATE OF PRONOUNCEMENT : 28. 5. 2015 / O R D E R PER B.R.BASKARAN (AM) THE REVENUE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 17.4.2012 PASSED BY T HE LD.CIT(A) - 17, MUMBAI FO R THE ASSESSMENT YEAR 2008 - 09, WHEREIN HE HAS DELETED THE DISALLOWANCE OF RS.23.12 LAKHS MADE BY THE AO UNDER SECTION 40(A)(I) OF THE INCOME TAX ACT, 1961 (THE ACT) FOR NON DEDUCTION OF TAX AT SOURCE. 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT/ITES. THE ASSESSEE HAS BRANCHES IN USA AND JAPAN. THE AO NOTICED THAT THE ASSESSEE HAS INCURRED VARIOUS TYPES OF EXPENDITURES AT ITS BRANCHES IN USA AND JAPAN BUT DID NOT ITA NO. 3942 / MUM/201 2 2 DEDUCT TAX AT SOURCE FROM THE SAID PAYMENT AS REQUIRED UNDER THE PROVISIONS OF INCOME TAX AND HENCE THE AO DISALLOWED THE EXPENSES TO THE TUNE OF RS.23.12 LAKHS BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. THE LD.CIT(A) DELETED THE DISALL OWANCE BY FOLLOWING THE DECISION RENDERED BY HIM IN ASSESSMENT YEAR 2002 - 03. AGGRIEVED BY THE ORDER OF LD.CIT(A), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE US. 3. AT THE TIME OF HEARING THE LD. AR SUBMITTED THAT THE REVENUE HA D PREFERRED AN APPEAL BEFORE THE TRIBUNAL CHALLENGING THE ORDER PASSED BY THE LD.CIT(A) IN ASSESSMENT YEAR 2002 - 03. THE TRIBUNAL , VIDE ITS ORDER DATED 27.12.2013 PASSED IN ITA NO.140/MUM/2006 , HAS UPHELD THE ORDER OF LD.CIT(A). WE NOTICE THAT THE TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SEC. 9(1)(VII)(B), WHEREIN IT IS PROVIDED THAT THE INCOME BY WAY OF FEE FOR TECHNICAL SERVICES PAYABLE BY A RESIDENT IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA SHALL NOT BE DEEMED TO AC CRUE OR ARISE IN INDIA. SINCE THERE IS NO TAX LIABILITY IN THE HANDS OF RECIPIENT, THE TRIBUNAL HELD THAT THERE IS NO REQUIRED TO DEDUCT TAX AT SOURCE AS PER THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PVT LTD (327 ITR 456). BY FOLLOWING THE SAID PRINCIPLE, THE TRIBUNAL HAS UPHELD THE ORDER OF LD CIT(A) IN DELETING THE DISALLOWANCE MADE U/S 40(A)(I) OF THE ACT. THE LD. AR ALSO FURNISHED A COPY OF THE TRIBUNAL ORDER , REFERRED ABOVE . 4. THE LD. DR DID NOT CONTRO VERT THE SUBMISSIONS MADE BY THE LD.AR. 5. WE NOTICE THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN ASSESSMENT YEAR 2002 - 03 IN ITS ORDER REFERRED (SUPRA). WE EXTRACT BELOW THE OPERATIVE PORTION OF THE SAID ORDER: ITA NO. 3942 / MUM/201 2 3 14. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMISSIONS OF THE REPRESENTATIVE OF THE PARTIES AS ALSO CASES CITED BEFORE US. 15. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEES BRANCHES OPERATING IN FOREIGN COUNTRIES NAMELY JAPA N, UK AND USA HAD MADE PAYMENTS TO THE FOREIGN SUPPLIERS FOR SERVICES RECEIVED BY THEM IN FOREIGN COUNTRIES. NOW, QUESTION ARISES AS TO WHETHER THE ASSESSEE WAS REQUIRED TO DEDUCT TDS U/S. 195 OF THE ACT ON THE SAID PAYMENTS MADE TO THE FOREIGN SUPPLIERS F OR SERVICES RENDERED BY THEM TO ASSESSEES FOREIGN BRANCHES ABROAD. ON PERUSAL OF SECTION 195 OF THE ACT, WE OBSERVE THAT TDS IS REQUIRED TO BE DEDUCTED ON THE PAYMENTS MADE/CREDITED TO A NON - RESIDENT ONLY IF, SAID PAYMENT IS CHARGEABLE TO TAX UNDER PROVIS IONS OF INCOME TAX ACT. DURING THE COURSE OF HEARING LEARNED DR REFERRED PROVISIONS OF SECTION 5(2)(B) READ WITH SECTION 9(1) OF THE ACT TO STATE THAT INCOME OF SAID NON - RESIDENT SUPPLIERS IN RESPECT OF PAYMENTS MADE BY THE ASSESSEES FOREIGN BRANCHES IS T AXABLE IN INDIA. WE DO NOT FIND SUBSTANCE IN THE SUBMISSION OF LEARNED DR BECAUSE PROVISIONS OF SECTION 5(2)(B) READ WITH SECTION 9(1) OF THE ACT APPLY ONLY WHEN INCOME OF THE NONRESIDENT HAS ACCRUED OR ARISE OR IS DEEMED TO ACCRUE OR ARISE IN INDIA. THERE IS NO DISPUTE TO THE FACT THAT INDIA HAS DTAA WITH UK, USA AND JAPAN AND AS PER SECTION 90 OF THE ACT, PROVISIONS OF DTAA WILL PREVAIL OVER THE PROVISIONS OF INCOME TAX ACT. THEREFORE EVEN IF SAID PAYMENT MADE BY THE FOREIGN BRANCHES OF INDIAN CONCERN TO FOREIGN SUPPLIERS IS CONCERNED AS BUSINESS PROFITS UNDER ARTICLE 7 OF THE TAX TREATY WITH USA, UK AND JAPAN, THEY ARE NOT TAXABLE IN INDIA UNLESS SAID RECIPIENTS HAVE PERMANENT ESTABLISHMENT IN INDIA AS ENVISAGED UNDER ARTICLE 5 OF THE TAX TREATY WITH SAID FOREIGN COUNTRIES. THERE IS NO CASE OF THE DEPARTMENT THAT SAID FOREIGN RECIPIENTS HAVE PERMANENT ESTABLISHMENT IN INDIA WITHIN THE MEANING OF ARTICLE 5 OF THE TAX TREATY WITH RESPECTIVE COUNTRIES. HENCE, NO TDS IS REQUIRED TO BE DEDUCTED U/S. 195 OF THE ACT AS THE SAID PAYMENTS CANNOT BE TAXED AS PER PROVISIONS OF SECTION 5(2)(B) READ WITH SECTION 9(1)(I) OF THE ACT. FURTHER, ARGUMENT OF LEARNED DR IS THAT SAID PAYMENTS COULD FALL AS FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 9(1)(VII)(B) O F THE ACT. WE CONSIDER IT PRUDENT TO STATE THE SAID SECTION WHICH READS AS UNDER : - 9(I)(VII)(B) : INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY : (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE INTEREST IS PAYABLE IN RESPECT OF ANY DEBT INCU RRED, OR MONEYS BORROWED AND USED, FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON ITA NO. 3942 / MUM/201 2 4 OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA ; 16. ON PERUSAL OF THE ABOVE PROVISION, WE OBSERVE THAT FEES FOR TECHNICAL SERVICES PAID BY A RESIDENT IN RESPECT OF SERVICES UTILISED IN A BUSINESS CARRIED ON BY THE RESIDENT OUTSIDE INDIA OR FOR THE PURPOSES OF EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA, DOES NOT CONSTITUTE AN INCOME LIABLE TO TAX UNDER THE ACT AS IT FALLS IN THE EXCEPTION TO CLAUSE (B) OF SECTION 9(I)(VII) OF THE ACT. FURTHER, THERE IS NO DISPUTE TO THE FACT THAT RENT HAS ALSO BEEN PAID BY THE ASSESSEE IN RESPECT OF PROPERTY WHICH IS SITUATED IN THE SAID COUNTRY ABROAD AND AS PER A RTICLE 6 OF THE DTAA WITH RESPECTIVE COUNTRY IT IS TAXABLE IN THAT COUNTRY AND NOT IN INDIA. ACCORDINGLY, THERE IS NO TAX PAYABLE BY THE RECIPIENT IN INDIA FOR RENT RECEIVED IN RESPECT OF PROPERTY SITUATED ABROAD. HENCE, PROVISIONS OF SECTION 195 ARE ALSO NOT APPLICABLE IN RESPECT THEREOF. 17. CONSIDERING ABOVE FACTS AND ALSO IN THE LIGHT OF DECISION OF HON'BLE APEX COURT IN THE CASE OF GE INDIA TECHNICAL CENTRE PVT. LTD. (SUPRA), IF PAYMENT IS NOT MADE TO A NON - RESIDENT WHICH IS NOT TAXABLE UNDER THE PRO VISIONS OF INCOME TAX ACT, QUESTION OF MAKING DEDUCTION U/S. 195 OF ACT DOES NOT ARISE. CONSEQUENTLY, NO DISALLOWANCE U/S. 40(A)(I) OF THE ACT COULD BE MADE. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF LEARNED CIT(A) AND REJECT GROUND NO. 1 OF THE APPEAL TAKEN BY THE DEPARTMENT. SINCE THE L D. CIT(A) HAS FOLLOWED HIS ORDER PASSED FOR AY 2002 - 03 AND SINCE THE SAID ORDER HAS BEEN UPHELD BY THE CO - ORDINATE BENCH OF TRIBUNAL, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF L D. CIT(A) ON THIS ISSUE . 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. A CCORDINGLY, THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28TH MAY , 2015 . 28TH MAY , 2015 SD SD ( / VIJAY PAL RAO ) ( . . , / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 28TH MAY, 201 5 . ITA NO. 3942 / MUM/201 2 5 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. 6 , , / DR, ITAT, MUMBAI CONCERNED / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI