TATA STEEL LTD, MUMBAI V. ITO (iT) 4(1)(2), MUMBAI

ITA 4166/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9616 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: misc
• Appeal Filed On: 06-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT SAMOIYA
• Keywords: Business income; Double taxation relief; Cost of acquisition

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL I B ENCH MUMBAI BEFORE SHRI G.S. PANNU, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 4166/MUM/2017 (ASSESSMENT YEAR 2016-17 ) M/S TATA STEEL LIMITED, BOMBAY HOUSE, 24, HOMI MODY STREET, FORT, MUMBAI-400018 . PAN: AAACT2803M VS. ITO (INTERNATIONAL TAX)- 4(1)(2), ROOM NO. 1722, 17 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI-400021. APPELLANT RESPONDE NT APPELLANT BY : SHRI RAJ A. KAPADIA WITH SHRI PRAVEEN SOOD (AR) RESPONDENT BY : SHRI NISHANT SAMOIYA (SR. DR) DATE OF HEARING : 04.12.2018 DATE OF PRONOUNCEMEN T : 04.12.2018 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-55, MUMBAI DATED 27.03.2018 PASSED UNDER SECTION 248 OF INCOME -TAX ACT (ACT) FOR ASSESSMENT YEAR 2016-17. THE ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DECLINING TO DECLARE THAT THE TAX DEDUCTED AT SOURCE 'TDS' OF RS. 10,15,712 PAID (AND BORNE) BY THE APPELLANT IN RESP ECT OF THE CONTRACT PRICE OF USD 145,107.75 WAS NOT DEDUCTIBLE AND WAS HENCE, RE FUNDABLE TO THE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE CONTRACT PRICE OF USD 145 ,107.75 IN RESPECT OF THE ITA NO. 4 166 MUM 2017-M/S TATA STEEL LIMITED. 2 APPELLANT, OF BY PRODUCT PLANT OF COKE OVEN BATTERY 10 &. 11 PAYABLE BY THE APPELLANT TO THE NONRESIDENT SUPPLIER THE ACRE COKI NG &. REFACTORY ENGINEERING CONSULTING CORPORATION MCC, CHINA CONST ITUTED 'FEES FOR TECHNICAL SERVICES' IN TERMS OF ARTICLE 12 OF THE I NDIA-CHINA DT AA AND HENCE, WAS SUBJECT TO DEDUCTION OF TAX AT SOURCE UNDER SEC TION 195. 3. WITHOUT PREJUDICE TO THE FOREGOING, THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT THE APPELLANT HAD ENTERED INTO SEVERAL CONTRAC TS FOR SETTING-UP ITS, BY PRODUCT PLANT OF COKE OVEN BATTERY 10 &. 11 PLANT, WITH THE DOMINANT PURPOSE OF SETTING UP OF A MANUFACTURING PLANT. 4. WITHOUT PREJUDICE TO THE FOREGOING, THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT THE NON-RESIDENT SUPPLIER HAS ALSO SUPPLIED TH E PLANT &. MACHINERY AND EQUIPMENT NECESSARY FOR THE SETUP OF THE PLANT AND THAT THE INSTANT PAYMENT WAS FOR SUPPLY OF DESIGN &. DRAWINGS REQUIRED TO SETUP THE SAID PLANT HENCE, THE PRICE PAID WAS NOT FOR ANY 'TECHNICAL SERVICES' BUT FOR PURCHASE OF THE DESIGN &. DRAWINGS BY THE APPELLANT IN THE SETTING UP OF WHOS E BY PRODUCT PLANT OF COKE OVEN BATTERY 10 &. 11 PLANT, SUCH DESIGN &. DRAWING S WERE TO BE USED. 2. BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A C OMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF STEEL AND ITS SET ARE LOCATED AT SEVERAL LOCATION ACROSS INDIA. THE ASSESSEE WAS EXPANDING I TS PRODUCTION CAPACITY AT JAMSHEDPUR, BIHAR. FOR THIS PURPOSE THE ASSESSEE CO MPANY PURCHASED AND SETUP A BYPRODUCT PLANT (BPP) OF COKE OVEN BATTERY 10 &11 WHICH IS S SUB- SET OF STEEL PLANT. FOR THAT PURPOSE THE ASSESSEE H AD ENTERED IN TO AN AGREEMENT WITH M/S ACRE COKING & REFINERY ENGINEERI NG CONSULTING CORPORATION MCC OF CHINA (NON RESIDENT SUPPLIER HAV ING PAN AAICA4654P). AS PER AGREEMENT THE PAYMENTS TO THE SUPPLIER WAS MADE IN CONES AND THE ASSESSEE AGREED TO BEAR THE TAX DEDUC TABLE UNDER SECTION 195 ITA NO. 4 166 MUM 2017-M/S TATA STEEL LIMITED. 3 OF THE CONTRACT PRICE, IF ANY PAYABLE THEREIN. DURI NG THE RELEVANT PERIOD THE NON-RESIDENT SUPPLIER RAISED AN INVOICE OF USD 145, 105.75 REPRESENTING 5% OF THE CONTRACT PRICE FOR SUPPLY OF ENGINEERING DRA WING. THE ASSESSEE ISSUED A CERTIFICATE IN THE PRESCRIBED FORM NO. 15CB, CERT IFYING THAT THE SAID CONTRACT PRICE CONSTITUTE ROYALTY IN TERMS OF INDO- CHINA DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA), THUS CHARGEABLE UNDER INDIAN INCOME-TAX AT THE RATE OF 10%. THE ASSESSEE PURSUANT TO THE SAID CERTIFICATE DEDUCTED 10% TAX ON SAID PAYMENT ON 15/10/2015 UNDER SECTION 195 /195A AND DEPOSITED VIDE TAX CHALLANS DATED 15/07/2015. THE ASSESSEE TH EREAFTER FILED AN APPEAL BEFORE LD CIT(A) FOR SEEKING DECLARATION THAT NO TA X WAS DEDUCTABLE ON SUCH PAYMENT AND ALSO PRAYED FOR REFUND OF THE TAX PAID. THE CONTENTION OF THE ASSESSEE IS THAT THEY HAVE IMPORTED DESIGNS AND DRA WING (WHICH WERE IMPORTED ON FREE ON-BOARD FOB BASIS) AND ARE INEX TRICABLY LINKED AND EXCLUSIVELY USED FOR CIVIL STRUCTURAL WORK IN CONNE CTION WITH THE IMPORTED PLANT, MACHINERY AND EQUIPMENT AND CONSEQUENTLY FOR MED AN INTEGRAL PART OF SUCH PLANT, MACHINERY AND EQUIPMENT, AS WOULD BE MA NIFEST FROM THE FACT THAT COKE BATTERIES COULD NOT HAVE SETUP IN ABSENCE OF SAID IMPORTED DESIGNS AND DRAWINGS. THE ASSESSEE ALSO CONTENDED THAT THE SAID IMPORTED DESIGN AND DRAWING CONSTITUTES GOODS, THE CONSIDERATION FOR WH ICH IS NOT CHARGEABLE TO INDIAN INCOME AND, WHICH CONSIDERATION, THEREFORE, DOES NOT ATTRACT ANY ITA NO. 4 166 MUM 2017-M/S TATA STEEL LIMITED. 4 WITHHOLDING TAX IN INDIA. THE CONTENTION OF ASSESSE E WAS NOT ACCEPTED BY LEARNED COMMISSIONER (APPEALS). THEREFORE THE ASSES SEE HAS FILED PRESENT APPEAL BEFORE THIS TRIBUNAL RAISING VARIOUS GROUND OF APPEAL AS WE HAVE REFERRED ABOVE. 3. WE HAVE HEARD THE SUBMISSION OF LEARNED AUTHORIZED REPRESENTATIVE (AR) FOR THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENT ATIVE (DR) FOR THE REVENUE AND PERUSED THE RECORD. AT THE OUTSET OF HE ARING, THE LD. AUTHORIZED REPRESENTATIVE (AR) OF THE ASSESSEE SUBMITS THAT GR OUND NO.1 OF THE APPEAL IS GENERAL IN NATURE AND NEEDS NO ADJUDICATION. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT GROUND NO.2 RELATES TO THAT IF THE PAYMENTS MADE BY ASSESSEE TO M/S ACRE COKING & REFACTORY ENGINEERING CONSULTING CORPORATION MCC OF CHINA CONSTITUTE FEES FOR TECHNI CAL SERVICES. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT THIS GROUND OF APPEAL IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF TRIBUNAL IN A SSESSEES OWN CASE IN ITA NO. 1086/MUM/2017 DATED 01.03.2018, WHEREIN THE SIM ILAR GROUND OF APPEAL WAS ALLOWED IN FAVOUR OF ASSESSEE. THE LD. AR OF TH E ASSESSEE FURNISHED THE COPY OF DECISION OF TRIBUNAL RELIED UPON BY HIM. 4. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE (DR) FOR THE REVENUE RELIED UPON THE ORDER OF LD. CIT(A). ITA NO. 4 166 MUM 2017-M/S TATA STEEL LIMITED. 5 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDER OF LD. CIT(A). WE HAVE NOTED THAT ON ALMOST SIMILAR SET OF FACT, THE TRIBUNAL IN ASSESSEES OWN CASE, WHILE AD JUDICATING THE IDENTICAL GROUNDS OF APPEAL FOR SIMILAR PAYMENTS MADE TO M/S NIPPON STEEL & SUMIKIN ENGINEERING COMPANY LTD (NIPPON ), A TAX R ESIDENT OF JAPAN, PASSED THE FOLLOWING ORDER: 4.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE WANTED TO COMMISSION A CDQ P LANT, THAT IT ENTERED INTO FOUR AGREEMENTS WITH NIPPON, THAT THE PLANT WAS A SOPHIS TICATED PLANT WHICH CONSTITUTED OF A NUMBER OF INTEGRALLY CONNECTED AND LINKED SMALLER MACHINERIES AND EQUIPMENT, THAT IT NEEDED TO BE SET UP BY INSTALLIN G SEVERAL SMALLER MACHINES ,EQUIPMENT AND PARTS, THAT THE MAJORITY OF WHICH WE RE IMPORTED WHEREAS OTHERS WERE EITHER PROCURED LOCALLY OR WERE MANUFACTURED, THAT THE PROCURED MACHINES AND / OR EQUIPMENT NEEDED TO BE ASSEMBLED FOR WHICH A P LANT DESIGN WAS REQUIRED, THAT IN TERMS OF THE AGREEMENTS ENTERED IN TO BETWEEN BO TH THE PARTIES THE SUPPLY OF THE IMPORTED PLANT & MACHINERY ALONG WITH D &D(BOTH ENG INEERING AND CIVIL),UTILITIES, SERVICES FOR ERECTION, START-UP, COMMISSIONING AND WARRANTIES BY WAY OF DEMONSTRATION OF PERFORMANCE TESTS ETC. WAS THE RES PONSIBILITY OF NIPPON, THAT IT MADE PAYMENT TO NIPPON FOR SUPPLY OF ENGINEERING DR AWINGS, THAT IT DEDUCTED TAX BEFORE MAKING PAYMENT TO THE NON -RESIDENT SUPPLIER , THAT IT OBTAINED A CERTIFICATE IN THE PRESCRIBED FORM NO 15CB,THAT IT APPROACHED T HE FAA AND REQUESTED HIM TO DECLARE THAT TAX WAS NOT DEDUCTIBLE FOR THE PAYMENT S MADE TO NIPPON FOR SUPPLY OF D&D, THAT THE FAA HELD THAT PAYMENT MADE BY THE ASS ESSEE TO NIPPON CONSTITUTED FTS IN TERMS OF ARTICLE 12 OF THE INDO-JAPANESE TAX TREATY AND THAT SAME WAS LIABLE TO TAX IN INDIA. ITA NO. 4 166 MUM 2017-M/S TATA STEEL LIMITED. 6 4.1. IN OUR OPINION, THE SHORT ISSUE TO BE DECIDED IS AS TO WHETHER THE PAYMENTS MADE BY THE ASSESSEE TO NIPPON FOR SUPPLY OF D&D, A S PER THE AGREEMENT, CONSTITUTED FTS. THE TERM FTS HAS PECULIAR MEANING AS PER THE PROVISIONS OF EXPL. 2 TO SECTION 9(1)(VII) OF THE ACT. THE SECTION STIPULATES THAT FOR THE PU RPOSES OF CLAUSE (VII),FTS MEANS ANY CONSIDERATION FOR THE RE NDERING OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES, BUT DOES NOT INC LUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDE RTAKEN BY THE RECIPIENT, OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIEN T CHARGEABLE UNDER THE HEAD SALARIES. 4.2.THE SETTLED LAW, GOVERNING THE CONTRACTS DEALIN G WITH SUPPLY OF PLANT AND MACHINERY, D & D/KNOW-HOW, STIPULATES THAT IF SERVI CES ARE INTRINSICALLY CONNECTED TO THE SALE OF GOODS, SAME CANNOT BE TREA TED AS FIS OR FTS. THE HON'BLE APEX COURT IN THE CASE OF ISHIKAWAJMA HARIMA HEAVY INDUSTRIES LTD (288 ITR 408) HAS UPHELD THE ABOVE PRINCIPLE. THE HON'BLE CA LCUTTA HIGH COURT IN THE MATTER ANDREW YULE & CO.(207ITR899)HAS DEALT WITH T HE IDENTICAL ISSUE. IN THAT MATTER, A GERMAN COMPANY HAD SUPPLIED CERTAIN MACHI NERY TO THE INDIAN ASSESSEE AND HAD RENDERED CERTAIN SERVICES IN SETTING UP OF THE MACHINERY. CONSIDERING THOSE FACTS, THE HON'BLE COURT HELD THAT SERVICES RENDERE D IN SETTING UP OF MACHINE COULD NOT BE TREATED AS PERSONAL SERVICE, EVEN IF THE AGR EEMENT FOR RENDERING THE SERVICES WAS EMBODIED IN A SEPARATE AGREEMENT, THAT THE GERM AN COMPANY HAD NO PE IN INDIA, THAT IN VIEW OF THE INDO-GERMAN DTAA, NO INC OME HAD ACCRUED IN INDIA, THAT THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE . 4.3.THE ORDER OF THE SPECIAL BENCH OF THE CHENNAI T RIBUNAL, DELIVERED IN THE CASE OF PRASAD PRODUCTION LIMITED(125 ITD 263)ALSO SUPPO RTS THIS VIEW. IN THAT MATTER, THE ASSESSEE HAD PURCHASED THEATRE EQUIPMENT, THE C ONSIDERATION FOR WHICH WAS CONSTITUTED OF THE PURCHASE PRICE OF THE EQUIPMENT AND A TECHNOLOGY TRANSFER FEE. PAYMENT OF THE TECHNOLOGY TRANSFER FEE MADE BY ASSE SSEE TO THE FOREIGN COMPANY TOWARDS THE SERVICES OF INSTALLATION OF EQUIPMENT A ND TRAINING OF PERSONNEL UNDER THE AGREEMENT FOR SUPPLY, MAINTENANCE AND INSTALLAT ION OF THEATRE EQUIPMENT WAS HELD TO BE A PART OF THE PRICE OF EQUIPMENT AND, TH EREFORE, THE SAID PAYMENT WAS ITA NO. 4 166 MUM 2017-M/S TATA STEEL LIMITED. 7 HELD NOT CHARGEABLE TO TAX IN INDIA. CONSIDERING TH E ABOVE, THE TRIBUNAL HELD THAT THE CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT SERVIC ES RENDERED IN PURSUANCE OF THE PURCHASE AGREEMENT COULD BE TAXED AS FIS/FTS. 4.4.HERE,WE WOULD LIKE TO REFER TO CASE OF OUTOTECH GMBH (SUPRA).IN THE SAID CASE THE ASSESSEE A NON RESIDENT ,HAD PROVIDED D&D AND E NGINEERING DOCUMENTS TO ITS CUSTOMERS ENGAGED IN THE STEEL INDUSTRY IN INDIA FO R THE INSTALLATION OPERATION AND MAINTENANCE OF PLANT AND MACHINERY SOLD BY THE ASSE SSEE TO ITS CUSTOMERS. IT RAISED INVOICES ON ITS INDIA CUSTOMERS TO THE TUNE OF RS.7 9.42 CRORES. THE DEPARTMENTAL AUTHORITIES HELD THAT THE INVOICE AMOUNTS DID NOT R EPRESENT PART OF CONSIDERATION FOR SALE OF PLANT AND MACHINERY AND THAT THE INCOME EAR NED FROM D&D WAS TAXABLE IN INDIA. HOWEVER, THE TRIBUNAL REVERSED THE ORDER OF THE DRP AND HELD THAT THE BASIC ENGINEERING PACKAGE SOLD BY THE ASSESSEE TO THE IND IA CUSTOMERS HAD BEEN LARGELY DESIGNED ON THE BASIS OF STANDARD TECHNOLOGY AVAILA BLE WITH IT, THAT THE CONSIDERATION WAS FOR THE SALE OF PRODUCT WHICH WAS EMBEDDED IN THE PLAN SET UP BY THE INDIA CUSTOMERS, THAT THE INCOME ARISING OUT OF THE TRANSACTION WAS TO BE ASSESSED AS BUSINESS INCOME, THAT THE SALE HAD TAKE N PLACE OUTSIDE INDIA, THAT THE INCOME WAS NOT TAXABLE AS PER THE PROVISIONS OF THE ACT/DTAA , THAT RESTRICTION ON USE OF IPR OF D&D WOULD NOT CHANGE THE CHARACTER OF TRANSACTION FROM SALE OF PRODUCT TO THE USE OF LICENCE/KNOW HOW. 4.5.WE FIND THAT THE ASSESSEE HAS BEEN REFERRED TO AS PURCHASER IN THE D&D AGREEMENT, THAT THE D&D WAS SUPPLIED TO THE ASSESSE E ONLY FOR THE PURPOSE OF COMPLETING OPERATING AND MAINTAINING THE PLANT. AFT ER GOING THROUGH THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH NIPPON, WE HOLD T HAT D & D WERE CRITICALLY ESSENTIAL FOR SETTING UP THE PLANT AND IN THEIR ABS ENCE THE PLANT COULD NOT HAVE BEEN INSTALLED. IN OTHER WORDS, THE D & D WERE NOT MEREL Y INEXTRICABLY LINKED WITH THE PLANT BUT THE PLANT WOULD NOT HAVE BEEN INSTALLED A ND COMMISSIONED WITHOUT D&D. SO, IT CAN SAFELY BE SAID THAT D&D WOULD CONSTITUTE PART OF COST OF ACQUISITION OF THE PLANT. IN THE CASE UNDER CONSIDERATION, IT IS A LSO CLEAR THAT THE ASSESSEE WAS NOT EXPLOITING THE D&D FOR BUSINESS PURPOSES, THAT IPR OF THE D&D WERE RETAINED BY ITA NO. 4 166 MUM 2017-M/S TATA STEEL LIMITED. 8 THE NONRESIDENT SUPPLIER. CONSIDERING THE ABOVE, WE HOLD THAT THE FAA WAS NOT JUSTIFIED IN HOLDING THAT DISPUTED AMOUNT WAS FTS. WE HAVE GONE THROUGH THE CASES RELIED UPON BY THE F AA. IN NONE OF THE CASES, REFERRED TO BY HIM, THE ISSUE WAS NOT DELIBERATED U PON AS TO WHETHER THE CONSIDERATION, RECEIVED BY A MANUFACTURER OF PLANT AND MACHINERY FOR SUPPLYING TO ITS CUSTOMER, WHEREIN D&D WAS ESSENTIAL FOR INSTALL ATION OF PLANT AND MACHINERY, CONSTITUTED PART OF COST OF ACQUISITION OF PLANT. SO, REVERSING THE ORDER OF THE FAA, WE DECIDE THE E FFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 6. THUS RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDI NATE BENCH, THE GROUND OF APPEAL RAISED BY ASSESSEE IS ALLOWED WITH SIMILAR O BSERVATION. THE ASSESSEE HAS RAISED ALTERNATIVE GROUND VIDE GROUND NO. 3 & 4 . SINCE, WE HAVE ALLOWED THE GROUND NO.2 THEREFORE, THE ADJUDICATION OF GROU ND NO. 3 & 4 HAVE BECOME ACADEMIC. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/ 12/2018. SD/ SD/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 04 .12.2018 SK ITA NO. 4 166 MUM 2017-M/S TATA STEEL LIMITED. 9 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR I BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI