ADIT, Jaipur V. M/S TAB INDIA GRANITES P. LTD., Jaipur

ITA 42/JPR/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6500 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 13-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL; D C SHARMA
• Keywords: Business income; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment
• Section: 201(1); 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. ME ENA) ITA NOS. 42, 43, 44, 45 & 46/JP/2012 ASTT. YEARS:2006-07, 2007-08, 2008-09, 2009-10 & 2010-11 PAN : AABCT 7634 B THE ADIT VS. M/S. TAB INDIA GRANITES (P) LTD. (INTERNATIONAL TAXATION) 502, APPEX MALL, TONK RO AD JAIPUR JAIPUR (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI A.K. KHANDELWAL & SHRI D.C. SHARMA ASSESSEE BY : SHRI P.C. PARWAL DATE OF HEARING: 10-07-2014 DATE OF PRONOUNCEMENT:18-07-2014 ORDER PER R.P. TOLANI, JM THESE ARE FIVE APPEALS FILED BY THE REVENUE AGAI NST COMMON ORDER OF THE LD. CIT(A)-II, JAIPUR DATED 21-10-2011 FOR THE ASSESSMENT YEARS 2006-07 TO 2010-11 WHEREIN THE REVENUE HAS RAISED COMMON GROUND IN ITS APPEALS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN HOLDING THAT NO WITHHOLDING OF TAXES ARE REQUIRED U/S 195 ON THE PAYMENTS MADE BY THE ASSESS EE TO NO- RESIDENT FOR PURCHASE OF NEW DESIGNS OF FURNITURE C LEARLY BEING TRANSFER OF SPECIAL KNOWLEDGE AND IN IGNORING THE F ACT THAT 2 CIRCULAR NO. 786 DATED 7-02-2000 HAS BEEN WITHDRAWN WITH RETROSPECTIVE EFFECT BY CIRCULAR NO. 7/2009 DATED 2 2-10-2009. 2.1 THE BRIEF FACT OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF EXPORT OF GRANITES. FOR PROMOTING ITS G OODS IN INTERNATIONAL MARKET, IT HAD MADE PAYMENT OF ADVERTISEMENT CHARGE S TO M/S. BNP MEDIA, USA FOR ADVERTISEMENT OF ITS PRODUCTS IN THE INTERN ATIONAL MONTHLY MAGAZINE STONE WORLD PRINTED AND PUBLISHED IN USA. THE COP Y OF ADVERTISEMENT PUBLISHED IN THIS MAGAZINE AND COPY OF INVOICE RAIS ED BY M/S. BNP MEDIA WAS ALSO SUBMITTED. THE ASSESSEE HAD NOT DEDUCTED T AX AT SOURCE ON THE ABOVE PAYMENTS FOR THE REASON THAT SUCH PAYMENT WAS BUSINESS INCOME OF THE RECIPIENT AND SINCE NON-RESIDENT ENTITY HAD NO PERMANENT ESTABLISHMENT IN INDIA, NO INCOME HAD ACCRUED OR ARISEN TO THE NO N-RESIDENT U/S 9 OF THE ACT. THE AO HELD THAT THE ASSESSEE HAD WAS REQUIRED TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT ON THE ENTIRE PAYMENT MADE TO M/ S. BNP MEDIA, USA BY MAKING FOLLOWING OBSERVATIONS:- (I) ACCORDING TO EXPLANATION INSERTED IN FINANCE AC T, 2010, IT WAS STATED THAT EVEN IF THE NON-RESIDENT HAD NO RENDERED ANY SERVICES IN INDIA AND RECEIVED ANY INCOME BY WAY OF INTEREST ROYALTY AND FEES FOR TECHNICAL SERVICES, THE INCOME SHALL BE DEEMED TO ACCRUE AND ARISE IN INDIA. THIS EXPLANATI ON WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 1976. 3 (II) THE CIRCULAR N. 23 DATED 23 RD JULY, 1969 RELIED UPON BY THE ASSESSEE CLARIFIED THE PROVISIONS OF SECTION 9 PRIOR TO THE AMENDMENT BY THE FINANCE ACT 1976, THEREFORE, IT DI D NOT APPLY IN THE CASE OF THE ASSESSEE. (III) THE REMITTANCE MADE BY THE ASSESSEE ON ACCOUN T OF ADVERTISING WERE COVERED UNDER THE EXPRESSION FEES FOR TECHNICAL SERVICES AS DEFINED IN SECTION 9(1)(II)(B) OF THE I .T. ACT, 19761 AND THESE SERVICES HAD BEEN USED FOR THE BUSINESS R UN IN INDIA BY THE PRAYER BEING A RESIDENT AND THEREFORE, THE S AME WAS DEEMED INCOME OF THE PAYEE ACCRUED OR ARISING IN IN DIA AND LIABLE FOR WITHHOLDING TAX. (IV) THE RELIANCE OF THE ASSESSEE ON THE DECISION I N THE CASE OF MORGAN STANLEY AND CO. IN THE CASE OF (292 ITR 416) WAS OUT OF CONTEXT AND DID NOT PERTAIN TO THE FACTS OF THE CASE OF THE ASSESSEE. (V) THE AO FURTHER RELIED ON THE FOLLOWING DECISIONS:- (A) RAJIV MALHOTRA (284 ITR 564) (AAR) (B) WALLACE PHARMACEUTICALS (P) LTD. (278 ITR 97) (AAR) SOUTH WEST MINING LTD. (278 ITR 233) (AAR) (D) MARUTI UDYOG LTD. VS. ADIT (2010) (E) CIT VS. SAMSUNG ELECTRONICS (KARNATAKA) 320 ITR 209) 4 ACCORDINGLY, THE AO RAISED THE DEMAND OF TAX U/S 20 1(1) AND DEMAND FOR INTEREST U/S 201(1A) OF THE ACT. 2.2 AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL WHERE THE ASSESSEE CONTENDED THAT THERE IS NO DISPUTE ON THE ISSUE THA T THE PAYMENTS MADE TO M/S. BNP MEDIA, USA WAS ON ACCOUNT OF ADVERTISEMEN T IN THEIR MAGAZINE KNOWN AS STONE WORLD WHICH IS PRINTED AND PUBLIS HED FROM USA. THE ASSESSEE DEALS IN STONES I.E. GRANITE AND THE SOLE PURPOSE OF THE ADVERTISEMENT WAS TO APPRISE THE WORLD ABOUT THE QU ALITY, RATES AND OTHER RELATED INFORMATION FOR ADVERTISING ITS PRODUCTS. T HERE IS NO ELEMENT OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES OF AN Y KIND WHATSOEVER PROVIDED BY M/S. BNP MEDIA, USA TO THE ASSESSEE. T HUS THERE IS NO SCOPE FOR APPLICABILITY OF EXPLANATION 2 TO SECTION 9(1) (VII) OF THE ACT I.E. FEES FOR TECHNICAL SERVICES. TO SUPPORT ITS CONTENTION, THE ASSESSEE RELIED ON THE FOLLOWING JUDGEMENTS. (I) M/S. GE INDIA TECHNOLOGY CENTRE (P) LTD. VS. CI T & ANR. 44 DTR 201 (SC). (II) INCOME TAX OFFICER (INTERNATIONAL TAXATION) VS . PRASAD PRODUCTION LTD. (37 DTR 418) CHENNAI (SPECIA L BENCH). (III) ACIT VS. MODERN INSULATOR LTD. , 10 ITR (TRIBUNAL) 147, JAIPUR ITAT . (IV) SUN MICROSYSTEMS INDIA (P) LTD. VS. ITO , 3 IT R (TRIB) 808), BANGLORE 5 2.3 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF BOTH THE PARTIES HELD THAT THE ASSESSEE WAS NOT LIABLE FOR TDS AS TH E AMOUNTS WERE NOT PAID BY THE ASSESSEE TO M/S. BNP MEDIA, USA FOR ANY TECH NICAL SERVICES AND THE PAYMENTS MADE FOR ADVERTISEMENT CANNOT BE INCLUDED IN FEES FOR TECHNICAL SERVICES BY FOLLOWING OBSERVATIONS. 3.4 THE JUDGMENTS OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO . LTD (320 ITR 209) RELIED ON BY THE A.O. DEALT WITH THE QUEST ION WHETHER TAX WAS TO BE DEDUCTED AT SOURCE UNDER SECTION 195 OF THE ACT IN RESPECT OF PAYMENT MADE TO NON RESIDENT ON IMPORT O F SOFTWARE OR NOT. THE JUDGMENT OF THE KARNATAKA HIGH COURT WA S LARGELY BASED ON THE JUDGMENT OF THE SUPREME COURT IN THE C ASE OF TRANSMISSION CORPORATION OF A.P. LTD. VS. CIT (239 ITR 587). HOWEVER, THE KARNATAKA HIGH COURT HAD NOT FOLLOWED THE SUBSEQUENT BINDING JUDGMENT OF THE SUPREME COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION VS. CIT (314 ITR 309) WHEREIN THE APEX COURT HAS CATEGORICALLY HELD THAT THE RESIDENT WAS NOT REQUIRED TO DEDUCT TDS UNDER SECTION 195(1) OF THE ACT, IF THE INCOME OF THE NON RESIDENT RECIPIENT WAS NOT TAXABLE IN INDIA. GIVEN THIS BINDING PRECEDENT, THE JUDGMENT O F THE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRO NICS CO. LTD. (320 ITR 209) WOULD NOT APPLY TO CASES WHERE T HE NON RESIDENT RECIPIENT WAS NOT TAXABLE IN INDIA. IN THE JUDGMENT OF THE APEX COURT IN THE CASE OF ISHIKAWAJIMA HARIMA H EAVY INDUSTRIES LTD. VS. DIT (288 ITR 408) IT WAS HELD T HAT FOR 6 SECTION 195 TO BE ATTRACTED, THE SERVICES RENDERED BY THE NON RESIDENT SHOULD HAVE BEEN RENDERED IN INDIA AND ALS O SHOULD HAVE BEEN USED IN INDIA AND THAT THE TWIN TESTS HAV E TO BE SATISFIED FOR SECTION 195 TO BE ATTRACTED. THEREFOR E, THE LEGISLATURE INTRODUCED THE EXPLANATION TO SECTION 9 (2) OF THE ACT AFTER THIS JUDGMENT, WITH RETROSPECTIVE EFFECT FROM JUNE 1, 1976 IN THE FINANCE ACT, 2007. DESPITE THIS INTRODU CTION OF EXPLANATION TO SECTION 9(2) OF THE ACT, THE KARNATA KA HIGH COURT IN THE CASE OF JINDAL THERMAL POWER CO. LTD. VS DEPUTY CIT (321 ITR 31) HELD THAT THE LAW LAID DOWN BY THE APEX COURT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD. (288 ITR 408) STILL HOLDS GOOD DESPITE THE RETROSPECTIVE AMENDMENT TO SECTION 9 OF THE ACT. THEREFORE, THE REQUIREMENT OF SERVICES OF THE NON RESIDENT BEING RENDERED IN INDIA AND BEING UTILIZED IN INDIA IS STILL VALID, DESPITE THE JUDGMENT OF THE K ARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD. ( 320 ITR 209) AND WITHDRAWAL OF EARLIER CIRCULARS ISSUED ON THIS SUBJECT BY THE CENTRAL BOARD OF DIRECT TAXES. IT IS WELL SE TTLED LAW THAT THE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGR EEMENT WOULD PREVAIL OVER THE PROVISIONS OF THE INCOME TAX ACT, THEREFORE, THIS PREPOSITION WAS NOT COMPLETELY FOLL OWED BY THE KARNATAKA HIGH COURT WHILE RENDERING ITS DECISION I N THE CASE OF SAMSUNG ELECTRONICS CO. LTD (320 ITR 209). THERE FORE, IN MY CONSIDERED OPINION, THE LAW RELATING TO DEDUCTIO N OF TAX AT SOURCE UNDER SECTION 195 HAS NOT BEEN CHANGED CONSE QUENT TO THE JUDGMENT OF SAMSUNG ELECTRONICS OR WITHDRAWAL O F EARLIER CIRCULARS, ON THIS ISSUE BY THE CENTRAL BOARD OF DI RECT TAXES. 7 THEREFORE, NO DEMAND UNDER SECTION 201(1) AND INTER EST UNDER SECTION 201(1A) CAN BE CHARGED IN THE PRESENT CIRCU MSTANCES. I, THEREFORE, DIRECT A.O. TO CANCEL THE ORDER CHARGING TAX OF RS. 10,41,687/- U/S 201(1) AND INTEREST OF RS. 3,16,480 /- U/S 201(1- A) OF THE I.T. ACT. THESE GROUNDS OF APPEAL ARE ALL OWED. 2.4 AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE R EVENUE IS IN APPEAL BEFORE US. 2.5 DURING THE COURSE OF HEARING, THE LD. DR RELIED UPON THE ORDER OF THE ADIT (INTERNATIONAL TAXATION). 2.6 DURING THE COURSE OF HEARING THE LD. AR VEHEMEN TLY ARGUED THAT THE SOLE BASIS OF THE ADIT (INTERNATIONAL TAXATION) WAS THE HON'BLE KARNATAKA HIGH COURT JUDGEMENT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) WHICH HAS BEEN CONSIDERED BY THE LD. CIT(A) AND THEREAFTER DISTINGUISHED IT AND UPHELD THE ASSESSEE'S CONTENTI ON. THE HON'BLE KARNATAKA HIGH COURT JUDGEMENT CAME UP FOR CONSIDERATION BEFO RE HON'BLE SUPREME COURT IN THE CASE OF M/S. GE INDIA TECHNOLOGY CEN TRE (P) LTD. VS. CIT & ANR. 44 DTR 201 (SC). BY THIS JUDGEMENT, THE HON'BL E SUPREME COURT REVERSED THE JUDGEMENT OF HON'BLE KARNATAKA HIGH C OURT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA). THUS THE PROPOSITION AS LAID DOWN BY THE HON'BLE KARNATAKA HIGH COURT IN THIS CASE IS NO MORE LAW OF LAND. 8 THEREFORE, THE ENTIRE EDIFICE OF ADIT (INTERNATIONA L TAXATION) ACTION IN HOLDING THE ADVERTISEMENT AS FEES FOR TECHNICAL SER VICES WHICH IS LIABLE FOR TDS U/S 9(1)(VII)(B) READ WITH TDS PROVISIONS DOES NOT SURVIVE ANY MORE. THEREFORE, THE ORDER OF THE LD. CIT(A) WHICH IS IN CONSONANCE WITH HON'BLE SUPREME COURT JUDGEMENT IN THE CASE OF M/S. GE IN DIA TECHNOLOGY CENTRE (P) LTD. VS. CIT & ANR.(SUPRA) DESERVES TO BE UPHEL D. 2.7 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND MERIT IN THE ARGUMENTS OF THE LD. AR OF THE ASSESSEE AND THE JUDICIAL PRECEDENTS CITED THEREWIT H. THE SOLE BASIS OF ADIT (INTERNATIONAL TAXATION) HOLDING THE ADVERTISEMENT AS FEES FOR TECHNICAL SERVICES WAS THE VEHEMENT RELIANCE ON HON'BLE KARN ATAKA HIGH COURT JUDGEMNET IN THE CASE OF CIT VS. SAMSUNG ELECTRONIC S CO. LTD. (SUPRA). HOWEVER, THE HON'BLE SUPREME COURT IN THE CASE OF M/S. GE INDIA TECHNOLOGY CENTRE (P) LTD. VS. CIT & ANR.(SUPRA) RE VERSED THIS PROPOSITION OF HON'BLE KARNATAKA HIGH COURT (SUPRA). THUS, IN OUR CONSIDERED VIEW, THE ADVERTISEMENT PAYMENT MADE TO NRI CANNOT BE HELD A S LIABLE TO TDS. WE FURTHER HOLD THAT THERE IS NO ELEMENT OF RENDERIN G ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES SO AS TO BE TERMED AS FEES FOR TECHNICAL SERVICES. THUS IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY 9 IN THE ORDER OF THE LD. CIT(A) WHICH IS UPHELD. THE REFORE, THE APPEALS OF THE REVENUE ARE DISMISSED. 3.0 IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISSED. . THE ORDER PRONOUNCED IN OPEN COURT ON 18 TH JULY, 2014. SD/- SD/- (T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR DATED: 18 TH JULY, 2014 *MISHRA COPY FORWARDED TO:- 1. THE ADIT (INTERNATIONAL TAXATION), JAIPUR 2. M/S. TAB INDIA GRANITES (P) LTD., JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A), JAIPUR 5..THE LD. DR 6.THE GUARD FILE (ITA NO. 42/JP/2012) AR ITAT, JAIPUR 10