FOSECO INTERNATIONAL LTD, MUMBAI V. ADIT (IT) 3(2), MUMBAI

ITA 4383/MUM/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9398 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 18-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 30-05-2011
• Court: TRIBUNAL
• Department Lawyers: VIVEK A PERAMPURNA
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Transfer pricing; Double taxation relief

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA, AM & SHRI VIVEK VARMA , JM ITA NO. 4383 TO 4385 / MUM/20 1 1 ( ASSESSMENT YEAR : 2006 - 07, 20 07 - 08 & 2008 - 09 ) FOSECO INTERNATIONAL LIMITED, C/O SHARP AND TANNAN, RAVINDRA ANNEXE, 194, BACKBAY RECLAMATION, DINSHAW VACHHA ROAD, MUMBAI - 400 020 VS. ADCIT - 3(2), MUMBAI PAN/GIR NO. : A A ACF 0579 L ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI SANJIV M. SHAH /REVENUE BY : SHRI VIVEK A. PERAMPURNA DATE OF HEARING : 18 / 0 2 /201 5 DATE OF PRONOUNCEMENT : 25 /0 2 /2015 O R D E R PER R.C.SHARMA ( A .M.) : TH ESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 18 - 3 - 2011 FOR THE ASSESSMENT YEARS 200 6 - 07 TO 2008 - 09 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE I.T. ACT. 2. THE COMMON GRIEVANCE IN ALL THE YEARS RELATES TO ADDITION OF REIMBURSEMENT OF EXPENSES OF LOTUS NOTE CHARGES AND OTHER EXPENSES BY TREATING THE SAME AS FEES FOR TECHNICAL SERVICES. 3 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT ASSESSEE COMPANY IS INCORPORATED IN UK AND IS ENGAGED IN METALLURGICAL INDUSTRY. THE ASSESSEE HAS RECEIVED A SUM OF ITA NO S . 4383 TO 4384 /20 1 1 2 RS.8,56,41,282/ - IN A.Y.2008 - 09 AND OFFERED THE SAME TO TAX @15% AS ROYALTY UNDER INDIA - UK DTAA. HOWEVER THE ASSESSEE HAS ALSO CLAIMED TO HAVE RECEIVED REIMBURSEMENT OF EXPENSES OF RS. 28,78,222/ - WHICH WERE NOT OFFERED TO TAX. IN NOTE WITH RETURN OF INCOME THE ASSESSEE STATED THAT 'ASSESSEE HAS INCURRED CERTAIN E XPENSES ON BEHALF OF THE ASSOCIATED ENTERPRISES. REIMBURSEMENT INVOLVES RECOVERY OF ACTUAL COST INCURRED BY THE ASSESSEE ON THEIR BEHALF.' HOWEVER THE AO DID NOT FOUND THE CONTENTION OF THE ASSESSEE ACCEPTABLE. THE AO OBSERVED THAT AAR IN THE CASE OF M/S. DANFOSS INDUSTRIES PVT. LTD. 268 ITR 1 (AAR) HELD THAT FEES CHARGED BY THE FOREIGN COMPANY TO THE APPLICANT COMPANY IN PROVIDING THE SERVICES WAS THE CASE QUID PRO QUO FOR THE SERVICES AND NOT REIMBURSEMENT OF EXPENSES AND, THEREFORE, THE PAYMENT OF FEES B E MADE BY THE INDIAN COMPANY ONLY AFTER WITHHOLDING TAX U/S.195. THE AO ALSO RELIED IN THE CASE OF STEFFEN, ROBERTSON AND KIRSTEN CONSULTING ENGINEERS & SCIENTIST 230 ITR 206 (AAR) WHEREIN IT WAS HELD THAT THERE WAS NO DIFFERENCE BETWEEN FEES FOR ENGINEERI NG SERVICES AND THE FEES RELATABLE TO LIVING ALLOWANCE OR TRAVELLING CHARGES OF THE EMPLOYEES WHO HAD RENDERED THE SERVICES. THE AO ALSO CITED DECISION IN THE CASE OF COCHIN REFINERIES LTD. 222 ITR 354 (KER) WHEREIN IT WAS HELD THAT THE SERVICES RENDERED B Y THE FOREIGN COMPANY ARE TECHNICAL IN NATURE AND NATURE OF REIMBURSEMENT MADE TO PERSONNEL WOULD BE PART AND PARCEL IN THE PROCESS OF ADVICE OF. A TECHNICAL CHARACTER AND WOULD FALL UNDER EXPLANATION TO SECTION 9(1) (VII) OF INCOME - TAX ACT, 1961. IN CLOUT H GURMMIWERKE AKTIENGESELLSCHAFT V CIT 238 ITR 861 (AP) IT WAS HELD THAT THE FEES PAID, FOR TECHNICAL SERVICES OF ENGINEERING SUPERVISING THE ERECTION PROJECT WAS TAXABLE AS FEES FOR ITA NO S . 4383 TO 4384 /20 1 1 3 TECHNICAL SERVICES AND AMOUNT PAID TOWARDS THE CHARGES FOR PROVIDING FREE BOARDING, LOADING AND TRANSPORT FACILITIES TO THE ENGINEERING WAS ALSO TAXABLE U/S. 9(1 )(VII) OF THE ACT. CONSIDERING THESE JUDICIAL PRONOUNCEMENT THE AO HELD THAT REIMBURSEMENT OF EXPENSES ARE FEES FOR TECHNICAL SERVICES AND SUCH CHARGEABLE TO TAX @15% AS PER ARTICLE 13 OF INDIA - UK DOU BLE TAXATION AVOIDANCE AGREEMENT. 4. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO , AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. IT WAS CONTENDED BY LD. AR THAT REIMBURSEMENT OF ACTUAL EXPEN SES RECEIVED BY ASSESSEE PARENT COMPANY FROM SUBSIDIARY INDIAN COMPANY NAMELY, M / S FOSECO INDIA LIMITED INVOLVES NO PROFIT ELEMENT WHATSOEVER AND THUS THERE IS NO INCOME CHARGEABLE IN HANDS OF ASSESSEE - PARENT AS HELD IN CIT V. SIEMENS 310 ITR 320 (BOM) - P AGE 2, 8 OF JUDICIAL PR ECEDENT PAPER BOOK [JPPB]; DIT V. KRUPP 38 DTR 251 (BOM) - PAGE 21 O F JPPB; CIT V. INFORMATION ARCHITECTS 322 ITR 1 (BOM) - PAGE 25 OF PPB; MAHINDRA AND MAHINDRA V. DCIT 313 ITR 263, 326, 334 (SB); I TO V. ALSTOM (CHENNAI) DATED 19.11.201 0 - PAGE 33 OF JPPB; DCIT V. INDIA INDEX DATED 13.11.2013 (BOM) - PAGE 43 OF JPPB; C. U. INSPECTION V. DCIT DATED 06.03.2013 (BOM) - PAGE 49 OF JPPB; UTILITY V. ACIT DATED 19.04.2010 (BOM) - PAGE 59 OF JPPB; ACIT V KARMA DATED 07.09.2012 - PAGE 66, 106, 107 OF JP PB; DCIT V. AT AND S INDIA (KOL) DATED 29.01.2015 FOLLOWING CIT V. TEJAJI FARASRAM 67 ITR 95 (SC) - PAGE 114, 123, 127 OF JPPB; GE TECHNOLOGY V. CIT 327 ITR 456 SC). ITA NO S . 4383 TO 4384 /20 1 1 4 6 . AS AN ALTERNATE, LD. AR ARGUED THAT EVEN AS SUMING WHILE DENYING, THERE IT IS TECHNICAL S ERVICE FEE UNDER THE INCOME TAX ACT, 1961 [ACT], IT DOES NOT PARTAKE THE NATURE AND CHARACTER OF INCLUDED SERVICES AS DEFINED IN DTAA UNDER 'MAKE AVAILABLE' CONCEPT OF ARTICLE 13(4)(C) OF DTAA BETWEEN INDIA AND UK AS PROPAGATED IN CIT V. DE BEERS 346 ITR 4 67 (KAR) - PAGE 175 OF JPPB FOLLOWED IN CIT V. SUN MICROSYSTEMS 369 ITR 63 (KAR) - BOTH FOLLOWED IN DCIT V. AT AND S INDIA (KOL) DATED 29.01.2015; MAHINDRA AND MAHINDRA V. DCIT 313 ITR 263, 322, 329, (SB). 7 . LD. AR FURTHER INVITED OUR ATTENTION TO THE BREAK U P OF EXPENSES, ACCORDING TO WHICH EXPENSES OF RS.23,61,203/ - RELATES TO LOTUS NOTE CHARGES BEING REIMBURSEMENT OF THE USER CHARGES OF SOFTWARE USED GLOBALLY BY ALL GROUP COMPANIES, AND OTHER REIMBURSEMENT OF EXPENSES OF RS.5, 17,019/ - REPRESENTS EXPENSES I NCURRED ON BEHALF OF FOSECO INDIA LIMITED SUCH AS PURCHASE OF BOOKS, MEETING EXPENSES AND OTHER EXPENSES WHICH HAS NO CONNECTION WITH THE TECHNICAL SERVICES AS ENVISAGED BY THE AO. THE AR ALSO FILED COPIES OF INVOICES OF THESE PAYMENT. 8 . HE FURTHER CONTEN DED THAT THE LOTUS NOTE IS FACILITY GIVEN BY THE APPELLANT TO GROUP COMPANIES WITH A VIEW TO SMOOTHEN THE DAY TO DAY WORK AND THEREBY INCREASE THE OVERALL EFFICIENCY LEVEL. LOTUS NOTES IS POWERFUL MULTI FACETED APPLICATION SOFTWARE THAT HELPS TO COMPLETE T HE WORK EFFECTIVELY. IT OFFERS POWER OF MESSAGING AND IT EXCHANGES TO BRINGS TO A PERSON ALL INFORMATION WHETHER FROM NOTES OR FROM INTERNET. IT OFFERS VERY USEFUL DETAILS LIKE E - MAILS, CALENDAR, ADDRESS BOOK ETC. ALL FOSECO ITA NO S . 4383 TO 4384 /20 1 1 5 GROUP ARE INTERCONNECTED TO LOT US NOTES AND ESTABLISHMENT OF CONNECTIVITY, ADMINISTRATION AND SERVICING SOFTWARE FOR THE BENEFIT OF ALL FACILITATED BY FOSECO GROUP. THE COST OF THESE SERVICES IS RECOVERED BY WAY OF INVOIC E RAISED BY FOSECO INTERNATIONAL LTD . 9 . ON THE OTHER HAND, THE CO NTENTION OF LD. DR WAS THAT THE ASSESSEE HAS NOT FILED COPY OF THE AGREEMENT FOR PROVIDING LOTUS NOTE BOOK SERVICES BETWEEN ASSESSEE AND ITS INDIAN COMPANY BEFORE THE AO NOR BEFORE THE CIT(A). HE FURTHER INVITED OUR ATTENTION TO THE INVOICE ISSUED BY THE A SSESSEE WHICH INDICATED SALES AND NOT THE REIMBURSEMENT OF THE EXPENSES. 10 . WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT ASSESSES CLAIM OF REIMBURSEMENT OF EXPENSES WAS TREATED BY AO AS FEES FOR TECHNICAL SERVICES, WHEREAS THE CONTENTION OF THE ASSESSEE WAS THAT IT WAS MERELY A REIMBURSEMENT OF EXPENSES INCURRED ON LOTUS NOTE BOOK AND VARIOUS EXPENSES INCURRED BY THE ASSESSEE ON BEHALF OF ITS PRINCIPAL. SINCE THE ASSESSEE HAS NOT FILED CO PY OF ANY AGREEMENT FOR PROVIDING LOTUS NOTE BOOK SERVICES SO AS TO SUPPORT ASSESSEES CONTENTION REGARDING REIMBURSEMENT AND NOT IN THE NATURE OF FEE FOR TECHNICAL SERVICES , THE CIT(A) HAD CONFIRMED THE DISALLOWANCE . IN THE ABSENCE OF SUCH AGREEMENT THE N ATURE OF SERVICES RENDERED AND REIMBURSEMENT OF THE SAME CANNOT BE VERIFIED, SO AS TO HOLD THAT IT WAS NOT IN THE NATURE OF FEE FOR TECHNICAL SERVICES. SINCE IT WAS ALLEGED TO BE MERE REIMBURSEMENT, ONUS IS ON THE ASSESSEE TO DEMONSTRATE THE ACTUAL AMOUNT INCURRED ON BEHALF OF THE ASSOCIATED ENTERPRISES ON THE BASIS OF ENTRIES PASSED IN THE ITA NO S . 4383 TO 4384 /20 1 1 6 BOOKS OF ACCOUNT AND SUPPORTING BILLS/VOUCHERS OF SUCH EXPENSES. THE CIT(A) HAS CONFIRMED THE DISALLOWANCE AFTER HAVING FOLLOWING OBSERVATIONS : - 1.3. I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT LOTUS NOTE IS POWERFUL MULTIFACETED APPLICATION SOFTWARE THAT HELPS TO COMPLETE THE WORK. IT EXCHANGES THE INFORMATION AND BRING ALL INFORMATION TO A PERSON THOUGH INTERNET. IT ESTABLISHES THE CONNECTIVITY THEREFORE PAYMENT RECEIVED IN CONSIDER ATION OF USE OF LOTUS NOTE IS TECHNICAL NATURE. IT IS ALSO NOTICED THAT NO COPY OF AGREEMENT FOR PROVIDING LOTUS NOTE SERVICES BETWEEN APPELLANT AND ITS INDIAN COMPANY HAS BEEN FILED BEFORE THE AO NOR BEFO RE THE UNDER SIGNED. THEREFORE CONSIDERATION OF RS.24,35,020/ - RECEIVED FOR USE OF LOTUS NOTE IS FEES FOR TECHNICAL SERVICES AS PER EXPLANATION 2 TO SECTION 9(1) (VII) OF THE ACT WHICH READS AS FOLLOWS: 'EXPLANATION [2]: FOR THE PURPOSES OF THIS CLAUSE, '' FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CO NSIDERATION FOR ANY CONSTRUCTION. ASSEMBLY. MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES'. IN M/S DANFOSS INDUSTRIES (P) LTD IN RE (268 ITR 1) (AAR) IT WAS HE LD THAT THE FEES CHARGED BY THE FOREIGN COMPANY TO THE APPLICANT COMPANY IS PROVIDING THE SERVICES WAS THE CASE OF QUID PRO QUO FOR THE SERVICES AND NOT REIMBURSEMENT OF EXPENSES AND THEREFORE, THE PAYMENT OF FEES HAD TO BE MADE BY THE INDIAN COMPANY ONLY AFTER WITHHOLDING TAX UNDER SECTION 195 OF THE ACT. 1.3.1. THE CLAIM THAT ONLY COST OF USE OF LOTUS NOTE IS REIMBURSED, HOWEVER THE ELEMENT OF PROFITS THEREIN IS IMMATERIAL. THIS IS THE VIEW THE AUTHORITY HAS TAKEN IN DANFOSS INDUSTRIES (P) LTD., IN RE ( SUPRA) AND TIMKEN INDIA LTD., IN RE(200S) 273 ITR 67 (AAR). THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE ORDERS, THERE IS NO RATIONALE TO BISECT THE AMOUNT OF FEES FOR TECHNICAL SERVICES INTO ACTUAL FEES AND REIMBURSEMENT AS REIMBURSEMENT IF EVER THERE WAS ONE WOULD FORM PART AND PARCEL OF THE FEES CHARGED BY THE APPELLANT. THE CASE LAW ON. TO V ALSTOM( SUPRA) RELIED BY THE AR HAS NO APPLICATION AS IN THAT CASE THE HOLDING COMPANY WAS MAKING PAYMENT' AS PER SPECIFIC AGREEMENT ENTERED IN TO BETWEEN HOLDING CO MPANY AND SUPPLIER OF SOFTWARE OF LOTUS NOTE SOFTWARE FOR WHICH IT HAS RECEIVED THE APPORTIONED EXPENSES. IN THE INSTANT CASE, THE APPELLANT HAS NOT FILED ANY SUCH AGREEMENT BEFORE THE AO NOR BEFORE THE UNDER SIGNED. FURTHER THE LOTUS NOTE BELONGS TO THE A PPELLANT HENCE AGAINST WHICH THE APPELLANT HAS RECEIVED PAYMENTS. FURTHER SOME EXPENSES WERE RECEIVED FROM PROVIDING MANAGERIAL TRAINING SERVICES TO INDIAN COMPANY THEREFORE THE FACT OF THE APPELLANT CASE ARE DISTINGUISHABLE FROM THE CASE LAWS RELIED BY TH E APPELLANT. ITA NO S . 4383 TO 4384 /20 1 1 7 1 1 . IT IS CLEAR FROM THE ABOVE THAT IN THE ABSENCE OF AGREEMENT, IT CANNOT BE INFERRED AS TO WHETHER THE INVOICE RAISED BY THE ASSESSEE WAS ON ACCOUNT OF REIMBURSEMENT MERELY OR OTHERWISE. WE ALSO FOUND THAT THE AO HAS NOT GIVEN ANY FINDING TO THE EFFECT THAT IT DOES NOT PARTAKE THE NATURE AND CHARACTER OF INCLUD ED SERVICES AS DEFINED IN DTAA ON THE CONCEPT OF ARTICLE 13(4)(C) OF DTAA BETWEEN INDIAN AND UK. ACCORDINGLY, WE SET ASIDE BOTH THE ORDERS OF LOWER AUTHORITIES AND MATTER IS RESTORED BACK TO THE FILE OF AO FOR DECIDING AFRESH IN TERMS OF OUR ABOVE OBSERVATIONS. 12. AS THE ISSUE INVOLVED IN ALL THE THREE YEARS ARE EXACTLY SAME, WE, THEREFORE, RESTORE ALL THESE APPEALS TO THE FILE OF AO FOR DECIDING AFRESH IN TERMS INDICATED HEREINABOVE . 1 3 . IN THE RESULT, ALL APPEAL S OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH FEB. 201 5 . SD/ - SD/ - ( ) ( VIVEK VARMA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 25 / 0 2 /201 5 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//