JCIT, Bangalore V. M/s ABB India Pvt. Ltd., Bangalore

ITA 441/BANG/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9383 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-06-2016
• Assessment Year: 1998-1999
• Appeal Filed On: 28-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Double taxation relief; Deemed to accrue or arise in india; Retrospective amendment; Question of law; Wrong claim
• Section: 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- C, BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER SHRI INTURI RAMA RAO, ACCOUNTANT MEM BER ITA NO.441 /BANG/ 2014 (ASST. YEAR 1998-99) THE JT. COMMISSIONER OF INCOME-TAX (LTU), BENGALURU. . APPELLANT VS. M/S ABB INDIA PVT. LTD., KHANIJA BHAWAN, RACE COURSE ROAD, BANGALORE. . RESPONDENT APPELLANT BY : SHRI SANJAY KUMAR, CIT RESPONDENT BY : SHRI T SURYANARAYANA, ADVOCATE DATE OF HEARING : 30-06-2016 DATE OF PRONOUNCEMENT : 21-09-2016 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) - LTU, BENGALU RU DATED 23/1/2014 AND IT PERTAINS TO THE ASSESSMENT YEAR 1998-99. ITA NO.441/B/14 2 2. THE COMPANY HAD CLAIMED DEDUCTION U/S 80 IA IN R ESPECT OF 12 UNITS. THE AO HAD GRANTED RELIEF U/S 80IA IN RESPECT OF ONLY 3 UNITS. ON APPEAL THE CIT(A) GRANTED RELIEF I N RESPECT OF THE BALANCE 9 UNITS, WHICH WAS CONFIRMED BY ITAT. CONSEQUENTLY THE ASSESSMENT ORDER LEVYING PENALTY T O THE EXTENT ON DISALLOWANCE OF DISALLOWANCE OF DEDUCTION U/S 80 IA IN RESPECT OF 9 UNITS WAS RECTIFIED AND DELETED. THE O NLY SURVIVING PENALTY UNDER DISALLOWANCE UNDER SEC 80IA IS ON ACC OUNT OF REDUCTION OF RELIEF OF DEDUCTION ON ACCOUNT OF NON- ALLOCATION OF COMMON CORPORATE EXPENSES AMONG THE 12 UNITS IN COM PUTING DEDUCTION U/S 80IA. 3. WE FIND THAT THE ASSESSEE HAD CLEARLY INDICATED THAT ALL THE DIRECT AND INDIRECT EXPENSES REFERABLE TO THE 12 UN ITS HAVE ALLOCATED IN COMPUTING THE RELIEF U/S 80IA. ONLY TH E COMMON CORPORATE EXPENSES WERE NOT ALLOCATED AS REQUIRED B Y AO.AS THE CIT(A) HAS POINTED OUT, THERE IS DIVERGENCE OF OPIN ION WHETHER COMMON CORPORATE EXPENDITURE, MOST OF WHICH WAS BE ING INCURRED EVEN BEFORE THE STARTING OF THE NEW UNDERT AKINGS SHOULD ITA NO.441/B/14 3 BE ALLOCATED AMONG THE NEW UNITS AS BEING NECESSARY FOR THEIR MANUFACTURE. 4. THE LEARNED COUNSEL FOR ASSESSEE RELIED ON THE D ECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS . HINDUSTAN LEVER LTD., IN TAX CASE (APPEAL) NO.219 OF 2006, 26 7, 269, 270, 273 AND 274 OF 2008 AND TC(A) NO.219 OF 2006, WHERE IN THE QUESTION OF LAW IS AS FOLLOWS:- WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE COMMON HEAD OFFICE EXPENSES CANNOT BE APPORTIONED TO THE VARIOUS UNITS ON THE BASIS OF THERIR RESPECT IVE TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTIO N U/S 10B, 80I AND 80HH? 5. THUS THE ISSUE BEING A DEBATABLE ISSUE, THE NON- ALLOCATION OF COMMON CORPORATE EXPENDITURE RESULTING IN REDUCTION OF DEDUCTION U/S 80IA, IN OUR OPINION, CANNOT BE THE BASIS FOR L EVYING PENALTY ON ACCOUNT OF A WRONG CLAIM FOR DEDUCTION. A LONG AS T HE ASSESSEE HAD ITA NO.441/B/14 4 EXPLAINED THE REASON FOR CLAIMING DEDUCTION OF A PA RTICULAR AMOUNT, THE FACT THAT HIS CLAIM FOR EXPENDITURE HAS BEEN DI SALLOWED CANNOT BE A REASON FOR LEVYING PENALTY U/S 271(1)(C). WE D ERIVE SUPPORT FROM THE DECISION OF THE APEX COURT IN THE CASE OF CIT V M/S. RELIANCE PETRO PRODUCTS P LTD 322 ITR 158 WHERE IN IT HAS BEEN HELD THAT IN ORDER TO ATTRACT THE PROVISIONS OF S. 271(1)(C), THERE HAS TO BE CONCEALMENT OF INCOME OR FURNISHING OF INACCU RATE PARTICULARS OF HIS INCOME BY THE ASSESSEE. IN THE INSTANT CASE, ADMITTEDLY, NO INFORMATION GIVEN IN THE RETURN WAS FOUND TO BE INC ORRECT OR INACCURATE. HENCE, THE ASSESSEE CANNOT BE HELD GUIL TY OF FURNISHING INACCURATE PARTICULARS. MAKING AN INCORRECT CLAIM I N LAW CANNOT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS. MERELY BECAUSE THE ASSESSEE CLAIMED DEDUCTION WHICH HAS NOT BEEN A CCEPTED BY THE REVENUE, PENALTY UNDER S. 271(1)(C) IS NOT ATTRACTE D. 6. THE LD DR RELIED ON THE DECISION OF CIT VS. HCIL KALINDEE ARSSPL, 37 TAXMANN.COM 347 (DELHI). 7. THE LD COUNSEL FOR THE ASSESSEE BROUGHT TO OUR N OTICE THE ORDER OF TRIBUNAL, WHEREIN IT HAS BEEN HELD AS UND ER:- ITA NO.441/B/14 5 THE TRIBUNAL HAD POINTED OUT THAT THE HEAD OFFICE MONITORED THE RECRUITMENT OF FINANCE AND OTHER ACTI ON WHICH WERE NECESSARY FOR RUNNING ALL THE UNITS. CONSEQUENTLY, THE ADMINISTRATIVE EXPENSES THOUGH RELATABLE TO THE VARIOUS UNITS, ARE EXPENSES INCURR ED IN GENERAL, TOWARDS THE WELL BEING OF THE BUSINESS. T HUS, THE TRIBUNAL GRANTED THE RELIEF TO THE ASSESSEE HOL DING THAT THE HEAD OFFICE EXPENSE COULD NOT BE PROPORTIONATELY DISTRIBUTED AMONG THE VARIOUS UNITS OR ALLOTTED TO ANY PARTICULAR UNIT INDEPENDENTLY. 8. IN THE CIRCUMSTANCES WE AGREE WITH THE CIT(A) DE LETING THE PENALTY U/S 271(1)(C) IN RESPECT OF REDUCTION DEDUC TION U/S 80 IA ON ACCOUNT OF ALLOCATION OF COMMON CORPORATE EXPENDITU RE. 9. THE NEXT ISSUE IN APPEAL BY THE REVENUE IS AGAIN ST THE CIT(A) DELETING THE PENALTY, ON ACCOUNT OF DISALLOWANCE FE ES PAID TO NON RESIDENT FOR NON DEDUCTION OF TAX AT SOURCE. THE AS SESSEE HAS PAID RS. 96,17,000/- AS FEES FOR SERVICES. THE AMOUNT WAS DISALLOWED ON THE GROUND THAT TAX WAS NOT DEDUCTED. IN THE ASSESS MENT THE ENTIRE EXPENDITURE WAS DISALLOWED AND THE DISALLOWANCE WAS CONFIRMED BY ITA NO.441/B/14 6 CIT(A) AND ITAT. THE AO HAD LEVIED PENALTY OF RS. 3 3,65,975/- BEING 100% OF THE TAX SOUGHT TO BE EVADED. 10. THE CIT(A) DELETED THE PENALTY HOLDING AS UNDER : IN THE ABOVE MATTER, THE ISSUE HINGES AROUND PAYME NT FOR SERVICES IN STRATEGIC PLANNING, DEFINING PROJEC T MIX, EXPORT CO-ORDINATION, ADVICE ON PURCHASE OF LICENSE AND TECHNICAL KNOW-HOW ETC., WHICH THE ASSESSEE, AS PER THE DTAA BETWEEN INDIA AND SWITZERLAND HAD CONSIDERED A S FAILING WITHIN THE MEANING OF BUSINESS PROFIT. T HE AO HEAD THEM TO BE IN THE NATURE O FEES FOR TECHNICAL SERV ICES. SINCE THE INTERPRETATION OF LEGAL PROVISIONS AND A DISPUT E AROUND NATURE OF SERVICES PERFORMED IS AT THE HEART OF THI S MATTER, I AM INCLINED TO HOLD THAT THE REQUIREMENT OF SEC. 27 1(1)(C) FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS ARE NOT ATTRACTED HERE. ACCORDINGLY, T HE LEVY OF PENALTY RELATED TO THIS MATTER CANNOT BE SUSTAINED. 11. WE QUITE AGREE THAT THE ISSUE WHETHER THE FEES PAID CAN BE CONSIDERED AS FEES FOR TECHNICAL SERVICES OR BUSINE SS PROFITS UNDER THE DTAA BETWEEN INDIA AND SWITZERLAND. THE PRESENT APPEAL IS FOR THE AY 1998-99. AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE ITA NO.441/B/14 7 CASE OF JINDAL THERMAL POWER CO LTD V DCIT 321 ITR 31 HAS HELD THAT THE EXPLANATION INCORPORATED IN S. 9(2) BY FIN ANCE ACT 2007, DECLARES THAT 'WHERE THE INCOME IS DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLS. (V),(VI) AND (VII) OF SUB-S. (1), SUCH INCOME SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NON-RESIDENT, W HETHER OR NOT THE RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BU SINESS CONNECTION IN INDIA'. THE PLAIN READING OF THE SAID PROVISION SUGGESTS THAT CRITERION OF RESIDENCE, PLACE OF BUSINESS OR BUSINE SS CONNECTION OF A NON-RESIDENT IN INDIA HAS BEEN DONE AWAY WITH FOR F ASTENING THE TAX LIABILITY. HOWEVER, THE CRITERIA OF RENDERING SERVI CE IN INDIA AND THE UTILISATION OF THE SERVICE IN INDIA LAID DOWN BY TH E SUPREME COURT IN ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD. VS. DIRECT OR OF IT (2007) 207 CTR (SC) 361, TO ATTRACT TAX LIABILITY U NDER S. 9(1)(VII) REMAINS UNTOUCHED AND UNAFFECTED BY THE EXPLANATION TO S. 9(2). HENCE TILL A FURTHER EXPLANATION WAS INTRODUCED TO SEC 9(2) BY THE FINANCE ACT 2010, FEES FOR TECHNICAL SERVICES RENDE RED OUTSIDE INDIA WAS NOT TAXABLE IN INDIA. 12. AS HELD BY THE ITAT AGRA IN THE CASE OF METRO & METRO VS. ADDL CIT (158 TTJ 308), IT IS ONLY AS A RESULT OF ITA NO.441/B/14 8 AMENDMENT IN SECTION 9(1), BY VIRTUE OF FINANCE ACT 2010, THAT FEES FOR TECHNICAL SERVICES PAID CAN BE SAID TO BE TAXABLE IN INDIA. IN CASE OF CHANNEL GUIDE VS. ACIT (139 ITD 4 9), IT WAS HELD THAT AMOUNT PAID TO THE FOREIGN ENTERPRISE WAS NOT TAXABLE IN INDIA IN LIGHT OF LEGAL POSITION AS IT PREVAILED AT THAT POINT OF TIME, AND IT BECAME TAXABLE IN INDIA ONLY AS A RESU LT OF RETROSPECTIVE AMENDMENT IN SECTION 9(1), SAID PAYME NT CANNOT BE DISALLOWED BY INVOKING SECTION 40(A) (I). AS FOR EARLIER PERIOD, EVEN THOUGH AMENDMENT IS SAID TO BE MERELY CLARIFIC ATORY IN NATURE, IN VIEW OF FACT THAT SERVICES WERE RENDERED OUTSIDE INDIA, EVEN IF UTILIZED IN INDIA, THE TRIBUNAL HELD THAT I MPUGNED FEES FOR TECHNICAL SERVICES WAS NOT TAXABLE IN INDIA. FOLLOW ING DECISION OF CO-ORDINATE BENCH IN CASE OF CHANNEL GUIDE, THE TRIBUNAL IN THAT CASE HELD THAT DISALLOWANCE U/S 40(A)(I) CANNO T BE INVOKED ON FACTS OF THIS CASE. 13. IN VIEW OF THE ABOVE, WE AGREE WITH THE CONCLUS ION OF THE CIT (A) DELETING THE PENALTY IN RESPECT OF NON-DEDUCTIO N OF TAX FROM FEES PAID TO NON-RESIDENTS FOR SERVICES RENDERED AB ROAD. THE REVENUES APPEAL ON THIS ISSUE IS DISMISSED. ITA NO.441/B/14 9 14. IN THE RESULT THE APPEAL OF THE REVENUE IN ITA NO 441/BANG/2014 FOR AY 1998-99 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21ST SEPTEMBER, 2016 . SD/- SD/- (INTURI RAMA RAO) (ASHA VIJAYAR AGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED : 21/09/2016 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED 4.THE CIT(A) CONCERNED 5.DR 6.GF BY ORDER ASST. REGI STRAR, ITAT, BANGALORE