MSK Travels & Tours Ltd., Kolkata V. ITO, Ward - 7(1), Kolkata, Kolkata

ITA 458/KOL/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8112 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 26-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANJIT SAHA
• Assessee Lawyers: BISHAN K SEAL
• Keywords: Double taxation relief
• Section: 143(3)

Judgement Text

I.T.A. NO.: 458 /KOL/ 2012 ASSESSMENT YEAR: 2008 - 09 PAGE 1 OF 5 IN THE INCOME TAX APPELLA TE TRIBUNAL, KOLKATA C BENCH, KOLKATA [CORAM : PRAMOD KUMAR AM AND MAHAVIR SINGH JM] I.T.A. NO. : 458 /KOL/ 2012 ASSESSMENT YEAR : 2008 - 09 M S K TRAVELS & TOURS LTD .APPELLANT 25 B, 7E NEELAMBER BUILDING SHAKESPEARE SARANI KOLKATA 700 017 [PAN: AAECM6777F] VS. INCOME TAX OFFICER WARD 7 (1), KOLKATA . RESPONDENT APPEARANCES BY: BISHAN K SEAL FOR THE APPELLANT RANJIT SAHA FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JULY 30 , 2012 DATE OF PRONOUNCING THE ORDER : OCTOBER 23 , 2012 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 17 TH FEBRUARY 2012, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE ASSESSEE HAS RAISED AS MANY AS SIX GROUNDS OF APPEAL, BUT, AS THE LEARNED REPRESENTATIVES FAIRLY AGREE, THE TWO ISSUES R EALLY REQUIRED OUR ADJUDICATION ARE (A) WHETHER OR NOT THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE HAD ANY TAX WITHHOLDING OBLIGATIONS WITH RESPECT TO PAYMENT OF RS 90,65,000 , MADE TO TRIGINTA TRAVELS AND TOURS, SWEDEN, FOR INBOUND GROUP TOUR AR RANGEMENTS IN SCANDINAVIA; AND (B) WHETHER OR NOT THE CIT(A) WAS JUSTIFIED IN DISALLOWING THE LOSS OF RS I.T.A. NO.: 458 /KOL/ 2012 ASSESSMENT YEAR: 2008 - 09 PAGE 2 OF 5 8,40,261 INCURRED BY THE ASSESSEE IN RESPECT OF CONDUCTED EUROPE TOUR ORGANIZED FOR VASAVDUTTA CEMENT LTD. 3. SO FAR AS THE FIRST GROUND OF APPEAL IS CONCERNED, THE RELEVANT MATERIAL FACTS, AS CULLED OUT FROM MATERIAL ON RECORD, ARE LIKE THIS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE A PAYMENT OF EUROS 1,60,440 (EQUIVALENT TO INR 90, 65,000) TO A SWEDEN BASED ENTITY BY THE NAME OF TRIGINTA TRAVELS AND TOURS IN RESPECT OF ALL INCLUSIVE TOUR IN SCANDINAVIA FOR 111 ADULTS, 6 CHILDREN AND 1 TOUR MANAGER. THE ASSESS ING OFFICER NOTED THAT IN TERMS OF THE PROVISIONS OF SECTION 9(1)(I) OF THE INCOME TAX ACT, THIS INCOME WAS TAXABLE IN INDIA AND AS THE INCOME HAD SOURCE IN INDIA AND AROSE IN INDIA BECAUSE OF THE BUSINESS CONNECTION. HE FURTHER NOTED THAT IN TERMS OF THE PROVISIONS OF SECTION 5(2), INCOME ORIGINATED IN INDIA AND, FOR THIS REASON ALSO, IT SHOULD HAVE BEEN TAXED IN INDIA. THE ASSESSING OFFICER FURTHER NOTED THAT AS THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE FROM THIS PAYMENT, AND THUS DEFAULTED IN FULFILLING ITS OBLIGATIONS UNDER SECTION 195, THE EXPENDITURE OF RS 90,65,000 WAS TO B E DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT. AGGRIEVED BY THIS DISALLOWANCE, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND CONTENDED THAT THE INCOME EMBEDDED IN PAYMENT TO THE SWEDISH ENTITY WAS NOT TAXABLE IN INDIA UNDER THE PROVISIONS OF THE INCOME TAX ACT AS ENTIRE WORK WAS CARRIED OUTSIDE INDIA. IT WAS ALSO CONTENDED THAT THE SAID INCOME WAS ALSO NOT TAXABLE UNDER THE PROVISIONS OF THE INDIA SWEDISH DTAA, AS THE SWEDISH COMPANY DID NOT HAVE A PE IN INDIA AND IN VIEW OF THE LIMITED SCOPE OF PROVISIONS FOR FEES FOR TECHNICAL SERVICES UNDER THE SAID TAX TREATY READ WITH THE PROTOCOL CLAUSE THEREIN. NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE CIT(A). THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RI VAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. I.T.A. NO.: 458 /KOL/ 2012 ASSESSMENT YEAR: 2008 - 09 PAGE 3 OF 5 5. WE HAVE NOTED THAT WHILE LEARNED CIT(A) HAS ELABORATELY REPRODUCED THE SUBMISSIONS OF THE ASSESSEE SO FAR THE TAXABILIT Y OF THE INCOME EMBEDDED IN PAYMENT TO THE SWEDISH COMPANY, UNDER THE PROVISIONS OF INDIA SWEDISH DTAA, IS CONCERNED, HE HAS NOT AT ALL DEALT WITH THE SAME. IT IS ONLY ELEMENTARY THAT THE PROVISIONS OF THE INCOME TAX ACT, 1961 CAN COME INTO PLAY IN RESPECT OF AN ASSESSEE, WHO IS COVERED BY THE PROVISIONS OF A DULY NOTIFIED DOUBLE TAXATION AVOIDANCE AGREEMENT, ONLY TO THE EXTENT THE SAME ARE BENEFICIAL TO THE ASSESSEE. IN OTHER WORDS, THEREFORE, AS LONG AS AN INCOME IS NOT TAXABLE UNDER THE PROVISIONS OF THE APPLICABLE TAX TREATY, IT CANNOT BE TAXABLE UNDER THE PROVISIONS OF THE INCOME TAX ACT EITHER. THE CIT(A) HAS SIMPLY NOT EXAMINED THE TAXABILITY UNDER THE PROVISIONS OF THE APPLICABLE TAX TREATY. THEREFORE, HIS CONCLUSION THAT THE PAYMENT TO SWEDISH ENTIT Y COULD BE DISALLOWED UNDER SECTION 40(A)(I) IS QUITE PREMATURE INASMUCH AS THE VICARIOUS PROVISIONS OF TAX DEDUCTION AT SOURCE CAN ONLY BE INVOKED WHEN THERE IS PRIMARY TAX LIABILITY OF THE RECIPIENT, AND WHEN PRIMARY TAX LIABILITY OF THE RECIPIENT HAS NO T AT ALL BEEN EXAMINED UNDER THE PROVISIONS OF APPLICABLE TAX TREATY, IT IS PREMATURE TO HOLD THAT THE RECIPIENT INDEED HAD A TAX LIABILITY IN INDIA. BEFORE INVOKING THE PROVISIONS OF SECTION 40(A)(I), IT IS SINE QUA NON FOR THE ASSESSING OFFICER TO DEMONS TRATE THAT THE NON RESIDENT RECIPIENT OF PAYMENT WAS TAXABLE IN RESPECT OF INCOME EMBEDDED IN THAT PAYMENT IN INDIA, AND , IN ORDER TO ARRIVE AT SUCH A FINDING, IT IS NECESSARY THAT THE SAID INCOME WAS, IN ADDITION TO TAXABILITY UNDER THE INCOME TAX ACT, A LSO TAXABLE IN INDIA IN TERMS OF THE PROVISIONS OF THE APPLICABLE TAX TREATY. THESE ASPECTS HAVE NOT BEEN EXAMINED BY ANY OF THE AUTHORITIES BELOW, AND WE DONOT CONSIDER IT APPROPRIATE TO DEAL WITH THESE TREATY RELATED ISSUES WHEN THESE ISSUES HAVE NOT BE EN EXAMINED, FOR WHATEVER REASONS, BY THE AUTHORITIES BELOW . IN THIS VIEW OF THE MATTER, WITHOUT ADDRESSING OURSELVES TO THE MERITS OF THE ARGUMENTS ADVANCED BEFORE US, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE CIT(A) FOR FRESH ADJUD ICATION ON MERITS IN THE LIGHT OF OUR OBSERVATIONS ABOVE. WHILE SO ADJUDICATING THE MATTER AFRESH, THE CIT(A) WILL DEAL WITH ALL THE ARGUMENTS OF THE ASSESSEE BY WAY OF A SPEAKING ORDER, IN ACCORDANCE WITH I.T.A. NO.: 458 /KOL/ 2012 ASSESSMENT YEAR: 2008 - 09 PAGE 4 OF 5 THE LAW AND AFTER GIVING YET ANOTHER OPPORTUNITY O F HEARING TO THE ASSESSEE. 6. GROUND NOS. 1 TO 4, WHICH DEAL WITH THE ABOVE GRIEVANCE, ARE THUS ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. 7. COMING TO THE SECOND ISSUE, I.E. DEDUCTIBILITY OF THE LOSS OF RS 8,40,261 INCURRED BY THE ASSESSEE IN RESPECT OF CONDUCTED EUROPE TOUR ORGANIZED FOR VASAVDUTTA CEMENT LTD., IS CONCERNED, THE RELEVANT FACTS ARE AS FOLLOWS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT WHILE DURING THE RELEVANT PREVIOUS YEAR, T HE ASSESSEE ARRANGED THREE TOURS FOR THE GROUP COMPANIES. WHILE THE ASSESSEE MADE PROFITS OF RS 7,13,723 AND RS 3,74,803 ON KATHMANDU AND PURI TOURS ORGANIZED FOR CENTURY CEMENTS, THE ASSESSEE INCURRED A LOSS OF RS 8,40,261 ON EUROPE TOUR ORAGNIZED ON VA SAVDUTTA CEMENTS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE WAS TO CONDUCT THE EUROPE TOUR ON ALMOST NO PROFIT AND NO LOSS BASIS AND, THEREFORE, THERE WAS NO QUESTION OF LOSS BEING INCURRED ON THE SAME, WHICH, ACCORDING TO THE ASSESSING OFFICER, SHOULD HAVE BEEN REIMBURSED BY THE CLIENT WHICH WAS A GROUP CONCERN. THE ASSESSEES EXPLANATION THAT COSTS OVERSHOT ASSESSES ESTIMATE BY ABOUT 5%, AND THAT IS HOW THE LOSS WAS INCURRED, WAS REJECTED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 8. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 9. WE HAVE NOTED T HAT THE ONLY REASON FOR DISALLOWING THE LOSS ON EUROPE TOUR IS THAT THE ASSESSEE WAS DOING BUSINESS WITH A GROUP CONCERN AND THERE WAS THUS , ACCORDING TO THE AUTHORITIES BELOW, N O REASON TO INCUR LOSS ON THE SAME. WE ARE UNABLE TO SEE ANY MERITS IN THIS AP PROACH. EVEN I.T.A. NO.: 458 /KOL/ 2012 ASSESSMENT YEAR: 2008 - 09 PAGE 5 OF 5 WHEN ASSOCIATED ENTITIES DO BUSINESS WITH EACH OTHER, IT IS QUITE NORMAL THAT PROFITS ARE INCURRED ON SOME TRANSACTIONS AND LOSS IS INCURRED ON THE SOME TRANSACTION. THE ESCALATION OF COST IS A NORMAL PHENOMENON AND JUST BECAUSE COSTS ESCALATE D MARGINALLY, BY AROUND 5%, WHICH WERE NOT REIMBURSED BY THE CLIENT, WHICH HAPPENED TO A GROUP CONCERN, THE LOSS ON ACCOUNT OF ESCALATION OF COSTS COULD NOT BE DECLINED. IN PRINCIPLE THUS, THERE IS NOTHING WRONG IN THE CLAIM OF LOSS ON A TOUR ORGANIZED FOR A GROUP CONCERN. IT CANNOT BE OPEN TO THE ASSESSING OFFICER TO PROCEED ON THE BASIS THAT THE ASSESSEE MUST MAKE REASONABLE PROFITS ON TRANSACTIONS WITH THE ASSOCIATED ENTITIES, AND THUS APPLY THE ARMS LENGTH PRINCIPLES IN ALL TRANSACTIONS WITHIN THE GROU P CONCERNS, EVEN WHEN STATUE DOES NOT PROVIDE FOR THE SAME. WE ARE UNABLE TO APPROVE THIS APPROACH. THERE IS NO OTHER REASON GIVEN BY THE AUTHORITIES BELOW IN SUPPORT OF THE IMPUGNED DISALLOWANCE. WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT TH IS DISALL OWANCE OF RS 8,40,261 MUST BE DELETED. WE DO SO. 10. GROUND NOS. 5 AND 6, WHICH DEAL WITH THE DISALLOWANCE OF RS 8,40,261, ARE THEREFORE ALLOWED. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT T ODAY ON 23 RD DAY OF OCTOBER, 2012. SD/XX SD/XX MAHAVIR SINGH PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, THE 23 RD DAY OF OCTOBER , 2012 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA