DCIT 7(2), MUMBAI V. REDIFFUISON DENTSU YOUNG & RUBICAM P.LTD, MUMBAI

ITA 4660/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3128 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 20-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T R PAITESR
• Keywords: Capital asset; Business income; Depreciation; Double taxation relief; Permanent establishment; Revenue expenditure; Capital expenditure

Judgement Text

1 , INCOME-TAX APPELLATE TRIBUNAL - LBENCH MUMBAI , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AM IT SHUKLA,JUDICIAL MEMBER ./I.T.A./4660/MUM/2013, / ASSESSMENT YEAR: 2007-08 DCIT-7(2) ROOM NO.624, M.K. ROAD MUMBAI-400 020. VS. M/S. REDIFFUSION DENTSU YOUNG & RUBICAM PVT. LTD. 6TH FLOOR, KALPATARU SYNERGY, OPP., GRAND HYAT, VAKOLA, SANTACRUZ(E) MUMBAI-400 055. PAN:AAACR 5303 G ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI T.R. PAITE-SR.AR ASSESSEE BY: SHRI JITENDRA JAIN / DATE OF HEARING: 20.09.2016 / DATE OF PRONOUNCEMENT: 20.09.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA, A.M. - CHALLENGING THE ORDER,DATED 21/03/2013,OF THE CIT ( A)-13,MUMBAI THE ASSESSING OFFICER(AO)HAS FILED THE PRESENT APPEAL.ASSESSEE-CO MPANY,ENGAGED IN THE BUSINESS OF ADVERTISING,FILED ITS RETURN OF INCOME ON 30/10/200 7, DECLARING TOTAL INCOME OF RS.7,37, 06, 944/-.THE AO COMPLETED THE ASSESSMENT, U/S.143 (3) OF THE ACT, ON 11/11/2009, DETERMINING THE INCOME OF THE ASSESSEE AT RS.8,68,39,254/-. 2.FIRST GROUND OF APPEAL IS ABOUT FENG SUI CONSULTA NCY CHARGES OF RS. 43.05 LAKHS. DURING THE ASSESSMENT PROCEEDINGS,THE AO DIRECTED THE ASSE SSEE TO FILE THE DETAILS OF LEGAL AND PROFESSIONAL EXPENSES.FROM THE DETAILS,HE FOUND THA T IT INCLUDED PAYMENT OF RS. 43,05,087/- AS FENG SUI CONSULTANCY CHARGES OF VARIOUS BRANCHES OF THE ASSESSEE.HE HELD THAT THE CHARGES RELATED TO THE LAYOUT AND LOCATION OF THE VARIOUS I TEMS OF ITS ASSETS, THAT THE PAYMENT MADE BY THE ASSESSEE WOULD GIVE ADVANTAGE OF ENDURING NATUR E TO IT. HE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ASKING IT AS TO WHY THE EXPENDITURE SH OULD NOT BE DISALLOWED AS BEING CAPITAL NATURE.AFTER CONSIDERING THE SUBMISSION OF THE ASSE SSEE, THE AO HELD THAT EXPENDITURE INCURRED BY IT WAS A CAPITAL EXPENDITURE.HE DID NOT ALLOW DEPRECIATION ON THE AMOUNT IN QUESTION. 4660/M/13-REDIFFUSION DY&RPL 2 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBM ISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT THE ASSESSEE HAD INCU RRED CONSULTANCY EXPENDITURE,THAT THE AO HAD NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE, CONSULTANCY EXPENDITURE WAS INCURRED ON RELOCATION OF EXISTENCE ASSETS,THAT EXPENDITURE IN QUESTION DID NOT BRING INTO EXISTENCE OF ANY NEW ASSET,THAT IT WAS A REVENUE EXPENDITURE.FINALLY ,HE ALLOWED THE APPEAL FILED BY THE ASSESSEE IN THAT REGARD. 4. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE (DR)SUPPO RTED THE ORDER OF THE AO. THE AUTHORISED REPRESENTATIVE(AR) STATED THAT CONSULTAN CY CHARGES PAID BY THE ASSESSEE COULD NOT TREATED A CAPITAL EXPENDITURE,THAT THE EXPENDIT URE WAS INCURRED FOR NOT PURCHASING ANY CAPITAL ASSET. HE REFERRED TO THE ORDER OF THE TRIB UNAL IN THE CASE OF ESTEL TECHNOLOGIES PVT. LTD. (ITA NO.329(DEL.)/2010 DATED 08.11.2010 FOR AY :2007-08). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THE AO HAD TREATED THE EXPENDITURE AS CAPITAL EXPEN DITURE BECAUSE HE WAS OF THE OPINION THAT THE EXPENDITURE WAS INCURRED IN RELATION WITH THE F IXED CAPITAL ASSETS,THAT THE FAA HAS GIVEN A CATEGORICAL FINDING OF FACT THAT THE PAYMENT WAS MA DE ONLY ON ACCOUNT OF CONSULTANCY AND IT WAS FOR RE-ALLOCATION/RE ADJUSTMENT OF FURNITURE OR CERTAIN OTHER ITEMS.IN OUR OPINION, THE FAA WAS JUSTIFIED IN HOLDING THAT EXPENDITURE DID N OT BRING INTO EXISTENCE ANY ASSET. IN THE CASE OF ESTEL TECHNOLOGIES PVT. LTD. (SUPRA), THE TRIBUNAL HAS ALLOWED THE EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD VASTU-PUJA AS REVENUE EXPENDITURE.RESPECTFULLY FOLLOWING THE ABOVE ORDER AND CONSIDERING THE FACTS OF THE CASE,WE HOLD THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.CONFIR MING THE SAME,WE DECIDE FIRST GROUND OF APPEAL AGAINST THE AO. 6. SECOND GROUND DEALS WITH DELETING THE DISALLOWANCE OF PROFESSIONAL CHARGES OF RS. 43.60 LAKHS U/S.40 (A)(I) OF THE ACT. DURING THE ASSESSME NT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD NOT DEDUCTED TAX WHILE MAKING PAYMENTS TO NON-RESIDENT COMPANIES. HE HELD THAT THE PAYMENTS WERE IN THE NATURE OF CHARGES FOR TECHNICAL SERVICES RELATED TO THE ADVERTISING FIELDS, THAT THE CLAIM MADE BY THE ASSE SSEE WAS NOT ALLOWABLE AS PER THE PROVISIONS OF SECTION 40 (A) (I) OF THE ACT, THAT FEE FOR TECH NICAL SERVICES WAS A SPECIFIC CATEGORY IN ITSELF. FINALLY,HE ADDED THE DISPUTED AMOUNT TO THE TOTAL I NCOME OF THE ASSESSEE. 4660/M/13-REDIFFUSION DY&RPL 3 7. DURING THE APPELLATE PROCEEDINGS,BEFORE THE FAA, TH E ASSESSEE ARGUED THAT AS PER THE PROVISIONS OF THE ACT AND APPLICABLE DOUBLE TAXATIO N TREATY NO TAX WAS DETECTABLE FOR THE PAYMENTS MADE BY THE ASSESSEE, THAT THE PAYMENTS WE RE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES, THAT THE AMOUNTS WERE PAID OUTSIDE INDIA, THAT IT WAS BUSINESS INCOME IN THE HANDS OF NON-RESIDENT PARTIES TO HOME PAYMENTS WERE MADE, TH AT THE RECIPIENTS HAD NO CASE/PE IN INDIA, THAT THE SAME WERE NOT TAXABLE, THAT NO TAX WAS DIRECTED IN ACCORDANCE WITH THE DTAA, THAT THE PAYMENT MADE BY THE ASSESSEE WAS NOT TECHN ICAL FEE. IN SUPPORT OF ITS ARGUMENT THAT NO TAX WAS REQUIRED TO BE REJECTED ON SUCH PAYMENTS , THE ASSESSEE RELIED UPON CERTAIN CASE LAWS. AFTER CONSIDERING THE SUBMISSION OF THE ASSES SEE, AND THE ASSESSMENT ORDER, THE FAA HELD THAT THE OBLIGATION TO DEDUCT TAX AT SOURCE WO ULD ARISE ONLY EXCESS PAYMENT WAS CHARGEABLE UNDER THE ACT AS PER THE PROVISIONS OF S ECTION 4, 5 AND 9 OF THE ACT.HE REFERRED TO THE CASE OF GE INDIA TECHNOLOGY (327 ITR 456) AND H ELD THAT MERELY BECAUSE A PERSON HAD NOT DEDUCTED TAX AT SOURCE FROM REMITTANCE BROUGHT IT COULD NOT BE INFERRED THAT THE PERSON MAKING REMITTANCES HAD COMMITTED A MISTAKE IN DISCH ARGING HIS DUTIES WITH REGARD TO WITHHOLDING OF TAXES, THAT SUCH OBLIGATION WOULD AR ISE ONLY WHEN THE RECIPIENT HAD A TAX LIABILITY IN INDIA. AFTER GOING THROUGH THE TAX INV OICES, SELECTED BY THE ASSESSEE, THE FAA HELD THAT THE PAYMENTS WERE MADE ON ACCOUNT OF COST FILM PRODUCTION, COURIER COST, DUBS/ CASSETTES,COST OF DUBBING JOB, PRODUCTION ESTIMATE, THAT THE PAYMENTS WERE NOT MADE FOR OBTAINING ANY TECHNICAL OR PROFESSIONAL SERVICES FR OM THE NON-RESIDENTS, THAT THERE WAS NO ELEMENT FOR ROYALTY/INTEREST INVOLVED IN THE PAYMEN T, THAT THE PAYMENTS WERE MADE ABROAD, THAT THE NON-RESIDENT RECIPIENTS WERE NOT HAVING AN Y PERMANENT ESTABLISHMENT IN INDIA, THAT THERE WAS NO INCOME RECEIVED BY THE NON-RESIDENT EN TITIES IN INDIA, THAT THE PROVISIONS OF SECTION 4,5 AND 9 OF THE ACT WERE NOT APPLICABLE.FI NALLY,HE DELETED THE DISALLOWANCE MADE BY THE AO. 8. BEFORE US, THE DR SUPPORTED THE ORDER OF THE AO. TH E AR STATED THAT THE NON-RESIDENT PARTIES HAD NOT RENDERED ANY TECHNICAL SERVICES TO THE ASSESSEE, THAT PAYMENTS WERE MADE TO THE PARTIES WHO HAD NO PE IN INDIA, THAT JOB WAS DO NE BY THE NON-RESIDENTS OUTSIDE INDIA, THAT THE ASSESSEE HAD PAID THE PRODUCTION COST ONLY.HE R ELIED UPON THE CASE OF IMG MEDIA LIMITED(60 TAXMANN.COM.432) 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE AO HAD INVOKED THE PROVISIONS OF SECTION 40(A)(I) O F THE ACT ONLY ON THE GROUND THAT ASSESSEE HAD MADE PAYMENTS TO NON-RESIDENTS. IN OUR OPINION, ALL THE PAYMENTS MADE BY AN INDIAN- 4660/M/13-REDIFFUSION DY&RPL 4 ASSESSEE DOES NOT ATTRACT THE PROVISIONS OF CHAPTER XVIIB. IT IS A FACT THAT PAYMENTS WERE MADE TO THE NON-RESIDENTS WHO HAD NOT RENDERED ANY SERVICES IN INDIA AND THE JOB WAS CARRIED OUT OUTSIDE INDIA.THERE IS NOTHING ON RECORD TO PRO VE THAT THE NON-RESIDENT ENTITY HAD RENDERED ANY TECHNICAL SERVICE TO THE ASSESSEE.THE FAA HAD A NALYSED THE INVOICE ISSUED BY THE NON- RESIDENT AND HAD FOUND THAT PAYMENT WAS MADE ONLY F OR JOB-WORK DONE AND NO ROYALTY WAS PAID BY THE ASSESSEE. THE NON-RESIDENT ENTITY DID N OT HAVE ANY PE IN INDIA. THEREFORE, IN OUR OPINION,THE FAA WERE JUSTIFIED IN HOLDING THAT THE TAX DEDUCTED AT SOURCE PROVISIONS WERE NOT APPLICABLE FOR SUCH REMITTANCES. WE FIND THAT IN THE CASE OF IMG MEDIA LTD. (SUPRA), THE TRIBUNAL HAS DEALT WITH THE SIMILAR ISSUE AND HAS HELD THAT SUM PAID BY AN ASSESSEE FOR CAPTURING AND DELIVERING LIVE AUDIO AND VISUAL COVERAGE OF IPL CRICKET MATCHES WAS NOT FEE FOR TECHNICAL SERVICES, AS BCCI HAD NOT ACQUIRED TECHNICAL EXPERTISE FROM THE ASSESSEE WHIC H WOULD ENABLE THEM TO PRODUCE THE LIVE COVERAGE FEEDS ON THEIR OWN AFTER THE CONCLUSION OF IPL. ONE OF US(JM)WAS PARTY TO THAT ORDER.THE FACTS OF THE CASE WERE THAT IN THAT MATTE R THE ASSESSEE, A UK-BASED COMPANY, WAS ENGAGED BY THE BCCI FOR CAPTURING AND DELIVERING LI VE AUDIO AND VISUAL COVERAGE OF CRICKET MATCHES,THAT THE BCCI MADE THE PAYMENT TO THE ASSES SEE, THAT THE AO HELD THAT AMOUNT RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF FEE F OR TECHNICAL SERVICES/ROYALTY, THAT THE DISPUTE RESOLUTION PANEL HELD THAT THE SERVICES WER E NOTHING BUT TECHNICAL SERVICES AS PER SECTION 9(1)(VII) OF THE ACT AS WELL AS ARTICLE 13, THAT THE ASSESSEE SUBMITTED THAT IT DID NOT MAKE AVAILABLE ANY TECHNOLOGY /KNOWHOW RELATING TO THE PRODUCTION OF THE LIVE COVERAGE AND THAT IT ONLY SUPPLIED PROGRAM CONTENT PRODUCED BY I T, THAT THE AMOUNT RECEIVED BY IT FROM BCCI COULD NOT FALL UNDER CATEGORY OF FEE FOR TECHN ICAL SERVICES IN TERM OF ARTICLE 13 (4) (C) OF THE DTAA. THE TRIBUNAL, AS STATED EARLIER, HAD D ECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. CONSIDERING THE PECULIAR FACTS OF THE CASE UNDER CO NSIDERATION AND RESPECTFULLY FOLLOWING THE ORDER OF IMG MEDIA LTD.(SUPRA),WE UPHOLD THE ORDER OF THE FAA. GROUND NUMBER TWO IS DECIDED AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D. . ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH ,SEPTEMBER, 2016. 20, , 2016 SD/- SD/ -/- ( / AMIT SHUKLA ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED :20.09.2016. JV.SR.PS. 4660/M/13-REDIFFUSION DY&RPL 5 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR L BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI .