M/s. Aatash Power Pvt. Ltd., Ahmedabad V. The Income Tax Officer, Intl. Taxn.-II, Ahmedabad

ITA 477/AHD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9469 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 24-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 29-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OMKESH
• Keywords: Search and seizure; Double taxation relief; Principle of natural justice; Permanent establishment
• Section: 206AA; 201(1)

Judgement Text

ITA NO. 477 / AHD/201 6 ASSESSMENT Y EAR: 20 11 - 12 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM] ITA NO. 477 /AHD/201 6 ASSESSMENT Y EAR : 20 11 - 12 AATASH POWER PVT. LTD. .... ............ APPELLANT 213, DEV ARC COMMERCIAL C ENTRE, ISCON CIRCLE, S.G. HIGHWAY, AHMEDABAD 380 055 . [PAN: AA GCA 9227 N ] VS. INCOME TAX OFFICER , INTERNATIONAL TAXATION - II, AHMEDABAD. .... ........... RESPONDENT APPEARANCES BY TUSHAR P. HEMANI FOR THE APPELLANT B YOMKESH PAND A FOR THE RESPONDENT HEARING CONCLUDED ON: 24 / 0 1 / 20 17 ORDER PRONOUNCED ON : 30 / 0 1 / 20 1 7 O R D E R PER PRAMOD KUMAR , AM: 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 04.12.2015 PASSED BY THE LEARNED CIT(A), UPHOLDING TH E DEMANDS RAID BY THE ASSESSEE UNDER SECTION 201 (1) READ WITH SECTION 195 OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2011 - 12. 2. G RIEVANCE S RAISED BY THE ASSESSEE ARE AS FOLLOWS : - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LEARNED AO IN HOLDING THAT REMITTANCES TO HMR INVEST AS, NORWAY WERE IN THE NATURE OF 'ROYALTY' AS DEFINED UNDER EXPLANATION 2 TO CLAUSE (IV) OF SUBSECTION (1) OF S.9 OF THE ACT. IN FACTS AND CIRCUMSTANCES OF THE CASE, THE SAID REMITTANCES A RE NOT 'INCOME' AND THEREBY NO LIABILITY CAN BE FASTENED AGAINST THE APPELLANT U/S 201(1) R.W.S 195 OF THE ACT. ITA NO. 477 / AHD/201 6 ASSESSMENT Y EAR: 20 11 - 12 PAGE 2 OF 6 2. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN HOLDING THAT THE APPELLANT WAS LIABLE TO DEDUCT TAX AT SOU RCE AT THE RATE OF 20% U/S 206AA ON ALLEGED ROYALTY PAYMENTS AMOUNTING TO RS.56,01,715/ - , RESULTING IN DEMAND OF RS.12,69,349 / - U/S 201(1) OF THE ACT. 3. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE PROVISIONS OF S.139A(8) R.W.R 114C(1) ARE NOT A PPLICABLE TO HMR INVEST AS, NORWAY (NON - RESIDENT) AND ACCORDINGLY THE PROVISIONS OF S.206AA OF THE ACT ARE NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. T HE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT LEARNED AO HAS ERRED IN LEVYING SUR CHARGE AND EDUCATION CESS ON TDS WHILE CALCULATING DEMAND U/S 201(1) OF THE ACT. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTIONS OF LD. AO IN RAISING DEMAND OF RS.5,76,249 / - U/S 201(1A) OF THE ACT. 6. IN ANY CASE THE Q UANTIFICATION OF INTEREST U/S . 201(1A) OF RS.5,76,249/ - IS ERRONEOUS AND EXCESSIVE. 7. BOTH THE L OWER AUTHORITIES HAVE PASSED THE ORDERS WITHOUT PROPERLY APPRECIATING THE FACTS AND THAT THEY FURTHER ERRED IN GROSSLY IGNORING VARIOUS SUBMISSION, EXPLANATIO NS AND INFORMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IMPUGNED ORDER. THE ACTION OF THE LOWER AUTHORITIES IS CLEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO B E QUASHED. 3. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIAL FACTS ARE REQUIRED TO BE TAKEN NOTE OF. THE ASSESSEE BEFORE US IS A COMPANY ENGAGED IN THE BUSINESS OF GENERATION OF POWER. ON 06.11.2008 THE ASSESSEE ENTERED INTO AN AGREEMENT WITH NORWAY BASED COMPANY BY THE NAME OF HMR INVEST AS FOR THE PURPOSE OF CARRYING OUT RESEARCH WORK RELATED TO EXTRACT OF ELECTRIC ENERGY FROM TIDAL WAVES AND TO UNDERT AKE STUDIES RELATING TO ECOLOGICAL CHANGES DEPEND UPON LOCAL GEOGRAPH Y AND MARINE ECOSYSTEM. THIS AGREEMENT WAS FOR TOTAL VALUE N OT EXCEEDING NOK (NORW EGIAN KRONE) 25,00,000/ - . UNDER THIS AGREEMENT, THE NORWAY BASED COMPANY HAD THE PRIMARY RESPONSIBILITY TO PERFORM AND SUPERVISE THE RESEARCH PROJECT ON BEHALF OF THE ASSESSEE COMPANY THOUGH IT WAS TO HAVE CONTROL OVER THE MANNER IN WHICH THE RESEARCH PROJECT IS CON DUCTED. IT WAS ALSO AGREED UNDER THE SAID AGREEMENT THAT ANY EQUIPMENT AND MATERIAL THAT IS ITA NO. 477 / AHD/201 6 ASSESSMENT Y EAR: 20 11 - 12 PAGE 3 OF 6 PURCHASED, ACQUIRED OR FABRICATED WITH THE FUN D S PROVIDED UNDER THE A GREEMENT WAS BELONG TO THE AS SESSEE. DURING T H E RELEVANT PREVIOUS YEAR , THE ASSESSEE COMPANY MADE A PAYMENT OF NKR 7 ,50,000, WHICH WAS EQUIVALENT TO RS. 56,01,715/ - AT THE RELEVANT POINT OF TIME , TO HMR INVEST AST. THIS PAYMENT , AS EVIDENT FROM THE RELATED INVOICE WHICH IS PLACED BEF ORE US AT PAGE NO. 16 OF T HE PAPER BOOK WAS FOR PURCHASE OF EQUIPMENT S AND APPLIANCES FOR THE PURPOSE OF RESEARCH . THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PAYMENTS SO MADE BY THE ASSESSEE, PARTICULARLY IN THE ABSENCE OF COMPLETE DETAILS BEFORE HIM , WAS REQUIRED TO BE TREATED AS PAYMENT IN THE NATURE OF ROYALTY WHICH IS TAXABLE IN INDIA UNDER ARTICLE 12 OF THE INDO NORWAY DOUBLE TAXATION AVOIDANCE ACT. HE , THEREFORE , RAISED A TAX WITHHOLDING DEMAND UNDER SECTION 201 (1) READ WITH SECTION 195 OF THE ACT. HE DID NOT STOP AT THAT. HE FURTHER RAISE D A DEMAND ON ACCOUNT OF GROSSING UP UNDER SECTION 195A AND YET ANOTHER DEMAND @ 20% UNDER SECTION 206AA ON THE GROUND THAT PAN OF THE PAYEE WAS NOT MADE AVAILABLE. THE ASSESSING O FFICER ALSO LEVIED INTERES T UNDER SECTION 201 ( 1A ) FOR THE PERIOD OF 43 MONTHS I.E. FROM DATE ON WHICH THE TAX , ACCORDING TO HIM, WAS DEDUCTIBLE TILL THE DAT E SUCH TAX HOLDING DEMAND WAS MADE. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED C IT(A) BUT WITHOUT AN Y SUCCESS. LEARNED CIT(A) IN H IS BRIEF O R DER CONFIRMED ACTION OF THE ASSESSING O FFICER BY REFERRING TO NATURE OF THE WORK UNDER THE AGREEMENT AND PROVISIONS OF ARTICLE - 12 (3)(A) , CONFIRMED THE STAND OF THE ASSESSING O FFICER. WHILE DOING SO, HE INTER ALIA OBSERVED AS FOLLOWS : - 4. I HAVE CONSIDERED THE ORDER OF THE A.O. AND THE SUBMISSIONS MADE IN THIS REGARD . THE A.O. PRIMARILY HAS DRAWN HIS CONCLUSION FROM THE FACT THAT M/S. HMR INVEST AS, NORWAY, STILL UNDERTAKE RESEARCH TECHNIQUES FOR EXTRACTION OF EL ECTRICAL ENERGY FROM SEA/OCEAN OR TIDAL WAVES. THE A.O. POINTED OUT THAT THE APPELLANT AND M/S. HMR INVEST AS, HAVE A MUTUAL INTEREST IN THE PROJECT AND M/S. HMR WILL HAVE PRIMARY RESPONSIBILITY TO CONDUCT ENERGY RELATED PROJECTS FOR THE APPELLANT. THE A .O. FURTHER OBSERVED THAT THE APPELLANT WILL HAVE ALL RIGHTS, TITLE AND INTERESTS TO THE RESEARCH RESULTS, WHICH ARE ACCRUED AS A RESULT OF ACTIVITIES PERFORMED BY M/S.HMR. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT THE ITA NO. 477 / AHD/201 6 ASSESSMENT Y EAR: 20 11 - 12 PAGE 4 OF 6 PAYMENTS MADE TO M/S. HMR A S A RESULT OF RESEARCH CONDUCTED, IS IN THE NATURE OF REIMBURSEMENT AND THIS FACT IS INFERABLE FROM THE AGREEMENT, THE COPY OF WHICH WAS SUBMITTED DURING THE COURSE OF APPELLATE PROCEEDINGS. IN MY VIEW, THE CONTENTION OF THE A.O. IS CORRECT BY TREATING SU CH PAYMENTS AS ROYALTY IS CLEARLY DEFINED AS PAYMENTS MADE FOR IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL INTEREST, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR SKILLED . AS POINTED OUT BY THE A.O., THE DTAA BETWEEN INDIA AND NORWAY, THE ARTI CLE 12(3)(A) DEFINES ROYALTY AS PAYMENT OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS OR FILMS OR TAPES USED FOR TELEVISION OR RADIO BROADCAST ING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS OR FOR THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL , COMMERCIAL OR SCIENTIFIC EQUIPMENT OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. AS PER THI S CLAUSE OF DTTA AGREEMENT, IT IS INFERABLE THAT PAYMENTS MADE TO NON - RESIDENTS ARE IN A NATURE OF ROYALTY AS SUCH PAYMENTS ARE FOR IMPARTING INFORMATION RELATING TO INDUSTRIAL/COMMERCIAL/SCIENTIFIC EXPERIENCE AND ALSO TO SUPPLY RESEARCH RESULTS RELATING T O SPECIALISED TECHNOLOGY TO BE DEVELOPED ON BEHALF OF THE APPELLANT FOR GENERATION OF TIDAL ENERGY. I, THUS, AM IN AGREEMENT WITH THE VIEW OF THE A.O. THAT SUCH PAYMENTS ARE IN THE NATURE OF ROYALTY. THE GROUNDS RAISED BY THE APPELLANT ARE THUS DISMISSED . I AM ALSO OF THE VIEW THAT THE A.O S ACTION FOR MAKING T AX DEDUCTION @ 20% U/S. 206AA IS LEGALLY TENABLE AS THE PAN DATABASE OF THE PAYEE IS NOT AVAILABLE. THE GROUND RELATING TO THIS DISPUTE IS ALSO DISMISSED. 4. THE ASSESSEE IS AGGRIEVED AND IS IN FURTHER APPE A L BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS , PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 6. WE FIND THAT SO FAR AS TH E PAYMENT BEFORE US IS CONCERNED , IT IS UNDI SPUTEDLY MADE FOR ACQUIRING CERTAIN EQUIPMENTS AND APPLIANCES FOR THE PURPOSE OF RESEARCH . THIS ASPECT OF THE MATTER IS BEYOND ANY DISPUTE OR CONTROVERSY IN THE LIGHT OF INVOICE DATED 20.05.2010, A COPY OF WHICH IS PLACED BEFORE US AT PAGE NO.16 OF THE PA PER BOOK. IT IS ALSO NOT THE CASE OF THE R EVENUE THAT THIS INVOICE IS A SHAM INVOICE OR THAT THE DESCRIPTION GIVEN IN TH E INVOICE IS INCORRECT. Y ET , THE STAND OF THE R EVENUE AUTHORITIES IS THAT SINCE THE PAYMENT WAS MADE UNDER AN AGREEMENT WHICH WAS AIME D AT CARRYING OUT RESEARCH ACTIVITIES ON BEHALF OF THE ASSESSEE, THE PAYMENT MUST BE TREATED AS ROYALTY. ITA NO. 477 / AHD/201 6 ASSESSMENT Y EAR: 20 11 - 12 PAGE 5 OF 6 THAT ARGUMENT DOES NOT APPEAL TO US. WHILE EXAMINING TAXABILITY OF INCOME IN THE HANDS OF THE RECIPIENT , EMBEDDED IN FOREIGN REMITTANCE , ALL THAT IS REQUIRED TO BE SEEN IS WHETHER OR NOT THAT PARTICULAR INCOME IS TAXABLE IN INDIA. IN THE PRESENT CASE, THE PAYMENT IS MADE FOR PURCHASE OF EQUIPMENT S AND APPLIANCES AND THESE EQUIPMENTS AND APPLIANCES UNDER THE AGREEMENT BELONGED TO THE ASSESSEE AND CLEAR LY, THEREFORE, THE INCOME EMBEDDED IN THESE PAYMENTS IS NOT EXIGIBLE TO TAX IN INDIA IN THE ABSENCE OF PERMANENT ESTABLISHMENT OF THE VENDER ON SUCH EQUIPMENT S AND APPLIANCE S . WHILE IT IS TRUE THAT THE CONTRACT FOR THE PURPOSE OF WHICH THE S E EQUIPMENT S AN D APPLIANCE S WERE PURCHASED , RELAT ES TO A TAXABLE ACTIVITY I.E. ROYALTY , I T IS EQUALLY CORRECT THAT NO SUCH TA X ABLE EVENT I.E. CARRYING OUT OF RESEARC H ACTIVITY HAS TAKEN PLACE DURING THE COURSE OF THIS TRANSACTION. IN THIS VIEW OF THE MATTER, IN OUR CON SIDERED VIEW, AUTHORITIES BEL OW WERE COMPLETELY I N ERROR IN HOLDING THAT THE INCOME EMBEDDED IN THE REMITTANCE OF NOK 7 ,50,000 WHICH WAS BEYOND ANY DISPUTE OR CONTROVERSY FOR THE PURPOSE OF PURCHASE OF EQUIPMENT S AND APPLIANCE S FOR RESEARCH , WAS NOT TAXABL E IN INDIA. WE , THEREFORE, VACATE THE ORDERS OF THE AUTHORITIES BELOW AND HOLD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT ANY TAX FROM THIS PAYMENT. SINCE WE HAVE CANCELLED THE IMPUGNED TAX WITHHOLDING LIABILITY ITSELF , ALL OTHER POINTS SUCH AS GROSSING UP OR INVOCATION OF SECTION 2 0 6AA OR EVEN INTEREST LIABILITY UNDER SECTION 201 (1 A ) ARE NOT MORE THAN ACADEMIC. THESE GRIEVANCES MUST BE DISMISSED AS INFRUCTUOUS. 7. IN THE RESULT, APPEAL IS ALLOWED F OR STATISTICAL PURPOSE S IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JANUARY, 2017 . SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 30 TH DAY OF JANUARY, 201 7 . PBN/* ITA NO. 477 / AHD/201 6 ASSESSMENT Y EAR: 20 11 - 12 PAGE 6 OF 6 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD