DDIT (IT)3(1), MUMBAI V. GERMANISCHER LLOYD AD - INDIA BRANCH, MUMBAI

ITA 4906/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3380 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 22-03-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 25-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Permanent establishment; Reassessment proceedings
• Section: 143(3); 148; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L , MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 4906 /MUM/201 4 : (A.Y : 200 5 - 06 ) DEPUTY DIRECTOR OF INCOME TAX - (INTERNATIONAL TAXATION) - 3(1), MUMBAI. VS. M/S. GERMANISCHER LLOYD AG - INDIAN BRANCH 308, 3 RD FLOOR, TRADE CENTRE, BANDRA - KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. PAN : AAACG7903R (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI SANJEEV JAIN DATE OF HEARING : 22 / 03 /201 6 DATE OF PRONOUNCEMENT : 30 /03/2016 O R D E R PER G.S. PANNU, AM : THE CAPTIONED APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 10 , MUMBAI DATED 29 . 0 1.2014, PERTAINING TO THE ASSESSMENT YEAR 200 5 - 06 , WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER DATED 10 .0 2 .201 1 UNDER SECTION 144 C R.W.S. 147 R.W.S. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING MAIN GROUNDS OF AP PEAL : 2 M/S. GERMANISCHER LLOYD AG - INDIAN BRANCH ITA NO. 4906/MUM/2014 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITIONS MADE BY AO WITHOUT APPRECIATING THE FACT THAT ASSESSEE IS A BRANCH OFFICE AND SOURCE OF INCOME IS IN INDIA AND THE WHOLE INCOME IS GENERATED FROM THE ACTIVITIES OF THE BRANCH OFFICE IN INDIA. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITIONS MADE BY AO WITHOUT APPRECIATING THE FACT THAT ALL THE ACTIVITIES WERE HELD IN INDIAN WATER AND THERE IS NO SPECIFIC WORK ALLOTTED TO THE HEAD OFFICE FOR INDIAN OFFICE TO PAY TO THE HEAD OFFICE IN BIG RATIO OF 30:70. 3. AT THE TIME OF HEARING, IT WAS NOTICED THAT NONE APPEARED ON BEHALF OF THE RESPONDENT - AS SESSEE INASMUCH AS THE NOTICE OF HEARING SENT BY REGISTERED POST HAS BEEN DELIVERED UN - SERVED. AS A CONSEQUENCE, THE APPEAL IS BEING DISPOSED OF AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE (IN SHORT THE DR) ON MERITS AND EX PARTE QUA THE RESPONDENT - ASSESSEE FOLLOWING RULE 25 OF THE ITAT RULES, 1963. 4. IN BRIEF, THE RELEVANT FACTS ARE THAT THE RESPONDENT - ASSESSEE IS A FOREIGN COMPANY WHICH IS TAX RESIDENT OF GERMANY. THE RESPONDENT - ASSESSEE IS ENGAGED IN THE BUSINESS OF CLASSIFICATION AN D CERTIFICATION OF SHIPS AND MARINE RELATED MATERIALS AND COMPONENTS. ITS OPERATION IN INDIA STARTED IN NOVEMBER, 1989 WHEN ITS BRANCH IN MUMBAI STARTED FUNCTIONING. THE INDIAN BRANCH IS MAINLY ENGAGED IN THE ACTIVITIES OF CLASSIFICATION AND CERTIFICATIO N OF SHIPS AND INSPECTION OF SHIPS; CERTIFICATION OF MARINE RELATED MATERIALS AND COMPONENTS; AND, CERTIFICATION RELATING TO INTERNATIONAL SAFETY MANAGEMENT. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION , IT FILED A RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.1,54,84,430/ - . SUBSEQUENTLY, A NOTICE 3 M/S. GERMANISCHER LLOYD AG - INDIAN BRANCH ITA NO. 4906/MUM/2014 U/S. 148 OF THE ACT WAS ISSUED ON 30.3.2010 WHEREBY THE ASSESSING OFFICER FORMED A BELIEF THAT CERTAIN INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. AS PER THE ASSESSING OFFICER, THE ENTIRE INVOICE VALUE BI LLED TO THE NON - RESIDENT SHIP OWNERS, INCLUDING THE H EAD OFFICES SHARE OF INCOME OUGHT TO HAVE BEEN OFFERED AS BUSINESS PROFITS EARNED BY THE ASSESSEE INASMUCH AS THE ENTIRE INCOME IS GENERATED FROM THE ACTIVITIES CARRIED OUT BY THE BRANCH OFFICE IN INDIA . IN THE ENSUING REASSESSMENT PROCEEDINGS FINALIZED U/S. 144C(3) R.W.S. 147/143(3) OF THE ACT DATED 10.2.2011 THE ASSESSING OFFICER TREATED THE H EAD OFFICES SHARE OF INCOME AS TAXABLE IN INDIA ON THE FOOTING THAT SUCH INCOME WAS GENERATED FROM THE ACTIVI TIES OF THE BRANCH OFFICE IN INDIA. ACCORDINGLY, THE ADDITION OF RS.76,51,192/ - WAS MADE TO THE RETURNED INCOME. THE CIT(A) HAS SINCE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASS ESSMENT YEAR 2007 - 08 RENDERED VIDE ITA NO. 8975/MUM/2010 DATED 5.6.2013. AGAINST SUCH A DECISION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LD. DR APPEARING FOR THE REVENUE CONCEDED THE FACTUAL MATRIX THAT THE DECISION OF THE CIT(A) IS IN LINE WITH THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007 - 08 DATED 5.6.2013 ( SUPRA ) AND THAT THE SAME HAS NOT BEEN ALTERED BY ANY HIGHER AUTHORITY. 6. NOTABLY, IN TERMS OF THE AFORESAID PRECEDENT IT HAS BEEN HELD THAT IN TERMS OF ARTICLE 7 OF THE INDO - GERMANY DOUBLE TAXATION AVOIDANCE AGREEMENT THE BUSINESS PROFITS OF PERMANENT ESTABLISHMENT IN INDIA 4 M/S. GERMANISCHER LLOYD AG - INDIAN BRANCH ITA NO. 4906/MUM/2014 ARE ONLY LIABLE TO BE TAXED IN INDIA . THE ORDER OF THE TRIBUNAL DATED 5.6.2013 ( SUPRA ) REVEALS THAT THE ACTIVITIES BEING CARRIED OUT BY THE INDIAN BRANCH HAVE BEEN ANALYZED AND ALSO THE ARRANGEMENT OF SPLITTING FEE BETWEEN THE INDIAN BRANCH OFFICE AND THE GERMAN H EAD OFFICE HAS ALSO BEEN EXAMINED. T HE TRIBUNAL HAS REITERATED THAT THE BUSINESS PROFITS ATTRIBUTABLE TO THE PE RMANENT ESTABLISHMENT IN INDIA ARE ALONE REQUIRED TO BE TAXED IN TERMS OF ARTICLE 7 OF INDO - GERMANY DOUBLE TAXATION AVOIDANCE AGREEMENT. AFTER CONSIDERING THE ENTIRE FACTUAL MATRIX OF THE SPLITTING OF FEE BETWEEN INDIAN BRANCH AND THE HEAD OFFICE, THE TRI BUNAL CONCLUDED THAT THE INCOME RETURNED BY THE ASSESSEE WAS IN COMPLIANCE WITH THE REQUIREMENT OF ARTICLE 7 OF INDO - GERMANY DOUBLE TAXATION AVOIDANCE AGREEMENT. BEFORE US, THE LD. DR HAS NOT BROUGHT OUT ANY CHANGE IN FACTS IN THE INSTANT YEAR , WHICH WOUL D REQUIRE US TO DEPART FROM THE ORDER OF THE TRIBUNAL DATED 5.6.2013 ( SUPRA ). AS A CONSEQUENCE, WE FIND NO ERROR ON THE PART OF THE CIT(A) IN ALLOWING THE PLEA OF THE ASSESSEE FOLLOWING THE PRECEDENT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007 - 09 ( SUP RA ). 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 0 T H MARCH, 2016. SD/ - SD/ - ( AMIT SHUKLA ) JUDICIAL MEMBER ( G.S. PANNU ) ACCOUNTANT MEMBER MUMBAI, DATE : 3 0 T H MARCH, 2016 *SSL* 5 M/S. GERMANISCHER LLOYD AG - INDIAN BRANCH ITA NO. 4906/MUM/2014 COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, L BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI