ADIT (IT) 1(2), MUMBAI V. DCOMCO INC. MIDLAND, MUMBAI

ITA 522/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93194 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 03-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 22-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief
• Section: 143(3); 2; 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./ I .T.A. (TP). NO. 522 / MUM/20 1 4 ( / ASSESSMENT YEAR : 2009 - 10 ) ASSTT.DIECTOR OF INCOME TAX (INTERNATIONAL TAXATION) - 1 ( 2 ), 1 1 9, 1 ST FLOOR, SCINDIA HOUSE, N . M . ROAD, BALLARD PIER, MUMBAI - 400038 / VS. M/S DCOMCO INC. MIDLAND C/O SRBC AND ASSOCIATES LLP, 16 TH FLOOR, THE RUBY, SENAPATI BAPAT MARG, DADAR WEST, MUMBAI - 400028 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AACCD9938K / APPELLANT BY MS. VANDANA SAGAR / RSPONDENT BY SHRI M P LOHIA / DATE OF HEARING : 4.6. 201 5 / DATE OF PRONOUNCEMENT : 15. 7 . 201 5 / O R D E R PER B.R. BASKARAN (AM) THE REVENUE HAS FIL ED THIS APPEAL CHALLENGING THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 144C(1) READ WITH SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) IN CONFORMITY WITH THE DIRECTION ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP) 2. THE SOLIT ARY ISSUE URGED IN THIS APPEAL IS WHETHER THE LD. DRP WAS CORRECT IN LAW IN HOLDING THAT THE AMOUNT OF RS. 25.55 CRORES RECEIVED BY THE ASSESSEE FROM M /S DOW CHEMICAL INTERNATIONAL PVT LTD (DCIPL) CAN NOT BE TREATED AS FEE FOR TECHNICAL SERVICES . ITA NO. 522 / MUM/20 1 4 2 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS A TAX RESIDENT OF USA. THE LD A.R SUBMITTED THAT THE ASSESSEE IS ACTING AS PAYMENT AGENT FOR M/S DOW CHEMICAL INTERNATIONAL (P) LTD (DCIPL), I.E., THE ASSESSEE REMITS THE SALARY OF EXPATRI ATE EMPLOYEES WORKING WITH DCIPL IN THEIR RESPECTIVE BANK ACCOUNTS IN USA AND GETS THE SAME BACK AS REIMBURSEMENTS FROM DCIPL. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED A SUM OF RS.25.55 CRORES AS REIMBURSEMENT S FROM M/S DCIPL . DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO CLARIFY AS TO WHY SUCH PAYMENT SHOULD NOT BE TREA T ED AS FEE FOR TECHNICAL SERVICES . IN RESPONSE THERETO, THE ASSESSEE SUBMITTED THAT THE EXPATRIATE EMPLOYEES HAVE BEEN RECRUITED BY DCIPL A ND THEY WORK UNDER THE SUPERVISION, CONTROL AND DISCRETION OF DCIPL . HENCE DCIPL IS LEGAL AS WELL AS ECONOMIC EMPLOYER OF EXPATRIATE EMPLOYEES. THE ASSESSEE FURTHER SUBMITTED THAT IT DOES NOT HAVE ANY OBLIGATION TO DCIPL WITH REGARD TO THE PERFORMANCE OF EXPATRIATE EMPLOYEES. IT WAS SUBMITTED THAT THE EXPATRIATE EMPLOYEES WANTED THEIR SALARY PAYMENT TO BE CRE DITED IN THE IR RESPECTIVE BANK ACCOUNT S MAINTAINED IN USA AND HENCE DCIPL HAS APPOINTED THE ASSESSEE AS PAYMENT AGENT. ACCORDINGLY, THE ASSESSEE HA S REMITTED THE SALARY TO THE BANK ACCOUNT OF THE EXPATRIATE EMPLOYEES MAINTAINED IN USA AS AGENT OF DCIPL AND GOT REIMBURSEMENT OF THE SAME FROM DCIPL. ACCORDINGLY, IT WAS SUBMITTED THAT REIMBURSEMENT S RECEIVED FORM DCIPL DOES NOT HAVE ANY ELEMENT OF I NCOME. 4. THE AO, HOWEVER, DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSE SS EE AND HELD THAT THE ASSESSEE HAS ACTUALLY PROVIDED SERVICES TO M/S DCIPL BY SECONDING ITS EMPLOYEES AND HENCE THE AMOUNT RECEIVED BY THE ASSESSEE IS TAXABLE AS FEE FOR TECHN ICAL SERVICES. IN THIS REGARD, T HE AO PLACED RELIANCE ON THE FOLLOWING CASE LAWS: ITA NO. 522 / MUM/20 1 4 3 A ) VERIZON DATA SERVICES INDIA PVT LTD (VERIZON) (337 ITR 192); B ) AT&S INDIA PVT LTD IN RE. (287 ITR 421); AND C ) CENTRICA INDIA OFFSHORE PVT LTD (348 ITR 45) ACCORDINGLY, TH E AO ASSESSED THE AMOUNT RECEIVED BY THE ASSESSEE AS FEE FOR TECHNICAL SERVICES AND ISSUED A DRAFT ASSESSMENT ORDER U/S 144C OF THE ACT. 5 . THE ASSESSEE FILED OBJECTIONS DRP AND THE LD DRP , AFTER CONSIDERING THE CONTENTION S OF THE ASSESSEE , HELD THAT T HE ASSESSEE HAS RECEIVED ONLY REIMBURSEMENT S OF FROM DCIPL, I.E., THE AMOUNT WHICH WAS REMITTED TO THE BANK ACCOUNT OF EXPATRIATE EMPLOYEES AND HENCE IT SHALL NOT FALL UNDER THE CATEGORY OF RENDERING MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES BY THE ASSESS E E TO DCIPL . ACCORDINGLY , THE LD. DR P SAID THAT THE SA ME WOULD NOT FALL WITHIN THE PURVIEW OF EXPRESSION FEE FOR TECHNICAL SERVICES IN TERMS OF PROVISIONS OF SECTION 9 (1)(VII) OF THE ACT OR UNDER THE INDO US DTAA. ACCORDINGLY, THE DRP DIRECTED THE AO TO TREAT THE PAYMENT RECEIVED FROM DCIPL AS PURE REIMBURSEMENT S NO T TAXABLE IN THE HANDS OF THE ASSESSEE . AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US. 6 . WE NOTICE FROM THE SUBMISSIONS OF THE ASSES SEE THAT IT HA S ACTED AS PAYING AGENT ON BEH ALF OF THE DCIPL . WE FURTHER NOTICE THAT THE ASSESSEE HAS SUBMITTED THAT IT HAS NOT RECRUITED THE EMPLOYEES AND SENT THEM TO DCIPL . IT IS THE SUBMISSION OF THE ASSESSEE THAT DCIPL HAS DIRECTLY RECRUITED THE EMPLOYEES AND HENCE, IT IS LEGAL AND ECONOMIC EM PLOYER OF EXPATRIATE EMPLOYEES . EVEN THOUGH THE AO REJECTED ALL THESE CONTENTIONS, YET THE AO HAS NOT BROUGHT ANY MATERIAL TO DISPROVE ALL THESE CLAIMS. INSTEAD, HE HAS PROCEEDED TO HOLD THAT THE ASSESSEE HAS RECRUITED THE EMPLOYEES AND SECONDED THEM TO DCIPL. FURTHER THE SUBMI SSION OF THE ITA NO. 522 / MUM/20 1 4 4 ASSESSEE THAT IT HAS ACTED ONLY AS PAYING AGENT ON BEHALF OF DCIPL FOR REMITT ING THE SALARY AMOUNT IN TO THE BANK ACCOUNT OF EXPATRIATE EMPLOYEES HAS ALSO NOT BEEN CONTROVERTED. UNDER THESE SET OF FACTS , WE NOTICE THA T THE DRP HAS HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE ARE ONLY RE - IMBURSEMENT OF PAYMENT S MADE BY THE ASSESSEE ON BEHALF OF DCIPL . FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW RELEVANT OBSERVATIONS MADE BY DRP: 5.6 WE HAVE CONSIDERED THE ARGUMENT S OF THE ASSESSEE AND HAVE ALSO GONE THROUGH THE REASONS GIVEN BY THE ASSESSING OFFICER FOR PROPOSING THE ADDITIONS. 'ON GOING THROUGH THE DOCUMENTS FURNISHED BY THE ASSESSEE AND THE ARGUMENTS PLACED BEFORE US, WE ARE OF THE VIEW THAT THE EXPATRIATES ARE E MPLOYED BY DCIPL AND ARE NEITHER TRANSFERRED FROM DCOMCO NOR ARE THE EMPLOYEES OF D C OMCO. THE EMPLOYMENT LETTERS PRODUCED BEFORE US ALSO EVIDENCE THAT THE EMPLOYEES HAVE BEEN RECRUITED BY DCIPL. EVEN THE WITHH OLDING TAX COMPLIANCES UNDER SECTION 192 OF THE ACT HAVE BEEN COMPLIED WITH BY DCIPL IN RESPECT OF THE SALARY PAID TO THE EXPATRIATE EMPLOYEES . ACCORDINGLY, DCIPL IS THE LEGAL AND THE ECONOMIC EMPLOYER OF THE E X PATRIATE EMPLOYEES . 5 . 7 S I NCE DCIPL HAS ALREADY DEDUCTED AND DEPOSITED TAXES UNDER SECTION 192 OF THE ACT ON THE ENTIRE SALARY AMOUNTS PAID TO THE EXPATR I ATE EMPLOYEES , I . E . THE AMOUNT HAS ALREADY BEEN OFFERED TO TA X ; HENCE THE SA ME SHOULD NOT SUFFER DOUBLE TA X ATION BY BEING REGARDED AS TA X ABL E I N THE HANDS OF THE ASSESSEE. THE ASSESSEE HAS BEE N APPOINTED AS A PA Y I NG AGENT F O R EFFECTING REMUNERATION TO THE E X PATRIATE EMPLOYEES TO THEIR BANK ACCOUNTS OUTSIDE INDIA . THE ASSESSEE IS MAKING PAYMENT TO THE EXPATRIATE EMPLOYEES IN THEIR BANK ACCOUNTS OUTSIDE INDIA AND THEREAFTER DCIPL IS REIMBURSING S UCH AMOUNT TO THE ASSESSEE . THE ASSESSEE HAS ENTERED INTO SUCH AN ARRANGEMENT SOLELY FOR THE PURPOSE OF ADMIN I STRATIVE CONVENIENCE AND THE SAME CANNOT BE REGARDED AS PERTAINING TO ANY SERVICE RENDERED BY THE ASSESSEE . 5 . 8 THE REMITTANCES RECEIVED BY THE A SSESSEE ARE TOWARDS REIMBURSEMENTS OF SALARY COST OF THE EXPATRIATE EMPLOYEES AND NOT TOWARDS SERVICES PROVIDED BY DCIPL THROUGH EXPATRIATES . SUCH REMITTANCES TOWARDS SALARY COSTS ARE N O T A CONSIDERATION FOR RENDERING OF MANAGERIAL , TECHNICAL ARE CONSULTIN G SERVICE BY DCOMCO AND HENCE DO N OT FALL WITHIN THE PURVIEW OF THE TERM ' FEES ITA NO. 522 / MUM/20 1 4 5 F O R TECHNICAL SERVICES ' IN TERMS OF THE PROVISIONS OF SECTION 9(1 )(VI I ) OF THE ACT OR UNDER THE IND O - US DTAA . ACCORDINGLY , THE AO IS DIRECTED TO TREAT THE PAYMENT RECEIVED FROM DCIPL AS PURE REIMBURSEMENT N O T TAXABLE IN THE HANDS OF THE ASSESSEE . FROM THE FOREGOING DISCUSSIONS , WE ARE OF THE VIEW THAT DRP HAS EXAMINED THE ISSUE IN PROPER PERSPECTIVE AND HAS TAKEN THE DECISION IN ACCORDANCE WITH LAW. ACCORDINGLY, WE DO NOT F IND ANY INFIRMITY IN THE ORDER OF LD. DRP ON THIS ISSUE. 7 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 15TH JULY , 2015. 15TH JULY , 2015 SD SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBE R / ACCOUNTANT MEMBER MUMBAI: 15TH JULY ,2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI