INDUSIND BANK LTD, MUMBAI V. ITO (TDS) 2(1), MUMBAI

ITA 5228/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0864 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: I
• Next Hearing Date: 21-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 14-08-2014
• Court: TRIBUNAL
• Department Lawyers: RAJGURU M V
• Assessee Lawyers: RAKESH MOHAN
• Keywords: Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH , JM ITA NO. 5228 & 5229 / MUM/20 1 4 ( ASSESSMENT YEAR : 2009 - 10 ) INDUSIND BANK LTD., 8 TH FLOOR, TOWER ONE, ONE INDIABULLS CENTRE, 841, S.B. MARG, E LPHINSTONE ROAD, MUMBAI 400013 VS. ITO (TDS)2(1), MUMBAI 400 002 PAN/GIR NO. AAACI1314G APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI RAKESH MOHAN REVENUE BY SHRI RAJ GURU M.V. DATE OF HEARING 21 / 02 /201 7 DATE OF PRONOUNC EME NT 26 / 04 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 10, MUMBAI DATED 28/02/2014 FOR THE ASSESSMENT YEAR 2009 - 10 IN THE MATTER OF ORDER PASSED U/S.248 OF THE IT ACT . 2. THE GROUNDS TAKEN BY THE ASSESSEE READS AS UNDER: - 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PAYMENT OF USD 18,10,632/- MADE BY THE APPELLANT TO AMAS BANK WOULD BE TAXABLE AS FEES FOR TECHNICAL SERVI C ES UNDER SECTION 9(1)(VII)(B) OF THE ACT. 2 . THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PAYMENT MADE BY THE APPELLANT TO AMAS BANK WOULD BE TAXABLE AS PER RELEVANT PROVISION OF THE INDIA - UAE TAX TREATY. HE ERRED IN NOT APPRECIATING THE FACT THAT THE INDIA - UAE DOES NOT HAVE ANY ARTICLE DEALING WI TH 'FEES FOR TECHNICAL SERVICE' AND AS AMAS BANK DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA, THE PAYMENT MADE WOULD NOT BE TAXABLE AS PER ARTICLE 7 OF THE TAX TREATY. ITA NO. 5228 & 5229 /MUM/2014 INDUSTRIAL BANK LTD., 2 3. THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING ALTERNATE CONTENTION OF THE APPELLA NT THAT WHERE THE INDIA - UAE TAX TREATY DOES NOT HAVE CLAUSE RELATING TO FEES FOR TECHNICAL SERVICES, THE SAME WOULD NOT BE TAXABLE EVEN AS PER ARTICLE 22 OF THE TAX TREATY. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THA T THE ASSESSEE IS A S CHEDULED BANK DULY REGISTERED AND CARRYING ON THE BUSI NE SS OF BANKING UNDER THE RESERVE BANK OF INDI A ACT AND BANKING REGULATION ACT OF INDIA. FOR TH E PURP OSE OF EXPANDIN G ITS BANKING BUSINESS ACTIVI T IES AND ALSO FOR M EETING OTHER CAPI T AL NEEDS, THE BANK FELT THE NEED TO RAISE CAPITAL ABROAD THROUGH THE ISSUANCE OF GLOBAL DEPOSITORY RECEIPTS (G D RS). AFTER CONSIDERING VARIOUS OPTION AND EVALUATING THE COST AS WELL AS BENEFITS OF RAISING S UCH CAPITAL THROU G H GDR S THE ASSESSEE DECIDED TO E NGAGE AMA S BANK (MIDDLE EAST) LTD. (AMAS BANK FOR SHORT) INC ORPORAT E D AND CARRYING ON FINANCIAL SERVICES BUSINESS IN TH E UNITED ARAB EMIRATES '(U.A.E.) AS A LICENSED ENTITY BY DUBAI FINANCIAL SERVICES AUTHORITY ('DFSA'), FOR PROVIDING THE SERVICES A S SO LE BOOK - RUNNER, GLOBAL COORDINATOR AND LEAD - MANAGER TO THE AB OVEMENTIONE D GDR OFFER. TH E PROPOSED TRANSACTION WAS AIMED AT RAISING INITIALLY AROUND USD 100 MILLION THROUGH ISSUANCE OF GDRS ON THE LUXEMBOURG STOCK EXCHANGE'S EURO MTF MARKET. IT WAS AGRE E D THAT FOR TH E IR SERVICES AMAS BANK SHALL B E PAID A FEE EQUAL TO 3. 5 % OF THE GROSS PROCEEDS OF THE GDR ISSUE, TH E PA YM ENT OF FEES B E ING NET OF WITHHOLDING TAX) . 5. IN PURSUANCE OF THE A SSIGNME NT, AMA S BANK WERE SUCCESSFUL IN RA I SI NG AN AGGREGATE AMOUNT OF USD 51 ,732,334 BY WAY OF THE GROSS PROCEEDS OF ITA NO. 5228 & 5229 /MUM/2014 INDUSTRIAL BANK LTD., 3 GDR ISSUED. THE FEES AT 3.5% OF THE GRO SS PROCEEDS WORKED OUT TO APPROXIM A TELY USD 18,10,632. THE S AID FE ES WERE ADJUSTED FROM THE PROC E EDS OF GDR AND TRANSFERRED TO AN ESCROW ACCOUNT ON 25/06/2008 . PURSUANT TO THIS REMITTANCE, THE ASSESSEE ON THE DUE DATE OF PAYMENT OF TAX BEING 7/7/2008 PAID INCOME TA X THEREON UND E R SECTION 195 OF THE INCOME TAX ACT (THE ACT) IN THE AMOUNT OF RS.90,83,185.' (COPY OF RECEIPTED CHALLAN ENCLOSED - ANNEXURE - 2). IN ACCORDANCE WITH TH E PROCEDURE FOR FOREIGN REMITTANCES PRESCRIBED WITH REFERENCE TO SECTION 195 OF THE ACT, CERTIFICATE OF CHARTERED ACCOUNTANTS, M/ S B.K KHARE & CO. WAS OBTAINED DATED 4/7/2008. ALTHOUGH THE CERTIFICATE IN ITEM (4) THEREIN MENTIONED AND CERTIFIED DEDUCTION O F TAX AT SOURCE OF USD 2,13,722 EQUIVALENT TO RS.90,83,185/ - BEING THE AMOUNT OF TAX GROSSED UP @ 10.5575%, THE A SSESSEE CONTENDED THAT NO TAX WAS PAYABLE AT ALL UNDER SECTION 195 OF THE ACT. 6. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANYTHING WRON G IN ASESSEES DENIAL OF ITS LIABILITY TO PAY TA X U/S.195 OF THE IT ACT . I N RESPECT OF THE AMOUNT PAYABLE TO AMAS BANK UAE , W E ALSO FOUND THAT THE SERVICES RENDERED BY AMAS BANK WERE PURELY OF A COMMERCIAL NATURE AND BORE THE CHARACTER OF INCOME ARISING TO IT WHOLLY OUTSIDE INDIA, EMANATING FROM COMMERCIAL SERVICES RENDERED BY THE BANK IN THE COURSE OF CARRYING ON OF ITS BUSINESS WHOLLY OUTSIDE INDIA. SERVICES UNDER THE AGREEMENT WITH AMAS BANK WERE NEITHER RENDERED IN INDIA NOR UTILIZED IN INDIA. IN THIS V IEW OF THE MATTER, THE SERVICES DID NOT PARTAKE OF THE CHARACTER OF FEES FOR TECHNICAL SERVICES AS DEFINED IN THE EXPLANATION TO SECTION 9(1)(VII)(B) OF ITA NO. 5228 & 5229 /MUM/2014 INDUSTRIAL BANK LTD., 4 THE ACT. THE ISSUE IS SQUARELY COVERED BY THE DECISION OF BANGALORE BENCH IN CASE OF ABB FZ - LLC 162 ITD 89 AND ALSO BY THE DECISION IN CASE OF MCKINSEY BUSINESS CONSULTANTS 68 SOT 178. 7. IN VIEW OF THE ABOVE, THE PAYMENT OF FEES BY ASSESSEES BANK TO AMAS BANK IS NOT LIABLE TO TAX IN INDIA AND THE TAX ALREADY PAID BE REFUNDED TO ASSESSEE. IN TERMS OF PARAG RAPH 4 OF THE AGREEMENT (ANNEXURE 1 HERETO), SO ENTERED BY ASSESSEE, THE PAYMENT OF FEES SHALL BE FREE, INTER ALIA, OF ANY WITHHOLDING TAX, MEANING THEREBY THAT SUCH TAX WAS TO BE BORNE BY THE ASSESSEE UNDER THE AGREEMENT, THUS THE BASIS CONDITION FOR MA KING AN APPEAL UNDER SECTION 248 OF THE ACT FOR A DECLARATION THAT NO TAX WAS DEDUCTIBLE ON THE SAID INCOME BEING FULFILLED. 8. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 26 / 04 /2017 S D/ - ( AMARJIT SINGH ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 26 / 04 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPOND ENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//