ACIT, New Delhi V. M/s. JC Decaux Advertisement India Pvt. Ltd., New Delhi

ITA 5387/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7324 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 09-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 01-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANIMA BA RANWAL
• Assessee Lawyers: KARAN KWATRA
• Keywords: Double taxation relief; Opportunity of being heard; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH D NEW DELHI BEFORE : SHRI C.M. GARG , JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 5387/DEL./2011 ASSTT. YEAR : 2008 - 09 A.C.I.T., CIRCLE 4(1), VS. JC DECAUX ADVERTISEMENT INDIA PVT. LTD., NEW DELHI. C - 56, NEETI BAGH, NEW DELHI (PAN: AABCJ 6312 Q) (APPELLANT) (RESPONDENT) APPELLANT BY : MS.ANIMA BARANWAL, SR. DR RESPONDENT BY : SH. KARAN KWATRA, CA & SH. K.M. GUPTA, CA DATE OF HEARING : 09.06.2016 DATE OF PRONOUNCEMENT : 14 .06.2016 ORDER PER L.P. SAHU, ACCOUNTANT MEMBER: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 13.09.2011 OF LD. CIT(A) - VII, NEW DELHI FOR THE ASSESSMENT YEAR 2008 - 09 ON THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED CIT(APPEALS) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS.35,37, 666/ - U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961. 2.1. LD. CIT (A) ERRED IN NOT APPRECIATING THE FACT THAT THE PAYMENT TO THE NON - RESIDENT THROUGH ITS ASSOCIATE ENTERPRISE WAS CHARGEABLE TO TAX AS ITA NO. 5387/DEL./2011 2 FEE FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT AND UNDER THE APPLICABLE TREATY DTAAS, HENCE TAX DEDUCTION AT SOURCE PAYMENT WAS OBLIGATORY UPON THE ASSESSEE UNDER SECTION 195 OF THE INCOME TAX ACT. 2.2. LD. CIT (A) ERRED IN HOLDING THAT THE PAYMENTS WERE IN THE NATURE OF REIMBURSEMENTS HA VING NO ELEMENT OF INCOME, DESPITE THE FACT THAT THE SAME WAS TAXABLE A FEE FOR TECHNICAL SERVICE IN THE HANDS OF NON - RESIDENT ENTITIES AND THE PAYMENTS WERE MERELY ROUTED THROUGH ITS ASSOCIATE ENTERPRISE CONCERN TO GIVE IT A COLOUR OF REIMBURSEMENTS. 2.3 . LD. CIT (A) FURTHER ERRED IN NOT APPRECIATING THAT FEE FOR TECHNICAL SERVICE IS TAXABLE ON A FIXED RATE ON GROSS RECEIPT WITHOUT HAVING REGARD TO ACTUAL INCOME OR LOSS ARISING TO THE NON - RESIDENT UNDER SECTION 9(1)(VII) AND APPLICABLE DTAA UNLESS TH E NON - RESIDENT IS HAVING A PERMANENT ESTABLISHMENT IN INDIA. HENCE, WITHHOLDING TAX WAS NECESSARY AS PER SECTION 195 OF THE ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE - RESPONDENT IS ENGAGED IN THE BUSINESS OF PROVIDING OUT OF HOME ADVERTISIN G SOLUTIONS AND SPECIALIZES IN STREET FURNITURE AND BILL BOARS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE - RESPONDENT REIMBURSED A SUM OF RS.35,37,666/ - TO ITS VARIOUS FOREIGN ASSOCIATE ENTERPRISES (AES) . THE AO ASKED THE ASSESSEE TO FURNISH DETAILS OF REIMBURSEMENTS MADE TO ITS AES WITH THE DETAILS OF TAX IF DEDUCTED AT SOURCE. THE CONTENTION OF THE ASSESSEE WAS THAT SINCE THE PAYMENT OF REIMBURSEMENT AMOUNTS WERE MADE BY THE NON - RESIDENT COMPAN IES ON BEHALF OF THE ASSESSEE COMPANY, THEREFOR E, THE PROVISIONS OF SECTION 195 ARE NOT ATTRACTED ON SUCH PAYMENTS. THE AO WAS OF THE OPINION THAT THE SUMS WERE PAID BY WAY OF EXPENSES TO THE NON - RESIDENT THIRD PARTIES WHO HAD RENDERED SERVICES TO THE ASSESSEE IN INDIA. THEREFORE, THESE PAYMENTS FALL ITA NO. 5387/DEL./2011 3 W ITHIN THE PURVIEW OF SECTION 9(1)(VII) AND ARE, THEREFORE, TAXABLE IN INDIA AS FEE FOR TECHNICAL SERVICES. THE ASSESSEE S STAND WAS THAT THE PAYMENT MADE IS REIMBURSEMENT AGAINST ACTUAL EXPENSES, AND THEREFORE, NOT CHARGEABLE TO TAX, WHICH WAS REJECTED BY AO STATING THAT THE IT ACT PROVIDE FOR TAXATION OF FEES FOR TECHNICAL SERVICES ON A GROSS BASIS AND WHILE DEDUCTING TAX AT SOURCE, THE SOURCE STATE IS NOT REQUIRED TO LOOK INTO THE PROFITABILITY OF THE PAYMENTS IN THE STATE OF RESIDENCE OF THE TAXPAYER. AF TER RELYING UPON VARIOUS DECISIONS, THE AO CONCLUDED THAT THE TAX SHOULD HAVE BEEN DEDUCTED ON THE AMOUNT OF REIMBURSEMENT MADE UNDER SECTION 195 OF THE ACT AND THIS NON - COMPLIANCE OF TDS PROVISIONS ATTRACTS THE PROVISIONS OF SECTION 40(A)(I). HE, THEREFOR E, DISALLOWED THE EXPENDITURE OF RS.35,37,666/ - U/S. 40(A)(I) AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THIS ADDITION IN APPEAL BEFORE THE LD. CIT(A) WHO DELETED THE SAME VIDE IMPUGNED ORDER. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. DURING THE COURSE OF HEARING, THE LD. DR SUBMITTED THAT THE AGREEMENTS/COMMUNICATIONS, UNDER WHICH THE PAYMENTS WERE MADE, WERE EXAMINED NEITHER BY THE ASSESSING OFFICER NOR BY LD. CIT(A) WH ILE DELETING THE ADDITIONS U/S. 40(A)(I), AS THE LD. CIT(A) HAS ALSO NOT DISCUSSED ANY SUCH DETAILS IN THE IMPUGNED ORDER. THE LD. DR FURTHER SUBMITTED THAT THE QUESTION ITA NO. 5387/DEL./2011 4 TO BE DECIDED IN THIS APPEAL IS WHETHER THE IMPUGNED PAYMENTS WERE PURELY IN THE NATUR E OF REIMBURSEMENT OF EXPENDITURE OR PAYMENTS SO MADE WAS IN THE NATURE OF FEE PAID AGAINST TECHNICAL SERVICES RENDERED TO THE ASSESSEE - RESPONDENT OR IT WAS REIMBURSEMENT NOT LIABLE FOR TAX DEDUCTION AT SOURCE UNDER SECTION 195 OF THE ACT. THEREFORE, IN OR DER TO ASCERTAIN THE CORRECT NATURE OF TRANSACTIONS, THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO. 4. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A) AND ALTERNATIVELY SUBMITTED THAT IF THE MATTER IS RE STORED TO AO FOR EXAMINATION OF AGREEMENTS/COMMUNICATIONS IN RELATION TO THE SAID PAYMENTS, THE AO SHOULD ALSO BE DIRECTED TO EXAMINE THE TAXABILITY OF THE PAYMENTS UNDER SECTION 9(1)(VII) OF THE ACT AS WELL . 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE RELEVANT MATERIAL ON RECORD. DURING THE COURSE OF HEARING, THE BENCH MADE A SPECIFIC QUERY TO THE LD. AR OF ASSESSEE WHETHER THE ASSESSEE HAS SOME AGREEMENT UNDER WHICH THE IMPUGNED REIMBURSEMENT WAS MADE. ON THIS, THE LD. AR SUBMITT ED THAT THERE IS NO SPECIFIC AGREEMENT REGARDING THE PAYMENTS MADE TO FOREIGN AES. THE BENCH MADE ANOTHER QUERY AS TO WHY IN ABSENCE OF ANY AGREEMENT/COMMUNICATION , THE IMPUGNED PAYMENTS/REIMBURSEMENT SHOULD NOT BE TREATED AS CONSULTANCY SERVICES COVERED U /S. 9( 1 )( VII ) OF THE ACT. THEREAFTER, THE LD. AR PRODUCED PRINTOUTS OF E - MAIL CORRESPONDENCE BETWEEN ITA NO. 5387/DEL./2011 5 THE ASSESSEE AND FOREIGN AES. NO SUCH COMMUNICATION WAS SHOWN/PRODUCED BEFORE THE AUTHORITIES BELOW IN ORDER TO ASCERTAIN THE CORRECT NATURE OF TRANSACTION . WE, THEREFORE, DEEM IT EXPEDIENT IN THE INTEREST OF JUSTICE TO RESTORE THE ISSUE TO THE FILE OF AO FOR THE LIMITED PURPOSE, TO DECIDE THE SAME AFRESH AFTER CONSIDERING THE COMMUNICATIONS/AGREEMENTS, THEIR TERMS AND CONDITIONS AND THEN TO DECIDE THE CORRE CT NATURE OF TRANSACTION AND APPLICABILITY OF SECTION 9( 1 )( VII OF THE IT ACT. NEEDLESS TO SAY, THE ASSESSEE SHALL BE AFFORDED REASONABLE OPPORTUNITY OF BEING HEARD. WE ORDER ACCORDINGLY. 6. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. OR DER PRONOUNCED IN THE OPEN COURT ON 14.06.2016. SD/ - SD/ - ( C.M. GARG ) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 14.06.2016 *AKS/ - COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT. REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI