DEPUTY COMMISSIONER OF INCOME TAX-8(1)(1), MUMBAI V. RADIFF COM INDIA LIMITED, MUMBAI

ITA 5603/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4249 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 04-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Double taxation relief; Permanent establishment; Non-deduction of tax; TDS
• Section: 143(3); 40(a)(ia)

Judgement Text

AAYAK AAYAK AAYAK AAYAKR APILAIYA AIQ R APILAIYA AIQ R APILAIYA AIQ R APILAIYA AIQAKRNA N AKRNA N AKRNA N AKRNA NYAAYAPIZ YAAYAPIZ YAAYAPIZ YAAYAPIZ MAMUBA[ MAMUBA[ MAMUBA[ MAMUBA[- -- - MAO MAOMAO MAO. .. . IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI BEFORE SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR A GGARWAL, AM AAYAKR APILA SA AAYAKR APILA SA AAYAKR APILA SA AAYAKR APILA SAM MM M . / ITA NOS. 5603 & 5604 /MUM/2017 ( INAQA-ARNA BAYA- / ASSESSMENT YEARS: 2005-06 & 2012-13) DCIT -8(1)(1), MUMBAI. VS. M/S. REFIFF.COM. INDIA LTD., MAHALAXMI ENGG. ESTATE, 1ST FLOOR, LADY JAMSHEDJI FIRST CROSS ROAD,(E), MUMBAI ( APILAAQA APILAAQA APILAAQA APILAAQAI II I - -- - / APPELLANT) .. ( P` P`P` P`%YAQAA %YAQAA %YAQAA %YAQAAI II I- -- - / RESPONDENT) PAN NO. AAACR 2762 F REVENUE B Y : SHRI D.G.PANSARI, DR ASSESSEE BY : SHRI PANKAJ JAIN, AR DATE OF HEARING: 13.3.2019 DATE OF PRONOUNCEMENT : 13-03- 2019 AADOSA AADOSA AADOSA AADOSA / O R D E R PER MAHAVIR SINGH, JM: THESE APPEALS BY THE ASSESSEE ARE ARISING OUT OF TH E SEPARATE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-14, MUMBAI [IN SHORT CIT(A)], IN APPEAL NO.14/IT-120/13-14 AND NO.14/IT/ 328/14-15 BOTH DATED 29.6..2017. THE ASSESSMENT WAS FRAMED BY THE DCIT-7 (2) FOR THE A.Y. 2005-06 AND ACIT -8(1)(1), MUMBAI VIDE ORDER DATED 28.2.2003 UNDER SECTION.143(3) READ WITH SECTION. 254 OF THE ACT AN D DATED 9.2.2015 FOR THE 2 ITA NO.5603 & 5604/MUM/2017 ASSESSMENT YEAR 2005-06 & 2012-13 ASSESSMENT YEAR 2012-13 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. THE ONLY COMMON ISSUE IN THESE TWO APPEALS OF TH E REVENUE IS AS REGARDS TO THE ORDER OF THE CIT (A) DELETING THE DISALLOWANCES MADE BY THE ASSESSING OFFICER TOWARDS BANDWIDTH/IN TERNET CHARGES , DOMAIN REGISTRATION CHARGES, VIRTUAL STORAGE CHAR GES AND LEGAL AND PROFESSIONAL FEES PAID OUTSIDE INDIA BY INVOKING TH E PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. FOR THE ASSESSMENT YEAR 2005-06, THE ONLY DISALLOWANCE IS IN RESPECT OF LEGAL AND PROFES SIONAL FEES PAID OUTSIDE INDIA BUT THE FACTS AND CIRCUMSTANCES ARE E XACTLY IDENTICAL FOR BOTH THE ASSESSMENT YEARS. THE GROUNDS RAISED BY THE REVENUE FOR ASSESSMENT YEAR 12-13 READ AS UNDER: 1. THE LEARNED CIT( A) HAS ERRED ON FACTS AND IN LAW I N DELETING THE ADDITION OF RS. 15, 72, 07,2 IS/- ON ACCOUNT DISALL OWANCE U/S 40(A)(IA) OF THE ACT TOWARDS BANDWIDTH/INTERNET CHARGES PAID IN INDIA WHEREIN ASSESSEE FAILED TO DEDUCT TDS. 2. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.28,66,726/- AND RS. 1, 57,43, 176/- ON ACCOUNT DISALLOWANCE U/S 4O(A)(IA) OF THE ACT TOWARDS DOMAI N REGISTRATION CHARGES PAID IN INDIA AND OUTSIDE INDIA RESPECTIVEL Y WHEREIN ASSESSEE FAILED TO DEDUCT TDS. 3. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 93,62,558/- ON ACCOUNT OF DISALLOWA NCE U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF VIRTUAL STORAGE CHARGES PAID OUTSIDE INDIA ( CORRECT HEAD IS LEGAL AND PROFESSIONAL FEES PAID AS POINTED OUT BY LD CIT, D.R. DURING THE COURSE OF HEARING WHEREIN ASSESSEE FAILED TO DEDUCT TDS. 4. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 1,47, 85, 79 1/- ON ACCOUNT DISALLO WANCE U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF VIRTUAL STORAGE CHARGE PAID O UTSIDE) WHEREIN ASSESSEE FAILED TO DEDUCT TDS. 3 ITA NO.5603 & 5604/MUM/2017 ASSESSMENT YEAR 2005-06 & 2012-13 5. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT GIVING EFFECT TO SECTION 114(G) OF THE INDIAN EVIDENCE ACT WHICH CLEARLY LAYS DOWN THAT IF A FACT IN KNOWLEDGE OF A PARTY IS NOT EXPLAINED, ADVERSE INFERENCE CAN BE DRAWN AGAINST THE PARTY POSSESSING THE KNOWLEDGE OF FACTS/INFORMATION. 3. . BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE HA S CLAIMED EXPENDITURES INCURRED IN INDIA TOWARDS BANDWIDTH CH ARGES AMOUNTING TO 15,72,07,215/-, EXPENDITURE INCURRED IN INDIA TOWARDS DOMAIN REGISTRATION CHARGES AMOUNTING TO 28,66,726/-, LEGAL AND PROFESSIONAL FEES PAID OF 93,62,558/- AND VIRTUAL STORAGE CHARGES OF 1,47,85,791/- AND THE ASSESSING OFFICER WHILE FRAMI NG THE ASSESSMENT DISALLOWED THESE EXPENSES AS THE ASS ESSEE FAILED TO DEDUCT TDS UNDER SECTION.194 J TREATING THE PAYM ENT AS ROYALTY AND HENCE, HE INVOKED THE PROVISIONS OF SECTION 40( A)(IA) OF THE ACT. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 5. THE CIT(A) FOLLOWING THE TRIBUNALS DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2010-11 & 2011-12 DATED 4.11.2015 DELETED THE DISALLOWANCES BY OBSERVING AS UNDER: 4.5 AS REGARDS GROUND NUMBER 3 IT IS SUBMITTED TH AT THE ISSUE IS COVERED IN FAVOUR OF THE APPELLANT BY THE DECISION OF HONOURABLE ITAT IN ITS OWN CASE FOR ASSESSMENT YEAR 2010 - 11 AND 2011 - 12, COPY OF WHICH IS ENCLOSED. IT IS NOTED THAT HONOURABLE ITAT IN ITA NUMBER 2585 AND 2586/MUM/2015 DATED 16/1/2017 FOR ASSESSMENT YE AR 2010 -11 AND 2011 - 12 HAS ADJUDICATED THE ISSUE IN PARA 6 TO 8 AND DELETED THE SAME RELYING ON ITS OWN ORDER IN THE CASE OF THE ASSESSE E IN ITA NUMBER 3116 /MUM/2014 . SINCE THE FACTS OF THE SAME THEREFORE R ELYING ON THE DECISION OF HONOURABLE ITAT (SUPRA), THE ADDITION I S DELETED. 4.6 AS REGARDS GROUND NUMBER 4(A) AND 4(B) , THE IS SUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF CIT (A) I N ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 -08., 2008-09 AND 200 9-10, COPIES OF 4 ITA NO.5603 & 5604/MUM/2017 ASSESSMENT YEAR 2005-06 & 2012-13 WHICH WERE ENCLOSED. IT IS NOTED THAT THE LD CIT(A ) IN APPEAL NO.CIT(A)/13/RANGE 7(2)/APL.433/2009-10 DATED 25.3 .2013 FOR ASSESSMENT YEAR 2007 - 08 HAS DECIDED THE ISSUE IN PARA 5.3 (G ) OF THE APPELLATE ORDER AS UNDER: IN ITS SUBMISSIONS, THE APPELLANT HAS EXPLAINED THA T IT WAS A CASE OF PURCHASE OF GOODS (DOMAIN) OVER INTERNET/WEB-SITE A ND SALE OF THE SAME TO ITS CUSTOMERS. THEREFORE, IT WAS AN OUTRIGHT CAS E OF PURCHASE FROM ONE PARTY BY APPELLANT AND SALE OF SAME BY THE APPELLAN T TO THIRD PARTY. IT DID NOT INVOLVE ANY PROVISION OF SERVICES TO THE APPELL ANT BY THE SAID L SL PARTY. IT ALSO DID NOT INVOLVE MAKING AVAILABLE TO THE APP ELLANT ANY TECHNICAL KNOWLEDGE OR SKILL AND THEREFORE, COULD NOT BE TERM ED AS 'FEES FOR INCLUDED SERVICES'. NO TDS WAS REQUIRED ON PAYMENT TO INDIAN RESIDENT I.E. NIXI. NO TDS WAS REQUIRED ON PAYMENT TO NON-RE SIDENT ALSO FOR THE ABOVE REASONS AND ALSO FOR THE REASONS THAT THE INC OME OF NON-RESIDENT WAS NOT TAXABLE IN INDIA. THE LD C1T(A) THEREAFTER DELETED THE ADDITION. AS T HE FACTS ARE SAME THEREFORE FOLLOWING THE DECISION OF LD CIT(A) IN A. Y 2007-08, THE ADDITION MADE BY THE A.O IS DELETED. 4.7 AS REGARDS THE GROUND NUMBER 5, THE ISSUE IS CO VERED IN FAVOUR OF THE THE ASSESSE VIDE DECISION OF LD CIT (A) IN ASSE SSMENT YEAR 2007- 08(SUPRA). THE CIT (A) HAS DECIDED THE ISSUE IN PAR A 5.3 ONWARDS AND DECIDED THE ISSUE IN PARA 5.3(G) AS UNDER: IN RESPECT OF LEGAL AND PROFESSIONAL FEES AT RS 53, 17,642/-, THE APPELLANT HAS SATISFACTORILY EXPLAINED THAT IT RELA TED TO LEGAL AND PROFESSIONAL FEE PAID TO THE RESIDENT OF USA AND WA S COVERED BY THE PROVISIONS OF DTAA. IT WAS NOT TAXABLE IN INDIA AS INDEPENDENT PERSONAL SERVICES AS PER DTAA SINCE THE PAYEE (I.E RESIDENT OF USA) DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN IN DIA AND THE PAYEE RENDERED SERVICES FROM ABROAD AND DID NOT VIS IT INDIA. THE PAYMENT WAS ALSO NOT TAXABLE AS BUSINESS INCOME OF THE NON- RESIDENT IN INDIA. THE APPELLANT HAS ALSO EXPLAINED THAT THE PAYMENT MADE COULD NOT BE CONSIDERED AS 'FEES FOR T ECHNICAL SERVICES' AS PER PROVISION OF DTAA. THE APPELLANT'S CLAIM WAS SUPPORTED BY DECISIONS OF COURT'S & TRIBUNALS AS ME NTIONED IN APPELLANT'S SUBMISSIONS. THE APPELLANT HAS ALSO SAT ISFACTORILY EXPLAINED THAT THE PAYMENT COULD NOT BE TERMED AS R OYALTY IN TERMS OF ARTICLE 12 OF DTAA BETWEEN INDIA & USA. TH E APPELLANT HAS ALSO SATISFACTORILY EXPLAINED THAT DECISION OF SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION OF AP LTD(SUPR A) AND SAMSUNG ELECTRONICS CO. (SUPRA) WERE NOT APPLICABLE IN VIEW OF DECISION OF' SC IN (HE CASE OF GE TECHNOLOGY (SC) ( SUPRA). THEREAFTER LD CIT(A) HELD THAT: IN VIEW OF ABOVE DISCUSSION, AND APPELLANT'S SUBMIS SION THERE IS FORCE IN APPELLANT'S ARGUMENT THAT NO TAX WAS REQUI RED TO BE 5 ITA NO.5603 & 5604/MUM/2017 ASSESSMENT YEAR 2005-06 & 2012-13 WITHHELD ON THE PAYMENT MADE. THE DISALLOWANCE MADE BY THE AO IS THEREFORE ,DELETED. ' IN THE RESULT, THIS GRO UND OF APPEAL IS ALLOWED. IT IS ALSO NOTED THAT THE A.O IN THE ASSESSMENT ORD ER HAS NOT REBUTTED THE CLAIM, OF THE 'ASSESSE REGARDING THE P AYMENT BEING COVERED UNDER ARTICLE 15 OF DTAA AND MADE THE ADDITION ONLY RELYING ON EXPLANATION TO SECTION 9(2) OF THE ACT. AS THE FACT S ARE IDENTICAL, THEREFORE CONSIDERING THE FACTS OF THE CASE AND FOLLOWING THE DECISION OF THE LD CIT(A) IN A.Y 2007-08 (SUPRA), THE ADDITION IS HERE BY DELETED. ' 6. BEING AGGRIEVED, THE REVENUE IS IN APPEALS BEFOR E US. 7. BEFORE US, LD COUNSEL FOR THE ASSESSEE STATED TH AT AGAINST THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEARS 20 10-11 & 2011- 12,, THE REVENUE HAD PREFERRED APPEALS BEFORE THE T RIBUNAL AND THE TRIBUNAL HAS DEALT WITH THE ISSUES AND DELETED THE DISALLOWANCES OBSERVING AS UNDER: 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF THE AUTHORITIES B ELOW AND THE CASE LAW RELIED UPON BY THE ASSESSEE. WE FIND FROM THE RECOR D THAT THE SIMILAR ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NOS.4661,4662,4663/MUM/2013 (SUPRA) AND IN ITA NO.3116 AND 3117/MUM/2014(SUPRA) AND DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE. AS STATED HEREIN ABOVE THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) COMPRISES NAMELY (A) LEGAL AND PROFESSIONAL CHARGES (B) PURCHASE OF DOMAIN AND (C) BANDWITH CHARGES (IN INDIA) AMOUNTIN G TO RS.22,40,368/-, RS.1,82,23,345/- AND RS.16,84,32,375/- RESPECTIVELY . WE FIND THAT THE LEGAL AND PROFESSIONAL CHARGES AND PURCHASE OF DOMA IN ARE COVERED BY THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL I N ASSESSEES OWN CASE ITA NO.4661,4662 AND 4663/M/2013 AS UNDER : . WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COU NSEL, BUT WE ARE NOT ABLE TO ACCEPT THE SAME FULLY AT THIS STAGE . WE SHALL LIKE TO REFRAIN FROM CREATING ANY CONSISTENCY IN THE DECISI ON OF SAME ISSUES ARISING IN DIFFERENT YEARS. MOREOVER, WE FIN D THAT LOT OF LEGAL DEVELOPMENT HAS ALREADY TAKEN PLACE FOR DECIDING TH ESE ISSUES, AS HAS BEEN CONTENDED BY THE LD. COUNSEL ALSO. THER EFORE, FOR THE PURPOSE OF MAINTAINING CONSISTENCY, WE FIND IT APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF THE AO FOR RE-E XAMINATION OF COMPLETE FACTS AND DECIDING ALL THESE ISSUES AFRESH AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. TH E AO SHALL INTER-ALIA TAKE INTO ACCOUNT FOLLOWING SUBMISSIONS OF THE ASSESSEE 6 ITA NO.5603 & 5604/MUM/2017 ASSESSMENT YEAR 2005-06 & 2012-13 BEFORE DECIDING THIS ISSUE AS PER LAW AND FACTS: (1 ) THE LIABILITY OF THE ASSESSEE IN DEDUCTION OF TAX AT SOURCE CANNOT A RISES UNLESS THE AO HOLDS THAT INCOME IN THE HANDS OF THE PAYEE IS CHARGEABLE TO TAX IN INDIA, ESPECIALLY IN VIEW OF JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P. LTD V/S. CIT AND ANOTHER (2010) 327 ITR 456 (SC). FURTHER, EVEN IF THE LIABILITY OF THE PAYEE IS DETERMINED ON THE BASIS OF RETROSPE CTIVE AMENDMENTS MADE BY FINANCE ACT, 2010 OR FINANCE ACT , 2012, EVEN THEN, THE OBLIGATION TO DEDUCT TDS CANNOT BE C REATED THROUGH RETROSPECTIVE LEGISLATION IN VIEW OF DETAIL ED JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF NEW SKIES S ATELLITE BV (SUPRA) AND JUDGMENT OF HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS. SIEMENS AKTIONGESELLSCHAFT (310 ITR 320) (BOM) AND VARIOUS OTHER JUDGMENTS DIRECTLY ON THIS ISSUE. (2) IN THOSE CASES WHERE THE EXPENDITURE HAS BEEN CAPITALIZED, THE CLA IM OF DEPRECIATION IF OTHERWISE ALLOWABLE UNDER THE LAW C ANNOT BE DISALLOWED MERELY ON THE BASIS OF APPLICATION OF SE CTION 40(A)(I) FOR FAILURE TO DEDUCT TAX AT SOURCE. IN SUPPORT OF HIS PROPOSITION, LD. COUNSEL HAS RELIED UPON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SKOL BREWERIES LTD. (SUPRA) . THE LD. COUNSEL HAS ALSO ARGUED THAT THERE HAVE BEEN DUPLIC ATE DISALLOWANCES/ADDITIONS BY THE OFFICERS. ONE ITEM H AS BEEN DISALLOWED AT MORE THAN ONE PLACE. IT IS DIRECTED T HAT THE AO SHALL TAKE INTO CONSIDERATIONS THESE SUBMISSIONS AND SHAL L NOT MAKE DUPLICATE DOUBLE DISALLOWANCE/ ADDITIONS OF ONE ITE M. IN ADDITION TO THE ABOVE, WE FURTHER CLARIFY THAT ASSESSEE IS F REE TO TAKE ALL THE FACTUAL AND LEGAL ISSUES BEFORE THE AO AS MAY BE CO NSIDERED APPROPRIATE AS PER LAW, AND AO IS ALSO FREE TO ASK FOR FURTHER DETAILS AND EVIDENCES FROM THE ASSESSEE AS MAY BE C ONSIDERED APPROPRIATE AS PER LAW AND FACTS AND MAY ALSO CONSI DER LATEST POSITION OF LAW AS MAY BE AVAILABLE AS ON THE DATE OF PASSING OF THE AFRESH ASSESSMENT ORDER, IN ADDITION TO THE JUD GMENTS THAT 5 ITA NO.2585 AND 2586/MUM/2015 MAY BE RELIED UPON BY THE ASSESSEE. THUS, WITH THESE DIRECTIONS, THIS ISSUE I S SENT BACK TO THE FILE OF THE AO. THUS, GROUND NO.3 MAY BE TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 13. WE FIND THAT THE ISSUES IN THIS APPEAL ARE SQUA RELY COVERED BY A COORDINATE BENCHS DECISION IN THE CASE OF THE ASS ESSEE FOR THE ASSESSMENT YEARS 2010-11 & 2011-12 (SUPRA). WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH, AND WE ARE IN CONSIDERED AGREEMEN T WITH THE SAME. SINCE THE CIT(A) HAS FOLLOWED THE DECISION OF THE T RIBUNAL WHILE 7 ITA NO.5603 & 5604/MUM/2017 ASSESSMENT YEAR 2005-06 & 2012-13 DELETING THE DISALLOWANCES, WE AFFIRM HIS ORDER AND DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. 14. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13- - 03- 2019. AADOSA KI AADOSA KI AADOSA KI AADOSA KI GAAO GAAOGAAO GAAOYANAA KULAO MAO IDNAMK YANAA KULAO MAO IDNAMK YANAA KULAO MAO IDNAMK YANAA KULAO MAO IDNAMK 15. 03.2019 KAO KI KAO KI KAO KI KAO KI GA GAGA GA SD/- SD/- (MANOJ KUMAR AGGARWAL) (MAHAVIR S INGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 13 - 03- 2019 BKP/SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//