JCIT(OSD) (IT) 3(2)(1), MUMBAI V. MARUBENI CORPORATION , MUMBAI

ITA 598/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4857 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 01-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Assessee Lawyers: V K DUGGAL
• Keywords: Business income; Double taxation relief; Permanent establishment; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL I BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE- PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 598/MUM/2018 (ASSESSMENT YEAR 2012-13 ) JCIT (OSD)(IT)-3(2)( 1) ROOM NO. 1615, 16 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI- 400021. VS. M/S MARUBENI CORPORATION C/O MARUBENI INDIA PVT. LTD., 25, MITTAL COURT, 2 ND FLOOR, NARIMAN POINT, MUMBAI-400021. PAN: AACCM7682D APPELLANT RESPONDE NT APPELLANT BY : SHRI V. SREEKAR (CIT-DR) RESPONDENT BY : SHRI V.K. DUGGAL (C.A) DATE OF HEARING : 06.05.2019 DATE OF PRONOUNCEMEN T :22.05.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. COMMISSIONER (APPEALS)-57, MUMBAI DATED 10 TH NOVEMBER 2017, WHICH IN TURN ARISES FROM ASSESSMENT ORDER DATED 30 TH MARCH 2015 PASSED UNDER SECTION 143(3) OF INCOME TAX ACT (THE ACT). THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: (1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT APPRECI ATING THE FACT THAT ASSESSING OFFICER HAS RIGHTLY HELD THAT THE ENTIRE TRADE FINANCE INTEREST IS RELATED TO PERMANENT ESTABLISHMENT OF ASSESSEE. (2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED COMMISSIONER APPEAL ERRED IN NOT APPRECIATI NG THE FACT THAT THE ASSESSING OFFICER HAS RIGHTLY HELD THAT THE AMOUNT RECEIVED AS INTEREST FROM PARTIES IN INDIA BE TAXED AT NORMAL RATE AS PE R ARTICLE 11(6) OF INDIA JAPAN DT DOUBLE-A. (3) THE APPELLANT PRAYS THAT THE ORDER OF LEARNED COMMI SSIONER (APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF ASSESSIN G OFFICER BE RESTORED.THE APPELLANT PRAYS THAT APPEAL IS MAINTAI NABLE IN THIS CASE IN ITA NO. 598/MUM/2018- M/S MARUB ENI CORPORATION 2 VIEW OF THE CIRCULAR NUMBER 21/2015 DATED 10 TH OF DECEMBER 2015 OF THE CBDT. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMP ANY INCORPORATED UNDER THE LAWS OF JAPAN AND TAX RESIDENT OF JAPAN. THE AS SESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13, DECLARING TO TAL INCOME OF RS. 4,29,16,530/-. THE RETURN OF INCOME WAS SELECTED FO R SCRUTINY. DURING THE ASSESSMENT, THE ASSESSING OFFICER NOTED THAT ASSESS EE HAS EARNED INTEREST ON INTEREST FROM BANKS AND OTHERS, WHICH HAS BEEN O FFERED TO TAX AT THE RATE OF 10% IN ACCORDANCE WITH ARTICLE 11(2) OF DOU BLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND JAPAN. THE ASSESSING OFFICER FURTHER TOOK HIS VIEW THAT INTEREST RELATES TO THE PROJECT OFFICE IN INDIA WHICH IS A PERMANENT ESTABLISHMENT IN INDIA A ND THE SAME IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AT THE R ATE APPLICABLE TO FOREIGN COMPANIES PLUS SURCHARGE AND EDUCATION CESS INSTEAD OF SPECIAL RATES ADOPTED BY ASSESSEE. THE ASSESSING OFFICER TR EATED THE INTEREST RECEIPT AS INCOME FROM OTHER SOURCES AND TAXED AT 42.0 24%. 3. AGGRIEVED BY THE ACTION OF ASSESSING OFFICER, THE A SSESSEE FILED APPEAL BEFORE FIRST APPELLATE AUTHORITY (FAA). BEFORE FAA, THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER ASSESSED THE INT EREST INCOME ON LOANS AND TRADE WITHOUT ASSIGNING ANY REASON. THE FINANCE WAS PROVIDED BY THE HEARD OFFICE TO INDIAN COMPANY IN FOREIGN CURRENCY. THE ASSESSEE PROVIDED THE BREAK-UP OF ALL THE PARTIES AND THE CO PIES OF THE AGREEMENT ITA NO. 598/MUM/2018- M/S MARUB ENI CORPORATION 3 WITH THOSE PARTIES. IT WAS CANVASSED THAT ON FINAN CE BY THE HEAD OFFICE TO INDIAN COMPANY IN FOREIGN CURRENCY, THERE IS NO REL ATION WITH PERMANENT ESTABLISHMENT. IT WAS ALSO SUBMITTED THAT IN PAST A SSESSMENT YEARS THAT IS 2009-10 AND IN 2011-12, THE INTEREST INCOME WAS ASS ESSED AT THE RATE OF 10% IN ACCORDANCE WITH THE PROVISIONS OF INDIA JAPA N DTAA. THERE WAS NO CHANGE IN POSITION; THE ASSESSING OFFICER HAS NO T GIVEN ANY REASON FOR CHANGE IN OPINION. THE PROJECT OFFICE DULY FUNDED B Y HEAD OFFICE AND PROJECT OFFICE DOES NOT HAVE ANY RISK OR COST FOR T HE FUNDS TEMPORARILY DEPOSITED IN INDIA. EXCHANGE FLUCTUATION RISK WAS T O THE ACCOUNT OF HEAD OFFICE AND NOT TO THE PROJECT OFFICE. THE ASSESSEE ALSO SUBMITTED THAT, ALTHOUGH THE ASSESSEE OFFERED THIS INCOME FOR TAX, IS STRICTLY SPEAKING THE ASSESSEE COULD HAVE CLAIMED THIS INCOME AS EXEMPT I NCOME ON THE BASIS OF DECISION OF DELHI TRIBUNAL IN ACIT VS CARGIL GLO BAL TRADING (I) LTD 34 SOT 424 (DELHI) AND MUMBAI TRIBUNAL IN DCIT VS A BU DHABI COMMERCIAL BANK LTD 4SOT 362 (MUMBAI). 4. IN THE STATEMENT OF FACTS FURNISHED BY ASSESSEE, IT WAS ALSO BROUGHT TO THE NOTICE OF LEARNED COMMISSIONER (APPEALS) THAT IN AS SESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05, 2007-08 AND 2009-10 IT WAS HELD THAT INTEREST ON INCOME TAX REFUND IS TAXABLE AT DTAA RATE AND NO T AT NORMAL RATE OF TAX APPLICABLE AS BUSINESS INCOME. THE LD. COMMISSI ONER (APPEALS) AFTER CONSIDERING THE ASSESSMENT ORDER FOR ASSESSMENT YEA R 2009-10, 2010-11 AND 2011-12 IN WHICH SIMILAR INTEREST WAS TAXED AT DTAA RATE AND AFTER ITA NO. 598/MUM/2018- M/S MARUB ENI CORPORATION 4 PERUSING THE MATERIAL OF ON RECORD CONCLUDED THAT I NTEREST ON LOAN IN FOREIGN CURRENCY IS CHARGEABLE TO TAX AT A DTAA RAT E AND IS NOT LINKED WITH PERMANENT ESTABLISHMENT OF ASSESSEE IN INDIA A ND THEREBY DIRECTED THE ASSESSING OFFICER TO TAX THE INTEREST AT DTAA RATE. THUS AGGRIEVED BY THE ORDER OF COMMISSIONER (APPEALS), THE ASSESSI NG OFFICER /REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE SUBMISSION OF LEARNED DEPARTMENTA L REPRESENTATIVE (DR) FOR THE REVENUE AND LEARNED AUTHORISED REPRESE NTATIVE (AR) OF THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECO RD. WE HAVE ALSO DELIBERATED ON CASE LAWS RELIED BY LEARNED COMMISSI ONER (APPEALS). THE LEARNED DR FOR THE REVENUE SUBMITS THAT THE LEARNED COMMISSIONER (APPEALS) PASSED A VERY SHORT ORDER WITHOUT GIVING DETAILS REASONING AND WITHOUT REFEREEING THE FACTS ON THE BASIS OF WHICH THE LEARNED COMMISSIONER (APPEALS) ARRIVED AT SUCH CONCLUSION. THE LEARNED DR SUBMITS THAT THE ORDER PASSED BY LEARNED COMMISSION ER (APPEALS) MAY BE SET ASIDE FOR FRESH FINDING. 6. ON THE OTHER HAND, THE LEARNED AR OF THE ASSESSEE S UPPORTED THE ORDER OF COMMISSIONER (APPEALS). THE LEARNED AR SUBMITS THAT NO DETAIL REASONING WAS REQUIRED AS THE CONTROVERSY IN ISSUE WAS VERY LIMITED WHETHER THE CHARGE INTEREST WAS LIABLE TO BE TAXED AT SPECIAL RATE OR IN ACCORDANCE WITH THE PROVISION OF DTAA. ITA NO. 598/MUM/2018- M/S MARUB ENI CORPORATION 5 7. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING AS SESSMENT THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS EARNED INTEREST ON INTEREST FROM BANKS AND OTHERS, WHICH HAS BEEN OFFERED TO TAX AT THE RATE O F 10% IN ACCORDANCE WITH ARTICLE 11(2) OF DOUBLE TAXATION AVOIDANCE AGR EEMENT (DTAA) BETWEEN INDIA AND JAPAN. THE ASSESSING OFFICER TREA TED THE INTEREST RECEIPT AS INCOME FROM OTHER SOURCES AND TAXED AT 42.024% WITHOUT SPECIFYING ANY REASON. THE ASSESSING OFFICER ALSO C ONCLUDED THAT INTEREST RELATES TO THE PROJECT OFFICE IN INDIA WHICH IS A P ERMANENT ESTABLISHMENT AND THE SAME IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AT THE RATE APPLICABLE TO FOREIGN COMPANIES PLUS SURCH ARGE AND EDUCATION CESS INSTEAD OF SPECIAL RATES ADOPTED BY ASSESSEE. NO SHOW CAUSE NOTICE WAS GIVEN BY ASSESSING OFFICER BEFORE TREATING THE SAID INTEREST RECEIPT AT TAXABLE AT SPECIAL RATE OF TAX. THE ASSESSING OFFIC ER HAS NOT GIVEN ANY FINDING THAT THE PROJECT OFFICE HAVE ANY RISK OF CO ST FOR THE FUND TEMPORARILY DEPOSITED IN INDIA. 8. THE ASSESSEE HAS PLACED ON RECORD THE COPY OF ASSES SMENT ORDER FOR ASSESSMENT YEAR 2009-10 DATED 09.02.2012 PASSED UND ER SECTION 143(3) R.W.S. 144C(3), ASSESSMENT ORDER FOR ASSESSMENT YEA R 2010-11 DATED 17.05.2013 PASSED UNDER SECTION 143(3) R.W.S. 144C( 3) AND FOR ASSESSMENT YEAR 2011-12 DATED 29.04.2014 PASSED UND ER SECTION 143(3) R.W.S. 144C(3). PERUSAL OF ABOVE REFERRED ASSESSMEN T ORDER REVEALS THAT ITA NO. 598/MUM/2018- M/S MARUB ENI CORPORATION 6 SIMILAR INTEREST WAS TAXED AS PER THE RATE PRESCRIB ED UNDER DTAA I.E. @ 10%. THE LD. COMMISSIONER (APPEALS) AFTER CONSIDERI NG THE MATERIAL PLACED BEFORE HER DIRECTED THE ASSESSING OFFICER TO TREAT THE INTEREST ON LOAN IN FOREIGN CURRENCY AS CHARGEABLE TO TAX IN AC CORDANCE WITH DTAA RATE BEING NOT LINKED WITH PE OF ASSESSEE IN INDIA. IN VIEW OF THE DISCUSSION, WE DO NOT FIND ANY JUSTIFICATION IN THE ORDER PASSED BY ASSESSING OFFICER IN TREATING THE INTEREST INCOME @ 42.024%. NO CONTRARY FACTS OR LAW IS BROUGHT TO OUR NOTICE TO TAKE DIFFE RENT VIEW. THEREFORE, WE AFFIRM THE ORDER OF LD. COMMISSIONER (APPEALS). 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/05 /2019. SD/- SD/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 22.05.2019 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR I BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI