CAPGEMINI SA, MUMBAI V. DCIT (IT) 2(1)(1), MUMBAI

ITA 6323/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8905 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: Not Allotted
• Next Hearing Date: 09-01-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 26-10-2016
• Court: TRIBUNAL
• Department Lawyers: JASBIR CHOUCHAN
• Keywords: Transfer pricing; Double taxation relief; Permanent establishment
• Section: 6; 2

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.6323/MUM/2016 ASSESSMENT YEARS: 2013-14 CAPGEMINI SA, KALYANIWALLA & MISTRY, 3 RD FLOOR, ARMY & NAVY BUILDING, 148, M.G. ROAD,FORT, MUMBAI-400001 / VS. DCIT(INTERNATIONAL TAXATION)- 2(1)(1), ROOM NO.1713, 17 TH FLOOR, AIR INDIA BUILDING, MARINE DRIVE, MUMBAI-400021 ( ! /ASSESSEE) ( ' / REVENUE) PAN. NO. AADCC5353J ! / ASSESSEE BY SHRI M.M. GOLVALA & SHRI RAUNAK VARDHAN ' / REVENUE BY SHRI JASBIR CHOUCHAN CIT-DR # '$ % ! & / DATE OF HEARING : 09/01/2017 % ! & / DATE OF ORDER: 09/01/2017 ITA NO.6323/MUM/2016 CAPGEMINI SA 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DA TED 26/07/2016 OF THE LD. DISPUTES RESOLUTION PANEL-1 (HEREINAFTER DRP), MUMBAI. THE GROUND NOS. 1 TO 4, RAISED BY THE ASSESSEE, PERTAINS TO HOLDING THAT GUARANTEE CO MMISSION, RECEIVED BY THE ASSESSEE, AMOUNTING TO RS.30,11,660 /-, WAS LIABLE TO TAX IN INDIA AND FURTHER HOLDING THAT THE INCOME ON ACCOUNT OF PROVIDING CORPORATE GUARANTEE WAS TAXABL E IN INDIA UNDER ARTICLE-23 OF THE DOUBLE TAXATION AVOIDANCE A GREEMENT (HEREINAFTER DTAA) BETWEEN INDIA AND FRANCE. 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESSE E, SHRI M.M. GOLVALA, ALONG WITH SHRI RAUNAK VARDHAN, AT THE OUTSET, CLAIMED THAT THE IMPUGNED ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT YEAR 2009-10 (ITA NO.7198/MUM/2012), ORDER DATED 28/03/2016. IT WAS EXPLAINED THAT THE GUARANTEE COMMISSION DID NOT ACC RUE OR AROSE IN INDIA UNDER THE INCOME TAX ACT, 1961 (HERE INAFTER THE ACT). IT WAS CONTENDED THAT THE INCOME AROSE IN FR ANCE BECAUSE THE GUARANTEE COMMISSION WAS GIVEN BY THE A SSESSEE, A FRENCH COMPANY TO BNP PARIBAS, A FRENCH BANK, IN FRANCE, THEREFORE, ARTICLE 23.3 HAS NO APPLICABILITY AS INC OME DOES NOT ARISE IN INDIA. THE LD. CIT-DR, SHRI JASBIR CHOUHAN , THOUGH DEFENDED THE IMPUGNED ORDER BUT DID NOT CONTROVERT THE FACTUAL MATRIX/ASSERTION OF THE LD. COUNSEL FOR THE ASSESSEE. ITA NO.6323/MUM/2016 CAPGEMINI SA 3 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS NON-RESIDENT COMPANY, HAVI NG TWO SUBSIDIARIES, IN INDIA, NAMELY CAPGEMINI INDIA PVT. LTD. AND CAPGEMINI BUSINESS SERVICES (INDIA) LTD. THE ASSESS EE GAVE A GUARANTEE TO BNP PARIBAS IN FRANCE, WHEREUNDER SOME OF ITS WORLDWIDE SUBSIDIARIES ARE ENTITLED TO AVAIL OF VAR IOUS FACILITIES FROM A LOCAL BNP PARIBAS BRANCH, WITHOUT THE SUBSID IARY FURNISHING ANY SECURITY. THE ENGLISH TRANSLATION OF THE GUARANTEE IS AVAILABLE AT PAGE 19 TO 27 OF THE APPL ICATION BEFORE THE LD. DRP. FOR FURNISHING THE SAID GUARANT EE AND IN KEEPING WITH TRANSFER PRICING REGULATIONS, THE ASSE SSEE RAISED AN ARMS LENGTH CHARGE ON ITS INDIAN AFFILIATES. TH E GUARANTEE COMMISSION CHARGED BY THE ASSESSEE WAS AT A FLAT RA TE OF 0.5% ON THE GUARANTEED AMOUNT, IRRESPECTIVE OF AMOUNT AC TUALLY UTILIZED. IN THE CASE OF THE CAPGEMINI INDIA, THE G UARANTEE AMOUNT WAS USD 50 MILLION AND IN THE CASE OF CAPGEM INI BUSINESS SERVICES (INDIA), THE GUARANTEE AMOUNT WAS USD 2 MILLION. IT IS NOTED THAT VIDE COMMUNICATION 28/08/ 2015, BEFORE THE LD. ASSESSING OFFICER, THE CLAIM OF THE ASSESSEE WAS THAT THE GUARANTEE COMMISSION AS NOT LIABLE TO TAX IN INDIA FOR THE FOLLOWING THREE REASONS:- I. THERE WAS NO ACCRUAL OF INCOME IN INDIA EITHER U / S 5 OR U / S 9 , A S I T WAS A CASE OF ONE FRENCH C OMPANY GI V IN G A G U A RANTEE TO A NOTH E R FR E NCH COMPAN Y, IN FR A NCE . THE COMMISSION W A S RECEIV E D FOR GI V ING THE SAID GUARANTE E . THE ENTIRE OPER A TION OF GIVING THE SAID GUARANTEE HAD BEEN C A RRIED OUT IN FRANCE , AND NO OPERATION OF ACTIVIT Y ITA NO.6323/MUM/2016 CAPGEMINI SA 4 W AS CARRIED OUT IN INDIA . UNDER TH E PRO V ISI O NS OF SECTION 90(2) O F THE INCOME - T AX A CT , THE A S S ES SE E CO ULD C H OOS E T O A PPL Y THE PRO V I S IONS OF THE INCOME - T AX ACT , TO THE E X TENT TO W HICH THEY W ERE BENE F ICIAL TO IT , A ND , TH E REFORE , THERE WAS NO N ECE SSITY TO CONSIDER THE DOUBLE T A X AVOID A NC E AGRE E M E NT ( DT A A ), BET W EEN INDIA A ND FR A NCE . THIS IS A LEG A L PRINCIPLE A PPROVED BY TH E SUPR E ME COURT IN UOI V S. A ZA DI B AC HAO ANDOL A N 263 ITR 706 AND IN CIT VS . P . V . A . L . KUL A ND AGA N CHETTIAR 267 ITR 654. II. WITHOUT PREJUDICE TO THE CONT E NTION OF THE AS SESSEE TH AT THERE W AS NO INC O M E LI A BLE TO T AX UND E R TH E INCOM E - T AX ACT , 1961 , IT WA S CONT E ND E D , IN THE A LTERN A TI VE, THAT TH E CH A R A CTER OF THE INCOME EARNED B Y THE A PPELL A NT WA S ' BU S IN E S S' INCOME A ND , THER E FORE , UNDER THE DTAA BETWEEN INDI A A ND FR A N C E , THE PRO V ISIONS O F A RTICLE 7 WERE APPLICABLE . AS THE APPELLANT D I D NOT HAVE A PERM A N E NT ESTABLISHMENT (PE ) IN INDIA , T HERE WAS NO LIAB IL ITY TO TAX I N IND I A ON THE S A ID BUS I NESS INCO M E . IT WAS F U RTHER CONTE ND ED THAT SINCE ART I C L E 7 WAS APP L ICA B LE TO T H E S A ID GUARANTEE COMMISSION , ARTICLE 23 WAS NOT AT A LL APP L ICABLE THERETO. IT WAS ALSO SUBMITTED THAT THIS WAS FURTHER CLEAR FROM THE PROVISIONS OF ARTICLE 23 . 1 ITSELF. III. WITHOUT PREJUDICE TO BOTH THE ABOVE CONTENTIONS, IT WAS CONTENDED AS A SECOND ALTERNATIVE THAT EVEN UNDER A RTICLE 23 . 3 THE SAID AMOUNT WAS NOT TAXABLE IN INDIA, AS THE SAID ARTICLE COULD APPLY, ONLY IF INCOME ARISES IN INDIA. IN THE INSTANT CASE, THE INCOME ARISES IN FRANCE BECAU SE THE GUARANTEE IS GIVEN BY THE APPELLANT, A FRENCH COMPA NY, TO BNP PARIBAS IN FRANCE AND, THEREFORE, EVEN UNDER ARTICLE 23.3 THE SAID GUARANTEE COMMISSION COULD NO T BE TAXED IN INDIA - IT COULD ONLY BE TAXED IN FRANCE. 2.2. HOWEVER, THE LD. ASSESSING OFFICER, CONSIDERI NG THE EXPLANATION OF THE ASSESSEE WAS OF THE VIEW THAT TH E AMOUNT OF ITA NO.6323/MUM/2016 CAPGEMINI SA 5 RS . 30,11,660/ - WAS NOTHING BUT 'OTHER INCOME', THEREFORE, TAXABLE UNDER ARTICLE 23 OF THE INDIA - FRANCE DTAA . 2.3. ON APPEAL, BEFORE THE LD. DRP FOLLOWING THE DIRECTIONS CONTAINED IN ASSESSMENT YEAR 2012-13 HEL D THAT THE INCOME IS TAXABLE IN INDIA AND THE REASONING CO NTAINED IN THE ORDER FOR ASSESSMENT YEAR 2012-13 STILL NOT OVE RRULED BY THE TRIBUNAL, MEANING THEREBY, FOLLOWED ITS OWN ORD ER FOR ASSESSMENT YEAR 2012-13. THE AGGRIEVED ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. 2.4. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSELS, IF KEPT IN JUXTAPOSITION AND ANALYZED, BROADLY, THE LD. DRP HA S FOLLOWED ITS OWN ORDER, IN THE CASE OF ASSESSEE, FOR ASSESSM ENT YEAR 2012-13 ON THE REASONS THAT THE TRIBUNAL HAS NOT ST ILL OVERRULES THE ORDER OF THE LD. DRP AND FURTHER THE GUARANTEE IS NORMALLY SOUGHT AT THE INSTANCE OF THE GUARANTEE SE EKER AND NOT AT THE INSTANCE OF GUARANTOR. HOWEVER, UNDER T HE FACTS AVAILABLE BEFORE US, WE FIND THAT FOR ASSESSMENT YE AR 2012-13, THE TRIBUNAL VIDE ITS ORDER DATED 13/07/2016 (ITA NO.888/MUM/2016), BY FOLLOWING THE ORDER OF THE TRI BUNAL, IN THE CASE OF ASSESSEE ITSELF, FOR ASSESSMENT YEAR 20 09-10 (ITA NO.7198/MUM/2012) DATED 28/03/2016, DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION FROM T HE ORDER OF THE TRIBUNAL IS REPRODUCED HEREUNDER FOR READY REFE RENCE:- ITA NO.6323/MUM/2016 CAPGEMINI SA 6 3. INSOFAR AS GROUND OF APPEAL NOS. 1 TO 4 ARE CON CERNED, THEY RELATE TO A SINGLE ISSUE ARISING FROM THE ACTION OF INCOME-TAX AUTHORITIES IN HOLDING THAT GUARANTEE COMMISSION EA RNED BY THE ASSESSEE AMOUNTING TO RS.33,40,347/- WAS LIABLE TO TAX IN INDIA. 4. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT THE APPELLANT IS A FOREIGN COMPANY INCORPORATED IN FRANCE AND IS A TAX RESIDEN T OF FRANCE. IT IS ENGAGED IN THE BUSINESS OF PROVIDING VARIOUS SUPPOR T, SUSTENANCE AND DEVELOPMENTAL SERVICE TO CAPGEMINI GROUP COMPAN IES ACROSS THE WORLD. DURING THE YEAR UNDER CONSIDERATION, ASS ESSEE-COMPANY HAD EARNED ROYALTY FROM TWO OF ITS ASSOCIATE CONCER NS IN INDIA, VIZ., CAPGEMINI INDIA PVT. LTD AND CAPGEMINI BUSINESS SER VICES INDIA PVT. LTD. IN THE RETURN OF INCOME FILED BY THE ASSE SSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IT DECLARED AN INCOME OF RS.9,52,52,240/- ON ACCOUNT OF SUCH ROYALTY INCOME. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT ASSESSEE HAD RECEIVED GUARANTEE COMMISSION OF RS.33,40,347/- FROM THE TWO ASSOCIATE INDIAN CONCERNS IN RETURN FOR ASSESSEE HA VING EXTENDED CORPORATE GUARANTEE TO BNP PARIBAS, FRANCE FOR THE CREDIT FACILITIES EXTENDED BY BNP PARIBAS, FRANCE TO THE ASSOCIATE CO NCERNS IN INDIA. BEFORE THE ASSESSING OFFICER THE PLEA OF THE ASSESS EE WAS THAT SUCH GUARANTEE COMMISSION WAS NOT CHARGEABLE TO TAX IN I NDIA EITHER UNDER THE DOMESTIC LAW OR EVEN IN TERMS OF DOUBLE T AXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND FRANCE . THE PERTINENT POINT MADE OUT BY THE ASSESSEE WAS THAT N O SERVICE WAS RENDERED BY THE ASSESSEE, MUCH LESS A PROFESSIONAL/ TECHNICAL SERVICE, AND IN ANY CASE, NO SERVICE CAN BE SAID TO HAVE BEE N RENDERED IN INDIA. THE PLEA OF THE ASSESSEE DID NOT FIND FAVOUR EVEN WITH THE DRP AND ACCORDINGLY, THE ASSESSING OFFICER HELD THE GUA RANTEE COMMISSION OF RS. 33,40,347/- AS TAXABLE. 5. AT THE TIME OF HEARING, THE LEARNED REPRESENTATI VE FOR THE ASSESSEE POINTED OUT THAT AN IDENTICAL CONTROVERSY WAS CONSI DERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 VIDE ITA NO. 7198/MUM/2012 DATED 28.3.2016. THE RELEVANT DISCUSSION IN THE ORDER OF THE TRIBUNAL DATED 28.3.2016 (SUPRA) READS AS UNDER :- ITA NO.6323/MUM/2016 CAPGEMINI SA 7 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PE RUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A RESIDENT OF FRANCE AND DOES NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA. D URING THE YEAR ASSESSEE HAS GIVEN A CORPORATE GUARANTEE BNP P ARIBAS, A FRENCH BANK IN FRANCE, ON BEHALF OF ITS VARIOUS SUB SIDIARIES WORLDWIDE. DURING THE YEAR UNDER CONSIDERATION, IN INDIA, TWO SUBSIDIARIES OF THE ASSESSEE M/S.CAPGEMINI INDIA PV T. LTD. AND CAPGEMINI BUSINESS SERVICES (INDIA) LTD. WERE SANCT IONED CREDIT FACILITIES BY THE INDIAN BRANCHES OF BNP PARIBAS, W HICH CREDIT FACILITIES TO THE EXTENT OF USD 15 MILLION4AND 2 MI LLION RESPECTIVELY, WERE SECURED BY THE SAID CORPORATE GU ARANTEE GIVEN BY THE ASSESSEE. THE ASSESSEE HAS CHARGED GUARANTEE COMMISSION @ 0.5% PER ANNUM FOR THE CORPORATE GUARANTEES GIVEN ON BEHALF OF ITS SUBSIDIARIES IN INDIA. THE AO HAS TAXED THE SAME BY HOLDING IT TO BE 'OTHER INCOME' UNDER ARTICLE 23 OF THE DTAA BETWEEN INDIA AND FRANCE. 4. THE ASSESSEE IS BEFORE US AGAINST THE SAID ADDIT ION. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND T HAT THE AO TAXED THE GUARANTEE COMMISSION ON THE PLEA THAT GUA RANTEE HAS BEEN PROVIDED FOR THE PURPOSE OF RAISING FINANCE BY AN INDIA COMPANY. AS PER THE AO FINANCE WAS RAISED IN INDIA. THE AO FURTHER OBSERVED THAT FINANCE REQUIREMENT IS MET BY A INDIAN BRANCH OF THE BANK, THE BENEFITS OF GUARANTEE ARE S HARED BY THE INDIAN ENTITY WITH THE ASSESSEE BY MAKING A COMPENS ATORY PAYMENT. ACCORDINGLY THE AO HELD THAT FEES FOR GUAR ANTEE ARISE IN INDIA. FROM THE RECORD WE FOUND THAT GUARANTEE C OMMISSION RECEIVED BY FRANCE COMPANY DID NOT ACCRUE IN INDIA NOR IT CAN BE DEEMED TO BE ACCRUED IN INDIA, THEREFORE, NOT TA XABLE IN INDIA UNDER INCOME TAX ACT. FURTHERMORE, AS PER ARTICLE 2 3.3, INCOME CAN BE TAXED IN INDIA, ONLY IF IT ARISES IN INDIA. IN THE INSTANT CASE, THE INCOME CLEARLY ARISES IN FRANCE BECAUSE T HE GUARANTEE HAS BEEN GIVEN BY THE ASSESSEE, A FRENCH COMPANY TO BNP PARIBAS, A FRENCH BANK, IN FRANCE AND, THEREFORE, A RTICLE 23.3 HAS NO APPLICABILITY AS INCOME DOES NOT ARISE IN IN DIA. 6. BEFORE US, IT WAS A COMMON POINT BETWEEN THE PAR TIES THAT THE FACTS AND CIRCUMSTANCES OF THE DISPUTE IN THE INSTANT YEA R ARE SIMILAR TO THOSE CONSIDERED BY THE TRIBUNAL IN ASSESSMENT YEAR 2009-10 (SUPRA). IT WAS ALSO A COMMON POINT BETWEEN THE PAR TIES THAT DECISION OF THE TRIBUNAL DATED 28.3.2016 (SUPRA) CO NTINUES TO HOLD THE FIELD AND, THEREFORE, FOLLOWING THE AFORESAID P RECEDENT, IN THE INSTANT YEAR ALSO THE GUARANTEE COMMISSION OF RS. 3 3,40,347/- EARNED ITA NO.6323/MUM/2016 CAPGEMINI SA 8 BY THE ASSESSEE FROM THE TWO ASSOCIATE INDIAN CONCE RNS CANNOT BE HELD TO BE TAXABLE IN INDIA. AS A CONSEQUENCE, ON T HIS ASPECT, THE ASSESSEE SUCCEEDS. IN THE LIGHT OF THE FOREGOING ORDER, THE ONE OF THE REASON THAT THE ORDER FOR ASSESSMENT YEAR 2012-13 OF LD. D RP HAS NOT BEEN REVERSED BY TRIBUNAL, NO MORE SURVIVES. TH E TRIBUNAL IN ORDER DATED 28/03/2016 FOR ASSESSMENT YEAR 2009- 10 (ITA NO.7198/MUM/2012) FOUND THAT GUARANTEE COMMISSION, RECEIVED BY FRANCE COMPANY NEITHER ACCRUED IN INDIA NOR DEEMED TO BE ACCRUED IN INDIA, THEREFORE, NOT TAXAB LE IN INDIA UNDER THE INCOME TAX ACT. FURTHERMORE, AS PER ARTIC LE-23.3, INCOME CAN BE TAXED IN INDIA ONLY IF ARISES IN INDI A AND SINCE, IN THE INSTANT CASE, THE INCOME AROSE IN FRANCE, AS THE GUARANTEE WAS GIVEN BY THE ASSESSEE, A FRENCH COMPA NY TO BNP PARIBAS, A FRENCH BANK, IN FRANCE, THEREFORE, A RTICLE-23.3 HAS NO APPLICABILITY AS INCOME AROSE OUT OF INDIA. RESPECTFULLY, FOLLOWING THE DECISIONS OF THE TRIBUNAL, THESE GROU NDS OF THE ASSESSEE ARE ALLOWED. 3. GROUND NOS. 5 & 6 WERE ARGUED TO BE CONSEQUENTI AL IN NATURE. IN THE LIGHT OF THE FOREGOING DISCUSSIO N/DECISION, WE HOLD THAT BOTH THESE GROUNDS ARE CONSEQUENTIAL IN N ATURE. 4. GROUND NO. 7 IS WITH RESPECT TO DISREGARDING TH E ORDER OF THE TRIBUNAL BY THE LD. ASSESSING OFFICER/ LD. DRP IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT YEAR 200 9-10. SINCE, WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ITSELF, THEREFORE, THIS GROUND DOES NOT SURVIVE. ITA NO.6323/MUM/2016 CAPGEMINI SA 9 FINALLY, THE APPEAL OF THE ASSESSEE IS DISPOSED IN TERMS INDICATED HEREINABOVE. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES OF BOTH SIDES AT TH E CONCLUSION OF THE HEARING ON 09/01/2017 SD/- SD/- ( ASHWANI TANEJA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER # $ MUMBAI; ( DATED :09/01/2017 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 # 1! ( *+ ) / THE CIT, MUMBAI. 4. 0 0 # 1! / CIT(A)- , MUMBAI 5. 3'4 .! , 0 *+& * 5 , # $ / DR, ITAT, MUMBAI 6. 6 7$ / GUARD FILE. / BY ORDER, /3+! .! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , # $ / ITAT, MUMBAI