M/s. Mot MacDonald Ltd., JHANSI V. JCIT (Asst). Special Range-II, JAIPUR

ITA 635/JODH/2007

• Counselvise Citation: 63523314 RSA 2007
• Duration Of Justice: 6 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-06-2014
• Assessment Year: 1997-1998
• Appeal Filed On: 20-08-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: SUDIPTA SANNIGRAHI
• Keywords: Double taxation relief; Opportunity of being heard; Permanent establishment
• Section: 143(3); 234B; 90

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 635/JODH/2007 (A.Y. 1997-98) M/S MOTT MACDONALD LTD VS JCIT [ASSTT.], C/O M/S SKA & ASSOCIATES SPECIAL RANGE II. 352, SADAR BAZAR, JHANSI JAIPUR G.I/PAN NO. M-1/JCIT (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUDIPTA SANNIGRAHI DEPARTMENT BY : SHRI N.A. JOSHI- DR. DATE OF HEARING : 12/06/2014. DATE OF PRONOUNCEMENT : 13/06/2014. O R D E R PER HARI OM MARATHA, J.M. : THIS APPEAL OF THE ASSESSEE FOR A.Y. 1997-98 IS DI RECTED AGAINST THE ORDER OF LD. CIT(A), JAIPUR, DATED 11/01/2001. THIS IS A RECALLED MATTER. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE- COMPANY FILED ITS RETURN OF INCOME (ROI) FOR A.Y. 1 997-98 ON 29/01/1998 DECLARING TOTAL INCOME OF RS. 97,40,739/ - AS AGAINST WHICH 2 INCOME WAS ASSESSED AT RS. 1,67,17,765/- BY MAKING ADDITION OF RS. 69,77,026/- WHICH IS THE REIMBURSEMENT OF COST INCU RRED BY THE ASSESSEE INCLUDING PAYMENT MADE TO OTHER ASSOCIATE CONSULTANTS M/S DALAL CONSULTANTS AND ENGINEERS, AHMEDABAD OF RS. 3 0,90,447/- A S A POSTMAN AND BALANCE OF AMOUNT OF ADVANCE RECEIVED O F RS. 5,25,785/- AND COST INCURRED ON EQUIPMENT AND REPORTS ON BEHAL F OF CADA. IN FIRST APPEAL, NO RELIEF WAS GRANTED TO THE ASSESSEE AND T HAT IS WHY SECOND APPEAL HAS BEEN FILED. THE LD. CIT(A) HAD FOLLOWED HIS ORDER FOR A.Y. 1996-97 WHICH IS ALSO SUFFERED A SECOND APPEAL BEFO RE THE TRIBUNAL. IN THIS APPEAL, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. THE LEARNED COMMISSIONER OF INCOME-TAX, (APPE AL), RAJASTHAN-III, JAIPUR GROSSLY ERRED IN TREATING THE REIMBURSEMENT OF EXPENSES AS INCOME OF THE ASSESSEE . 2. THE LEARNED COMMISSIONER OF INCOME-TAX, (APPEA L), RAJASTHAN-III, JAIPUR GROSSLY ERRED IN LAW BY COMPL ETELY IGNORING THE PROVISION OF SECTION 90 OF INCOME TAX ACT, 1961 AND THE PROVISION OF DOUBLE TAXATION AGREEMENT BETW EEN INDIA AND UNITED KINGDOM (NOTIFICATION: GSR NO.91(E ) DATED 11 FEBRUARY 1994). 3. THE LEARNED COMMISSIONER OF INCOME-TAX, (APPEA L), RAJASTHAN-III, JAIPUR HAS GROSSLY ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING T HE 3 ADDITION OF RS.69,77,026.00. HE DID NOT APPRECIATED THE FACT THAT THE COMPANY IS NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA HENCE THE ASSESSMENT SHOULD HAVE BEEN MADE UNDER SECTION 163 OF THE INCOME TAX ACT, 1961 IN REPRESENTATIVE CAPACITY ON COMMAND AREA DEVELOPM ENT DEPARTMENT, BIKANER, GOVT.OF RAJASTHAN. 4. THE LEARNED COMMISSIONER OF INCOME-TAX, (APPEA L), RAJASTHAN-III, JAIPUR HAS GROSSLY ERRED IN LAW BY I GNORING THE CONTENTS OF CIRCULAR NO.333 (F.NO.506/42/81-FTD ) DATED 2 APRIL 1982 WHERE IT WAS CLEARLY MENTIONED T HAT THE PROVISION OF DOUBLE TAXATION AGREEMENT WILL PREVAIL OVER THE GENERAL PROVISION OF INCOME TAX ACT, 1961. 5. THE LEARNED COMMISSIONER OF INCOME-TAX, (APPEA L), RAJASTHAN-III, JAIPUR FURTHER ERRED IN LAW BY CONFI RMING THE APPLICATION OF INTEREST UNDER SECTION 234A AND 234B IGNORING THE FACT THAT THERE IS NOT LIABILITY OF TH E COMPANY TO PAY THE ADVANCE TAX AND TO FILE ITS RETURN OF IN COME AS PER THE PROVISION OF SECTION 115A(5) OF INCOME TAX ACT, 1961. 3. IT WAS ARGUED BY THE LD. A.R. THAT THE ISSUES IN VOLVED ON MERITS IN THIS APPEAL STAND FULLY COVERED BY THE ORDER OF THI S VERY BENCH RENDERED IN ASSESSEES OWN CASE FOR A.Y. 1996-97 IN ITA NO. 4/JODHPUR/2009 VIDE ORDER DATED 26.2.2014. THIS FA CT COULD NOT BE DENIED FROM THE REVENUES SIDE. WE HAVE FOUND THAT THE LD. CIT(A) 4 DECIDED THE ISSUES UNDER CHALLENGE BY FOLLOWING HIS ORDER RENDERED FOR A.Y. 1996-97. SINCE THE TRIBUNAL HAS TAKEN A FAVOU RABLE VIEW IN SO FAR AS ISSUES BEFORE US ARE CONCERNED WHICH IS EVIDENT FROM THE TRIBUNAL ORDER IN QUESTION, COPY OF WHICH IS PLACED ON RECOR D FOR OUR PERUSAL. FOR READY REFERENCE, WE REPRODUCE PARAS 9 TO 12 OF THIS ORDER AS UNDER: 9. AFTER CONSIDERING THE SUBMISSIONS, WE HAVE FOUN D THAT IN THE FIRST ROUND, THE TRIBUNAL HAS ACCEPTED AND GIVEN A FINDING THAT THE NATURE OF ACTIVITIES CARRIED ON CONTINUOUSLY AND SYSTEMATICALLY BY THE ASSESSEE WOU LD PARTAKE A CHARACTER OF BUSINESS, IN CASE IT IS FO UND IT DOES NOT HAVE ITS PE IN INDIA AND WOULD BE ENTITLED TO B ENEFIT OF ARTICLE 7 OF DTAA IN QUESTION. FOR THE READY REFER ENCE, WE INCORPORATE PARA 8 (AT PAGE 6) OF THE APPELLATE TRI BUNALS ORDER DATED 26/05/2006 HEREIN AS BELOW:- 8. AFTER CONSIDERING THE ARGUMENTS ADVANCE BY THE PARTIES AND HAVING GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES, MATERIAL AVAILABLE ON RECORD AS WELL AS THE DECISION RELIED ON BY THE LD. A/R IN THE CASE OF BARENDRA PRASAD RAO VS. ITO (SUPRA), WE ARE OF THE VIEW THAT THE NATURE OF ACTIVITY CARRIED ON CONTINUOUSLY AND SYSTEMATICALLY BY THE ASSESSEE BY APPLICATION OF ITS LABOUR AND SKILL WITH A VIEW TO EARNING INCOME WILL PART THE CHARACTER OF BUSINESS AND THUS IF IT IS NOT HAVING A 5 PERMANENT ESTABLISHMENT IN INDIA, THE ASSESSEE WOULD BE VERY MUCH ENTITLED TO TAKE BENEFIT OF ARTICLE 7 OF DTAA BETWEEN INDIA AND U.K. HOWEVER, AS RIGHTLY POINTED OUT BY LD. D/R, THERE IS NO EVIDENCE ON RECORD TO ESTABLISH THE CLAIM OF THE ASSESSEE THAT IT HAS NO PERMANENT ESTABLISHMENT IN INDIA. WE, THUS, IN THE INTEREST OF JUSTICE REMAND THE MATTER TO THE FILE OF THE A.O. TO EXAMINE THE CORRECTNESS OF THIS CLAIM OF THE ASSESSEE AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND GIVE HIS FINDING ON THE ISSUE ACCORDINGLY. ADDITIONAL GROUND NO.1 IS, THUS PARTLY ALLOWED. 10. SINCE THE VIEW TAKEN BY THIS VERY BENCH, MAY BE CONSTITUTED BY DIFFERENT MEMBERS, IS TO BE TREATED IN CONTINUITY AND BY MAINTAINING CONSISTENCY, WE ARE O F THE CONSIDERED OPINION THAT THE MATTER WAS REMANDED ONL Y WITH A VIEW TO ASCERTAIN AS TO WHETHER THE APPELLAN T COMPANY HAS A PE IN INDIA OR NOT? THIS FACT, WHETH ER THE ASSESSEE HAS DOES NOT ANY PE IN INDIA STAND ESTABLI SHED FROM THE ORDERS OF ASSESSING OFFICER HIMSELF RENDER ED IN ASSESSMENT YEAR 1997-98 TO 1999-2000. WE HAVE GONE THOUGH THESE ORDERS AND ARE VERILY SATISFIED WITH T HE FACT THAT THE ASSESSEE COMPANY DOES NOT HAVE ITS PE IN I NDIA. THE REVENUE HAS NOWHERE DISPUTED THIS FACT AND EVEN BEFORE US, IT WAS NOT DISPUTED. IT IS ALSO TRUE TH AT IN THE 6 SET ASIDE ASSESSMENT ORDER, NEITHER ASSESSING OFFIC ER NOR LD. CIT(A) HAS DISCUSSED THIS ASPECT RAISED BY THE APPELLANT COMPANY. BE THAT AS IT MAY, THE ASSESSING OFFICER WAS DIRECTED TO INVESTIGATE AND VERIFY THE LIMITED QUES TION REGARDING EXISTENCE OF PE OF THE APPELLANT COMPANY IN INDIA AND NOTHING MORE. THE JURISDICTION OF THE AS SESSING OFFICER WAS CIRCUMSCRIBED BY THE DIRECTIONS GIVEN B Y THE APPELLATE TRIBUNAL. THE ASSESSING OFFICER WAS DUTY BOUND TO COMPLETE THE SET ASIDE ASSESSMENT BY SCRUPULOUSL Y FOLLOWING THE DIRECTIONS OF THE TRIBUNAL. SINCE TH E ASSESSING OFFICER HAS NOT ADHERED TO ABOVE MENTIONE D DIRECTIONS AND HAS GONE BEYOND THE PRESCRIBED LIMIT S, HE HAS FLOUTED THE JUDICIAL DISCIPLINE. WE FIND SUPPOR T FROM THE DECISIONS RENDERED IN THE CASES OF BANK OF BARO DA VS. H.C. SHRIVASTAVA REPORTED IN 256 ITR 385 (BOMBABY H IGH COURT ); ORISSA CERAMIC SALES VS. ITO REPRTED IN 14 5 ITR 464 (ORISSA HIGH COURT) AND BASUDEV PRASAD AGARWALA VS. ITO REPORTED IN 180 ITR 388 (CALCUTTA HIGH COURT), INTE R ALIA. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE LEFT WITH NO OTHER OPTION, BUT TO ALLOW GROUND NO.1 OF THIS APPEAL. 11. NOW COMING TO THE GROUND NOS. 2 & 3 OF THIS APP EAL. WE HAVE NOTED THAT THE FACTS RELATING TO THEM ARE T HAT IN INDIA AS HAVING DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) WITH UNITED KINGDOM (UK) AND AS PER SECTION 90(2) OF THE ACT WHERE DTAA APPLIES, THE PROVISIONS OF TH E ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THE ASSESSEE. THE ABOVE FACTS WERE SUPPORTED BY THE AP PELLANT 7 COMPANY WITH THE HELP OF RATIO LAID DOWN BY THE OF HON'BLE APEX COURT RENDERED IN THE CASE OF CIT VS. P.V.AL. KULANDAGAN CHETTIAR (2004) 267 ITR 654 WHEREIN IT H AS BEEN HELD THAT THE PROVISIONS OF DTAA WOULD PREVAIL OVER PROVISIONS OF INCOME-TAX ACT. THE APPELLANT HAS FU RTHER RELIED ON THE DECISION OF HON'BLE SUPREME COURT REN DERED IN THE CASE OF UNION OF INDIA & ANOTHER VS. AZADI B ACHAO ANDOLAN, 263 ITR 706 WHEREIN IT HAS BEEN HELD THAT THE PROVISIONS OF DTAA WITH RESPECT TO THE CASES TO WHI CH THEY APPLY WOULD OPERATE EVEN IF IT IS INCONSISTENT WITH THE PROVISIONS OF INCOME-TAX ACT. AS PER ARTICLE 7 OF DTAA BETWEEN INDIA AND UNITED KINGDOM, THE PROFITS OF AN ENTERPRISE OF A CONTRACTING STATE SHALL BE TAXABLE ONLY ON THAT STATE UNLESS THE ENTERPRISE CARRIES ON BUSINES S IN THE OTHER CONTRACTING STATE THROUGH ITS PE. IF THE PRO FITS OF THE ENTERPRISE ARE TAXED IN THE OTHER STATE BUT ONLY TO THE EXTENT AS IT IS DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO THAT PE IN INDIA CANNOT BE SUBJECTED TO TAX UNDER THE INDIA N TAX LAWS. IN THAT BACK GROUND ONLY, THE TRIBUNAL HAS D IRECTED THE ASSESSING OFFICER TO ESTABLISH WHETHER THE ASSE SSEE COMPANY WAS HAVING PE IN INDIA OR NOT. THERE ARE T WO SETS OF SECTIONS UNDER INCOME TAX ACT WHICH DEALS WITH T HE ASSESSMENT OF A NON-RESIDENT CORPORATE ASSESSEE NOT HAVING PE IN INDIA. ONE SET IS COVERED UNDER SECTIONS 162 & 163 OF THE ACT AND THE OTHER UNDER SECTIONS 195 TO 201. B OTH THESE SETS OF PROVISIONS ARE MUTUALLY EXCLUSIVE AND INDEPENDENT. IN CASE OF A NON-RESIDENT CORPORATE, THE ASSESSEE IS TO BE TAXED IN INDIA THEN SECTIONS 162 &163 OF 8 THE ACT HAVE TO BE INVOKED BECAUSE A NON-RESIDENT A SSESSEE CAN BE TAXED IN THIS COUNTRY ONLY IN A REPRESENTATI VE CAPACITY AND IN THAT EVENTUALITY, TDS CANNOT BE DED UCTED UNDER SECTION 195 OF THE ACT OUT OF THE PAYMENTS MA DE TO NON-RESIDENT CORPORATE ASSESSEE. IN CASE TDS HAS T O BE DEDUCTED QUA PAYMENTS MADE TO NON-RESIDENT CORPORAT E ASSESSEE THEN RECOURSE HAS TO BE TAKEN UNDER SECTIO NS 195 TO 201 OF THE ACT. IN THIS CASE TAX HAD BEEN DEDUC TED AS PER THE REVENUE BY MISTAKE, THEN SECTION 201 OF THE ACT WILL COME INTO PLAY AND THE ASSESSEE CANNOT BE SUBJ ECTED TO TAX BY MAKING ASSESSMENT UNDER SECTION 143(3) OF THE ACT. THEREFORE, BY KEEPING IN MIND THE PROVISIONS OF SECTIONS 162, 163 & 195 TO 201 OF THE ACT VIS--VIS THE PROVISIONS AND ARTICLES OF THE DTAA, THE CONTRACT-O F- CONSULTANCY-AGREEMENT HAS BEEN PROVIDED IN CLAUSE 1 .9 SPECIFICALLY, TO AVOID ANY KIND OF DISPUTE IN FUTUR E. IN THIS REGARD, THE TRIBUNAL HAS OBSERVED IN FIRST ROUND AS UNDER:- AFTER HAVING CAREFULLY GONE THOUGH THESE IMPORTANT CLAUSES OF THE AGREEMENT, WE PRIMA FACIE FIND SUBSTANCE IN THE CONTENTION OF THE ASSESSEE THAT THE PAYMENT RELATED TO THE SUB- CONSULTANTS AND OTHER EXPENDITURE CAN BE TREATED AS REIMBURSEMENT OF EXPENSE. HOWEVER, IT NEEDS FURTHER VERIFICATION FROM THE CAD TO EXAMINE THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. WE THUS, IN THE INTEREST OF JUSTICE REMAND THE MATTER TO THE FILE OF THE AO 9 TO EXAMINE THE CORRECTNESS OF THE CLAIM AFRESH FROM THE RECORD OF THE CAD AS WELL AND DECIDE THE MATTER ACCORDINGLY AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ORDER OF THE LOWER AUTHORITIES ARE, THUS SET ASIDE. 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE HAV E FOUND THAT THE AGREEMENT BETWEEN CAD AND THE ASSESS EE WAS EXECUTED IN THE YEAR 1995 AND SEPARATE AGREEMEN T WAS EXECUTED BETWEEN CAD AND M/S. DALAL CONSULTANTS & ENGINEERS LTD. ON 01/06/2000. BUT, TILL THE DATE O F EXECUTION OF SEPARATE AGREEMENT BETWEEN CAD & M/S. DALAL CONSULTANTS & ENGINEERS LTD. ANY PAYMENT WAS MADE TO M/S. DALAL CONSULTANTS & ENGINEERS LTD. IT WAS M ADE THROUGH THIS ASSESSEE COMPANY. THE TRIBUNAL HAS DISCUSSED THIS ISSUE IN FIRST ROUND AT PAGES 11 & 1 2 OF ITS ORDER. AS PER CLAUSE 1.1(B) OF THE AGREEMENT, THE DEFINITION OF ASSOCIATED CONSULTANTS HAS BEEN PRO VIDED WHERE THE NAME OF M/S. DALAL CONSULTANTS & ENGINEER S LTD. IS MENTIONED. ONE CAN EASILY INFER THE INTENTION O F THE CAD THAT BEFORE EXECUTION OF SEPARATE AGREEMENT, TH E STATUS OF M/S. DALAL CONSULTANTS & ENGINEERS LTD. W AS THAT OF ASSOCIATE CONSULTANTS AND AFTER ITS EXECUTION, ITS STATUS IS CHANGED TO SUB-CONSULTANTS OUT OF THE PAY MENTS @ 5% AND AGAIN ASSESSEE COMPANY DEDUCED TAX WHEN THE SAME PAYMENT WAS MADE TO THE M/S. DALAL CONSULTANTS & ENGINEERS LTD. TO ANSWER SUCH A SITUATION, A SEPAR ATE 10 AGREEMENT WAS EXECUTED ON 01/06/2000 AND CAD STARTE D MAKING PAYMENT DIRECTLY TO M/S. DALAL CONSULTANTS & ENGINEERS LTD. THESE FACTS ARE FOUND TO BE NOT CON TESTED BY THE REVENUE. THE ASSOCIATE CONSULTANTS WERE ALS O PARTY TO THIS AGREEMENT. IT BECOMES VERY CLEAR THAT BEFO RE EXECUTION OF THIS AGREEMENT ALL THE PAYMENTS MADE T O M/S. DALAL CONSULTANTS & ENGINEERS LTD. WERE MADE THROUG H THE ASSESSEE AS PER CLAUSE 1.9 OF THE AGREEMENT, WHICH IS REPRODUCED AS UNDER:- THE CLIENT WARRANTS THAT THE CLIENT SHALL PAY ON BEHALF OF THE CONSULTANTS AND THE PERSONNEL ANY TAXES, DUTIES, FEES, LEVIES AND OTHER IMPOSITIONS IMPOSED, UNDER THE APPLICABLE LAW, ON THE CONSULTANTS AND THE PERSONNEL IN RESPECT OF: (A) ANY PAYMENT WHATSOEVER MADE TO CONSULTANTS, ASSOCIATED CONSULTANTS, SUB- CONSULTANTS AND THE PERSONAL OF ANY OF THEM (OTHER THAN NATIONALS OF THE GOVT. OR PERMANENT RESIDENTS OF THE GOVERNMENTS COUNTRY), IN CONNECTION WITH THE CARRYING OUT OF THE SERVICES. IT IS ALSO FOUND FROM THE RECORD THAT ALL THE PAYM ENTS MADE TOWARDS THE CIVIL WORKS WERE MADE THROUGH THE ASSES SEE AND THE SAME CANNOT BE ADDED TO THE ASSESSEES INCO ME. SINCE WE HAVE ALREADY HELD THAT THE APPELLANT COMPA NY 11 DOES NOT HAVE ITS PE, THEREFORE, GROUNDS NOS. 2 & 3 HAVE TO BE ANSWERED IN FAVOUR OF THE ASSESSEE. 12. GROUND NO.4 OF THIS APPEAL IS REGARDING CHARGIN G OF INTEREST UNDER SECTION 234A & 234B & 234C OF THE AC T. CHARGING OF INTEREST UNDER OR ABOVE SECTIONS IS NOW MANDATORY. HOWEVER, THE ASSESSEE IS ENTITLED TO CONSEQUENTIAL RELIEF. THEREFORE, THIS GROUND CANNOT BE ALLOWED. ACCORDINGLY, WE HAVE FOUND THAT GROUND NOS. 1 TO 4 ARE COVERED IN FAVOUR OF THE ASSESSEE. THEREFORE, RESPECTFULLY FO LLOWING THE TRIBUNAL ORDER IN QUESTION, WE ALLOW GROUND NOS. 1 TO 4 OF A SSESSEES APPEAL. 4. GROUND NO. 5 IS REGARDING CHARGING OF INTEREST U /S 234A AND 234B OF THE ACT. CHARGING OF INTEREST IS CONSEQUENTIAL I N NATURE. 5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JUNE, 2014. SD/- SD/- [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13 TH JUNE, 2014. VL/ 12 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT BY ORDER 3. THE CIT 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR