BURO HAPPOLD LIMITED , MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-1(3)(2), MUMBAI

ITA 7111/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3668 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2014-2015
• Appeal Filed On: 15-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENALD
• Assessee Lawyers: VIJAY MEHTALD
• Keywords: Business income; Double taxation relief; Additional evidence; Permanent establishment; Revised return
• Section: 143(3); 234B

Judgement Text

1 ITA NO.7111/MUM/2017 BURO HAPPOLD LTD. ASSESSMENT YEAR-2014-15 IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.7111/MUM/2017 ( / ASSESSMENT YEAR:2014-15) M/S. BURO HAPPOLD LTD. C/O., SUDIT K. PAREKH & CO. 6 TH FLOOR, URMI AXIS BUILDING FAMOUS STUDIO LANE DR. E. MOSES ROAD, MAHALAXMI MUMBAI-400 011. / VS. D CIT (I .T. ) - 1(3)(2) ROOM NO.119, 1 ST FLOOR SCINDIA HOUSE, BALLARD PIER MUMBAI-400 038. ./ ./PAN/GIR NO. AABCB-9239-Q ( ! /APPELLANT ) : ( '# ! / RESPONDENT ) !$ / APPELLANT BY : SHRI VIJAY MEHTA-LD. AR '# !$ / RESPONDENT BY : SHRI O.P. MEENA-LD. DR / DATE OF HEARING : 03/10/2019 / DATE OF PRONOUNCEMENT : 13/11/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2014-15 CONTEST THE FINAL ASSESSMENT OR DER DATED 23/10/2017 PASSED BY LD. DY. COMMISSIONER OF INCOME TAX (INTER NATIONAL TAXATION) - 2 ITA NO.7111/MUM/2017 BURO HAPPOLD LTD. ASSESSMENT YEAR-2014-15 1(3)(2), MUMBAI [AO] U/S. 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 PURSUANT TO THE DIRECTIONS OF LD. DISPUTE RESO LUTION PANEL-1(WZ), MUMBAI, [IN SHORT REFERRED TO AS DRP] U/S 144C(5) D ATED 22/09/2017. ALTHOUGH THE ASSESSEE HAS RAISED AS MANY AS 3 GROUN DS OF APPEAL ALONG WITH FORM NO. 36B, HOWEVER, LD. AR SUBMITTED THAT T HE ASSESSEE WOULD NOT BE PRESSING GROUND NO. 2 WHEREAS GROUND NO.3 WHICH IS RELATED WITH COMPUTATION OF INTEREST U/S 234B WOULD BE CONSEQUEN TIAL IN NATURE AND THEREFORE, THE SAME WOULD NOT REQUIRE ANY ADJUDICAT ION. AT THE SAME TIME, IT HAS BEEN SUBMITTED THAT THE ASSESSEE HAS FILED AN A DDITIONAL GROUND OF APPEAL ON 14/06/2019 WHICH IS RELATED WITH TAXABILI TY OF CONSULTING AND ENGINEERING FEES AS PER ARTICLE 13 OF INDIA-UK DTAA . THE SAID GROUND WAS STATED TO BE INADVERTENTLY OMITTED TO BE RAISED BEF ORE LD. DRP AND THEREFORE, IT WAS PLEADED THAT THE SAME MAY BE ADMI TTED AND RESTORED BACK TO LOWER AUTHORITIES FOR ADJUDICATION KEEPING IN VI EW THE RATIO OF JUDGMENT OF HONBLE SUPREME COURT RENDERED IN NATIONAL THERMAL POWER CORP. LTD. V/S CIT (229 ITR 383) AND JUTE CORPORATION OF INDIA LTD. (187 ITR 688). OUR ATTENTION HAS ALSO BEEN DRAWN TO THE FACT THAT THE SAID ISSUE IS COVERED IN ASSESSEES FAVOR BY THE ORDER OF THIS TRIBUNAL F OR AY 2012-13 IN ASSESSEES OWN CASE VIDE ITA NO. 1296/MUM/2017 ORDE R DATED 15/02/2019. THE LD. DR OPPOSED THE ADMISSION OF THE SAME BY SUB MITTING THAT THE ASSESSEE OFFERED THE INCOME, IN THIS REGAR D, IN ITS RETURN OF INCOME. HOWEVER, KEEPING IN MIND THE STATED FACTS AND CIRCU MSTANCES, THE BENCH ACQUIESCED TO ADMISSION OF ADDITIONAL GROUND OF APP EAL. FINALLY, THE GROUNDS TO BE ADJUDICATED WOULD READ AS UNDER: 3 ITA NO.7111/MUM/2017 BURO HAPPOLD LTD. ASSESSMENT YEAR-2014-15 1. GROUND NO. I - TAXABILITY OF AMOUNT RECE IVED AS COMMON COST RECHARGE AS ROYALTY AND FEES FOR TECHNICAL SERVICES (FTS) 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DRP ('DISPUTE RESOLUTION PANEL') AND DCIT HAVE ERRED IN CONSIDERING COMMON COST RECHARGE AS ROYALTY AND FEES FOR TECHNICAL SERVICES ('FTS') AS PER ARTICLE 13 OF INDIA-UK DOUBLE TAXATION AVOIDANCE AGREEMENT ('DTAA'). 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DRP AND DCIT HAVE ERRED IN NOT CONSIDERING THE COST ALLOCAT ION DECLARATION PROVIDED BY THE APPELLANT AND REVISED COST ALLOCATION AGREEMENT SUBMITTED AS ADDITIONAL EVIDENCE. 1.3 WITHOUT PREJUDICE TO GROUND NUMBER 1.1, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED DCIT HAS ERRED IN CONSIDER ING THE ENTIRE COST ALLOCATION AMOUNT OF INR 5,16,60,955/- TOWARDS INCOME FOR USE OF BRAND N AME 'BURO HAPPOLD' WITHOUT APPRECIATING THE FACT THAT VARIOUS SERVICES WERE PROVIDED BY APP ELLANT. ADDITIONAL GROUND OF APPEAL 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, LEARNED DRP OUGHT TO HAVE HELD THAT THE CONSULTING AND ENGINEERING SERVI CE FEE AMOUNTING TO RS.1,20,58,336 IS NOT TAXABLE AS PER THE PROVISIONS OF ARTICLE-13 OF INDI A-UK DOUBLE TAX AVOIDANCE AGREEMENT. 2. WITH RESPECT TO GROUND NO.1, LD. AR SUBMITTED TH AT THE ISSUE IS SQUARELY COVERED IN ASSESSEES FAVOR BY THE DECISIO N OF TRIBUNAL FOR AY 2012-13 IN ASSESSEES OWN CASE VIDE ITA NO. 1296/MU M/2017 ORDER DATED 15/02/2019, A COPY OF WHICH HAS BEEN PLACED ON RECO RD. THE LD. DR COULD NOT CONTROVERT THE SAME BUT RELIED UPON THE ORDERS OF LOWER AUTHORITIES. 3.1 FACTS ON RECORD WOULD REVEAL THAT THE ASSESSEE BEING NON-RESIDENT ASSESSEE STATED TO BE ENGAGED IN PROVIDING ENGINEER ING AND CONSULTANCY SERVICES WAS ASSESSED FOR YEAR UNDER CONSIDERATION VIDE FINAL ASSESSMENT ORDER DATED 23/10/2017 PURSUANT TO THE DIRECTIONS O F LD. DRP, WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.637.19 LACS AS AGAINST NIL RETURN FILED BY THE ASSESSEE ON 30/11/2014. THE ORI GINAL RETURN WAS REVISED TWICE WHEREIN THE ASSESSEE FINALLY DECLARED AN INCO ME OF RS.120.58 LACS ON ACCOUNT OF CONSULTING AND ENGINEERING SERVICES. THE ASSESSMENT WAS FRAMED ON THE BASIS OF LATEST REVISED RETURN FILED BY THE ASSESSEE ON 4 ITA NO.7111/MUM/2017 BURO HAPPOLD LTD. ASSESSMENT YEAR-2014-15 31/03/2016. THE ASSESSEE IS STATED TO BE AN ENTITY REGISTERED IN UK AND ENGAGED IN THE BUSINESS OF PROVIDING ENGINEERING DE SIGN AND CONSULTANCY SERVICES WITH RESPECT TO BUILDINGS. 3.2 INITIALLY, A DRAFT ASSESSMENT ORDER WAS PASSED ON 08/12/2016 AS PER LAW, WHEREIN IT TRANSPIRED THAT THE ASSESSEE WAS IN RECEIPT OF CONSULTING AND ENGINEERING SERVICES OF RS.120.58 LACS FROM VARIOUS ENTITIES. THE SAID SERVICES WERE IN THE FORM OF PROVIDING SKETCH DIAGR AMS AND CONCEPT DESIGN CRITERIA / ASSUMPTIONS BOUND IN A REPORT TO SUPPORT THE ARCHITECTURAL DESIGN. THIS AMOUNT WAS ALREADY OFFERED TO TAX AND THE SAME WAS ACCEPTED BY THE REVENUE. 3.3 IT FURTHER TRANSPIRED THAT THE ASSESSEE WAS IN RECEIPT OF COST RECHARGE OF RS.516.60 LACS FROM ITS ASSOCIATED ENTITY IN IND IA I.E. BURO INDIA TOWARDS VARIOUS COSTS INCURRED. THE SAME WAS NOT OFFERED TO TAX SINCE AS PER ASSESSEES SUBMISSIONS, THESE SERVICES DID NOT MAKE AVAILABLE ANY KNOWLEDGE, SKILL, PROCESS, KNOW-HOW AND EXPERIENCE AS PER THE TERMS OF INDIA-UK DTAA. THESE COSTS WERE STATED TO BE INCURR ED FOR THE BENEFIT OF BURO GROUP AS A WHOLE AND ALLOCATED TO VARIOUS GROU P ENTITIES BASED ON CERTAIN PREDETERMINED COST ALLOCATION KEYS AS PER T HE COST ALLOCATION AGREEMENT. THESE COSTS WOULD, INTER-ALIA, INCLUDE COSTS INCURRED BY THE ASSESSEE IN PROVIDING VARIOUS SERVICES VIZ. IT FUNC TIONS, BUSINESS DEVELOPMENT, FINANCE, HUMAN RESOURCE MANAGEMENT, OP ERATIONS, PROJECT MANAGEMENT FUNCTION, CORPORATE AND COMMERCIAL SERVI CES ETC. IT WAS SUBMITTED THAT THESE SERVICES WOULD QUALIFY AS MANA GERIAL SERVICES AND HENCE NOT COVERED BY ARTICLE 13 OF INDIA-UK DTAA. E VEN, IF THESE SERVICES 5 ITA NO.7111/MUM/2017 BURO HAPPOLD LTD. ASSESSMENT YEAR-2014-15 WERE CONSIDERED TO BE TECHNICAL OR CONSULTANCY SERV ICES, THE SAME WOULD STILL NOT BE COVERED SINCE THESE SERVICES DO NOT MA KE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES TO THE RECIPIENT OF SERVICE. THEREFORE, SUCH SERVICES WOUL D BE CLASSIFIED AS BUSINESS INCOME AND NOT TAXABLE IN INDIA IN THE ABS ENCE OF PERMANENT ESTABLISHMENT (PE) IN INDIA AS PER ARTICLE-7 READ W ITH ARTICLE-5 OF INDIA-UK DTAA. 3.4 HOWEVER, LD. AO FORMED AN OPINION THAT THE INCO ME EARNED BY THE ASSESSEE WAS TAXABLE IN INDIA AS PER SECTION-9 OF T HE ACT AND ARTICLE 13 OF INDIA-UK DTAA BOTH AS ROYALTY AS WELL AS FEES FOR T ECHNICAL SERVICES. SINCE, AS PER THE AGREEMENT, THE ASSESSEE WAS ENTITLED FOR MARK-UP OF 5%, THE SAID RECEIPTS WERE ENHANCED TO THAT EXTENT AND BROU GHT TO TAX. 3.5 AGGRIEVED, THE ASSESSEE RAISED OBJECTIONS AGAIN ST THE PROPOSED ADDITION BEFORE LD. DRP. THE LD. DRP, AFTER CONSIDE RING ASSESSEES SUBMISSIONS, CONFIRMED THE STAND OF LD. AO BY NOTIC ING THAT THE SERVICES BEING RENDERED BY THE ASSESSEE WERE ANCILLARY AND S UBSIDIARY TO THE APPLICATION OR ENJOYMENT OF RIGHT OF THE ASSESSEE I N BRAND USED BY THE BURO- INDIA AND THE PAYMENT WAS ROYALTY IN TERMS OF PARA 3(A) OF ARTICLE-13 OF THE TREATY AND THEREFORE, ITS NATURE WAS THAT OF FEES FOR TECHNICAL SERVICES . AGGRIEVED, THE ASSESSEE IS UNDER APPEAL BEFORE US. 4. UPON PERUSAL OF EARLIER ORDER OF TRIBUNAL IN ASS ESSEES OWN CASE FOR AY 2012-13, IT IS EVIDENT THAT TWO ISSUES WERE UNDE R CONSIDERATION IN THE SAID APPEAL VIZ. (I) TAXABILITY OF CONSULTING & ENG INEERING SERVICES; (II) THE TAXABILITY OF COST RECHARGE WHICH WERE STATED TO BE ANCILLARY AND INCIDENTAL 6 ITA NO.7111/MUM/2017 BURO HAPPOLD LTD. ASSESSMENT YEAR-2014-15 TO CONSULTING & ENGINEERING SERVICES. THE CO-ORDINA TE BENCH, IN PARA-20, HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE ON AC COUNT OF CONSULTING & ENGINEERING SERVICES WERE TO BE TREATED AS BUSINESS PROFIT AND IN THE ABSENCE OF ASSESSEES PE IN INDIA, IT COULD NOT BE BROUGHT TO TAX. CONSEQUENTLY, THE COST RECHARGE WHICH WAS CONSIDERE D TO BE ANCILLARY AND INCIDENTAL TO CONSULTING & ENGINEERING SERVICES, WA S ALSO HELD TO BE NOT TAXABLE IN THE ABSENCE OF ASSESSEES PE IN INDIA. H OWEVER, IN THE YEAR BEFORE US, THE ASSESSEE HAS ALREADY OFFERED THE CON SULTING & ENGINEERING FEES TO TAX WHICH HAS BEEN ACCEPTED BY THE REVENUE. SINCE WE HAVE ADMITTED ADDITIONAL GROUND OF APPEAL ON THIS POINT, THE ISSUE OF TAXABILITY OF CONSULTING & ENGINEERING SERVICES WOULD GO BACK TO LD. AO FOR ADJUDICATION. THEREFORE, LOGICALLY, THE ISSUE OF TAXABILITY OF CO ST RECHARGE, WHICH HAS BEEN TREATED AS ANCILLARY AND INCIDENTAL TO CONSULTING & ENGINEERING SERVICES, WOULD ALSO GO BACK TO LD. AO FOR RE-ADJUDICATION IN THE LIGHT OF STAND TAKEN QUA CONSULTING & ENGINEERING SERVICES. THEREFORE, WE DE EM IT FIT TO RESTORE BOTH THE GROUNDS TO THE FILE OF LD. AO FOR RE-ADJUD ICATION DE-NOVO AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, WHO, IN TURN, IS DIRECTED TO SUBSTANTIATE HIS CLAIM AND DEMONSTRATE THAT THE FACTS IN AY 2012-13 AND IN THE YEAR CONSIDERATION WAS IDENTICAL . NEEDLESS TO ADD THAT THE ADJUDICATION SHALL BE DONE KEEPING IN VIEW THE DECISION RENDERED BY THE TRIBUNAL IN AY 2012-13. 7 ITA NO.7111/MUM/2017 BURO HAPPOLD LTD. ASSESSMENT YEAR-2014-15 5. THE APPEAL STANDS ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH NOVEMBER, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 13/11/2019 SR.PS:-JAISY VARGHESE $% &% / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. * + ' , , , , / DR, ITAT, MUMBAI 6. + -./ / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.