ITO, (International taxation)-I, Hyderabad V. Sri Janardhan Pannir, Hyderabad

ITA 721/HYD/2014

• Counselvise Citation: 72122514 RSA 2014
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 22-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Services rendered outside India; Deemed to accrue or arise in india

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 721/HYD/2014 ASSESSMENT YEAR 2010-11 THE INCOME TAX OFFICER (INTERNATIONAL TAXATION)-I, HYDERABAD VS. SRI JANARDHAN PANNIR HYDERABAD PAN: AATPP3608C APPELLANT RESPONDENT APPELLANT BY: SRI RAMAKRISHNA BANDI RESPONDENT BY: SRI V. SIVAKUMAR DATE OF HEARING: 1 0 .1 2 .2014 DATE OF PRONOUNCEMENT: 24. 12.2014 O R D E R PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 31 ST DECEMBER, 2013 FOR ASSESSMENT YEAR 2010-11. 2. FACTS OF THE CASE ARE THAT THE ASSESSEE, AN NRI INDIVIDUAL, FILED HIS RETURN OF INCOME FOR A.Y. 201 0-11 ON 1.4.2011 ADMITTING TOTAL INCOME OF RS. 40,000 AND C LAIMED REFUND OF RS. 9,38,170. THE ASSESSMENT WAS COMPLET ED AT RS. 82,83,860 BY MAKING THE FOLLOWING ADDITIONS: (I) ADDITION OF RS. 81,45,025 AS INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. (II) INTEREST RECEIVED FROM SBI OF RS. 98,835 ITA NO. 721/HYD/2014 SRI JANARDHAN PANNIR ================== 2 3. AS PER THE DETAILS AVAILABLE ON THE RECORD, THE ASSESSEE WAS WORKING AS CONSULTANT CUM INDEPENDENT CONTRACTOR TO PERFORM AS SENIOR DRILLING ENGINEER O R SENIOR OPERATIONS ENGINEER AT NIGERIA (OUTSIDE INDIA) TO A N INDIAN COMPANY I.E., M/S. AJAPA INTEGRATED PROJECT MANAGEM ENT CONSULTANT PVT. LTD., CHENNAI. EVEN THOUGH, THE SER VICES RENDERED OUTSIDE THE INDIA, BUT THE SERVICES WERE U TILIZED FOR THE INDIAN COMPANY. MOREOVER, THE AO HELD THAT THE ASSESSEE ALSO RECEIVED THE AMOUNTS IN INDIAN CURREN CY AND ALSO IN INDIA ONLY. 4. THE AO OBSERVED THAT, FROM A COMBINED READING OF CLAUSE (VII)B AND EXPLANATION 2, IT IS CLEAR THAT A NY CONSIDERATION, WHETHER LUMP SUM OR OTHERWISE, PAID BY A PERSON WHO IS RESIDENT IN INDIA TO A NON-RESIDENT F OR RENDERING ANY MANAGERIAL OR TECHNICAL OR CONSULTANC Y SERVICE WOULD BE INCOME BY WAY OF FEES FOR TECHNICA L SERVICES AND WOULD, THEREFORE, BE WITHIN THE AMBIT OF 'INCOME DEEMED TO BE ACCRUED OR ARISE IN INDIA'. IT IS TO BE NOTED THAT UNDER SEC. 9(1)(VII)(B) THE EXPRESSION U SED IS FEES FOR SERVICES UTILIZED IN INDIA AND NOT THE EXP RESSION FEE FOR SERVICES RENDERED IN INDIA. 5. THE AO FURTHER OBSERVED THAT IN THE CASE OF ELKEM TECHNOLOGY VS DCIT (2001) 250 ITR 164 (AP), IT WAS HELD THAT UNDER SECTION 9(1)(VII)(B), THE EXPRESSION USE D IS FEES FOR SERVICES UTILIZED IN INDIA AND NOT THE EXPRESSI ON 'FEES FOR SERVICES RENDERED IN INDIA'. IF THE FEES ARE P AID FOR SERVICES UTILIZED BY THE INDIAN COMPANY IN ITS BUSI NESS CARRIED ON BY IT IN INDIA, IRRESPECTIVE OF THE PLAC E WHERE THE SERVICES WERE RENDERED, THE AMOUNTS OF THE FEES SHO ULD BE DEEMED TO ACCRUE OR ARISE IN INDIA. ITA NO. 721/HYD/2014 SRI JANARDHAN PANNIR ================== 3 6. BASING/RELYING ON THE CASES, ELKEM TECHNOLOGY V. DY CIT (250 ITR 0164) AND ALSO IN RE SOUTH WEST MIN ING LTD.,(278 ITR 0233), THE AO CONCLUDED THAT IT CAN B E UNDERSTOOD THAT IRRESPECTIVE OF THE PLACE WHERE THE SERVICES WERE RENDERED, THE SERVICES UTILIZED AND I NCOME DEEMED TO ACCRUE AND ARISE IS MAIN CRITERIA FOR TAX ABLE INCOME. 7. IT WAS POINTED OUT BY THE AO THAT IN THIS CASE, THE COMPANY M/S. AJAPA INTEGRATED PROJECT MANAGEMENT CONSULTANT PVT. LTD., PAID THE AMOUNTS TOWARDS FEE FOR TECHNICAL SERVICES AND THE SERVICES UTILIZED BY THE INDIAN COMPANY IN ITS BUSINESS CARRIED ON BY IT IN INDIA. IRRESPECTIVE OF THE PLACE WHERE THE SERVICES WERE RENDERED AND THE AMOUNTS RECEIVED, TOWARDS FEE FOR TECHNICAL SERVICES SHOULD BE DEEMED TO ACCRUE OR AR ISE IN INDIA. 8. THE AO HELD AS FOLLOWS: AS PER AN AMENDMENT TO SEC. 9 TO THE FINANCE BILL, 2010 STATES AS UNDER: 'IN ORDER TO REMOVE ANY DOUBT ABOUT THE LEGISLATIVE INTENT OF THE AFORESAID SOURCE RULE IT IS PROPOSED TO SUBSTITUTE THE EXISTING EXPLANATION WITH A NEW EXPLANATION TO SPECIFICALLY STATE THAT THE INCOME OF NON- RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB SECTION (1) OF SECTION 9 AND SHALL BE INCLUDED IN HIS TOTAL INCOME, WHETHER OR NOT, A) THE NON-RESIDENT HAS A RESIDENCE OR A PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR B) THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA. THIS AMENDMENT IS PROPOSED TO TAKE EFFECT RETROSPECTIVELY FROM 1ST JUNE, 1976 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 1977-78 AND SUBSEQUENT YEARS.' ITA NO. 721/HYD/2014 SRI JANARDHAN PANNIR ================== 4 FROM THE ABOVE AMENDMENT ALSO TAXABILITY OF THE ASSESSEE INCOME WILL BE DETERMINED ON THE BASIS OF INCOME ARISING AND ACCRUING. AS PER THE AGREEMENT ENTERED WITH M/S AJAPA INTEGRATED PROJECT MANAGEMENT CONSULTANT PVT. LTD., CHENNAI, THE ASSESSEE WAS WORKING AT NIGERIA, I.E., OUTSIDE INDIA, HOWEVER THE ASSESSEE RECEIVED THE CONTRACT AMOUNTS/ INCOME IN INDIA IN INDIAN RUPEES AND FROM INDIAN COMPANY ONLY. AS PER THE AGREEMENT THE ASSESSEE WAS EXERCISED HIS CONTRACT WORK OUTSIDE THE COUNTRY, HOWEVER THE ASSESSEE RECEIVED THE AMOUNT IN INDIA ONLY, FOR HIS WORK AS CONSULTANT TO PERFORM AS SENIOR DRILLING ENGINEER OR SENIOR OPERATIONS ENGINEER. THE INCOME AROSE AND ACCRUED FROM INDIAN COMPANY AND HIS SERVICES WERE ALSO UTILIZED FOR INDIAN COMPANY. IN VIEW OF THIS THE ASSESSEE INCOME ALSO TAXABLE IN INDIA ONLY. 9. DURING THE APPEAL PROCEEDINGS, THE APPELLANT SUBMITTED AS UNDER: 'CONSULTING FEE RECEIVED IN NIGERIA: THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 01- 04-2009 WITH A COMPANY NAMED M/S.AJAPA INTEGRATED PROJECT MANAGEMENT CONSULTANT PVT.LTD, CHENNAI. AS PER THIS AGREEMENT, THE ASSESSEE WAS ENGAGED TO RENDER INDEPENDENT CONSULTANT SERVICES IN NIGERIA. THE ASSESSEE CLAIMED THAT AN AMOUNT OF RS. 81,45,025/- RECEIVED TOWARDS CONSULTANCY SERVICE FEE FOR SERVICE RENDERED IN NIGERIA WAS EXEMPT U/S. 9(I)(VII)(B) OF THE I. T ACT. HOWEVER, THE AO WAS OF THE VIEW THAT THOUGH THE SERVICES OF THE ASSESSEE WERE RENDERED OUTSIDE INDIA, THE SERVICES WERE UTILISED FOR THE INDIAN COMPANY. THE A. A ALSO, MISTAKENLY, CONCLUDED THAT THE ASSESSEE RECEIVED THE IMPUGNED AMOUNT IN INDIA AND ALSO IN INDIAN CURRENCY. THE AO MADE ADDITION OF RS. 81,45,025/-. THE ASSESSEE SUBMITS HEREWITH A COPY OF BANK ACCOUNT MAINTAINED OUTSIDE INDIA SHOWING CREDIT OF HIS EARNINGS IN DOLLARS. (ANNEXURE A). IN THIS CONNECTION THE ASSESSEE SUBMITS THAT ITA NO. 721/HYD/2014 SRI JANARDHAN PANNIR ================== 5 CONSULTANCY FEES PAID TO CONSULTANTS WHO CARRIED ON CONSULTANCY SERVICES IN NIGERIA IS NOT TAXABLE BECAUSE THE SAME IS COVERED BY THE EXCEPTION IN SEC. 9(I)(VII)(B) OF THE I.T ACT, '61. THIS ISSUE HAS BEEN DECIDED BY THE HON'BLE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, CHENNAI IN THE CASE OF M/S. AJAPA INTEGRATED PROJECT MANAGEMENT CONSULTANTS (P) LTD., FOR THE ASST. YEAR 2007-08. THE SAID DECISION IS REPORTED IN 16 TAXMANN.COM 269 CHENNAI. A COPY OF THE SAME HAS ALREADY BEEN FILED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) DURING THE COURSE OF HEARING ON 12- 12-13. THE ISSUE AGAIN CAME UP FOR CONSIDERATION IN THE CASE OF THE SAME ASSESSEE FOR ASST. YEAR 2008-09 AND THE HON'BLE ITAT 'A 11 BENCH, CHENNAI, FOLLOWING THE EARLIER DECISION IN THE SAME CASE(SUPRA) HELD THAT IN RESPECT OF PAYMENTS MADE BY M/S. AJAPA INTEGRATED PROJECT MANAGEMENT CONSULTANTS (P) LTD., TO NON-RESIDENTS, DISALLOWANCE CANNOT BE MADE U/S. 40(A)(I) FOR THE REASON THAT THE INCOME IS NOT TAXABLE IN THE HANDS OF THE NON-RESIDENTS WHO RENDERED SERVICES ABROAD VIDE PARAGRAPH 18 IN THE ORDER OF THE ITAT REPORTED IN 24 TAXMANAN.COM 116 CHENNAI. THE NAME OF THE ASSESSEE WHO IS ONE OF SUCH CONSULTANTS APPEARS IN PARAGRAPH 18 OF THE SAID ITAT ORDER. A COPY OF THIS ORDER HAS ALSO BEEN FILED BEFORE THE COMMISSIONER OF INCOME TAX(APPEALS) DURING THE COURSE OF HEARING ON 12-12-13. THE ITAT CHENNAI BENCH HELD SIMILARLY IN THE CASE OF MAHINDRA HOLIDAYS AND RESORTS INDIA LTD., VS JCIT, 38 TAXMANN.COM 207 CHENNAI. A COPY OF THE SAID DECISION HAS ALSO BEEN FILED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) DURING THE COURSE OF HEARING ON 12- 12-13. THE ASSESSEE HUMBLY SUBMITS THAT IN THE LIGHT OF THE RATIO OF THE AFOREMENTIONED CASES, THE ASSESSING OFFICER IS NOT CORRECT IN BRINGING TO TAX THE AMOUNT OF RS. 81,45,025/- IN THE HANDS OF THE ASSESSEE. THE ASSESSEE PRAYS THAT THE ADDITION MADE BY ASSESSING OFFICER MAY BE DIRECTED TO BE DELETED.' ITA NO. 721/HYD/2014 SRI JANARDHAN PANNIR ================== 6 10. THE CIT(A) OBSERVED THAT AS PER THE AGREEMENT WITH M/S AJAPA INTEGRATED PROJECT MANAGEMENT CONSULTANT LIMITED, CHENNAI, THE APPELLANT RENDERED CONSULTANT SERVICES OUTSIDE INDIA I.E. IN NIGERIA AND RECEIVED THE AMOUNT OF RS. 81,45,025 AND CLAIMED EXEMPTION U/S 9(1)(VII)(B) OF THE ACT. THE CIT(A) FURTHER OBSERVE D THAT THE AO MAINLY DISALLOWED THE SAME HOLDING THAT THOUGH T HE SERVICES OF THE ASSESSEE WERE RENDERED OUTSIDE INDI A, THE SERVICES WERE UTILIZED FOR THE INDIAN COMPANY AND T HE AMOUNT OF RS. 81,45,025 WAS RECEIVED IN INDIAN CURR ENCY. 11. THE CIT(A) OBSERVED THAT THE OBSERVATION OF THE AO THAT THOUGH THE SERVICES OF THE ASSESSEE WERE RENDE RED OUTSIDE INDIA, THE SERVICES WERE UTILIZED FOR THE I NDIAN COMPANY IS NOT CORRECT SINCE THE EXCEPTION PROVIDED IN SECTION 9(1)(VII)(B) OF THE ACT NOWHERE SPECIFIES T HE SAME BUT CLAUSE (VII) ONLY STATES THAT INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY - (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FEES ARE PAYABLE IN RESP ECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRI ED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MA KING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA'. THE ASSESSEE IN THIS CASE UNAMBIGUOUSLY FULFILS THE TWI N CONDITIONS LAID DOWN IN SECTION 9( L)(VII)(B), AS P ER THE AGREEMENT WITH M/S AJAPA INTEGRATED PROJECT MANAGEM ENT CONSULTANT LIMITED, HE RENDERED THE CONSULTANCY SER VICES OUTSIDE INDIA I.E., NIGERIA IN THE CAPACITY OF SENI OR DRILLING ENGINEER OR SENIOR OPERATIONS ENGINEER AND EARNED INCOME OF RS. 81,45,025 FROM NIGERIA I.E., THE SOUR CE OUTSIDE INDIA. ITA NO. 721/HYD/2014 SRI JANARDHAN PANNIR ================== 7 12. THE CIT(A) OBSERVED THAT THE OBSERVATION OF THE AO THAT THE ASSESSEE RECEIVED THE AMOUNTS IN INDIAN CU RRENCY AND ALSO IN INDIA IS ALSO FACTUALLY NOT CORRECT SIN CE THE ASSESSEE RECEIVED THE INCOME IN FOREIGN CURRENCY I. E. US DOLLARS FROM NIGERIA, WHICH IS CLEARLY REFLECTED IN THE STATEMENT OF ACCOUNT FOR THE PERIOD 1.4.2009 TO 31. 3.2010, SUBMITTED BY THE ASSESSEE. 13. THE CIT(A) AFTER CAREFULLY CONSIDERING THE DECISION OF M/S. AJAPA INTEGRATED PROJECT MANAGEMENT CONSULTANT PVT. LTD., CHENNAI (24 TAXMANN.COM 16) (CHENNAI) HELD TH AT THE ASSESSEE ENTERED INTO AGREEMENT TO RENDER CONSULTAN CY SERVICES OUTSIDE INDIA I.E., NIGERIA AND RECEIVED CONSULTANCY CHARGES WHICH IS CLEARLY EXEMPT UNDER EXCEPTION IN SECTION 9(1)(VII)(B) OF THE ACT. THE CIT(A) ALSO CONSIDERED THE DECISION IN CASE OF MAHINDRA HOLIDAY S & RESORTS (38 TAXMANN.COM 207) (CHENNAI) AND STATED T HAT THE DECISION RELATES TO COMMISSION PAID TO NON-RESI DENTS FOR SERVICES RENDERED OUTSIDE INDIA AND DOES NOT AC CRUE OR ARISE IN INDIA AND HENCE NOT LIABLE TO TAXES. ALSO NO TDS WAS DEDUCTIBLE FROM SUCH COMMISSION AND ALSO EVEN I F SERVICES RENDERED BY THE FRANCHISEE FALLS WITHIN TH E DEFINITION OF 'FEES FOR TECHNICAL SERVICES', THE CO MMISSION PAID WOULD NOT BE TAXABLE IN INDIA AS IT IS EXEMPT BY CLAUSE (B) OF SECTION 9(1)(VII). THE CIT(A) FOLLOWING THE TWO DECISIONS VIZ., M/S. AJAPA INTEGRATED PROJECT MANAG EMENT CONSULTANT PVT. LTD. (SUPRA) AND MAHINDRA HOLIDAYS AND RESORTS (SUPRA) HELD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE CONSULTANCY CHARGES OF RS. 81,45,02 5 RECEIVED BY THE ASSESSEE FOR RENDERING SERVICES OUT SIDE INDIA I.E., NIGERIA AND ACCORDINGLY DELETED THE ADD ITION. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. ITA NO. 721/HYD/2014 SRI JANARDHAN PANNIR ================== 8 14. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT THE ASSESSEE HAS SUBMITTED COPY OF BANK ACCOUNT MAINTAI NED OUTSIDE INDIA SHOWING CREDIT OF HIS EARNINGS IN DOL LARS. WE ALSO NOTE THAT THE SAME ISSUE CAME UP FOR CONSIDERA TION IN CASE OF THE ASSESSEE FOR A.Y. 2008-09 AND THE HONB LE ITAT 'A' BENCH, CHENNAI FOLLOWING ITS EARLIER DECISION R EPORTED AT 16 TAXMANN.COM 269 (CHENNAI) HELD THAT IN RESPEC T OF PAYMENTS MADE BY M/S. AJAPA INTEGRATED PROJECT MANAGEMENT CONSULTANCY PVT. LTD. TO NON-RESIDENTS, DISALLOWANCE CANNOT BE MADE U/S. 40A(1) FOR THE REA SON THAT INCOME IS TAXABLE IN THE HANDS OF THE NON-RESI DENTS WHO RENDERED SERVICES ABROAD VIDE PARAGRAPH 18 IN T HE ORDER OF THE ITAT REPORTED IN 24 TAXMANN.COM 116 (CHENNAI). WE ALSO NOTE THAT THE CLAIM OF THE ASSE SSEE WHO IS ONE OF SUCH CONSULTANTS APPEARS IN PARAGRAPH 18 OF THE SAID ITAT ORDER REPORTED AT 24 TAXMANN.COM 116. SI MILAR VIEW HAS BEEN TAKEN BY ITAT CHENNAI BENCH IN THE CA SE OF MAHINDRA HOLIDAYS & RESORTS INDIA LTD. VS. JCIT (38 TAXMANN.COM 207) (CHENNAI). 15. THEREFORE, IN THE LIGHT OF THE RATIO OF AFOREMENTIO NED CASES, IN OUR OPINION, THE AO IS NOT CORRECT IN BRI NGING TO TAX THE AMOUNT OF RS. 81,45,025 IN THE HANDS OF THE ASSESSEE. HENCE, THE ADDITION MADE BY THE ASSESSIN G OFFICER IS DIRECTED TO BE DELETED. 16. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 24 TH DECEMBER, 2014. SD/ - (P.M. JAGTAP) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED 24 TH DECEMBER, 2014 TPRAO ITA NO. 721/HYD/2014 SRI JANARDHAN PANNIR ================== 9 COPY FORWARDED TO: 1. THE INCOME TAX OFFICER, ROOM NO. 347, 'D' BLOCK, 3 RD FLOOR, IT TOWERS, AC GUARDS, HYDERABAD. 2. SRI JANARDHAN PANNIR, H. NO. 93, JALAVAYU VIHAR, KUKATPALLY, HYDERABAD. 3. THE CIT(A) - V , HYDERABAD . 4. THE D IT (INT. TAX) , HYDERABAD . 5. THE DR 'A' BENCH, ITAT, HYDERABAD