Cosmic global Ltd., CHENNAI V. ACIT, CHENNAI

ITA 744/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77408 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 27-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Period of limitation; Non-deduction of tax; Bonafide mistake
• Section: 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , ! ' # $ %& , ' $(% $) BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI VIKAS AWASTHY, JUDICIAL MEMBER $! ./ ITA NO. 744/MDS/2014 ' * +* / ASSESSMENT YEAR : 2009-10 M/S COSMIC GLOBAL LTD., NO.3, 1 ST FLOOR, APEX PLAZA, NUNGAMBAKKAM HIGH ROAD, CHENNAI - 600 034. PAN : AAACO 3370 Q V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), CHENNAI - 600 034. (&-/ APPELLANT) (/0&-/ RESPONDENT) &- 1 $ / APPELLANT BY : SHRI B. RAMAKRISHNAN, CA /0&- 1 $ / RESPONDENT BY : SHRI GURU BHASHYAM, JCIT $ 2 1 34 / DATE OF HEARING : 12 TH JUNE, 2014 56+ 1 34 / DATE OF PRONOUNCEMENT : 30 TH JULY, 2014 / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)(C)-II, CHE NNAI, DATED 21.1.2014, FOR THE ASSESSMENT YEAR 2009-10. IN APP EAL, THE ASSESSEE HAS ASSAILED THE FINDINGS OF THE FIRST APP ELLATE AUTHORITY CONFIRMING ADDITION OF ` 2,63,82,202/- UNDER SECTION 40(A)(I) AND 2 I.T.A. NO. 744/MDS/14 INVOKING OF THE PROVISIONS OF SECTION 115JB OF INCO ME-TAX ACT, 1961. 2. THE APPEAL HAS BEEN FILED WITH DELAY OF 5 DAYS. THE LD. AR SUBMITTED THAT THE DELAY IN FILING OF THE APPEAL WA S UNINTENTIONAL. THE DELAY OCCURRED ON ACCOUNT OF MISCALCULATION OF THE PERIOD OF LIMITATION IN FILING OF THE APPEAL. WE ARE SATISFI ED THAT THE DELAY IN FILING OF THE APPEAL IS NOT WILFUL. THE DELAY OCCU RRED DUE TO BONAFIDE MISTAKE AS STATED ABOVE. IN THE INTEREST OF JUSTICE, DELAY OF 5 DAYS IN FILING OF THE APPEAL IS CONDONED AND T HE APPEAL IS ADMITTED TO BE HEARD ON MERITS. 3. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING TRANSLATION SERVICES THROUGH WEB. FOR TH E ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RE TURN OF INCOME ON 29.9.2009 DECLARING TOTAL INCOME OF ` 52,76,148/-. THE GROSS TOTAL INCOME OF THE ASSESSEE WAS ` 2,52,54,656/-. THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 10A OF ` 1,99,78,508/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED TO THE ASSESSEE ON 24.8.2 010. THE ASSESSING OFFICER, VIDE ORDER DATED 19.12.2011, HEL D THAT INSTEAD OF NORMAL PROVISIONS, THE TAX LIABILITY OF THE ASSE SSEE HAS TO BE CALCULATED UNDER THE PROVISIONS OF SECTION 115JB. THE A.O. 3 I.T.A. NO. 744/MDS/14 FURTHER HELD THAT THE ASSESSEE IS PROVIDING TRANSLA TION SERVICES TO ITS CLIENTS. THE ASSESSEE IS ENGAGING SERVICE OF T RANSLATORS FROM OVERSEES, AS WELL AS WITHIN INDIA. IN RESPECT OF F EES FOR TRANSLATION SERVICES PAID TO THE RESIDENTS, THE ASSESSEE IS COM PLYING WITH THE PROVISIONS OF SECTION 194J. IN RESPECT OF TRANSLAT IONS FROM OVERSEES TRANSLATORS, THE ASSESSEE IS NOT DEDUCTING TAX AT SOURCE ON THE PAYMENTS MADE TO THEM. THE A.O. HELD TRANSL ATION SERVICES ARE TECHNICAL IN NATURE AND THE ASSESSEE W AS LIABLE TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS. THE A.O. AC CORDINGLY DISALLOWED THE AMOUNT OF ` 2,63,82,202/-, THAT IS THE PAYMENT MADE TO NON-RESIDENT TRANSLATORS WITHOUT DEDUCTION OF TAX AT SOURCE. AGGRIEVED BY THIS ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE C IT(APPEALS), VIDE HIS IMPUGNED ORDER, UPHELD THE FINDINGS OF THE ASSESSING AUTHORITY AND CONFIRMED THE DISALLOWANCE MADE UNDER SECTION 40(A)(I) OF THE ACT. 4. NOW THE ASSESSEE HAS COME IN SECOND APPEAL ASSAI LING THE ORDER OF THE CIT(APPEALS). SHRI B. RAMAKRISHNA N, CA, APPEARING ON BEHALF OF THE ASSESSEE, SUBMITTED THAT THE AUTHORITIES BELOW HAVE ERRED IN COMING TO THE CONCL USION THAT 4 I.T.A. NO. 744/MDS/14 PAYMENTS MADE FOR TRANSLATION SERVICES ARE IN THE N ATURE OF FEES FOR TECHNICAL SERVICE. THE LD. AR CONTENDED THAT T HE SERVICES RENDERED BY THE ASSESSEE TO ITS CLIENTS ARE NEITHER TECHNICAL NOR MANAGERIAL IN NATURE. THE ASSESSEE IS RECEIVING WO RK ORDER FROM ITS CLIENTS AROUND THE WORLD FOR TRANSLATION OF SCR IPTS FROM ONE LANGUAGE TO AN OTHER. THE ASSESSEE IS GETTING THE T RANSLATIONS DONE FROM TRANSLATORS IN INDIA AND OVERSEAS. THE D ISALLOWANCE MADE UNDER SECTION 40(A)(I) IS WITH RESPECT TO PAYM ENTS MADE TO FOREIGN FREELANCE TRANSLATORS. THE NON-RESIDENT TR ANSLATORS ARE ENGAGED THROUGH INTERNET ON FIRST-CUM-FIRST BASIS, AS WELL AS COMPETITIVE RATES. THEY DO NOT HAVE PERMANENT ESTA BLISHMENT IN INDIA AND THERE IS NO CONTRACT OR AGREEMENT BETWEEN THE ASSESSEE AND THE TRANSLATORS. THERE IS NO BINDING CONDITION THAT THE ASSESSEE WOULD GET THE WORK DONE FROM THEM IN FUTUR E AS WELL. THE SERVICES PROVIDED BY THE TRANSLATORS DO NOT FAL L WITHIN THE AMBIT OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERV ICES. THE TRANSLATORS ARE NOT CONTRIBUTING ANYTHING FROM THEI R OWN SIDE IN THE SCRIPT TO BE TRANSLATED. THEY SIMPLY HAVE TO TRANS LATE THE TEXT FROM ONE LANGUAGE TO THE OTHER. THE LD. A.R. PRAYED FOR SETTING ASIDE THE IMPUGNED ORDER. 5 I.T.A. NO. 744/MDS/14 5. ON THE OTHER HAND, SHRI GURU BHASHYAM, JCIT, REPRESENTING THE DEPARTMENT, VEHEMENTLY SUPPORTED T HE ORDER OF THE CIT(APPEALS). THE LD. DR CONTENTED THAT THE SE RVICES PROVIDED BY THE ASSESSEE ARE HIGHLY SPECIALIZED AND TECHNICAL IN NATURE. THE ASSESSEE HAS BEEN PROVIDING TRANSLATIO N SERVICES IN VARIOUS STREAMS INCLUDING LEGAL, MARKETING, TECHNIC AL, MEDICAL, ETC. THEREFORE THE SERVICES PROVIDED BY THE ASSESSEE HAS BEEN RIGHTLY HELD TO BE TECHNICAL SERVICES AND THE REMUNERATION PAID TO THE TRANSLATORS FOR RENDERING SUCH SERVICES CLEARLY FAL L WITHIN THE MEANING OF FEES FOR TECHNICAL SERVICES. THE ASSE SSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE ON SUCH PAYMENTS IN ACC ORDANCE WITH LAW. THE LD. D.R. PRAYED FOR DISMISSAL OF THE APPEAL OF THE ASSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER HAS M ADE DISALLOWANCE OF ` 2.63 CRORES UNDER SECTION 40(A)(I) ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE ON THE PAYMENTS MADE TO NON- RESIDENT TRANSLATORS. THE AUTHORITIES BELOW HAVE H ELD TRANSLATION SERVICES TO BE TECHNICAL IN NATURE. ON THE OTHER H AND, THE CONTENTION OF THE ASSESSEE IS THAT THE PAYMENT FOR TRANSLATION 6 I.T.A. NO. 744/MDS/14 SERVICES TO NON-RESIDENTS DOES NOT FALL WITHIN THE AMBIT OF FEES FOR TECHNICAL, MANAGERIAL OR CONSULTANCY SERVICES. 7. LET US FIRST UNDERSTAND THE SCOPE OF THE TERM T ECHNICAL SERVICES. THE EXPRESSION TECHNICAL SERVICES HAS NOT BEEN DEFINED ANYWHERE IN THE ACT. HOWEVER, FEES FOR TE CHNICAL SERVICES HAS BEEN DEFINED IN EXPLANATION 2 TO SECT ION 9(1)(VII) OF THE ACT, WHICH READS AS UNDER:- EXPLANATION (2) FOR THE PURPOSES OF THIS CLAUSE, FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCL UDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONN EL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION , ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIP IENT CHARGEABLE UNDER THE HEAD SALARIES 8. THE DICTIONARY MEANING OF THE WORD TECHNICAL A S GIVEN IN OXFORD ENGLISH DICTIONARY IS (1) RELATING TO A PARTICULAR SUBJECT, ART, OR CRAFT, OR ITS TECHNIQUES REQUIRING SPECIAL KNOWLEDGE TO BE UNDERSTOOD; (2) INVOLVING OR CONCERNED WITH APPLIED AND INDUSTRIAL SCIENCES RELATING TO THE OPERATION OF MACHINES; (3) ACCORDING TO A STRICT APPLICATION OR INTERPRETATION OF THE LAW OR RULES . 7 I.T.A. NO. 744/MDS/14 THE CHAMBERS ENGLISH DICTIONARY EXPLAINS THE TERM TECHNICAL AS (1) RELATING TO PRACTICAL SKILL OR APPLIED SCIENCE, ESPECIALLY THOSE SCIENCES USEFUL TO INDUSTRY; (2) RELATING TO A PARTICULAR SUBJECT OR REQUIRING KNOWLEDGE OF PARTICULAR SUBJECT TO BE UNDERSTOOD; (3) ACCORDING TO A STRICT INTERPRETATION OF THE LAW OR RULES; (4) BELONGING OR RELATING TO OR SHOWING A QUALITY OF TECHNIQUE . IN THE PRESENT CASE, THE ASSESSEE IS GETTING THE TR ANSLATION OF THE TEXT FROM ONE LANGUAGE TO ANOTHER. THE ONLY REQUIR EMENT FOR TRANSLATION FROM ONE LANGUAGE TO OTHER IS, THE PROF ICIENCY OF THE TRANSLATORS IN BOTH THE LANGUAGES, I.E. THE LANGUAG E FROM WHICH THE TEXT IS TO BE TRANSLATED, TO THE LANGUAGE IN WHICH IT IS TO BE TRANSLATED. THE TRANSLATOR IS NOT CONTRIBUTION ANY THING MORE TO THE TEXT WHICH IS TO BE TRANSLATED. HE IS NOT SUPPOSED TO EXPLAIN OR ELABORATE THE MEANING OF THE TEXT. APART FROM THE KNOWLEDGE OF THE LANGUAGE, THE TRANSLATOR IS NOT EXPECTED TO HAV E THE KNOWLEDGE OF APPLIED SCIENCE OR THE CRAFT OR THE TE CHNIQUES IN RESPECT OF THE TEXT WHICH IS TO BE TRANSLATED. A B ARE PERUSAL OF EXPLANATION 2 TO SECTION 9(1)(VII), WHICH EXPLAINS FEES FOR TECHNICAL SERVICE AND THE DICTIONARY MEANING OF TH E WORD TECHNICAL MAKES IT UNAMBIGUOUSLY CLEAR THAT TRANS LATION SERVICES 8 I.T.A. NO. 744/MDS/14 RENDERED BY THE ASSESSEE ARE NOT TECHNICAL SERVICES . THEREFORE, THE PAYMENT MADE BY THE ASSESSEE TO THE NON-RESIDEN T TRANSLATORS WOULD NOT FALL WITHIN THE SCOPE OF FEES FOR TECHNI CAL, MANAGERIAL OR CONSULTANCY SERVICE AS DETAILED IN EXPLANATION 2. IN OUR CONSIDERED VIEW, THE CIT(APPEALS) HAS TRAVELLED BEY OND THE DEFINITION OF FEES FOR TECHNICAL SERVICE TO BRING THE TRANSLATION SERVICES WITHIN THE COMPASS OF THE TERM FEES FOR T ECHNICAL SERVICES. 9. IN OUR CONSIDERED OPINION, THE PAYMENTS MADE BY THE ASSESSEE TO NON-RESIDENTS ON ACCOUNT OF TRANSLATION SERVICES DO NOT ATTRACT THE PROVISIONS OF SECTION 194J. THE DI SALLOWANCE MADE UNDER SECTION 40(A)(I) IS THUS DELETED. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 10. THE SECOND ISSUE RAISED BY THE ASSESSEE IN THE APPEAL IS WITH RESPECT TO INVOKING OF THE PROVISIONS OF SECTI ON 115JB. THE LD. A.R. HAS NOT BEEN ABLE TO SUBSTANTIATE AS TO HO W THE AUTHORITIES BELOW HAVE ERRED IN APPLYING THE PROVIS IONS OF SECTION 115JB. THEREFORE THIS GROUND OF APPEAL OF THE ASSE SSEE IS DISMISSED. 9 I.T.A. NO. 744/MDS/14 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED IN THE ABOVE SAID TERMS. ORDER PRONOUNCED ON WEDNESDAY, THE 30 TH OF JULY, 2014 AT CHENNAI. SD/- SD/- ( ... ) ( # $ %& ) (DR. O.K. NARAYANAN) (VIKAS AWASTHY) /VICE-PRESIDENT ' $(% /JUDICIAL MEMBER /CHENNAI, I(! /DATED, THE 30 TH JULY, 2014. KRI. (J 1 /'3K# L#+3 /COPY TO: 1. &- /APPELLANT 2. /0&- /RESPONDENT 3. 2 M3 () /CIT(A)(C)-II, CHENNAI 4. 2 M3 /CIT, CHENNAI-I, CHENNAI 5. # NO /'3' /DR 6. O* P /GF.