FEDEREAL EXPRESS CORPORATION INDIAN BRANCH OFFICE, MUMBAI V. ADDL DIT (IT) 3, MUMBAI

ITA 7523/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100980 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 05-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 20-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JASBIR CHA UHAN
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER. ITA NO.7523 /MUM/2012 (ASSESSMENT YEAR : 2009-10) FEDERAL EXPRESS CORPORATION, 801, A-WING, BOOMERANG, CHANDIVALI FARM ROAD, NEAR CHANDIVALI STUDIO, ANDHERI (EAST), MUMBAI 400072 PAN: AAACF 4135E ... APPELLANT VS. THE ADDL.DIT (IT)-3, FIRST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, MUMBAI 400 001. .... RESPONDENT APPELLANT BY : SHRI KANCHAN KAUSHAL/ SHRI ALIASGER RAMPURAWALA RESPONDENT BY : SHRI JASBIR CHA UHAN DATE OF HEARING : 09/09/2015 DATE OF PRONOUNCEMENT : 09/09/2015 ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER PASSED BY ASSESSING OFFICER DATED 22/10/2012 UNDER SECTION 143(3) R.W.S. 144 OF THE ACT(IN SHORT THE ACT) PERTAININ G TO THE ASSESSMENT YEAR 2006-07, WHICH IN TURN HAS BEEN PASSED IN ACC ORDANCE WITH THE DIRECTIONS OF THE DRP-I, MUMBAI DATED 25/09/2012. 2 ITA NO.7523 /MUM/2012 (ASSESSMENT YEAR : 2009-10) 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE APPELLANT RESPECTFULLY SUBMITS THAT THE DISPUTE RESOLUTION PANEL (,DRP') A ND THE LEARNED ADDITIONAL DIRECTOR OF INCOME-TAX, RANGE - 3 ('LEARNED ASSESSI NG OFFICER') ERRED ON THE FOLLOWING GROUNDS: 1. IN ARBITRARILY ENHANCING THE RATIO OF COMMERCIA L LINEHAUL CHARGES ('CLC') TO TOTAL LINEHAUL CHARGES (TLC'), USED FOR COMPUTIN G THE REVENUE AND CONSEQUENTLY THE INCOME ASSOCIATED WITH TRANSPORTAT ION THROUGH THIRD PARTY AIRLINES, FROM 4.17 PERCENT (AS SUBMITTED BY THE AP PELLANT) TO 10 PERCENT, WITHOUT ANY COGNIZANT AND SUFFICIENT REASONS AND CO NSEQUENTLY ENHANCING THE INCOME ASSOCIATED WITH TRANSPORTATION OF CARGO THROUGH THIRD PARTY AIRLINES. 2. NOT TAKING COGNIZANCE OF THE RATIO IN THE RESOL UTION PROPOSED TO BE REACHED BETWEEN THE COMPETENT AUTHORITIES ('CAS') O F UNITED STATES ('US') AND INDIA FOR AYS 2007-08 AND 2008-09 UNDER THE PRO VISIONS OF ARTICLE 27 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN IND IA AND USA ('INDIA- USA TAX TREATY') IN DETERMINING THE RATIO OF CLC TO TLC. 3. IN DISREGARDING THE PROFITABILITY RATE FOR THE 1 0 MONTH PERIOD PERTAINING TO THE RELEVANT FY DETERMINED BY THE APPELLANT BASED O N GLOBAL FINANCIALS (IE 3.3 PERCENT) AND UNDER SUPPORT OF THE PROVISIONS OF RULE 10 OF THE INCOME- TAX RULES, 1962 (THE 'RULES') AND INSTEAD CONSIDERI NG A PROFITABILITY RATE OF 5.5 PERCENT COMPUTED AS UNDER: - CONSIDERING THE PRO RATA PROFITABILITY RATE OF 4. 02 PERCENT SUBMITTED BY THE APPELLANT; AND - ENHANCING THE ABOVE RATE OF 4.02 PERCENT BY 1.2 P ERCENT ON ACCOUNT OF DISALLOWANCE OF 'IMPAIRMENT AND OTHER CHARGES' BASE D ON THE APPELLANT'S ANNUAL REPORT. 4. NOT TAKING COGNIZANCE OF THE PROFITABILITY RATE IN THE RESOLUTION PROPOSED TO BE REACHED BETWEEN THE CAS OF US AND INDIA FOR A YS 2007-08 AND 2008-09 UNDER THE PROVISIONS OF ARTICLE 27 OF THE INDIA-USA TAX TREATY IN DETERMINING THE PROFITABILITY RATE APPLICABLE TO THE TAXABLE IN DIA REVENUES. 3. IN BRIEF, THE RELEVANT FACTS ARE THAT THE APPELL ANT IS A COMPANY INCORPORATED UNDER THE LAWS OF THE UNITED STATES OF AMERICA AND ENGAGED IN THE INTEGRATED AIR AND GROUND TRANSPORTA TION OF TIME- SENSITIVE AND TIME-DEFINITIVE SHIPMENTS TO VARIOUS DESTINATIONS AROUND THE WORLD AND PROVIDES DOOR-TO-DOOR DELIVERY SERVIC ES FOR INTERNATIONAL 3 ITA NO.7523 /MUM/2012 (ASSESSMENT YEAR : 2009-10) SHIPMENTS. THE ASSESSEE FILED ITS RETURN OF INCOM E ON 30/09/2009 SHOWING NIL INCOME, WHEREAS IN THE SCRUTINY ASSES SMENT FINALIZED UNDER SECTION 143(3) OF THE ACT, THE TOTAL INCOME HAS BEEN ASSESSED AT RS.2,49,93,795/-. 3.1 AS THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REVEAL, THE BONE OF CONTENTION BETWEEN THE ASSESSEE AND THE REVENUE PRIMARILY RELATES TO THE DETERMINATION OF INCOME ATTRIBUTABLE TO THE THIRD PARTY AIRCRAFTS USED BY THE ASSESSEE IN ITS ACTIVITIES. PERTINEN TLY, THE ASSESSEE CARRIES ON THE BUSINESS OF AIR AND GROUND TRANSPORTATION O F ITS SHIPMENTS TO VARIOUS DESTINATIONS ACROSS THE WORLD UTILIZING ITS OWN AS WELL AS THIRD PARTY AIRCRAFTS. IN ITS RETURN OF INCOME, ASSESSEE HAD CLAIMED THAT ITS INCOME WAS ELIGIBLE FOR THE BENEFITS OF ARTICLE-8 O F THE INDO-US TAX TREATY AND, THEREFORE, ENTIRE INCOME WAS CLAIMED EX EMPT. HOWEVER, THE ASSESSING OFFICER DIFFERED WITH THE ASSESSEE IN AS MUCH AS ACCORDING TO HIM, THE ACTIVITY OF TRANSPORTATION OF CARGO IN THE INTERNATIONAL TRAFFIC THROUGH AIRCRAFTS OWNED BY THIRD PARTIES WOULD BE O UTSIDE THE SCOPE OF THE ARTICLE-8 OF THE INDO-US TAX TREATY AND, THUS, SUCH INCOME WAS LIABLE TO BE TAXED. BEFORE THE ASSESSING OFFICER, ON A WITHOUT PREJUDICE BASIS, THE ASSESSEE COMPANY SUBMITTED A FORMULA FOR DETERMINING THE INCOME IN RELATION TO THE USAGE OF THIRD PARTY AIRC RAFTS. THE ASSESSING OFFICER DID NOT ACCEPT THE SAID FORMULA AND INSTEAD APPLIED A DIFFERENT METHODOLOGY TO COMPUTE INCOME ATTRIBUTABLE TO THE U SAGE OF THIRD PARTY AIRCRAFTS. 4. BEFORE US, THE LD. REPRESENTATIVE APPEARING FOR THE ASSESSEE EXPLAINED THAT THOUGH ASSESSEE WAS OBJECTING TO THE INTERPRETATION PLACED BY THE ASSESSING OFFICER ON ARTICLE-8 OF THE INDO-US TAX TREATY TO 4 ITA NO.7523 /MUM/2012 (ASSESSMENT YEAR : 2009-10) DENY ITS BENEFITS IN THE CONTEXT OF THE INCOME AT TRIBUTABLE TO THE USAGE OF THIRD PARTY AIRCRAFTS, BUT THE ALTERNATE PLEA RELATING TO THE MANNER OF DETERMINATION OF SUCH INCOME BE CONSIDERED AT TH E THRESH-HOLD. IT IS CONTENDED THAT ON THIS ASPECT THE MATTER IS NOW SE TTLED IN TERMS OF A MUTUAL AGREEMENT PROCEDURE(MAP) RESOLUTIONS PASSED BY THE RESPECTIVE COMPETENT AUTHORITIES OF USA AND INDIA VIDE ORDERS DATED 8/8/2012 AND 30/11/2012 RESPECTIVELY, COPIES OF WHI CH HAVE BEEN PLACED IN THE PAPER BOOK AT PAGES 3 TO 7. THE LD. REPRESENTATIVE APPEARING FOR THE ASSESSEE ALSO EXPLAINED THAT SUBS EQUENT TO THE AFORESAID MAP RESOLUTIONS, THE ASSESSING OFFICER HA S PASSED CONFIRMATORY ORDERS OF ASSESSMENT FOR ASSESSMENT YE ARS 2007-08 AND 2008-09 AS WELL AS FOR 2010-11 TO 2012-13 FOR ATTRI BUTION OF PROFITS RELATING TO USAGE OF THIRD PARTY AIRCRAFTS. IT WAS , THEREFORE, CONTENDED THAT THE APPELLANT WOULD BE SATISFIED FOR THE PRESE NT, IF THE INCOME ATTRIBUTABLE TO THE USAGE OF THIRD PARTY AIRCRAFTS IS ASSESSED IN TERMS OF THE MAP RESOLUTIONS, WHICH HAVE BEEN APPLIED BY THE ASSESSING OFFICER IN OTHER ASSESSMENT YEARS ALSO. 5. LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS NOT CONTROVERTED THE FACTUAL MATRIX ASSERTED BY LD. REP RESENTATIVE APPEARING FOR THE ASSESSEE AND HAS ALSO NOT OPPOSE D THE PRAYER OF THE ASSESSEE SEEKING DETERMINATION OF IMPUGNED INCOME B Y APPLICATION OF THE MAP RESOLUTIONS. 6. HAVING CONSIDERED THE RIVAL STAND ON THE SHORT I SSUE ARISING AS A CONSEQUENCE OF THE MAP RESOLUTIONS(SUPRA), WE CONSI DER IT FIT AND PROPER TO SET ASIDE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER, WHO SHALL RE-DETERMINE THE INCOME ATTRIBUTABLE TO THE U SAGE OF THE THIRD 5 ITA NO.7523 /MUM/2012 (ASSESSMENT YEAR : 2009-10) PARTY AIRCRAFTS IN ACCORDANCE WITH THE MAP RESOLUTI ONS(SUPRA) AND ALSO IN CONSONANCE WITH THE EFFECT GIVEN TO SUCH RESOLUT IONS IN OTHER ASSESSMENT YEARS OF 2007-08, 2008-09 AND 2010-11 TO 2012-13, AS POINTED OUT BY THE LD. REPRESENTATIVE APPEARING FOR THE ASSESSEE. NEEDLESS TO MENTION, THE ASSESSING OFFICER SHALL AL LOW THE ASSESSEE AN APPROPRIATE OPPORTUNITY OF BEING HEARD AND ONLY, TH EREAFTER PASS AN ORDER AFRESH IN CONFORMITY WITH THE MAP RESOLUTIONS (SUPRA). 7. THE CAPTIONED APPEAL OF THE ASSESSEE IS ACCORDIN GLY DISPOSED OF BY ADVERTING TO THE AFORESAID PRELIMINARY ISSUE, WI THOUT GOING INTO THE MERITS OF THE INDIVIDUAL GROUNDS OF APPEAL RAISED B EFORE US. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED , AS ABOVE. ABOVE DECISION WAS PRONOUNCED IN THE OPEN COURT AT THE CONCLUSION OF THE HEARING IN THE PRESENCE OF BOTH T HE PARTIES ON 09/09/2015. SD/- SD/- (PAWAN SINGH) (G.S.PANNU) JUDICIAL MEMBER ACCOUNTNAT MEMBER MUMBAI, DATED 09/09/2015 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBA I