COOPERATIVE CENTRAKE RAIFFEISESN- BORENLEENBANK B.A, MUMBAI V. ADDL CIT LTU, MUMBAI

ITA 8149/MUM/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8446 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 15-12-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 25-11-2010
• Court: TRIBUNAL
• Department Lawyers: JABIR CHOUHAN
• Keywords: Double taxation relief; Permanent establishment
• Section: 5(2); 234B; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.8149/M/2010 (AY 2006 - 2007) M/S. COOPERATIVE CENTRAL RAIFFEISEN BOERENLEENBANK B.A., C/O. B S R & CO. CA, LODHA EXCELUS, 1 ST FLOOR, APOLLO MILLS COMPOUND, N.M. JOSHI MARG, MAHALAKSHMI, MUMBAI - 011. / VS. ASSISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION 1(2), SCINDIA HOUSE, 1 ST FLOOR, N.M. ROAD, BALLARD PIER, MUMBAI 400 038. ./ PAN : AACCC1331M ( / APPELLANT) .. ( / RESPONDENT ) ITA NO.5788/M/2007 (AY 2004 - 2005) ITA NO.6983/M/2011 (AY 2007 - 2008) ITA NO.2428/M/2014 (AY 2008 - 2009) ITA NO.6036/M/2014 (AY 2009 - 2010) DDIT (IT) - 1(2), SCINDIA HOUSE, 1 ST FLOOR, N.M. ROAD, BALLARD PIER, MUMBAI 400 038. / VS. M/S. COOPERATIVE CENTRAL RAIFFEISEN BOERENLEENBANK B.A., C/O. B S R & CO. CA, LODHA EXCELUS, 1 ST FLOOR, APOLLO MILLS COMPOUND, N.M. JOSHI MARG, MAHALAKSHMI, MUMBAI - 011. ./ PAN : AACCC1331M ( / APPELLANT) .. ( / RESPONDENT ) ITA NO.1534/M/2015 (AY 2010 - 2011) DDIT (IT) - 4( 1 )(1 ), SCINDIA HOUSE, 1 ST FLOOR, R.NO. 120, N.M. ROAD, BALLARD PIER, MUMBAI 400 038. / VS. M/S. RABO BANK INTERNATIONAL (FORMERLY KNOWN AS M/S. COOPERATIVE CENTRAL RAIFFEISEN BOERENLEENBANK B.A., C/O. B S R & CO. CA, LODHA EXCELUS, 1 ST FLOOR, APOLLO MILLS COMPOUND, N.M. JOSHI MARG, MAHALAKSHMI, MUMBAI - 011. ./ PAN : AACCC1331M ( / APPELLANT) .. ( / RESPONDENT ) 2 / ASSESSEE BY : SHRI NIRAJ SHETH / REVENUE BY : SHRI JABIR CHOUHAN, CIT - DR / DATE OF HEARING : 30.01.2017 / DATE OF PRONOUNCEMENT : .02.2017 / O R D E R PER BENCH : THERE ARE SIX APPEALS UNDER CONSIDERATION INVOLVING THE ASSESSMENT YEARS 2004 - 05 AND 2006 - 07 TO 2010 - 11. APPEAL FOR THE AY 2006 - 07 IS FILED BY THE ASSESSEE AND ALL OTHER FIVE APPEALS ARE FILED BY THE REVENUE. SINCE, THE ISSUES INVOLVED IN ALL THESE APPEALS ARE COMMON, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWIN G PARAS OF THIS ORDER. 2. THE COMMON ISSUE INVOLVED IN ALL THESE APPEALS RELATES TO THE DECISION OF THE AO IN TREATING THE M/S. RABO IN DIA FINANCE PRIVATE LIMITED AS A PERMANENT ESTABLISHMENT (PE) FOR THE ASSESSEE BANK IN INDIA IN THE RESPECT OF RECEIPTS F OR PROVIDING ADVISORY SERVICES . SPECIFIC TO THE APPEALS FOR THE AYS 2009 - 10 AND 2010 - 11, THERE IS AN ISSUE RELATING TO THE TREATING OF THE GAINS EARNED ON CANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACTS DIFFERENTLY , NOT ACCEPTING THE ASSESSEES CLAIM. FURTHER, AOS FAILURE TO GRANT TDS CREDIT AND LEVY OF INTEREST U/S 234B OF THE ACT ARE SPECIFIC ISSUES RELATING TO THE APPEAL OF THE ASSESSEE FOR THE AY 2006 - 07 . 3. BRIEFLY STATED RELEVANT FACTS COMMON TO ALL THE APPEALS ARE THAT THE ASSESSEE IS A BANK AND RECEIVED PAYMENTS FROM M/S. RABO INDIA FINANCE PRIVATE LIMITED IN CONNECTION WITH PROVIDING ADVISORY SERVICES. SPECIFIC TO THE FIRST ISSUE, IDENTICAL IN ALL THE APPEALS, ASSESSING OFFICER TREATED M/S. RABO INDIA FINANCE PRIVATE LIMITED AS A PE OF THE C OMPANY AND SUBJECTED THE SAID INCOME AS TAXABLE IN INDIA. THE SAID ISSUE WAS THE SUBJECT MATTER OF APPEAL BEFORE THE TRIBUNAL FOR THE AYS 2003 - 04, 2004 - 05 AND 2005 - 06 IN CONNECTION WITH THE APPEALS FILED BY THE REVENUE. ON THIS ISSUE, BEFORE US, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE GROUNDS RAISED IN THE SAID A PPEALS, WHICH CERTAINLY RELATE TO THE PE IN INDIA WITHIN THE MEANING OF ARTICLES 5(1); 5(2); 5(3) AND 5(5) OF DTAA OF INDO - NETHERLAND. F URTHER , 3 LD AR BROUGHT OUR ATTENTION T O PARA 5 OF THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE VIDE APPEAL IT A NOS. 4632/M/2006 (AY 2002 - 03) AND OTHERS AND MEN TIONED THAT AN IDENTICAL ISSUE , RAISED IN THE SAID APPEALS , WAS RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION OF T HE ISSUE RELATING TO M/S. RABO INDIA FINANCE PRIVATE LIMITED AS A PE OF THE ASSESSEE BANK. BEFORE US, LD REPRESENTATIVES OF BOTH THE PARTIES MENTIONED THAT THIS ISSUE NEEDS TO REVISIT THE FILE OF THE AO WITH IDENTICAL DIRECTIONS MENTIONED IN THE SAID ORDE R OF THE TRIBUNAL (SUPRA). 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED DECISION OF THE TRIBUNAL (SUPRA) DATED 01.04.2015. ON PERUSAL OF THE SAID TRIBUNALS ORDER (SUPRA) , WE FIND THE FOLLOWING P ORTION OF PARA 5 OF THE SAME IS RELEVANT A ND THEREFORE, FOR THE SAKE OF COMPLETE NESS OF THIS ORDER RELEVANT LINES FROM THE SAID PARA 5 OF THE TRIBUNALS ORDER (SUPRA) ARE EXTRACTED AS UNDER: - 5...... NOW, WE WOULD TAKE THE OTHER ISSUES RAISED BY THE AO. IN OUR OPINION, FOR ASCERTAIN WHETHER PARTICULAR ARTICLES OF THE AGREEMENT OF THE AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND NETHERLANDS WERE APPLICABLE OR NOT, THE EXACT WORKING OF RI, THE CORRESPONDENCE BETWEEN RI AND THE ASSESSEE AND THE MODE OF THE IR FUNCTIONING AND OPERATIONS WOULD HAVE TO BE EXAMINED IN TOTO. THE QUANTUM OF WORK DONE, THE SERVICES RENDERED, THE CONTRACTS UNDERTAKEN FOR OUTSIDERS WOULD HAVE TO BE EXAMINED TO DETERMINE WHETHER RI WAS AN AGENT HAVING INDEPENDENT STATUS OR WAS HAVE T O BE EXAMINED AND DETERMINE D WHETHER RI WAS AN AGENT HAVING INDEPENDENT STATUS OR WAS MERELY WORKING ON BEHALF OF THE ASSESSEE AS ALLEGED BY THE AO. IN ABSENCE OF SUCH BASIC MATERIAL FACTS, IT IS NOT POSSIBLE TO COME TO A CONCLUSION AS TO WHETHER THE ASSE SSEE HAD PE IN INDIA OR NOT. TH E RE IS NO MATERIAL A VAILABLE ON RECORD TO PROVE AS TO WHETHER RI HAD SIG NIFICANCE INDEPENDENT ACTIVITIES ON ITS OWN OR NOT. THE FAA, WHILE ALLOWING THE APPEAL HAS DEALT WITH THE DTAA AND HELD THAT PROVISIONS OF ARTICLE 5(1), 5(2) OF DTAA OF INDO - NETHERLAND WERE NOT APPLICABLE. BUT, HE HAS NOT DISCUSSED THE ACTUAL WORK AND TH E NATURE OF THE JOB DONE BY THE ASSESSEE FOR RI NOR HAS HE GIVEN THE REASONS AS TO HOW HE ARRIVED AT THE SAID CONCLUSION. IN OUR OPINION , THE ASSERTION THAT ADVISORY ACTIVITIES WERE RENDERED OR THAT GUARANTEE COMMISSION WAS RECEIVED FOR THE JOB OUTSIDE IN DIA OR THAT IT WAS PENDING SERVICES INDEPENDENTLY IN ITSELF - IS NOT SUFFICIENT TO PROVE OR DISPROVE THE CLAIM MADE BY THE ASSESSEE. SUCH A CLAIM HAS TO BE PROVED BY FACTS. THE AGREEMENTS ENTERED INTO BY RI WITH OUTSIDERS AND THE AGREEMENTS ENTERED INTO BY RI WITH THE ASSESSEE HAVE TO BE EXAMINED TO UNDERSTAND THE REAL NATURE OF THE TRANSACTION. IT ALSO APPEARS THAT SOME MATERIAL WAS MADE AVAILABLE TO THE FAA, BUT IT IS FOUND THAT HE DID NOT CALL FOR A REMAND REPORT FROM THE AO IN THAT REGARD. THE ROLE OF EXPATRIATE DIRECTOR DEPUTED TO INDIA HAS NOT BEEN INQUIRED IN TO. WHAT WERE HIS DUTIES AND WHAT FUNCTION ACTUALLY HE HAD PERFORMED, IS NOT KNOWN. SIMILARLY, THE CIRCUMSTANCES IN WHICH GUARANTEE COMMISSION WAS PAID BY RI TO THE ASSESSEE ARE NOT DISCUSSED B Y THE FAA. THE CIRCUMSTANCES, UNDER WHICH RI FOR APPROACHED THE ASSESSEE WHICH ENTITLED IT TO GET ROUGHLY ONE THIRD OF THE COMMISSION, ARE NOT KNOWN. IN SHORT, THE APPEAL HAS BEEN DECIDED BY DISCUSSING THE PRINCIPLES GOVERNING DTAA AND NOT MENTIONING AS TO HOW THOSE 4 PRINCIPLES WERE APPLICABLE TO THE FACTS OF THE CASE. IN OUR OPINION, THE MATTER NEEDS FURTHER INVESTIGATION. THEREFORE, IN THE INTEREST OF JUSTICE, THE MATTER IS RESTORED BACK TO THE FILE OF THE AO TO DETERMINE THE ISSUE AFRESH AFTER AFFORDIN G A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THIRD GROUND OF APPEAL FILED BY THE AO IS ALLOWED IN HIS FAVOUR, IN PART. 5. FROM THE ABOVE, WE FIND, THE GROUNDS AND THE ISSUE RAISED BY THE ASSESSEE IN SAID APPEAL DECIDED BY THE TRIBUNAL VIDE OR DER DATED 01.04.2015 ARE IDENTICAL TO THAT OF THE ONES RAISED IN THE INSTANT APPEALS B Y B O T H R E V E N U E A N D T H E A S S E S S E E . N OTWITHSTANDING THE FACT OF AVAILABILITY OF THE FACTS ON RECORD, WE ARE OF THE OPINION, THE MATTER SHOULD BE REMANDED TO THE FILE OF THE AO WITH IDENTICAL DIRECTIONS. AC CORDINGLY WE ORDER. THUS, RELEVANT GROUNDS RAISED IN ALL THE SIX APPE A LS ARE ALLOWED FOR STATISTICAL PURPOSES. 6. THE ISSUE RELATING TO THE TREATMENT OF CAPITAL GAINS EARNED ON CANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACTS IS COMMON IN BOTH THE APPEA LS OF THE REVENUE F OR THE AYS 2009 - 10 AND 2010 - 11. IN THIS REGARD, WE FIND , THE SAID ISSUE IS NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE FINDING OF THE TRIBUNAL IN THE CASE OF DCIT (IT) VS. M/S. D.B. INTERNATIONAL (ASIA) LTD ( AYS 2005 - 06 AND 2006 - 07 ) IN ITA NOS. 4583/M/2009 AND 2954/M/2010 , DATED 03.10.2012. 7. AFTER HEARING BOTH T HE PARTIES AND ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL (SUPRA) DATED 03.10.2012, WE FIND, THE ISSUE RAISED IN THE SAID APPEAL S OF THE REVENUE FOR TH E AYS 2005 - 06 AND 2006 - 07 IN THE CASE OF M/S. D.B. INTERNATIONAL (ASIA) LTD IS IDENTICAL TO THAT OF THE REVENUES GROUND NO.2 OF ITA NO.6036/M/2014 (AY 2009 - 10) AND GROUND NO.4 OF ITA NO.1534/M/2015 (AY 2010 - 11) IE ASSESSABILITY OF THE GAINS EARNED FROM FO RWARD EXCHANGE CONTRACTS IS SUBJECT TO TAX AS CAPITAL GAINS OR OTHERWISE. THE SAID ISS UE WAS DECIDED BY THE TRIBUNAL I N THE CASE OF M/S. D.B. INTERNATIONAL (ASIA) LTD (SUPRA) IN THE CONTEXT OF INDO - SINGAPORE DTAA. IT IS THE CLAIM OF THE LD AR THAT THE LA NGUAGE OF BOTH THE TREATIES IE DTAA OF INDO - SINGAPORE AND INDO - NETHERLANDS IS IDENTICAL AND THEREFORE, THE ORDER OF THE TRIBUNAL (SUPRA) IS RELEVANT FOR DECIDING THE ISSUE RAISED BEFORE US. 8. ON PERUSAL OF THE PARA 6 OF THE SAID ORDER OF THE TRIBUNAL (SU PRA) DATED 03.10.2012, WE FIND, THE SAME IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE FOLLOWING LINES ARE RELEVANT IN THIS REGARD. 5 6. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD IT IS OBSERVED THAT THE ASSESSEE IS A FI I. THE PURPOSE OF ENTRY INTO FORWARD EXCHANGE CONTRACT IS TO PROVIDE A HEDGING MECHANISM AGAINST ADVERSE FOREIGN EXCHANGE MOVEMENT. THE TRIBUNAL IN THE AFORE NOTED CASES HAS CONSISTENTLY TAKEN A VIEW THAT IN SUCH A SITUATION INCOME OR LOS FROM SUCH TRANS ACTIONS IS TO BE CONSIDERED AS CAPITAL GAIN OR CAPITAL LOSS. NO CONTRARY PRECEDENT HAS BEEN BROUGHT TO OUR NOTICE BY THE LD DR. RESPECTFULLY FOLLOWING THE ABOVE ORDERS, WE UPHOLD THE IMPUGNED ORDER BY HOLDING THAT INCOME ARISING FROM FORWARD EXCHANGE CON TRACT IS ASSESSABLE AS CAPITAL GAIN AND RESULTANTLY THERE CAN BE NO CHARGE TO TAX UNDER THE DTAA. 9. FROM THE ABOVE, WE FIND, THE ISSUE IS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE SAID CASE. HOWEVER, WE FIND, THE AO SHOULD BE DIRECTED TO EXAMINE AND COMPARE THE LANGUAGE OF THE DTAA OF INDIA - NETHERLANDS WITH THAT OF INDIA - SINGAPORE TREATY ALLOWING COMMON GROUND RAISED BY THE REVENUE FOR THE AYS 2009 - 10 AND 2010 - 11. ACCORDINGLY, RELEVANT GROUND S RAISED BY THE REVENUE, IN PRINCIPLE, ARE ALLO WED IN FAVOUR OF THE ASSESSEE AND THEREFORE, IN OUR VIEW THE ORDERS OF THE CIT (A) ARE FAIR AND REASONABLE AND THEY DOES NOT CALL FOR ANY INTERFERENCE. 10. IN CONNECTION WITH THE APPEAL FOR THE AY 2006 - 07 (ITA NO.8149 /M/2010) , ASSESSEE RAISED TWO OTHER I SSUES AND THEY RELATE TO (I) NON - GRANTING OF TH E CREDIT FOR THE TDS AND (II) LEVY OF I NTEREST U/S 234B OF THE ACT. ON THE ISSUE OF NON - GRANT OF CREDIT FOR TDS , LD AR SUBMITTED THAT SINCE THE AO HAS GRANTED THE SAID TDS CREDIT VIDE ORDER DATED 17.02.2016 U /S 154 OF THE ACT, THIS GROUND DOES NOT SURVIVE AND THE SAME MAY BE DISMISSED AS WITHDRAWN . A FTER HEARING BOTH THE PARTIES AND ON PERUSAL O F THE SUBMISSIONS OF THE LD AR AS WELL AS THE AOS ORDER (SUPRA) GRANTING TDS, THE RELEVANT GROUND NO.3 RAISED BY TH E ASSESSEE IS DISMISSED AS WITHDRAWN. 11. SIMILARLY, REGARDING THE ISSUE OF LEVY OF INTEREST U/S 234B OF THE ACT RAISED IN GROUND NO.4 , AFTER HEARING BOTH THE PARTIES, WE FIND, THE SAME SHOULD ALSO BE ALLOWED IN FAVOUR OF THE ASSESSEE CONSIDERING THE BIN DING JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF NGC NETWORK AS IA LLC [2009] 222 CTR 85 (BOM.). THE SAID JUDGMENT IS RELEVANT FOR THE PROPOSITION THAT THE INTEREST UNDER U/S 234B OF THE ACT DOES NOT APPLY TO THE NON - RESIDENTS SINCE TH E ENTIRE AMOUNT OF TAX PAYABLE BY A NON - RESIDENT IS REQUIRED TO BE DEDUCTED AT SOURCE BY THE PAYER OF THE INCOME AND THEREFORE, NO INTEREST U/S 234B OF THE ACT CAN BE LEVIED FOR DEFAULT IN PAYMENT OF ADVANCE TAX. CONSIDERING THE SAME, THE ISSUE RELATING TO THE LEVY OF PENALTY U/S 234B OF THE ACT IS REQUIRED TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, GROUND NO.4 RAISED BY THE ASSESSEE IS ALLOWED. 6 12. CONCLUSIVELY, ALL THE APPEALS OF THE ASSESSEE AS WELL AS THE REVENUE ARE PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUN CED IN THE OPEN COURT ON 2 1 S T FEBRUARY, 2017. S D / - S D / - ( D.T. GARASIA ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 21.02.2017 . . ./ OKK , SR. PS / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI