Appeal details
Counselvise Citation
[2019] 115 COUNSELVISE.COM (IT) 6709 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 8 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-10-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
G
Next Hearing Date
26-04-2017
Assessment Year
2009-2010
Appeal Filed On
14-02-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 851/DEL./2014 : ASSTT. YEAR : 2009-10 M/S SABIC INNOVATIVE PLASTICS US, LLC, C/O SABIC INNOVATIVE PLASTICS INDIA PVT. LTD., 9 TH FLOOR, TOWER B, BUILDING NO.9, DLF CYBER CITY, PHASE-III, DISTRICT GURGAON-122002, HARYANA VS DEPUTY DIRECTOR OF INCOME TAX, CIRCLE-2(2), INTL. TAXATION, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A AMCS9039C ASSESSEE BY : SH. NAGESWAR RAO, ADV. REVENUE BY : SH. G. K. DHALL, CIT DR DATE OF HEAR ING: 23 . 09 .201 9 DATE OF PRONOUNCEMENT: 30 .10 .201 9 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 16.12.2013 PASSED BY THE AO U/S 143 (3) R.W.S. 144C OF THE INCOME TAX ACT, 1961. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. THE AO/DRP HAVE ERRED ON FACTS AND IN LAW IN CONCLUDING THAT THE REIMBURSEMENTS OF ALLOCATED COS TS RECEIVED BY THE NON-RESIDENT APPELLANT UNDER THE MANAGEMENT SERVICES AGREEMENT WITH SABIC INNOVATIVE PLASTICS INDIA PRIVATE LIMITED (SABIC I P INDIA) WAS IN THE NATURE OF FEES FOR TECHNICAL SERVICES/FEES FOR INCLUDED SERVICES (FIS) UNDER ARTICLE 12 OF THE INDIA- US DOUBLE TAXATION AVOIDAN CE AGREEMENT (DTAA) AND HENCE LIABLE TO BE TAXED IN INDIA. ITA NO. 851/DEL/2014 SABIC INNOVATIVE PLA STICS US 2 2. THAT IN ANY CASE THE AO/DRP COMPLETELY FAILED TO APPRECIATE THAT THE REIMBURSEMENTS MADE TO THE APPELLANT DID NOT HAVE ANY ELEMENT OF INCOME CONTAINED THEREIN AND HENCE WERE NOT LIABLE TO BE TAXED. 3. THE AO/DRP HAVE ERRED IN LAW AND ON THE FACTS OF THE CASE IN NOT APPRECIATING THAT COMMON SERVICES D O NOT FALL WITHIN THE AMBIT OF ARTICLE 12(4)(B) OF DT AA BETWEEN INDIA AND US READ WITH MEMORANDUM OF UNDERSTANDING THERETO SPECIFICALLY IN THE ABSENCE O F NON-SATISFACTION OF THE MAKE AVAILABLE CONDITION AS CONTAINED IN ARTICLE 12(4)(B) OF THE DTAA, SUCH REIMBURSEMENTS COULD NOT PARTAKE THE CHARACTER OF FIS UNDER THE DTAA. 4. THE AO/DRP HAVE ALSO ERRED IN LAW AND ON THE FACTS OF THE CASE BY DRAWING ADVERSE INFERENCE FROM THE FACT THAT THE APPELLANT HAD OFFERED REIMBURSEMENTS FROM INFORMATION MANAGEMENT SERVICES TO TAX WITHOUT APPRECIATING THAT THE SAME WAS WITHOUT PREJUDICE TO ITS CLAIM OF NON-TAXABILI TY OF SUCH REIMBURSEMENTS & AS A MEASURE OF ABUNDANT CAUTION AND WITHOUT APPRECIATING THAT A WRONG CONCESSION BY THE APPELLANT WOULD NOT CHANGE THE CHARACTER OF THE REIMBURSEMENTS. 5. THAT THE FINAL ORDER PASSED BY THE AO IS ERRONEO US IN AS MUCH AS IT TRANSCENDS THE DIRECTIONS OF THE D RP UNDER SECTION 144C OF THE ACT BY HOLDING THAT IN TH E ALTERNATIVE THAT THE SAID REIMBURSEMENTS WERE ALSO IN THE NATURE OF ROYALTY AS DEFINED UNDER THE DTAA BETWEEN INDIA AND US WHEN NO SUCH DIRECTION WAS GIVEN BY THE DRP. 6. THE AO HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN LEVYING SURCHARGE AND CESS WITHOUT APPRECIATING THAT THE RATE OF TAX COULD NOT EXCEED 10% AS SPECIFIED IN ARTICLE 12 OF DTAA BETWEEN INDI A AND US. 7. THAT THE LD. AO GROSSLY ERRED IN LEVYING INTERES T UNDER SECTION 234B OF THE ACT. ITA NO. 851/DEL/2014 SABIC INNOVATIVE PLA STICS US 3 8. THAT THE LD. AO GROSSLY ERRED IN INITIATING PENA LTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 3. THE ISSUE REVOLVES AROUND TAXING OF MANAGEMENT S ERVICES PROVIDED BY THE SABIC INNOVATIVE PLASTICS US LLC TO SABIC INNOVATIVE PLASTICS INDIA PVT. LTD. AMOUNTS TO FEE FOR TECHNICAL SERVICES OR NOT. BRIEF FACTS OF THE CASE ARE THAT D URING THE YEAR, THE ASSESSING OFFICER BROUGHT TO TAX RS.148,26,784/ -, THE ASSESSEE PURPORTED TO HAVE BEEN RECEIVED AND TREATE D AS INCOME UNDER FTS. THE ASSESSEE HAS OFFERED AN AMOUN T OF RS.925,564/- TO TAX WHICH PERTAINS TO THE AMOUNT RE CEIVED ON ACCOUNT OF INFORMATION MANAGEMENT (IM). THE OTHER S ERVICES PROVIDED BY THE ASSESSEE ARE IN THE AREAS OF FINANCE: IT INCLUDES MONTH-END AND QUARTER END CLOS ING, STANDARDIZING PROCESSES, PLANNING AND FACILITATING ENTITY REDUCTION PROJECTS, CONSOLIDATING BUDGETS, DRIVING AND MANAGING GLOBAL SYSTEMS ROLL OUT AND MAINTENANCE; TRANSFER PRICING PLANNING, COMPLIANCE AND DOCUMENTA TION, EFFECTIVE RATE MANAGEMENT, COMPLIANCE WITH FAS 109 (WHICH IS THE FINANCIAL REPORTING REQUIREMENT OF TA X DEPARTMENT). SABIC IP INDIA IS PROVIDING COORDINATE D SUPPORT TO THE GROUPS EXTERNAL AUDITORS AND IMPLEM ENTING VARIOUS PROJECT SUCH AS IFRS CONVERSION, PROJECT LE OPARD AND 1 SABIC LEGAL SERVICES: IT INCLUDES HELPING IN PERFORMING A NNUAL COMPLIANCE REVIEW OF POLICIES, TO FIND BUSINESS SOL UTION, AND TO MANAGED DEVELOP MOTIVATE LEGAL TEAM, DEVELOP INDIVIDUAL PERFORMANCE AND EDUCATING EMPLOYEES ON L EGAL AND LEADERSHIP ISSUES. EHS ISSUES: AS PER AGREEMENT, THE ASSESSEE HELPS IN SETTING PERFORMANCE EXPECTATIONS AND POLICIES FOR A IR, ITA NO. 851/DEL/2014 SABIC INNOVATIVE PLA STICS US 4 WATER AND WASTE MANAGEMENT STANDARDS. IT ALSO PROVI DES GLOBAL TOXICOLOGY FUNCTION WHICH INCLUDES TESTING A CTIVITIES LIKE PHYSICAL CHEMICAL PROPERTY TESTING, ECOTOXICOL OGY, ENVIRONMENTAL FATE, ACUTE TOXICITY, GENOTOXICITY, REPRODUCTIVE AND DEVELOPMENT TOXICITY, REPEAT DOES TESTING AND A VARIETY OF SPECIALIZED STUDIES. QUALITY: THE SERVICE INCLUDES REVIEW OF STEPS INVOL VED IN THE TRANSLATION OF A NEW PRODUCT FROM AN EXISTING S ABIC-IP MANUFACTURING SITE TO THE INDIA MANUFACTURING SITE. HUMAN RESOURCES: IT INCLUDES ASSISTING IN FUNCTIONS SUCH AS LEARNING AND DEVELOPMENT IN AREA OF LEADERSHIP A ND BUSINESS SKILLS, TALENT MANAGEMENT, RECRUITMENT, WO RK FORCE/HEAD COUNT PLANNING, ORGANIZATION STRUCTURE DESIGNING AND COMPENSATION PLANNING OF EMPLOYEES. SOURCING AND PROCUREMENT: IT INCLUDES DEVELOPING AN D IMPLEMENTING THE SOURCING STRATEGY OF DIRECT MATERI ALS USED IN THE PRODUCTION PROCESS. ENGAGING IN DIRECT AND INDIRECT MATERIALS SUPPLIER SEARCH AND PRICE NEGOTI ATION ON DIRECT MATERIALS. THE DIRECT MATERIAL SOURCING FUNC TION RELATES TO PROCURING HYDRO CARBON AND NON HYDRO CAR BON MATERIALS USED FOR MANUFACTURING PLASTICS. INFORMATION MANAGEMENT (OFFERED TO TAX) 4. THE ASSESSING OFFICER HELD THAT THE PAYMENT FOR TECHNICAL OR CONSULTANCY SERVICES WOULD FALL WITHIN THE SCOPE OF DEFINITION OF FTS UNDER THE INDO-US TREATY ONLY IF SUCH SERVIC ES MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, SKILL, KNOW-HOW ETC. TO THE RECIPIENT OF SERVICE OR IT CONSISTS OF DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN OR DESIGN. HE HELD THAT MAKE AVAILA BLE MEANS THE PERSON ACQUIRING THE SERVICE IS ENABLED TO INDE PENDENTLY ITA NO. 851/DEL/2014 SABIC INNOVATIVE PLA STICS US 5 APPLY THE TECHNOLOGY AND HELD THAT THESE SERVICES A RE TAXABLE UNDER FTS/ROYALTIES. 5. BEFORE US DURING THE ARGUMENTS, THE LD. AR BROUG HT TO OUR NOTICE THE ORDER OF THE LD. CIT (A) FOR THE ASSESSM ENT YEAR 2008-09 IN THE ASSESSEES OWN CASE WHEREIN THE SIMI LAR ADDITION HAS BEEN DELETED BY THE LD. CIT (A) AND ORDER OF TH E DRP FOR THE ASSESSMENT YEAR 2010-11 IN THE ASSESSEES OWN CASE WHEREIN THE SIMILAR ADDITION HAS BEEN DELETED BY THE DRP. T HE LD. DR SUPPORTED THE ORDERS OF THE DRP FOR THE INSTANT ASS ESSMENT YEAR 2009-10. 6. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERU SED THE MATERIAL AVAILABLE ON RECORD. 7. WE HAVE GONE THROUGH THE CLAUSES OF MANAGEMENT S ERVICES AGREEMENT DATED SEPTEMBER 1, 2007 ENTERED BETWEEN T HE ASSESSEE AND THE INDIAN COUNTERPART. WE HAVE ALSO G ONE THROUGH THE PROVISIONS OF SECTION 9(1)(VII) AND SEC TION 115A OF THE INCOME TAX ACT AND ARTICLE 12 OF THE INDO-USA D TAA. FURTHER, WE FIND THAT THE LD. CIT (A) DELETED THE A DDITION HOLDING THAT FIRSTLY, THE CATEGORY MANAGEMENT IS MISSING IN DEFINITION OF FIS AND SERVICES PROVIDED BY THE APPE LLANT BEING IN NATURE OF MANAGEMENT SERVICES DO NOT FALL IN DEFINI TION OF FIS. FURTHER, MAKE AVAILABLE CLAUSE HAS NOT BEEN SATIS FIED IN PRESENT CASE AND HENCE CONSIDERATION IS NOT IN NATU RE OF FTS/FIS. THESE ARGUMENTS OF THE APPELLANT HAVE BEEN DULY CONSIDERED BY ME. I HAVE GONE THROUGH VARIOUS DOCUM ENTS FURNISHED BY THE APPELLANT INDICATING NATURE OF SER VICES PROVIDED BY THE APPELLANT. THE SERVICES PROVIDED IN PRESENT CASE MOSTLY RESEMBLE WITH THOSE IN CASE OF ERNEST & YOUNG (P) L TD. AAR 820 ITA NO. 851/DEL/2014 SABIC INNOVATIVE PLA STICS US 6 OF 2009. IT APPEARS THAT MOST OF THE SERVICES ARE I N NATURE OF MANAGEMENT SERVICES, THOUGH SOME OF THE SERVICES MA Y BE CONSIDERED TO BE OF TECHNICAL NATURE. HOWEVER, FROM TERMS OF THE SERVICE AGREEMENT AND ALSO FROM CONDUCT OF THE PARTIES, IT CANNOT BE SAID THAT MAKE AVAILABLE REQUIREMENT HA S BEEN SATISFIED. THE ASSESSING OFFICER HAS NOT ELABORATED ON THIS ASPECT. AS PER PROVISIONS OF ARTICLE 12(4) OF DTAA, UNLESS MAKE AVAILABLE CLAUSE IS SATISFIED, CONSIDERATION FOR A NY CONSULTANCY OR TECHNICAL SERVICE PER SE SHALL NOT BECOME FTS/FI S . 8. SIMILARLY, IN THE ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 2010-11, THE LD. DRP HAS DELETED THE SIMILAR A DDITION MADE BY THE ASSESSING OFFICER. ON THIS ISSUE, THE DRP HE LD AS UNDER: FROM SCOPE OF SERVICES AS MENTIONED IN MANAGEMENT SERVICE AGREEMENT DATED 01.09.2007, IT CAN BE SEEN THAT THERE IS NO INTENTION ON PART OF AGREEING PART IES OF MAKING AVAILABLE TECHNICAL EXPERTISE TO THE SE RVICE RECIPIENT SO THAT INDIAN COMPANY COULD HAVE APPLIED THESE SERVICES IN FUTURE ON ITS OWN WITHOUT RESORTI NG TO THE ASSESSEE. THERE IS NO CLAUSE FOR TRAINING OF PERSONNEL OFF THE INDIAN COMPANY. THE AO HAS NOT HIGHLIGHTED HOW MAKE AVAILABLE CLAUSE HAS BEEN SATISFIED IN THIS CASE. DRP HAS ALSO NOTED THAT CIT (A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR AY 2008-09. HOWEVER, DRP HAS NOT CONCURRED WITH THE ASSESSEE FOR AY 2009-10 ON THE SAME ISSUE. AFTER DU LY CONSIDERING FACTS OF THE PRESENT CASE, DRP IS OF TH E CONSIDERED VIEW THAT MAKE AVAILABLE CLAUSE HAS NO T BEEN SATISFIED AND HENCE SERVICES DO NOT QUALIFY AS FIS UNDER ARTICLE 12(4) OF INDO-USA DTAA. THE AO IS THEREFORE DIRECTED TO GRANT THE RELIEF. 9. THE REVENUE HAS ACCEPTED THE ORDERS OF THE LD. CIT ( A) FOR THE A.Y. 2008-09 & DRP FOR THE A.Y. 2010-11 AND NO APPEAL HA S BEEN PREFERRED IN THIS CASE. HAVING GONE THROUGH THE PROVISIONS OF ARTICLE 12(4)(B) AND ARTICLE 5 OF DTAA PERTAINING TO FEES FOR INCLUDED SERVI CES AND AFTER GOING ITA NO. 851/DEL/2014 SABIC INNOVATIVE PLA STICS US 7 THROUGH THE MANAGEMENT SERVICE AGREEMENT AND THE CLAU SES THEREOF, WE ARE OF VIEW THAT THE BY THE MANAGEMENT SERVICES PROVID ED BY THE ASSESSEE CANNOT BE TAXED UNDER FEE FOR TECHNICAL SERVICES. ALL THE GROUNDS ARE TREATED AS ADJUDICATED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 30/10/2019. SD/- SD/- (AMIT SHUKLA) (DR . B. R. R. KUMAR) JUDICIAL MEMBER ACCOU NTANT MEMBER DATED: 30/10/2019 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO. 851/DEL/2014 SABIC INNOVATIVE PLA STICS US 8
