TTI TEAM TELECOM INTERNATIONAL LTD, MUMBAI V. ADIT (IT) 2(2), MUMBAI

ITA 9008/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101040 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 25-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-12-2010
• Court: TRIBUNAL
• Department Lawyers: JASBIR CHOUHAN SR
• Keywords: Double taxation relief; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER I.T.A. NO. 3939/M/2010 (AY: 2006 - 2007) ADIT (IT) 2(2), R.NO.116, 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI 400 038. / VS. M/S. TTI - TEAM TELECOM INTERNATIONAL LTD, C/O. SUDIT K PAREKH & CO, BALLARD ESTATE, 2 ND FLOOR, ADI MARZBAN PATH, BALLARD PIER, FORT, MUMBAI 400 001. ./ PAN : AACCT5300M ( / APPELLANT) .. ( / RESPONDENT ) I.T.A. NO.9008/M/2010 (AY: 2007 - 2008) M/S. TTI - TEAM TELECOM INTERNATIONAL LTD, C/O. SUDIT K PAREKH & CO, BALLARD ESTATE, 2 ND FLOOR, ADI MARZBAN PATH, BALLARD PIER, FORT, MUMBAI 400 001. / VS. ADIT (IT) 2(2), R.NO.116, 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI 400 038. ./ PAN : AACCT5300M / ASSESSEE BY : SHRI JITENDRA JAIN / REVENUE BY : SHRI JASBIR CHOUHAN, SR. AR / DATE OF HEARING : 12 .8.2015 / DATE OF PRONOUNCEMENT : 11 .9.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION INVOLVING THE AYS 2006 - 0 7 AND 2007 - 08. SINCE, THE ISSUE RAISED IN BOTH THE APPEALS IS INTER - CONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED - O F IN THIS 2 CONSOLIDATED ORDER. APPEA L WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAS OF THIS ORDER. ITA NO.3939/M/2010 (AY 2006 - 2007) (BY REVENUE) 2. THIS APPEAL FILED BY THE REVENUE ON 14.5.2010 IS AGAINST THE ORDER OF THE CIT (A) - 11, MUMBAI DATED 24.2.2010 FOR THE ASSESSMENT YEAR 2006 - 07. 3. BRIEFLY STATED THE BACKGROUND FACTS OF THIS APPEAL THE APPEAL ORIGINALLY CAME UP FOR ADJUDICATION BEFORE THE ITAT, AND IN THE FIRST ROUND, THE TRIBUNAL PASSED THE ORDER VIDE APPEAL ITA NO.3939/MUM/2010, DATED 26.8.2011. HOWEVER, ASSESSEE FILED A MISCELLANEOUS APPLICATION (MA) ON THE SAID TRIBUNALS ORDER ALLEGING THAT THE GROUND NO.2 OF THE APPEAL WAS LEFT OUT. CONSIDERING THE EXISTENCE OF THE APPARENT MISTAKE ON THE RECORD, TRIBUNAL RECALLED THE SAID ORDER (SUPRA) FOR ADJUDICATION OF THE SAID GROUND NO.2 VIDE ORDER MA NO.299/M/2013, DATED 12.2.2014. THEREFORE, ADJUDICATION OF THE SAID GROUND NO.2 IS THE PURPOSE OF THIS APPEAL FOR THE AY 2006 - 07. THE SAID GROUND NO.2 READS AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN HOLDING THAT THE AO HAS WRONGLY HELD THAT THE REIMBURSEMENT OF EXPENSES BY THE INDIAN SUBSIDIARY IS TAXABLE @ 10% BY TREATING IT AS FEES FOR TECHNICAL SERVICES AS PER ARTICLE 13 OF THE DTAA BETWEEN INDIA AND ISRAEL. 4. EXPLA INING THE ABOVEMENTIONED GROUND, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE TTI TELECOM INTERNATIONAL PVT LTD, ISRAEL (TTI - ISRAEL) INCURRED EXPENDITURE ON BEHALF OF ITS 100% SUBSIDIARY COMPANY, TTI TELECOM INTERNATIONAL PVT LTD, INDIA (TTI - I NDIA) ON REIMBURSABLE BASIS. ACCORDINGLY, ASSESSEE RAISED DEBIT NOTE ON TTI - INDIA AMOUNTING TO RS. 43,55,088/ - . IN THE ASSESSMENT PROCEEDINGS, THE SAME WAS TREATED BY THE AO AS FEE FOR TECHNICAL SERVICES (FTS). ASSESSEE SUBMIT TED THAT THE SAID REIMB URSEMENTS DO NOT INVOLVE ANY PROFIT AND THEY CONSTITUTE ACTUAL SPENT BY THE ASSESSEE FOR TTI - INDIA. ASSESSEE RELIED UPON THE CONTENT OF THE CLAUSE 2.1 OF THE TRI - PARTITE AGREEMENT AMONG THE ASSESSEE, THE TTI - INDIA AND RELIANCE INFOCOM AND REJECTED THE ASS ESSEES WRITTEN SUBMISSIONS EXTRACTED AT PARA 2.6 F THE AOS ORDER. WITHOUT PREJUDICE, ASSESSEE ALSO RAISED AN ARGUMENT BEFORE THE AO THAT SUCH RECEIPTS ARE TAXED ON THE RECEIPT BASIS ONLY AND 3 RELIED ON THE ARTICLE 13 OF THE INDO - ISRAEL TREATY. ASSESSEE ALSO RELIED ON THE JURISDICTIONAL TRIBUNALS DECISION IN THE CASE OF DCIT VS. UHDE GMBH (54 TTJ 355). HOWEVER, THE AO IS OF THE VIEW THAT THE ASSESSEE INCURRED FOR TTI - INDIA THE SAID RECEIPTS / FTS INDIVIDUALLY BY AGREEMENT OF THE REIMBURSEMENT OF THE SAI D EXPENSES . AO RELIES ON VARIOUS DECISIONS TO CEMENT HIS VIEW. HOWEVER, THEY ARE NOT THE DECISIONS INVOLVING INDO - ISRAEL TREATY. 5. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE REITERATED THE ABOVE ARGUMENTS MADE BEFORE THE AO AND FILED LENGTHY WR ITTEN SUBMISSIONS EXPLAINING HOW THE MAKE AVAILABLE CRITERION IS NOT SATISFIED, DISCUSSED THE ARTICLE 12 OF INDO - CANADA TREATY, RECEIPT BASIS OF TAXATION, CASE LAWS ETC. ON PERUSAL OF THE SAME, FIRST APPELLATE AUTHORITY HELD THAT THE ASSESSEE HAS NOT M ADE AVAILABLE OF ANY TECHNICAL SERVICES AND THUS, IT IS NOT THE CASE OF THE FTS. SHE ALSO HELD THAT SINCE 15.1.1998, THE FTS DEFINITION OF INDO - ISRAEL TREATY IS THE SAME AS ARTICLE 12(4) OF THE INDO - CANADA TREATY IN VIEW OF THE MOST FAVOURED NATION CLA USE. ACCORDINGLY, FIRST APPELLATE AUTHORITY, HELD THAT THE SUM OF RS. 43,55,088/ - DOES NOT CONSTITUTES FTS AS IT HAS NOT SATISFIED THE CONDITIONS RELATING TO MAKE AVAILABLE. RELEVANT DISCUSSION IS AVAILABLE IN PARAS 3.6 TO 3.8 OF THE IMPUGNED ORDER. AGGRIEVED WITH THE SAME, REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. DURING THE PROCEEDINGS BEFORE US, AT THE OUTSET, LD DR FOR THE REVENUE RELIED ON THE ORDER OF THE AO AND THE DECISIONS OF THE TRIBUNAL IN THE CASE OF AVION SYSTEMS INC. VS. DDIT (IT), IN ITA NO.1745/M/2009 DATED 30.5.2012. 7. PER CONTRA, LD COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT (A). FURTHER, HE BROUGHT OUR ATTENTION TO THE DEBIT NOTE PLACED AT PAGE NO.6 OF THE PAPER BOOK AND DEMONSTRATED THE TRAVEL EXPENSES OF CONSULTAN T FOR THE PERIOD FROM APRIL 2006 TO MARCH 2007 WORKED OUT TO RS. 27,11,303/ - . HE FURTHER BROUGHT OUR ATTENTION TO ORDER OF THE CIT (A) FOR THE AY 2005 - 06, COPY OF WHICH IS PLACED AT PAGES 7 TO 17 OF THE PAPER BOOK, AND READ OUT THE RELEVANT PARAS 1.5.1 T O 1.5.3 OF THE SAID CIT (A)S ORDER, DATED 30.01.2008. HE FURTHER MENTIONED THAT THE SAID DECISION OF THE CIT (A) FOR THE AY 2005 - 06 WAS ACCEPTED BY THE REVENUE NO APPEAL WAS FILED AGAINST THE SAME. IT IS THE SUBMISSION OF THE LD COUNSEL THAT THOUGH THE FACTS ARE IDENTICAL FOR THE AYS 2005 - 06 AND 2006 - 07, AND THE ONLY DIFFERENCE IS IN FIGURES, THE REVENUE IS IN APPEAL FOR THE AY 2006 - 07 IGNORING THE ORDERS OF THE CIT (A) FOR THE AY 2005 - 4 06, WHICH IS AGAINST THE SET PRINCIPLES OF CONSISTENCY. HE FURTHER B ROUGHT OUR ATTENTION TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SEIMENS AKTIONGESELLSCHAFT [2009] 310 ITR 320 (MUM) IN SUPPORT OF HIS CONTENTION THAT THE WHEN EXPENSES INCURRED ARE REIMBURSABLE IN NATURE THEY ARE NOT LIABLE TO TAX AND READ OUT THE RELEVANT PARA 33 OF THE SAID HIGH COURTS JUDGMENT, WHICH IS RELEVANT FOR THE PROPOSITION THAT REIMBURSEMENT OF EXPENSES CAN , UNDER NO CIRCUMSTANCES, BE REGARDED AS REVENUE RECEIPT AND ARE NOT LIABLE TO TAX . 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED PRECEDENTS AND THE DECISIONS OF THE TRIBUNAL AND ALSO THE RELEVANT MATERIAL PLACED BEFORE US. ON PERUSAL OF THE ORDER OF THE CIT (A) FOR AY 2005 - 06 IN GENERAL AND PARAS 3.6 TO 3.8 IN PARTICULAR, WE FIND THE SAME ARE RELEVANT IN THIS REGARD, AND THEREFORE, THE SAID PARAS ARE EXTRACTED AS FOLLOWS: 3.6. THE PAYMENTS RECEIVED BY THE APPELLANT ARE NOT IN RESPECT OF SERVICES THAT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, S KILL, KNOW - HOW OR PROCESS. AS PER THE MOU OF INDIA - US TREATY, GENERALLY TECHNOLOGY WILL BE CONSIDERED MAKE AVAILABLE WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. IN THE PRESENT CASE, THE APPELLANT HAS PROVIDED SERVICES TO R ELIANCE INFOCAM LTD (RIL) UNDER AN AGREEMENT WITH TTI - INDIA IN CONNECTION WITH ENGINEERING, INSTALLATION, COMMISSIONING AND ACCEPTANCE OF NETWORK SERVICES, GUIDANCE AND CONSULTANCY, IT DOES NOT MAKE AVAILABLE TECHNICAL SERVICES, WHICH WILL ENABLE TTI - INDIA TO APPLY THE SAME IN FUTURE ON ITS OWN INDEPENDENTLY. HENCE, IT DOES NOT SATISFY THE MAKE AVAILABLE CRITERIA. THE ASSESSEE - COMPANY HAS CITED EXAMPLE 7 OF THE MOU BETWEEN INDIA - US DTAA WHICH ALSO SUPPORTS ITS VIEW. THE LD AR HAS ALSO PLACED RELIANCE O N BOSTON CONSULTING GROUP P LTD (94 ITD 31) (MUM) AND OTHER JUDICIAL CITATIONS REFERRED TO ABOVE WHICH SAYS THAT THE PERIOD OF MOU CLEARLY REVEALED THAT FOR A FEES TO BE CALLED AS FEES FOR TECHNICAL SERVICES RENDERED, IT IS ESSENTIAL THAT TECHNICAL KNOWLEDGE, SKILL, KNOW - HOW SHOULD BE MADE AVAILABLE TO THE ASSESSEE SHOULD BE AT LIBERTY TO USE THEM IN HIS OWN RIGHT. THE SERVICES REFERRED TO IN THE INSTANT CASE DID NOT RESULT IN MAKING AVAILABLE ANY KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW OR PROCESS TO THE ASSESSEE. THAT WAS ESSENTIAL BEFORE IT COULD BE SAID THAT THE PAYMENT MADE TO THE ASSESSEE WERE FEES FOR TECHNICAL SERVICES RENDERED. 3.7. THUS, THE SERVICES RENDERED BY THE ASSESSEE - COMPANY DOES NOT FALL WITHIN THE AMBIT OF FEES FOR TECHNICAL SERVI CES AS DEFINED IN ARTICLE 13(3) OF THE INDO - ISRAEL TREATY READ WITH CLAUSE 4 OF ARTICLE 12 OF INDIA - CANADA TAX TREATY. THEREFORE, I AM OF THE CONSIDERED OPINION, THAT THE APPELLANT MERELY RENDERED SERVICES WITHOUT IMPARTING ANY KNOWLEDGE, SKILLS, ETC TO T TI - INDIA. CONSEQUENTLY, THE SERVICES ARE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF ARTICLE 13(3) OF THE INDO - ISRAEL TREATY READ WITH CLAUSE 2 OF THE PROTOCOL DATED 29.01.1996. 3.8. I HAVE ALSO CONSIDERED THE CASES RELIED BY THE AO IN HIS ORDER DATED 19.12.2008 AND MENTIONED ABOVE. I HAVE PERUSED THE SAME IT IS NOTICED THAT THESE DECISIONS RELIED UPON BY THE ASSESSING OFFICER ARE IN THE CONTEXT OF TAXABILITY OF REIMBURSEMENT OF EXPEN SES UNDER THE CONTEXT OF INCOME TAX ACT IE THE DOMESTIC LAW AND THERE IS NO REFERENCE TO THE TAX TREATIES THEREFORE, THESE ARE NOT APPLICABLE TO THE PRESENT CASE UNDER CONSIDERATION. IN VIEW OF THESE FACTS, THE GROUND NO.2 IS ALLOWED IN FAVOUR OF THE ASSE SSEE. 5 9. FURTHER, WE HAVE ALSO GONE THROUGH THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SEIMENS AKTIONGESELLSCHAFT (SUPRA) AND FIND PARA 33 OF THE SAID JUDGMENT IS RELEVANT IN THIS REGARD AND THE RELEVANT PORTION OF THE SAID PARA IS EXT RACTED AS FOLLOWS: 33. .............THE LAST CONTENTION WHETHER THE AMOUNTS BY WAY OF REIMBURSEMENTS ARE LIABLE TO TAX. TO ANSWER THAT ISSUE, WE MAY GAINFULLY REFER TO THE JUDGMENT OF A DIVISION BENCH OF THE DELHI HIGH COURT IN INDUSTRIAL ENGINEERING PRO JECTS (P) LTDS CASE (SUPRA). THE LD DIVISION BENCH OF THE DELHI HIGH COURT WAS PLEASED TO HOLD THAT REIMBURSEMENT OF EXPENSES CAN, UNDER NO CIRCUMSTANCES, BE REGARDED AS A REVENUE RECEIPT AND IN THE PRESENT CASE THE TRIBUNAL HAS FOUND THAT THE ASSESSEE R ECEIVED NO SUMS IN EXCESS OF EXPENSES INCURRED............ 10. WE HAVE ALSO PERUSED THE ORDER OF THE CIT (A) FOR THE AY 2005 - 06, AND FIND PARAS 1.5.1 TO 1.5.3 OF THE SAID FAA ORDER ARE RELEVANT IN THIS REGARD. IN THE SAID FAA ORDER FOR THE AY 2005 - 06, D ATED30.1.2008, THE CIT (A) HELD THAT SINCE THE ASSESSEE MERELY RENDERED SERVICES WITHOUT IMPARTING ANY KNOWLEDGE, SKILLS ETC TO TTI - INDIA, THEREFORE, THE SAID SERVICES ARE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF ARTICLE 13(3) OF INDIA - ISRAEL TAX TREAT READ WITH CLAUSE 2 OF THE PROTOCOL DATED 29.01.1996. WE ALSO FIND THAT ON IDENTICAL FACTS, THE CIT (A)S DECISION FOR THE AY 2005 - 06 WAS ACCEPTED BY THE REVENUE AND NO APPEAL IS FILED AGAINST THE SAID ORDER OF THE CIT (A). WHEN THE FACTS ARE IDENTICAL, AND THE DIFFERENCE IS ONLY IN FIGURES, DEVIATING FROM THE DECISION OF THE EARLIER AYS ORDER OF THE CIT (A) IN THE ABSENCE OF ANY VALID REASON IS NOT SUSTAINABLE IN LAW AND THE SAME AGAINST THE PRINCIPLES OF CONSISTENCY. 11. FRO M THE ABOVE SETTLED NATURE OF THE ISSUE THAT THE WHEN THE EXPENSES ARE IN REIMBURSABLE IN NATURE, THE REIMBURSEMENTS ARE NOT LIABLE TO TAX AT THE LEVEL OF HIGHER JUDICIARY AS WELL AS CONSIDERING THE ISSUE THAT SINCE THE ASSESSEE MERELY RENDERED SERVICES WI THOUT IMPARTING ANY KNOWLEDGE, SKILLS ETC TO TTI - INDIA, THEREFORE, THE SAID SERVICES ARE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF ARTICLE 13(3) OF INDIA - ISRAEL TAX TREAT , WE ARE OF THE CONSIDERED OPINION THAT THE GROUND NO.2 RAISED BY THE REVENUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. NOTHING IS BROUGHT ON TO THE RECORD BY THE AO THAT IT IS NOT A CASE OF REIMBURSEMENT OF EXPENSES. ACCORDINGLY , THE SAID GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 6 ITA NO. 9008/M/2010 (AY 2007 - 2008 ) (BY ASSESSEE ) 12. THIS APPEAL FILED BY THE ASSESSEE ON 24.12.2010 IS AG AINST THE ORDER OF THE ASSISTANT DIRECTOR OF INCOME TAX (IT), MUMBAI MADE U/S 144C(13) R.W.S 143(3) OF THE ACT, DATED 28.10.2010 FOR THE AY 2007 - 2008. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING EFFECTIVE GROUND WHICH READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD ADIT (IT), MUMBAI HAS ERRED IN NOT HOLDING THAT SUCH SUMS ARE IN NATURE OF PURE REIMBURSEMENT OF RECOUPMENT OF EXPENSES WITH NO PROFIT ELEMENT THEREIN, AND AS SUCH, TAXABLE IN INDIA. 13. REFERRING TO THE ABOVE GROUND, AT THE VERY OUTSET, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT SINCE, THE ISSUE RAISED IN THIS APPEAL IE TAXABILITY OF REIMBURSEMENT OF EXPENSES IS IDENTICAL TO THAT OF THE ISSUE RAISED IN GROUND NO.2 OF THE REVENUES APPEAL FOR THE AY 2006 - 07, WHICH IS NOT CONTROVERTED BY THE LD DR FOR THE REVENUE. CONSIDERING THE CONCURRENCE OF LD REPRESENTA TIVES OF BOTH THE PARTIES REGARDING THE COMMONNESS OF THE ISSUE INVOLVED IN THE PRESENT APPEAL AND IN THE REVENUES APPEAL FOR THE AY 2006 - 07, WHICH IS ADJUDICATED BY US IN THE ABOVE PARAGRAPHS OF THIS ORDER, WE ARE OF THE OPINION THAT OUR DECISION GIVEN O N THE ISSUE INVOLVED IN GROUND NO.2 OF REVENUES APPEAL FOR THE AY 2006 - 07 SQUARELY APPLIES TO THE PRESENT APPEAL TOO. ACCORDINGLY, THE SOLITARY GROUND RAISED BY THE ASSESSEE SHOULD BE ALLOWED IN ITS FAVOUR AS ISSUE IS COVERED BY THE BINDING PRECEDENTS AS WELL AS THE ORDERS OF THE TRIBUNAL. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 14. IN THE RESULT, AP PEAL OF THE ASSESSEE IS ALLOWED A N D G R O U N D N O . 2 O F T H E R E V E N U E S A P P E A L I S DISMISSED . ORDER PRONO UNCED IN THE OPEN COURT ON 11 TH SEPTEMBER, 2015. SD/ - SD/ - (SANJAY GARG) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 11 .9 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 7 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