Jyothy Laboratories Ltd., Mumbai V. ITO, CHENNAI

ITA 909/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7878 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 23-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR MILIND MADUKAR BHUSARI IRS
• Assessee Lawyers: P RIYANKA JAIN
• Keywords: Residential status; Double taxation relief; Reasonable cause
• Section: 206AA; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO.909/MDS/2015 # % &% / ASSESSMENT YEAR : 2011-2012 M/S. JYOTHY LABORATORIES LTD UJALA HOUSE, RAM KRISHNA MANDIR ROAD, OFF ANDHERI KURLA ROAD, ANDHERI EAST, MUMBAI 400 059. [PAN AABCT 0167F] VS. THE INCOME TAX OFFICER, INTERNATIONAL TAX I(2) CHENNAI 600 034 ( / APPELLANT) ( /RESPONDENT) '( ) * / APPELLANT BY : MS. PRIYANKA JAIN, C.A. +,'( ) * /RESPONDENT BY : DR. MILIND MADUKAR BHUSARI, IRS, CIT. ! ) - / DATE OF HEARING : 22-03-2016 ./& ) - / DATE OF PRONOUNCEMENT : 06-04-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-16, CHENNA I IN ITA NO.3 CIT(A)-16/2013-14, DT 22.01.2015 FOR THE ASSESSMENT YEAR 2011-2012 ITA NO.909/MDS/2015. :- 2 -: PASSED U/S.201(1)/201(1A) AND 250 OF THE INCOME TA X ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THERE IS A DELAY OF 13 DAYS IN FILING THE APPEAL BY THE ASSESSEE. THE LD. COUNSEL HAS FILED AN AFFIDAVIT E XPLAINING THE REASONS FOR DELAY AND THE LD. DR HAS NO SERIOUS OBJECTIONS FOR CONDONATION OF DELAY. AFTER HEARING THE SUBMISSIONS, WE ARE SATIS FIED WITH SUFFICIENT AND REASONABLE CAUSE FOR FILING THE APPEAL BELATEDL Y AND WE THEREFORE CONDONE THE DELAY AND ADMIT THE APPEAL. 3. AT THE TIME OF HEARING, THE LD. COUNSEL NOT PRESSE D GROUNDS 1 & 2 AND ENDORSED IN THE APPEAL PETITION AND RAISE D OTHER GROUNDS AS UNDER:- 3.THAT THE COMMISSIONER OF INCOME- TAX (APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING THE APPELLANT AS AN 'ASSESSEE IN DEFAULT' UNDER SECTION 201 (L) AND 201 (1A) OF THE INCOME-TAX ACT ('THE ACT') FOR SHORT DEDUCTION OF TAX AT SOURCE ON THE PAYMENTS MADE TOWARDS REGIONAL MANAGEMENT FEES TO HENKEL HONG KONG BRANCH 4.THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN CONCURRING WITH THE FI NDINGS OF THE ASSESSING OFFICER AND HOLDING THAT THE APPEL LANT WAS LIABLE TO DEDUCT TAX AT SOURCE AT THE RATE OF 2 0% INSTEAD OF THE RATE OF 10% ACTUALLY APPLIED. 5.THAT THE COMMISSIONER OF INCOME- TAX (APPEALS) ITA NO.909/MDS/2015. :- 3 -: ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION O F THE ASSESSING OFFICER IN INVOKING THE PROVISIONS OF SECTION 206AA OF THE ACT ON THE PAYMENTS MADE TOWARDS REGIONAL MANAGEMENT FEES TO HENKEL HONG KONG BRANCH. 6. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ER RED ON FACTS AND IN LAW HOLDING THAT THE HENKEL HONG KONG BRANCH IS A SEPARATE LEGAL ENTITY FOR THE PURPOSES OF ASSESSMENT AND THUS LIABLE TO OBTAIN A SEPARATE PAN AND IGNORING THE FACT THAT HENKEL KOMMANDITGESELLSCHAFT AUF AKTIEN, GERMANY HAS A PAN. 4. THE BRIEF FACTS OF THE CASE IS ASSESSEE, HENKEL IN DIA LIMITED (HIL) WAS A SUBSIDIARY OF HENKEL KGAA & AG& CO, GERMANY HOLDING 50.97% OF SHARES. HIL IS ENGAGED IN THE BUSINESS OF DETERGENTS AND COSMETICS AND ALONG WITH ITS SUBSIDIARIES, MANUFACTURE AND MARKET A WIDE RANGE O F WORLD CLASS DETERGENTS, COSMETICS PRODUCTS. SUBSEQUENT T RANSFER OF HIL SHARES BY HENKEL KGAA AG& CO GERMANY TO M/S.JYO THY LABORATORIES LIMITED MUMBAI (JCPL), THE NAME WAS CH ANGED AS JYOTHY CONSUMER PRODUCTS LIMITED AND REGISTERED OFFICE WAS SHIFTED FROM CHENNAI TO MUMBAI. DURING THE RELE VANT FINANCIAL YEAR 2010-11 HENKEL GERMANY WAS HOLDING 5 0.97% SHARES IN HIL OBTAINED SEPARATE PAN AND REMITTANCES WERE MADE TO HENKEL GERMANY TOWARDS SERVICES RENDERED AF TER DEDUCTING TDS @ 10% U/S.195 OF THE ACT AND DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) WITH GERMANY. THE ITA NO.909/MDS/2015. :- 4 -: ASSESSEE COMPANY WAS ALSO PAYING REGIONAL MANAGEMEN T CHARGES TO A BRANCH OF HENKEL KGAA AG& CO INCORPORA TED UNDER CHAPTER XI OF COMPANIES ORDINANCE OF HONGKONG LAWS. THE ASSESSEE HAS BEEN DEDUCTING TAX U/S. 195 AT 10% AS PER ARTICLE 12 OF DOUBLE TAXATION AGREEMENT WITH GERMANY FOR PAYMENTS MADE TO HENKEL KGAA AG&CO GERMANY AS WELL AS TO HENKEL KGAA AG&CO (HONGKONG) BRANCH. THE HONGKONG BRANCH IS ONLY AN ADDITIONAL P LACE OF BUSINESS AND NOT A SEPARATE LEGAL ENTITY AS PER THE REGISTRATION AT HONGKONG READ ALONG WITH THE COMPAN Y ORDINANCE OF HONGKONG LAWS. BUT THE ASSESSING OFFIC ER OBSERVED THAT ASSESSEE IS REQUIRED TO DEDUCT TDS AT 20% AND HENKEL GERMANY GRANT PATENTS, COPYRIGHTS AND TRADEMARKS TO THE INDIAN COMPANY AND TO THE USE OF SUCH INTELLECTUAL PROPERTY RIGHTS, THE INDIAN COMPANY IS LIABLE FOR PAYMENT OF ROYALTY TO THE NON-RESIDENT COMPANY M/ S HENKEL GERMANY AND HENKEL INDIA MADE PAYMENTS TO HENKEL H ONG KONG TO THE EXTENT OF D5,82,19,034/- AND DEDUCTED T AX AT THE RATE OF 10% APPLYING THE DTAA RATES WITH THAT O F THE PARENT GERMANY. COMPANY. THE ASSESSING OFFICER INFE RRED THAT THE DTAA RATES OF GERMANY SHALL NOT BE APPLICA BLE TO THE HONG KONG ENTITY AND OBSERVED THAT THERE WAS NO ITA NO.909/MDS/2015. :- 5 -: PERMANENT ACCOUNT NUMBER (PAN) OF HONG KONG ENTITY. HENCE HE INVOKED THE PROVISION OF SECTION 206AA AND TREATED THE ASSESSEE AS ASSESSEE IN DEFAULT AS TAX DEDUCTED AT THE RATE OF 10% INSTEAD OF 20% AND RAISED DEMAND OF D79,56,744/- INCLUDING INTEREST U/SEC. 201(1A) OF T HE ACT. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME T AX (APPEALS) 5. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE M ANAGEMENT CHARGES ARE PAID TO HONGKONG BRANCH HENKEL KGAA AG& CO HONGKONG AND REGISTERED UNDER CHAPTER XI OF COMPANIES ORDIAN CE OF HONGKONG HAS BRANCH IN HONGKONG AND GERMANY AND DEDUCTED TDS PAYMENTS MADE TO BOTH HENKEL GERMANY AND HENKEL HONGKONG AND CREDITED ONE PAN OBTAINED FOR HENKEL GERMANY. THE LD. COMMISSION ER OF INCOME TAX (APPEALS) BASED ON THE SUBMISSIONS OF THE ASSE SSEE CONSIDERED FINANCE ACT, 2009 AND PROVISIONS OF SEC.201(1) OF THE ACT AND PAN PARTICULARS AND RESIDENTIAL STATUS CONFIRMED THE OR DER OF THE ASSESSING OFFICER BY OBSERVING AT PARA 5.5 & 5.6 OF HIS ORDER OBSERVED AS UNDER:- PRESCRIBED IN THE DTAA WITH GERMANY. THE RELEVANT ARTICLE IN THE DTAA IS AS FOLLOWS ITA NO.909/MDS/2015. :- 6 -: 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES, OR FEES FOR TECHNICAL SERVICES, THE TAX SO CHARGED SHALL NOT EXCEED 10 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR THE FEES FOR TECHNICAL SERVICES.' INDIA DOESN'T HAVE A DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) WITH HONGKONG. ACCORDINGLY, THE DTAA RATES OF GERMANY SHALL NOT BE APPLICABLE TO PAYMENTS EFFECTED TO THE HONGKONG ENTITY 5.6 IN VIEW OF THE ABOVE DISCUSSION, M/S HENKEL, HO NG KONG BEING A SEPARATE TAXABLE UNIT BY ITSELF, THE PROVISIONS OF SEC.206AA INCOME-TAX ACT 1961 IS ATTRACTED FOR THE REMITTANCES MADE BY M/S HENKEL IN DIA LTD. M/S HENKEL INDIA LTD. HAS EFFECTED REMITTANCES OF RS.5,82,19,034/- DURING THE PREVIOUS YEAR RELEVANT TO THIS ASST. YEAR 2010-11 TO THE FOREIGN COMPANY DEDUCTING TAX AT 10% AS AGAINST THE RATE OF 20% APPLICABLE AS PER THE INCOME TAX ACT 1961. THUS I H ELD THAT AO IS JUSTIFIED IN TREATING THE APPELLANT AS ' ASSESSEE IN DEFAULT' AND RAISING THE DEMAND AS MENTIONED ABO VE AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS), THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 6. BEFORE US, THE LD. COUNSEL SUBMITTED THAT TDS ON RO YALTY AND MANAGEMENT FEES ARE DEDUCTED AT 10% INSTEAD OF 20% AND THERE IS NO VIOLATION AS HONGKONG COMPANY DOES NOT HAVE SEPA RATE PAN NUMBER AND REITERATED THE SUBMISSION OF ASSESSMENT PROCEEDINGS AND ITA NO.909/MDS/2015. :- 7 -: APPELLATE PROCEEDINGS AND PROVISIONS OF DTTA AGREEM ENTS AND RELIED ON THE DECISION OF PUNE TRIBUNAL IN THE CASE OF DEPUTY DIRECTOR OF INCOME TAX VS. SERUM INSTITUTE OF INDIA LTD 56 TAX MANN.COM 1 ON SIMILAR ISSUE AND PRAYED FOR ALLOWING THE APPEAL. 7. CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND DECISION OF BAN GALORE TRIBUNAL IN THE CASE OF BOSCH LTD VS. ITO, 2013 141 ITD 38 AND PRAYED FOR DISMISSAL THE APPEAL. 8. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND JUDICIAL DECISIONS CITED. THE ONLY CONTENTION O F THE ASSESSEE BEING TDS DEDUCTED AT 10% IN RESPECT OF PAN OF THE PAREN T COMPANY AND HONGKONG COMPANY IS ONLY BRANCH DOES NOT HAVE SEPAR ATE PAN NUMBER AS THE DTAA AGREEMENT. THE PROVISIONS OF SE C. 206AA OF THE ACT ARE NOT APPLICABLE IN CASES WHICH ARE GOVERNED BY DTAAS. THE LD. COUNSEL SUBMITTED THAT AMOUNT WAS OFFERED TO TAX IN THE PARENT COMPANY ASSESSMENT IN GERMANY AND THERE IS NO ESCAP EMENT OR SUPPRESSION OF INCOME OF THE ASSESSEE AND CONSIDERI NG THE FACTS, PROVISIONS OF 206AA AND DTTDA AND RELYING ON DECISI ON OF SERUM INSTITUTE OF INDIA (SUPRA ) WHEREIN HELD AS UNDER:- 4. IN APPEAL BEFORE THE CIT(A), ASSESSEE RAISED V ARIED ARGUMENTS. ASSESSEE SUBMITTED THAT THE PROVISIONS O F SECTION 206AA ARE NOT APPLICABLE TO PAYMENTS MADE T O NON-RESIDENTS. IN SUPPORT, ASSESSEE POINTED OUT THA T ITA NO.909/MDS/2015. :- 8 -: PROVISIONS OF SECTION 139A(8) OF THE ACT R.W. RULE 114C(1) OF THE INCOME TAX RULES, 1962 (IN SHORT TH E RULES) PRESCRIBE THAT NON-RESIDENTS ARE NOT REQUIR ED TO APPLY FOR PAN. ACCORDING TO THE ASSESSEE, SECTION 206AA OF THE ACT PRESCRIBED THAT THE RECIPIENT SHAL L FURNISH THE PAN AND SUCH FURNISHING WOULD BE POSSIB LE ONLY WHERE THE RECIPIENT IS REQUIRED TO OBTAIN PAN UNDER THE RELEVANT PROVISIONS. THUS, WHERE THE NON- RESIDENTS ARE NOT OBLIGED TO OBTAIN A PAN, THE REQUIREMENT OF FURNISHING THE SAME IN TERMS OF SECT ION 206AA OF THE ACT DOES NOT ARISE. SECONDLY, ASSESSEE ALSO POINTED OUT THAT THE TAX RATE APPLICABLE IN TERMS O F SECTION 206AA OF THE ACT CANNOT PREVAIL OVER THE TA X RATE PRESCRIBED IN THE RELEVANT DTAAS, AS THE RATES PRESCRIBED IN THE DTAAS WERE BENEFICIAL. IN SUPPORT OF SUCH A STAND, ASSESSEE RELIED UPON THE PROVISIONS O F SECTION 90(2) OF THE ACT, WHICH PRESCRIBE THAT PROV ISIONS OF THE ACT ARE APPLICABLE TO THE EXTENT THAT THEY A RE MORE BENEFICIAL TO THE ASSESSEE AND SINCE SECTION 206AA OF THE ACT PRESCRIBED HIGHER RATE OF WITHHOLDING TAX, IT W OULD NOT BE BENEFICIAL TO THE ASSESSEE VIS--VIS THE RAT ES PRESCRIBED IN THE DTAAS. THE CIT(A) DID NOT AGREE W ITH THE ASSESSEE ON THE POINT THAT THE NONRESIDENTS REC IPIENT ARE NOT REQUIRED TO OBTAIN PAN. SO HOWEVER, WITH RESPECT TO THE SECOND PLEA OF THE ASSESSEE, CIT(A) CONCURRED WITH THE ASSESSEE AND HELD THAT SECTION 2 06AA OF THE ACT WOULD OVERRIDE OTHER PROVISIONS OF THE A CT BUT NOT THE PROVISIONS OF SECTION 90(2) OF THE ACT. THE REFORE, ACCORDING TO THE CIT(A), WHERE THE DTAAS PROVIDE FO R A TAX RATE LOWER THAN THAT PRESCRIBED IN 206AA OF THE ACT, THE PROVISIONS OF THE DTAAS SHALL PREVAIL AND THE PROVISIONS OF SECTION 206AA OF THE ACT WOULD NOT BE APPLICABLE. THEREFORE, HE DELETED THE TAX DEMAND RA ISED BY THE REVENUE RELATABLE TO THE DIFFERENCE BETWEEN 20% AND THE ACTUAL TAX RATE PROVIDED BY THE DTAAS. AGGRIEVED WITH THE AFORESAID DECISION OF THE CIT(A) , REVENUE IS IN APPEAL BEFORE US. WE REMIT THE ISSUE TO THE FILE OF THE ASSESSING OF FICER FOR EXAMINATION FOR LIMITED PURPOSE WHETHER INCOME OFFERED IN THE HANDS OF PARENT COMPANY AND IT IS MANDATORY FOR THE ASSESSEE TO PR ODUCE INCOME TAX ITA NO.909/MDS/2015. :- 9 -: ASSESSMENT DOCUMENTS OF PARENT COMPANY BEFORE ASSE SSING OFFICER AND ASSESSING OFFICER SHALL VERIFY THE TAX LIABILIT Y PAID BY THE PARENT COMPANY AND PASS THE ORDER. ACCORDINGLY, THE APPEA L IS PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.909/MDS/2015 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 6TH DAY OF A PRIL , 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI 1 / DATED:06.04. 2016 KV 2 ) +#-34 54&- / COPY TO: 1 . '( / APPELLANT 3. ! 6- () / CIT(A) 5. 4 9: +#-# / DR 2. +,'( / RESPONDENT 4. ! 6- / CIT 6. :% ; / GF