ADDL DIT (IT) RG 4, MUMBAI V. MARUBENI CORPORATION, MUMBAI

ITA 939/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70597 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 01-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 10-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY SHRIVASTAVA
• Assessee Lawyers: V K DUGGAL
• Keywords: Depreciation; Double taxation relief; Permanent establishment; Unabsorbed depreciation

Judgement Text

, IN THE IN IN THE IN IN THE IN IN THE INCOME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL L BENCH, L BENCH, L BENCH, L BENCH, MUMBAI MUMBAI MUMBAI MUMBAI . , !' !' !' !' , . BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI B. R B. R B. R B. RAMAKOTAIAH AMAKOTAIAH AMAKOTAIAH AMAKOTAIAH, AM , AM , AM , AM & && & SHRI SHRI SHRI SHRI VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO, ,, , JM JMJM JM ./ I.T.A. N I.T.A. N I.T.A. N I.T.A. NO. O.O. O. 939/MUM/2012 939/MUM/2012 939/MUM/2012 939/MUM/2012 ( #$ #$ #$ #$ % % % % / ASSESSMENT YEAR : 2007-08) ASSISTANT DIRECTOR OF INCOME TAX (IT)-4(1), 133, SCINDIA HOUSE, BALLARD PIER MUMBAI-400038 $ $ $ $ / VS. M/S MARUBENI INDIA PVT. LTD, 25, MITTAL CHAMBERS, 2 ND FLOOR, NARIMAN POINT, MUMBAI-400021 & ./ '' ./ PAN/GIR NO. : AAACM7682D ( &( / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( )*&( / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) &( &( &( &( + + + + / APPELLANT BY : MR. AJAY SHRIVASTAVA )*&( )*&( )*&( )*&( , ,, , + + + + /RESPONDENT BY : MR. V. K. DUGGAL $ $ $ $ , ,, , - - - - / DATE OF HEARING : 1 ST AUGUST 2013 .% .% .% .% , ,, ,- - - - /DATE OF PRONOUNCEMENT: 8 TH AUGUST 2013 / / O R D E R PER : !' , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 30.11.2011 FOR THE ASSESSMENT YEAR 2007-08. 2. THE ONLY GROUND RAISED BY THE REVENUE IS AS UNDE R: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO TA X THE INTEREST ON INCOME TAX REFUND AT A LOWER RATE 10% A S PROVIDED IN THE DTAA BETWEEN INDIA AND JAPAN WITHOU T CONSIDERING THE FACT THAT INTEREST RECEIPT HAS NEXU S WITH ASSESSEES PE. 3. THE ASSESSEE IS A COMPANY INCORPORATED IN JAPAN AND IT IS HAVING A PERMANENT ESTABLISHMENT (PE) IN INDIA. THE ASSESS EE FILED RETURN OF ITA NO. 939/M/2012 MARUBENI CORPORATION 2 INCOME SHOWING NIL INCOME AFTER ADJUSTING THE BROUG HT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION. THE ASSESSMENT WA S COMPLETED ON INCOME OF ` 17,00,22,100/- BY TAXING VARIOUS INCOME INCLUDING INTEREST ON INCOME TAX REFUND OF ` 22,15,213/-. THE AO TAXED THE SAID INTEREST INCOME AS PER THE PROVISIONS OF THE ACT WHICH HAS B EEN CHALLENGED BY THE ASSESSEE BEFORE THE CIT(A) AND CLAIMED THAT THE INTEREST ON INCOME TAX REFUND ATTRACT THE TAX RATE AS PROVIDED IN INDO -JAPAN DTAA. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWI NG THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN CASE OF CLOUGH E NGINEERING LTD. VS ACIT 130 ITD 137 AND DIRECTED THE AO TO TAX THE INT EREST ON INCOME TAX REFUND AT LOWER RATE AS PROVIDED IN THE DTAA. 4. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE ISSUE IS COVERED BY THE DECISION OF SPECIAL BENCH OF THIS TR IBUNAL IN CASE OF ACIT VS CLOUGH ENGINEERING LTD. (SUPRA). WE FURTHER NOTE THAT THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF BECHTEL INTERNATIONAL INC. VS ADIT IN ITA NO. 5198/M/2010 AND 6998/M/2011 VIDE OR DER DATED 8.2.2012 HAS ALSO CONSIDERED AND DECIDED THE IDENTI CAL ISSUE BY FOLLOWING THE DECISION OF SPECIAL BENCH IN CASE OF CLOUGH ENGINEERING LTD. (SUPRA) IN PARA 10 AS UNDER: 10. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. WE ARE OF THE VIEW THAT IN THE LIGHT O F THE COMMENTARY OF KLAUS VOGEL ON THE REASON FOR USE OF THE WORD ATTRIBUTABLE IN THE US CONVENTIONS, THEY ARE IN NO WAY DIFFERENT FROM THE EXPRESSION EFFECTIVELY CONN ECTED. ITA NO. 939/M/2012 MARUBENI CORPORATION 3 US MODEL CONVENTION DEVIATES FROM OECD AND UN MODEL CONVENTIONS (MCS) BECAUSE THE TERM EFFECTIVELY CONNECTED IS A TECHNICAL TERM OF US DOMESTIC TAX L AW AND THAT IT IS DEFINED IN DETAIL IN I.R.C. SEC.864(C) W HEREAS ATTRIBUTABLE, THOUGH USED IN US DOMESTIC TAX LAW AS WELL, IS NOT DEFINED. IF US MC WERE TO REFER TO EF FECTIVELY CONNECTED, THE QUESTION WOULD ARISE WHETHER THAT T ERM WOULD BE REQUIRED BY ARTICLE 3(2) MC TO BE INTERPRE TED ON THE US SIDE IN ACCORDANCE WITH ITS DEFINITION UNDER US TAX LAW, USE OF THE TERM ATTRIBUTABLE AVOIDS THAT PRO BLEM AND THAT IS THE REASON THE EXPRESSION ATTRIBUTABLE IS USED IN US MODEL CONVENTIONS. THEREFORE THE TERM APPEARING IN US MODEL CONVENTIONS HAVE THE SAME MEANING AS THE EXPRESSION EFFECTIVELY CONNECTED. THE EXPRESSION ATTRIBUTABLE AS USED IN ARTICLE 11(5) OF THE INDIA-USA DTAA HAS THEREFORE TO BE CONSTRUED AS EQUIVALENT TO EFFECTIVELY CONNECTED. THE TECHNICA L EXPLANATION REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE WHEREBY IT HAS BEEN OBSERVED THAT THE TERM ATTRIBUTABLE IS TO BE GIVEN A NARROWER MEANING TH AN THE EXPRESSION EFFECTIVELY CONNECTED, WE FIND THAT TH E SAID TECHNICAL EXPLANATION IS IN THE CONTEXT OF ATTRIBUT ION OF PROFITS OF THE PE AND IS RELEVANT TO TAXATION OF AN INDIAN ENTERPRISE HAVING PE IN USA. NEVERTHELESS, THE EXPR ESSION ATTRIBUTABLE EVEN IF HELD TO BE EQUIVALENT TO THE EXPRESSION EFFECTIVELY CONNECTED IN THE LIGHT OF THE COMMENTARY BY KLAUS VOGEL, REFERRED TO ABOVE, THEN THE CASE OF THE ASSESSEE WOULD STAND SQUARELY COVERED I N FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECI AL BENCH IN THE CASE OF CLOUGH ENGINEERING LTD. (SUPRA ). FOLLOWING THE SAME, WE HOLD THAT THE INTEREST INCOM E ON INCOME TAX REFUND IS TO BE CHARGED TO TAX ONLY UNDE R ARTICLE 11(2) OF THE INDO-USA DTAA AND NOT UNDER AR TICLE 11(5) THEREOF. 5. FOLLOWING THE DECISION OF THIS SPECIAL BENCH IN CASE OF CLOUGH ENGINEERING LTD. AS WELL AS THE CO-ORDINATE BENCH O F THIS TRIBUNAL IN CASE OF BECHTEL INTERNATIONAL INC. WE DECIDE THIS I SSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY THE ORDER OF THE CIT(A) QUA T HIS ISSUE IS UPHELD. ITA NO. 939/M/2012 MARUBENI CORPORATION 4 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF AUGUST 2013 / , .% 0 1$2 8 TH 3 - , 3 SD/- SD/- ( . ) (B. RAMAKOTAIAH) ACCOUNTANT MEMBER ( !' ) # (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 8 TH AUGUST 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI