Onyx Asia Services Pte Limited, Singapore V. ADIT, CHENNAI

ITA 966/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9292 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 09-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR MILIND MADUKAR BHUSARI
• Assessee Lawyers: S SRIDHAR
• Keywords: Business income; Double taxation relief; Maximum Marginal Rate; Permanent establishment; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . , . , $ % BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.1895 /MDS/2011 & 965 &966/MDS/2014 ( / ASSESSMENT YEARS: 2003-04 TO 2005-06) M/S. ONYX ASIA SERVICES PTE. LTD., 5, LOYANG WAY 1, SINGAPORE-508 706. C/O.S.SHAMUGAM & CO., C.AS 3A, RAJARATNAM APARTMENTS, 59, TTK ROAD, ALWARPERT,CHENNAI-18. VS . ASSISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION-I, 121, M.G.ROAD, CHENNAI-34. PAN: AAACO5593R ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR, ADVOCATE /RESPONDENT BY : DR.MILIND MADUKAR BHUSARI, CIT /DATE OF HEARING : 19 TH MAY, 2016 /DATE OF PRONOUNCEMENT : 23 RD MAY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE THREE APPEALS ARE FILED BY THE ASSESSEE AGGRIEVED BY THE SEPARATE ORDERS OF THE LEARNED ASS ISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL-I, CHENNAI DA TED 22.09.2011 FOR THE ASSESSMENT YEAR 2003-04 AND 31.0 1.2014 FOR THE ASSESSMENT YEARS 2004-05 & 2005-06 PURSUANT TO THE ORDERS OF THE DRP., CHENNAI DATED 18.08.2011 & 20.1 2.2013 RESPECTIVELY PASSED UNDER SECTION 143(3) R.W.S. 147 & 144C(13) OF THE ACT. SINCE THE ISSUE IS COMMON IN THESE 2 ITA NO.1895/MDS/2011 & 965 & 966/MDS/2014 APPEALS, THEY ARE HEARD TOGETHER AND DISPOSED OFF B Y THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEALS, HOWEVER, THE ONLY COMMON GROUND ARGUED BY THE LEARNED AUTHORIZED REPRESENTATIVE BEFORE US IS REP RODUCED HEREIN BELOW FOR ADJUDICATION:- THE LEARNED ASSESSING OFFICER HAS ERRED IN TREATING THE TECHNICAL FEES RECEIVED BY THE ASSESSEE AS BUSINESS PROFITS IN TERMS OF PROVISIONS OF CHAPTER IV-D OF THE ACT UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND TAXED THE MAXIMUM MARGINAL RATE OF 40% INSTEAD OF 20% PAID BY THE ASSESSEE AS PER SECTION 115A (1)(B) OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FOREIGN COMPANY ENGAGED IN THE BUSINESS OF ENVIRONMENTAL SE RVICES ACTIVITIES LIKE MUNICIPAL SOLID AND LIQUID WASTE CO LLECTION, MUNICIPAL CLEANSING, INDUSTRIAL CLEANSING AND OTHER RELATED ACTIVITIES INCLUDING CONSULTANCY AND ENGINEERING SE RVICES IN THE FIELD OF WASTE MANAGEMENT, FILED ITS RETURNS OF INCOME FOR THE RELEVANT ASSESSMENT YEARS AND SUBSEQUENTLY THE ASSESSMENTS WERE TAKEN UP FOR SCRUTINY AND THE ASSE SSMENTS 3 ITA NO.1895/MDS/2011 & 965 & 966/MDS/2014 WERE COMPLETED BY THE LEARNED ASSESSING OFFICER UN DER SECTION 143(3) R.W.S. 147 & 144C(13) OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAD COMPUTED TAX AT THE RATE SPECIFIED IN S ECTION 115A OF THE ACT WITH RESPECT TO THE INCOME EARNED B Y THE ASSESSEE FOREIGN COMPANY TOWARDS TECHNICAL FEE RECE IVED FROM M/S.CES ONYX PVT. LTD. CHENNAI. SINCE THE ASS ESSEE COMPANY DID NOT FULFILL THE CONDITIONS STIPULATED I N SECTION 115A OF THE ACT, THE LEARNED ASSESSING OFFICER COMP UTED THE TAX PAYABLE BY THE ASSESSEE AS PER THE REGULAR RATE S APPLICABLE TO FOREIGN COMPANIES. 5. ON APPEAL, THE LEARNED DRP CONFIRMED THE ORDERS OF THE LEARNED ASSESSING OFFICER FOR THE ASSESSMENT YE AR 2003- 04 BY OBSERVING AS UNDER:- IN CONTEXT WITH GROUND NO.2, THE ASSESSING OFFICER HAS TAXED THE INCOME OF THE ASSESSEE COMPANY AT THE MAXIMUM MARGINAL RATE OF 40% ON TWO GROUNDS. THE ASSESSING OFFICER HAS REJECTED THE CLAIM OF THE ASSESSEE COMPANY THAT THE INCOME SHOULD BE TAXED AT SPECIAL RATE U/S 115A OF THE INCOME TAX ACT; 1961. FROM AO'S POINT OF VIEW AIL INCOME WHICH IS RECEIVED 4 ITA NO.1895/MDS/2011 & 965 & 966/MDS/2014 AS FEE FOR TECHNICAL SERVICE CAN BE TAXED AT SPECIA L RATE U/S 115A OF THE ACT ONLY IF THE AGREEMENT FOR REND ERING SUCH SERVICES SATISFIES THE FOLLOWING CONDITIONS:- I) THE AGREEMENT SHOULD BE WITH THE GOVERNMENT OF INDIA II) THE AGREEMENT SHOULD BE WITH THE INDIAN CONCERN AND THE AGREEMENT SHOULD HAVE BEEN APPROVED BY THE CENTRAL GOVT. (OR) III) THE MATTER SHOULD HAVE BEEN INCLUDED IN THE INDUSTRIAL POLICY IN FORCE. 4.2 THE AO HAS CONTENDED THAT THE AGREEMENT BY THE ASSESSEE COMPANY DO NOT SATISFY ANY OF THESE CONDITIONS AS THE AGREEMENT IS NOT WITH THE GOVERNMENT OF INDIA AND IT IS WITH ITS WHOLLY OWNED SUBSIDIARY M/S C. E.X ONYX INDIA PRIVATE LIMITED, CHENNAI. THE AGREEMENT WAS NOT APPROVED BY THE CENTRAL GOVERNMENT AND THE MATTER INVOLVED HAS NOT BEEN INCLUDED IN THE INDUSTRIAL POLICY IN FORCE. HE NCE THE AO HAS COMPUTED THE TAX FOR THE INCOME AT REGUL AR RATE OF TAX PREVAILING DURING THE AY 2003-04 AT 40% . 4.3 THE ASSESSEE HAS DISPUTED THIS ISSUE STATING TH AT THE GOVT. OF INDIA HAS APPROVED THE ESTABLISHMENT O F WHOLLY OWNED SUBSIDIARY VIDE ITS LETTER NO. FC.N.:17(1999)/728(1999) DATED 21-01-2000. FURTHER, THE ASSESSEE COMPANY HAS STATED THAT THE RESERVE BANK OF INDIA HAS APPROVED THE TECHNICAL SERVICE AGREEMENT MADE BETWEEN. M/S ONYX ASIA SERVICES PRIVATE LIMITED, SINGAPORE AND M/S C. E.S. ONYX PVT LIMITED, CHENNAI, INDIA AND APPROVED FOR REMITTANCE OF US$ 6,00,000/- PER YEAR FOR TWO YEARS BEING THE TECHNICAL ASSISTANCE FEE. THE ASSESSEE HAS CLAIMED THAT THE APPROVAL FROM GOVERNMENT OF INDIA FOR ESTABLISHING A V;JOS AND THE APPROVAL OF THE AGREEMENT BY THE RBI HAVE TO BE TAKEN AS : APPROVAL OF THE CENTRAL GOVERNMENT. SECTION 115 A (B) OF THE INCOME TAX ACT S TATES THAT .. A FOREIGN COMPANY, INCLUDES ANY INCOME BY WAY OF ROYALTY OR' FEES FOR TECHNICAL SERVICES RECEIVED FROM GOVERNMENT OR AN INDIAN CONCERN IN PURSUANCE OF AN AGREEMENT MADE BY THE FOREIGN COMPANY WITH GOVERNMENT OR C:HE INDIAN CONCERN AFTER 5 ITA NO.1895/MDS/2011 & 965 & 966/MDS/2014 THE 31ST DAY OF MARCH,. 1976, AND WHERE SUCH AGREEMENT IS WITH AN INDIAN CONCERN, THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERNMENT OR WHERE IT RELATES TO A MATTER INCLUDED IN THE INDUSTRIAL POLICY, FOR THE TIME BEING IN FORCE, OF THE GOVERNMENT OF INDIA, THE AGREEMENT IS IN ACCORDANCE WITH THAT POLICY, THEN, SUBJECT TO THE PROVISIONS OF SUB-SECTIONS (LA) AND (2), THE INCOME-TAX PAYABLE SHALL BE THE AGGREGATE OF, - (B) THE AMOUNT OF INCOME-TAX CALCULATED ON THE INCOME BY WAY OF FEES FOR TECHNICAL SERVICES, IF ANY, INCLUDED IN THE TOTAL INCOME, AT THE RATE O F THIRTY PER CENT IF SUCH FEES FOR TECHNICAL SERVICES ARE RECEIVED IN PURSUANCE OF AN AGREEMENT MADE ON OR BEFORE THE 31ST DAY OF MAY, 1997 AND TWENTY PER CENT WHERE SUCH FEES FOR TECHNICAL SERVICES ARE RECEIVED IN PURSUANCE OF AN AGREEMENT MADE AFTER THE 31ST DAY OF MAY, 1997; FROM THE RECORDS PERUSED, IT IS CLEAR THAT THE TECHNICAL SERVICE AGREEMENT MADE BETWEEN M/S ONYX ASIA SERVICES PRIVATE LIMITED, SINGAPORE AND M/S C.E.S. ONYX PVT LIMITED, CHENNAI, INDIA DATED 10-11-2000 HAS NOT BEEN APPROVED BY THE CENTRAL GOVERNMENT. THE GOVERNMENT OF INDIA HAS GIVEN THE APPROVAL ONLY TO ESTABLISH A WOS TO BE ENGAGED IN THE ENVIRONMENTAL SERVICE ACTIVITIES. IT IS TO BE NOTED THAT NOWHERE IN THE LETTER IS MENTIONED THAT THE FOREIGN COLLABORATOR CAN ENTER INTO A TECHNICAL SERVICE AGREEMENT WITH THE WOS. FURTHER, THE APPROVAL GIVEN BY THE 'RESERVE BANK OF INDIA FOR THE AGREEMENT CANNOT BE TAKEN AS THE APPROVAL OF THE CENTRAL GOVERNMENT. HENCE IT IS CONSTRUED THAT THE AGREEMENT HAS NOT OBTAINED THE APPROVAL OF THE CENTRAL GOVERNMENT. THUS WE FIND NO VALID REASONS TO DIFFER WITH THE FINDINGS ARRIVED AT BY THE ASSESSING OFFICER IN THIS REGARD. 4.6 THE ASSESSING OFFICER HAS CLAIMED THAT THE TECHNICAL SERVICES HAS BEEN RENDERED THROUGH THE LIAISON OFFICE ESTABLISHED BY THE ASSESSEE COMPANY IN INDIA-AND HENCE THE LIAISON OFFICE HAS TO BE TREATED AS PERMANENT ESTABLISHMENT OF THE FOREIGN COMPANY AND THE INCOME HAS TO BE TAKEN AS THE BUSINESS INCOME OF THE LIAISON 6 ITA NO.1895/MDS/2011 & 965 & 966/MDS/2014 OFFICE IN CHENNAI. THE ASSESSING OFFICER HAS POINTED OUT THAT THE TECHNICAL SERVICE WAS PROVIDED TO THE DOMESTIC COMPANY THROUGH THE LIAISON OFFICE THROUGH CONSULTANCY FROM OFF SHORE OFFICES AS WELL AS DEPUTATION OF PERSONNEL IN CHENNAI. ASSISTANCE WAS PROVIDED IN THE PROCUREMENT OF IMPORTED CAPITAL EQUIPMENTS. HE HAS FURTHER STATED THAT THESE ACTIVITIES GO BEYOND THE FACTOR OF PROVIDING TECHNICAL AND MANAGERIAL SERVICES BY THE ASSESSEE COMPANY LEADING TO THE INTERPRETATION OF THE, NATURE OF BUSINESS ACTIVITIES BY THE ASSESSEE COMPANY ROUTED THROUGH ITS LIAISON OFFICE. ARTICLE 5 OF THE INDIA SINGAPORE TREATY DEFINES 'PERMANENT ESTABLISHMENT' AS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF A FOREIGN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. THE ASSESSING OFFICER ALSO MAINTAINED THAT THE ISSUE OF RBI GUIDELINES IS NOT ONE TO INFLUENCE THE ISSUE OF TAXATION AND HENCE IT HAS TO BE TAKEN THAT THE ASSESSEE COMPANY CARRIED OUT BUSINESS ACTIVITY THROUGH ITS LIAISON OFFICE IN INDIA IN TER MS OF ARTICLE 5 READ WITH ARTICLE 7 OF THE DTAA BETWEEN INDIA AND SINGAPORE. 4.7. THE ASSESSEE COMPANY HAS DISPUTED IN THIS REGARD STATING THAT THE LIAISON OFFICE DID NOT INVOLVE IN ANY BUSINESS ACTIVITY IN INDIA AND IT WAS ESTABLISHED SOLELY FOR THE PURPOSE OF ACTING AS A COMMUNICATION CHANNEL BETWEEN THE HEAD OFFICE AND THE PARTIES IN INDIA. IT RELIES ON THE APPROVAL GIVEN BY RBI AND ITS GUIDELINES. 4.8 THE ASSESSEE HOWEVER HAS FAILED TO BRING OUT SUBSTANTIATED RECORDS IN THIS REGARD TO PROVE THAT THE LIAISON OFFICE DID NOT IN FACT INVOLVE ITSELF I N THE BUSINESS ACTIVITY. THE RBI GUIDELINES CANNOT INFLUENCE THE ISSUE OF TAXATION. MOREOVER, THE ASSESSEE COMPANY HAS NOT SUBSTANTIATED THE PURPOSE OF ESTABLISHMENT OF LIAISON OFFICE IN INDIA. HENCE FOR THESE FACTS ALSO WE FIND NO REASON TO INTERFERE WITH THE PROPOSED LINE OF ACTION BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER IN THIS REGARD. THIS GROUND ALSO IS THEREFORE DISMISSED. FOR THE SUBSEQUENT ASSESSMENT YEARS ALSO, THE LEARN ED DRP HAS FOLLOWED ITS EARLIER ORDER. 7 ITA NO.1895/MDS/2011 & 965 & 966/MDS/2014 6. BEFORE US, AT THE TIME OF ARGUMENT THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESS EE HAS OBTAINED THE REQUISITE APPROVAL FROM THE CENTRAL GO VT. VIDE LETTER DATED 21.01.2000 IN NO.FC.II : 17(1999) /728 (1999) WHICH IS PLACED IN PAGE NO.31 OF THE PAPER BOOK. H E FURTHER SUBMITTED THAT AN OPPORTUNITY MAY BE PROVIDED BEFOR E THE LEARNED ASSESSING OFFICER SO THAT THE ASSESSEE MAY BE ABLE TO CONVINCE THE LEARNED ASSESSING OFFICER REGARDING THE APPROVAL OF THE PROJECT BY THE CENTRAL GOVT.. IN AC CORDANCE WITH SECTION 115A(1)(B) OF THE ACT. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY OPPOSED TO THE SUBMISSIONS OF THE ASSESSEE AND ARGU ED IN SUPPORT OF THE ORDERS OF THE REVENUE. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM TH E FACTS OF THE CASE IT APPEARS THAT THE ASSESSEE HAD OBTAINED THE APPROVAL FROM THE CENTRAL GOVERNMENT VIDE LETTER DA TED LETTER DATED 21.01.2000 IN NO.FC.II : 17(1999) /728(1999) WHICH IS 8 ITA NO.1895/MDS/2011 & 965 & 966/MDS/2014 PLACED IN PAGE 31 OF THE PAPER BOOK. HOWEVER, THE L EARNED DRP HAD CONFIRMED THE ORDER OF THE LEARNED ASSESSIN G OFFICER OBSERVING AS UNDER:- 4.5 ---------------THE GOVERNMENT OF INDIA HAS GI VEN THE APPROVAL ONLY TO ESTABLISH A WOS TO BE ENGAGED IN THE ENVIRONMENTAL SERVICE ACTIVITIES. IT IS TO BE N OTED THAT NOWHERE IN THE LETTER IT IS MENTIONED THAT THE FOREIGN COLLABORATOR CAN ENTER INTO A TECHNICAL SERVICE, AGREEMENT WITH THE WOS. FURTHER, THE APPROVAL GIVEN BY THE RESERVE BANK OF INDIA FOR THE AGREEMENT CANN OT BE TAKEN AS THE APPROVAL OF THE CENTRAL GOVERNMENT. HENCE, IT IS CONSTRUED THAT THE AGREEMENT HAS NOT OBTAINED THE APPROVAL OF THE CENTRAL GOVT. THUS, WE FIND NO VALID REASONS TO DIFFER WITH THE FINDINGS ARRIVE D AT BY THE ASSESSING OFFICER IN THIS REGARD. 9. KEEPING IN VIEW OF THE ABOVE REMARKS MADE BY THE LEARNED DRP AND THE SUBMISSIONS OF THE LEARNED AUTH ORIZED REPRESENTATIVE, IN THE INTEREST OF JUSTICE, WE ARE OF THE CONSIDERED OPINION THAT THE ENTIRE ISSUE HAVE TO BE CONSIDERED AFRESH BY THE LEARNED ASSESSING OFFICER. THEREFORE, WE HEREBY REMIT THE MATTERS BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR DE NOVO CONSIDERATION AND ALSO WITH A DIRECTION TO ADMIT ANY RELEVANT FRESH EVIDEN CE FURNISHED BY THE ASSESSEE IN SUPPORT OF ITS CASE AN D THEREAFTER PASS APPROPRIATE ORDERS AS PER MERIT AND LAW, AFTER 9 ITA NO.1895/MDS/2011 & 965 & 966/MDS/2014 AFFORDING SUFFICIENT OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. 10. IN THE RESULT, ALL THE THREE APPEALS OF THE ASS ESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 23 RD MAY, 2016 SD/- SD/- ( . ) ( . ) (G.PAVAN KUMAR) ( A.MOHAN ALANKAM ONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 23 RD MAY, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF