Panasonic Corporation, Haryana V. DCIT International Taxation, Gurgaon

ITA 9712/DEL/2019

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The case involves two separate appeals by Panasonic Holdings Corporation against orders framed under section 143(3) read with section 144C(13) of the Income Tax Act for the assessment years 2015-16 and 2017-18. The primary issue in both appeals was the taxability of salary reimbursement received by the assessee from Panasonic Holdings India Private Limited, which was treated as fee for technical services by the tax authorities. The assessee argued that the reimbursements were for actual costs incurred and did not include any mark-up, thus should not be taxed as technical services. The tribunal referenced a previous decision in ITA No.1483/CHNY/2017 for A.Y.2013-14, which had similar facts and upheld the taxability of such reimbursements. Additionally, the tribunal restored the issue of discrepancies between Form No.26AS and the income declared in the tax returns to the AO for re-examination.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 116226 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 12-12-2022
• Assessment Year: misc
• Appeal Filed On: 22-12-2019
• Other Referred Cases: Centrica India Offshore Private Limited vs. CIT, Food World Supermarkets Ltd. vs. DDIT (International Taxation)
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; TDS
• Section: 2; 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI BEFORE SH. N.K. BILLAIYA, ACCOUNTANT MEMBER AND SH. KUL BHARAT, JUDICIAL MEMBER ITA No.9712/Del/2019 & 529/Del/2022 Assessment Year: 2015-16 & 2017-18 Panasonic Holdings Corporation, C/o Panasonic India Private Limited 12 th Floor, Ambience Tower, NH-8, Ambience Island, DLF Phase-3, Sector-24, Gurugram, Haryana - 122002 PAN No. AAACM7746A Vs DCIT Gurugram (APPELLANT) (RESPONDENT) Appellant Sh. K. M. Gupta, Advocate Ms. Shruti Khimta, AR Respondent Sh. Gangadhar Panda, CIT DR Date of hearing: 13/12/2022 Date of Pronouncement: 15/12/2022 ORDER PER N.K. BILLAIYA, AM: ITA No.9712/Del/2019 and 529/Del/2022 are two separate appeals by the assessee preferred against two separate orders dated 18.10.2019 and 29.01.2022 framed u/s. 143 (3) r.w.s. 144 C(13) of the Act pertaining to A.Y. 2015-16 and 2017-18 respectively. 2. Since common grounds are involved in both these appeals they were heard together and are disposed of by this common order for the sake of convenience and brevity. 3. The common grievance in both the appeals relates to the taxability of salary reimbursement as fee for technical services amounting to Rs.42,31,34,057/-in A.Y.2015-16 and Rs. 332692921/- in A.Y.2017-18. 4. The under lying facts in the impugned issue are that the assessee has seconded certain employees to the Indian Company and had received an amount of Rs.42,31,34,057/- in A.Y. 2015-16 and Rs. 33,26,92,921/- in A.Y.2017-18 as reimbursement of employees salary which has not been offered to tax in India. The assessee was asked to show cause as to why addition of reimbursement of employee salary not be treated as fee for technical services and added to your income similar to addition made in the A.Y.2013-14. 5. The assessee filed a detailed reply stating that the assessee has received employee cost reimbursement from Panasonic Holdings India Private Limited in respect of salary cost incurred by the assessee in Japan for expats seconded to Panasonic India Private Limited for working for it. The assessee furnished complete employee wise details of total salary cost of expats including Japanese salary for which reimbursement has been received. 6. Referring to the addition made in A.Y.2013-14 the assessee submitted that the sole basis for the addition was the ruling given by the Hon’ble Delhi High Court in Centrica India Offshore Private Limited 44 taxmann.com 300 in which employee cost reimbursement was treated as FTS in the hands of recipient on the basis of peculiar findings that employees were working for overseas entity. It was explained during the year under consideration the assessee has offered to tax in India the salary cost both paid in India and paid in Japan for the expats seconded to India u/s. 192 of the Act. 7. The contention of the assessee did not find any favour with the AO who was of the firm belief that the Tribunal has already decided this issue in favour of the revenue and against the assessee in A.Y.2013-14. 8. Before us also the Counsel vehemently stated that the facts of the year under consideration are different from the facts considered by the Tribunal in A.Y.2013-14 in as much as for the year under consideration the assessee had deducted tax at source from the salary payment and the same has been declared for taxation in India. 9. We have given a thoughtful consideration to the orders of the authorities below and have carefully considered the contentions of the Counsel, there is no dispute that the facts are identical to the facts considered by the coordinate Bench in ITA No.1483/CHNY/2017 for A.Y.2013-14. Merely because the assessee has deducted tax at source would not change the colour of the transaction. The coordinate Bench considering the issues held as under :- “20. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the Transfer Pricing Officer found that there was no adjustment required in respect of reimbursement of salary cost received by the assessee towards employees deputed to Panasonic India Pvt. Ltd. Taking advantage of the Transfer Pricing Officer’s order, the Ld. representative for the assessee claimed before this Tribunal that the Assessing Officer is bound by the order of the Transfer Pricing Officer, therefore, he is bound to pass an order in conformity with the order of the Transfer Pricing Officer. On a query from the Bench, when the Assessing Officer chose to pass a draft assessment order under Section 144C(1) of the Act instead of passing an order in conformity with the order of the Transfer Pricing Officer, whether the assessee is challenging the jurisdiction of the Assessing Officer in passing the draft assessment order, the Ld. representative for the assessee very fairly submitted that he is not challenging the jurisdiction of the Assessing Officer in passing the draft assessment order under Section 1440(1) of the Act. In view of this submission of the Ld. representative for the assessee, we are not going into the controversy whether the Assessing Officer can pass a draft assessment order under Section 1440(1) of the order instead of passing an order in conformity with the order of the Transfer Pricing Officer as provided under Section 92CA(4) of the Act. 21. Now, coming to merit of the appeal, the Assessing Officer disallowed the claim of the assessee only on the ground that the assessee received assessee fee for technical service. The Assessing Officer and DRP also found that the technical knowledge was made available to the Panasonic India Pvt. Ltd. The assessee also could not file reconciliation with regard to receipt and the actual payment made by the assessee before the DRP and before this Tribunal. The Assessing Officer as well as the DRP found that the payment received by the assessee is for technical service. The Assessing Officer has observed as under:- • "The personnel seconded are all in senior Technical / Managerial positions who report to the president and vice president who inturn report to the assessee and hence the ultimate responsibility and the direction, control and supervision of the personnel vested with Panasonic Japan. • The case of employment with Panasonic India is, unlike an independent employment comes with a lien marked on the employment with the parent and the employee is not at a free will to move anywhere but only to go back to the parent on expiry of their tenure. • The employees never ceased to be the employees of overseas entities. As submitted by assessee there are no termination of employment with Panasonic Corporation. Hence the salary paid to the employees of Panasonic Corporation has borne out of the inherent obligation in the Panasonic Corporation as the employer. Panasonic Japan on a request / requisition from Panasonic India deputes its / group entities staff based on Indian company's requirement. The personnel seconded are all in the Senior Managerial positions. On completion of their tenure, the personnel are repatriated to the parent company. The personnel retain their lien when they come to India. They lend their experience as an employee of Panasonic Japan only and not otherwise as the groups / processes standards are sought to be implemented. • The deputed personnel have come to India, to imbibe the culture of the group and ensure the application of the Panasonic group policies / processes and other quality standards in Panasonic India. This clearly demonstrates once the processes and policies are imbibed / retained, there is no need for the personnel again and Panasonic India can apply the same by itself. Hence the services have also made available the technical knowledge / skill and experience." 22. The DRP has observed as follows at para 4.4 of its order:- “4.4. Thus these employees had just been deputed with Panasonic India for providing certain services to it as they had specific skill set and expertise. As per clause B on page 1 of the agreement, the Panasonic India requires support from the assessee as the expertise can be provided by its staff alone and not by local recruitment. In its reply dt 28.09.2016, the assessee had submitted that the purpose of seconding these employees was the utilization of technical as well as leadership skills of the group entities for specific time and establishing the global practices in new markets etc. for the Indian entities to which they were deputed. These aspects make it evident that the agreement for seconded employees with the AE is nothing but provision of certain technical services being provided by the assessee to Panasonic India. The mere fact that as per the agreement these employees would be performing under direction and control of the assessee, does not change their status of employment with the assessee, of which they are employees. This is a very common method, which a service provider uses for providing services to its customers. The service provider deputes its employees with the customer and those employees perform the requisite tasks or provide requisite services to the customer. Here in this case the work being performed by the employee for the parent employer is providing services to the customer, while the work performed for the customer, with whom he is deputed, is the providing requisite services. This kind of functioning is not only prevalent in private sector but in Government sector also, when employee of one Government (say Central Government) moves to the State Government or vice versa on deputation etc. 23. Moreover, the DRP placed its reliance on the decision of Bangalore Bench of this Tribunal in Food World Supermarkets Ltd. v. DDIT (International Taxation) (2015) 63 taxmann.com 43. The DRP concluded that the receipt has to be considered as fee for technical services in respect of non-resident irrespective of the fact whether it was received with mark up or cost to cost basis. The DRP also placed its reliance on the judgment of Delhi High Court in Centrica India Offshore (P.) Ltd. v. CIT (2014) 44 taxmann.300. After referring to the failure of the assessee to reconcile the receipts to the actual payments in order dated 15.02.2017, the DRP found that what was reimbursed is a part of salary and it is not social security benefit alone. This observation of the Assessing Officer as well as DRP could not be controverted by the assessee by producing necessary material before this Tribunal. In view of the fact that the employees of Panasonic Corporation Japan are all senior technical / managerial position who reported to the President and Vice President who, in turn, was expected to report to the assessee herein, the seconded employees have to work as per the direction, control and supervision of the Panasonic Corporation Japan. Since the employees deputed by the assessee are high level technical executives and they are rendering highly technical services to Panasonic Corporation India Pvt. Ltd., the payments for such services would fall within the ambit of fee for technical services as defined in Explanation 2 to Section 9(1 )(vii) of the Act. Moreover, as rightly observed by the Assessing Officer, the technology was made available to the subsidiary in India, therefore, there is no need for the employees of the assessee to come again. Hence, this Tribunal do not find any reason to interfere with the order of the lower authorities and accordingly the same is confirmed.” 10. Respectfully following the decision of the Coordinate Bench (supra) we do not find any reason to interfere with the findings of the AO/DRP this common ground is accordingly dismissed in both the appeals. 11. The second issue in ITA No.9712/Del/2019 for A.Y.2015-16 is the addition on account of difference in amount as per form No.26AS and income declared in the return of income. 12. During the course of the scrutiny assessment proceedings the assessee was asked to reconcile amounts reported in form No.26AS. The assessee filed its response as under :- Nature of Party Amount as per 26AS Income offered to tax in India Amount no offered to tax in India Samsung R&D Institute Indian Bangalore Private Limited 1,12,79,416 1,12,79,416 Panasonic Energy India Company Limited 7,69,37,851 7,2344,346 Difference of Rs 46,23,505 on account of TDS deducted on service tax on Royalty Panasonic Appliances India Company Limited 4,72,93,558 4,72,93,558 Panasonic Carbon India Co. Ltd 1,37,51,713 1,37,51,713 9 Panasonic India Private Limited 31,74,03,561 31,74,03,561 Panasonic AVC Networks India Co. Ltd. 20,23,65,800 19,58,19,013 Difference of Rs.65,46,787 is reimbursement of cost incurred by the assessee on which Panasonic AVC deducted TDS. As per assessee, there is no element of income in this amount. Anchor Electricals Private Limited 25,25,29,930 23,31,34,182 Difference of Rs.1,93,95,748 is reimbursement of cost on which Anchor Electricals Private Limited deducted TDS. As per assessee, there is no element of income in this amount. 13. The explanation given by the assessee in respect of Panasonic AVC networks India Company Limited difference amounting to Rs.65,46,787/-and Anchor Electricals Private Limited difference amounting to Rs.1,93,95,748/- was not 10 accepted by the AO who accordingly made the impugned addition. 14. Before us the Counsel for the assessee vehemently stated that in respect of difference in the case of Panasonic AVC networks the difference in nature of cost discharge for the market survey carried out through a Singapore entity on behalf of Panasonic such cost was recouped by the assessee from Panasonic AVC. It is the say of the Counsel that such recoupment does not include any mark-up and thus are in nature of pure reimbursement. In case of Anchor Electricals Pvt. Ltd. the difference is on account of reimbursement on which tax was with held by Anchor Electricals Pvt. Ltd. inadvertently at the time of making payment. 15. Per contra the DR strongly supported the findings of the AO/ DRP. 16. We have carefully considered the orders of the authorities below. We find that in so far as the difference of Rs.65,46,787/- in respect of Panasonic AVC Networks is concerned. The explanations of the assessee were dismissed stating that no invoices or agreement was provided to ascertain the nature of transaction. Same is the fate for the difference in the case of Anchor Electricals Private Limited though we find that the assessee has furnished copies of invoices with its submission 11 before the DRP which have not been considered by the DRP as well as by the AO, therefore, in the interest of justice and fair play we deem it fit to restore this issue to the files of the AO more so because before us the Counsel has emphatically brought to our notice the documentary evidences furnished and the silence of the DRP/ AO on such documentary evidences. The assessee is directed to furnish the evidences before the AO and the AO is directed to examine the evidences and decide the issue afresh after affording a reasonable and adequate opportunity of being heard to the assessee. 17. In the result, ITA No.9712/Del/2019 is allowed in part for statistical purpose and ITA No.529/Del/2022 is dismissed. Order pronounced in the open court on 15.12.2022. Sd/- Sd/- (KUL BHARAT) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER *NEHA, Sr. Private Secretary* Date:- .12.2022 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI