MARKSONS PHARMA LIMITED, V. ACIT CC 18 & 19,

MA 107/MUM/2015

• Counselvise Citation: [2015] 124 COUNSELVISE.COM (IT) 3280 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 05-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: L
• Assessment Year: 2006-2007
• Appeal Filed On: 01-04-2015
• Court: TRIBUNAL
• Assessee Lawyers: HARSH BUTA
• Keywords: Business income; Permanent establishment
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANJAY GARG , J M M A NO. 107 / MUM/20 1 5 (ARISING OUT OF ITA NO . 6905 /MUM/20 1 0 ) ( ASSESSMENT YEAR S : 200 6 - 0 7 ) M/S MARKSONS PHARMA LTD., 21 ST FLOOR, LOTUS BUSINESS PARK, OPP. NEW LINK ROAD, ANDHERI(WEST), MUMBAI - 53 VS. ACIT, CENTRAL CIRCLE - 18&19, MUMBAI ./ ./ PAN/GIR NO. : A AACT 3153 G ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI HARSH BUTA REVENUE BY : SHRI JITENDRA KUMAR DATE OF HEARING : 29 TH MAY, 2015 DATE OF PRONOUNCEMENT : 5 - 6 - 2015 O R D E R PER R.C.SHARMA, AM : TH IS MISCELLANEOUS APPLICATION AROSE OUT OF ITA NO. 6905 /MUM/20 10 , VIDE ORDER DATED 22 - 2 - 2015 . 2. WE HAVE GONE THROUGH THE MISCELLANEOUS PETITION AND FOUND THAT IN GROUND NO.B, DEPARTMENT WAS AGGRIEVED FOR PARTLY DELETI NG THE ADDITION MADE U/S.40(A) OF THE ACT ON ACCOUNT OF REMITTANCE OF FCCB ISSUES EXPENSES TO A NON - RESIDENT. THE CONTENTION OF LD. AR WAS THAT THE TRIBUNAL HAS NOT GIVEN SEPARATE AND SPECIFIC REASON FOR CONFIRMING THE ACTION OF THE CIT(A) IN RESPECT OF FC CB ISSUE EXPENSES. WE FOUND THAT THE TRIBUNAL HAS CONFIRMED THE ACTION OF CIT(A) BY OBSERVING THAT WHILE DELETING THE DISALLOWANCE THE CIT(A) HAS RELIED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RAYMOND LTD., 86 ITD 791 AND GUJARAT AM BUJA CEMENT, 2 SOT 784. THE CIT(A) FOUND THAT PROFESSIONAL FEE PAID TO DEUTSCHE BANK AG THROUGH ITS HONG KONG MA NO. 107 /20 1 5 2 BRANCH CANNOT BE TAXED IN INDIA IN VIEW OF THE FACT THAT THIS BUSINESS PROFITS WERE NOT EARNED THROUGH THE PERMANENT ESTABLISHMENT IN INDIA, AFTER HAVING THE FOLLOWING OBSERVATIONS : - 13.1 NO DOUBT UNDERWRITING COMMISSION IS INCOME EARNED FROM BUSINESS. HOWEVER, THE UNDERWRITING SERVICES WERE UNDERTAKEN BY THE HONG KONG BRANCH OF DEUTSCHE BANK AG AND ALL THE SERVICES WERE RENDERED OUTSIDE INDIA. TH E DEUTSCHE BANK AG IS THE TAX RESIDENT OF GERMANY AND THERE IS A DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND GERMANY. FURTHER, THE UNDERWRITING COMMISSION EARNED BY HONG KONG BRANCH OF DEUTSCHE BANK AG CANNOT BE CONSIDERED AS THE INCOME EA RNED THROUGH ANY PERMANENT ESTABLISHMENT (PE) IN INDIA. THE BUSINESS INCOME OF A FOREIGN ENTITY OF A TREATY COUNTRY CAN BE TAXED IN INDIA ONLY IF THAT BUSINESS INCOME IS EARNED THROUGH A PE IN INDIA. IN VIEW OF THIS, THE ENTIRE UNDERWRITING COMMISSION IS N OT LIABLE TO BE TAXED IN INDIA. IN VIEW OF THE ABOVE DISCUSSIONS, I HOLD THAT THE UNDERWRITING COMMISSION CANNOT BE CONSIDERED AS THE FEES FOR TECHNICAL SERVICES AND HENCE, CANNOT BE TAXED U/S.9(1)(VII) OF THE I.T.ACT AND THE BUSINESS PROFITS EARNED BY THE DEUTSCHE BANK AG THROUGH ITS HONG KONG BRANCH CANNOT BE TAXED IN INDIA IN VIEW OF THE FACT THAT THIS BUSINESS PROFITS WERE NOT EARNED THROUGH THE PERMANENT ESTABLISHMENT IN INDIA. CONSIDERING ALL THESE FACTS, I HOLD THAT THE TAX IS NOT DEDUCTIBLE ON THIS UNDERWRITING COMMISSION OF RS. 5,55,76,125/ - PAID TO THE HONG KONG BRANCH OF DEUTSCHE BANK AG. 3. THE CIT(A) ALSO OBSERVED THAT PROFESSIONAL FEE PAID TO DEUTSCHE BANK IS NOT LIABLE TO TAX IN VIEW OF THE FACT THAT UNDERWRITING COMMISSION IS PAID TO THE UN DERWRITERS FOR UNDERTAKING THE RISK I.E. IN CASE THE ISSUE IS NOT SUBSCRIBED FULLY THEN THE UNDERWRITER HAS TO SUBSCRIBE. HENCE, THE UNDERWRITING COMMISSION IS NOT THE PAYMENT FOR ANY PROFESSIONAL MA NO. 107 /20 1 5 3 SERVICES OR TECHNICAL SERVICES DONE. IT IS THE PAYMENT MADE FOR THE RISK UNDERTAKEN. THEREAFTER APPLYING THE PROPOSITION OF LAW LAID DOWN BY THE MUMBAI TRIBUNAL IN CASE OF RAYMOND LTD. VS. DCIT, 86 ITD 791, THE CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO . FURTHERMORE, THE PAYMENT MADE TO THE BANK ON ACCOUNT OF BANK CHARGES RS.8,6,50/ - AND PAYMENT MADE FOR PRINTING CHA R GES OF RS.3,31,522/ - WAS HELD TO BE NOT FEE FOR TECHNICAL SERVICES. THE CIT(A) FOUND THAT THESE SERVICES WERE RENDERED OUTSIDE INDIA AND NOT BY ANY PE IN INDIA, ACCORDINGLY, IT WAS HELD THAT TDS IS NOT DEDUCTIBLE FOR THESE TWO PAYMENTS. WITH REGARD TO OUT OF POCKET EXPENSES OF DEUTSCHE BANK $47,626, THE CIT(A) OBSERVED THAT ENTIRE EXPENSES OF LODGING, BOARDING, CONVEYANCE, CONFERENCE EXPENSES, TELEPHONE, PRINTING & STATIONERY ETC. WERE INCURRED BY D B. THESE EXPENSES WERE INCURRED DURING PROCESS OF PLACEMENT OF FCCB ISSUE WITH FOREIGN INVESTORS. SINCE IT WAS MERELY IN THE NATURE OF REIMBURSEMENT OF EXPENSES, IT CANNOT BE CONSIDERED AS HAVING AN INCOME ELEMENT IMBEDDED THEREIN SO AS TO ATTRACT SECTION 195(1) OF THE ACT. SINCE FINDING RECORDED BY THE LD. CIT(A) WAS AS PER MATERIAL ON RECORD AND A FTER CONSIDERING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF INDUSTRIAL ENGINEERING PROJECTS (P) LTD., THE CIT(A) HAS DELETED THE DISALLOWANCE. HENCE , WE DID NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). ACCORDINGLY, WE CONFIRM ED THE ACTION OF THE CIT(A) FOR DELETING THE DISALLOWANCE OF RS. 5,55,76,125/ - OUT OF TOTAL DISALLOWANCE OF RS.7,46,70,898/ - MADE U/S.40(A) ON ACCOUNT OF MA NO. 107 /20 1 5 4 REMITTANCE OF FCCB ISSUE EXPENSES TO A NON - RESIDENT WITHOUT DEDUCTING TAX. 4. AFTER GOING THROUGH THE ABOVE DETAILED DISCUSSION OF CIT(A) IN THE IMPUGNED ORDER AND ALSO CONSIDERING THE ORDER OF ITAT AND HONBLE HIGH COURT AS AND RELIED ON BY CIT(A), WE DID NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). IT HAS BEEN SPECIFICALLY RECORDED IN OUR ORDER THAT THE CIT(A) HAS GIVEN A DETAILED FINDING ON THE ISSUE TO WHICH WE HAVE AGREED. HENCE, ANY SEPARATE FINDING WAS NOT REQUIRED ON OUR PART. HOWEVER, SINCE THE ASSESSEE HAS STRESSED THA T SEPARATE FINDING HAS NOT BEEN GIVEN, HENCE, WE HAVE DISCUSSED THE ISSUE IN DETAIL AS ABOVE. 5 . IN THE RESULT, MISCELLANEOUS APPLICATION OF THE ASSESSEE IS DISPOSED OF IN THE TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 05/06 /2015 SD/ - ( SANJAY GARG ) SD/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 05/06 /201 5 . . /PKM , . / PS / CO PY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//