FEDERAL EXPRESS CORPORATION , MUMBAI V. THE DEPUTY COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION)-2(3)(1), MUMBAI, MUMBAI

MA 204/MUM/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9476 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 06-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2014-2015
• Appeal Filed On: 19-08-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Competent authority

Judgement Text

M.A NO 204/MUM/2020 ARISING OUT ITA NO. 7312/MUM/2018 ASSESSMENT YEAR 2014 - 15 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH, MUMBAI [CORAM: PRAMOD KUMAR (VICE PRESIDENT) AND AMARJIT SINGH (JUDICIAL MEMBER)] M.A NO 204/MUM/2020 ARISING OUT ITA NO. 7312/MUM/2018 ASSESSMENT YEAR 2014 - 15 FEDERAL EXPRESS CORPORATION APPELLANT BOOMERANG, UNIT NO. 801, WING A, 8 TH FLOOR, CHANDIVALI FARM ROAD, ANDHERI (E) MUMBAI 400072 [PAN: AAACF4135D ] VS DEPUTY COMMISSIONER OF INCOME TAX ( IT ) - 2(3) (1) MUMBAI ....................... RESPONDENT APPEARANCES BY DHANESH BAFNA FOR THE APPLICANT SREENIVASARAGHAVAN IYENGAR FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : DECEMBER 04 , 2020 DATE OF PRONOUNCEMENT : JANUARY 06, 2021 O R D E R PER PRAMOD KUMAR, VP: 1. BY WAY OF THIS APPLICATION, THE ASSESSEE APPLICANT SEEKS RECTIFICATION OF AN INADVERTENT MISTAKE ALLEGED TO HAVE CREPT IN OUR ORDER DATED 31 ST JANUARY 2020. 2. THIS MISTAKE ALLEGED TO HAVE CREPT IN , IS EVIDENT FROM THE FOLLOWING APPLICATION MADE BY THE ASSESSEE APPLICANT: - M.A NO 204/MUM/2020 ARISING OUT ITA NO. 7312/MUM/2018 ASSESSMENT YEAR 2014 - 15 PAGE 2 OF 5 1. THE APPELLANT HAD FILED AN APPEAL BEFORE THE HON'BLE INCOME - TAX APPELLATE TRIBUNAL ('ITAT') BEARING ITA NO. 7312/MUM/201 8 DATED 21 DECEMBER 2018 FOR AY 2014 - 15 AGAINST THE FINA L ASSESSMENT ORDER PASSED BY THE RESPONDENT, PURSUANT TO THE DIRECTIONS ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL. 2. THE SAID APPEAL WAS DI SPOSED OF BY THE HON'BLE ITAT, I BENCH, MUMBAI VIDE AN ORDER DATED 31 JANUARY 2020 WHICH WAS SERVED UPON THE APPELLANT ON 28 FEBRUARY 2020. 3. THE APPELLANT BEGS TO PRESENT THIS APPLICATION FOR RECTIFICATION OF A MISTAKE WHICH IS APPARENT FROM RECORD IN THE ORDER OF THE HON'BLE ITAT WHI CH IS DISCUSSED HEREIN BELOW: BACKGROUND: 4. THE APPELLANT IS A COMPANY INCORPORATED IN THE UNITED STATES OF AMERICA ('USA'). IT IS ENGAGED IN INTEGRATED AIR AND GROUND TRANSPORTATION OF TIME - SENSITIVE AND TIME - DEFINITIVE SHIPMENTS TO VARIOUS DESTINATIO NS AROUND THE WORLD AND IS RESPONSIBLE FOR THE DELIVERY OF THE FREIGHT TO THE AIRPORT/ULTIMATE DESTINATION, AS THE CASE MAY BE. 5. THE APPELLANT, BEING A TAX RESIDENT OF THE USA, IS GOVERNED BY THE BENEFICIAL PROVISIONS OF ARTICLE 8 OF THE DTAA BETWEEN I NDIA AND USA (THE INDIA - USA TAX TREATY1). AS PER ARTICLE 8(1) OF THE INDIA - USA TAX TREATY, PROFITS DERIVED FROM INDIA BY AN ENTERPRISE OF USA FROM OPERATION OF AIRCRAFTS IN INTERNATIONAL TRAFFIC IS TAXABLE IN THE USA AND EXEMPT FROM TAX IN INDIA. ACCORDING LY, THE APPELLANT CLAIMED INCOME FROM AIRLINE ACTIVITIES (ATTRIBUTABLE TO FEDEX OWNED AND THIRD PARTY AIRCRAFTS) AS NOT LIABLE TO TAX IN INDIA BY APPLYING THE BENEFICIAL PROVISIONS OF ARTICLE 8 OF THE INDIA - USA TAX TREATY. 6. HOWEVER, IN ALMOST ALL THE AS SESSMENTS IN PREVIOUS YEARS, THE DEPARTMENT HAS SOUGHT TO TAX APPELLANT'S INCOME FROM AIRLINE ACTIVITIES ATTRIBUTABLE TO THIRD PARTY AIRCRAFTS BY ARBITRARY ENHANCING THE RATIOS IN ARRIVING AT THE INCOME ATTRIBUTABLE TO USAGE OF THIRD PARTY AIRCRAFTS [I.E. COMMERCIAL LINEHAUL CHARGE) TO TOTAL LINEHAUL CHARGE (TLC') ('CLC TO TLC) AND FEDEX GLOBAL PROFIT RATE]. 7. WITH A VIEW TO AVOIDING PROTRACTED LITIGATION AND ESTABLISH CERTAINTY IN RESPECT OF ITS TAX LIABILITY IN INDIA, THE APPELLANT REFERRED THE MATTER FOR RESOLUTION TO THE COMPETENT AUTHORITY ('CA') IN THE USA UNDER ARTICLE 27 OF THE INDIA - USA TAX TRE ATY. IN THIS RESPECT, THE CAS OF USA AND INDIA, AGREED AND LAID OUT A FORMULA TO BE GENERALLY APPLIED IN CALCULATING THE APPELLANT'S TAXABLE INCOME IN INDIA ATTRIBUTABLE TO USAGE OF THIRD PARTY AIRCRAFTS FOR AYS 2007 - 08 AND 2008 - 09, THE FORMULA PROVIDED BY MAP AUTHORITY WAS AS FOLLOWS: TAXABLE INCOME ATTRIBUTABLE TO THIRD PARTY AIRCRAFTS = INDIAN BRANCH REVENUE * ENHANCED CLC TO TLC RATIO # * GLOBAL PROFITABILITY RATE M.A NO 204/MUM/2020 ARISING OUT ITA NO. 7312/MUM/2018 ASSESSMENT YEAR 2014 - 15 PAGE 3 OF 5 (#ENHANCED CLC TO TLC RATIO WAS NEAR TO TWICE OF THE ORIGINAL CLC TO TLC RATIO) 8. T HE APPELLANT ACCEPTED THE RESOLUTION TAKEN UNDER THE MUTUAL AGREEMENT PROCEDURE ('MAP') BETWEEN THE CAS OF INDIA AND USA. 9. THE PROCESS / METHODOLOGY AS LAID OUT IN MAP RESOLUTION FOR AY 2007 - 08 AND AY 2008 - 09 HAS BEEN ADOPTED FOR ALL THE SUBSEQUENT ASSESSMENTS IN THE CASE OF THE APPELLANT. 10. ACCORDINGLY, IN ORDER TO AVOID LITIGATION FOR THE YEAR UNDER CONSIDERATION (I.E. AY 2014 - 15), THE APPELLANT HAS COMPUTED THE INCOME ATTRIBUTABLE TO USAGE OF THIRD PARTY AIRCRAFTS BY APPLYING METHODOLOGY P ROVIDED IN MAP (PLEASE REFER PAGE 144 OF THE PAPER BOOK). WHILE CALCULATING THE INCOME ATTRIBUTABLE TO USAGE OF THIRD PARTY AIRCRAFTS, THE APPELLANT ENHANCED THE RATIO OF CLC TO TLC FROM ACTUAL RATIO OF CLC TO TLC AT 2.08 PERCENT TO 4.00 PERCENT 11. T HE AO IN THE DRAFT ASSESSMENT ORDER HAD DENIED THE BENEFIT OF ARTICLE 8 OF INDIA - USA TAX TREATY WITH RESPECT TO THE USAGE OF THIRD PARTY AIRCRAFTS AND COMPUTED THE INCOME ATTRIBUTABLE TO THE USAGE OF THIRD PARTY AIRCRAFTS BY ADOPTING THE RATIO OF CLC TO T LC AS 10%. THE HON'BLE DRP HAD REDUCED THE RATIO OF CLC TO TLC TO 7.5%. AGGRIEVED BY THE SAME, THE APPELLANT HAD FILED AN APPEAL BEFORE THE HON'BLE ITAT. 12. DURING THE COURSE OF THE HEARING BEFORE THE HON'BLE ITAT, THE APPELLANT HAD ARGUED THAT THE RATIO OF CLC TO TLC SHOULD BE RESTRICTED TO 4% WHICH IS IN LINE WITH THE METHODOLOGY PRESCRIBED IN MAP RESOLUTION FOR AY 2007 - 08 AND AY 2008 - 09 AND ALSO WITH STAND TAKEN BY THE AO IN PREVIOUS YEARS. MISTAKE APPAREN T FROM RECORD: 13. THE APPELLANT SUBMITS THAT THE HON'BLE ITAT HAS AGREED TO ITS CONTENTION THAT THE INCOME ATTRIBUTABLE TO USAGE OF THIRD PARTY AIRCRAFTS SHOULD BE IN LINE WITH THE METHODOLOGY PROVIDED IN MAP. THE FINDING OF THE HON'BLE ITAT IN PARA 7 OF THE ORDER IS REPRODUCED HEREUNDER: '7. WHILE THE OUTCOME OF MAP PROCEEDINGS DOES NOT INDEED FIND THE PARTIES FOR THE YEARS OTHER THAN THE YEARS BEFORE THE COMPETENT AUTHORITY, IT DOES INDEED PROVIDE A REASONABLE BASIS PARTICULARLY WHEN IT IS DEALING WITH AN ESTIMATION PARAMETERS. THE ASSESSING OFFICER HAS GIVEN VAGUE REASONS FOR DEVIATING FRONT THE SAME IN THE PRESENT YEAR........' (EMPHASIS SUPPLIED) 14. HOWEVER, IT IS MOST RESPECTFULLY SUBMITTED THAT WHILE REPRODUCING THE ARGUMENTS OF THE APPELLANT AT PARA 6, IT SEEMS THAT THE HON'BLE ITAT HAS INADVERTENTLY MENTIONED THAT THE RATIO OF CLC TO TLC SHOULD NOT BE MORE THAN 7.5% INSTEAD OF 4%. PARA 6 OF THE ORDER IS RE PRODUCED AS UNDER: M.A NO 204/MUM/2020 ARISING OUT ITA NO. 7312/MUM/2018 ASSESSMENT YEAR 2014 - 15 PAGE 4 OF 5 '6. LEARNED COUNSEL'S ARGUMENT BEFORE US IS TWOFOLD - FIRST, THAT THE ACTUAL CLC/TLC IS 2.08% AND THE SAME MAY BE ADOPTED, AND, SECOND - THAT IN ANY EVENT, THE ESTIMATED OR ADJUSTED CLC/TLC SHOULD NOT BE MORE THAN 7.5% AS WAS ADOPTED BY T HE ASSESSING OFFICER AS A RESULT OF MAP PROCEEDINGS. IT IS ALSO CONTENDED THAT THE ASSESSING OFFICER HIMSELF HAS ADOPTED 4% AS CLC/TLC RATIO, AND THE SAME MAY BE ADOPTED THIS YEAR AS WELL. LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, RELIES UPON THE STAND OF THE ASSESSING OFFICER. 15. IN THIS RESPECT, THE APPELLANT SUBMITS THAT THE COUNSEL'S ARGUMENTS WERE TWOFOLD, I.E. I. THAT THE ACTUAL RATIO OF CLC TO TLC IS 2.08% AND THE SAME MAY BE ADOPTED; AND II. THAT THE APPELLANT HAD SUO MOTO ADJUSTED THE ACTUAL RATIO OF CLC TO TLC FROM 2.08% TO 4% AND THEREFORE, THE ESTIMATED OR ADJUSTED RATIO OF CLC TO TLC SHOULD NOT BE MORE THAN 4%. 16. FURTHER, IT IS MOST RESPECTFULLY SUBMITTED THAT WHILE CONCLUDING THE ORDER AT PARA 7, IT SEEMS THAT T HE HON'BLE ITAT HAS INADVERTENTLY MENTIONED THAT THE RATIO OF CLC TO TLC SHOULD NOT BE MORE THAN 7.S% INSTEAD OF 4%. THE CONCLUDING PARA IS REPRODUCED AS UNDER: 7. WHILE THE OUTCOME OF MAP PROCEEDINGS DOES NOT INDEED FIND THE PARTIES FOR THE YEARS OTHER T HAN THE YEARS BEFORE THE COMPETENT AUTHORITY, IT DOES INDEED PROVIDE A REASONABLE BASIS PARTICULARLY WHEN IT IS DEALING WITH AN ESTIMATION PARAMETERS. THE ASSESSING OFFICER HAS GIVEN VAGUE REASONS FOR DEVIATING FROM THE SAME IN THE PRESENT YEAR. IN OUR CON SIDERED VIEW, THEREFORE, IT WILL MEET THE ENDS OF JUSTICE THAT 7.5% AS ADJUSTED CLC/TLC RATIO IS ADOPTED FOR COMPUTING THIS YEAR'S TAXABLE INCOME AS WELL. TO THIS EXTENTWE UPHOLD THE PLEA OF THE ASSESSES' (EMPHASIS SUPPLIED) 17. IT CAN BE OBSERVED FR OM THE ABOVE PARA THAT THE HON'BLE ITAT HAS AGREED TO THE CONTENTION OF THE APPELLANT THAT METHODOLOGY PRESCRIBED UNDER MAP PROCEEDINGS SHOULD BE FOLLOWED, HOWEVER, WHILE CONCLUDING THE ORDER, THE HON'BLE ITAT HAS INADVERTENTLY MENTIONED THE RATIO OF CLC T O TLC SHOULD NOT BE MORE THAN 7.5% INSTEAD OF 4%. 18. FURTHER, THE APPELLANT WISHES TO SUBMIT THAT THE HON'BLE DRP HAD ALREADY REDUCED THE RATIO OF CLC TO TLC FROM 10% TO 7.5% ON AN AD - HOC BASIS (THE HON'BLE ITAT HAS INADVERTENTLY MENTIONED AT PARA 4 THAT THE DRP HAS NOT GIVEN ANY RELIEF). THE APPELLANT HAD ARGUED BEFORE THE HON'BLE ITAT THAT THE RATIO OF CLC TO TLC SHOULD BE 4% IN LINE WITH THE METHODOLOGY PRESCRIBED IN MAP RESOLUTION FOR AY 2007 - 08 AND AY 2008 - 09. PARA 4 OF THE ORDER IS REPRODUCED AS UNDER: M.A NO 204/MUM/2020 ARISING OUT ITA NO. 7312/MUM/2018 ASSESSMENT YEAR 2014 - 15 PAGE 5 OF 5 'AGGRIEVED, ASSESSEE RAISED AN OBJECTION BEFORE THE DRP BUT WITHOUT SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFORE US.' 19. IN VIEW OF THE PARA 14 TO 17, THE APPELLANT MOST HUMBLY SUBMITS THAT THE HON'BLE ITAT HAS AGREED TO THE CONTENTION OF THE APPELLANT THAT METHODOLOGY PRESCRIBED UNDER MAP PROCEEDINGS SHOULD BE FOLLOWED AND ACCORDINGLY, THE ORDER OF THE HON'BLE ITAT MAY KINDLY BE RECTIFIED TO CONSIDER THE RATIO OF CLC TO TLC RATIO AS 4% INSTEAD OF 7.5%. 3. WE HAVE HEA RD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTS OF THE CASE IN THE LIGHT OF APPLICABLE LEGAL POSITION. 4. THE PLEA OF THE ASSESSEE APPLICANT IS INDEED CORRECT. THE ASSESSING OFFICER HIMSELF HAD ADOPTED 4% AS CLC/TLC RATIO, AND THE SAME WAS, AS NOTED BY US REQUIRED TO BE ADOPTED THIS YEAR AS WELL. THE MENTION OF 7.5% AS ADJUSTED CLC/TLC RATIO, IN PARAGRAPH 7, WAS CLEARLY AN INADVERTENT ERROR. WE, THEREFORE, DEEM IT FIT AND PROPER TO RECALL THE MATTER ON THIS POINT, AND REFIX THE MATTER FOR ADJUDICATION AFRESH ON THAT POINT. THE REGISTRY IS DIRECTED TO REFIX THE MATTER FOR THE ABOVE PURPOSES, BEFORE THE REGULAR BENCH ON 29.01.2021. ORDER ACCORDINGLY. 5. IN THE RESULT, THE RECTIFICATION PETITION IS ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 06 TH DAY OF JANUARY 2021. SD/ - SD/ - AMARJIT SINGH PRAMOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) MUMBAI, DATED THE 06 TH DAY OF JANUARY , 2021 N.V, SR.PS COPIES TO: (1) THE APPLICANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI