DDIT (IT) 4(1), MUMBAI v. MORGAN STANLEY INVESTMENT MANAGEMENT INC, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH: MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO.1155/MUM/2010 (ASSESSMENT YEAR: 2006-07) THE DEPUTY DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION)-4(1) 133 SCINDIA HOUSE BALLARD PIER MUMBAI -400 038 .... REVENUE VS M/S. MORGAN STANLEY INVESTMENT MANAGEMENT INC. C/O. M/S. S.R. BATLIBOI & CO. 18TH FLOOR EXPRESS TOWERS NARIMAN POINT MUMBAI 400 021 ASSESSEE PAN: AAECM 8287 G ASSESSEE BY: SHRI HARDIK SHAH REVENUE BY: SHRI P.N. DEVDASAN O R D E R PER R.S. PADVEKAR JM THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT (A) 11 MUMBAI DATED 30.11.2009 FOR THE A.Y. 2006-07. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUN D:- 1. ON THE FATS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW WHETHER THE LD. CIT (A) WAS CORRECT IN HOLDING THAT WHEN DUTY IS CAST ON THE PAYER TO PAY TAX AT SOURCE NO INTER EST U/S.234B ITA 1155/M/2010 M/S. MORGAN STANLEY INVESTMENT MANAGEMENT INC. 2 AND 234C CAN BE IMPOSED ON THE PAYEE ASSESSEE IGNOR ING THE FACT THAT IT IS THE LIABILITY OF THE PAYEE TO PAY A DVANCE TAX EVEN ON THE AMOUNT WHICH HAD NOT BEEN DEDUCTED AT SOURCE UNDER SECTION 195 OF THE INCOME TAX ACT 1961. 2. THE RELEVANT FACTS ARE IN NARROW COMPASS. THE A SSESSEE-COMPANY IS INCORPORATED IN MAURITIUS. THE ASSESSEE IS ALSO REGISTERED WITH THE SEBI ON SUB-ACCOUNT OF MORGAN STANLEY INVESTMENT MA NAGEMENT INC. IS REGISTERED WITH THE SEBI AS FOREIGN INSTITUTIONAL I NVESTOR FII. THE ASSESSEE IS TAX RESIDENT OF MAURITIUS. THE ASSESSE E-COMPANY FILED APPLICATION U/S.154(1) OF THE ACT WITH CONTENTION T HAT THE INTIMATION/ORDER PASSED U/S.143(1) DATED 27.9.2007 NEEDS A RECTIFICATION. ONE OF THE CONTENTION WAS IN RESPEC T OF THE LEVY OF INTEREST U/S.234B & 234C. THE ASSESSEE CONTENDED THAT SINCE IT IS A NON- RESIDENT AND ITS ENTIRE INCOME IS SUBJECTED TO THE TDS UNDER THE INCOME- TAX ACT. HENCE THERE IS NO LIABILITY TO PAY THE A DVANCE TAX BY THE ASSESSEE AND IN CONSEQUENCE NO INTEREST U/S.234B & 234C CAN BE LEVIED. THE ASSESSEE HAS SHOWN INCOME FROM OTHER SOURCES W HICH WAS IN RESPECT OF (I) INTEREST ON REFUND FROM THE DEPARTME NT U/S.244A OF ` 1 15 27 887/- AND (II) INTEREST FROM TREASURY BILLS OF ` 46 48 495/-. THE INTEREST ON THE REFUND U/S.244A WAS SUBJECTED TO TH E TDS AS PER THE TDS PROVISIONS UNDER THE ACT. SO FAR AS INTEREST I NCOME FROM TREASURY BILLS OF ` 46 48 495/- IS CONCERNED THE SAME IS NOT SUBJECTE D TO THE TDS PROVISIONS. THE A.O. DECLINED TO ACCEPT THE PLEA O F THE ASSESSEE FOR NOT CHAGRINING THE INTEREST U/S.234B & 234C. THE ASSES SEE CHALLENGED THE ACTION OF THE A.O. BEFORE THE LD. CIT (A). THE LD. CIT (A) FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF DCIT VS. NGC NETWORK ASIA LLC 313 ITR 187 ALLOWED THE PLEA O F THE ASSESSEE AND DIRECTED THE A.O. NOT TO CHARGED ANY INTEREST U/S.2 34B AND 234C. ITA 1155/M/2010 M/S. MORGAN STANLEY INVESTMENT MANAGEMENT INC. 3 3. WE HAVE HEARD PARTIES. THE LD. D.R. SUBMITS THA T TO THE EXTENT OF INTEREST GRANTED TO THE ASSESSEE U/S.244A THE SAME IS COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF NGC NETWORK ASIA LLC (SUPRA). BUT SO FAR AS THE INCOM E OF THE TREASURY BILLS IS CONCERNED THE SAME IS NOT COVERED UNDER THE TDS PROVISIONS. THE LD. D.R. SUBMITS THAT THE ASSESSEE ITSELF HAS PAID THE ADVANCE TAX AND THIS ASPECT HAS NOT BEEN CONSIDERED BY THE LD. CIT (A). HE THEREFORE PLEADED THAT THAT TO THE EXTENT OF THE INCOME ON THE TREASU RY BILLS THE INTEREST CHARGED BY THE A.O. MAY BE SUSTAINED. WE HAVE ALSO HEARD THE LD. COUNSEL ON THE ISSUE. IT IS SEEN THAT THE ASSESSEE HAS PAID THE ADVANCE TAX. SO FAR AS THE ISSUE OF THE INCOMES ON THE TRE ASURY BILLS IS CONCERNED THIS ASPECT HAS NOT BEEN EXAMINED BY THE LD. CIT (A ) WHETHER TDS PROVISIONS ARE APPLICABLE AND HE HAS MECHANICALLY A CCEPTED THE PLEA OF THE ASSESSEE. WE THEREFORE CONSIDER IT FIT TO RE STORE THE MATTER TO THE EXTENT OF THE INCOME ON THE TREASURY BILLS TO THE F ILE OF THE A.O. FOR FRESH ADJUDICATION. THE A.O. IS DIRECTED TO VERIFY TO DE CIDE WHETHER THE INCOME OF TREASURY BILLS OF ` 46 48 495/- IS LIABLE FOR TDS UNDER THE ACT. IF T HE SAID INCOME IS LIABLE FOR TDS THEN THE DECISION OF THE NGC NETWORK ASIA LLC (SUPRA) IS SQUARELY APPLICABLE IF IT IS NOT SO THEN INTEREST IS LEVIABLE. NEEDLESS TO SAY THE A.O. IS DIRECTED TO GIVE REASON ABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER PRINCIPLES OF NA TURAL JUSTICE. 4. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 5TH FEBRUARY 2011. SD/- SD/- ( B. RAMAKOTAIAH ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE : 25TH FEBRUARY 2011 ITA 1155/M/2010 M/S. MORGAN STANLEY INVESTMENT MANAGEMENT INC. 4 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) 11 MUMBAI. 4) THE DIT(INT. TAXATION) MUMBAI. 5) THE D.R. J BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITA 1155/M/2010 M/S. MORGAN STANLEY INVESTMENT MANAGEMENT INC. 5 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 22.01.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 23.01.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER