Toshiba JSW Power Systems Private Limited, CHENNAI v. ITO, CHENNAI

ITA 3099/CHNY/2014 | 2013-2014
Pronouncement Date: 21-10-2016 | Result: Allowed

Appeal Details

RSA Number 309921714 RSA 2014
Assessee PAN AADCT0151D
Bench Chennai
Appeal Number ITA 3099/CHNY/2014
Duration Of Justice 1 year(s) 9 month(s) 28 day(s)
Appellant Toshiba JSW Power Systems Private Limited, CHENNAI
Respondent ITO, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-10-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 21-10-2016
Date Of Final Hearing 03-10-2016
Next Hearing Date 03-10-2016
Assessment Year 2013-2014
Appeal Filed On 23-12-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . !' # $! # % . & ( * + [ BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY JUDICIAL MEMBER ] ./ I.T.A. NOS. 2105 & 2106/MDS/2012 / ASSESSMENT YEAR : 2011-2012 & 2012-2013. INCOME TAX OFFICER INTERNATIONAL TAXATION II(2) CHENNAI 600 034. VS. M/S. TOSHIBA JSW POWER SYSTEM LTD (FORMERLY TOSHIBA JSW TURBINE AND GENERATOR PVT. LIMITED) S.NO.74-95 VAIKKADU VILLAGE ANDARKUPPAM CHECK POST MANALI NEW TOWN CHENNAI 600 103. ./ I.T.A. NO.3099/MDS/2014 / ASSESSMENT YEAR : 2013-2014 M/S. TOSHIBA JSW POWER SYSTEM LTD (FORMERLY TOSHIBA JSW TURBINE AND GENERATOR PVT. LIMITED) S.NO.74-95 VAIKKADU VILLAGE ANDARKUPPAM CHECK POST MANALI NEW TOWN CHENNAI 600 103. VS. INCOME TAX OFFICER INTERNATIONAL TAXATION II(1) CHENNAI 600 034. [PAN AADCT 0151D ] ( - / APPELLANT) ( ./ - /RESPONDENT) DEPARTMENT BY : SHRI. R. DURAI PANDIAN IRS JCIT. ASSESSEE BY : SHRI. ARVIND SONDE ADVOCATE / DATE OF HEARING : 03 - 10 - 2016 / DATE OF PRONOUNCEMENT 21 - 1 0 - 2016 ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 2 -: 0 / O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER FIRST TWO AMONG THESE ARE APPEALS FILED BY THE REVENUE DIRECTED AGAINST ORDERS DATED 2.07.2012 OF COMMISSI ONER OF INCOME TAX (APPEALS)-IV CHENNAI FOR ASSESSMENT YEARS 2011 -12 & 2012-13 AND THIRD ONE IS AN APPEAL OF THE ASSESSEE DIRECTED AGAINST AN ORDER DATED 25.08.2014 OF COMMISSIONER OF INCOME TAX (APP EALS)- VII CHENNAI FOR THE ASSESSMENT YEAR 2013-2014. FACTS F OR ALL THESE APPEALS LIE WITHIN THE SAME PERIPHERY AND HENCE TH EY ARE TAKEN UP TOGETHER FOR DISPOSAL. 2. ASSESSEE IS A JOINT VENTURE COMPANY FLOATED BY ONE M/S.TOSHIBA CORPORATION JAPAN JSW ENERGY LIMITED AND JSW STEEL LIMITED. ASSESSEE WAS INCORPORATED IN INDIA ON 2 ND SEPTEMBER 2008. IT IS ENGAGED IN MANUFACTURE AND SALE OF TURBINE G ENERATORS AND AUXILIARY ITEMS. DURING THE RELEVANT PREVIOUS YEA RS ON THE REQUEST OF THE ASSESSEE M/S. TOSHIBA CORPORATION JAPAN HAD D EPUTED SOME OF ITS EMPLOYEES TO THE ASSESSEE ON FULL TIME BASIS. THERE WERE TWO AGREEMENTS ENTERED BY THE ASSESSEE ONE WITH THE DE PUTED EXPATRIATES AND OTHER WITH M/S.TOSHIBA CORPORATION JAPAN. THE AGREEMENT WITH TOSHIBA CORPORATION JAPAN WAS NOME NCLATURED AS COST TO COST REIMBURSEMENT AGREEMENT. CLAUSES APPEA RING IN THE SAID ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 3 -: AGREEMENT ENTERED ON 05.12.2008 WHICH ARE RELEVAN T FOR THESE APPEALS ARE REPRODUCED HEREUNDER:- TERMS OF AGREEMENT 1. T JTG INTENDS TO HIRE PERSONNEL (HEREINAFTER REFERR ED TO AS 'EXPATRIATES') OF TOSHIBA FOR THE PURPOSE OF ITS BU SINESS OPERATIONS IN INDIA. 2. TOSHIBA HAS AGREED TO ASSIGN THE EXPATRIATES TO T J TG FOR THE ABOVE SAID PURPOSE AND FOR THE SPECIFIED PERIOD OF TIME. 3. DURING THE ASSIGNMENT IN INDIA THESE EXPATRIATES W OULD BECOME EFFECTIVELY THE EMPLOYEES OF TJTG. NOW THEREFORE. IN CONSIDERATION OF THE FOREGOING THE PARTIES AGREE AS FOLLOWS: 4 THE RESPONSIBILITY FOR THE PAYMENT OF SALARY AN D OTHER BENEFITS TO THE EXPATRIATES SHALL LIE SOLELY WITH T JTG. HOWEVE R FOR THE SAKE OF ADMINISTRATIVE CONVENIENCE TOSHIBA WOULD PAY TH E REMUNERATION OF THE EXPATRIATES FOR AND ON BEHALF OF TJTG IN RESPECT OF THE SERVICES RENDERED BY THE EXPATRIATES TO TJTG. 5. IN CASE OF ANY DEFAULT IN MAKING THESE PAYMENTS ON THE PART OF TOSHIBA THE LIABILITY TO COMPENSATE THE EXPATRIATES WOULD REST WITH TJTG. 6. THE EXPATRIATES ASSIGNED BY TOSHIBA TO T JTG WILL WORK UNDER THE INSTRUCTIONS GUIDANCE AND SUPERVISION OF T JTG AND THEY SHALL HAVE REPORTING OBLIGATIONS TOWARDS T JTG DURI NG THE TERM OF THE ASSIGNMENT. 7. T JTG AGREES THAT IT SHALL REIMBURSE! REPAY TO TOSHIBA THE ACTUAL COST OF REMUNERATION AND OTHER COSTS RELATED TO THE INDIAN ASSIGNMENT INCURRED BY TOSHIBA IN RESPECT OF SAID EXPATRIATES DURING THE PERIOD OF THEIR ASSIGNMENT T O INDIA. THE SAID REIMBURSEMENT REPAYMENT SHALL BE WITHOUT ANY M ARK UP /PROFIT. 8.' TOSHIBA WOULD RAISE A DEBIT NOTE ON TJTG PROVID ING COMPLETE DETAILS OF THE REMUNERATION AND OTHER RELATED COSTS INCURRED FOR THE EXPATRIATES. T JTG WOULD ONLY BE LIABLE TO REIM BURSE/ REPAY SUCH REMUNERATION AND RELATED COSTS INCURRED BY TOS HIBA AND NO MARK-UP F PROFIT WOULD BE PAYABLE BY T JTG. ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 4 -: 9. SUCH DEBIT NOTE SHALL SPECIFICALLY INDICATE THAT TH E PAYMENTS THAT ARE SOUGHT TO BE RECOVERED HAVE BEEN PAID BY TOSHIB A ON BEHALF OF T JTG. 10 T JTG SHALL ASSUME COMPLETE RESPONSIBILITY FOR THE WORK CARRIED OUT OR THE RESULTS ARISING FROM THE SERVICES RENDER ED BY THE EXPATRIATES. 11THIS AGREEMENT WILL BE DEEMED TO COME IN FORCE AS AND WHEN THE EXPATRIATE IS ASSIGNED BY TOSHIBA TO T JTG. 12. IT SHALL BE OPEN FOR EITHER PARTY TO TERMINATE THIS AGREEMENT BY GIVING THE OTHER PARTY A NOTICE IN WRITING OF A P ERIOD OF 30 DAYS AND UPON FURNISHING OF ANY SUCH NOTICE ON EITHER PA RTY THIS AGREEMENT WOULD TERMINATE AFTER 60 DAYS. 13. EACH OF THE PARTIES REPRESENT AND WARRANT TO THE OT HER THAT IT IS LEGALLY COMPETENT TO ENTER INTO AND HAS FULL RIGHT. POWER AND AUTHORITY TO EXECUTE AND DELIVER THIS AGREEMENT TO PERFORM ITS OBLIGATIONS HEREUNDER AT THAT THIS AGREEMENT CONSTI TUTES VALID AND LEGALLY BINDING OBLIGATIONS ON IT ENFORCEABLE AGAI NST IT IN ACCORDANCE WITH THE TERMS CONTAINED HEREIN. 14. THIS AGREEMENT SHALL BE A CONTRACT UNDER THE LAWS O F INDIA AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF INDIA AND JAPAN. 03. THE OTHER AGREEMENTS ENTERED BY THE ASSESSEE WA S WITH THE EMPLOYEES SECONDED BY M/S. TOSHIBA CORPORATION JAP AN AND THESE WERE TYPICALLY WORDED. ONE SUCH AGREEMENT DATED 12 TH DECEMBER 2008 ENTERED BY THE ASSESSEE WITH MR. ITARU ISHIBAS HI IS REPRODUCED HERE UNDER:- 1. EMPLOYEMENT PERIOD: THE EMPLOYEE'S EMPLOYMENT PERIOD IS EXPECTED TO BE FOR A PERIOD OF 3 YEARS AND MAY BE EXTENDED IF THE BUSINESS REQUIRES AND UPON THE MUTUAL CONSENT. ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 5 -: 2. ROLES AND RESPONSIBILITIES:- 21. THE EMPLOYEE WILL WORK WHOLLY AND EXCLUSIVELY FOR THE COMPANY. 2-2. THE EMPLOYEE SHALL BE REQUIRED TO CARRY OUT SU CH TASK AND RESPONSIBILITIES AS ARE ASSIQNED TO THE EMPLOYEE BY THE COMPANY FROM TIME TO TIME AND THE COMPANY SHALL ASSUME COMPLETE RESPONSIBILITY FOR TH E WORK CARRIED OUT OR THE RESULTS ARISING FROM THE SE RVICES RENDERED BY THE EMPLOYEE . 2-3. WHILE EMPLOYED WITH THE COMPANY. THE EMPLOYEE WILL BE REQUIRED TO COMPLY WITH ANY LOCAL EMPLOYMEN T POLICY ESTABLISHED BY THE COMPANY AT THE' EMPLOYMEN T LOCATION. 2-4. THE EMPLOYEE WILL NOT CARRY OUT ANY WORK FOR A NY PERSON I ENTITY OTHER THAN THE COMPANY WHILE ON EMPLOYMENT WITH THE COMPANY IN INDIA. 2-5. THE EMPLOYEE'S PERFORMANCE EVALUATION WILL BE DONE BASED ON THE ACTUAL RESULTS ACHIEVED DURING THE EMPLOYEE'S EMPLOYMENT. 3. LOCATION: THE EMPLOYEE'S USUAL PLACE OF WORK WILL BE THE OFFI CE OF THE COMPANY IN CHENNAI INDIA. THE EMPLOYEE MAY BE ASKED TO TRAVEL AND WORK AWAY FROM THE EMPLOYEE'S U SUAL OFFICE AS PER THE COMPANY'S REQUIREMENT. 4. REMUNERATION: THE REMUNERATION AND OTHER BENEFITS THAT THE EMPLOY EE WILL BE AUTHORIZED DURING THE EMPLOYEE'S EMPLOYMENT ARE AS UNDER. 4-1. SARALY THE BASIC SALARY AMOUNT TO BE PAID TO YOU IS JPY890 000 PER MONTH (EQUIVALENT INR 445 000 PER MONTH) SUBJECT TO PERFORMANCE AND OTHER VARIATIONS. THIS WOULD BE REVIEWED AS A PART OF THE ANNUAL SALA RY REVIEW OF THE COMPANY WITH EFFECT FROM 1 ST OF APRIL 2009. ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 6 -: 4-2. BONUS THE BONUS THAT WOULD BE PAID TO THE EMPLOYEE IS JPY4 878 OOO PER YEAR (EQUIVALENT INR 2 439 000 PER YEAR) SUBJECT TO PERFORMANCE AND OTHER VARIATIONS. 4-3. ASSIGNMENT ALLOWANCE: MONTHLY ASSIGNMENT ALLOWANCE THAT WOULD BE PAID TO THE EMPLOYEE IS USD2. 740 (EQUIVALENT INR130.150) SUBJECT TO PERFORMANCE AND OTHER VARIATIONS. ADDITIONALLY SPECIAL ALLOWANCE AS MUTUALLY DISCUSS ED AND AGREED. WILL BE PAID TO THE EMPLOYEE ON A MONTHLY BASIS. 4-4. HOUSING FACILITY THE COMPANY WILL PROVIDE ACCOMMODATION OR PAY HOUSE RENT ALLOWANCE (HRA) IN LIEU OF TO THE EMPLOYEE. 4-5. CLUB FACILITY THE COMPANY WILL PROVIDE THE EMPLOYEE MEMBERSHIPS OF BUSINESS-RELATED ASSOCIATIONS OR CLUBS AS WOULD BE REASONABLE AND CUSTOMARY FOR EXECUTIVES IN COMPARABLE POSITIONS IN OTHER COMPANIES IN INDIA. 4-6. CHAUFFER DRIVEN COMPANY CAR FACILITY THE COMPANY WILL PROVIDE THE EMPLOYEE A CHAUFFER DRIVEN COMPANY CAR- AS WOULD BE REASONABLE FOR EXECUTIVES IN COMPARABLE POSITIONS IN OTHER COMPANIES IN INDIA. 4-7. OTHER PERQUISITES I ALLOWANCES: OTHER PERQUISITES AND I OR ALLOWANCES MAY BE PROVIDED IN THE FUTURE BY THE COMPANY BASED ON APPROVAL OF THE BOARD MEMBERS. 4-8. INDIA TAXATION AND SOCIAL SECUR1TY CONTRIBUTION ALL PAYMENTS MADE TO THE EMPLOYEE (WHETHER INSIDE OR OUTSIDE OF INDIA) SHALL BE SUBJECT TO APPLICABLE DEDUCTIONS APPLICABLE SOCIAL SECURITY LAWS AND WITHHOLDING TOWARDS APPLICABLE TAXES. FURTHER ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 7 -: EMPLOYEE WM BE LIABLE TO PAY ALL TAXES AND MANDATORY SOCIAL SECURITY CONTRIBUTIONS. THE BOARD OF DIRECTORS ARE AUTHORIZED TO INTERCHANG E THE BREAK UP OF THE REMUNERATION PAYABLE TO THE EMPLOYE E WITHIN THE OVERALL CEILLING LIMIT OF INR40 OOO OOO/-*PER ANNUM SUBJECT TO OBTAINING NECESSARY APPROVALS WH ERE REQUIRED. 5. LEAVE : 5-1. ANNUAL PAID LEAVE ANNUAL PAID LEAVE SHALL BE IN ACCORDANCE WITH THE COMPANY'S STANDARDS AND DURING THE TENURE OF THE EMPLOYMENT WITH THE COMPANY. ANNUAL PAID LEAVE SHAL L BE GIVEN IN ACCORDANCE WITH THE LENGTH OF THE EMPLOYEE'S SERVICE. 5-2. LEAVE EXCEPT FOR ANNUAL LEAVE OTHER KINDS OF LEAVES SHALL BE IN ACCORDANCE WITH T HE COMPANY'S STANDARDS. 5-3. LONG-TERM ABSENCE AND SUSPENSION FROM WORK IF THE EMPLOYEE IS ABSENT FROM WORK ON A LONG-TERM BAS IS DUE TO INJURY ILLNESS ETC .THE TREATMENT OF ABSEN CE OR SUSPENSION FROM WORK SHALL BE IN PRINCIPLE PROVIDE D IN ACCORDANCE WITH THE COMPANY'S STANDARDS. HOWEVER WHERE THE PERIOD OF ABSENCE OR SUSPENSION IS IN EXC ESS OF THE PERIOD AS PER THE COMPANY'S STANDARDS THE TREATMENT SHALL BE DETERMINED UPON CONSULTATION BETWEEN THE PARTIES IN EACH CASE OF OCCURRENCE OF S UCH EVENT. 6. NOTIFICATION: IF ANY EMPLOYEE'S POST. TITLE SALARY OR OTHER WORK ING CONDITION CHANGES THE PARTIES SHALL NOTIFY EACH OT HER OF SUCH CHANGE. 7. OTHER TERMS AND CONDITIONS : ANY DOUBT ARISING FROM INTERPRETATION OF EACH PROVI SION OF THIS CONTRACT OR ANY MATTERS NOT PRESCRIBED HEREIN SHALL BE DETERMINED UPON MUTUAL CONSULTATION BETWEE N ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 8 -: THE COMPANY AND THE EMPLOYEE. UPON SIGNATURE OF BOT H PARTIES HERETO THIS CONTRACT SHALL BECOME EFFECTIV E AS OF THE 1 SI DAY OF JANUARY 2009. 04. FOR THE IMPUGNED ASSESSMENT YEARS ASSESSEE MAD E A REQUEST UNDER SECTION 195(2) OF THE ACT TO THE LD. ASSESSING OFFICER FOR A NIL WITHHOLDING TAX CERTIFICATE FOR THE REMITTA NCES THAT WERE TO BE MADE BY IT TO M/S. TOSHIBA CORPORATION JAPAN AS PER AGREEMENT MENTIONED FIRST ABOVE. IN THE SAID APPLICATION AS SESSEE STATED THAT THE EXPATRIATES DEPUTED BY M/S. TOSHIBA CORPORATION WERE REPORTING TO IT AND WORKING UNDER ITS GUIDANCE AND SUPERVISIO N. FURTHER AS PER THE ASSESSEE SALARY AND OTHER ALLOWANCES EARNED B Y THEM IN INDIA ALONG WITH THE AMOUNTS RECEIVED BY THESE EMPLOYEES IN THEIR OWN COUNTRIES FROM M/S. TOSHIBA CORPORATION JAPAN WERE OFFERED FOR TAXATION IN INDIA AND TDS DEDUCTED U/S.192 OF THE A CT. AS PER THE ASSESSEE ITS PAYMENTS TO M/S. TOSHIBA CORPORATION JAPAN WERE REIMBURSEMENT OF ACTUAL COST INCURRED BY THEM FOR T HE DEPUTED EXPATRIATES AND WAS NOT TAXABLE IN INDIA. HOWEVER THE LD. ASSESSING OFFICER REFUSED TO GIVE A NIL WITHHOLDING TAX CER TIFICATE TO THE ASSESSEE FOR THESE YEARS CITING THE FOLLOWING REASONS:- (I) EMPLOYEES SECONDED TO THE INDIAN COMPANIES WERE ONL Y FOR A SPECIFIC PERIOD AND THEY WERE TO BE REVERTED BAC K TO M/S. TOSHIBA CORPORATION JAPAN AFTER THE SAID PERIOD. (II) REPORTING OBLIGATIONS OF THE EXPATRIATES TO THE ASS ESSEE AROSE ONLY FROM AGREEMENT ENTERED BY THE ASSESSEE W ITH M/S. TOSHIBA CORPORATION JAPAN. ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 9 -: (III) M/S. TOSHIBA CORPORATION JAPAN WAS THE GUARANTOR OF SECONDED EMPLOYEES AND LETTER DATED 21.05.2010 ISS UED BY THE SAID CONCERN TO ONE OF THE EXPATRIATE EMPLOYEES NAMELY SHRI. SACHITOMO ISHIMARU PROVED THIS. (IV) PAYMENTS MADE BY THE ASSESSEE TO M/S. TOSHIBA CORPORATION JAPAN WERE NOT REIMBURSEMENT BUT PAYME NTS FOR AVAILING SERVICES. (V) SO-CALLED REIMBURSEMENT AGREEMENT DATED 5.12.2008 BETWEEN ASSESSEE AND M/S. TOSHIBA CORPORATION JAPA N DID NOT QUANTIFY OR SPECIFY THE AMOUNT PAYABLE BY SAID M/S. TOSHIBA CORPORATION JAPAN TO THE EXPATRIATES EMPLO YEES. (VI) THE EXPATRIATES HAD RENDERED SPECIFIC SERVICES IN C RITICAL AREAS AND SUCH SERVICES FELL WITHIN THE MEANING OF TECHNICAL CONSULTANCY AND MANAGERIAL SERVICES AND THE PAYME NTS EFFECTED BY ASSESSEE TO M/S. TOSHIBA CORPORATION JAPAN WERE ONLY FOR FEES FOR SUCH TECHNICAL SERVICES. (VII) AS PER ARTICLE 14 OF THE INDIA JAPAN DOUBLE TAXATI ON AGREEMENT ACT FEES FOR TECHNICAL SERVICES MEANT P AYMENTS MADE TO ANY PERSONS IN CONSIDERATION FOR SERVICES O F A MANAGERIAL TECHNICAL OR CONSULTANCY NATURE INCLUD ING PROVISIONS OF SERVICES OF TECHNICAL OR OTHER PERSON NEL. (VIII) VIDE ARTICLE 12(2) OF THE INDIA AND JAPAN DTAA F EES FOR TECHNICAL SERVICES COULD ALSO BE TAXED IN THE NATUR E OF CONTRACTING COUNTRY IN WHICH THEY ARISE. THUS HE HELD THAT ASSESSEE WAS LIABLE TO DEDUCT TA X U/S.195 OF THE ACT ON THE PAYMENTS EFFECTED BY IT TO M/S. TOSHIBA CORP ORATION JAPAN 05. AGGRIEVED THE ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOR ALL THESE YEARS. FOR THE FIRST TWO YEARS LD. COMMISSIONER OF INCOME TAX (AP PEALS) HELD IN FAVOUR OF THE ASSESSEE BASED ON HIS FOLLOWING FIND INGS:- ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 10 -: (I) REPATRIATED EMPLOYEES WERE AT THE FULL DISPOSAL OF THE ASSESSEE AND THEY WERE EXCLUSIVELY RENDERING SERVI CES TO THE ASSESSEE. (II) PAYMENTS MADE IN JAPAN BY M/S. TOSHIBA CORPORATION JAPAN TO THE EXPATRIATES WERE MAINLY TO PROTECT THE INTEREST THESE PERSONS VIZ FOR COVERING VARIOUS INSURANCES CONTRIBUTION TOWARDS SOCIAL SECURITY ETC. (III) THE AMOUNTS PAID BY M/SS. TOSHIBA CORPORATION JA PAN TO THE EXPATRIATES WERE REIMBURSED BY ASSESSEE TO M/S. TOSHIBA CORPORATION JAPAN. THESE WERE REIMBURSEME NTS SINCE THESE EXPATRIATES WERE EXCLUSIVELY WORKING FOR THE ASSESSEE COMPANY AND THIS WAS CLEARLY SPECIFIED IN THE AGREEMENT BETWEEN ASSESSEE AND M/S. TOSHIBA CORPORATION JAPAN. (IV) ASSESSEE WAS REIMBURSING M/S. TOSHIBA CORPORATION JAPAN ON A COST TO COST BASIS AS PER THE COST REIMBURSEMENT AGREEMENT. (V) WHAT WAS REIMBURSED BY THE ASSESSEE TO M/S. TOSHIBA CORPORATION JAPAN WAS NOTHING BUT PART OF THE SALA RY PAID BY ASSESSEE TO REPATRIATED EMPLOYEES WORKING FOR AS SESSEE IN INDIA. (VI) THE PAYMENTS EFFECTED IN INDIA AND JAPAN TO THE EMPLOYEES COULD BE CONSIDERED ONLY AS SALARY. WHEN PART PAYMENTS WERE ACCEPTED BY SALARY BY THE REVENUE THE OTHER PART PAID IN JAPAN COULD NOT BE CONSIDERED AS SOMETHING ELSE. (VII) THE ASSESSEE WAS DEDUCTING TAX AT SOURCE U/S.192 O F THE ACT ON THE PAYMENTS EFFECTED TO THESE EMPLOYEES CONSIDERING THE REIMBURSEMENT OF THE AMOUNTS PAID TO M/S. TOSHIBA CORPORATION JAPAN TO THESE EMPLOYEES. THUS FOR ASSESSMENT YEARS 2011-2012 2012-2013 TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT ASS ESSEE WAS NOT ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 11 -: LIABLE TO DEDUCT TAX AT SOURCE U/S.195 OF THE ACT ON PAYMENTS EFFECTED BY IT TO M/S. TOSHIBA CORPORATION JAPAN. 06. HOWEVER FOR THE ASSESSMENT YEAR 2013-2014 LD. COMMISSIONER OF INCOME TAX (APPEALS) TOOK A DIAGONA LLY OPPOSITE VIEW. IN THE SAID ORDER LD. COMMISSIONER OF INCO ME TAX (APPEALS) HELD THE ASSESSEE LIABLE TO DEDUCT TAX AT SOURCE U/ S.195 OF THE ACT ON THE FOLLOWING REASONS:- (I) ASSESSEE HAS HIRED THE PERSONNEL OF M/S. TOSHIBA CORPORATION JAPAN FOR THE PURPOSE OF ASSESSEES BUSINESS IN INDIA. (II) JAPAN COMPANY HAD AGREED TO ASSIGN ITS EMPLOYEES O NLY FOR SPECIFIC PERIOD OF TIME. (III) THERE WAS NO EMPLOYER/EMPLOYEE RELATION BETWEEN ASSESSEE AND EXPATRIATES AND SO CALLED EMPLOYMENT CONTRACT WAS ONLY A MAKE BELIEVE ARRANGEMENT. (IV) IF THE EXPATRIATES WERE EMPLOYEES OF THE ASSESSEE THERE WERE NO REQUIREMENT OF ANY REIMBURSEMENT TO THE JAP AN COMPANY. (V) M/S. TOSHIBA CORPORATION JAPAN WOULD NOT HAVE PUT ITS OWN EMPLOYEES WITH ASSESSEE WITHOUT ANY ECONOMIC BENEFITS TO IT. (VI) VIDE ARTICLE 12(4) OF THE INDIA - JAPAN DTAA PAYM ENTS FOR RENDERING ANY SERVICES OF MANAGERIAL TECHNICAL OR CONSULTANCY ARE TAXABLE AS FEES FOR TECHNICAL SERVI CES. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD T HAT THE PAYMENTS EFFECTED BY THE ASSESSEE TO M/S. TOSHIBA CORPORATIO N JAPAN WERE FEES ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 12 -: FOR TECHNICAL SERVICES AND SUBJECT TO WITHHOLDING TAX U/S.195 OF THE ACT. IN OTHER WORDS THE LD. COMMISSIONER OF INCOM E TAX (APPEALS) DECLINED TO FOLLOW THE ORDERS OF HIS PREDECESSOR FOR THE ASSESSMENT YEARS 2011-12 AND 2012-2013. 07 . NOW BEFORE US THE REVENUE IS IN APPEAL FOR FIRS T TWO YEARS AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) HOLDING THAT ASSESSEE WAS NOT LIABLE TO DEDUCT TAX U/S.195 OF THE ACT ON THE PAYMENTS EFFECTED BY IT TO M/S. TOSHIBA CORPORATION JAPAN. WHEREAS FOR ASSESSMENT YEAR 2013-2014 ASSESSEE IS AGGRIEV ED ON ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HOLDIN G THAT IT WAS LIABLE TO WITHHOLD TAX U/S.195 OF THE ACT. 08 . OPENING THE ARGUMENTS LD. DEPARTMENTAL REPRESEN TATIVE SUBMITTED THAT EMPLOYEES ASSIGNED TO THE ASSESSEE BY M/S. TOSHIBA CORPORATION JAPAN WERE NOT DIRECTLY ENROLLED OR OF FERED EMPLOYMENT BY THE ASSESSEE. AS PER LD. DEPARTMENTAL REPRESENT ATIVE SERVICES RENDERED BY THE EXPATRIATES WERE NOTHING BUT MANAGE RIAL SERVICES FALLING WITHIN THE MEANING OF TECHNICAL SERVICES. S UCH SERVICES ACCORDING TO HIM HAD TO BE DEEMED AS SERVICES REN DERED BY M/S. TOSHIBA CORPORATION JAPAN. AS PER LD. DEPARTMENTA L REPRESENTATIVE ARTICLE 14 OF THE INDO-JAPAN DTAA CLEARLY MENTION ED CONSIDERATION FOR SERVICES OR CONSULTANCY NATURE INCLUDING PROVI SIONS OF SERVICES OF ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 13 -: TECHNICAL OR OTHER PERSONNEL AS FEES FOR TECHNICAL SERVICES. RELIANCE WAS PLACED ON THE DECISIONS OF AUTHORITY FOR ADVANC E RULINGS IN THE CASE OF VERIZON DATA DERVICES INDIA P. LTD (INRE) (2012) (346 ITR 489) AND ALSO ON THE AT & S INDIA P. LTD (INRE) (AAR NO.670 OF 2005 DATED 6 TH NOVEMBER 2006). ACCORDING TO HIM SERVICES RENDE RED BY THESE EXPATRIATE EMPLOYEES OF M/S. TOSHIBA CORPORAT ION JAPAN WERE NOTHING BUT MANAGEMENT SERVICES ON WHICH TAX HAD TO BE DEDUCTED U/S.195 OF THE ACT. THUS ACCORDING TO HIM LD. AS SESSING OFFICER WAS CORRECT IN HOLDING THAT ASSESSEE WAS LIABLE TO WITH HOLD TAXES IN PAYMENTS EFFECTED TO M/S. TOSHIBA CORPORATION JAPA N. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT LD. COM MISSIONER OF INCOME TAX (APPEALS) WHILE CORRECTLY UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER FOR THE LAST YEAR OF THE THREE YE ARS IN APPEAL FELL IN ERROR WHEN HE TOOK A DIFFERENT VIEW IN THE FIRST T WO YEARS. 09. PER CONTRA THE LD. AUTHORISED REPRESENTATIVE M ADE THE FOLLOWING SUBMISSIONS:- PROPOSITION1: REIMBURSEMENT OF SALARY COST IS FOR M ORE ADMINISTRATIVE CONVENIENCE:- WE WISH TO SUBMIT BEFORE YOUR GOODSELF THAT PAYMENT OF PART OF THE SALARY TO EMPLOYEES BY TOSHIBA CORPORATION AND SUBSEQUENT REI MBURSEMENT BY THE COMPANY ON A COST TO COST BASIS IS FOR MERE ADMINIS TRATIVE CONVENIENCE. IN THIS REGARD RELIANCE HAS BEEN PLACED ON THE FOLLOW ING JUDICIAL PRECEDENTS: (A) IDS SOFTWARE SOLUTIONS INDIA P LTD - [2009] 32 SOT 25 (BANGALORE ITAT) ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 14 -: (B) ARIBA TECHNOLOGIES INDIA PRIVATE LIMITED - [201 1] ITA NO 616 (BANGALORE IT A T) (C) BHAGYANAGAR GAS LTD - [2013] 29 TAXMANN.COM 220 (HYDERABAD ITAT) (D) CERNER HEALTHCARE SOLUTIONS PRIVATE LIMITED - [ 2011 ] ITA 627 (BANGALORE IT A T) (E) TEMASEK HOLDINGS ADVISORS I PRIVATE LIMITED - [ 2013] 38 TAXMANN.COM 80 (MUMBAI TRIBUNAL). PROPOSITION 2: SALARY PAID TO THE EXPATRIATES WAS O FFERED TO TAX IN INDIA WE WISH TO SUBMIT BEFORE YOUR GOODSELF THAT THE SAL ARY PAID TO THE EXPATRIATES WERE OFFERED TO TAX IN INDIA BY THE EXP ATRIATES. IN THIS REGARD RELIANCE HAS BEEN PLACED ON THE FOLLOWING JUDICIAL PRECEDENTS: (A) CARBORUNDUM CO - [1977] 108 ITR 335 (SUPREME CO URT) (B) ELI LILLY AND CO INDIA P LTD - [2009] 312 ITR 225 (SUPREME COURT) PROPOSITION 3: EXPLANATION 2 TO SECTION 9(L)(VII) O F THE INCOME-TAX ACT 1961 ('THE ACT') CLARIFYING THE TERM 'FEES FOR TECHNICAL SERVICES' :- WE WISH TO SUBMIT BEFORE YOUR GOODSELF THAT IN ACCO RDANCE WITH EXPLANATION 2 TO SECTION 9( I )(VII) OF THE ACT 'FEES FOR TECH NICAL SERVICES' MEANS ANY CONSIDERATION FOR THE RENDERING OF MANAGERIAL TECH NICAL OR CONSULTANCY SERVICES. IN THE INSTANT CASE THE REIMBURSEMENTS A RE MADE ON A COST TO COST BASIS AND NOT TOWARDS ANY CONSIDERATION FOR SERVICE S RENDERED. PROPOSITION 4: A PARTICULAR PAYMENT SHALL BE SUBJE CT TO TAX DEDUCTION AT SOURCE ONLY UNDER ONE SECTION UNDER THE ACT :- WE WISH TO SUBMIT BEFORE YOUR GOODSELF THAT A PARTI CULAR PAYMENT SHALL BE SUBJECT TO TAX DEDUCTION AT SOURCE ONLY UNDER ONE S ECTION UNDER THE ACT. IN THIS REGARD RELIANCE HAS BEEN PLACED ON THE FOLLOW ING: (A) CIRCULAR NO 720 DATED 30 AUGUST 1995 CLARIFYIN G THE ABOVE. (B) HCL INFOSYSTEMS LTD - [2005] 144 TAXMAN 492 (DE LHI HIGH COURT) ( (C) HCL INFOSYSTEMS LTD - [2002] 76 TT J 505 (DELHI IT A T) (REFER PARAGRAPH 22-28) ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 15 -: PROPOSITION 5: AT&S INDIA PRIVATE LIMITED [20061 15 7 TAXMANN 198 (NEW DELHI AAR) AS RELIED BY THE LEARNED DEPARTMENT REPR ESENTATIVE HAS BEEN CONSIDERED AND DISTINGUISHED IN THE FOLLOWING CASES: (A) IDS SOFTWARE SOLUTIONS INDIA P LTD- [2009] 32 S OT 25 (BANGALORE ITAT) (PARAGRAPH 14) (B) TEMASEK HOLDINGS ADVISORS I PRIVATE LIMITED - [ 2013] 38 TAXMANN.COM 80 (MUMBAI IT AT) (PARAGRAPH 16) (C) CHOLAMANDALAM MS GENERAL INSURANCE CO LTD - [20 09] 178 TAXMANN 100 (DELHI IT AT) (PARAGRAPH 10) PROPOSITION 6: VERIZON DATA SERVICES INDIA P LTD - [2011] 11 TAXMANN.COM 177 - AAR NEW DELHI AS RELIED BY THE LE ARNED DEPARTMENT REPRESENTATIVE HAS BEEN CONSIDERED AND DISTINGUISHE D IN TEMASEK HOLDINGS ADVISORS I PRIVATE LIMITED - [2013] 38 TAX MANN.COM 80 10 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERU SED THE ORDERS OF THE AUTHORITIES BELOW. THERE WERE TWO SET OF AGREEMENTS ENTERED BY THE ASSESSEE. ONE WITH SECONDED EMPLOYEE S AND OTHER WITH M/S. TOSHIBA CORPORATION JAPAN. THESE HAVE BEEN R EPRODUCED BY US AT PARAS 2 & 3 ABOVE. A CAREFUL READING OF THE AGR EEMENT WITH M/S. TOSHIBA CORPORATION JAPAN SHOWS THAT ASSESSEE WAS HIRING PERSONNEL OF M/S. TOSHIBA CORPORATION JAPAN. IT HAS BEEN MENTIONED THAT DURING THE PERIOD OF ASSIGNMENT EXPATRIATES WOULD BECOME EFFECTIVE EMPLOYEES OF THE ASSESSEE. IN OTHER WORDS WHAT TH IS MEANT IS THAT THEY DID NOT CEASE TO BE EMPLOYEES OF THE M/S. TOS HIBA CORPORATION JAPAN. IT IS ALSO STATED THAT M/S. TOSHIBA CORPORA TION JAPAN WOULD RAISE A DEBIT NOTE ON THE ASSESSEE WHERE DETAILS OF REMUNERATION AND OTHER RELATED COST INCURRED FOR EMPLOYEES WOULD BE GIVEN. THE DEBIT ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 16 -: NOTES RAISED BY THE M/S. TOSHIBA CORPORATION JAPAN ON THE ASSESSEE APPEAR TO BE TYPICAL AND ONE OF THESE IS REPRODUCED HEREUNDER:- DATE: JAN 25 2011 DEBIT NOTE NO. STFI 1101 MESSERS TOSBIBA JSW TURBINE AND GENERATOR PVT.LTD TVH BELICIAA TOWERS PHASE II 8 TH FLOOR IST MAIN ROAD MRC NAGAR R.A. PURAM CHENNAI 600 028. INDIA. PLEASE SEND REMITTANCE TO THE BANK AND ACCOUNT NUMBER SHOWN BELOW WITHIN 30 DAYS OF ABOVE DATE:- SUBMITOMO MITSUI BANKING CORPORATION HEAD OFFICE A/C. 5188087. DESCRIPTION AMOUN T / YEN SALARY FOR THE MONTH OF JAN 2011 MR. MASACHIKA ODAWARA MR. ITARU ISHIBASHI MR. SACHITOMO ISHLMARU 1 039 940 937 359 886 724 TOTAL 2 864 023 TOSHIBA CORPORATION BY AKHIRA MABUCHI CHIEF SPECIALIST HR & ADMINISTRATION DIV. POWER SYSTEMS COMPANY. A READING OF THE DEBIT NOTE SHOWS THAT WHAT THEY HA D PAID TO THE PERSONNEL WERE NOTHING BUT SALARY. THE SITUATION B OILS DOWN TO A STAGE WHERE IF WE WERE TO BELIEVE BOTH THESE AGREEMENTS AS TRUE THESE ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 17 -: EXPATRIATES WERE BOTH EMPLOYEES OF M/S. TOSHIBA COR PORATION JAPAN AS WELL AS ASSESSEE FOR THE VERY SAME PERIOD AND A T THE SAME TIME. CONTENTION OF THE ASSESSEE ALL ALONG WAS THAT THE P AYMENTS MADE BY M/S. TOSHIBA CORPORATION JAPAN WERE PART OF THE RE MUNERATION DUE FROM THE ASSESSEE TO THESE PERSONS WHICH DUE TO C ERTAIN EXIGENCIES WERE PAID BY M/S. TOSHIBA CORPORATION JAPAN. IF TH AT BE SO WE CANNOT FATHOM HOW M/S. TOSHIBA CORPORATION JAPAN C LAIMED THE REIMBURSEMENT AS SALARY PAYMENTS. IN OUR OPINION TO UNRAVEL THE MYSTERY IT IS ESSENTIAL TO HAVE A LOOK AT THE AGR EEMENTS ENTERED M/S. TOSHIBA CORPORATION JAPAN WITH THE EXPATRIATES EMP LOYEES IN SO FAR AS IT RELATES TO THE ASSIGNMENT OF SAID PERSONS TO THE ASSESSEE COMPANY IN INDIA. IT HAS TO BE SEEN WHETHER PAYMENT S EFFECTED BY M/S. TOSHIBA CORPORATION JAPAN TO THESE EXPATRIATE S DIRECTLY IN JAPAN WERE ONLY SALARY OR WHETHER THERE WAS ANY ELEMENT O F PROFIT BUILT UP ON COST. IT IS HARD TO BELIEVE THAT A COMMERCIAL E NTERPRISE WOULD GIVE THEIR OWN EMPLOYEES TO ANOTHER CONCERN SIMPLY ON A REIMBURSEMENT BASIS WITHOUT ANY ADVANTAGE TO THEM. NO DOUBT IT WAS HELD IN THE FOLLOWING DECISIONS THAT REIMBURSEMENT OF SALARY CO ULD ONLY FOR ADMINISTRATIVE CONVENIENCE. (I)IDS SOFTWARE SOLUTIONS INDIA P LTD (SUPRA) (II) ARIBA TECHNOLOGIES INDIA PRIVATE LIMITED (SUPR A) (III) BHAGYANAGAR GAS LTD (SUPRA) (IV) CERNER HEALTHCARE SOLUTIONS PRIVATE LIMITED (S UPRA) ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 18 -: (V) TEMASEK HOLDINGS ADVISORS I PRIVATE LIMITED (SU PRA) HOWEVER THESE DECISIONS WERE BASED ON A FUNDAMENT AL PREMISE THAT SUCH REIMBURSEMENTS WERE ON COST TO COST BASIS. NO DOUBT SALARY PAID TO EXPATRIATES ON WHICH TAX WERE DEDUCTED AT SOURCE IN INDIA UNDER SECTION 192 OF THE ACT CANNOT BE SUBJECTED TO A W ITHHOLDING TAX UNDER A DIFFERENT PROVISION. HOWEVER THIS PRINCIPLE C AN BE APPLIED ONLY IF IT IS SHOWN THAT WHAT WAS CLAIMED BY THE JAPAN COMPA NY AS RE- IMBURSEMENT OF PART OF THE SALARY DUE TO THE EXPATR IATES WAS ACTUALLY SO. ASSESSEE IN ITS LETTER DATED 16 TH MAY 2011 FILED BEFORE LD. ASSESSING OFFICER HAD GIVEN A BREAK UP OF THE AMOUN TS PAID TO THE EXPATRIATES FOR ASSESSMENT YEAR 2011-2012. THIS IS REPRODUCED HEREUNDER:- TAXABLE AMOUNTS RECEIVED BY THE EXPATRIATE FROM TOSHIBA CORPORATION JAPAN OTHE R TAXABLE INCOME (INCLUDING SALARY PAID BY TOSHIBA JSW INDIA) (INR) TOTAL TAXABLE INCME (ACTUAL FOR THE FY ENDED 31 ST MARCH) (INR) TOTAL TAX LIABILITY FOR THE YEAR (INR) TOTAL TAXES (TDS) PAID U/SE 192 (INR) JPY INR ISHIBASHI 12 552 268 6 883 847 7 596 934 14 380 780 4 293 281 4 293 281 ISHIMARU 7 277 109 4 048 229 3 391 171 7 339 400 2 117 495 2 117 495 ODAWARA 5 732 627 3 205 800 2 924 411 6 030 211 1 712 955 1 712 955 TOTAL 25 562 004 14 137 876 13 912 516 27 750 391 8 123 731 8 1 23 731 ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 19 -: ASSESSEE ITSELF HAS EXCLUDED CERTAIN SUMS PAID BY M/S. TOSHIBA CORPORATION JAPAN TO ITS EXPATRIATES EMPLOYEES IN JAPANESE CURRENCY. NO ATTEMPT WAS MADE BY THE LOWER AUTHORITIES TO REC ONCILE THESE AMOUNTS WITH THE DEBIT NOTES ISSUED BY THE JAPAN COMPANY TO ASSESSEE. THE QUESTION WHETHER PAYMENTS EFFECTED B Y ASSESSEE TO JAPAN COMPANY WHICH WAS CLAIMED BY IT AS REIMBURS EMENT OF SALARY WOULD COME UNDER THE PURVIEW OF FEES FOR TECHNICAL SERVICES CAN IN OUR OPINION BE DECIDED ONLY AFTER VERIFYING THE TER MS OF ASSIGNMENT AND CONTRACT FOR EMPLOYMENT IF ANY ENTERED BY THE E XPATRIATES EMPLOYEES WITH THE JAPAN COMPANY AND ALSO THE RECO NCILIATION OF THE AMOUNTS PAID BY THE JAPAN COMPANY TO ITS EXPATRIATE S WITH THE GROSS AMOUNTS ON WHICH ASSESSEE HAD DEDUCTED TAX UNDER SE CTION 192 OF THE ACT. WHEN ASSESSEE CLAIMS THAT WHAT WAS REIMBURSED BY IT TO JAPAN COMPANY WAS ONLY A PART OF THE SALARY DUE TO EXPATR IATES THE ONUS IS ON IT TO PROVE THIS. CONSIDERING ALL THESE WE ARE OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK BY THE LD. ASSESSING O FFICER. THE LD. ASSESSING OFFICER HAS TO VERIFY WHETHER WHAT WAS CL AIMED BY THE ASSESSEE AS REIMBURSEMENT ON A COST TO COST BASIS T O JAPAN COMPANY HAD ANY ELEMENT OF FEES FOR TECHNICAL SERVICES AFTE R VERIFYING THE AGREEMENTS ENTERED BY EXPATRIATES EMPLOYEES WITH M /S. TOSHIBA CORPORATION JAPAN AND ALSO THE RECONCILIATION OF T HE AMOUNTS PAID IN BOTH COUNTRIES TO THESE EXPATRIATES WITH THE GROS S AMOUNT ON WHICH ITA NOS.2105 & 2106/12 & 3099/MDS/2014. :- 20 -: TAX WAS DEDUCTED UNDER SEC. 192 OF THE ACT. ASSE SSEE CANNOT CLAIM THAT THE SAME EXPATRIATES WERE EMPLOYEES OF BOTH AS SESSEE AND M/S. TOSHIBA CORPORATION JAPAN FOR THE SAME PERIOD AND FOR THE SAME TIME. WE THEREFORE SET ASIDE THE ORDERS OF THE LO WER AUTHORITIES AND REMIT THE ISSUE BACK TO THE FILE OF THE LD. ASSESSI NG OFFICER FOR CONSIDERATION OF FRESH IN ACCORDANCE WITH LAW. 11. IN THE RESULT THE APPEALS OF THE REVENUE FOR A SSESSMENT YEARS 2011-12 & 2012-13 AND THAT OF ASSESSEE FOR AS SESSMENT YEAR 2013-2014 ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON FRIDAY THE 21ST DAY OF O CTOBER 2016 AT CHENNAI. SD/- SD/- ( # $! # % . & ) ( DUVVURU RL REDDY ) ( / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER / CHENNAI / DATED:21ST OCTOBER 2016 KV ! ' #$ %$ / COPY TO: 1 . &' / APPELLANT 4. ( / CIT 2. ')&' / RESPONDENT 5. $*+ ' / DR 3. ( () / CIT(A) 6. +/ 0 / GF