NEW BOMBAY PARK HOTEL PVT LTD, MUMBAI v. I.T.O. (INTERNATIONAL TAXATION) TDS - 4, MUMBAI

ITA 7641/MUM/2011 | 2007-2008
Pronouncement Date: 01-10-2013 | Result: Allowed

Appeal Details

RSA Number 764119914 RSA 2011
Assessee PAN AAACN5513E
Bench Mumbai
Appeal Number ITA 7641/MUM/2011
Duration Of Justice 1 year(s) 10 month(s) 20 day(s)
Appellant NEW BOMBAY PARK HOTEL PVT LTD, MUMBAI
Respondent I.T.O. (INTERNATIONAL TAXATION) TDS - 4, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 01-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted L
Tribunal Order Date 01-10-2013
Date Of Final Hearing 15-01-2014
Next Hearing Date 15-01-2014
Assessment Year 2007-2008
Appeal Filed On 11-11-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L MUMBAI . . / . . ! ' BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER /AND SHRI P.M.JAGTAP ACCOUNTANT MEMBER . / ITA NO. 7641/MUM/2011 $ $ $ $ % % % % / ASSESSMENT YEAR 2007-08 M/S. NEW BOMBAY PARK HOTEL PVT. LTD. APEEJAY HOUSE 3 DINSHAW VACCHA ROAD SCINDIA HOUSE BALLARD PIER MUMBAI 400 038. $ $ $ $ / VS. THE INCOME TAX OFFICER (INTERNATIONAL TAXATION) TDS-4 R.NO.115 1 ST FLR. SCINDIA HOUSE BALLARD PIER MUMBAI 400 038. & ./ ' ./ PAN/GIR NO. : AAACN 5513E ( &( / APPELLANT ) .. ( )*&( / RESPONDENT ) APPELLANT BY S/SHRI NIRAJ SHETH & S.M.BANDI RESPONDENT BY : SMT. NEERAJA PRADHAN $ + / DATE OF HEARING : 01/10//2013 -% + / DATE OF PRONOUNCEMENT : 01/10/2013 . / O R D E R PER I.P.BANSAL JM: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-11 MUMBAI DATED 16/09/2011 FO R ASSESSMENT YEAR 2007-08. GROUNDS OF APPEAL READ AS UNDER: 1. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW IN CONF IRMING THE SECOND ORDER PASSED BY THE A.O. U/S 201/201(1A) OF THE ACT DATE D 31-08-2010 WHICH WAS WITHOUT JURISDICTION AND THEREFORE BAD IN LAW AND V OID AB-INITIO. . / ITA NO. 7641/MUM/2011 $ $ $ $ % % % % / ASSESSMENT YEAR 2007-08 2 2. THE LD. CIT (A) FURTHER GROSSLY ERRED HI LAW AS WELL AS ON FACTS IN CONFIRMING THE ACTION OF THE A.O. IN TREATING THE ASSESSEE IN DEFAULT U/S 201 OF THE I. T. ACT FOR NON- DEDUCTION OF TAX AT SOURCE IN RESPECT OF T HE REMITTANCE MADE OF RS.44 69 958/- THOUGH THE SAME DID NOT CONSTITUTE AS INCOME EITHER U/S 9(1)VI)/(VII) OR UNDER ARTICLE 13 OF THE INDO-UK DO UBLE TAXATION AVOIDANCE AGREEMENT. 3. THE LD. CTT(A) HAS FURTHER GROSSLY ERRED IN JAW AS WELL AS ON FACTS IN CONFIRMING THE ACTION OF THE A.O. IN TREATING THE A SSESSEE IN DEFAULT U/S 201 OF THE I. T. ACT FOR NON- DEDUCTION OF TAX AT SOURCE I N RESPECT OF THE REMITTANCE MADE OF RS.10 55 052.87 ON ACCOUNT OF REIMBURSEMENT OF E XPENSES. 2. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S. PROJECT ORANGE ARCHITECTURE & DESIGN LTD. LONDON ON 6/10/2005 TO CARRY OUT WORK OF DESIGNING ETC. IN THREE PHASES. THE ASSESSEE DID NOT DEDUCT TAX WITH REGARD TO TWO PHASES ON THE GROUND THAT THE TECHNICAL DESIGN S AND DRAWINGS WHICH WERE PREPARED IN LONDON WERE TO BE TRANSPORTED TO INDIA UNDER BOTH THESES PHASES. UNDER PHASE ONE THE PROJECT ORANGE WAS TO PREPARE P ROJECT TIME SCHEDULE SCALES DESIGN REPORT AND OTHER DOCUMENTS WHICH WER E TO BE PREPARED IN LONDON. IN PHASE TWO THE TECHNICAL DESIGN AND DRA WINGS SO PREPARED WERE TO BE TRANSPORTED TO INDIA AND THESE WERE IMPORTED T O INDIA UNDER CUSTOMS REGULATIONS. ACCORDING TO ASSESSEE THE PAYMENT MAD E BY IT UNDER PHASE ONE AND TWO WERE NOT CHARGEABLE UNDER INCOME TAX ACT 1 961 (THE ACT) AS THE SAME DO NOT CONSTITUTE INCOME IN THE HANDS OF THE RECIPI ENT. IT IS ALSO THE CASE OF THE ASSESSEE THAT NON-RESIDENT TO WHOM THESE PAYMENTS H AVE BEEN MADE DOES NOT HAVE ANY PERMANENT ESTABLISHMENT(PE) IN INDIA. HO WEVER TDS WITH RESPECT TO PHASE 3 HAS BEEN DEDUCTED AS WELL AS DEPOSITED. IN THE ALTERNATIVE IT IS THE CLAIM OF THE ASSESSEE THAT SOME OF THE PAYMENTS MAD E BY THE ASSESSEE ARE IN THE NATURE OF REIMBURSEMENT OF THE EXPENDITURE WHIC H CANNOT BE CONSIDERED TO BE INCOME OF THE NON-RESIDENT. THE DETAILS OF PAYM ENT ON WHICH THE ASSESSEE DID NOT DEDUCT TAX IS PROVIDED IN THE ORDER DATED 31/08/2010 PASSED UNDER SECTION 201/201(1A) OF THE ACT AND IS AS UNDER: . / ITA NO. 7641/MUM/2011 $ $ $ $ % % % % / ASSESSMENT YEAR 2007-08 3 S.NO. DATE AMOUNT REMITTED 1. APRIL 2006 36 24 110 2 AUGUST 2006 11 92 050 3 JANUARY 2007 1 14 843 4 FEBRUARY 2007 5 64 867 FOR NON-DEDUCTION OF TAX THE ASSESSEE HAS BEEN HELD TO BE LIABLE TO PAY A SUM OF RS. 6 41 917/- BEING TAX REQUIRED TO BE DEDUCT ED AND RS.3 20 423/- ON ACCOUNT OF INTEREST UNDER SECTION 201(1A) OF THE AC T. AN APPEAL WAS FILED BEFORE LD. CIT(A) WHO HAS HELD THAT PAYMENT MADE BY THE AS SESSEE TO THE U.K. COMPANY WAS IN THE NATURE OF FEES FOR TECHNICAL SER VICES WITHIN THE MEANING OF ARTICLE 13(4)(C) OF INDIA U.K. TREATY AND TAXABLE I N INDIA. THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. HE HAS ALSO REJECTED THE CLAIM OF THE ASSESSEE REGARDING REIMBU RSEMENT AND UPHELD THE LIABILITY OF TAX IMPOSED BY THE A.O. 3. AFTER NARRATING THE FACTS IT WAS SUBMITTED BY L D. AR THAT RIGHT FROM THE BEGINNING IT IS THE CASE OF THE ASSESSEE THAT THE T ECHNICAL DESIGN AND DRAWINGS WERE PREPARED IN LONDON AND NO PART OF WORK PERTAIN ING TO PHASE ONE AND TWO WERE CARRIED OUT IN INDIA THEREFORE THE ENTIRE WO RK PERTAINING TO PHASE ONE AND TWO HAVE BEEN CARRIED OUT SIDE INDIA AND ACCORD INGLY THE PAYMENT MADE IN RELATION TO THE SAME IS NEITHER AN INCOME WITHIN TH E MEANING OF SECTION 9(1)(VII) NOR THE SAME IS AN INCOME WITHIN THE MEANING OF ART ICLE-12 OF INDIA U.K. TREATY THEREFORE ASSESSEE WAS NOT LIABLE FOR DE DUCTION OF TAX AT SOURCE . HE SUBMITTED THAT ACCORDING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES VS. DIRECT OR OF INCOME TAX (IT) 288 ITR 408 THE AMOUNT RECEIVABLE BY THE FOREIGN COMP ANY IN RESPECT OF OFF SHORE SERVICES IN CONNECTION WITH THE TURNKEY PROJECT EXE CUTED IN INDIA DID NOT FALL WITHIN THE PURVIEW OF SECTION 9(1)(VII) AS THE ENT IRE SERVICES WERE RENDERED OUTSIDE INDIA THOUGH UTILIZED IN INDIA; FURTHER AS SESSEES PE HAD NOTHING TO DO WITH THE SERVICES AND THEREFORE CONSIDERATION REC EIVED BY THE ASSESSEE IN RENDITION OF SUCH SERVICES WAS NOT TAXABLE IN INDIA . HE SUBMITTED THAT ON THE . / ITA NO. 7641/MUM/2011 $ $ $ $ % % % % / ASSESSMENT YEAR 2007-08 4 BASIS OF AFOREMENTIONED DECISION IT IS THE CASE OF THE ASSESSEE THAT WHEN ENTIRE SERVICES ARE RENDERED OUTSIDE INDIA IN RESPECT OF P HASE ONE AND TWO THE SAID AMOUNT WAS NOT CHARGEABLE TO TAX IN INDIA IN THE H ANDS OF THE RECIPIENT COMPANY. THEREFORE ASSESSEE WAS NOT LIABLE TO DED UCT TAX AT SOURCE AS ACCORDING TO SECTION 195 TAX DEDUCTION IS REQUIRED TO BE MADE ONLY IF THE SAID AMOUNT IS CHARGEABLE TO TAX UNDER INDIAN INCOME TAX ACT. HE FURTHER SUBMITTED THAT SO FAR AS IT RELATES TO AMENDMENT BROUGHT INTO THE STATUTE BY FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 1/6 /1976 EVEN APPLYING THE SAME ASSESSEE CANNOT BE HELD LIABLE FOR DEDUCTION OF TAX AS PER THE DECISION OF ITAT MUMBAI IN THE CASE OF CHANNEL GUIDE INDIA LTD. VS. ACIT 139 ITD 49. LD. AR HAS PLACED A COPY OF SAID ORDER ON OUR REC ORD AND A COPY WAS ALSO GIVEN TO LD. DR. HE IN THIS REGARD REFERRED TO TH E OBSERVATIONS OF THE TRIBUNAL AS FOUND IN PARA 24 TO 26 OF THE ORDER. 4. ON THE OTHER HAND RELYING UPON THE ORDER PASSED BY A.O AND LD. CIT(A) IT WAS SUBMITTED BY LD. DR THAT THE AGREEMENT UND ER WHICH THE ASSESSEE HAS MADE THESE PAYMENTS WAS A COMPOSITE AGREEMENT AND A LL THE THREE PHASES CANNOT BE SEGREGATED FOR DETERMINING THE LIABILITY OF THE ASSESSEE UNDER SECTION 195 OF THE ACT. SHE SUBMITTED THAT IF PHASE THREE IS CONSIDERED TO BE LIABLE FOR DEDUCTION OF TAX BY THE ASSESSEE THEN THERE IS NO REASON TO GRANT EXEMPTION FROM SUCH LIABILITY IN RESPECT OF PAYMENT MADE BY T HE ASSESSEE WITH REGARD TO PHASE ONE AND TWO. THEREFORE SHE SUBMITTED THAT LD. CIT(A) WAS RIGHT IN CONFIRMING THE ACTION OF AO AND HIS ORDER SHOULD BE UPHELD AND THE APPEAL FILED BY THE ASSESSEE SHOULD BE DISMISSED. 5. IN THE RE-JOINDER IT WAS SUBMITTED BY LD. A R THAT THE RELEVANT ISSUE WHICH IS REQUIRED TO BE CONSIDERED IN THE PRESENT CASE IS T HAT WHETHER OR NOT IN RESPECT OF PHASE ONE AND TWO WHICH WERE SEPARATELY DESCRIBED IN THE AGREEMENT ANY SERVICES WERE . / ITA NO. 7641/MUM/2011 $ $ $ $ % % % % / ASSESSMENT YEAR 2007-08 5 RENDERED IN INDIA. HE SUBMITTED THAT DESPITE SPECI FIC STATEMENT OF THE ASSESSEE BEFORE AO AND LD. CIT(A) NO MATERIAL COULD BE BROUGHT ON RECORD TO SHOW THAT ANY SERVICES WERE RENDERED BY THE FOREIGN COMPANY TO THE ASSESSE E WITH REGARD TO PHASE ONE AND TWO IN INDIA. THEREFORE HE SUBMITTED THAT LD. CI T(A) HAS WRONGLY CONFIRMED THE ACTION OF A.O. 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. IF WE EXAMINE THE FACTS OF THE PRESENT CASE WITHOUT APPLYING AFOREMENTIONED AMENDMENT IN VIEW OF AFOREMENTION ED DECISION OF HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJIMA-HARIMA H EAVY INDUSTRIES VS. DIRECTOR OF INCOME TAX (IT) (SUPRA) IT HAS TO BE H ELD THAT IF THE ENTIRE SERVICES RENDERED BY THE FOREIGN COMPANY TO THE ASSESSEE IN RESPECT OF PHASE ONE AND TWO OUTSIDE INDIA THEN THE SAME CANNOT BECOME CHAR GEABLE TO TAX IN THE HANDS OF THE FOREIGN COMPANY IN INDIA. UNLESS THE AMOU NT PAID BY THE ASSESSEE ASSESSEE COMPANY TO THE FOREIGN COMPANY DOES NOT BE COME CHARGEABLE TO TAX IN INDIA THEN THE QUESTION OF APPLICABILITY OF SECTION 195 DOES NOT ARISE. THEREFORE WITHOUT CONSIDERING THE AFOREMENTIONED A MENDMENT IT HAS TO BE HELD THAT THERE WAS NO LIABILITY OF THE ASSESSEE T O DEDUCT TAX AT SOURCE ON THE PAYMENT MADE BY IT WITH RESPECT TO WORK RELATING T O PHASE ONE AND TWO. HOWEVER WE HAVE TO EXAMINE THE APPLICABILITY OF TH E AMENDMENT ALSO AND WE FOUND THAT SUCH ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE AFOREMENTIONED DECISION OF THE TRIBUNAL IN THE CAS E OF M/S. CHANNEL GUIDE INDIA LTD. (SUPRA). WE MAY QUOTE PARA-24 TO 26 OF THE SAID DECISIONS AS UNDER: 24. AS ALREADY OBSERVED THE LD. DR IN SUPPORT OF R EVENUES CONTENTION ON THE ISSUE UNDER CONSIDERATION HAS RELIED ON EXPLANA TION 5 TO SEC.9(L)(VI) WHICH ACCORDING TO HIM CLARIFIES THE SCOPE OF CLA USE (IVA) OF EXPLANATION 2 TO SEC.9(L)(VI) DEALING WITH USE OR RIGHT TO USE AN Y INDUSTRIAL COMMERCIAL OR SCIENTIFIC EQUIPMENT. HE HAS ALSO RELIED ON EXPLANA TION 6 TO SEC.9(1)(VI) WHICH ACCORDING TO HIM CLARIFIES THE EXPRESSION PROCESS USED IN CLAUSE (I) (II) & (III) OF EXPLANATION 2 TO SEC.9(L)(VI). THE PROVISIONS OF BOTH THESE EXPLANATIONS 5 & 6 HAVE BEEN INSERTED IN THE STATUT E BY THE FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 1.6.1976. THE L D. COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY OPPOSED THE STAND TAKEN BY THE LD. DR BY RAISING THE VARIOUS CONTENTIONS WHICH HAVE ALREADY BEEN NARRATED BY US. HE HAS ALSO RELIED ON THE DECISION OF CO-ORDINATE B ENCH OF THIS TRIBUNAL IN THE CASE OF B4U (SUPRA) AS WELL AS THAT OF SPECIAL BENCH OF THIS TRIBUNAL IN . / ITA NO. 7641/MUM/2011 $ $ $ $ % % % % / ASSESSMENT YEAR 2007-08 6 THE CASE OF SIEMENS AKTIENGESELLSCHAFT (SUPRA) TO C ONTEND THAT SUBSEQUENT AMENDMENTS MADE IN THE DOMESTIC LAW NEED TO BE INCO RPORATED IN THE TREATY. 25. IN OUR OPINION THE ISSUE INVOLVED IN THE PRESE NT CASE HOWEVER IS RELATING TO DISALLOWANCE MADE ULS.40 (A)(I) FOR NON -DEDUCTION OF TAX- AT- SOURCE FROM THE PAYMENT MADE BY THE ASSESSEE TO SSA AND AS HELD BY AHMEDABAD BENCH OF THIS TRIBUNAL IN THE CASE OF STE RLING ABRASIVES LTD. BY ITS ORDER DATED 23.12.2010 CITED BY THE LD. COUN SEL FOR THE ASSESSEE THE ASSESSEE CANNOT BE HELD TO BE LIABLE TO DEDUCT TAX AT SOURCE RELYING ON THE SUBSEQUENT AMENDMENTS MADE IN THE ACT WITH RETR OSPECTIVE EFFECT. IN THE SAID CASE EXPLANATION TO SEC.9(2) WAS INSERTED BY THE FINANCE ACT 2007 WITH RETROSPECTIVE EFFECT FROM 1.6.1976 AND IT WAS HELD BY THE TRIBUNAL THAT IT WAS IMPOSSIBLE FOR THE ASSESSEE TO DEDUCT TAX IN THE FINANCIAL YEAR 2003-04 WHEN AS PER THE RELEVANT LEG AL POSITION PREVALENT IN THE FINANCIAL YEAR 2003-04 THE OBLIGATION TO DEDUC T TAX WAS NOT ON THE ASSESSEE. THE TRIBUNAL BASED ITS DECISION ON A LEGA L MAXIM LEX NON COGIT AD IMPOSSIBLIA MEANING THEREBY THAT THE LAW CANNOT POSSIBLY COMPEL A PERSON TO DO SOMETHING WHICH IS IMPOSSIBLE TO PERFO RM AND RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF KR ISHNA SWAMY S. PD AND ANOTHER VS. UNION OF INDIA AND OTHERS 281 ITR 3 05 WHEREIN THE SAID LEGAL MAXIM WAS ACCEPTED BY THE HONBLE APEX COURT. 26. IN VIEW OF THE ABOVE DISCUSSION WE ARE OF THE VIEW THAT THE AMOUNT IN QUESTION PAID BY THE ASSESSEE TO SSA WAS NOT TAXABL E IN INDIA IN THE HANDS OF SSA EITHER ULS.9(L)(VI) OR 9(1)(VII) AS PE R THE LEGAL POSITION PREVALENT AT THE RELEVANT TIME AND THE ASSESSEE THEREFORE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE SAID AMOUNT PAID TO M/S. SSA AND THERE WAS NO QUESTION OF DISALLOWING THE SAID AMOUNT BY INVOKING THE PROVISIONS OF SEC.40(A)(I). IN THAT VIEW OF THE MATTER WE DELETE THE DISALLOWANCE MADE BY THE AO ULS.40(A) (I) AND CONFIRMED BY LD. CIT (A) A ND ALLOW GROUND NO. 1 OF THE ASSESSEES APPEAL. 6.1 LD. D.R COULD NOT CITE ANY CONTRARY DECISION. IN AFOREMENTIONED DECISION ONE OF US (A.M) IS A PARTY. THEREFORE WE HOLD THAT EVEN THE AFOREMENTIONED AMENDMENT DOES NOT CREATE ANY LIABI LITY AGAINST THE ASSESSEE AS THE LEGAL POSITION PREVAILING AT THE RELEVANT T IME WAS TO BE CONSIDERED. ACCORDINGLY WE HOLD THAT THE ASSESSEE WAS NOT LIA BLE FOR DEDUCTION OF TAX UNDER SECTION 195 OF THE ACT. . / ITA NO. 7641/MUM/2011 $ $ $ $ % % % % / ASSESSMENT YEAR 2007-08 7 6.2 BEFORE PARTING WE MAY MENTIONED THAT NO OTHER ARGUMENT WAS RAISED BEFORE US AND THE APPEAL FILED BY THE ASSESSEE IS C ONSIDERED TO BE DISPOSED OF AS PER OUR AFOREMENTIONED ORDER. 7. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 01/10//201 3 . + -% / 0$1 01/10/2013 - + ' SD/- SD/- ( . . / P.M.JAGTAP ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 0$ DATED 01/10/2013 . . . . + ++ + )23 )23 )23 )23 43% 43% 43% 43% / COPY OF THE ORDER FORWARDED TO : 1. &( / THE APPELLANT 2. )*&( / THE RESPONDENT. 3. 5 ( ) / THE CIT(A)- 4. 5 / CIT 5. 36 )$ / DR ITAT MUMBAI 6. 7 8 / GUARD FILE. .$ .$ .$ .$ / BY ORDER *3 ) //TRUE COPY// 9 99 9 / : : : : (DY./ASSTT. REGISTRAR) / ITAT MUMBAI . $ . ./ VM SR. PS