2018 (12) TMI 1965 - AT - Income Tax

Appeals allowed for fresh adjudication emphasizing detailed examination of cost-sharing agreement

BASF India Ltd. Versus Dy. Commissioner of Income Tax (I.T), Circle–3 (2), Mumbai.

The Tribunal allowed the appeals for statistical purposes, directing a fresh adjudication by the Assessing Officer. Emphasizing the need for a detailed ... TDS u/s 195 - payment made to BASF SE, Germany, is in the nature of fees for technical services and further direction to deduct tax at source @ 10% on gross basis - assessee, an Indian company, is part of BASF Group of companies having its Headquarters in Germany and the holding company of the entire group is BASF SE, Germany - HELD THAT:- Before concluding that the remittances are in the nature of fees for technical services and chargeable to tax at the hands of the recipient in India, all necessary and relevant documents including the cost sharing agreement, the auditor’s report as well as other additional evidences filed by the assessee before us needs to be properly analysed and examined. Further, contention of learned Sr. Counsel that BASF SE having not rendered any services to the assessee, payment made cannot be treated as fees for technical services as per Explanation–2 to section 9(1)(vii) has not been considered by the Departmental Authorities both factually and legally. The contention of the assessee that when another Indian company of BASF group, a party to the same cost sharing agreement has been issued a no deduction certificate under section 195(2) why a differential treatment should be meted out to the assessee also needs to be considered with proper reasoning. Since, the aforesaid aspects have not been considered by the Departmental Authorities and many of the documentary evidences were furnished for the first time before us by way of additional evidences and were not before the Departmental Authorities, though we are of the opinion that the additional evidences furnished by the assessee require to be admitted as they will have a crucial bearing for deciding the issue, however, to afford a fair opportunity to the Department to examine such documents, we are inclined to restore the issues raised in the aforesaid grounds to the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee. While doing so, the Assessing Officer must consider the ratio laid down in the decisions to be cited before him - Assessee’s appeals are allowed for statistical purposes. Issues Involved:1. Nature of payment made to BASF SE, Germany.2. Requirement to deduct tax at source on remittances under section 195(1) of the Income Tax Act, 1961.3. Validity of the cost sharing agreement.4. Admission of additional evidences.Detailed Analysis:1. Nature of Payment Made to BASF SE, Germany:The primary issue in contention is whether the payment made by the assessee to BASF SE, Germany, constitutes fees for technical services. The assessee argued that the payment was a reimbursement of costs under a cost-sharing agreement and not fees for technical services. The Assessing Officer and the Commissioner (Appeals) held that the payment was for technical services, necessitating tax deduction at source. The Tribunal noted that the Assessing Officer's order lacked detailed reasoning and did not properly examine the cost-sharing agreement or the nature of services provided.2. Requirement to Deduct Tax at Source on Remittances:The assessee applied under section 195(2) of the Act, seeking permission to remit the amount without deducting tax at source, asserting that the remittance was not income chargeable to tax in India. The Assessing Officer directed the assessee to deduct tax at source at 10% on a gross basis, treating the remittance as fees for technical services. The Tribunal found that the Departmental Authorities did not adequately consider whether BASF SE rendered any services to the assessee and whether the remittance was indeed in the nature of fees for technical services as per Explanation-2 to section 9(1)(vii) of the Act.3. Validity of the Cost Sharing Agreement:The assessee entered into a cost-sharing agreement with BASF SE effective from January 1, 2010, for the reimbursement of common costs. The Tribunal observed that the Commissioner (Appeals) incorrectly concluded that the invoice raised by BASF SE did not refer to the cost-sharing agreement and did not provide sufficient reasoning for treating the services as managerial and technical. The Tribunal emphasized the need for a thorough examination of the cost-sharing agreement and the nature of services rendered by pool members.4. Admission of Additional Evidences:The assessee presented additional documents before the Tribunal, including a report by Deloitte, to substantiate that the payments were reimbursements without any mark-up. The Tribunal admitted these additional evidences, recognizing their potential impact on the case. The Tribunal decided to restore the issues to the Assessing Officer for de novo adjudication, allowing the Department to examine the additional documents and providing the assessee an opportunity to present its case.Conclusion:The Tribunal concluded that the Departmental Authorities did not adequately consider the nature of the payments and the relevant documents. It restored the issues to the Assessing Officer for fresh adjudication, emphasizing the need for a detailed examination of the cost-sharing agreement, additional evidences, and relevant legal provisions. The Tribunal directed that the Assessing Officer must consider the decisions cited by the assessee and provide a fair opportunity for both parties to present their arguments. The appeals were allowed for statistical purposes, with the order pronounced in the open Court on December 14, 2018.