2018 (4) TMI 866 - AT - Income Tax

Appeal partly allowed, stay petition dismissed. Remitted key tax issues for fresh consideration. Interest levy deemed consequential.

The Tribunal partly allowed the appeal filed by the assessee for statistical purposes and dismissed the stay petition as infructuous. The key issues ... Withholding tax under section 195 - assessee in default under section 201(1) - reimbursement of expenses not constituting income - fees for technical services and taxability on services rendered/utilised in India - application of DTAA provisions to payments to non-residents - remand to the Assessing Officer for verification of factsReimbursement of expenses not constituting income - withholding tax under section 195 - remand to the Assessing Officer for verification of facts - Whether payments made to IBS America were mere reimbursements (cost-to-cost) not chargeable to tax and not subject to withholding under section 195 - HELD THAT: - The assessee claimed that amounts paid to its wholly owned foreign subsidiary were reimbursements of salary and overhead costs on a cost-to-cost basis and therefore lacked any income element attracting withholding under section 195. The assessee, however, did not produce the underlying agreements and furnished only sample debit notes which, on the record, did not conclusively demonstrate that the payments were reimbursements without any profit element. The Tribunal held that it is the assessee's primary duty to substantiate the reimbursement character and, in the interest of natural justice, directed the Assessing Officer to make further enquiries and to verify the nature of the expenditures and supporting documentation to determine whether they are revenue expenditures constituting mere reimbursements or payments chargeable to tax. [Paras 6]Remitted to the Assessing Officer for fresh consideration and enquiry; ground allowed for statistical purposes.Fees for technical services and taxability on services rendered/utilised in India - withholding tax under section 195 - application of DTAA provisions to payments to non-residents - remand to the Assessing Officer for verification of facts - Whether marketing consultancy/ project management charges paid to Avient Solutions Ltd., UK were taxable in India and liable to withholding under section 195 - HELD THAT: - The assessee contended the payments related to marketing services for earning income outside India and relied on the law as it stood when payments were made, including the later-retrospective Explanation to section 9(1)(vii). The Revenue relied on the business cooperation agreement clauses to contend Avient provided technical/support services and that the payments were fees for technical services. The Tribunal observed there was no finding by lower authorities on whether the services were rendered in India or utilised in India, or whether the payee had residence, business or business connection in India. Accordingly, to determine taxability and withholding obligation, the Tribunal remitted the issue to the Assessing Officer for fresh consideration of these factual aspects. [Paras 10]Remitted to the Assessing Officer for fresh factual and legal examination; ground allowed for statistical purposes.Application of DTAA provisions to payments to non-residents - fees for technical services and taxability on services rendered/utilised in India - withholding tax under section 195 - remand to the Assessing Officer for verification of facts - Whether legal representation fees paid to Simpson & Grierson, New Zealand were taxable in India (as FTS) or fell outside Indian tax/withholding obligations under treaty provisions - HELD THAT: - The assessee argued the New Zealand partnership's income was taxed in the partners' hands and that the services amounted to independent personal services or business profits not taxable in India absent a business connection; the Revenue contended the firm provided specialized technical/consultancy services covered by FTS and Article 12(4) of the India-New Zealand DTAA. The Tribunal held that the assessee must prove that the services were rendered and utilised outside India and that the payee had no business or business connection in India. In the interest of natural justice and because these factual determinations were not concluded by the lower authorities, the Tribunal remitted the matter to the Assessing Officer for fresh consideration. [Paras 15]Remitted to the Assessing Officer for fresh consideration on factual aspects relevant to treaty and domestic taxability; consequential interest issues left to follow that outcome.Final Conclusion: The Tribunal remitted the three substantive disputes (payments to IBS America, Avient Solutions UK, and Simpson & Grierson NZ) to the Assessing Officer for fresh fact-finding and consideration as to taxability and withholding obligations; the appeal is partly allowed for statistical purposes and the stay petition is dismissed as infructuous. Issues Involved:1. Withholding tax on reimbursement of expenses to IBS America Inc.2. Withholding tax on marketing support charges to Avient Solutions Limited, UK.3. Withholding tax on legal representation charges to Simpson & Grierson, New Zealand.4. Levy of interest under Section 201(1A) of the IT Act.Issue-wise Detailed Analysis:1. Withholding Tax on Reimbursement of Expenses to IBS America Inc.The first issue concerns the CIT(A)'s computation of withholding tax on reimbursements made to IBS America Inc., amounting to Rs. 2,20,28,620/-. The assessee argued that these payments were reimbursements for expenses incurred by IBS America on behalf of IBS India and did not include any income element, thus not attracting TDS under Section 195. The assessee cited the ITAT Mumbai Bench decision in Mahindra and Mahindra Ltd. v. DCIT, which held that reimbursements without profit elements are not liable for withholding tax.The Revenue countered that the assessee failed to provide sufficient evidence, such as agreements or detailed debit notes, to substantiate that these payments were purely reimbursements. The Tribunal observed that the assessee did not produce the necessary documents to prove the nature of the expenses. Consequently, the issue was remitted to the Assessing Officer (AO) for fresh consideration, directing the assessee to provide the requisite proof.2. Withholding Tax on Marketing Support Charges to Avient Solutions Limited, UKThe second issue involved the CIT(A)'s computation of withholding tax on marketing support charges paid to Avient Solutions Limited, UK, totaling Rs. 3,15,75,700/-. The assessee contended that these charges were for marketing consultancy services aimed at generating income from sources outside India and thus not taxable under Section 9(1)(vii)(b) of the IT Act. The assessee also argued that the retrospective amendment to Section 9(1) introduced by the Finance Act 2010 should not apply to TDS obligations for payments made before its enactment.The Revenue argued that the services provided by Avient included technical consultancy and were thus taxable in India. The Tribunal noted that there was no finding on whether the services were rendered or utilized in India. The matter was remitted to the AO for fresh consideration to determine the nature and utilization of the services.3. Withholding Tax on Legal Representation Charges to Simpson & Grierson, New ZealandThe third issue dealt with the CIT(A)'s computation of withholding tax on legal representation charges paid to Simpson & Grierson, New Zealand, amounting to Rs. 5,93,70,042/-. The assessee argued that these payments were for legal services rendered outside India and should be covered under 'Article 14 - Independent Personal Services' of the India-New Zealand tax treaty, thus not taxable in India. The Revenue contended that the services were technical/consultancy in nature and taxable under Article 12(4) of the India-New Zealand DTAA and Section 9(1)(vii) of the IT Act.The Tribunal observed that the assessee needed to prove that the services were rendered and utilized outside India and that the payee had no business connection in India. The issue was remitted to the AO for fresh consideration.4. Levy of Interest Under Section 201(1A) of the IT ActThe other grounds raised by the assessee pertained to the levy of interest under Section 201(1A) of the IT Act, which were deemed consequential and did not require separate adjudication.Conclusion:The appeal filed by the assessee was partly allowed for statistical purposes, and the stay petition was dismissed as infructuous. The Tribunal remitted the key issues back to the AO for fresh consideration, directing the assessee to provide necessary evidence to substantiate their claims. The order was pronounced in the open court on April 12, 2018.