TaxTMI 
TaxTMI 
2019 (10) TMI 972
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....ot result in any enduring benefit to the Appellant and hence, is allowable as revenue expenditure. 2. Disallowance of reimbursement of expenses under section 40(a)(ia) of the Act in upholding the disallowance made by the Additional Commissioner of Income tax. Range 8(3) (AO) of reimbursement of certain expenses made to non-residents including group entities of the Appellant under section 40(a)(i) of the Act on account of alleged non- deduction of taxes at source under section 195 of the Act. 2.1 Reimbursement of Demurrage Expenses of INR 2,59,99,105 in upholding the disallowance of reimbursement of demurrage and sh ipment costs amounting to INR 2,59,99,105 made to TOTSA Total Oil under section 40(a)(i) on account of non-deduction of taxes at source under section 195 of the Act. in upholding the action of the learned AO in characterising such reimbursement of demurrage and shipment costs as fees for technical services (FTS') taxable under section 9(1)(vii) of the Act. in not appreciating the fact that the payments to TOTSA Total Oil are pure cost reimbursements and do not contain any service element. in disregarding the order of the C....
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....ve of the assessee has argued that the issue has duly been covered by the decision of Hon'ble ITAT in the assessee's own case in ITA. No. 1271/M/2013 dated 20.12.2017, therefore, in the said circumstances, the expenses are liable to be allowed in the interest of justice. However, on the other hand, the Ld. Representative of the revenue has refuted the said contention. The copy of order passed by the Hon'ble ITAT in ITA. No. 1271/M/2013 dated 20.12.2017 titled as Total Oil India P. Ltd. ACIT is on the file and the relevant issue has been discussed in para no.2 which is hereby reproduced as under.:- "2. The 1st ground raised in this appeal by the assessee is against the order of the Ld. CIT(A) confirming the disallowance of Rs. 8,42,189/- of EDP expenses considering the same as capital expenditure. 2.1 During the course of assessment proceedings, the assessee submitted before the AO that it has debited Rs. 8,42,189/- as EDP expenses and included it in 'Miscellaneous Expenses'. The AO following the judgment of the Hon'ble Rajasthan High Court in the case of CIT vs. Arawali Constructions (P) Ltd. 259 ITR 30 (Raj) disallowed the said EDP expenses of Rs. 8,42,189/-. ....
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....ecision of the Bombay High Court in the case of CIT Vs. Dempo and Co. P. Ltd. (381 ITR 303) and also by the decision of the Hon'ble ITAT Mumbai Bench in the case of Kuloday Technopack (P) Ltd. Vs. ITO (86 Taxmann.com 74). Therefore, the claim of the Assessee is liable to be allowed. On the other hand, the Ld. Representative of the revenue has refuted the said contention. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.: - "8.2 The submission made by the appellant has been examined. It is noticed that the entire submission made by the appellant is under the presumption that the amount represents pure re-imbursement and hence it does not have any element of income. Accordingly, it is not liable to tax in India. Once, the amount is not liable to tax in India, there is no liability on the appellant to deduct taxes u/s 195 as held by Supreme Court in GE Technology Centre vs CIT 1(327 ITR 456) (SC)] and Transmission Corporation (supra). On the other hand, the AO has held the amount to be in the nature of FTS and hence liable to tax in India u/s 9(I) (vii) of the Act mandating deduction of tax from this amount u/s 195. The first issue whic....
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....ally, demurrage partakes the character of freight and is liable to tax in the country where the port, where demo-age has been levied, is situated. It has been ascertained that the demurrage above has been paid in respect of Indian ports and the shipping lines involved are foreign ship owners. Freight income generated in India is a taxable income under Income Tax Act and hence, any payment of freight to a non-resident will invite TDS u/s 195. Generally, freight income of non-residents visiting Indian ports is governed by section 172 and hence, if the ship owner has paid taxes u/s 172, then the provisions of section 195 will not apply. However, most of the time, while the actual freight is covered by section 172 by the non-resident, the demurrage charges are not included as they are raised subsequent to the leaving of the port and are charged separately from the clients. 8.3 The present ease represents a similar scenario where the invoice for the demurrage has been raised separately. Clearly, the non-resident ship owner has not included this amount while paying taxes u/s 172. Hence, had the appellant paid the demurrage amount directly to the ship owner, he was liable to dedu....
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....ppraisal of the above said finding, we noticed that the matter of controversy has been decided by the CIT(A) on the basis of decision of Bombay High Court in the case of Orient (Goa) (P) ltd., [20091 185 TaX 111311 131 Bombay. But the situation has been changed now specifically in view of the decision of Bombay High Court in the case of CIT Vs. Dempo and Co. P. Ltd. (381 ITR 303). The relevant finding has been given in para no. 46 to 54 which is hereby reproduced as under.: - "46. A bare perusal thereof would indicate as to how this provision covers the case of an assessee who is a non-resident and engaged in the business of operation of ships. That stipulates a sum equal to 7½% of the aggregate of the amount specified in sub-section (2) of section 44B as deemed to be profits and gains of such business chargeable to tax under the head "Profits and Gains of Business or Profession". It is the explanation which refers to the demurrage and for the purpose of sub-section (2) of SRP 62/79ITXA989.15.doc section 44B. It clarifies that the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any o....
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....ment to pay the tax. Hence, the apprehension of SRP 64/79 ITXA989.15.doc avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business. 48. The resident assessee contended before the Division Bench in Orient (Goa) (supra) as well as the Division Bench which made the referring order that section 172 of the Income Tax Act has a bearing and an important one on the obligation to deduct tax at source. Therefore, it is the recipient's position and the perspective in which the recipient's income would be taxed will have to be borne in mind. The non-resident shipping company in respect of it's income would be in a position to rely upon section 44B and consequently section 172. However, we do not see how there is an obligation to deduct tax at source on the resident assessee/Indian company before us. While computing the income of the non-resident Indian / foreign company, assistance can be derived by such non-residents from section 44B if they are in shipping business. It would also be in a....
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....eparture of the ship, the master of the ship has to furnish to the Income-tax Officer a return of the full amount paid or payable to the owner or charter on account of the carriage of passengers, goods etc., shipped at the port in India since the last arrival of the ship at the port. In the event that, to the satisfaction of the Income-tax Officer, the master is unable so to do, he has to make satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf. A port clearance cannot be granted to the ship until the tax assessable under the section is duly paid or satisfactory arrangements have been made for the payment thereof. 4. The assessee in this case is the Aluminium Company of Canada which had time- chartered the ship and on whose behalf its shipping agent, the respondent, had executed the guarantee bond. Since the Company is a non-resident and the ship carried goods which were shipped at a port in India, the conditions specified in sub-section (1) are satisfied and the provisions of Section 172 will apply for the purpose of levy of tax, notwithstanding anything contained in the other provisions of the Income-ta....
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....If the assessee exercises the right conferred on him under section 172(7) of the Act, the Income Tax Officer is bound to make an assessment of the total income of the previous year of the assessee and the tax payable on the basis thereof "should be determined in accordance with the other provisions of the Act" and any payment made under the section (earlier) "shall be treated as a payment in advance of the tax" leviable for that assessment year and the difference between the sum so paid and the amount of tax found payable by him on such assessment, shall be paid to the assessee or refunded to him. The "ad hoc" assessment made under Section 172(4) of the Act is superseded and a "regular assessment" is made as per the provisions of the Act. In such a case, it is only proper and appropriate to hold that all "the provisions" of the Act in the determination of the tax liability including the ancillary or incidental or consequential matters pertaining to it are necessarily attracted. 8. Section 172(7) of the Act provides that payment made under the section shall be treated as a payment in advance of the tax leviable for that assessment year. It only means that such payment would....
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....awn is without any substance or difference. Section 172(7) of the Act provides for a regular assessment, wherein all the provisions of the Act will apply. It is not a mere provision for adjustment. The High Court was swayed by the title used in the corresponding provision of the predecessor Act (Income Tax Act, 1922 - Section 44-C), wherein there was a heading to the section - "Adjustment". Section 172 of the Act contains no such heading. We hold that the Income Tax Appellate Tribunal was justified in holding that since the payment made under Section 172(4) of the Act is, by fiction, treated as advance tax, all the provisions in respect of the advance tax will apply and if on regular assessment made under Section 172(7) of the Act, there is any excess payment made by the assessee, then the assessee would be entitled to it and also interest thereon under Section 214 of the Act. We answer the question referred to the High Court in the affirmative, in favour of the assessees and against the Revenue. ....." 52. Lastly, in the case of GE India Technology Centre Private Limited vs. Commissioner of Income Tax and Anr. reported in (2010) 10 SCC 29 the Hon'ble Supreme ....
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....e pure income payments, it also covers composite payments which has an element of income embedded or incorporated in them. Thus, where an amount is payable to a non-resident, the payer is under an obligation to deduct TAS in respect of such composite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. This obligation being limited to the appropriate proportion of income flows from the words used in Section 195(1), namely, "chargeable under the provisions of the Act". It is for this reason that vide Circular No. 728 dated October 30, 1995 the CBDT has clarified that the tax deductor can take into consideration the effect of DTAA in respect of payment of royalties and technical fees while deducting TAS. It may also be noted that Section 195(1) is in identical terms with Section 18(3B) of the 1922 Act. 11. While deciding the scope of Section 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle ofSection 195. Hence, apart from ....
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....that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. 15. Section 195(2) is not merely a provision to provide information to the ITO(TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non-resident. Therefore, Section 195 SRP 74/79 ITXA989.15.doc has to be read in conformity with the charging provisions, i.e., Sections 4, 5 and 9. This reasoning flows from the words "sum chargeable under the provisions of the Act" in Section 195(1). 16. The fact that the Revenue has not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression "sum chargeab....
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....s not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the "appropriate proportion of such sum so chargeable" where a proportion of the sum so chargeable is liable to tax. 19. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department huge seepage of revenue can take place if persons making payments to non-residents are free to deduct TAS or not to deduct TAS. It is the SRP 76/79ITXA989.15.doc case of the Department that Section 195(2), as interpreted by the High Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the ITO(TDS) of payments made to non-residents. In....
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.... the Board. This provision is brought into force only from 1.4.2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage." 53. In the view that we have taken, it is not necessary to refer the judgment of a Division Bench of the Delhi High in the case of Emirates shipping Line, FZE vs. Assistant Director of Income Tax reported in (2012) 349 ITR 493 . Suffice it to note that the view taken by the Division Bench and particularly in paras 17 and 18 of this judgment accords with the conclusion reached by us. 54. The difficulty is presented only when provisions are not read together and harmoniously so also without bearing in mind the setting and placement thereof in the chapters. These chapters of the Income Tax Act cover several aspects in relation SRP 78/79 ITXA989.15.doc to imposition, levy, assessment, collection and recovery of tax on the income specified above. To the extent contrary to above, we overrule the view in Orient Goa's case (supra). The question referred is answered accordingly. Since the question above is referred....
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....t within the scope and ambit of enlarged definition of "Royalty". Admittedly, at the time of payment to "M/s Comas Inc" for the software charges in May 2008 by the assessee there was no such provision under the Act that transfer of any right for use or right to use the computer software included granting of license irrespective of medium through which such right is transferred was not there in the statute. The case of the assessee has been that it has only purchased software for its banking business and license was given only for using the software. There is no transfer of any copy right albeit it was the transfer of the copy righted article. Without going into the merits whether the said payment will fall within the nature of "Royalty" under the newly amended provision brought with retrospective effect or not, we are of the opinion that, at the time of making of the payment there was no such provision under the law to tax such payment of computer software as "Royalty". In fact, as pointed out by the ld. CIT(A) in the case of "Motorola Inc" (supra) was there wherein it was held that if the licensees is not allowed to exploit the computer software commercially which they had acquire....
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....red is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income. 98. We are not in agreement with the decision of the Karnataka High Court in the case of Samsung Electronics Co. Ltd (supra) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruc....
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....of the case, the Ld. CIT(A) erred in not following the decision in the case of DCIT(LTU) vs DICGC Ltd. [ITA Nos 2361 & 2524/MUM/2011] and decision of the Hon,ble Apex Court in the case of Transmission Corporation and Ors (AP) Vs CIT [155 CTR 489] (SC)?" 5. "The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the A.O. be restored." 6. "The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary." 14. The fact of the present case is similar to the fact of the case as narrated in the appeal of the assessee bearing ITA. No.4135/M/2016, therefore, there is no need to repeat the same. ISSUE NO. 1 15. Under this issue the revenue has challenged the allowance of the claim of assessee in connection with the reimbursement of salary cost of related relocation expenses made on account of availing personnel services from its AEs who has been India on an assignment. The Ld. Representative of the revenue has argued that the such type of payment falls within the ambit of Section 195 r.w.s. 9(1)(vii) of the Act and the Explanation to Section 9(2) of the I.T. Act, 1961, therefore, CIT(A) ha....
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....65 of 2010), Centrica Offshore Pvt Ltd (AAR No. 856 of 2010) and AT&S India Pvt Ltd [2006) 287 ITR 421 wherein it has been held that reimbursement is in the nature of FTS and the fact that taxes are paid under head 'Salaries' is of no consequence. 9.3 The submission made by the appellant on this issue is summarized as below; 9.3.1 The Appellant had availed services of personnel/employees who were oil payrolls of its Associated Enterprises ('AE'), and in lieu of the same, salary, relocation and other related charges were subsequently recharged (by way of reimbursements) by the AEs to the Appellant. It may be noted that for the purposes of administrative convenience, the employees remained on the payrolls of the AEs and their salary and other related costs were reimbursed by the Appellant to the AEs, instead of paying to the employees. Accordingly, time Appellant had reimbursed a sum of us 6,37,87,105 to its AEs towards salary and related costs of such personnel and Rs. 10,09,452 towards relocation expenses. The appellant has contended that it had discharged its TDS obligations under section 192 of the Act on salary amount payable to the employees (p....
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.... vs l'I'0 (122 TTJ 410) (Bang), wherein it was held that Indian Company exercising control and supervision over a seconded employee and bearing the salary cost should be considered as an economic employer and not liable to withhold tax on the reimbursement of the salary to the overseas company. CIT vs 003 Engineers (32 Taxmann.com 271)(Bom) wherein it has been that reimbursement to sister concerns for payment of salaries to their employees as they were deputed to the respondent assessee on an actual basis is not liable to tax in India hence not subject to TDS. Aon Specialty Services Private Limited (ITA No. 1640/ Bang/ 2012) wherein it was held that salary recharge by F Co to I Co would TICA be subject to tax withholding in India as it did not represent income in the hands of the F Co and hence, withholding under section 195 was not applicable. 9.3.5 The appellant has further contended that the learned AO has relied on the decision in the case of Centrica India Offshore Private Limited, without appreciating that the Said decision is not applicable to the facts of the instant ease. In the said decision, it was held that the amounts payable....
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....5. Your performance evaluation will be done by TOTAL LUBRICANTS India Ltd. based on the performance objectives set by your supervisor and the actual results achieved during your assignment. Terms and conditions The remuneration and other benefits that you be authorized during this assignment are specified in your addendum issued to you by TOTAL raffinage MARKETING dated I" September 2006. We wish you good luck on your India assignment 9.6 The secondment letter as reproduced above indicates that during the period of deputation with the appellant company, the AE does not have any control over the non-resident employee who is functioning under the control and management of the Indian party. Further, the deputation is not carrying out any activity mandated by the AE or any activity on behalf of the AE. 9.7 In the case of Centrica India, the services were held to be in the nature of FTS on account of following 4) The CIOP and seconded employees were to oversee the quality of service rendered by vendors to the overseas entities, which would fall within the scope of the technical or consultancy services. (5) It was admitted by....
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....ent of inspection and survey fees paid to the foreign entities M/s. Intertek Testing Services and M/s. SGS Testing & Controlling Services Singapore falls within the ambit of Section 195 r.w.s. 9(1)(vii) and the Explanation to Section 9(2) of the I. T. Act, 1961. However, on the other hand, the Ld. Representative of the assessee has refuted the said contention. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.: - "11 The ground no. 5.4 relates to payment of inspection and survey fees of Rs. 1,27,339. During the captioned year, the Appellant had made payments to SGS and Intertek on account of testing fees and inspection/ survey fees amounting to Rs. 1,27,339. These services have been treated by the AO as FTS and have been disallowed u/s 40(a)(i) as no TDS has been deducted by the appellant u/s 195. It is seen that both SGS Testing & Control Services Singapore Ptd Ltd (S(3S) and Intertek Testing Services (Singapore) Ptd Ltd (Intertek) are Singapore resident eligible to treaty benefit. The India-Singapore Treaty comprises of FTS clause with a requirement of 'make available' i.e. the fee would be in the nature of FTS only....
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....Fee would be in the nature of fee for technical service only if the service make available technical knowledge, skill experience or process to the appellant. Intertek inspect the crude for various chemical and provide a report to the appellant for which certain payment was made. M/s. SGS Singapore also provide the same service. However, at the time of argument, the Ld. Representative of the assessee has relied upon the law settled by the Karnataka High Court in case titled as CIT Vs. De Beers India Mineral P. Ltd. (346 ITR 467) Karnataka High Court and Linklaters LLP VS. DCIT (IT) Mumbai Tribunal etc. Anyhow, the CIT(A) has described the nature of service in his order and accordingly arrived at this conclusion that the nature of service rendered by above said two companies nowhere come within the ambit of Section 195 of the Act r.w.s. 9(1)(vii) of the Act. He also relied upon the decision of the Karanataka High Court in case of De Beers India Mineral P. Ltd. (supra) and the decision of the Hon'ble Mumbai Tribunal in case of Linklaters LLP (supra). The facts are not distinguishable at this stage. Accordingly, we are of the view that the CIT(A) has decided the matter of controversy j....