TaxTMI 
TaxTMI 
2020 (3) TMI 938
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....Range 11(3)(1) ('AO') of reimbursement of demurrage 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. Reimbursement of demurrage expenses of INR 2,07,31,596 Based on the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in facts and in law: 2.1. in upholding the disallowance of reimbursement of demurrage charges amounting to INR 2,07,31,596 made to non-residents including group entities pertaining to AY 2013-14 of the Appellant under section 40(a)(i) on account of non-deduction of taxes at source under section 195 of the Act. 2.2. in upholding the action of the learned AO in characterising such reimbursement of demurrage charges as fees for technical services taxable under section 9(1)(vii) of the Act. 2.3. in not appreciating the fact that the payments to the non-residents including group entities are pure cost reimbursements and do not contain any service element. 2.4. in disregarding the order of the Commissioner of Income tax (Appeals) dated....
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....he disallowance of reimbursement of expenses u/s 40(a)(ia) of the Act. The assessee claimed the reimbursement of demurrage expenses of Rs. 2,59,99,105/-. The said amount was disallowed u/s 40(a)(ia) of the Act. The said amount was disallowed u/s 40(ia) of the Act on account of non-deduction tax at source u/s 195 of the Act. The AO characterizing such reimbursement of demurrage repayment costs as fee for technical services taxable u/s 9(1)(vii) of the Act. It is argued by the Ld. Representative of the assessee that the assessee company nowhere indulge in any service element and the said amount was purely reimbursement and the said issue has been covered in the assessee's favour by the decision 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 sub....
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....nt, while making payment to the third parties, was liable to deduct IDS, such liability cannot be waived merely by routing the payments through a related foreign party. In all its submission, the appellant has merely harped on the character of payment made by it to its associate without discussing whether the amount, with reference to the actual beneficiary represented a sum having income component in it. 8.2.3 Demurrage is paid to the ship owner on account of delay caused to his ship due to delay in loading or unloading for which his ship has to berth in die harbour for a longer period. Demurrage may also be charged by pod authorities to the ship owner or the party whose goods are being unloaded. Generally, demurrage partakes the character of freight and is liable to tax in the country where the port, where demoage 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, freig....
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....ssing Officer, in our view, is legal, proper and in accordance with the Scheme of Act 1961. In view of which we have taken in the matter, the appeal deserves to be allowed by quashing and setting aside the Order passed by the learned Commissioner of Income Tax (Appeals) dated 28- 8-2002 and the Order passed by the Income-tax Appellate Tribunal, Panaji dated 2-12-2004. The same are, accordingly, quashed and set aside and the Order passed by the Assessing Officer stands upheld. Appeal is, accordingly, allowed and disposed of with no order as to costs." 8.6 In light of the fads narrated above, the action of the AO in disallowing the expenditure u/s 40(a)(i) is upheld and the ground raised by the appellant is dismissed." 8. On appraisal 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 i....
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....ions of section 172 read together and harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered. Therefore, there is no warrant in applying the provisions in chapter XVII for collection and recovery of the tax and its deduction at source vide section 195. 47. To our mind, the Division Bench judgment in Commissioner of Income-tax vs. Orient (Goa) Pvt. Ltd. seen in this light does not, with greatest respect, take into account the scheme and setting as understood above. There need not be apprehension because there is no escape from the levy and recovery of tax. The tax has to be levied and collected. The ship cannot leave the port or if allowed to leave any port in India, it must either pay or make arrangement 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 Benc....
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....d "Liability in special cases" and the sub-heading of the section is "Profits of non- residents from occasional shipping business". It creates a tax liability in respect of occasional shipping by making a special provision for the levy and recovery of tax in the case of a ship belonging to or chartered by a non-resident which carries passengers, livestock, mail or goods shipped at a port in India. The object of the section is to ensure the levy and recovery of tax in the case of ships belonging to or chartered by nonresidents. The section brings to tax the profits made by them from occasional shipping, by means of summary assessment in which one-sixth of the gross amount received by them is deemed to be the assessable profit. Before the departure 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 th....
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....g contained in the other provisions of the Act. It is an absolute right conferred on the assessing authority. The assessee has no right to object to the same. Normally, this will be assessment of the assessee for the year. But, under Section 172(7) of the Act a right is given to the assessee to claim before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment, according to the provisions of the Act, in a regular manner be made. Thus, a right is given to the assessee to opt for a regular assessment although a "rough and ready" or a "summary assessment" has already been made under Section 172(4) of the Act. It is a valuable right. 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 diffe....
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....te the distinction drawn by the High Court between "advance tax" and "payment in advance of the tax" Mentioned in Section 172(7) of the Act. We hold that the distinction so drawn has no basis. The High Court has furtehr held that the payment made under Section 172(4) of the Act is not a payment of SRP 70/79 ITXA989.15.doc advance tax within the meaning of the Act, as the tax under Section 172(4) of the Act is a payment on assessment and not a payment of advance tax under the Act. We are afraid that the High Court has failed to give due effect to the language employed in Section 172(7) of the Act and the scope of the legal fiction enshrined therein. The reasoning of the High Court is rather strained as the distinction drawn 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 In....
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.... the date on which such tax was deductible to the date on which such tax is actually paid. 8. The most important expression in Section 195(1) consists of the words "chargeable under the provisions of the Act". A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the I.T. Act. For instance, where there is no obligation on the part of the payer and no right to receive the sum by the recipient and that the payment does not arise out of any contract or obligation between the payer and the recipient but is made voluntarily, such payments cannot be regarded as income under the I.T. Act. contemplates not merely amounts, the whole of which are 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 nonresident. This obligation being limite....
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....tion at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expressions, however, the expression "sum chargeable under the provisions of the Act" is used only in Section 195. For example, Section 194C casts an obligation to deduct TAS in respect of "any sum paid to any resident". Similarly, Sections 194EE and 194F inter alia provide for deduction of tax in respect of "any amount" referred to in the specified provisions. In none of the provisions we find the expression "sum chargeable under the provisions of the Act", which as stated above, is an expression used only in Section 195(1). Therefore, this Court is required to give meaning and effect to the said expression. It follows, therefore, 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. T....
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....ion of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the I.T. Act by which a payer can obtain refund. Section 237 read with Section 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is 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. ....
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.... at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the I.T. Act. In a given case where the payer is an assessee he will definitely claim deduction under the I.T. Act for such SRP 77/79ITXA989.15.doc remittance and on inquiry if the AO finds that the sums remitted outside India comes within the definition of royalty or fees for technical service or other sums chargeable under the I.T. Act then it would be open to the AO to disallow such claim for deduction. Similarly, vide Finance Act, 2008, w.e.f. 1.4.2008 sub-Section (6) has been inserted in Section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by 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 In....
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.... company are in the nature of Fees for Technical Services (FTS), and that, the assessee company was under the obligation to deduct tax at source on the payments stated to be in the nature of reimbursements of salaries and other related charges as per the provisions of Section 195 of the Act read with the provisions of Sections 9(1)(vii) of the Income Tax Act, 1961, before making such payments which it has failed to do so. "2 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in not appreciating the decision of the Hon'ble ARR in the case of Verizon Data Services India P. Ltd. (ARR No. 856/2010) and AT & S India P. Ltd. (2006) 287 ITR 421 wherein it was held that the reimbursement is in nature of FTS and the fact that taxes are paid under the head 'Salaries' is of no consequence. 3. The appellant prays that the order of the Ld.CIT(A) on the above grounds be set-aside and that of the A.O be restored." 12. Ground Nos. 1 & 2 of grounds of appeal, Ld. Counsel for the assessee submitted that these grounds are relating to reimbursement of salary cost which was on account of availing personnel services from it....
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....educted suitable taxes u/s 192 of the Act. 9.1. The AO has observed that the appellant has not paid the salary into the bank accounts of the deputed personnel directly but the amount has been paid towards cost to the deputing companies and the social security expenses. The AO has inferred that the employees have been seconded to India for specific purpose and the AEs have retained their rights as an employer over these employees. The right and control to appoint and remove these employees is still vested with the employer which is separate from assessee company and it cannot be said that the payments made by the assessee company to such entities having control over the employees as employers amounts to reimbursement of salaries paid for services rendered in India on which TDS is applicable lids 192. Re AO has claimed that this is a case of dual employment where the appellant is the economic employer and the AEs are legal employer. By sending their employees to India, the AEs arc actually rendering services to the assessee company in India and accordingly, the payments made by the assessee company are in the nature of Fee for Technical Service (FTS). Accordingly, t....
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....otal Petroleum India Private Limited intends to hire personnel of Total SA (hereinafter referred to as expatriates) for the purpose of its business operations in India 2. Total SA has agreed to second the expatriates to Total Petroleum Indio Private Limited for the above said purpose and for the specified period of time 3. For the sake of administrative convenience, Total SA will continue to pay the salary of the expatriates, for and on behalf of Total Petroleum India Private Limited in respect of the services rendered to by the expatriates in India to Total Petroleum India Private Limited 4............ 3. Total Petroleum Indio Private Limited agrees that it shall reimburse/ repay to Total SA the actual cost of reimbursement and other costs related to the Indian assignment incurred by Total SA in respect of said expatriates during the period of their secondment to India. The said reimbursement/ repayment shall be without any markup/ profit" 9.3.4 The appellant has relied on a number of judicial pronouncements. Some of them are: DDIT vs Tekmark Global Solutions LLC (38 SOT 7)(Mum), wherein the Mumbai Tribunal held that personnel ....
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....INAGE MARKETING to work as a Managing Director of TOTAL LUBRICANTS India Ltd. You will report to Mr. Christian CHILAMAS of TOTAL Petroleum India Private Ltd or the Board of Directors. This assignment is contingent upon your securing and maintaining appropriate work authorization permits and any other authorization required for you to carry out this assignment with TOTAL LUBRICAN7S India Ltd. as required under the laws of Melia Assignment period Your assignment will start from 13m September, 2006 and end on Summer 2010. However, this assignment may be terminated or extended by you or TOTAL LUBRICANTS India Lid. with mutual consent by giving a prior notice of 90 days. Roles and responsibilities 1. You will be released from your duty/job with TOTAL RAFFINAGE M4RICETING while you are assigned to TOTAL LUBRICANTS India Ltd You will work wholly and exclusively for TOTAL LUBRICANTS India Ltd. During your assignment, you will perform such duties as TOTAL LUBRICANTS Ltd directs you to perform from time to time. TOTAL LUBRICANTS India Ltd. shall assume complete responsibility or the work carried out during your Indian assignment. ....