TaxTMI 
TaxTMI 
2021 (8) TMI 1025
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....s u/s. 201 are for treating the assesses in default for failure to comply with the provisions of section 195 which has nothing to do with the proceedings u/s. 163 against the same assesses being treated as agent of the non resident for assessment of income of that non-resident. (ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in placing reliance on the case of Premier Tyres Ltd. (Supra) of Bombay High Court which is an older decision without relying on the recent decision of ITAT, Mumbai in ITA No. 6698/Mum/2002 in the case of Air India Ltd. (now known as National Aviation Co. Ltd.) 2. The Appellant prays that the order of the Ld. CIT(A) on the above ground(s) be set aside and that of the Assessing officer be restored. 3. The appellant craves leave to amend or after any ground or add a new ground which may be necessary." 2. Briefly stated, the assessee company viz. Braitrim India Pvt. Ltd. (BIPL) is an Indian subsidiary of Braitrim U.K. which is engaged in the business of supplying world class hangers to global retailers situated all over the world. Braitrim U.K has global arrangements with various retailers, whereby the latter had ....
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....ature of reimbursement of expenses and did not include any profit/income element. Also, in support of its claim that there was no default on its part to deduct any amount of tax at source qua the amounts remitted to Braitrim U.K, it was submitted by the assessee that after necessary verifications the A.O while passing the draft assessment order in its case had not carried out any disallowance u/s 40(a)(i) of the Act. However, the ITO(IT) TDS-3, Mumbai did not find favor with the aforesaid claim of the assessee. Holding a view that the discount/rebate or administrative expenses was a misnomer, and the income arising to Braitrim U.K that was generated through its Indian agent i.e BIPL was remitted abroad without deduction of tax at source, he treated the assessee as being in default u/s 201 of the Act. 3. Further, backed by his conviction that the assessee company, viz. BIPL had remitted the income generated through it in India to Braitrim U.K in the garb of discount/rebate or administrative expenses, the ITO(IT) TDS-3, Mumbai being of the view that the amount so remitted was taxable in India, thus, issued a 'SCN', dated 21.11.2011 to BIPL and called upon it to explain as to why it ....
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....t u/s 163 of the Act and at the same time held to be in default u/s 201 of the Act, for the reason, that the said statutory provisions were mutually exclusive and operated in different fields. In sum and substance, it was observed by the CIT(A) that the same person cannot be treated as an agent u/s 163 of the Act and proceeded against u/s 201 at the same time. It was observed by him that as he had upheld the order passed against the assessee u/s 201 of the Act which is an order of assessment and/or an order akin to an order of assessment, thus, having held so, there cannot be one more assessment in respect of the same very income pursuant to Sec. 163 of the Act. In the backdrop of his aforesaid observations, the CIT(A) was of the view that the order passed by the A.O u/s 163 was though not a valid order, however, the same would assume significance if the order passed u/s 201 failed to bring to tax the income under question. Accordingly, in the backdrop of his aforesaid deliberations the CIT(A) allowed the appeal of the assessee. 5. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short 'A.R'....
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....d by the Tribunal while disposing off the appeal in the case of M/s Braitrim U.K Ltd., i.e as the remittances by the assessee to Braitrim U.K Ltd. were towards reimbursement of its share of expenses (without any mark up), therefore, no obligation was cast upon the assessee to deduct tax at source within the meaning of Sec. 195 of the Act. However, it was submitted by the ld. D.R that the aforesaid adjudication by the Tribunal in the case of parent company of the assessee would have no bearing on treating of the assessee as its 'agent' within the meaning of Sec. 163 of the Act. In order to drive home his aforesaid contention the ld. D.R had drawn support from the order of the ITAT, Mumbai in the case of National Aviation Co. Ltd. (formerly known as Air India) Vs. Dy. CIT, TDS, Circle-1, Mumbai, ITA No. 6698/Mum/2002, dated 03.11.2010. (copy placed on record). Relying on the aforesaid order, it was submitted by the ld. D.R that as observed by the Tribunal the judgment of the Hon'ble High Court of Bombay in the case of Premier Tyres Ltd.(supra) was rendered in context of the pre-amended law, therefore, the same would not come to the rescue of the assessee. To sum up, it was the claim ....
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....ent mentions the fact of payment of administration charges by the Assessee to the customer companies in respect of goods supplied by worldwide entities of Braitrim group including BIPL and the purpose of the agreement is to recover such charges by the assessee from BIPL; iii) that Article 3 requires BIPL to compensate the assessee towards the proportionate administration charges in respect of goods supplied to the customer companies/suppliers; iv) that Article 4 prescribes the method of computation of the proportionate share of the administration charges to be borne by BIPL determined as proportion of its sale to customer companies to the total worldwide sales of the Braitrim group; and, v) that Article 5 stipulates that the payments made under the agreement represent reimbursement of administration charges borne by the assessee. 15. Therefore, so far as the understanding of the parties to the CRA is concerned, the same has been understood to be in the nature of reimbursement of the rebate/discount passed on by the assessee to the retailers. Factually speaking, it has also been established that there is no mark-up retained by the assessee while recovering from BIPL the reba....
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....rs in the form of pre-hanged clothes. The assessee also supplied hangers to garment manufacturers within and outside India. Based on the sale of these hangers by the assessee Braitrim UK has to pay to the retailers at the rate of 1% on these sales made by the taxpayer to retailers through garment manufacturers. Before the DRP, the taxpayer also produced invoices raised by third party retailers against Braitrim UK to show that the said discount @ 1% on sale of hangers by the Indian entity was passed on to the retailers.....In view of the above discussion, we are satisfied that the discount given by the AE, Braitrim UK to the retailers is helping the tax payer to get the business without much marketing effort, for which the taxpayer is reimbursing the AE at the rate of 1% of sale of hangers in India, which was ultimately passed on to the retailers by the AE." However, the DRP revised the arm's length price as computed by the TPO on account of the timing difference between the recognition of administration charges/ rebate in the books of account of BIPL, vis-à-vis the amount recognized by the assessee in its accounts; and, accordingly, the assessment was finalised. When B....
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.... the assessee; and, that in order to help all its agents across the globe, the assessee had set up and maintained a global telecommunication facility called Maersk net system which was a vertically integrated communication system. The agents would pay for the system on pro rata basis. According to the assessee, it was merely a system of cost sharing and the payments received by the assessee from its agents in India were in the nature of reimbursement of expenses. The Assessing Officer, however, did not accept this contention and held that the amount paid by these three agents to the assessee were FTS rendered by the assessee and held them taxable in India under Article 13(4) of the Double Taxation Avoidance Agreement (DTAA) between India and Denmark and brought them to tax at 20% u/s 115A of the Act. The CIT(A) dismissed the assessee's appeal, but the Tribunal allowed its further appeal. The Hon'ble High Court dismissed the Department's appeal holding that the Tribunal had rightly observed that the Maersknet-communication-system was an automated software based communication system which did not require the assessee to render any technical services; that it was merely a ....
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....ts." 20. Quite clearly, payments by way of reimbursement of expenses incurred on behalf of the payer cannot be construed as income chargeable to tax in the hands of the payee, a proposition which is approved by the Hon'ble Bombay High Court in the case of Siemens Aktiongesellschaft (supra). In view of the above discussion, we direct the Assessing Officer not to treat any part of reimbursement of expenses received by the assessee as income of the assessee. The assessee gets the relief accordingly on Ground no. 2 of the aforesaid appeal." We find, that in the backdrop of the aforesaid observation of the Tribunal that the amounts received by M/s Braitrim U.K from BIPL were in the nature of reimbursement of expenses and did not involve any income element, the Tribunal had vide its consolidated order passed in ITA Nos. 4742 to 4747/Mum/2014 for A.Ys. 2005-06 to 2012-13, therein quashed the impugned demands that were raised against the assessee under Sec. 201(1) r.w.s 195 of the Act (Copy of the order placed on record). As stated by the ld. A.R, and rightly so, the tax withholding liability u/s 195 of the Act is a vicarious liability and its survival entirely depends upon the surv....
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....f the same very income pursuant to Sec. 163 of the Act. As observed by the ITAT, Mumbai in the case of National Aviation Company of India Vs. Dy. CIT (2011) 137 TTJ 162 (Mum) both of the aforesaid judicial pronouncements, viz. (i). Premier Tyres Ltd. (supra); and (ii). Bunge & Co. Ltd. (supra), as had been relied upon by the CIT(A) for concluding as hereinabove were rendered in context of the pre-amended Sec.195 of the Act i.e prior to the amendment made available to Sec. 195 vide the Finance Act, 1987 w.e.f 01.04.1987. As observed by the Tribunal in the case of National Aviation Co. of India (supra), vide the aforesaid amendment the words "unless he is himself liable to any income-tax" in Sec. 195 stood omitted w.e.f 01st June, 1987. The Tribunal observed that as the liability of an assessee to deduct tax at source under s. 195 is different from the liability of an assessee to file a return of income as an agent of a foreign principal, therefore, the claim of the assessee that simultaneous proceedings cannot be taken, i.e holding the assessee as an assessee in default under Sec. 201; and at the same time passing an order under s. 163, holding the assessee as a representative asses....
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....of the payee." (Emphasis, italicized in print, ours) We will deal with these wordings in the coming paras. 39. The next judgment relied upon by the learned counsel is the decision of the Hon'ble Bombay High Court in the case of CIT vs. Premier Tyres Ltd. (supra). In this judgment the Hon'ble Court held as follows : "A person who is himself liable to pay income-tax on a payment to be made to a non-resident as an agent of the said non-resident, under s. 161 of the IT Act, 1961, cannot be saddled with the further obligation to deduct IT under s. 195 of the IT Act, 1961 before making the payment to the non-resident and be deemed to be in default under s. 201 of the Act." The Hon'ble Court followed the decision of the Hon'ble Calcutta High Court in the case of Bunge & Co. Ltd. (supra) and upheld the decision of the Tribunal. 40. Mr. Sonde has brought to our notice the amendments brought to s. 195 w.e.f. 1st June, 1987 by the Finance Act, 1987. In this amendment the words "unless he is himself liable to pay any income-tax" has been omitted in the section. The learned counsel argued that the Hon'ble Court in the case of Bunge & Co. Ltd. (supra) had not rested their decision on....
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....as an agent of a foreign principal. As rightly put by the learned Departmental Representative, the assessee can be treated as an agent of the non-resident principal and assessments framed in that capacity. The tax deducted under s. 195 would be given credit against the tax so assessed. Being treated as an agent of the non-resident, and assessed as such, means that the assessee is assessed in a representative capacity and not in its own capacity. In many cases the assessees are regularly deducting tax under s. 195 and are also filing returns of income as an agent of the non-resident and are claiming credit of the TDS. The assessee has a legal duty under both the sections. In view of the above discussion, this submission of the learned counsel of the assessee is dismissed." We, thus, finding ourselves in agreement with the aforesaid view so taken by the Tribunal, respectfully follow the same. Accordingly, we do not find favor with the observation of the CIT(A) that as he had upheld the order passed against the assessee u/s 201 of the Act, therefore, having held so, there cannot be one more assessment in respect of the same income on the assessee pursuant to Sec. 163 of the Act. As o....
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.... however, we find that the CIT(A) by merely confining his adjudication to the aspect that the assessee could not have been subjected to double jeopardy under the two provisions of the Act i.e Sec. 201 and Sec. 163 of the Act, had thus, not dealt with the specific contentions that were raised by the assessee before him, therein, assailing its being treated as an 'agent' of Braitrim U.K under Sec. 163 of the Act. Also no contentions qua the aforesaid issue on merits i.e treating of the assessee as an 'agent' u/s 163 of the Act were advanced by the authorized representatives for both the parties in the course of hearing before us. As we have set-aside the view taken by the CIT(A) that having upheld the order passed against the assessee u/s 201 of the Act, the assessee could not be held to be an 'agent' of Braitrim U.K under Sec. 163 of the Act, therefore, in all fairness we restore the matter to the file of the CIT(A) for adjudicating by way of a speaking order the assessee's claim on merits that it could not have been held to be an 'agent' of Braitrim U.K u/s 163 of the Act. Needless to say, the CIT(A) shall in the course of the set-aside proceedings afford a reasonable opportunity o....