TaxTMI 
TaxTMI 
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2024 (6) TMI 323
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....A No.542 & 497/Bang/2024, IT(IT)A No.497/Bang/2024, ITA No.544/Bang/2024, IT(IT)A No.503/Bang/2024, IT(IT)A No.498/Bang/2024, ITA No.543/Bang/2024, IT(IT)A No.488/Bang/2024 & ITA No.541/Bang/2024 Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appellant : Shri Sharath Rao, A.R., Shri Rajat Nahata, A.R. & Shri Dhiraj R., A.R. For the Respondent : Shri D.K. Mishra, D.R. ORDER PER BENCH: Income Tax Appeals at Sl.Nos.1 to 18 above are relating to sustaining the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961 (in short "The Act") by NFAC and Sl.Nos.19 to 24 are with regard to sustaining penalty u/s 270A of the Act by NFAC arising out of different orders of NFAC for the respective above assessment years. 2. Facts of the case are that IBM is a multinational corporation, headquartered in the USA with multiple subsidiaries around the globe, including India. IBM foreign entities received notices under section 148/ section 143(2) of the Income-tax Act, 1961 ("the Act") for various assessment years against which the entities had voluntarily offered the reimbursement of salary cost of the seconded employees to tax as Fees for Technical Serv....
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....e the claim of the assessees. Furthermore, the following assessees also furnished revised grounds of appeal in respect of the below cases: − IBM Australia for the AY 2018-19 and the AY 2019-20 − IBM Nederland B.V. for the AY 2017-18 − IBM Corporation for the AY 2017-18 − IBM United Kingdom Limited for the AY 2017-18 and − IBM Canada Limited for the AY 2017-18 2.2 For the case of convenience, the subject matters are classified into following categories based on facts of the case and for ease of understanding: − Category A: 271(1)(c) cases where original return under section 139(1) of the Act was not filed and receipts were offered to tax in the return filed under section 148 of the Act − Category B: 271(1)(c) case where original return under section 139(1) of the Act was not filed and receipts were offered to tax during the reassessment proceedings − Category C: 271(1)(c) case where original return under section 139(1) of the Act has been filed however, secondment related receipts were offered to tax only in the return filed under section 148 of the Act − Category D: 270A case where original return under sectio....
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....ang/2024 Filed but not offered In ROI filed u/s 148 IBM Japan Limited 2013- 14 271(1)(c) 492/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Japan Limited 2015- 16 271(1)(c) 493/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Japan Limited 2016- 17 271(1)(c) 494/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM United Kingdom Limited 2014- 15 271(1)(c) 542/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM United Kingdom Limited 2016- 17 271(1)(c) 497/Bang/2024 Filed but not offered In ROI filed u/s 148 Category D: 270A case where original return under section 139(1) of the Act has been filed however, secondment related receipts were offered to tax only in the return filed under section 148 of the Act IBM Corporation 2017- 18 270A 544/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Netherland B V 2017- 18 270A 503/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM United Kingdom Limited 2017- 18 270A 498/Bang/2024 Filed but not offered In ROI filed u/s 148 Category E: 270A case where original return under section 139(1) of the Act has not been filed and receipts were offered to tax in ....
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....he case of DIT vs HCL Infosystems Ltd. [2005] 274 ITR 261 (Delhi HC), which was pronounced on 6 January 2004. Thereafter, the jurisdictional Bangalore Income-tax Appellate Tribunal ("ITAT") in the case of M/s Abbey Business Service (India) Private Limited vs DCIT [2012] 23 Taxmann.com 346 (Bangalore ITAT) vide order dated 18 July 2012 has also upheld the said view. Therefore, the Assessees was under a bonafide belief that receipts in the nature of reimbursement of salary cost of employees was not liable for taxation as FTS in India. 3.4 At this juncture, ld. A.Rs for the assessees submitted that they want to strongly highlight that IBM Corporation (one of the IBM Foreign Entities) in its own case received a notice under section 143(2) of the Act on 3 August 2012 in respect of RoI filed for AY 2011-12. It is in the said assessment for the AY 2011-12 that the issue of taxation of secondment reimbursements was first scrutinized threadbare. After a thorough analysis of this issue, an amount of Rs 83,49,00,000 was accepted to be not taxable vide assessment order dated 25 March 2015. They also submitted that IBM Corporation is largest of the IBM Foreign Entities in the context of receip....
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....;s order which was subject matter of the aforesaid appeal. The CIT(A)'s order which was subject matter of the aforesaid appeal in paragraph 2.4 of his order has referred to the decisions of the ITAT in the case of Mis. Abbey Business Services India Pvt.Ltd.(supra) and IDS Software (supra) and concluded in para 2.5 that the aforesaid decisions were rendered on its own facts and had no applicability to the facts of the Assessee's case. We however find that the facts of the case in these appeals and the facts of the case in the case of Mis. Abbey Business Services India Pvt.Ltd. (supra) and IDS Software (supra) are identical." 3.8 In the aforesaid referral order, the division bench has discussed various case laws in detail including HCL Infosystems Ltd. (supra), Centrica India Offshore (supra) and M/s Abbey Business Service (supra). While drawing a conclusion, the division bench held that the facts of IBM are similar to the jurisdictional ITAT ruling of M/s Abbey Business Service (supra). This Abbey decision of the ITAT has been confirmed by the jurisdictional Karnataka HC. The HC has in fact distinguished the case of Centrica to say that the said judgment was in the context ....
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....rib) 3.12 They drew our attention to the table capturing various Courts/ Tribunal decisions on said issue in a chronological order, which is as follows: Sl No. Caselaw with Citation Favourable/ unfavourable Forum Date of pronouncement 1 DIT vs HCL Infosystems Limited [2005] 144 Taxman 492 - followed by Karnataka HC in Abbey case Favourable Delhi HC 6 January 2004 2 Karl Storz Endoscopy India (P) Limited (ITA No 13 of 2008) (Delhi HC) (refer page 199 - 201 of PB) Favourable Delhi HC 13 September 2010 3 Abbey Business Services India Pvt Ltd (23 Taxmann.com 346) - later on confirmed by Karnataka High Court Favourable Bangalore ITAT 18 July 2012 4 Marks & Spencer Reliance India Private Limited [2013] 38 taxmann.com 190 (Mumbai - Trib) (refer page 202 - 213 of PB) Favourable Mumbai ITAT 4 September 2013 5 Centrica India Offshore (P) Ltd [2014] 44 taxmann.com 300 (Delhi) Unfavourable Delhi HC 25 April 2014 6 Marks & Spencer Reliance India Private Limited [2017] ITA No 893 of 2014 (Bom HC) (refer page 214 - 216 of PB) Favourable Bombay HC 3 May 2017 7 Morgan Stanley Asia (Singapore) Pte Ltd vs DDIT [2018] 95 taxmann.com 165 (Mumbai ITAT); Favourable ....
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....t to reassessment since they are settled under VsV scheme), in respect of the secondment receipts (in respect all IBM Foreign Entities) and receipts from IBM India for services rendered under the AP IT Services Centre (specifically for IBM Australia). The total tax liability accepted on such cases which were opted under VsV to end litigation and attain closure was approximately Rs 33 crores. 3.16 In summary, a total of 62 applications were filed under the VsV Act and Rs 116 crores (Rs 83 crores + Rs 33 crores) was accepted as tax liability by IBM India and IBM foreign entities collectively under the VsV Scheme. 3.17 Considering the above backdrop and IBM's intention to not further any litigations, in cases where the proceedings were ongoing and could not be closed under VsV, IBM Foreign Entities had voluntarily offered the aforesaid receipts to tax in India at the first possible instance [ie, (i) where proceedings were initiated under section 148, such receipts were offered to tax in the return filed in response to such notice (without receiving the reasons for reopening); and (ii) where the proceedings were already initiated and ongoing, such receipts were offered to tax during ....
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....h cases ought to be outside the ambit of Explanation 3 to section 271(1)(c). However, the AO has completely disregarded the said fact in case of IBM foreign entities where due return was filed under section 139 of the Act (for AY 2012-13 to AY 2016-17). 4.3 Specific observation by the AO with respect to penalty under section 270A of the Act 4.3.1 The AO in the penalty order has confirmed that the Assessee has 'under reported income which is in consequence of misreporting' by not filing a return within the timelines stipulated under section 139 of the Act and hence liable to penalty under section 270A of the Act (for AY 2017-18 to AY 2019-20). 4.3.2 As discussed above, in concluding so the AO has provided a blanket statement for all the foreign entities and has completely disregarded the fact that not all IBM foreign entities had failed to furnish original return under section 139 of the Act. 4.3.3 The AO in the penalty order has arbitrarily rejected the submission and the explanations offered and has therefore, denied the applicability of the provisions of section 270A(6) of the Act, contending the explanations of the Assessee to not be 'bonafide'. 4.3.4 In the case of IBM Aus....
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.... section 270A (AY 2017-18 to AY 2019-20) of the Act, the following specific submissions / contentions were made before the CIT(A): a) Substantiating the 'bonafide' intention of the Assessee for not offering secondment receipts to tax under section 270A(6) of the Act which states that where an Assessee offers a 'bonafide' explanation to the satisfaction of the AO and duly discloses all material facts to substantiate the explanation offered, such case would not be considered to be a case of under-reporting of income; b) Contesting the validity of the penalty orders (for all entities other than IBM Canada) where the matter was adjudicated basis incorrect facts of the case stating that the Assessee failed to furnish return of income under section 139 of the Act, where in fact duly return of income was furnished under section 139 of the Act and the details of secondment receipts were duly disclosed in the Form 3CEB filed for the relevant years. c) In the case of IBM Canada, it was submitted that the receipts were duly offered to tax in the revised ROI even before receipt of reasons for reopening the assessment. d) Reason for levy of penalty under section 270A of the Act (i.e, wh....
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....Haryana High Court in the of Rajiv Garg [2008] 175 Taxman 184 wherein the court has held as under: "Undisputedly, the assessee filed the return of income declaring its total income at Rs. 47,05,230, which inter alia included long-term capital gain on sale of shares amounting to Rs. 29,74,951. The return was processed in terms of section 143(1)(a) of the Act on 15-3-1999. Subsequently, on the basis of some information with regard to sale proceeds of the shares amounting to Rs. 32,40,385 on which the capital gain was declared at Rs. 29,74,951 by the assessee in the original return, a notice under section 148 of the Act was issued. Pursuant to the said notice, the assessee filed the revised return of income showing higher income. The said return of income was accompanied by a note in which the assessee submitted that he surrendered the entire amount of sale proceeds of shares to buy peace of mind and to avoid hazards of litigation and also to save himself from any penal action. Later on, on the basis of revised return, the assessment was framed and the return submitted by the assessee was regularized as it is. ............. The Department has simply rested its conclusion on the act ....
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....the below judicial precedents: - CIT v. Reliance Petroproducts [2010] 322 ITR 158 (SC) The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be in accurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1)(c). If the conten....
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....duly deducted taxes under section 192 of the Act in respect of same secondment reimbursements. Given the same, there was no requirement on part of the IBM Foreign Entities to obtain a certificate under section 197 of the Act. Additionally, they submitted that the provisions of section 197 of the Act are not mandatory in nature and cannot be imposed upon any assessee. 4.5.8 Without prejudice to the above legal submission, the ld. Ars for the Assessee submitted para wise rebuttal to the observations made by the CIT(A) with respect to each of the categories of cases. Category A: 271(1)(c) cases where original return under section 139(1) of the Act was not filed and receipts were offered to tax in the return filed under section 148 of the Act Observation of the CIT(A) Rebuttal to the CIT(A)'s observations - Assessee did not offer the FTS receipts to tax under section 139 of the Act - Receipts were offered to tax only after proceedings under section 201 of the Act were initiated in case of IBM India - Receipts were offered to tax only after a notice under section 148 of the Act was issued, initiating the reassessment proceedings/ during the course of reassessment proceedings. -....
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....hat the explanations offered by IBM are not bonafide, since: - The explanation offered by the Assessee was rejected by the AO - Failure on part of the Assessee to offer receipts to tax in the first instance (u/s 139) and thereby contending that the Assessee had not disclosed all the facts material to the computation of its total income. Reference drawn to Delhi Tribunal's ruling in the case of Ajay Jain vs ITO [2013] 32 taxmann.com 270 (Delhi ITAT) (Page 12 to 13 of the CIT(A)'s order) - The AO and CIT(A) have erred in holding that the conduct of the Assessee is not bonafide merely because, the Assessee adopts a position contrary to revenue's position, basis prevailing judicial precedents. - Receipts were not offered under section 139 of the Act basis juridical precedents/ IBM Corp's order for AY 2011-12. - AO cannot contend that the Assessee had not disclosed all material facts, especially when secondment receipts were always disclosed in Form 3CEB. - Ruling of Ajay Jain vs ITO (supra) is distinguishable on facts since no explanations were offered by the taxpayer in respect of the income surrendered. Also, the receipts surrendered were not litigative in nature. The CIT(A....
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.... including reliance on Singapore Airlines Ltd. vs Commissioner of Income Tax [2022] 144 taxmann.com 221 (SC). (Page 15 of the CIT(A)'s order) - The SC in the subject ruling has laid down the legal proposition that if Courts/ Tribunals in the ensuing years have passed contradictory judgements, it results in genuine and a bonafide difficulty on part of the Assessee and therefore qualifies to be a 'reasonable cause' under section 273B of the Act. - The reference to the above case by the Assessee was only in the context of the legal principle emanating from the same which could also be used in the context of section 271(1)(c) of the Act. - However, the CIT(A) has incorrectly opined that the reference to the subject ruling is misplaced merely because the same is not rendered in context of section 271(1)(c) of the Act. The principle emanating from the subject ruling would also have a bearing on the interpretation of section 271(1)(c) of the Act. Category B: Category B: 271(1)(c) case where original return under section 139(1) of the Act was not filed and receipts were offered to tax during the reassessment proceedings Observation of the CIT(A) Rebuttal to the CIT(A)'s observation....
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....e the levy of the penalty on the assessee. - The CIT(A) has relied on the ruling of the Supreme Court ("SC") in MAK Data P. Ltd. vs CIT-II [2013] 38 taxmann.com 448 (SC) to support the above contention (Page 10 of the CIT(A)'s order) - MAK Data (supra) ruling is in the context of a case where income was voluntarily offered pursuant to a survey proceeding under section 133A of the Act. No bonafide explanations were provided under Explanation 1 of section 271(1)(c) of the Act in respect of the income being surrendered. The only argument made by the Assessee was that it voluntarily offered receipts to tax and therefore, penalty cannot be levied. - In the case of IBM, the matter in respect of taxability of secondment expenses which is a debatable issue if not considered in favor of the Assessee. - The above case is therefore distinguishable on facts. Assessee relies on ruling by the Punjab and Haryana HC in the case of CIT v. Rajiv Garg [2008] 175 Taxman 184 The CIT(A) has contended that the explanations offered by IBM are not bonafide, since: - The explanation offered by the Assessee was rejected by the AO - Failure on part of the Assessee to offer receipts to tax in the fir....
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....7 of the Act are not mandatory and therefore the AO cannot be expected to seek recourse to the same. - Therefore, the same isn't sufficient ground to contend that the Assessee's conduct is not bonafide. The CIT(A) has rejected the judicial precedents cited by the Assessee on the ground that: - In all of the rulings relied, the 'make available' criteria under the respective DTAAs was not satisfied. - Assessee offering receipts to tax establishes by itself that the 'make available' criteria is satisfied and the subject receipts are taxable as FTS. (Page 13 of the CIT(A)'s order) - Merely because IBM has voluntarily offered receipts to tax, it does not mean that the same is perse taxable, given that the same were offered to avoid litigation. IBM has time and again reiterated repeatedly that it still continues to believe that the secondment receipts are not taxable as FTS. CIT(A) rejected the Assessee reference to provisions of 273B of the Act to define the term reasonable cause including reliance on Singapore Airlines Ltd. vs Commissioner of Income Tax [2022] 144 taxmann.com 221 (SC). (Page 13-14 of the CIT(A)'s order) - The SC in the subject ruling has laid down the legal ....
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....) has contended that mere acceptance of tax liability will not preclude the levy of the penalty on the assessee. - The CIT(A) has relied on the ruling of the Supreme Court ("SC") in MAK Data P. Ltd. vs CIT-II [2013] 38 taxmann.com 448 (SC) to support the above contention (Page 10/11/15/16 of the CIT(A)'s order) - MAK Data (supra) ruling is in the context of a case where income was voluntarily offered pursuant to a survey proceeding under section 133A of the Act. No bonafide explanations were provided under Explanation 1 of section 271(1)(c) of the Act in respect of the income being surrendered. The only argument made by the Assessee was that it voluntarily offered receipts to tax and therefore, penalty cannot be levied. - In the case of IBM, the matter in respect of taxability of secondment expenses which is a debatable issue if not considered in favor of the Assessee. - The above case is therefore distinguishable on facts. Assessee relies on ruling by the Punjab and Haryana HC in the case of CIT v. Rajiv Garg [2008] 175 Taxman 184 The CIT(A) has contended that the explanations offered by IBM are not bonafide, since: - The explanation offered by the Assessee was rejected by....
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....aid order has achieved finality since the same has neither been revised under section 263 nor has been reassessed under section 147 of the Act. The CIT(A) has rejected the judicial precedents of Abbey Business Services India (P.) Ltd (supra) and ([2020]122 taxmann.com 174 (Karnataka HC), by contending that the same are distinguishable on facts. (12-13 of the CIT(A)'s order) - CIT(A) has distinguished the facts of IBM with those of Abbey solely on the basis that IBM has voluntarily offered receipts to tax. However, the CIT(A) has failed to look into the similarity of facts of both these cases. CIT(A) has failed to acknowledge that ITAT in the Special Bench referral order in case of IBM India has noted that the facts in case of IBM are similar to those in case of Abbey (supra). - Provisions of section 195(2)/ 197 of the Act are not mandatory and therefore the AO cannot be expected to seek recourse to the same. The CIT(A) has contended that the explanations offered by the Assessee are not bonafide since no application under section 197 was presented by the Assessee. The CIT(A) observed that: - The option to present an application under section 197 of the Act was open to the Ass....
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....ons under-reporting, the penalty notice mentions under-reporting in consequence of misreporting. - It is settled position of law that levy of penalty must be specific and discernible. The CIT(A) has rejected the judicial precedents of DIT(IT) vs Abbey Business Services India (P.) Ltd ([2012] 23 taxmann.com 346 (Bangalore ITAT) and ([2020]122 taxmann.com 174 (Karnataka HC), by contending that the same is distinct in facts, on account of the below reasons: - In Abbey's case, the ITAT/ HC has concluded that there was no profit element as reimbursements were made on a cost-to-cost basis. In the absence of a profit element, the question of taxability under the provisions Act would not arise. - Furthermore, since income was not taxable under the Act, the taxability of the same under the provisions of the DTAA was not analyzed in the subject ruling. - The CIT(A) has opined that in IBM's case, the Assessee has himself admitted to taxability of the secondment receipts as FTS, since they were voluntarily offered to tax. - The CIT(A) also highlighted that in Abbey's case, the Assessee had furnished an application under section 195 while IBM has not exercised this option. (Page 15 &....
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.....com 95 (Delhi-Trib.) - Addl. DIT (IT) vs Marks and Spencer Reliance India P. Ltd. [2013] 38 taxmann.com 190 (Mumbai-Trib.) - Flipkart (Supra) The subject precedents were rejected on account of the below contentions: - In all of the above rulings, the 'make available' criteria under the respective DTAAs was not satisfied. - Assessee offering receipts to tax establishes by itself that the 'make available' criteria is satisfied and the subject receipts are taxable as FTS. (Page 17 & 18 of the CIT(A) order) Merely because IBM has voluntarily offered receipts to tax, it does not mean that the same is perse taxable, given that the same were offered to avoid litigation. IBM has time and again reiterated repeatedly that it still continues to believe that the secondment receipts are not taxable as FTS. - The CIT(A) has contended that mere acceptance of tax liability will not preclude the levy of the penalty on the assessee. - The CIT(A) has rejected IBM's reference to the Punjab and Haryana HC's ruling in CIT v. Rajiv Garg [2008] 175 Taxman 184 (Punjab and Haryana HC) by drawing reference to SC's ruling in MAK Data P. Ltd. vs CIT-II [2013] 38 taxmann.com 43 8 (SC) - The CIT(A....
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....148 of the Act was issued, initiating the reassessment proceedings. - The CIT(A) has distinguished the facts of the case from Karnataka HC's ruling in Manjunatha Cotton & Ginning Factory [2013] 35 Taxmann.com 250 (Karnataka HC) - The CIT(A) has concluded that the provisions of 270A(8) need not be invoked and that the case of the Assessee is covered under section 270A(2)(b) of the Act. (Page 14 of the CIT(A) order) - While the assessment order mentions under-reporting, the penalty notice mentions under-reporting in consequence of misreporting. - It is settled position of law that levy of penalty must be specific and discernible. - see Delhi HC in Prem Brothers (page 142-145 of case law compilation, at page 145, para 8. Also, Pune ITAT in Kishore Digambar Patil vs ITO - page 157-176 of case law compilation) The CIT(A) has rejected the judicial precedents of DIT(IT) vs Abbey Business Services India (P.) Ltd ([2012] 23 taxmann.com 346 (Bangalore ITAT) and ([2020]122 taxmann.com 174 (Karnataka HC), by contending that the same is distinct in facts, on account of the below reasons: - In Abbey's case, the ITAT/ HC has concluded that there was no profit element as reimbursements w....
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....pts were in nature of FTS. (Page 15 &16 of the CIT(A) order) - Provisions of section 195(2)/ 197 of the Act are not mandatory and therefore the AO cannot be expected to seek recourse to the same. - Therefore, the same isn't sufficient ground to contend that the Assessee's conduct is not bonafide. - Deduction under section 192 of the Act establishes employer-employee relationship and is therefore relevant. This aspect has also been discussed in numerous judicial precedents. The CIT(A) has rejected the below judicial precedents cited by the Assessee: - DIT(IT) Abbey (supra), - Ernst and Young U.S. LLP [2023] 153 taxmann.com 95 (Delhi-Trib.) - Addl. DIT (IT) vs Marks and Spencer Reliance India P. Ltd. [2013] 38 taxmann.com 190 (Mumbai-Trib.) - Flipkart (Supra) The subject precedents were rejected on account of the below contentions: - In all of the above rulings, the 'make available' criteria under the respective DTAAs was not satisfied. - Assessee offering receipts to tax establishes by itself that the 'make available' criteria is satisfied and the subject receipts are taxable as FTS. (Page 17 of the CIT(A) order) Merely because IBM has voluntarily offered receipt....
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....e subject ruling has opined that if Courts/ Tribunals in the ensuing years have passed contradictory judgements, it results in genuine and a bonafide difficulty on part of the Assessee and therefore qualifies to be a 'reasonable cause' under section 273B of the Act. - The reference to the above case by the Assessee was only in the context of the principle emanating from the same which could also be used in the context of section 270A of the Act. - However, the CIT(A) has incorrectly opined that the reference to the subject ruling is misplaced merely because the same is not rendered in context of section 270A of the Act. The principle emanating from the subject ruling would also have a bearing on the interpretation of section 270A of the Act. - The CIT(A) has highlighted that in the case of Assessee's group company, IBM Australia for AY 2007-08 and AY 2008-09, the then CIT(A)-IV, Bangalore vide order dated 20 November 2013 had upheld the addition of reimbursement of expenses on seconded employees as FTS. Therefore, the CIT(A) has rejected the Assessee's claim that it was not aware of the Department's position on the treatment of reimbursement of secondment expenses as FTS. - Hen....
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.... of DIT(IT) vs Abbey Business Services India (P.) Ltd ([2012] 23 taxmann.com 346 (Bangalore ITAT) and ([2020]122 taxmann.com 174 (Karnataka HC), by contending that the same is distinct in facts, on account of the below reasons: - In Abbey's case, the ITAT/ HC has concluded that there was no profit element as reimbursements were made on a cost-to-cost basis. In the absence of a profit element, the question of taxability under the provisions Act would not arise. - Furthermore, since income was not taxable under the Act, the taxability of the same under the provisions of the DTAA was not analyzed in the subject ruling. - The CIT(A) has opined that in IBM's case, the Assessee has himself admitted to taxability of the secondment receipts as FTS, since they were voluntarily offered to tax. - The CIT(A) also highlighted that in Abbey's case, the Assessee had furnished an application under section 195 while IBM has not exercised this option. (Page 21-22 of the CIT(A) order) - CIT(A) has distinguished the facts of IBM with those of Abbey solely on the basis that IBM has voluntarily offered receipts to tax. However, the CIT(A) has failed to look into the similarity of facts of both....
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....e above rulings, the 'make available' criteria under the respective DTAAs was not satisfied. - Assessee offering receipts to tax establishes by itself that the 'make available' criteria is satisfied and the subject receipts are taxable as FTS. (Page 23 of the CIT(A) order) Merely because IBM has voluntarily offered receipts to tax, it does not mean that the same is perse taxable, given that the same were offered to avoid litigation. IBM has time and again reiterated repeatedly that it still continues to believe that the secondment receipts are not taxable as FTS. - The CIT(A) has contended that mere acceptance of tax liability will not preclude the levy of the penalty on the assessee. - The CIT(A) has rejected IBM's reference to the Punjab and Haryana HC's ruling in CIT v. Rajiv Garg [2008] 175 Taxman 184 (Punjab and Haryana HC) by drawing reference to SC's ruling in MAK Data P. Ltd. vs CIT-II [2013] 38 taxmann.com 43 8 (SC) - The CIT(A) has noted that the Assessee was cognizant about the nature of payments received by it but chose not to offer the same to tax. (Page 20 of the CIT(A) order) - MAK Data (supra) ruling is in the context of a case where income was voluntarily ....
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....te that it had bonafide reasons to not offer receipts to tax under section 139 basis the IBM Corporation's order and judicial precedents. - The CIT(A) has highlighted that in the case of Assessee's group company, IBM Australia for AY 2007-08 and AY 2008-09, the then CIT(A)-IV, Bangalore vide order dated 20 November 2013 had upheld the addition of reimbursement of expenses on seconded employees as FTS. Therefore, the CIT(A) has rejected the Assessee's claim that it was not aware of the Department's position on the treatment of reimbursement of secondment expenses as FTS. - Hence the Assessee's claim that it harboured a bona fide belief that the receipts from reimbursement of secondment expenses were not taxable, is rejected in the face of the facts of its case (Page 21 of the CIT(A) order) - While the CIT(A)'s order was received prior to the favorable order passed in case of IBM Corp, the said order of IBM Australia was challenged before the ITAT. Thereafter, the appeal was withdrawn because IBM Australia chose to settle the litigations under the Vivad se Vishwas Act, 2020. Therefore, it cannot be said that the issue was settled in the case of IBM Australia for the AY 2007- 08 an....
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.... of the assessee ITA No. Assessment year Compagnie IBM France 545/Bang/2024 2013-14 Compagnie IBM France 546/Bang/2024 2015-16 IBM Australia 487/Bang/2024 2014-15 IBM Corporation 499/Bang/2024 2016-17 IBM Japan Limited 492/Bang/2024 2013-14 IBM Japan Limited 493/Bang/2024 2015-16 IBM Japan Limited 494/Bang/2024 2016-17 IBM United Kingdom Limited 542/Bang/2024 2014-15 IBM United Kingdom Limited 497/Bang/2024 2016-17 Category 'D' Levy of penalty u/s 270A of the Act where return u/s 139(1) of the Act has been filed. However, secondment related receipts were offered to tax only in the return filed u/s 148 of the Act. Name of the assessee ITA No. Assessment year IBM Corporation 544/Bang/2024 2017-18 IBM Netherland B V 503/Bang/2024 2017-18 IBM United Kingdom Limited 498/Bang/2024 2017-18 Category 'E' Levy of penalty u/s 270A of the Act where return u/s 139(1) of the Act has not been filed. However, secondment related receipts were offered to tax only in the return filed u/s 148 of the Act. Name of the assessee ITA No. Assessment year IBM Canada Limited 543/Bang/2024 2017-18 Category 'F' Levy of penalty u/s 270A of the Act where ....
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....ursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1.--For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation 2.--For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction16, assembly, mining or like project undertaken by the recipient16 or consideration which would be income of the recipient chargeable under the head "Salaries". 195(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salari....
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....s), it is evident that the seconded employees have to work at such place as the assessee may instruct and the employees have to function under the control, direction and supervision of the assessee and in accordance with the policies, rules and guidelines applicable to the employees of the assessee. The employees in their capacity as employees of the assessee had to control and supervise the activities of Msource India Pvt. Ltd. Therefore, the assessee for all practical purposes has to be treated as employer of the seconded employees. There is no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a non resident enterprise and therefore, the amount paid by the assessee was not to suffer tax deducted at source under Section 195 of the Act. Similar view has been taken by High Court of Delhi in HCL INFO SYSTEM LTD. supra in respect of salaries paid to foreign technicians on behalf of the assessee. 12. So far as reliance placed by learned counsel for the revenue on the decision of M/S CENTRICA INDIA OFFSHORE PVT. LTD. supra is concerned, from perusal of paragraph 29 of the aforesaid decision, it is evident that the High Court of De....