DCIT, CIRCLE-3(3)(1), MUMBAI vs. M/S. TOTAL ENERGIES MARKETING INDIA P LTD (FORMERLY KNOWN AS M/S. TOTAL OIL INDIA P LTD, MUMBAI

Dy. CIT, Circle 3(3)(1), Mumbai for assessment year 2017-18 against the appellate order passed by the National Faceless Appeal Centre, New Delhi (Learned CIT-A) dated 18/11/2022 wherein the appeal filed by the assessee against the assessment order passed by the National e-Assessment Centre, Delhi (Learned Assessing Officer) under section 143(3) of the Income Tax Act, 1961(the Act), was partly allowed. The Learned Assessing Officer is aggrieved with the order of the Learned CIT-A deleting the disallowance of demurrage charges and reimbursement of salary paid to seconded employees on account of non-deduction of tax at source.

The assessee has filed cross objection for refund of the excess dividend distribution tax paid on account of dividend paid to non-resident shareholder, viz. Total Marketing Services, France and Total Holding Asie, France. The grievance of the assessee is that the dividend distribution tax in relation to the dividend paid to non-resident shareholders ought to have been paid @ 10% in terms of Article 11 of the India – France tax treaty which has been further reduced to 5% in view of Para 7 of the Protocol between India and France in view of benefit of ‘Most Favoured Nation’ clause read with tax treaty between India

The brief facts of the case show that the assessee is engaged in importing and reselling Liquefied Petroleum Gas and certain solvents. It is also manufacturing and marketing industrial and automotive lubricants. It filed its return of income on 30/11/2017 at a total income of Rs.120,94,42,340/-. The assessee has also entered into several international transactions. The case of the assessee was selected for scrutiny on transfer pricing risk parameters. The TPO did not disturb the arm’s length price of international transaction. The Learned Assessing Officer found that the assessee has paid demurrage charges of Rs. 2,48,16,533/- on which no tax is deducted at source. He further found that the assessee has reimbursed salary paid to its seconded employees, amounting to Rs.11,44,50,849/- on which no tax is deducted. Assessee did not submit any reply to query of the ld AO. The Learned Assessing Officer, therefore, held that tax is deductible on demurrage charges and on reimbursement of salary paid to seconded employees, as assessee has not deducted tax at sources, both these items were disallowed u/s 40(a) (ia) of the Act. Accordingly, total income was assessed at Rs.134,87,09,722/- by passing an order under section 143(3) read with sections 143(3A) and 143(3B) of the Act on 15/3/2021.

The assessment order was challenged before the Learned CIT-A, who held that i. With respect to demurrage charges, the Coordinate Bench has decided the issue for assessment years 2010-11 to 2015-16 in favour of the assessee and therefore, he deleted the disallowance on demurrage charges. ii. With respect to the reimbursement of salary cost, the Learned CIT-A noted that when for earlier years identical disallowance was made, which was deleted by the Learned CIT-A and the order of the Learned CIT-A was confirmed by the Tribunal, therefore, he also deleted the disallowance under this head. iii. Before the Learned CIT-A, a ground was raised that assessee has paid dividend distribution tax for which credit is not given. The Learned CIT-A directed the Learned Assessing Officer to verify the claim and grant credit if available.

The assessee is aggrieved with the appellate order and has raised a ground in the cross objection. The Learned DR supported the order of the Learned Assessing Officer and submitted that on demurrage charges and reimbursement of cost of seconded employees are subject to tax deduction at source under section 195 of the Act and therefore, in the absence of any explanation by the assessee, the disallowance was correctly made. He submitted that the Learned CIT-A has merely followed the order of the Coordinate Bench without examining the facts in the present year.

The Learned AR submitted that the Coordinate Bench in the assessee’s own case has already decided the disallowance of demurrage charges for non-deduction of tax for earlier years. He referred to & 4135/MUM/2016 for assessment year 2010-11 and subsequently for succeeding years various orders of the Tribunal till assessment year 2015-16 wherein the issue has been decided in favour of the assessee by deleting the disallowance of demurrage charges. Accordingly, he submitted that there is no requirement of deduction of tax at source on demurrage charges under section 195 of the Act and therefore, the disallowance is correctly deleted.

With respect to reimbursement of expenses of seconded employees, he submitted that this issue is also squarely covered in favour of the assessee by the decision of the Coordinate Bench in filed by the Revenue for assessment year 2011-12, order dated 2/11/2019. He submitted that as per paragraph 12 of the above order, it was held by the Coordinate Bench that there is no income chargeable to tax in India. He further referred to identical issue in the case of the assessee in ITA No.4300/MUM/2016 while deciding issue No.1 at paragraph 15 of that order. He submits that identical set of agreement is in existence. Accordingly, both the issues are covered in favour of the assessee.

We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also perused the orders of the Coordinate Bench in the assessee’s own case for earlier assessment years where identical issue arose and the issue is decided in favour of the assessee. We find that first time the issue arose in the case of the assessee with respect to reimbursement of demurrage charges in ITA No.4135/MUM/2016. While deciding the issue being ground No.2.1, at paragraphs 7 to 9 of the appeal, following the decision of the Hon'ble Bombay High Court in the case of CIT vs. Dempo and Co. P. Ltd., 381 ITR 303. Further, for subsequent years also, the Coordinate Bench has followed this decision. The Learned DR could not show us any reason as to why the above decision should not be followed. Accordingly, respectfully following the decision of the Coordinate Bench in the assessee’s own case, we confirm the order of the Learned CIT-A in deleting the disallowance of demurrage charges paid by the assessee of Rs.2,48,16,533/-. Accordingly, ground No.1 of the appeal is dismissed.

With respect to ground No.2 where the disallowance of reimbursement of salary paid to seconded employees on account of non-deduction of tax at source was deleted by the Learned CIT-A. We find that the issue first arose in the case of the assessee in for assessment year 2010-11 where the Coordinate Bench has dealt with the issue in paragraphs 15 & 16 and deleted the addition. The Coordinate Bench for that year has relied upon the decision in the case of Burt Hill Design Pvt. Ltd. vs. DDIT (IT), 79 Taxmann.com 459. The Learned CIT-A has followed the decision of the Coordinate Bench in deleting the disallowance. Therefore, we do not find any infirmity in the order of the Learned CIT-A. Accordingly, ground No.2 of the appeal of the Assessing Officer is dismissed, holding that no tax is required to be deducted on reimbursement of salary to seconded employees, amounting to Rs.11,44,50,849/-. Thus, the appeal of the Assessing Officer for assessment year 2017-18 in is dismissed.

Now the question arises for assessment year 2018-19. is filed by the Assessing Officer for assessment year 2018-19, raising the following grounds:

The assessee has filed cross object vide CO No.30/MUM/2023 for assessment year 2018-19 raising the following grounds:

CO No.29/MUM/2023 for assessment year 2017-18 filed by the assessee is also on identical grounds.

For AY 2018-19 , brief facts of the case shows that the assessee filed its return of income on 30/11/2018 at an income of Rs.186,37,54,609/-. The case of the assessee was selected for scrutiny resulting into assessment under section 143 of the Act at the same income, by order dated 30/9/2021. Despite there being no addition, the assessee preferred an appeal before the Learned CIT-A which was entertained. The only claim of the assessee before the Learned CIT-A was with respect to refund of excess dividend distribution tax and deduction of education cess along with interest under section 234C of the Act. The claim of the assessee is that dividend under consideration is taxable @ 5% only. The facts show that the assessee has declared a dividend of Rs.73,25,32,504/-. The assessee has two shareholders who are resident of France. The dividend distribution tax was worked out under section 115 of the Act @ 20.361% at Rs.14,91,26,382/-. The claim before the Learned CIT-A was that such dividend is chargeable to tax @5% as per double taxation avoidance agreement between India and Slovenia read with ‘Most Favoured Nation’ clause between India, France and Slovenia. Therefore, the excess tax paid by the assessee @ 20.361% - 5% is refundable. 15. The Learned CIT-A decided this issue and for statistical purposes allowed the ground raised

After hearing both the parties, we find that the issue is squarely covered by the decision of the Special Bench in the case of the assessee [2023] 149 taxmann.com 332 (Mumbai - Trib.) (SB) where in it has been held that DTAA does not get triggered at all when a domestic company pays DDT under section 115-O; where contracting states to a tax treaty intend to extend treaty protection to domestic company paying dividend distribution tax, only then, domestic company can claim benefit of DTAA, if any. Further latest decision of the Hon'ble Supreme Court in Nestle SA [2023] 155 taxmann.com 384 (SC) [19-10-2023] .

Accordingly, as the issue is squarely decided against the assessee by both the above decisions, we dismiss the cross objections of the assessee for both the years and allow the appeal of the Assessing Officer for assessment year 2018- 19.

Accordingly, the appeals of the Assessing Officer and the cross objections of assessee are disposed of as indicated above.