Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI “F” BENCH: NEW DELHI
Before: SHRI RAMA KANT PANDA & SHRI KUL BHARAT
ORDER PER KUL BHARAT, JM : This appeal by the assessee is directed against the order of the Ld. CIT(A)- 25, dated 26/5/2017 pertaining to Assessment Year 2007-08. The assessee has raised following grounds of appeal:-
1. “On the facts and in the circumstances of the case and in law, the penalty order passed by the learned Assessing Officer is bad in law and facts.
2. On the facts and in the circumstances of the case and in law,
the learned Assessing Officer has erred in levying penalty under Section 271 (1)(c) of the Act without appreciating the view of the Appellant that the said payments are not liable to TDS under Section 194C/ 195 of the Act and the learned CIT(A) has erred in confirming the same.
3. On the facts and in the circumstances of the case and in law, the learned Assessing Officer has erred in levying penalty under Section 271 (1 )(c) of the Act without appreciating the view of the Appellant that reimbursement of expenses is not hit by the Section 40(ba) of the Act and the learned CIT(A) has erred in confirming the same.
4. On the facts and in the circumstances of the case and in law, the learned Assessing Officer has erred in levying penalty under Section 271(1)(c) of the Act without appreciating the view of the Appellant that the said payments are in the nature of reimbursements/ cross charge of expenses by the JV partners to the Appellant and hence not subject to withholding provisions and the learned CIT(A) has erred in confirming the same.
5. On the facts and in the circumstances of the case and in law, the learned Assessing Officer has erred in levying penalty under Section 271 (1)(c) of the Act without appreciating the fact that the applicability of TDS provisions on bank guarantee commission is a debatable issue and the learned CIT(A) has erred in confirming the same.
6. On the facts and in the circumstances of the case and in law, the learned Assessing Officer has erred in levying penalty under Section 271 (1)(c) of the Act without appreciating the fact that there are no malafide intentions for non deduction of TDS on bank guarantee commission. The learned Assessing Officer should have appreciated the fact that the Appellant has deducted TDS appropriately on all other payments and it was of the view that TDS is not applicable on bank guarantee commission and the learned CIT(A) has erred in confirming the same.
The Appellant prays that each of the above grounds be considered discretely and without prejudice to each other.”
At the time of hearing, no one appeared on behalf of the assessee. It is seen that neither the assessee nor his counsel appeared on various dates. The notice of hearing was sent to the assessee and was returned by the postal authority with remark “Addressee is left”.
Under these facts, the appeal was taken up for hearing in the absence of the assessee and being decided on the basis of the material placed before us.
The facts giving rise to the present appeal are that the case of the assessee was reopened and the assessment u/s 143(3) read with Section 147 of the Income Tax Act, 1961 (“the Act”) was framed vide order dated 5/2/2015. Thereby, the Assessing Officer made addition of Rs. 1,26,71,190/- on account of disallowance of guarantee commission. The Assessing Officer initiated penalty proceedings u/s 271(1)(c) of the Act. Thereafter, the Assessing Officer imposed penalty vide order dated 28th August, 2015 amounting to Rs. 43,06,940/-.
Aggrieved against this, the assessee preferred appeal before the Ld.CIT(A) who after considering the submissions of the assessee dismissed the appeal.
Now the assessee is in appeal before this Tribunal.
Ld. CIT DR supported the order of the authorities below and submitted that the assessee had furnished inaccurate particulars of income by non- deducting the tax and claiming the deduction of the expenditure. He submitted that the Ld.CIT(A) has rightly sustained the penalty.
We have heard the Ld. DR and perused the material available on record. Before the Ld.CIT(A) the assessee had made following submissions:-
The Appellant wishes to humbly make the following submissions for your kind consideration in support of its grounds of appeal:
Ground No. 2:
On the facts and in the circumstances of the case and in law, the learned Assessing Officer has erred in levying penalty under Section 271(1 )(c) of the Act without appreciating the view of the Appellant that the said payments are not liable to TDS under Section 194C/195 of the Act.
1.1. Bank guarantee commission paid to M/s BEL:
1.1.1. The learned AO had concluded that TDS is applicable on the bank guarantee commission paid to BEL under Section 194C of the Act as there was a contractual arrangement to provide bank guarantees in the joint venture ("JV") agreement. A copy of the JV agreement is enclosed in page number 1 to 6 of paper book.
1.1.2. In this regard, we wish to submit that, any payment to be liable under Section 194C of the Act, the contract entered into by the parties should be in the nature of 'works contracts' i.e. 'labour contracts' which is not the case in the present scenario. The fact that the contract stipulates that the members were obliged to provide guarantees for the performance of the contract does not amount to 'works contract'. The liability under Section 194C of the Act is cast on the assessee only when they are in fact and in substance acting in the relationship of contractors and sub contractors.
1.1.3. In the given case, the JV agreement has been entered into for the purpose of execution of contracts. For the purpose of the performance of the contracts, the JV partners have agreed to provide guarantee. This does not make the JV partners sub-contractors of the Appellant. Therefore, the payment made by the Appellant to BEL is not liable to tax under Section 194C of the Act and hence we request your good self to delete the penalty imposed under Section 271(l](c) of the Act.
1.1.4. The Honourable Delhi High Court in the case of Career Launcher India Ltd [TS-257-HC- 2012JDEL)] (copy of said ruling enclosed as page number 7 to 42 of paper book) had an", opportunity to peruse the term "work" under Section 194C of the Act and the relevant extract is as follows:
"A perusal of the extended definition of the word "work" shows that it covers a simple case of engaging a person to render services of the kind mentioned in the definition. Otherwise ever, composite transaction which also has an element of work will be covered which is not the intention of the legislature. A case of an arrangement under which both sides have joined together by mutual arrangement and to share the profits of the joint enterprise carried on by them is not covered by the definition. They mutually undertake the profit making activity with a stipulation to divide the gains of their collective efforts. The work is undertaken jointly by them for a consideration which is shared. Parties do not work for each other."
1.1.5. We would like to draw your attention to the Hyderabad ITAT ruling in the case of Hindustan Ratna [ITA No. 372/HYD/2013] (a copy of the said ruling is enclosed in page number 43 to 54 of paper book), wherein the Honourable ITAT had held that the provisions of Section 194C of the Act cannot be attracted on the payments made by the JV to their partners, as the partners of a JV are not sub-contractors of the JV.
1.2. Bank guarantee commission paid to M/s PATI Sendirian Berhad:
1.2.1. The learned AO had concluded that TDS is applicable on the bank guarantee commission paid to PATI Sendirian Berhad under Section 195 of the Act as PATI Sendirian Berhad is a non-resident
1.2.2. As PATI Sendirian Berhad is a resident of Malaysia it is eligible to claim the benefits of the Indo- Malaysian Tax Treaty.
1.2.3. The payment of bank guarantee to PATI Sendirian Berhad can either be taxed under "Article 7- Business Profits" or "Article 11- Interest" of the Tax Treaty. /Is PATI Sendirian Berhad doesn't have a permanent establishment in India, the said payment is not liable to tax in India under "Article 7- Business Profits".
1.2.4. As per "Article 11 - Interest" para 4, the term interest has been defined as follows:
“The term "interest" as used in this Article means income from debt claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures.
Penalty charges for late payment shall not be regarded as interest for the purpose of this Article".
1.2.5 Bank guarantee commission does not fall under the definition of interest as per “Article 11- Interest" of the Indo-Malaysian Tax Treaty. Hence, the said payment is not liable to tax in India as per Indo- Malaysian Tax Treaty.
1.2.6 Therefore, the payment made by the Appellant to PATl Sendirian Berhadis not liable to tax under Section 195 of the Act and hence we request your good self to delete the penalty imposed under Section 271(l)(c) of the Act.
1.2.7 The learned AO in his order relying on the Karnataka High ruling in the case of Samsung Electronics had concluded that as per Section 195(2) of the Act, it is necessary for the Appellant ' to approach the Assessing Officer if he considers that the payment is not subject to tax as per the provisions of the Act. In this regard, we would like to draw your attention to the Hon'ble Supreme Court ruling in the case of GE India Technology Centre Private Limited [2010-TII-07- SC-INTL] wherein the Supreme Court had overruled the ruling of the Karnataka High Court and had concluded that if a payment is not eligible to tax in India in the hands of the non-resident then there is no requirement to withhold tax therefrom. A copy of the said ruling is enclosed in page number 55 to 62 of paper book.”
The case before the authorities below was that the assessee was not required to deduct tax. However, no material is placed on record in support of the contention of the assessee that no tax is deductable. In the absence of the material evidence, we do not find any infirmity into the order of the authorities below. The grounds raised in this appeal are rejected.
In the result, the appeal of the assessee is dismissed.
Above decision was pronounced on conclusion of Virtual Hearing on 04th January, 2022.