DCIT CENTRAL CIRCLE 7 4 MUMBAI, MUMBAI vs. ROHA DYECHEM PVT. LTD, MUMBAI

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ITA 3848/MUM/2024Status: DisposedITAT Mumbai24 January 2025AY 2014-15Bench: SHRI SANDEEP SINGH KARHAIL (Judicial Member), SHRI OMKARESHWAR CHIDARA ( (Accountant Member)7 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that payments made to the USFDA, a government agency, for testing certificates do not constitute 'Fees for Technical Services' and are not governed by the India-USA DTAA. Furthermore, the Tribunal noted a consistent practice by the Revenue in prior and subsequent years to not disallow such payments, upholding the rule of consistency.

What were the facts?

The Revenue appealed against the deletion of an addition made by the AO, which disallowed payments made by the assessee for testing charges and commission to a foreign agent. The AO treated these payments as 'Fees for Technical Services' (FTS) and disallowed them under Section 40(a)(i) for non-deduction of TDS.

What were the issues?

Whether payments for testing certificates to a foreign government agency qualify as 'Fees for Technical Services' and are subject to TDS provisions, and whether the rule of consistency applies due to past departmental acceptance.

Which sections of the Income-tax Act were involved?

Section 40(a)(i),Section 9(1)(vii)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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  • 153 Taxmann.com 226
    153 Taxmann.com 226 · HC
    14 citing

Income Tax Appellate Tribunal, MUMBAI BENCH “I” MUMBAI

Before: SHRI SANDEEP SINGH KARHAIL & SHRI OMKARESHWAR CHIDARA

For Appellant: Shri Haridas Bhat
For Respondent: Ms. Jancy Elizabeth, Sr. DR
Pronounced: 24/01/2025

This appeal by the Revenue is directed against order dated 05/06/2024 passed by the Ld. Commissioner of Income-tax (Appeals)-57, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2014-15.

2.

In the above captioned appeal, the Revenue has filed an appeal above captioned appeal, the Revenue has filed an appeal above captioned appeal, the Revenue has filed an appeal against the order passed by Ld. CIT(A) with the following Grounds against the order passed by Ld. CIT(A) with the following Grounds against the order passed by Ld. CIT(A) with the following Grounds of Appeal:

Whether on the facts and circumstances of the case and in law, facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by AO of the Ld. CIT(A) has erred in deleting the addition made by AO of the Ld. CIT(A) has erred in deleting the addition made by AO of Rs.2,03,91,052/- under section 40(a)(i) of the Income under section 40(a)(i) of the Income-tax Act, 1961 on tax Act, 1961 on the ground that foreign agent provided referral services to the appellant the ground that foreign agent provided referral services to the appellant the ground that foreign agent provided referral services to the appellant without distinguishing how the FTS takes the nature of a statutory by without distinguishing how the FTS takes the nature of a statutory by without distinguishing how the FTS takes the nature of a statutory by undefined referral service and such referral services do not fall in the undefined referral service and such referral services do not fall in the undefined referral service and such referral services do not fall in the category of technical, managerial or consultancy service, therefore, it category of technical, managerial or consultancy service, therefore, it category of technical, managerial or consultancy service, therefore, it could not be in the nature of 'fees for could not be in the nature of 'fees for technical services?

2. "Whether the Ld.CIT(A) has erred in holding that the foreign agent "Whether the Ld.CIT(A) has erred in holding that the foreign agent "Whether the Ld.CIT(A) has erred in holding that the foreign agent had no PE in India without recognizing that income earned as a part had no PE in India without recognizing that income earned as a part had no PE in India without recognizing that income earned as a part Export Sales is deemed to have accrued or arisen in India u/s.9(1)(vii) of Export Sales is deemed to have accrued or arisen in India u/s.9(1)(vii) of Export Sales is deemed to have accrued or arisen in India u/s.9(1)(vii) of the I.T. Act, 1961?"

3.

Whether Ld. CIT(A) has erred in not recognizing that even as per Whether Ld. CIT(A) has erred in not recognizing that even as per Whether Ld. CIT(A) has erred in not recognizing that even as per Article 12(4)(b) of the India Article 12(4)(b) of the India-USA DTAA, the payment was covered under USA DTAA, the payment was covered under the said article as "fees for included services" as defined therein. The the said article as "fees for included services" as defined therein. The the said article as "fees for included services" as defined therein. The expression "provision for services" is wider t expression "provision for services" is wider than the term "provision for han the term "provision for rendering of services" and covers services rendered in the one State but rendering of services" and covers services rendered in the one State but rendering of services" and covers services rendered in the one State but used in the other State? used in the other State?”

3. The issue to be decided in The issue to be decided in this appeal is whether Sec 40 a this appeal is whether Sec 40 a(i) is applicable for the amount received by the appellant company whic applicable for the amount received by the appellant company whic applicable for the amount received by the appellant company which was treated by Ld. AO as was treated by Ld. AO as “Fees for Technical Services”. The “Fees for Technical Services”. The corollary issue raised by Revenue is Ld. CIT(A) erred in adjudicating corollary issue raised by Revenue is Ld. CIT(A) erred in adjudicating corollary issue raised by Revenue is Ld. CIT(A) erred in adjudicating that the income has not ac that the income has not accrued/arisen in India. The third ground ued/arisen in India. The third ground raised by the Revenue is that Ld. CIT(A) has incorrectly h raised by the Revenue is that Ld. CIT(A) has incorrectly h raised by the Revenue is that Ld. CIT(A) has incorrectly held that the payment to appellant company was not covered as “Fees for the payment to appellant company was not covered as “Fees for the payment to appellant company was not covered as “Fees for Technical Services” as per Article 12(4)(b) of India Technical Services” as per Article 12(4)(b) of India Technical Services” as per Article 12(4)(b) of India-USA Double Taxation Avoidance Agreement. Thus, the only issue to be decided Taxation Avoidance Agreement. Thus, the only issue to be decided Taxation Avoidance Agreement. Thus, the only issue to be decided in this case is, “whether the remittances made by assess in this case is, “whether the remittances made by assess in this case is, “whether the remittances made by assessee company as sales and marketing services during A.Y. 2014 company as sales and marketing services during A.Y. 2014 company as sales and marketing services during A.Y. 2014-15 to the extent of Rs. 6.57 crore is liable for TDS.” The amounts were s. 6.57 crore is liable for TDS.” The amounts were s. 6.57 crore is liable for TDS.” The amounts were paid, as claimed by a company, towards testing charges, paid, as claimed by a company, towards testing charges, paid, as claimed by a company, towards testing charges, reimbursements and commission. They were paid to USFDA, AE for reimbursements and commission. They were paid to USFDA, AE for reimbursements and commission. They were paid to USFDA, AE for testing fees to FDA and to export sale agent. fees to FDA and to export sale agent.

4.

The Ld. AO held that all The Ld. AO held that all their payments are liable for TDS payments are liable for TDS under Article 22 of DTAA and as TDS was not done, they are under Article 22 of DTAA and as TDS was not done, they are under Article 22 of DTAA and as TDS was not done, they are liable for disallowance u/s. 40 for disallowance u/s. 40a(ia) of I.T. Act, while completing the a(ia) of I.T. Act, while completing the assessment. The Ld. CIT(A) assessment. The Ld. CIT(A) deleted the addition made by Ld. A.O. deleted the addition made by Ld. A.O. stating that these payments won’t attract TDS provisions as they stating that these payments won’t attract TDS provisions as they stating that these payments won’t attract TDS provisions as they are normal business expenditure because US FDA has never made are normal business expenditure because US FDA has never made are normal business expenditure because US FDA has never made available knowledge or skills to carry out the testing of the products available knowledge or skills to carry out the testing of the products available knowledge or skills to carry out the testing of the products of the assessee and and the USFDA has simply issued “ simply issued “Testing Certificate” in lieu of the payments made by ” in lieu of the payments made by assessee assessee company. It was also held that US FDA is a US Government agency and was also held that US FDA is a US Government agency and was also held that US FDA is a US Government agency and payments made to the same don’t govern the provisions of Indo payments made to the same don’t govern the provisions of Indo payments made to the same don’t govern the provisions of Indo- USA DTAA. Hence, the testing char A. Hence, the testing charges paid to USFDA or paid to ges paid to USFDA or paid to assessee company’s AE towards testing char ompany’s AE towards testing charges paid to US ges paid to US-FDA are not in the nature of “Fees for Technical Services” and hence the not in the nature of “Fees for Technical Services” and hence the not in the nature of “Fees for Technical Services” and hence the assessee company is not under obligation to make TDS. company is not under obligation to make TDS. company is not under obligation to make TDS. Consequently, Sec 40a(ia) provisions can’t Consequently, Sec 40a(ia) provisions can’t be invoked for the be invoked for the payments made by assessee assessee company and accordingly, the addition company and accordingly, the addition made by Ld. A.O. was deleted by Ld. CIT(A). made by Ld. A.O. was deleted by Ld. CIT(A).

5.

In the above circumstances, the Revenue filed an appeal to In the above circumstances, the Revenue filed an appeal to In the above circumstances, the Revenue filed an appeal to ITAT with the Grounds of Appeal mentioned in Page 1 of this order. ITAT with the Grounds of Appeal mentioned in Page 1 of this order. ITAT with the Grounds of Appeal mentioned in Page 1 of this order.

6.

During the hearing proceeding before ITAT, Ld. DR relied on ing the hearing proceeding before ITAT, Ld. DR relied on ing the hearing proceeding before ITAT, Ld. DR relied on the assessment order and Grounds of Appeal. The Ld. AR of the assessment order and Grounds of Appeal. The Ld. AR of the assessment order and Grounds of Appeal. The Ld. AR of assessee has stated that the same issue was raised by the Revenue has stated that the same issue was raised by the Revenue has stated that the same issue was raised by the Revenue by the International Tax Wing of Income Tax Department for the by the International Tax Wing of Income Tax Department for the by the International Tax Wing of Income Tax Department for the same assessment year. The Ld. AO of International tax added the ent year. The Ld. AO of International tax added the ent year. The Ld. AO of International tax added the amounts and Ld. CIT(A) dealing with International Tax of I.T. amounts and Ld. CIT(A) dealing with International Tax of I.T. amounts and Ld. CIT(A) dealing with International Tax of I.T. Department held the issue in favour of Department held the issue in favour of assessee assessee company in a detailed detailed detailed speaking speaking speaking order order order after after after relying relying relying on on on several several several judicial judicial judicial Pronouncements. It was . It was submitted that the International Tax wing that the International Tax wing has not further appealed to ITAT on the order passed has not further appealed to ITAT on the order passed has not further appealed to ITAT on the order passed by the Ld. CIT(A), i.e., accepted the order of Ld. CIT(A) which implies that the CIT(A), i.e., accepted the order of Ld. CIT(A) which implies that the CIT(A), i.e., accepted the order of Ld. CIT(A) which implies that the department has accepted the department has accepted the reason of assessee company that TDS of assessee company that TDS is not deductable on these payments. But, the same information e on these payments. But, the same information e on these payments. But, the same information was sent to the assessment wing of I.T. Department and they have was sent to the assessment wing of I.T. Department and they have was sent to the assessment wing of I.T. Department and they have reopened the assessment and completed the assessment. Against reopened the assessment and completed the assessment. Against reopened the assessment and completed the assessment. Against this order, the assessee company against filed an appeal and the this order, the assessee company against filed an appeal and the this order, the assessee company against filed an appeal and the same Ld. CIT(A)-57 has passed another order in assessee’s favour. 7 has passed another order in assessee’s favour. 7 has passed another order in assessee’s favour. This subsequent Ld. CIT(A)’s order is now appealed against by This subsequent Ld. CIT(A)’s order is now appealed against by This subsequent Ld. CIT(A)’s order is now appealed against by revenue, it was submitted. The Ld. AR of assessee company revenue, it was submitted. The Ld. AR of assessee company revenue, it was submitted. The Ld. AR of assessee company filed a paper book containing the assessment order and the related Ld. paper book containing the assessment order and the related Ld. paper book containing the assessment order and the related Ld. CIT(A) order which were passed by the International Tax Division ch were passed by the International Tax Division ch were passed by the International Tax Division with a submission that the Department did not file an appeal to with a submission that the Department did not file an appeal to with a submission that the Department did not file an appeal to ITAT. As the Department accepted the order of Ld. CIT(A), now they ITAT. As the Department accepted the order of Ld. CIT(A), now they ITAT. As the Department accepted the order of Ld. CIT(A), now they cannot agitate the same before ITAT and hence the appeal of cannot agitate the same before ITAT and hence the appeal of cannot agitate the same before ITAT and hence the appeal of revenue should be dismissed on the principle of consistency as well e dismissed on the principle of consistency as well e dismissed on the principle of consistency as well as on merits.

7. Heard both sides. There is force in the argument of Ld. AR of Heard both sides. There is force in the argument of Ld. AR of Heard both sides. There is force in the argument of Ld. AR of appellant company and the issues are adjudicated in favour of appellant company and the issues are adjudicated in favour of appellant company and the issues are adjudicated in favour of appellant company for the following reasons: appellant company for the following reasons: a) The payments were ma The payments were made by assessee company to USFDA, a de by assessee company to USFDA, a Government agency of USA for the purpose of getting “Testing Government agency of USA for the purpose of getting “Testing Government agency of USA for the purpose of getting “Testing Certificate” and knowledge or skill testing products were not Certificate” and knowledge or skill testing products were not Certificate” and knowledge or skill testing products were not given to assessee company in lieu of the payment made. Only given to assessee company in lieu of the payment made. Only given to assessee company in lieu of the payment made. Only “testing charges” were paid to US FDA. “testing charges” were paid to US FDA. b) Payments made to a Government Payments made to a Government agency, USFDA, are not agency, USFDA, are not governed by the provisions of Indo governed by the provisions of Indo-USA’s double Taxation USA’s double Taxation Avoidance Agreements. Avoidance Agreements. c) The USFDA doesn’t have PE in India and such, the income The USFDA doesn’t have PE in India and such, the income The USFDA doesn’t have PE in India and such, the income received by it, is not taxable in India. received by it, is not taxable in India. d) The assessee’s case was The assessee’s case was protected under India rotected under India-USA DTAA as mere rendering of services couldn’t be roped into FTS since mere rendering of services couldn’t be roped into FTS since mere rendering of services couldn’t be roped into FTS since assessee company utilising services was unable to make use of assessee company utilising services was unable to make use of assessee company utilising services was unable to make use of technical knowledge etc., even w technical knowledge etc., even where were services were ere were services were rendering by a US company, as held by Hon’ble rendering by a US company, as held by Hon’ble rendering by a US company, as held by Hon’ble Gujarat High

Court in CIT(International tax) Vs Star Rays 153 taxman.com Court in CIT(International tax) Vs Star Rays 153 taxman.com Court in CIT(International tax) Vs Star Rays 153 taxman.com 226 (Guj). In the impugned case, payments were made to FDA 226 (Guj). In the impugned case, payments were made to FDA 226 (Guj). In the impugned case, payments were made to FDA of USA, which is a Government Agency. So, the payments can’t of USA, which is a Government Agency. So, the payments can’t of USA, which is a Government Agency. So, the payments can’t be roped into the amount of FTS and TDS provisions/Sec. be roped into the amount of FTS and TDS provisions/Sec. be roped into the amount of FTS and TDS provisions/Sec. 40a(ia) provisions are not applicable. ) provisions are not applicable. e) The Ld. AR of appellant filed a copy of letter of Internation Tax The Ld. AR of appellant filed a copy of letter of Internation Tax The Ld. AR of appellant filed a copy of letter of Internation Tax wing of Income Tax Department signed by ITO (IT) 4(1) (2), wing of Income Tax Department signed by ITO (IT) 4(1) (2), wing of Income Tax Department signed by ITO (IT) 4(1) (2), Mumbai vide letter dated 13/08/2024 stating that in Mumbai vide letter dated 13/08/2024 stating that in Mumbai vide letter dated 13/08/2024 stating that in assessee’s own case for the same A.Y, on same assessee’s own case for the same A.Y, on same assessee’s own case for the same A.Y, on same issues, no appeal was preferred on CIT(A)’s order to ITAT. These appeal was preferred on CIT(A)’s order to ITAT. These appeal was preferred on CIT(A)’s order to ITAT. These payments were made by assessee company in earlier and payments were made by assessee company in earlier and payments were made by assessee company in earlier and subsequent years too, it was submitted by Ld. AR of appellant subsequent years too, it was submitted by Ld. AR of appellant subsequent years too, it was submitted by Ld. AR of appellant and no disallowance u/s. 40a(ia) was made by Department, and no disallowance u/s. 40a(ia) was made by Department, and no disallowance u/s. 40a(ia) was made by Department, and this fact was and this fact was not controverted by the Ld. DR. Thus, all the not controverted by the Ld. DR. Thus, all the years, the Department accepted the assessee’s company’s the Department accepted the assessee’s company’s the Department accepted the assessee’s company’s stand that TDS Provisions are not applicable to payments stand that TDS Provisions are not applicable to payments stand that TDS Provisions are not applicable to payments made made made USFDA. USFDA. USFDA. There being There being There being no no no change change change in in in facts facts facts and and and circumstances, Rule of consistency should be follo circumstances, Rule of consistency should be follo circumstances, Rule of consistency should be followed by Department.

8.

In view of the above, the appeal of Revenue is dismissed. In view of the above, the appeal of Revenue is dismissed. In view of the above, the appeal of Revenue is dismissed.

Order pronounced in the open Court on Order pronounced in the open Court on 24/01 /01/2025.

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