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Before: Shri V. Durga Rao & Shri G. Manjunatha
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
These four appeals filed by the assessee are directed against separate, but, identical orders of the ld. Commissioner of Income Tax (Appeals) 16, Chennai in dated 29.01.2016 for the period 31.12.2014 to 31.03.2015; ITA No. 18/CIT(A)-16/FY 2014-15 dated 22.08.2016 for the period 20.02.2015 to 31.03.2015; ITA No. 64/CIT(A)-16/16-17 dated 15.05.2017 for the period Jan. 2016 to June, 2016 and ITA No. 46/CIT(A)-16/16-17 dated 15.05.2017 for the period 22.02.2016 to 31.03.2016. I.T.A. Nos. 1187 & 3122/Chny/2016 are appeals filed under section 246A of the Income Tax Act, 1961 [“Act” in short] and I.T.A. Nos. 1690 & 1691/Chny/2017 are appeals against the order passed by the ld. CIT(A) under section 248 of the Act. Since, the facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are being disposed of by this consolidated order.
The assessee has, more or less, raised common grounds of appeal
and therefore, for the sake of brevity, the grounds of appeal filed in are reproduced as under: 1) The orders of the Assessing Officer ('AO') and that of the Commissioner of Income Tax (Appeals) ['CIT (A)'] are against the law, the facts and circumstances of the case and the principles of equity and natural justice. 2) The CIT (A) erred in confirming the order of the AO and holding that the appellant is required deduct tax at source on the payments made to M/ s BASF SE CARL= BOSCH-STRASSE
38. LUDWIGSHAFEN ('BASF SE')under section 195 (2) of the Income Tax Act ('Act').
3) The CIT (A) erred in holding that the payment made by the appellant to BASF SE is payment in the nature of fees for technical services, by merely relying on his earlier orders, which have not attained finality.
4) The CIT (A) failed to appreciate that the payment is made by the appellant under cost Sharing agreement with its group wherein the BASF SE who is another member in the pool.
5) The CIT (A) failed to appreciate that in the common interest and benefit of pool members of the appellant's group companies across the world, the pool members through cooperation amongst themselves are providing/ using common services and that it was agreed that the cots in connection with the same will be shared jointly by the pool members as beneficiaries.
6) The CIT (A) failed to appreciate that in respect of payments made to BASF SE, the same cannot be treated as Fees for technical services, in view of the Double Taxation Avoidance Agreement between India and Germany. The CIT (A) ought to have appreciated that no technology was made available to the appellant and accordingly the payment is not in the nature of fees for technical services.
7) The CIT(A) ought to have appreciated that the sum paid to BASF SE in not taxable in view of principle of mutuality.
8) Your appellant prefers this appeal on these grounds and such other grounds that may be adduced before or at the time of hearing of this appeal.
Brief facts of the case are that the assessee, M/s. BASF Catalysts India Private Limited, is a part of group concern companies of BASF group comprising of BASF SE, Germany and its number of subsidiaries and affiliates. The assessee is also one of the pool members of the BASF Group. The assessee entered into a Cost Sharing Agreement (CSA) with BASF SE, Germany as one of the pool members and the said agreement came into effect from 1st January, 2010. As per the agreement between the assessee and parent company BASF SE, Germany provides common services to various pool members and allocates cost for service on cost to cost basis without any mark-up. The assessee has filed an application under section 195(2) of the Income Tax Act to the Assessing Officer for certificate under section 197 of the Act to make payment to the parent company without deduction of tax at source under section 195 of the Act. The Assessing Officer has issued certificate under section 197 of the Act and directed the assessee to make the payment after deducting TDS @ 10% as per section 195 of the Act. The assessee has remitted payment to its parent company and paid necessary TDS as directed by the Assessing Officer @ 10% on amount remitted to its parent company. However, the assessee has filed an appeal before the ld. CIT(A) under section 248 of the Act and to declare that the assessee is not liable to pay TDS on payment to non-resident. The ld. CIT(A), after considering relevant facts and also analysis of various provisions of the Act, including DTAA between India and Germany, rejected the appeal filed by the assessee and upheld the action of the Assessing Officer on levying 10% TDS payment.
Against the order of the ld. CIT(A), the assessee is in appeal before the Tribunal.
The ld. Counsel for the assessee, referring to the cost sharing agreement between the assessee and its parent company, submitted that the assessee company is one of the pool members of the BASF SE, Germany had entered into cost sharing agreement with its parent company for availing certain common services to be procured and provided by its parent company BASF SE, Germany on cost to cost basis without any mark-up. The ld. Counsel for the assessee has further submitted that its parent company has provided services on cost to cost basis without any mark-up or profit. Therefore, the assessee is not liable to deduct TDS on payment made to its parent company as required under section 195 of the Act, because, there is no income element to the recipient and thus, payments does not taxable in India.
The ld. Counsel for the assessee, by referring audit report issued by Deloitte GmbH dated 18.05.2018 and submitted that the auditor had certified that the services provided by assessee’s parent company is on cost to cost basis as per Cost Sharing Agreement without any mark- up. Therefore, in the absence of any income element in India for non- resident, the question of deduction of TDS does not arise. The Assessing Officer as well as the ld. CIT(A) erred in holding that payment made to non-resident is taxable in India in terms of provisions of section 9(1)(vii) of the Act and DTAA between India and Germany and the assessee is liable to pay TDS. Further, the ld. Counsel for the assessee relied upon plethora of judicial precedence and relevant case law cited in the form of paper book by the assessee are as under: 1. CIT vs. Dunlop Rubber Co. Ltd. (1983) 143 ITR 493 (Calcutta) 2. DECTA vs. CIT (1999) 237 ITR 190 (AAR-N.Delhi) 3. DIT vs. Krupp UdheGMBH [2013] 354 ITR 173 (Bom) 4. AT & S India Pvt. Ltd. ITA 1160 and 2305 of 2013-ITAT Kol 5. DCIT vs. KPMG [2017] 81 taxmann.com 118 (Mumbai) 6. DCIT vs. Ernst & Young P Ltd. 32 ITR(T) 639 (Kolkata) 7. Double Taxation Avoidance Agreement between India and Germany 8. Emersons Process Management vs. Ad. CIT 9. DIT vs.AP Moller Maersk A/s 7. On the other hand, the ld. DR supporting the order of the ld. CIT(A) and submitted that the activities enlisted vide annexure – 2 to 6 of the CSA clearly indicate that the services are of composite in nature comprising of marketing, legal, technical and managerial. Further, from the said agreement, it is clear that the group companies wanted to leverage the subject expertise one entity for the benefit of the other entities. Therefore, any payment made under this agreement would fall within the meaning of technical services as per the Explanation-2 given under section 9(1)(vii) of the Act. Since the nature of the services provided by the parent company comes under FTS as defined under section 9(1)(vii) of the Act and tax has to be deducted under section 195 of the Act while making payment to the non-resident. Since the assessee failed to deduct TDS under section 195 of the Act, the Assessing Officer and the ld. CIT(A) has rightly held that the assessee is liable to pay TDS and therefore, ld. CIT(A)’s order has to be upheld.
We have heard both the parties, perused the materials available on record and gone through the orders of authorities below. The assessee is a member of BASF group and had entered into Cost Sharing Agreement with effect from 1st January, 2010 with its parent company. As per the agreement between the assessee and its parent company, BASF SE, Germany procures and provides certain common services to pool members on cost sharing basis. The agreement further specifies the nature of services to be provided and the manner in which cost should be shared by pool members. The assessee claims that the payment made to its parent company, a non-resident entity is reimbursement of expenses without any mark-up and to this effect, the assessee has filed an audit report of Deloitte GmbH, where, they certified that the services provided by BASF SE, Germany in terms of cost sharing agreement with pool members is on cost to cost basis without any mark-up. The assessee, on the basis of cost sharing agreement and also in light auditor certificate claimed that payment made to non-resident entity is not liable to be taxed in India and consequently, the assessee need not to deduct TDS in India. We find that although the assessee claims to have reimbursed cost incurred by parent company to provide certain common services without any mark- up, the said claim of the assessee was not substantiated. Further, if we go through the cost sharing agreement between the assessee and its parent company, the services to be rendered are in the nature of composite services and from the said agreement, it is difficult to ascertain whether they are in the nature of ‘fee for technical services’ or only reimbursement of cost. Although, the assessee strongly relied upon the certificate issued by the Deloitte GmbH and contended that the payment made to the non-resident is only cost incurred by the parent company without any mark-up, which was not supported by any evidence. Therefore, we are of the considered opinion that the issue needs to be re-examined in light of various averments including cost sharing agreement, certificate issued by the Deloitte GmbH and the provisions of section 9(1)(vii) of the Act read with DTAA between India and Germany. Further, similar issue was considered by the Mumbai Benches of the ITAT in assessee’s group company in the case of BASF India Ltd. v. DCIT(IT) [2019] 102 taxmann.com 133 (Mumbai – Trib.), in an identical set of facts, set aside the issue to the file of the Assessing Officer to re-examine various evidences filed by the assessee and relevant findings are reproduced as under: 8. We have considered rival submissions and perused materials on record. We have also applied our mind to the decisions relied upon. The dispute in the present appeal arise out of rejection of assessee's application made under section 195(2) of the Act requesting for no deduction of tax at source on remittances to be made. The Assessing Officer has rejected the aforesaid applications filed by the assessee on the ground that services rendered by BASF SE to whom remittances were to be made are in the nature of fees for technical services. However, the aforesaid order passed by the Assessing Officer is cryptic and bereft of reasoning. The Assessing Officer has not stated on what basis he considers the nature of payment to be made is fees for technical services. It is also not known whether before treating the nature of payment as fees for technical services the Assessing Officer has properly examined the cost sharing agreement, the nature of services provided and other relevant factors including the relevant provisions under the India Germany DTAA. While deciding the appeals of the assessee, the learned Commissioner (Appeals) has upheld the orders passed by the Assessing Officer for the following reasons:- i) Invoice dated 17.12.2012, raised by BASF SE on the assessee does not refer to cost sharing agreement dated 25.05.2000. ii) Services to be rendered under the cost sharing agreement are in the nature of fees for technical services. iii) Cost sharing agreement was executed in the year 2000, whereas, the assessee became party to the agreement in the year 2010. Thus, when the assessee prior to 2010 did not making any remittances for availing such services there is no need to do so now unless the assessee avails services in the nature of fees for technical services.
9. As regards the allegation of the learned Commissioner (Appeals) that the invoice raised by the BASF SE dated 17th December 2012, does not refer to the cost sharing agreement, we find such allegation to be factually incorrect. Perusal of the said invoice, a copy of which is placed at Page-46 of the paper book, clearly reveals that it refers to the cost sharing agreement dated 25th May 2000.
As regards the observations of the learned Commissioner (Appeals) that nature of services rendered is managerial and technical, there is absolutely no reasoning on what basis the learned Commissioner (Appeals) has come to such conclusion. Though, he has stated that such conclusion is arrived at after going through the cost sharing agreement, however, the order passed by the learned Commissioner (Appeals) does not reveal whether he has examined and analyzed the nature of services rendered by the pool members to term the payment made as fees for technical services. Further, only because the assessee became party to the agreement in December 2010, it cannot be said that the payment made by the assessee for services are in the nature of fees for technical services. It is necessary to observe, the assessee has furnished before us a number of documentary evidences, some of which for the first time by way of additional evidences, to demonstrate that the payment made to BASF SE is actually relating to services rendered by different pool members on cost to cost basis without any mark-up. Learned Sr. Counsel for the assessee with the aid of the aforesaid documentary evidences had attempted to demonstrate that services were not rendered by BASF SE but by pool members, hence, remittances to BASF SE does not require deduction of tax at source under section 195(1) of the Act. In our view, before concluding that the remittances are in the nature of fees for technical services and chargeable to tax at the hands of the recipient in India, all necessary and relevant documents including the cost sharing agreement, the auditor's report as well as other additional evidences filed by the assessee before us needs to be properly analysed and examined. Further, contention of learned Sr. Counsel that BASF SE having not rendered any services to the assessee, payment made cannot be treated as fees for technical services as per Explanation-2 to section 9(1)(vii) has not been considered by the Departmental Authorities both factually and legally. Further, the contention of the assessee that when another Indian company of BASF group, a party to the same cost sharing agreement has been issued a no deduction certificate under section 195(2) of the Act, why a differential treatment should be meted out to the assessee also needs to be considered with proper reasoning. Since, the aforesaid aspects have not been considered by the Departmental Authorities and many of the documentary evidences were furnished for the first time before us by way of additional evidences and were not before the Departmental Authorities, though we are of the opinion that the additional evidences furnished by the assessee require to be admitted as they will have a crucial bearing for deciding the issue, however, to afford a fair opportunity to the Department to examine such documents, we are inclined to restore the issues raised in the aforesaid grounds to the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee. While doing so, the Assessing Officer must consider the ratio laid down in the decisions to be cited before him.
10. The issue raised in ground no.4, which is common in both the appeals, being consequential to grounds no.1 to 3, we accordingly restore the issue to the Assessing Officer for fresh adjudication depending upon the decision to be taken in respect of issues raised in grounds no.1 to 3.”
In view of this matter and also considering the facts and circumstances of the case and in consistent with the view taken by the Coordinate Benches of the Tribunal, we are of the considered opinion that the issue needs to go back to the Assessing Officer for further verification and accordingly, we direct the Assessing Officer to re- examine the issue of applicability of TDS as per section 195 of the Act on payment made to non-resident and decide the issue in accordance with law.
In the result, all the appeals filed by the assessee are allowed for statistical purposes. Order pronounced on the 21st October, 2022 in Chennai.