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Income Tax Appellate Tribunal, KOLKATA ‘C BENCH, KOLKATA
Before: SRI SANJAY GARG & SRI RAKESH MISHRA
: December 31st, 2024 : January 30th, 2025 PER RAKESH MISHRA, ACCOUNTANT MEMBER:
Both the appeals filed by the Revenue are against the separate orders of the Ld. Commissioner of Income Tax (Appeals)- 22, Kolkata [hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2012-13 dated 29.05.2024, which have been passed against the separate assessment orders u/s 154/201(1)/201(1A) and 201(1)/201(1A) of the Act. As the issues in both the appeals are common, they are being decided vide this common order for the sake of convenience and brevity.
The Revenue is in appeal before the Tribunal raising the following grounds of appeal: 1693/KOL/2024:
“1. Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not considering the fact that the assessee has not deducted the tax deductible u/s 195 of the Income Tax Act, 1961 on any amount payable to Star Consortium Pvt. Ltd., Singapore when the nature of payment was in the nature of consultancy/advisory services and hence taxable as per IT Act 1961 or India Singapore-DTAA.
Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not treating the payment made to the Star Consortium Pvt. Ltd., Singapore as ‘Fees for Technical Services' u/s 9(1)(vii) of the I T Act, 1961 and Article 12 of the India Singapore-DTAA, as the services provided by foreign entity was consultancy in nature.
Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not appreciating that the payment made by the assessee to Star Consortium Pvt. Ltd., Singapore also falls under 'Royalty' in terms of section 9(1)(vi) of the I T Act, 1961 and Article 12 of the India- Singapore DTAA, as the services provided by foreign entity was advisory in nature entailing delivery of a plan to the assessee.
Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not appreciating that the interest is chargeable on the no TDS deduction by the assessee as per order u/s 201(1)/201(1A) of the Act dated 29.03.2019 passed by AO.
Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not providing opportunity to the Assessing Officer for presenting his case and arguments.
Though the tax effect in the instant case which is below the threshold limit for filing further appeal before the Hon'ble ITAT in terms of Circular issued by the CBDT vide nо. 17/2019, аppeal is preferred as the case comes under exceptional clause as mentioned in the sub para I under para 3.1 as mandated by the CBDT vide circular No, 5/2024. 7. The appellant craves the leave to submit/delete/withdraw any other grounds(s) at the time of hearing.” 1694/KOL/2024:
“1. Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not considering the fact that the assessee has not deducted the tax deductible u/s 195 of the Income Tax Act, 1961 on any amount payable to Star Consortium Pvt. Ltd., Singapore when the nature of payment was in the nature of consultancy/advisory services and hence taxable as per IT Act 1961 or India Singapore-DTAA.
Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not treating the payment made to the Star Consortium Pvt. Ltd., Singapore as ‘Fees for Technical Services' u/s 9(1)(vii) of the I T Act, 1961 and Article 12 of the India Singapore-DTAA, as the services provided by foreign entity was consultancy in nature.
Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not appreciating that the payment made by the assessee to Star Consortium Pvt. Ltd., Singapore also falls under ‘Royalty’ in terms of section 9(1)(vi) of the I T Act, 1961 and Article 12 of the India- Singapore DTAA, as the services provided by foreign entity was advisory in nature entailing delivery of a plan to the assessee.
Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not providing opportunity to the Assessing Officer for presenting his case and arguments.
Though the tax effect in the instant case which is below the threshold limit for filing further appeal before the Hon'ble ITAT in terms of Circular issued by the CBDT vide nо. 17/2019, аppeal is preferred as the case comes under exceptional clause as mentioned in the sub para I under para 3.1 as mandated by the CBDT vide circular No, 5/2024. 6. The appellant craves the leave to submit/delete/withdraw any other grounds(s) at the time of hearing.”
Brief facts of the case as per the statement of facts filed before the Ld. CIT(A) are that during the year under consideration i.e. FY 2011-12, the assessee was working as investment banker and strategic management consultant. The assessment in this case was completed u/s 143(3) after obtaining all details of the case and examining relevant facts. The assessee entered into an agreement with Darjeeling Organic Tea Estates P Ltd (DOTEPL) for arranging loan for them and simultaneously entered into agreement with Non-resident M/s Star Consortium Pte Ltd, Singapore so that loan could be arranged taking their services. The loan was in fact arranged by M/s Star Consortium Pte Ltd from foreign establishments and non-resident financiers with their efforts from Singapore. There is no finding that for the finance so arranged, the efforts were taken from India. The AO in the assessment proceedings was satisfied about the payment made to the non-resident M/s Star Consortium Pte Ltd. of Singapore for the services rendered by them from Singapore. There was also no finding and even no whisper that the said company had permanent establishment or any place of business or control or administration in India. Disallowance u/s 40(a)(i) was also not made for non-deduction of tax. However, subsequently the Ld. CIT by applying section 263, cancelled the said assessment and directed the AO to make enquiries with regard to the said payments as to whether the said party had any permanent establishment in India and on various other issues. The AO made consequential assessment wherein the AO has not disallowed the said payment for non-deduction of tax and also did not gave any finding that the assessee should have deducted the tax. The payment was disallowed by treating the same as not genuine. However, the assessee filed an appeal against the order u/s 263 before the ITAT. The ITAT quashed the order of the Ld CIT passed u/s 263 as a result of which the consequential order u/s 143(3)/263 of the IT Act passed by the AO disallowing the payment as not genuine lost its legs to stand upon and was also cancelled by the Ld CIT(A). The only finding of the AO that the payment was not genuine was washed away. There was no second appeal by the department. The copies of the orders referred to above were filed with the Ld. CIT(A). The fact, therefore, remains that the original assessment order has become final wherein there is no finding that the said party Star Consortium Pte Ltd had permanent establishment or that tax should have been deducted at source. It is rather established that the payment was made to the NRI who had no place of business or permanent establishment in India and this was duly accepted in Income tax Assessment. However, before the orders referred to above were passed by the ITAT or by the Ld CIT(A) reversing the order u/s 263 and consequential order u/s 143(3)/263 of the lower authorities respectively, the Ld. AO being ITO, International Taxation, issued show cause notice u/s 201(1) on 12.06.2017 and passed an order u/s 201(1)/201(1A) on 29.03.2019. Aggrieved with the order of the ITO, International Taxation, the assessee filed an appeal before the Ld. CIT(A) who vide order dated 29.05.2024 allowed the appeal by holding that the payment could not be held as royalty under the India-Singapore DTAA and therefore, the payment was not liable to be taxed in India. Aggrieved with the order of the Ld. CIT(A), the revenue has filed the appeal before the Tribunal.
Rival contentions were heard and the record and the submissions made have been examined. At the outset, the Ld. Counsel submitted that the appeal ITA No. 1693/KOL/2024 was not maintainable on account of low tax effect. However, the Ld. DR drew our attention to Circular No. 5/2024 dated 15.03.2024 wherein it is mentioned as under:
1 Monetary limits given in paragraph 4 with regard to filing appeal/SLP shall be applicable to all cases including those relating to TDS/TCS under the Act with the following exceptions where the decision to appeal/file SLP shall be taken on merits, without regard to the tax effect and the monetary limits: I.In respect of litigation arising out of disputes related to TDS/TCS matters in both domestic and International taxation charges:- i. Where dispute relates to the determination of the nature of transaction such that the liability to deduct TDS/TCS thereon or otherwise is under question, or Hence, on account of the fact that the same was covered in the exception, the appeal was taken up for adjudication.
The Ld. AR drew our attention to page 23 of the order of the Ld. CIT(A) related to ground no. 4 to 6 and also drew our attention to para 1.1 of the assessment order. The facts of the case as mentioned in the order u/s 201(1)/201(1A) of the Act of the Ld. AO are as under:
“1. Case History:
1 An information came to the possession of the office of the undersigned that during the period under consideration Le. 2011-12. Shri Hartaj Sewa Singh was working as Investment Banker and Strategic Management Consultant and running a consultancy concern under the name and style of "The Safe Consortium" (hereinafter referred to as "TSC"). It was further found that The Sale Consortium was appointed as Advisors and Facilitators for raising funds for "Darjeeling Organic Tea Estates Pvt. Ltd." (hereinafter referred to as 'DOTEPL) upto a sum of Rs.500 crores on 20.09.2009. The mandate was earlier given for 24 months from the date of signing and later on it was extended upto 30.06.2011 on 10.01.2011. It was also agreed that success fee of 1% of the amount of fund raised shall be payable by the mandator. DOTEPL, to the advisor, TSC.
2 TSC has further appointed Star Consortium Pte Ltd. ", Singapore (hereinafter referred to as 'SCPL') as advisors of TSC for raising of funds for DOTEPL on 09.02.2011 for an initial period of 12 months. In response, Advisory fee of 0.75% of the amount of fund raised for DOTEPI. was to be paid to the advisor, SCPL, by the mandator, TSC.
3 Shri Hartaj Sewa Singh, the assessee, was appointed as Chief Executive Officer of the company, SCPL of Singapore on 15.03.2011 and he has 50% share holding of this company. SCPL. Rest 50% shares are hold by Smt. Mehroo Suri, spouse of the assessee.
4 TSC raised a bill of Rs.93,37,500/- vide its' invoice dated 01.07.2011 in name of the DOTEPL for raising of fund of Rs.93.38 Cr for DOTEPL.
5 SCPL raised a bill of U 1,55,800 vide its' invoice dated 08.07.2011 in the name of TSC for raising of fund for DOTEPL. An amount of U 1,55,800 (equivalent to Rs.80,90,694/- @Rs.51.93) was remitted on 30.03.2012 to the SCPL by the TSC (Prop. Shri Hartaj Sewa Singh) without deduction of tax at source.
6 In the order 143(3) read with section u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as 'Act'), the Assessing Officer has also disallowed the payment made to SCPL by the assessee. Shri Hartaj Sewa Singh, to the tune of Rs.80,43,964/-. A notice u/s 201(1) of the Act was accordingly issued to the assessee in view of non-deduction of tax at source.
The Ld. AO held the assessee in default as per section 201(1) of the Act in relation to the remittance of Rs.80,90,694/- and attributed 55% as the revenue generation in India and allowed an estimated expenditure @ 10% and computed the income tax liability @ 40%.
A perusal of the order of the Ld. AO shows that the Ld. AO after
analysis held in para 4.2.4.1 of his order that in the instant case, the CEO and Director of the SCPL of Singapore has a fixed place of business in India, which is at his disposal in his proprietary concern, TSC located at Kolkata, India. Therefore, based on the above detailed discussions, it was apparent that SCPL has a PE in India and the payment was in the nature of business profit as there was a permanent establishment of SCPL in India. As an alternative argument and in addition to the above, he also held that the payment of Rs.80,90,694/- was royalty on which TDS @ 20% was liable to be made. The Ld. CIT(A) allowed the appeal by holding that neither the recipient/payee had a PE in India nor the payment was in the nature of royalty. The relevant extract from the order of the Ld. CIT(A) is as under: “Ground Nos.4 to 6 relates to the merits of the tax demand u/s 201(1) of the Act. It is noted that the AO has held that the advisory fees paid by the appellant to M/s Star Consortium Pte Ltd was in the nature of royalty u/s 9(1)(vi) of the Act. It is noted that before the AO, the appellant had furnished the TRC of the payer and thus the provisions of DTAA between India and Singapore was to be examined, if beneficial to the appellant. Article 12 of the DTAA between India and Singapore defines royalty as follows:- “3. The term