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Income Tax Appellate Tribunal, “I”, BENCH MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI G. MANJUNATHA
Date of Hearing 19/12/2019 Date of Pronouncement 15/01/2020 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):
These three appeals filed by the assessee are directed against separate, but identical orders of the Ld. Commissioner of Income Tax (Appeals)–22, Mumbai, all dated 01/09/2014 and they pertains to AY’s 2005-06, 2006-07 and 2007-08. Since, the facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed-off by this consolidated order.
ITA.No.7346/Mum/2014:-
The assessee has, more or less raised common grounds of appeal for all three AY’s. Therefore, for the sake of brevity, grounds 2 SGS India Pvt. Limited of appeal filed for AY 2005-06 in is reproduced as under:-
Reassessment Proceedings bad in law 1. On the facts and in the circumstances of the case and in law. the learned Commissioner of Income-tax (Appeals)-22, Mumbai ['CIT (A)'] has erred in rejecting the contention of the Appellant that the reassessment proceedings is barred by limitation.
2. On The facts and in the circumstances of the case and in law, the learned CIT(A) has erred on facts and in law in rejecting the various contentions of The Appellant that the entire reassessment proceedings are bad in law, void ab inito and ought to be quashed.
Disallowance under Section 40(a)(i) of the Income Tax Act 1961 on account of payments towards Inspection. Verification. Testing and Certification Services Reimbursements of expenses. Representation / Co-ordination Services and Training expenses 3. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals ['CIT (A)] has erred in law and on facts in disallowing Rs. 41,44,624 under section 40(a)(i) of the Income Tax Act, 1961 ('Act'} on account of Inspection, Verification, Testing and Certification services ('IVTC').
4. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in law and on feels in disallowing Rs. 1,03,65,755 under section 40(a)(i) of the Ad on account of reimbursement of expenses.
5. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in law and on facts in disallowing Rs. 48,17,732 under section 40(a)(i) of the Act on account of Representation and Co- ordination Service fees.
6. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in law and on facts in disallowing Rs. 5,49,620 under section 40(a)(i) of the Act on account of training expenses.
7. Without prejudice to the above, the Appellant humbly submits that the disallowance if any with respect To payments for IVTC Services, Reimbursements of expenses and Representation / Co-ordination Services made to non-residents on which TDS has not been deducted should be restricted to 30% of The amount payable to non-residents on the basis of the following: a) the amendment to Section 4Q(a)(ia) of The Act, brought by The Finance (No. 2) Act, 2014, should be applied retrospectively from 1 April 2005
3 SGS India Pvt. Limited b) by applying Article 24(3) of India-Swiss Lax treaty, in the event of non- deduction of tax at source while making payment To non-resident, the disallowance should be restricted to 30% of the amount paid from 1 April 2005, Relief Your appellant, therefore, respectfully prays to direct the learned AO to: a) Modify the assessment order to the above extent and b) Grant other relief deemed necessary The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing
3. The first issue that came up for our consideration from ground No.3, 7(a) & 7(b) of assessee appeal is disallowances of IVTC service charges for non deduction of tax at source u/s 195 of the I.T.Act, 1961. The Ld. AR for the assessee, at the time of hearing, submitted that this issue is squarely covered in favour of the assesse by the decision of ITAT Mumbai, ‘I’ Bench in assessee own case for AY 2008-09 to 2011-12 in vide order dated 28/11/2019, where under identical set of facts, the additions made by the Ld. AO has been deleted.
The Ld. DR, on the other hand, fairly accepted that this issue is squarely covered in favour of the assessee by the decision of ITAT, Mumbai ‘I’ Bench in assessee’s own case for AY 2008-09.
We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that disallowances of IVTC service charges u/s 40(a)(i) of the I.T.Act, 1961 for non deduction of tax at source u/s 195 of the I.T.Act, 1961 has been considered by the co-ordinate bench for AY 2008-09 in where under identical set of facts, the Tribunal
4 SGS India Pvt. Limited by following the decision of Hon’ble Bombay High Court, in the case of CIT vs KPMG in dated 24/09/2019 deleted additions made by the Ld. AO towards IVTC charges for failure to deduct tax at source u/s 195 of the I.T.Act, 1961, on the ground that the liability on TDS cannot be fastened on the assessee on the basis of retrospective amendment to the provisions of section 9(1)(vii) of the I.T.Act, 1961. The relevant findings of the Tribunal are as under;-
We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The facts with regard to taxability of FTS u/s 9(1)(vi) in the hands of non-residents in India, even though services were rendered by such non-residents outside India is not disputed, because the law has been amended by the Finance Act, 2010 with retrospective effect from 1976 to the provision of section 9(1)(vii) and amended the definition of FTS and accordingly, even non-residents are liable to pay tax on FTS in India, even though services were rendered in outside India. But, fact remains that whether, the assessee was liable to deduct TDS u/s 195 in a situation, where the non-residents service provider are not liable to tax in respect of FTS u/s 9(1)(vii), at the time of remittance, but became liable to tax by virtue of a retrospective amendment made in the year, 2010 i.e two years after the end of financial year 2007-08 was examined by the courts. We find that the Hon’ble Bombay High Court in the case of CIT vs KPMG in of 2017 had considered identical issue and after considering relevant amendments to provision of section 9(1)(vii) of the I.T.Act, 1961 held that a retrospective amendment cannot fasten obligation to deduct tax when not in force at the relevant time i.e when payment was made. The Hon’ble Court, further held that the party cannot be called upon to perform an impossible Act i.e to comply with the provision, which was not in force at the relevant time. The relevant findings of the Hon’ble Court are as under;- “11. So also, question (ii) as proposed is academic as no occasion to deduct tax at source would arise in the absence of any income in the hands of the service providers outside India in view of Section 195 of the Act. Even otherwise a retrospective amendment cannot cast an obligation to deduct tax when not in force at the relevant time i.e when payment was made. In fact, this court in Commissioner of Income Tax v/s. M/s. NGC Networks (India) Pvt.Ltd (Income Tax Appeal No. 397 of 2005, decided on 29th January, 2018) has held that a party cannot be called upon to perform an impossible act i.e. to copy with the provision which was not in force at the relevant time. Admittedly the Explanation, if applicable is introduced later by a retrospective amendment. Thus, there could be no obligation no deduct tax at source when the payments have been made to the service providers abroad in the 5 SGS India Pvt. Limited absence of a specific provision at the time when the payments were made.”
8. In this view of the matter and respectfully following the decision of Hon’ble Bombay High Court, in the case of CIT vs KPMG, we are of the considered view that no disallowance could be made u/s 40(a)(i), in respect of payments made towards IVTC charges for failure to deduct tax at source u/s 195 of the I.T.Act, 1961, on the basis of retrospective amendment to the provision of section 9(1)(vii) of the I.T.Act, 1961. Hence, we direct the AO to delete additions made towards disallowances of IVTC charges u/s 40(a)(i) of the I.T.Act, 1961.
In this view of the matter and consistent with view taken by the co-ordinate bench, we direct the Ld. AO to delete additions made towards disallowances of IVTC services charges u/s 40(a)(i), for failure to deduct tax at source u/s 195 of the I.T.Act, 1961.
7. The next issue that came up for our consideration from ground No. 4 and 7(b) of assessee appeal is disallowances of reimbursement of expenditure relating to IVTC services rendered outside India by non-resident u/s 40(a)(i) for failure to deduct tax at source u/s 195 of the I.T.Act, 1961. The Ld. AR for the assessee submitted that this issue is also covered in favour of the assessee by the decision of ITAT, Mumbai ‘I’ bench in assessee own case for AY 2008-09 in ITA.No.6974/Mum/2014, for which the Ld. DR fairly accepted that the issue is covered in favour of the assessee.
We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that this issue is also covered in favour of the assesee by the decision of ITAT, Mumbai ‘I’ bench in assessee’s own case for AY 2008-09 in where under identical set of facts, the Tribunal by following the decision of Hon’ble Bombay High Court in the case of CIT vs KPMG (supra) deleted additions made by the Ld. AO. The relevant findings of the Tribunal are as under;-
6 SGS India Pvt. Limited
9. The next issue that came up of our consideration from ground No.2 of assessee appeal is reimbursement of expenses incurred in providing technical services. We find that when payments made for FTS is not liable for disallowances u/s 40(a)(i) of the I.T.Act, 1961 for failure to deduct tax at source u/s 195 of the I.T.Act, 1961, then the consequent reimbursement of expenses in relation to providing said technical services cannot be disallowed u/s 40(a)(i) of the I.T.Act, 1961, for failure to deduct tax at source u/s 195 of the I.T.Act, 1961. Therefore, by respectfully following the decision of Hon’ble Bombay High Court in the case of CIT vs KPMG, we direct the AO to delete additions made towards reimbursement of expenses u/s 40(a)(i) of the I.T.Act, 1961.
In this view of the matter and consistent with view taken by the co-ordinate bench, we direct the Ld. AO to delete additions made towards disallowances of reimbursement of expenditure relating to IVTC services.
The next issue that came up for our consideration from ground No. 5 of assessee appeal is disallowances of representation/co- ordination services fees u/s 40(a)(i), for failure to deduct tax at source u/s 195 of the I.T.Act, 1961. The Ld. AR for the assessee submitted that this issue is also covered in favour of the assessee by the decision of ITAT, Mumbai ‘K’ bench, in assessee’s own case for AY 2008-09 in for which the Ld. DR fairly accepted that the issue is covered in favour of the assesse.
We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal for AY 2008-09 and after considering relevant facts held that payment made towards representation/co-ordination services fee cannot be subjected to TDS provisions, consequently additions
7 SGS India Pvt. Limited cannot be made u/s 40(a)(i) of the I.T.Act, 1961. The relevant findings of the Tribunal are as under;-
8. We have heard rival contentions and perused the material available on record. As could be seen, the Assessing Officer has disallowed various payments under section 40(a)(i) on the reasoning that such payments are in the nature of FTS as per the definition of FTS in the relevant tax treaties as well as under section 9(1)(vii) of the Act. However, as far as payment made towards WAN services is concerned as could be seen from the order of the AAR in case of SGS, Geneva, in AAR no.912 of 2013, dated 14th May 2015, it has been held that such services are not in the nature of technical services or royalty. The AAR has held that since such payments are not in the nature of royalty or FTS they are not chargeable to tax in India either under the Act or under the DTAA. Similarly, as far as the payment made towards representation service is concerned, the AAR in the very same order has held that such payments are not towards FTS or royalty. Hence, not taxable under the Act or DTAA. In view of such decision of the AAR as referred to above, the payment made towards WAN services and representation services cannot be subjected to TDS provisions. Therefore, disallowance made of such expenditure for non– deduction of tax cannot be sustained as there is no requirement for assessee to deduct tax at source while making such payments. As far as the payment made towards IVTC is concerned, nothing has been brought to our notice to conclusively prove that such services are not in the nature of technical services. The assessee has also failed to prove that such income does not accrue or arise in India. Therefore, we are not inclined to accept the arguments of the assessee that payment made are not in the nature of FTS, hence, no TDS was required. However, we agree with the conclusion of the learned Commissioner (Appeals) that the disallowance under section 40(a)(i) as per Article–21(1) of the India Switzerland DTAA has to be restricted to the amount actually paid during the relevant previous year. At this stage, it needs to be mentioned, the assessee has made a without prejudice submission that as per Article 24(3) of the treaty disallowance on account of non–deduction of tax should be restricted to 30% of the amount paid, which is the quantum of disallowance applicable to domestic transactions as per section 40(a)(ia). It is submitted, the amendment to section 40(a)(ia) restricting disallowance to 30% of the amount paid should be made applicable retrospectively, since, it is clarificatory in nature. We are afraid, the contention of the assessee cannot be accepted. In our considered opinion, the amendment to section 40(a)(ia) brought by Finance Act, 2014, restricting the disallowance to 30% of the amount paid is substantive and not clarificatory, hence, will have no retrospective operation. Grounds no.1 to 4 are partly allowed.
8 SGS India Pvt. Limited
In this view of the matter and consistent with view taken by the co-ordinate bench, we direct the Ld. AO to delete additions towards disallowances of representation/co-ordination services u/s 40(a)(i) of the I.T.Act, 1961 for non deduction of tax at source u/s 195 of the I.T.Act 1961.
The next issue that came up for our consideration from ground No.6 of assesee appeal is disallowances of training charges u/s 40(a)(i) of the I.T.Act, 1961. We find that this issue is also covered in favour of the assesee by the decision of ITAT, Mumbai ‘I’ Bench in assessee own case for AY 2009-10 in IT(TP)A.No. 2512/Mum/2017, where under identical set of facts, the Tribunal by following the decision of Hon’ble Bombay High court, in the case of CIT vs KPMG (supra) held that a party cannot be called upon to perform an impossible act, i.e to comply with the provision, which was not in force at the relevant time. Consequently, there could be no obligation to deduct tax at source, when the payments have been made to the service providers outside India, in absence of a specific provision at the time, when the payments were made and hence, the said payments cannot be disallowed u/s 40(a)(i) of the Act, for non deduction tax at source u/s 195 of the I.T.Act, 1961. The relevant findings of the Tribunal are as under;-
The next issue that came up for our consideration from ground No.4 of assessee appeal is disallowances of training charges u/s 40(a)(i), for failure to deduct tax at source u/s 195 of the Act, 961. The assessee claims that training rendered outside India by nonresidents are not liable to TDS in India, when payments were made although, the said provisions have been retrospectively amended by the Finance Act, 2010 w.e.f financial year 1976. We find that an identical issue had been considered by us, in light of amended provision of section 9(1)(vii) of the I.T.Act, 1961 by the Finance Act , 2010 with retrospective effect from 1976 and by following the decision of Hon’ble Bombay High Court, in the case of CIT vs KPMG. (supra) held that a party cannot be called upon to perform an impossible Act i.e to comply with the provision, which was not in force
9 SGS India Pvt. Limited at the relevant time. Consequently, there could be no obligation to deduct tax at source, when the payments have been made to the services providers outside India, in the absence of a specific provision at the time, when the payments were made and hence, the said payments cannot be disallowed u/s 40(a)(i) of the I.T.Act, 1961 for failure to deduct tax at source 195 of the I.T.Act, 1965. Therefore, consistent with view taken by the coordinate bench in assessee own case, we are of the considered view that there cannot be any disallowances of training charges u/s 40(a)(i) of the act, for failure to deduct tax at source u/s 195 of the Act, and hence, we direct the AO to delete additions made towards disallowances of training charges u/s 40(a)(i) of the I.T.Act, 1961.
14. In this view of the matter and consistent with view taken by the co-ordinate bench, we direct the Ld. AO to delete additions made towards disallowances of training charges u/s 40(a)(i) of the I.T.Act, 1961.
The next issue that came up for our consideration from ground No.7 of assessee appeal is restriction of disallowances of IVTC service, reimbursement relating to IVTC services and training charges to 30% of amounts paid during the financial year and balance amount payable is not liable for disallowances. We find that this issue is covered against the assessee by the decision of ITAT Mumbai ‘I’ bench in assesee own case for AY 2009-10 in IT(TP) No. 2512/Mum/2017, where the issue has been decided against the assessee by observing as under:-
16. Having considered arguments of both the sides, we find that the Tribunal had decided issue against the assessee, in light of Article 24(3) of the treaty and also, amended provision of section 40(a)(ia) of the I.T.Act, 1961 and held that the amendment to section 40(a)(ia) brought by the finance Act,2014, restricting the disallowances to 30% of the amount paid is substantive and not clarificatory, hence, will have no retrospective operation. Therefore, consistent with view taken by the coordinate bench in assessee’s own case, we reject ground taken by the assesee.
In this view of the matter and consistent with view taken by the co-ordinate bench, we reject ground taken by the assessee.
10 SGS India Pvt. Limited
In the result, appeal filed by the assesee for AY 2005-06 is partly allowed.
ITA No’s.7437/Mum/2014 & 7438/Mum/2014:-
The facts and issues involved in these two appeals up to ground No. 7 are identical to the facts and issues, which we had considered in AY 2005-06. The reasons given by us in preceding paragraphs ITA.No. 7436/Mum/2014 shall mutatis mutandis apply to this appeal as well for ground No.1 to 7. Therefore, for similar reasons recorded in preceding paragraphs in we direct the Ld. AO to follow the directions given by the Tribunal in respective ground of appeal for Asst. year 2005-06 and decide the issue for the year under consideration.
19. The next issue that came up for our consideration from ground No. 8 and 9 for AY 2007-08 is short credit for TDS on the basis of revised return of income filed by the assesee. We find that credit for TDS shall be allowed, as per details of proof of tax paid by the assesee including TDS credit available if any. Therefore, we direct the Ld. AO to allow credit for TDS as per details filed by the assessee on the basis of revised return of income filed for the year.
In the result, appeals filed by the assesse for AY 2006-07 and 2007-08 are partly allowed.
11 SGS India Pvt. Limited
As a result, all appeals filed by the assesee are partly allowed.
Order pronounced in the open court on this 15 /01/2020