ACIT CIR 11(3)(1), MUMBAI vs. TOTAL OIL INDIA P. LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “I”, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, HON'BLE ACCOUNTANT MEMBER

ITA Nos. 1877 & 1878/MUM/2018 (A.Ys. 2013-14 & 2014-15) M/s. Total Oil India Pvt. Ltd., v. Asst. Commissioner of Income-tax Circle – 11(3)(1) 3rd Floor, The Leela Galleria Aayakar Bhavan, M.K. Road Andheri Kurla Road, Andheri (E) Mumbai – 400 020 Mumbai – 400 059 PAN: AAACE2175M (Appellant) (Respondent)

ITA Nos. 2127 & 2128/MUM/2018 (A.Ys. 2014-15 & 2013-14) Dy. Commissioner of Income-tax v. M/s. Total Oil India Pvt. Ltd., Circle – 11(3)(1) 3rd Floor, The Leela Galleria Room No. 204, 2nd Floor Andheri Kurla Road, Andheri (E) Aayakar Bhavan, M.K. Road Mumbai – 400 059 Mumbai – 400 020 PAN: AAACE2175M (Appellant) (Respondent) Assessee by : Shri Niraj Sheth Department by : Shri Avaneesh Tiwari

Date of Hearing : 06.11.2019 Date of Pronouncement : 10.01.2020

2 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., O R D E R PER C.N. PRASAD (JM) 1. These cross appeals are filed by the assessee and revenue against the order of the Ld. Commissioner of Income-tax (Appeals) – 55, Mumbai [hereinafter for short “Ld. CIT(A)”] dated 02.01.2018 for the A.Ys.2013-14 and 2014-15.

3 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., 2.4. in disregarding the order of the Commissioner of Income tax (Appeals) dated 18 March 2013 for AY 2008-09 in Appellant's own case wherein the issue in respect of allowability of demurrage charges has been decided in favour of Appellant. 3. Non grant of credit of taxes deducted at source of INR 672 Based on the facts and in the circumstances of the case and in law, the Appellant ought to be allowed credit of taxes deducted at source amounting to INR 672 4. Levy of interest under section 234D of INR 22,47,064 Based on the facts and in the circumstances of the case and in law, the interest levied under section 234D amounting to INR 22,47,064 ought to be deleted.”

4 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., claimed by the assessee following the decision of the Hon'ble Bombay High Court in the case of CIT v. Dempo and Co. Pvt Ltd., [381 ITR 303].

5 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., any element of income. Accordingly, it is not liable to tax in India. Once, the amount is not liable to tax in India, there is no liability on the appellant to deduct taxes u/s 195 as held by Supreme Court in GE Technology Centre vs CIT 1(327 ITR 456) (SC)] and Transmission Corporation (supra). On the other hand, the AO has held the amount to be in the nature of FTS and hence liable to tax in India u/s 9(I) (vii) of the Act mandating deduction of tax from this amount u/s 195. The first issue which arises for determination is whether the amount can be treated as pure re-imbursement or FTS. 8.2.1 The appellant has reimbursed demurrage charges to TOTSA Total Oil ('TOTSA'). Such charge were payable by the appellant to the ship owners and/ or port authorities on account of delay in discharge of cargo However, as a matter of convenience, the payment was made by TOTSA and recharged from the appellant. This is a back to back payment without rendering technical. managerial or consultancy service. It is seen that the Assessing Officer, I any description of service rendered (if an)), held the payment to be in the nature of FTS. As there is no service rendered, there is no question of branding the payment as FTS. The action of the AO is not found to be correct. 8.2.2 The claim of the appellant that the amount represents pure reimbursement of expenses has also been examined and is not found to be in order. This is not reimbursement of a cost incurred by TOTSA. I lad TOTSA incurred certain expenses with reference to the appellant, for example, stay arrangements for appellant's employees etc. these would have been accepted as pure cost reimbursement. However, in the present case, a payment was due to slime third parties (ship owners or port authorities) and the payment was to be made by the appellant. This payment has been made by TOTSA and subsequently recharged. "Ibis is nor pure cost reimbursement. This is payment on behalf of the appellant. Hence, for the purpose of examination limn the angle of deduction of TDS u/s 195, it is the payment to the third party which needs to be examined and not payment to TOTSA. If the appellant, while making payment to the third parties, was liable to deduct IDS, such liability cannot be waived merely by routing the payments through a related foreign party. In all its submission, the appellant has merely harped on the character of payment made by it to its associate without discussing whether the amount, with reference to the actual beneficiary represented a sum having income component in it. 8.2.3 Demurrage is paid to the ship owner on account of delay caused to his ship due to delay in loading or unloading for which his ship has to berth in die harbour for a longer period.

6 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., Demurrage may also be charged by pod authorities to the ship owner or the party whose goods are being unloaded. Generally, demurrage partakes the character of freight and is liable to tax in the country where the port, where demoage has been levied, is situated. It has been ascertained that the demurrage above has been paid in respect of Indian ports and the shipping lines involved are foreign ship owners. Freight income generated in India is a taxable income under Income Tax Act and hence, any payment of freight to a non-resident will invite TDS u/s 195. Generally, freight income of non- residents visiting Indian ports is governed by section 172 and hence, if the ship owner has paid taxes u/s 172, then the provisions of section 195 will not apply. However, most of the time, while the actual freight is covered by section 172 by the nonresident, the demurrage charges are not included as they are raised subsequent to the leaving of the port and are charged separately from the clients. 8.3 The present ease represents a similar scenario where the invoice for the demurrage has been raised separately. Clearly, the non-resident ship owner has not included this amount while paying taxes u/s 172. Hence, had the appellant paid the demurrage amount directly to the ship owner, he was liable to deduct taxes u/s 195. If TOTSA made a payment on behalf of the appellant, then TOTSA should have made a payment net of taxes and the appellant should have deposited the requisite tax to Indian Tax authorities. The liability to deduct tax cannot be waived merely by routing payments through a third party. All the judicial precedents cited by the appellant relate to cases where there has been a cost reimbursement. The situation is entirely different here. It is a case of payment of an amount taxable in India by TOTSA on behalf of the appellant and hence the liabiliy cast on the appellant should have been followed. 8.4 It is seen that in the preceding year, the lid CET(A) has accepted the incorrect pica of the appellant that the amount represents reimbursement without realizing that it is a payment to a third party on behalf of the appellant and hence the onus cast on the appellant to deduct TDS does not get discharged. 8.5 As regards the taxability of denim-rage charges, there is hardly any dispute that these are in the nature of freight and hence liable to tax. In n recent case, the Bombay High Court in the case of Orient (Goa) (P) ltd., [2009) 185 Taxman 131 (Bom) has held the amount to be disallowable under section 40(a)(i) if no TDS has been deducted under section 19B. While ruling on the issue of deduction u/s 195 and applicability

7 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., of section 40(a) (i) to the demurrage charges, the Court held that; "12. Having considered the submissions of the learned Counsel appearing for the parties, in our view, the facts of the present case, are governed by section 40(a)(i) of the Act 1961. Order passed by the Assessing Officer, in our view, is legal, proper and in accordance with the Scheme of Act 1961. In view of which we have taken in the matter, the appeal deserves to be allowed by quashing and setting aside the Order passed by the learned Commissioner of Income Tax (Appeals) dated 28- 8-2002 and the Order passed by the Income-tax Appellate Tribunal, Panaji dated 2-12-2004. The same are, accordingly, quashed and set aside and the Order passed by the Assessing Officer stands upheld. Appeal is, accordingly, allowed and disposed of with no order as to costs." 8.6 In light of the fads narrated above, the action of the AO in disallowing the expenditure u/s 40(a)(i) is upheld and the ground raised by the appellant is dismissed.” 8. On appraisal of the above said finding, we noticed that the matter of controversy has been decided by the CIT(A) on the basis of decision of Bombay High Court in the case of Orient (Goa) (P) ltd., [20091 185 TaX 111311 131 Bombay. But the situation has been changed now specifically in view of the decision of Bombay High Court in the case of CIT Vs. Dempo and Co. P. Ltd. (381 ITR 303). The relevant finding has been given in para no. 46 to 54 which is hereby reproduced as under.: - “46. A bare perusal thereof would indicate as to how this provision covers the case of an assessee who is a non- resident and engaged in the business of operation of ships. That stipulates a sum equal to 7½% of the aggregate of the amount specified in sub-section (2) of section 44B as deemed to be profits and gains of such business chargeable to tax under the head "Profits and Gains of Business or Profession". It is the explanation which refers to the demurrage and for the purpose of sub-section (2) of SRP 62/79ITXA989.15.doc section 44B. It clarifies that the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature shall for the purposes of sub-section (1) deemed to be the profits and gains of the business, namely, shipping business chargeable to tax under that head. The amounts which are paid or payable whether in or out of India to the assessee or to any person on his behalf on account of carriage of passengers, livestock, mail or goods

8 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., shipped at a port in India and the amount received was deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India shall be deemed to be the profits and gains. On that the tax is payable by virtue of subsection (1) of section 172. That has to be levied and recovered in terms of the sub-sections of section 172 of the Income Tax Act. Once section 172 falls in Chapter XV titled as Liability in Special Cases - Profits of Non-residents, then section 172 is referable to section 44B. Both provisions open with a nonobstante clause and whereas section 44B enacts special provisions for computing profits and gains of shipping business in case of non-residents section 172 dealing with shipping business of non-residents is SRP 63/79ITXA989.15.doc enacted for the purpose of levy and recovery of tax in the case of any ship belonging to or chartered by a non-resident operated from India. These sections and particularly section 172devise a scheme for levy and recovery of tax. The sub-sections of section 44B denote as to how the amounts paid to or payable would include demurrage charges or handling charges or any other amount of similar nature. The sub-sections of section 172 read together and harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered. Therefore, there is no warrant in applying the provisions in chapter XVII for collection and recovery of the tax and its deduction at source vide section 195. 47. To our mind, the Division Bench judgment in Commissioner of Income-tax vs. Orient (Goa) Pvt. Ltd. seen in this light does not, with greatest respect, take into account the scheme and setting as understood above. There need not be apprehension because there is no escape from the levy and recovery of tax. The tax has to be levied and collected. The ship cannot leave the port or if allowed to leave any port in India, it must either pay or make arrangement to pay the tax. Hence, the apprehension of SRP 64/79 ITXA989.15.doc avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business. 48. The resident assessee contended before the Division Bench in Orient (Goa) (supra) as well as the Division Bench which made the referring order that section 172 of the Income Tax Act has a bearing and an important one on the obligation to deduct tax at source.

9 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., Therefore, it is the recipient's position and the perspective in which the recipient's income would be taxed will have to be borne in mind. The non-resident shipping company in respect of it's income would be in a position to rely upon section 44B and consequently section 172. However, we do not see how there is an obligation to deduct tax at source on the resident assessee/Indian company before us. While computing the income of the non-resident Indian / foreign company, assistance can be derived by such non-residents from section 44B if they are in shipping business. It would also be in a position to rely upon section 172 but the responsibility of the person making payment to a non-resident in sub-section (1) of section 195 cannot be SRP 65/79 ITXA989.15.doc avoided in the manner set out in other cases. The scheme as above operates only to cases covered by section 172 of the IT Act and none else. 49. The term "non-resident" means a person who is not a resident as per section 2(30) of the Income Tax Act and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily a resident within the meaning of clause (6)of section 6. The term "person" includes an individual, a HUF, a company, firm and every artificial juridical person not falling within any of the preceding sub-clauses of clause (31) of section 2. By section 2(23A), a foreign company is defined to mean a company which is not a domestic company. Hence, any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act not being income chargeable under the head "Salaries", would have to deduct the tax thereon at the rates in force. 50. The view that we are taking is based on the enunciation and exposition of law by the Hon'ble Supreme Court of India, firstly in SRP 66/79 ITXA989.15.doc the case of Union of India vs. Gosalia Shipping (PVT.) Ltd. reported in (1978) 3 SCC 23 . Insofar as section 172 of the IT Act as it stood then, its ambit and scope, the Hon'ble Supreme Court of India held as under:- "..... 3. Section 172 occurs in Chapter XV which is entitled "Liability in special cases" and the sub-heading of the section is "Profits of non- residents from occasional shipping business". It creates a tax liability in respect of occasional shipping by making a special provision for the levy and recovery of tax in the case of a ship belonging to or chartered by a non-resident

10 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., which carries passengers, livestock, mail or goods shipped at a port in India. The object of the section is to ensure the levy and recovery of tax in the case of ships belonging to or chartered by nonresidents. The section brings to tax the profits made by them from occasional shipping, by means of summary assessment in which one-sixth of the gross amount received by them is deemed to be the assessable profit. Before the departure of the ship, the master of the ship has to furnish to the Income-tax Officer a return of the full amount paid or payable to the owner or charter on account of the carriage of passengers, goods etc., shipped at the port in India since the last arrival of the ship at the port. In the event that, to the satisfaction of the Income-tax Officer, the master is unable so to do, he has to make satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf. A port clearance cannot be granted to the ship until the tax assessable under the section is duly paid or satisfactory arrangements have been made for the payment thereof. 4. The assessee in this case is the Aluminium Company of Canada which had time - chartered the ship and on whose behalf its shipping agent, the respondent, had executed the guarantee bond. Since the Company is a non-resident and the ship carried goods which were shipped at a port in India, the conditions specified in subsection (1) are satisfied and the provisions of Section 172 will apply for the purpose of levy of tax, notwithstanding anything contained in the other provisions of the Income-tax Act. 5. The charging provision is contained in sub-section (2) of Section 172, the relevant part of which provides that where a ship belonging to or chartered by a non-resident carries goods shipped at a port in India, one-sixth of the amount paid or payable "on account of such carriage" to the owner or the charterer or to any person on his behalf shall be deemed tobe income accruing in India to the owner or charterer on account of such carriage. The ship was delivered to the time- charterers at Betul, Goa, whereupon they loaded it with their own goods to the fullest capacity of the ship. Under the charter-party, the charterers had agreed to pay to the owners of the ship a sum of 4.50 U. S. dollars per ton on the total dead weight carrying capacity, per calendar month, commencing on and from the date of the delivery of the ship. The short question for consideration is whether the amount which the time-charterers had agreed to pay to the owners of the ship was payable "on account of" the carriage of goods.....”

11 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., 51. Similarly, in the case of A. S. CLITTRES D/5 I/S GARONNE AND OTHERS vs. COMMISSIONER OF INCOME TAX, KERALA-II reported in (1997) 9 SCC 546 , once again, after reproduction of section 172 of the IT Act, the Hon'ble Supreme Court of India SRP 68/79ITXA989.15.doc explained the scheme of the section in the following words:- "7. The Scheme of Section 172 of the Act appears to be this: Section 172(1) of the Act gives a right to the Income Tax Officer to levy and recover tax in the case of any ship belonging to a non-resident, in a summary manner, (ad hoc assessment) notwithstanding anything contained in the other provisions of the Act. It is an absolute right conferred on the assessing authority. The assessee has no right to object to the same. Normally, this will be assessment of the assessee for the year. But, under Section 172(7) of the Act a right is given to the assessee to claim before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment, according to the provisions of the Act, in a regular manner be made. Thus, a right is given to the assessee to opt for a regular assessment although a "rough and ready" or a "summary assessment" has already been made under Section 172(4) of the Act. It is a valuable right. If the assessee exercises the right conferred on him under section 172(7) of the Act, the Income Tax Officer is bound to make an assessment of the total income of the previous year of the assessee and the tax payable on the basis thereof "should be determined in accordance with the other provisions of the Act" and any payment made under the section (earlier) "shall be treated as a payment in advance of the tax" leviable for that assessment year and the difference between the sum so paid and the amount of tax found payable by him on such assessment, shall be paid to the assessee or refunded to him. The "ad hoc" assessment made under Section 172(4) of the Act is superseded and a "regular assessment" is made as per the provisions of the Act. In such a case, it is only proper and appropriate to hold that all "the provisions" of the Act in the determination of the tax liability including the ancillary or incidental or consequential matters pertaining to it are necessarily attracted. 8. Section 172(7) of the Act provides that payment made under the section shall be treated as a payment in advance of the tax leviable for that assessment year. It only means that such payment would be treated as advance of the tax leviable. Such payments are treated on a par with advance income tax payments. It is implicit from the tenor and phraseology employed in Section 172(7) of the Act to the effect, "payment made under the section .... shall be treated as a payment in

12 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., advance of the tax leviable for that assessment year" that in substance, a legal fiction is created by which the payments have been treated as advance tax. That is the purpose for which the legal fiction is created. In construing the said legal fiction, it will be proper and necessary to assume all those facts on which alone the fiction can operate. The law on the point has been stated in innumerable decisions of this Court. In Mond. Iqbal Madar Sheikh v. State of Maharashtra (1996) 1 SCC 722 a three-number Bench of this Court stated the law thus: "..... The effect of a legal fiction by deeming clause is well known. Legislature can introduce a statutory fiction and courts have to proceed on the assumption that such state of affairs exists on the relevant date, because when one is bidden to treat an imaginary state of affairs as real he has to also imagine as real the consequence which shall flow from it unless prohibited by some other statutory provision." (emphasis supplied) So, necessarily all the provisions in the Act in respect of the payment of advance tax will apply. On effecting the regular assessment, if there is any excess payment made by the assessee, then the assessee would be entitled to the excess amount paid and also interest, for payments made in excess of the tax assessed. We are unable to appreciate the distinction drawn by the High Court between "advance tax" and "payment in advance of the tax" Mentioned in Section 172(7) of the Act. We hold that the distinction so drawn has no basis. The High Court has furtehr held that the payment made under Section 172(4) of the Act is not a payment of SRP 70/79 ITXA989.15.doc advance tax within the meaning of the Act, as the tax under Section 172(4) of the Act is a payment on assessment and not a payment of advance tax under the Act. We are afraid that the High Court has failed to give due effect to the language employed in Section 172(7) of the Act and the scope of the legal fiction enshrined therein. The reasoning of the High Court is rather strained as the distinction drawn is without any substance or difference. Section 172(7) of the Act provides for a regular assessment, wherein all the provisions of the Act will apply. It is not a mere provision for adjustment. The High Court was swayed by the title used in the corresponding provision of the predecessor Act (Income Tax Act, 1922 - Section 44-C), wherein there was a heading to the section - "Adjustment". Section 172 of the Act contains no such heading. We hold that the Income Tax Appellate Tribunal was justified in holding that since the payment made under Section 172(4) of the Act is,

13 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., by fiction, treated as advance tax, all the provisions in respect of the advance tax will apply and if on regular assessment made under Section 172(7) of the Act, there is any excess payment made by the assessee, then the assessee would be entitled to it and also interest thereon under Section 214 of the Act. We answer the question referred to the High Court in the affirmative, in favour of the assessees and against the Revenue. ....." 52. Lastly, in the case of GE India Technology Centre Private Limited vs. Commissioner of Income Tax and Anr. reported in (2010) 10 SCC 29 the Hon'ble Supreme Court of India had an occasion to consider the ambit and scope of section 195 of the IT Act. After reproduction of the section, as it stood at the relevant time, the Hon'ble Supreme Court of India held as under:- "6. Under Section 195(1), the tax has to be deducted at source from interest (other than interest on securities) or any other sum (not being salaries) chargeable under the I.T. Act in the case of non-residents only and not in the case of residents. Failure to deduct the tax under this Section may disentitle the payer to any allowance apart from prosecution under Section 276B. Thus, Section 195imposes a statutory obligation on any person responsible for paying to a non- resident, any interest (not being interest on securities) or any other sum (not being dividend) chargeable under the provisions of the I.T. Act, to deduct income tax at the rates in force unless he is liable to pay income tax thereon as an agent. Payment to non- residents by way of royalty and payment for technical services rendered in India are common examples of sums chargeable under the provisions of the I.T. Act to which the aforestated requirement of tax deduction at source applies. 7. The tax so collected and deducted is required to be paid to the credit of Central Government in terms of Section 200 of the I.T. Act read with Rule 30 of the I.T. Rules 1962. Failure to deduct tax or failure to pay tax would also render a person liable to penalty under Section 201 read with Section 221 of the I.T. Act. In addition, he would also be liable under Section 201(1A) to pay simple interest at 12 per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. 8. The most important expression in Section 195(1) consists of the words "chargeable under the provisions of the Act". A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the I.T. Act. For instance, where there is no obligation on the part of the payer and no right to receive the sum by the

14 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., recipient and that the payment does not arise out of any contract or obligation between the payer and the recipient but is made voluntarily, such payments cannot be regarded as income under the I.T. Act. contemplates not merely amounts, the whole of which are pure income payments, it also covers composite payments which has an element of income embedded or incorporated in them. Thus, where an amount is payable to a non-resident, the payer is under an obligation to deduct TAS in respect of such composite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the nonresident. This obligation being limited to the appropriate proportion of income flows from the words used in Section 195(1), namely, "chargeable under the provisions of the Act". It is for this reason that vide Circular No. 728 dated October 30, 1995 the CBDT has clarified that the tax deductor can take into consideration the effect of DTAA in respect of payment of royalties and technical fees while deducting TAS. It may also be noted that Section 195(1) is in identical terms with Section 18(3B) of the 1922 Act. 11. While deciding the scope of Section 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle ofSection 195. Hence, apart from Section 9(1), Sections 4, 5, 9, 90, 91 as well as the provisions of DTAA are also relevant, while applying tax deduction at source provisions. 12. Reference to ITO(TDS) under Section 195(2) or 195(3) either by the non-resident or by the resident payer is to avoid any future hassles for both resident as well as non-resident. In our view Sections 195(2) and 195(3) are safeguards. The said provisions are of practical importance. This reasoning of ours is based on the decision of this Court in Transmission Corporation (supra) in which this Court has observed that the provision of Section 195(2) is a safeguard. From this it follows that where a person responsible for deduction is fairly certain then he can make his own determination as SRP 73/79 ITXA989.15.doc to whether the tax was deductible at source and, if so, what should be the amount thereof. Submissions and findings thereon 13 If the contention of the Department that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words "chargeable under the provisions of the Act" in Section 195(1). The said expression in Section 195(1)shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The

15 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., payer is bound to deduct TAS only if the tax is assessable in India. If tax is not so assessable, there is no question of TAS being deducted. [See : Vijay Ship Breaking Corporation and Others Vs. CIT 314 ITR 309] One more aspect needs to be highlighted. Section 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expressions, however, the expression "sum chargeable under the provisions of the Act" is used only in Section 195. For example, Section 194C casts an obligation to deduct TAS in respect of "any sum paid to any resident". Similarly, Sections 194EE and 194F inter alia provide for deduction of tax in respect of "any amount" referred to in the specified provisions. In none of the provisions we find the expression "sum chargeable under the provisions of the Act", which as stated above, is an expression used only in Section 195(1). Therefore, this Court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. 15. Section 195(2) is not merely a provision to provide information to the ITO(TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non-resident. Therefore, Section 195 SRP 74/79 ITXA989.15.doc has to be read in conformity with the charging provisions, i.e., Sections 4, 5 and 9. This reasoning flows from the words "sum chargeable under the provisions of the Act" in Section 195(1). 16. The fact that the Revenue has not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression "sum chargeable under the provisions of the Act" from Section 195(1). While interpreting a Section one has to give weightage to every word used in that section. While interpreting the provisions of the Income Tax Act one cannot read the charging Sections of that Act de hors the machinery Sections. The Act is to be read as an integrated Code.

16 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., 17. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of C.I.T. Vs. Eli Lilly & Co. (India) (P.) Ltd. [312 ITR 225] the provisions for deduction of TAS which is in Chapter XVII dealing with collection of taxes and the charging provisions of the I.T. Act form one single integral, inseparable Code and, therefore, the provisions relating to TDS applies only to those sums which are "chargeable to tax" under the I.T. Act. It is true that the judgment in Eli Lilly (supra) was confined to Section 192 of the I.T. Act. However, there is some similarity between the two. If one looks at Section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income "chargeable under the head salaries". Similarly, Section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any sum "chargeable under SRP 75/79 ITXA989.15.doc the provisions of the Act", which expression, as stated above, do not find place in other Sections of Chapter XVII. It is in this sense that we hold that the I.T. Act constitutes one single integral inseparable Code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the I.T. Act. 18. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the I.T. Act by which a payer can obtain refund. Section 237 read with Section 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the "appropriate proportion of such sum so chargeable" where a proportion of the sum so chargeable is liable to tax. 19. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation.

17 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., According to the Department huge seepage of revenue can take place if persons making payments to non-residents are free to deduct TAS or not to deduct TAS. It is the SRP 76/79ITXA989.15.doc case of the Department that Section 195(2), as interpreted by the High Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the ITO(TDS) of payments made to nonresidents. In other words, according to the Department Section 195(2) is a provision by which payer is required to inform the Department of the remittances he makes to the non- residents by which the Department is able to keep track of the remittances being made to non-residents outside India. 20. We find no merit in these contentions. As stated hereinabove, Section 195(1) uses the expression "sum chargeable under the provisions of the Act." We need to give weightage to those words. Further, Section 195 uses the word `payer' and not the word "assessee". The payer is not an assessee. The payer becomes an assessee-in-default only when he fails to fulfill the statutory obligation under Section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee in- default. 21. The abovementioned contention of the Department is based on an apprehension which is ill founded. The payer is also an assessee under the ordinary provisions of the I.T. Act. When the payer remits an amount to a non-resident out of India he claims deduction or allowances under the Income Tax Act for the said sum as an "expenditure". Under Section 40(a)(i), inserted vide Finance Act, 1988 w.e.f. 1.4.89, payment in respect of royalty, fees for technical services or other sums chargeable under the Income Tax Act would not get the benefit of deduction if the assessee fails to deduct TAS in respect of payments outside India which are chargeable under the I.T. Act. This provision ensures effective compliance of Section 195 of the I.T. Act relating to tax deduction at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the I.T. Act. In a given case where the payer is an assessee he will definitely claim deduction under the I.T. Act for such SRP 77/79ITXA989.15.doc remittance and on inquiry if the AO finds that the sums remitted outside India comes within the definition of royalty or fees for technical service or other sums chargeable under the I.T. Act then it would be open to the AO to disallow such claim for deduction. Similarly, vide Finance Act, 2008, w.e.f. 1.4.2008 sub-Section (6) has been inserted in Section 195 which requires the payer to furnish information

18 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from 1.4.2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage." 53. In the view that we have taken, it is not necessary to refer the judgment of a Division Bench of the Delhi High in the case of Emirates shipping Line, FZE vs. Assistant Director of Income Tax reported in (2012) 349 ITR 493 . Suffice it to note that the view taken by the Division Bench and particularly in paras 17 and 18 of this judgment accords with the conclusion reached by us. 54. The difficulty is presented only when provisions are not read together and harmoniously so also without bearing in mind the setting and placement thereof in the chapters. These chapters of the Income Tax Act cover several aspects in relation SRP 78/79 ITXA989.15.doc to imposition, levy, assessment, collection and recovery of tax on the income specified above. To the extent contrary to above, we overrule the view in Orient Goa's case (supra). The question referred is answered accordingly. Since the question above is referred to us, having answered it, let the Appeals be now listed for hearing before appropriate Division Bench.” 9. On appraisal of the above mentioned finding, we noticed that the earlier finding in the case CIT Vs. Orient (Goa) Pvt. Ltd. has been overruled by this decision, therefore, in view of the decision of Hon’ble High Court in the case of CIT Vs. Dempo (supra), we set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee.”

19 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., Officer with a direction to examine the claim of the assessee and decide in accordance with law.

20 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., of Sections 9(l)(vii) of the Act, before making such payments which it has failed to do so. "4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the decision of the Hon'ble ARR in the case of Verizon Data Services India P. Ltd. (ARR No. 856/2010) and AT & S India P. Ltd. (2006) 287 ITR 421 wherein it was held that the reimbursement is in nature of FTS and the fact that taxes are paid under the head 'Salaries' is of no consequence. 5. The appellant prays that the order of the Ld.CIT(A) on the above grounds be set-aside and that of the A.O be restored.”

21 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., 14. Ld. DR vehemently supported the orders of the Assessing Officer. On the other hand, Ld. Counsel for the assessee supported the order of the Ld.CIT(A).

22 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., 18. Ld. DR vehemently supported the orders of the Assessing Officer.

23 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., The AO has inferred that the employees have been seconded to India for specific purpose and the AEs have retained their rights as an employer over these employees. The right and control to appoint and remove these employees is still vested with the employer which is separate from assessee company and it cannot be said that the payments made by the assessee company to such entities having control over the employees as employers amounts to reimbursement of salaries paid for services rendered in India on which TDS is applicable lids 192. Re AO has claimed that this is a case of dual employment where the appellant is the economic employer and the AEs are legal employer. By sending their employees to India, the AEs arc actually rendering services to the assessee company in India and accordingly, the payments made by the assessee company are in the nature of Fee for Technical Service (FTS). Accordingly, the AO has concluded that TUS ought to have been deducted u/s 195 by the appellant. 9.2 The AO has relied on the decision of AAR in the case of Verizon Data Services India Pvt I.td (AAR No. 865 of 2010), Centrica Offshore Pvt Ltd (AAR No. 856 of 2010) and AT&S India Pvt Ltd [2006) 287 ITR 421 wherein it has been held that reimbursement is in the nature of FTS and the fact that taxes are paid under head 'Salaries' is of no consequence. 9.3 The submission made by the appellant on this issue is summarized as below; 9.3.1 The Appellant had availed services of personnel/employees who were oil payrolls of its Associated Enterprises ('AE'), and in lieu of the same, salary, relocation and other related charges were subsequently recharged (by way of reimbursements) by the AEs to the Appellant. It may be noted that for the purposes of administrative convenience, the employees remained on the payrolls of the AEs and their salary and other related costs were reimbursed by the Appellant to the AEs, instead of paying to the employees. Accordingly, time Appellant had reimbursed a sum of us 6,37,87,105 to its AEs towards salary and related costs of such personnel and Rs 10,09,452 towards relocation expenses. The appellant has contended that it had discharged its TDS obligations under section 192 of the Act on salary amount payable to the employees (paid through the AEs and not to employees directly due to administrative convenience). 9.3.2 The Appellant has contended that the salary, relocation and other related charges paid by way to the AEs had no

24 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., element of mark-up involved (i.e. cost to cost reimbursements). Further, the AEs have merely provided their personnel/ employees to the Appellant no services have been provided by the AEs. Accordingly, in the absence of any services being provided by the ALs there is no question of withholding tax on recharge of the employees' salary costs (on which taxes have been deducted under section 192 of the Act) reimbursed to them on a cost-to-cost basis. 9.3.3 To substantiate that merely the salary costs have been reimbursed by the Appellant to the AEs and that there is no markup clement involved therein, the appellant has referred to clause 1-5 of the Cost Reimbursement Agreement entered into between the Appellant and Total SA wherein it is provided as under 1. Total Petroleum India Private Limited intends to hire personnel of Total SA (hereinafter referred to as expatriates) for the purpose of its business operations in India 2. Total SA has agreed to second the expatriates to Total Petroleum Indio Private Limited for the above said purpose and for the specified period of time 3. For the sake of administrative convenience, Total SA will continue to pay the salary of the expatriates, for and on behalf of Total Petroleum India Private Limited in respect of the services rendered to by the expatriates in India to Total Petroleum India Private Limited 4………… 3. Total Petroleum Indio Private Limited agrees that it shall reimburse/ repay to Total SA the actual cost of reimbursement and other costs related to the Indian assignment incurred by Total SA in respect of said expatriates during the period of their secondment to India. The said reimbursement/ repayment shall be without any markup/ profit" 9.3.4 The appellant has relied on a number of judicial pronouncements. Some of them are: DDIT vs Tekmark Global Solutions LLC (38 SOT 7)(Mum), wherein the Mumbai Tribunal held that personnel deputed to the Indian company worked under the control and supervision of the Indian company and carried out work allotted to them by the Indian company.

25 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., IDS Software Solutions India (P) Ltd vs l'I'0 (122 TTJ 410) (Bang), wherein it was held that Indian Company exercising control and supervision over a seconded employee and bearing the salary cost should be considered as an economic employer and not liable to withhold tax on the reimbursement of the salary to the overseas company. CIT vs 003 Engineers (32 Taxmann.com 271)(Bom) wherein it has been that reimbursement to sister concerns for payment of salaries to their employees as they were deputed to the respondent assessee on an actual basis is not liable to tax in India hence not subject to TDS. Aon Specialty Services Private Limited (ITA No. 1640/ Bang/ 2012) wherein it was held that salary recharge by F Co to I Co would TICA be subject to tax withholding in India as it did not represent income in the hands of the F Co and hence, withholding under section 195 was not applicable. 9.3.5 The appellant has further contended that the learned AO has relied on the decision in the case of Centrica India Offshore Private Limited, without appreciating that the Said decision is not applicable to the facts of the instant ease. In the said decision, it was held that the amounts payable to the foreign entity were taxable as fees for technical services in India, since specified conditions were not satisfied. 9.4 The contention made by the appellant has been examined and the facts of the case have been perused. Perusal of the decisions quoted by the appellant as well as the AO lead to a conclusion that if rendering of service by employees would constitute technical service if the employees work on behalf of the non-resident. If the employees work under the supervision and control of the appellant company, then the service rendered by them cannot be held to be fee for technical service. 9.5 In this regard, the contract entered into by the appellant with the companies deputing then manpower has already been submitted. The appellant has also submitted the letter issued by these companies to their employees who have been deputed to the appellant company. The letter is as reproduced below: This offer letter confirms that you are being assigned by TOTAL RAFFINAGE MARKETING to work as a Managing Director of TOTAL LUBRICANTS India Ltd. You will report to Mr. Christian CHILAMAS of TOTAL Petroleum India Private Ltd or the Board of Directors.

26 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., This assignment is contingent upon your securing and maintaining appropriate work authorization permits and any other authorization required for you to carry out this assignment with TOTAL LUBRICAN7S India Ltd. as required under the laws of Melia Assignment period Your assignment will start from 13m September, 2006 and end on Summer 2010. However, this assignment may be terminated or extended by you or TOTAL LUBRICANTS India Lid. with mutual consent by giving a prior notice of 90 days. Roles and responsibilities 1. You will be released from your duty/job with TOTAL RAFFINAGE M4RICETING while you are assigned to TOTAL LUBRICANTS India Ltd You will work wholly and exclusively for TOTAL LUBRICANTS India Ltd. During your assignment, you will perform such duties as TOTAL LUBRICANTS Ltd directs you to perform from time to time. TOTAL LUBRICANTS India Ltd. shall assume complete responsibility or the work carried out during your Indian assignment. 4. While assigned to TOTAL LUBRICANTS India Ltd you will be required to comply with any local employment regulations established by TOTAL LUBRICANTS India Ltd. at the assignment location. 5. Your performance evaluation will be done by TOTAL LUBRICANTS India Ltd. based on the performance objectives set by your supervisor and the actual results achieved during your assignment. Terms and conditions The remuneration and other benefits that you be authorized during this assignment are specified in your addendum issued to you by TOTAL raffinage MARKETING dated I" September 2006. We wish you good luck on your India assignment 9.6 The secondment letter as reproduced above indicates that during the period of deputation with the appellant company, the AE does not have any control over the non-resident

27 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., employee who is functioning under the control and management of the Indian party. Further, the deputation is not carrying out any activity mandated by the AE or any activity on behalf of the AE. 9.7 In the case of Centrica India, the services were held to be in the nature of FTS on account of following 4) The CIOP and seconded employees were to oversee the quality of service rendered by vendors to the overseas entities, which would fall within the scope of the technical or consultancy services. (5) It was admitted by the petitioner that the reason for entering into the secondment agreement was to provide support for the initial years of operation, till the necessary skills were acquired by the resident employee group; (6) The activity of the secondment was to make available their know-how acquired in the field to the petitioner for future consumption. The skills and knowledge required to ensure that the tasks entrusted were carried out diligently; (7) None of the documents placed on record revealed that the petitioner could terminate the secondment arrangement, there was no entitlement or obligation clearly spelt out whereby the petitioner had to bear the salary cost of these employees. The seondees could not sue the petitioner for default in payment of their salary. 9.7.1 None of conditions mentioned above is found to be existing in the case of the appellant where the employment is a full time employment by the seconded employee. Ile can be removed and his appraisal is done by the appellant company. The payment is made by the AR on account of social benefit issues in the country of their residence but the entire tax on their salary is paid in India and deducted under section 192. 9.8 In light of the facts presented above, it is held that the reimbursement of salary of the seconded employees does not constitute FTS and hence is liable to tax u/s 192 and not section 195. The ground raised by the appellant is upheld and the disallowance u/s 40(a)(i) is directed to be deleted.” 16. On appraisal of the above mentioned finding, we noticed that the employees who were serving in India or deputed in India had already deducted tax at source u/s 192 of the Act. The provision of TDS is not applicable on reimbursement of deputation expenses to foreign AE. The CIT(A) has relied upon the decision in the case of Burt Hill

28 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., Design (P) Ltd. Vs. DDIT (IT) (79 Taxmann.com 459). The facts are not distinguishable at this stage. No law contrary to the law relied by the Ld. Representative of the assessee has been produced before us. In view of the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage.”

29 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., 2.3. in not appreciating the fact that the payments to the non- residents including group entities are pure cost reimbursements and do not contain any service element. 2.4. in disregarding the order of the Commissioner of Income tax (Appeals) dated 18 March 2013 for AY 2008-09 in Appellant's own case wherein the issue in respect of allowability of demurrage charges has been decided in favour of Appellant. 3. Non grant of credit of taxes deducted at source of INR 600 Based on the facts and in the circumstances of the case and in law, the Appellant ought to be allowed credit of taxes deducted at source of INR 600 4. Levy of interest under section 234B of INR 1,01,22,941 Based on the facts and in the circumstances of the case and in law the interest levied under section 234B of INR 1,01,22,941 ought to be deleted.”

30 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., direction to examine the claim of the assessee and decide in accordance with law.

31 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., 4. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the decision of the Hon'ble ARR in the case of Verizon Data Services India P. Ltd. (ARR No. 856/2010) and AT & S India P. Ltd. (2006) 287 ITR 421 wherein it was held that the reimbursement is in nature of FTS and the fact that taxes are paid under the head 'Salaries' is of no consequence. 5. The appellant prays that the order of the Ld.CIT(A) on the above grounds be set-aside and that of the A.O be restored.”

Order pronounced in the open court on the 10th January, 2020

Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 10/01/2020 Giridhar, Sr.PS

32 ITA Nos. 1877, 1878 2127 & 2128/MUM/2018 M/s. Total Oil India Pvt. Ltd., Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.

//True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum