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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri J.Sudhakar Reddy & Shri S.S.Godara
Shri S.K. Agarwal, FCA आवेदक क� ओर से/By Assessee Shri Imlimeren Jamir, Addl. CIT-DR राज"व क� ओर से/By Respondent 22-01-2020 सुनवाई क� तार�ख/Date of Hearing 12-02-2020 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- These three Revenue’s appeals for assessment years 2009-10 to 2011-12 arise against the Commissioner of Income Tax (Appeals)-22, Kolkata’s separate orders; all dated 28.12.2017 passed in case Nos.77, 115 & 161/CIT(A)-22/Kol/2009-10, 2010-11 & 2011-12/2014-15; respectively involving proceedings 143(3) r.w.s. 144C(3)) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file(s) perused.
-405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 2 2. It transpires at the outset that all the issues raised in the instant three appeal(s) are identical. The Revenue’s former substantive grievance seeks to reverse the CIT(A)’s action reversing the Assessing Officer’s findings adding ₹1,72,36,802/-, ₹2,71,38,058/- & ₹2,15,62,990/-; assessment year-wise respectively as taxable in the taxpayer hands on the ground that the assessee had set up its permanent establishment in India. Learned departmental representative has taken pains to file Revenue’s identical submissions as follows:- “The brief facts are that:- • The assessee i.e Gifford & Partners Ltd (since merged with Gifford LLP) entered into a contract with, a foreign company incorporated in the UK, entered into a contract dated 29.09.2004 with Garden Reach Shipbuilding Engineers [GRSE] in India for rendering engineering! supervisory services with regard to modernization of the shipyard of GRSE. These services were to be performed by the assessee in 3 phases and fees for the same were received by the assessee in UOS and partly in Indian rupees. The assessee also engaged the services of third party subcontractors in India and in the UK for execution of the above contract i.s T.K.Roy and Associates and Intercon Maritime Consultants Pvt Ltd in India and Appledore International Ltd in UK. • The assessee filed original return on 23.07.2009 offering total receipts i.e amounts received both in USO and TNR to tax of Rs 1,69,93,127. The assessee subsequently filed revised return of income on 31.03.2011 declaring total income of Rs 20,80,620. • The case was selected for scrutiny vide note issued U/S 143(2) of I.T. Act 1961 on 10.09.2010 and assessment completed U/S 143(3) on 16.02.2012 computing taxable Income at Rs 1,93,21,422. • AO found from the revised computation of income filed by the assessee that the assessee accepts that it has PE in India. This is evident from the revised computation of income submitted by the assessee where it has attributed 10% of total profit from the project for the work done to its PE in India. • Therefore AO held that the issue of existence of PE in India within the meaning of Article 5(I) as well as Article 5(2) of the India-UK Double Taxation Avoidance Agreement (DTAA) for the relevant assessment year is without doubt and settled. • AO found from that the attribution of 10% of total profits to its PE in India is a first and no such stand has been taken by the assessee in the earlier years wherein the total profits for the project work done in India and UK has been considered in the returns. • AO found that the assessee attributed 10% of total profits to its PE in India on account of man-hour basis Le the number of man work- performed in India and UK during the relevant AY. the AO gave assessee opportunity to provide all the relevant documents/evidences in support of its claim but the assessee only submitted a one page submission regarding the detail of the number of time spent by the assessee's employees for the project work done in India and UK. No further details/documents such as the cost/expenditure etc were provided along with the same. • AO found the no separate accounts for the operations in India and in UK have been maintained by the assessee during the relevant AY. The entire expenditure relating -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 3 to the project work has been considered in the profit & loss account of the assessee. No material evidences have been brought on record such as in the form of contract or renewed/revised contract to suggest that the nature of work performed by the assessee for the project in India Le consultancy services for modernization of GRSE during the relevant year under consideration is different from that of earlier assessment years. • Also AO found that the submission by the assessee that the issue of attribution of profits to the PE in India had been taken up in the A Ys 2007-08 and 2005-06 before the AO and Ld DRP was not correct as in none of the orders of both the AO and the Ld DRP, Kolkata has the issue of attribution of profits to the PE in India been mentioned and total profits for the project work been brought to tax in India in both the AYs 2007-08 and 2005-06. REMARKS/SUBMISSIONS: On this issue, it is humble submitted in support of the AO's action, that the additions have been made based on evidences examined by AO during assessment stage and considering the submissions of the assessee.
The Ld CIT(A) erred in merely relying on the order of the Hon'ble ITAT in earlier years in the case of the assessee and holding that the assessee has no PE in India without appreciating that the facts and claims of the assessee are different from the earlier years decided by Hon'ble ITAT. The Ld CIT(A) completely ignored that fact that the assessee itself has submitted that 10% of the total profit has been considered attributable to the work carried out by the PE in India and hence taxable in India. AO found from the revised computation of income filed by the assessee that the assessee accepts that it has PE in India. This is evident from the revised computation of income submitted by the assessee where it has attributed 10% of total profit from the project for the work done to its PE in India. Therefore AO held that the issue of existence of PE in India within the meaning of Article 5(1) as well as Article 5(2) of the India-UK Double Taxation Avoidance Agreement (DTAA) for the relevant assessment year is without doubt and settled. AO found from that the attribution of 10%of total profits in A. Y 2009-10, respectively to its PE in India is a first and no such stand has been taken by the assessee in the earlier years wherein the total profits for the project work done in India and UK has been considered in the returns. In the earlier AYs 2005-06 & 2007-08, deduced in favor of assessee by the Hon'ble IT AT and relied on by the Ld CIT(A) in the instant A. Y, the only stand of the assessee was that it has no PE in India.
2. In page 22 Para 1.4 of Ld CIT(A)'s Order, the assessee submitted before the Ld CIT(A) that that in the revised return of income for A.Y 2009-10, the appellant contended that it does not constitute a PE in India under Article 5 of the DT AA between India and the UK. However, in the Annexure I filed along with the revised return of income which is a statement showing revised computation of total income and tax under the normal provisions of the Act, the assessee has itself worked out the profit attributable to its PE in India. The reason for the same has been mentioned in the Note 1 of the Revised Computation of the Total Income of the assessee, which is as under: "in the instant case, during the year ended 31 March 2009, a major part of the work on the GRSE project was carried out by the assessee in UK while only a relatively small party of the work was done in India. In terms of the time spent on the project, whilst, 1914 man-hours of work was done in UK, only 214 man-hours was spent on the -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 4 project in India, during the year under consideration. As such, based on the said time split, 10% of the total profit has been considered attributable to the work carried out by the PE in India and hence taxable in India." Therefore, it is apparent that the appellant has represented wrong facts to the Ld CIT(A).
3. Article 1.8 of the agreement between the Assessee and GRSE provides for the place in which the services are to be rendered and the same reads as follows: "1.8. LOCATION The services shall be performed at the premises of Garden Reach Shipyard, Kolkata and where the location of a particular task is not so specified, at such locations, as GRSE may approve." Therefore it is clear that services were to be performed only at the premises of Garden Reach Shipyard, Kolkata and where the location of a particular task is not so specified, at such locations, as GRSE may approve. In this regard, no approval letter of GRSE is mentioned in the submissions of the assessee to the effect that GRSE approved for services to be performed from UK. From the submissions of made by the assessee before the Ld CIT(A) as seen in page 21 point 1.3 of CIT(A) Order, The details of work performed in UK and India are as follows:- • In India- Attending meeting with GRSE and interviewing the potential staffs for the site supervision work. • In UK- review of the construction methods being undertaken by the Indian contractors at the site on behalf of GRSE. Therefore, from the above; that the claim of the assessee that its income from foreign services is not attributable to its PE in India is not correct. The details of work performed in UK consists of review of the construction methods being undertaken by the Indian contractors at the site on behalf of GRSE. It was reiterated by the assessee before the Ld CIT(A) that for Phase I & II , no service has been rendered in India and the limited number of visits that was made by the assessee to the G RSE site was only for the collection of drawings which was necessary for the purposes of the reports and drawings which were prepared and services form UK. Therefore, for the purposes of the reports and drawings which were prepared and services provided from UK which the assessee claims as not attributable to its PE in India, visits were made by the assessee to the GRSE site for the collection of drawings without which such reports and drawings would not have been possible. Therefore its income from foreign services is attributable to its PE in India.
Article S of the India -UK DTAA defines the term permanent establishment. As per article 5(1), the term permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on. Article 5( I) stipulates 3 criteria: a) Place of business i.e some physical presence eg some premises or equipment which are used in business -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 5 b) Place of business should be fixed in the sense that it is a distinct place which exhibits some degree of permanence. The fact that the enterprise has a certain amount of space at its disposal which is used for business activity is sufficient to constitute a place of business. c) The enterprise should not only have a fixed place of business but also wholly or partly business should be carried on through that fixed place. The stand of the assessee was that: 1) Office premises provided by the GRSE is only for the purpose of discharging services under the contract with GRSE 2) It cannot be used for any other purposes or for carrying out any other business of the assessee in India. 3) The assessee cannot occupy such office premises in its own right and it dies not satisfy the disposal test so as to make it a PE. 4) Even the use of the premises for providing services under the contract is restricted a the assessee and its personnel had to observe GRSE's Rules and regulations and required special permission to use such office premises beyond normal working hours. The Hon'ble ITAT in its order for the A.Y 2007-08 and 2005-06 held that the presence of assessee in India during the previous year was only in connection with the agreement for modernisation of shipyard of GRSE. The assessee had not carried on any business in India. The provision of office space inside the Garden Reach Shipyard therefore cannot be said to be a fixed place of business through which the business of the assessee is carried on in India. The Hon'ble ITAT held that it can be said that there was some physical presence of the assessee in India through it was restricted to rendering of services under the agreement with GRSE. It is not enough that the assessee has a fixed place of business in India but the assessee should carry on business in India through that fixed place of business. This requirement of Article 5(1) of the DTAA is no satisfied in the present case. Carrying on of business involves the carrying on in a country of virtually any activity related to the business of the enterprise. The Hon'ble ITAT held that the availability of office space for use by the assessee at the premise of GRSE was for the limited purpose of rendering of services agreed between the assessee and GRSE. In the instant case the assessee has maintained an office inside Garden Reach Shipyard for the duration of the contract and the assessee had to bear the charges for local, STD and ISD call, faxes and emails for all the stages of the project. According to Appendix 1.3 of the contract between the assessee and GRSE, the assessee had the authority to post at the site competent and qualified engineers. The facts clearly show that rendering of such services was the very business of the assessee. APE comes into existence if business is wholly or partly carried on from a fixed place. Thus the services rendered from the office were clearly part of the business of the assessee. Also the concept of 'at the disposal of cannot be carried to such an extend. The OECD commentary required only that there should be a clear right of use available to the assessee and such right in the present case was clearly given in the contract. The mere fact that permission of GRSE was to be obtained for working overtime does not mean there was no right. These extra measures were only because GRSE is a defence shipyard and considering its sensitivity needed extra security measures. The stand taken by the assessee is an instance of artificial avoidance of PE status. -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 6 5. AO found that the assessee attributed 10% of total profits to its PE in India on account of man-hour basis i.e the number of man work- performed in India and UK during the relevant A.Y. The AO gave assessee opportunity to provide all the relevant documents/evidences in support of its claim but the assessee only submitted a one page submission regarding the detail of the number of time spent by the assessee's employees for the project work done in India and UK. No further details/documents such as the cost/expenditure etc were provided along with the same. AO found the no separate accounts for the operations in India and in UK have been maintained by the assessee during the relevant AY. The entire expenditure relating to the project work has been considered in the profit & loss account of the assessee. No material evidences have been brought on record such as in the form of contract or renewed/revised contract to suggest that the nature of work performed by the assessee for the project in India i.e consultancy services for modernization of GRSE during the relevant year under consideration is different from that of earlier assessment years. Also AO found that the submission by the assessee that the issue of attribution of profits to the PE in India had been taken up in the A.Ys 2007-08 and 2005-06 before the AO and Ld DRP was not correct as in none of the orders of both the AO and the Ld DRP, Kolkata has the issue of attribution of profits to the PE in India been mentioned and total profits for the project work been brought to tax in India in both the A.Ys 2007-08 and 2005-06.
The services rendered by the assessee to GRSE were of technical nature in terms of provisions of section 9(i)(vii) of the IT. Act 916 I read with article 13 of the India-UK DTAA and the contract as a whole in respect of which the fees for technical services arose and that such payment was effectively connected with the PE in India. Therefore Article 13(6) would apply and the gross receipts by way of fees for technical services are includable in the computation of business income/profits of PE in India. The following judgments where the Hon'ble ITATs have held the existence of assessee's PE are also relied upon by the Department: Section .2 of the Income-tax Act, 1961, read with article 5 of the DT [2019] 103 taxmann.com AA between India and South Korea - Income - Deemed to accrue or 270 (Delhi – Trib.) IN THE arise in India (Permanent Establishment - Project office/Branch office) ITAT DELHI BENCH ‘G’ - Assessment year 2009-10 - Assessee a company incorporated in Samsusng Heavy South Korea was engaged in business of heavy engineering - It was Industries Co. Ltd., Vs. awarded Vasai East development Project by ONGC for purpose of ADIT, 9International survey design, etc. - Assessee carried out co- Taxation) Dehradun* ordination and communication activities In India whereas design and engineering activities were performed in Malaysia - Further, on arrival of goods from Malaysia to India installation and commissioning activities were carried out in India - In pursuance to above contract ONGC asked assessee to open a project office In Mumbai for purpose of co- ordination and communication between parties to contract - Assessee recruited two employees for said purpose - In course of assessment, Assessing Officer held that income earned by assessee outside India were attributable to permanent establishment in India by way of project office for contract - It was noted that issue as to whether there was any permanent establishment of assessee in India or not had been examined in case of assessee with respect to same contract by co-ordinate bench in earlier years wherein it was held that assessee had a permanent establishment in India and activities carried on to extent of project office of -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 7 assessee were required to be attributed as income accruing and arising to assessee in India - Whether in view of aforesaid order of Co-ordinate bench of Tribunal, impugned order passed by Assessing Officer did not require any interference - Held, Yes [Paras 17 and 18] [In favour of revenue] [2014] 45 taxmann.com IT/I LT: Where there was some place at disposal of assessee a non- 112 (Mumbai – Trib.) IN resident company registered in Mauritius or its employees during THE ITAT MUMBAI entire period of stay in India for rendering extensive services to Indian BENCH ‘L’ Renoir company, it constituted PE in India under India-Mauritius Consulting Ltd. vs. Deputy DTAA Director of Income tax Section 9 of the Income-tax Act, 1961, read with article 5 of the (International Taxation) 2 (1)* Double Taxation Avoidance Agreement between India and Mauritius - Income - Deemed to accrue or arise in India (Permanent Establishment) - Assessment years 1997-98 and 1999-2000 - Assessee was a non-resident company registered in Mauritius - Assessment was made which included income received from, an Indian company, on contracts executed in India, as business income - Assessee contended that it did not have a permanent establishment in India so income qua said business with Indian Company, though admittedly carried on by it, could not be brought to tax in India - Whether regular interaction between parties requiring assessee's continued presence in India over indefinite contract period was needed for implementation of project - Held, yes - Whether execution of project appeared to be a regular business function, carried out in ordinary course, requiring little intervention by top management - Held, yes - Whether a fixed place of business, would not be confined to a place where top management of company was located and branch of an enterprises may well be its PE; only profit attributable to same being liable to be taxed in source State - Held, yes - Whether it was for assessee to specify place/s from where they had functioned over their continued stay in India - Held, yes - Whether some place at disposal of assessee or its employees during entire period of stay in India, was manifest and eminent and followed unmistakably from work nature/profile and modus operandi followed - Held, yes - Whether in view of above facts it would be clear that assessee had a PE in India during relevant years - Held, yes [Paras 4.6 & 4.8] [In favour of revenue]
3. Learned authorized representative took us to this tribunal’s consolidated order in assessment year(s) 2005-06 and 2007-08 involving and 2082/Kol/2010 decided on 06.04.2016 and is assessee’s miscellaneous application No. 39 and 40/Kol/2017 filed therein deciding the instant issue as follows:-
“These are Miscellaneous applications filed by the Assessee u/s.254(2) of the Income Tax Act, 1961 (Act) praying for rectification of certain apparent errors in the common order dated 6.4.2016 of the Tribunal in and 2082/Kol/2010 relating to AY 2005-06 & 2006-07 respectively.
2. Gifford & Partner Ltd. ('Gifford' or 'the Assessee') had entered into a contract with Garden Reach Shipbuilding Engineers ('GRSE') in India for rendering the following services with regard to modernisation of the existing shipyard of GRSE:- Preparation of concept papers, Preliminary project report (PPR); Detailed project report (DPR); Engineering services; Project management services; and Post - construction service -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 8 • The said services were to be performed both from India as well as from the United Kingdom ('UK'). The local services were rendered through independent Indian subcontractors and the foreign services were rendered partly by an independent foreign subcontractor i.e. Appledore and partly by the Assessee, from its head office in the UK. • Fees for the said services were payable in two parts i.e. foreign currency payment in USD and local currency payments in INR. • The work on the said contract was started in April 2004 and the Assessee has since been filing tax returns in India for incomes earned from the said contract.
2. The issues that arose for consideration in the aforesaid appeals was regarding taxability in India of the sums received from GRSE for services rendered under the contract referred to in the earlier paragraph.
By a common order dated 6.4.2016 the Tribunal held that the sums received from GRSE accrued and arose in India and that the same is taxable in India as Fees for Technical Services (FTS). The Tribunal further held that FTS has to be taxed under Article 13(2) of the DTAA between India and UK. The relevant clauses of the DTAA provides as follows: “ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed : (a)In the case of royalties within paragraph 3(a) of this Articles, and fees for technical services within paragraphs 4 (a) and (c) of this Article – (i)During the first five years for which this Convention has effect ; (aa) 15 per cent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first mentioned Contracting State or a political sub- division of that State, and (bb) 20 per cent of the gross amount of such royalties or fees for technical services in all other cases; and (ii) During subsequent years, 15 per cent of the gross amount of such royalties or fees for technical services; and 4. The Tribunal thereafter concluded that FTS has to be taxed in India as per Article 13(2) of the DTAA but as per the provisions contained in the Income Tax Act, 1961 (Act). The following were the findings of the Tribunal in paragraph 55 of its order: -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 9 55. We have already seen clause 3.10 of the Agreement between the Assessee and GRSE (see para-47 of this order) which provides that all plans, drawings, specifications, designs, reports and other documents prepared by the Consultant in performing the Services shall become and remain the exclusive property of GRSE. We are therefore of the view that the requirements of clause (c) of Article 13(4) of the DTAA are also satisfied in the present case and therefore the source country (India) has a right to tax the fee in question in accordance with Article 13(2) of the DTAA but subject to the limitation of rate of tax as laid down in Article 13(2). The provisions of the Act in this regard are contained in Sec.115A of the Act.....
In paragraph 72 & 73, the Tribunal concluded on the issue of taxability of FTS as follows: “72. Having come to the conclusion that there was no PE of the Assessee in India during the relevant previous year, the question that would now require consideration is with regard to taxability of the FTS under Article 13(2) of the treaty. A reading of Article 13(2) of the DTAA (reproduced in the earlier part of this order) would show that taxation has to be in according with the Act. The provisions contained in the Act in this regard are Sec.115A of the Act. In this regard, the relevant provisions of section 115A of the Act, needs to be looked into. We have already reproduced the provisions of Sec.115A of the Act and Sec.44AD of the Act in the earlier part of this order. U/S.115A of the Act, Income by way of FTS received by a non resident would be taxed at 20% on gross basis only if all the following conditions are satisfied:- i) the income is received from Government or an Indian concern in pursuance of an agreement; ii) Such agreement was made after 31st day of May, 1997 but before the 1st day of June, 2005; and iii) such income does not fall within the purview of sub-section (1) of section 44DA of the Act.
We have already seen that the Assessee in the present case instant case, there is no doubt that the Assessee fulfills condition (i) and condition (ii) as mentioned above. As regards condition no. (iii), the provisions of sub-section (1) of section 44DA of the Act, FTS would fall within the purview of section 44DA(1) of the Act, only if it is actively connected to the PE of the non- resident in India. PE for the purpose of this section has been defined in section 92F(iiia) of the Act which reads as under:- "(iiia) "permanent establishment", referred to in clause (iii), includes a fixed place of business through which the business of the enterprise is wholly or partly carried on;" We have in the earlier paragraphs already held that there was no PE in Indi in the form of fixed place of business through which the business of the Assessee was wholly or partly carried on in India. As such, the Assessee would be entitled to the benefit of the provisions of section 115A of the Act and be taxed at 20% of the Gross receipts. We also hold that tax liability borne by GRSE will also need to be grossed up for arriving at Gross receipts of the Assessee and after such grossing up such receipts have to be taxed at 20%. We hold accordingly. -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 10 6. In this MAs, it has been submitted by the Assessee. That as to the provisions of section 90(2) of the Act, the provision of domestic law or DTAA whichever is beneficial is applicable to the non-resident assessee. It is the plea of the assessee that u/s 5 115A of the Act FTS is chargeable to tax @ 20% on the basis of the gross receipts, whereas as per the provision of Article 13(2)(bb)(ii) FTS is taxable @ 15% of the gross amount of such FTS. It is the stand of the assessee that since the provisions of the DTAA are more beneficial, the tribunal ought to have directed that tax should be levied in accordance with the provision of DTAA rather than the provision of section 115A of the Act. It is not in dispute that Assessment order for A.Y.2005-06 and 2007-08 was beyond the period of five years for which the convention between India and U.K came into effect and therefore Article 13(2)(bb)(ii) would alone apply in the present case.
When this miscellaneous application was taken up for consideration it was noticed that the miscellaneous application was filed on 17.03.2017 whereas the order of the Tribunal was passed on 06.04.2016. As per the provision of section 254(2) of the Act as amended by the Finance Act, 2016 w.e.f. 01.06.2016 an application for rectification of apparent errors in the order of the tribunal has to be filed within six months from the end of the months in which the order was passed. Prior to the aforesaid amendment, an application for rectification of mistake apparent on the record could be filed at any time within four years from the date of the order. Since the present miscellaneous application has been filed after the aforesaid statutory amendment by the Finance Act, 2016, a question that was raised was as to whether the MA’s would be barred by time under the amended provision of law.
On this aspect after considering the rival submissions we conclude as follows:- Section 254(2) of the Act of 1961 prior to the amendment by the Finance Act, 2016 w.e.f.1.6.2016 reads as under:- “254(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard After the Amendment by the Finance Act, 2016, w.e.f. 1.6.2016, Sec.254(2) read as under: “254(2) The Appellate Tribunal may, at any time within six months from the end of the month in which the order was passed, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer: It can be seen from the aforesaid amendment that the time limit for filing Miscellaneous application u/s.254(2) has been curtailed to 6 months from the date of the passing of the order from a period of 4 years from the date of the order.
The admitted facts in the present M.A. are that the order against which the present M.A. is being filed was passed prior to 1.6.2016 and the application u/s.254(2) in respect of such order is filed after 1.6.2016. The question before us is as to whether -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 11 in respect of orders passed prior to 1.6.2016 and where M.A. u/s.254(2) in respect of such orders is filed after 1.6.2016, whether the time limit prescribed u/s.254(2) prior to the Amendment by Finance Act, 2016 should apply or the time limit prescribed after the Amendment by Finance Act, 2016 should apply? 10. The Hon’ble M.P.High Court in Writ Petition No.4144/2017 in the case of District Central Co-op. Bank Ltd., Raisen Vs. Union of India vide its judgment dated 09th October, 2017 had to deal with an identical case such as the Assessee. The Hon’ble Court relied on the decision of the apex Court in the case of M. P. Steel Corporation Vs. Commissioner of Central Excise reported in (2015) 7 SCC 58 wherein it was held that though periods of limitation, being procedural law, are to be applied retrospectively, yet if a shorter period of limitation is provided by a later amendment to a statute, such period would render the vested right of action contained in the statute nugatory as such right of action would now become time barred under the amended provision. Therefore a statute which while procedural in its character, if it affects vested rights adversely it has to be construed as prospective. Following the aforesaid view, the Hon’ble M.P.High Court held as follows: “08. Keeping in view the judgment referred by their lordships in the aforesaid case and the judgment delivered by their lordships in the M.P. Steel Corporation (Supra), in the present case also the new law of limitation providing a shorter period cannot certainly extinguish a vested right of action.
9. The amendment has been made effective virtually in case of assessee with retrospective effect though the amendment does not show that it is applicable with retrospective effect, however, the existing right has been extinguished with retrospective effect in case of the assessee.
In the considered opinion of this Court, the legislature should have granted some time to the assessees who could have filed an appeal within a period of four years and the same has not been done till the amendment came into force extinguishing the right to file an appeal.
11. In the considered opinion of this Court, application preferred by the assessee should not have been dismissed by the Tribunal on account of the amendment which has reduced the period of limitation of four years to six months. 12- Resultantly, the impugned order passed by the respondent on 23/12/2016 is hereby quashed and the writ petition stands allowed. The Income Tax Appellate Tribunal is directed to decide the application preferred under Section 254(2) on merits within a period of three months from the date of receipt of certified copy of this order. The parties shall appear before the Tribunal on 30th of October, 2017.”
Following the aforesaid decision, we have to hold that the present MA though filed after 1.6.2016 will continue to be governed by the law of limitation laid down u/s.254(2) on the date when the order against which the MA is sought to be filed was passed and not law as per the law as amended by the amendment w.e.f. 1.6.2016. The MA therefore has to be construed as one filed within the period of limitation and has to be accepted as validly presented within the period of limitation. The objection of the Registry is therefore held to be not in accordance with law.
Though the ld. DR made submissions by placing reliance on the CBDT Circular No.3/2017 by pointing out that the Hon’ble Madhya Ptradesh High Court in the aforesaid decision has not considered the effect of the CBDT Circular, we are of the view that it would not be appropriate to advance arguments on the correctness of the -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 12 decision of the Hon’ble High Court to which Tribunal is subordinate. We therefore deem it not necessary to deal with the objections of the ld. DR in this regard.
As far as the merits of the miscellaneous application filed by the assessee is concerned, the ld. Counsel for the assessee reiterated the submissions as were made in the miscellaneous application.
The ld. DR submitted that the mistake pointed out by the assessee in these miscellaneous applications cannot be said to be a mistake apparent from the record. In this regard the ld. DR drew our attention to the various grounds of appeal
raised by the assessee before the tribunal which were as follows : “GROUNDS OF APPEAL “The grounds stated here under are independent of, and without prejudice, to one another. I For that the Assessing Officer and the Dispute Resolution Panel ( hereinafter referred to as the authorities below) erred in holding that the Appellant is having a Permanent Establishment('PE'} in India in terms of Double Taxation Avoidance Agreement between India and United Kingdom of Great Britain and Northern Ireland ('DTAA '). II Without prejudice to the Ground No. 1, the Appellant states and submits that the authorities below erred in holding that, the entire amount received by the Appellant, including those in United States Dollar ( 'USD '}was attributable to the alleged PE in India and taxable under section 44DA of the Income Tax Act, 1961. (the 'Act').; III For that the authorities below erred that any income not attributable to the activities performed in India can be charged to tax in India or for any reason alleged or at all; IV For that the authorities below erred in holding that the Appellant's claims that that it did not have any PE in India or that the Income earned in respect of activities outside India in USD was not assessable in India, could not be entertained without filing a revised return. V For that the authorities below erred in disallowing Rs 3,136,682 paid to M/s Appledore International Ltd for works carried out by them in the United Kingdom on the ground that the same was taxable in India and tax was required to be deducted thereon under section 195 of the Act. The reasons given for such disallowance are not sustainable on facts and law; VII For that the authorities below erred in disallowing a sum of Rs 2,858,996 on the ground of delayed deposit of tax deducted at source; VIII For that the authorities below erred in holding that a sum of Rs 3,733,151 was to be added to the income on account of grossing up; IX For that the authorities below erred in holding that any interest could be charged under section 234B and/or 234C of the Act.”
15. According to him the assessee has not raised any ground with regard to any rate of tax and therefore the assessee cannot be permitted to raise this plea in the -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 13 miscellaneous application. In this regard our attention was drawn by the ld. DR to the following decision : i) Tokhem Enterprises v. Income-tax Officer, Ward 20(3)(1), Mumbai, reported in [2011] 132 ITD 375 (Mumbai )/[2012] 144 TTJ 256 (Mumbai) ii) Vyline Glass Works Ltd. V. Assistant Commissioner of Wealth-tax, Co. CircleIII(4), Chennai reported in [2015] 231 Taxman 535 (Madras)/[2015] 373 ITR 355 (Madras)/[2015]281 CTR 317 (Madras).
16. In the aforesaid decision it was held that in a miscellaneous application new ground not set forth in the memorandum of the appeal or in the additional grounds cannot be taken. Similar ruling rendered by the Hon’ble Calcutta High Court in the following cases were brought to our notice: i) Suman Tea and Plywood Industries reported in 226 ITR 34(Cal) ii) Gokul Chand Agarwal (202 ITR 14) iii) Pr. Commissioner of Income Tax, Surat-1 Vs. Gomti Silk Mills Ltd. In Special Civil Application No.15301 of 2017 and Special Civil Application No.15302 of 2017 dated August 29, 2017 and reported in 2017-TIOL-1768- HC-AHMIT.”
17. His next submission was that the power to rectify a mistake u/s 254(2) of the Act is restricted to only to rectify a mistake apparent on the face of the record. If the issue sought to be agitated in a miscellaneous application involves debatable issues which involves long drawn process of reasoning, then it cannot be said that there is a mistake apparent on the face of the record. In support of the above proposition the following decision were brought to our notice: i) Hon’ble Supreme Court in the case of Deva Mital Powders Pvt. Ltd. Vs Commissioner of Trade Tax, U.P. in Civil Appeal No.5607 of 2007. ii) Maruti Insurance Distribution Services Ltd reported in 212 Taxmann 123 (Delhi).
18. The ld. DR also brought to our notice that the tribunal has dealt with the contentions of the assessee on the taxability of FTS before the AO and the DRP as well as before the tribunal and in all these submissions made by the assessee, the issue with regard to the taxability of FTS at a concessional rate of 15% as per Article 13(2) or DTAA as against the higher rate of 20% of gross receipts u/s 115A of the Act was never raised by the assessee. It was the contention of the ld. DR that in the garb of the miscellaneous application, the assessee seeks to review of the order of the tribunal. For the above reasons the ld. DR prayed that the miscellaneous applications are without any merits and the same should be dismissed.”
19. We have given a very careful consideration to the rival submission. At the outset, we notice that in the synopsis of the arguments filed by the assessee on 12.12.2012 in para 2.5 , the assessee has taken a specific plea that FTS has to be taxed at a concessional rate of 15% of the gross receipts as per the provision of Article 13(2) of the DTAA as against higher rate of tax provided at 20% of gross receipts u/s 115A of the Act. The law is well settled that the powers of the tribunal u/s 254(1) of the Act are very wide and therefore in an appeal before the tribunal, the tribunal could have and ought to have considered the aforesaid submission of the assessee. The fact -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 14 that there is no specific ground taken by the assessee in this regard is immaterial because the rate of tax to be applied does not require any adjudication or finding to be given on facts. In other words, the applicability of tax could be decided on the basis of facts and material already available on record. In such circumstances, it cannot be said that the issue with regard to rate of tax was not the subject matter of the appeal at all, especially in the light of the specific contention put forth by the assessee on this aspect in the written submissions dated 12.12.2012.
20. In the present case there is an agreement between India and U.K. for avoidance of double taxation and therefore the assessee is entitled to plead that taxability has to be as per the provision of the Act or the DTAA whichever is beneficial is to the assessee. Since the taxability of FTS at 15% of the gross receipts as per Article 13(2)(bb)(ii) is more favourable than the provision of section 115A of the Act, the FTS in question has to be taxed at 15% on gross basis as per the DTAA. We are of the view that the mistake pointed out in the miscellaneous applications is apparent in the face of the record. Even assuming that the long drawn processing of reasoning is required to decide the miscellaneous application but if ultimately there can be only one possible view then it cannot be said that the power to rectify such mistake is outside the ambit of section 254(2) of the Act. The ld. DR’s arguments that the assessee is seeking review of the order of the tribunal is not correct. As we have already stated that this plea was already put forth in the submissions made before the tribunal but was not considered and omitted to be considered by the tribunal. For all the above reasons we accept the miscellaneous applications filed by the assessee.
21. The Order of the Tribunal is amended by substituting the existing paragraphs 72 & 73 of the order of the Tribunal for the following paragraphs 72 & 73: "72. Having come to the conclusion that there was no PE of the Assessee in India during the relevant previous year, the question that would now require consideration is with regard to taxability of the FTS. Considering the fats of the case, as per Article 13(2) of the India-UK DTAA, FTS income of non- resident is taxable @ 15% on gross receipts. Whereas as per section 115A of the Act, FTS is taxable @ 20% on gross receipts.
73. Since, the provisions of the India-UK DTAA is more beneficial, the Assessee is entitled to the benefit of the provisions of section 90(2) of the Act. Accordingly, FTS in the given case would be taxed at the beneficial rate of 15% on gross receipts as provided in Article 13(2) of the India-UK DTAA. We also hold that the tax liability borne by GRSE will also ne d to be grossed up for arriving at gross receipts of the Assessee and after such grossing up such receipts have to be taxed @ 15%. We hold accordingly.”
4. It is therefore sufficiently clear that the assessee has succeeded on the very issue involving identical Revenue’s pleadings in said earlier assessment year(s). Learned departmental representative vehemently argues at this stage that the Revenue’s appeals against the same stand admitted in honble jurisdictional high court after framing substantial question of law therein. We adopt judicial consistency in these circumstances to hold that the CIT(A) has rightly followed his earlier order(s) in -405/Kol/2018 A. Ys 2009-10 to 2011-12 ACIT(IT) Cir-1(1), Kol. Vs M/s Gifford LLP Page 15 assessee’s cases qua the permanent establishment issue in India. It is made clear that mere admission of appeal in honble jurisdictional high court does not form sole substantive reason to adopt a different approach in latter assessment year. The Revenue fails in its identical first substantive grievance in these three assessment years.
5. Next comes second identical issue as to whether the assessee ought to be subjected to sec. 234B and 234C interest or not. Suffice to say, learned co-ordinate bench’s order in assessment year 2009-10 holds that the above interest provisions do not apply in case of the assessee being a non-resident company. We therefore adopt the very reasoning mutatis mutandis to decline the Revenue’s instant substantive grievance as well.