Loading judgment…
No AI summary yet for this case.
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH DAY OF FEBRUARY, 2023 PRESENT THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON’BLE MR. JUSTICE RAMACHANDRA D. HUDDAR
ITA NO. 232 OF 2020 C/W ITA NO. 234 OF 2020, ITA NO. 235 OF 2020 ITA NO. 238 OF 2020, ITA NO. 241 OF 2020 ITA NO. 242 OF 2020, ITA NO. 243 OF 2020
ITA NO. 232 OF 2020
BETWEEN:
THE COMMISSIONER OF INCOME TAX
INTERNATIONAL TAXATION
4TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU – 560 095.
THE DEPUTY COMMISSIONER
OF INCOME TAX
INTERNATIONAL TAXATION
CIRCLE-1(1), 4TH FLOOR
BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU – 560 095. .…APPELLANTS
(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
M/s. Ad2pro MEDIA SOLUTIONS PVT. LTD. NO.10, 2ND FLOOR
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
BANNERGHATTA ROAD J.P. NAGAR-III PHASE BENGALURU – 560 078. …RESPONDENT
(BY SHRI. V. CHANDRASHEKAR, ADVOCATE)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 27.11.2018 PASSED IN ITA NO.930/BANG/2017, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 930/BANG/2017 DATED 27.11.2018 FOR ASSESSMENT YEAR 2011-2012 ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), BENGALURU AND ETC.
ITA NO. 234 OF 2020
BETWEEN:
THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION 4TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU - 560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX INTERNATIONAL TAXATION CIRCLE-1(1), 4TH FLOOR BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU - 560 095. .…APPELLANTS
(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
AND:
M/s. Ad2pro MEDIA SOLUTIONS PVT. LTD. NO.10, 2ND FLOOR BANNERGHATTA ROAD J.P. NAGAR-III PHASE BENGALURU – 560 078. …RESPONDENT
(BY SHRI. V. CHANDRASHEKAR, ADVOCATE)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20.03.2020 PASSED IN ITA NO.501/BANG/2019, FOR THE ASSESSMENT YEAR 2015-2016 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL, SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 501/BANG/2019 DATED 20.03.2020 FOR ASSESSMENT YEAR 2015-2016 ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXTION, CIRCLE-1(1), BENGALURU AND ETC.
ITA NO. 235 OF 2020
BETWEEN:
THE COMMISSIONER OF INCOME TAX
INTERNATIONAL TAXATION
4TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU – 560 095.
THE DEPUTY COMMISSIONER
OF INCOME TAX
INTERNATIONAL TAXATION
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
CIRCLE-1(1)
4TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU – 560 095. .…APPELLANTS
(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
M/s. Ad2pro MEDIA SOLUTIONS PVT. LTD. NO.10, 2ND FLOOR BANNERGHATTA ROAD J.P. NAGAR-III PHASE BENGALURU - 560 078.
…RESPONDENT
(BY SHRI. V. CHANDRASHEKAR, ADVOCATE)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20.03.2020 PASSED IN ITA NO.520/BANG/2019, FOR THE ASSESSMENT YEAR 2016-2017 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL, SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 502/BANG/2019 DATED 20.03.2020 FOR ASSESSMENT YEAR 2016-2017 ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(1), BENGALURU AND ETC.
ITA NO. 238 OF 2020
BETWEEN:
THE COMMISSIONER OF INCOME TAX
INTERNATIONAL TAXATION
4TH FLOOR, BMTC BUILDING
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
80 FEET ROAD, KORMANGALA
BENGALURU – 560 095.
THE DEPUTY COMMISSIONER
OF INCOME TAX
INTERNATIONAL TAXATION
CIRCLE-1(1), 4TH FLOOR
BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU – 560 095. .…APPELLANTS
(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
M/s. Ad2pro MEDIA SOLUTIONS PVT. LTD. NO.10, 2ND FLOOR BANNERGHATTA ROAD J.P.NAGAR-III PHASE BENGALURU – 560 078. …RESPONDENT
(BY SHRI. V. CHANDRASHEKAR, ADVOCATE)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20.03.2020 PASSED IN ITA NO.500/BANG/2019, FOR THE ASSESSMENT YEAR 2014-2015 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL, SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 500/BANG/2019 DATED 20.03.2020 FOR ASSESSMENT YEAR 2014-2015 ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(1), BENGALURU AND ETC.
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
ITA NO. 241 OF 2020
BETWEEN:
THE COMMISSIONER OF INCOME TAX
INTERNATIONAL TAXATION
4TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU – 560 095.
THE DEPUTY COMMISSIONER
OF INCOME TAX
CIRCLE-1(1), 4TH FLOOR
BMTC BUILDING, 80 FEET ROAD
KORMANGALA
BENGALURU – 560 095. …APPELLANTS
(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
M/s. Ad2pro MEDIA SOLUTIONS PVT. LTD. NO.10, 2ND FLOOR BANNERGHATTA ROAD J.P. NAGAR-III PHASE BENGALURU – 560 078. …RESPONDENT
(BY SHRI. V. CHANDRASHEKAR, ADVOCATE)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20.03.2020 PASSED IN ITA NO.493/BANG/2019, FOR THE ASSESSMENT YEAR 2014-2015 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL, SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 493/BANG/2019 DATED 20.03.2020 FOR ASSESSMENT YEAR 2014-2015 ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(1), BENGALURU AND ETC.
ITA NO. 242 OF 2020
BETWEEN:
THE COMMISSIONER OF INCOME TAX
INTERNATIONAL TAXATION
4TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU – 560 095.
THE DEPUTY COMMISSIONER
OF INCOME TAX
CIRCLE-1(1), 4TH FLOOR
BMTC BUILDING, 80 FEET ROAD
KORMANGALA
BENGALURU – 560 095. …APPELLANTS
(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
M/s. Ad2pro MEDIA SOLUTIONS PVT. LTD. NO.10, 2ND FLOOR BANNERGHATTA ROAD J.P. NAGAR-III PHASE BENGALURU – 560 078. …RESPONDENT
(BY SHRI. V. CHANDRASHEKAR, ADVOCATE)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20.03.2020 PASSED IN ITA NO.495/BANG/2019, FOR THE ASSESSMENT YEAR 2016-2017 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL, SET ASIDE THE ORDERS PASSED BY THE INCOME
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 495/BANG/2019 DATED 20.03.2020 FOR ASSESSMENT YEAR 2016-2017 ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(1), BENGALURU AND ETC.
ITA NO. 243 OF 2020
BETWEEN:
THE COMMISSIONER OF INCOME TAX
INTERNATIONAL TAXATION
4TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU – 560 095.
THE DEPUTY COMMISSIONER
OF INCOME TAX
CIRCLE-1(1), 4TH FLOOR
BMTC BUILDING, 80 FEET ROAD
KORMANGALA
BENGALURU – 560 095. …APPELLANTS
(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
M/s. Ad2pro MEDIA SOLUTIONS PVT. LTD. NO.10, 2ND FLOOR BANNERGHATTA ROAD J.P. NAGAR-III PHASE BENGALURU – 560 078. …RESPONDENT
(BY SHRI. V. CHANDRASHEKAR, ADVOCATE)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20.03.2020 PASSED IN ITA
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
NO.496/BANG/2019, FOR THE ASSESSMENT YEAR 2017-2018 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL, SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 496/BANG/2019 DATED 20.03.2020 FOR ASSESSMENT YEAR 2017-2018 ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(1), BENGALURU AND ETC.
THESE ITAs, HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 30.01.2023 COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, P.S. DINESH KUMAR J., PRONOUNCED THE FOLLOWING:-
JUDGMENT
This appeal by the Revenue, directed against the order dated March 20, 2020 in ITA No. 490-503/Bang/2019 passed by the Income Tax Appellate Tribunal1 has been admitted to consider following questions of law:
i. Whether on the facts and in the circumstances of the case, the Tribunal erred in holding that orders passed under Section 201(1) and 201(1A) are time
1 ITAT
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
barred as same are passed after six years from end of F.Y.2010-11 without appreciating that the Memorandum of Finance Bill 2009 makes the intent of legislature very clear on the issue of not prescribing any time limits for exercising powers under Section 201 and 201(A) due to challenge in administering the recovery of taxes from NRI’s and also there is no time limit prescribed in the said sections in respect of payments made to Non-Residents are concerned?
ii. Whether on the facts and in the circumstances of the case, the Tribunal’s order can be said as perverse in nature in holding the services received by the assessee cannot be considered as ‘Royalty’ or ‘Fee’ for included services to deduct TDS on thus payments when conditions set out in Section 9(1)(vii) of the Act read with Article 12 of the India- USA DTAA as well as Section 195 are fully satisfied to resulting in invoking of provision of Section 201(1) and 201(1A) of the Act?
iii. Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that there are conditions for invoking Section 201(1) and 201(1A) are not satisfied in the case of assessee ignoring that services rendered by Non-Resident Entity is nothing but Royalty as per Section 9(1)(vii)?
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
Heard Shri. K. V. Aravind, learned Senior Standing Counsel for the Revenue and Shri. Chandrashekar, learned Advocate for the Assessee.
Briefly stated the facts of the case are, assessee is a private limited company. It is engaged in business of providing graphic design solutions for advertising and marketing communications. On verification of 15 CA data, it was observed that the company had remitted huge amounts to M/s. Ad2pro Media Solutions Inc., USA2 and TDS was not deducted. AO3 passed an order under Section 201(1) & 201(1A) of the Income Tax Act, 19614, holding that the payments made by the assessee for marketing services to the US Company is
2 ‘the US Company’ for short 3 Assessing Officer 4 ‘the Act’ for short
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
taxable in India as FTS5. CIT(A)6 partly allowed assessee’s appeal holding that the payments received by the US Company was both royalty and consultancy services and taxable under the Act as well as DTAA7. ITAT allowed assessee's appeal holding that the payments made cannot be considered as royalty or fees and hence, no TDS was required to be deducted. Feeling aggrieved, Revenue has filed this appeal.
Shri. K. V. Aravind, for the Revenue, praying to allow the appeal, submitted that:
the Tribunal has erred in holding that the assessee was not under obligation to deduct TDS;
the Tribunal failed to observe that assessee failed to furnish the copy of agreement
5 Fee for Technical Services 6 Commissioner of Income Tax (Appeals) 7 Double Taxation Avoidance Agreement
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
relevant to transactions between assessee and non-resident entity;
technical services and consultancy services are two different services as held in Commissioner of Income Tax & Anr Vs. ISRO Satellite Centre8;
the payments made by assessee is FTS within the meaning of Explanation 2 to Section 9(1)(vii) of the Act;
payment was for use of information concerning commercial experience and squarely falls under Article 12(3) of India- USA DTAA;
the Tribunal erred in holding that the conditions for invoking Sections 201(1) and 201(1A) of the Act are not satisfied.
Opposing the appeal, Shri. Chandrashekar, for the Assessee, submitted that:
8 (2013) 263 CTR 549
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
as per Section 195 of the Act, the person responsible for paying a non-resident is liable to with-hold tax, provided the sums are income accruing or deemed to accrue or arise in India in accordance with Section 9 of the Act;
the AO has erred in holding that the US Company has made available its technical knowledge, experience, skill, and thus the payment made to the US Company is taxable in India;
the ITAT has rightly held that no payment was made either as royalty or FTS because no information concerning commercial information has been provided to assessee by the US Company, so as to categorise the payment made to the US Company in nature of royalty and attracts the provision of Section 9(1)(vi) of the Act;
Section 9(1)(vii) of the Act makes it clear that a receipt will become income deemed to accrue or arise in the hands of a non-resident
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
in India, only if the same has been made to the non-resident, by way of Technical Knowhow Fee, for the purpose of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India;
Section 9(1)(vii)(b) provides an exception to the general source rule by providing that where the services rendered by the non- resident provider are utilized by the resident payer for purposes of earning income from a source outside India, in such a situation, such fees would not be deemed to accrue or arise in India;
the payment made relates to export turnover and no part is attributable in the domestic turnover;
the question of TDS does not arise because the US Company does not have any income which is deemed to accrue or arise in India. Therefore, assessee cannot be considered as a defaulter under Section 195 of the Act.
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
He has placed reliance upon the following authorities: a) Commissioner of Income Tax & Anr. Vs. ISRO Satellite Centre(Supra);
b) Director of Income Tax, Delhi Vs. M/s. Lufthansa Cargo India;9
c) GVK Industries Ltd. Vs. Income-tax Officer10.
We have carefully considered rival contentions and perused the records.
Undisputed facts of the case are, the US Company does not have any permanent establishment in India. The assessee has made payments to the US Company.
9 ITA 95/2005 10 (2015) 54 taxmann.com 347 (SC)
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
Revenue’s case is payments made to the US Company for marketing services take the character of FTS and chargeable to tax in India. Article 12 of the DTAA reads as follows: “Article 12 - Royalties and fees for included services –
Royalties and fees for included 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 included services may also be taxed in the Contracting State in which they arise and according to the laws of that State; xxx”
Thus, according to the Revenue the royalties and fees for included services may also be taxed in the Contracting State.
The AO has extracted the services rendered by the US Company in para 15 of his order and the services read as follows:
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
“WHEREAS Ad2pro India and Ad2pro USA have decided to mutually beneficial partnership under which Ad2pro USA will provide business facilitation services which would include the following:
a. Assistance in arranging and facilitating rendering of advertisement design services of Ad2pro India in USA;
b. Assistance in developing market for services rendered by Ad2pro India in USA;
c. Assistance in providing customer leads and procurement of orders for Ad2pro India;
d. Assistance in negotiations with customers and in finalizing contracts between customers and Ad2pro India;
e. Assistance in collection of payment on behalf of Ad2pro India and repatriating at a collection fee of 1.5% of the collections made.”
AO’s view as noted in para 27 of his order is, assessee utilizes the services of the US Company even in the negotiations with customers and in finalizing contracts, and the same cannot be done
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
without sharing technical knowledge, knowhow, processes or experience.
The definition of ‘fees for included services’ in DTAA reads as follows:
“4. For purposes of this Article, “fees for included services” means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services:
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or
(b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.”
Both the Learned Standing Counsel for the Revenue and learned Advocate for the assessee adverted to above Clause. The language employed
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
in the above Clause is unambiguous. The services rendered by the US Company do not make available its technical knowledge, skill, knowhow, process or transfer of technical plan or design. Therefore, the view taken by the AO that negotiation with customers to finalise the contract without sharing the technical knowledge or knowhow is perverse.
The ITAT has noted in para 14 of its order that the scope of the work is to generate customer leads using/subscribing customer data base, market research, analysis, and online research data and rightly held that the service provider has not made available any technical knowledge, experience, knowhow, process or develop and transfer technical plan or technical design.
Shri. Aravind, placing reliance on GVK Industries Ltd., contended that the facts are
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
identical and therefore, the impugned order passed by the ITAT is not sustainable.
In reply, placing reliance on M/s. Lufthansa Cargo India, Shri. Chandrasekhar urged that the authority in GVK Industries Limited is not applicable to the facts of this case. We have carefully perused the said judgment, wherein it is held as follows: “24. It is evident that Parliamentary endeavor – through the later retrospective amendment, was to target income of non-residents. But importantly, the condition spelt out for this purpose was explicit: “where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub-section (1), such income shall be included in the total income of the non-resident…whether or not, - (ii) the non- resident has rendered services in India.” The revenue urges that the fiction created by the said amendment is to do away with the requirement of the non- resident having a place of business, or business connection, irrespective of whether “…the non- resident has rendered services in India.” Did this
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
amendment make any difference to payments made to such companies – even in relation to income accruing abroad? The revenue grounds its arguments in the assumption that the later, 2010 retrospective amendment, overrides the effect of Section 9(1)(vii)(b) exclusion.
While no doubt, the explanation is deemed to be clarificatory and for a good measure retrospective at that, nevertheless there is nothing in its wording which overrides the exclusion of payments made under Section 9(1)(vii)(b)….”
After adverting to the following passage, the Delhi High Court has recorded that in Lufthansa’s case, operations were not in India and expenses towards maintenance and repairs payments were made for the purpose of earning outside India. “The exception carved out in the latter part of clause (b) applies to a situation when fee is payable in respect of services utilized for business or profession carried out by an Indian payer outside India or for the purpose of making or earning of income by the Indian assessee i.e. the payer, for the purpose of making or earning any income form
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
a source outside India. On a studied scrutiny of the said Clause, it becomes clear that it lays down the principle what is basically known as the “source rule”, that is, income of the recipient to be charged or chargeable in the country where the source of payment is located, to clarify, where the payer is located. The Clause further mandates and requires that the services should be utilized in India. ”
In the case on hand, the services have been rendered in USA. In contradistinction in the case of GVK Industries Limited, the advice of a Company called NRC11 was taken by GVK Industries for financial structure and with its advice GVK Industries had approached Indian Financial Institutions with IDBI12 Bank acting as lead financier for its Rupee loan requirement and for a part of its foreign currency.
In view of the admitted fact that the services were utilized in USA, we are persuaded to
11 Non-Resident Company 12 Industrial Development Bank of India
ITA No. 232/2020 C/W ITAs No. 234/2020, 235/2020, 238/2020, 241/2020, 242/2020, 243/2020
accept the authority in Lufthansa’s Case. Therefore, in our considered opinion, the findings returned by the ITAT do not call for any interference.
Resultantly, these appeals must fail. Hence, the following: ORDER a. These appeals are dismissed. b. The substantial questions of law are answered in favour of the assessee and against the Revenue.
No costs.
Sd/- JUDGE
Sd/- JUDGE
SPS