DCIT (IT) 3(2)(1), MUMBAI vs. MERILL LYNCH INTERNATINAL, MUMBAI

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ITA 3916/MUM/2015Status: DisposedITAT Mumbai13 April 2017AY 2010-117 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that underwriting commission and reimbursement of expenses received by the assessee are not taxable as fees for technical services under the India-UK DTAA. This decision followed a previous ruling in the case of Raymond Ltd.

What were the facts?

The assessee, Merril Lynch International, received underwriting commission and reimbursement of expenses for issuing GDR/FCCB from Indian companies. The Revenue contended this was taxable as fee for technical services under the India-UK Treaty.

What were the issues?

Whether underwriting commission and reimbursement of expenses received by a UK resident from Indian companies for issuing GDRs/FCCBs constitute 'fees for technical services' taxable in India under the India-UK DTAA.

Which sections of the Income-tax Act were involved?

Section 195

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, MUMBAI BENCHES “L”, MUMBAI

Before: Shri Joginder Singh & Shri Shamim Yahya

For Respondent: Shri Yogesh Kadam
Hearing: 13/04/2017

आदेश / O R D E R Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 18/02/2015 of the Ld. First Appellate Authority, Mumbai. The only ground raised in the present appeal pertains to holding that underwriting commission and reimbursement of expenses, received by the assessee for the issue of GDR/FCCB from Indian company is not taxable as fee for technical services under India UK Treaty without considering the facts enumerated in the ground raised by the Revenue.

1.

2. During hearing of this appeal, at the outset, Shri Yogesh Kadam, ld. counsel for the assessee contended that the impugned issue is covered in favour of the assessee by the order of the Tribunal dated 30/08/2011 (ITA No.2759/Mum/2009). The ld. Sr. DR, Shri M.V. Raj Guru, though defended the addition but did not controvert the assertion of the ld. counsel for the assessee.

2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the order of the Tribunal dated 30/08/2011 for ready reference and analysis:-

M/s Merril Lynch International

“This appeal filed by the Revenue is directed against the order of CIT(A)-XXXII, Mumbai, passed on 25/02/2009 for the assessment year 2005-06 wherein the revenue has raised the following grounds of appeal:-

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that neither the under writing commission nor the selling commission, received from the Indian Companies would amount to ‘Fees for Technical Services’ within the meaning of the DTAA between India and U.K.

2. The appellant prays that the order of the ld. CIT(A), Mumbai on the above grounds be set aside and the order of the AO be restored.”

2.

Briefly stated the facts of the case are that the assessee is a company incorporated in and under the laws of the United Kingdom and is registered as a Foreign Institutional Investor (FII) with the Securities and Exchange Board of India (SEBI). The assessee has obtained necessary permission to carry out investment activity in shares and securities of India companies. During the previous year relevant to AY under appeal, the assessee filed its return of income returning total income Rs. NIL and short term loss of Rs. 23,218,968/- to be carried forward to the subsequent year. The assessee declared by way of a note in its return of income that an amount of Rs. US $ 9,536,282/- has been received as fees from investment banking transactions outside India and towards reimbursement of expenses and the same is not liable to tax in India. However, the AO was not convinced with the explanations offered by the assessee during the course of assessment proceedings and determined the taxable income of the assessee including the of Rs. US$ 9,536,282/-, by holding that the fee received from the investment banking services in relation to the issue of M/s Merril Lynch International

ADRs/GDRs are eventually utilized in India since the benefit of the services rendered by the assessee is ultimately received by issuing Indian companies. Aggrieved the assessee carried the matter in appeal before the CIT(A).

3.

Before the CIT(A), the assessee submitted that the income receive by the assessee from its investment banking transactions is in the nature of business income. Under Article 7 of the DTAA dealing with business profits, business profits of a resident of the UK are liable to tax in India only if such profits are attributable to a permanent establishment of the UK resident situated in India as defined in Article 5 of the DTAA. The assessee’s income from investment banking transactions is not attributable to a permanent establishment of the assessee situated in India and, accordingly the aforesaid income is not liable to tax in India. The assessee relied upon various case laws before the CIT(A) including the decision of ITAT, Mumbai in the case of Raymond Ltd. V. DCIT (2003) 80 TTJ 120 (Mum.). After considering the submissions of the assessee, the CIT(A) held as under:-

“5.12……………..I have considered the appellant’s submission and I agree with the appellant that it had opted to be governed by the provisions of the DTAA and that the provisions of the DTAA ought to apply to the appellant. Section 90(2) of the IT Act makes it very clear that the appellant is entitled to claim the benefits under the IT Act or treaty whichever is more beneficial to the appellant. The issue of taxability of the aforesaid fees in India as per the India-UK DTAA is squarely covered by Raymond Ltd’s case (supra). Respectfully following the said decision of the jurisdictional Tribunal, more so as the service provider in the said case was the appellant itself, I hold that the said fee amount is not liable to tax in Ndia as the same does not constitute fees for technical services under the India-DTAA read

M/s Merril Lynch International with the Memorandum of Understanding forming part of the India- USA DTAA as the technical services were not made available by the appellant to the Indian companies.”

4.

Aggrieved by the order of CIT(A), the revenue is in appeal before the Tribunal.

5.

Before us, the learned counsel for the assessee submitted that the issue under consideration is squarely covered in favour of the assessee by the decision of ITAT, Mumbai in the case of Raymond Ltd. Vs. DCIT[2003] 80 TTJ 120 (Mum.). The learned DR has conceded the submission of the learned counsel for the assessee.

6.

We have considered the rival submissions and perused the record as well as gone through the orders of the authorities below. We find that the issue under consideration is squarely covered by the decision of ITAT Mumbai Benches in the case of Raymond Ltd. V. DCIT (supra), wherein it was held that “neither management commission, nor underwriting commission nor even selling commission/concession would amount to fees for technical services within meaning of DTA with UK and, consequently, there was no obligation on part of assessee- company to deduct tax under section 195.” The CIT(A) following the said decision held that the fee received by the assessee is not liable to tax in India as the same does not constitute fees for technical services under the India-UK DTAA read with the Memorandum of Understanding forming part of the India USA DTAA as the technical services were not made available by the assessee to the Indian companies. Therefore, we find no infirmity in the findings of the CIT(A) and hence, the order of the CIT(A) is hereby upheld.

7.

In the result, appeal of the revenue is dismissed.”

2.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, order of the M/s Merril Lynch International Tribunal dated 30/08/2011, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the Tribunal has considered the case of the assessee itself for Assessment Year 2005-06, elaborately by placing reliance upon the decision in the case of Raymond Ltd. vs DCIT (2003) 80 TTJ 120 (Mum.) and then came to the conclusion by holding that the fee received by the assessee is not liable to tax in India as the same does not constitute fee for technical services under the India U.K. DTAA read with the MOU forming part of India USA DTAA. Therefore, following the aforesaid decision of the Tribunal, we affirm the stand of the Ld. Commissioner of Income Tax (Appeal).

Finally, the appeal of the Revenue is dismissed.

This order was pronounced in the open in the presence of ld. representatives from both sides at the conclusion of the hearing on 13/04/2017.

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