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Income Tax Appellate Tribunal, BENCH “E”, MUMBAI
Before: SHRI SANJAY ARORA & SHRI PAWAN SINGH
Assessee by : Shri Girish Dave (AR) Revenue by : Shri Vishwas Jadhav (DR) Date of hearing : 31.05.2016 Date of Pronouncement : 26.08.2016 O R D E R
PER PAWAN SINGH, JM:
The present appeal filed by assessee against the order of CIT(A)-11, Mumbai dated 12.06.2013 for Assessment Year (AY) 2008-09. The assessee has raised the following grounds of appeal:
1. LEVY OF INTEREST UIS 234B OF THE ACT 1.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in stating that interest u/s 234B of the Act is leviable on the appellant without considering the submissions of the appellant in this regard in the appellate proceedings. 1.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that interest liability u/s 234B of the Act has arisen only due to addition on account of offshore services in the Assessment Order, which was hitherto not taxable in view of income tax provisions, DTAA and various judicial precedents rendered in respect of non-taxability of offshore services contract. 1.3 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the appellant received
Order U/s 197 of the Act determining NIL rate of tax for offshore services, in absence of which tax would have been deducted by the payer. 1.4 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the payer did not deduct tax at source on the basis of Order under Section 197 of the Act obtained by the payee by making factually incorrect findings before the Assessing Officer who issued Order under Section 197 of the Act. 1.5 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that interest liability u/s 234B of the Act has arisen only due to addition on account of offshore services in the Assessment Order, in view of the retrospective amendment in Explanation to Section 9 (2) of Income Tax Act, 1961 vide Finance Act, 2010, prior to which the appellant was not in a position to acknowledge the taxability of offshore services which was only raised in the fiscal year 2010. 1.6 In view of the above ground of appeal, the appellant company prays your honour to delete the interest charged under section 234B of the Act . 1.7 The appellant company craves leave to add, alter, amend and/or withdraw the above ground of appeal either before or during the course of hearing of the appeal.
Though, the assessee has raised as many as six Grounds of appeal, however, as per our considered opinion only one effective issue arises
“whether on the fact and circumstances of the case, the assessee is liable to pay interest u/s. 234B of the Act, only due to addition on account of offshore services in the assessment order, in view of the amendment in Explanation to Section 9(2) of Income-tax Act, with retrospective effect by Finance Act, 2010”.
Brief facts of the case as gathered from the record of the case are that assessee is a Company owned by Chinese Government. The assessee is engaged in the activity of construction and erection of Thermal Power Project and infrastructural activity. The assessee has permanent establishment(PE) in India. Assessee was awarded contract from Sterlite Energy Ltd. and V.S. Lignite Power Pvt. Ltd. On 23.04.2007 Sterlite Energy Ltd. and on 26.04.2007 V.S. Lignite Power Pvt. Ltd. filed application u/s 195 of I.T. Act before AO for seeking certificate u/s 197 of the Act. The said certificate was issued on 26.06.2007 for V.S. Lignite Power Pvt. Ltd. and on 26.04.2007 for Sterlite Energy Ltd. The assessee filed its return of income for relevant AY on 25.09.2008 declaring total income of Rs.15,27,40,900/-. The return was selected for scrutiny. The AO while framing the assessment order, besides other additions/ disallowance, made the addition of Offshore Design & Engineering Services of Rs. 62,76,56,839/-. While making the addition of offshore services, the AO concluded that Offshore Design & Engineering Services are taxable as fees for technical services both under Income Tax Act as well as Indo-China DTAA. Thus, gross consideration of Rs. 62,76,56,839/- is subject to tax @ 10%. The AO while passing the order also made an order for charging interest u/s 234B of the Act. Aggrieved by the order of AO, the assessee filed appeal before the First Appellate Authority (FAA) but without any success. Thus, the present appeal is filed before us only challenging the validity of interest u/s234B of the Act.
We have heard Shri Girish Dave Ld. AR of assessee and Shri Vishwas Jadhav, Ld. DR for Revenue and perused the material available on record. Ld. AR of the assessee argued that the assessee is not liable to pay interest u/s 234B of the Act and argued that Explanation attached to sub-section (2) of section 9 was substituted by Finance Act 2010 with retrospective effect from 01.06.1976. Ld. AR of the assessee argued that the assessee has accepted the addition of off shore services as the amendment was brought with retrospective effect but the assessee cannot be saddled with liability of interest. Ld AR further submits that mere acceptance of addition of offshore services will not tantamount to bear the cost of interest. The subsequent amendment in the law with retrospective amendment cannot be anticipated. The agency which awarded the contract to the assessee was granted certificate u/s 197 of the Act by the AO. The certificate u/s 197 which was issued by AO was neither withdrawn nor annulled or modified during the year under consideration. Ld. AR further relied upon the judgment of Karnataka High Court in Jindal Thermal Power Co. Ltd. Vs. DCIT(TDS) reported vide (2010) 321 ITR 31 (Karn), on the point of maintainability and locus to file the appeal. And further relied on the order of CIT(A)-11 dated 30.09.2013 for AY-2009-10 and order of CIT(A)-56 dated 30.03.2015 for AY- 2010-11 in assessee’s own case, wherein in both the subsequent AYs the interest u/s 234B was deleted. Ld. DR Shri Vishwas Jadhav vehemently argued that when the assessee accepted the addition made on account of Offshore Services, assessee cannot avoid the payment of consequential interest on the addition and further supported the order of authorities below.
We have considered the rival contention of the parties and gone through the material available on record. The Ld. AO while making the addition on Offshore Services observed as under: “There is no requirement prescribed under the act that the services must be rendered in India. Accordingly, even if the services are rendered outside India the fees for technical services would clearly be deemed to accrue or arise in India and would be taxable under the provisions of section 9 (1)(vii) of the act. The decision of Hon’ble Supreme Court of India in the case of the Ishikawajima was based on the premises that provisions of section 9(1)(vii) could only apply if the assessee also had a business connection in India as per section 9(1)(i) and in that context the court held that the services would not be rendered in India. That this was not the intention of the legislature is apparent from the plain reading of section 9(1)(i) (vii) of the Act, and has been subsequently clarified by the insertion of the explanation to section 9 inserted through the Finance Act 2010 with retrospective effect from 01.06 .1976.
The learned CIT(A) while considering the contention of assessee with regard to the levy of interest under section 234B of the Act, observed as under: “That certificate u/s 197 was issued by AO on 26.06.2007 for VSL project and on 26.04.2007 for IPP project. In both the cases, the AO has directed the payers to deduct the TDS @ 2% of payments and the orders were valid till 31.03.2008. The above 197 certificates are for sum on account of onshore contract supply of Rs. 378,98,79,152/- and onshore service contract Rs. 17,92,92,49,911/- for Sterlite IPP project and for sum of onshore supply contract Rs. 15,52,15,849/- and onshore service contract Rs. 1,28,39,96,889/-. While issuing certificate, AO has mentioned the fact that contract regarding offshore supply and offshore services but directed to do TDS only on onshore supplies and onshore contracts. The assessee did not show the income on account of offshore services Rs. 62,76,56,839/- in the return but the AO taxed the same in the assessment order @ 10%, no appeal has been filed against this addition. Thus, the taxability of income on account of offshore services is not in dispute. 7. The Ld. CIT(A) concluded that in this case, on facts, the payer did not deducted tax at source on the basis of certificate u/s 197 obtained from AO by making incorrect representation regarding taxability of offshore service income. This is not a case where payers failed to deduct tax on their own. In fact, there are no failure of payers regarding TDS. Therefore, interest is not recoverable from payer’s u/s 201 of the Act and, hence, interest is recoverable on the payee under the Act for failure to pay tax in time u/s 234B & 234C of the Act. Since interest is recoverable either from payer or from payee, one of them and not both. And held that interest u/s 234B of the Act is leviable on assessee. The order of Ld. CIT(A) is self-contradictory in para-6.1, the order speaks that certificate u/s 197 was in respect of onshore supply contract and onshore service contract. And on the other hand, in para-6.12, the order speaks a certificate u/s 197 was obtained from AO by making incorrect representation regarding taxability of offshore service income.
We are conscious that interest u/s 234B & 234C are consequential and compensatory in nature. The interest is leviable on account of offshore services which are taxable as per Article 7 r.w. Article 12(5) of Indo-China DTAA. Explanation attached with sub-section (2) of Section 9 of the Act was amended by Finance Act 2010 with retrospective effect from 01.06.1976. The assessee filed return of income for AY 2008-09 on 29.09.2008. When the return was filed, the provisions of law were not on statute book which was brought into effect only by way of Finance Act 2010. We have noticed that the AO has neither discussed about the issuance of notice u/s 197 nor about its validity while holding that the assessee is liable to tax on offshore services rendered by assessee. The certificate u/s 197 was valid till 31.03.2008, wherein the assessee was given concession to receive the payment without deduction of tax. The taxability for the offshore service contract came on the statute book only after the amendment by Finance Act 2010. It is not in dispute that no tax was deducted by payee for services rendered on account of offshore service contract. The AO taxed the assessee for the payments received on account of offshore services. The assessee has principally agreed by not filing the appeal against the tax liability on account of addition for offshore services. The only ground for our consideration is if the assessee is liable to pay interest u/s 234B of the Act. The provision of Section 234B of the Act applies to the assessee who is liable to pay advance tax in accordance with the provisions of the Act. And the failure to pay such advance tax on the part of assessee was due to the fact that being a non-resident company; the tax was deductable at source u/s 195 for which a certificate u/s 197 was issued by the AO. We may note that the assessee has accepted the tax liability due to subsequent amendment in law with retrospective effect. We are of the considered view that nobody can anticipate (foresee) the subsequent amendment in law, even with retrospective effect which may or may not create liability that not only with the tax liability but with interest as well. Therefore, we do not endorse the action of AO who was issuing certificate u/s 197 for the relevant AY and while framing assessment, without cancelling (recalling) the said order fixing the tax liability that too with consequential interest. In the above discussion, the order of AO is modified to the extent that