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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’: NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
Appellant by Sh. A.K. Saroha, CIT(DR) Respondent by Sh. M.P. Rastogi, Advocate Date of hearing 07.12.2015 Date of pronouncement 20.01.2016 ORDER PER O.P. KANT, A.M.: The present appeal by the Revenue is directed against the order dated 03.10.2011 of learned Commissioner of Income Tax(Appeals)-XXIX, New Delhi, passed for assessment year 2007-08. The Revenue raised following grounds of appeal:
1. On the fact and in the circumstances of the case, the learned Commissioner of Income Tax(Appeals) has erred in deleting the penalty imposed u/s 271(1)(c) of Rs. 8,59,041/-. a. Ignoring that the penalty u/s 271(1)(c) was levied on account of specific addition made u/s 9(1)(vii) as fee for technical services & assessee failed to substantiate its explanation for not offering the said income for International Steel Service Inc. taxation at the time of penalty proceedings as well as the time of appellate proceedings. b. Without appreciating that the said addition would have escaped taxation, has the case not taken up for scrutiny. Reference is made to such observation made by the Hon’ble Delhi High Court in the case of Commissioner of Income Tax Vs. Zoom Communication Pvt. Ltd. order dated 24.05.2010. c. Erroneously maintaining that the Assessing Officer did not make a case that there was a failure on the part of the assessee to disclose all the facts in its return of income & during the course of assessment proceedings. Whereas while passing penalty order, the Assessing Officer has specifically mentioned that the assessee failed to disclose the facts & thus furnished inaccurate particulars of Income.
2. The appellant craves to add, amend, modify or alter any grounds of appeal at the time or before the hearing of appeal.
2. The facts in brief as culled out from the order of the lower authorities are that the assessee , a foreign company based in USA, filed its return of income declaring nil income on 17.10.2007, which was subsequently revised on 27.10.2008 to claim the tax deducted at source. The case was selected for scrutiny and notice under Section 143(2) of the Income-tax Act, 1961 (for short “the Act”) was issued. In the scrutiny proceedings, the Assessing Officer observed that in the year under consideration the assessee entered into an agreement on 21.03.2006 with Steel Authority of India Ltd. for setting up of an Acid regeneration plant at Bokaro Steel Plant on turnkey basis. The contract was consisting of two parts. The first part amounting to USD 5,89,300 was towards FOV value of design and drawing, supply of plant and equipment, cost of spares, foreign supervision, etc. The second part of the contract was of Rs. 30,02,90,000/- towards erection and commissioning of the plant. During the International Steel Service Inc. year under consideration, the assessee received USD 19,643/- towards first part of the contract. According to the Assessing Officer, since the contract was signed in India, the income received by the assessee towards supply of drawing and design etc. to the Steel Authority of India would fall in the ambit of the fee for technical services as per section 9(1)(vii) of the Act and taxed under Section 115AA of the Act at the rate of 10 percent, whereas the assessee stated that the said income was not taxable in India. Learned Assessing Officer assessed the income as fee for technical services and levied tax of Rs. 8,21,656/- on such income. Further, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) of the Act on 23.02.2010 and after allowing the opportunity of hearing to the assessee levied penalty of Rs. 8,59,041/- under Section 271(1)(c) of the Act @ 100% of the tax sought to be evaded. Aggrieved, the assessee filed an appeal before the learned Commissioner of Income Tax (Appeals), who deleted the penalty levied by the Assessing Officer. Aggrieved, the Revenue is before us.
At the time of hearing the learned Commissioner of Income Tax (Departmental Representative) relied on the order of the Assessing Officer, and submitted that the services were rendered in India and, therefore, the finding of the learned Commissioner of Income Tax(Appeals) that the claim was bona fide in nature was not correct. He further relied on the judgment of the Hon’ble Supreme Court in the case of Dharmendra Textile and the judgment of the High Court of Delhi in the case of Commissioner of Income Tax vs. HCIL Kalindee International Steel Service Inc. Arsspl. [2013] 37 taxmann.com 347 (Delhi) and the decisions of Tribunal ‘E’ Bench, Mumbai in the case of S H R Trading Pvt. Ltd. Vs. Deputy Commissioner of Income Tax, reported in 2014-TIOL-1348-ITAT-MUM.
Learned Authorized Representative, on the other hand, relied on the order of the ld Commissioner of Income-tax( Appeals), and submitted that the penalty proceedings are independent of the assessment proceedings and required to be examined of the facts. In support, he relied on the judgment of the Hon’ble Madhya Pradesh High Court in the case of Dadariya Sales & Services vs. Commissioner of Income Tax, 83 ITR 369; judgment of Hon’ble Karnataka High Court in the case of Commissioner of Income Tax Vs. Manjunatha Cotton & Ginning Factory, 359 ITR 565; and the case reported in 219 ITR 367.
We have heard the rival submissions and perused the material on record. The issue has been dealt by the learned Commissioner of Income Tax(Appeals) at length and he has held that the issue was extremely debatable whether the payment was made for the supply and design and foreign supervision could be delinked for the main project and could be treated separately for the project. The relevant finding of the Commissioner of Income Tax (Appeals) are reproduce as under: “5. I have considered the submissions of the appellant, It may be noted here that foreign exchange component of the total consideration for setting up the Acid Regeneration Plant was only 8% of the total value. Therefore, it cannot be denied that the main purpose of the contract was to set up the Acid Regeneration Plant. The appellant has duly paid taxes on the profit arising from the activity of setting up of the Regeneration Plant and there is no dispute about it. Similarly, there is no dispute on the taxability of off- International Steel Service Inc. shore supplies made from the USA. The only question to be decided was that whether the payment made for supply of design and drawings and rendering supervision services was taxable in India as fee for technical services/royalty. As stated above, it is very clear that primary object of the contract was to set up Acid Regeneration Plant. The supply of design and drawings was incidental to the main object of setting up such plant. It was only for the purpose of fixing the milestones of payment, separate value was assigned in the contract for supply of design and drawings and foreign supervision. Generally, whenever anyone buys plant and machinery, it does not make separate payment for the effort spent on design and development of such product/plant and only lump sum payment is made for the purchase of the equipment. Therefore, it is extremely debatable that whether the payment made for the supply of design and drawings and foreign supervision could be delinked from the main project and treated separately for the tax purposes. It was basically integral part of the contract of supply and setting up of Acid Regeneration Plant. 5.1 Without prejudice to the above argument, even if it is presumed that supply of design and drawings and foreign supervision was a separate transaction, it has been the matter of intense judicial controversy that whether outright sale of design and drawings from abroad can be taxed in India. In a very recent judgment, the Hon’ble Delhi High Court in the case of CIT VS. DCM Lt. 241 CTR 89 has held that the outright sale of design and drawings from abroad cannot be treated as royalty or fee for technical services in terms of the definition provided under the treaty because in the case of outright sale, consideration is not being paid for the use or the right to use of the design but it is made for outright sale. In other words, the developer of design and drawings has transferred all the rights associated with such design and drawings to the buyer and no rights are retained by the seller in respect of such design and drawings. 5.2 So far as the question of payment for supervision service is concerned. it cannot be taxed in India unless it falls under the definition of included services, i.e, only if such services had been made available to the user so that it could use them in its own right. However, the Id. AO has not made out any such case in the assessment order that the supervision services rendered by the appellant were in the nature of included services. 5.3 The purpose of the discussion in the above paragraphs is not to decide the issue of taxability of foreign exchange payments received by the appellant. The limited purpose is only to bring out that the issues involved were complex and mired in intense judicial controversy. Therefore, it was International Steel Service Inc. very much possible to have two different opinions about the taxability of such payments in India. 5.4 The Id. AO also not made out a case that there was any failure on the part of the appellant to disclose all the facts in its return of income and during the course of assessment proceedings. 5.4 In view of the discussion in above paragraphs, I am of the view that the conditions provided in section 271(1 )(c) are not satisfied in this case and it is held that the appellant had neither concealed particulars nor furnished inaccurate particulars of any income. The Id. AO is, therefore, directed to delete the penalty of Rs.8,59,041/- imposed upon the appellant in this case.”
Further, the judgments relied upon by the ld. Commissioner of Income Tax (Departmental Representative) are distinguishable in the case of Commissioner of Income Tax Vs. HCIL Kalindi (supra). The assessee made a claim under Section 80I(a) of the Act in clear ignorance of the statutory provisions which excludes work contract and, therefore, the claim of deduction was not held as a bona fide, whereas in the facts of the assessee, the claim was of debatable nature. Further in the case of SHR Trading Pvt. Ltd. (supra), the assessee was a company, however, made claim for deduction under Section 54/54F of the Act. According to Section 54/54F, the deduction is allowed at the relevant point of time to the assessee other than the company and, therefore, the Tribunal has held that the claim was a debatable and it was inadmissible claim. Thus, the facts of the case of the assessee being different from the cases cited by the learned Commissioner of Income Tax (Departmental Representative), the ratios of those judgments are not applicable over the facts of the assessee.
International Steel Service Inc. 7. In view of the above discussion, we are of the opinion that issue of addition made was of debatable nature and no penalty under section 271(1)© of the Act could be levied in such circumstances. Accordingly, we hold that no further interference is required in the findings of the Commissioner of Income Tax (Appeals) on the issue in dispute. Thus, the ground of appeal of the Revenue is dismissed.
8. We also note that after hearing of the case, pursuant to the mandate of section 268A, the CBDT has issued a circular dated 10.12.2015 directing the Commissioners of Income-tax to withdraw or not press the appeals pending before the Tribunal having monetary tax effect not exceeding Rs. 10 lakhs. As the tax effect involved in the appeal is less than Rs. 10.00 lakhs, keeping in view the above Circular and the provisions of Section 268A of Income-tax Act, 1961, the appeal is also liable to be dismissed.
9. In the result, the present appeal filed by the Revenue is dismissed. The decision is pronounced in the open court on 20th January, 2016.