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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : KOLKATA
[Before Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM] I.T.A No. 259/Kol/2016 Assessment Year : 2004-05
ITO.Wd-International Taxation -vs.- M/s. AT & S India Pvt. Ltd. Kolkata Kolkata [PAN : AAECA 2930 J] (Respondent) (Appellant) For the Appellant Shri Niloy B.Som, JCIT, Sr.DR For the Respondent : Shri Anup Sinha, A.R.
Date of Hearing : 15.07.2016. Date of Pronouncement : 20.07.2016.
ORDER Per N.V.Vasudevan, JM
This is an appeal by the Revenue against the order dated 30.10.2015 of CIT(A)-22, Kolkata, relating to AY 2004-05.
The grounds of appeal raised by the Revenue reads thus: (i) In the facts and circumstances of the case the Ld.CIT(A) erred by relying upon the decision of the Hon'ble Kolkata Tribunal in assessee's own case although the matter before the Kolkata Tribunal was that of disallowance uls.40(a)(ia) of the I.T '61 and the issue before the Ld.CIT(A) was arising out of an order under section 195 of the IT.Act'61,which is based on different facts. (ii) In the facts and circumstances of the case and in law the Ld.CIT(A) erred in holding that order u/s.l95(2) of the Act'61 was not valid without going into the merit of the case or without giving an independent finding that the amount was not in the nature of "fees for technical services" as determined in the order u/s/195(2) of the IT.Act'61. (iii) In the facts and circumstances of the case the Ld.CIT(A) was not justified to rely upon the decision of the Hon'ble Kolkata Tribunal and holding that the amount received by AT &S Austria was not taxable as per Article-7 of the India-Austria DTAA despite the fact
2 ITA No.259/Kol/2016 M/s. A T & S India Pvt. Ltd. A.Yr.2004-05 that the A.O in his order u/s.l95 of the LT.Act'61 dated 13.12.2004 never determined the same to be taxable as per Article 7 of India- Austria DTAA" (iv) In the facts and circumstances of the case the Ld.CIT(A) erred in holding that the payments sought to be made to AT &S Austria in respect of services utilized by the AT &S India Pvt. for its business or profession carried in India will not be taxable in India considering the fact that the job performed by AT &S Austria is of highly technical and skill oriented job which is critical for goods being acceptable to the end user, and thus taxable as fees for technical services. (v) In the facts and circumstances of the case the Ld.CIT(A) erred by relying on the Hon'ble Kolkata Tribunal's order which was based upon the Hon'ble Karnataka High Court's order in case of DIT Vs. Sun Microsystems India P.Ltd.(2014)369ITR 63(Karn.) as the facts in the two cases are different. In the case of Sun Microsystems India P.Ltd. it was found that the consideration for "fees for technical services" was not taxable in India as technology was not made available and in absence of a Permanent Establishment the same was not taxable as per Article-7 of the India -Singapore DT AA. In the instant case, the make available clause is not present in Article 12 of India- Austria DT AA and therefore, in absence of a P.E in India the amount received in the nature of "fees for technical services" is taxable as per Article-12 of India-Austria DT AA. (vi) The Department craves leave to add or alter, amend and modify, substantiate, delete and/or revise all or any of the grounds of appeal on or before the final bearing.”
The Assessee is a wholly-owned subsidiary of AT&S Austria and is interalia engaged in the manufacture and sale of Printed Circuit Boards (hereinafter referred to as 'PCBs'). In order to sell the PCBs, it is necessary to finish the manufacture of the PCBs without which the customers would not accept the goods. The Assessee partly manufactures goods in India. Since the respondent does not have adequate manufacturing facility in India, the assessee sends partly-manufactured goods to AT&S Austria for completing the manufacture and sale of the finished goods. The partly manufactured goods sent by the Assessee to AT&S Austria are not in a saleable condition. AT&S Austria finishes the manufacturing activity in Austria (i.e. outside India) after which the goods would be ready for sale. Thereafter, AT&S Austria sells the goods to various customers situated outside India. It was mutually agreed between the Assessee and AT&S Austria that the costs incurred by AT&S Austria in performing the
3 ITA No.259/Kol/2016 M/s. A T & S India Pvt. Ltd. A.Yr.2004-05 aforesaid manufacturing activity to finish the production of PCBs would be reimbursed by the Assessee to AT&S Austria.
During the previous year, AT&S Austria raised debit notes on the assessee towards the aforesaid manufacturing costs incurred by the former which was USD 2,26,190/-. While making payment of USD 2,26,190/- to AT&S Austria in respect of reimbursement of actual manufacturing costs, the assessee made application to the Deputy Director of Income Tax (International Taxation)-I, Kolkata (hereinafter referred to as the 'DDIT') for an order under section 195(2) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') for permitting the assessee to remit the sum without deduction of tax at source under section 195(1) of the Act.
The DDIT, vide order dated 13th December, 2004, held that the amount payable by the Assessee to AT&S Austria for carrying out critical manufacturing operations for making the finished goods acceptable to the final customers would represent 'Fees for Technical Services' and the same should be taxed at the rate of 10% in view of the provisions of Article-12 of the Double Taxation Avoidance Agreement (hereinafter re ferred to as the 'DTM') entered into between India and Austria. The Assessee, aggrieved by the action of the DDIT, filed an appeal before the Commissioner of Income Tax (Appeals)-22 (hereinafter referred to as the CIT(A) after depositing the entire TDS on the aforesaid amount under protest as per the provisions of section 248 of the Act. The Ld. CIT(A) deleted the addition made by the DDIT by following the decision rendered by the Hon'ble Tribunal in the assessee’s own case in the AY 2004-05 and AY 2005-06 wherein the Hon'ble Tribunal deleted the addition made by the AO on the ground that there is no requirement of deduction of TDS in respect of reimbursements of the payments made to AT&S Austria. Aggrieved by the order of the CIT(A), the Revenue has preferred the present appeal before the Tribunal.
4 ITA No.259/Kol/2016 M/s. A T & S India Pvt. Ltd. A.Yr.2004-05 6. We have heard the submissions of the ld.DR, who reiterated the stand of the revenue as reflected in the grounds of appeal filed before the Tribunal. The ld. Counsel for the assessee relied on the order of CIT(A).
We have considered the rival submissions. It is seen that during the relevant previous year, AT&S Austria raised debit notes on the assessee towards manufacturing costs incurred by it in order to make the PCBs saleable to customers for a sum of USD 2,26,190/-. The aforesaid cost was debited in the books of account of the Assessee under the head 'Rework Cost' during the previous year relevant to the assessment year under consideration and it consisted of direct material cost, material overhead costs, production overhead and transportation cost incurred in Austria. During the course of assessment proceedings of the assessee for A.Y.2004-05 under section 143(3) of the Act, the AO disallowed the said payment under section 40(a)(ia) of the Act and rejected the contention of the assessee that reimbursement of actual manufacturing costs would not constitute income in the hands of AT&S Austria. The AO held that the aforesaid payment was essentially in the nature of payments for fees for technical services as defined in section 9(1 )(vii) of the Act and as such, these payments were liable for deduction of tax at source. The Ld. CIT(A) confirmed the disallowance made by the AO and held that payment for rework cost made to AT&S Austria was in the nature of technical fees within the meaning of provisions of section 9(1 )(vii) of the Act. Against the aforesaid order of the CIT(A) the issue was agitated before the Hon'ble Tribunal and the Hon'ble Tribunal set aside the order of the Ld. CIT (A) and remitted back the matter to the file of the AO for fresh consideration. Thereafter the AO again by order dt. 27.12.2010 disallowed the aforesaid payment on the ground that payment for rework cost made to AT&S Austria was in nature of technical fees within the meaning of provisions of section 9(1 )(vii) of the Act. On appeal by the Assessee against the said order of the AO, the Ld CIT(A) by order dt. 15.3.2013 confirmed the addition which was challenged by the assessee before the Hon'ble Tribunal in ITA No.2305/Kol/2013. 4
5 ITA No.259/Kol/2016 M/s. A T & S India Pvt. Ltd. A.Yr.2004-05 The Hon'ble Tribunal allowed the assessee’s appeal by order dt. 15.10.2015. The following were the relevant observations of the Tribunal on the same issue:
“Coming to assessee’s appeal ITA No.2305/Kol/2013 AY 04-05 7. In this appeal assessee has raised the following grounds:- "1. That the order passed by the learned Commissioner of Income- Tax (Appeals)['Ld. CIT(Appeals)] under section 250 of the Income-tax Act, 1961 (,Ad,), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in upholding the disallowance of Rs. 10,128,788/- made by the Learned Deputy Commissioner of Income Tax ['A.O’], being reimbursement of rework costs by the Appellant to A T&S Austria by applying the provisions of section 40(a)(ia) of the Act. 3. That the Ld. CIT(Appeals) erred in upholding the action of the Ld. AO by confirming that, the aforesaid payment was in the nature of fees for technical services under section 9(1 )(vii) of the Act and accordingly, taxes are required to be deducted at source. 4. That the Ld. CIT(Appeals) erred in confirming the order of the AO holding that, tax was required to be deducted at source from the impugned payment by applying the provisions of section 40(a)(ia) of the Act. 5. That the Ld. CIT(Appeals) and the Ld. AO erred in not following the decision of the Hon 'ble Kolkata ITA T in Appellant's own case (ITA No.s 1448 & 1449(Kol) of 2008 dated July 24,2009) for AY 2002-03 and AY 2003-04, wherein it was held that reimbursement of Information technology costs does not result in income in the hands of the recipient an hence, the payments are allowable deductions and not fall within the mischief of section 40(a)(i) read with section 195. 6. That the Ld. AO erred in consequently levying interest under section 234B of the Act.”
Briefly stated facts are that the assessee has claimed the expenses of Rs.1,01,28,788/- in the form of reimbursement cost incurred by AT & S Austria towards the cost of repair / remanufacturing of defective products. The AO held that expenses as fees for technical services as defined under section 9{1 )(vii) of the Act, so he disallowed the said expenses for the violation of the provisions of section 40(a)(i) of the Act. The AO also relied on the judgment Hon'ble Delhi Tribunal in the case of Sahara Airlines Ltd. Vs DCIT( 2002) 83 ITD 11, 41 (Delhi) and Hon'ble ITAT Hyderabad in the case of Mannesmann Demag Laun'chhammer Vs. CIT (1988) 26 ITO 198, 202-03( Hyd.). Aggrieved assessee preferred an appeal before CIT(A) who has upheld the order of the AO. 9. Now aggrieved assessee is in second appeal before us. The Ld AR submitted that the decision of the Hon'ble Kolkata ITAT in Appellant's own case (ITA No.s 1448 & 1449(Kol) of 2008 dated July 24,2009) for AY 2002- 03 and AY 2003-04, wherein it was 5
6 ITA No.259/Kol/2016 M/s. A T & S India Pvt. Ltd. A.Yr.2004-05 held that reimbursement of Information technology costs does not result in income in the hands of the recipient an hence, the payments are allowable deductions and not fall within the mischief of section 40(a)(i) read with section 195. On the other hand, Ld. DR supported the order of the authorities below. 10. We find from the aforesaid discussion and submission of the assessee that the facts have already been decided by the Hon'ble Kolkata ITAT bench in favour of the assessee in the case of DCIT v. M/s AT&S India Pvt. Ltd. In ITA No. 1262/Ko1/2010, 186/Ko1/2011, 2071/Kol/201 0 & 779/Kol/2012 for A Ys 2005-06, 2006-07 & 2007-08 vide dated 29-01-2015. The relevant portion of the order is extracted below: "18. We have considered the rival submissions and gone through facts and circumstances of the case. A perusal of the decision of the Coordinate Bench of this Tribunal referred to supra for the assessment years 2002-03 and 2003-04 clearly shows that the Tribunal has taken into consideration the agreement dated 13.03.2001 between the assessee and AT & S Austria. Further, similarly, Hon'ble Karnataka High Court in a recent judgment in the case of OIT v. Sun Microsystems India P. Ltd. (2014) 369 ITR 63 (Karn) exactly on the similar issue intinterpreting article 7 of the DTAA between India and Singapore, which is identically worded to article 7 of DTAA between India and Austria held that the parent company has not made available to the assessee the technology or the technological services which was required to provide the distribution, management and logistic services. We further noticed that in the said order the Tribunal has taken into consideration the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Dunlop Rubber Co. Limited (1983) 142 ITR 493 (Cal) and in the similar circumstances that of the assessee to hold that the reimbursement of the expenditure does not generate any income in the hands of the recipient 'and consequently there was no requirement of deduction of TOS and consequently the provisions of section 40(a)(ia) could not be invoked. The facts being identical for this assessment year, respectfully following the decision of Coordinate Bench of this Tribunal in the assessee's own case for the assessment years 2002-03 and 2003-04 referred to supra, finding of CIT(A) stands reversed and the disallowance as made by the Assessing Officer in respect of the reimbursement of the payments made to AT & S Austria to the extent of Rs.1,50,44,031/- stands deleted. This issue of assessee's appeal is allowed. " Since the matter is already covered in favour of assessee in its own case by this Tribunal, we conclude the appeal in favour of assessee.”
In view of the aforesaid decision rendered in respect of the very same payment, we are of the view that there is no merit in this appeal by the Revenue. We do not find any substance in the grounds raised by the revenue before us. As far as ground No.1 raised by the revenue is concerned, it is clear from the order of the Tribunal that the very same
7 ITA No.259/Kol/2016 M/s. A T & S India Pvt. Ltd. A.Yr.2004-05 payment which was subject matter of application u/s.195 of the Act that the disallowance was made by the AO u/s.40(a)(i) of the Act.(inadvertently mentioned as Sec.40(a)(ia) of the Act in the order of the Tribunal referred to above) As far as ground No.2 raised by the Revenue is concerned, the Tribunal has considered the merits of the case and has given a clear finding with regard to the nature of the payment being in the nature of reimbursement and the allegations in the grounds of appeal of the Revenue are without any merit. As far as ground No.3 & 4 are concerned, the CIT(A) in the impugned order has followed the decision of the Tribunal on identical payment made to AT& S Austria, in AY 2005-06 and has come to the conclusion that the payment was not in the nature of “Fees for Technical Services” but was in the nature of business income and since the AT & S, Austria did not have a Permanent Establishment in India, the sum in question cannot be taxed in view of the provisions of Article 7 of the India- Austria DTAA. As far as Ground No.5 raised by the revenue is concerned, the Ld. CIT(A) has relied on the decisions of the Jurisdictional Tribunal in the Assessee’s own case and allowed the appeal holding that the payment made to AT & S Austria is actually the reimbursement of the expenses incurred by the AT&S Austria and the same doesn’t contain any profit element. That the income generated, if any, would constitute Business Income and would not chargeable to tax under the provisions of Article 5 r.w. Article 7 of the DTAA. The Ld. CIT(A) in the instant case has never relied on the decision of Karnataka High Court in the case of DIT vs Sun Microsystems to allow the appeal of the assesse. Since the impugned appeal is arising out of the order of Ld.CIT(A) raising such ground before the Hon’ble Tribunal was not proper.
For the reasons given above, we do not find any merits in this appeal by the Revenue. The appeal by the Revenue is therefore dismissed.
8 ITA No.259/Kol/2016 M/s. A T & S India Pvt. Ltd. A.Yr.2004-05 10. In the result, appeal by the revenue is dismissed.
Order pronounced in the Court on 20.07.2016.
Sd/- Sd/- [Waseem Ahmed] [ N.V.Vasudevan ] Accountant Member Judicial Member
Dated : 20.07.2016. [RG PS]
Copy of the order forwarded to:
M/s. A T & S India Pvt. Ltd., 12/A, Industrial Area, Nanjanud, Mysore District, Karnataka-571301. 2. I.T.O., International Taxation, Ward- Kolkata. 3. CIT(A)-22, Kolkata. 4. CIT-(IT & TP), Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.