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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI RAHUL CHAUDHARY, JM
““On the facts and in the circumstances of the case and in law, M/s H. J. Heinz Company (now merged with Kraft Food Company to form Kraft Heinz Food Company) (hereinafter referred to as the Appellant") craves leave to prefer an appeal against the order passed by the Assistant Director of Income-tax, (International tax), Circle 2(1)(1), New Delhi (hereinafter referred to as the learned AO') under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act) on the following grounds, each of which are without prejudice to one another.
Ground 1: General
On the facts and in the circumstances of the case and in law, the Learned AO/ Dispute Resolution Panel-1, New Delhi (hereinafter referred to as the 'DRP') erred in assessing the total income at Rs 10.44.21.324 as against an income of INR 40,42,979 computed and returned by the Appellant:
Ground 2: Taxing of reimbursements of Rs. 10,03,78,345 as Fees for Technical / included service (FTS/FIS) and Royalty under the Act and Double
2. On the facts and in the circumstances of the case and in law, the Learned AO/ DRP erred in holding that the cost reimbursements of Rs. 10,03,78,345 received by the Appellant towards providing support services to its group affiliates are taxable as FTS both under section 9(1)(vii) of the Act as well as Article 12(4) of the DTAA;
3. On the facts and in the circumstances of the case and in law, the Learned AO erred in holding that the Appellant has made available technical knowledge, skill, experience, etc. to the recipient of services; On the facts and in the circumstances of the case and in law, the Learned AO/ DRP further erred in holding that the cost reimbursements are also taxable as 'Royalty both under section 9(1)(v) of the Act as well as Article 12 of the DTAA
On the facts and circumstances of the case, the Learned AO/ DRP failed to appreciate that the amounts represented pure reimbursement of costs and hence does not result into any taxable income accruing in India:
6. Without prejudice to the above, the Learned AG/ DRP failed to appreciate that the income, cannot be both royalty as well as 'FTS and hence the order passed on account of non application of mind, needs to be quashed;
7. On the facts and in the circumstances of the case and in law, the Learned AO erred in not granting credit for TDS of Rs 1,40,93,981 claimed by the Appellant in the return of income,
Ground 4: Levy of surcharge and education cess in respect of tax on royalty
On the facts and in the circumstances of the case and in law, the Learned AO erred in levying surcharge and education cess of Rs. 12,129 and Rs 18,557 respectively while taxing royalty offered to tax under the India-USA double tax treaty:
Ground 5: Initiation of penalty proceedings under section 271(1) (c) of the Act
9. On the facts and in the circumstances of the case and in law, the Learned AO erred in initiating penalty proceedings under section 271(1)(c) of the Act for concealment of income and furnishing of inaccurate particulars of income, without appreciating the facts and circumstances of the case.”
Brief facts of the case shows that assessee is a resident of USA, filed its return of income on 14th March, 2013, at ₹nil. The return was picked up for scrutiny. The fact shows that Heinz, USA, the assessee is a leading manufacturer of food products and has a global presence. It has entered into a global agreement with effect from 3rd May, 2007, with its group entities for the provision of support activities. Heinz USA Pvt.
The assessee approached to the learned Dispute Resolution Panel-1, New Delhi, who passed the direction on 30th September, 2015, wherein the learned Dispute Resolution Panel confirmed the order of the learned Assessing Officer.
The assessee has a ground of appeal about taxability of ₹10,03,78,345/- as fees for technical and included services and royalty under the Act and as per Double Taxation Avoidance Agreement between India and USA.
5. When the appeal was called for hearing, the learned Authorized Representative stated that the appeal for A.Y. 2009-10 and for A.Y. 2011-12 in and ITA No.1991/Del/2015 were heard and disposed off as per order dated 23rd August, 2019 by the Hon'ble Bench of ITAT at New Delhi. The issue in this appeal i.e. A.Y. 2012-13 and ITA No.2017/Mum/2017 for A.Y. 2013-14 are also involving similar issue. learned Authorized Representative claimed that there are certain errors in the order of the co- ordinate Bench for A.Y. 2009-10 and 2011-12 against which Miscellaneous Application no. 861 & 862/Del/2019, has been filed. Those Miscellaneous Applications have been heard on 10th February, 2023. The order of such MA will have a bearing on this issue of appeal and therefore, these appeals should be adjourned.
The learned Departmental Representative vehemently submitted that the issue is squarely covered against assessee by the above decision of the co-ordinate Bench at New Delhi, wherein after detailed discussion the co-ordinate Bench has decided the issue as per Para no.21 of the order. He submitted that ground no.2 of the appeal at page no.2 of the order for A.Y. 2009-10 and ground no.2 of the appeal for A.Y. 2011-12 at page no.4 of the order are identical. Therefore, these issues have already been covered and decided in assessee’s own case
We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also carefully perused the orders of the co-ordinate bench in assessee’s own case for A.Y. 2009-10 and 2011-12. We also find that the ground no.2 in those appeals is identically worded except the change in amount. Even the facts are not stated to be even slightly different in the current year. The co-ordinate Bench vide order dated 23rd August, 2019 for A.Y. 2009-10 and A.Y. 2011-12 has categorically held as Para no.21 of that order for the above amount is correctly assessed as FTS both under Section 9(1) (vii) of the Act as well as Article 12(4) of the Double Taxation Avoidance Agreement. Accordingly, on careful perusal of the Para no.21 of the order, this issue is squarely decided against the assessee. In such circumstances, we reject the application for adjournment, when the issue is squarely covered against the assessee.
“21. We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that taxability of the payment made by Heinz India towards the cost allocated by Heinz USA in respect of the activities carried out will depend upon the characterization of such payment. Such payment could be governed by Article 12 – „Royalties and fees for included services‟ or Article 7 – „Business Profits‟. The term “fees for included services” (FIS) has been explained in Article 12(4) of the DTAA which reads as under:
“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 The assessee has filed the present appeal challenging the assessment order on the ground that the cost reimbursement of Rs. 1,88,54,358/- received by the assessee towards providing support services to its group affiliates are taxable as FTS both u/s 9(1)(vii) of the Act as well as Article 12(4) of the DTAA taxing the same by the assessing officer as royalty is also not just and proper. From the perusal of the records it can be seen that the assessee has entered into a global agreement effective from 3rd May, 2007 with its group entities (affiliates), including Heinze India Pvt. Ltd. (Heinze India) for the provision of support activities. The underlying objective of the agreement is to achieve consistency of approach and economies of scale for the group entities. The activities carried out by the Heinz, USA under the agreement are broadly in the area of supply chain Human Resources, Strategic Planning and marketing, Finance and information systems from the DTAA as well as the agreements entered into by the assessee company as well as Heinz, India Novel Define but services are coming while claiming the reimbursement. The approach of the assessee
Therefore, respectfully following the decision of the co-ordinate Bench in assessee’s own case for A.Y. 2009-10 and 2011-12, ground no.2 is dismissed. Accordingly, the action of the learned Assessing Officer holding that the cost reimbursement of ₹10,03,78,345/- received by the assessee towards providing support services is taxable as fees for technical services both under Section 9(1) (vii) of the Act as well as Article 12(4) of the Double Taxation Avoidance Agreement.
Ground no.4, is with against the order of the learned Assessing Officer levying the surcharge and education cess while taxing royalty for two taxes as per Double Taxation Avoidance Agreement. On hearing the parties, we set aside the issue back to the file of the learned Assessing Officer and decide when the tax rates are to be applied as per the Double Taxation Avoidance Agreement whether surcharge and education cess can be levied on it. If the learned Assessing Officer finds that the Double Taxation Avoidance Agreement rates cannot be further increased by education cess and surcharge, the same may be deleted.
Ground no.5, with respect to the initiation of penalty proceedings under Section 271(1) (c) of the Act is premature, therefore, same is dismissed.
Ground no.1 is general in nature and therefore, same is dismissed.
Accordingly, of 2016 is partly allowed.
ITA No. 2017/Mum/2017 For A.Y. 2013-14 015. is filed by the assessee for A.Y. 2013- 14, wherein identical grounds are raised. This appeal is filed against the assessment order dated 31st January, 2017, passed by the Dy. Commissioner of Income-tax, International Taxation 2(2)(2), Mumbai under Section 143(3), read with section 144C
Ground no.1 is general in nature, ground no.5 is against initiation of penalty proceedings and therefore, is premature and hence grounds no.1 and 5 of the appeal are dismissed.
Ground no.2 is against the taxation of ₹12,20,17,986/- as FTS under the Act and as well as Double Taxation Avoidance Agreement (DTAA). This ground is identical to the ground no.2 decided by the co-ordinate Bench in assessee’s own case for A.Y. 2009-10, which we have followed while deciding the appeal of the assessee for A.Y. 2012-13. As per the statement of the assessee also, there is no change in the facts and circumstances of the case and therefore, we are duty bound to follow the decision of the co-ordinate Bench. We have already followed the same while deciding the ground no.2 for the appeal of A.Y. 2012-13. Accordingly, respectfully following the decision of the co-ordinate Bench, we uphold the action of the learned Assessing Officer and Dispute Resolution Panel holding that the cost of reimbursement of ₹12,20,17,986/- received by the assessee is correctly held to be taxable as Fees for Technical Services (FTS) under the Income Tax Act, as well as per the Double Taxation Avoidance Agreement. Thus, the actions of the lower authorities are upheld. Ground no.2 of the appeal is dismissed.
Ground no.3 is against the Short Credit for taxes deducted at source of ₹28,48,778/-. We direct the assessee to prove the credit before the learned Assessing Officer, the learned Assessing Officer may examine the same and grant the credit if found in accordance with the law. Ground no.3 is allowed with above direction.
Accordingly, is partly allowed.
In the result, both the appeals of the assessee for A.Y. 2012-13 and 2013-14 are partly allowed.
Order pronounced in the open court on 01.08. 2023.