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05-12-2018, Batlivala & Karnani, Section 40(a)(ia), 195, 9(2), Tribunal Kolkata

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5 months 2 weeks ago #7973 by amit
Section - 40(a)(ia), 195, 9(2), 9(1)(vii), 90(2), 195(1), 30, 38
Order Date - 05-12-2018
Favouring - Assessee
Court - Tribunal Kolkata
Appellant - ACIT
Respondent - Batlivala & Karnani Securities (I)(P) Ltd.
Justice - S.S.Godara, JM & M.Balaganesh, AM
Citation - 1218Taxpundit123
Appeal No. - I.T.A No. 1812/Kol/2017
Asstt. Year - 2010-11


PER : M.Balaganesh, AM

1. This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-8, Kolkata [in short the ld CIT(A)] in Appeal No.8/10172/2013- 14 dated 15.05.2017 against the order passed by DCIT, Circle-5, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 19.03.2013 for the Assessment Year 2010-11.

2. At the outset, there is a delay of 2 days in filing the appeal by the revenue. Due to the concession given by the ld AR, the same is hereby condoned and appeal of the revenue is hereby admitted for adjudication.

3. The only issue to be decided in this appeal is as to whether the payments made by the assessee to its UK and Singapore Subsidiaries would fall within the ambit of 'Fees for Technical Services' and if so whether the disallowance u/s 40(a)(i) of the Act could be made in the facts and circumstances of the case.

4. We find that the issue under dispute is squarely covered by the decision of this tribunal in the assessee’s own case for the Asst Years 2008-09 and 2009-10 reported in 71 142 (Kolkata Trib.) dated 8.7.2016, which was authored by one of us, wherein the facts of the case were dealt with at length and decision rendered thereon as under:-

3. The facts in Asst Year 2008-09 are considered here for adjudication in respect of this issue and decision rendered thereon would apply with equal force for Asst Year 2009- 10 also as the issue involved is identical in Asst Year 2009-10 also. The brief facts of this issue are that the assessee company is a stockbroker company. The assessee carries on business of brokerage on behalf of institutional clients. During the previous year relevant to the assessment year under consideration, the assessee had made payments to two of its wholly owned subsidiaries namely, M/s B&K Securities Ltd. (U.K.) and M/s. B&K Securities Pv Ltd (Singapore). M/s B&K Securities Ltd (U.K.) is engaged in business of providing marketing support services for clientele in U.K. The services rendered by B&K (U.K) were for expansion of assessee's business. For this purpose a 'Representation Agreement' was entered between the assessee and B&K on 15.11.2006. As per the terms of the said agreement lump sum payment of 18,000 pounds per month was made by the assessee to the U.K. company. On the said payment, there is no dispute since TDS was deducted by the assessee while making the said payment. The representation agreement was revised on 03.10.2007 w.e.f. 01.10.2007. As per the said agreement the assessee was to reimburse the cost incurred by the U.K. company and in addition was to pay a mark-up of 29% on cost for the marketing services provided by the U.K. company.

M/s B&K Securities Pte Ltd (Singapore) is engaged in business, inter alia, of research and marketing services for securities/markets locally and overseas. B&K Singapore had provided various services, such as research and marketing services to the appellant. The services rendered by B&K were for expansion of assessee's business not only in Singapore but also in entire South East Asian countries. For this purpose a 'Business Services Agreement' was entered between the assessee and B&K on 01.04.2007 stipulating the terms and conditions. It is submitted that the assessee has deducted TDS on payments made on account of research services. With regard to marketing services, as per the agreement, the assessee was to reimburse the cost incurred by the Singapore company and in addition was to pay a mark-up of 29% on cost for the marketing services provided by the Singapore company.

3.1 The details of payments made to B & K Securities Ltd, U.K. are as below:—

4. It was submitted before the Assessing Officer that the assessee had deducted TDS on the service fee paid by the assessee to its subsidiaries but not deducted TDS on reimbursement of expenditure since it was not in the nature of income. The Assessing Officer was of the view that the assessee should have deducted TDS on the entire amount remitted to U.K and Singapore company since the payment made by assessee was on account of fees for technical services and hence taxable in the hands of nonresident. For holding that assessee ought to have deducted tax at source irrespective of the fact whether the payment is taxable in the hands of non-resident in India, the Assessing Officer has relied upon the decision of Transmission Corporation of A.P. Ltd. v. CIT [1999] 239 ITR 587/105 Taxman 742 (SC).

4.1 Before the CIT(A), it was submitted that the subsidiaries only rendered marketing support services which were not covered in the definition of fees for technical services as defined under Explanation to S. 9(1)(vii) of the Act. It was contended that TDS is required to be deducted on the income element accruing in the hands of non-resident. It was submitted that the assessee has deducted TDS on the mark-up fee charged to its subsidiaries but has not deducted TDS on the reimbursement of expenses. It was submitted that the subsidiaries incur certain expenditure on behalf of the assessee which are reimbursed by the assessee at cost. It was submitted that such reimbursement does not give rise to income in the hands of the subsidiaries as a result no TDS is required to be deducted on the amount paid as reimbursement. In order to support the said contention, reliance was placed on the decision of the Hon'ble Supreme Court in the case of GE India Technology Cen. (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234/7 18 However, the ld. CIT(A) held that the payments made by the assessee are for consideration of various services provided by the subsidiaries. He held that as per the provisions of S. 195 of the Act TDS is not to be deducted on income but on gross payment. He further held that the assessee is not to see the income or profit of the deductee but only the amount of payment. Hence, he upheld the action of the Assessing Officer and confirmed the disallowance made u/s 40(a)(i) of the Act.

5. Aggrieved, the assessee is in appeal before us for the Asst Year 2008-09 on the following grounds:—

"I. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in affirming the disallowance of Rs.2,17,79,771/- under section 40(a)(ia) of the Act as a result of wrongly applying the provisions of section 195 of the Act;

II. That on the facts and in the circumstances of the case, the ld. CIT(A) failed to appreciate that the assessee duly complied with the requirements of section 195 as well as section 40(a)(ia) of the Act by deducting tax from fees payable to the said disburses under the contract for services and therefore, there was no scope for invoking the provisions of section 40(a)(ia) of the Act."

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