TMI Blog2012 (3) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue stand dismissed. - IT APPEAL NOS. 1048 TO 1052 (Mad.) of 2011 - - - Dated:- 9-2-2012 - ABARAHAM P. GEORGE, GEORGE MATHAN, JJ. Aniradh Rai for the Appellant. G. Stanly and S.P. Chidambaram for the Respondent. ORDER Abaraham P. George, Accountant Member These are appeals filed by the Revenue against the orders dated 11.03.2011 of Commissioner of Income Tax (A)-XII, Chennai for impugned Assessment Years deleting the addition made by the Assessing Officer u/s.40(a)(ia) of the Income-tax Act, 1961 (in short 'the Act') for the respective Assessment Years. 2. Short facts apropos are that assessee-company engaged in Operation and Maintenance of Power Plant, had made remittance abroad during the impugned Assessment Years, which as per the Assessing Officer, was fees for technical services. According to the Assessing Officer, the amounts debited by the assessee under the head 'Reimbursement of manpower cost' were payments effected to one M/s. CMS Resource Development Company, USA (hereinafter referred to as 'CMS RDC') having its office at Michigan in USA. They were asked to produce the agreement with the said CMS RDC. After making a study of such agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CMS RDC and the assessee-company having failed to deduct tax at source as stipulated u/s.195 of the Act, it was visited with the consequences of Sec.40(a)(i) of the Act. In this view of the matter, he disallowed the entire expenditure claimed by the assessee for payments effected to M/s. CMS RDC for the respective Assessment Years. 4. In its appeals before the Commissioner of Income Tax (A), submission of the assessee were that the persons who were deputed by CMS RDC to the assessee, were one Shri Thomas W Bowes and one Shri Henry Hoffman. According to the assessee, its agreement with M/s. CMS RDC clearly mentioned that the latter was to recruit Shri Thomas W. Bowes on behalf of the assessee on the condition that the assessee would be reimbursing the payments made by CMS RDC to Shri Thomas W Bowes. Again as per the assessee, Shri Thomas W Bowes was designated as General Manager of the assessee company and he was also entering into various contracts on behalf of the assessee. Salaries were initially paid by CMS RDC only because these persons were foreigners, and had requested for payment of salary abroad, directly. Further, according to the assessee, the payments did not tant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch appeared in the payroll history report of CMS RDC. Thus, according to him, assessee had incurred payments not as salary to its own employees but as payments for services of persons seconded by CMS RDC and such payments effected to technical personnel took the character of fees for technical services. Having not deducted tax at source, Assessing Officer was justified invoking the Sec.40(a)(i) and making the disallowances. 7. Per contra Ld. AR strongly supported the order of the Commissioner of Income Tax(A) and submitted that assessee had a bona fide reason to believe that tax was not deductable on payments effected by it to CMS RDC, since it was mere reimbursement of salaries to the employees and there was no element of fees for technical services involved. Strong reliance was placed on the decision of Special Bench of this Tribunal in the case of ITO v. Prasad Production Ltd. [2010] 125 ITD 263 (Chennai). 8. We have perused the orders and heard the rival contentions. No doubt, there are obvious contradictions in the claim of the assessee. At one place it says that the persons concerned named Mr. Henry Hoffman and Mr. Thomas W. Bowes were its employees, who were paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e : 2.1. This Agreement covers the deputation of the Employee by RDC to O M and the terms and conditions thereof. Article IV - Deputation of Employee : 4.1 The Employee deputed shall make his Services available to O M (the Assessee Company) in connection with the operation maintenance of electric power plant in their respective fields of specialization. Article V - Reimbursement of Expenses : 5.1. O M shall reimburse RDC on actual basis remuneration paid or payable to the employee deputed by the RDC including associated costs paid to and/or incurred in respect of Employee deputed by RDC. For these purposes, "associated costs" shall include salary and other related cost. 5.2 O M shall also reimburse on actual basis the expenses incurred towards traveling living including accommodation and medical during the period of deputation. 5.3 No other fee shall be payable to RDC as services fees for the deputation of the Employee in pursuance of the Agreement except the salary and reimbursable expenses on actual basis as provided in clause 5.1. 5.2. above." 10. Before going into the issue, it will be appropriate to reproduce Sec.40(a)(i) of the Act, which has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffected were salaries, no doubt by virtue of sec.192, which does not make any differentiation between resident or non-resident recipient, assessee was bound to deduct tax. But here admittedly the persons involved were not employees of the assessee and there was no employee-employer relations between the assessee and the said persons. Ld. Assessing Officer himself has noted this at para-12 of assessment order for Assessment Year 2002-03. Ld. C.I.T.(A) has given a finding in his order that the expatriates had filed their tax returns in India and M/s. CMS RDC had deducted tax at source on payment of salaries effected to these persons who were on their rolls. This has not been rebutted. The persons were thus in the payroll of CMS RDC and thus could only be considered as employee of CMS RDC. This leaves us with question whether the payments would fall under sec.195. 12. To fall under section 195, the payment should be a sum chargeable under the provisions of the Act. No doubt if it was fees for technical services, it would definitely fall u/s.9(1)(vii) of the Act and irrespective of the place of business or business connection of the non-resident entity in India such income has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecides whether the payment bears any income character or not. In his view, it could be either the Assessing Officer or a chartered accountant as prescribed by the Board, but certainly not the assessee (the payer). The role of the chartered accountant comes into play in the alternative procedure prescribed by the Board and to which we shall advert to it a little later. However, we are not in agreement with the learned Departmental Representative that the assessee (i.e. the payer) has no role to play. The IT Act is enacted to levy taxes on income earned by a person. It is the statutory obligation of the person earning income to prepare his tax return, determine his tax liability, pay the same and furnish the return. He also pays tax in advance during the financial year as he earns income. All these obligations are on the person earning the income and he is to fulfill these obligations according to his understanding of the various provisions of the Act. The question is, if he is expected to know that income is taxable or not taxable in his own case, why can't he decide in respect of the payment he is making to non-resident. It is to be appreciated that the payer has not to determine t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s let us consider the fallout of each situation and how the interests of both, the taxpayer as well as the tax collector are safeguarded under the Act. ( a ) If the bona fide belief of the payer is that no part of the payment has any portion chargeable to tax, he will not enter into any procedure under s.195. However, if the Department is of the view that the payer ought to have deducted tax at source, it will have recourse under s.201 of the Act. Thus, here the interest of the Revenue is protected. In the proceedings under s.201, the Assessing Officer will determine the portion chargeable to tax according to the provisions of the Act and determine the tax payable by the payer. The Assessing Officer is bound to determine the income chargeable to tax in accordance with the provisions of the Act for two reasons. Firstly, because it is the mandate of the Supreme Court in the case of Transmission Corporation ( supra ) as observed at p.595 of 239 ITR. Secondly, the Delhi High Court has held in the case of Delhi Development Authority v. ITO ( supra ) that an order passed under s.201(1) is an assessment order and the said decision has been affirmed by the Supreme Court in [2001] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the Act and the order under s.201 is an assessment order. Therefore, the payer has the right to get his liability determined as per the provisions of the Act despite the entire exercise being tentative in nature. The ultimate result would depend on what is determined in the assessment of the recipient. The ultimate result would depend on what is determined in the assessment of the recipient. The ultimate result in the case of the recipient will determine whether the payer can be treated as an assessee in default or not. Yet, the entire tentative exercise described above may have to be undergone. This has been held in a recent decision (so far unreported) of the Delhi High Court in the case of Van Oord Acz India (P) Ltd v. C.I.T. (IT Appeal No.439 of 2008) decided on 15th Marh, 2010 [since reported at [2010] 230 CTR (Del) 365: [2010] 36 DTR (Del) 425-ED.]." 13. In our opinion the circumstances here were such that the assessee could be justified in reaching a bona fide impression that payments effected by it to CMS RDC was not sums on which tax was chargeable in India. The view taken by the Special Bench has been reinforced by the decision of Hon'ble Apex Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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