TMI Blog2012 (4) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... tax at source from payments by way of dividends, interest and royalties. What is good for the TDS is also good for the taxation. Therefore, it is held that the assessee is not liable to pay surcharge. - IT Appeal No. 5604 (Delhi) of 2010 - - - Dated:- 17-2-2012 - Smt. DIVA SINGH, K.G. BANSAL, JJ. S.K. Aggarwal for the Appellant. S.K. Chand for the Respondent. ORDER K.G. Bansal, Accountant Member The assessee has taken up 9 grounds in the appeal. Ground no. 1 has seven sub-grounds; ground no. 2 has three sub-grounds; ground nos. 3 and 4 have two sub-grounds each and ground no. 5 has three sub-grounds. However, the ld. counsel for the assessee explained that the main issues are regarding the system of accounting and assessment of reimbursement of expenses by the AO. Therefore, while admitting that the grounds are narrative and argumentative in nature and, therefore, not in accordance with ITAT Rules, it is pleaded that the appeal may be decided on the basis of submissions made in the course of hearing. He will also raise material grounds of fact and arguments in the course of hearing. These may be considered and the appeal may be decided accordingly. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in reimbursements; and (ii) if yes, whether the amounts are taxable in this or the next year? In general, the case of the ld. counsel is that no element of profit is involved in the reimbursements. Therefore, nothing is taxable either in this or in the succeeding year. In this connection, our attention has been drawn towards the provision contained in section 5(2), under which two types of income derived from whatever source are subject to tax in the case of a non-resident person - (a) which is received or deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deem to accrue or arise in India during such year. Our attention has also been drawn towards the provision contained in Article 12 of the Double Taxation Avoidance Agreement between India and Singapore (DTAA) which permits taxation of royalty/FTS on payment basis. 2.5 Our attention has been drawn to page no. 51 of the paper book, which furnishes the details of the reimbursements in a tabular form as under:- S.No. Invoice No. Invoice date Addition (USD) Addition (INR) CSC India 3CEB reference Nature of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 61,81,410/-. It is further mentioned that the assessee has probably accounted for the amount net of tax deducted at source, but the difference may be due to some other reason also. CSC India Pvt. Ltd. had claimed deduction of Rs. 62,22,779/-. There is a difference of Rs. 41,369/- on this account. There are payments by CSC India Ltd., which pertain to this year, however, the income has been deferred to the next year. The accounting for of the income is pending in some cases for two to three years from the date of the transaction. This may be due to fault in the recording of the transactions in the books by the assessee. The difference in the amounts claimed by CSC India Pvt. Ltd. and offered to tax by the assessee has been included in the income of the assessee. On this basis, the income of this year had been enhanced Rs. 39,28,072/-. 2.7 The findings of the ld. DRP-I, New Delhi are contained in paragraph no. 2.1 of the directions. It is mentioned that an addition of Rs. 39,28,072/- has been proposed in the draft order dated 30.12.2009. It was observed that the assessee has not offered to tax all sums received from India as royalty/FTS. These differences aggregate to Rs. 39, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Under this provision, an assessee can maintain books either on mercantile basis or cash basis. However, the Companies Act mandates that a company shall maintain account of mercantile basis. In the light of these provisions, the ld. DRP has held that the income of the assessee is taxable on accrual basis. The assessee has been receiving revenues from its wholly owned subsidiary company also. Therefore, cash system of accounting may lead to perpetual postponement and the recognition of revenues received at least from the subsidiary. Therefore, it is argued that on the facts, the assessee ought to have followed mercantile system of accounting. 3.2 Coming to taxation of the amounts reimbursed by the Indian subsidiary company, it is submitted that the assessee-company has been arranging the use of SAP licenses and connectivity services for the group concerns from unrelated parties. A reference has been made to the sample bill raised by the assessee on the Indian subsidiary for USD 9835 regarding Asia SAP Licence maintenance for the period January to March, 2007, placed in the paper book on page 143. A similar bill of USD 97.76 in respect of RAS charges has been placed in the pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to advance-tax, the assessee was in knowledge of the fact that the payer had not deducted tax at source. It is for the assessee to estimate the income liable to tax and compute tax payable thereon. In spite of the knowledge that tax had not been deducted, the assessee did not pay any tax. Therefore, interest is chargeable u/s 234B. 3.5 It is also submitted that the provision contained in the DTAA do not govern the Finance Act. The levy of surcharge is authorized by the Finance Act and not by the Income Tax Act. Therefore, the assessee is liable to pay surcharge. 4. In the rejoinder reply, the ld. counsel reiterated that none of the amounts reimbursed to it is liable to be taxed in India. Further, the assessee has been following cash system of account, therefore, the receipts are not taxable on accrual basis. The provisions contained in the Companies Act are applicable to only those companies which are registered in India. The assessee is not registered in India and it has no presence in India. Therefore, its income should be taxed on the basis of consistent method of accounting followed by it. The assessee is also not liable to pay interest u/s 234B of the Act. 5. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Dy. CIT v. Uhde Gmbh [1996] 54 TTJ 355 (Bom.), the only ground before the Tribunal was that the ld. CIT(Appeals) was in error in directing the AO to tax the income on various projects on receipt basis as against accrual basis and further erred in directing that provisions of section 145 were not applicable for determining the total income of the assessee. It is mentioned that there cannot be any dispute that where there is a conflict between the DTAA and the domestic law relating to taxation of income arising in the Contracting State, the former has to prevail. In earlier years, FTS was not taxed at all in India as it did not have a PE in India. The fees were in the nature of industrial and commercial profits. The income of this nature became liable to be taxed in India because of new treaty entered into between India and the Federal Republic of Germany. Paragraph no. 2 of Article VIIIA provides that FTS could be taxed in the Contracting State in which they arose and according to the law of that State. Although under section 5(2)(b) of the Act, applicable in the case of a non-resident person, income which accrues or arises or is deemed to accrue or arise in India is tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The decision and the submissions do not take into account the provisions of the DTAA as probably none existed at that time. These have been considered by the Tribunal in the case of Uhde Gmbh ( supra ) and National Organic Chemical Industries Ltd. ( supra ). It has been mentioned that in case of conflict between the provisions of the DTAA and Act, the provisions contained in the treaty shall prevail. Consequently, it has been held that the taxation of royalty/FTS is on receipt basis. In other words, the amount which has accrued as income to a foreign company cannot be taxed in the source country, being India in this case, unless the amount has been received by the foreign company. It is also the case of the ld. senior DR that such an interpretation can lead to deferment of payment of tax for some time or for indefinite time. We have considered this matter also. This issue has to be decided on the basis of conduct of the two parties, which are associated enterprises (AEs) in this case. It is no doubt true that the provision may be used as a device to defer the tax for any length of time by mutual understanding of the parties. However, to come to such a conclusion in a particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Income Tax Act, 1961 is not more beneficial to it. Therefore, the receipts have been offered for taxation under Article 12 of the DTAA. It is clear from the language that this article taxes royalty/FTS on gross basis and does not permit deduction of expenses. Therefore, it is held that the alleged reimbursement of expenses for traveling or the expenses of the assessee-company are its expenses, liable to be included in its gross receipts. Although the decision in the case of CIT v. Halliburton Offshore Services Inc. [2008] 300 ITR 265/169 Taxman 138 (Uttarakhand) was rendered under section 44BB, yet, it deals with the amounts received by the assessee in India on account of provision of services and facilities in connection with, or supply of plant and machinery on hire, used or to be used, in the prospecting for, or extraction or production of, mineral oils. It has been held that the reimbursements will have to be included in the receipts for arriving at the presumptive income, being 10% of the receipts. This decision does support our aforesaid conclusion that gross receipts will include reimbursement of expenditure incurred by the assessee for the purpose of computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, it is not liable to pay interest u/s 234B. In this connection, reliance has been placed on the decision of Hon'ble Delhi High Court in the case of DIT v. Ericsson A.B. [2012] 204 Taxman 192/[2011] 16 taxmann.com 371, a copy of which has been placed before us. On the other hand, the case of the ld. senior DR is that at the time of estimating income liable for advance-tax, the assessee was aware that its subsidiary company has not deducted tax at source from the payments. Therefore, the assessee ought to have paid the tax. Having considered submissions from both the sides, we find that the issue is no longer res-integra as it stands covered by the judgments in the case of Ericsson A.B. ( supra ) and DIT v. Jacabs Civil Incorporated/Mitsubishi Corporation [2011] 330 ITR 578/[2010] 194 Taxman 495 (Delhi). Respectfully following these decisions, it is held that the assessee is not liable to pay interest u/s 234B. It may incidentally be mentioned that the revenue has recourse to the payer for charging interest for failure to deduct tax at source from the payment by way of royalty/FTS. 10. Finally, in the reconciliation of the amount received by the assessee, there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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