TMI Blog2020 (3) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax in the case of any ship belonging to or chartered by a non-resident operated from India. These sections and particularly section 172 devise a scheme for levy and recovery of tax. The sub-sections of section 44B denote as to how the amounts paid to or payable would include demurrage charges or handling charges or any other amount of similar nature. The sub-sections of section 172 read together and harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered. Therefore, there is no warrant in applying the provisions in chapter XVII for collection and recovery of the tax and its deduction at source vide section 195. - Decided in favour of assessee. TDS u/s 192 - Reimbursement of salary cost which was on account of availing personnel services from its AE s who were sent to India at secondment - HELD THAT:- As perusing the orders of the authorities below and the decision of the Coordinate Bench in assessee's own case for the A.Y. 2010-11 [ 2019 (10) TMI 972 - ITAT MUMBAI] we find that the Coordinate Bench of the Tribunal dismissed appeal of the revenue and sustained the order of the Ld.CIT(A) in deleting the disallowance of expenses rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding the action of the learned AO in characterising such reimbursement of demurrage charges as fees for technical services taxable under section 9(1)(vii) of the Act. 2.3. in not appreciating the fact that the payments to the non-residents including group entities are pure cost reimbursements and do not contain any service element. 2.4. in disregarding the order of the Commissioner of Income tax (Appeals) dated 18 March 2013 for AY 2008-09 in Appellant's own case wherein the issue in respect of allowability of demurrage charges has been decided in favour of Appellant. 3. Levy of interest under section 234D of INR 24,09,189 Based on the facts and in the circumstances of the case and in law, the interest levied under section 234D amounting to INR 24,09,189 ought to be deleted. 4. Short grant of interest under section 244A of INR 37,78,627 Based on the facts and in the circumstances of the case and in law, interest under section 244A of the Act of INR 37,78,627 ought to be allowed. 3. Ground No.1 of grounds of appeal is general in nature and need no adjudication. 4. Ground No.2 of grounds of appeal is relating to disallowance of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (381 ITR 303) and also by the decision of the Hon ble ITAT Mumbai Bench in the case of Kuloday Technopack (P) Ltd. Vs. ITO (86 Taxmann.com 74). Therefore, the claim of the Assessee is liable to be allowed. On the other hand, the Ld. Representative of the revenue has refuted the said contention. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.: - 8.2 The submission made by the appellant has been examined. It is noticed that the entire submission made by the appellant is under the presumption that the amount represents pure re-imbursement and hence it does not have any element of income. Accordingly, it is not liable to tax in India. Once, the amount is not liable to tax in India, there is no liability on the appellant to deduct taxes u/s 195 as held by Supreme Court in GE Technology Centre vs CIT 1(327 ITR 456) (SC)] and Transmission Corporation (supra). On the other hand, the AO has held the amount to be in the nature of FTS and hence liable to tax in India u/s 9(I) (vii) of the Act mandating deduction of tax from this amount u/s 195. The first issue which arises for determination is whether the amount can be treated as pure re-im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the country where the port, where demoage has been levied, is situated. It has been ascertained that the demurrage above has been paid in respect of Indian ports and the shipping lines involved are foreign ship owners. Freight income generated in India is a taxable income under Income Tax Act and hence, any payment of freight to a non-resident will invite TDS u/s 195. Generally, freight income of non-residents visiting Indian ports is governed by section 172 and hence, if the ship owner has paid taxes u/s 172, then the provisions of section 195 will not apply. However, most of the time, while the actual freight is covered by section 172 by the nonresident, the demurrage charges are not included as they are raised subsequent to the leaving of the port and are charged separately from the clients. 8.3 The present ease represents a similar scenario where the invoice for the demurrage has been raised separately. Clearly, the non-resident ship owner has not included this amount while paying taxes u/s 172. Hence, had the appellant paid the demurrage amount directly to the ship owner, he was liable to deduct taxes u/s 195. If TOTSA made a payment on behalf of the appellant, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided by the CIT(A) on the basis of decision of Bombay High Court in the case of Orient (Goa) (P) ltd., [20091 185 TaX 111311 131 Bombay. But the situation has been changed now specifically in view of the decision of Bombay High Court in the case of CIT Vs. Dempo and Co. P. Ltd. (381 ITR 303). The relevant finding has been given in para no. 46 to 54 which is hereby reproduced as under.: - 46. A bare perusal thereof would indicate as to how this provision covers the case of an assessee who is a non-resident and engaged in the business of operation of ships. That stipulates a sum equal to 7 % of the aggregate of the amount specified in sub-section (2) of section 44B as deemed to be profits and gains of such business chargeable to tax under the head Profits and Gains of Business or Profession . It is the explanation which refers to the demurrage and for the purpose of sub-section (2) of SRP 62/79ITXA989.15.doc section 44B. It clarifies that the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature shall for the purposes of sub-section (1) deemed to be the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business. 48. The resident assessee contended before the Division Bench in Orient (Goa) (supra) as well as the Division Bench which made the referring order that section 172 of the Income Tax Act has a bearing and an important one on the obligation to deduct tax at source. Therefore, it is the recipient's position and the perspective in which the recipient's income would be taxed will have to be borne in mind. The non-resident shipping company in respect of it's income would be in a position to rely upon section 44B and consequently section 172. However, we do not see how there is an obligation to deduct tax at source on the resident assessee/Indian company before us. While computing the income of the non-resident Indian / foreign company, assistance can be derived by such non-residents from section 44B if they are in shipping business. It would also be in a position to rely upon section 172 but the responsibility of the person making payment to a non-resident in sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on account of the carriage of passengers, goods etc., shipped at the port in India since the last arrival of the ship at the port. In the event that, to the satisfaction of the Income-tax Officer, the master is unable so to do, he has to make satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf. A port clearance cannot be granted to the ship until the tax assessable under the section is duly paid or satisfactory arrangements have been made for the payment thereof. 4. The assessee in this case is the Aluminium Company of Canada which had time - chartered the ship and on whose behalf its shipping agent, the respondent, had executed the guarantee bond. Since the Company is a non-resident and the ship carried goods which were shipped at a port in India, the conditions specified in subsection (1) are satisfied and the provisions of Section 172 will apply for the purpose of levy of tax, notwithstanding anything contained in the other provisions of the Income-tax Act. 5. The charging provision is contained in sub-section (2) of Section 172, the relevant part of which provides that where a ship belonging to or chartere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and the tax payable on the basis thereof should be determined in accordance with the other provisions of the Act and any payment made under the section (earlier) shall be treated as a payment in advance of the tax leviable for that assessment year and the difference between the sum so paid and the amount of tax found payable by him on such assessment, shall be paid to the assessee or refunded to him. The ad hoc assessment made under Section 172(4) of the Act is superseded and a regular assessment is made as per the provisions of the Act. In such a case, it is only proper and appropriate to hold that all the provisions of the Act in the determination of the tax liability including the ancillary or incidental or consequential matters pertaining to it are necessarily attracted. 8. Section 172(7) of the Act provides that payment made under the section shall be treated as a payment in advance of the tax leviable for that assessment year. It only means that such payment would be treated as advance of the tax leviable. Such payments are treated on a par with advance income tax payments. It is implicit from the tenor and phraseology employed in Section 172(7) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayed by the title used in the corresponding provision of the predecessor Act (Income Tax Act, 1922 - Section 44-C), wherein there was a heading to the section - Adjustment . Section 172 of the Act contains no such heading. We hold that the Income Tax Appellate Tribunal was justified in holding that since the payment made under Section 172(4) of the Act is, by fiction, treated as advance tax, all the provisions in respect of the advance tax will apply and if on regular assessment made under Section 172(7) of the Act, there is any excess payment made by the assessee, then the assessee would be entitled to it and also interest thereon under Section 214 of the Act. We answer the question referred to the High Court in the affirmative, in favour of the assessees and against the Revenue. ..... 52. Lastly, in the case of GE India Technology Centre Private Limited vs. Commissioner of Income Tax and Anr. reported in (2010) 10 SCC 29 the Hon'ble Supreme Court of India had an occasion to consider the ambit and scope of section 195 of the IT Act. After reproduction of the section, as it stood at the relevant time, the Hon'ble Supreme Court of India held as under:- 6. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the nonresident. This obligation being limited to the appropriate proportion of income flows from the words used in Section 195(1), namely, chargeable under the provisions of the Act . It is for this reason that vide Circular No. 728 dated October 30, 1995 the CBDT has clarified that the tax deductor can take into consideration the effect of DTAA in respect of payment of royalties and technical fees while deducting TAS. It may also be noted that Section 195(1) is in identical terms with Section 18(3B) of the 1922 Act. 11. While deciding the scope of Section 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle ofSection 195. Hence, apart from Section 9(1), Sections 4, 5, 9, 90, 91 as well as the provisions of DTAA are also relevant, while applying tax deduction at source provisions. 12. Reference to ITO(TDS) under Section 195(2) or 195(3) either by the non-resident or by the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to the Revenue by the payer who makes payment to a non-resident. Therefore, Section 195 SRP 74/79 ITXA989.15.doc has to be read in conformity with the charging provisions, i.e., Sections 4, 5 and 9. This reasoning flows from the words sum chargeable under the provisions of the Act in Section 195(1). 16. The fact that the Revenue has not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression sum chargeable under the provisions of the Act from Section 195(1). While interpreting a Section one has to give weightage to every word used in that section. While interpreting the provisions of the Income Tax Act one cannot read the charging Sections of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the appropriate proportion of such sum so chargeable where a proportion of the sum so chargeable is liable to tax. 19. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department huge seepage of revenue can take place if persons making payments to non-residents are free to deduct TAS or not to deduct TAS. It is the SRP 76/79ITXA989.15.doc case of the Department that Section 195(2), as interpreted by the High Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the ITO(TDS) of payments made to nonresidents. In other words, according to the Department Section 195(2) is a provision by which payer is required to inform the Department of the remittances he makes to the non- residents by which the Department is able to keep track of the remittances being made to non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken, it is not necessary to refer the judgment of a Division Bench of the Delhi High in the case of Emirates shipping Line, FZE vs. Assistant Director of Income Tax reported in (2012) 349 ITR 493 . Suffice it to note that the view taken by the Division Bench and particularly in paras 17 and 18 of this judgment accords with the conclusion reached by us. 54. The difficulty is presented only when provisions are not read together and harmoniously so also without bearing in mind the setting and placement thereof in the chapters. These chapters of the Income Tax Act cover several aspects in relation SRP 78/79 ITXA989.15.doc to imposition, levy, assessment, collection and recovery of tax on the income specified above. To the extent contrary to above, we overrule the view in Orient Goa's case (supra). The question referred is answered accordingly. Since the question above is referred to us, having answered it, let the Appeals be now listed for hearing before appropriate Division Bench. 9. On appraisal of the above mentioned finding, we noticed that the earlier finding in the case CIT Vs. Orient (Goa) Pvt. Ltd. has been overruled by this decision, therefore, in view of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see submitted that these grounds are relating to reimbursement of salary cost which was on account of availing personnel services from its AE s who were sent to India at secondment. 13. At the outset, it is submitted that identical issue has been decided in favour of the assessee by the Coordinate Bench of the Tribunal for the A.Y.2010-11 in ITA No. 4300/MUM/2016 dated 09.07.2019 wherein the Coordinate Bench rejected the revenue s appeal and sustained the order of the Ld.CIT(A) in deleting the disallowance. 14. Ld. DR vehemently supported the orders of the Assessing Officer. 15. On hearing both the sides, perusing the orders of the authorities below and the decision of the Coordinate Bench in assessee's own case for the A.Y. 2010-11 in ITA No. 4300/MUM/2016 dated 09.07.2019 we find that the Coordinate Bench of the Tribunal dismissed appeal of the revenue and sustained the order of the Ld.CIT(A) in deleting the disallowance of expenses relating to reimbursement of salary cost, observing as under: - 15. Under this issue the revenue has challenged the allowance of the claim of assessee in connection with the reimbursement of salary cost of related relocation expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly, the payments made by the assessee company are in the nature of Fee for Technical Service (FTS). Accordingly, the AO has concluded that TUS ought to have been deducted u/s 195 by the appellant. 9.2 The AO has relied on the decision of AAR in the case of Verizon Data Services India Pvt I.td (AAR No. 865 of 2010), Centrica Offshore Pvt Ltd (AAR No. 856 of 2010) and AT S India Pvt Ltd [2006) 287 ITR 421 wherein it has been held that reimbursement is in the nature of FTS and the fact that taxes are paid under head 'Salaries' is of no consequence. 9.3 The submission made by the appellant on this issue is summarized as below; 9.3.1 The Appellant had availed services of personnel/employees who were oil payrolls of its Associated Enterprises ('AE'), and in lieu of the same, salary, relocation and other related charges were subsequently recharged (by way of reimbursements) by the AEs to the Appellant. It may be noted that for the purposes of administrative convenience, the employees remained on the payrolls of the AEs and their salary and other related costs were reimbursed by the Appellant to the AEs, instead of paying to the employees. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns LLC (38 SOT 7)(Mum), wherein the Mumbai Tribunal held that personnel deputed to the Indian company worked under the control and supervision of the Indian company and carried out work allotted to them by the Indian company. IDS Software Solutions India (P) Ltd vs l'I'0 (122 TTJ 410) (Bang), wherein it was held that Indian Company exercising control and supervision over a seconded employee and bearing the salary cost should be considered as an economic employer and not liable to withhold tax on the reimbursement of the salary to the overseas company. CIT vs 003 Engineers (32 Taxmann.com 271)(Bom) wherein it has been that reimbursement to sister concerns for payment of salaries to their employees as they were deputed to the respondent assessee on an actual basis is not liable to tax in India hence not subject to TDS. Aon Specialty Services Private Limited (ITA No. 1640/ Bang/ 2012) wherein it was held that salary recharge by F Co to I Co would TICA be subject to tax withholding in India as it did not represent income in the hands of the F Co and hence, withholding under section 195 was not applicable. 9.3.5 The appellant has further contended that the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assignment. 4. While assigned to TOTAL LUBRICANTS India Ltd you will be required to comply with any local employment regulations established by TOTAL LUBRICANTS India Ltd. at the assignment location. 5. Your performance evaluation will be done by TOTAL LUBRICANTS India Ltd. based on the performance objectives set by your supervisor and the actual results achieved during your assignment. Terms and conditions The remuneration and other benefits that you be authorized during this assignment are specified in your addendum issued to you by TOTAL raffinage MARKETING dated I September 2006. We wish you good luck on your India assignment 9.6 The secondment letter as reproduced above indicates that during the period of deputation with the appellant company, the AE does not have any control over the non-resident employee who is functioning under the control and management of the Indian party. Further, the deputation is not carrying out any activity mandated by the AE or any activity on behalf of the AE. 9.7 In the case of Centrica India, the services were held to be in the nature of FTS on account of following 4) The CIOP and seconded employees were t ..... 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