Income Tax Appellate Tribunal - Mumbai
Asst Cit 9(2)(1), Mumbai vs Bureau Vertias (India) P.Ltd, Mumbai on 20 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " B" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI N.K. PRADHAN, AM
ITA No. 5580/Mum/2015
(A.Y:2011-12)
The Asst. Commissioner of M/s Bureau Veritas
Income Tax-9(2)(1), Mumbai Certification (I)Pvt. Ltd.,
Room No. 665A, 6th Floor, Aayaker 6 t h Floor, Marwah Centre,
Bhavan, M.K. Road, Vs. Off. ANSA Industrial Estate,
Mumbai-400 020 Andheri(East),
Mumbai-400 072
PAN No.AACB0389G
Appellant .. Respondent
ITA No. 5581/Mum/2015
(A.Y:2010-11)
The Asst. Commissioner of M/s Bureau Veritas (India)
Income Tax-9(2)(1), Mumbai Pvt. Ltd.,
Room No. 665A, 6th Floor, Aayaker 6 t h Floor, Marwah Centre,
Bhavan, M.K. Road, Vs. Off. ANSA Industrial Estate,
Mumbai-400 020 Andheri(East),
Mumbai-400 072
PAN No.AABCB6767B
Appellant .. Respondent
Revenue by .. Shri Suman Kumar, DR
Assessee by .. Shri Alok Saksena, AR
Date of hearing .. 18-09-2017
Date of pronouncement .. 20-09-2017
ORDER
PER MAHAVIR SINGH, JM:
These two appeals by the Revenue are arising out of the different orders of CIT(A)-16 Mumbai, in appeal No. CIT(A)-16/IT-75&137/Dy. CIT 8(1)/2014-15, dated 09-09-2015. The Assessments were framed by DCIT 2 ITA No. 5580 & 5581/ Mum/2015 M/s Bureau Veritas Certification (I)Pvt. Ltd., (A.Y:2011-12) Circle 8(1), Mumbai for the A.Y. 2010-11 & 2011-12 vide orders dated 25- 03-2014 & 11-03-2014 under section 143(3) of the Income Tax Act, 1961(hereinafter 'the Act').
2. The only common issue in these two appeals of Revenue is as regards to the orders of CIT(A) allowing the TDS holding that the provisions of section 40(a)(ii) would not apply. For this Revenue has raised grounds, which are identical in both the appeals and the grounds as raised in ITA No. 5580/Mum/2015 for AY 2011-12 reads as under : -
"(a) On the facts and circumstances of the case and in law the Ld. CIT(A) erred in allowing the tax deducted at source (TDS) amounting to Rs.
20,61,771/- on payment of royalty pursuant to Technical Collaboration Agreement between Bureau Veritas India Pvt Ltd. and AE namely Bureau Veritas SA, France, ignoring that the payment was not an expenditure of the assessee and was not incurred for the assessee's business and deduction is not allowable in respect of MS."
(b) 0n the facts and circumstances of the case and in law the Ld. CIT(A) erred in allowing the tax deducted at source(TDS) amounting to Rs.
20,61,771/- by holding that the provisions of section 40(a)(ii) would apply only in a situation where the appellant has paid taxes on his own income and not in respect to income of others on which the appellant has paid taxes as per condition of agreements"
3. We have heard rival contentions and gone through the facts and circumstances of the case. We find that the AO disallowed the amount of TDS of Rs. 20,61,771/- by applying the provisions of section 40(a)(ii) of 3 ITA No. 5580 & 5581/ Mum/2015 M/s Bureau Veritas Certification (I)Pvt. Ltd., (A.Y:2011-12) the Act. The CIT(A) following the decision of Mumbai ITAT in the case of Karan Johar Vs. DCIT (2011) 11 taxmann.com 268 (Mum) allowed the claim of the assessee, wherein it is held that the TDS borne by the resident Indian payer is to be deemed as the income of the recipient and it is only out of such income of the recipient, the Indian payer is deemed to withhold the TDS at the appropriate rate and pay to the Govt. it was further observed by the Tribunal that what the Indian payer deposits to the Govt. cannot be construed as tax of the non-resident being borne by the Indian resident payer, but the amount paid is only out of the deemed income of the recipient and the same would not fall within the definition of tax on income for disallowance u/s 40(a)(ii) of the Act. The CIT(A) observed as under: -
"5.1.1 Vide this ground the appellant company has agitated against the disallowance of Rs.20,61,771/- u/s.40(a)(ii). The Ld. A.O. had observed in para 3 of the assessment order that the appellant company had claimed revenue expenses on account of royalty amounting to Rs.1,93,65,834/- including TDS and cess of Rs.20,61,771/-. After considering the reply of the appellant company, the ld AO disallowed an amount of Rs.20,61.771/- u/s.40(a)(ii) of I.T. Act 1961. During the appellate proceedings, the appellant filed a written submission which find place in para 4 of this order. It was submitted by the appellant that A.O. did not appreciate the provision of Sec.40(a)(ii). According to the appellant, the provisions of Section (a)(ii) would apply only in a situation where the appellant had paid taxes on his own income. It was further submitted that the payment of Rs.20,61,771/- was the TDS on the income of the foreign entity and not on income of the company. In support of its contention, the 4 ITA No. 5580 & 5581/ Mum/2015 M/s Bureau Veritas Certification (I)Pvt. Ltd., (A.Y:2011-12) appellant has relied upon judgement of Hon'ble Mumbai ITAT in case of Karan Johar Vs. Deputy Commissioner of Income Tax, (2011) 11 taxmann.com 268 (Mum) (supra), the relevant part of the judgement of Hon'ble Tribunal Mumbai 'A' Bench is reproduced as under;
"What was being paid by the Indian resident payer, be it 7' or the assessee when it was reimbursed was only the income of the non-
resident payable as tax to the India Government. The same would not fall within the definition vi tax on income for disallowance under section 40(a) (ii). On this account also the amount reimbursed by the assessee to 'T' could not be disallowed under section 40(a) (ii) para 15."
5.1.2 The appellant has also relied upon the judgement of ITAT 'B' Bench in ITA No.7660/Mum/2011 dated 05.04.2013 in the case of ACIT 2(1) vs. MIs. BOB Cards Ltd. The Hon'ble High Court of Jharkand in the case of Tata Yadogawa Ltd. in ITA Nos.13, 27, 29 & 30 of 2001 and 26 of 2002 dated 24.09.2010 has held that income tax paid by assessee in terms of collaboration agreement had to be treated as part of consideration for acquisition of know- how and, therefore, deduction tinder section 35AB was permissible not only in respect of remittances made by assessee to ESVV but also in respect of income tax paid on said remittances. Similarly, the Hon'ble High Court of Punjab and Haryana in the case of Dashmesh Transport Co. (F) Ltd. Vs. CIT in ITA 5 ITA No. 5580 & 5581/ Mum/2015 M/s Bureau Veritas Certification (I)Pvt. Ltd., (A.Y:2011-12) No.93 ITR 275 in similar circumstances has held that "the transferee may be made liable for the liability of the transferor. What really matters is that the liability of the transferor and not of the transferee and the mere fact that in certain circumstances that liability can be put on the shoulders of the transferee will not in any manner detract from the fact that the liability to tax all the same is that of the transferor. In view of aforesaid, the Tribunal was incorrect in holding that the amount of tax paid by the assessee on behalf of the transferor company was not allowable as deduction in view of provisions contained in section 40(a)(ii)."
5.1.3 From careful reading of Section 40(a)(ii) it is evident that the provisions of Section 40(a)(ii) would apply only in a situation where the appellant has paid taxes on his own income and not in respect to income of others on which the appellant has paid taxes as per conditions of the agreements. In view of the judgements of Hon'ble ITAT and High Courts, as discussed above and position of law as per provisions of Section 40(a)(ii), the disallowance of Rs.20,61,771/- made by the A.O. u/s.40(a)(ii) is deleted. This ground of appeal of the appellant is allowed."
4. The learned Sr. DR could not find infirmity in the findings of the CIT(A) and only supported the order of the AO.
5. We find that this issue is squarely covered in favour of assessee by the decision of co-ordinate Bench in the case of Karan Johar (supra) and also the decision of Hon'ble Punjab and Haryana High Court in the case of Dashmesh Transport Co. (P) Ltd. vs. CIT (1974) 93 ITR 275 (P&H).
6ITA No. 5580 & 5581/ Mum/2015 M/s Bureau Veritas Certification (I)Pvt. Ltd., (A.Y:2011-12) Respectfully, following the coordinate Bench decision, we dismiss the appeal of the Revenue. Consequently, both the appeals of the Revenue are dismissed.
6. In the result, both the appeals of Revenue are dismissed.
Order pronounced in the open court on 20-09-2017.
Sd/- Sd/-
(N.K. PRADHAN) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 20-09-2017
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy//
BY ORDER,
Assistant Registrar
ITAT, MUMBAI