Income Tax Appellate Tribunal - Mumbai
Gujarat Ambuja Cements Ltd. vs Dy Cit on 18 February, 2005
Equivalent citations: [2005]2SOT784(MUM)
ORDER
K.S.S. Prasad Rao, J.M. This appeal was filed by the assessee having been aggrieved by the order of the learned CIT(A) dated 3-4-2000, for the assessment year 1999-2000 in the case of assessee.
2. The assessee has raised the following issues in its grounds of appeal:
1.0 That on the facts and in the circumstances of the case, the learned CIT(A) was not justified in holding that the appellant had obligation of deducting tax on the amount alleged to be paid to M/s. Robert Fleming and Co. Ltd., London and M/s. International Finance Corporation, Washington (here-in-after referred to as the 'Lead Managers').
2.0 That on, the facts and in the circumstances of the case and without prejudice to other grounds, the learned CIT(A) was not justified in holding that the orders passed by the DCIT (TDS) under sections 195, 201(1) and 201(1A) all dated 8-12-1999 are well reasanable Lime and not barred by limitation.
3.0 That on the facts and in the circumstances of the case the learned CIT(A),,vas not justified in holding that the services rendered by Lead Managers were in the nature of technical, managerial and consultancy services as specified in the Explanation to section 9(1)(vii) and management & underwriting commission and selling concession retained by them were fees for technical services as per section 9(1)(vii) and management & underwriting commission and selling concession retained by them were fees for technical services as per section 9(1)(vii) of the Act.
4.0 That on the facts and in the circumstances of the case, the learned CIT(A) failed to appreciate the fact that, the impugned under writing commission and selling concession did not accrue or arise in India and hence there could be no deduction of tax thereon.
5.0 That on the facts and in the circumstances of the case, the learned CIT(A) was not justified in holding that the appellant is to be considered as an 'assessee in default' under section 201(1) and in not quashing the interest charged by the assessing officer under section 201(1 A).
6.0 That on the facts and in the circumstances of the case, the learned CIT(A) was not justified in considering that the reimbursement of expenses and payment made directly to third party, would constitute part and parcel of the consideration to the Lead Managers and thus tax has to be deducted at source on the said payment also.
7.0 That on the facts and in the circumstances of the case, the learned CIT(A) was not justified in not considering the ground that tax is not deductible on various payments made to other foreign entities other than the Lead Managers aggregating to Rs. 20 lacs (approx.) 8.0 That on the facts and in the circumstances of the case, the learned CIT(A) was not justified in concluding that amounts retained by the Lead Managers were in the nature of fees for technical services within the meaning of article 113 of the DTA Agreement between India and U.K."
3. Both parties were heard regarding the issues raised by assessee in this appeal and its legal implications.
4. On careful consideration of the material made available with the Tribunal and analysing the same in the light of the arguments advanced by be the parties, we find the admitted fact relating to the issues are as follows :
5. The assessee, vide its prospectus dated 26-11-1993, had come out with an issue of 3.5% Foreign Currency Convertible Bonds convertible into Global Depository Receipt (hereinafter referred to as 'GDR') to the tune of 70 million US $ and at the option of Managers up to an additional amount of 5 million US $ to cover additional allotment. The assessee has appointed Robert Fleming & Co. Ltd., London and International Finance Corporation, Washington as Joint Lead Managers to the GDR issue. The agreement entered by the assessee with the Lead Managers as per approval of the Ministry of Finance, considering up to 2.5% of the principal amount, was approved in respect of commission and fees to Lead Managers/ underwriters. Incurring actual expenses towards legal fees and other expenses was also approved subject to a ceiling of 5,00,000 US$. In terms of the agreement with the Lead Managers, the Joint Lead Managers and other Managers agreed to subscribe the bond at 100% of the principal amount less selling commission at 1.5% of such principal amount. International Finance Corporation, Washington, agreed to subscribe for 16 million US$ and other Managers jointly and severally agreed to subscribe for 59 million US$ of the principal amount of the Bonds aggregating to 75 million US$. The assessce has agreed to pay the Managers a combined management and underwriting commission of 1% of such principal amount. Apart from this, the assessee agreed to reimburse the Managers for expenses in connection with the issue of the Bonds. In pursuance of the said agreement, the assessee has issued 80 million US$ 3.5% Foreign Currency Convertible Bonds convertible into GDR at an issue price of 100%. They were issued in the denomination of 5,000 US$ each. A single certificate was issued in respect of the bonds and title to the bond was registered in the name of Barclays Bank, plc., U.K. as a common depositary. The bonds were convertible into GDR and each GDR represented one equity share with nominal value of Rs. 10 each of the assessee at a value of Rs. 373.45 per GDR and with a fixed rate of exchange conversion of Rs. 31.37 equal to 1.0 US$. Out of the total issue of 80 million US$, the assessee received net proceeds of 78 million US$ after deducting selling concession and underwriting commission as per the agreement. Thus, proceeds amounts of Rs. 2,44,68,60,000 credited to ANZ Grindlays Bank, Mumbai, on 3-12-1993 in the name of the assessee. The assessee has reimbursed the following expenses Sl No. Particulars Amount (Rupees)
1. Reimbursement of Expenses to RFC & IFC 95,81,271
2. Payment to Bankers Trust Co., London 4,38,150
3. Payment to Bankers Trust Co., London, towards trusteeship fees, etc. 8,76,065
4. Payment to Bankers Trust Co., Luxembourg, Stock Exchange 6,85,654 Total 1,15,81,140
6. While filing the return for the relevant period, the assessee has not mentioned/ in formed about the Column No. 6 provided in the return. Therefore, the department has taken the matter immediately when it came to the notice that no TDS has been effected on the money paid for availing the certificate relating to GDR issue, by issuing notice dated 5-1-1999 requiring the assessee to show-cause as to why taxes were not deducted on the amount paid to the Lead Managers of GDR issue at source under section 195 of the Income Tax Act. The assessee has filed its explanation on 24-11-1999 to the said notice. After hearing the assessee and considering the explanation, the assessing officer passed order under section 195 of the Income Tax Act quantifying the tax liability against the assessee at Rs. 3,18,51,917 and interest thereon @ 15% from January, 1994 to December, 1999 (73 months) amounting to Rs. 2,92,24,134 aggregating to Rs. 6,10,76,051.
7. Having been aggrieved by this order, the assessee filed appeal before the learned CIT(A). The learned CIT(A), after due consideration of the assessment records and contentions of the assessee and taking into consideration the views of the assessing officer, has upheld the order of the assessing officer by dismissing the appeal filed by the assessee. Hence, the present appeal by the assessee before the Tribunal.
8. The learned Representative for the assessee has filed all the relevant material that has placed before the departmental Authorities in the form of Paper Book and reiterated line of arguments made before the departmental Authorities and sought the support of the decision of this Tribunal rendered in the case of Raymond Ltd. v. Dy. CIT (2003) 86 ITD 791 (Mum.).
9. Contrary to this, the learned Departmental Representative also filed some papers in support of departmental stand and vehemently argued in support of the orders of the departmental Authorities and sought for upholding the same by dismissing the appeal filed by the assessee.
10. On careful consideration of the material placed before the Tribunal and analysing the same in the light of the order of this Tribunal passed in the case of Raymond Ltd. (supra) and relied on by the learned Representative for the assessee, we find that similar such issue was threadbare examined by this Tribunal in the said order rendered in the case of Raymond Ltd. (supra). This Tribunal, Mumbai "C" Bench, has given its decision in Para-130 which reads as follows:
"(1) There was no sale of GDRs to the lead managers /managers so that it can be said that they had 'resold' them. They did not also 'subscribe' to the GDRs. Consequently, it cannot be said that the amounts paid to them (selling concession/commission, under-writing commission and management commission) or deducted by them from the sale proceeds of GDRs represented only sale discount.
(2) The 'finished package' theory is also rejected. It cannot be said that the assessee-company obtained a 'finished package'(a successfully marketed GDR issue) in return for what was paid to the lead managers /managers. Consequently, what was paid to them cannot be considered as purchase price of the 'finished packages'.
(3) The services rendered by the lead managers /managers in connection with the GDR issue fall within the definition of 'technical services' under section 9(1)(vii) of the Income Tax Act, 1961, erad with Explanation 2 thereto. These services are 'managerial' or 'consultancy' services. The management commission and selling concession/ commission are therefore income of the lead managers /managers deemed to accrue or arise in India and accordingly, the assessee-company was liable to deduct tax under section 195(1). However, the underwriting services are not 'technical' services. Therefore the underwriting commission does not fall within section 9(1)(vii), in so far as it relates to the issue of GDRs outside USA. The assessee-company was not therefore liable to deduct tax therefrom under section 195(1). As regards the GDRs issued in USA to qualified institutional buyers, there was no underwriting and therefore what was paid as underwriting commission was not in fact so and therefore this part of the payment would be income by way of fees for technical services deemed to arise or accrue in India within the meaning of section 9(l)(vii) and accordingly the assessee-company was liable to deduct tax therefrom under section 195(1).
(4) The reimbursement of expenses cannot be considered as taxable in India even under section 9(1)(vii).
(5) However, the Double Tax Avoidance Agreement with UK (1993) is applicable and the payments made do not fall within the definition of 'fees for technical services': under article 13.4(c) of the agreement. Hence, they were not taxable in India. Consequently, the assessee-company was not liable to deduct tax from them. It cannot therefore be treated as an'assessee in default'under section 201. Consequently, no interest under section 201 (A) can be charged."
11. Having found no material difference in the facts and circumstances of the present case that was considered by the Tribunal in the said order, we are of the considered view that the decision of the Tribunal in that case, squarely applies to the facts in the present case also. Accordingly, we find that the services rendered by the Lead Managers in connection with the GDR issue falls within the definition of technical services under section 9(1)(vii) of the income-tax Act read with Explanation II thereto and those services are 'Managerial' or 'consultancy' services. The management commission and selling commission are, therefore, income of the Lead Managers deemed to accrue or arise in India and, as such, the assessee is liable to deduct tax under section 195(1), the underwriting services are not 'technical services'. Accordingly, underwriting commission will not fall under section 9(1)(vii). The reimbursement of expenses are not taxable in India even under section 9(1)(vii). Accordingly, the selling commission for Rs. 3,76,74,000 paid by the assessee is taxable in India and accordingly TDS under section 195 is deductible on this. Accordingly, the management commission also is taxable in India and the assessee is liable to deduct TDS on that amount but the underwriting commission is not falling within the definition of 'technical services' in so far it relates to issue of GDRs outside USA and accordingly no tax is deductible thereon under section 195. The reimbursement of expenses made by the assessee amounting to Rs. 31,85,271 are not taxable as it will not come within the purview of section 9(1)(vii) of the Income Tax Act. So also the payment to Bankers amounting to Rs. 4,38,150 and Rs. 8,76,065 and Rs. 6,85,654 are all payments for services rendered as they were admittedly paid towards fees and they arise in India and thus liable to be deducted tax at source under section 195. However, in view of DTA with UK is applicable and these payments will not fall within the definition of 'fee for technical services' under section 134(c) and hence they are not taxable in India and assessee is not liable to deduct tax from them. Consequently, it is not an 'assessee-in-default' under section 201. Therefore, interest under section 201 (A) is not chargeable.
12. Since the assessee has not made application under section 195(1) of the Income Tax Act to the department, all the payments made by the assessee that are found liable for TDS on the entire lump-sum payment. Thus, we hereby find that all the issues raised by the assessee on merits are accordingly answered.
13. The assessee has also raised specifically that the order against the assessee under section 201 is barred by limitation. On careful analysis in the provisions contained in section 201 and other connected relevant provisions, we find that the statute does not prescribe any time for passing any order under section 201. Admittedly, the assessee has not furnished the required details while filing the return for the year corresponding to the GDR issue in question, keeping vacant the relevant Column No. 6 available in the return. Therefore, the aspect of when the limitation starts in the absence of any specific direction given in the statute and it will not start unless the taxing authorities came to the knowledge of said issue. It is the contention of the department that soon after it came to know the issue, they have issued show-cause notice stated supra and hence, the assessee could not show that the department has committed any deliber ate delay or it has not taken action within reasonable time in the absence of any, specific time laid down by the statute. Thus, we find that this contention regarding limitation raised by the assessee will not stand for legal scrutiny. Accordingly, we hereby up-hold the same finding the issue raised by the assessee as devoid of merits and dismiss the same.
14. In the result the appeal filed by the assessee is disposed off accordingly.