Income Tax Appellate Tribunal - Mumbai
Boor Allen & Hamilton I Ltd& Co Kg ... vs Assessee on 29 November, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "L", MUMBAI
Before Shri P.M.Jagtap, Accountant Member
and Shri Amit Shukla, Judicial Member.
S.No. I.T.A.No. Asstt.Year.
1. 4502/Mum/2003 1998-99.
2. 4503/Mum/2003 1998-99
3. 4504/Mum/2003 1998-99
4. 4506/Mum/2003 1998-99
5. 4507/Mum/2003 1998-99
6. 4508/Mum/2003 1998-99
Booz. Allen & Hamilton Asstt. Director of
(India) Ltd. & Co. Kg., Vs. Income-tax,
As an agent of Booz. Allen (International Taxation)-1(1),
& Hamilton, Mumbai.
Germany, Indonesia, S.E. Asia,
Singapore, Hong Kong, U.K.
PAN AAAFB 4590Q.
Appellant. Respondent.
Appellant by : Shri Sunil Lala &
Ms. Priyanka Gada.
Respondent by :Shri Narendra Kumar.
Date of hearing : 29-11-2012
Date of pronouncement : 21-12-2012.
ORDER
Per Bench.
These six appeals are filed by M/s Booz. Allen & Hamilton (India) Ltd. & Co. Kg. (BAH India in short) as agent of six entities against six separate orders passed by the learned CIT(Appeals)-XXXI, Mumbai dated 28th February, 2003.
2ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
2. BAH India is a foreign partnership firm established in Germany. It has a branch office in India through which it renders management and technical consultancy services. During the year under consideration, such services were rendered by BAH India in connection with six projects - two related to TISCO and one each of Asian Paints, Siemens, Philips India and Deutsche Telecom. In this connection, BAH India had availed the services from various Booz Allen group entities for which payments were made as under :
Name of Entity Amount paid. Booz Allen & Hamilton (India) Ltd.& Co. Kg.,Germany 11,97,950/- Booz Allen & Hamilton (India) Ltd.& Co. Kg. Indonesia. 37,23,586/- Booz Allen & Hamilton (India) Ltd.& Co. Kg. South East Asia 81,24,382/- Booz Allen & Hamilton (India) Ltd.& Co. Kg., Singapore. 4,37,589/- Booz Allen & Hamilton (India) Ltd.& Co. Kg., Hong Kong 3,91,117 Booz Allen & Hamilton (India) Ltd.& Co. Kg., U.K. 7,72,966/-
According to the AO, the above payments made by BAH India to the other group entities abroad were chargeable to tax in India in their hands as "fees for technical services" and BAH India was liable to treat as an agent of the said entities for this purpose. He, therefore, issued a notice to BAH India requiring it to show cause why it should not be treated as an agent. Although the assessee raised objection in this regard, the AO overruled the same and passed orders u/s 163 treating BAH India as an agent of the six foreign entities which were upheld by the learned CIT(Appeals). The AO, therefore, issued notices u/s 148 to BAH India as an agent of the six foreign group entities in response to which returns of income were filed by the assessee declaring total income of the said entities chargeable to tax in India for the years under consideration at Nil. In the assessments completed u/s 143(3) read with section 148 of the Act on BAH India as agent of the six group entities, the amounts paid by BAH India to the said entities were brought to tax in India by the AO as "fees for technical services".
3ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
3. Against the orders passed by the AO u/s 143(3) read with section 148 of the Act, appeals were filed by BAH India before the learned CIT(Appeals) challenging the validity of the said assessments as well as disputing the additions made therein on merit. During the course of appellate proceedings before the learned CIT(Appeals), various contentions were raised on behalf of BAH India challenging the validity of assessments made by the AO u/s 143(3) read with section 148 on various grounds. The learned CIT(Appeals), however, did not find merit in the said contentions and rejecting the same, he upheld the validity of assessments made by the AO. As regards the additions made by the AO in the said assessments, it was contended on behalf of BAH India on merit that the amount payable by it to the six foreign entities did not partake character of income till necessary approval was received under the Excchange Control Regulation Act. It was contended that there being no such approval received from RBI during the year under consideration, the amounts payable by BAH India to six foreign group entities did not constitute income which could be brought to tax in India. In support of this contention, reliance was placed on behalf of BAH India on the decisions of Hon'ble Bombay High Court in the case of CIT vs. Kirloskar Tractor Ltd. 231 ITR 849 and in the case of CIT vs. John Fowler (India) Ltd. (Bom) 239 ITR 312. The learned CIT(Appeals), however, did not accept this contention raised on behalf of BAH India. He held that all the six foreign group entities having raised the invoices on BAH India after rendering the services and even BAH India having already accounted for the said invoices in its books of account claiming the said as expenditure, it could not be claimed that the amounts payable by BAH India to the said entities did not accrue as income merely for want of permission from RBI. In this regard, he relied on the decision of Hon'ble Supreme Court in the case of LIC of India vs. Escorts Ltd. (1986) 59 Comp.cas 548, AIR 1986 SC 1370 wherein it was held that permission obtained from Reserve Bank of India for establishing 4 ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
business in India should be construed as permission granted previously or obtained subsequently as long as the relevant statutory provisions did not stipulate that such permission should have been obtained previously. The learned CIT(Appeals) thus held that there was a liability arising as a result of the entries made in the books of account of BAH India and the effect of liability having been acknowledged by BAH India by claiming deduction in its profit & loss account , income had accrued during the year under consideration.
4. It was also contended on behalf of BAH India that as per the specific language used in the relevant tax treaties, "fees for technical services" could be taxed only when it was paid to the resident of the other contracting States. It was contended that since the amounts of fees for technical services had not been paid by BAH India to the six foreign entities in the year under consideration, the same could not be taxed in that year. The learned CIT(Appeals) did not find merit in this contention also raised before him. According to him, the word "paid" used in the relevant Article of the treaties dealing with "fees for technical services" was not used to denote actual payment of the same but the same was used in the sense of incurring a liability. He, therefore, held that the amounts payable by BAH India to the six overseas group entities were chargeable to tax in India as "fees for technical services" in the year under consideration although the same were not actually paid in that year. Accordingly, the additions made by the AO on account of fees for technical services in the assessments completed u/s 143(3) read with section 148 of the Act were confirmed by the learned CIT(Appeals). Aggrieved by the orders of the learned CIT(Appeals), the present appeals are preferred before the Tribunal.
5. In ground No. 1 to 4, which are identical in all the six appeals, the preliminary issue challenging validity of assessments made by the AO u/s 143(3) read with section 148 is raised. However, the same has not been pressed by the 5 ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
learned counsel for the assessee at the time of hearing before us. Ground No. 1 to 4 of all these appeals are accordingly dismissed as not pressed.
6. In ground No.5, which is again identical in all these six appeals, the addition made on account of fees for technical services are challenged on the basis that there being no approval received from RBI under the Excise Control Regulation Act to pay the impugned amount by BAH India to the overseas group entities, the said amounts did not partake the character of income and there was thus no accrual of income in the year under consideration.
7. At the time of hearing before us, the learned counsel for the assessee has not pressed ground No. 5 raised in ITA No. 4506/Mum/2003,(Singapore), 4507/Mum/2003(Hong Kong), ITA No. 4508/Mum/2003(UK). Ground No. 5 raised in these three appeals is, therefore, dismissed as not pressed.
8. As regards this issue raised in ground No. 5 of the remaining three appeals, the learned counsel for the assessee submitted on merit that as per the provisions of FERA, BAH India was required to obtain the approval of the RBI before making payments to the overseas group entities. He contended that no such approval, however, was obtained and in the absence of the same, no income could be said to have accrued to the overseas group entities in respect of the amounts in question. He contended that such income could accrue only in the year when RBI permission would be obtained for the remittance of the said amount. In support of this contention, he relied on the decision of Hon'ble Bombay High Court in the case of CIT vs. Kirloskar Tractors Ltd. (supra) wherein it was held that the liability to pay the amount pertaining to the earlier assessment years could be said to have accrued or arisen only in the years when the required approval u/s 9 of the Foreign Exchange Regulation Act, 1963 was granted by the Reserve Bank of India. He also 6 ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
relied on the another decision of Hon'ble Bombay High Court in the case of CIT vs. John Fowler (India) Ltd. (supra) wherein it was held that the liability to pay royalty did not accrue or arise during the previous year ending on 31st December, 1979 and the same accrued only on 30th December, 1980 when the Government of India granted its approval to the agreement. He contended that both these decisions of the Hon'ble Bombay High Court which are directly on the issue were brushed aside by the learned CIT(Appeals) relying on the decision of Hon'ble Supreme Court in the case of LIC of India vs. Escorts Ltd. (supra) which was not rendered in connection with the Income-tax proceedings. He contended that the said decision was rendered by the Hon'ble Supreme Court taking into consideration the provisions of section 29 of FERA which are very specific in this regard. He contended that the issue before the Hon'ble Supreme Court in any case was not related to accrual of income and the decision rendered by the Hon'ble Supreme Court in altogether different context was wrongly relied upon by the learned CIT(Appeals).
9. The learned DR, on the other hand, submitted that in the case of assessee following mercantile system of accounting, once income is accrued, the same is taxable. He contended that the amounts in question payable to overseas group entities were claimed by BAH India as deduction by passing necessary entries in the books of account which itself shows that there was accrual of income to the said entities. He submitted that in the case laws relied upon by the learned counsel for the assessee, the assessee had actually sought permission from the RBI whereas in the present case, no such permission has even been applied to the RBI. He contended that by not applying for the permission from RBI, the payment of tax in cases of overseas group entities is being avoided.
7ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
10. In the rejoinder, the learned counsel for the assessee clarified that due to substantial losses suffered by BAH India, no payment has been made till date of the impugned amounts to the overseas group entities and that is why no application has been made to RBI for getting the permission to make such payments. He contended that there is no attempt being made to avoid the tax by delaying such application as alleged by the learned DR.
11. We have considered the rival submissions and also perused the relevant material on record. It is observed that although the amounts payable by BAH India to the overseas group entities in Germany, Indonesia and Panama (SE Asia) were debited by BAH India to the profit & loss account and were also claimed as expenses, no RBI approval was obtained for remitting the said amounts in foreign exchange as required by relevant provisions of Foreign Exchange Regulation Act during the year under consideration. As claimed before the authorities below as well as before us, the said amounts did not constitute income of the year under consideration for want of the RBI approval as no income chargeable to tax in India could be said to have accrued in the absence of the required approval from RBI. In support of this contention, reliance has been placed, inter alia, on the decision of Hon'ble Bombay High Court in the case of Kirloskar Tractors Ltd. (supra) wherein it was held that the approval of RBI having been received in the subsequent years and the relevant amounts also having remitted during those years, liability could be said to accrue or arise in such subsequent years though the same pertained to the earlier years. Reliance has also been placed on another decision of Hon'ble Bombay High Court in the case of Dorr-Oliver (India) Ltd. vs. CIT 234 ITR 723 wherein it was held that collaboration agreement being subject to Government approval, deduction of sum paid as compensation and fees under collaboration agreement was allowable only upto the date till the agreement enjoyed approval by 8 ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
Government of India and not for any subsequent year. Following these two decisions of Hon'ble Bombay High Court, the coordinate bench of this Tribunal in the case of UBS Securities India P. Ltd. vs. DCIT (ITA No. 4622/Mum/2007 dated 26th February, 2009) has held that the liability on account of fees payable to foreign lawyers, payment of which was subject to approval from the RBI, could be said to have accrued only on receipt of such approval and the assessee was entitled to claim deduction for the said amount only in the year when such approval was granted by the RBI.
12. In our opinion, the judicial pronouncements discussed above clearly support the stand of the assessee that income on account of the amounts payable by BAH India to the overseas group entities could be said to have accrued to the said entities only on receipt of the required approval from RBI and there being no such approval received during the year under consideration, the same could not be taxed as income in that year. It is observed that the learned CIT(Appeals), however, has not accepted this stand relying on the decision of Hon'ble Supreme Court in the case of LIC of India vs. Escorts Ltd. (supra) wherein it was held that permission granted by the RBI is to be construed to mean both permission granted previously or obtained subsequently. As rightly contended by the learned counsel for the assessee, the said decision, however, was not rendered by the Hon'ble Supreme Court in relation to income-tax proceedings and there was no issue of accrual of income involved in that case. Moreover, the said decision was rendered in the context of section 29 of Foreign Exchange Regulation Act under which permission of Reserve Bank of India in regard to the establishment of business in India was required to be obtained subsequently within a period of six months from the date of establishment of business in India and in these facts and circumstances, it was held by the Hon'ble Supreme Court that the permission obtained 9 ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
subsequently from the Reserve Bank of India should be treated as having retrospective effect. The decision of the Hon'ble Supreme Court in the case of LIC vs. Escorts Ltd. (supra) thus was rendered in a different context and in a different set of facts and the same in our opinion, cannot support the stand of the Revenue in the present case.
13. Before us, the learned DR has made an attempt to distinguish the decision of Hon'ble Bombay High Court in the case of CIT vs. Kirloskar Tractors Ltd. (supra) and in the case of CIT vs. John Fowler (India) Ltd. (supra) stating that permission in the said cases was applied by the assessee from the RBI whereas no such permission has been sought by the assessee in the present case. However, as explained by the learned counsel for the assessee, permission has not been sought from RBI since BAH India having substantial losses is not in a position to remit the amounts in question to the overseas group entities. In any case, this aspect, in our opinion, is not relevant for deciding the issue of accrual of income which as held by the Hon'ble Bombay High Court in the case of Kirloskar Tractors Ltd. (supra) and in the case of Dorr-Oliver (India) Ltd. takes place only on the obtaining of the necessary approval required from RBI. Keeping in view the said decision of Hon'ble Bombay High Court, we accept the contention raised on behalf of the assessee that the amounts payable by BAH India to three group entities in Germany, India and Panama (SE Asia) did not constitute their income chargeable to tax in the year under consideration as there was no accrual of income in the absence of permission obtained from RBI as required by FERA. We, therefore, delete the additions made on this count by the AO and confirmed by the learned CIT(Appeals) in the case of the said three entities and allow ground No. 5 of ITA Nos. 4502, 4503& 4504/Mum/2003.
10ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
14. Ground No. 6, which is identical in all the six appeals, relating to the common issue of assessee's claim regarding non-accrual of income on the basis of cash system of accounting followed by the assessees has not been pressed by the learned counsel for the assessee at the time of hearing before us. The same is accordingly dismissed as not pressed.
15. In ground No.7 raised in ITA No. 4502, 4506 and 4508, the assesse has disputed the additions made by the AO and confirmed by the learned CIT(Appeals) on account of the amounts payable by BAH India on the ground that the same are not liable to tax in India under the relevant tax treaties which cover only the amounts paid.
16. The learned counsel for the assessee submitted that the amounts in question payable by BAH India to the three overseas entities in Germany, Singapore and U.K. were not actually paid during the year under consideration. In this regard, he referred to the relevant provision of Article 12 of the treaties to point out that the term "Royalties" as used in Article 12 is defined to mean "Payments of any kind received as a consideration for -- - - - - - - - " and the term "fees for technical services" is defined to mean "Payments of any amount in consideration for - - - - -
- - - ". He contended that royalties and fees for technical services thus are liable to tax as per Article 12 of the relevant treaties only on payment basis and there being no payments made by BAH India of the impugned amounts to the three overseas group entities, the said amounts were not liable to tax as royalties or fees for technical services in India during the year under consideration as per Article 12 of the relevant treaties. In support of this contention, he relied on the decision of Hon'ble Bombay High Court in the case of DIT (International Taxation) vs. Siemens Aktiengesellschaft (I.T. Appeal No. 124 of 2010 dated 22nd Oct., 2012) and various decisions of the Tribunal including the decision of Mumbai Bench in 11 ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
the case of DCIT vs. UDHE GmbH 54 TTJ 355 and the decision of Delhi Bench of ITAT in the case of CSC Technology, Singapore Pte. Ltd. vs. ADIT 50 SOT 399.
17. The learned DR, on the other hand, relied on the orders of the authorities below in support of the Revenue's case on this issue.
18. We have considered the rival submissions and also perused the relevant material on record. It is observed that the amounts in question payable by BAH India to the three overseas group entities in Germany, Singapore and U.K. were not paid during the year under consideration and there is no dispute about the same. The said amounts payable to the concerned overseas group entities have been brought to tax in India in their hands by the Revenue authorities as fees for technical services. As per the relevant provisions of the Double Taxation Avoidance Treaty between India and the three concerned States, the term "fees for technical services" as used in the relevant treaties is defined to mean "Payments of any amount in consideration for the services of managerial, technical or consultancy nature including the provision of services of technical or other personnel." In the case of Seamens Aktiengesellschaft (supra), a similar language was employed in the relevant provisions of DTAA between India and Germany and keeping in view the language so employed, the Tribunal held that royalty and fees for technical services should be reckoned for taxation only when it is actually received by the assessee and not otherwise and this decision of the Tribunal was upheld by the Hon'ble Bombay High Court observing that the assessment of royalty or any fees for technical services should be made in the year in which the amounts are received as per the relevant provisions of the DTAA and not otherwise. The coordinate bench of this Tribunal at Delhi in the case of CSC Technology Singapore Pte. Ltd. (supra) has also taken a similar view holding that royalty/FTS which had accrued as income to a foreign company, could not be 12 ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
taxed in the source country (being India) unless this amount had been received by the foreign company. In our opinion, the issue thus is squarely covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case DIT (International Taxation) vs. Siemens Aktiengesellschaft (supra) as well as the decisions of the Tribunal in the case of DCIT vs. UDHE GmbH (supra) and in the case of CSC Technology, Singapore Pte. Ltd. vs. ADIT (supra) and respectfully following the said judicial pronouncements, we hold that the amounts payable by BAH India to the three overseas group entities in Germany, Singapore and U.K. could not be brought to tax in India during the year under consideration as fees for technical services as per the relevant provisions of the DTAAs since the same had not been paid to the said entities. Ground No. 7 of ITA No. 4502, 4506 and 4508/Mum/2003 is accordingly allowed.
19. Ground Nos.7, 8 and 9 raised in ITA No. 4503/Mum/2011 are not pressed by the learned counsel for the assessee at the time of hearing before us. The same are accordingly dismissed as not pressed.
20. In the result, assessee's appeals being ITA Nos. 4502, 4503, 4504, 4506 and 4508/Mum/2003 are partly allowed and ITA No. 4507/Mum/2003 is dismissed.
Order pronounced on this 21st day of Dec., 2012.
Sd/- Sd/-
(Amit Shukla) (P.M. Jagtap)
Judicial Member Accountant Member
Mumbai,
Dated : 21st Dec., 2012.
Wakode
13
ITA Nos.4503,4504,4506,4507&4508/Mum/2003.
Copy to :
1. Booz.Allen & Hamilton(India) Ltd.& Co. Kg.
C/O K.S. Aiyar & Co., C.A., F.7, Laxmi Mills Compound,
Shakti Mills Lane, Gate No. 5, Off. Dr. E. Moses Road,
Mahalaxmi (W), Mumbai - 400011.
2. Respondent
3. C.I.T.
4. CIT(A)
5. D.R., L-Bench.
(True copy)
By Order
Assistant Registrar,
ITAT, Mumbai.