Income Tax Appellate Tribunal - Chennai
Veolia Eau - Compagnie Generale Des Eaux ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'C' : CHENNAI
[BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND
SHRI HARI OM MARATHA, JUDICIAL MEMBER]
I.T.A No. 2131/Mds/2010
Assessment year : 2004-05
Veolia Eau-Compagnie vs The Addl. Director of
Generale Des Eaux Income-tax
C/o M/s CNGSN & Associates International Taxation
Agastiyar Manor Chennai
New No.20[Old No.13]
Raja Street
T. Nagar, Chennai 600017
[PAN - AABCC4612Q]
(Appellant) (Respondent)
Appellant by : Shri B.Ramakrishnan
Respondent by : Dr. I.Vijayakumar, CIT
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
This appeal of the assessee-company, for assessment year 2004-05, is directed against the directions of Dispute Resolution Panel(DRP), Chennai, dated 14.9.2010, issued u/s 144C(5) r.w.s 144C(8) of the Act.
2. Briefly stated, the facts of the case are that the assessee- company is a France based foreign company engaged in providing consultancy services to Chennai Metropolitan Water Supply and :- 2 -: ITA 2131/10 Sewerage Bard (CMWSSB), Chennai. The assessee-company filed its return of income for assessment year 2004-05 on 16.3.2005 declaring total income of ` 6,43,00,800/-. Initially, the return was processed u/s 143(1) on 8.12.2006 in which returned income was accepted. Subsequently, order u/s 143(3) was passed on 27.12.2006 computing total income at the same figure resulting into refund of ` 25,91,306/-. Thereafter the Assessing Officer noticed that the taxable income chargeable to tax of the assessee had escaped assessment . Consequently, after recording the reasons for re-assessment, notice u/s 148 was issued on 28.5.2008. A copy of the reasons so recorded was forwarded to the assessee on 26.2.2008 when the assessee made a request for the same. The Assessing Officer [Jt.DIT, (International Taxation] forwarded draft assessment order on 31.12.2009 to the assessee . In this order, the Assessing Officer proposed to assess the total income of the assessee at ` 9,52,47,213/-. The assessee filed objections before the DRP on 27.1.2010. A notice u/s 144C(11) dated 7.9.2010 was issued to the assessee. Written as well as oral submissions were made on behalf of the assessee. The sum and substance of the assessee's objections were as under:-
(i) The reopening of the assessment completed u/s 143(3) on 28.12.2006 was in pursuance of audit objections which simply amounts to change of :- 3 -: ITA 2131/10 opinion. The assessee disclosed fully and truly all the material facts before the Assessing Officer during original proceedings and no additional fact(s) had come to the notice of the Assessing Officer nor any finding had been recorded by him.
Hence, reopening was challenged by taking a legal ground.
(ii) The assessee objected to the treatment of service tax amounting to ` 35,73,981/- charged and collected by the assessee from CMWSSB, as its business receipt and subject the same tot ax on gross basis u/s 115A r.w.s 44D of the Act -
Appendix 3.
(iii) That the Assessing Officer had grossly erred in treating the following reimbursements recovered by the assessee from CMWSSB, as its gross receipts and subjecting the same to tax on gross receipts u/s 115A r.w.s 44D of the Act:
(a) Car hire charges ` 36,70,500
(b) International Air Tickets ` 49,92,429
(c) Equipment procurement ` 28,89,372
(iv) That the Assessing Officer erred in not granting
exemption u/s 10(6A) of the Act of an amount of ` 1,55,80,850/- being the income-tax on the remuneration paid to the assessee and instead adding it to it income and subjecting the same to tax on gross basis u/s 115A r.w.s 44D of the Act.
:- 4 -: ITA 2131/10
(v) That the Assessing Officer erred in adding a sum of ` 2,39,278/- being the loss on account of exchange fluctuation suffered by the assessee to its income. The claim of the assessee was that it had never claimed this amount as deduction and was not reduced from its income offered for tax in the return of income.
3. Thus, the assessee's representative filed objection to the draft order on 27.1.2010. After considering the facts, arguments, objections and reasons advanced on behalf of the assessee with regard to all these issues and also the decisions relied on in this regard, the DRP finally passed an elaborate order by directing the Assessing Officer to finalize the assessment order after excluding the amount proposing disallowance of ` 2,39,278/- made on account of exchange loss in the draft assessment order but the remaining order was not modified any further and was confirmed.
4. As per law, direct appeal against DRP's order lies before the Tribunal and the assessee has filed this appeal by taking following grounds:
"1. The reassessment proceedings under section 147/148 of the Income-tax Act, 1961 (hereafter referred to as 'Act') are bad and illegal in law and the Learned Add!. Director of Income-tax International Taxation, Chennai (hereafter referred to as 'AO'), has grossly erred in reopening the assessment under section 147 of the Act for the following reasons.:- 5 -: ITA 2131/10
i. The reassessment, having been undertaken
after and as a result of objection raised by
Revenue Audit Party of C&AG, is not
sustainable in law.
ii. The additions made by the AO in
reassessment constitute a review of his earlier decision contained in the original assessment order under S. 143(3) which was passed after due application of mind as all requisite information was provided in the return filed with annexures and in the submissions made during the original assessment, and therefore, amounts to a change of opinion, which is not permitted in law.
2. The Learned AO has grossly erred in treating an amount of ` 3,573,981 charged and collected by the assessee from M/s Chennai Metropolitan Water Supply and Sewerage Board (hereafter referred to as 'CMWSSB' or 'Customer') towards service tax as income and subjecting the same to tax on gross basis under section 115A read with section 44D of the Act.
3. The Learned AO has grossly erred in treating amounts aggregating to ` 1 ,552,301 being reimbursements claimed and recovered by the assessee towards car hire charges (~3,670,500), international air tickets (~4,992,429) and equipments procurement (` 2,889,372) from CMWSSB as income and subjecting the same to tax on gross basis under section 115A read with section 44D of the Act.
4. The Learned AO has grossly erred in not granting exemption to the assessee under Section 10(6A) of the Act for an amount of ` 15,580,850 being income-tax borne and paid by CMWSSB on the remuneration paid to the assessee and instead adding the said amount to the income of the assessee and subjecting the same to tax on gross basis under section 115A read with section 44D of the Act.
5. That the Learned AO has erred in charging interest amounting to ` 1,830,979 u/s 234B by overlooking a number of case decisions, more particularly, the recent decision of the Hon'ble Delhi High Court in the case of M/s Jacobs Civil Incorporated and Mitsubishi Corporation (ITA No. 491/2008 and ITA No. 209/2009 dated 30 August 2010) where it was held that interest under S. 234B cannot be charged on non-residents having regard to the provisions of S. 209(1)(d) and S. 195 of the Act.:- 6 -: ITA 2131/10
6. That the appellant may be allowed to add, supplement, revise, amend grounds as raised hereinabove. "
5. We have considered the rival submissions and have perused the entire material available on record. In so far as the legal issue challenging the reopening of assessment u/s 147 r.w.s 148 is concerned, that has no legs to stand because this issue has traveled upto the Hon'ble High Court when the assessee challenged the reopening undertaken on various reasons. The Hon'ble High Court, while disposing of the writ petition, has held that out of five reasons only two reasons can be treated as based on change of opinion by the Assessing Officer, but the remaining reasons have been held to be valid. In view of these facts, we are left with no option but to uphold the validity of the reopening because even if one of various reasons given for reopening of the assessment is found to be valid, action taken u/s 147 r.w.s 148 has to be treated as a valid reason for reopening. Therefore, the legal issue raised in this appeal fails and hence, dismissed.
ON MERITS
6. On merits, in substance, four additions have been challenged. The first of the objections taken is in relation to treatment of service tax collected by the assessee from its client, namely, CMWSSB. The contentions as put forth on behalf of the assessee by Shri :- 7 -: ITA 2131/10 R.Ramakrishnan, AR, are that there is no element of income embedded in service tax; that the assessee has no right or title over the tax billed or collected; the Central Government has an overriding title over the collection so made and as per CBDT Circular No.4/2008 dated 28.4.2008, service tax is not included for the purpose of TDS from the amount of rent recoverable by the landlord. To support this contention, the ld.AR has relied on the decision of this Bench rendered in the case of ACIT vs Real Image Media Technologies (P) Ltd, 114 ITD 573, and also on the decision of ITAT Hyderabad in the case of ACIT vs Louis Berger International Inc., (2010) 40 SOT 370(Hyd). On the other hand, the ld.DR has stated that service tax has to be treated as part of gross business receipt and is to be taxed as per the provisions of section 115A r.w.s 44D of the Act. To substantiate his above contention, the ld. CIT/DR, Dr.I.Vijayakumar, has placed heavy reliance on the order of DRP. This appeal is against the order of DRP, Chennai, passed u/s 144C on a reference made by the assessee- company.
7. After going through the various documents which include the contract between the assessee and CMWSSB, Tamil Nadu Industrial Policy-2003 and a copy of the Project Agreement, dated 20.11.1995, entered into amongst IBRD and CMWSSB and TWAD. After going :- 8 -: ITA 2131/10 through these documents, we find that the project in question involve a highly complex engineering service of public utility. The work involved consist of setting up of captive desalination plant based on sea water and/or ground water which involve transfer of technical knowledge. But we have inferred from the oral submissions, written documents and other material available before us that the assessee has entered into a Twinning Arrangement Consultancy Agreement with CMWSSB on 19.7.2000 where under, the assessee-company has to provide technical and professional services on matters relating to operation, maintenance, engineering, procurement, supervision of construction, management, information technology, technical and managerial support, development and implementation of organizational structure, systems, procedures and practices required by a well managed commercial water utility, systematic and comprehensive services on all aspects of water utility management etc. for the Second Chennai Water Supply Project. We have to decide whether this receipt on account of the above mentioned services rendered by the assessee-company to be grossed or is to be excluded.
8. The question before us is as to whether the action of the Assessing Officer in treating the service tax amounting to ` 35,73,981/- charged and collected by the assessee from CMWSSB as its business receipt and subjecting the same to tax on gross basis u/s :- 9 -: ITA 2131/10 115A r.w.s44D of the Act is correct or not. After examining the various facets of reasoning advanced from the side of the assessee vis-à-vis the opinion of the Revenue, we find that this issue stands covered by the decision of this Bench rendered in the case of ACIT vs Real Image Media Technologies (P) Ltd, 114 ITD 573 and that of ACIT vs Louis berger International Inc., (2010) 40 SOT 370(Hyd). The decision on which the Revenue has plaed reliance is that of Hon'ble Supreme Court rendered in the case of Chowringhee Sales Bureau (P) Ltd. vs CIT, 87 ITR 542, we have noticed that this decision of Apex Court has been considered by the Bench while rendering the decision in the case of Louis Berger International Inc.(supra) and has found the ratio of the same is not applicable to the facts of that case. The provisions of section 44D provides special provision for the computation of income by way of royalty in the case of a foreign company and its sub- clause(b) provides for deduction in respect of any expenditure or allowance for computing the income by way of royalty or fees or technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or with the Indian concern. As per this provision, no deduction u/s 28 to 44C is available to the assessee while computing income by way of royalty and technical services. Section 115A prescribes mode of computation of expenses from the fee for technical :- 10 -: ITA 2131/10 services. In normal circumstances the assessee would have collected the service tax from the respective clients and would have paid the same. But, reimbursement of service tax cannot form part of the taxable income of the assessee. Fee for technical services is for the service rendered by the assessee . Thus, service tax would not form part of fee for technical services. In other words, service tax is not an expenditure incurred by the assessee. It is a statutory levy on the person who avail the service from the assessee. It would have been a different case if the assessee had collected service tax and not paid the same to Government account. In the given case, what was reimbursed is service tax paid by the assessee to the Government account. Thus, such an amount cannot form part of the technical fee. In short, this receipt cannot be treated as a trading receipt. Hence, reimbursement of service tax cannot form part of the total income of the assessee. Service tax was collected by the assessee along with consultancy receipt from the same client through same invoice, but this would not be kept by the assessee because the Government had an overriding claim over it. It is true that the nature of any receipt is to precede not by the manner in which it has been treated by the assessee in its account books but it would depend on its true nature and quality. Therefore, in our considered opinion, keeping in view the factual matrix of this case, benefit of section 28 to 44C would not be :- 11 -: ITA 2131/10 available to the assessee and the provisions of section 44D would apply. Section 44D provides for deduction from receipts in the nature of royalty and fee for technical services etc. The issue is regarding service tax and not regarding fee for technical services. Even if technical services has to suffer tax as per the provisions of section 115A(1)(iv)(b)(B0 of the Act @ 20% of such fee if it has been received in pursuance to an agreement made after 31.5.1997 but before 1.6.2005. The agreement was signed in this case on 19.7.2000. In so far as fees for technical services is concerned, the same would suffer tax @ 20% but the amount in question is the amount of service tax collected by the assessee on which the Government has overriding right. Hence, this issue is covered by the decisions of the Tribunals(supra) in which the decision of Chowringhee Sales Bureau has been discussed and distinguished. Consequently, we allow this claim of the assessee and set side the order of the ld. CIT(A) in this regard.
9. The next issue raised vide Ground No.3 is with regard to treating the amount aggregating to ` 1,15,52,301/- being reimbursements claimed and recovered by the assessee towards car hire charges [` 36,70,500], international air tickets [` 49,92,429] and equipments procurement [` 28,89,372] from CMWSSB as income and subjecting :- 12 -: ITA 2131/10 the same to tax on gross basis and u/s 115A r.w.s 44D of the Act. According to the Assessing Officer as well as the DRP, these receipts are on account of services rendered by the assessee and were highly technical in nature. But as per the assessee, such receipts cannot be included in the gross and have to be excluded for taxation purposes. In this regard, reliance has been made on the decision of ACIT vs Louis Berger International Inc. (supra).
10. After considering the rival submissions, we find that the reimbursement of car hire charges, international air tickets and equipments procurement expenses would not be grossed to tax at the flat rate of 20%. We are in agreement with the ld.AR that these being reimbursement expenses earlier incurred by the assessee would not constitute assessee's income by way of fees for technical services and hence, provisions of section 115A are not attracted. Similar view has been taken by the Tribunal while deciding the cases of Real Image Media Technologies(P) Ltd(supra) and Louis Berger International Inc.(supra), which go in the favour of the assessee. Accordingly, by respectfully following the above decisions, we order to delete this addition, after setting aside the finding of the ld. CIT(A), and allow this ground of appeal in favour of the assessee.
:- 13 -: ITA 2131/10
11. The next issue relates to claim of exemption by the assessee u/s 10(6A) for an amount of ` 1,55,80,850/- being income-ax and paid by CMWSSB on the remuneration paid to the assessee and instead adding this amount to the income of the assessee and subjecting the same to tax on gross basis u/s 115JA r.w.s 44D of the Act. The Assessing Officer has denied this exemption as the assessee was not able to substantiate its claim for exemption of income under reference because this action provides for approval of Central Government of the agreement wherefrom the income of foreign company claiming exemption is derived. In the present case, the assessee is deriving its fee for consultancy services by virtue of work agreement dated 19.7.2000 and therefore, the same is required to be approved by Central Government to claim this exemption. As per the Assessing Officer, no documentary proof was filed that requisite approval of the agreement was accorded by the central Government. On the other hand, it was argued by the ld.AR that the project taken up by the assessee is covered in Industrial Policy of Government of India for the given period and hence, assessee's claim is allowable u/s 10(6A)(a) of the Act . Again, reliance was placed on the decision of ITAT, Hyderabad Bench in the case of ACIT vs Louis Berger International Inc.(supra). The case of the assessee is that the project under reference is an 'Infrastructure Project' and the assessee is, therefore, :- 14 -: ITA 2131/10 entitled for the exemption in the same manner as the claim of Louis Berger International Inc. was accepted by the ITAT. It was argued that although the Work Agreement dated 19.7.2000 does not specify the project under reference as 'Infrastructure Project', but the following points would support the assessee's claim:
"1 Metro Water Shall:
(a) No later than December 30, 1995 award a consultant contract for the preparation of final designs and tender documents for the installation of distribution system under the project.
(b) No later than December 31, 1996 furnish to the bank final designs and tender documents satisfactory to the bank for the distribution system under the project.
(c) Carry out the planned water distribution and conversation strategy dated February 1995 agreed with bank in a timely manner.
2. The TWAD Shall:
(A) (i) undertake the resettlement and rehabilitation of displaced persons and families in accordance with the principal, procedures and practices acceptable to the bank.
:- 15 -: ITA 2131/10
(ii) take all necessary steps to carry out the rehabilitation action plan agreed with the bank.
(iii) without prejudice to the generality of the foregoing, shall ensure that a displaced persons are provided for prompt and adequate compensation for the lost assets including dwelling and related structure and (B) displaced persons who are required to relocate are provided adequate assistance, logistical and financial to move to their new area of the residence and are provided necessary financial assistance on a grant basis during the period of relocation and for a reasonable period thereafter."
12. Despite the above claim made by the assessee, the ld.AR contended fiercely that the project in question is included as 'Infrastructure project' and is located in the backward area as per the Industrial Policy and in any other case the assessee had furnished consultancy to Water Supply Project which is included in 'Infrastructure Project' as per Explanation 2 to section 80IA(4) of the Act. The question before us is as to whether the expression 'Infrastructure :- 16 -: ITA 2131/10 facility' given in section 80IA can be imported in section 10(6A) of the Act or not.
13. After considering the rival submissions from various angles, we find that the definition of 'infrastructure facility' can be imported in section 10(6A). The assessee had furnished consultancy to Water Supply Project which is included in 'Infrastructure project' as per Explanation 2 to section 80IA(4) of the Act. The definition of 'infrastructure facility' has been given in section 80IA(4) but it has not been specifically limited to this section alone. There is no other definition of 'Infrastructure Facility' given in the Act. Thus, the definition given in Explanation 2 above has to be applied to section 10(6A). When there is no restriction put on the application of the definition of 'infrastructure facility' given in section 80IA(4), the same can be imported to the similar expression used as 'infrastructure facility' in section 10(6A). In the case of Louis Berger International Inc.(supra), ITAT Hyderabd has held that the development of infrastructure falls within the Industrial Policy of Government of India, hence, approval of the Government is not a pre-requirement for claiming exemption u/s 10(6A). Thus, fees received by the assessee for technical services/consultancy would fall under Article 12 and not Article 7 of DTAA and tax has to be levied only @ 15% and not @ 20%. In our considered opinion, this issue also stands covered by the :- 17 -: ITA 2131/10 Tribunal orders (supra). We, therefore, order to delete the impugned addition and allow this ground of assessee's appeal.
14. The last issue of this appeal relates to charging of interest u/s 234B of the Act. In view of our above finding, the charging of interest would now become of academic nature as charging of interest being mandatory but it admits consequential relief granted to the assessee. This ground is disposed of accordingly with the above observation.
15. In the result, the appeal stands allowed.
Order pronounced in the open court on 23.6.2011.
Sd/- Sd/-
(DR. O.K. NARAYANAN) (HARI OM MARATHA)
VICE-PRESIDENT JUDICIAL MEMBER
Dated: 23rd June, 2011
RD
Copy to: Appellant/Respondent/CIT(A)/CIT/DR