ITO Vs Star Rays (ITAT Surat)
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals)-13, Ahmedabad, which had deleted the demand raised against Star Rays under sections 201(1) and 201(1A) of the Income-tax Act, 1961, for Assessment Year 2015-16. The dispute concerned payments made by the assessee, a partnership firm engaged in cutting, polishing and export of diamonds, towards diamond testing and certification services provided by Gemmological Institute of America Inc. (GIA USA).
The Assessing Officer treated the payments as fees for technical services under section 9(1)(vii)(b). The AO proceeded on the basis of Form 15CA/15CB and took the view that the diamonds had been sent to GIA’s Hong Kong laboratory, the services had been rendered in Hong Kong and the payments had been made into a Hong Kong bank account. Since, according to the AO, there was no DTAA between India and Hong Kong applicable to the transaction, the benefit of the India-USA DTAA was denied. The assessee was consequently treated as an assessee in default under section 201(1) in respect of tax of about Rs.3.30 crore, with consequential interest of about Rs.1.31 crore under section 201(1A).
The assessee contended that its contractual relationship was with GIA Inc., USA and not GIA Hong Kong Laboratory Ltd. The customer services agreement was entered into with GIA USA, invoices were raised by GIA USA and the grading certificates were issued by GIA USA. According to the assessee, the payment was made to a Hong Kong bank account belonging to GIA USA pursuant to the payment instructions contained in the invoices. The assessee also produced a confirmation from HSBC Bank establishing that the relevant bank account was owned by GIA USA.
