EY Global Services Ltd. Vs ACIT (ITAT Delhi)
ITAT finds itself in agreement with the submissions made by the ld. DR for the Revenue. AO has only followed the ruling of AAR in assessee’s own case and as per the provisions of section 245S of the Act, ruling of Hon’ble AAR is binding upon the Revenue authorities. The provisions of section 295S reads as under :-
“245S. (1) The advance ruling pronounced by the Authority under section 245R shall be binding only-
(a) on the applicant who had sought it;
(b) in respect of the transaction in relation to which the ruling had been sought, and
(c) on the Principal Commissioner or Commissioner, and the income-tax authorities subordinate to him, in respect of the applicant and the said transaction.
(2) The advance ruling referred to in sub-section (1) shall be binding as aforesaid unless there is a change in law or facts on the basis of which the advance ruling has been pronounced.”
Once it is clear that the Revenue authorities only followed the ruling of Hon’ble AAR in assessee’s own case, no fault can be found in their orders in appellate proceedings. No case has been made out that authorities below have not correctly followed the ruling of Hon’ble AAR. It is also not a case that Hon’ble High Court has reversed the order of Hon’ble AAR. In this view of the matter, we do not find any infirmity in the order of ld. CIT (A), hence we uphold the same. This appeal filed by the assessee stands dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
These are appeals by the assessee against the respective orders of the ld. CIT (Appeals) for the concerned assessment years.
2. Since issues are common and connected and the appeals were heard together, these are being disposed off by this common order.
3. Since grounds are common we are referring to grounds of appeal for AY 2010-11 which read as under :-
“1. General Grounds:
1.1. That the Commissioner of Income Tax (Appeals)-42, New Delhi (hereinafter referred to as “Ld. CIT(A)” has erred in facts and in law in upholding the assessment order and assessing the income at INR 11,26,56,700 as against return income of NIL.
1.2. That on fact and in circumstance of the case and in law, the Ld. CIT(A) has erred in rejecting the application filed u/s 158A of the Act to avoid repetitive appeal on the issue which is pending before the Hon’ble Delhi High Court.
2. Grounds on taxability of Software License:
2.1. That on facts and in law, the Ld. CIT (A) has erred in not accepting the contentions of the Appellant that reimbursement of actual costs relating to Software License and maintenance charges amounting to INR 7,28,25,439 are not in the nature of Royalty under the Act as well as Double Taxation A voidance Agreement between India and UK (hereinafter referred to as “treaty”) by following the ruling of Hon’ble AAR in appellant’s own case and ignoring the rulings of various Hon’ble High courts on similar issue including jurisdictional Hon’ble Delhi High Court and also ruling by Hon’ble Supreme Court in case of A.P. Moller Maersk AS (2017) 392 ITR 186 holding that reimbursement of communication network charges is not taxable.
2.2. That the Ld. CIT(A) has also erred in facts and in law in holding that no appeal is maintainable on above ground as the matter has already been decided by AAR in appellant’s own case, and while doing so has ignored the rulings of Hon’ble High courts on similar issue including jurisdictional Hon’ble Delhi High Court.
3. Grounds on taxability of Global technology charges and GW AN connectivity charges:
3.1. That the Ld CIT(A) has failed to consider and appreciate that the reimbursement of actual costs relating to Global technology charges and GWAN connectivity charges amounting to INR 3,65,90,140 and INR 32,41,122 are not and cannot be considered as software and thus, is not in the nature of “royalty” either under the Act or under the treaty, and are thus not taxable in India in the absence of a PE of the Appellant Company in India. Further, the Ld. CIT(A) has completely ignored the ruling by Hon’ble Supreme Court in case of A.P. Moller Maersk AS (2017) 392 ITR 186 holding that reimbursement of communication network charges is not taxable.
3.2. That the Ld. CIT(A) has also failed to appreciate that the Hon’ble AAR while pronouncing its order has held only software charges as Royalty, and thus has erred in taxing Global technology charges and G WAN connectivity charges as Royalty .
3.3. That the Ld. CIT(A) has erred in facts and in law in holding that no appeal is maintainable on above ground as the matter is pending under rectification application filed before Hon’ble AAR in appellant’s own case.”
4. Brief facts of the case are that EY Global Services Limited (hereinafter referred to as ‘the assessee’) is providing technology and other support services and software licenses to the member firms of the EY Network. The assessee is said to be established as a non-profit central service provider to enable EY member firms to share the costs of centralized services. Accordingly, the assessee enters into agreements with each member firm, pursuant to which it provides services required by member firms and thereafter, recovered various costs incurred by it from the member firms on actual usage basis. Given the above, the assessee filed a ‘NIL’ return of income on 30th March 2012 contending that the payments received by the assessee from Indian member firms are mere reimbursement of costs and not taxable under the Act as well as the Double Taxation Avoidance Agreement between India and United Kingdom (hereinafter referred as “the treaty”).
4.1 To seek certainty on the above tax position and avoid litigation with the Tax Department, the assessee had filed an application before the Authority of Advance Ruling (“AAR”) to seek an advance ruling that the payments so received by the assessee are not taxable in India under the Act or under the treaty. The Hon’ble AAR while pronouncing its ruling held that owing to the nature of services rendered by the assessee, all services except software charges are not taxable in India. Accordingly, the Hon’ble AAR held that software charges are taxable as “Royalty” as per the provisions of the Act and the treaty.
4.2 In background of the AAR order, the Ld. AO proceeded to frame assessment for the subject year and passed the final assessment order vide order dated 30 November 2018 whereby, the following payments were held taxable @ 10% as “Royalty” under the Act as well as the treaty:
