Case Law Details
BASF Catalysts India Pvt. Ltd Vs DCIT (ITAT Chennai)
ITAT Chennai held that before concluding with regard to applicability of provisions of section 195 of the Income Tax Act, all necessary and relevant documents like cost sharing agreement/ auditor’s report/ other evidences need to be examined thoroughly. Accordingly, matter set aside with direction to AO to re-examine the claim.
Facts- The assessee, M/s. BASF Catalysts India Private Limited, is a part of group concern companies of BASF group comprising of BASF SE, Germany and its number of subsidiaries and affiliates. The assessee is also one of the pool members of the BASF Group.
The assessee entered into a Cost Sharing Agreement (CSA) with BASF SE, Germany as one of the pool members. As per the agreement between the assessee and parent company BASF SE, Germany provides common services to various pool members and allocates cost for service on cost to cost basis without any mark-up.
The assessee has filed an application u/s. 195(2) of the Income Tax Act to AO for certificate u/s. 197 of the Act to make payment to the parent company without deduction of tax at source u/s.195 of the Act. AO has issued certificate and directed the assessee to make the payment after deducting TDS @ 10% as per section 195 of the Act. The assessee has remitted payment to its parent company and paid necessary TDS as directed by AO @ 10% on amount remitted to its parent company. However, the assessee has filed an appeal before CIT(A) u/s. 248 of the Act and to declare that the assessee is not liable to pay TDS on payment to non-resident. CIT(A) rejected the same. Being aggrieved, the present appeal is filed.
Conclusion- An identical issue has been considered by the Tribunal in assessee’s own case for earlier years, where the issue has been set aside to the file of the AO to re-examine re-consider the claim of the assessee in light of agreement between the assessee and BASF SE.
Accordingly, in the present matter it is held that we set aside the issue to the file of the AO and direct the Assessing Officer to re-examine the claim of the assessee in light of agreement between the parties and also provisions of section 195 of the Act to decide whether payment made to non-resident is liable for TDS under provisions of section 195 of the Act, 1961.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These appeals filed by the assessee are directed against separate, but, identical orders of the ld. Commissioner of Income Tax (Appeals)-16, Chennai, dated 31.01.2020 and pertains to assessment years 2018-19 & 2019-20. Since, the facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are being disposed of by this consolidated order.
2. At the outset, we find that there is a delay of 122 days in both the appeals filed by the assessee. During the course of hearing, when defect was brought to the notice of the learned AR present, he has submitted that delay in filing of appeals is mainly due to lockdown imposed by the Govt. on account of spread of Covid-19 infections and in view of the Hon’ble Supreme Court suomotu Writ Petition No.3 of 2020, if the period of delay is covered within the period specified in the order of the Apex Court, then same needs to be condoned in view of specific problem faced by the public on account of Covid-19 pandemic.
3. The learned DR, on the other hand, fairly agreed that delay may be condoned in the interest of justice.
4. Having heard both sides and considered reasons given by the learned AR, we find that the Hon’ble Supreme Court in suomotu Writ Petition No.3 of 2020, has extended limitation applicable to all proceedings in respect of Courts and Tribunals across the country on account of spread of Covid-19 infections w.e.f. 15.03.2020, till further orders and said general exemption has been extended from time to time. We further noted that delay noticed by the Registry pertains to the period of general exemption provided by the Hon’ble Supreme Court extending limitation period applicable for all proceedings before Courts and Tribunals and thus, considering facts and circumstances of the case and also in the interest of natural justice, we condone delay in filing both the appeals filed by the assessee.
5. The assessee has, more or less, raised common grounds of appeal and therefore, for the sake of brevity, the grounds of appeal filed in I.T.A. No. 720/Chny/2020 are reproduced as under:
1. “That the order of the learned Commissioner of Income Tax (Appeals)Chennai 600034 [‘CIT (A)’] is contrary to the facts and circumstances of the case and against the principles of equity and natural justice.
2. The learned CIT(A) erred inholding that the Appellant is required to deduct tax at source on the payments made to BASF SE Germany under section 195(2) of the Income Tax Act, 1961 (the Act’)
3. The learned CIT(A) erred in holding that the payment made by the Appellant to BASF SE Germany is in the nature of technical services.
4. The CIT(A) failed to appreciate that the payment made is made by the Appellant under cost sharing agreement with its group wherein BASF SE who is another member in the pool and is only in nature of reimbursement.
5. The CIT(A) failed to appreciate that common interest and benefit of pool members of the Appellant’s group companies across the world, the pool members through cooperation amongst themselves are providing/ using % common services and that it was agreed that the costs in connection with the same will be shared jointly by the pool members as beneficiaries.
6. The CIT (A) failed to appreciate that in respect of payments made to BASF SE, the same cannot be treated as Fees for technical services, in view of the Double Taxation Avoidance Agreement between India and Germany. The CIT (A) ought to have appreciated that no technology was made available to the appellant and accordingly the payment is not in the nature of fees for technical services.
7. The learned CIT (A) erred in not following the case laws cited by the Appellant.
8. Your Appellant prefers this appeal on these grounds and such other grounds that may be adduced before or at the time of hearing this Appeal.”
6. Brief facts of the case are that the assessee, M/s. BASF Catalysts India Private Limited, is a part of group concern companies of BASF group comprising of BASF SE, Germany and its number of subsidiaries and affiliates. The assessee is also one of the pool members of the BASF Group. The assessee entered into a Cost Sharing Agreement (CSA) with BASF SE, Germany as one of the pool members and the said agreement came into effect from 1st January, 2010. As per the agreement between the assessee and parent company BASF SE, Germany provides common services to various pool members and allocates cost for service on cost to cost basis without any mark-up. The assessee has filed an application under section 195(2) of the Income Tax Act to the Assessing Officer for certificate under section 197 of the Act to make payment to the parent company without deduction of tax at source under section 195 of the Act. The Assessing Officer has issued certificate under section 197 of the Act and directed the assessee to make the payment after deducting TDS @ 10% as per section 195 of the Act. The assessee has remitted payment to its parent company and paid necessary TDS as directed by the Assessing Officer @ 10% on amount remitted to its parent company. However, the assessee has filed an appeal before the ld. CIT(A) under section 248 of the Act and to declare that the assessee is not liable to pay TDS on payment to non-resident. The ld. CIT(A), after considering relevant facts and also analysis of various provisions of the Act, including DTAA between India and Germany, rejected the appeal filed by the assessee and upheld the action of the Assessing Officer on levying 10% TDS payment.
7. The Ld. Counsel for the assessee submitted that this issue is covered by the decision of ITAT, Chennai in assessee’s own case for assessment year 2015-16 to 2017-18 in ITA Nos. 1187 & 3122/Chny/2016, where on identical set of facts, the issue has been set aside to the file of the AO. Therefore, submitted that this year also the issue may be set aside to the file of the AO.
8. Ld. DR on the other hand supporting the order of the CIT(A), submitted that the issue is covered by the decision of ITAT in assessee’s own case, where the Tribunal has set aside the issue to the file of the AO and thus, this year also the issue may be set aside to the file of the AO.
9. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee’s own case for earlier years in ITA Nos. 1187 & 3122/Chny/2016 & 1690 & 1691/Chny/2017, vide order dated 21.10.2022, where the issue has been set aside to the file of the AO to re-consider the claim of the assessee in light of agreement between the assessee and BASF SE, Germany and the relevant findings of the Tribunal are as under:
“8. We have heard both the parties, perused the materials available on record and gone through the orders of authorities below. The assessee is a member of BASF group and had entered into Cost Sharing Agreement with effect from 1st January, 2010 with its parent company. As per the agreement between the assessee and its parent company, BASF SE, Germany procures and provides certain common services to pool members on cost sharing basis. The agreement further specifies the nature of services to be provided and the manner in which cost should be shared by pool members. The assessee claims that the payment made to its parent company, a non-resident entity is reimbursement of expenses without any mark-up and to this effect, the assessee has filed an audit report of Deloitte GmbH, where, they certified that the services provided by BASF SE, Germany in terms of cost sharing agreement with pool members is on cost to cost basis without any mark-up. The assessee, on the basis of cost sharing agreement and also in light auditor certificate claimed that payment made to nonresident entity is not liable to be taxed in India and consequently, the assessee need not to deduct TDS in India. We find that although the assessee claims to have reimbursed cost incurred by parent company to provide certain common services without any mark-up, the said claim of the assessee was not substantiated. Further, if we go through the cost sharing agreement between the assessee and its parent company, the services to be rendered are in the nature of composite services and from the said agreement, it is difficult to ascertain whether they are in the nature of ‘fee for technical services’ or only reimbursement of cost. Although, the assessee strongly relied upon the certificate issued by the Deloitte GmbH and contended that the payment made to the non-resident is only cost incurred by the parent company without any mark-up, which was not supported by any evidence. Therefore, we are of the considered opinion that the issue needs to be re-examined in light of various averments including cost sharing agreement, certificate issued by the Deloitte GmbH and the provisions of section 9(1)(vii) of the Act read with DTAA between India and Germany. Further, similar issue was considered by the Mumbai Benches of the ITAT in assessee’s group company in the case of BASF India Ltd. v. DCIT(IT) [2019] 102 taxmann.com 133 (Mumbai – Trib.), in an identical set of facts, set aside the issue to the file of the Assessing Officer to re-examine various evidences filed by the assessee and relevant findings are reproduced as under:
8. We have considered rival submissions and perused materials on record. We have also applied our mind to the decisions relied upon. The dispute in the present appeal arise out of rejection of assessee’s application made under section 195(2) of the Act requesting for no deduction of tax at source on remittances to be made. The Assessing Officer has rejected the aforesaid applications filed by the assessee on the ground that services rendered by BASF SE to whom remittances were to be made are in the nature of fees for technical services. However, the aforesaid order passed by the Assessing Officer is cryptic and bereft of reasoning. The Assessing Officer has not stated on what basis he considers the nature of payment to be made is fees for technical services. It is also not known whether before treating the nature of payment as fees for technical services the Assessing Officer has properly examined the cost sharing agreement, the nature of services provided and other relevant factors including the relevant provisions under the India Germany DTAA. While deciding the appeals of the assessee, the learned Commissioner (Appeals) has upheld the orders passed by the Assessing Officer for the following reasons:-
i) Invoice dated 17.12.2012, raised by BASF SE on the assessee does not refer to cost sharing agreement dated 25.05.2000.
ii) Services to be rendered under the cost sharing agreement are in the nature of fees for technical services.
iii) Cost sharing agreement was executed in the year 2000,
whereas, the assessee became party to the agreement in the year 2010. Thus, when the assessee prior to 2010 did not making any remittances for availing such services there is no need to do so now unless the assessee avails services in the nature of fees for technical services.
9. As regards the allegation of the learned Commissioner (Appeals) that the invoice raised by the BASF SE dated 17th December 2012, does not refer to the cost sharing agreement, we find such allegation to be factually incorrect. Perusal of the said invoice, a copy of which is placed at Page-46 of the paper book, clearly reveals that it refers to the cost sharing agreement dated 25th May 2000. As regards the observations of the learned Commissioner (Appeals) that nature of services rendered is managerial and technical, there is absolutely no reasoning on what basis the learned Commissioner (Appeals) has come to such conclusion. Though, he has stated that such conclusion is arrived at after going through the cost sharing agreement, however, the order passed by the learned Commissioner (Appeals) does not reveal whether he has examined and analyzed the nature of services rendered by the pool members to term the payment made as fees for technical services. Further, only because the assessee became party to the agreement in December 2010, it cannot be said that the payment made by the assessee for services are in the nature of fees for technical services. It is necessary to observe, the assessee has furnished before us a number of documentary evidences, some of which for the first time by way of additional evidences, to demonstrate that the payment made to BASF SE is actually relating to services rendered by different pool members on cost to cost basis without any mark-up. Learned Sr. Counsel for the assessee with the aid of the aforesaid documentary evidences had attempted to demonstrate that services were not rendered by BASF SE but by pool members, hence, remittances to BASF SE does not require deduction of tax at source under section 195(1) of the Act. In our view, before concluding that the remittances are in the nature of fees for technical services and chargeable to tax at the hands of the recipient in India, all necessary and relevant documents including the cost sharing agreement, the auditor’s report as well as other additional evidences filed by the assessee before us needs to be properly analysed and examined. Further, contention of learned Sr. Counsel that BASF SE having not rendered any services to the assessee, payment made cannot be treated as fees for technical services as per Explanation-2 to section 9(1)(vii) has not been considered by the Departmental Authorities both factually and legally. Further, the contention of the assessee that when another Indian company of BASF group, a party to the same cost sharing agreement has been issued a no deduction certificate under section 195(2) of the Act, why a differential treatment should be meted out to the assessee also needs to be considered with proper reasoning. Since, the aforesaid aspects have not been considered by the Departmental Authorities and many of the documentary evidences were furnished for the first time before us by way of additional evidences and were not before the Departmental Authorities, though we are of the opinion that the additional evidences furnished by the assessee require to be admitted as they will have a crucial bearing for deciding the issue, however, to afford a fair opportunity to the Department to examine such documents, we are inclined to restore the issues raised in the aforesaid grounds to the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee. While doing so, the Assessing Officer must consider the ratio laid down in the decisions to be cited before him.
10. The issue raised in ground no.4, which is common in both the appeals, being consequential to grounds no.1 to 3, we accordingly restore the issue to the Assessing Officer for fresh adjudication depending upon the decision to be taken in respect of issues raised in grounds no.1 to 3.”
9. In view of this matter and also considering the facts and circumstances of the case and in consistent with the view taken by the Coordinate Benches of the Tribunal, we are of the considered opinion that the issue needs to go back to the Assessing Officer for further verification and accordingly, we direct the Assessing Officer to re-examine the issue of applicability of TDS as per section 195 of the Act on payment made to non-resident and decide the issue in accordance with law.”
8. In view of this matter and consistent view taken by the Co-ordinate bench, we set aside the issue to the file of the AO and direct the Assessing Officer to re-examine the claim of the assessee in light of agreement between the parties and also provisions of section 195 of the Act to decide whether payment made to non-resident is liable for TDS under provisions of section 195 of the Act, 1961.
9. In the result, both the appeals filed by the assessee are treated as allowed for statistical purposes.
Order pronounced in the court on 16th November, 2022 at Chennai.
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