Case Law Details
DCIT Vs Karvat Cover More Assist Pvt. Ltd. (ITAT Mumbai)
ITAT Mumbai held that once department issued the certificate of non-deduction of TDS under section 195(2), then department cannot disallow the same expenditure under section 40(a)(i) on the allegation that assessee failed to deduct TDS.
Facts-
During the course of assessment proceedings, it was observed that the assessee has paid management fees amounting to 5,40,49,783, to one of the Cover-More Group Companies, i.e., Cover-More Insurance Services Pty Limited, Australia. Accordingly, the assessee was asked to explain regarding the nature of management fees paid to the aforesaid company and as to why TDS has not be deducted in regard to the said payment. AO did not agree with the submissions of the assessee and held that services rendered to the assessee are purely technical in nature and disallowed the payment of Rs. 5,40,49,783, under provisions of section 40(a)(i) read with section 195 of the Act.
CIT(A) directed AO to delete the addition made u/s 40(a)(i). Being aggrieved, revenue has preferred the present appeal.
Conclusion-
Once, the assessee has sought the remedy provided under the Act and the Competent Authority of the Income Tax Department after consideration of the facts, which are similar to the facts for the year under consideration, came to the conclusion under section 195(2) of the Act that Nil tax is liable to be withheld, in such a situation submission of the Revenue that assessee has failed to deduct tax at source on the payment made to the Australian entity is completely contrary to its own determination of such liability in the case of assessee. In view of the above, we find no infirmity in the impugned order passed by the learned CIT(A). Accordingly, all the grounds raised by the Revenue are dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal has been filed by the Revenue challenging the impugned order dated 27/03/2019, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by learned Commissioner of Income Tax (Appeals)–12, Mumbai, [“learned CIT(A)”], for the assessment year 2015– 16.
2. In its appeal, the Revenue has raised following grounds:
“1. Whether on the facts and circumstances of the case and in law the Ld CIT(A) has erred in deleting amount of 5,40,49,783/- made by the assessing officer under section 40(a)(i) read with section 195 of I. T Act 1961 in the income as per normal provisions of Income Tax Act, 1961?
2. Whether on the facts and circumstances of the case and in law the Ld CIT(A) has erred in holding that the amount of Rs 5,40,49,783 paid to the Australian Payee do not constitute fees for Technical Services rendered by the Payee to the assessee company?
3. Whether on the facts and circumstances of the case and in law the Ld CIT(A) has erred in holding that the service rendered by the payee has not resulted into making available technology/knowledge/skill/knowhow to the assessee within the meaning of Articles 12(3) of the DTAA between India and Australia?
4. Whether on the facts and circumstances of the case and in law the Ld CIT(A) has erred in holding that the Assessing Officer was obliged to follow the certificate issued u/s 195(2) of the T Act 1961 by the DCIT(International Taxation), Mumbai without appreciating the facts that the certificate issued by the DCIT(International Taxation), Mumbai was for a different assessment year and in respect of a different party/client of the assessee?
5. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of Assessing Officer be restored.”
3. The only grievance of the Revenue in the present appeal is against deletion of disallowance of Rs. 5,40,49,783 made under section 40(a)(i) read with section 195 of the Act.
4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in the business of providing internet-based luggage tracking service system, worldwide travel medical assistance and various ancillary services. For the year under consideration the assessee e-filed its return of income on 26/11/2015, declaring total income at Rs. 18,81,56,000. During the course of assessment proceedings, it was observed that the assessee has paid management fees amounting to 5,40,49,783, to one of the Cover-More Group Companies, i.e., Cover-More Insurance Services Pty Limited, Australia. Accordingly, the assessee was asked to explain regarding the nature of management fees paid to the aforesaid company and as to why TDS has not be deducted in regard to the said payment. In reply, assessee submitted that the services were merely support services and were neither technical nor managerial nor consulting in nature and were not intended to transfer/make available any knowledge, experience, skill to the assessee. The assessee also submitted that it had not acquired any technical or other knowhow whatsoever from Cover-More Inter Company or any other Group Company situated abroad. The assessee also placed reliance upon the provisional certificate of the withholding taxes at nil issued under section 195(2) for the subsequent year based on the agreement between the assessee and the group company in Singapore. Upon perusal of the agreement entered into between the assessee and group company, the Assessing Officer („AO‟) vide order dated 22/12/2017 passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that services rendered to the assessee are purely technical in nature. The AO also held that certificate adopted by the assessee under section 195(2) of the Act is only provisional in nature and was for a different year and also for a different party and therefore is of not much relevance for deciding the issue for the year under consideration. The AO, further, held that payment of consideration in the name of management fees by the assessee to Cover More Insurance Services Pty. Limited, Australia, has satisfied the test of rendering services and making technical knowledge available at the same time and therefore falls within the provisions of Article 12(3)(g) of India Australia Double Taxation Avoidance Agreement („DTAA’). Accordingly, the AO came to the conclusion that the assessee should have deducted tax in respect of amounts payable to the overseas entity under the provisions of section 195 on the ground, that, the amount payable to them was chargeable to tax in India under Article 12 of DTAA dealing with „Royalty‟ and section 9(1)(vii) of the Act. As a result, the AO disallowed the payment of Rs. 5,40,49,783, under provisions of section 40(a)(i) read with section 195 of the Act.
5. In appeal, learned CIT(A), vide impugned order dated 27/03/2019, after taking note of certificate for non-deduction of TDS issued under section 195(2) by the DCIT (International Taxation), observed as under:
“3.7 It is also seen that for FY. 2016-17 the appellant company made application u/s 195(2) of the Act to the Dy. Commissioner of Income-tax (International Taxation), Range-3(1)(2) for Nil deduction of Tax in respect of payments made to CMA towards the same support services. The appellant received order u/s 195(2) dated 02.08.2016, wherein after discussions and referring to the very same agreement entered into with CMA, the DCIT (International Taxation), Range 3(1)(2) held as under.
“The scope of the work order will fall under beneficial provision section 90(2) of the Income tax Act, 1961 as per Article 12 of India Australia DTAA. which is beneficial provision for the assessee. Accordingly, the same is not liable for tax in India as per Article 12(3)(g) as the support services intended to be provided by Cover more Australia to M/s Kartal Cover More Assist Put. Ltd. does not resut in making available any technical knowledge, experience, skill, know how or processes or consist of the development and transfer of any technical plan or design. The assessee’s contention is also supported by the decision in the case of Sandvik Australia Pty Ltd vs DCIT(2013) 141 ITD 598 (Pune Tribunal). Moreover the said services are also not liable to be taxed under Article 7 “business profits” read with Article 5 “Permanent establishment” of India Australia DTAA because Cover-More Insurance Services Pty Ltd (Cover more Australia) does not have any PE in India.”
3.8 The International Taxation wing of the Income Tax department after referring to the same agreement with CMA and the application made by the appellant rightly held that the payment made is for routine business support Service payment and does not fall within the scope and purview of Article 12(3)(g) of DTAA between India & Australia and thus, there is no requirement TDS while making the payment to CMA. Similarly, Nil TDS certificates are issued to the appellant for FY 2017-18 & 2018-19 also. These certificates filed were brushed aside by the AO stating that the certificates issued by the DCIT (International Taxation) are for different year and relating to different party and therefore not applicable for the present proceedings and the certificate issued is only provisional, which is ill founded. AO forgot the fact that the payments are the same. Therefore the argument of the AO is not proper. Department cannot take different stand for different assessment years on the same issue. Principle of consistency has to be adhered to in the case of the same assessee as held by the Supreme Court in the case of Radhasoami Satsang v. CIT [193 ITR 321] (SC) where in paragraph 13, the Apex Court held that-
“We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the i position to be changed in a subsequent year.”
This judgment of the Apex Court has been consistently followed by various judicial and appellate forums and considering the fact that the assessee is making the same payment year after year as per the agreement, the considered stand of the AO having jurisdiction of section 195 taken in latest assessment years cannot be changed to a different stand in an earlier assessment years.”
6. Further, the learned CIT(A) after referring to various circulars issued by CBDT held that the AO was under obligation to follow the certificate issued under section 195(2) of the Act, determining the withholding taxes at Nil in the case of aforesaid Australian group entity and the assessee. The learned CIT(A) also noted that such certificate was neither modified nor cancelled by the DCIT (International Taxation) and has been granted for subsequent years also on the same basis, which proves that the payment made are towards support services without any technicalities involved and without making available any knowledge or experience or skill as assumed by the AO. Accordingly, the learned CIT(A) vide impugned order directed the AO to delete the addition made under section 40(a)(i) of the Act. Being aggrieved, the Revenue is in appeal before us.
7. During the course of hearing, learned Departmental Representative („learned DR’) by vehemently relying upon the order passed by the AO submitted that the certificate issued under section 195(2) of the Act is a provisional certificate and therefore same cannot be relied for determining the liability of the assessee to deduct tax at source in respect of payment made to the Australian group entity. The learned DR further submitted that the services provided by the foreign company to the assessee are technical in nature and therefore, the assessee was liable to deduct tax at source under section 195 of the Act.
8. On the other hand, learned Authorised Representative („learned AR‟) submitted that the assessee is existing in the business since the year 2005 and has all technical personnel for undertaking the business. Since, foreign company, which is having global presence wanted to expand its business in India, therefore, shares of the assessee were purchased by the foreign company. The learned AR submitted that no technical knowledge was shared by the foreign company with the assessee. The learned AR further submitted that the agreement is only for business support services to provide common template of services. The learned AR also refer to the certificates for Nil withholding tax issued by DCIT (International Taxation) for assessment years 2017–18, 2018–19, 2019–20, 2000-2021 and 2021–22 in respect of payment made by the assessee to Cover More Insurance Services Pty Ltd,
9. We have considered the rival submissions and perused the material available on record. As per the assessee, the assessee is a part of the Cover More Group, world‟s leading dedicated provider of medical assistance and travel insurance. After becoming part of the Cover More Group, the assessee has grown into India‟s leading dedicated provider of global assistance and travel insurance intermediary. On 31/03/2015, assessee entered into an agreement with Cover More Insurance Services Pty Ltd, Australia. From the perusal of the agreement, copy of which forms part of the paper book from page No. 18 – 22, we find that the Australian entity agreed to provide administration/business support services including actuarial, finance support, growth and innovation support, human resource support, infrastructure support, design of marketing and sales brochure and development of group marketing strategy, to the assessee. As per the agreement, the services are merely support services and are neither technical nor managerial nor consulting in nature and are not intended to transfer/make available any knowledge/experience/skill to the assessee. Further, we find that the purpose of activities undertaken under the aforesaid agreement is to give direction to the assessee so that they adopt or follow standard procedure or template in various matters. It is further mentioned that the services are non-technical in nature and are availed by the group companies with the intention of carrying on business in line with the best practices followed by Cover-More group. In consideration of services received under the aforesaid agreement, the assessee paid amount of Rs. 5,40,49,783 to the Australian entity during the year. The AO by treating the services as technical in nature disallowed the payment made by the assessee to the Australian entity under section 40(a)(i) of the Act for non-deduction of tax at source.
10. As is evident from the record, the assessee made an application under section 195(2) of the Act, for assessment year 2017–18, for granting certificate for Nil rate of TDS, in respect of payments to be made for management fees to the aforesaid Australian entity. In the application, which forms part of the paper book from page No.45–56, we find that the assessee provided complete details regarding the profile of the group, Australian entity, assessee, details of nature of activities carried out by the Australian company as per the agreement etc. The DCIT (International Taxation) vide order dated 02/08/2016 passed under section 195(2) of the Act, after taking note of the agreement dated 31/03/2015 entered into between the assessee and the Australian entity for providing administration/business support services, came to the conclusion that assessee is not liable for tax in India as per Article 12(3)(g) of DTAA as the support services intended to be provided by the Australian entity to the assessee does not result in making available any technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design. The DCIT (International Taxation) also held that the said services are also not liable to be taxed under Article 7 read with Article 5 of India Australia DTAA, as the Australian entity doesn‟t have any PE in India. Accordingly, assessee was directed to withhold taxes at Nil under section 195(2) while making payment to Cover More Insurance Services Pty Ltd, during the financial year 2016–17. We find that similar Nil withholding tax certificates were issued by the Competent Authority relevant for assessment years 2018–19, 2019–20, 2020–21 and 2021–22.
11. During the course of hearing, learned DR vehemently argued that all the certificates are provisional in the nature and therefore should not be formed the basis for determining the liability of the assessee to deduct tax at source. However, nothing has been brought on record, on behalf of the Revenue, to suggest that any of the aforesaid certificates issued under section 195(2) of the Act have been modified or cancelled by the Competent Authority. Further, there is also no allegation that there is any change in facts in the year under consideration vis-à-vis the assessment years during which the aforesaid Nil withholding tax certificates were issued under section 195(2) of the Act. The Hon‟ble Supreme Court of India in GE India Technology Cen. (P.) Ltd. vs CIT: [2010] 327 ITR 456 (SC) held that section 195(2) provides a remedy by which a person may seek a determination of the “appropriate proportion of such sum so chargeable”, where a proportion of the sum so chargeable is liable to tax. Once, the assessee has sought the remedy provided under the Act and the Competent Authority of the Income Tax Department after consideration of the facts, which are similar to the facts for the year under consideration, came to the conclusion under section 195(2) of the Act that Nil tax is liable to be withheld, in such a situation submission of the Revenue that assessee has failed to deduct tax at source on the payment made to the Australian entity is completely contrary to its own determination of such liability in the case of assessee. In view of the above, we find no infirmity in the impugned order passed by the learned CIT(A). Accordingly, all the grounds raised by the Revenue are dismissed.
12. In the result, appeal by the Revenue is dismissed.
Order pronounced in the open Court on 12/09/2022
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