Dimension Data Asia Pacific Pte. Ltd. Vs DCIT (ITAT Mumbai)
Assessee deriving income from multiple sources can adopt provisions of I.T Act for one source & DTAA for other
The Tribunal held that in case of multiple sources of income, an assessee is entitled to adopt the provisions of the Act for one source while applying the beneficial DTAA provisions for the other, relying on Bangalore ITAT ruling in IBM world Trade Corporation.
Interest U/s. 234B of Income Tax Act, 1961 cannot be levied on Income of non-resident liable to TDS
We find that the assessee is a non-resident and the liability of payment of advance tax is not on the assessee for the reason that the payer has to deduct tax at source under section 195 of the Act at the time of payment. This issue is covered by the decision of Hon’ble Bombay High Court in the case of DIT (International Taxation) v. NGC Network Asia LLC (2009) 313 ITR 187 (Bom.). Hence, while computing tax on income the AO will not charge interest under section 234 B of the Act.
FULL TEXT OF THE ITAT JUDGMENT
These two appeals by the assessee are arising out of the orders of Dispute Resolution Panel-I (WZ), [in short ‘DRP’] in Objection Nos.73 & 74, directions dated 01.12.2016. The Assessments were framed by the Dy. Commissioner of Income Tax (international Taxation)-Range 2(1)(2), Mumbai (in short ‘DCIT’) for the assessment years 2012-13, 2013-14 vide orders of even date 27.01.2017 under section 143(3) read with section 144C(13) of the Income Tax Act, 1961(hereinafter ‘the Act’).
2. The first common issue in these appeals of assessee is as regards to whether the assessee has permanent establishment in India or not in view of the given facts and circumstances of the case. For this assessee has raised identical worded grounds and the grounds raised in both the years is as under: –
“For AY 2012-13
Ground No. I – Appellant Considered to Constitute a Permanent Establishment (‘PE’) in India
1.1 On the facts and in the circumstances of the case and in law, the learned Assessing Officer and the Honorable DRP without appreciating the evidence and submissions filed, erred in holding that the Appellant has a Service PE in India under Article 5(6) of India Singapore Tax Treaty.
1.2 On the facts and in the circumstances of the case and in law, the learned Assessing Officer and the Honorable DRP without appreciating the evidence and submissions filed, erred in holding that the Appellant has a Service PE in India under Article 5(6) of India Singapore Tax Treaty as regards Service fee income.
1.3 The learned Assessing Officer and the Honorable DRP failed to appreciate that the technical service resulting in the Service Fee income would be covered by Article 12 of India Singapore Tax Treaty and hence would not result into in a Service PE in India.
1.4 On the facts and in the circumstances of the case and in law, the learned Assessing Officer and the Honorable DRP without appreciating the evidence and submissions filed, erred in holding that the Appellant has a Service FE in India under Article 5(6) of India Singapore Tax Treaty as regards Management fee.
1.5 The learned Assessing Officer and the Honorable DRP failed to appreciate that the Appellant’s employees had visited India only two days in connection with Management Fee income and the same being less than the threshold limit of thirty days the same would not give rise to a Service PE in India under Article 5(6) of the India Singapore Tax Treaty and also the same could also not be aggregated with one seventy one days for which the Appellant’s employees had visited India for the BSNL IDC project which was distinct and separate from Management Service activity.
For AY 2013-14
Ground No. I – Appellant Considered Constituting a Permanent Establishment (‘PE’) in India
1.1 On the facts and in the circumstances of the case and in law, the learned Assessing Officer and the Honorable DRP without appreciating the evidence and submissions filed, erred in holding that the Appellant has a service PE in India under Article 5(6) of India Singapore Tax Treaty.
1.2 On the facts and in the circumstances of the case and in law, the learned Assessing Officer and the Honorable DRP, without appreciating the evidence and submissions filed, erred in holding that the Appellant has a Service PE in India under Article 5(6) of India Singapore Fax Treaty for the Service Fee Income.
1.3 The learned Assessing Officer and the Honorable DRP failed to appreciate that the technical service resulting in the Service Fee income would be covered by Article 12 of India Singapore Tax Treaty and hence would not result into in a Service PE in India.
1.4 On the facts and in the circumstances of the case and in law, the learned Assessing Officer and the Honorable DRP. without appreciating the evidence and submissions filed, erred in holding that the Appellant has a Service PE in India under Article 5(6) of India Singapore Tax Treaty for Management Fee income.
1.5 The learned Assessing Officer and the Honorable DRP failed to appreciate that the Appellant’s employees had visited India for 64 days in connection with shareholders activity and the same could not be considered for determination of Service PE under Article 5(6) of the India Singapore Tax Treaty for the Management Fee income.
1.6 The learned Assessing Officer and the Honorable DRP failed to appreciate that the Appellant’s employees had visited India for 26 days in connection with the Service Fee income and the same could not he considered for determination of Service PE under Article 5(6) of the India Singapore Tax Treaty since it was less than the threshold limit of 30 days and also the same could not be aggregated with 64 days for which the Appellant’s employees had visited India for an activity which was distinct and separate from Service Fee activity.”
3. At the outset, the learned Counsel for the assessee stated that the DRP has simply followed its own order in assessee’s own case for AY 2011-12 and has not adjudicated the issue independently. The learned Counsel for the assessee drew our attention to the findings recorded by the DRP in both the assessment years i.e. AY 2012-13 and 2013-14 and the relevant finding as recorded in AY 2012-13 reads as under: –
“2.2 As the facts obtaining in this year are in pari material, with the facts in A.Y. 2011-12, respectfully following the above decision, the grounds of objections are rejected.
3. The Assessing Officer shall give effect to the above directions in accordance with the provisions of section 144C (13) of the I. T. Act.”
4. Apart from the above, nothing was discussed on facts, the learned Counsel for the assessee stated that the Tribunal in AY 2011-12 in ITA No. 684/Mum/2016 order dated 05.05.5017 remanded the matter back to the file of the AO and the same was challenged in writ jurisdiction before Hon’ble Bombay High court and Hon’be Bombay High Court has quashed the assessment order as without jurisdiction in writ petition No.921 of 2018 dated 06.06.2018 by observing in Para 7 to 12 as under:
“7. We note that, it is an undisputed position before us, that the petitioner is a Foreign Company and an eligible assessee as defined in Section 144C(15)(b)(ii) of the Act. It has been held by this Court in International Air Transport Association (supra) that a Foreign Company is entitled to being assessed in accordance with Section 144C of the Act. It is the above Section 144C of the Act, which provides a separate scheme for the manner in which the Assessing Officer would pass assessment orders under the Act and a separate procedure to challenge an draft order i.e. before an assessment order which is subject to appeal under the Act is passed. The entire object is to ensure that the disputes of Foreign Companies are resolved expeditiously and final assessment orders are not passed without a re-look to the proposed order (draft order), if so desired by the Foreign Company. In essence, it obliges the Assessing Officer to first pass a draft of the proposed assessment order indicating the proposed variation in the income returned. This draft Assessment Order is to be passed under Section 144C(1) of the Act, which entitles an eligible assessee such as a Foreign Company to approach the DRP with its objection to the Draft Assessment order. This is so provided, so that an eligible assessee can have his grievance addressed before the final assessment order is passed. In case, an assessee does not object to the draft assessment order, then a final assessment order is passed in terms of the draft assessment order by the Assessing Officer. It is only on passing of the final assessment order that the assessee, if aggrieved by it, would be able to approach the appellate authorities under the Act. These special rights are made available under Section 144C of the Act to an eligible assessee such as the petitioner. Therefore, it cannot be ignored by passing an final order under Section 144(13) of the Act without preceding it with a Draft Assessment order as required therein.
8. The contention of the Revenue that the requirement of passing a draft Assessment Order under Section 144C of the Act would only extend to the orders passed in the first round of proceedings or in respect of an order passed by the Assessing Officer in remand proceedings by the Tribunal which has entirely set aside the original assessment order. This distinction which is sought to be drawn by the Revenue is not borne out by Section 144C of the Act. In fact, the Delhi High Court in JCB (India) Ltd. (supra) held that, even in partial remand proceedings from the Tribunal, the Assessing Officer is obliged to pass a draft assessment order under Section 144C(1) of the Act. According to us, the Assessing Officer, is obliged to, in terms of Section 144C of the Act to pass a Draft Assessment Order in all cases where he proposes to assess the Foreign Company under the Act by making a variation in the returned income. In this case, the impugned order dated 31st January, 2018 has been passed in terms of Section 143(3) read with Section 144C read with Section 254 of the Act and it certainly makes a variation to the returned income filed by the petitioner. This even if, one proceeds on the basis that the returned income stands varied by the order of the Tribunal in the first round, to the extent the petitioner accepts it. Therefore, the Assessing Officer correctly invokes Section 144C of the Act in the impugned order. Once having invoked Section 144C of the Act, the Assessing Officer is obliged to comply with it in full and not partly. This impugned order was passed consequent to the order of the Tribunal dated 5th May, 2017 restoring some of the issues before it to the Assessing Officer for fresh adjudication.
9. This “fresh adjudication” itself would imp y that it would be an order which would decide the lis between the parties, may not be entire lis, but the dispute which has been restored to the Assessing Officer. According to us, the order dated 31st January, 2018 is not an order merely giving an effect to the order of the Tribunal, but it is an assessment order which has invoked Section 143(3) of the Act and also Section 144C of the Act. This invocation of Section 144C of the Act has taken place as the Assessing Officer is of the view that it applies, then the requirement of Section 144C(1) of the Act has to be complied with before he can pass the impugned order invoking Section 144C(13) of the Act. In fact, Section 144C(13) of the Act can only be invoked in cases where the assessee has approached the DRP in terms of sub- Section 144(C) (2) (b) of the Act and the DRP gives direction in terms of Section 144C(5) of the Act. In this case, the assessment order has invoked Section 144C(13) of the Act without having passed the necessary draft Assessment Order under Section 144C(1) of the Act, which alone would make an direction under Section 144C(5) of the Act by the DRP possible. Thus, the impugned order is completely without jurisdiction.
10. Moreover, so far as a Foreign Company is concerned, the Parliament has provided a special procedure for its assessment and appeal in cases where the Assessing Officer does not accept the returned income. In this case, in the working out of the order dated 5th May, 2017 of the Tribunal results in the returned income being varied, then the procedure of passing a draft assessment order under Section 144C(1) of the Act is mandatory and has to be complied with, which has not been done.
1 1. In the above view, the impugned order is without jurisdiction. Thus, the plea of alternate remedy advanced by the Revenue so as to not entertain this petition, does not merit acceptance in the present facts.
12. In the above view, the impugned order dated 31st January, 2018 has been passed without complying with the mandatory requirements of Section 144C of the Act which is applicable to a Foreign Company such as the petitioner. Therefore, the impugned order is quashed and set aside. Needless to state, this order would not, in any way, stop the Revenue from taking such steps as are available to it in law and the petitioner also from contesting the action of the Revenue in accordance with law, if it so desires.”
5. The learned Counsel for the assessee clearly admitted that there Is no adjudication on merits and facts in AY 2011-12. Hence, independent of finding of AO and DRP and of Tribunal, we are considering the facts as mentioned in AY 2012-13 and 2013-14. The facts in AY 2012-13 in ITA 1645/Mum/2017 are as under.
6. The assessee is a Private Limited Company incorporated in Singapore and is engaged in the business of providing management support business to its group entities to the Asia Pacific Region. During the relevant assessment year assessee rendered management support services to its wholly owned subsidiary in India i.e. Dimension Data of India LTD (Formerly known as Datacraft Asia Pte. Ltd) (DDIL) majorly from Singapore. These management support services are rendered in pursuant to agreement for provisions of management, Journal support and administrative services for which it charged fee at cost plus 10% i.e. the management fee. The learned Counsel for the assessee narrated the facts before us that in prior year DDIL, assessee’[ wholly subsidiary was awarded a contract by BSNL to set up 6 internet data centers. In connection therewith, the assessee sent its employees from Singapore to India, from time to time and whenever require, to provide DDIL with assistance and guidance in setting up of 6 internet data centers for which it charge a separate fee for the said technical services i.e. service fee. Accordingly, the assessee earned gross receipts from these two distinct sources of income i.e. management fee and service fee. The learned Counsel for the assessee then explained that the number of days, for which the assessee’s employees were sent to India for the said services during the AY 2012-13 and the amount earned has been tabulated as under: –
