IN THE ITAT MUMBAI BENCH ‘L’
TUV Bayren (India) Ltd.
V/s.
Deputy Commissioner of Income-tax, Circle – 2(1)
IT APPEAL NOs. 4944 (MUM.) OF 2002 and 7588 (Mum.) of 2004
[ASSESSMENT YEARs 1998-99 and 2000-01]
JULY 6, 2012
ORDER
Amit Shukla, Judicial Member
Both the appeals filed by the assessee are against separate orders dated 24-7-02 & 19-7-2004, for the assessment years 1998-1999 and 2000-2001, respectively passed by the CIT(A)-XXXI, Mumbai for the quantum of assessment passed under Section143(3). Since the common issues are involved in both the appeals, therefore, the same are being disposed off by this consolidated order. For the sake of ready reference, grounds of appeal in ITA No.4944/M/2002 (AY 1998-1999), are reproduced herein below :-
“1. The learned Commissioner of Income-tax (Appeals) erred in dismissing the appeal and confirming the assessment at Rs. 1,79,38,651/- as against the returned NIL income.
2. Fees for technical services :-
2.1 The learned Commissioner of Income-tax(Appeals) erred in holding that the certification income is fees for technical services.
2.2 The learned Commissioner of Income-tax(Appeals) erred in taking Rs. 1,79,38,651/- as certification income and as fees for technical services when in fact certification income is Rs. 1,00,45,871/- and the balance of Rs. 66,99,114/- is the reimbursement of expenses.
2.3 The learned Commissioner of Income-tax(Appeals) erred in taking Rs. 66,99,114/-,being reimbursement of expenses, as fees for technical services.
3. The learned Commissioner of Income-tax(Appeals) erred in holding that the provisions of section 44D are applicable in the instant case.
4. Rate of Tax :
4.1 The learned Commissioner of Income-tax(Appeals) erred in holding that the rate of tax applicable is 20% and not 10%.
4.2 The learned Commissioner of Income-tax(Appeals) failed to appreciate that in view of Article 12(2) of the DTAA the maximum rate of tax that the learned Assessing Officer would have applied is 10%.”
2. Besides this, the assessee has also taken additional ground on levy of interest under Section 234B, reading as under :-
“The learned Commissioner of Income-tax(Appeals) erred in levying interest under Sections 234B of the Act. The CIT(A) failed to appreciate that as the Appellant was a foreign company whose income was liable to deduction of tax at source, the appellant was not liable to pay advance tax and was consequently not liable to pay interest under Sections 234B of the Act .
The Appellant prays that the CIT(A) be directed to delete the interest based on the relief sought in the above grounds of appeal”
The aforesaid ground being purely a legal ground, which does not acquire any investigation of facts, hence, they are being admitted for adjudication.
3. At the outset, learned counsel for the assessee submitted that the issue raised in additional ground is covered by the decision of ITAT’s order in the case of assessee for the assessment year 2000-2001, passed in ITA No.7575/Mum/2004. Learned Senior DR fairly admitted that this issue is covered by the decision of the aforesaid order.
4. After carefully considering the submissions of the parties and also going through the Tribunal’s order, we find that this issue has already been decided in favour of the assessee after observing and holding as under :-
“6. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that in terms of sec.195 of the Act the entire income of the assessee is subject to deduction of tax at source. Accordingly, the assessee was not liable to pay advance tax. Recently the Hon’ble jurisdictional High Court in Director of Income tax (International Taxation) v. NGC Network Asia LLC [2009] 313 ITR 187(Bom.), on the identical issue, has held vide placitum 8 (at page 190 of the ITR) as under :-
“We are in respectful agreement with the view taken in the case of CIT v. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320, by the Uttaranchal High Court. We are clearly of the opinion that when a duty is cast on the payer to pay the tax at source, n failure, no interest can be imposed on the payee-assessee.”
In the absence of any distinguishing feature brought on record by the revenue, we, respectfully following the decision of the Hon’ble Jurisdictional High Court (supra) hold that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the assessee and accordingly we are inclined to uphold the order of the ld. CIT(A) in deleting the interest charged u/s. 234B of the Act. The grounds taken by the revenue are therefore rejected.”
Respectfully following the aforesaid order, we hold that no interest under Section 234B can be levied in the case of the assessee and, accordingly, we direct the Assessing Officer to delete the interest so charged. In the result, additional ground taken by the assessee is allowed.
5. Now, coming to the main issue, wherein the assessee’s income from ‘ISO 9000 Certification’, is income from ‘fees for technical services’ under Article 12 or business income under Article 7 of Indo-German DTAA. The brief facts relevant for the issue involved are that the assessee is a company incorporated in Germany having a branch in India. The Indian branch is engaged in the business of audit and procedure of norms for ISO 9000 Certification. The services offered by the Indian branch are ISO 9000 quality system certification, wherien quality system auditor of the assessee company visits the company wanting to go in for ISO 9000 standard and certification. They carry out a pre-assessment audit after which a certification audit is conducted. A report is then prepared which is checked and verified by the assessee company in Germany and on receiving the reply from Germany, whether the company is fit for quality system certification or not then the company is given ISO 9000 Certificate, which is valid for 3 years. During these three years, a surveillance audit is conducted by the quality system auditor in every six months to make sure that the company is complying with the system as per the pre-assessment audit and certification audit. After expiry of three years validity of the certificate, the auditors visit the clients place once again the same process.
5.1 The Assessing Officer required the assessee to explain as to why such services and nature of activities should not be taxed as “fees for technical services” given in Article 12 of Indo-German DTAA, instead of “business profit” as has been requested by the assessee. Before the Assessing Officer, it was submitted that the services rendered do not come under “FTS” within the Article 12 of Indo-German DTAA and, therefore, its business income is to be computed in view of the Article 7 (1) as business was carried out through PE and the profit of the said PE can be taxed as is attributable to that PE.
5.2 The Assessing Officer rejected the contention of the assessee that its computation of business profit is to be made under section 28 to 44C and held that since the services rendered by the assessee is within the purview of FTS, hence, in view of Article 12(5), the income of the assessee has to be computed in view of Article 7(3), wherein the expenses has to be allowed in accordance with the domestic law of the contracting state and, therefore, provisions of Section 44D of the IT Act would be applied. Accordingly, he assessed the income after applying the tax rate of FTS i.e. at the rate of 20% in view of the Section 115A on the entire gross receipts of Rs. 1,79,38,651/-.
6. Before the CIT(A), details submissions were made regarding the nature of services and non-applicability of Section 44D in the assessee’s case and also objections were raised regarding the rate of tax applied by the Assessing Officer in view of the provisions of Section 115A. Learned CIT(A) did not agree with the submissions of the assessee and upheld the finding of the Assessing Officer, after holding that the part of the income of the assessee is taxable as per Article 12 of DTAA as royalty and “fees for technical services” and other part of income and expenses reimbursed which are linked with FTS, the same would also be taxable, being part of gross receipts and accordingly provisions of 44D will be applicable on whole of the gross receipts.
7. Learned counsel appearing on behalf of the assessee, at the outset submitted that out of Rs. 1,79,38,651/-, the certification income amounted to Rs. 1,00,45,871/- only and other receipts were mostly reimbursement of expenses. The break up of Rs. 1,79,38,651/- was given as under :-
