2024 (7) TMI 1048 - AT - Income Tax

TDS u/s 195 - Disallowance of demurrage charges and reimbursement of salary paid to seconded employees on account of non-deduction of tax at source - HELD THAT - As perused the orders of the Coordinate Bench in the assessee s own case for earlier assessment years 2019 (10) TMI 972 - ITAT MUMBAI where identical issue arose and the issue is decided in favour of the assessee. We find that first time the issue arose in the case of the assessee with respect to reimbursement of demurrage charges 2019 (10) TMI 972 - ITAT MUMBAI While deciding the issue following the decision in the case of CIT vs. Dempo and Co. P. Ltd. 2016 (2) TMI 308 - BOMBAY HIGH COURT Further, for subsequent years also, the Coordinate Bench has followed this decision. DR could not show us any reason as to why the above decision should not be followed. Accordingly, respectfully following the decision of the Coordinate Bench in the assessee s own case, we confirm the order of the Learned CIT-A in deleting the disallowance of demurrage charges paid by the assessee. Accordingly, ground No.1 of the appeal is dismissed. Disallowance of reimbursement of salary paid to seconded employees on account of non-deduction of tax at source - We find that the issue first arose in the case of the assessee in 2019 (10) TMI 972 - ITAT MUMBAI for assessment year 2010-11 where the Coordinate Bench has dealt with the issue in paragraphs 15 16 and deleted the addition. The year has relied upon the decision in the case of Burt Hill Design Pvt. Ltd. 2017 (3) TMI 1515 - ITAT AHMEDABAD CIT-A has followed the decision of the Coordinate Bench in deleting the disallowance. Therefore, we do not find any infirmity in the order of the CIT-A. Accordingly, ground No.2 of the appeal of the Assessing Officer is dismissed, holding that no tax is required to be deducted on reimbursement of salary to seconded employees. Thus, the appeal of the Assessing Officer for assessment year is dismissed. Refund of excess Credit for DDT Dividend Distribution Tax paid - HELD THAT - We find that the issue is squarely covered by the decision in the case of the assessee 2023 (4) TMI 988 - ITAT MUMBAI (SB) where in it has been held that DTAA does not get triggered at all when a domestic company pays DDT u/s 115-O; where contracting states to a tax treaty intend to extend treaty protection to domestic company paying dividend distribution tax, only then, domestic company can claim benefit of DTAA, if any. Further latest decision of the Hon'ble Supreme Court in Nestle SA 2023 (10) TMI 981 - SUPREME COURT Claim of the assessee is based on Concentrix Services Netherlands B.V. 2021 (4) TMI 1051 - DELHI HIGH COURT and Steria (India) Ltd. 2016 (8) TMI 166 - DELHI HIGH COURT both these decisions are set aside by honourable Supreme court. Decided against assessee.

Summary

Issues Involved:
1. Disallowance of demurrage charges due to non-deduction of tax at source.
2. Disallowance of reimbursement of salary paid to seconded employees due to non-deduction of tax at source.
3. Refund of excess Dividend Distribution Tax (DDT) paid to non-resident shareholders.

Issue-Wise Detailed Analysis:

1. Disallowance of Demurrage Charges:

The Dy. CIT, Circle 3(3)(1), Mumbai, filed an appeal against the appellate order passed by the National Faceless Appeal Centre, New Delhi, which partly allowed the assessee's appeal against the assessment order. The issue at hand was the deletion of disallowance of demurrage charges due to non-deduction of tax at source. The Learned Assessing Officer (AO) had disallowed Rs. 2,48,16,533/- under section 40(a)(ia) of the Income Tax Act, 1961, as no tax was deducted at source.

The Learned CIT-A deleted the disallowance, referencing the Coordinate Bench's decision for assessment years 2010-11 to 2015-16, which favored the assessee. The Tribunal confirmed the Learned CIT-A's order, following the precedent set by the Coordinate Bench and the Hon'ble Bombay High Court in CIT vs. Dempo and Co. P. Ltd., 381 ITR 303. Consequently, the appeal of the Assessing Officer was dismissed, affirming that no tax deduction at source was required on demurrage charges.

2. Disallowance of Reimbursement of Salary Paid to Seconded Employees:

The second issue involved the disallowance of Rs. 11,44,50,849/- for reimbursement of salary paid to seconded employees due to non-deduction of tax at source. The Learned CIT-A deleted this disallowance, noting that the Coordinate Bench had previously decided similar issues in favor of the assessee for earlier years. The Tribunal upheld the Learned CIT-A's decision, referencing the Coordinate Bench's rulings in ITA No.1294/MUM/2017 and ITA No.4300/MUM/2015, which held that no tax was chargeable on such reimbursements. Therefore, the Tribunal found no infirmity in the Learned CIT-A's order and dismissed the Assessing Officer's appeal.

3. Refund of Excess Dividend Distribution Tax (DDT):

The assessee filed cross objections for refund of excess DDT paid on dividends distributed to non-resident shareholders from France, arguing that the DDT should have been paid at a reduced rate of 5% under the India-France tax treaty and the Most Favoured Nation clause, rather than the 20.36% specified under section 115-O of the Act. The Learned CIT-A directed the AO to verify the claim and grant credit if available.

For assessment year 2018-19, the Assessing Officer raised several grounds against the Learned CIT-A's direction to grant credit for DDT. The Tribunal noted that the issue was covered by the Special Bench's decision in the assessee's case [2023] 149 taxmann.com 332 (Mumbai-Trib.) (SB) and the Hon'ble Supreme Court's decision in Nestle SA [2023] 155 taxmann.com 384 (SC), which held that DTAA does not apply when a domestic company pays DDT under section 115-O. Consequently, the Tribunal dismissed the assessee's cross objections and allowed the Assessing Officer's appeal for assessment year 2018-19.

Conclusion:

The Tribunal dismissed the appeals of the Assessing Officer regarding the disallowance of demurrage charges and reimbursement of salary paid to seconded employees, affirming the Learned CIT-A's decisions. However, the Tribunal allowed the Assessing Officer's appeal concerning the refund of excess DDT for assessment year 2018-19, based on the Special Bench and Supreme Court rulings, and dismissed the assessee's cross objections.