9911796707
TMI Blog2016 (3) TMI 829X X X X Extracts X X X X X X X X Extracts X X X X ..... India-Singapore Treaty, which ever was more beneficial to assessee. Assessee had entered into an agreement with Cargill India Pvt. Ltd. ("CIPL"), the assessee's associate, for the rendering of certain administrative and support services relating to treasury and financial activities, whereby CIPL was charged towards the cost of the services (on actual usage basis), as per the method provided in the said agreement, on a cost plus 5% mark up. 3. During the course of assessment proceedings the AO show caused the assessee as to why the amounts paid by Cargill India to it should not be considered as interest as per sec. 2(28A) of the Act and para 4 of Article 11 of the tax treaty between India and Singapore and not discounting charges as claimed by assessee. The assessee in its reply pointed out that it was engaged in the business to subscribe, buy, underwrite or otherwise acquire, own, hold, sell or exchange securities or investments of any kind including negotiable instruments, commercial paper etc. Accordingly, as a part of its business, it draws, makes, accepts, endorses, discounts, executes and issues promissory notes, bill of exchange etc. It was further pointed out that CIPL inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also various circulars, held that the discounting charges were in the nature of interest and, therefore, taxable in India. He, accordingly, taxed sum of Rs. 8,02,68,762/- @ 15% (in A.Y. 2003-04) and Rs. 558,084,042/- @ 15% (in A.Y. 2008-09) as per DTAA. 5. The assessee filed objections before ld. DRP, which vide its order dated 9.8.2011 concluded that the whole transaction was a colourable device by the assessee company to earn interest from India without payment of tax. Ld. DRP in para 7 to 7.3 (A.Y. 2003-04) has observed as under: 7. A perusal of the whole transaction leads to certain unanswered questions. (i) What is the expertise of Cargill India, 'which is not available with Cargill International, Geneva for the purchase of Argentine Soyabean from the internation.al market? (ii) When the supplier of goods as it appears is also a group company, why the transaction was routed through Cargill India? (iii) Whether at anytime* goods were inspected by Cargill India or Cargill International, Switzerland, the ultimate buyer? (iv) What are the terms of payment between the Indian company and the seller and why the same terms were not kept between Cargill India and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany invests '90 in Indian market and claims '10 as expenditure (interest payment). The non-resident buyer, who allegedly purchased the goods from the Indian company makes the payment to the assessee of '100 instead of making payment to the Indian company. The Indian company pays the cost of goods to the other company from whom the so called goods were purchased by the Indian company. In this way the Indian company remits back the entire money i.e. principal plus interest to the assessee through various group companies, who are so called seller and buyers of goods. 7.3 The term discounting instead of interest has been used by the assessee to avoid payment of taxes on interest income and also to avoid the violation of other regulatory laws like RBI, FEMA etc. The term discount is a misnomer for interest. The mere fact that the assessee has taken advantage of its wide group network to route the transactions will not change the true nature of the transaction. The mere fact that the assessee received its interest from another group company other than Cargill India makes no difference to the transaction. The Indian company while recording the above transaction terms thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest, on the basis that the circulars are issued under section I94A of the Act and are applicable to only residents. 2.4 That on the facts and circumstances of the case and in law, the learned AO has erred in treating the discounting charges as taxable in India without appreciating the fact that the same is in the nature of business income and cannot be brought to tax in the absence of any Permanent Establishment ('PE') in India as per provisions of Article 5 of the treaty . 2.5 That on the facts and circumstances of the case and in law, the learned AO erred in not following the principle of judicial discipline by completely ignoring the favorable order of Hon'ble Delhi ITAT passed in the appellant's own case based on same set of facts for AY 2004-05 and AY 2005-06 and the order passed by the Hon'ble Delhi High Court in case of Cargill Global Trading India Pvt Ltd for A Y 2004-05 and A Y 2005-06 holding that such discounting charges paid to the appellant are not in the nature of interest and thus, are not taxable in India in the absence of a PE in India of the appellant. 2.6 Without prejudice to the contention that discounting charges are not in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. Section 2(28A) of the Act provides as under:- "Interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of-the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized." It will be, evident from the above that interest payable in any manner in respect of any moneys borrowed or debt incurred and includes any service fee or other charges in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. It is thus seen that interest means either sum payable in respect of any money borrowed or debt incurred. In the instant case, it is not a case of debt incurred or moneys borrowed. In fact, here is a case where the assessee has merely discounted the .sale consideration receivable on sale of goods. It is not a case where any money has been borrowed or debt has been incurred. It is also not a case where any service fee or either charge has been paid in respect of money borrowed or debt incurred or in respect of any cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The discounting charges are not in" the nature of interest paid by the assessee. Rather after deducting discount the assessee received net amount of the bill of exchange accepted by the purchaser. CFSA not having any permanent establishment in India, is not liable, to tax in respect or such discount earned by it and hence the assessee is not under obligation to deduct tax. at source under section 195 of the Act. Accordingly, the same amount cannot be disallowed by invoking section 40(a)(i) of the Act." "7. This finding of the ITAT in the case of Cargil Clobal Trading (P) Ltd. has been upheld by the Hon'ble High Court in ITA Nos. 331 and 204 of 2011. Learned CIT(Appeals) has also followed this order of the ITAT. We find that the issue in dispute is squarely covered by the above conclusion of the ITAT. Assessing Officer is not justified in considering the discounting charges akin to expression "interest" employed in sec. 2(28A) of the Income-tax Act, 1961. Apart from this one aspect, ITAT has examined it from other angle also. Taking into consideration the detailed order of the Learned CIT(Appeals), impugned in the appeals in the light of Hon'ble Delhi High Court's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue vide order dated 24.4.2012 in ITA nos. 269/2012 and 272/2012, observing as under:- "These appeals have to be dismissed in view of the decision dated 1ih February, 2011 in ITA No.331/2011 Commissioner of Income Tax Vs. Cargill Global Trading Pvt. Ltd. (2011) 335 ITR 94 (Del.). Cargill Global Trading Pvt. Ltd. was the payer and the Assessing Officer had held that they were liable to deduct tax at source on the bill discounting which was treated and considered as interest paid. The High Court has not agree with the Revenue and has held that bill discount cannot be equated and treated as interest paid and therefore the tax at source was not liable to be deducted. The present appeals are directed against recipient Cargill Financial Services Asia Pvt Ltd. who had entered into the transaction/agreement with Cargill Global Trading Pvt. Ltd. The issue being identical and squarely covered by the decision of this Court in the case of Cargill Global Trading Pvt. Ltd. (supra), no substantial question of law arises and the appeals are dismissed." 11. He further pointed out that the SLP filed against the Hon'ble Delhi High Court's decision has been dismissed by the Hon'ble Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isparity of facts between both the assessees." Accordingly it has quoted extensively from the said order dated 19.08.2011 in the case of CFSPL starting at page 5 of its combined order till page 13 of its order. 8. Further, it is seen from the said ITAT order in the case of CFSPL (provided by Ld. AR) that, this order in turn relies on the order of ITAT in case of another related concern Cargil Global Trading India (P) Ltd. (CGTIPL). 9. While relying and quoting extensively from the order of the related concerns (CFSPL & CGTIPL), certain crucial facts (discussed below) remained to be considered and adjudicated by the Hon'ble ITAT. 10. Accordingly, the AO notes in the present AY 2008-09 at page 15, para 7.8 of the assessment order that certain vital facts remained to be considered/ presented to the Hon'ble Tribunal in the earlier years especially "role of Cargill Inc., role of buyer Cargill IntI. SA, RBI Circulars, FEMA provisions etc. were not presented before the Ld. ITAT which are very material for the case". 11. To put the issues in perspective, the Ld. DRP notes at Para 7 of its order/ directions: "In fact, the whole transaction is a colorable device by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her strengthens the Revenue's contention that the assessee, along with its group companies, are using colourable transactions/ devices. Page 3-7, Para 5-6.1 The limited information made available by the assessee or as already available on record ahs been analysed by Ld. DRP. Para 6.1 gives the issues/ aspects which are unanswered and effectively questions the very genuineness of whole scheme of transactions used by the assessee along with its group concerns The findings of the DRP have to be read with the findings of the AO at page 22 of the assessment order (Gross margin of the assessee on sale is 0.05%. In comparison, the charges suffered by the Indian concern are large 5.75%. This ensures that max amount remains tax free in hands of assessee while the supporting Indian concern is able to reduce its tax liability). Page 7-8 The scheme used by the assessee is explained (with example). The term "discounting" used by the assessee are also put in context (also in the context of other regulations of RBI, FEMA).The DRP emphatically notes the finding that "The Indian company (related/ group concern) while recording the above transaction terms this payment as interest and clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ""Brief facts While framing assessment for the subject year, the Ld. AO has characterized the discounting charges received by the Appellant on account of discounting of Bills of exchange / demand Promissory Notes (,hereinafter referred to as BE') from Indian group companies namely, Cargill India Private Limited and Cargill Global Trading Private Limited ('hereinafter collectively referred as Indian group companies') as interest under section 2(28A) of the income Tax Act, 1961 ('the Act') and under the DT AA between India and Singapore. 2. Appellant's Contentions At the outset, the Appellant (being offshore entities Cargill TSF Asia Pte Ltd and Cargill Financial Services Asia Pte Ltd- In Liquidation) would like to highlight that the issue under consideration has already been adjudicated in favor of the Appellant in Appellant's own case vide the following orders: DIT v Cargill TSF Asia Pte Ltd A Y 2005-06, A Y 2006-07 & A Y 2007-08 (Delhi HC) (ITA No. ITA No. 62112012, ITA No. 63212012 and ITA No. 62412012) Cargill TSF Asia Pte Ltd A Y 2005-06, A Y 2006-07 & A Y 2007-08 (Delhi IT AT) (IT A No. 5811De1l2010, 3880IDell2010 and 30571De1l2010) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The transaction with Indian company was through proper banking channel wherein all laws and regulations would have been complied with. Neither tax authority nor any other authority has alleged any irregularity in the transaction as per applicable Indian law/regulation. It is also respectfully submitted that the questions that have been raised by the Learned Department Representative giving a flavour that certain vital facts regarding the role of the parties involved, RBI Circulars and FEMA provisions, which were material were not presented before the IT AT which were material to the case. These comments are obviously to impress upon this Hon'ble Tribunal to disregard the co-ordinate bench's decision which was passed on the identical issue and which was confirmed by the Hon'ble Delhi High Court. It is respectfully submitted that the issue before the Tribunal was the characterization of the receipts in the hands of the non-resident of the assessee and that is precisely what needs to be adjudicated. It is also submitted that making such bold allegations that certain material facts and roles played by the respective enterprises was not presented has no bearing on the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its hands. It merely says that the said income is a business income as the Appellant's are engaged in the business of buying and selling of financial instruments and due to the beneficial provisions of the DTAA, the said income is not taxable in India. Moreover, from the angle of the Indian entity as well, the said charges would be tax deductible even if the said transaction had been carried by the Indian group company with an unrelated entity like Indian banks etc. To the best of the knowledge, it has been communicated to the assessee that not only the said transaction was examined by assessing officer of the Indian group company but also by the Transfer Pricing officer wherein the same was duly accepted to be at arm's length price. It is respectfully reiterated that these reservations in the reply of the D.R. are again dangerously inclining towards questioning the commercial expediency of the transaction. It is also respectfully submitted that this is beyond the powers and scope vested in the assessing officer and as such deserves to be ignored. At this juncture, we would like to highlight the fact that the AOIDRP cannot question the genuineness of expenditure/ transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the stand point of Indian group companies and could not have been responded by the Appellant in this case. The Appellant had merely carried on a normal business transaction and has earned business income which by virtue of DTAA is not taxable in India. A perusal of the questions raised by the Dispute Resolution Panel are clearly indicative of the fact that these questions are not relevant to be raised now as these questions appear to question the necessity of entering into the transaction which again links to the question on commercial expediency .. As submitted above, the case before the Hon'ble Tribunal is that of a non-resident assessee and the issue which has arisen is the treatment of the receipts in the hands of such non- resident assessee. This issue has no bearing on the questions raised by the DRP and are wholly irrelevant for the determination of the issue by this Tribunal. Although, the above submission of the assessee addresses this point, but on an illustration to be given, the attention of the Hon'ble Tribunal is invited into the question No. VI which reads as under: "(vi) What was the need of the Indian company for funds for which it approached t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve of the Tribunal. The consensus of judicial opinion appears to be that the jurisdiction of the Tribunal is confined to the passing of orders on the subject-matter of the appeal, that in, those orders which are necessary for the disposal of the appeal. The Tribunal cannot give a finding in respect of the assessment of a year which is not the subjectmatter of the appeal before it. The Tribunal thus can give a finding that the deduction/income does not belong to the relevant assessment year/years, but though it may incidentally find that the deduction/income relates to another assessment year, it cannot give a finding that the deduction/income belongs to another specified year. There is, however, an exception to the general rule that the jurisdiction of the Tribunal is confined to the subject-matter of appeal. The exception is where an additional ground has been raised with the leave of the Tribunal. In that case, the subject-matter of the appeals constitutes the original grounds of appeal and such additional ground/grounds as may be raised with the leave of the Tribunal. " 14. We have considered the rival submissions and have perused the record of the case. We have extensively re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on maturity or subsequent sale of PN which Is In the nature of 'business income' It may be worthwhile to mention here that purchase of PN on a 'without recourse' basis implies that: - Assessee purchases the PN from the Cargill India - Assessee pays the consideration based on present value which is less than the face value and the difference is regarded as-discount value. - Assessee does not have any right against the seller of PN I.e. Cargill India in case of any dispute or default in the encashment of PN on the due date. - Assessee has the right to collect the money from the entity which owed the PN in its own name. - Assessee does not recover the amount from the entity which owed the PN on behalf of the Cargill India but recovers the same in its own behalf." 17. In the backdrop of aforementioned facts the income earned by the assessee has been considered as discounting charges in its hands and this issue has been settled by the decision of Hon'ble Delhi High Court in the case of Cargill Global Trading Pvt. Ltd. (supra). Thus, the issue stands settled by Hon'ble Jurisdictional High Court and the SLP filed by the department in the case of Cargill Global T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no help to assessee because the alleged seller of goods, and the alleged foreign buyer of goods i.e. Cargill International Geneva were obliged to honour the terms of payments as per RBI regulations within a stipulated time. Ld. DRP has further observed that as per RBI Regulations, every exporter of goods has to get the inward remittance within a stipulated time in India in foreign currency. It is further observed that, accordingly, the foreign buyer has to remit the fund to the Indian customer and the Indian customer was obliged to recover the money due to it in foreign currency from the supplier within the time specified by the RBI. 20. Ld. DRP further observed in para 9.1 that assessee had submitted before the AO and also before the Panel that there had been no default in realizing the promissory note so far. Ld. DRP further observed that since the transaction was between group company and the Indian company was obliged to recover the money from the buyer of alleged group, there was no risk involved in the transaction. The conclusion drawn by ld. DRP on this basis is that the obligation by the RBI to recover the money in fact changes the nature of the term 'without recourse'. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he true nature of transaction cannot alter merely by clubbing the discounting charges under the head 'financial expenses'. Therefore, this plea raised by ld. CIT(DR) on the basis of observation made by ld. DRP for distinguishing these facts in the current year from earlier years is without any basis. As far as ld. CIT(DR)'s submission regarding non-cooperation of assessee on the basis of observations made by ld. DRP in para 7 are concerned, we find that none of the authorities below have pointed out as to which particular information was missing in the entire trail of transaction. In the submissions filed by assessee it is clearly stated that all the relevant information were furnished before lower revenue authorities. 22. Ld. CIT(DR) has further referred to the observations of ld. DRP, which were as under: "Assessee's reliance on CBDT circulars is analysed and rejected. Critical observations therein include (i) Assessee has not approached bankers for discounting of so called bills; (ii) PNs of group concerns are not freely transferable by endorsement and delivery; (iii) The case of the assessee is a private arrangement among group concerns and cannot be compared with banking tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
