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TMI Blog2020 (1) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of section 195 cannot be avoided in the manner set out in other cases. The scheme as above operates only to cases covered by section 172 of the IT Act and none else. We see no infirmity in the order passed by the Ld. CIT(A) in deleting the demurrage charges relating to A.Y. 2012-13 as these expenses were never debited to Profit Loss account for the assessment year under consideration i.e., A.Y. 2013-14 nor claimed as deduction from total income, in such circumstances there cannot be any disallowance u/s. 40(a)(i) of the Act. Thus, we sustain the order of the Ld.CIT(A) and reject Ground Nos. 1 2 of the grounds of appeal of the revenue. TDS u/s 192 - reimbursement of salary cost which was on account of availing personnel services from its AE s who were sent to India at secondment - HELD THAT:- As decided in own case [ 2019 (10) TMI 972 - ITAT MUMBAI] employees who were serving in India or deputed in India had already deducted tax at source u/s 192 of the Act. The provision of TDS is not applicable on reimbursement of deputation expenses to foreign AE. The CIT(A) has relied upon the decision in the case of Burt Hill Design (P) Ltd. Vs. DDIT (IT) [ 2017 (4) TMI 49 - ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not appreciating the fact that the payments to the non-residents including group entities are pure cost reimbursements and do not contain any service element. 2.4. in disregarding the order of the Commissioner of Income tax (Appeals) dated 18 March 2013 for AY 2008-09 in Appellant's own case wherein the issue in respect of allowability of demurrage charges has been decided in favour of Appellant. 3. Non grant of credit of taxes deducted at source of INR 672 Based on the facts and in the circumstances of the case and in law, the Appellant ought to be allowed credit of taxes deducted at source amounting to INR 672 4. Levy of interest under section 234D of INR 22,47,064 Based on the facts and in the circumstances of the case and in law, the interest levied under section 234D amounting to INR 22,47,064 ought to be deleted. 3. Ground No.1 of grounds of appeal is general in nature and need no adjudication. 4. Ground No.2 of grounds of appeal is relating to disallowance of reimbursement of demurrage charges of the current assessment year of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the claim of the Assessee is liable to be allowed. On the other hand, the Ld. Representative of the revenue has refuted the said contention. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.: - 8.2 The submission made by the appellant has been examined. It is noticed that the entire submission made by the appellant is under the presumption that the amount represents pure re-imbursement and hence it does not have any element of income. Accordingly, it is not liable to tax in India. Once, the amount is not liable to tax in India, there is no liability on the appellant to deduct taxes u/s 195 as held by Supreme Court in GE Technology Centre vs CIT 1(327 ITR 456) (SC)] and Transmission Corporation (supra). On the other hand, the AO has held the amount to be in the nature of FTS and hence liable to tax in India u/s 9(I) (vii) of the Act mandating deduction of tax from this amount u/s 195. The first issue which arises for determination is whether the amount can be treated as pure re-imbursement or FTS. 8.2.1 The appellant has reimbursed demurrage charges to TOTSA Total Oil ('TOTSA'). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been levied, is situated. It has been ascertained that the demurrage above has been paid in respect of Indian ports and the shipping lines involved are foreign ship owners. Freight income generated in India is a taxable income under Income Tax Act and hence, any payment of freight to a non-resident will invite TDS u/s 195. Generally, freight income of non-residents visiting Indian ports is governed by section 172 and hence, if the ship owner has paid taxes u/s 172, then the provisions of section 195 will not apply. However, most of the time, while the actual freight is covered by section 172 by the nonresident, the demurrage charges are not included as they are raised subsequent to the leaving of the port and are charged separately from the clients. 8.3 The present ease represents a similar scenario where the invoice for the demurrage has been raised separately. Clearly, the non-resident ship owner has not included this amount while paying taxes u/s 172. Hence, had the appellant paid the demurrage amount directly to the ship owner, he was liable to deduct taxes u/s 195. If TOTSA made a payment on behalf of the appellant, then TOTSA should hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above said finding, we noticed that the matter of controversy has been decided by the CIT(A) on the basis of decision of Bombay High Court in the case of Orient (Goa) (P) ltd., [20091 185 TaX 111311 131 Bombay. But the situation has been changed now specifically in view of the decision of Bombay High Court in the case of CIT Vs. Dempo and Co. P. Ltd. (381 ITR 303). The relevant finding has been given in para no. 46 to 54 which is hereby reproduced as under.: - 46. A bare perusal thereof would indicate as to how this provision covers the case of an assessee who is a non-resident and engaged in the business of operation of ships. That stipulates a sum equal to 7 % of the aggregate of the amount specified in sub-section (2) of section 44B as deemed to be profits and gains of such business chargeable to tax under the head Profits and Gains of Business or Profession . It is the explanation which refers to the demurrage and for the purpose of sub-section (2) of SRP 62/79ITXA989.15.doc section 44B. It clarifies that the amount paid or payable or received or deemed to be received, as the case may be, by way of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ship cannot leave the port or if allowed to leave any port in India, it must either pay or make arrangement to pay the tax. Hence, the apprehension of SRP 64/79 ITXA989.15.doc avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business. 48. The resident assessee contended before the Division Bench in Orient (Goa) (supra) as well as the Division Bench which made the referring order that section 172 of the Income Tax Act has a bearing and an important one on the obligation to deduct tax at source. Therefore, it is the recipient's position and the perspective in which the recipient's income would be taxed will have to be borne in mind. The non-resident shipping company in respect of it's income would be in a position to rely upon section 44B and consequently section 172. However, we do not see how there is an obligation to deduct tax at source on the resident assessee/Indian company before us. While computing the income of the non-resident Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them from occasional shipping, by means of summary assessment in which one-sixth of the gross amount received by them is deemed to be the assessable profit. Before the departure of the ship, the master of the ship has to furnish to the Income-tax Officer a return of the full amount paid or payable to the owner or charter on account of the carriage of passengers, goods etc., shipped at the port in India since the last arrival of the ship at the port. In the event that, to the satisfaction of the Income-tax Officer, the master is unable so to do, he has to make satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf. A port clearance cannot be granted to the ship until the tax assessable under the section is duly paid or satisfactory arrangements have been made for the payment thereof. 4. The assessee in this case is the Aluminium Company of Canada which had time - chartered the ship and on whose behalf its shipping agent, the respondent, had executed the guarantee bond. Since the Company is a non-resident and the ship carried goods which were shipped at a port in India, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regular manner be made. Thus, a right is given to the assessee to opt for a regular assessment although a rough and ready or a summary assessment has already been made under Section 172(4) of the Act. It is a valuable right. If the assessee exercises the right conferred on him under section 172(7) of the Act, the Income Tax Officer is bound to make an assessment of the total income of the previous year of the assessee and the tax payable on the basis thereof should be determined in accordance with the other provisions of the Act and any payment made under the section (earlier) shall be treated as a payment in advance of the tax leviable for that assessment year and the difference between the sum so paid and the amount of tax found payable by him on such assessment, shall be paid to the assessee or refunded to him. The ad hoc assessment made under Section 172(4) of the Act is superseded and a regular assessment is made as per the provisions of the Act. In such a case, it is only proper and appropriate to hold that all the provisions of the Act in the determination of the tax liability including the ancillary or incidental or consequential matters pertaining to it are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of advance tax under the Act. We are afraid that the High Court has failed to give due effect to the language employed in Section 172(7) of the Act and the scope of the legal fiction enshrined therein. The reasoning of the High Court is rather strained as the distinction drawn is without any substance or difference. Section 172(7) of the Act provides for a regular assessment, wherein all the provisions of the Act will apply. It is not a mere provision for adjustment. The High Court was swayed by the title used in the corresponding provision of the predecessor Act (Income Tax Act, 1922 - Section 44-C), wherein there was a heading to the section - Adjustment . Section 172 of the Act contains no such heading. We hold that the Income Tax Appellate Tribunal was justified in holding that since the payment made under Section 172(4) of the Act is, by fiction, treated as advance tax, all the provisions in respect of the advance tax will apply and if on regular assessment made under Section 172(7) of the Act, there is any excess payment made by the assessee, then the assessee would be entitled to it and also interest thereon under Section 214 of the Act. We answer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no obligation on the part of the payer and no right to receive the sum by the recipient and that the payment does not arise out of any contract or obligation between the payer and the recipient but is made voluntarily, such payments cannot be regarded as income under the I.T. Act. contemplates not merely amounts, the whole of which are pure income payments, it also covers composite payments which has an element of income embedded or incorporated in them. Thus, where an amount is payable to a non-resident, the payer is under an obligation to deduct TAS in respect of such composite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the nonresident. This obligation being limited to the appropriate proportion of income flows from the words used in Section 195(1), namely, chargeable under the provisions of the Act . It is for this reason that vide Circular No. 728 dated October 30, 1995 the CBDT has clarified that the tax deductor can take into consideration the effect of DTAA in respect of payment of royalties and technical fees while deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections 194EE and 194F inter alia provide for deduction of tax in respect of any amount referred to in the specified provisions. In none of the provisions we find the expression sum chargeable under the provisions of the Act , which as stated above, is an expression used only in Section 195(1). Therefore, this Court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. 15. Section 195(2) is not merely a provision to provide information to the ITO(TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non-resident. Therefore, Section 195 SRP 74/79 ITXA989.15.doc has to be read in conformity with the charging provisions, i.e., Sections 4, 5 and 9. This reasoning flows from the words sum chargeable under the provisions of the Act in Section 195(1). 16. The fact that the Revenue has not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no provision in the I.T. Act by which a payer can obtain refund. Section 237 read with Section 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words chargeable under the provisions of the Act to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, 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. 19. The entire basis of the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initely claim deduction under the I.T. Act for such SRP 77/79ITXA989.15.doc remittance and on inquiry if the AO finds that the sums remitted outside India comes within the definition of royalty or fees for technical service or other sums chargeable under the I.T. Act then it would be open to the AO to disallow such claim for deduction. Similarly, vide Finance Act, 2008, w.e.f. 1.4.2008 sub-Section (6) has been inserted in Section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from 1.4.2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage. 53. In the view that we have taken, it is not necessary to refer the judgment of a Division Bench of the Delhi High in the case of Emirates shipping Line, FZE vs. Assistant Director of Income Tax reported in (2012) 349 ITR 493 . Suffice it to note that the view taken by the Division Bench and particularly in paras 17 and 18 of this judgment accords with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in granting relief to the assessee by relying on documents filed by the assessee viz. copy of system ledger and remittance documents from where it was observed that an amount of ₹ 1,37,99,5257- was debited in earlier years (A.Y. 2012-13) as provision demurrage charges and that was paid during the current year (A.Y. 2013-14) and was refleced in the list of remittances made and this amount was not claimed as a deduction from total income in A.Y. 2013-14. Further the assessee had not submitted any evidence during assessment proceeding to show which particular expense pertained to the year which they claimed to be. 3. Whether in law and on the facts and in the circumstances of the case, the Ld. CIT(A) erred in ignoring the pertinent fact that that by sending their employees to India, the AEs are actually rendering services to the assessee company in India and accordingly, the payments made by the assessee company are in the nature of Fees for Technical Services (FTS). The assessee company was under the obligation to deduct tax at source on the payments stated to be in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) and reject Ground Nos. 1 2 of the grounds of appeal of the revenue. 16. Coming to Ground Nos. 3 to 5 of grounds of appeal, Ld. Counsel for the assessee submitted that these grounds are relating to reimbursement of salary cost which was on account of availing personnel services from its AE s who were sent to India at secondment. 17. At the outset, it is submitted that identical issue has been decided in favour of the assessee by the Coordinate Bench of the Tribunal for the A.Y.2010-11 in ITA No. 4300/MUM/2016 dated 09.07.2019 wherein the Coordinate Bench rejected the revenue s appeal and sustained the order of the Ld.CIT(A) in deleting the disallowance. 18. Ld. DR vehemently supported the orders of the Assessing Officer. 19. On hearing both the sides, perusing the orders of the authorities below and the decision of the Coordinate Bench in assessee's own case for the A.Y. 2010-11 in ITA No. 4300/MUM/2016 dated 09.07.2019 we find that the Coordinate Bench of the Tribunal dismissed appeal of the revenue and sustained the order of the Ld.CIT(A) in deleting the disallowance of expenses relating to reimburseme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India on which TDS is applicable lids 192. Re AO has claimed that this is a case of dual employment where the appellant is the economic employer and the AEs are legal employer. By sending their employees to India, the AEs arc actually rendering services to the assessee company in India and accordingly, the payments made by the assessee company are in the nature of Fee for Technical Service (FTS). Accordingly, the AO has concluded that TUS ought to have been deducted u/s 195 by the appellant. 9.2 The AO has relied on the decision of AAR in the case of Verizon Data Services India Pvt I.td (AAR No. 865 of 2010), Centrica Offshore Pvt Ltd (AAR No. 856 of 2010) and AT S India Pvt Ltd [2006) 287 ITR 421 wherein it has been held that reimbursement is in the nature of FTS and the fact that taxes are paid under head 'Salaries' is of no consequence. 9.3 The submission made by the appellant on this issue is summarized as below; 9.3.1 The Appellant had availed services of personnel/employees who were oil payrolls of its Associated Enterprises ('AE'), and in lieu of the same, salary, relocation and other related charges we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Private Limited agrees that it shall reimburse/ repay to Total SA the actual cost of reimbursement and other costs related to the Indian assignment incurred by Total SA in respect of said expatriates during the period of their secondment to India. The said reimbursement/ repayment shall be without any markup/ profit 9.3.4 The appellant has relied on a number of judicial pronouncements. Some of them are: DDIT vs Tekmark Global Solutions LLC (38 SOT 7)(Mum), wherein the Mumbai Tribunal held that personnel deputed to the Indian company worked under the control and supervision of the Indian company and carried out work allotted to them by the Indian company. IDS Software Solutions India (P) Ltd vs l'I'0 (122 TTJ 410) (Bang), wherein it was held that Indian Company exercising control and supervision over a seconded employee and bearing the salary cost should be considered as an economic employer and not liable to withhold tax on the reimbursement of the salary to the overseas company. CIT vs 003 Engineers (32 Taxmann.com 271)(Bom) wherein it has been that reimbursement to sister concerns for payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, this assignment may be terminated or extended by you or TOTAL LUBRICANTS India Lid. with mutual consent by giving a prior notice of 90 days. Roles and responsibilities 1. You will be released from your duty/job with TOTAL RAFFINAGE M4RICETING while you are assigned to TOTAL LUBRICANTS India Ltd You will work wholly and exclusively for TOTAL LUBRICANTS India Ltd. During your assignment, you will perform such duties as TOTAL LUBRICANTS Ltd directs you to perform from time to time. TOTAL LUBRICANTS India Ltd. shall assume complete responsibility or the work carried out during your Indian assignment. 4. While assigned to TOTAL LUBRICANTS India Ltd you will be required to comply with any local employment regulations established by TOTAL LUBRICANTS India Ltd. at the assignment location. 5. Your performance evaluation will be done by TOTAL LUBRICANTS India Ltd. based on the performance objectives set by your supervisor and the actual results achieved during your assignment. Terms and conditions The remuneration and other benefits that you be author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92 and not section 195. The ground raised by the appellant is upheld and the disallowance u/s 40(a)(i) is directed to be deleted. 16. On appraisal of the above mentioned finding, we noticed that the employees who were serving in India or deputed in India had already deducted tax at source u/s 192 of the Act. The provision of TDS is not applicable on reimbursement of deputation expenses to foreign AE. The CIT(A) has relied upon the decision in the case of Burt Hill Design (P) Ltd. Vs. DDIT (IT) (79 Taxmann.com 459). The facts are not distinguishable at this stage. No law contrary to the law relied by the Ld. Representative of the assessee has been produced before us. In view of the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. 20. Facts being identical, respectfully following the said decision we reject Ground Nos. 3 to 5 of grounds raised by the revenue and sustain the order of the Ld.CIT(A) on this issue. 21. Coming to the appeal of the assessee for the A.Y. 2014-15, following grounds have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for the A.Y. 2013-14 in respect of reimbursement of demurrage charges for the current assessment year and the decision taken therein shall applies mutatis mutandis for the assessment year under consideration i.e. A.Y. 2014-15. We order accordingly. 24. Ground No.3 of grounds of appeal is in respect of non-granting of credit for TDS. Ld. Counsel for the assessee submits that a direction may be given to the Assessing Officer to consider the claim of the assessee. Thus, this ground is set-aside to the file of the Assessing Officer with a direction to examine the claim of the assessee and decide in accordance with law. 25. Ground No. 4 of grounds of appeal is in respect of levy of interest u/s.234B of the Act. This ground is only consequential, thus, it is restored to the file of the Assessing Officer and to decide in accordance with law. 26. Coming to revenue s appeal for the A.Y. 2014-15, following grounds have been raised: - 1. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in granting relief to the assessee on the issue of demurrage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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