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TMI Blog2021 (8) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to deduct tax at source under s. 195 is different from the liability of an assessee to file a return of income as an agent of a foreign principal, therefore, the claim of the assessee that simultaneous proceedings cannot be taken, i.e holding the assessee as an assessee in default under Sec. 201; and at the same time passing an order under s. 163, holding the assessee as a representative assessee, did not merit acceptance. We do not find favor with the observation of the CIT(A) that as he had upheld the order passed against the assessee u/s 201 of the Act, therefore, having held so, there cannot be one more assessment in respect of the same income on the assessee pursuant to Sec. 163 of the Act. Pursuant to the amendment made available on the statute vide the Finance Act, 1987 w.e.f 01.06.1987 as the words unless he is himself liable to any income-tax in Sec. 195 stood omitted w.e.f 01st June, 1987, therefore, the innate exception carved out for a person who was himself liable to pay tax as an agent of the non-resident person u/s 163 of the Act qua deduction of tax at source u/s 195 of the Act as per the pre-amended law i.e prior to 01.06.1987, had thereafter be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ms Vasanti Patel, A.R For the Revenue : Shri S.S. Iyangar, Sr. D.R ORDER PER BENCH: The captioned appeals filed by the revenue are directed against the consolidated order passed by the CIT(A)-10, Mumbai, dated 30.01.2014 which in turn arises from the respective orders passed by the A.O u/s 163 of the Income Tax Act, 1961 (for short Act ), dated 31.11.2012 for A.Y 2005-06 to A.Y 2008-09 and A.Y 2012-13. As the same issue is involved in the aforementioned appeals, therefore, the same are being taken up and disposed off by way of a common order. We shall take up the appeal for A.Y. 2005-06 as the lead matter. The revenue has assailed the impugned order passed by the CIT(A) on the following grounds before us: 1.(i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that proceedings u/s. 201 are for treating the assesses in default for failure to comply with the provisions of section 195 which has nothing to do with the proceedings u/s. 163 against the same assesses being treated as agent of the non resident for assessment of income of that non-resident. (ii) On the facts and in the circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its of sales that were achieved by Braitrim group. It was submitted by the assessee that subsequently the proportionate share of rebate/discount was recovered by Braitrim U.K from the respective group companies. In the backdrop of the aforesaid fact situation, it was submitted by the assessee that the amount remitted by it to Braitrim U.K. was nothing but reimbursement (without any mark up) of its proportionate share of expenses qua the rebates/discounts that were passed on to the retailers by Braitrim U.K. In support of its aforesaid claim the assessee also filed with the ITO(IT) TDS-3, Mumbai the copy of the Cost Reimbursement Agreement that was executed between Braitrim U.K and the assessee, viz. BIPL. Accordingly, it was submitted by the assessee that as Braitrim U.K. had incurred expenses on its behalf, therefore, the remittances so made were only in the nature of reimbursement of expenses and did not include any profit/income element. Also, in support of its claim that there was no default on its part to deduct any amount of tax at source qua the amounts remitted to Braitrim U.K, it was submitted by the assessee that after necessary verifications the A.O while passing the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under one provision, it would not be open for the A.O to proceed under another alternative provision of the Act. The CIT(A) in order to fortify his aforesaid observation relied on the judgment of the Hon ble High Court of Bombay in the case of CIT vs. Premier Tyres Ltd. (1982) 134 ITR 17 (Bom). It was observed by the CIT(A) that the Hon ble High Court while upholding the view taken by the Tribunal, had observed, that once the assessee-company becomes liable to pay income-tax as an agent of a non-resident, it cannot be saddled with the further obligation to make a deduction of tax and be deemed to be in default under s. 201 of the IT Act, 1961. Also, reliance was placed on the judgment of the Hon ble High Court of Calcutta in the case of Bunge Company Limited Vs. ITO (1971) 71 ITR 92 (Cal), wherein it was held that the same assessee cannot be treated as an agent u/s 163 of the Act and at the same time held to be in default u/s 201 of the Act, for the reason, that the said statutory provisions were mutually exclusive and operated in different fields. In sum and substance, it was observed by the CIT(A) that the same person cannot be treated as an agent u/s 163 of the Act and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A Nos. 4742 to 4747/Mum/2014, dated 21.05.2021 for A.Ys 2005-06 to 2012-13 quashed the demands that were raised on the assessee by treating it as being in default u/s 201(1) r.w.s 195 of the Act. (copy of the order placed on record). It was submitted by the ld. A.R that the Tribunal had observed that now when the primary tax liability embedded in the payments made by BIPL to Braitrim U.K had been quashed, therefore, the very foundation of tax withholding demands u/s 195 ceases to hold good in law and the assessee, viz. BIPL could not be held as being in default u/s 201 of the Act. (copy of the order placed on record). Qua the issue as regards treating of the assessee as an agent of M/s Braitrim U.K, the ld. A.R further relied on the order of the CIT(A). 6. Per contra, the ld. Departmental Representative (for short D.R ) could not controvert the observations recorded by the Tribunal while disposing off the appeal in the case of M/s Braitrim U.K Ltd., i.e as the remittances by the assessee to Braitrim U.K Ltd. were towards reimbursement of its share of expenses (without any mark up), therefore, no obligation was cast upon the assessee to deduct tax at source within the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate share of rebate / discount is recovered by the assessee from its group companies, including BIPL, based on the relative sales of those group companies to the respective retailers. The assessee has, accordingly entered into a reimbursement agreement with BIPL, whereby BIPL has acknowledged its obligation to reimburse its proportionate share of the discount / rebate to the assessee based on sale volumes/units achieved by it. As per the Cost Reimbursement Agreement (CRA), such reimbursements are depicted as Administration charges by BIPL in its books of account. 14. We find it relevant to refer to the following clauses of the Cost Reimbursement Agreement (CRA) in order to appreciate the nature and characterization of the amount of reimbursements :- i) that the title to the agreement is described as Cost Reimbursement Agreement ; ii) that the preamble to the agreement mentions the fact of payment of administration charges by the Assessee to the customer companies in respect of goods supplied by worldwide entities of Braitrim group including BIPL and the purpose of the agreement is to recover such charges by the assessee from BIPL; iii) that Article 3 require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxpayer, these expenses are nothing but reimbursement of expenses incurred by the AE for the discounts to be passed on to the retailers by Braitrim UK. After considering the arguments of the assessee it can be inferred that Braitrim UK negotiates globally with various garment retailers to use the hangers manufactured by Braitrim group companies all over the world. As part of these arrangements/agreements BraitrimUK agreed to pass on the discount at the rate 1% of sale of hangers by Braitrim group of companies to the retailers. As rightly stated by the assessee because of this arrangement the taxpayer is getting business without much effort on advertisement and marketing as evidenced by no expenses on marketing or advertisement debited in the profit and loss account for the FY 2006-07. The Braitrim group companies supply the hangers to the garment manufacturers, which in turn supply to the ultimate retailers in the form of pre-hanged clothes. The assessee also supplied hangers to garment manufacturers within and outside India. Based on the sale of these hangers by the assessee Braitrim UK has to pay to the retailers at the rate of 1% on these sales made by the taxpayer to retaile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inclined to uphold the grievance of the assessee that the payments qualify as a pure reimbursement of expenses and accordingly, not taxable in India. The reimbursements received by the assessee are in respect of specific and actual expenses incurred by the assessee and do not involve any mark-up and the assessee has furnished sufficient evidence to demonstrate the incurrence of expenses. There is thus no good reason to make any addition to income in respect of these reimbursements of expenses. The action of the Assessing Officer, as the learned counsel rightly contends, is on pure surmises and conjectures. 19. Here, we would also like to refer to the judgment in the case of AP Moller (supra). Facts of that case were that the assessee was a foreign company engaged in shipping business and was a tax resident of Denmark; that it had agents working for it, who booked cargo and acted as clearing agents for the assessee; and, that in order to help all its agents across the globe, the assessee had set up and maintained a global telecommunication facility called Maersk net system which was a vertically integrated communication system. The agents would pay for the system on pro rata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Neither the Assessing Officer nor the Commissioner (Appeals) had stated that there was any profit element embedded in the payments received by the assessee from its agents in India. Once the character of the payment was in the nature of reimbursement of the expenses, it could not be income chargeable to tax. Moreover, freight income generated by the assessee in the assessment years in question was accepted as not chargeable to tax as it arose from the operation of ships in international waters in terms of article 9 of the DTAA. Once that was accepted and it was also found that the Maersk net system was an integral part of the shipping business which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, and the business could not be conducted without it, it could not be treated as any technical services provided to the agents. 20. Quite clearly, payments by way of reimbursement of expenses incurred on behalf of the payer cannot be construed as income chargeable to tax in the hands of the payee, a proposition which is approved by the Hon'ble Bombay High Court in the case of Siemens Aktiong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find, that he had while concluding that as provisions of Sec. 163 are alternative to Sec. 201 of the Act and thus cannot be resorted to together, therein, relied on the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. Premier Tyres Ltd. (1982) 134 ITR 17 and that of the Hon ble High Court of Calcutta in the case of Bunge Co. Ltd. Vs. ITO (1971) 79 ITR 93 (Cal). As such, the CIT(A) drawing support from the aforesaid judicial pronouncements, had observed, that there cannot be simultaneous jeopardy for the payer under two different provisions of the Act, each of which supplements a machinery for collection of tax payable by a non-resident assessee. It was observed by him that as he had upheld the order passed against the assessee u/s 201 of the Act which is an order of assessment and/or an order akin to an order of assessment, thus, having held so, there cannot be one more assessment in respect of the same very income pursuant to Sec. 163 of the Act. As observed by the ITAT, Mumbai in the case of National Aviation Company of India Vs. Dy. CIT (2011) 137 TTJ 162 (Mum) both of the aforesaid judicial pronouncements, viz. (i). Premier Tyres Ltd. (supra); and (ii). Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the other contentions raised by the petitioners. In this decision, we have to note the wordings of s. 195(1) as it then existed as brought out at p. 96. We extract the same for ready reference : 195(1) Any person responsible for paying to a non-resident, not being a company, or to a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India, any interest, not being interest on securities , or any other sum, not being dividends, chargeable under the provisions of this Act, shall, at the time of payment, unless he is himself liable to pay any income-tax thereon at the rates in force : Provided that nothing in this sub-section shall apply to any payment made in the course of transaction in respect of which a person responsible for the payment is deemed under the proviso to sub-s. (1) of s. 163 not to be an agent of the payee. (Emphasis, italicized in print, ours) We will deal with these wordings in the coming paras. 39. The next judgment relied upon by the learned counsel is the decision of the Hon ble Bombay High Court in the case of CIT vs. Premier Tyres Ltd. (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indra Mahindra (supra) had considered the issue, though in a different context, and concluded that non-initiation of proceedings under s. 163, treating the payee as an agent of a non-resident within the time provided under the Act for time-barring, would result in the order passed under s. 201 being barred by limitation. At p. 646 it concluded as follows : (xiii) No order under s. 201(1) or (1A) can be passed where the Revenue has not taken any action against the payee and further the time-limit for taking action against the payee under s. 147 has also expired. This shows that the Special Bench was of the opinion that both proceedings can take place simultaneously and that in fact not taking the same results in the order under s. 201 being bad in law. 42. In our humble opinion, the liability of an assessee to deduct tax at source under s. 195, is different from the liability of an assessee to file a return of income as an agent of a foreign principal. As rightly put by the learned Departmental Representative, the assessee can be treated as an agent of the non-resident principal and assessments framed in that capacity. The tax deducted under s. 195 would be given credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viz. BIPL could principally be held to be the agent of Braitrim U.K u/s 163 of the Act. As is discernible from the order passed by the ITO (IT) TDS-3, Mumbai, the contentions advanced by the assessee that it was not an agent of Braitrim U.K u/s 163 of the Act were rejected by him. It was observed by the ITO(IT)-TDS-3, Mumbai, that the assessee, viz. BIPL was to be held to be an agent of Braitrim U.K u/s 163 of the Act for the reasons, viz. (i). that BIPL has a business connection with Braitrim U.K and its principal business is substantially controlled and managed over by Braitrim U.K ; (ii) that Braitrim U.K is directly or indirectly in receipt of income from or through BIPL; and (iii). that BIPL is the agent office managed on behalf of Braitrim U.K. Although, the assessee has assailed before the CIT(A) the aforesaid observations of the ITO(IT)-TDS-3, Mumbai, on the basis of which it was held to be an agent of Braitrim U.K, however, we find that the CIT(A) by merely confining his adjudication to the aspect that the assessee could not have been subjected to double jeopardy under the two provisions of the Act i.e Sec. 201 and Sec. 163 of the Act, had thus, not dealt with th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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