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TMI Blog2024 (6) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees as FTS - AO in the penalty orders has refused to accept the bonafide intention of the entities for not offering the secondment receipts to tax and for not filing original return offering such receipts (only for cases where original return was not filed) - as considered that secondment of employees to India is used as a tax shifting construct/ arrangement between IBM foreign entities and IBM India - AO in the penalty order has confirmed that the Assessee has concealed particulars of income u/s 271(1)(c) by failing to furnish original return of income u/s 139 and has made full disclosure of income only in the reassessment proceedings u/s 148 HELD THAT:- The assessee has offered the said receipts offered during the course of original assessment proceedings or during the return filed u/s 148 of the Act or during the reassessment proceedings. There was no avoiding of the income offered to tax by the assessee. The assessee made a plea before us that though at the time of filing of original return of income or at the time of filing revised return of income, there was a bonafide belief which the assessee is having regarding the taxability of the impugned secondment receipts. At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the stage of original assessment or at the stage of reassessment or in return filed in response to notice issued u/s 148 of the Act penalty could not be levied. It cannot be construed that assessees have concealed any material facts from the department or furnished inaccurate particulars of income. In our opinion, there is a reasonable cause for not offering the same for taxation in original return filed u/s 139(1) of the Act or in revised return u/s 148 of the Act as the assessees are in bonafide belief that said receipts are not liable for taxation in view of the fact that there are contradictory decisions on this impugned issue. Thus , levy of penalty u/s 271(1)(c) or 270A of the Act in these group cases is not justified. Accordingly, we delete the penalty in all these cases. Decided in favour of assessee. - IT(IT)A No.487/Bang/2024, IT(IT)A No.499/Bang/2024, IT(IT)A No.492 to 494/Bang/2024, ITA No.542 497/Bang/2024, IT(IT)A No.497/Bang/2024, ITA No.544/Bang/2024, IT(IT)A No.503/Bang/2024, IT(IT)A No.498/Bang/2024, ITA No.543/Bang/2024, IT(IT)A No.488/Bang/2024 ITA No.541/Bang/2024 Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d filed a detailed response during the course of penalty proceedings and requested the officer to drop the penalty proceedings. However, the Assessing Officer ( AO ) imposed penalty under section 271(1)(c)/ section 270A of the Act against which the IBM foreign entities preferred an appeal before the CIT(A). Separately, IBM foreign entities had identified certain mistakes which were apparent from record in the penalty orders against which the rectification applications were filed. As on date, the said applications are still pending disposal, except in the case of IBM Corporation for AY 2016-17 and AY 2017-18 and IBM China Hong Kong Limited ( IBM CHK ) for AY 2014-15 wherein the rectification order has already been passed; 2.1 During the course of hearing before the ld. CIT(A), detailed submissions were made by the ld. A.Rs for the assessees along with required documentation to substantiate the claim of the assessees. Furthermore, the following assessees also furnished revised grounds of appeal in respect of the below cases: IBM Australia for the AY 2018-19 and the AY 2019-20 IBM Nederland B.V. for the AY 2017-18 IBM Corporation for the AY 2017-18 IBM United Kingdom Limited for the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 012- 13 271(1)(c) 504/Bang/2024 Not filed During reassessment proceedings IBM Del Peru SAC 2012- 13 271(1)(c) 502/Bang/2024 Not filed During reassessment proceedings Category C: 271(1)(c) case where original return under section 139(1) of the Act has been filed however, secondment related receipts were offered to tax only in the return filed under section 148 of the Act Compagnie IBM France 2013- 14 271(1)(c) 545/Bang/2024 Filed but not offered In ROI filed u/s 148 Compagnie IBM France 2015- 16 271(1)(c) 546/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Australia 2014- 15 271(1)(c) 487/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Corporation 2016- 17 271(1)(c) 499/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Japan Limited 2013- 14 271(1)(c) 492/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Japan Limited 2015- 16 271(1)(c) 493/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM Japan Limited 2016- 17 271(1)(c) 494/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM United Kingdom Limited 2014- 15 271(1)(c) 542/Bang/2024 Filed but not offered In ROI filed u/s 148 IBM United Kingdom Limited 2016- 17 271(1)(c) 497/Bang/2024 Filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of actual costs initially incurred by the respective IBM Foreign Entity in respect of certain employees seconded to IBM India. Therefore, such payment being in the nature of expenses incurred by the respective IBM Foreign Entity on behalf of IBM India on a cost-to-cost basis, no income element is embedded in such payment. Accordingly, there being no income element in the aforesaid reimbursement, the same is not chargeable to tax in India and hence, not subject to taxes as FTS under the Act. 3.3 The above view was backed by various judicial precedents including the Hon ble Delhi High Court ( HC ) decision in the case of DIT vs HCL Infosystems Ltd. [2005] 274 ITR 261 (Delhi HC), which was pronounced on 6 January 2004. Thereafter, the jurisdictional Bangalore Income-tax Appellate Tribunal ( ITAT ) in the case of M/s Abbey Business Service (India) Private Limited vs DCIT [2012] 23 Taxmann.com 346 (Bangalore ITAT) vide order dated 18 July 2012 has also upheld the said view. Therefore, the Assessees was under a bonafide belief that receipts in the nature of reimbursement of salary cost of employees was not liable for taxation as FTS in India. 3.4 At this juncture, ld. A.Rs for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which they reproduced below 37. We may also mention : that in the case of another IBM group company case viz., DCIT (IT) Vs. MIS.IBM Corporation IT (IT)A.No.1/Bang.2014 IT(IT)A.No.6/Bang/2017 order dated 6.1.2017, the Tribunal took the view that there was an obligation on the part of the Assessee in that case to deduct tax at source u/s.195 of the Act when making payment by way of reimbursement. The conclusions of the Tribunal are contained in paragraph 5 of its order and it is based on failure by the Assessee to furnish certain details before the AO which is extracted in paragraph 2.1 of the CIT(A)'s order which was subject matter of the aforesaid appeal. The CIT(A)'s order which was subject matter of the aforesaid appeal in paragraph 2.4 of his order has referred to the decisions of the ITAT in the case of Mis. Abbey Business Services India Pvt.Ltd.(supra) and IDS Software (supra) and concluded in para 2.5 that the aforesaid decisions were rendered on its own facts and had no applicability to the facts of the Assessee's case. We however find that the facts of the case in these appeals and the facts of the case in the case of Mis. Abbey Business Services India Pvt.Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condment reimbursements are not taxable as fees for technical services under section 9(1)(vii) of the Act read with Article of the DTAA. These judgements are as follows: Karnataka HC judgment in Flipkart Internet (P.) Ltd (2022) 139 taxmann.com 595;(page 57-77 case law compilation) Delhi ITAT in Ernst Young US LLP [2023] 153 taxmann.com 95 (Delhi-Trib); (page 78-87 case law compilation) Delhi HC in Boeing India Pvt Ltd [2023] 146 taxmann.com 131(Delhi) (page 88-93 case law compilation); and Bangalore ITAT in Google LLC vs JCIT(OSD)/DCIT(IT) [2023] 147 taxmann.com 428 (Bangalore-Trib) 3.12 They drew our attention to the table capturing various Courts/ Tribunal decisions on said issue in a chronological order, which is as follows: Sl No. Caselaw with Citation Favourable/ unfavourable Forum Date of pronouncement 1 DIT vs HCL Infosystems Limited [2005] 144 Taxman 492 followed by Karnataka HC in Abbey case Favourable Delhi HC 6 January 2004 2 Karl Storz Endoscopy India (P) Limited (ITA No 13 of 2008) (Delhi HC) (refer page 199 201 of PB) Favourable Delhi HC 13 September 2010 3 Abbey Business Services India Pvt Ltd (23 Taxmann.com 346) later on confirmed by Karnataka High Court Favourabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V Scheme and the litigation pertaining to seven years was settled to end litigation and attain closure. 3.14 IBM India, on acceptance of the said receipts to tax in India, withdrew its pending appeals before the ITAT (Special Bench) and remitted the taxes due under the VsV scheme (for the AY 2009-10 to AY 2015-16). 3.15 The VsV scheme was also opted by the IBM Foreign Entities for the AY 2007-08 to AY 2017-18 (these are in respect of cases which are not subject to reassessment since they are settled under VsV scheme), in respect of the secondment receipts (in respect all IBM Foreign Entities) and receipts from IBM India for services rendered under the AP IT Services Centre (specifically for IBM Australia). The total tax liability accepted on such cases which were opted under VsV to end litigation and attain closure was approximately Rs 33 crores. 3.16 In summary, a total of 62 applications were filed under the VsV Act and Rs 116 crores (Rs 83 crores + Rs 33 crores) was accepted as tax liability by IBM India and IBM foreign entities collectively under the VsV Scheme. 3.17 Considering the above backdrop and IBM s intention to not further any litigations, in cases where the proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not all IBM foreign entities had failed to furnish original return under section 139 of the Act. 4.2.3 Further, the AO in the penalty order has taken shelter under Explanation 3 to section 271(1)(c) without considering the specific exclusion for cases where the taxpayer fails to furnish return of income on account of reasonable cause . Moreover, cases where the original return of income is filed by the taxpayer under section 139 of the Act, such cases ought to be outside the ambit of Explanation 3 to section 271(1)(c). However, the AO has completely disregarded the said fact in case of IBM foreign entities where due return was filed under section 139 of the Act (for AY 2012-13 to AY 2016-17). 4.3 Specific observation by the AO with respect to penalty under section 270A of the Act 4.3.1 The AO in the penalty order has confirmed that the Assessee has under reported income which is in consequence of misreporting by not filing a return within the timelines stipulated under section 139 of the Act and hence liable to penalty under section 270A of the Act (for AY 2017-18 to AY 2019-20). 4.3.2 As discussed above, in concluding so the AO has provided a blanket statement for all the foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receipts were duly offered to tax in the revised ROI (even before receipt of reasons for reopening the assessment) or voluntarily during the course of the reassessment proceedings. e) Reason for levy of penalty under section 271(1)(c) of the Act (i.e, whether for concealment of income or for furnishing of inaccurate particulars) was not discernible from the penalty orders. 4.4.3 With respect to penalty levied under section 270A (AY 2017-18 to AY 2019-20) of the Act, the following specific submissions / contentions were made before the CIT(A): a) Substantiating the bonafide intention of the Assessee for not offering secondment receipts to tax under section 270A(6) of the Act which states that where an Assessee offers a bonafide explanation to the satisfaction of the AO and duly discloses all material facts to substantiate the explanation offered, such case would not be considered to be a case of under-reporting of income; b) Contesting the validity of the penalty orders (for all entities other than IBM Canada) where the matter was adjudicated basis incorrect facts of the case stating that the Assessee failed to furnish return of income under section 139 of the Act, where in fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the taxes were not paid during the filing of return u/s 139, the payments were made while filing the revised return u/s 148 and/or during the assessment proceedings. The ld. A.Rs submitted that imposition of penalty is not automatic and the tax payment made by the assessee is it to buy peace and the same cannot be considered as concealment. Assessee relies on the decision of the Punjab and Haryana High Court in the of Rajiv Garg [2008] 175 Taxman 184 wherein the court has held as under: Undisputedly, the assessee filed the return of income declaring its total income at Rs. 47,05,230, which inter alia included long-term capital gain on sale of shares amounting to Rs. 29,74,951. The return was processed in terms of section 143(1)(a) of the Act on 15-3-1999. Subsequently, on the basis of some information with regard to sale proceeds of the shares amounting to Rs. 32,40,385 on which the capital gain was declared at Rs. 29,74,951 by the assessee in the original return, a notice under section 148 of the Act was issued. Pursuant to the said notice, the assessee filed the revised return of income showing higher income. The said return of income was accompanied by a note in which the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made in respect of a debatable issue. Without prejudice to the fact that IBM group believes that reimbursement of secondment receipts are not taxable, it wishes to submit that penalty cannot be levied in respect of an adjustment which is debatable or in respect of which two views are possible. In relation to the same, IBM Foreign Entities wish to place reliance on the below judicial precedents: - CIT v. Reliance Petroproducts [2010] 322 ITR 158 (SC) The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty proceedings are an outcome of assessment and if the assessment itself is debatable, the penalty proceedings cannot survive. (Emphasis Supplied) 4.5.7 Without prejudice to the above, it was highlighted that in case of a non-resident, the tax liability if any is required to be discharged only by way of TDS. Furthermore, IBM India had duly deducted taxes under section 192 of the Act in respect of same secondment reimbursements. Given the same, there was no requirement on part of the IBM Foreign Entities to obtain a certificate under section 197 of the Act. Additionally, they submitted that the provisions of section 197 of the Act are not mandatory in nature and cannot be imposed upon any assessee. 4.5.8 Without prejudice to the above legal submission, the ld. Ars for the Assessee submitted para wise rebuttal to the observations made by the CIT(A) with respect to each of the categories of cases. Category A: 271(1)(c) cases where original return under section 139(1) of the Act was not filed and receipts were offered to tax in the return filed under section 148 of the Act Observation of the CIT(A) Rebuttal to the CIT(A) s observations - Assessee did not offer the FTS receipts to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not considered as in issue which actually now stands decided in favor of the Assessee. - The above case is therefore distinguishable on facts. Assessee relies on ruling by the Punjab and Haryana HC in the case of CIT v. Rajiv Garg [2008] 175 Taxman 184 page 204 case law compilation The CIT(A) has contended that the explanations offered by IBM are not bonafide, since: - The explanation offered by the Assessee was rejected by the AO - Failure on part of the Assessee to offer receipts to tax in the first instance (u/s 139) and thereby contending that the Assessee had not disclosed all the facts material to the computation of its total income. Reference drawn to Delhi Tribunal s ruling in the case of Ajay Jain vs ITO [2013] 32 taxmann.com 270 (Delhi ITAT) (Page 12 to 13 of the CIT(A) s order) - The AO and CIT(A) have erred in holding that the conduct of the Assessee is not bonafide merely because, the Assessee adopts a position contrary to revenue s position, basis prevailing judicial precedents. - Receipts were not offered under section 139 of the Act basis juridical precedents/ IBM Corp s order for AY 2011-12. - AO cannot contend that the Assessee had not disclosed all material facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were offered to avoid litigation. IBM has time and again reiterated repeatedly that it still continues to believe that the secondment receipts are not taxable as FTS. CIT(A) rejected the Assessee reference to provisions of 273B of the Act to define the term reasonable cause including reliance on Singapore Airlines Ltd. vs Commissioner of Income Tax [2022] 144 taxmann.com 221 (SC) . (Page 15 of the CIT(A) s order) - The SC in the subject ruling has laid down the legal proposition that if Courts/ Tribunals in the ensuing years have passed contradictory judgements, it results in genuine and a bonafide difficulty on part of the Assessee and therefore qualifies to be a reasonable cause under section 273B of the Act. - The reference to the above case by the Assessee was only in the context of the legal principle emanating from the same which could also be used in the context of section 271(1)(c) of the Act. - However, the CIT(A) has incorrectly opined that the reference to the subject ruling is misplaced merely because the same is not rendered in context of section 271(1)(c) of the Act. The principle emanating from the subject ruling would also have a bearing on the interpretation of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case which has referred to IBM s facts being similar to M/s Abbey Business Service (India) Private Limited vs DCIT [2012] 23 Taxmann.com 346 (Bangalore ITAT) - The CIT(A) has contended that mere acceptance of tax liability will not preclude the levy of the penalty on the assessee. - The CIT(A) has relied on the ruling of the Supreme Court ( SC ) in MAK Data P. Ltd. vs CIT-II [2013] 38 taxmann.com 448 (SC) to support the above contention (Page 10 of the CIT(A) s order) - MAK Data (supra) ruling is in the context of a case where income was voluntarily offered pursuant to a survey proceeding under section 133A of the Act. No bonafide explanations were provided under Explanation 1 of section 271(1)(c) of the Act in respect of the income being surrendered. The only argument made by the Assessee was that it voluntarily offered receipts to tax and therefore, penalty cannot be levied. - In the case of IBM, the matter in respect of taxability of secondment expenses which is a debatable issue if not considered in favor of the Assessee. - The above case is therefore distinguishable on facts. Assessee relies on ruling by the Punjab and Haryana HC in the case of CIT v. Rajiv Garg [2008] 175 Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educted on payments. - Assessee has not availed any of the safeguards and basis that has rejected the Assessee s contention of bonafide belief . (Page 12-13 of the CIT(A) s order) - Provisions of section 195(2)/ 197 of the Act are not mandatory and therefore the AO cannot be expected to seek recourse to the same. - Therefore, the same isn t sufficient ground to contend that the Assessee s conduct is not bonafide. The CIT(A) has rejected the judicial precedents cited by the Assessee on the ground that: - In all of the rulings relied, the make available criteria under the respective DTAAs was not satisfied. - Assessee offering receipts to tax establishes by itself that the make available criteria is satisfied and the subject receipts are taxable as FTS. (Page 13 of the CIT(A) s order) - Merely because IBM has voluntarily offered receipts to tax, it does not mean that the same is perse taxable, given that the same were offered to avoid litigation. IBM has time and again reiterated repeatedly that it still continues to believe that the secondment receipts are not taxable as FTS. CIT(A) rejected the Assessee reference to provisions of 273B of the Act to define the term reasonable cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia s own case which has referred to IBM s facts being similar to M/s Abbey Business Service (India) Private Limited vs DCIT [2012] 23 Taxmann.com 346 (Bangalore ITAT) - The CIT(A) has contended that mere acceptance of tax liability will not preclude the levy of the penalty on the assessee. - The CIT(A) has relied on the ruling of the Supreme Court ( SC ) in MAK Data P. Ltd. vs CIT-II [2013] 38 taxmann.com 448 (SC) to support the above contention (Page 10/11/15/16 of the CIT(A) s order) - MAK Data (supra) ruling is in the context of a case where income was voluntarily offered pursuant to a survey proceeding under section 133A of the Act. No bonafide explanations were provided under Explanation 1 of section 271(1)(c) of the Act in respect of the income being surrendered. The only argument made by the Assessee was that it voluntarily offered receipts to tax and therefore, penalty cannot be levied. - In the case of IBM, the matter in respect of taxability of secondment expenses which is a debatable issue if not considered in favor of the Assessee. - The above case is therefore distinguishable on facts. Assessee relies on ruling by the Punjab and Haryana HC in the case of CIT v. Rajiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reby, decided in favour of the Assessee in the order passed subsequently in case of IBM Corporation for AY 2011-12. We specifically wish to highlight that the said order has achieved finality since the same has neither been revised under section 263 nor has been reassessed under section 147 of the Act. The CIT(A) has rejected the judicial precedents of Abbey Business Services India (P.) Ltd (supra) and ([2020]122 taxmann.com 174 (Karnataka HC) , by contending that the same are distinguishable on facts. (12-13 of the CIT(A) s order) - CIT(A) has distinguished the facts of IBM with those of Abbey solely on the basis that IBM has voluntarily offered receipts to tax. However, the CIT(A) has failed to look into the similarity of facts of both these cases. CIT(A) has failed to acknowledge that ITAT in the Special Bench referral order in case of IBM India has noted that the facts in case of IBM are similar to those in case of Abbey (supra) . - Provisions of section 195(2)/ 197 of the Act are not mandatory and therefore the AO cannot be expected to seek recourse to the same. The CIT(A) has contended that the explanations offered by the Assessee are not bonafide since no application under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is covered under section 270A(2)(a) of the Act. (Page 15 of the CIT(A) s order) - While the assessment order mentions under-reporting, the penalty notice mentions under-reporting in consequence of misreporting. - It is settled position of law that levy of penalty must be specific and discernible. The CIT(A) has rejected the judicial precedents of DIT(IT) vs Abbey Business Services India (P.) Ltd ([2012] 23 taxmann.com 346 (Bangalore ITAT) and ([2020]122 taxmann.com 174 (Karnataka HC) , by contending that the same is distinct in facts, on account of the below reasons: - In Abbey s case, the ITAT/ HC has concluded that there was no profit element as reimbursements were made on a cost-to-cost basis. In the absence of a profit element, the question of taxability under the provisions Act would not arise. - Furthermore, since income was not taxable under the Act, the taxability of the same under the provisions of the DTAA was not analyzed in the subject ruling. - The CIT(A) has opined that in IBM s case, the Assessee has himself admitted to taxability of the secondment receipts as FTS, since they were voluntarily offered to tax. - The CIT(A) also highlighted that in Abbey s case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee: - DIT(IT) Abbey (supra), - Ernst and Young U.S. LLP [2023] 153 taxmann.com 95 (Delhi-Trib.) - Addl. DIT (IT) vs Marks and Spencer Reliance India P. Ltd. [2013] 38 taxmann.com 190 (Mumbai-Trib.) - Flipkart (Supra) The subject precedents were rejected on account of the below contentions: - In all of the above rulings, the make available criteria under the respective DTAAs was not satisfied. - Assessee offering receipts to tax establishes by itself that the make available criteria is satisfied and the subject receipts are taxable as FTS. (Page 17 18 of the CIT(A) order) Merely because IBM has voluntarily offered receipts to tax, it does not mean that the same is perse taxable, given that the same were offered to avoid litigation. IBM has time and again reiterated repeatedly that it still continues to believe that the secondment receipts are not taxable as FTS. - The CIT(A) has contended that mere acceptance of tax liability will not preclude the levy of the penalty on the assessee. - The CIT(A) has rejected IBM s reference to the Punjab and Haryana HC s ruling in CIT v. Rajiv Garg [2008] 175 Taxman 184 (Punjab and Haryana HC) by drawing reference to SC s ruling in MAK D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to tax only after a notice under section 148 of the Act was issued, initiating the reassessment proceedings. - The CIT(A) has distinguished the facts of the case from Karnataka HC s ruling in Manjunatha Cotton Ginning Factory [2013] 35 Taxmann.com 250 (Karnataka HC) - The CIT(A) has concluded that the provisions of 270A(8) need not be invoked and that the case of the Assessee is covered under section 270A(2)(b) of the Act. (Page 14 of the CIT(A) order) - While the assessment order mentions under-reporting, the penalty notice mentions under-reporting in consequence of misreporting. - It is settled position of law that levy of penalty must be specific and discernible. see Delhi HC in Prem Brothers (page 142-145 of case law compilation, at page 145, para 8. Also, Pune ITAT in Kishore Digambar Patil vs ITO page 157-176 of case law compilation) The CIT(A) has rejected the judicial precedents of DIT(IT) vs Abbey Business Services India (P.) Ltd ([2012] 23 taxmann.com 346 (Bangalore ITAT) and ([2020]122 taxmann.com 174 (Karnataka HC) , by contending that the same is distinct in facts, on account of the below reasons: - In Abbey s case, the ITAT/ HC has concluded that there was no profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s receipts were in nature of FTS. (Page 15 16 of the CIT(A) order) - Provisions of section 195(2)/ 197 of the Act are not mandatory and therefore the AO cannot be expected to seek recourse to the same. - Therefore, the same isn t sufficient ground to contend that the Assessee s conduct is not bonafide. - Deduction under section 192 of the Act establishes employer-employee relationship and is therefore relevant. This aspect has also been discussed in numerous judicial precedents. The CIT(A) has rejected the below judicial precedents cited by the Assessee: - DIT(IT) Abbey (supra), - Ernst and Young U.S. LLP [2023] 153 taxmann.com 95 (Delhi-Trib.) - Addl. DIT (IT) vs Marks and Spencer Reliance India P. Ltd. [2013] 38 taxmann.com 190 (Mumbai-Trib.) - Flipkart (Supra) The subject precedents were rejected on account of the below contentions: - In all of the above rulings, the make available criteria under the respective DTAAs was not satisfied. - Assessee offering receipts to tax establishes by itself that the make available criteria is satisfied and the subject receipts are taxable as FTS. (Page 17 of the CIT(A) order) Merely because IBM has voluntarily offered receipts to tax, it doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at if Courts/ Tribunals in the ensuing years have passed contradictory judgements, it results in genuine and a bonafide difficulty on part of the Assessee and therefore qualifies to be a reasonable cause under section 273B of the Act. - The reference to the above case by the Assessee was only in the context of the principle emanating from the same which could also be used in the context of section 270A of the Act. - However, the CIT(A) has incorrectly opined that the reference to the subject ruling is misplaced merely because the same is not rendered in context of section 270A of the Act. The principle emanating from the subject ruling would also have a bearing on the interpretation of section 270A of the Act. - The CIT(A) has highlighted that in the case of Assessee s group company, IBM Australia for AY 2007-08 and AY 2008-09, the then CIT(A)-IV, Bangalore vide order dated 20 November 2013 had upheld the addition of reimbursement of expenses on seconded employees as FTS. Therefore, the CIT(A) has rejected the Assessee s claim that it was not aware of the Department s position on the treatment of reimbursement of secondment expenses as FTS. - Hence the Assessee s claim that it harb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mann.com 346 (Bangalore ITAT) and ([2020]122 taxmann.com 174 (Karnataka HC) , by contending that the same is distinct in facts, on account of the below reasons: - In Abbey s case, the ITAT/ HC has concluded that there was no profit element as reimbursements were made on a cost-to-cost basis. In the absence of a profit element, the question of taxability under the provisions Act would not arise. - Furthermore, since income was not taxable under the Act, the taxability of the same under the provisions of the DTAA was not analyzed in the subject ruling. - The CIT(A) has opined that in IBM s case, the Assessee has himself admitted to taxability of the secondment receipts as FTS, since they were voluntarily offered to tax. - The CIT(A) also highlighted that in Abbey s case, the Assessee had furnished an application under section 195 while IBM has not exercised this option. (Page 21-22 of the CIT(A) order) - CIT(A) has distinguished the facts of IBM with those of Abbey solely on the basis that IBM has voluntarily offered receipts to tax. However, the CIT(A) has failed to look into the similarity of facts of both these cases. - CIT(A) has failed to acknowledge that ITAT in the Special Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffering receipts to tax establishes by itself that the make available criteria is satisfied and the subject receipts are taxable as FTS. (Page 23 of the CIT(A) order) Merely because IBM has voluntarily offered receipts to tax, it does not mean that the same is perse taxable, given that the same were offered to avoid litigation. IBM has time and again reiterated repeatedly that it still continues to believe that the secondment receipts are not taxable as FTS. - The CIT(A) has contended that mere acceptance of tax liability will not preclude the levy of the penalty on the assessee. - The CIT(A) has rejected IBM s reference to the Punjab and Haryana HC s ruling in CIT v. Rajiv Garg [2008] 175 Taxman 184 (Punjab and Haryana HC) by drawing reference to SC s ruling in MAK Data P. Ltd. vs CIT-II [2013] 38 taxmann.com 43 8 (SC) - The CIT(A) has noted that the Assessee was cognizant about the nature of payments received by it but chose not to offer the same to tax. (Page 20 of the CIT(A) order) - MAK Data (supra) ruling is in the context of a case where income was voluntarily offered pursuant to a survey proceeding under section 133A of the Act. No bonafide explanations were provided under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) has highlighted that in the case of Assessee s group company, IBM Australia for AY 2007-08 and AY 2008-09, the then CIT(A)-IV, Bangalore vide order dated 20 November 2013 had upheld the addition of reimbursement of expenses on seconded employees as FTS. Therefore, the CIT(A) has rejected the Assessee s claim that it was not aware of the Department s position on the treatment of reimbursement of secondment expenses as FTS. - Hence the Assessee s claim that it harboured a bona fide belief that the receipts from reimbursement of secondment expenses were not taxable, is rejected in the face of the facts of its case (Page 21 of the CIT(A) order) - While the CIT(A) s order was received prior to the favorable order passed in case of IBM Corp, the said order of IBM Australia was challenged before the ITAT. Thereafter, the appeal was withdrawn because IBM Australia chose to settle the litigations under the Vivad se Vishwas Act, 2020. Therefore, it cannot be said that the issue was settled in the case of IBM Australia for the AY 2007- 08 and AY 2008-09. - Further, the issue of taxation of secondment reimbursements was scrutinized and thereby, decided in favour of the Assessee in the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M Japan Limited 492/Bang/2024 2013-14 IBM Japan Limited 493/Bang/2024 2015-16 IBM Japan Limited 494/Bang/2024 2016-17 IBM United Kingdom Limited 542/Bang/2024 2014-15 IBM United Kingdom Limited 497/Bang/2024 2016-17 Category D Levy of penalty u/s 270A of the Act where return u/s 139(1) of the Act has been filed. However, secondment related receipts were offered to tax only in the return filed u/s 148 of the Act. Name of the assessee ITA No. Assessment year IBM Corporation 544/Bang/2024 2017-18 IBM Netherland B V 503/Bang/2024 2017-18 IBM United Kingdom Limited 498/Bang/2024 2017-18 Category E Levy of penalty u/s 270A of the Act where return u/s 139(1) of the Act has not been filed. However, secondment related receipts were offered to tax only in the return filed u/s 148 of the Act. Name of the assessee ITA No. Assessment year IBM Canada Limited 543/Bang/2024 2017-18 Category F Levy of penalty u/s 270A of the Act where original return u/s 139(1) of the Act has been filed and receipts were offered to tax during the course of assessment proceedings. Name of the assessee ITA No. Assessment year IBM Australia 488/Bang/2024 2018-19 IBM Australia 541/Bang/2024 2019-20 6.1 As seen from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made in accordance with proposals approved by the Central Government before that date. Explanation 2.--For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction16, assembly, mining or like project undertaken by the recipient16 or consideration which would be income of the recipient chargeable under the head Salaries . 195(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : 10. After having noticed the relevant statutory pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees in their capacity as employees of the assessee had to control and supervise the activities of Msource India Pvt. Ltd. Therefore, the assessee for all practical purposes has to be treated as employer of the seconded employees. There is no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a non resident enterprise and therefore, the amount paid by the assessee was not to suffer tax deducted at source under Section 195 of the Act. Similar view has been taken by High Court of Delhi in HCL INFO SYSTEM LTD. supra in respect of salaries paid to foreign technicians on behalf of the assessee. 12. So far as reliance placed by learned counsel for the revenue on the decision of M/S CENTRICA INDIA OFFSHORE PVT. LTD. supra is concerned, from perusal of paragraph 29 of the aforesaid decision, it is evident that the High Court of Delhi considered the issue whether the secondment of employees by BSTL and DEML, the overseas entities fall within Article 12 of India, Canada and Article 13 of India, UK DTAAs, which embody the concept of service permanent establishment. In the instant case, the issue of permanent establishment is not invol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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