Marksons Pharma Limited, vs Assessee
- CitationITA No.6905/Mum/2010)
Ratio decidendi
The rule this decision rests on
The Tribunal, on a miscellaneous application seeking a separate and specific finding, held that where the first appellate authority has given a detailed reasoned finding on an issue and the Tribunal agrees with it, no separate finding by the Tribunal is required; the Tribunal may simply record its agreement with that finding. On the merits of the disallowance under section 40(a), the Tribunal held that underwriting commission paid to a foreign bank's overseas branch for services rendered wholly outside India, and not through any permanent establishment in India, is not income chargeable in India and so does not attract the obligation to deduct tax at source; consequently the disallowance under section 40(a) on that account cannot stand, following the reasoning of the Tribunal in the Raymond Ltd. decision. Bank charges and printing charges paid to a non-resident for services rendered outside India through no permanent establishment in India are likewise not fees for technical services, so no tax was deductible on them. Out-of-pocket expenses reimbursed to a non-resident bank, consisting of expenses incurred in placing the issue with foreign investors, are merely reimbursement of expenses without any embedded income element, and so do not attract the tax-deduction obligation under section 195(1).
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
IN THE INCOME TAX APPELLATE TRIBUNAL "L", BENCH MUMBAI
BEFORE SHRI R.C.SHARMA, AM & SHRI SANJAY GARG, JM MA No.107/Mum/2015 (Arising out of ITA No.6905/Mum/2010) (Assessment Years :2006-07) M/s Marksons Pharma Ltd., Vs. ACIT, Central Circle- st 21 Floor, Lotus Business 18&19, Mumbai Park, Opp. New Link Road, Andheri(West), Mumbai-53 स्थामी रेखा सं ./ जीआइआय सं ./ PAN/GIR No. : AAACT 3153 G (अऩीराथी /Appellant) .. (प्रत्मथी / Respondent)
Assessee by : Shri Harsh Buta Revenue by : Shri Jitendra Kumar Date of Hearing : 29th May, 2015 Date of Pronouncement : 5-6-2015 ORDER PER R.C.SHARMA, AM :
This miscellaneous application arose out of ITA
No.6905/Mum/2010, vide order dated 22-2-2015.
2. We have gone through the miscellaneous petition and found that
in ground No.B, department was aggrieved for partly deleting the
addition made u/s.40(a) of the Act on account of remittance of FCCB
issues expenses to a non-resident. The contention of ld. AR was that
the Tribunal has not given separate and specific reason for confirming
the action of the CIT(A) in respect of FCCB issue expenses. We found
that the Tribunal has confirmed the action of CIT(A) by observing that
while deleting the disallowance the CIT(A) has relied on the decision of
Mumbai bench of the Tribunal in the case of Raymond Ltd., 86 ITD
791 and Gujarat Ambuja Cement, 2 SOT 784. The CIT(A) found that
professional fee paid to Deutsche Bank AG through its Hong Kong 2 MA No.107/2015
Branch cannot be taxed in India in view of the fact that this business
profits were not earned through the permanent establishment in India,
after having the following observations :-
"13.1 No doubt underwriting commission is income earned from business. However, the Underwriting services were undertaken by the Hong Kong Branch of Deutsche Bank AG and all the services were rendered outside India. The Deutsche Bank AG is the tax resident of Germany and there is a Double Taxation Avoidance Agreement (DTAA) between India and Germany. Further, the underwriting commission earned by Hong Kong Branch of Deutsche Bank AG cannot be considered as the income earned through any permanent establishment (PE) in India. The business income of a foreign entity of a treaty country can be taxed in India only if that business income is earned through a PE in India. In view of this, the entire Underwriting Commission is not liable to be taxed in India. In view of the above discussions, I hold that the Underwriting Commission cannot be considered as the fees for technical services and hence, cannot be taxed u/s.9(1)(vii) of the I.T.Act and the business profits earned by the Deutsche Bank AG through its Hong Kong Branch cannot be taxed in India in view of the fact that this business profits were not earned through the permanent establishment in India. Considering all these facts, I hold that the tax is not deductible on this Underwriting Commission of Rs.5,55,76,125/- paid to the Hong Kong branch of Deutsche Bank AG."
3. The CIT(A) also observed that professional fee paid to Deutsche
Bank is not liable to tax in view of the fact that underwriting commission
is paid to the underwriters for undertaking the risk i.e. in case the issue
is not subscribed fully then the underwriter has to subscribe. Hence,
the underwriting commission is not the payment for any professional 3 MA No.107/2015
services or technical services done. It is the payment made for the risk
undertaken. Thereafter applying the proposition of law laid down by the
Mumbai Tribunal in case of Raymond Ltd. Vs. DCIT, 86 ITD 791, the
CIT(A) deleted the disallowance made by the AO. Furthermore, the
payment made to the Bank on account of bank charges Rs.8,6,50/- and
payment made for printing charges of Rs.3,31,522/- was held to be not
fee for technical services. The CIT(A) found that these services were
rendered outside India and not by any PE in India, accordingly, it was
held that TDS is not deductible for these two payments. With regard to
out of pocket expenses of Deutsche Bank $47,626, the CIT(A)
observed that entire expenses of lodging, boarding, conveyance,
conference expenses, telephone, printing & stationery etc. were
incurred by DB. These expenses were incurred during process of
placement of FCCB issue with foreign investors. Since it was merely in
the nature of reimbursement of expenses, it cannot be considered as
having an income element imbedded therein so as to attract Section
195(1) of the Act. Since finding recorded by the ld. CIT(A) was as per
material on record and after considering the decision of Hon'ble Delhi
High Court in the case of Industrial Engineering Projects (P) Ltd., the
CIT(A) has deleted the disallowance. Hence, we did not find any
infirmity in the order of CIT(A). Accordingly, we confirmed the action of
the CIT(A) for deleting the disallowance of Rs.5,55,76,125/- out of total
disallowance of Rs.7,46,70,898/- made u/s.40(a) on account of 4 MA No.107/2015
remittance of FCCB issue expenses to a non-resident without
deducting tax.
4. After going through the above detailed discussion of CIT(A) in the
impugned order and also considering the order of ITAT and Hon'ble
High Court as and relied on by CIT(A), we did not find any infirmity in
the order of CIT(A). it has been specifically recorded in our order that
the CIT(A) has given a detailed finding on the issue to which we have
agreed. Hence, any separate finding was not required on our part.
However, since the assessee has stressed that separate finding has
not been given, hence, we have discussed the issue in detail as above.
5. In the result, miscellaneous application of the assessee is disposed of in the terms indicated hereinabove.
Order pronounced in the open court on this 05/06/2015
Sd/- Sd/-
(SANJAY GARG) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER भंफई Mumbai; ददनांक Dated: 05/06/2015 प्र.क.मभ/pkm, नन.स/ PS
आदे श की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to :
1. अऩीराथी / The Appellant
2. प्रत्मथी / The Respondent.
आदे शानस ु ार/ BY ORDER,
3. आमकय आमक्त(अऩीर) / The CIT(A), Mumbai.
4. आमकय आमक्त / CIT
5. विबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भंफई / DR, ITAT, Mumbai उि/सहायक िंजीकार
6. गार्ड पाईर / Guard file. (Asstt.
Registrar) आयकर अिीऱीय अधिकरण, भंफई / सत्मावऩत प्रनत //True Copy// ITAT, Mumbai
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