Ups Scs (Asia ) Ltd, Mumbai vs Assessee

The aforesaid appeal has been preferred by the Assessee, against final assessment order dated 28.01.2014, passed u/s 144C r.w.s. 143(3) by ADIT (IT)-2(2) Mumbai, in pursuance of direction given by DRP u/s 144C dated 16.12.2013, for the quantum of assessment for the A.Y. 2009-10.

2. In Ground no. 1 the assessee has challenged that the assessing officer has earned in law and on facts incoming to the conclusion that assessee has a 'business connection' in India u/s 9(1)(i) in the form of ITA No. 1987/Mum/2014 2 Assessment Year: 2009-10

subsidiary UPS, SCS (India) Pvt. Ltd ('USIPL'), and therefore, profits are attributable to India.

In Ground No. 2, the assessee has challenged the merits of the attribution of taxable income to the so called 'business connection' in India;

In Ground No. 3 the assessee has challenged the disallowance u.s 40(a)(ia) of Rs.16,29,50,324/- being payment made to USIPL, due to alleged information with holding of tax u/s 194C;

Besides this, the assessee has also raised additional ground for challenging the AO's action for adopting net global profitability percentage for calculating the income attributable to the alleged business income in India.

3. At the outset, learned counsel, Shri Sunil M. Lala submitted that, the main issue of taxability on account of business connection u/s 9(1)(i) in India is squarely covered by the decision of the Tribunal in assessee's own case for the A.Y. 2006-07. This decision has been reiterated by the Tribunal in A.Y. 2008-09 also. He further brought to our notice that the department against the Tribunal order of A.Y. 2006-07 had preferred on appeal u/s 260A before the Hon'ble High Court, wherein it has raised this specific question of law before the High Court however this particular question was not admitted by the Hon'ble High Court. Thus, issue of business connection u/s 9(1)(i) should be decided in favour of the assessee.

4. On the other hand, Ld. DR submitted that the Tribunal while rendering the decision for A.Y. 2006-07 and for A.Y. 2008-09 has not considered on earlier decision of ITAT Mumbai Bench in the case of ITA No. 1987/Mum/2014 3 Assessment Year: 2009-10

ACIT Vs. DHL Powers DV reported in (2005) 142 taxman(1) (Mum)(MAG), and therefore the decision of the Tribunal in assessee's own case is variance with the earlier decision of the ITAT Mumbai Bench.

5. Brief facts of the case are that, assessee is foreign company incorporated under the laws of Hong Kong and is engaged in the business of provision of supply chain management including provision of freight and forwarding and logistic services. The assessee had entered into "Regional Transportation Services Agreements" with UPS, SCS India Pvt. Ltd. (USIPL) an Indian Company for providing freight and logistics services to each others. Under the said agreement, the UPS Asia, i.e. assessee, performs freight and logistic services outside India and has appointed USIPL to perform freight and logistic services within India for customers in respect of import and export of consignment. The compensation as per the agreement for the local services rendered by USIPL was at cost plus 5.5%. Similar compensation was agreed for services rendered by the assessee outside India where the transportation fee is payable by USIPL. The agreement provides that relationship between the assessee and USIPL shall be that of independent contractor and no party has any authority to bind or enter into contract in the name of the other party. The assessing officer observed that services provided by the assessee in this year, i.e. A.Y. 2009-10 are similar to those rendered in the earlier years and therefore like in earlier years the assessing officer held that, assessee has a business connection in India in the form of USIPL and therefore, it is liable to be taxed in respect of income accruing under the transportation agreement. The relevant finding of the AO in this regard is as under:-

ITA No. 1987/Mum/2014 4 Assessment Year: 2009-10

"However, the above arguments of the assessee arc not acceptable as for the customer it is the assessee who is contracting party for the entire transaction. It is one single contract which cannot be artificially broken into different: parts so as to say that the part which is done in India is that of Indian company and the one carried outside is that of the assessee.

Therefore, whatever activity USIPL carries out in India is on behalf of (he assessee as a part of the assessee's business relating to the shipment of goods from one country to another and constitute business connection even under an independent contract basis

8.12 The assessee's contention that arm's length price to USIPL extinguishes any further attribution to the assessee in India is also not acceptable as the Circular 23 of 1969 cited by the assessee does not lay down the correct principle and has been withdrawn by the Board. Though the circular was withdrawn after the financial year 2008-09 relevant to A Y 2009-10, the same is clarificatory in nature and should apply for A Y 2009-10 as well.

8.13 In view of the above, it is clear that the assessee has a business connection in India and therefore is liable to tax in respect: f income accruing under the transportation agreement with USIPL."

6. The Tribunal in assessee's own case vide order dated 22.02.2012 in ITA No. 2426/Mum/2010, after considering the entire facts of the case, held that, there is no business connection in India under the deeming provision of section 9(1)(i). The relevant observation and the conclusion of the Tribunal is as under:-

"18. Section 4 provides that the income tax shall be charged on the total income of any assessee of the previous year for any assessment year at the 'rates in accordance with and subject to the provisions of this Act. Scope of total income of any person has been enshrined in section 5. The assessee in question is a non-resident company. Section 5(2) mandates that the total income of a non-resident includes the income from whatever source derived which is received or is deemed to be received in India; or accrues or arises or is deemed to accrue or arise in India. The only possibility of the receipt by the assessee in the present facts and circumstances qualifying for inclusion in the ITA No. 1987/Mum/2014 5 Assessment Year: 2009-10

total income, can be under section 9. We have observed that section 9(1)(vii) is not applicable. Now let us examine the prescription of section 9(1)(i) which deals with the income accruing or arising from any business connection in India. It provides that where an income accrues or arises whether directly or indirectly through or from any business connection in India etc., it shall be deemed to accrue or arise in India. Explanation 1(a) states that in the case of a business of which all operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. This Explanation makes it prominent that only that part of the income from business operations can be said to be accruing or arising in India, as is relatable to the carrying on of operations in India. In other words, if a non-resident earns any income from India by means of operations carried on outside India, that will not fall within the scope of section 9(1))(i). Even Explanation below section 9(2) as, relied on by the Ld. DR, requiring inclusion of income in the total income of the non- resident whether or not the non-resident has a residence or place of business or business-connection in India or the non-resident has rendered services in India, is applicable only in respect of clauses (v) to (vii). Clause (i) of section 9 has not been included by the legislature within the ambit of this Explanation. It shows that unless a non-resident earns income from business operations earned out in India, such income cannot be deemed assuring or arising in India. Reverting to the fact of the instant case, it is crystal clear that the assessee rendered" International services"

outside India which required the payment in question. If this is the position, which has not even been disputed by the learned Departmental Representative then there can be no question of roping such income within the ken of section 9(1)(i)."

The said decision was challenged by the department before the Hon'ble High Court and this specific ground was taken as substantial question of law, which has not been admitted by the High Court, which is evident form High Court order dated 11.01.2013 in Income-tax Appeal No. 90 of 2013. Not only that, this decision has been reiterated by the Tribunal in A.Y. 2008-09 vide order dated 21.05.2014 ITA No. 7319/Mum/2012. Thus, without going into other decision of the Tribunal as cited by Ld. ITA No. 1987/Mum/2014 6 Assessment Year: 2009-10

DR, we respectfully following the judicial precedence of the earlier years, decide this issue in favour of the assessee by holding that the assessee's income from transportation agreement cannot be taxed in India under the deeming provision of section 9(1)(i) as USIPL cannot be said to constitute business connection in India. Accordingly, Ground No. 1 as raised by the assessee stands allowed.

7. Regarding issue raised in Ground No. 2 and the additional ground, it has been submitted by the learned counsel that the issue involved are independently covered by series of decisions which have been placed before us. However, it has been admitted by both the parties, these grounds will become purely academic, because these ground pertain to attribution of income. Once it has been held that assessee's income is not taxable in India, then there is no question of attribution of income. Accordingly, Ground No. 2 and 3 as well as additional ground is treated as infructuous being academic in nature.

8. In the result, the appeal filed by the Assessee is treated as allowed.

Order pronounced in the open court on this 20th day of February, 2015.

Sd/- Sd/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 20.02.2015 *Srivastava Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "L" Bench

//True Copy// By Order

Dy/Asstt. Registrar, ITAT, Mumbai.