By Ajay R. Singh
Advocate
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DCIT vs. Koninklijke-DSM-NV. [Income tax Appeal no: 432 of
2014 dt : 07/09/2016 (Bombay High Court)].
[DCIT vs. Koninklijke-DSM-NV. [ITA No. 978/PN/2011
; Bench : B ; dated 15/07/2013 ; A Y: 2006- 2007. PUNE. ITAT ]
The assessee was a company incorporated and based
in Netherlands. The assessee qualified as a tax resident of netherlands as per
dtaa between india and netherlands. The assessee had affiliated companies operating in India and
received income from them. This income was in respect of Corporate Services and
CICT Charges (cost incurred on share of email, network and internet charges).
however, the assessee being of the view that
the above income was not chargeable to tax, in its return of income
filed electronically for A.Y. 2006-07
declared total income at nil. During assessment proceedings, the
assessing Officer on examination of the DTAA, held that the fees received in
respect of CICT Services and for Corporate Services from its affiliated
companies was in fact in the nature of
fees for technical services. This was on the basis of article 12 of the dtaa between india and netherlands
and therefore chargeable to tax in
india. Consequently, the income of Rs.2.34
crores received from its indian affiliates on the above two counts was
brought to tax by an assessment order.
The assessee
tried to justify its claim of
non-taxability of those incomes in india. according to the information given by
the assessee, C-ICT charges represented cost incurred by
the assessee on
share of e-mail,
network and internet charges.
The assessing Officer
examined the agreement between
the assessee and
its affiliates more particularly
between DEPIPL. after examining the
agreement between the assessee and its affiliates, the Assessing Officer
concluded that the
assessee was not only providing
the basic it services such as e-mail, network
and internet charges
but much more
than that which was the it infrastructure to have access to those
facilities.
The
assessee did not contest the assessment order. The Assessing Officer issued the
show cause notice to the assessee why the penalty should not be levied u/s.
271(1) (c) of the Act.
The
assessee while responding pointed out that all the relevant facts and details
with regard to the nature of receipt on account of CICT Service and Corporate
Services along with the basis of its non-taxability was mentioned in the notes
to its accounts. The above amount of Rs. 2.34 crore on the above two counts was
not offered to tax on the basis of its interpretation of the DTAA and judicial
decisions. This led to a bonafide belief that the receipt of amounts from its
affiliated companies was not chargeable to tax. Thus, it was submitted that it
was not a case of filing inaccurate particulars of income or concealment of
income which would warrant imposition of penalty u/s. 271(1)(c) of the Act. The
Assessing Officer did not accept the aforesaid contention and imposed a penalty
of rs.25 lakh u/s. 271(1) (c) of the Act.
Being
aggrieved, the assessee carried the issue in appeal to the CIT(A). the CIT(A) noted that identical services were
being rendered by the assessee to its Indian affiliated companies from the
assessment year 2002-03 onwards and in
the earlier returns also the receipt from the affiliated companies were not
shown as income. On the contrary, the tax which was deducted at source by the
affiliated companies while making payments to the assessee, was refunded by the
revenue. It was further noted that for several assessment years before the
filing of returns by Corporates in electronic form was made mandatory in the
subject AY, the notes to accounts filed along with the returns of income
completely disclosed not only the facts of receipt of amounts from affiliated
companies but the nature of the receipts. The filing of return in Electronic
media did not provide for filing notes to Accounts along with the Return. Thus
the non offering of Income to tax was bonafide. This was based upon past practice
and grant of refund of the tax deducted by the affiliated companies on the
payments made to it. Moreover, the entire basis of holding that the amount
received from affiliated companies was not chargeable to tax was the
interpretation placed upon the dtaa by the assessee. On the aforesaid facts,
the CIT(A) held that there was no concealing of particulars of income or
furnishing inaccurate particulars of income. Accordingly, the penalty was
deleted.
Being
aggrieved, the revenue carried the issue in appeal to the
tribunal. The tribunal,
by the impugned
order, upheld the finding of the CIT(A). In particular, the impugned
order records the fact that the compulsory filing of e-return by Corporates had
started for the first time only from the subject assessment year. This new
system had no provision for attaching the computation or notes while filing the
return in the prescribed form. The impugned order of the tribunal also records
the fact that the balance sheet and books of accounts also duly reflected that
the Assessee had received payments from its Indian affiliates for providing
services. Thus, mere non-acceptance of
the claim made by the assessee, would
not by itself lead to an imposition of penalty, when the claim made was
bonafide. Further, the impugned order holds that even the Assessing Officer had
on an interpretation of article 12 of the dtaa came to a conclusion that the
amounts received from the affiliated companies are chargeable to tax as they
were in the nature of fees for technical services. The impugned order also
placed reliance upon the decision of the apex Court in CIT vs. Reliance Petroproducts Pvt. Ltd. to conclude that a
bonafide claim not accepted by the Assessing Officer would not by itself
warrant imposition of penalty.
Being
aggrieved, the revenue carried the issue in appeal to the high Court. High
Court held assessee’s claim that amount received from its
affiliated companies on account of CICT and Corporate Services is not taxable
was based on an interpretation of DTAA. It is a settled position of law that
where the issue is debatable then mere making of a claim on the basis of a
particular interpretation would not lead to an imposition of penalty. Bearing
in mind that for the earlier assessment years, the assessee had claimed and
been granted refund of taxes deducted at source by the affiliated companies in
respect of the payment received by it for Corporate Services and CICT Services
would also establish that the claim made by the assessee that the income
received is not chargeable to tax was a bonafide claim.
In
view of the above concurrent finding of fact by CIT(A) and the tribunal the appeal
of revenue was dismissed.
