TII Instant Update - 2018-TII-INSTANT-ALL-532

CASE LAWS

2018-TII-10-HC-KAR-INTL

TELEKOM MALAYSIA BERHAD Vs UoI: KARNATAKA HIGH COURT (Dated: February 12, 2018)

Income tax - Writ - Sections 142(1), 147, 148, 246, 253 & 260-A

Keywords - income accrued overseas - non service of statutory notice - re assessment - raising of objections

The Assessee, a Malaysian company preferred present petition challenging the reassessment order passed by Dy CIT(International Taxation), Bangalore, for A.Y.2009-10 raising a demand of Rs.20,84,448/- against the assessee. The ground on which the said reassessment order was sought to be assailed before this Court directly was the alleged breach of principles of natural justice by the AO viz., non-service of Statutory Notice u/s 148 and nongrant of adequate opportunity to raise the objections to the reassessment proceedings. It was emphasized that assessee company based in Kuala Lampur, Malaysia, never received any notice u/s 147/148 at Malaysia address and the first e-mail communication which came to it was of dated Dec 01, 2017, consequent to which they immediately sent a communication by e-mail to the Dy CIT, asking for some more time to raise objections. However, the assessee claimed that, without adhering to their request, three notices were issued u/s 142(1) requiring attendance of the assessing company before the Tax Authority.

On Writ, the HC held that,

Whether a foreign company can claim immunity all by itself, from subjecting to Indian Income Tax Act or attending to assessment proceedings before Income Tax Authorities in India - NO: HC

Whether foreign companies can be allowed to bypass appellate forums to directly approach the constitutional Courts by way of writ jurisdiction, against reassessment orders which are ex-facie appealable under the provisions of I-T Act - NO: HC

+ it is seen that the assessee company does not appear to have responded to any of the communications and either ask for the reasons for reassessment proceedings or raise its objections to the proposed reassessment for assessing its income accruing or arising in India, out of the works executed by it in India. This Court thus has no reason to believe that despite categorical averments in the impugned order that right from the Notice, at least three more notices subsequent thereto were served upon the assessee company, they were not aware of the pending proceedings in this regard with the AO. The averments made in the writ petition and the documents produced, only reflect the proceedings undertaken in the month of December 2017 only and the fax, communications, e-mails and responses prior thereto, have not been disclosed in the petition for the reasons best known to the assessee company. It is further seen that their is attitude of the ignorance and non-cooperation on the part of assessee company in the tax proceedings undertaken by the Indian Income Tax Department for the works executed way back in A.Y 2009-10. If a Foreign Telekom company at assessee's level was ignorant of the requirement of even obtaining a PAN number from the Indian Income Tax Department and was required to file its Returns under the provisions of the I.T Act, it has to thank itself rather than the Authorities for the proceedings undertaken against it;

+ it is to be noted further that, if a foreign company intends to challenge its tax liability under the provisions of the Indian Income Tax Act, it has to be vigilant, attentive and co-operative with the Indian Income Tax authorities and raise their proper objections with relevant evidence and documents before them in due time and they cannot be allowed to take it for granted that they are either not subject to the Indian Income Tax Act or need not attend to the assessment proceedings before the Income Tax Authorities in India. Such a self assumed immunity by foreign companies is neither envisaged under the provisions of the Income Tax Act nor it needs to be encouraged in the Courts of law. For the income arising and accruing in India, even the Foreign companies are subject to taxation and they must comply with the provisions of the Indian Income Tax;

+ once an order has been passed against the assessee, the assessee is bound to take recourse to the appellate forums provided in the Act itself. There is a two tier appellate system under the provisions of Income Tax Act. The first appeal lies before the CIT(A) u/s 246 of the Act and second appeal lies before the ITAT u/s 253 of the Act. Thereafter, on the question of law, an appeal lies to the High Court u/s 260-A on the substantial questions of law arising from the orders of the Tribunal. Therefore, the comprehensive Code of Income Tax Act provides for a complete mechanism for redressal of grievance of the assessees including the foreign companies and there is no special reason to allow the foreign companies to bypass these appellate forums to directly approach the constitutional Courts by way of writ jurisdiction under Article 226 of the Constitution of India against the reassessment orders which are ex-facie appealable under the provisions of the Act.

Assessee's petition dismissed

2018-TII-99-ITAT-DEL-TP

AT AND T COMMUNICATION SERVICES INDIA PVT LTD Vs ACIT: DELHI ITAT (Dated: February 15, 2018)

Income Tax - ALP - Contracts with govt undertakings - Network Support Services - Network outsourcing services - TNMM

The Assessee is a wholly owned subsidiary of AT&T Communications Services International Inc. USA, and is engaged in providing support services to overseas AT&T group companies. Consequent to filing of its return, a reference was made by the AO to the TPO for determining ALP of the said BPO services, who then noted that the services rendered by the Assessee was consisting of three segments namely, Market research, administrative support & liaison services, Network outsourcing services and Network support services. The TPO further noted that in order to benchmark the international transactions, the assessee had adopted TNMM as MAM by using multiple year data of comparable companies, and thus claimed all its international transactions to be at arm's length. However, the TPO made ALP adjustment towards NSS and MRA along with interest on receivables. On appeal, the DRP provided part relief towards international transactions of NSS. Post directions of DRP, the TPO selected 12 comparables with OP/OC as PLI.

On appeal, the Tribunal held that,

Whether Public Sector undertakings can be considered as comparables, even when it is known fact that such company drives major profit from govt. run projects - NO: ITAT

+ it is seen that the TPO has not disputed the function and method of benchmarking the international transactions applied by the Assessee. It is also not in dispute that the Assessee is operating low risk NSS provider to IBM Corp., the customer of its AE. It is also not in dispute that the NSS are in the nature of fault monitoring, incident management, troubleshooting, charge management, configuration of network devices, security compliance and any other services required by the AE from time to time. It is also not in dispute that the Assessee is remunerated at cost plus 16% mark up as per service agreement with AT&T Corp. It is also not in dispute that AT&T Corp. has entered into Master Service Agreement to outsource IMB's worldwide network service delivery business functions;

+ it is seen that the coordinate Bench of the Tribunal in Bechtel India Private Limited ordered to exclude Government undertakings as comparable on the ground that, "the majority revenue (and profitability) of this company comes from Government (state or center) run projects and that the company derives benefit out of its parental relation with the Government in getting contract which certainly makes the profit margin". Further, the Bombay High Court in the case of Thyseen Krupp Industries India (P.) Ltd. has also lay down the principle that, "the Engineers India Ltd. could not be considered to be comparable for the reason that contracts between Public Sector undertakings are not driven by profit motive along but other consideration also weigh in such as discharge of social obligations etc". Accordingly, by applying the decision rendered by the coordinate Bench of the Tribunal in Bechtel India Private Limited and Bombay High Court in Thyseen Krupp Industries India (P.) Ltd., the coordinate Bench of the Tribunal in case of WSP Consultants India Pvt. Ltd. ordered to exclude Kitco, a 100% Government undertaking;

+ therefore, this Tribunal is of the considered view that Government undertakings/companies are not the suitable comparables for benchmarking the international transaction. So, the AO is directed to verify all the Government undertakings/companies from the final set of comparables which are taking preferential treatment from Government in getting contract and are not driven by profit motive alone impacting the profit margin and to exclude the same and then benchmark the international transactions qua NSS.

Case Remanded