TII Instant Update - 2018-TII-INSTANT-ALL-555

2018-TII-24-HC-KAR-INTL

DR SUDHA KRISHNASWAMY Vs CCIT: KARNATAKA HIGH COURT (Dated: March 27, 2018)

Income tax - Section 119(2)(b)

Keywords - belated return - condonation of delay - financial crisis - medical problem - NRI - TDS refunds

The assessee, a non-resident, residing permanently at the United States of America had filed a petition for condonation of delay u/s 119(2)(b) of the I-T Act before the Chief CIT. It was contended that the assessee sold one vacant site at Tumkur for consideration of Rs.52,06,000/- which resulted in a net capital gain of Rs.51,27,500/-. Out of the same, the assessee invested Rs.49,00,000/- in REC Bond claiming exemption u/s 54EC. The assessee being non-resident, the purchaser of the property had deducted income tax as per provisions of Section 195, which resulted in a refund of Rs.10,85,730/- for the A.Y 2012-13. As regards A.Ys 2010-11 and 2011-12, it was submitted that Assessee had no taxable income and claimed that the entire refund was relating to TDS from interest and bank deposits at HSBC. Accordingly, the asseessee requested the Chief CIT to condone the delay and direct the AO to accept the returns for the said three years and process the return and issue the refund orders. Accordingly, the Chief CIT called for the report from CIT(IT) Bengaluru who in her report submitted that the AR of assessee appeared before him and urged that assessee was not in a position to file her returns on time due to severe financial crisis in the USA and the injuries sustained by her in an accident, enclosing a medical report in support of the claim. Considering the report, the Chief CIT held that the medical certificate would not support the case of assessee since she suffered injuries owing to the accident occurred in December 2013 as well as the age related problems. He accordingly rejected the application for condonation for all three assessment years in question.

On Writ, the HC held that,

Whether some technical lapse on part of assessee is no basis to turn out his plea for filing of return after condoning the delay, when explanation offered was acceptable and genuine hardship is established - YES: HC

+ in terms of Section 119(2)(b), the CBDT is vested with the powers to admit an application or claim for any exemption, deduction, refund or any other relief under the Act after the expiry of period prescribed under the Act for making such application or claim and appeal and to deal with the same on merits in accordance with law. Instruction No.12/2003 contemplates that the cases where delayed claims of refunds are being considered would be taken up for scrutiny. Similar instruction No.13/2006, interalia provides that no interest would be admissible on the belated refund claims. The phrase "genuine hardship" was interpreted by the Apex Court in B.M.MALANI V/S. COMMISSIONER OF INCOME TAX - 2008-TIOL-185-SC-IT wherein it was held that the genuine hardship means a genuine difficulty. The phrase genuine hardship employed u/s 119(2)(b) should be construed liberally, particularly in matters of entertaining of applications seeking condonation of delay. The Bombay High Court in the case of BOMBAY MERCANTILE COOPERATIVE BANK LIMITED V/S. CENTRAL BOARD OF DIRECT TAXES - 2010-TIOL-674-HC-MUM-IT, has taken similar view;

+ it is not the case of assessee that she is avoiding any scrutiny of the returns. On the other hand, it is the case of assessee that she is entitled for refund, being a non-resident owing to the recession at U.S. and the accidental injuries suffered, no returns were filed within the period prescribed. In the circumstances, it cannot be held that assessee has obtained any undue advantage of the delay in filing the income tax returns. It is trite law that rendering substantial justice shall be paramount consideration of the Courts as well as the Authorities rather than rejecting on hyper-technicalities. It may be true that there is some lapse on the part of assessee, but that itself would not be a factor to turn out the plea for filing of the return, when the explanation offered was acceptable and genuine hardship is established. Sufficient cause shown by the petitioner for condoning the delay is acceptable and the same cannot be rejected out-rightly on technicalities.

Assessee's petition allowed

2018-TII-25-HC-MUM-TP

PR CIT Vs APTARA TECHNOLOGY PVT LTD: BOMBAY HIGH COURT (Dated: March 26, 2018)

Income tax - ALP - business model - extraordinary event - ITES segment - selection of comparables - TNMM

The Assessee, a service provider of elearning solutions, had rendered Information Technology Enabled Services to its AE Aptara Inc., during the relevant year under consideration. For benchmarking purposes, the Assessee determined the ALP of international transactions entered into with its AE by applying TNMM. Though the Department concurred with the Assessee regarding application of TNMM as the MAM, however, it objected to the comparables included by Assessee while determining the ALP of the international transactions, and made a selection of new companies in the final list of comparables. The Tribunal however excluded the selection of comparables made by Department.

On appeal, the HC held that,

Whether events of merger/amalgamation having an impact on the profitability of company, renders it as uncomparable for purposes of benchmaring - YES: HC

Whether rendering of common ITES services will not make two enties comparable to each other, unless their business model are similar - YES: HC

+ as far as selection of Accentia Technologies Ltd is concerned, the grievance of the Revenue is that the merger and/or amalgmation would have no impact on the profitability of M/s. Accentia Technologies Ltd. The Tribunal has however rendering a finding of fact that the activities of the tested party and comparable are functionally different, and also records finding of fact that extraordinary events such as merger/amalgmation would have an impact/effect on the profitability of M/s. Accentia Technologies Ltd. The Revenue has not attempted to show that the merger/amalgmation which took place in the previous year relevant to subject assessment year did not have an impact on the profitability of the Accentia Technologies Ltd. Merely because both the tested and the comparable provide ITES services, they do not become comparable. This is so as the nature of services provided by use of Information Technology is different. Therefore, the view taken by the Tribunal in excluding Accentia Technologies Ltd. is a possible view more particularly in the absence of the same being shown to be perverse;

+ as far as selection of Coral Hub Ltd is concerned, the grievance of the Revenue is that both the Coral Hub Ltd. as well as the Assessee are in the field of Information Technology Enabled Services. Therefore, by virtue of above fact, they become comparable. It is obvious that merely because the tested party and the comparable provide ITES, they do not become comparable. The content of the services rendered by virtue of IT is to be examined before holding it to be comparable. Besides, the two are not comparable as the business model in both are different i.e. outsourcing in one and in house in the other. The Tribunal has come to a finding of the fact that the services rendered by the Assessee to its AE is different from the activities/services provided by M/s. Coral Hub Ltd. Therefore, they would not be comparable only on the ground that both of them broadly fall under the category ITES providers;

+ as far as selection of Cosmic Global Ltd is concerned, the impugned order of the Tribunal excluded Cosmic Global Ltd. as comparable after rendering a finding that the business model adopted by Cosmic Global Ltd. was outsourcing business model as against Assessee having an in house business model. Thus, profit margin would necessarily not be comparable. The Revenue has not been able to show that the said finding of fact arrived at by the Tribunal is in any manner perverse. Similarly, as far as selection of Crossdomain Solutions Ltd is concerned, the impugned order of the Tribunal excluded M/s. Cross domain Solutions Ltd. from the list of comparable. This after having rendered finding of fact that it was engaged in distinct activities such as payroll activity, 'Knowledge Process Outsourcing' (KPO) service, development of products and routine IT services. Further, the impugned order indicates that differences between the Elearning service and 'Knowledge Process Outsourcing' which would clearly establish that the activities are not comparable. Besides, there was no bifurcation available of profits earned individually on the various diversified activities being carried by M/s. Crossdomain Solutions Ltd. Thus, it held that comparison on an entity level of M/s. Cross domain Solutions Ltd. with the Assessee's AE transaction is not correct.

Revenue's appeal dismissed

2018-TII-107-ITAT-MUM-INTL

DCIT Vs IMG MEDIA LTD: MUMBAI ITAT (Dated: April 4, 2018)

Income tax - Section 9(1)(vii) - India-UK DTAA - Article 5 & 13(4)

Keywords - attribution of income - broadcasting - cummulative period of stay - FTS - royalty - service PE - TNMM - video coverage

The Assessee, a non resident company, is engaged in providing sports, athletes, and event marketing & management services. During the relevant year, the assessee and the Board of Control for Cricket in India entered into an agreement for capturing and delivering of the live audio and visual coverage of the Indian Premier League "IPL" event which was conducted in India. Thereafter, the assessee also entered into another agreement with BCCI for the live audio and visual coverage of the matches for the second IPL event. The assessee further submitted that for IPL 2008 event, few personnel of the assessee had visited India for the live coverage of the matches and also for the purposes of recce/ inspection activities before the commencement of the event IPL 2009 event was initially supposed to be held in India; accordingly couple of personnel of the assessee was present in February/March 2009 for the purpose of recce/ inspection activities before the commencement of matches of IPL 2009. However, the second IPL 2009 event coincided with Indian elections and therefore, the Indian Government refused to commit security by Indian paramilitary forces. As a result, BCCI decided to host the second season of the league outside India. After which the BCCI officially announced that the second season of the IPL would be held in South Africa. It was argued by the assessee that since, the cumulative period of stay of the assessee's personnel in India exceeded the threshold limit of 90 days in the "12 month" period, a service PE of the assessee was constituted in India under the respective DTAA and the income attributable was computed on the basis of TNMM. The AO was however of the view that the amount received by assessee was in the nature of "Fee for Technical Services" and also in the nature of "Royalty" and accordingly assessed the entire amount of gross receipts. On appeal, the DRP held that the concept of "Service PE" did not have application, once it was held that gross receipts were taxable as FTS or as Royalty. Therefore, it was held that these services were nothing but technical services as per section 9(i)(vii) as well as Article 13 of the DTAA between India and UK which makes available technical knowledge to the payer.

On appeal, the ITAT held that,

Whether when an overseas entity is delivering its final product in the form of a programme content using its technical expertise, it cannot be said that it makes available any knowhow for which the payment made to it can be construed as FTS - YES: ITAT

Whether payment made to overseas entity for broadcasting live video coverage can be treated as royalty, when the payer i.e., Indian entity remains the sole owner of the programme content and there is no question of transfer of any right - NO: ITAT

+ the Tribunal, while deciding the appeals for AYs 2010-11 and 2009-10 in ITA/1513/Mum/2014 - 2015-TII-149-ITAT-MUM-INTL and ITAs/1555 &1933/Mum/2014 - 2016-TII-71-ITAT-MUM-INTL respectively, had deliberated upon the nature of the receipt at length and had decided an identical issue by observing that: "....If the assessee was using the equipments belonging to BCCI and if that activity is examined in isolation, then the assessee should be paying money to BCCI for using the equipments. However, in the instant case, the assessee has received the money for producing live coverage of cricket matches. The equipments required for the said purpose may be brought by the assessee itself or it may be provided by the BCCI. Under commercial terms, if the assessee was required to bring the equipments, then the consideration payable for the production of live coverage of cricket matches should go up. Thus, it was a simple case of commercial agreement entered between the parties with regard to the modalities to be followed and the same is not a determinative factor to decide about the nature of payment received by the assessee....A careful perusal of the definition of "royalties" under India UK DTAA, would show that the payment, in order to constitute royalty, should have been made "for the use of, or the right to use any copyright etc". In the instant case, it is noticed that the payment was made by BCCI to the assessee for producing the program content consisting of live coverage of cricket matches. Further, there is nothing on record to show that the assessee had retained the ownership of the program content....As the BCCI becomes the owner of the program content produced by the assessee, the job of the assessee ends upon the production of the program content and the broadcasting is carried out by some other entity to which license was given by the BCCI. Hence, the question of transfer of all or any right does not arise in the facts and circumstances of the instant case. Hence, the payment received by the assessee cannot be considered as "royalty' in terms of the India-UK DTAA. Accordingly, payment received by assessee cannot fall within the purview of section 9(1)(vi) also...." Therefore, respectfully following the said order, the effective ground of appeal is decided against the AO.

Revenue's appeal dismissed