Balmer Lawrie & Co Ltd. v. ITO

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The Tax Publishers2016 TaxPub(DT) 2095 (Kol-Trib) Balmer Lawrie & Co. Ltd. v. ITO INCOME TAX ACT, 1961 --Income deemed to accrue or arise in India--Under section 9(1)(i)Overseas entities providing services outside India--In lieu of reimbursement of expenses and share in profit--Assessee, a Government company, was engaged in providing logistic services worldwide. It had business arrangement with other overseas logistic service providers all over the world. On receipt of client's order assessee used to approach its overseas agent of respective country, who used to co-ordinate with shipping companies, arrange local transportation and book shipment either by sea or the air. Overseas agent submits the bill of actual expenses which assessee reimburses. Assessee, from its profit, shared 50 percent with overseas agent. AO obseved that assessee was not deducting TDS on payments made to its overseas agent. Assessee contended that reimbursement of expenses did not contain profit element and no part of activities of the overseas entites were carried out in India and did not have PE in India and, hence their income could not be taxed in India and, therefore, no tax was deducted at source by assessee. AO rejecting assessee's contention, held that assessee's own premises was PE for overseas entity and assessee was assessee-in-default. *Held:* Both the parties were acting on principal to principal basis. None of the overseas independent entities with whom the assessee had been dealing with was having any permanent establishment in India. In the absence of a permanent establishment, the industrial or commercial profits derived by a non-resident were not assessable to tax in India, particularly when all activities were carried by the independent Overseas Agents only outside India. Even where no DTAA exists, only when the services were rendered in India, the deeming provisions contained in section 9(1) would apply so as to tax the income deemed to accrue or arise in India. Since the non-resident overseas entities did not carry any activity or business operation in India, and they did not render any service in India, no portion of their business profits earned by them exclusively for services rendered outside India could be brought to tax in India, either under section 9(1) or otherwise or at all. Therefore, AO was not justified in holding assessee in default for non deduction of TDS. Income Tax Act, 1961, Section 9 Income Tax Act, 1961, Section 90 *Relied:*Carborandum Co. v. CIT (1977) 108 ITR 335 (SC), CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC), Ishikawajimaharima Heavy Industries Ltd. v. Director of IT (2007) 288 ITR 408 (SC). *REFERRED :* Vijay Ship Breaking Corporation v. CIT (2009) 314 ITR 309, 313 (SC), GE India Technology Centre Pvt. Ltd. v. CIT (2010) 327 ITR 456, 463-465 (SC), Shakti LPG Ltd. v. ITO (2014) 369 ITR 167 (T&AP), Poompuhar Shipping Corporation Ltd. v. ITO (2007) 109 ITD 226 (Chen-Trib), Hapag-Lloyod Container Line GMBH v. Addl. Director of IT (2012) ITA No. 8854 (Mum.) of 2010, dated 7-3-2012, GVK Industries Ltd. v. ITO (2015) CA No. 7796 of 1997 dated 18-2-2015, Van Oord ACZ India Pvt. Ltd. v. ACIT (2008) 112 ITD 79 (Del), ACIT v. Evolv Clothing Co. Pvt. Ltd. (2013) ITA No. 2100 (MDS.) of 2012 dated 11-3-2013 (Chen), Centrica India Offshore Pvt. Ltd. v. CIT (2014) 364 ITR 336 (Del), Syed Aslam Hashmi v. ITO (2013) 55 SOT 441 (Bang-Trib), Super Poly Fabriks Ltd. v. CCE (2008) 11 SCC 398 (SC) FAVOUR : In assessee's favour SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2016 TaxPub(DT) 2095 (Kol-Trib)

Balmer Lawrie & Co. Ltd. v. ITO

INCOME TAX ACT, 1961

--Income deemed to accrue or arise in India--Under section 9(1)(i)Overseas entities providing services outside India--In lieu of reimbursement of expenses and share in profit--Assessee, a Government company, was engaged in providing logistic services worldwide. It had business arrangement with other overseas logistic service providers all over the world. On receipt of client's order assessee used to approach its overseas agent of respective country, who used to co-ordinate with shipping companies, arrange local transportation and book shipment either by sea or the air. Overseas agent submits the bill of actual expenses which assessee reimburses. Assessee, from its profit, shared 50 percent with overseas agent. AO obseved that assessee was not deducting TDS on payments made to its overseas agent. Assessee contended that reimbursement of expenses did not contain profit element and no part of activities of the overseas entites were carried out in India and did not have PE in India and, hence their income could not be taxed in India and, therefore, no tax was deducted at source by assessee. AO rejecting assessee's contention, held that assessee's own premises was PE for overseas entity and assessee was assessee-in-default. Held: Both the parties were acting on principal to principal basis. None of the overseas independent entities with whom the assessee had been dealing with was having any permanent establishment in India. In the absence of a permanent establishment, the industrial or commercial profits derived by a non-resident were not assessable to tax in India, particularly when all activities were carried by the independent Overseas Agents only outside India. Even where no DTAA exists, only when the services were rendered in India, the deeming provisions contained in section 9(1) would apply so as to tax the income deemed to accrue or arise in India. Since the non-resident overseas entities did not carry any activity or business operation in India, and they did not render any service in India, no portion of their business profits earned by them exclusively for services rendered outside India could be brought to tax in India, either under section 9(1) or otherwise or at all. Therefore, AO was not justified in holding assessee in default for non deduction of TDS.

Income Tax Act, 1961, Section 9

Income Tax Act, 1961, Section 90

Relied:Carborandum Co. v. CIT (1977) 108 ITR 335 (SC), CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC), Ishikawajimaharima Heavy Industries Ltd. v. Director of IT (2007) 288 ITR 408 (SC).

REFERRED : Vijay Ship Breaking Corporation v. CIT (2009) 314 ITR 309, 313 (SC), GE India Technology Centre Pvt. Ltd. v. CIT (2010) 327 ITR 456, 463-465 (SC), Shakti LPG Ltd. v. ITO (2014) 369 ITR 167 (T&AP), Poompuhar Shipping Corporation Ltd. v. ITO (2007) 109 ITD 226 (Chen-Trib), Hapag-Lloyod Container Line GMBH v. Addl. Director of IT (2012) ITA No. 8854 (Mum.) of 2010, dated 7-3-2012, GVK Industries Ltd. v. ITO (2015) CA No. 7796 of 1997 dated 18-2-2015, Van Oord ACZ India Pvt. Ltd. v. ACIT (2008) 112 ITD 79 (Del), ACIT v. Evolv Clothing Co. Pvt. Ltd. (2013) ITA No. 2100 (MDS.) of 2012 dated 11-3-2013 (Chen), Centrica India Offshore Pvt. Ltd. v. CIT (2014) 364 ITR 336 (Del), Syed Aslam Hashmi v. ITO (2013) 55 SOT 441 (Bang-Trib), Super Poly Fabriks Ltd. v. CCE (2008) 11 SCC 398 (SC)

FAVOUR : In assessee's favour