From The Judiciary

Will the Italian Court allow taxpayers to receive DTAA benefits in the absence of a TRC?

Teobaldo Noschese TS-838-FC-2023 (ITL)

Facts

The taxpayer, an Italian national, relocated from Italy to the UAE. During his period of tax residency in the UAE, the taxpayer received a salary from his Italian employer. The salary paid to him was subject to a withholding tax in Italy.

The taxpayer applied to the Italian Revenue authorities for a refund of the withholding tax, citing Article 15 of the Italy-UAE Double Taxation Avoidance Agreement (DTAA).

The Italian Revenue authorities requested the taxpayer to provide various documents, including a Tax Residency Certificate (TRC), to support his claim for DTAA benefits. In the absence of the TRC, the Italian Revenue authorities denied the taxpayer's request for a refund.

Aggrieved by the decision of the Revenue authorities, the taxpayer approached the Provincial Tax Commission of Pescara, which also denied his request. The taxpayer then appealed to the Regional Tax Commission of Abruzzo, which ruled in his favor. However, dissatisfied with this ruling, the Revenue authorities in Italy subsequently appealed to the Italian SC.

Held

The Italian SC ruled in favor of the taxpayer. The SC held that a TRC was not the sole evidence required to prove tax residency for accessing treaty benefits; the taxpayer could also demonstrate his actual residence through other means.

Additionally, the SC determined that the income earned by the taxpayer in the UAE could not be taxed in Italy, as the taxpayer was considered a foreign tax resident for Italian purposes. The SC clarified that the existence of taxing power with the state (UAE in this case) was sufficient to grant an individual access to treaty benefits, and it was not necessary for the individual to be subject to tax in that state to seek such benefits.

Consequently, the SC directed the Italian Revenue authorities to refund the withholding tax amount to the taxpayer.

Our Comments

Similar to very few decisions in India, allowing tax treaty benefits in the absence of a TRC, it is interesting to see that the foreign Apex Courts are also favoring the taxpayer and not restricting benefits of treaties merely on the basis of TRCs.

Does mere advice without the application of professional judgment qualify as managerial or consultancy services and thus constitute Fees for Technical Services?

Lx Pantos India Private Limited TS-345-ITAT-2024(DEL)

Facts

LX Pantos India Private Ltd. (Pantos India) an Indian company engaged in the business of providing logistic services. Pantos India entered into a 'Cooperation Agreement' with overseas logistics companies to provide transportation and customs clearing services in their respective countries.

Pantos India paid a certain sum to the overseas logistics companies and for FY 2019-20 without any Tax Deducted at Source (TDS).

During the assessment proceedings, the AO classified these payments as Fees for Technical Services (FTS) under the Act and various DTAAs, viewing the payments to overseas logistics companies as payments for advisory services.

Since Pantos India did not deduct TDS on the shipment clearing and forwarding charges paid to the overseas logistics companies under Section 195 of the Act, the AO disallowed these expenses under Section 40(a)(i) of the Act.

Held

In the given case, the Delhi Income Tax Appellate Tribunal (ITAT) held that no tax is deductible at source under Section 195 of the Act on payments made to an overseas logistics company for the rendition of logistics services.

Finding that the sole basis of the Revenue for holding that the payment made to the overseas logistics company is towards consultancy services is that, as per one of the terms of the contract executed between the assessee and the overseas parties, the said parties advised the assessee on change into tariff ratio.

ITAT observed that such advice would not partake the character of rendering consultancy service and that mere provision of such information would not be sufficient for treating all services as managerial or consultancy services. In this regard, ITAT ruled in favor of Pantos India by dismissing Revenue's appeal.

Our Comments

The case law in question revolves around a dispute where the tax authority misinterpreted the term "advice" as used in a contract. Rather than examining the context in which the word was used, the tax authority took a literal approach. This led them to disallow a payment made under the contract on the grounds that taxes were not deducted at source.

Taxpayer failed to object to draft order before DRP, final order under Section 144C not appealable before ITAT

Skybridge Solutions Private Limited [TS-178-ITAT-2024(HYD)-TP]

Facts

The taxpayer, a software development and services company, filed its ITR for AY 21-22 and subsequently, the case was selected for scrutiny. Therefore, notice was issued under Section 143(2) and thereafter, a reference was made to the Transfer Pricing Officer (TPO) under Section 92CA(1) to determine the Arm's Length Price (ALP) for the transactions with Associated Enterprises (AEs).

The TPO made an upward adjustment via an order dated 31 October 2023. Consequently, a show cause notice was issued to the taxpayer on 9 November 2023 regarding the proposed adjustment, along with a penalty initiation under Section 270A. Since the taxpayer didn't respond to the notices, the draft assessment order was passed on 22 November 2023. The taxpayer was given 30 days to either accept the proposed variation or file objections with the DRP. However, no communication was received from the taxpayer within the stipulated timeframe. Therefore, it was assumed that the taxpayer has no objection and has accepted the draft order, and accordingly, the final assessment order was passed under Section 143(3) on 26 December 2023.

Taxpayer's Contention

The taxpayer submitted that its case falls within the ambit of Section 253(1) (d) of the Act and it was submitted that the draft assessment order passed by the AO was in pursuance of the directions issued by the DRP. Therefore, the present case is maintainable. In contrary to this, the learned Department Representative (DR) has drawn attention towards Section 144C(1) to 144C(5) of the Act and stated that the impugned assessment order passed by the AO was not passed pursuant to any of the directions issued by the DRP, but on account of the obligation cast on the AO by virtue of Section 144C(3) of the Act. There is no provision for filing an appeal against the order passed by the AO under Section 144C(3) of the Act before this Tribunal since the appeal was not made before DRP, therefore, the present appeal is not maintainable.

Held

After concluding all the facts, the ITAT verdicts that the order to be passed by the AO under Section 144C (3) of the Act is on account of the failure of the taxpayer to raise the objections against the draft assessment order. This obligation under the Act is not dependent upon the issuance of any direction by the DRP. Hence, the order passed by the learned AO was on account of independent obligation u/s 144C(3) of the Act and not on account of any direction issued by the DRP, therefore, no appeal lies against such order before this Tribunal.

Based on the above, the impugned order is not appealable before the Tribunal and therefore, the same shall be dismissed. In addition to this, the taxpayer had asked for liberty to approach any alternative forum or authority or Hon'ble HC having jurisdiction since sufficient time has been taken to file the present appeal before the Tribunal. In view of the above, liberty is granted to the taxpayer to file any other petition/appeal before any forum or authority or Hon'ble HC.

Our Comments

The said ruling outlines the need for the taxpayer to follow the timelines for filing the appeal before the appropriate authority. In case of any objection against the draft assessment order, the appeal has to be made to the DRP within 30 days of the draft assessment. In case the appeal has not been made before DRP, the taxpayer has the option to appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] within 30 days of the final assessment order passed by the AO.

Filing second MA against an order passed in an earlier MA not permissible under Section 254(2)

Astra Zeneca Pharma India Ltd [TS-177-ITAT-2024(Bang)-TP]

Facts

The taxpayer is engaged in the pharmaceutical business. During assessment proceedings for AY 2014- 15, the Tribunal had issued the order against the Miscellaneous Application (MA) filed, wherein the Tribunal had given direction to AO to follow the earlier order of the Tribunal for AY 2013- 14, where the issue has been decided in favor of the taxpayer.

Taxpayer's Contention

Revenue filed another MA against this order of the Tribunal involving AY 2014- 15 by justifying that there is no resjudicata to proceedings; therefore, the order in MA is to be recalled. However, the taxpayer contended that the second MA cannot be entertained u/s 254(2) of the Act.

Held

ITAT had concluded that a second MA is not permitted under Section 254(2) of the Act since the Tribunal had not committed any error in directing the TPO/AO to follow the earlier order of Tribunal in AY 2013-14 for this AY 2014-15. Accordingly, since there is no mistake apparent from the record, the second MA filed by the Revenue has been dismissed.

Our Comments

The said ruling outlines that in case there's no mistake apparent from the records, a second MA isn't permissible under Section 254(2) of the Act. Furthermore, placing reliance on the earlier year order isn't any mistake apparent from the record.

Computation of limitation period for filing appeals under GST law

Balaji Coal Traders vs. Commissioner, Commercial Tax, Lucknow & Ors. [TS-301-HC(ALL)-2024-GST]

Facts

• The jurisdictional State Tax authorities canceled the petitioner's GST registration, vide order dated 19 April 2022.
• Thereafter, the petitioner's application for revocation of cancellation was rejected, vide order dated 12 July 2022.
• The petitioner filed an appeal before the First Appellate Authority on 10 November 2022 as a recourse.
• However, the appeal was dismissed on the ground that the same had been filed one day after the expiry of the limitation period and by treating four months as 120 days with reference to the provisions of Section 107 of the Uttar Pradesh GST Act, 2017.
• The First Appellate Authority relied on the judgment of Hon'ble SC in the case of Simplex Infrastructure Ltd vs. Union of India (Civil Appeal No. 11866/2018) while refusing to condone the delay in view of the express provisions of the Act.
• Being aggrieved thereby, the petitioner approached Allahabad HC.

Ruling

• HC observed that the phrase "from the date on which the said decision or order is communicated to such person" in Section 107 is crucial as it marks the starting point of the limitation period for filing an appeal.
• The legislative intent behind this provision is to ensure that the aggrieved party has a clear and fair understanding of the decision or order before the clock starts ticking for the appeal period, remarked the HC.
• In this context, HC referred to Section 9 of the General Clauses Act, 1897, which specifically indicates that when calculating a time period that starts with the word "from", the day of the event from which the period begins is excluded, and when the period ends with the word "to", the last day of the period is included.

• Furthermore, stressing the importance of the meaning of individual terms "within" and "months" in the context of Section 107 of the UPGST Act, HC observed that the phrase "within three months" means that the appeal can be filed anytime from the date following the communication of the order until the end of the third month, ensuring that the appellant has the maximum possible time to prepare and file their appeal.
• It further highlighted that the law allows the appellant an additional period of one calendar month beyond the initial three months to file the appeal, subject to demonstration of sufficient cause, i.e., circumstances beyond the control of the appellant preventing them from filing the appeal within the stipulated time frame.
• In the present case, the petitioner received the order on 12 July 2022. Hence, the three month period would have begun on 13 July 2022 and expired on 12 October 2022 and the extended period would have expired on 12 November 2022. As a result, it appeared that the calculation made by the lower authorities was incorrect, thereby warranting the exercise of writ jurisdiction.
• In view of the above, HC set aside the order rejecting petitioner's appeal and directed the First Appellate Authority to allow the delay and hear the appeal on merits.

Our Comments

There has been a substantial rise in litigation in recent times owing to the conclusion of GST assessments and audits for the initial years. Given this, the present ruling reaffirms the settled principle of law that in computing the time limit for filing an appeal, the day on which the order is communicated shall be excluded. It should act as a guiding principle for taxpayers seeking to file appeals before the higher forums, including the GSTATs.