The Commissioner Of Income Tax, Circle Ii, Madurai v. M/S.m.r.m.plantations Pvt. Ltd

CORAM: THE HONOURABLE MR.JUSTICE S.MANIKUMARandTHE HONOURABLE MR.JUSTICE D.KRISHNA KUMAR The Commissioner of Income Tax,Circle II, Madurai...Appellant/Respondent in both appealsversus M/s.M.R.M.Plantations Pvt. Ltd.,No.40, MRM Arcade,Amman Sannati Street,Karaikudi...Respondent/Respondent in both appeals Tax Case Appeals filed under Section 260A of the Income Tax Act,1961, against the orders made in I.T.A.No.2946 & 2947/Mds/2014, dated09.10.2015 on the file of the Income Tax Appellate Tribunal,"D"Bench, Chennai against the order passed by the commissioner ofIncome Tax (Appeals-I) Madurai dt.25.9.14 in ITA.No.0105/13-14 and0104/13-14 for the assessment year 2006-07 and 2005-06 against theorder passed by the Deputy Commissioner of Income Tax Circle-II,Madurai dt.30.3.2013 in PAN/GIR No.AACM9058R for the assessment year2006-07 and 2005-06 respectively. For Appellant in both appeals:Mr.M.Swaminathan COMMON ORDER Tax Case Appeals arise out of a common order in I.T.A.No.2946 &2947/Mds/2014, dated 09.10.2015, passed by the Income Tax AppellateTribunal, 'D' Bench, Chennai, in respect of the assessment years2005-06 and 2006-07 respectively. 2.Facts deduced from the material on record are that theassessee filed its return of income for the assessment year 2005-06on 29.10.2005 declaring a total income Rs.9,15,250/-. For theassessment year 2006-07, the assessee filed its return of income29.10.2005, declaring a total income of Rs.13,77,120/-. Both thereturns were processed under Section 143(1) of the Income-Tax Act.Alleging that the income chargeable to tax has escaped assessment,notices have been issued under Section 148. https://hcservices.ecourts.gov.in/hcservices/ 3.According to the appellant, the assessee has deliberatelykept away the income of Malaysian Plantation from Indian TaxationLaws, when the company affairs are controlled in India. RegardingTaxation of Malaysian Income from India, the assessee has raised twofacts for consideration, viz., (a) Income from Penang branch ofMalaysian Plantation is income derived from plantation in Malaysiaand immovable property at Malaysia, and (b) As per article 5(g) ofthe Double Taxation Avoidance Agreement (In short, “DTAA”), the term“permanent establishment” shall be deemed to include Farm orPlantation. 4.Referring to Article V(3)(e) of the existing DTAA betweenIndia and Malaysia, the appellant has contended that the plantationincome from Malaysia is taxable in India and accordingly, for theassessment year 2005-06, a sum of Rs.56,60,224/- has been included inthe total income of the assessee and for the assessment year 2006-07,a sum of Rs.55,92,897/- has been included in the total income. Forboth the assessment years, the assessment was completed on30.03.2013, under Section 143(3) r/w. 147 of the Income-Tax Act. 5.Being aggrieved by the assessment orders, dated 30.03.2013,for both the assessment year 2005-06 and 2006-07, the assesseepreferred an appeal before the Commissioner of Income Tax (Appeals)in ITA Nos.104 & 105/2013-14 respectively. The Commissioner ofIncome-Tax (Appeals), by his common order, dated 25.9.2014, allowedthe appeals in favour of the assessee. Being aggrieved by the same,the department preferred an appeal before the Income Tax AppellateTribunal in ITA No.2946 and 2947/Mds/2014. Following the decision inCIT v. P.V.Kulandayan Chettiar reported in 267 ITR 654, the IncomeTax Appellate Tribunal, by its order, dated 9.10.2015, dismissed theappeals filed by the revenue. Against which, the instant Tax CaseAppeals have been filed, on the following substantial questions oflaw, 5.Being aggrieved by the assessment orders, dated 30.03.2013,for both the assessment year 2005-06 and 2006-07, the assesseepreferred an appeal before the Commissioner of Income Tax (Appeals)in ITA Nos.104 & 105/2013-14 respectively. The Commissioner ofIncome-Tax (Appeals), by his common order, dated 25.9.2014, allowedthe appeals in favour of the assessee. Being aggrieved by the same,the department preferred an appeal before the Income Tax AppellateTribunal in ITA No.2946 and 2947/Mds/2014. Following the decision inCIT v. P.V.Kulandayan Chettiar reported in 267 ITR 654, the IncomeTax Appellate Tribunal, by its order, dated 9.10.2015, dismissed theappeals filed by the revenue. Against which, the instant Tax CaseAppeals have been filed, on the following substantial questions oflaw, “(1) Whether on the facts and in the circumstances ofthe case and in law, the Income Tax Appellate Tribunal iscorrect in law in holding that the income from rubberplantations situated in Malaysia, is to be taxed inMalaysia when control and management of the plantationsituated in Malaysia is controlled in India; share holdersand annual general meeting were conducted in India; theincome of the Malaysian branch is included in the accountsof the company and profits appropriated? (2) Whether on the facts and in the circumstances ofthe case and in law, the Income Tax Appellate Tribunal iscorrect in law in holding that since Article V(2)(g) of theDTAA, the term permanent establishment shall include a“farm of plantation” and hence income from plantation fromMalaysia cannot be subjected to tax in India, when ArticleV(2)(g) refers to “ a mine, oil well, quarry or other placeof extraction of natural resources?” 6.Reiteratingthesubstantialquestionsoflaw,Mr.M.Swaminathan, learned Standing Counsel for Income-Tax Departmentcontended that the Income Tax Appellate Tribunal has erred indeleting the addition of Rs.56,60,224/- and Rs.55,92,897 for theassessment years 2005-06 and 2006-07 respectively, made by theAssessing Officer in his re-assessment order, dated 30.03.2013 under“Income from business (Malaysian income)”. He further submitted thatthe Tribunal ought to have appreciated the fact that the assessee hasdeliberately kept away the income of Malaysian Plantation from IndianTaxation Law, when the company affairs are controlled in India. Heplaced reliance on Article V(3)(e) of the existing DTAA between Indiaand Malaysia. Heard the learned counsel for the appellant and perused thematerials available on record. 7.Before adverting to the merits of the case, let us extractthe Articles V and VI of the DTAA between India and Malaysia,“Article VPermanent Establishment: 1. For the purposes of this Agreement, the term"permanent establishment" means a fixed place of businessin which the business of the enterprise is wholly or partlycarried on. 2. The term "permanent establishment" shall includeespecially: a. a place of management; b. a branch; c. an office;d. a factory; e. a workshop; f. a warehouse; g. a mine, oil well, quarry or other place ofextraction of natural resources; h. a building site or construction, installation orassembly project which exists for more than six months; i. a farm or plantation; j. a place of extraction of timber or forest produce. 3. The term "permanent establishment" shall not bedeemed to include: a. the use of facilities solely for the purpose ofstorage, display or delivery of goods or merchandisebelonging to the enterprise; b. the maintenance of a stock of goods or merchandisebelonging to the enterprise solely for the purpose ofstorage, display or delivery; c. the maintenance of a stock of goods or merchandisebelonging to the enterprise solely for the purpose ofprocessing by another enterprise; d. the maintenance of a fixed place of business solelyfor the purpose of purchasing goods or merchandise orcollecting information, for the enterprise; a. the use of facilities solely for the purpose ofstorage, display or delivery of goods or merchandisebelonging to the enterprise; b. the maintenance of a stock of goods or merchandisebelonging to the enterprise solely for the purpose ofstorage, display or delivery; c. the maintenance of a stock of goods or merchandisebelonging to the enterprise solely for the purpose ofprocessing by another enterprise; d. the maintenance of a fixed place of business solelyfor the purpose of purchasing goods or merchandise orcollecting information, for the enterprise; e. the maintenance of a fixed place of business solelyfor the purpose of advertising, for the supply ofinformation, for scientific research or for similaractivities which has a preparatory or auxiliary character,for the enterprise. 4. An enterprise of one of the Contracting States shallbe deemed to have a permanent establishment in the otherContracting state if; a. it carries on supervisory activities in that otherContracting State for more than six months in connectionwith a construction, installation or assembly project whichis being undertaken in that other Contracting State; b. it carries on a business which consists of providingthe services of public entertainers (such as stage, motionpicture, radio or television artistes and musicians) orathletes in that other Contracting State unless theenterprise is directly or indirectly supported, wholly orsubstantially, from the public funds of the Government ofthe first-mentioned Contracting State in connection withthe provision of such services. 2. Subject to the provisions of paragraph 6 of thisArticle, a person acting in one of the Contracting Stateson behalf of an enterprise of the other Contracting Stateshall be deemed to be a permanent establishment in thefirst-mentioned Contracting State if: a. he has, and habitually exercises in that first-mentioned Contracting State, an authority to concludecontracts on behalf of the enterprise unless his activitiesare limited to the purchase of goods or merchandise for theenterprise; or b. he maintains in the first-mentioned ContractingState a stock of goods or merchandise belonging to theenterprise from which he regularly fills orders on behalfof the enterprise. 3. An enterprise of one of the Contracting States shallnot be deemed to have a permanent establishment in theother Contracting State merely because it carries onbusiness in that other Contracting State through a broker,general commission agent or any other agent of anindependent status, where such persons are acting in theordinary course of their business. 4. The fact that a company which is a resident of oneof the Contracting States controls or is controlled by acompany which is a resident of the other Contracting Stateor which carries on business in that other ContractingState whether through a permanent establishment orotherwise shall not of itself constitute either company apermanent establishment of the other. ARTICLE VIIncome from Immovable Property: 1. Income from immovable property may be taxed in theContracting State in which such property is situated. 2. The term "immovable property" shall be defined inaccordance with the law of the Contracting State in whichthe property in question is situated. The term shall in anycase include property accessory to immovable property,livestock and equipment used in agriculture and forestry,rights to which the provisions of general law respectinglanded property apply, usufruct of immovable property andrights to variable or fixed payments as consideration forthe working of, or the right to work, mineral deposits, oilwells, quarries and other places of extraction of naturalresources or of timber or forest produce. Ships, boats andaircraft shall not be regarded as immovable property. 1. Income from immovable property may be taxed in theContracting State in which such property is situated. 2. The term "immovable property" shall be defined inaccordance with the law of the Contracting State in whichthe property in question is situated. The term shall in anycase include property accessory to immovable property,livestock and equipment used in agriculture and forestry,rights to which the provisions of general law respectinglanded property apply, usufruct of immovable property andrights to variable or fixed payments as consideration forthe working of, or the right to work, mineral deposits, oilwells, quarries and other places of extraction of naturalresources or of timber or forest produce. Ships, boats andaircraft shall not be regarded as immovable property. 3. The provisions of paragraph 1 of this Article shallapply to income derived from the direct use, letting, oruse in any other form of immovable property. 4. The provisions of paragraph 1 and 3 of this Articleshall also apply to the income from immovable property ofan enterprise.” 8.In Commissioner of Income-Tax v. S.R.M. Firm reported in1994 (208) ITR 400 (Mad.), this Court held as follows:“Sections 22 to 27 of the Income-tax Act, 1961,broadly deals with the taxability in this regard under theAct. But, in view of paragraph 1 of article VI, income fromimmovable property can be taxed only in and by thecontracting State in which such property is situated. Thereis no scope for the other contracting State dealing withsuch income. As to what constitutes immovable property forthe purposes of the article has also been stated in detail.The article further stipulates that the provisions ofparagraph (1) shall apply to income derived from the directuse, letting or use in any other form of immovableproperty. Controversies and conflicting claims have beenmade by the parties before us regarding the capital gainswhich is derived on account of the sale, exchange ortransfer of the capital asset itself. Sections 45 to 55Aofthe Income-tax Act, 1961, deals with this aspect. Normally,the situs of the capital asset alone should provide thesafe guide to decide as to which of the contracting Statesshould have the power to tax such income. The ratiounderlying paragraph 1 of article VI would also lead onlyto this inevitable course. But, the plea on behalf of theRevenue is that the sale or exchange or transfer of thecapital asset itself cannot be claimed to be an instance of"use" of the property itself so as to contend that it is anincome from immovable property. Disposal of the property orthe capital asset itself is in our view as much a form or method of use of the immovable property as such, and thewords "direct use........ or use in any other form" aresufficiently wide enough to include within its scope thetransfer, sale or exchange of the property. As held by theapex court in the decision in Sevantilal Maneklal Sheth v.CIT [1968] 68 ITR 503, the profits and gains which arisefrom the sale of the asset would arise or spring from theasset, although the operation by which the profits or gainsis made to arise out of the asset is the operation of thesale and consequently, there is no warrant for thesubmission that the capital gain is not income arising fromthe use of the assets. The provisions of article VI alonewould apply and govern the assessment of capital gains alsoderived from the immovable property situated at Malaysia.” 9.In CIT v. P.V.A. Kulandagan Chettiar reported in 2004 (267)ITR 654 (SC), the Hon'ble Supreme Court, at Paragraph 12, held asfollows: 9.In CIT v. P.V.A. Kulandagan Chettiar reported in 2004 (267)ITR 654 (SC), the Hon'ble Supreme Court, at Paragraph 12, held asfollows: “12. The immovable property in question is situate inMalaysia and income is derived from that property.Further, it has also been held as a matter of fact thatthere is no permanent establishment in India in regard tocarrying on the business of rubber plantations in Malaysiaout of which income is derived and that finding of facthas been recorded by all the authorities and affirmed bythe High Court. We, therefore, do not propose to re-examine the question whether the finding is correct ornot. Proceeding on that basis, we hold that businessincome out of rubber plantations cannot be taxed in Indiabecause of closer economic relations between the assesseeand Malaysia in which the property is located and wherethe permanent establishment has been set up will determinethe fiscal domicile. On the first issue, the view taken bythe High Court is correct.” 10.Reverting to the case on hand, agreeing with the contentionsof the assessee that reference to Article V(3)(e), relied on by theassessing officer, has no relevance to the case on hand, as theincome derived was from the plantation in Malaysia and that theprovisions of DTAA agreement, override the provisions of the Income-Tax Act and such provisions of DTAA is binding on the department andfollowing the decisions, extracted supra, the Commissioner of Income-Tax (Appeals), by a common order, dated 25.09.2014, allowed theappeals filed by the assessee. 11.Being aggrieved by the common order, dated 25.09.2014, theCommissioner of Income-Tax has filed two appeals, before the IncomeTax Appellate Tribunal in I.T.A.No.2946 & 2947/Mds/2014, contendinginter alia that the Commissioner (Appeals) ought to have noted thefact that the assessee had deliberately kept away the income fromplantation in Malaysia treating it as not forming part of total https://hcservices.ecourts.gov.in/hcservices/ income by quoting a decision of the Supreme Court in CIT v.P.V.Kulandayan Chettiar (cited supra), whereas the ratio of the saiddecision is not applicable to the assessee's case. However, videcommon order, dated 09.10.2015, the Income Tax Appellate Tribunal hasdismissed the appeals filed by the revenue. 12.Though Mr.M.Swaminathan, learned Standing Counsel for theIncome-Tax Department raised the very same grounds, for a decision ofthis Court, under Section 260(A) of the Income-Tax Act, going throughthe material on record and the decisions relied on by the appellateauthority, this Court is of the view that there is absolutely noground to entertain the appeals of the revenue. Decision of the ITAT,Chennai, following the judgment of the Hon'ble Supreme Court, whichhas considered the significance of DTAA entered between India andMalaysia and notified in G.S.R.No.667(E), cannot be said to beerroneous, warranting interference. 13.Revenue is not able to distinguish the decision of theHon'ble Supreme Court, either on facts or law, excepting to statethat the Commissioner of Income Tax (Appeals) and the Income-TaxAppellate Tribunal have failed to note that the assessee haddeliberately kept away the income from Malaysia. The fact that theplantation is in Malaysia, would be a permanent establishment, interms of DTAA, extracted supra, through which, business is carriedon, by the assessee and therefore, the income from such plantation,would be taxable only in Malaysia and not in India, has beensubstantiated by the assessee. 14.There are no valid grounds to reverse the orders impugned.Question of law raised is answered against the revenue and in favourof the assessee. 15.In the result, the Tax Case Appeals are dismissed. No costs.Consequently, connected Miscellaneous Petition is also closed. Sd/- Asst.Registrar /true copy/ Sub Asst. Registrar To 1.The Income Tax Appellate Tribunal,“D” Bench, Chennai. 14.There are no valid grounds to reverse the orders impugned.Question of law raised is answered against the revenue and in favourof the assessee. 15.In the result, the Tax Case Appeals are dismissed. No costs.Consequently, connected Miscellaneous Petition is also closed. Sd/- Asst.Registrar /true copy/ Sub Asst. Registrar To 1.The Income Tax Appellate Tribunal,“D” Bench, Chennai. https://hcservices.ecourts.gov.in/hcservices/ 2.The Commissioner of Income Tax,Circle - II, Madurai. 3.The Commissioner of Income Tax, (Appeals-I)Madurai. 4.The Deputy Commissioner of Income Tax,Circle II, madurai. 5.The Assistant Registrar,Income Tax Appellate Tribunal,Rajaji Bhavan III Floor,Besant Nagar, Chennai. +1 cc to Mr.M.Swaminathan, Advocate,sr.32218.pvr(co)krd 3/8 T.C.A.Nos.387 and 388 of 2016C.M.P.No.8590 of 2016