TCA.No.32 of 2019 In High Court of Judicature at Madras Dated : 23.9.2020 Coram : Honourable Mr.Justice T.S.SIVAGNANAM and Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal No.32 of 2019 M/s.Sutherland Global Services Pvt. Ltd., Chennai-42. ...Appellant Vs Commissioner of Income Tax-6, Chennai-34. ...Respondent APPEAL under Section 260A of Income Tax Act, 1961 against order dated 27.2.2018 made in ITA.No.2002/Mds/2016 on file of Income Tax Appellate Tribunal, Chennai 'C' Bench for assessment year 2008-09. For Appellant: Mr.N.V.Balaji For Respondent: Mr.J.Narayanasamy, SSC Judgment was delivered by T.S.Sivagnanam,J We have heard Mr.N.V.Balaji, learned counsel appearing for appellant assessee and Mr.J.Narayanasamy, learned Senior Standing 1/16 http://www.judis.nic.in TCA.No.32 of 2019 Counsel appearing for respondent Revenue. 2. This appeal, filed by assessee under Section 260A of Income Tax Act, 1961 (for short, Act) is directed against order dated 27.2.2018 made in ITA.No.2002/Mds/2016 on file of Income Tax Appellate Tribunal, Chennai 'C' Bench (for brevity, Tribunal) for assessment year 2008-09. 3. above appeal has been admitted on 21.1.2019 on following substantial questions of law : i. Whether, on facts and in circumstances of case and in law, Tribunal was right in remitting issue of disallowance of BD commission without deciding whether appellant was liable to deduct tax at source, particularly when all facts in respect of same were before it and were undisputed facts ? ii. Whether, on facts and in circumstances of case and in law, Tribunal was right in providing directions to Assessing Officer to examine whether there was any concerted effort to shift profits by camouflaging it as BD commission, particularly when same was not relevant for adjudication of issue before it and only issue before Tribunal was whether 2/16 http://www.judis.nic.in TCA.No.32 of 2019 disallowance of BD commission for non deduction of tax source was correct ? And iii. Whether appellant was not able to deduct tax source in respect of BD commission paid by it considering provisions of Act and DTAA between India and US particularly when recipient did not have any permanent establishment in India ? 4. assessee is private limited company and subsidiary of company incorporated in United States (US). assessee is engaged in business process outsourcing and IT enabled services to wide range of industries and primarily caters to third party clients across varied industries such as insurance, health care, banking, etc., apart from providing support services for BPO operations and transaction processing services to its associated enterprises located across globe. assessee did not undertake any marketing activity and US company was responsible for business development of group including assessee. 5. assessee is stated to have entered into agreement dated 01.7.2005 with company incorporated in US for purpose of rendering marketing services. US company was remunerated with business development commission (BDC) to 3/16 http://www.judis.nic.in TCA.No.32 of 2019 procure business for assessee. During assessment year under consideration namely 2008-09, assessee incurred amount of Rs.22,41,69,067/- in relation to payment of BDC to US company. assessee did not deduct tax source under Section 195 of Act, as, according to them, income was not chargeable to tax in India and there was no obligation to withhold taxes. 6. In this appeal, though assessee has dealt with merits of case as to how they were not required to withhold tax with regard to BDC paid to US company, it may be necessary for us to go into same only if we are not convinced with contention raised in this appeal as regards jurisdiction of Tribunal in issuing certain directions while remanding matter to Assessing Officer, which, according to assessee, is unsustainable and against law. We have to first consider substantial question of law Nos.1 and 2 and subject to decision that we may take, necessity or otherwise for deciding third substantial question of law would arise. 7. It is submission of Mr.N.V.Balaji, learned counsel for appellant assessee that Tribunal exceeded in its jurisdiction while remanding matter to Assessing Officer by making certain observations with regard to taxability of BDC since said issue had attained finality in assessee's own case by order passed 4/16 http://www.judis.nic.in TCA.No.32 of 2019 under Section 201(1)/201(1A) of Act by Commissioner of Income Tax (Appeals)-VII, Chennai-34 [for brevity, concerned CIT(A)] in ITA.Nos.886 to 889/13-14 on 03.2.2014. It is further submission of learned counsel that this issue was specifically raised as ground before Tribunal and it had been noted by Tribunal in paragraph 2 of impugned order wherein assessee stated that non taxability of BDC having been accepted by Department pursuant to order of concerned CIT(A) against TDS order under Section 201 of Act may kindly be treated as having attained finality in favour of assessee. Though such ground was raised, Tribunal did not deal with same, however proceeded to reopen issue, which had attained finality. 8. Hence, learned counsel for appellant - assessee has submitted that Tribunal exceeded in its jurisdiction. On merits, it is submitted that BDC was not taxable under Indian Income Tax Act in hands of recipient and more particularly when there was no business connection. It is further submitted that recipient did not have permanent establishment in India and that BDC was not taxable in hands of recipient in India in view of Double Taxation Avoidance Agreement (DTAA) between India and US. 9. With regard to jurisdiction of Tribunal, learned 5/16 http://www.judis.nic.in TCA.No.32 of 2019 counsel for appellant assessee has referred to decisions in cases of (i) New India Life Assurance Co. Ltd. Vs. CIT [reported in (1957) 31 ITR 844 (Bombay)] (ii) Omar Salay Mohamed Sait Vs. CIT [reported in (1959) 37 ITR 151 (SC)] (iii) V.Ramasamy Iyengar Vs. CIT [reported in (1960) 40 ITR 377 (Madras)], (iv) S.Chenniappa Mudaliar Vs. CIT [reported in (1964) 53 ITR 323 (Madras)], (v) L.J.Shaik Mohammed Bros. Vs. CIT [reported in (1978) 112 ITR 622 (Madras)] (vi) R.R.Industries Ltd. Vs. ITO (OSD) [reported in (2013) 356 ITR 97 (Madras)] (vii) Cholamandalam MS General Insurance Co. Vs. Asst./Dy. CIT [reported in (2013) 357 ITR 597 (Madras)] (viii) Sanmar Speciality Chemicals Ltd. Vs. ITO [reported in (2018) 93 Taxmann.com 330 (Madras)] and (ix) K.Rajiv Vs. Addl.CIT [reported in (2018) 98 Taxmann.com 418 (Madras)] 6/16 http://www.judis.nic.in TCA.No.32 of 2019 10. All above decisions are referred to in support of proposition that no litigant has inherent right of appeal against judicial order unless such right is given by Statute and that where whole or part of order has not been appealed against, it would be final and Appellate Authority, in case there is appeal against part of order, would have no jurisdiction in absence of statutory provisions, in other part, which does not form part of subject matter. It has been further pointed out that where Statute confers right of appeal to Appellate Authority, its powers and functions are limited by way of that Statute. It has also been pointed out that subject matter cannot be expanded by Appellate Tribunal and appellant cannot be worse off before Tribunal in their own appeal. 11. In decision of this Court in case of R.R.Industries Ltd., power of Tribunal to remand matter qua Rule 11 of Income Tax (Appellate Tribunal) Rules, 1962 was considered and it was held that order of remand passed by Tribunal is only academic and Tribunal cannot pass order of remand for further enquiry on issue, which has already reached finality. 12. Bearing this legal principle in mind, if we examine facts in instant case, issue is as to whether assessee was required to deduct tax at source with regard to BDC. This very issue was 7/16 http://www.judis.nic.in TCA.No.32 of 2019 considered by TDS Authority and order was passed on 30.3.2013, which was adverse to assessee. assessee carried matter on appeal to concerned CIT(A), who, by order dated 03.2.2014, held in favour of assessee. 13. operative portion of order dated 03.2.2014 reads as follows : I have carefully gone through AO's contention and appellant's submission. Admittedly, appellant has been rendering BPO services to foreign clients mostly based in US and Europe and their entire turnover except small portion is exports. All these exports are to third party customers like Microsoft, Dell, Intuit and other leading companies. Indian company has availed services of parent company situated in USA for business development in terms of Inter- company Service Agreement. parent company has undertaken business development activities for all its subsidiary company in various countries including Indian subsidiary by having centralized sales and marketing department and nature of services includes getting new customers, 8/16 http://www.judis.nic.in TCA.No.32 of 2019 retaining and growing existing customers. And process includes generating prospective leads, allocating concerned marketing people to follow up with leads and present to prospective client above nature of services and benefit that client will get by outsourcing to locations like India. above process of carrying out sale and marketing and promotional activities cannot be called as technical services under Section 9(1)(vi) of Act. Since sales and marketing functions are routine function for development of business, contention of appellant that these payments cannot be called as fee for technical services under Section 9(1)(vi) of Act, needs to be accepted unless contrary is proved by established facts. Assessing Officer has also not properly appreciated clarification on expenses incurred on lead generation. appellant has clarified in subsequent response that these payments are for end to end mortgage business and for this particular business, parent company has not charged business development commission. AO has also contended that 9/16 http://www.judis.nic.in TCA.No.32 of 2019 saleforce.com is specialized portal and that technical knowhow has been made available by saleforce.com by parent company. I have gone through submissions and agree with appellant that this is standard software used for tracking sales efforts and software is not owned by parent company. It is third party standard software. There is no making available of technology here. What has been done is to post status information on actual activity of sales and marketing carried out outside India. lead generation that AO is referring to relates to lead generation in end to end mortgage business. In this business, appellant does mortgage origination right from generation of leads. For this business, since Sutherland US does not have business development department, no commission is paid. Therefore, above basis on which AO has come to conclusion that it is fee for included services is not borne out of facts. Mumbai Bench of Income Tax Appellate Tribunal in case of Bharat Petroleum Corporation Ltd. [14 SOT 307] has held that unless technology can be applied by 10/16 http://www.judis.nic.in TCA.No.32 of 2019 recipient of service, remuneration paid would not be classified as FTS. business promotional services rendered by Sutherland US are continuing in nature. It does not make available any technology. appellant does not obtain any technical knowledge or skill on account of services rendered by Sutherland US. Since no technology is made available to appellant, commission paid cannot be classified as fees for technical service and is not chargeable to tax in India. appellant has made advance payment only during month July 2011. In all other cases, payment is made only on actual turnover amounts. Therefore, mere upfronting of cash flow cannot alter character of payment is acceptable argument. Since appellant is subject to order by Transfer Pricing Officer as these are paid for services rendered by parent company, there cannot be any presumption on/off profits. Further, parent company is not in business of running consultancy services in sales and marketing and hence, Article 12(4) of India US DTAA will have no application. 11/16 http://www.judis.nic.in TCA.No.32 of 2019 Under similar circumstances, in case of WNS North America Bombay Tribunal in ITA.No.2944/Mum/2012 has held that payment for sales and marketing is not fee for included services under India US DTAA where it involved rendering of similar service of sales and marketing to Indian subsidiary, which is also engaged in BPO business like that of appellant. Considering above submission of appellant, I hold that these payments, which are for sales and marketing promotion for development of business of appellant is neither fee for technical services nor consultancy services under Section 9(1)(vi) of Act or fee for included services under Article 12(4) of India US DTAA. Further, these services have been rendered outside India. Under these circumstances and facts of case, appellant does not fall squarely right within ambit of provisions of IT Act, 1961, to brand payments of business development commission given to overseas principal company as 'FTS are 'consultancy services'. Therefore, question of deduction of tax at source does not arise under Section 195. I find in this regard that 12/16 http://www.judis.nic.in TCA.No.32 of 2019 AO has not succeeded to lawfully declare business development commission under discussion as taxable in hands of recipient. 14. assessee specifically contended before Tribunal that above order attained finality and that Tribunal had no jurisdiction to reopen same especially in absence of appeal filed by Revenue against said order. 15. Though such argument has been noted by Tribunal, Tribunal misdirected itself by observing that it has got all powers to examine full facts as it is final fact finding Authority. 16. There can be no quarrel with regard to aspect that Tribunal is final fact finding Authority. Nevertheless, jurisdiction of Tribunal is confined to lis before it and more particularly in instant case, it is assessee's appeal and they cannot be worse off in their appeal and Tribunal has no jurisdiction to direct Assessing Officer by virtually reopening proceedings concluded under Section 201 of Act pursuant to order dated 03.2.2014 passed by CIT(A) concerned. 17. In fact, Tribunal ought to have referred to said order and if, in its opinion, order does not bind Tribunal, then, adequate reasons ought to have been assigned by Tribunal in that 13/16 http://www.judis.nic.in TCA.No.32 of 2019 regard. We find that nothing was recorded by Tribunal in impugned order. 18. It is argument of Mr.J.Narayanasamy, learned Senior Standing Counsel appearing for Revenue that reading of paragraph 13 of impugned order will clearly show that impugned order is order of remand with direction to Assessing Officer to redo matter and that no substantial question of law would arise in this appeal for Court to interfere with impugned order. 19. We do not agree with said submission since legal position is that order or judgment has to be read in its entirety and cannot be read in truncated fashion. Thus, what flows from observations and directions in paragraph 11 of impugned order has to be read along with paragraph 13. In fact, in paragraph 11, there are pointed observations to Assessing Officer, which appear to be wholly adverse to assessee. 20. One more aspect, which we need to point out is that Tribunal observed in paragraph 11 that Assessing Officer has to examine as to whether there was any concerted effort to shift profits by camouflaging it as commission on sales. This was never case of Revenue either before Assessing Officer or before CIT(A) 14/16 http://www.judis.nic.in TCA.No.32 of 2019 or for that matter before Tribunal. tenor of observations gives different impression to transaction done by assessee, which, in our considered view, was not called for. In light of above discussions, we hold that Tribunal exceeded in its jurisdiction while remanding matter to Assessing Officer, which has effect of reopening concluded proceedings vide order dated 03.2.2014 passed by concerned CIT(A). 21. Accordingly, above tax case appeal is allowed and substantial question of law Nos.1 and 2 are answered in favour of assessee. In light of said conclusion, there would be no necessity to answer third substantial question of law, as issue has already attained finality vide order dated 03.2.2014 passed by concerned CIT(A) namely Commissioner of Income Tax (Appeals)- VII, Chennai-34 in ITA.Nos.886 to 889/13-14. No costs. 23.9.2020 To 1.The Income Tax Appellate Tribunal, Chennai 'C' Bench. 2.The Commissioner of Income Tax-6, 121, Mahatma Gandhi Road, Chennai-34. 15/16 http://www.judis.nic.in TCA.No.32 of 2019 T.S.SIVAGNANAM,J AND V.BHAVANI SUBBAROYAN,J RS TCA.No.32 of 2019 23.9.2020 16/16 http://www.judis.nic.in Sutherland Global Services Pvt. Ltd. v. Commissioner of Income-tax-6, Chennai