AZZ WSI B V ,MUMBAI vs DY CIT (IT) CIRCLE- 1 (1)(2), MUMBAI

Income Tax Appellate Tribunal, ‘I‘ BENCH

Before: SHRI M.BALAGANESH & SHRI SANDEEP SINGH KARHAIL

For Appellant: Shri Percy Pardiwala & Shri Jeet

For Respondent: Shri Soumendu Kumar Dash

Hearing: 06/03/2023

आदेश / O R D E R PER M. BALAGANESH (A.M):

This appeal in A.Y.2016-17 preferred by the order against the final assessment order passed by the Assessing Officer dated 23/10/2019 u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions of the ld. Dispute Resolution Panel (DRP in short) u/s.144C(5) of the Act dated 09/09/2019 for the A.Y.2016-17.

The assessee has raised the following grounds of appeal: – “The appellant objects to the directions dated 9 September 2019 Issued by the Hon'ble Dispute Resolution Panel [DRP] and the final assessment order under section 143(3) rw.s. 144C(13) of the Income-tax Act, 1961 dated 23 October 2019 passed by the Deputy Commissioner of Income-tax, International Tax Circle 1(1)(2), Mumbai [DCIT] for the0020aforesaid assessment year on the following among other grounds:

1. The final assessment order is bad in law The DCIT erred in not following the directions of the DRP and hence, the Impugned assessment order dated 23 October 2019 passed under section 143(3) r w.s. 144C(13) is bad in law.

2. Permanent establishment ("PE" Fixed place PE) 2.1. The DCIT erred in holding that the assessee has a fixed place PE in India and is not following the directions passed by the DRP, wherein the DRP held that the appellant does not have a fixed place PE in India Dependent agent PE 2.2. The DRP erred in holding that the appellant has an agency PE in India. 2.3. The DRP erred in holding that the appellant has an agency PE in India, without appreciating that the DCIT has not concluded that the appellant had an agency PE in India. Thus the conclusion of the DRP that the appellant had an agency PE in India is beyond the DRP's jurisdiction and needs to be overturned. 2.4. The DRP erred in holding that a case of 'Dependent Agent PE' has been made by the DCIT. 3.Taxability of offshore supply of goods The DRP/ DCIT erred in holding that the contract with Reliance Industries Limited is a single/composite contract, and hence the income arising from offshore supply is taxable in India. 3.2. Attribution of profits 3.1. The DRP/ DCIT erred in treating a sum of Rs. 2,42,94,992 as profit attributable to the PE in India (75% of 7.13% of total receipts of Rs. 3,23,93,323). 3.2. The DRP/DCIT erred in not appreciating that the role of Mr. Rupam Saikia in the activities carried out in India was miniscule/ Insubstantial and he was not at all involved in the repair activities. Accordingly, the profit attribution to the agency PE should have been a very small amount.

3. Others M/s. AZZ WSI B.V. 4.1. The DCIT erred in not granting interest under section 244A to the appellant. 4.2. The DCIT erred in Issuing a notice to the appellant to show cause why penalty should not be levied on the appellant under section 271(1)(c), without appreciating that the DCIT had himself issued a certificate under section 197 stating that the income of the appellant is not taxable in India. 5. Each one of the above grounds of appeal

is without prejudice to the other.

6. The appellant reserves the right to amend, alter or add to the grounds of appeal.”

We have heard the rival submissions and perused the materials available on record. The assessee is a company incorporated in Netherlands and is a tax resident of Netherlands. The assessee describes itself as a company which offers innovative maintenance through automatic weld repair solutions. It focuses on repair services utilizing its proprietary weld overlay technology, catering mainly to the Energy industry. The assessee filed its return of income for the A.Y. 2016-17 on 30.09.2016 declaring total income of Rs Nil. During the relevant previous year , the assessee company entered into a contract with Reliance Industries Limited (RIL in short) in India for the purpose of repair of 4 coke drums in the refinery of RIL located at Jamnagar, Gujarat. In this regard, the assessee company raised invoices of EUR 6293452 on RIL. As per Form 26AS, the assessee received an amount of Rs 45,43, 47,719/- from RIL during the relevant previous year converted at Rs 72.19 per Euro. The assessee did not offer the service receipts to tax claiming that as per the Article 12(5)(b) of the India Netherlands Double Taxation Avoidance Agreement (DTAA), such services are liable to be considered as ‘Fees for Technical Services’ (FTS) only if they ‘make available’ technical knowledge, experience, skill, knowhow or processes , or consist of development and transfer of a technical plan or technical design. The assessee has contended that it has not made available the technology to RIL. The assessee mentioned that though RIL has applied for a Nil M/s. AZZ WSI B.V. deduction of tax certificate from the income tax department, the same was issued to it only after RIL deducted tax at source on the payments and now the assessee is claiming refund of the same.

4. The essence of the arguments advanced by the assessee before the ld. AO in the original assessment proceedings are as under:-

2.2. The AO has summarised the work processes in his draft assessment order as under:

The contract is essentially for repair services of four coke drums.

2. The assesses company had appointed a consultant [Mr. Rupam Saikia) in India, to liaise with Indian Customers. The consultant had a meeting with RIL to inform them about the services provided by AZZ. [l is claimed that the commutant has no decision-making authority or power]

3. The assessee company did not have on agreement with Mr Rupam Saskia during the discussion and execution of the contract. However, the group company of the assessee had entered into an agreement with the said person and in view of the agreement with the group company, Mr. Rupam Saskia was supporting the assessee company at well

Upon receiving information about the assessee RIL issued Request for Quote [FQI] to the assessee Based on the RFQ the assessee discussed the scope of work and schedule with RIL over calls

5. The employees of the assessee came to India to discuss the proposal of the assessee with RIL The proposal was discussed by Mr. G. Hill, Mr. J. Bates and Mr. R. Matos in their meeting with RIL executives on 12th and 13 the December 2014 at the premises of RIL fir is claimed that the employees were present in the meeting to bridge the gap between two cultures and be a communication channel. The final decision in relation to the proposal was taken by the project team of the assessee in Netherlands.] 6 Pursuant to the discussions between RIL and project team, RIL issued the work order to the assessee. Before the execution of the project started, a two day kick off meeting was held in February 2015 The kick off meeting was attended by Mr. Botes at the premises of RIL

7. The assessee company will use its own specialized equipment for the repair work; this equipment will always be under the control of Assessee Company and is not leased out to RIL 8 The equipment were shipped into India at the beginning of the repair work and shipped out of India once the repair work was completed. These equipments were shipped in sealed containers and on arrival, they were transported to the site of RIL, where the assessee company's crew unpacked, assembled and used the equipment. On completion of the repair work, the crew dissembled the equipment and pocked the equipment for shipping it back The assessee company was responsible for the safety and security of such specialized equipments.

9. Assessee company would arrange for its crew members, who would travel to India for the purpose of currying Out the repair services The crew members may be the employees of assessee company or of a group company, who would function under the control and supervision of assessee company in India 10 The repair works were earned during the month of March and April 2015. 11 The Equipments were brought to India on 05-03-2015 and sent back from India on 07-05- 2015 The total weight of the machinery brought to India was 59,767 40 kgs [grass weight] 12 Assessee company will provide all weld wire requirements.

13. Weld wires heeded for the scope of work was sold by the assessee to RIL separately for which a separate invoice of EUR 2,49,830 was raised on RIL. The weld wires sued by the assessee for the repair work done at RIL 14. It is claimed that the goods were supplied by the assessee to RIL to the port of Rotterdam, Netherlands and the transfer of title happened outside India. The transport of goods were the responsibility of RIL In view of the same, the transaction was to offshore supply.

15 The assessee has carried out similar repair services with RIL in FY 2016-17 and has received an amount of EUR 31,38,750”

The ld. AO was of the view that the presence of the assessee in India for the purpose of securing the contract and the presence of its employees and equipment indicates a Permanent Establishment (PE) in India. The ld. AO rejected the submissions of the assessee that it did not have a PE or that it does not fulfill the ‘place of business test’, M/s. AZZ WSI B.V. ‘permanence test’, ‘business activity test’ or the ‘place of disposal test’ mentioned by the OECD in its ‘Commentary on the Model Tax Convention’ or any ‘Agency PE’ for that matter. On the contrary, the ld. AO held that the contentions of the assessee that the conditions required for the Fixed Place PE are not fulfilled in the present case are incorrect. The ld. AO held that the assessee fulfills all the conditions prescribed in the OECD model commentary relating to Fixed Place PE. The ld. AO mentioned that the assessee has a place of business, such place is fixed, activities have been performed by the assessee through the said fixed place of business and the said fixed place of business was at the disposal of the assessee and its employees. The ld. AO relied upon the copy of the Work Order given to the assessee by RIL for repair of 4 coke drums in this connection. The ld. AO extracted the Para 4 relating to the Owner’s Scope in the Work Order to hold that the RIL was bound to provide an office space to the assessee near the job site and also to provide lodging, boarding at or near the job site to the personnel of the assessee. The ld. AO held that the assessee through its employees used the office space in India and these premises can be termed as the ‘Place of business’ of the assessee thereby meeting the ‘place of business test’. Further the ld. AO held that the employees of the assessee were present in India from 03.03.2015 to 30.04.2015. The equipment of the assessee came to India during the month of March 2015 and left India in May 2015. The employees stayed in India from March 1st Week to April last week. The assessee through its employees used the office space and lodging apart from the work site. The assessee used the said space for around 30 days in F.Y. 2014-15 and around 30 days in F.Y. 2015-16. The ld. AO stated that the assessee had provided similar services to RIL in F.Y. 2017-18 also and this proves that the assessee’s activity is repetitive in nature and is indicative of a fixed place of business and that it has a certain degree of permanence, thereby passing the ‘permanence test’.

6. The ld. AO also held that the third condition for a fixed place PE that such place of business should be at the disposal of the foreign entity is also fulfilled since the office and the lodging premises were at disposal of the assessee. The ld. AO had held that these places are distinct from the jobsite where the reactors of RIL were housed and where the employees of the assessee were provided limited access for undertaking repair / welding works. The ld. AO stated that the assessee had full access to the office site which was near the job site and the assessee through its employees had lodging facilities too. There were no restrictions placed by RIL on these spaces allocated to the assessee. The ld. AO noted that the entire equipment which the assessee brought to India were specialized equipments which required special skills to operate and all the equipments were under the control of the assessee during the entire project and were never leased out to RIL and that those equipments are to be kept by the assessee in its control in order to protect its technology and specialization as well as to safeguard its process and expertise. The ld. AO observed that these places could also be accessed by the assessee’s consultant Mr Rupam Saikai (who was also a consultant for assessee’s group company) and hence they could be used for other business activities of the assessee too. Hence the third condition and fourth condition for the existence of PE i.e business activity and disposal test also stands fulfilled.

For the purpose of attribution of income, the ld. AO held that the assessee company had appointed a consultant Mr Rupam Saikia, to liaise with the Indian customers. The consultant holds a meeting with RIL to inform them about the services provided by assessee. The ld. AO noted that the assessee had not produced the agreement entered by the group company with this consultant and under such circumstances, it cannot be M/s. AZZ WSI B.V. finally determined as to whether Mr Rupam Saikia had the power to conclude contracts. However, the ld. AO based on certain emails produced by the assessee held that these emails show that Mr Rupam Saikia was always in the loop with regard to the negotiations of the contract with RIL e.g. he was also present during the meeting on 12th and 13th December 2014 at RIL premises along with Mr G.Hill, Mr. J. Bates and Mr R Matos. RIL had issued a Request for Quote (RFQ) to the assessee based on the information provided by Mr Rupam Saikia. He was present during other meetings as well when the scope of service and logistics were discussed. The ld. AO accordingly held that the assessee through its employees i.e. Mr. G.Hill, Mr. J.Bates and Mr.R.Matos along with Mr. Rupa Saikia came to India and concluded the contract in India. Accordingly, the assessee earned the entire income from the welding contract of RIL from its business connection in India during the year under consideration.

8. Further the ld. AO held that the assessee had sold weld wires worth Euro 267260 to RIL. The same was not considered as receipts from India by the assessee on the ground that the transaction took place at the port of Rotterdam and the transfer of title happened outside India. The ld. AO held that the proposal of the assessee and the minutes of the meeting shows that the contract with RIL was a single contract and supply of weld wires were part of the same contract. The weld wires claimed to be delivered at Rotterdam was used by the assessee in India for executing the repair services in India and accordingly the ld. AO held that the claim of offshore transaction to be a sham exercise to decrease the contract value of the assessee in India. Hence the ld. AO held that the entire contract value of Euro 6560712 (6293452 + 267260) is to be considered as business receipts for the purpose of determining the business income in India.

9. The assessee preferred objections before the ld. DRP. The assessee explained the entire modus operandi before the ld. DRP and filed written submissions that the place of business test, permanence test, place of disposal test, unrestricted access of office space to the consultant, space of storing of equipment , boarding and lodging facilities of employees, business activity test , business connection test were not fulfilled in the instant case. The submissions made by the assessee in this regard are reproduced in pages 11 to 18 of the order of ld. DRP together with related case laws. The ld. DRP after considering the submissions of the assessee held that the tests of place of business, business activity, permanence and place of disposal do not lead to the inference of a PE in India but the case of ‘Dependent Agent PE’ has been made out by the ld. AO. The relevant observations of ld. DRP are as under:-

Discussions and directions of DRP: 4.1 The DRP has carefully considered the facts of the case as mentioned above. The DRP is of the considered view that the assessee through its employees/equipment has come for a specific repair work of RIL and there was no fixed place PE. The office space made available to the assessee by RIL in its refinery complex was only subservient to the main work of getting the repair done and does not, in the opinion of the DRP. constitute a fixed place PE from where the assessee was conducting its own business. The fact that KIL had provided lodging/boarding fo the employees of the assessee at or near the job site is of no relevance in the present circumstances. Further, the DRP notes that there was no repetitive nature of activity being done by the assessee which can be said to introduce a degree of permanence in terms of the presence of the assessee in India. The employees of the assessee had only come to repair the Coke drums and there was no certainty of doing the same kind of work in future years though the assessee mentions that its employees had come again during financial year 2017-18 for a different repair work. The contention of the AO that the tools/equipment used by the employees of the assessee were kept in the control of the assessee/its employees does not come out that the same were being used for any business activity except for doing the repair work at the premises of RIL Therefore, the DRP is in agreement with the assessee that the tests of place of business, business activity, permanence and place of disposal do not lead to the inference of a PE in India. 4.2 However, the DRP notes that a case of 'Dependent Agent PE has been made by the AO The AO has noted that Mr. Rupam Saikin, a person having a base in India, has been declared to be a consultant for the AZZ Group. When RIL sought to repair M/s. AZZ WSI B.V. its 4 coke drums located in its refinery at Jamnagar, Gujarat, RI got in touch with Mr. Rupam Saikia. It is not known and has not been informed by the assessee also whether Mr. Rupam Saikia was contacted by RIL directly or indirectly. Vide its letter dated 24/12/2018, the assessee has claimed that it did not have any agreement with Mr. Rupam Saikia hut admitted that a group company (unspecified by the assessee) had entered into an agreement with this person and Mr. Rupam Saikia was supporting the assessee company in terms of that agreement. It is seen from the record that Mr. Rupam Saikia had sent an email on 30/06/2014 to the concerned persons of the assessee in Netherlands enclosing a copy of a visit report to the refinery at Jamnagar. The email mentions the designation of Mr. Rupam Saikia as 'Business Development Manager His email address is also mentioned as rupam saikia@azz.com. This email mentions that Mr. Rupam Saikia and Mr. Anrea Pacchiarotti had visited RIL as representatives of AZZ WSI. The email also mentions that Mr. Rupam Saikia shall follow up with RIL for the amended scope of the work and also set up a call with the WSI team to discuss the way forward Subsequent emails between Mr. Rupam Saikia and the AZZ WS! people are also available on record and it is noted that Mr. Rupam Saikia has been kept in the loop throughout. For instance, in the email sent from RIL on 02/09/2014, it is informed that the coker unit of the refinery is planned for shut down in March 2015 and certain documents like the scope of work, repair details & drawing, general conditions of contract etc, were enclosed with a request to study the attached document and submit the techno- commercial offer for the job. There are also emails whereby Mr Rupam Saikia has informed RIL about and the stay arrangements made by RIL there. It is also noted that in another email Mr. Rupam Saikia has provided the updated budgetary proposals to RIL. The record also has the Minutes of Meeting dated 12/12/2014 between RIL and AZZ WSI where the name of Mr. Rupam Saikia is mentioned as one of the persons present on behalf of AZZ WSI These minutes detail the technical requirements of the job. The record also has the Minutes of Meeting dated 13/12/2014 between RIL and AZZ WSL In these Minutes also the name of Mr. Rupam Saikia is mentioned as one of the persons present on behalf of AZZ WSI. These Minutes have details of how the job will be got done, discussions on request of RIL to make the proposal "gross of tax hases without any commercial implication, details of shipment request of RIL to provide bifurcated rate of weld wire so that a separate purchase order can be issued to AZZ WSI, payment terms, mobilisation of crew etc. The DRP also notes that Mr. Rupam Saikia had sent a letter to RIL on 16/12/2014 which mentions that subsequent to discussions with the RIL people at the refinery on 12th and 13th December 2014 AZZ WSI is submitting the revised proposal is enclosed. As per another email sent by Mr. Rupam Saikin to RII on 05/01/2015 an updated offer was communicated to RIL whereby certain discount has been offered. This email mentions that AZZ WSI considers RIL as an important strategic and long-term customer and requests RIL to confirm the purchase order so as to enable AZZ WSI to start working on the paperwork needed for the logistical exercise required. 4.3 In connection with the above, it is useful to extract the relevant provisions of the Act and the DTAA because it is provided in them that the non-resident is liable to tax on income earned through a PE constituted by an agent appointed by it or working on its behalf. Section 9(1)(1) as well as the Article 5 of the Indian Netherlands DTAA allow a dependent agent to be treated as constituting a PE for the non- resident in respect of income earned through the agent. The Section 9(1)(1) of the Act reads as under

(1) The following incomes shall be deemed to accrue or arise in India:- (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or tough or from any asset or source of income in India, or through the transfer of a capital asset situated in India. Explanation 1- Explanation 2- For the removal of doubts, it is hereby declared that "business connection” shall include any business activity carried out through a person with acting on behalf of the resident:- (a) has and habitually exercises in India on authority is conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident, or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident, or (c) habitually secures orders in India, mainly or wholly for the non-residet or for that non- resident and other non-residents controlling controlled by or subject to the same common control, as that non-resident Provided that such business connection shall not include any business activity carried out through a broker general commission agent or any other agent having an independent status if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of much non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non- resident or are subject to the same common control as the principal non-resident he shall not be deemed to be a broker, general commission agent or an agent of an independent status. Explanation 3-Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India. 4.3.1 Similarly, the relevant provision of the Indian Netherlands DTAA is as under. "Article 5.5-Notwithstanding the provisions of paragraphs 1 and 2, where a person- other than an agent of an independent status to whom paragraph 6 applies- is acting in one of the States, on behalf of an enterprise of the other State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if--- - (a) he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; or (b) he has no in such authority but habitually maintains in the first mentioned State a sock of goods or merchandise from which he regularly delivers goats or merchandise on behalf of the enterprise 6. An enterprise of one of the States shall not be deemed to have a permanent establishment in the other Store merely because it carries on business in that other rare through a broker a general commission agent or any other agent of an independent status, prided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or M/s. AZZ WSI B.V. almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transaction between the agent and the enterprise were not made under arm's length conditions.”. 4.3.2 These provisions override the provisions of Article 5(1) and hence a fixed place PE is not essential under this provision. 4.4 The DRP notes that the authority to conclude contracts can be said to exist when the foreign enterprise is bound by the contract entered into by the Agent on its behalf. The term 'habitually exercises signifies a certain degree of permanence, repeatedly and over some period of time. In this regard the assessee has claimed that while Mr. Rupam Saikia was present in the meetings with RIL, the contract was not finalised as there were various clauses on which both the parties had to get internal confirmations. The assessee claims that all preparatory work in order to prepare the contract (both legal and technical) and decision on the quotation of the work order were done in Netherlands and the final decision/clearance was taken in Netherlands. On this ground the assessee claims that there was no business activity carried out in India, It was also argued that Mr. Rupam Saikia was acting as an independent consultant and that he had no decision-making authority or power. The DRP is not convinced with these arguments. The role played by Mr. Rupam Saikia has already been elaborated above. It is also not necessary that the agent should have power to conclude the contract in respect of all aspects of work. Even if the final discount and tax work was decided by the assessee at Netherlands, all other basic work was done by Mr. Rupam Saikia in India. In this connection, the DRP notes that in a case decided by Supreme Court of Netherlands (HogeRaad) in case no. 14458 dated 17/5/1961, the UK resident was engaged in marine insurance business. It had appointed an agent in Netherlands who had power to enter in contract in respect of some categories of policies. In respect of other categories, it did not have power to conclude contracts. The Court had still held that it was sufficient if the Agent had power to conclude contract with customers in respect of at least scene categories of policies. The DRP finds that the facts of the present case are similar. It is clear that Mr. Rupam Saikia is not an independent agent as he is referred to as the Business Development Manager of AZZ WSI. He stays in India on a regular basis. The assessee admits that he is on the payroll of another group concem but the assessee has not shared the relevant employment/job contract. The DRP holds that he had sufficient authority to bind the assessee's participation in the job order of RIL as required in order to establish the existence of a Agency PE. The DRP also notes that as per the 'Model Tax Convention on Income and on Capital", condensed version, 2014 issued by OECD, the phrase 'authority to conclude contracts in the name of the enterprise' does not confine the application to an agent who enters into contract literally in the name of the enterprise. This phrase applies equally to an agent who concludes contract which are binding on the enterprise even if those contracts are not actually in the name of the enterprise. This explanation also holds good when the agent concludes the contract at his level even if the final contact document is signed by the enterprise abroad. The term conclude does not imply his final signature on the agreement. The OECD publication referred to above holds that a person who is authorised to negotiate all cleme ts and details of a contract in a way binding c the enterprise can be set to excise this authority in that state' even if the contract is signed by another person in the state in which the enterprise is situated or if the first person has not formally been given a power of representation. The DRP notes that Mr. Rupam Saikia had taken active participation in the contract negotiation and has attended technical/financial discussions with M/s. AZZ WSI B.V. RIL. Therefore, the existence of an Agency PE of the assessee is positively inferred and held accordingly. 4.5. In view of the above discussion the objection no. I of the assessee is dismissed.

10.

Having held that there was Agency PE in India, the ld. DRP discussed the action of the ld. AO in treating the receipts from offshore supply of weld wires to be taxable income in India. The observations of the ld.DRP in this regard are as under:-

Discussions and directions of DRP: 6.1. The DRP has considered the facts of the case, It is noted that invarishly tecahility if an independent offshore supply of material goeds arises in the resident country and not in the destination country unless it is a case of a PE However, in the instant care the entire job work is essentially one single composite contract. This was a specific contract requiring the assessee to repair the Coke drums by a welding process. There is an economic relationship between the function of offshore supply and the onshore repair work by the assessee/PE. It is noticed that as the reliance of the assessee on the decision of the Honourable Supreme Court in the case of Ishikawajima Harima (supra) is not applicable to the facts of the case of the assessee because in the case before the Supreme Court the work had been carried out by a consortium of Independent parties, the equipment supplier having no connection with activities in India. This is not the case with the present assessee who has supplied the weld wire and has also carried out the repair 6.2 The DRP notes that as per the facts available on record there was never any scope or intention to divide the contract in offshore and onshore supply of services. In the present case as per the emails/correspondence exchanged between the agent of the assessee Mr. Rupam Saikia and RIL, it is noted that when the assessee had been invited to do the innovative' welding job which is its specialty and when the assessee has been asked to repair the Coke drums of RIL using its technique and expertise, it is implicit that the tools of the job have to be as per the specification of the assessee. The emails mentioned above mention that the assessee had sought to include the weld wire in its scope of work but it was only on the insistence of RIL that it needs to place a separate purchase order for the weld wire that the assessee agreed to separate the two. The DRP holds that since the job order is for repair of the Coke drums through the welding process in the domain of the assessee, the bifurcation of the job order was not for real but was done only at the insistence of the RIL. The DRP holds that the receipts from the so-called offshore supply of weld wire would also form part of the taxable business income from India. Under these circumstances, it is held that the proposed action of the AO is justified. The decisions cited by the assessee are also not applicable as they are different on facts. Further, in the case of Ansaldo Energia SpA, 261 ITR 476 (Mad), the very same issue has been M/s. AZZ WSI B.V. decided by Hon'ble Chennai High Court in favour of revenue. The facts in the case of the assessee are even more in favour of the Revenue than in the case of Ansaldo Engergia SPA (supra), as in the case of the assessee, there is not even an Indian subsidiary and the whole contract is being executed by the assessee itself Hence, the DRP upholds the action of the AO in treating the contract as a single contract or a composite contract. The objection no. 2 of the assessee is dismissed.

11. With regard to profit attribution of 30% estimated by the ld. AO as profit attributable to the PE, the ld. DRP after considering the submissions, additional evidences submitted before ld. DRP, remand report of the ld. AO and rejoinder filed by the assessee to the remand report, directed the ld. AO to treat 7.13% of the total receipts from India as the taxable income of the assessee from Indian operations. Further the ld. DRP held that for the purpose of allocation of this resultant profit, the respective role of the AE and the PE needs to be factored in. The ld. DRP held that it is obvious that while the PE has done the marketing and actual execution of the work in India, the intangibles are only with the Head Office at Netherlands and the capital deployed is also by the Head Office at Netherlands. Hence to meet the ends of justice, the ld. DRP held that a further allocation of 25% of the income is made for the Head Office and remaining 75% is allocated to the PE in India. The ld. DRP also directed the ld. AO to adopt the correct figure of total contract revenue after verification of the records while computing profit margins of the assessee.

12.

Despite the aforesaid elaborate directions of the ld. DRP, we find that the ld. AO in his final assessment order framed u/s 143(3) r.w.s. 144C(13) of the Act on 23.10.2019 again held in para 6.5. of his order that assessee has a fixed place PE in India during the year under consideration. This is totally contradictory to the directions issued by the ld. DRP u/s 144C(5) of the Act, wherein it was specifically held that there was no fixed place PE in India. It is pertinent to note that against the M/s. AZZ WSI B.V. directions of ld. DRP, the revenue is not in appeal before us. Either way, as per the provisions of Section 144C(10) of the Act, the directions of the ld.DRP are binding on the ld. AO. However, we find that the ld. AO in the final assessment order determined the profit attribution of the PE as per the directions of the ld. DRP as under:-

(A) Correct figure of contract revenue – 6293452 Euro (B) Exchange rate applied - Rs 72.19 per Euro (C) Total Receipts (A) * (B) - Rs 45,43,24,300/- (D) 7.13% of Total Receipts - Rs 3,23,93,323/- (E) 75% of (D) - Rs 2,42,94,992/-

13. The ld. AR before us vehemently argued that the ld. AO in the final assessment order had ignored the binding directions of the ld. DRP and hence the reasoning given by the ld. AO which had ultimately led to the determination of taxable income of the assessee would be bad in law and since the final order passed is bad in law, the entire additions made thereon requires to be deleted. The ld.AR placed reliance on the Co- ordinate Bench decision of Delhi Tribunal in the case of Olympus Medical Systems (P) Ltd vs ACIT reported in 194 ITD 676 (Delhi Trib.). The relevant question raised before Delhi Tribunal is reproduced hereunder:- 2. On the facts and circumstances of the case, the final assessment order is bad in law in not following the directions of DRP and the appeal effect order passed by the TPO, consequently all further proceedings are also vitiated and invalid in law.

The observations of Delhi Tribunal are as under:- 10. As per the directions of the DRP, in the final set of comparables, Hicks Thermometer [India] Pvt Ltd was included and EDCIL [India] Ltd was excluded. However, we find that in the final assessment order dated 18-5-2021, the Assessing Officer has repeated the draft assessment order verbatim. The relevant part of the final assessment order reads as under: "The Hon'ble DRP, Delhi vide its order dated 17-3-2021 has upheld the findings of the TPO. Since the objections of the assessee to the draft assessment order u/s 143(3) r.w.s. 144C of the Act dt. 21-12-2019 have been disposed off by the Hon'ble DRP, Delhi vide its order dt.17-3-2021, the income of the M/s. AZZ WSI B.V. assessee for the A.Y. 2016-17 is computed as proposed in the draft assessment order u/s 143(3) r.w.s.144C of the Act dt.21-12- 2019 as under:— Returned Income Rs.5,37,08,930/- Addition as per Para.3 Rs.4,90,46,335/- of order dt. 21-12-2019 Addition as per Para.4 Rs.13,97,914/- of order dt, 21-12-2019 Total assessed Income Rs.10,41,53,179/- Rounded off Rs. 10,41,53,180/- 6. An addition of Rs. 10,41,53,180/- is made by the undersigned to the taxable income of the assessee on account of the TP adjustment and disallowances of expenses u/s 36(1 )(iii) of the Act. I am satisfied that the assessee company has concealed the income/furnished inaccurate particulars of income. Therefore, penalty proceedings u/s 271 (l)(c) of the Income-tax Act, 1961 for concealed the income/furnishing inaccurate particulars of income are being initiated separately, 7. Assessed at a total income of Rs. Rs. 10,41,53,180/-as above. Issue Tax and Interest u/s 234B and 234C have been charged as per tax calculation sheet which forms part of this order. Demand notice, and necessary forms are being issued along with copy of this Assessment Order. Penalty notice u/s 271 (l)(c) is initiated separately."

11.

Income of Rs. 10,41,53,180/- is the same as computed in the draft assessment order dated 21-12-2019. Considering the aforementioned factual matrix, we are of the opinion that as per the provisions of section 144C(5) of the Act, directions given by the DRP are binding on the Assessing Officer and in terms of section 144C(13) of the Act, the Assessing Officer was obliged to pass final order of assessment in accordance with the directions of the DRP. In the present case, final order of assessment does not incorporate the directions of the DRP and is verbatim repetition of the draft order of assessment. We are of the view that final order of assessment, in conformity with the directions of the DRP, has to be passed within one month from the end of the month in which the directions are issued by the DRP. Since the impugned order is not in conformity with the provisions of section 144C of the Act, the same is to be held as bad in law.

12. The ld. DR, however, while not disputing the factual position, as pointed out above, submitted that final order of assessment cannot be quashed, but at best, it can be set aside directing the Assessing Officer to pass final order of assessment in conformity with the DRP directions.

13.

We have given thoughtful consideration to the submissions of the ld. DR qua the factual matrix. We find that the coordinate bench at Bangalore in Flextronics Technologies (India) (P.) Ltd. v. Asstt. CIT [IT (TP) Appeal No. 832 (Bang.) of 2017, dated 31-12-2018] had the occasion to consider identical grievance wherein it followed the decision of the co-ordinate bench in the case Software Paradigms Infotech (P.)

M/s. AZZ WSI B.V. Ltd. v. Asstt. CIT [2018] 89 taxmann.com 339 (Bang. - Trib.) and on identical facts, this Tribunal in Global One India (P.) Ltd. v. Dy. CIT [2019] 112 taxmann.com 185/[2020] 182 ITD 355 (Delhi - Trib.) after considering the decision of the co- ordinate bench, has decided the issue. The relevant findings of the Tribunal in ITA 832/BANG/2017 read as under: '9. We have considered the rival submissions. We find that on identical facts, this Tribunal in the case of Software Paradigms Infotech (P.) Ltd. (supra) has quashed the final order of assessment observing as follows:— "3.3.1 We have heard the rival contention of both parties in the matter and perused and carefully considered the material on record. The undisputed facts on record, as brought out by the discussions above, is that the AO, as per law, was required to pass the final order of assessment dated 17-1-2014 for asst. year 2009-10 u/s. 143(3) r.w.s. 144C of the Act in conformity with the directions issued by the DRP u/s. 144C(5) of the Act, which are binding on him as per section 144C(10) thereof and within the time prescribed u/s. 144C(13) of the Act. We find that instead of passing the final order of assessment as required by law, the AO passed the impugned final order of assessment dated 17-1-2014 u/s. 143(3) r.w.s. 92CA of the Act; which, as contended by the id AR, is identical to the draft order of assessment passed on 14-3-2013 by only incorporating this TPO's proposals and, thereby evidently giving the DRP's mandatory directions issued u/s. 144C(5) of the Act a complete go-by. In our view, it is factually established that the AO in the final order of assessment dated 17-1-2014 has not given effect to or carried out the binding directions of the DRP as required u/s. 144C(10) within the time specified u/s. 144C(13) of the Act; which is a clear violation of the binding provisions of sec. 144C(10) and (13) of the Act. Therefore, in our considered opinion, the conduct of the AO/TPO in passing the impugned final order of assessment dated 17-1-2014 is a clear case of defiance and disregard to the binding directions of the higher authorities, i.e., the DRP in the case on hand. In fact, in the impugned order dated 17-1-2014 there is not even a single reference to the DRP's directions issued u/s. 144C(5) of the Act vide order dated 30-12-2013." 3.3.2 In the factual and legal matrix of the case on hand, as discussed above, we are of the considered view that the impugned final order of assessment for asst. year 2008-09 passed u/s. 143(3) r.w.s. 92CA of the Act by the AO, in violation of the express mandatory provisions of sec. 144C(10) and (13) of the Act by not passing the impugned order in pursuance of and in conformity with the binding directions of the DRP issued u/s. 144C(5) of the Act, within the time specified for this purpose, has rendered the said impugned final order of assessment unsustainable in law. We, therefore, quash the M/s. AZZ WSI B.V. impugned final order of assessment for asst. year 2009-10 passed by the AO u/s. 143(3) r.w.s. 92CA of the Act dated 17-1- 2014 in the case on hand. We hold and direct accordingly. Consequently, ground No. 17 of assessee's appeal is allowed.' 14. Respectfully following the aforesaid view of the co-ordinate bench, we quash the impugned order of assessment. Since the impugned order of assessment is quashed on the ground that the same is not in conformity with the provisions of section 144C of the Act, we are of the view that the other issues raised by the assessee in its grounds of appeal do not require any consideration.

15. In view of the conclusion that the assessment order is null and void, other grounds of appeal raised by the assessee on merits of the addition do not require any adjudication.”

14. In the instant case, the reasoning for making the addition in the final assessment order by the ld. AO is by treating the assessee as a Fixed Place PE, which has already been nullified by the ld. DRP. The ld. AO in the final assessment order is bound to complete the assessment in conformity with the directions of the ld. DRP as per the provisions of section 144C(13) of the Act. In the instant case, the ld. AO had not framed the final assessment order in complete conformity with the directions of the ld. DRP, thereby violating the provisions of section 144C(13) of the Act. However, only the determination of total income as directed by the ld. DRP had been complied with by the ld. AO in the final assessment order. This is a case of ld. AO completing the assessment by determining the total income as directed by the ld. DRP , but did not follow the basis and reasoning of determination of income as directed by the ld. DRP. Hence we are in agreement with the ld. AR that once the basis of determination of total income itself is illegal due to violation of provisions of section 144C(10) and 144C(13) of the Act, the ultimate determination of total income in the final assessment order also becomes bad in law. Moreover, the ld. AO had not even bothered to rectify his order u/s 154 of the Act by conforming to the directions of ld. DRP which forms the basis of determination of total income.

M/s. AZZ WSI B.V. 15. In view of the aforesaid observations, we have no hesitation to hold that the final assessment order passed by the ld. AO , which is in appeal before us, is bad in law and accordingly the final assessment order framed is hereby quashed. In view of this decision, the other grounds raised by the assessee on merits, need not be gone into, and they are left open.

16.

In the result, the appeal of the assessee is allowed.

Order pronounced on 28/03/2023 by way of proper mentioning in the notice board.

AZZ WSI B V ,MUMBAI vs. DY CIT (IT) CIRCLE- 1 (1)(2), MUMBAI