GE ENERGY PARTS INC,ATLANTA vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE INT TAX 1(3)(1), NEW DELHI

PER VIKAS AWASTHY, JUDICIAL MEMBER:

This appeal by the assessee is directed against the assessment order dated 10.01.2025 passed u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), for Assessment Year 2022-23.

ITA 1947/DEL/2025 GE ENERGY PARTS INC the receipts for alleged off-shore supplies of spares parts and repairs were treated as business income. Accordingly, the Assessing Officer (AO) added Rs.10,85,67,794/- to the returned income of assessee.

3.1. On merits of the issue raised in ground no. 3 of appeal, the ld. Counsel submits that the AO has made addition of Rs.10,85,67,794/- in respect of off-shore supplies to Indian customers. The ld. Counsel contended that the AO has erred in holding that the project office of GE International Inc. (GEII) constitutes fixed place PE of the assessee in India under Article 5 of India-US Double Taxation Avoidance Agreement (DTAA). The ld. Counsel submits that the issue of PE in assessee’s case is now settled. The Coordinate Bench in the immediate preceding assessment year i.e. AY 2021-22 in ITA No. 3199/Del/2023 adjudicated this issue in favour of the assessee following the order of Tribunal in ITA No.738/Del/2023 for AY 2020-21. The Tribunal has held that the assessee has no PE in India, therefore, there was no question of attribution of profit to non-existent PE.

3.2. Without prejudice to the primary submissions, the ld. Counsel submits that the Tribunal in preceding assessment year has restricted attribution of profits to alleged assessee PE in India to 4%.

3.3. The ld. Counsel prayed for deleting the addition on merits following earlier order of Tribunal in assessee’s own case.

ITA 1947/DEL/2025 GE ENERGY PARTS INC 4. Per contra, Shri M.S. Nethrapal, representing the department strongly supporting the impugned assessment order prayed for dismissing appeal of the assessee. The ld. DR asserted that the facts in impugned assessment year are distinguishable, hence, cannot be decided on the basis of findings of the Tribunal in the preceding assessment years. The ld. DR submits that a composite contract was awarded to BHEL, BHEL entered into two separate contracts one with GE Energy Part Inc. i.e. the assessee and another with GEII. A Coordination Agreement between Gujarat State Electricity Corporation Ltd. and the assessee and GEII was entered on 19.03.2008, the said coordination agreement ultimately unifies the entire project and makes the transaction composite. The ld. DR further pointed that in Coordination agreement, there is no separate reference to the assessee or GEII. The assessee and GEII are collectively addressed as ‘M/s. GE’. Even, in the Board Meetings there is no separate reference to the assessee and GEII. This shows that assessee and GEII are collectively executing the contract and jointly liable for execution of entire contract. The ld. DR to show that the facts are distinguishable in AY 2022- 23 referred to para 5 of his written submissions, the same are as under:-

“5. The AO carried out independent 133(6) inquiries and has brought out new facts in this case, which are enumerated below: a. Page 8 of the appeal papers clearly shows that the inquiries with BHEL clearly showed that the contracts were split artificially at the behest of the assessee, and it is not the natural intention of the end customer in India. The contract was floated as a composite contract, and only on the request of the assessee were the two parts split artificially. In this regard, the High Court of Madras ruling in the case of M/s Ansaldo Energia Spa is squarely applicable in this case. b. Page 38 -Discussion of OTPC's submission shows it's a composite contracts. In this case clearly the fragmentation of contracts undertaken by the assessee is clearly found in the BHEL, who is the L1 bidder is clearly found. BHEL enclosed an offer from GE to execute separate agreements with GE International Inc for onsite repair and maintenance and GE Energy Parts Inc for offshore supply of spare parts and repair of parts at their facility situated outside India. On submission of bids, although this was one contracts, EPC work along with the supply of contracts was awarded to BHEL. OTPC entered into separate agreements with GE International Inc and GE Energy Parts Inc. Page 40, 41 clearly shows the artificial spilt of the contracts into offshore and an onshore component. c. Page 41- Conduct of the parties is clearly visible in this wherein the AO has compared the draft offshore-agreement for parts supply and repair services ( enclosed in BEL's bid to OTPC with the final offshore agreement for parts supply and repair signed by the assessee. It can be seen in page 43, the terms were artificially varied. Tender was awarded on some clauses while the final agreement being shown is completely different and this is only done for the purpose of tax planning. d. Page 43- Discussion on SEL's Dhuvaran Power Project clearly shows the presence of an umbrella agreement like the coordination agreement which links up all parts of the contracts. This discussion on page 46-47 and evidences clearly brings out the fact that the contract is a turnkey contract.

ITA 1947/DEL/2025 GE ENERGY PARTS INC e. Page 47 clearly shows no demarcation in negotiations on which companies are involved like M/s GE Energy parts or M/s GE International Inc. In this AO has brought out evidence to show that M/s GE Energy Parts and M/s GE International Inc are not independent as they themselves has not entered into separate negotiations in independent status, rather as a group company the orders/contract was secured by the company as a composite contract which was artificially spilt for tax purposes. Minutes of meetings on page 48-49 completely support this. f. Page 49 - Clearly shows the receipts from M/s Ratnagiri Gas and Power Plant Pvt Ltd. Now on page 50, M/s Ratnagiri Gas and Power Plant Pvt Ltd has submitted responses u/s 133(6). The AO has clearly brought out that the comprehensive service agreement has been entered between M/s GE International Inc and M/s Ratnagiri Gas and Power Pt Ltd and AO has clearly brought out Exhibit N wherein a project director has to be appointed as a single point of contact and the same is enclosed on page 50-51.AO has hence concluded that M/s GE International Inc has a project office/local office as per the above terms. AO has discussed on page 52 and 53 wherein joint protocol signed between GE and M/s RGPPL clearly shows that the protocol was signed by Binod Pandey, who acted as the project director of M/s GE International Inc. On page 56, it is clearly mentioned, Mr Binod Pandey, Project Director, GE International Inc, Site Office, GE Project office, C/o Ratnagiri Gas and Power Pvt Ltd. Similarly on page 56, in yet another joint protocol between M/s RGPPL and M/s GE, the documents have been signed by Binod Pandey. This is in page 57,58 g. Page 58 and 59 gives details of enquiries done by A where AO has clearly found that GE and BHEL have set up a workshop at Hyderabad for onshore repair of GE turbines after the debacle of the Dabhol Power Company. The relevant factual information is provided on page 60. h. Page 61-67 give the entire modus operandi adapted in the fragmentation of contracts to avoid Indian taxation. Discussions on page 67 on permanent establishment clearly brings out evidences for existence of PE.” 4.1. The ld. DR in support of findings of the AO that the assessee has PE in India, referred to Comprehensive Service Agreement between Ratnagiri Gas & Power P. Ltd. and GEII, Exhibit N-Resident Support reproduced at pages 47 and 48 of the assessment order. The ld. DR submits that the said Comprehensive Service Agreement was signed by Mr. Binod Pandey, Project Director, GEII and same Shri Binod Pandey was representing assessee as well. This clearly shows that the office of GEII in India was used by the assessee, hence, falls within the meaning of PE as defined under Article 5 of India-US DTAA.

ITA 1947/DEL/2025 GE ENERGY PARTS INC The assessee undertakes supply and repair activities entirely from outside India with no involvement of GEII’s project office or any other location in India. Even, the conditions for having DAPE in India is not satisfied. The ld. Counsel reiterated that there is no relationship between the assessee and GEII’s project office in India. He further submitted that the AO in ex- parte proceedings without confronting the documents collected behind the assessee has given his findings on assessee having PE in India. In any case, the DRP has accepted that the facts in the impugned assessment year are identical to facts in AY 2020-21 and 2021-22, therefore, the AO could not have gone beyond findings of the DRP.

5.1. With regard to splitting of contract, the ld. Counsel referred to bid document reproduced at page 37 of the assessment order on content that the contract was split in the bid document itself between On-shore agreement covering, inspection services and contract management and Off-shore agreement covering supply of parts and repairs contract. He further referred to various Off-shore supplies Agreements at pages 41 to 883 of the paper book. He submitted that assessee had entered into Off-shore supplies Agreement with various power companies viz. GSPC Pipavav Power CO Ltd., M/s Gujarat Electricity Corporation Ltd., M/s. Gujarat State Energy Generation Ltd., M/s. ONGC-Tripura Power Co. P. Ltd., Pragati Power Corporation Ltd., & Ratnagiri Gas & Power P. Ltd. The ld. Counsel submits that in case of Off-shore supplies of goods, the goods transported to India as per the terms and conditions of the agreement, the title in goods is transferred to the customers outside India. In the case of repair or refurbishment of gas turbine, the customer ships the equipment for repair to the workshop located outside India, after repairs and refurbishment, the equipment is shipped back to customer in India.

i. GEII’s project office in India constitutes assessee’s fix place PE in India; & ii. Consequent to above findings, the payment received by the assessee for off-shore supply of equipment and for repairs and refurbishment, attribution of income to alleged Indian PE of the assessee.

ITA 1947/DEL/2025 GE ENERGY PARTS INC alleged that the project office of GEII in India constitutes assessee’s PE as per Article 5 of India-US DTAA. The condition to constitute PE in India as per Article 5 of India-US DTAA are as under:-

ITA 1947/DEL/2025 GE ENERGY PARTS INC 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph ; (b) he has no such authority but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in the State on behalf of the enterprise have contributed to the sale of the goods or merchandise ; or (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise. 5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm's length conditions, he shall not be considered an agent of independent status within the meaning of this paragraph. 6. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.”

ITA 1947/DEL/2025 GE ENERGY PARTS INC activities which have preparatory character. Further, to prove that the assessee has DAPE, the AO has failed to substantiate that the project office of GEII habitually exercise authority to conclude contract on behalf of the assessee. In the absence of any element reflecting that the conditions set out in Article 5(2), (3) and (4) are satisfied, it cannot be held that project office of GEII constitutes assessee’s PE in India.

ITA 1947/DEL/2025 GE ENERGY PARTS INC “10. We have considered rival submissions and perused materials on record. We have also applied our mind to the judicial precedents cited before us. The short issue arising for consideration is whether the assessee had a PE, either fixed place PE or dependent agent PE, in India during the year under consideration. No doubt, the past assessment history of the assessee reveals that existence of PE in India was upheld by the Tribunal and Hon’ble jurisdictional High Court in assessment years 2002-03 to 2006-07 and 2008-09. Perusal of facts on record including the discussion made by the Assessing Officer and learned DRP would reveal that the reason why the existence of PE was upheld in earlier assessment years are as under: (i) The assessee has an office premises at AIFACS building; (ii) Expatriates along with employees of GEIIPL have engaged themselves in the activities of soliciting business and concluding contracts. (iii) Remuneration paid to GEIIPL was at arm’s length. 11. However, as far as the facts relating to impugned assessment year are concerned, AIFACS building, which earlier constituted the fixed place PE of the assessee in India, was vacated on 01.05.2012. In fact, this was brought to the notice of both the Assessing Officer and learned DRP in course of proceedings before them. In fact, on 29th May, 2018, the assessee has furnished annual statement u/s. 285 of the Act in Form 49C for the financial year 2017-18, clearly indicating that since no activity was undertaken by the liaison office, the Management does not intend to continue the liaison office and is to file for closure of the liaison office. Thus, the fact that AIFACS building has been vacated, no expatriates visited India during the year and the liaison office has been closed were brought to the notice of the departmental authorities in course of proceedings to demonstrate that the reasons for which the departmental authorities as well as the Tribunal and Hon’ble jurisdictional High Court held existence of PE, no longer exists in the impugned assessment year. 12. This is clearly evident from the submissions made and documents filed before the departmental authorities. Despite such submissions and evidences produced by the assessee, the departmental authorities have remained oblivious to such facts and materials brought on record and proceeded to conclude existence of PE merely relying upon the past orders passed by them and higher appellate authorities. It is trite law, the existence or otherwise of PE has to be determined on year to year basis, as the existence of PE has to be decided based on the definition of PE in the relevant tax treaty. Merely because in one year, the assessee had a PE in India, that by itself cannot lead to the conclusion that the assessee must be having a PE in subsequent assessment year, without looking into the relevant facts. In this context, we refer to the decision in the case of M/s. Bentley Nevada Inc. (supra). Further, in case of E-Funds IT Solution Inc. (supra), Hon’ble Supreme Court has very clearly and categorically held that the onus is entirely on the Revenue to establish existence of PE. 13. Adverting to the facts of the present appeal, undisputedly, the assessee brought on record all material and evidences to establish that it does not have any PE in India. As it appears from the respective orders of the departmental authorities, without dealing with the submissions of the assessee and evidences brought on record through proper reasoning or by bringing any contrary material to controvert them, the departmental authorities have merely followed their earlier decision without making any effort to look into the specific facts of the impugned assessment year. As discussed earlier, the assessee has brought on record cogent

ITA 1947/DEL/2025 GE ENERGY PARTS INC evidence to demonstrate that there is substantial change in facts in impugned assessment year qua the existence of PE. The specific averment of the assessee regarding vacation of office premises at AIFACS building and no visit by expatriates in India during the year, have not been controverted by the departmental authorities by any specific factual finding. In case of Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd. (supra), Hon’ble jurisdictional High Court, while dealing with the issue of reopening of assessment based on information received from third party, observed, though such information can form basis for an examination/investigation by the Assessing Officer, but the decision to reopen the assessment has to be of the Assessing Officer and not of the third party. The Assessing Officer cannot merely do a cut and paste job for reopening the assessment without independent application of mind or verification or investigation. The aforesaid ratio laid down by Hon’ble jurisdictional High court squarely applies to the facts of the present appeal, as the departmental authorities have merely followed the decision taken by them and higher appellate authorities in assessee’s cases in past assessment years without independent application of mind to the facts brought on record by the assessee or making proper verification/investigation of the evidences. 14. Thus, essentially, the evidences brought on record by the assessee remain uncontroverted. When the evidences brought on record by the assessee are before the departmental authorities, it is the duty of the departmental authorities to examine them on merits and thereafter, either to accept them or to reject them with proper reasoning by bringing on record contrary material/evidence. In the facts of the present appeal, the departmental authorities have failed to undertake such exercise. Therefore, in our view, it has to be concluded that the departmental authorities have not found anything amiss or adverse in the facts and material brought on record by the assessee. In such a scenario, we do not find any reason to again remit the matter back to the Assessing Officer to provide him a second inning to improve upon the deficiencies in the original assessment order. In view of the aforesaid, we are inclined to hold that keeping in view the facts and materials peculiar to the impugned assessment year, it has to be concluded that the assessee did not have any PE, either fixed place PE or dependent agent PE, in India in the year under consideration. We again reiterate, our aforesaid conclusion is purely based on the facts involved in the impugned assessment year.” 7. Akin to the case referred to above, in the facts of the present appeals also, the departmental authorities have failed to controvert either the submission or the materials and evidences brought on record by the assessees to demonstrate that they did not have any PE in India in these assessment years. In fact, even at the stage of Tribunal, no contrary material has been brought on record by the Revenue to rebut the claim of the assessees that no PE existed in these years. 8. That being the factual position emerging on record, we hold that the decision taken in case of Nuovo Pignone International SRL Vs. DCIT (supra) would squarely apply to the facts of the present appeals. Accordingly, we hold that the assessees did not have any PE in India in the assessment years under dispute so as to attribute profit to such PE.” 4. Due to parity of facts in the impugned assessment year, respectfully following the decision of the Coordinate Bench, we hold that the assessee had no PE in India in the year under consideration. Hence, no profit can be attributed to such nonexistent PE. The Assessing Officer is directed to delete the addition.”

ITA 1947/DEL/2025 GE ENERGY PARTS INC 7. Respectfully following the precedent, we hold that the assessee has no PE in India in the year under consideration; hence, no profit can be attributed to such non-existent PE. Accordingly, the Assessing Officer is directed to delete the addition.” The DRP in the impugned assessment year has at the outset admitted the fact that, “the PE in the case of the assessee was alleged for AY 2016-17 & 2018-19 to 20211-22 on similar grounds”.

In light of our above findings coupled with the fact that the Tribunal has been consistently holding in the past that the assessee has no PE or DAPE in India on similar set of facts, we find merit in submissions of the assessee. We have no hesitation in holding that the assessee has neither fixed place PE or DAPE in India during the impugned assessment year.

“WHEREAS, Owner has requested that Supplier will supply Parts and Repair Services to be carried outside Site Country, for the Covered Unit(s) in accordance with the terms of this Agreement.” Further, Article 6 of the agreement spells out about delivery, title transfer, etc. As per Clause 6.2 of Article 6, the title in equipment to be shipped from US shall pass immediately after the equipment departs from the territorial land of the US. The relevant extract from Article 6.2 is as under:-

“6.2.1 Passage of Title to Owner a) Title to Parts to be shipped from the United States shall pass from Supplier to Owner immediately after each item departs from the territorial land, seas and overlying airspace of the United States.

ITA 1947/DEL/2025 GE ENERGY PARTS INC b) Title to Parts shipped directly from a manufacturer, warehouse, or other point of shipment to the Owner, located in the European Union ("EU") but outside of the country of the Site, shall pass 1o Owner at the earlier of the port of export immediately after the Parts have been cleared for export or immediately after each item departs from the territorial land, seas and. overlying airspace of the EU. sending country. c) Title to Parts be shipped from any other country shall pass to Owner at the port of export immediately after the Parts have been cleared for export.” A reading of Clause 6.2.1 (supra) and Preamble of agreement makes it explicit that supplier would supply parts from outside India and repairs would be carried outside India and that the title in goods is transferred to the owner i.e. ONGC-Tripura Power Company P. Ltd. from supplier immediately after the goods depart the territorial land/waters of the US. Thus, it is evident that the supplies of the equipment and repairs or refurbishment are carried outside India. It is now settled that where the equipments are supplied outside India and repairs are undertaken outside India i.e. Off-shore sales and repairs, the receipts for supply of said equipments or such services are not taxable in India. [RE: Ishikawajma-Harima Heavy Industries Ltd. vs. DIT, 288 ITR 408 (SC)]. The ld. Counsel has pointed that the terms and conditions for transfer of title and risk for overseas supply of goods and repairs are similar in all other Off-shore Agreements.

ITA 1947/DEL/2025 GE ENERGY PARTS INC 16. In the result, impugned order is set aside and appeal of assessee is allowed.

Order pronounced in the open court on Monday the 03rd day of August, 2026.

Sd/- Sd/- SANJAY AWASTHI VIKAS AWASTHY ACCOUNTANT MEMBER JUDICIAL MEMBER Delhi Dated: 03-August-2026