Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI ‘D’ BENCH, MUMBAI
Appearances by Madhur Aggarwal for the appellant Avaneesh Tiwari for the respondent : March 12th, 2020 Dates of hearing of the appeal : May 27th, 2020 Date of pronouncing this order O R D E R Per Bench:
[1] By way of this appeal, the Assessing Officer has challenged correctness of the order dated 31st December 2018, in the matter of assessment under section 143(3) r.w.s. 144C of the Income Tax Act, 1961, for the assessment year 2015-16, on the following grounds: - Grounds of Appeal Tax Effect relating to each Ground of appeal 1. “Whether on the facts and in circumstances of the case and in law,
Page 2 of 9 the Ld. CIT(A) has erred in holding that income from offshore supply of products is not taxable in India when no such onshore-offshore bifurcation is provided in the contract and the Rs. 2,40,81,276/- contract is composite in nature.” 2. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that payment in relation to Offshore supply is not taxable in India, wrongly relying on the decision of Supreme Court in the case Ishikawajma Harima, ignoring the facts that in the case of Ishikawajma Rs. 87.58,910/- Harima the contract was divisible separately in Off-shore and on-shore component, whereas, in the fact of present case, it is a indivisible contract and decision of AAR in the MERO Ltd., Asia Pacific Pte (AAR/981/2010) will directly apply in this case.” 3. “Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in holding held that since such repair work (and related activity) is undertaken at the overseas workstation the question of Rs. 7,43,770/- taxability of such receipts from repair work as attributable to PE does not arise and directed the AO to delete the addition made for the revenues earned by the assessee from repairs activity under ONGC contract, ignoring the Page 3 of 9 crucial fact that the receipts are emanating from a composite contact.” 4. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer restored. 5. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” Rs. 2,40,81,276/- Total tax effect [2] As a plain look at the impugned order, passed by the CIT(A), would show this is a recurring issue in the case of the assessee and it already stands concluded in favour of the assessee, by a decision of the coordinate bench of this Tribunal. We may, in this regard, refer to the following observations made by the Assessing Officer: - 5. The income of assessee is computed in accordance with provisions of section 44BB i.e. at 10% of receipt. The issue is whether the following is to be considered in computation of income.
Particulars Revenue Amount Fees for repair work and related 21,89,72,756/- warehousing costs; including reimbursement for transportation and logistics support 1,85,94,235/- Product Supply The reasons for exclusion of same by appellant is that revenue from these two streams out of the contract with ONGC is that service concerned is rendered outside India. The Assessing Officer included the same holding the same to be part of composite contract.
Page 4 of 9 6. The issue is recurring in nature. In AY 2011-12 and 2012-13 the CIT(Appeals) held the issue in favour of appellant. In AY 2013-14 (where only issue of repairs was there), I had allowed the appeal citing earlier decision of AYrs. for AY 2014-15 too I had takes the same decision Vide order dated 13.07.2018, the view of the CIT(Appeals) for AY 2011-12 was upheld by ITAT.
Considering all aspects, I hold that, mainly following binding decision of ITAT and past appellate order of CIT(A) in case of appellate itself, that there is no case to deviate from earlier decision. I also find that the contract is duly extended and same contract as in AY 2010-11 is in form even in this AY. Hence I direct Assessing Officer to eliminate the disputed items referred to in para 5 above and re-compute the income under section 44BB if the I.T Act. [3] Learned representatives fairly agree that, vide our dated 13th July 2018 in assessee’s own case for the assessment year 2011-12, a coordinate bench has decided these issues by observing as follows: - 13. We have given a thoughtful consideration to the observations of the CIT(A) and are persuaded to be in agreement with the same. We find that the CIT(A) while arriving at the aforesaid view had taken support of the judgment of the Hon’ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. Vs. DIT (2007) 288 ITR 408 (SC). The Hon’ble Apex court in its aforesaid judgment had observed that where different severable parts of a composite contract are performed in different places, the principle of apportionment can be applied, to determine which fiscal jurisdiction can tax that particular part of the transaction. The Hon’ble Court further observed that the principle of apportionment would help determine, where the territorial jurisdiction of a particular state lies, to determine its capacity to tax an event applying it to composite transactions which have some operations in one territory and some in other, is essential to determine the taxability of various operations. It was thus observed by the Hon’ble Apex Court that though a contract may be a turnkey contract, but the same by itself would not mean that even for the purpose of taxability the entire contract must be considered to be an integrated one so as to make the assessee to pay tax in India. We further find that the CIT(A) in order to fortify his aforesaid view that the taxability of revenue earned by the assessee from each separate, independent and divisible work under the ONGC contract was required to be evaluated independently, had also taken support of the judgment of the Hon‟ble Supreme Court in the case of CIT Vs. Hyundai Heavy Companies Ltd. (2007) 291 ITR 482 (SC). In the aforementioned case, the assessee a Korean company had entered into a composite contract having two types of operations viz. (i) one being fabrication in Korea; and (ii) the other consisting of installation in India. The Hon‟ble Apex court in the backdrop of the facts involved in Page 5 of 9 the said case observed that the profits earned by the Korean GE on supplies of fabricated platform could not be made attributable to its Indian PE as the installation PE came into existence only on conclusion of the transaction giving rise to the supply of the fabricated platform. On the basis of the aforesaid deliberations, it was observed by the Hon‟ble Court that the profit on such supplies of fabricated platform cannot be said to be attributable to the Indian PE of the assessee. Rather, it was observed that even if it was to be assumed that the supplies of platform were necessary for the purpose of installation (activity of the PE in India) and even if it was to be assumed that the supplies were an integral part, still no part of the profits on such supplies could be attributed to the independent PE, unless it was established by the department that the supplies were not at arm’s length price. We further find that the aforesaid view arrived at by the CIT(A) is also fortified by the judgment of the Hon’ble High Court of Delhi in the case of Linde AG, Linde Engineering Division Vs. DDIT (2014) 361 ITR 1(Del). We are of the considered view that as observed by us at length hereinabove, that the activities carried out by the assessee viz. (i) supply of offshore products/equipment; (ii) offshore repair work (including related warehousing costs and reimbursement for transport and logistic support); (iii) equipment rental; (iv) project management services; and (v) installation and commissioning activities (though not rendered during the year under consideration) are separate, divisible and independent of each other, therefore, the CIT(A) in the backdrop of the settled position of law as laid by the Hon‟ble Supreme Court in the aforementioned judgments rendered in the case of Ishikawajima-Harima Heavy Industries Limited (supra) and Hyundai Heavy Industries Company Ltd. (supra), had rightly concluded that the taxability of the revenues received there from by the assessee from such separate, independent and divisible activities were required to be undertaken independently. We thus, finding ourselves to be in agreement with the view taken by the CIT(A), uphold the same. The Ground of appeal
No. 1 raised by the revenue is dismissed.
14. We shall now advert to the sustainability of the view of the CIT(A) that taxability of revenue received by the assessee from offshore supply of equipments under the ONGC contract, being a case of outright transfer of title in the products by the assessee to ONGC outside India, thus, cannot be construed to be FTS or Royalty and brought to tax in India. We find that the CIT(A) after concluding that the taxability of the revenue received by the assessee from its various streams of separate, independent and divisible activities under the ONGC contract were required to be undertaken independently, had thus, in the backdrop of his said observations deliberated on the independent taxability of the revenue received by the assessee from offshore supplies made under the ONGC contract. The CIT(A) observed that as the products identified by ONGC are requested on need basis as per their requirements, therefore, the interconnection of the revenue received by the assessee from offshore supply of goods with other activities under the ONGC contract was unwarranted. We find that the CIT(A) had observed that in case of offshore supplies made under the ONGC contract, the property in goods were transferred
Page 6 of 9 by the assessee to ONGC outside India and the entire sale was executed outside India. The CIT(A) had further observed that no part of the activities of the offshore supply of equipments were carried out in India. Further, the PE of the assessee in India also had no role to play in effectuating such transactions either pre or post such offshore supply. We find that the CIT(A) relying on the judgment of the Hon’ble Supreme Court in Ishikawajima Harima Heavy Industries ltd. Vs. DIT (2007) 288 ITR 408 (SC) and CIT Vs. Hyundai Heavy Industries Company Ltd. (2007) 291 ITR 482 (SC), had observed that as in the case of the assessee no part of the activities of offshore supply of equipments by the assessee were undertaken in India, hence the revenue received by the assessee there from could not be taxed in India. We have deliberated at length on the aforesaid observations of the CIT(A) and find ourselves to be in agreement with the view arrived at by him that the revenue received by the assessee from offshore supply of goods to ONGC could not be taxed in India. We thus finding no infirmity in the order of the CIT(A) in context of the issue under consideration uphold the same to the said extent. The Ground of appeal
No. 2 raised by the revenue is dismissed.
15. We shall now advert to the observations of the CIT(A) that the revenue received the assessee from repair work (and related activities) undertaken by the assessee under the ONGC contract, not falling either within the sweep of FTS as provided in Explanation 2 to Sec.9(1)(vii) or Royalty as per Article XII(3) of the India-Australia DTAA, thus would not be taxable in India. We have perused the order of the CIT(A) and deliberated on his observations in context of the issue under consideration. We are of the considered view that for adjudicating the issue under consideration, it would be relevant to have an insight on the nature of the repair activities carried out by the assessee. We find that the repair work is undertaken by the assessee at its overseas work stations located outside India. The equipment which is identified by ONGC requiring overhauling/maintenance is transported at the latters responsibility to Australia/Malaysia (depending upon the type of equipment and nature of services to be rendered). After initial inspection, the spares required to be replaced are identified and ONGC makes necessary requests for the same to the assessee. The assessee replaces the spares in the course of repair of the overall equipment. After the repair work is completed, the equipment is again transported to India. We shall now, in the backdrop of the aforesaid repair activities provided by the assessee to ONGC adjudicate as regards the scope of the taxability of the receipts received there from by the assessee.
16. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to subscribe to the view of the A.O that as the repair activities involves technical expertise, therefore, the receipts from rendering of such services would be liable to be brought within the definition of FTS. We find that a perusal of Explanation 2 to Sec. 9(1)(vii) of the Act, reads as under:
Page 7 of 9 “[Explanation [2]- for the purpose of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy service (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “salaries”. It is clearly discernible from a perusal of Explanation 2 to Sec. 9(1)(vii), that where the consideration is received by the recipient for any “mining or like project” undertaken by him, the same would be excluded from the sweep of FTS. We are of the considered view that as the consideration received by the assessee for providing the repair work (and related activities) to ONGC are in context of the business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used, in the prospecting for, or extraction or production of mineral oils, thus, the receipts in the hands of the assessee from providing such services would clearly fall within the sweep of the exclusion contemplated in Explanation 2 to Sec. 9(1)(vii) of the Act. We thus, in terms of our aforesaid observations are of the considered view that the revenue received by the assessee from providing repair services to ONGC would not fall within the sweep of FTS under Sec.9(1)(vii) of the Act.
We shall now deliberate as to whether the revenue received by the assessee from providing repair services to ONGC would fall within the scope and gamut of the definition of term royalty. We find that the term royalty as per the India-Australia DTAA is defined in Article XII(3) of the India Australia DTAA. On a perusal of the same, it emerges that as per Article XII(3)(g) of the said tax treaty, payments made as consideration for rendering of services (including provision of technical or other personal) would result in royalty, if such services make available technical knowledge, expertise, skill, know how or process, which enables the person acquiring the service to apply the technology contained therein. In other words, if the service provider does not make available the technical knowledge, experience, skill know how or process etc., then the consideration received for rendering of such services cannot be characterised as royalty for the purpose of Article XII(3)(g) of India-Australia DTAA.
We shall now analyse as to whether the repair activities provided by the assessee to ONGC can be brought within the sweep of royalty, as defined in Article XII(3)(g) of the India-Australia tax treaty. We find that as observed by the CIT(A), though the term „make available‟ had not been defined under the India-Australia DTAA, however, the meaning of the same can safely be gathered from other such similar treaties. We are of the considered view that mere rendering of repair work by the assessee outside India would not enable the ONGC personnel to make use of technical knowledge, experience
Page 8 of 9 etc. in future. We find that the CIT(A) had deliberated at length on the issue as to whether the providing of repair services by the assessee to ONGC did make available any technical knowledge, experience, skill, knowhow or process or consisted of the development and transfer of a technical plan or design. We find that the CIT(A) after relying on a host of judicial pronouncements and the scope of the term “make available” as used in India- USA DTAA, had observed that mere rendering of the repair services by the assessee at its overseas work station did not satisfy the „make available‟ condition as contemplated under Article XII(3)(g) of the India-Australia tax treaty. We thus, are persuaded to subscribe to the view taken by the CIT(A) that the rendering of the repair services by the assessee to ONGC cannot be characterised as royalty. Still further, we may herein observe that as the equipment is owned by ONGC itself, therefore, while rendering the repair services, no right to use the equipment can be said to have been provided by the assessee to ONGC. We thus, finding no infirmity in the order of the CIT(A) holding that the revenue received by the assessee from rendering of the repair services to ONGC cannot be brought within the sweep of FTS or Royalty, uphold the same. Before parting, we may further observe that as the repair works are undertaken at the overseas work stations of the assessee, therefore, the question of taxability of such receipts from rendering of the repair work as attributable to PE of the assessee in India does not arise. We thus, in terms of our aforesaid observations conclude that the A.O had erred in holding that the revenue from repair activities rendered by the assessee to ONGC was taxable in India under Sec. 44DA of the Act. The Ground of appeal No. 3 raised by the revenue is dismissed. [4] We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same we uphold the conclusion arrived at by the learned CIT(A) and decline to interfere in the matter in any case, learned Departmental Representatives has not made out a case. For departure from the views of the coordinate bench.
[5] In the result, the appeal is dismissed in the terms indicated above. Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.