SUMITOMO CORPORATION,DELHI vs. DDIT, NEW DELHI

1 ITA Nos. 3675/Del/2014 & ors

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘G’ NEW DELHI

BEFORE SHRI G. D. AGRAWAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER

I.T.A. No. 3675/DEL/2014 (A.Y 2001-02) I.T.A. No. 3676/DEL/2014 (A.Y 2002-03) I.T.A. No. 3677/DEL/2014 (A.Y 2003-04)

Sumitomo Corporation Vs DDIT G-195, Sarita Vihar Circle-2(2) New Delhi International Taxation AABCS6011P New Delhi (APPELLANT) (RESPONDENT)

I.T.A. No. 3695/DEL/2014 (A.Y 2001-02) I.T.A. No. 3696/DEL/2014 (A.Y 2002-03) I.T.A. No. 3713/DEL/2014 (A.Y 2003-04) I.T.A. No. 3714/DEL/2014 (A.Y 2004-05)

DDIT Vs Sumitomo Corporation Circle-2(2) G-195, Sarita Vihar New Delhi New Delhi (APPELLANT) AABCS6011P (RESPONDENT) I.T.A. No. 5964/DEL/2010 (A.Y 2007-08) Sumitomo Corporation Vs Addl. CIT(A) C/o. RKM & Associates Range-2, D-44, Kalkaji International Taxation New Delhi New Delhi AABCS6011P (APPELLANT) I.T.A. No. 1114/DEL/2015 (A.Y 2010-11)

Sumitomo Corporation Vs DCIT G-195, Sarita Vihar Circle-3(1)(2), New Delhi International Taxation AABCS6011P New Delhi (APPELLANT)

I.T.A. No. 6384/DEL/2015 (A.Y 2011-12) I.T.A. No. 6385/DEL/2015 (A.Y 2012-13)

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Sumitomo Corporation Vs DCIT (International G-195, Sarita Vihar Taxation) New Delhi Circle-3(1)(2), AABCS6011P New Delhi (APPELLANT)

Appellant/Respondent Sh. C. S. Agarwal, Sr. Adv, by Sh. Ravi P. Mall, Adv & Sh. Manish Bansal, CA Respondent/Apppellant Sh. G. K. Dhall, CIT(DR), by Intl.

Date of Hearing 15.04.2019 Date of Pronouncement 01.07.2019

ORDER PER SUCHITRA KAMBLE, JM

These appeals are filed by the assessee and the Revenue against the separate orders passed by CIT(A) as well as by the Assessing Officer for the Assessment Years 2001-02, 2002-03, 2003-04, 2004-05, 2007-08, 2010-11, 2011-12 and 2012-13.

3695/Del/2014 (A.Y. 2001-02) Revenue’s appeal 1) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the assessee did not have a Permanent Establishment ('PE') in relation to various contracts for supplies and services executed in India for M/s Maruti Udyog Limited ('MUL'). 1.1) The Ld CIT(A) has erred in ignoring the findings of the Assessing Officer ('AO') that the assessee had a fixed-place PE in India in relation to the contracts for supplies executed for M/s MUL in the form of a long-standing presence at M/s MUL's site in India and which operated as an effective system to know the requirements of M/s MUL, to negotiate the Purchase

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Orders, to procure Purchase Orders etc. 1.2) Without prejudice to the foregoing, the Ld CIT(A) has erred in holding that the assessee did not have a supervisory PE in relation to the services of installation, testing, commissioning etc of equipments 1.3) The Ld. CIT(A) has erred in mechanically following the judgment of the Hon'ble ITAT in assessee own case for Asstt Years 1992-93 to 1994-95 & 1996-97, not appreciating the fact that the issue of existence or constitution of the PE is always year-specific and therefore the finding with regards to the existence of PE has to be examined afresh in each year on the basis of facts specific to the year under consideration. 1.4) Without prejudice to the foregoing, the issue of constitution of PE in those years has not yet achieved finality as the Revenue has filed a Miscellaneous Application ('MA') before the Hon'ble ITAT to the effect that there are mistakes apparent from record regarding assumption of facts on the basis of which decision was rendered by Hon'ble ITAT. 2) Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in holding that no portion of the assessee's income from the activity of supplies of equipments to M/s MUL is taxable in India 2.1) The Ld CIT(A) has erred in holding that no operations in relation to the supplies of equipments to MUL were undertaken in India, not appreciating the fact that the assessee has a PE in India in the form of long-standing presence in India in relation to the supplies being made and services being rendered to MUL for the past several years. Therefore, the reliance by the Ld CIT(A) on the judgment in the case of M/s Ishikawajima Harima Heavy Industries Ltd [288 ITR 408 (SC)] was misplaced as the facts of the case are distinguishable. 3. Whether on the facts and in the circumstances of the facts, the Ld CIT(A) erred in ing that the revenues received by the assessee from M/s MUL on account of yisory services is chargeable to tax under Article 12(2) of the India- Japan DTAA. 3.1. The Ld CIT(A) has erred in not appreciating the fact that the provisions of Article 12(2) * are not applicable where Fee for Technical

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Services has been received on account of services rendered through a PE in India and since in the case of assessee, the Fee for Technical Services are effectively connected with its PE in India, the said revenue is liable to tax under section 115A of the Act, read with the provisions of Article 7 and Article 12(5) of the India- Japan DTAA. 4. Whether on the facts and in the circumstances of the case, the Ld CIT(Appeals) has erred in holding that the assessee is not liable to pay interest u/s 234B of the Act and in observing that the issue is covered in favour of the assessee by decision in the case of M/s Jacabs Civil Incorporated, Mistubishi Corpn & Others [330 ITR 578, Delhi. 4.1. The Ld CIT (Appeals) has erred in not appreciating the fact the case does not lay down a general proposition of law that interest u/s 234B is not chargeable in all cases, particularly in cases where the Non-Resident assessee/payee/deductee has played a role in inducing non-deduction or short-deduction on the part of the payer/deductor. 4.2. The Ld CIT(Appeals) has erred in failing to take note of the observations of the Hon'ble High Court in the case of M/s Mitsubishi [330 ITR 578, Del] that the role of the assesse/payee/deductee in short-deduction or non-deduction of tax needs to be ascertained before claim regarding non- liability to interest u/s 234B of the Act is accepted, a proposition affirmed subsequently in the case of M/s Alcatel Lucent (judgement of Delhi High Court dated 7.11.2013 in ITA No. 327 & Ors of 2012) and followed by ITAT Delhi in the order dated 13.06.2014 in the case of Nortel Network India International Inc. (ITA No. 4766/Del/2011). 3. The assessee is a Company incorporated as per the laws of Japan under tax resident in Japan. It had a trading house and had been having Liaison Office (LO) in India at New Delhi since 1956 and had Sub Liaison Offices at Mumbai, Chennai, Bangalore and Calcutta. The L.O in New Delhi was established with the approval of Reserve Bank of India (RBI) for facilitating imports from Japan and exports from India. After the introduction of the FERA

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in 1973 its license was extended by the RBI of continuing its activity. The LO acted as the communication channel between Indian importers and the assessee to sold their goods to the Indian Importers on a principal to principal basis. During the Assessment Year under consideration, the assessee had various products in hand especially power projects which were being executed through its project office situated in India. The following were the projects in the hand of the assessee during the year under question:- 1. Vijjeshwaram Project of APGPCL. 2. Basin Bridge Project for Tamil Nadu Electricity Project. 3. MUL Project for Maruti Udyog Limited. 4. Koyna Hydro Electric Project 5. Sardar Sarovar Project There were no offices in respect of supply made to M/s MUL, as per submissions of the assessee during the assessment proceedings. Return of income for the Assessment Year 2001-02 was filed on 30/10/2001 declaring total income at Rs. 14,73,22,612/-. The same was processed u/s 143(1)(a) of the Act. Subsequently, the return was picked up for scrutiny by issue of notices u/s 143(2) and 142(1) of the Act. In response to the same, CA and Authorized Representative for the assessee appeared before the Assessing Officer and submitted the details as called for from time to time by the Assessing Officer. The Assessing Officer observed that the assessee was undertaking various projects in India for supervision of erection, installation or assembling of equipment supplied by it. The assessee admitted that some of its project lasted for more than 6 months and some as long as 312 days. The Assessing Officer observed that such supervisory projects were continuing for the last several years. The assessee is rendering such services for the same client and at the same site. The Assessing Officer held that the assessee has permanent establishment in India as a fixed place of business, workshop, installation project site and supervisory services project at the site of MUL. Once it is proved that the assessee has a permanent establishment in India, the profit from supply of equipment will also be taxable in India in addition to

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the taxation of fee for technical services rendered. From the purchase orders, the Assessing Officer observed that during the year the assessee supplied equipment and spare parts worth 47,87,00,190 Yen (Rs.19,14,80,076). The Assessing Officer noted that the assessee did not submit the profit and loss account in respect of supplies made to MUL, neither has furnished copies of global accounts. In absence of the same, the Assessing Officer found it reasonable to estimate 10% of the supplies made as profit attributable to the permanent establishment. From the purchase orders, the Assessing Officer observed that apart from rendering supervisory services of technical nature, the assessee also provided engineering services and software. These are taxable as FTS and/ or royalty under Income Tax Act as well as DTAA between India and Japan. The Assessing Officer further held that the assessee has Permanent Establishment in India, the same will be taxable @ 20% on gross basis in terms of Section 44D r.w.s. 115A. Finally, on consideration of the entirety of the facts and circumstances of the case, the Assessing Officer made the following additions/disallowances: COMPUTATION OF INCOME A. Profit/loss APGPCL Project i) Operation & maintenance contract (as discussed above) (ii) 160 MW Gas Turbine Combined Cycle Power Station 1,70,00,000 To be taxed @20% B. Loss from Sardar Sarover Project As per the figure returned (68,35,270) Disallowed as discussed (125,13,333) C. Loss of MUL Project (31,411) D. MUL Project (Profit from supply of equipment spares) (19,14,80,076) F Supervision fee for companies Other than MUL

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To be taxed @20% 4,37,36,918 G. Taxable Supervision Fees From MUL 22,25,42,400 To be taxed @ 20%

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fact that the assessee has PE in India in the form of long-standing presence in India in relation to the supplies being made and services being rendered to MUL for the past several years. The reliance of the decision in case of M/s Ishikawajima Harima Heavy Industries Ltd. (288 ITR 408 (SC)) was misplaced by the CIT(A) as the facts of the said case are distinguishable to the present assessee’s case.

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did not have PE in India, so far as its offshore supply of equipments to MUL was concerned. The CIT(A) also observed that risk and title in respect of supply was transferred outside India and MUL has completed the custom clearance, inland transport etc. in India. Thus, offshore supply of equipment is not taxable in India. The Ld. AR submitted that the CIT(A) has rightly held that the title in the equipment supplied to MUL was transferred to MUL outside India, and the assessee was not responsible for custom clearance and inland transportation of the equipment supplied. The custom clearance, inland transportation was the responsibility of MUL. Further, with respect of such offshore supplies the assessee has neither any PE in India of any form nor any activity carried out by the assessee in India for MUL other than deputing its supervisors from Japan post supply of equipment for the purpose of supervision of installation and commissioning by MUL of such supplied equipments which is taxed as per Article 12(2) of the DTAA. With regard to PE the Ld. AR submitted that: * There is No place of business/management in India for MUL, the place of management is in Japan. * No branch for MUL Operations. * No office for MUL Operations, LO was closed before 2000, which was also held not connected with MUL operations by Tribunal which was confirmed by the Hon’ble Delhi High Court. * Each supervision purchase order is a separate contract and period stay of supervisor could not be clubbed together for computing 180 days. Period of supervision for each contract does not exceeds 6 months. Thus, there is no Supervision PE. This fact has been confirmed by Hon’ble High Court for A.Y. 1992-93 to 1996-97 in assessee’s own case and SLP of revenue is dismissed by Hon’ble Supreme Court. * Even in case for any contract, supervision period exceeds 6 months, it can’t impact taxability of offshore which is completed before supervision is done. * Other projects are entered with the other parties in India and are not

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connected to MUL income. This, has been confirmed by Hon’ble High Court for AY 1992-93 to 1996-97 in assessee’s own case and SLP of revenue is dismissed by Hon’ble Supreme Court. * Contract was entered with MUL directly by Head Office in Japan, no office was involved.

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I have duly considered the contentions raised by the appellant and material placed on record. In view of the fact that the premises formed by the ld. AO were substantially rebutted by the appellant the inference drawn by the ld. AO that the appellant had a PE for the purposes of offshore supply of equipments to MUL is held to be erroneous and implausible. The judgment of the Hon’ble ITAT, New Delhi in the appellant’s own case for AY 1992-93 to 1996-97 lends support to the claim of the appellant that it did not have PE in India related to MUL income. The Supreme Court in case of Ishikawajima (Supra) based on Japan DTAA has held that income only to the extent of operation of PE can be taxed in India and there is no force of attraction in Japan DTAA. It was pleaded by the appellant in the light of the fore referred judgment that it sold goods to MUL from outside India where risk and title were also transferred outside India. The custom clearance, inland transportation etc were done by MUL on its own. No PE was involved in the sale. Supervision was done after supply of equipment. Thus, no operation in relation to supply was carried out in India. Considering the argument of the appellant and as a matter of judicial discipline it is inferred that the appellant did not have PE in India, so far as its offshore supply of equipment to MUL was concerned. Thus, the ground of the appellant is allowed with a direction to follow the verdict of the Hon’ble ITAT, New Delhi in accordance with which supervision fees should be taxed @ 20% as per Article 12(2) of the DTAA.”

In the present case the goods were sold to MUL from outside India. Thus, the risk and title were also transferred outside India and no transaction took place in India. The custom clearance, inland transportation were also done by the MUL on its own and assessee at no stage involved in the said activities. There was no PE involved in the sale. In fact supervision was done after the supply of equipments. The revenue could not establish that the assessee is having fixed place PE or supervisory PE. The ratio laid by the Hon’ble Apex Court in case of M/s Ishikawajima Harima Heavy Industries Ltd. (supra) is

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applicable in the present case. Therefore, Ground Nos. 1 to 1.4 and 2 to 2.1 of the Revenue’s appeal is dismissed.

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submitted that the issue of the existence of fixed place PE under Article 5(1) in the form of LO was also discussed in Para 76 of the Tribunal’s order thereby rejected the contention of Revenue. The other forms of PE under Article 5 (2) of the DTAA were never raised by the Revenue nor have been adjudicated upon. The Tribunal after considering the facts of the case held that since in none of the POs the duration exceeds 180 days, no supervisory PE is constituted. The Ld. DR further submitted that the conclusion and findings recorded by the Tribunal are in the context of the POs as stated in Para 61 of the order dated 31/05/2007 as against this the facts of the year under consideration are distinguishable. LO has already been closed. Hence, the question of LO being PE does not exist/arises in the present Assessment Year. As regards of supervision PE, the same being based on specific duration criteria, need to be examined afresh on the facts and circumstances of the case. The factual matrix on the basis of which purchase orders were examined by the Tribunal to held that no supervisory PE exist is summarized hereunder:- (i) These purchase orders were booked by the assessee through its head office pursuant to competitive bidding on global tender floated by MUL. (ii) The terms and conditions under such purchase order were different in the sense and not linked with the other purchase orders. (iii) One purchase order was not dependent on the completion of the work of installation of some other purchase order. (iv) Equipment supplied under one purchase order did not complement the equipment supplied in another purchase order. (v) The technicians were deputed to work from Japan. (vi) There were technicians on the Payrolls of the PE in India established for contracts with MUL for the year under 31st March, 1994. However, this aspect alone would not be conclusive to prove that the PE in India and the contract for rendering technical services were effectively connected. (vii) The assessee did not co-ordinate the work of the various purchase orders and each was done according to the terms of the purchase order, each one of which was independent by itself.

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(viii) MUL floated separate tenders for each of the purchase orders and the assessee was not the only bidder and there were other enterprises which were awarded purchase orders. (ix) The period of supervision under each contract was less than the period of 180 days. (x) Additionally, the supervisory fee paid by MUL was on the basis of ‘man days’. The number of days per supervisor was calculated by dividing ‘man day’s' by the number of ‘supervisors’. If 10 supervisors had stayed for 100 ‘man days’, the supervision period would be 10 days only, though the ‘man days’ are 100. Thus, the period of stay would be only of 10 days and not 100 days. (xi) The assessee has employed/executed a part of its contract with the help of sub-contractors and local personnel. Before the Assessing Officer, the assessee submitted submission dated 10/12/2009 for Assessment Year 2007- 08 which contains the details of few such sub-contractors. The Purchase Orders also contain Clauses for sub-contracting part of the work. For example, PO No. MUL/PE/AS/EX2-PBS/812/MOD 306/2190 dated 10/06/1995 provides for employment of sub-contractors and employment of local personnel. Duration of the period of work completed through sub-contractors are not included in the duration of project as claimed by the assessee. Thus, for example, in PO No. MUL/PE/AS/EXH-ANL/1791/MOD-3023 dated 25/03/2005 visit by Sub- contractors are not included in the duration of the project as claimed by the assessee. Thus, for example, in PO No. MUL/PE/AS/EXH-ANL/1791/MOD-3023 dt. 25/3/05 visit by sub-contractor M/s Modi Measurement not included in the duration of the project. Thus, the Ld. DR submitted that these are only the few examples and don’t constitute the exhaustive list.

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floated by MUL and on the basis of such tendering process. (ii) The duration of Purchase Orders as contended before the ITAT were not provided to the Assessing Officer for verification. (ii) The formula for calculating the duration (days) of the Purchase Orders as stated by the assessee before the Hon’ble High Court (the number of days for supervisor was calculated by dividing ‘man days’ by number of ‘supervisor’) is not reliable and cannot be construed as the correct way of computing the duration of the project since the assessee itself has followed a different criteria to calculate the duration of the project. The Ld. AR provided Annexure 1 during the hearing wherein he has listed a few such examples where the duration as per POs as furnished before the Tribunal and duration as per the method proposed before Hon'ble High Court and from the same it can clearly seen that both are different. (iv) Moreover, the Purchase Orders in most cases only specify the maximum and minimum limit in respect of the number of supervisors and man days and the actual duration of supervision may be different. (v) There are Purchase Orders which not only exceed the duration of 180 days but also spread over several years. For example, the assessee has accepted vide its letter dated 11/03/2004 that the duration of PO No. MUL/PE/501/IMP(E)/MOD/1058 during Assessment Year 2001-02 was 312 days. A perusal of Clause 6.1 of this PO reveals that the said Purchase Orders has to be executed in 3 phases with identical maximum and minimum man days. Apart of this PO was also executed during A.Y. 2002-03 and A.Y. 2003- 04, i.e. PO No. MUL/PE/PN/201/IMP(SUP)/Phase-II/169 dated 12/01/2001 and PO NO. MUL/PE/PN/501/IMP/(Sup)/Ph.III/199 dated 18/12/2001.

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engineering, supply and installation for YE2 car project. YE2 car Project of MUL is an expansion of car production between 70,000 to 90,000 cars ( of capacity 1,000 CC & 1,300 CC) per year. As regards the functions carried out by the Project Office, the same are much wider than those carried on by the Liaison Office. This distinction between Project Office and Liaison Office has been succinctly clarified by the Hon’ble Delhi High Court in case of National Petroleum Construction Company (2016-TII-02-HC-Del-Intl). The Ld. DR further submitted that the Tribunal for the earlier years recorded a finding that the said PE in the form of Project Office is not effectively connected with the rendering of technical services. Accordingly, the Tribunal observed that there were technicians on the pay rolls of the PE in India established for contracts with MUL for the year ending 31st March, 1994. However, this aspect alone would not be conclusive to prove that PE in India and the contract for rendering technical services were effectively connected. The assessee also accepted the existence of such fixed place PE under Article 5(1) in the form of YE2 Project Office at the premises of MUL and has furnished audited Balance-Sheet and P&L A/c in respect of such PE. The Ld. DR further submitted that examination of the purchase orders revealed that the active involvement of the MUL PE (PO) in their procuring as well as execution. The Ld. DR submitted that not all POs are procured through HO. The fixed placed PE at MUL in the form of YE2 Project Office plays a significant role in making offices and procuring POs. There are technicians in the payroll of the PE in India established for contracts with MUL in the year ending 31st March, 1994 who have provided services even before the Purchase Order has been formally accepted. There are several rounds of negotiations both on technical aspects as well as price before the Purchase Order was issued. The assessee closed down it’s Liaison Office during the year. Hence, it is the PE which was involved in these negotiations. The Ld. DR while trying to prove these observations from the analysis of the following Purchase Orders:

(i) In respect of PO NO.MUL/PE/PR/30/24/MOD-1364/342 dated

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18/9/1999, it can be seen that the tender for the item was floated on 23/1/1999 and the assessee furnished technical offer on 19/02/1999. There were negotiations on 15th & 16th March, 1999 and price offer was made on 14/7/1999 and again revised on 20/08/1999. Final Purchase Order was placed on 18/9/1999. (ii) PO No. MUL/PE/AS/MODELC-PBS3BOXMODN/1401/MOD1701 dt. 8/8/00 where the tender for the item was floated on 17/3/00 and the assessee furnished technical offer on 29/4/00 which was revised on 6/6/00 and price offer was made on 26/6/00 and again revised on 13/7/00. Final Purchase Order was placed on 8/8/00. It may be seen that there are several rounds of negotiations both on technical aspect as well as price before the Purchase Order was issued. (iii) PO No. MUL/EN5/PMC99105-A/PO dt. 8/8/00 – It can be seen that the tender for the item was floated on 7/10/99. The assessee send a fax on 20.10.99 and furnished techno-commercial offer on 9/11/99 along with quotation dt. 8/11/99. Subsequently, the assessee sent several letters and faxes on 2/2/00, 3/2/00, 22/2/00, 24/2/00, 4/3/00 & 7/3/00 in response to which MUL send a email on 10/3/00. This was followed by which was revised on 6/6/00, 16/6/00 and price offer was made on 26/6/00 and again revised on 13/7/00. Final PO was placed on 8/8/00. It may be seen that there are several rounds of negotiations both on technical aspect as well as price before the Purchase Order was issued. The assessee closed down it’s Liaison Office during the year. Hence, it is the PE which was involved in these negotiations. (iv) Similarly, for PO No. MUL/PE/EAE/GNT-AL/MOD-1535 dt. 23/02/00, MUL issued inquiry letter on 30/11/99 in response to which the assessee gave its quotation on 3/12/99. MUL issued its LOI 27/1/00 and PO on 23/2/00. The Purchase Order was signed on 28/2/00 but formal acceptance was issued on 13/3/00 i.e. after the Purchase Order was accepted thereby establishing the involvement of the PE. (v) Original PO No. MUL/PE/PN/501/IMP(SUP)/118 was issued on 15/4/99. This was amended and PO No- MUL/PE/PN/501/IMP(E)/Mod-1058

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was issued on 15/4/99. This was again amended on 18/8/99 by way of amended PO No. MUL/PE/PN/501/IMP(E)/Mod-1058A. Subsequently, MOM (minutes of meeting) was held at MUL works, Gurgaon on 18/2/00. The Purchase Order was modified and another PO No. MUL/PE/PN/501/IMP(E)/Phase-II/Mod-1058 was issued on 2/3/00. This was accepted and signed by Y. Fujiura on 17/3/00. This Purchase Order was amended and a fresh PO No. MUL/PE//PN/501/IMP(E)/Phase-II/Mod-1548A was issued on 28/8/00. Another MOM held at MUL works on 7/11/00 and subsequent discussions were held at MUL works, Gurgaon on 14/12/00 & 15/12/00. Another MOM held at MUL works again on 9/1/01 and the Purchase Order was amended and new PO No. MUL/PE/PN/501/IMP(E)/Phase-II/Mod-1548B was issued on 12/1/01. This was signed and accepted by S. Omori on 20/2/01. Once again another MOM was held on 18/2/00 at MUL work, Gurgaon and the original PO No. MUL/PE/PN/501/IMP (SUP)/118 dt. 15/4/99 was amended again and new Purchase Order No. MUL/PE/PN/501/IMP (SUP)/Phase-II/147 was issued on 2/3/00. This was signed and accepted by Y. Fujiura on 17/3/00. This was further amended and new PO No. MUL/PE/PN/201/IMP (SUP)/Phase-II/169 dt. 12/1/01 which was signed and accepted by S. Omori on 20/2/01. After another MOM at MUL on 5/8/00, PO No. MUL/PE/PN/501/IMP(SUP)/Phase- II/147 dt. 2/3/00 was further amended on 18/8/00 and new PO No. MUL/PE/PN/501/IMP(SUP)/Mod-A/163 was issued on 18/8/00 which was accepted by Y. Fujiura on 5/9/00. After another MOM on 5/8/00 at MUL work, the PO No. MUL/PE/PN/501/IMP(E)/Phase-II/Mod-1548 dt. 2.3.00 was modified and new PO No. MUL/PE/PN/201/IMP(E)/MOD-A/MOD-1723 was issued on 18/8/00. This was accepted by Y. Fujiura on 5/9/00. This Purchase Order was again amended o 5/6/01 and the assessee has to refund the amount received by it from MUL and the custom duty and MODVAT paid by MUL through Dr. Note. Similarly, PO No. MUL/PE/PN/501/IMP(SUP)/Phase-II/147 dt. 2.3.00 was modified again and new PO No. MUL/PE/PN/501/IMP(SUP)/MOD-C/161 was issued subsequent to MOM at

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MUL place on 18/2/00. PO No-MUL/PE/PN/501/IMP(E)/Phase-II/Mod-1548 dt. 2.3.00 was modified and new PO No.MUL/PE/PN/501/IMP(E)/MOD- C/MOD-1707 was issued on 8/8/00.

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the involvement of the fixed place PE under Article 5(1) in the form of YE2 Project Office at the premises of MUL in procuring the Purchase Orders and assisting in the services are also established thereby attracting the provisions of Article 12(5). Accordingly, the decision of the Assessing Officer in attracting the YE2 PE and bringing into tax both the supplies made and supervision charges received by the assessee from MUL should be upheld.

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services in India. On the contrary, all Purchase Orders in respect of either supply or of rendering supervisory services was received by it in Japan. Copies of all such Purchase Orders have been placed on record before the Assessing Officer as well as before the CIT(A). In fact when compared subject year Purchase Orders with preceding years or even later years, they are found to be identical. As mentioned above, all these issues have been dealt by Tribunal in its order for AY 1992-93 to 1996-97. The Ld. DR argued that technicians on payroll of YE2 MUL Project had provided supervisory service before Purchase Order for supervision fee was accepted. The Ld. DR ignored the established fact that for providing supervision fee service, technicians have come directly from Japan as mentioned in the Purchase Order. There is no fresh fact brought that reveals that technicians were on payroll of India. In fact, it can be seen from the supervision details submitted to the Assessing Officer that all technicians are different for different supervisory activities, who have come to India on a specific date and exit on a specific date and exit on a specific date. So, they cannot be alleged to be on the payroll of PE. This argument was also taken in earlier year, mentioned in para 62 of the earlier year order of the Tribunal. The Ld. AR pointed out that the Ld. DR is relying upon payroll of PE for March 1994 while dealing with matter of AY 2001-02 without any evidence on records. The Ld. DR also noted one exceptional Purchase Order wherein Purchase Order was issued but before its acceptance, services were started. The Ld. AR submitted that this exception can be due to some commercial reason. This does not establish the fact that the technicians were on the payroll of YE2 MUL project office. If that be so, then why different technicians have come for different purchase order, which indicates that different technicians are required for different supervisory projects. Even MUL has borne the cost of air tickets from Japan to India as mentioned in the purchase order. Thus, the conclusion drawn by the Ld. DR is purely based on assumptions. The Ld. AR further submitted that most of the Purchase Orders are based on global tender (10 out of 14 as highlighted by the Ld. DR himself). Even if certain purchase order are issued by MUL without global tender but based on request for

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proposal. It does not mean that those are not independent or undertaken by YE2 project office. Further, during the earlier years also there were such Purchase Orders which were there without any tender and assessee worked on proposal basis. The Ld. AR submitted one example of the purchase order wherein there is no reference to Global tender and inferred that the facts for the case for AY 2001-02 are similar to AY 1992-93 to 1996-97 for which the Tribunal have already disposed the issue in favour of the assessee. The Ld. AR submitted that all the Purchase Orders along with details of stay by supervisors were filed before the Assessing Officer during the assessment proceedings and the same were accepted by the Assessing Officer without any adverse comment on calculation of the number of days of stay in India. The Ld. AR further submitted that the Purchase Order provides an estimated stay for supervision activities which may be different while actually executing the work. The PE of the assessee should be seen based on the actual time spent in India which was duly submitted along with entry and exit date of each supervisor and accepted by the Assessing Officer. The Ld. AR pointed out that the assessee has not disputed the position where any purchase order has exceeded 180 days or 6 months stay in India and should be taxed as per assessment order. The Ld. AR submitted that supervision fee was either fixed or based on per man day basis, which is a commercial term agreement between the assessee and MUL. The Ld. AR submitted that the submissions of Ld. DR are highly vague and without any basis. The calculation has been made in identical manner in each year and the same is accepted by the Tribunal. For the purpose of calculating the period of 6 months, the only method accepted by the Tribunal is given below: * The days must be counted from the entry of supervisors in India till the date of his exit * There is a difference between ‘Man days’ and ‘days’. To calculate a ‘day’, for example if 10 supervisors come for a day, then Man days are 10 and number of days is ‘One’. Thus, in order to determine number of days for the purpose of Article 5, period should be taken as ‘One day’ and not 10 ‘Man

23 ITA Nos. 3675/Del/2014 & ors

days’. * This was duly affirmed by Tribunal as well as by the Hon’ble High Court.

The Ld. AR submitted that there was only one Purchase Order which has been mentioned by the Assessing Officer in his order which has crossed a period of 6 months and the same is dated 15.04.1999. The supervision services for the same were provided within a period of 26.09.1999 to 02.08.2000. Even the CIT(A) has not granted relief on such purchase order and assessee has not challenged the same before the Tribunal.

24 ITA Nos. 3675/Del/2014 & ors

been taking place between MUL and HO in Japan. Neither Assessing Officer nor Ld. DR has brought any evidence except referring to certain Purchase Orders from where a presumption has been drawn that PE was involved in negotiation. • The Ld. AR pointed out that YE2 project office in MUL was created for specific purpose for installation activities of particular plants in MUL. This project office has been created for specific purpose which was approved by RBI and cannot undertake any other activity without RBI approval. The Ld. AR submitted that the revenue purely on assumption, cannot alleged that such project office had exceeded its authority and did some activities relating to negotiation of purchase order for supervision. The Ld. AR pointed out that assessee has been doing supervision activities prior to such project office as well as subsequent to closure of such project office. • The Ld. AR pointed out that the assessee has been taking support from Sumitomo Corporation India for exchanging the communication with MUL for which service fee at arm’s length price had been paid and accepted by tax department. However, all supervisory services were provided by technician travelled from Japan whose travel cost was duly borne by MUL as referred in the purchase orders.

Further, as regards allegation regarding to several rounds of negotiations on technical as well as price before Purchase Orders issued, the Ld. AR submitted that the same was also present in AY 1992-93. There are similar references in many other Purchase Orders. The assessee visited for meetings during the earlier years Project Office as well. During the earlier years also, there were such Purchase Orders which were there without any tender and worked on proposal basis. As regards the allegation of the Ld. DR that it is not only the Purchase Order exceed minimum duration test for PE under Art. 5(4), even where such test is not satisfied, the involvement of fixed place PE in terms of YE2 project office of MUL are established thereby attracting the provision of

25 ITA Nos. 3675/Del/2014 & ors

Art 12(5) of the DTAA, the Ld. AR submitted that the period of stay in all purchase order, which are not only independent to each other but also independent to any project office the assessee had in India, is less than 6 months except one purchase order. Thus, there is no PE in Art 5(4) of the DTAA. The Ld. DR alleged by referring to few Purchase Orders (4 out of 13) that YE2 project office was involved in negotiation of the purchase order for supervision services and thus, Art. 12(5) should be attracted. In this connection, the Ld. AR submitted as under: • From the submission above on various allegations by the Ld. DR, it was clearly established that it was Head Office, Japan who was exchanging letter and had few meeting with MUL. There was no evidence but only assumption of facts that there was YE2 project office which was involved whereas per RBI approval such Project Office was only for installation services that too for few years. The same was duly examined in earlier years on identical purchase order terms. • In order to attract Art. 12 (5), it should be established beyond doubt that supervision services was rendered through that PE so as to argue that FTS is effective connected with such PE. Even where the assessee’s LO was involved as communication channel, it was held not a PE by the Tribunal in earlier years, thus, it cannot be said without any evidence that LO or any project office was involved in rendering services to attract Art 12(5). In view of the above, Art 12(5) cannot be attracted.

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Hon’ble High Court has held that supervision fee is taxable under Article 12(2) of the DTAA and concur with the view of the Tribunal that FTS was liable to be taxed at 20% under Article 12(2) of the DTAA. The question was accordingly answered in the negative i.e. in favour of the assessee and against the Revenue. 27. As no distinguishing decision has been brought on record, respectfully following the findings of the Hon’ble Jurisdictional High Court (supra) this ground is dismissed.” The Tribunal in A.Y. 1992-93 to 1996-97 (supra) held as under: “79. The above rule is however subject to exceptions, viz., where each building site or installation site form a coherent whole in the other country and are operated at one place and the same ordering party. The thrust of the argument of the ld. counsel for the revenue has been on this exception to the rule. We are of the view that the case of the assessee does not fall within the exception to the rule. We have already highlighted the fact that each PO was independent and did not complement each other. The MUL YE2 project would not stand concluded with execution of these purchase orders. The assessee was not the only person rendering supervisory services. The sites were located at different places viz., assembly floor, paint shop or weld shop. It cannot be said all contracts put together formed a coherent whole, commercially or geographically. Even PO’s relate to different areas of manufacture of a car. How they are commercially a coherent whole is not spelt out in the order of the Assessing Officer. Such finding cannot be given without any basis. As already stated, perusal of PO’s clearly indicate that the various contracts were independent and were not capable of bringing in a coherent whole commercially. Mere commonality of the principal cannot be sufficient in this regard. We therefore, held that there existed no PE within the meaning of article 5(4) of the DTAA. 80. The income in question for all these years were therefore to be brought to tax under article 12(2) of the DTAA. The assessee has offered to tax income in question in accordance with article 12(2) of the DTAA and is the

27 ITA Nos. 3675/Del/2014 & ors

same is directed to be accepted.” The Hon’ble High Court (ITA NO. 717/2014 order dated 16.11.2015) held as under: “32. For the aforesaid reasons, the Court concurs with the views of the ITAT that in the present case the FTS was liable to be taxed at 20% under Article 12(2) of the DTAA. The question is accordingly answered in the negative, i.e. in favour of the Assessee and against the Revenue.”

The Hon’ble Supreme Court (CC No. 9158/2016 order dated 29.06.2016) held as under: “The essential question is whether Article 12(2) or 12(5) of the Agreement which is applicable in these cases. In the facts of these cases, we are not inclined to go into this aspect. The special leave petitions are, accordingly, dismissed.” In the present Assessment Year 2001-02, the assessee gave table summarizing the various Purchase Orders issued by MUL for supply of equipment and supervision of installation thereof & the amount of supervision fee received under each Purchase Order was also provided. There is one Purchase Order No. MUL/PE/PN/501/IMP(E)/MOD/1058 amounting to ¥193,000,000 as supervision fee, date of start is 26/09/1999 and date of finish is 02/08/2000. The contract wise no. of days were 312, rate was 21%, issued on 25/09/2000. The assesseee is not denying this Purchase Order being mentioning more than 180 days which amounts to supervisory PE in this particular Purchase Order. But the other purchase orders mentioned therein are separate and have distinct element of work and will not constitute any PE in India. The assessee also accepted this Purchase Order be taxed accordingly. From the various purchase orders, the identical features emerge that in all the purchase orders, supervisors were to come from Japan and MUL bears the cost of their Air ticket and provides for their boarding and lodging in India. The period of supervision in case of individual contracts did not exceed a period of 180 days except the one purchase order mentioned hereinabove and they did

28 ITA Nos. 3675/Del/2014 & ors

not constitute supervisory PE in terms of Article 5(4) of the DTAA. The Ld. DR’s isolated Purchase Order having more than 180 days cannot establish that each individual Purchase Orders are interlinked. In fact, these Purchase Orders are very much independent and separate from each other and thus, does not constitute the supervisory PE or fixed PE. The Ld. AR also submitted during the hearing that the sole Purchase Order which has more than 180 days has been offered to tax in earlier Assessment Year i.e. 1999-00. Hence, the issue raised in the present appeal filed by the Revenue is squarely covered by the decision of the Tribunal for A.Y. 1999-00 which is now confirmed by the Hon’ble High Court as well as by the Hon’ble Supreme Court. Thus, in the present case the FTS was liable to be taxed at 20% under Article 12(2) of the DTAA. Hence, Ground Nos. 3 to 3.1 in Revenue’s appeal are dismissed.

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follows, namely: (a) ...………….. (b) ……………. (c) …………….. (d) the income-tax calculated under clause (a) or clause (b) or clause (c) shall, in each case, be reduced by the amount of income-tax which would be deductible (or collectible) at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid; and the amount of income-tax as so reduced shall be the advance tax payable.” Thus, it follows from the above that interest under section 234B of the Act can be levied only on the unpaid tax liability, if any, after reducing the amount of taxes deductible and collectible at source. Under section 195 of the Act, tax is deductible at source from payments made to non-residents. Since the assessee is a non-resident, tax is deductible at source from the entire payments made to the assessee as per the provisions of section 195 of the Act. Accordingly, since tax was deductible at source and was correctly deducted on all the payments made to the assessee, no advance tax was payable by the assessee as per the provisions of section 208 read with Section 209(1)(d) of the Act. Consequently, in the absence of any liability for payment of advance tax, the provisions of section 234B of the Act would not be applicable in the assessee’s case. The Ld. AR relied upon the following decisions: • DIT vs. Mitsubishi Corporation (ITA Nos. 209, 299, 282, 283, 297, 301, 316, 320 of 2009 (Del.) and DIT vs. Jacobs Incorporated wherein the Hon’ble Jurisdictional High Court has categorically held that interest is not leviable on the assessee since its entire income is subject to tax deduction at source. • Further, the above law laid down by the Hon’ble Jurisdictional High Court has been again affirmed by the Hon’ble Jurisdictional High Court in case

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of DIT vs. GE Packaged Power Inc. (ITA No. 352/2014 to 402/2014) wherein it has been held that the position of law laid down in Jacobs is correct and is not diluted and hence, the liability of the payer is absolute. • In the case of DIT vs. NGC Network Asia LLC (313 ITR 187), the Hon’ble Bombay High Court held that the assessee was a non-resident company and its entire income chargeable to tax in India was subject to TDS under Section 195 of the Act. Therefore, no interest under section 234B of the Act could be charged even if the payer had not deducted tax at source. • In CIT vs. Madras Fertilizers Ltd. (149 ITR 703, the Hon’ble Madras High Court held that the liability to pay advance tax did not arise where the income was subject to deduction of tax at source. • The Hon’ble Uttarnchal High Court in cases of CIT vs. Halliburton Offshore Services Inc. (2004) and CIT vs. Reading and Bates Exploration Co. (2005) (278 ITR 47) has held that where the employer-company has not deducted taxes at source according to the law prevailing the assessee employee should not be faulted for such default by levy of interest.

The principles laid down by the Hon’ble Supreme Court and the various High Courts including jurisdictional High Court, rendered in the context of the Act, continue to hold good and accordingly, the Ld. AR submitted that in the facts of the assessee, there was no requirement to pay advance taxes in respect of income which was liable to tax deduction at source. Hence, no interest under section 234B of the Act is leviable.

For the AY 2007-08, at the outset, the Ld. AR submitted that since neither in the computation sheet nor in the demand notice any interest has been charged, the ground raised in the appeal is now of academic interest. Further, the Ld. AR submitted that a period of 4 years has also elapsed and no interest has been computed/levied on the assessee.

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3675/ Del/2014 (A.Y. 2001-02) Assessee’s appeal

32 ITA Nos. 3675/Del/2014 & ors

33 ITA Nos. 3675/Del/2014 & ors

2.5.That learned Commissioner of Income Tax (Appeals) has erred in law in concluding that section 44D of the Act applies to the instant case, without appreciating that this method of taxation causes discrimination and thus violates the spirit and intent of Article 24 of the Double Taxation Avoidance Agreement between India and Japan (‘DTAA’).

Sardar Sarovar Narmada Nigam Limited (‘SSNNL’) Project 3. That learned Commissioner of Income Tax (Appeals) has grossly erred in law and on facts in treating the payment of Rs 12,513,333 made to Express Transport Private Limited (ETPL), a sub-contractor for custom clearance and inland transportation services, towards contractual price adjustment for services rendered by ETPL, as contingent liability, since it was not verified by Sardar Sarovar Narmada Nigam Limited (‘SSNNL’), the contract awarding authority. 3.1. That learned Commissioner of Income Tax (Appeals) has grossly erred in failing to appreciate that payment of the aforesaid sum has not been disputed by the learned AO nor it is in dispute that ETPL has rendered services as a sub-contractor for custom clearance and inland transportation services, hence the finding that aforesaid expenditure is contingent liability which is solely based on the finding that the additional claim made to SSNNL is not final, is wholly unsustainable. 3.2. That learned Commissioner of Income Tax (Appeals) has grossly erred in failing to appreciate that the payment to ETPI is in respect of services rendered as a subcontractor for custom clearance and inland transportation services for the appellant and hence the liability to pay to ETPL was of the appellant and such a payment was not dependent on claim made to SSNNL.

3.3. That learned Commissioner of Income Tax (Appeals) has failed to appreciate that the expenditure incurred by the appellant of Rs 12,513,333 being the payment made to ETPL towards contractual obligation is business expenditure incurred during the normal course of business on

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account commercial expediency .

With respect to O&M project, the assessee claimed loss amounting to Rs. 5,38,740/- and Rs. 23,780 for AY 2000-01 and AY 2001-02 respectively. However, the Assessing Officer while relying upon the findings of his predecessor for AY 1999-00 disallowed the returned loss for both the AY 2000- 01 and AY 2001-02 holding that the receipts from O&M contract is in the nature of Fee for Technical Services and is to be taxed on gross basis without allowing any deduction for expenditure under section 44D of the Act. The

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Assessing Officer further went on to conclude that there was no case for allowing any loss irrespective of the fact that there were no receipts from the contract this year. The CIT(A) held that the issue is covered by the earlier order of his predecessor in AY 1999-2000 wherein it was held that as per section 44D, no deduction will be allowed to the O&M project which was involved in providing technical services to the contractee APGPCL in India. The Ld. AR submitted that for AY 1999-2000, the Tribunal reversed the order of the CIT(A) on which reliance was placed by the CIT(A) for AY 2001-02 while confirming addition. The Ld. AR submitted that there is no dispute on the fact that the assessee has PE in terms of Article 7 of DTAA in respect of the Operation and Maintenance (O&M) Contract of the Vijeshwaram Project Office. The above conclusion by the CIT(A) by invoking provisions contained in Article 7(3) of DTAA read with section 44D of the Act is neither based on proper appreciation of the facts of the case and, nor the correct interpretation of the provisions of the DTAA and the Act. Article 7(3) of the DTAA provides that expenses have to be allowed. The DTAA along with the protocol provides that, deduction allowable should not be less than that provided under the Act and, not that no deduction is allowable at all. This is also limited to expenses, in respect of general administrative expenses and, no more. The Article 7(3) doesn’t provide that the deduction has to be allowed as per any specific provision of local law unlike DTAA between India-US. The Ld. AR submitted that in the present case section 44D of the Act is not applicable since 9(1)(vii) applies to a case where person is not carrying on business – DCIT vs. Schlumberger Seaco Inc. (50 ITD 346) and Circular No. 202 dated 5.7.1976 (105 ITR 25 (statutes)). Also, once supervisory fees has been characterized as business profits, section 44D of the Act will not apply. In other words, once the assessee has a PE in India and, consequently the income is covered under Section 28 of the Act, then the computation would be made in accordance with section 30 to 43D, which apparently excludes the operation of section 44D of the Act. The Ld. AR submitted that taxation on Gross Basis in the instant case as upheld by the CIT(A) is an arbitrary and absurd interpretation. The Ld. AR relied upon the

36 ITA Nos. 3675/Del/2014 & ors

decisions in cases of Boston Consulting 94 ITD 31 (Mum) and Horizontal Drilling 237 ITR 142 (AAR). The Ld. AR further submitted that it is also settled that, an interpretation, which lead to absurdity, otherwise should not be preferred. Further, the Ld. AR submitted that as per Article 24(2) of the India- Japan DTAA, the income of the PE should not be taxed less favorably than the resident of India doing similar business as in case resident would be taxed on net income for the similar services and would not be subject to section 44D of the Act, by virtue of Article 24(2) of DTAA, the non-resident should also be taxed not less favorably. By taxing assessee, being non-resident, on gross basis, it is getting taxed less favorably than compared to resident of India for similar business activities. Thus, the income of the PE should be taxed on net basis. The Ld. AR relied upon the decision of the Agra Special Bench Tribunal in case of Rajeev Sureshbhai Gajwani vs. ACIT 8 ITR 616. In addition, the Ld. AR submitted that this issue is covered by the order of the Tribunal in assessee’s own case for AY 1999-00 (ITA No. 867/Del/2006), wherein, after going the facts of the case the Tribunal held that the services received by the assessee does not fall under FTS and has to be considered as service in relation to construction, assembly of project. As the income is not in the nature of FTS, section 44D will also not apply. Thus, the amount received under O&M agreement is business income and taxable under Article 7(3) of DTAA on net basis. The Ld. AR also relied upon the order of the Tribunal for AY 2000-01 (ITA No. 3694/Del/2014) in assessee’s own case.

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amount received under O&M agreement is business income and taxable under Article 7(3) of DTAA on net basis. Hence, Ground No. 1 to 1.2 are allowed.

38 ITA Nos. 3675/Del/2014 & ors

year relevant to AY 2001-02 and the balance was accepted during the accounting year relevant to AY 2003-04. The assessee in turn had agreed on 28/12/98 with their principal sub-contractor M/s Delta Mechons Limited that assessee would pay Delta Mechons Ltd. The additional sums claimed by them, for the additional work done by them in case of acceptance by APGPCL of assessee’s claim for such payments. The Assessing Officer erroneously treated the entire gross amount received by SC by way of additional compensation for the EPC contract as receipts from O&M project and considered it as “fees for technical services: and assessed it to tax at 20% of the gross receipts (1,70,00,000 @ 20%) without deduction of expenses without appreciating that the aforesaid sum did not represent fee for technical services, but represented business receipts. The Ld. AR further reiterated that the receipt of Rs. 1.7 crores was for the Erection, Procurement and Construction contract, income from which has been treated by the Assessing Officer as business income subject to tax after deduction of expenses as allowable under the Law in earlier years. In addition, the Tribunal in assessee’s own case for AY 1999-00, wherein after going through the facts of O&M contract, held that the services received by the assessee does not fall under FTS and has to be considered as service in relation to construction, assembly of project i.e. business income. Thus, the amount received under O&M agreement is business income and taxable under article 7(3) of DTAA on net basis.

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net basis. Hence Ground Nos. 2 to 2.5 are allowed.

40 ITA Nos. 3675/Del/2014 & ors

aggregate sum of Rs. 1,96,73,260/- on transportation of equipment to SSNNL. However, the Assessing Officer has disallowed Rs. 1,25,13,333/-, on assumption that the said sum has been paid by the assessee to ETPL. However, the fact of matter remains that the said sum represents an amount of expenditure incurred on transportation and has been directly paid by SSNNL to ETPL, which sum is like an expenditure incurred by the assessee of Rs. 1,25,13,333/- and paid by SSNNL towards transportation. The Ld. AR submitted that the Assessing Officer has failed to appreciate that in the similar manner what had been paid in the preceding year AY 2000-01, by SSNNL to ETPL which had not been disallowed, could not have been disallowed in AY 2001-02 also; whereas without disputing that there was an expenditure incurred on transportation which was the liability of the assessee has even been disallowed i.e. of Rs. 1,25,13,333/-. The CIT(A) failed to appreciate that disallowance made in the preceding year of similar nature and character had been allowed. However, the Ld. AR submitted that the assessee has not as such made any effective claim of an expenditure of Rs. 1,25,13,333/-, since what has been paid by SSNNL has been credited to the account of ‘Sale Revenue’ and what has been paid by SSNNL directly to ETPL has been debited in ‘Cost of sales’. For AY 2000-01 what had been disallowed by the Assessing Officer was an entirely different sum i.e. the character of the expenditure incurred and claimed in that year was different than the nature and character of the amount disallowed in the year in question. For the instant assessment year, the expenditure which has been incurred and claimed being an additional liability is of Rs. 71,59,932/- which sum has not been disallowed by the Assessing Officer. Thus the Assessing Officer on complete misconception has made disallowance of the said sum of Rs. 1,25,13,333/- which sum is an expenditure incurred and has been reimbursed to it by the SSNNL. Therefore, the Ld. AR submitted that the disallowance made of Rs. 1,25,13,333/- is apparently misconceived.

41 ITA Nos. 3675/Del/2014 & ors

In the present Assessment Year, the assessee incurred an expenditure in respect of transportation of the material supplied which was an existing & ascertained liability and was allowed as business expenditure. Under Article 5 of the agreement between assessee and ETPL, however, the assessee had authorized, which merely entitled ETPL to collect & receive contract price from SSNNL for each portion. The Ld. AR rightly submitted that there is a difference

42 ITA Nos. 3675/Del/2014 & ors

between accrual of income and incurring of expenditure. Under the agreement entered by assessee with ETPL, it has incurred a liability and in fact paid the said sum on transportation to ETPL. It is not denied that the assessee under the contract with SSNNL could have recovered the amount. However, in the absence of any agreement with SSNNL, to pay the extra amount due to escalation of cost, no income has either accrued or was received by the assessee. There is no a finding given by the Assessing Officer that assessee has not honored the commitment. Thus, the assessee has paid to ETPL under its contractual liability even though the same could not be recovered from SSNNL. Therefore, the disallowance made of the expenditure incurred of Rs. 1,25,13,333/- which has been physically paid by the assessee is to be allowed by the Assessing Officer. We direct accordingly. Hence, Ground No. 3 to 3.3 are allowed.

3696/Del/2014

1) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the assessee did not have a Permanent Establishment ( 'PE') in relation to various contracts for supplies and services executed in India for M/s Maruti Udyog Limited ('MUL').

1.1) The Ld CIT(A) has erred in ignoring the findings of the Assessing Officer ('AO') that the assessee had a fixed-place PE in India in relation to the contracts for supplies executed for M/s MUL in the form of a long-standing presence at M/s MUL's site in India and which operated as an effective system to know the requirements of M/s MUL, to negotiate the Purchase Orders, to procure Purchase Orders etc.

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1.2) Without prejudice to the foregoing, the Ld CIT(A) has erred in holding that the assessee did not have a supervisory PE in relation to the services of installation, testing, commissioning etc of equipments

1.3) The Ld. CIT(A) has erred in mechanically following the judgment of the Hon'ble ITAT in assessee own case for Asstt Years 1992-93 to 1994-95 & 1996-97, not appreciating the fact that the issue of existence or constitution of the PE is always year-specific and therefore the finding with regards to the existence of PE has to be examined afresh in each year on the basis of facts specific to the year under consideration.

1.4) Without prejudice to the foregoing, the issue of constitution of PE in those years has not yet achieved finality as the Revenue has filed a Miscellaneous Application ('MA') before the Hon'ble ITAT to the effect that there are mistakes apparent from record regarding assumption of facts on the basis of which decision was rendered by Hon'ble ITAT.

2) Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in holding that no portion of the assessee's income from the activity of supplies of equipments to M/s MUL is taxable in India

2.1) The Ld CIT(A) has erred in holding that no operations in relation to the supplies of equipments to MUL were undertaken in India, not appreciating the fact that the assessee has a PE in India in the form of long-standing presence in India in relation to the supplies being made and services being rendered to MUL for the past several years. Therefore, the reliance by the Ld CIT(A) on the judgment in the case of M/s Ishikawajima Harima Heavy Industries Ltd [288 ITR 408 (SC)] was misplaced as the facts of the case are distinguishable.

44 ITA Nos. 3675/Del/2014 & ors

3.1) The Ld CIT(A) has erred in not appreciating the fact that the provisions of Article 12(2) are not applicable where Fee for Technical Services has been received on account of services rendered through a PE in India and since in the case of assessee, the Fee for Technical Services are effectively connected with its PE in India, the said revenue is liable to tax @30% under section 115A of the Act, read with the provisions of Article 7 and Article 12(5) of the India- Japan DTAA.

4) Whether on the facts and in the circumstances of the case, the Ld CIT(Appeals) has erred in holding that the assessee is not liable to pay interest u/s 234B of the Act and in observing that the issue is covered in favour of the assessee by decision in the case of M/s Jacabs Civil Incorporated, Mistubishi Corpn & Others [330 ITR 578, Delhi]

4.1) The Ld CIT(Appeals) has erred in not appreciating the fact the case does not lay down a general proposition of law that interest u/s 234B is not chargeable in all cases, particularly in cases where the Non-Resident assessee/ payee/ deductee has played a role in inducing non-deduction or short-deduction on the part of the payer/deductor.

4.2) The Ld CIT(Appeals) has erred in failing to take note of the observations of the Hon'ble High Court in the case of M/s Mitsubishi [330 ITR 578, Del] that the role of the assesse/payee/deductee in short-deduction or non-deduction of tax needs to be ascertained before claim regarding non-liability to interest u/s 234B of the Act is accepted, a proposition affirmed subsequently in the case of M/s Alcatel Lucent (judgement of Delhi High Court dated 7.11.2013 in ITA No. 327 & Ors of 2012) and followed by ITAT Delhi in the order dated 13.06.2014 in the case of Nortel Network India International Inc. (ITA No. 4766/Del/2011)

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46 ITA Nos. 3675/Del/2014 & ors

47 ITA Nos. 3675/Del/2014 & ors

3676/Del/2014

1.1 That learned Commissioner of Income Tax (Appeals) has grossly erred in failing to appreciate that payment of the aforesaid sum has not been disputed by the learned AO nor it is in dispute that ETPL has rendered services as a sub-contractor for custom clearance and inland transportation services, hence the finding that aforesaid expenditure is contingent liability which is solely based on the finding that the additional claim made to SSNNL is not final, is wholly unsustainable.

1.2 That learned Commissioner of Income Tax (Appeals) has grossly erred in failing to appreciate that the payment to ETPL is in respect of services rendered as a subcontractor for custom clearance and inland transportation services for the appellant and hence the liability to pay to ETPL was of the appellant and such a payment was not dependent on claim made to SSNNL.

1.3 That learned Commissioner of Income Tax (Appeals) has failed to appreciate that the expenditure incurred by the appellant of Rs 1,73,16,892 being the payment made to ETPL towards contractual obligation is business expenditure incurred during the normal course of business on account

48 ITA Nos. 3675/Del/2014 & ors

commercial expediency

The assessee has debited in the account of ‘Cost of sales’ an aggregate sum of Rs. 1,73,16,890/- on transportation of material supplied to SSNNL. The Assessing Officer disallowed Rs.1,73,16,890/-, which includes Rs 1,41,32,974/- paid by SSNNL to ETPL and Rs. 31,83,916/- paid by the assessee to ETPL, and further mentioned that amount paid by assessee should be disallowed based on assessment order of AY 2000-01.

49 ITA Nos. 3675/Del/2014 & ors

expenditure. Under Article 5 of the agreement between assessee and ETPL, however, the assessee had authorized, which merely entitled ETPL to collect & receive contract price from SSNNL for each portion. The Ld. AR rightly submitted that there is a difference between accrual of income and incurring of expenditure. Under the agreement entered by assessee with ETPL, it has incurred a liability and in fact paid the said sum on transportation to ETPL. It is not denied that the assessee under the contract with SSNNL could have recovered the amount. However, in the absence of any agreement with SSNNL, to pay the extra amount due to escalation of cost, no income has either accrued or was received by the assessee. There is no a finding given by the Assessing Officer that assessee has not honored the commitment. Thus, the assessee has paid to ETPL under its contractual liability even though the same could not be recovered from SSNNL. Therefore, the disallowance made of the expenditure incurred of Rs. 1,73,16,892/- which has been physically paid by the assessee is to be allowed by the Assessing Officer. We direct accordingly. Hence, Ground No. 3 to 3.3 are allowed.

3713/Del/2014

1) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that no portion of the the income of the assessee from 'offshore' supply of plant & equipments to M/s Sardar Sarovar Narmada Nigam Limited ('SSNNL') is taxable in India.

1.1) The Ld CIT(A) has erred in not appreciating the fact that the contract with M/s SSNNL was a integrated/composite contract involving

50 ITA Nos. 3675/Del/2014 & ors

supply/procurement, transportation, supervision of erection commissioning & testing of equipment at the site of SSNNL and considering the scope of the contract, the supply obligations (whether onshore or offshore), were inextricably connected with the execution of the contact as a whole in India.

1.2) The Ld CIT(A) has erred in holding that no activity in relation to the 'offhsore' supply of equipments was undertaken in India, not appreciating the findings of the Assessing Officer ('AO') that a) negotiations and signing of the contracts took place in India, b) the risk and responsibility associated with the supply remained with the assessee till successful installation & commissioning of the equipment, c) there was close interaction between technical personnel of assessee and M/s SSNNL resulting into establishment of assessee's Permanent Establishment ( PE) in India which was involved in the execution of a contract of composite nature.

1.3) The Ld CIT(A) erred in placing reliance on the judgment in the case of M/s Ishikawajima Harima Heavy Industries Ltd [288 ITR 408 (SC)] as the facts of the case are distinguishable.

2.1. The Ld CIT(A) has erred in ignoring the evidence marshalled by the AO establishing that the assessee had a PE in India in the form of its subsidiary company, M/s Sumitomo Corporation of India Pvt. Ltd ( SCIPL), and through which various activities in relation to the contracts with M/s MUL for supplies & services were carried out in India.

2.2. Without prejudice to the foregoing, the Ld CIT(A) has erred in not appreciating the findings of the Assessing Officer ( 'AO') that the assessee had a fixed-place PE in India in lation to the contracts for supplies executed for

51 ITA Nos. 3675/Del/2014 & ors

M/s MUL in the form of a long-standing ence at M/s MUL's site in India and which operated as an effective system to know the lirements of M/s MUL, to negotiate the Purchase Orders, to procure Purchase Orders

2.3. Without prejudice to the foregoing, the Ld CIT(A) has erred in holding that the assessee did not have a supervisory PE in relation to the services of installation, testing, commissioning etc of equipments

2.4. The Ld. CIT(A) has erred in mechanically following the judgment of the Hon'ble IT AT in assessee own case for Asstt Years 1992-93 to 1994-95 & 1996-97, not appreciating the fact that the facts having a bearing on the issue of existence or constitution of the PE are different this year and that, in any case, the issue of existence/constitution of PE is always year-specific and therefore the finding with regards to the existence of PE has to be examined afresh in each year.

2.5 Without prejudice to the foregoing, the issue of constitution of PE in those years has not yet achieved finality as the Revenue has filed a Miscellaneous Application ('MA') before the Hon'ble ITAT to the effect that there are mistakes apparent from record regarding assumption of facts on the basis of which decision was rendered by Hon'ble ITAT.

3) Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in holding that no portion of the assessee's income from the activity of supplies of equipments to M/s MUL is taxable in India

3.1) The Ld CIT(A) has erred in holding that no operations in relation to the supplies of equipments to MUL were undertaken in India, not appreciating the fact that the assessee has a PE in India in the form of M/s SCIPL as well as in the form of a long-standing presence in India through which various activities were carried out in India in relation to the supplies being made and services being rendered to MUL. Therefore, the reliance by the Ld CIT(A) on the judgment in the case of M/s Ishikawajima Harima Heavy Industries Ltd

52 ITA Nos. 3675/Del/2014 & ors

[288 ITR 408 (SC)] was misplaced as the facts of the case are distinguishable.

4) Whether on the facts and in the circumstances of the facts, the Ld CIT (A) erred in holding that the revenues received by the assessee from M/s MUL on account of supervisory services is chargeable to tax under Article 12(2) of the India-Japan DTAA.

4.1) The Ld CIT(A) has erred in not appreciating the fact that the provisions of Article 12(2) are not applicable where Fee for Technical Services has been received on account of services rendered through a PE in India and since in the case of assessee, the Fee for Technical Services are effectively connected with its PE in India, the said revenue is liable to tax under section 115A of the Act, read with the provisions of Article 7 and Article 12(5) of the India-Japan DTAA.

5) Whether on the facts and in the circumstances of the case, the Ld CIT(Appeals) has erred in holding that the assessee is not liable to pay interest u/s 234B of the Act and in observing that the issue is covered in favour of the assessee by decision in the case of M/s Jacabs Civil Incorporated, Mistubishi Corpn & Others [330 ITR 578, Delhi]

5.1) The Ld CIT(Appeals) has erred in not appreciating the fact the case does not lay down a general proposition of law that interest u/s 234B is not chargeable in all cases, particularly in cases where the Non-Resident assessee/payee/deductee has played a role in inducing non-deduction or short-deduction on the part of the payer/deductor.

5.2) 5.2. The Ld CIT(Appeals) has erred in failing to take note of the observations of the Hon’ble High Court in the case of M/s Mitsubishi [330 ITR 578, Del] that the role of the assessee/payee/deductee in short-deduction or non-deduction of tax needs to be ascertained before claim regarding non- liability to interest u/s 234B of the Act is accepted, a proposition affirmed subsequently in the case of M/s Alcatel Lucent (judgement of Delhi High Court

53 ITA Nos. 3675/Del/2014 & ors

dated 7.11.2013 in IT A No. 327 & Ors of 2012) and followed by ITAT Delhi in the order dated 13.06.2014 in the case of Nortel Network India International Inc [ITA No. 4766/DEL/2011].

54 ITA Nos. 3675/Del/2014 & ors

aspects also remain the same. The Ld. AR further submitted that the assessee was not engaged in actual installation & commissioning of the equipment. The assessee’s role was limited to supervision of installation & commissioning at the buyer’s i.e. SSNNL site. The observations made by the Assessing Officer were factually incorrect as to the income earned by the assessee from offshore supply of the plant and equipment to SSNL from Japan is taxable in India. The activities such as inland transportation, inland insurance, supervision of storage etc. were undertaken by the assessee on behalf of SSNNL. The cost of these services was reimbursed by SSNNL to the assessee. The Ld. AR submitted that these services cannot be linked to supply of equipment as were rendered on behest of SSNNL and not on its own account by the assessee. Further, income from any activity in India through project office was duly offered to tax. As per article 24.1 of the contract agreement, it was specified that both legal and equitable title to all the materials, equipment and apparatus covered by the contract shall be passed to the buyer at the time of such materials, equipment and apparatus is actually loaded free on board the cargo vessel at the Port of Shipment, FOB Japan. Thus, transfer of title in equipment takes place outside India when the goods are boarded on vessel in Japan and the documents of title are tendered in favour of the buyer i.e. SSNNL. The Ld. AR submitted that it is well settled position that if the supply of equipment is made outside India, no business connection could be said to exist between the non-resident exporter and the Indian importer and consequently, no income could be deemed to arise to the non-resident from such supply from outside India. The Ld. AR relied upon the following decisions: i. Ishikawajima Harima Heavy Industries Limited 288 ITR 408 (SC) ii. Hyundai Heavy Industries Company Limited 210 CTR 178 (SC) iii. CIT vs. Toshoku Ltd. 125 ITR 525 (SC) iv. DCIT vs. Alcatel 47 ITD 275 v. CIT vs. Fried Krupp Industries 128 ITR 27 vi. Carborandum Co vs. CIT 108 ITR 335 As regards the risk and responsibility, the Ld. AR submitted that it is evident

55 ITA Nos. 3675/Del/2014 & ors

from both the Bill of Entry and Bill of Lading as both were executed in the name of SSNNL as the consigner. This read with the provisions of Article 24.1 (Transfer of Ownership), clearly exhibits the intention of the contracting parties. Merely by stating that assessee was responsible for risk and responsibility of the equipment, does not, in any way effects the intention of the parties. The parties agreed to transfer of title ‘FOB’ which has been executed as such. Without prejudice to the above, the Ld. AR further submitted that the Assessing Officer erroneously adopted the gross profit rate instead of operating profit rate and has made high attribution of 50% considering significant operation of such alleged PE in India for offshore supply.

56 ITA Nos. 3675/Del/2014 & ors

equipment. This responsibility belonged to MUL and the same is also evident from the Purchase Orders.

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supervisory PE in terms of Article 5(4) of the DTAA. In fact, these Purchase Orders are very much independent and separate from each other and thus, does not constitute the supervisory PE or fixed PE. Hence, the issue raised in the present appeal filed by the Revenue is squarely covered by the decision of the Tribunal for A.Y. 1999-00 which is now confirmed by the Hon’ble High Court as well as by the Hon’ble Supreme Court. Thus, in the present case the FTS was liable to be taxed at 20% under Article 12(2) of the DTAA. Hence, Ground Nos. 4 to 4.1 in Revenue’s appeal are dismissed.

3677/Del/2014

58 ITA Nos. 3675/Del/2014 & ors

law and on facts in treating the payment of Rs 16,80,400 made to Express Transport Private Limited (ETPL), a sub-contractor for custom clearance and inland transportation services, towards contractual price adjustment for services rendered by ETPL, as contingent liability, since it was not verified by Sardar Sarovar Narmada Nigam Limited (‘SSNNL’), the contract awarding authority.

1.1 That learned Commissioner of Income Tax (Appeals) has grossly erred in failing to appreciate that payment of the aforesaid sum has not been disputed by the learned AO nor it is in dispute that ETPL has rendered services as a sub-contractor for custom clearance and inland transportation services, hence the finding that aforesaid expenditure is contingent liability which is solely based on the finding that the additional claim made to SSNNL is not final, is wholly unsustainable.

1.2. That learned Commissioner of Income Tax (Appeals) has grossly erred in failing to appreciate that the payment to ETPL is in respect of services rendered as a subcontractor for custom clearance and inland transportation services for the appellant and hence the liability to pay to ETPL was of the appellant and such a payment was not dependent on claim made to SSNNL.

1.3. That learned Commissioner of Income Tax (Appeals) has failed to appreciate that the expenditure incurred by the appellant of Rs 16,80,400 being the payment made to ETPL towards contractual obligation is business expenditure incurred during the normal course of business on account commercial expediency.

59 ITA Nos. 3675/Del/2014 & ors

60 ITA Nos. 3675/Del/2014 & ors

agreement between assessee and ETPL, however, the assessee had authorized, which merely entitled ETPL to collect & receive contract price from SSNNL for each portion. The Ld. AR rightly submitted that there is a difference between accrual of income and incurring of expenditure. Under the agreement entered by assessee with ETPL, it has incurred a liability and in fact paid the said sum on transportation to ETPL. It is not denied that the assessee under the contract with SSNNL could have recovered the amount. However, in the absence of any agreement with SSNNL, to pay the extra amount due to escalation of cost, no income has either accrued or was received by the assessee. There is no a finding given by the Assessing Officer that assessee has not honored the commitment. Thus, the assessee has paid to ETPL under its contractual liability even though the same could not be recovered from SSNNL. Therefore, the disallowance made of the expenditure incurred of Rs. 16,80,400/- which has been physically paid by the assessee is to be allowed by the Assessing Officer. We direct accordingly. Hence, Ground No. 1 to 1.3 are allowed.

3714/Del/2014

1) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that no portion of the income of the assessee from 'offshore' supply of plant & equipments to M/s Sardar Sarovar Narmada Nigam Limited ('SSNNL') is taxable in India.

1.1) The Ld CIT(A) has erred in not appreciating the fact that the contract with M/s SSNNL was a integrated/composite contract involving supply/procurement, transportation, supervision of erection commissioning &

61 ITA Nos. 3675/Del/2014 & ors

testing of equipment at the site of SSNNL and considering the scope of the contract, the supply obligations (whether onshore or offshore), were inextricably connected with the execution of the contact as a whole in India.

1.2) The Ld CIT(A) has erred in holding that no activity in relation to the 'offhsore' supply of equipments was undertaken in India, not appreciating the findings of the Assessing Officer ('AO') that a) negotiations and signing of the contracts took place in India, b) the risk and responsibility associated with the supply remained with the assessee till successful installation & commissioning of the equipment, c) there was close interaction between technical personnel of assessee and M/s SSNNL resulting into establishment of assessee's Permanent Establishment ( PE) in India which was involved in the execution of a contract of composite nature.

1.3) The Ld CIT(A) erred in placing reliance on the judgment in the case of M/s Ishikawajima Harima Heavy Industries Ltd [288 ITR 408 (SC)] as the facts of the case are distinguishable.

2.1) The Ld CIT(A) has erred in ignoring the evidence marshalled by the AO establishing that the assessee had a PE in India in the form of its subsidiary company, M/s Sumitomo Corporation of India Pvt. Ltd ( SCIPL), and through which various activities in relation to the contracts with M/s MUL for supplies & services were carried out in India.

2.2) Without prejudice to the foregoing, the Ld CIT(A) has erred in not appreciating the findings of the Assessing Officer ( 'AO') that the assessee had a fixed-place PE in India in relation to the contracts for supplies executed for M/s MUL in the form of a long-standing presence at M/s MUL's site in India

62 ITA Nos. 3675/Del/2014 & ors

and which operated as an effective system to know the requirements of M/s MUL, to negotiate the Purchase Orders, to procure Purchase Orders.

2.3) Without prejudice to the foregoing, the Ld CIT(A) has erred in holding that the assessee did not have a supervisory PE in relation to the services of installation, testing, commissioning etc of equipments

2.4) The Ld. CIT(A) has erred in mechanically following the judgment of the Hon'ble ITAT in assessee own case for Asstt Years 1992-93 to 1994-95 & 1996-97, not appreciating the fact that the facts having a bearing on the issue of existence or constitution of the PE are different this year and that, in any case, the issue of existence/constitution of PE is always year-specific and therefore the finding with regards to the existence of PE has to be examined afresh in each year.

2.5) Without prejudice to the foregoing, the issue of constitution of PE in those years has not yet achieved finality as the Revenue has filed a Miscellaneous Application ('MA') before the Hon'ble ITAT to the effect that there are mistakes apparent from record regarding assumption of facts on the basis of which decision was rendered by Hon'ble ITAT.

3) Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in holding that no portion of the assessee's income from the activity of supplies of equipments to M/s MUL is taxable in India.

3.1) The Ld CIT(A) has erred in holding that no operations in relation to the supplies of equipments to MUL were undertaken in India, not appreciating the fact that the assessee has a PE in India in the form of M/s SCIPL as well as in the form of a long-standing presence in India through which various activities were carried out in India in relation to the supplies being made and services being rendered to MUL. Therefore, the reliance by the Ld CIT(A) on the judgment in the case of M/s Ishikawajima Harima Heavy Industries Ltd [288 ITR 408 (SC)] was misplaced as the facts of the case are distinguishable.

63 ITA Nos. 3675/Del/2014 & ors

4) Whether on the facts and in the circumstances of the facts, the Ld CIT(A) erred in holding that the revenues received by the assessee from M/s MUL on account of supervisory services is chargeable to tax under Article 12(2) of the India-Japan DTAA.

4.1) The Ld CIT(A) has erred in not appreciating the fact that the provisions of Article 12(2) are not applicable where Fee for Technical Services has been received on account of services rendered through a PE in India and since in the case of assessee, the Fee for Technical Services are effectively connected with its PE in India, the said revenue is liable to tax under section 115A of the Act, read with the provisions of Article 7 and Article 12(5) of the India- Japan DTAA.

5) Whether on the facts and in the circumstances of the case, the Ld CIT (Appeals) has erred in holding that the assessee is not liable to pay interest u/s 234B of the Act and in observing that the issue is covered in favour of the assessee by decision in the case of M/s Jacabs Civil Incorporated, Mistubishi Corpn & Others [330 ITR 578, Delhi]

5.1) The Ld CIT(Appeals) has erred in not appreciating the fact the case does not lay down a general proposition of law that interest u/s 234B is not chargeable in all cases, particularly in cases where the Non-Resident assessee/payee/deductee has played a role in inducing non-deduction or short-deduction on the part of the payer/deductor.

5.2) The Ld CIT(Appeals) has erred in failing to take note of the observations of the Hon'bJe High Court in the case of M/s Mitsubishi [330 ITR 578, Del] that the role of assesse/ payee/ deductee in short-deduction or non-deduction of tax needs to be ascertained before claim regarding non-liability to interest u/s 234B of the Act is acceptei a proposition affirmed subsequently in the case of M/s Alcatel Lucent (judgement of Deih; High Court dated 7.11.2013 in ITA No. 327 & Ors of 2012) and followed by ITAT Delhi in the order dated 13.06.2014

64 ITA Nos. 3675/Del/2014 & ors

in the case of Nortel Network India International Inc [ITA No. 4766/DEL/2011].

65 ITA Nos. 3675/Del/2014 & ors

submitted that these services cannot be linked to supply of equipment as were rendered on behest of SSNNL and not on its own account by the assessee. Further, income from any activity in India through project office was duly offered to tax. As per article 24.1 of the contract agreement, it was specified that both legal and equitable title to all the materials, equipment and apparatus covered by the contract shall be passed to the buyer at the time of such materials, equipment and apparatus is actually loaded free on board the cargo vessel at the Port of Shipment, FOB Japan. Thus, transfer of title in equipment takes place outside India when the goods are boarded on vessel in Japan and the documents of title are tendered in favour of the buyer i.e. SSNNL. The Ld. AR submitted that it is well settled position that if the supply of equipment is made outside India, no business connection could be said to exist between the non-resident exporter and the Indian importer and consequently, no income could be deemed to arise to the non-resident from such supply from outside India. The Ld. AR relied upon the following decisions: i. Ishikawajima Harima Heavy Industries Limited 288 ITR 408 (SC) ii. Hyundai Heavy Industries Company Limited 210 CTR 178 (SC) iii. CIT vs. Toshoku Ltd. 125 ITR 525 (SC) iv. DCIT vs. Alcatel 47 ITD 275 v. CIT vs. Fried Krupp Industries 128 ITR 27 vi. Carborandum Co vs. CIT 108 ITR 335 As regards the risk and responsibility, the Ld. AR submitted that it is evident from both the Bill of Entry and Bill of Lading as both were executed in the name of SSNNL as the consigner. This read with the provisions of Article 24.1 (Transfer of Ownership), clearly exhibits the intention of the contracting parties. Merely by stating that assessee was responsible for risk and responsibility of the equipment, does not, in any way effects the intention of the parties. The parties agreed to transfer of title ‘FOB’ which has been executed as such. Without prejudice to the above, the Ld. AR further submitted that the Assessing Officer erroneously adopted the gross profit rate instead of operating profit rate and has made high attribution of 50% considering significant

66 ITA Nos. 3675/Del/2014 & ors

operation of such alleged PE in India for offshore supply.

67 ITA Nos. 3675/Del/2014 & ors

assessee at no stage involved in the said activities. There was no PE involved in the sale. In fact supervision was done after the supply of equipments. The revenue could not establish that the assessee is having fixed place PE or supervisory PE. The ratio laid by the Hon’ble Apex Court in case of M/s Ishikawajima Harima Heavy Industries Ltd. (supra) is applicable in the present case. Therefore, Ground Nos. 2 to 2.5 and 3 to 3.1 of the Revenue’s appeal is dismissed.

68 ITA Nos. 3675/Del/2014 & ors

5964/Del/2010

Based on the facts and circumstances of the case, the Appellant respectfully submits:

69 ITA Nos. 3675/Del/2014 & ors

2.1 That the Hon’ble DRP/learned AO has erred in holding that the profit of supplies of equipment by the assessee to MUL are taxable in India even knowing that title of equipment and supplies had been made by the appellant outside India and no income thus had accrued to the assessee in India.

2.2 That the Hon’ble DRP/leaned AO has erred in holding that the assessee has a PE in India under Article 5 of the Double Taxation Avoidance Agreement between India and Japan ('DTAA’ or 'treaty’)

2.3 Without prejudice and in the alternative even if it is held that the appellant had a PE in India then also, no amount of the alleged profits from supply of equipment to MUL could be taxed in India, since no such alleged profits could

70 ITA Nos. 3675/Del/2014 & ors

be attributed to such PE in India as per Article 7 of the DTAA.

3.4. That further the Hon’ble DRP has erred in enhancing the percentage of alleged attribution to 50% from 25% adopted by Assessing Officer, without appreciating the facts and circumstances of the case and also by failing to appreciate the alleged instance of so called comparables were wholly inapplicable and further in any case there was a complete violation of principles of natural justice, when the assessee had not been confronted with any of the details of the so called comparables to rebut the assumption, that the alleged instances could not be compared with that of the assessee company, so as to adopt 50% of the profit as attributable against 25% adopted by the learned AO.

3.5. That in the alternative and without prejudice the aforesaid addition made of a sum of Rs. 1,27,32,484/- being the sum allegedly attributable to the MUL project and assessable to tax is highly excessive.

3.6. That the Hon’ble DRP/leamed AO has erred in attributing 50% of the profit to the alleged PE of the Appellant in India without any basis such a conclusion is arbitrary and is untenable.

4.1 That the Hon’ble DRP/learned AO has erred in taxing supervision income as fee for technical services @10% gross under section 115A read with Article 12 of DTAA on the reasoning that it is not inextricably linked and incidental to the supply of equipment to MUL. The findings and conclusions

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arrived at contradictory.

4.2. The finding of the Hon'ble DRP/learned AO that the supervision activities could have been directly performed by Original equipment manufacturer (OEM) or a company other than the Appellant is based on no material and is contrary to terms of the agreement with MUL under which it was the Appellant alone to provide such services and could not be performed by anyone else. Thus, the findings of the learned AO are arbitrary and untenable.

4.3. That the Hon’ble DRP/learned AO has erroneously assumed and held without any basis that the appellant has admitted that it constitutes a service PE as under Article 5 of the India - Japan DTAA.

4.4. That the Hon’ble DRP/leamed AO without prejudice to above ground that supervision income is not taxable, has erred in taxing supervision income @10% gross when the same should have been taxed in the similar manner in which she has taxed the equipment supply income.

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independently and the supervision fee though separately indicated was not incidental to the supplies made.

The above grounds are independent and without prejudice to each other.

73 ITA Nos. 3675/Del/2014 & ors

issue.

74 ITA Nos. 3675/Del/2014 & ors

75 ITA Nos. 3675/Del/2014 & ors

76 ITA Nos. 3675/Del/2014 & ors

work and will not constitute any PE in India. From the various purchase orders, the identical features emerge that in all the purchase orders, supervisors were to come from Japan and MUL bears the cost of their Air ticket and provides for their boarding and lodging in India. The period of supervision in case of individual contracts did not exceed a period of 180 days except the one purchase order mentioned hereinabove and they did not constitute supervisory PE in terms of Article 5(4) of the DTAA. In fact, these Purchase Orders are very much independent and separate from each other and thus, does not constitute the supervisory PE or fixed PE. Hence, the issue raised in the present appeal filed by the Revenue is squarely covered by the decision of the Tribunal for A.Y. 1999-00 which is now confirmed by the Hon’ble High Court as well as by the Hon’ble Supreme Court. Thus, in the present case the FTS was liable to be taxed at 20% under Article 12(2) of the DTAA. Hence, Ground Nos. 4 to 4.4, 5 and 6 in assessee’s appeal are allowed.

77 ITA Nos. 3675/Del/2014 & ors

1114/Del/2015

Based on the facts and circumstances of the case, the Appellant respectfully submits:

3.1 That the Hon'ble DRP/learned AO has erred in holding that the profit of supplies of equipment by the Appellant to MSIL are taxable in India despite

78 ITA Nos. 3675/Del/2014 & ors

the fact that title of equipment had passed in Japan and supplies had also been made in Japan and not in India and thus no income had accrued to the Appellant in India.

3.2 That the Hon’ble DRP/leaned AO has erred in holding, that the Appellant has a PE in India under Article 5 of the Double Taxation Avoidance Agreement between India and Japan ('DTAA’ or 'treaty’) and such PE was involved in port clearance, local transportation, commissioning and testing of equipment in India. The aforesaid findings are based on no material whatsoever.

3.3 That the Hon’ble DRP/learned AO has erred in holding, without any basis, that the negotiation and signing of the contract took place in India and thus PE was established without considering the fact that even the contracts were signed outside India and no negotiation took place in India in respect of such offshore supply.

3.4 That the Hon'ble DRP/leamed AO has erred on facts in holding and that to without any basis, that the Appellant has entered into integrated contract for supply of equipment and commissioning, and PE was established to undertake the contractual obligation. In-fact the assessee did not carry out any activity in India in respect of such offshore supplies. Thus, the allegation of the learned AO is totally baseless.

3.5 Without prejudice and in the alternative even if it is held that the Appellant had a PE in India then also, no amount of the alleged profits from supply of equipment to MSIL could be taxed in India, since no such alleged profits could be attributed to such PE in India as per Article 7 of the DTAA.

3.6. That the Hon’ble DRP/leamed AO has erred in attributing 50% of the profit in respect of offshore supplies to the alleged PE of the Appellant in India without any basis such a conclusion is arbitrary and is untenable.

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3.7. Without prejudice to above that offshore supply is not taxable in India, the authorities below have erred in not allowing set-off of the brought forward business losses against income from supply of equipment.

4.1 That the authorities below have erred in holding that the assessee had a supervisory PE in India and have further erred in assuming and that without any material that it had a service PE in India which is also conceptually incorrect in absence of any such concept of service PE under Article 5 of the India-Japan DTAA.

4.2. That the learned AO has failed to adopt for computing the period of supervision undertaken by the Appellant by adopting aggregating period of all the Purchase Order of supervision which were otherwise admitted by the learned AO as independent and separate.

4.3 In view of the aforesaid erroneous approach the authorities below have erred in not accepting the contention of the Appellant that the fee for supervision was taxable under Article 12(2) of the DTAA, and not under Article 12(5) of DTAA or section 9(1 )(vii) of the Act.

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The above grounds are independent and without prejudice to each other.

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assessee at no stage involved in the said activities. There was no PE involved in the sale. In fact supervision was done after the supply of equipments. The revenue could not establish that the assessee is having fixed place PE or supervisory PE. The ratio laid by the Hon’ble Apex Court in case of M/s Ishikawajima Harima Heavy Industries Ltd. (supra) is applicable in the present case. Therefore, Ground Nos. 2 and 3 to 3.5 of the assessee’s appeal is allowed.

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83 ITA Nos. 3675/Del/2014 & ors

6384/Del/2015

Based on the facts and circumstances of the case, the Appellant respectfully submits:

3.1 That the Ld. DRP/Ld. AO has erred in making addition of Rs. 2,09,19,343/- in respect of an amount stated to be an income attributable for supplies made by Appellant to MSIL (i.e. the estimated and assumed sum) from Japan. The Ld. DRP/Ld. AO has erred in not appreciating that such income, as has been held to be attributable on the supplies made, since could not be attributable to its alleged permanent establishment, the addition so

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made be thus held as untenable, which addition deserves to be deleted.

3.2 Without prejudice to above and in the alternative even if it is held that the Appellant had a PE in India then also, no amount of the alleged profits from supply of equipment to MSIL could be taxed in India, since no such alleged profits could be attributed to such PE in India as per Article 7 of the DTAA.

3.3 Without prejudice to above and in alternative the Ld. DRP / Ld. AO has erred in attributing 50% of the profit to the alleged PE of the assessee in India without any basis such a conclusion is arbitrary and is untenable. It is settled law that even an estimate, where it is required to be made, should be on valid basis after confronting the same with the assessee for their rebuttal. Thus, assessment made is bad in law.

3.4 Without prejudice to above that offshore supply is not taxable in India, Ld. DRP/Ld. AO has erred in not allowing set-off of the business losses against income from supply of equipment.

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tax in the return of income in accordance to Article 11(2) of the India - Japan DTAA wherein tax cannot be levied more than 10% gross.

The above grounds are independent and without prejudice to each other.”

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transferred to MUL outside India. The assessee was not responsible for any custom clearance and transportation of the equipment. This responsibility belonged to MUL and the same is also evident from the Purchase Orders. The Ld. DR also submitted that the issue is identical with the issue decided in respect of Ground No. 1 to 1.4 and 2 to 2.1 for A.Y. 2001-02 as this involves offshore supplies and equipments to MUL.

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and provides for their boarding and lodging in India. The period of supervision in case of individual contracts did not exceed a period of 180 days except the one purchase order mentioned hereinabove and they did not constitute supervisory PE in terms of Article 5(4) of the DTAA. In fact, these Purchase Orders are very much independent and separate from each other and thus, does not constitute the supervisory PE or fixed PE. Hence, the issue raised in the present appeal filed by the Revenue is squarely covered by the decision of the Tribunal for A.Y. 1999-00 which is now confirmed by the Hon’ble High Court as well as by the Hon’ble Supreme Court. Thus, in the present case the FTS was liable to be taxed at 20% under Article 12(2) of the DTAA. Hence, Ground Nos. 4, 5 and 6 in assessee’s appeal are allowed.

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Nos. 8 is allowed.

6385/Del/2015

Based on the facts and circumstances of the case, the Appellant respectfully submits:

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3.1. That the Ld. DRP/Ld. AO has erred in making addition of Rs. 3,81,38,635/- in respect of an amount stated to be an income attributable for supplies made by Appellant to MSIL (i.e. the estimated and assumed sum) from Japan. The Ld. DRP/Ld. AO has erred in not appreciating that such income, as has been held to be attributable on the supplies made, since could not be attributable to its alleged permanent establishment, the addition so made be thus held as untenable, which addition deserves to be deleted.

3.2. Without prejudice to above and in the alternative even if it is held that the Appellant had a PE in India then also, no amount of the alleged profits from supply of equipment to MSIL could be taxed in India, since no such alleged profits could be attributed to such PE in India as per Article 7 of the DTAA.

3.3. Without prejudice to above and in alternative the Ld. DRP/Ld. AO has erred in attributing 50% of the profit to the alleged PE of the assessee in India without any basis such a conclusion is arbitrary and is untenable. It is settled law that even an estimate, where it is required to be made, should be on valid basis after confronting the same with the assessee for their rebuttal. Thus, assessment made is bad in law.

3.4. Without prejudice to above that offshore supply is not taxable in India, Ld. DRP/Ld. AO has erred in not allowing set-off of the business losses against income from supply of equipment.

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supervision income of Rs. 28,93,52,067 thereby ignoring the fact that correct rate as per Article 12(2) of the DTAA for AY 2012-13 wherein tax cannot be levied more than is 10% gross.

The above grounds are independent and without prejudice to each other.

The Appellant craves leave to add, alter, supplement, amend, vary, withdraw or otherwise modify the ground mentioned herein above at or before the time of hearing.

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92 ITA Nos. 3675/Del/2014 & ors

to 3.1. The Ld. AR also submitted that the issue is identical and in fact factual aspects also remain the same.

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filed all the details before the Assessing Officer and therefore, the non granting of credit of tax deducted at source is uncalled for. Therefore, we direct the Assessing Officer to grant the credit of tax deducted at source in consonance with the details filed by the Assessing Officer. The issue is identical to that of A.Y. 2010-11 and we have already decided in favour of assessee hereinabove para 100. Thus, Ground No. 7 is allowed.

Sd/- Sd/- (G. D. AGRAWAL) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER Dated: 01/07/2019 R. Naheed *

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