M/S. SAMSUNG HEAVY INDUSTRIES CO. LTD.,GURGAON vs. ADIT, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 1064/Del/2013 and 1909/Del/2014 (Assessment Year: 2009-10 and 2010-11) Samsung Heavy Industries Co. Vs. ADIT, Ltd, International Taxation, 530, JANGPYEONG-RI, Dehradun SINHYEON-EUP GEOJE-SI GYEONGSANGNAM-DO 656710 PAN: AAJCS7859K (Appellant) (Respondent)

Assessee by : Shri Ravi Sharma, Adv Revenue by: Shri G.K. Dhall, CIT DR(International Taxation) Date of Hearing 12/10/2018 Date of pronouncement 09/1/2019

O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the two appeals filed by the assessee for Ay 2009-10 and 2010- 11 involving c identical issues, argued together and disposed of by this common order. 2. For assessment year 2009 – 10 assessee has filed appeal against the order of the assistant director of income tax, international taxation, Dehradun (the learned assessing officer) passed u/s 143 (3) read with section 144C (13) of the income tax act, 1961 passed in pursuance of direction of the learned the dispute resolution panel – II, Delhi dated 6/9/2012 under section 144C (5) of the income tax act wherein the total income of the assessee is determined at rupees loss of INR 246415671/– against the return of income filed by the assessee on 25/7/2008 at the loss of INR 7 55599323/–. The assessee has raised the following grounds of appeal in ITA No. 1064/Del/2013:- “1. That the assessing officer erred on facts and in law in completing the assessment of the appellant for the relevant assessment year, Page | 1

determining loss at Rs.24,64,15,670, as against the loss of Rs.75,55,99,323 returned by the appellant. Re: Existence of Permanent Establishment: 2. That the assessing officer erred on facts and in law in holding, on the basis of orders passed in assessment years 2007-08 and 2008-09, that the appellant had fixed place of business in India in terms of Article 5(1) of India Korea Double Taxation Avoidance Agreement (“DTAA”/”the Treaty”), in the form of Project office in India and that the appellant had executed Vasai East Development Project of ONGC (VED Project) through such project office. 2.1 That the assessing officer erred on facts and in law in not appreciating that since the activities carried out by the project office in India were of preparatory and auxiliary nature, no fixed place PE in India, in any case, was constituted having regard to provisions of Article 5(4) of the Treaty. 2.2 That the assessing officer erred on facts and in law in alleging that the appellant had during the course of assessment proceedings accepted that it has a PE in India during the relevant previous year, not appreciating that the appellant had only accepted that it had installation PE in India in terms of Article 5(3) and not fixed place PE in terms of Article 5(1) of the Treaty. 2.3 That without prejudice, the assessing officer erred on facts and in law in not appreciating that in case of installation project, the specific provisions of Article 5(3) and not general provisions of Article 5(1) of the Treaty relating to fixed place PE would apply. 3. That the assessing officer erred on facts and in law in alleging that the appellant also had dependent agent permanent establishment (PE) in India. Re: Attribution of income: Without prejudice: 4. That the assessing officer erred on facts and in law in attributing revenues from activities carried on outside India to the alleged PE of the appellant in India, without appreciating that the alleged PE of the appellant had no role to play in design, fabrication, etc. of the platforms which was carried on outside India. 4.1 That the assessing officer erred on facts and in law in attributing on adhoc basis 25% of the outside India revenues relating to the VED project, to the alleged PE of the appellant in India, rejecting the accounts of the appellant in respect of the operations carried on outside India. 4.2 That the assessing officer erred on facts and in law in alleging that the accounts of the outside India operations were unaudited and could not be relied upon in absence of supporting bills. 4.3 That without prejudice, the assessing officer erred on facts and in law in holding 25% to the gross revenues billed by the appellant during the relevant previous year in respect of activity carried outside India Page | 2

instead of the gross revenues relating to outside India operations as appearing in the audited accounts, prepared on percentage completion method regularly followed by the appellant, as the income attributable to the alleged PE in India, inspite of the directions of the DRP to consider the revenues on percentage of completion method regularly followed by the appellant. 5. That without prejudice, the assessing officer erred on facts and in law in not appreciating that there being loss in the activities carried on outside India, no income could be attributed to the installation of PE of the appellant in India. 6. That the assessing officer erred on facts and in law in disallowing deduction of expenses totaling Rs.2,55,57,055 invoking the provisions of section 40(a)(i)/(ia) of the Act. 6.1 That the assessing officer erred on facts and in law in holding as aforesaid, without even specifying the provision under which tax was deductible from barge hire charges. 6.2 That the assessing officer erred on facts and in law in not appreciating that payment made by the appellant, a non-resident, to a non-resident service provider was not subject to tax deduction at source under section 195 of the Act.” 3. Brief facts of the case shows that assessee is a company Incorporated in South Korea and is a tax resident of South Korea. It is engaged in the business of heavy engineering and was awarded the Vasai East development Project by oil and natural gas Corp Ltd for the purpose of survey, design, engineering, procurement, fabrication, NT crores and weight coating, Load out, tie down, sea fastening, transportation, installation and modification at existing facilities and hook up, testing, pre-commissioning, start-up and commissioning of the entire facilities. The assessee filed its return of income at the loss of INR 75 5599323/- claiming benefit of double taxation avoidance agreement between India and Korea and claimed to be a tax resident of the Korea. The assessee furnished the tax residency certificate to establish this fact. The assessee signed the contract with ONGC for execution of the project on 28/2/2006. 4. According to the contract the claim of the assessee is that it carries out certain activities within India and certain activities outside India. Accordingly it stated that it carries out coordination and communication activities in India, design and engineering activities in Malaysia, fabrication enquiry and Malaysia and transportation/loading from Malaysia to India. Further on arrival of goods from Malaysia to India installation and commissioning activities are carried out in India at Mumbai offshore. It is Page | 3

the claim of the assessee that in pursuance to the above contract the ONGC asked the assessee to open a project office in Mumbai for the purpose of coordination and communication between the parties to the contract which assessee did by obtaining the approval of the reserve bank of India on 24/5/2006. It recruited two employees. On the basis of these facts the claim of the assessee is that it is consistently offering tax on from inside India activities like installation and commissioning of the platform. This revenue was recognized as taxable in India due to an admitted position that assessee had an installation permanent establishment in India. Accordingly in this year also the assessee filed its return of income showing loss in respect of one sure activity that is installation and commissioning. 5. The learned assessing officer must draft assessment order on 30/12/2011 determining the total loss of the assessee at INR 24 6415 670/– wherein he held that revenue on from offshore supply of equipment of INR 4 83626597/- of which the income is to be attributed to the PE as income of the assessee. He further disallowed INR 20 552 9555/– for non-deduction of tax at source. He referred to his own finding for assessment year 2007 – 08 and 2008 – 09 holding that outside India revenues on by the assessee are taxable in India and such receipts are not offer to taxation. He further relied upon the decision of the coordinate bench in case of the assessee for assessment year 2007 – 08 in ITA number 5237/del/2010 where the issue was decided in favour of the revenue. He therefore held that incomes earned by the assessee outside India are held to be attributable to the permanent establishment in India by way of project office for the contract. The learned AO further asked the details of expenses incurred for earning this income and also the audit report for the assessment year. Further in the decision of the coordinate bench of the assessee for earlier years of profit was deemed at the rate of 25% of the income by the learned assessing officer is not supported by any basis of working and therefore the matter was set aside to the file of the learned assessing officer for ascertaining to what extent the activities of the business carried out through its Mumbai project office for deciding the percentage of such attribution of outside Indian activity to Indian permanent establishment. On the basis of the audited accounts of the assessee the learned assessing officer test check

basis examine them and found that assessee has made payment for barge hire charges to some parties on which tax has not been deducted. Such sum is also required to be disallowed and therefore he disallowed a sum of INR 975,000 page 2 logistic enterprises private limited as per provisions of section 40 (a) (i.e. a) and INR 2 4582055 as per provisions of section 40 (a) (i.e.) of the income tax act. 6. The assessee filed its objection before the dispute resolution panel against the holding of the existence of the permanent establishment which was upheld on the basis of the similar issue in the earlier assessment year. Further with respect to the attribution of the income, after obtaining the reply of the learned assessing officer held that the sufficient opportunity had been given by the AO during the assessment proceedings and also the opportunity was given by the dispute resolution panel but the assessee could not furnish the required information and evidences. However considering the submission of the assessee that the information are voluminous and are mostly in Korean language which have to be translated in English the assessing officer was also directed to give one more opportunity to the assessee. The learned assessing officer gave an opportunity to the assessee to provide the evidences however assessee did not file any information. Further certain verifications is directed by the learned dispute resolution panel were also carried out by the learned assessing officer. With respect to the non-deduction of tax at source it accepted certain objections of the assessee however the addition was restricted to INR 20 550 29555 on account of payment of INR 975,000 to M/s logistic enterprises private limited and INR 2 4554555 to M/S Teras transporter private limited. Accordingly the assessment order was passed determining total loss of the assessee of INR 246415671/-. Against this order the assessee has preferred this appeal. 7. Firstly the order passed by the learned assessing officer on 29/10/2012 which was received by the assessee on 01/11/2012 however the impugned appeal was filed on 22/02/2013 thereby causing delay of 53 days in filing of the appeal. The assessee has preferred an application for condonation of delay in filing appeal on 15/5/2013. The reason of the delays explained by the assessee stating that when the order was received on 01/11/2012 by

the authorised representative of the assessee in India he forgot to inform the appellant about the receipt of the impugned assessment order. Later on 16/02/2013 he came to know about this order from the various file and immediately handed over the assessment order to the appellant. On receipt of the above order the assessee immediately filed the appeal on 22/2/2013. The learned authorised representative vehemently stated that assessee has only an authorised officer in India who was not conversant with the tax matters and further the assessee is a non-resident and all the directors of the appellant are residing outside India which caused this delay. He further stated that the delay is not deliberate or on account of any Malafied. He stated that even otherwise the assessee is not benefited by filing a delayed appeal. Therefore it was prayed that the appeal be admitted and adjudicated on the merits of the case in the interest of justice. 8. The learned Commissioner of income tax Department representative (international taxation) vehemently opposed the application of the assessee for condonation of delay stating that the reasons stated by the assessee does not inspire any confidence and therefore the delay should not be condoned. We have carefully considered the rival contention and perused the facts 9. stated by the assessee in its application for condonation of delay which is also supported by the affidavit of the authorised officer and it is apparent that no sooner did the assessee came to know about the assessment order it took immediate steps for filing of the appeal. It is also fact that assessee is not benefited by causing delay in filing of the appeal. Further as held by honourable Supreme Court in [1987] 167 ITR 471 (SC) COLLECTOR, LAND ACQUISITION Vs MST. KATIJI AND OTHERS as under:-

“And such a liberal approach is adopted on principle as it is realized that : 1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. --------------------------------------------------------------------------- 1." Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had Page | 6

sufficient cause for not preferring the appeal or making the application within such period." Page No : 0473 3. " Every day's delay must be explained " does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, common sense and pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non- deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. 6. It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so. Making a justice-oriented approach from this perspective, there was sufficient cause for condoning the delay in the institution of the appeal. The fact that it was the " State " which was seeking condonation and not a private party was altogether irrelevant. The doctrine of equality before law demands that all litigants, including the State as a litigant, are accorded the same treatment and the law is administered in an even-handed manner. There is no warrant for according a step-motherly treatment when the " State " is the applicant praying for condonation of delay. In fact, experience shows that on account of an impersonal machinery (no one in charge of the matter is directly hit or hurt by the judgment sought to be subjected to appeal) and the inherited bureaucratic methodology imbued with the note-making, file-pushing, and passing-on-the- buck ethos, delay on its part is less difficult to understand though more difficult to approve. In any event, the State which represents the collective cause of the community, does not deserve a litigant non grata status. The courts, therefore, have to be informed of the spirit and philosophy of the provision in the course of the interpretation of the expression " sufficient cause ". So also the same approach has to be evidenced in its application to matters at hand with the end in view to do even-handed justice on merits in preference to the approach which scuttles a decision on merits. Turning to the facts of the matter giving rise to the present appeal, we are satisfied that sufficient cause exists for the delay. The order of the High Court dismissing the appeal before it as time-barred, is therefore, set aside. Delay is condoned. And the matter is remitted to the High Court. The High Court will now Page No : 0474 dispose of the appeal on merits after affording reasonable opportunity of hearing to both the sides. “ Therefore following those principles as laid down by the honourable Supreme Court, which are also fulfilled by the assessee, we condone the delay in filing the appeal. 10. Ground number 1 of the appeal is general in nature and no spectator arguments were advanced before us and hence same is dismissed. Page | 7

alleged by him that because there is a project office in India, revenue from offshore supply should be attributed to it. 2.6 The assessing officer, while making an addition on account of revenue earned from offshore supply equipment, failed to take cognizance of Article 7(1) of the India-Korea Double Taxation Avoidance Agreement. Article 7(1) mandates that ONLY the profits which are earned through the Permanent establishment are to be brought to tax in India. Therefore, the income of the assessee cannot be taxed unless it is shown that income generating activities were carried out through the Permanent Establishment, mere existence of a PE is not enough to fasten tax liability. 2.7 In the instant case, since the assessee is a tax resident of Korea and hence the income earned by virtue of offshore supply of platforms is to be taxed only in Korea and not in India. This is unless the AO is able to bring evidence on record that the same were carried out through the assessee's PE in India, a burden which has not been discharged by the assessing officer. 2.8 In light of the above submissions, it is prayed that the appeal of the assessee be kindly allowed and it be further held that no income from offshore supplies could be attributed to assessee’s PE. 2.9 Reliance is placed on the decision of Hon’ble Supreme Court in the case of Hyundai Heavy Industries Co. Ltd. (210 CTR 178) wherein, Hyundai Heavy had a project office in Mumbai just like the assessee in the instant case. (Refer para 3 of the judgement). However, the Hon’ble court held that nothing pertaining to offshore supply of equipment can be taxed here in India as the work of offshore supply was not carried out through the assessee PE in India, refer relevant Para 11 of the judgement: “On reading Article 7of the CADT, it is clear that the said Article is based on OECD Model Convention. Para (1) of Article 7 states the general rule that business profits of an enterprise of one Contracting State may not be taxed by the other Contracting State unless the enterprise carries on its business in the Other Contracting State through its PE. The said para (l) further lays down that only so much of the profits attributable to the PE is taxable. Para (l) of Article further lays down that the attributable profit can be determined by the apportionment of the total profits of the assessee to its various parts or on the basis of an assumption that the PE is a distinct and separate enterprise having its own profits and distinct from GE.” 3. DISALLOWANCE UNDER SECTION 4o(a)(i)/ 4o(a)(ia) OF THE ACT. 3.1 The Ld. AO vide final assessment order passed under section 143(3)/i44C(i3) of the Act has disallowed the following expenses on the ground that barge hire charges have been paid to the following parties without deducting tax at source:- • Logistics enterprise Pvt Ltd Rs. 9,75,000/- Page | 9

• Teras Transporters Pte Ltd Rs. 2,45,54,555/- 3.2 The aforementioned expenses amounting to Rs. 9,75,000/- and Rs. 2,45,54,555/- were disallowed under Section 40(a)(ia) of the Act and section 40(a)(i) of the Act respectively. A) Allowability of expenditure- payments made to Logistics enterprise Pvt Ltd 4.1 The Ld. AO has disallowed the payment made to Logistic Enterprise Pvt. Ltd towards barge hire charges under Section 4o(a)(ia) of the Act on account of non-deduction of tax at source. However, the assessee has only reimbursed barge hire charges to Logistic Enterprise Pvt. Ltd. which is clear from perusal of invoice dated June 03, 2008 (refer Page 371 of Paperbook IV) raised by Logistic Enterprise Pvt. Ltd. on the assessee. 4.2 Therefore, it is absolutely clear that the aforementioned invoice is on account of reimbursement of expenses incurred by Logistic Enterprise and hence, the liability to deduct tax at source from payments made to service provider, if any, was that of Logistic Enterprises and not the assessee. 4.3 Furthermore the disallowance made by the AO was without even specifying the provision under which the tax was deductible therefrom. Hence the same need to be allowed as an expenses under the income tax act. 4.4 The assessee would like to place further reliance on the decision of the Hon’ble Bombay High Court in the case of CIT v. Siemens Aktiongesellschaft: 220 CTR 425 wherein it was held that reimbursement of expenses in respect technical assistance rendered by the assessee can, in no circumstances, be regarded as income of the assessee. 4.5 In view of the above facts and judicial precedent, the assessee humbly submits that no disallowance made by the Ld AO under Section 4o(a)(ia) of the Act on payments made to Logistics enterprise Pvt Ltd amounting to Rs. 9,75,000/- is warranted in this case as these payments represent pure reimbursement of expenses without any income element. B) Allowability of expenditure- payment made to Teras Transporters Pte. Ltd. 5.1 The Ld. AO has disallowed the payment made to Teras Transporters Pte. Ltd. towards barge hire charges under Section 4o(a)(i) of the Act on account of non-deduction of tax at source. 5.2 Payments made to non-residents are subject to tax deduction under Section 195 of the Act. It is submitted that Hon’ble Supreme Court in the case of GE India Technology (P) Ltd. Vs. CIT (327 ITR 456) has held that Section 195 of the Act provides obligation to deduct tax on payments to non-resident which are taxable in India. Thus, in case the payment is not taxable in India, the obligation to deduct tax does not trigger at all.

5.3 It is pertinent to note that as Teras Transporters Pte. Ltd. is a Company registered in Singapore, it has the option of being taxed under the provisions of the Agreement for avoidance of double taxation and prevention of fiscal evasion between India and Singapore (“DTAA”). 5.4 Charter and rental charges of the shipping business are specifically referred to in Article 8 of the Indo-Singapore DTAA. Hence, the same cannot be classified as royalty under Article 12 of the Indo-Singapore DTAA. The text of Article 8 of Indo-Singapore DTAA is reproduced as under: “ARTICLE 8 SHIPPING AND AIR TRANSPORT 1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State. 2. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency engaged in the operation of ships or aircraft 3. Interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft, and the provisions of Article 11 shall not apply in relation to such interest. 4. For the purposes of this Article, profits from the operation of ships or aircraft in international traffic shall mean profits derived from the transportation by sea or air of passengers, mail, livestock or goods carried on by the ow ners or lessees or charterers of the ships or aircraft, including profits from: a) the sale of tickets for such transportation on behalf of other enterprises; b) the incidental lease of ships or aircraft used in such transportation; c) the use, maintenance or rental or containers (including trailers and related equipment for the transport of containers) in connection with such transportation; and d) any other activity directly connected with such transportation.” 5.5 Therefore, as Teras Transporters Pte. Ltd is a Company incorporated in Singapore, hence, in light of Article 8(1) read with Article 8(4) of the Indo-Singapore DTAA, rental/hire charges of the vessel paid to Teras Transporters Pte. Ltd would only be taxable in Singapore and nothing will be taxable in India.

5.6 It is further submitted that barges operate in international waters and carry goods from various ports. These goods (fabricated parts of platforms) are delivered on Indian High Seas, where they are installed by the assessee. To support the contention, a sample bill of lading along with barge entry certificate and list of goods as approved by the Indian Authorities are attached as Annexure 5.7 In absence of taxability of the rental / hiring charges paid to Teras Transporters Pte. Ltd in India for hire of Barges which is a ship as per the decision of the Hon’ble Mumbai Tribunal in the case of DCIT v. Orion Agencies Ltd [~2QO9 32 SOT 527 (Mumbai)l. provisions of Section 195 of the Act would not be applicable and the assessee would not be required to deduct any taxes in India. 5.8 In other words, as Teras Transporter is a shipping company covered under the provision of the Article 8 of Indo-Singapore DTAA, hence the amount received by the said company is to be taxed in the state where the company principal business is situated i.e. in Singapore. Hence, as the income of the party to whom payment is made is not taxable in India, there is no liability on the assessee to deduct tax at source, therefore, disallowance under section 40(a)(i) is liable to be deleted. 5.9 The assessee would like to place reliance on the decision of the Cochin Tribunal in the case of Mathewsons Exports & Imports (P.) Ltd [2014] 50 taxmann.com 378) wherein the ITAT held as under: “This Tribunal is of the considered opinion that Article 8 of the DTAA between government of India and Government of UAE would be applicable to the facts of the case, since it is more beneficial to the assessee. Article 8 of the DTAA, more particularly, sub-clause (2) clearly says that the profit from operation of the ship in international traffic will also include the charter or rental of ships incidental to such transportation. Therefore, this Tribunal is of the considered opinion that the profit arising to the non-resident company on charter of the vessel M.V. Thekkadi has to be taxed only in the UAE in view of the DTAA between Government of India and Government of UAE, more particularly, Article 8(1) of the DTAA. The material filed by the assessee clearly shows that the vessel M.V. Thekkadi was operated between Tuticorin Port to Mali Port in Maldives. Therefore, it operates in international traffic/waters.” 5.10 Therefore, in light of the aforementioned judicial precedents, it is crystal clear that in absence of taxability of the rental / hiring charges paid to Teras Transporters Pte. Ltd in India, provisions of Section 195 of the Act would not be applicable and the assessee would not be required to deduct any taxes in India. Hence, no disallowance under Section 40(a)(i) of the Act is warranted in this case.”

Officer the learned assessing officer noted the functions carried out by the assessee during the year as compared to the functions during assessment year 2008 – 09. He further stated that no evidence was produced by the appellant either before the lower appellate authorities or before the coordinate bench to refute the same. He further analyzed the functions performed by the assessee for assessment year 2008 -09 vision of his 2009 – 10 and 2010 – 11. He further stated that no transfer pricing study report of the profit attribution study was furnished by the appellant for assessment year 2009 – 10. He further stated that appellant did not furnish any reply or other documents before the assessing officer consequent to the direction of the learned dispute resolution panel. Further with respect to the assessment year 2010 – 11, he further stated that even though the appellant furnished the profit attribution report after examining the same the learned assessing officer has observed that the functional analysis contained therein does not represent the correct picture of the project office in India as observed by the coordinate bench in its order for assessment year 2007 – 08. Therefore he submitted that the action of the learned assessing officer may be affirmed and the appeal of the assessee may be dismissed. 14. Even otherwise he submitted that the profit attribution with respect to the earning of outside India must be decided on the basis of the role of the project office with respect to the composite contract by the assessee in India. He therefore submitted that the project office has a very intimate connection with the activities relating to the contract being carried on outside India and the materials are not delivered 3 on-board basis and ONGC has clarified that the title to the supply passed inside India. 15. With respect to the disallowance of expenses for non-deduction of tax deduction at source he relied upon the order of the learned dispute resolution panel. 16. We have carefully considered the rival contentions and also perused the orders of the lower authorities. The 1st issue required to be examined is whether there is any permanent establishment of the assessee in India or not. Further whether the project office has any role to play with respect to the offshore supply of the goods in the impugned contract. Identical issue

has been examined in case of the assessee with respect to the same contract by the coordinate bench in earlier years wherein it has been held that the assessee has a permanent establishment in India and the activities carried on to the extent of the project office of the assessee is required to be attributed as income accruing and arising to the assessee in India. To this extent, the order challenged by the assessee of the coordinate bench before the honourable High Court has been upheld. Honourable High court in ITA No 1 of 2012 dated 27/12/2013 while dealing with the identical issue for Ay 2007-08 has held as under :- “3. A short summarization of the facts, as above, would indicate two things, namely, that (i) the appellant has a tax identity in India and a tax identity outside India and, accordingly, (ii) its tax liability in India is required to be apportioned. What mechanism will be adopted to apportion the same has, however, not been provided in the Agreement for avoidance of double taxation of income and the prevention of fiscal evasion entered by the Union of India with the Republic of Korea.

or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.”

India only when it carries on business in India through a permanent establishment situate in India. By submitting the return, appellant has held out that it is carrying on business in India through a permanent establishment situated in India. In the circumstances, the contention of the appellant, whether the Project Office of the appellant opened at Mumbai can be, or cannot be said to be a permanent establishment within the meaning of the said Agreement is of no consequence. In terms of the said Agreement, as it appears to us, if an enterprise does not have a tax identity in India in the form of a permanent establishment, it has no obligation to either submit any tax return with, or pay any tax to India. The question still remains, whether it was right on the part of the Taxing Authority to assess incometax liability of the appellant as was assessed in the instant case. In other words, can it be said that the Agreement permitted the Indian Taxing Authority to arbitrarily fix a part of the revenue to the permanent establishment of the appellant in India? As aforesaid, appellant held out that a part of the revenue was received by it for doing certain work in India. It did not contend that even those works were done by or through its Project Office at Mumbai. On the other hand, there is not even a finding that 25 per cent of the gross revenue of the appellant was attributable to the business carried out by the Project Office of the appellant. One has to read Article 5 of the Agreement in order to understand what a permanent establishment is, in terms whereof “permanent establishment” means a fixed place of business through which business of an enterprise is wholly or partly carried on. In the instant case, according to the revenue, the Project Office of the appellant in Mumbai is the “permanent establishment” of the appellant in India through which it carried on business during the relevant assessment year and 25 per cent of the gross receipt is attributable to the said business. Neither the Assessing Officer, nor the Tribunal has made any effort to bring on record any evidence to justify the same.”

2.3 That the Ld. AO has erred in ignoring the facts, circumstances and the legal position that if at all there could be a PE of the appellant in India that could only be installation/assembly PE as per Article 5(3) of the Treaty. 2.4. That the Ld. AO has erred in ignoring the legal position that specific provisions i.e. Article 5(3) in respect of installation/ assembly PE overrides the general provisions i.e. Article 5(1) and (2), and thus, no PE in the form of project office can come into place where the appellant is performing installation activities in India. 3. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in holding that the contract is not a divisible contract. 3.1. That the Ld. AO has erred in holding that the entire receipts from offshore supplies (i.e. design & engineering, fabrication and supply of platform) is taxable in India without appreciating the actual position that the entire activity in relation of offshore supplies (i.e. design & engineering, fabrication and supply of platform) was carried out outside India. 3.2. That the Ld. AO has grossly erred in ignoring the principles of taxation laid down by the Hon‟ble Apex Court in the case of Ishikawajma Harima‟s : 288 ITR 408 (SC) in respect of taxability of turnkey contract where different parts of the contract is to be carried out in different tax jurisdictions. 4. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in holding that the title in the material/offshore supplies as per the contract was transferred in India. 5. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in holding that the entire profits from the work under the contracts arise in India and are liable to tax in India. 5.1. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in charging to tax the entire outside India revenues by ignoring the attribution in accordance with Article 7(1) and Article 7(2) of the Treaty. 5.2. That the Ld. AO has erred in ignoring the High Court order wherein it has been held that whether the project office of the appellant is a PE or not is of no consequence as far as attribution of revenue in relation to outside India activities is concerned, in the absence of any evidence to justify that the appellant was carrying any business activity through the PO. 6. That on the facts and in the circumstances of the case, the Ld. AO has erred in ignoring the expenses which resulted into net loss in respect of operations outside India in accordance with Article 7(3) of the Treaty. 6.1. Without admitting that the appellant is liable to tax in India, the Ld. AO has erred in not following the directions of Hon‟ble DRP wherein it directed the ld. AO to apply the principles of attribution of income based on Arm‟s Length Principles (i.e. Function, asset and risk analysis of activities carried out in India) as per Article Page | 21

7(2) of the Treaty while determining the profits of the alleged PE and the ld. AO further erred in ignoring the PE Attribution Study filed by the appellant during the course of proceedings before the Hon‟ble DRP and ld. AO which was prepared on the basis of functions, assets and risk analysis. 6.2. Without admitting that the appellant is liable to tax in India and also without prejudice to the submission of the appellant that nothing in relation to outside India revenue could be taxed in India as the appellant actually incurred losses in relation to VED project, the Ld. AO erred in not following the directions of Hon‟ble DRP wherein it directed the ld. AO to consider the global profit range of 6% to 8% (in relation to both inside and outside India activities taken together) of the appellant as reflecting in the global financial statements filed by the appellant during the course of hearing before the Hon‟ble DRP. 7. On the facts and circumstances of the case and in law, the Ld AO has erred in making an ad- hoc disallowance of Rs. 1,20,87,351 of the- expenditure incurred under the head "construction expenses" for. the project entered by the appellant with Samsung Electronics India Private Limited ('SIEPL') dated November 9, 2009. 7.1. That the Ld. AO has erred in disallowing an amount of Rs. 1,20,87,351 on the alleged ground of non- production of copies of 100 percent bills/ invoices and without appreciating that the details filed be the appellant contained proof of tax deducted at source on construction expenses and deposited to the account of central government which is a conclusive evidence to prove that the expenses were actually incurred by the appellant. 8. That on the facts and circumstances of the case and in law, the Ld AO has erred in making a reference in the draft assessment order in respect of SIEPL project that TDS has been deducted at a lower rate of 2% instead of io% for the payments to M/s HK Architecture India Pvt. Ltd. without appreciating that appropriate TDS has been deducted on such payments. 9. That the Ld. AO has erred in mechanically charging interest under section 234D of the Act without appreciating the fact that the refund as determined in the intimation under section I43(i) of the Act was not granted to the appellant. 10. That the Ld. AO has erred in mechanically initiating the proceedings under section 271B of the Act. 11. That the Ld. AO has erred in mechanically initiating proceedings under section 271(1) (c) of the Act.” 25. The facts relating to that appeal shows that assessee filed its return of income on 8/10/2010 at the loss of INR 6 0086170. The draft assessment order was passed on 30/3/2013 on the identical facts and circumstances determining the total income of the assessee at INR 6 5206270/–. In the similar circumstances and the fact the learned assessing officer has Page | 22

attributed the income at the rate of 25% of INR 3 27043527/- being INR 8 1760881/– from outside India activities holding that assessee has a permanent establishment in India in the form of a project office and the profit as attributable to the same. In this year also the assessee failed to substantiate the various expenditure with respect to the profit attributable to the permanent establishment. Further the assessee has incurred and expenditure of INR 21 7660 7783 under the head construction expenses and the assessee could only filed copies of the bills on a simple basis and therefore the learned assessing officer disallowed 20% of the above expenses being INR 4 3533556 on a dock basis. On the objection before the learned dispute resolution panel it was directed that only clearing and forwarding, electrical work, election and fabrication, interior painting and transportation charges amounting in all to INR 12 087351 is required to be disallowed. The above amount was determined by the learned dispute resolution panel after verification of the expenses. However the learned assessing officer held that on these payments which were liable to tax deduction at source , the assessee could not produce copies of the bills and vouchers in respect of the above expenditure and therefore the whole expenditure have been disallowed by the learned assessing officer. Consequently assessment order under section 143 (3) read with section 144C (13) of the income tax act was passed on 31/1/2014 against which the assessee has preferred this appeal. 26. The arguments of both the parties remained the same. The learned authorised representative with respect to the disallowance on account of construction expenses which was disallowed on account of non-submission of the bills and vouchers, assessee submitted that it has managed to collect bills for the rest of the amount as well and accordingly prays that the matter may be remanded to the assessing officer with a direction to verify the above said claim. To the above argument the learned departmental representative stated that assessee has been given enough opportunity before the assessing officer and the learned dispute resolution panel and therefore the matter should not be set aside once again to the file of the learned assessing officer. 27. The ground number 1 - 6 of the appeal is identical to the various issues raised in the appeal of the assessee for assessment year 2009 – 10.

Accordingly we uphold the order of the learned assessing officer with respect to the existence of the permanent establishment in India in the form of the project office. However with respect to the attribution of the profit we set aside the whole issue back to the file of the learned assessing officer to decide in accordance with the direction of the coordinate bench for assessment year 2008 – 09 in terms of para number 79 of the order of the ITAT for assessment year 2007 – 08. Accordingly the attribution issue is also restored back to the file of the learned assessing officer with a similar direction to the assessee as given in appeal for assessment year 2009 – 10. Accordingly ground number 1 – 6 of the appeal of the assessee is partly allowed with above direction. 28. With respect to ground number 7 of the ad hoc disallowance of INR 1 2087351 of the expenditure incurred under the head construction expenses for which the assessee could not produce the bills, in the interest of the justice 1 more opportunities given to the assessee to produce the necessary bills as submitted by the learned authorised representative before the assessing officer. The learned assessing officer may examine the details in the bills produced by the assessee, if any, and then decide the whole issue afresh. Accordingly ground number 7 -8 of the appeal of the assessee are set aside to the file of the learned assessing officer. Accordingly these grounds are allowed with above direction. 29. Ground number 9 – 11 of the appeal of the assessee are general in nature and therefore in absence of any specific arguments, there dismissed. 30. Accordingly appeal of the assessee for assessment year 2010 – 11 is partly allowed for statistical purposes. 31. Accordingly appeal of the assessee for assessment year 2009 – 10 and 2010 – 11 is partly allowed for statistical purposes. Order pronounced in the open court on 09/01/2019. -Sd/- -Sd/- (H.S.SIDHU) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 09/01/2019 Copy forwarded to 1. Applicant Page | 24