Loading judgment…
Facts
The assessee, a non-resident French company engaged in Train Control and Signaling System (TCS) business, executed contracts for metro rail projects in India. The Assessing Officer (AO) determined the assessee had a Permanent Establishment (PE) in India and attributed a percentage of revenue from offshore supplies to this PE, taxing it in India, based on past assessment orders. The assessee contested this, arguing that the current assessment years involved fresh contracts requiring de novo examination.
Held
The Tribunal observed that the departmental authorities had mechanically relied on previous assessment orders regarding PE existence without thoroughly examining the specific contracts for the impugned years. Given that PE existence and profit attribution are dependent on the terms and scope of individual contracts, the Tribunal restored the matter to the Assessing Officer for fresh adjudication, instructing them to examine all relevant contracts and facts de novo.
Key Issues
1. Whether a Permanent Establishment (PE) existed in India for the assessee as per the DTAA; 2. Whether revenue from offshore supplies and services was taxable in India and attributable to the alleged PE; 3. Applicability of interest under sections 234A, 234B, 234C and penalty under section 270A.
Sections Cited
Section 234A, Section 234B, Section 234C, Section 270A, Article 5(1) of DTAA, Article 5(2) of DTAA, Article 13 of DTAA (India-France), Article 12(4) of DTAA (India-Portugal), Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
Before: Shri Saktijit Dey, Vice- & Dr. B. R. R. Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI Before Shri Saktijit Dey, Vice- President & Dr. B. R. R. Kumar, Accountant Member
ITA Nos. 2377 & 2378/Del/2022 ITA No. 921/Del/2023 Asstt. Years: 2018-19, 2019-20 & 2020-21 Alstom Transport SA, Vs The ACIT, Circle International C/o Nangia & Co. LLP, A-109, Taxation-1(1)(1), Delhi Sector-136, Noida, UP 201304 (APPELLANT) (RESPONDENT) PAN No. AAECA 2499 L Assessee by : Sh. Amit Arora, CA Revenue by : Sh. P. Praveen Siddharth, CIT- DR Date of Hearing: 16.01.2024 Date of Pronouncement: 17.01.2024
ORDER Per Bench:- The present appeals have been filed by the assessee against the orders of Assessing Officer dated 29.07.2022 & 30.01.2023 for the A.Ys. 2018-19,2019-20 & 2020-21. Since, the issue involved in all these appeals are similar, they were heard together and being adjudicated by a common order. 2. The assessee has raised the following grounds of appeal in ITA No. 2377/Del/2022: 1. The order of the Ld. AO is contrary to the facts & circumstances of the case and the legal provisions and is, therefore, bad in law. 2. That on the facts and the circumstances of the case and in law, the Ld. AO has erred in making an addition amounting to
2 ITA Nos. 2377 & 2378/Del/2022 ITA No. 921/Del/2023 Alstom Transport SA
710,46,33,420 to the returned income, addition being 3.75% of 2279,02,24,548 (i.e. 5% of revenue from India multiplied by an ad- hoc attribution rate of 75%) received by the Appellant on account of offshore supplyies) from its customers in India. 2.1 That the Ld. AO has erred in holding that the Appellant has a Permanent Establishment ('PE') in India in terms of Article 5(2) of India-France Double Taxation Avoidance Agreement ('DTAA') merely following the views of his predecessor assessing officers, without appreciating the facts relevant for the year under consideration. 2.2 That the Ld. AO has erred in facts and in law in holding that, the Appellant through its aforesaid PE performs activities in India relating to offshore supply(ies). 2.3 That the Ld. AO has erred in not appreciating the fact that the said revenue is not chargeable to tax under the provisions of the Act, as the amounts received by the Appellant from sale of equipment outside India are not attributable to any business activity carried out in India. 2.4 That the Ld. AO has erred in facts and in law in making adjustments to the global financials while arriving at the impugned addition. 2.5 That the Ld. AO has erred in attributing a higher inconsistent rate of 75% of the global profits towards alleged PE in India. 3. That on the facts and the circumstances of the case and in law, the Ld. AO has erred in taxing the revenues earned by Assessee from providing design and other offshore services from outside India, without appreciating that such revenues arising from provision of such services could not be taxed in India, being inextricably linked to the offshore supply(ies) and not satisfying the restrictive 'make available' condition under Article 13 of the DTAA between India and France read with Paragraph 7 of its Protocol and Article 12(4) of the DTAA between India and Portugal. 4. That the Ld. AO has erred on facts and in law in levying interest under section 234A, 234B and 234C of the Act 5. That the Ld. AO has erred on facts and in law in initiating the penalty proceedings under section 270A of the Act
3 ITA Nos. 2377 & 2378/Del/2022 ITA No. 921/Del/2023 Alstom Transport SA
At the outset, the ld. Counsel for the assessee and the ld. DR stated that the issue in all three appeals are squarely covered in assessee’s favour vide order dated 11.11.2022 in ITA Nos.4404 to 4406 & 8818/Del/2019 for the assessment years 2011-12, 2013-14 to 2015-16 in assessee’s own case.
We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is noticed that an identical issue having similar facts was a subject matter of the assessee’s appeal in ITA Nos.4404 to 4406 & 8818/Del/2019, read as under:
Since, the facts and issues arising in these appeals are identical, for the sake of convenience the appeals have been clubbed together and disposed of in a consolidated order. The basic issue arising for consideration in these appeals is whether the assessee had Permanent Establishment (PE) in India in terms with Article 5(2) of India – France Double Taxation Avoidance Act (DTAA) and whether any part of the business profit can be attributed to the PE. 3. Briefly the facts are, the assessee is a non-resident corporate entity and is a resident of France. As observed by departmental authorities, the assessee is engaged in the business of Train Control and Signaling System (TCS). It is a fact that the assessee along with other consortium members was awarded contracts by Delhi Metro Rail Corporation (DMRC) for designing, manufacturing, supply, installation, testing, commissioning of the entire Train Control and Signaling Systems for Delhi Metro Train Corridor. Besides, the assessee was awarded similar contracts by Banglore Metro Rail Corporation and Chennai Metro Rail Ltd. As observed by the Assessing Officer, as per the scope of contract, the assessee has to design and construct the rail based mass rapid transport system, including the supply, installation and commissioning of Train Control and Signaling and telecommunication system, including, training of operation and maintenance personnel, supervision of maintenance, supply of spares and operation and maintenance manuals. 4. Before the Assessing Officer, in different assessment years, the assessee claimed that the amounts received from services rendered
4 ITA Nos. 2377 & 2378/Del/2022 ITA No. 921/Del/2023 Alstom Transport SA
under the contracts in India are taxable in India. However, insofar as, the amount received towards off-shore supply of equipments, it was submitted by the assessee that the amount is not taxable in India. The Assessing Officer, however, did not accept assessee’s claim. Relying upon the assessment orders passed for assessment years 2006-07, 2008-09 and 2010- 11, the Assessing Officer held that the assessee had a fixed place PE in India in terms with Article 5(1) of the Tax Treaty and 1% of the revenue earned by the assessee on account of off-shore supply of equipments is attributable to the PE in India. He further observed that in assessment year 2010-11, learned DRP has held that the assessee had a installation PE in India. Thus, relying upon past history of assessment and other departmental proceedings, the Assessing Officer brought to tax the receipt from off-shore supply of plants and equipments by attributing 1% of the amount received to the PE. Though, the assessee contested the aforesaid decision of the Assessing Officer before learned Commissioner (Appeals), however, additions made were confirmed. 5. Before us, Sh. Deepak Chopra, learned counsel appearing for the assessee submitted that the Assessing Officer has blindly followed the earlier assessment orders and the directions of learned DRP, though, facts are completely different in the impugned assessment year. He submitted, in earlier assessment years the DRP has held that the assessee had an installation PE in India. He submitted, only one of the contracts is continuing form earlier years, whereas, all others are fresh contracts. Thus, he submitted, without properly examining the contracts it cannot be concluded, whether the assessee has any kind of PE in India in terms with Article 5 of the Tax Treaty. Admitting that the complete set of contracts were not submitted before the Assessing Officer, but only relevant extracts were furnished, learned counsel submitted, the assessee may be permitted to furnish the complete set of contracts, either before the Tribunal or before the Assessing Officer so that facts can be properly appreciated to come to a definite conclusion, whether the assessee had a PE in India or not. In this context, he drew our attention to the application filed under rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 seeking permission to furnish additional evidences. Alternatively, he submitted, the matters may be restored back to the Assessing Officer for deciding afresh after examining the contracts and the scope of work as well as the apportionment of work between the members of the consortium.
5 ITA Nos. 2377 & 2378/Del/2022 ITA No. 921/Del/2023 Alstom Transport SA
Learned Departmental Representative submitted, when the assessee had opportunity to furnish the contracts before the Assessing Officer and learned Commissioner (Appeals), it did not do so. Therefore, the assessee should not be permitted to furnish the additional evidences at this stage. However, he submitted, the bench may in its discretion restore the matter to the Assessing Officer for fresh adjudication. 7. We have considered rival submissions and perused the materials on record. On a reading of the impugned assessment orders as well as the orders of learned first appellate authority, it is absolutely clear that they have proceeded on the basis of the decision taken by the departmental authorities in past assessment years to conclude that the assessee had a PE in India. However, it is the specific contention of the assessee before us that the decision taken in the past assessment years cannot apply to the impugned assessment year, as, except one of the contracts, all other contracts under which the assessee has executed work in these assessment years are fresh contracts and the existence or otherwise of the PE has to be construed after examining the terms of the contract as well as scope of work. It is observed, though, before the departmental authorities, the assessee had furnished relevant extracts of the contract, however, complete set of contracts were not furnished. Since, existence or otherwise of PE is dependent upon the terms of the contract and the allocation of work under the contract between various consortium members in different assessment years under consideration, it is necessary to examine the contracts thoroughly. Considering the fact that while deciding the issue relating to existence of PE, the departmental authorities have simply relied upon decision taken in earlier assessment years without verifying the factual position qua contracts executed in these assessment years, in our view, the assessee must be given an opportunity to furnish the relevant contracts before the departmental authorities to establish its case that in the assessment years under consideration the assessee did not have any PE in India so as to bring to tax the income from off-shore supplies. 8. In view of the aforesaid, we are inclined to restore the matters back to the Assessing Officer for fresh adjudication after thoroughly examining the relevant contracts and other materials brought on record. At this stage, we must make it clear that we have not expressed any opinion on the merits of the issues arising in these appeals. Needless to mention, before deciding the issue, the
6 ITA Nos. 2377 & 2378/Del/2022 ITA No. 921/Del/2023 Alstom Transport SA
assessee must be afforded reasonable opportunity of being heard. Grounds are allowed for statistical purposes. 5. Hence, in the absence of any material change on the facts of the issue, the matter is being restored to the Assessing Officer for adjudication afresh. The Assessing Authorities are advised not to simply follow the earlier Assessment orders mechanically but to examine issues denovo keeping in view the facts available before them and after obtaining due clarifications as deemed fit.
In the result, the appeals of the assessee are allowed for statistical purpose. Order Pronounced in the Open Court on 17/01/2024.
Sd/- Sd/- (Saktijit Dey) (Dr. B. R. R. Kumar) Vice President Accountant Member Dated: 17/01/2024 *NV, Sr. PS*