NANJING ELECTRIC (GROUP) CO. LTD.,NOIDA vs. DCIT, NEW DELHI

The above grounds are mutually exclusive and without prejudice to each other. The appellant craves leave to add, alter, amend, or vary the above grounds of appeal at or before the time of hearing.

Facts narrated by the revenue authorities are not disputed by both the parties, hence, the same are not being repeated here for the sake of convenience.

At the time of hearing, Ld. Counsel for the assessee stated that the issue in dispute has already been adjudicated and decided by the Tribunal in assessee’s own case for the assessment year 2009-10 vide order dated 22.2.2013 passed in wherein, the Tribunal has followed the decision of the Hon’ble Delhi High Court in the case of DIT vs. LG Cables Ltd. and also the decision of the Hon’ble Delhi High Court in the case of LS Cables Ltd. and the appeal of the assesee was allowed wherein it was held that no part of income of the assessee was assessable in India. Thus prior to the passing of the order dated 1.7.2016 the relief was granted by the Tribunal on similar issue in respect of the assessment year 2009-10 and the matter is covered in favour of the assessee by the said decisions which was required to be followed in the assessment year in dispute i.e. AY 2011-12, because in the present case also the AO has simply relied upon the assessment order for AY 2009-10 which has already been decided in favour of the assessee by the Tribunal and the Hon’ble Delhi High Court. He requested that in view of the Hon’ble Delhi High Court in assessee’s own case for AY 2009-10 the issue in dispute has already been decided and adjudicated in favour of the assessee. Hence, respectfully following the same, the addition in dispute may be delete and the appeal of the assessee may be allowed.

On the contrary, Ld. DR relied upon the order passed by the revenue authorities and he did not produce any contrary judgment/decision relied upon by the Ld. Counsel for the assessee.

We have heard both the parties and perused the orders of the revenue authorities and the case laws relied upon by the Ld. Counsel for the assessee which he has filed in the shape of Paper Book containing pages 1-45 in which he has attached the copy of Synopsis; copy of decisions of Honda Siel Power Products Ltd. vs. CIT (2007) 165 Taxman 307 (SC); Decision of Tribunal dated 22.2.2013 in the case of the appellant in for AY 2009- 10; Decision of the Hon’ble Delhi High Court dated 06.11.2013 in ITA No. 488/2013 whereby appeal of the department against above mentioned order dated 22.2.2013 has been dismissed; Decision of the Hon’ble Delhi High Court ated 22.5.2018 in ITA No. 625 & 626/2018 on Rule r.w.s. 254(2) of the Act; Decision of Hon’ble Delhi High Court dated 13.1.2020 in WP© No. 402/2020 whereby it is held that adjudication on merits of the case by the ITAT is essential and thus, Tribunal was directed to hear and decide the appeal on merits. The order of Tribunal was dated 18.10.2016 and M.A. was filed by the assessee on 08.03.2018 that is beyond the period of 6 months and the copy of ACIT vs. Saurasht5a Kutch Stock Exchange Ltd. 305 ITR 227 (SC). We have especially gone through the order of the Tribunal dated 22.2.2013 in the case of the assessee passed in ITA No. 6175Del/2012 (AY 2009-10), which the assessee has attached with Paper Book page no. 10-18. The relevant portion of the aforesaid Tribunal’s decision in assessee’s own case is reproduced as under:-

The aforesaid appeal was finally heard and decided on 24.12.2010, deciding the question of law (1) in favour of the assessee and against the Revenue and question of law (2) was rendered as infructuous. In the aforesaid judgment delivered by this Court, the terms and conditions of the two contracts for each project, viz., one for the off-shore supplies and other relating to on-shore service were minutely gone into and threadbare discussed. Reliance was placed on the question of law laid down by the Authority for Advance Ruling in the matter of Inshikawajma-Harima Heavy Industries Co. Ltd. [271 ITR 193]. Principle of law laid down by the AAR was applied on those facts. Relevant portions of the said judgment are extracted below : “25. Since it was not in dispute that the title in the equipments supplied was to stand transferred upon delivery thereof outside India on high-seas basis as provided for in Article 22(1), the Authority for Advance Rulings proceeded on the basis that supplies had taken place offshore. It, however, rendered its opinion on the premise that offshore supplies or offshore services were intimately connected with the turnkey project and proceeding on that basis the Authority, as already stated, opined that the assessee company was liable to pay tax in India though the property in the goods which were subject matter of the offshore supply passed outside India, in view of the fact that it had a business connection in India. It further opined that if a contract envisaged a composite compensation for the various obligations to be performed and if certain operations are to be performed by or through a business connection then, profits would be deemed to have accrued in India. The petitioner had a permanent establishment in India within the meaning of the said term in paragraph 3 in Article 5 of the Double Taxation Avoidance Agreement entered into between the Governments of India and Japan. 26. Reversing the aforesaid finding of the Authority for Advance Rulings, the Supreme Court in respect of the offshore supply and equipments held as under :- “Re: Offshore Supply : (1) That only such part of the income, as is attributable to the operations carried out in India can be taxed in India. (2) Since all parts of the transaction in question, i.e. the transfer of property in goods as well as the payment, were carried on outside the Indian soil, the transaction could not have been taxed in India.

Applying the aforesaid law enunciated by the Supreme Court in the case of Ishikawajma (supra), there can be no manner of doubt that the offshore supplies in the instant case are not chargeable to tax in India. The instant case, in fact, in our view stands on a better footing as two separate contracts have been entered into between the parties, albeit on the same day, one for the offshore supply and the other for the onshore services, but even assuming that both these contracts need to be read together as a composite contract, the issue in controversy is nevertheless squarely covered by the decision of the Supreme Court in Ishikawajma (supra). It is beyond dispute that PGCIL had issued irrevocable letter of credit in favour of the respondent-assessee and in paragraph 31.2 agreed that the property in the goods will pass to the buyer (PGCIL) as and when the respondent-assessee loads the equipment onto the mode of transport for transportation from the country of origin. The stipulation in the second agreement (Erection Contract) relating to certain performances by the respondent-assessee including port handling, custom clearance, transportation, insurance, handling on site, unloading at transportation site, testing and commissioning to the satisfaction of the buyer are in a separate agreement for a separate consideration which is clearly enunciated in the second agreement as follows: - “Whereas the employer desires to engage the contractor for performance of all activities within India……………… subject to the terms and conditions hereinafter appearing.”

Mr. Abhishek Maratha, learned counsel appearing for the Revenue, could not dispute that the identical issue was decided by the Tribunal earlier, which view was upheld by this Court in the case of Director of Income Tax, New Delhi Vs. LG Cable Ltd. (in decided on 24.12.2010). Faced with this, his only submission was that even in respect of off-shore supply in the instant case, the AO had found that the contract between the assessee and PGCI even for off-shore supply provided that the assessee had appointed an Indian agent, viz., M/s. Alpasso Industries Pvt. Ltd. who was working for the assessee in India. Therefore, this contract demonstrated that the assessee was to be represented by the Indian agent in India, from which it should be discerned that the operation in respect of off-shore had been carried out through India by an agent. This contention of the learned counsel does not cut much ice. Construing this very agreement, it has also been held that two contract, one for off-shore supply and other for on-shore service are independent of each other. Again, a finding of fact was arrived at viz M/s. Alpasso Industries Pvt. Ltd. was concerned only with on-shore contract and had no any other role to play in respect of off-shore/overseas supplies. In the agreement relating to off-shore supply between the assessee and the PGCI, no doubt, PGCI had agreed to pay 1.01%% of the CIF price of the goods as the Indian agent’s commission to M/s. Alpasso Industries Ltd. as a part of contract process for overseas supply. In fact, M/s. Alpasso Industries Ltd. was engaged by other foreign companies also as their Indian agents while entering into similar contacts for overseas supply with PGCI. M/s. Alpasso had filed an affidavit that it was an independent entity working for several clients. As per the off-shore contract for overseas supply, the goods were manufactured by the assessee overseas in its establishment and dispatched from abroad. The property in the goods passed into purchaser on delivery at the foreign port. The on-shore erection contract was in respect of the service of customs clearance, inland transportation and erection of commissioning of transmission cables. The above work was attended to by the project office, which constituted permanent establishment of the assessee company in India. In view of the above, the only work which could be entrusted by the assessee to its Indian agent, M/s. Alpasso was general administrative coordination and liaison with PGCI and nothing else.

Therefore, we are of the view that all the aspects are duly considered by the Tribunal in the light of provision of Section 9 (1) of the Act. The Tribunal had pointed out that clause (i) of sub-section (1) of Section 9 is very wide whereas Explanation 1(a) is restrictive and provides that in case of a business where all operations are not carried out in India shall be only such part of income as is reasonably attributable to operations carried out in India would accrue in India. The ITAT had categorically held that the delivery of goods, documents and receipt of substantial part of sale consideration did take place outside India and hence income relatable to sale outside India had not accrued in India. Such income could only be taxed outside India and not under Indian law. Further, there cannot be a business connection between a seller and purchaser (Hindustan Shipyard Ltd. – 109 ITR 158). The income from onshore services was taxable in India, simply because such income accrued in India from services rendered in India. One need not look for business connection to tax such income. The assessee company had shipped the goods from abroad with the bill of lading in the name of Power Grid Corporation against a irrecoverable letter of credit. The assessee had assumed, under the onshore contract, the responsibility of customs clearance on behalf of Power Grid Corporation as an agent only and it would be wrong to assume that the ownership of the goods did not. The Tribunal has rightly held that the property in the equipment had passed to the buyer as stipulated in para 31.2 of General Conditions of the Contract. Stipulation in the on-shore contact relating to certain performances by the assessee including port handling, customs clearance, transportation, insurance, handling on site, unloading at transportation site, testing and commission to the satisfaction of the buyer are under a separate agreement for a separate consideration.

Thus, the aforesaid arguments of the learned counsel for the Revenue is not acceptable and there is no reason to change the decision arrived at in the case of LG Cable Ltd. (supra) in of 2009.”

In the result, the appeal of the assessee is allowed.