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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’: NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
Appellant by S/sh. S.D. Kapil, O.P. Sapra, R.R. Maurya, Prakash Sharma & Sanjay Kumar, Advocates and Sh. Geetan Nagpal, CA Respondent by Sh. Anuj Arora, CIT(DR) Date of hearing 14.12.2015 Date of pronouncement 12.02.2016 ORDER PER O.P. KANT, A.M.: This appeal of the assessee is directed against the assessment order passed under Section 143(3)/144C(13) of the Income-tax Act, 1961 (for short “the Act”) by the Joint Commissioner of Income Tax, Dehradun on the direction of the Dispute Resolution Panel, raising following grounds of appeal: “
1. That on the facts and circumstances of the case and in law, the ld. AO/DRP erred in assessing the total income of the appellant at Rs. 16,01,14,878 as against the returned income of Rs. 44, I 0,820/-.
Hyundai Heavy Industries Co. Ltd.
That on the facts and circumstances of the case and in law, the ld. AO/DRP erred in passing laconic order u/s 143(3)/144C(13), without application of mind and in contravention of the settled principles of judicial discipline.
That on the facts and circumstances of the case and in law, the ld. AO/DRP erred in holding that the consideration denominated in US dollars and received by the Appellant outside India for supply of spares and tool-kits etc. from Korea on F.O.B. basis, as per the terms of the O&M Contract with GMR, is attributable to the Chennai PE of the appellant.
4. Without prejudice the Ground no. 3, Ld AO/DRP erred in attributing the entire gross revenue of Rs. 42,50,986/- pertaining to supply of spares from outside India for the GMR project to the Chennai PE.
That on the facts and circumstances of the case and in law, the Ld. AO/DRP have grossly erred on facts and in law in arbitrarily and capriciously estimating the" income of GMR Project at Rs. 1,76,55,127 as against Rs. 44,10,820/- declared by the Assessee and thereby bringing to tax 99.74% of the gross revenues as business profits of the said project.
That on the facts and circumstances of the case and in law, the ld. AO/ORP erred in holding that the Mumbai Office constitutes a Fixed Place PE under Article 5(1) of the DTAA and its also effective connected with royalties an fee for fee for technical services received from its 100% subsidiary Hyundai Construction Equipment India (Pvt.) Ltd. (HCEIPL), Pune, Hyundai Motors, Nissan Motors, and Tata Motors.
That on the facts and circumstances of the case and in law, the Id. AO/ORP erred in taxing the Appellant's income by way of royalties and fee for technical services from its AE – Hyundai Construction Equipment India Pvt. Ltd. (HCIPL) as business income under Article 7 of the DTAA read with section 44DA of the Act.
8. That on the facts and circumstances of the case and in law the Id. AO/DRP erred in taxing the receipt of 'interest' from HCEIPL for delay in payment of royalties and fee for technical services as business income instead of taxing it as 'income from interest' from a debt-claim under Article 12(2) of the DTAA.
That on the facts and circumstances of the case and in law, the Ld. AO/DRP erred bringing to tax Appellant's revenues from contracts with Tata Motors, Nissan Motors and Hyundai Motors under the provisions of section 44DA of the Act, instead at tax rates prescribed under section 115A of the Act as offered by the Appellant, even though the said exercise was tax neutral.
That on the facts and circumstances of the case and in law, the Ld. AO has erred in proposing to tax the outside India revenues for supply of materials from outside India, in respect of contracts with Tata Motors, Nissan Motors and Hyundai Motors.
That the Ld. AO/DRP has erred in levying interest under section 2348 and 234C of the Act.
That the Ld. AO/DRP have erred in initiating proceedings under section 271(1)(c) and section 271 B of the Act. That the appellant craves the leave to add, alter, amend or withdraw all or any ground of objections either before or at the time of hearing of these objections.”
2.1 The facts in brief, as culled out from the order of the learned Authorities below, are that the assessee is a non-resident company incorporated in South Korea. Since 1985, the company has been undertaking execution of turnkey projects involving designing, engineering, procurement, fabrication, installation and commissioning, operations and maintenance of facilities for various entities in India. For the year under consideration, the assessee company filed return of income declaring total income of Rs. 44,10,820/- on 15.10.2010. The case was selected for scrutiny and notice under Section 143(2) of the Act was issued on 20.09.2011. The draft assessment order under Section 143(3)/144C(1) of the Act was passed by the ld. Assessing Officer against which the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP confirmed the findings of the Assessing Officer given in the draft assessment order and thereafter on the direction of the DRP, the Assessing Officer passed the final assessment order under Section 143(3)/144C(13) of the Act i.e. impugned order. 2.2 During the year, the assessee executed following contacts: a) GMR (Operations and Maintenance) at Chennai; b) Hyundai Construction Equipment India Private Ltd. [HCEIPL] c) Hyundai Motors India Private Limited. [HMI] d) Tata Motors Limited; and e) Nissan Motors Limited. The GMR project was an old project continuing since 1997. The other contracts commenced in 2008-09, and the relevant previous year was just the second year for execution of those contracts.
Hyundai Heavy Industries Co. Ltd. 2.3 In the course of scrutiny proceedings, the assessee submitted that a sum of Rs. 1,81,45,546/- received from M/s. ‘HEIPL’ was omitted from including in the revenue receipt from ‘HEIPL’, and thus, the assessee filed a revised computation of income . The income shown in the revised computation of Income was as under: ( In Rupees) particulars Nissan Tata HCEIPL HMI GMR Total Motors Motors Fee for 10,59,18,670 5,09,70,980 1,95,17,570 3,66,82,500 -- 21,30,89,720 technical services(FT S) Interest 0 0 1,14,33,269 0 0 1,14,33,269 Income Business 0 0 0 0 44,10,820 44,10,820 Income Net Income 1,58,44,089 2.4 The Assessing Officer held that liaison office of the assessee company at Mumbai was engaged in the marketing etc activities, which were beyond the scope of a liaison agent and it was a fixed place Permanent Establishment (PE) of the assessee company in India. Further, the AO held that the company took Hyundai Heavy Industries Co. Ltd. the orders on turnkey basis and has executed the contract in India and the title in goods was transferred once the Indian Company accepted the projects and thus he held the income received from all the projects as business income and accordingly taxed at the rate of 40 percent. Further, the interest on delayed payment and Guarantee fee from the ‘HCEIPL’ was claimed by the assessee as interest income received under the beneficial provisions of Article 12(2) of the DTAA between India and Sought Korea ,which is taxed at the rate of 15% , but the same was also held by the AO as business income taxable at the rate of 40 percent being connected with PE. In case of income from GMR Project, the income from sale of spare parts was held by the AO as integral part of the project and in the absence of any bills / vouchers of expenses the Assessing Officer assessed the almost entire receipt from operation and maintenance as business income except small amount of expenses. Aggrieved with the additions made by the Assessing Officer in the impugned order, the assessee is in appeal before us. 3.1 In the case, the assessee filed an application under Rule 29 of the Income- tax (Appellate Tribunal) Rules, 1963 before us for admission of following documents as additional evidence: i) Purchase Order (PO) no. TSAG37029, dt. 17.09.2007. It was claimed by the assessee that this PO along with annexures was issued by Tata Motors Ltd. in response to sealed bid dated 23.07.2007 by Hyundai Heavy Industries, Korea for purchase of ‘Hyundai make main line conveyors along with accessories and spares (for small car TCF shop at Singur Plant) (Annexure at pg. 1-8)
Hyundai Heavy Industries Co. Ltd. (ii) Invoice dated 06.11.2009 issued by Hyundai Heavy Industries, Korea to Tata Motors Ltd. in respect of contract no. TSAG37029 (Annexed at page. 9) 3.2 At the time of hearing, the learned Authorized Representative submitted that in respect of Tata Motors, two self contained Purchase Orders bearing same number issued by the Tata Motors on 17.09.2007. The first one was PO No. TSAG 37029 dt 17.09.2007 for purchase of equipments and the second one was having PO NO. TSAZ37029 dt 17.09.2007 for purchase of services for installation and commissioning of those equipments. It was submitted by the Ld AR that the Assessing Officer had reproduced the text of PO No. TSAZ37029 dated 17.09.2007 in the impugned order, which is having reference of another PO No. TSAG37029, dated 17.09.2007, and held that both the purchase orders were part of a integral order and thus to make the position clear, it was necessary to bring the copy of the Purchase Order No. TSAG 37029 on record as additional evidence. He further submitted that that the Assessing Officer did not confront the assessee, nor did he give any opportunity to explain the said Purchase Order No. TSAZ 37029 during the assessment proceedings. The learned Authorized Representative further submitted that these Purchase Orders were directly issued by the Tata Motors Co. to the concerned administrative independent division of Hyundai Heavy Industries at Ulsan, Korea and therefore, it took reasonably long period for obtaining the documents from Korea. The learned Authorized Representative further submitted that the assessee had specifically raised the objection before Hyundai Heavy Industries Co. Ltd. the DRP also , however, the learned DRP did not dispose of this objection. Further the learned Authorized Representative submitted that this evidence is necessary and relevant for appreciating that the Purchase Order for supply of material from Korea was distinct from the Purchase Orders for installation and Commissioning of the same in India. 3.3 Learned Commissioner of Income Tax(Departmental Representative ),on the other hand opposed admission of evidence ,but could not controvert the submissions of the ld AR 3.4 We have heard the rival submissions and perused the material on record. We are of opinion that the additional evidences are important to adjudicate the dispute in hand and thus fulfill the conditions of Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 . Accordingly, we admit these additional evidences under Rule 29 of the ITAT Rules.
Ground nos. 1 & 2 of the appeal are general in nature and, therefore, not required to adjudicate upon. 5.1. In ground nos. 3 to 5, the assessee has challenged the additions made in respect of GMR project of Rs. 1,76,55,127/-. The assessee declared business income of Rs. 44,10,820 from the revenue of Rs. 1,34,49,226 from operation and maintenance of the GMR project at Chennai treating the same as installation PE and the supply of spare parts of Rs. 42,50,986 was treated as not taxable in India as same was not attributable to the installation PE at Chennai and income earned outside India. The Assessing Officer included both inside India revenue Hyundai Heavy Industries Co. Ltd. of Rs. 1,34,49,226/- and outside India revenue of Rs. 42,52,986/- making the total revenue of Rs. 1,77,00,212/-, thereafter, in absence of the bills/ vouchers of expenses, he allowed only license fee of Rs. 2080/- and depreciation of Rs. 43,005/-, and he calculated the total net profit from GMR project at Rs. 1,76,55,127/-.
5.2 Before us, the ld. Authorized Representative of the assessee submitted detail of all the income earned during the year as under:
Contract Scope of Work Revenues for works Done Whether/How offered to tax with/Project Inside India Outside India GMR Operations and 1,34,49,226 Yes; Rs. 44,10,820/- offered maintenance as income from business after deduction of expenses Supply of Spare 42,50,986 No; supply of spares from Parts outside India not attributable to the Permanent Establishment. Hyundai Licence to use 1,54,28,619 Yes; as Royalty u/s 115A Construction technology and Equipment know-how India Private Limited System 40,88,951 Yes; as Fee for Technical Maintenance Services u/s 115A fees Interest on 75,76,604 Yes; as interest under Delayed Article 12(2) 12(2) of Payment DTAA Guarantee fees 38,56,665 Yes; as interest under Article 12(2) of DTAA Hyundai Supervision 3,66,82,500 Yes; as Fee for Technical Motors services Services u/s 115A India Supply of 1,37,16,203 No; supply of spares from Limited material outside India not attributable to the Permanent Establishment. Nissan Shower 1,87,54,757 Yes; as Fee for Technical Motors Conveyer for Services u/s 115A Limited Trim and Chassis shop (Import Hyundai Heavy Industries Co. Ltd. Services) Supply of 5,39,45,963 Yes; as fee for Technical Drawings and Services u/s 115A designs for conveyers Body shop 72,17,950 Yes; as fee for Technical conveyers for Services u/s 115A Nissan India Line (import services) TCF Shorting 2,60,00,000 Yes; as Fee for Technical Services u/s 115A Supply of 23,35,67,167 No; supply of spares from material outside India not attributable to the Permanent Establishment Tata Motors Installation, 50,58,486 Yes; as Fee for Technical Limited commissioning, Services u/s 115A production support and training for mainline conveyor Reinstallation 4,47,85,244 Yes; as Fee for Technical and Services u/s 115A commissioning of main line conveyer Post installation 11,27,250/- Yes; as Fee for Technical support Services u/s 115A Supply of 6,37,32,836 No; supply of spares from material outside India no attributable to the Permanent Establishment. Total 23,79,72,215 31,52,67,192 5.3 It was submitted that in respect of the GMR project, the income from business operations inside India was offered to tax in accordance with the provisions of Article 5(3) read with Article 7 of the DTAA, holding the project as an installation PE. In respect of operations outside India, the assessee had consistently taken the stand that the said income was not taxable in India in view of the provisions of Article 7 and also under Explanation 1(a) to Section 9(1)(i) of the Act. The ld. Authorized Representative further submitted that this stand of Hyundai Heavy Industries Co. Ltd. the assessee was approved by the Hon’ble Supreme court in the assessee’s own case reported in 291 ITR 482. He also submitted the factual information in respect of the GMR Projects was as under: “These grounds relate to old Operations & Maintenance (O&M) contract with GMR Power Ltd. at Chennai. The assessee had constructed & installed 200 megawatt diesel power plant consisting of 4 units 50 mega watts each for GMR Vasavi Power Corporation Ltd., Chennai (GMR) (a listed Indian Company) in 1997-98. Apart from supply, installation and commissioning of the said plant, the Agreement also provides for maintenance, operations. The supply of spares & tools periodically required for next ten years has to be made in accordance with Annexure A to Schedule 4, Schedule 5 & 5A of the Agreement, which is placed before the Hon’ble Bench. The contract between two unrelated parties, which describes the operator’s obligations therein. The Contract dated 15.5.1997 for ‘Operation and Maintenance’, of the Power Plant is in two parts:- i) Operations & Maintenance Services (including supply of locally available parts and material) to be rendered by Chennai PE for which consideration is paid to GMR Ltd. In Indian rupee. ii) Procurement and supply of spares and tools F.O.B., Korea from outside India Annexure A to Sch. 4 for which payment is made directly to the assesse company in US dollars. This year the contract with GMR Ltd. came to end of its tenure of ten years. It was terminated in May, 2009. Thus, this year’s accounts include consideration for one month of work. 5.4 In respect of estimation of income from operations and maintenance services as business income and sale of spare part from outside India, the assessee filed written submission as under: “There has never been any dispute regarding taxability of income from operations and maintenance (O&M) services as 'technical services', which were effectively connected with the Chennai PE. It is therefore taxed as business income. Though, the PE maintains accounts, which are duly audited, the assessee could not furnish all the bills, vouchers etc. for its Hyundai Heavy Industries Co. Ltd. claim of expenses. This is because the assessee had wound up the Chennai PE by the time the assessment proceedings were taken up. The Ld. AO therefore, rejected the accounts and had made best judgment assessment of the income from FTS by Chennai PE. It is submitted that the best judgment assessment of income of the PE for services within India as made by the Ld. AO is arbitrary and capricious. The Hon'ble Tribunal considered the facts in its orders for AY. 2007-08 and 2008-09. Thereafter, the Hon'ble Tribunal once again went into this question at length in its order for AY. 2009-10. This year there is no change in the facts. (The Relevant paragraphs of the said order of the Tribunal dt. 5th June 2015 are 17 to 25 at Pg. 14-36 of the order). Similarly, from the very inception starting from AY 1999-2000 to AY. 2006- 07, the revenue had accepted that income earned outside India for supply of spares & equipment FOB Korea was not attributable to the admitted PE in Chennai. However in those years tribunal deleted the attribution of even in 1 % of the revenue from operations outside India. (ref, chart stating history of litigation at pg.91-98 of Vol.-/ of paper book). Keeping this in view the AO himself did not attribute any part of income from revenue's outside India to Chennai PE for AY. 2005-06 & 2006-07. However, in AY. 200-7-08, the revenue for the first time changed its stand on the same facts and held that income from supply of material was from Korea was taxable in India. This issue has been decided in favour of the assessee by the Hon'ble Tribunal for the assessment years 2007-08 and 2008-09. When this dispute came up again before the Tribunal in assessment year 2009-10, the fact and the contentions of both sides were discussed in great details and finally in Para 25 of the order for A Y 2009-0, the Hon'ble Tribunal concluded as under: "25.1 We thus find that there is no dispute that existence of PE was there during the year and the year under consideration was last year of completing the contract. It is a well established proposition of law that the authorities below have to follow the decision of ITAT on an identical issue and the ITA T has to maintain consistency in its approach on an identical issue under the similar facts adopted in earlier years. Since the Learned CIT(DR) has disputed this claim of the assessee that during the year facts on the issue are similar to earlier years and the Learned AR has also tried to meet out the efforts of the Learned CIT(DR) distinguishing the facts of the case on the issue during the year, we are of the view that before following the order of earlier years on the issue by the ITAT, it is necessary to ascertain that the facts relating to the issues raised in ground Nos. 3 to 6 in the appeal for this year are similar to the facts of the Hyundai Heavy Industries Co. Ltd. earlier years i.e. assessment years 2007-08 and 2008-09. We accordingly set aside the matter to the file of the Assessing Officer to ascertain that facts like performance of the assessee as per the terms of contract with GMR and others regarding operation and maintenance of the project and supply of spare and tool kits from Korea, Offshore Sales or activities claimed to be carried outside India, etc. as well as income from inside India activities on the issues during the year, are similar to the facts of the earlier years i.e. 2007-08 and 2008-09 after verifying the above submissions of the parties in this regard and affording opportunity of being heard to the assessee in view of materials available on record. If the Assessing Officer after verification finds that the facts of this year on the issues raised in ground Nos. 3 to 6 are similar to the facts of the earlier years on the issues then he is directed to decide the issues following the decision of the ITA T in this regard for the assessment years 2007-08 and 2008-09 and of the Hon'ble Supreme Court in the case of assessee reported in 291 ITR 482. The ground Nos. 3 to 6 involving the issue No.2 are thus allowed for statistical purposes." It is submitted that these grounds may also be restored this year also to the AO with similar direction.”
5.5 On the other hand, the ld. CIT(DR) relied on the order of the lower authorities. 5.6 We have heard the rival submissions and perused the material on record. We find that the similar issue was raised by the assessee before the Tribunal in the Assessment Year 2009-10, wherein the Tribunal restored the matter to the file of the Assessing Officer for verification of the facts whether the issue raised in ground nos. 3 to 6 was similar to the facts of the earlier years on the issue. We are of considered opinion that the issue in dispute raised during the year is identical to the issue raised in AY 2009-10. Thus, respectfully following the above decision of the Tribunal, we restore the matter to the file of the Assessing Officer to verify whether the facts in this year on the issue raised in ground no. 3 to 5 are similar to the facts of the earlier years on the issue and then he is directed to decide the issues following the decisions of the ITAT in this regard Hyundai Heavy Industries Co. Ltd. for the assessment years 2007-08 and 2008-09 and of the Hon’ble Supreme court in the case of the assessee reported in 291 ITR 482. Hence, grounds no. 3 to 5 of the appeal are allowed for statistical purposes. . 6.1 In ground no. 6, the assessee has raised the issue of holding the income of royalty and technical fees received from 100% Subsidiary i.e. the Hyundai Construction Equipment India Pvt. Ltd., Hyundai Motors, Nissan Motors and Tata Motors as business Income under Article 7 read with Article 44DA of the Act being effectively connected with the Mumbai office which constituted a Fixed Place PE. The ld. AR submitted that the Revenue has been contending that the assessee’s Mumbai office was the fixed place PE within the meaning of Article 5(1) of the Treaty whereas, on the other hand, the assessee always maintained that wherever the project duration exceeded the period of 9 months as stipulated in Article 5(3) of the Treaty, it had a installation PE. He further submitted that the assessee has taken this stand consistently that the Article 5(3) to be a more specific provisions overrides Article 5(1) read with Article 5(2) of the Treaty. Further, the ld. AR also relied on the judgment of the Hon’ble Jurisdictional Uttaranchal High Court in the case of BKI HAM 347 ITR 570 wherein the Hon’ble court held that Article 5(3) being a special provision prevails over Article 5(1) of the Treaty. Further, the ld. AR submitted that in respect of installation project for Tata Motors, Nissan Motors and Hyundai Motors, the assessee’s liaison office at Mumbai did not have any role to play. He further submitted that the Mumbai office even not acted as a communication Hyundai Heavy Industries Co. Ltd. channel between the Head Office in Korea and these customers. The ld. AR submitted that the assessee’s head office in Korea was directly in contact with the customers at all stages and all the bids were directly filed through email/fax by the concerned division of the company in Korea and in response to the tenders floated by these large and unrelated Indian companies in international technical journals. Therefore, he submitted that the Mumbai office cannot be held to be a PE under Article 5(1) of DTAA in respect of these projects. He further submitted that the facts and circumstances cited by the ld. Assessing Officer in support of his allegations that the Mumbai Office involved in negotiation and in execution of projects in India is basically ‘cut paste’ job of the instances cited in relation to ONGC contracts in A.Y. 2007-08 and 2008-09 and even in those years, this allegation was rejected by the Tribunal. He further submitted that the controversy in respect of projects for Tata Motors, Nissan Motors and Hyundai Motors was merely an academic as the assessee has already admitted that it had installation PE for those projects under Article 5(3) of the Treaty. The Ld CIT DR on the other hand submitted that the issue stands covered by the Ground No. 3 to 5 where also the issue of the Mumbai office as fixed place PE has been restored to the AO for deciding a fresh in the light of the decisions of the Tribunal and judgement of the Apex Court in the case of the assessee itself, and therefore, no seperrate adjudication was required on this issue.
Hyundai Heavy Industries Co. Ltd. 6.2 We have heard the rival submission and perused the material on record. We agree with the submission of the ld CIT DR that the issue stands covered by our finding in ground 3 to 5 of the appeal and thus no separate adjudication is required on this issue. Further, in respect of Hyundai Motors, Nissan Motors and Tata Motors projects, the assessee has already admitted the installation PE, thus the issue of Mumbai office as fixed place PE is relevant to the project work of HCEIPL only and that issue has been raised by the assessee in ground no. 7 Accordingly, this ground is rendered infractuous and thus we dismiss the ground no. 6 of the appeal accordingly.
7.1 In ground No. 7 the assessee has raised the issue of treating the income by way of royalties and fee for technical services from its AE i.e Hyundai Construction Equipment India Private Limited ( HCEIPL) as business income under Article 7 of the DTAA read with section 44DA of the Act. In ground no. 8, the assessee has raised the issue of income from interest for delaying payment of royalties and fees for technical services and guarantee fee from HCEIPL held as business income. 8.1 As regard to the royalty, FTS and interest received by the assessee from the Hyundai Construction Equipment India Pvt. Ltd.(HCEIPL) , the assessee made written submission as under: “The Ld. AO/DRP have treated Mumbai Office as PE for income from by way royalty and interest from HCEIPL. As per Article 13(6), it is held to be 'effectively connected’ with the provision of technical knowhow etc. Therefore the, according to AO, consideration therefor is not taxable as royalty/FTS as per Article 13 of the Korean tax treaty, but as income Hyundai Heavy Industries Co. Ltd. business as per Article 7 of treaty read with section 44DA of the Act. However, the net tax levied is same as declared and already paid by the assessee. But, it has impacted the rate tax leviable on interest income for delay in payment of royalty by HCEIPL. The assessee offered interest income for tax @ 15% as per Article 12(2) of the treaty. The Ld. AO, however, has taxed it @ 40% by treating as business income. This issue came up for first time for the consideration of the Hon'ble Tribunal in A.Y. 2009-10. Vide order dated 5th June, 2015, the Tribunal held as follows:- "In view of the above discussion, we find that the authorities below has simply followed its orders for earlier assessment years on the issue of treating the Mumbai Liaisoning as PE. However, to decide the issue as to whether Mumbai Liaisoning is PE for the purpose of HCEIPL as well for the purpose of taxing royalties received from HCEIPL and interest earned on delayed payment royalty as business income, verification of the above aspects of the facts/contentions raised by the Learned AR is required to be made afresh to meet out the ends of justice. We thus set aside the matter to the file of the Assessing Officer to decide the issue raised in ground Nos. 7 to 9 afresh after affording opportunity of being heard to the assessee under the above stated background. The grounds Nos. 7 to 9 are thus allowed for statistical purposes.” It is submitted that as the facts of the case continue to be same, the matter may be restored with the Ld. AO with similar directions”
7.2 From perusal of the above decision, we find the issue in dispute is squarely covered by the above decision of the Tribunal, and thus respectfully following the findings of the decision of the Tribunal in assessee’s own case for AY 2009-10, we restore the issue in dispute to file of the AO to decide a fresh after affording opportunity of being heard to the assessee and in the light of directions given in the decision of the Tribunal (supra). The grounds are thus allowed for statistical purpose accordingly.
In ground No. 9 the assessee raised the issue of bringing to tax the revenue of the assessee from contract with Hyundai Motors, Nissan Motors, and Tata Motors under provisions of section 44DA of the Act, instead at the tax rates Hyundai Heavy Industries Co. Ltd. prescribed under section 115A of the Act offered by the assessee even though the said exercise was tax neutral. The ld AR submitted that in view of already admitted by the assessee those contract as installation PE , the issue was being tax neutral, it was not pressed. As the issue was not pressed by the ld AR, we dismiss the ground of the assessee as infractuous. 9.1 In ground No. 10 the assessee has raised the issue of treating the income from outside India revenue for supply of materials from outside India in respect of contracts with Tata Motors, Nissan Motors and Hyundai Motors India Pvt. Ltd as business income. In respect of taxability of revenue earned outside India from Tata Motors, Nissan Motors and Hyundai Motors India Pvt. Ltd., the learned Authorized Representative submitted that the assessee company already admitted installation Permanent Establishment in terms of Article 5(3) of the Treaty and it has been held by the Hon’ble Uttarakhand High Court in BKI Ham (347 ITR 570) that Article 5(3) of the Treaty being special provisions prevails over the general provisions related to fixed place PE under Article 5(1) of the Treaty. In respect of the question as to whether the Tata Motors’ purchase order (PO) was indivisible or not, the assessee filed another Purchase Order No. TSAG 37029, dated 17th September, 2007 for supply of equipment FOB Korea. He further submitted that the PO No. TSAG 37029 was referred by the PO No. TSAZ 37029. The assessee further submitted that perusal of both the Purchase Orders, i.e., TSAG 37029 and TSAZ 37029 clearly showed that whereas TSAG is only for supply of equipment FOB Korea, the PO No. TSAZ is for installation Hyundai Heavy Industries Co. Ltd. in India of the equipment directly imported by Tata Motors from the assessee on principal to principal basis. Further, the learned Authorized Representative submitted that both these Purchase Orders were issued by Tata Motors on 17.09.2007 in response to sealed bid sent by the assessee from Korea. Further, the learned Authorized Representative submitted that it has been consistently held by the Hon’ble Supreme Court, Uttarakhand High court and the Tribunal in the assessee’s own case for earlier years that such contracts are divisible and the revenue earned by the assessee from manufacture and supply of equipment outside India is not attributable to the PE in India because the sale/supply of equipment got concluded outside India. Further, the learned Authorized Representative also relied on the judgment of the Hon’ble Delhi High Court in the case of Nokia Network OY reported in 358 ITR 259 and Ericsson reported in 343 ITR 470 and submitted that the case of the assessee is fully covered by the above quoted rulings because of the following reasons: i. Supply of equipment was made outside India for which the consideration was received in acceptable foreign currency directly in Korea. ii. The consideration for supply of equipment does not contain any element of service rendered by the PE in India. iii. The transaction was between two unrelated parties on principal to principal basis. There is not even a whisper of allegation that the price therefor is not ‘Arm’s Length Price’. iv. The purchase orders were issued to the assessee in response to ‘sealed bids’ directly made from Korea. There is no involvement of Mumbai Office at any stage of these contracts. v. The installation PE clearly came into existence on the arrival of the equipment in India. vi. Income from entire consideration for services rendered by the respective installation PE was duly offered to tax and there is no dispute in this regard.
Hyundai Heavy Industries Co. Ltd. vii. It may be noted that no Korean employee visited India for any of the projects. It was brought to the notice of the Learned Assessing Officer that all the three projects were completed in the preceding financial year. (submission dated 24.03.2014 at page 294 of Paper Book – II). Part of the income is offered to tax this year because the consideration to that extent was received this year. viii. It may be noted that even under Explanation I(a) to Section 9(1)(i), no part of income from operations outside India can be taxed. 9.2 Without prejudice to the above, the learned Authorized Representative submitted that in earlier years up to assessment year 2003-04, the Revenue had been attributing only 1% of the gross revenues for outside India activities as taxable income in India, which also did not find favour with the appellate authorities in respective years. Thus, an attribution of 100% of the gross revenues and estimation of 100% profits thereon as taxable in India is extremely excessive more so when it was brought to the attention of the learned Assessing Officer that the global profits of the assessee were only about 11.88%. 9.3 Learned Commissioner of Income Tax(Departmental Representative), on the other hand, referring to the Purchase Orders issued by the Tata Motors on 19.07.2007 submitted that two separate orders were as a result of prior negotiations with the Tata Motors and two separate PO’s should be viewed as integral part of a composite order. He also submitted that purchase order for supply of equipments to Tata Motors contained conditions showing integral project with Tata Motors and thus requested for restoring the matter to the AO for considering a fresh. He also relied on the judgement of of Hon’ble Jurisdictional High Court in the case of Roll Royce Singapore P Ltd Vs ADIT Hyundai Heavy Industries Co. Ltd. reported in (2011) 13 Taxmann.com 81 ( Delhi) to support his point that a part of profit can be attributed to the project in respect of sale of spare parts from outside India. 9.4 We have heard the rival submissions and perused the material available on record. From the facts and circumstances of the case, we find that the assessee has submitted additional evidence under rule 29 of the ITAT Rules and the Assessing Officer has not got opportunity to consider those evidences thus, in the interest of justice, we are of considered opinion matter need to restore to the AO for considering the issue afresh. Accordingly, we restore the issue in dispute to the Assessing Officer for deciding a fresh in the light of additional evidences submitted by the assessee in accordance with the law. The Assessing Officer is directed to provide sufficient opportunity of hearing to the assessee and the assessee is also directed to submit all the evidences before the Assessing Officer. Accordingly, this grounds of appeal is allowed for statistical purpose.
10.1 In respect of ground no. 11 regarding levy of interest under Section 234B and 234C of the Act, the learned Authorized Representative submitted that in the assessee’s own case for assessment year 2009-10, the Tribunal has remitted the matter back to the file of the Assessing Officer to follow the decision of the Hon’ble High Court of Uttarakhand in Sedco Forex reported in 264 ITR 320. Therefore, he requested that the issue for the year under consideration may also be remitted back to the file of the Assessing Officer.
Hyundai Heavy Industries Co. Ltd. 10.2 Learned Commissioner of Income Tax(Departmental Representative ), on the other hand could not controvert the submission of the learned Authorized Representative. 10.3 We have heard the rival submissions and perused the material on record. The Tribunal vide order date 05.06.2015 in for assessment year 2009-10 in para no. 27 held as under:
“27. Interest under section 234B of the Act 27.1 The learned AR contended that the issue is covered by the decision of Hon'ble jurisdictional High Court of Uttrakhand in the case of Maersk's Shipping - 334 ITR 79 and the decision of Hon'ble Delhi High Court in the case of Alcatel - 264 CTR (Delhi) 240 is not applicable. He submitted further that the appellant is a foreign company and during the year was in receipt of income for its outside India and inside India activities from TATA Motors Ltd., Nissan Motors Ltd., HCEIPL and GMR. All receipts of the assessee were subject to deduction of tax at source as fee for technical services at 10% as prescribed under sec. 115A except those from GMR, on which that was deducted in accordance with the order obtained under sec. 197 of the Act for lower deduction of tax. The assessee also received interest income on which also tax was duly deducted at the rate of 15% in accordance with Article 12 of the DTAA as entered into between India and Republic of Korea. He submitted further that for the assessment year under consideration, the provisions of sec. 234B are attracted only when the assessee, who is liable to pay advance tax under sec. 208 of the Act has failed to pay such tax. Since the entire income of the assessee was subject to tax deductible at source and tax was deducted at source was the payer, there was no liability to pay advance tax under sec. 208 of the Act and in absence of any liability to pay advance tax, the provisions of sec. 234B of the Act could not be invoked. The learned AR pointed out further that interest under sec. 234B amounting to Rs.4,58,63,237 cannot be levied in the light of the decision of the ITAT in the assessee's own case for the asst. Year 2007-08 in on identical issue. 27.2 The learned CIT(DR) contended that interest under section 234B of the Act would be payable if the tax payable works out more than TDS done in case of the assessee. In that case, the assessee was liable to pay advance tax and failure to pay the same results into charging of interest under section 234B of the Act. 27.3 The learned CIT(DR) submitted further that in this case, the assessee had obtained an order under section 197 of the Act and GMR was directed to deduct tax @0.48% based on this order. Hon'ble Delhi High Court in the case of Jacobs Civil Incorporated and others in paragraph 6 of the decision has held that interest under section 234B is chargeable after establishing that the payee has role in such a lower or no deduction of Hyundai Heavy Industries Co. Ltd. tax. In the present case, assessee has full role in lower deduction of tax, as it had obtained order section 197 of the Act at lower rate and provided to GMR. In such a case, the payer GMR was not at fault and no order under section 201(1) can be passed in that case as they deducted tax as per order under section 197 of the Act. As the tax was not paid correctly and there was a shortfall in payment of tax, therefore, the interest undersection 234B is payable by the assessee. 27.4 Considering the above submissions, we find that the an identical issue has been decided in favour of the assessee by the Delhi Bench of the ITAT in the case of assessee itself for the assessment year 2007-08 (supra). We thus, set aside the matter to the file of the A.O. to decide the issue afresh in view of the decision of the ITAT on the issue for the assessment year 2007-08 which is based on the decision of Hon'ble jurisdictional Uttrakhand High Court in the case of CIT vs. Sedco Forex International Drilling Co. Ltd.- 264 ITR 320 (Uttrakhand), after affording opportunity of being heard to the assessee. The additional ground is accordingly allowed for statistical purposes.” 10.4 In view of the above decision of the Tribunal in assessess’s own case, respectfully following the decision (supra), we restore the matter to the file of the Assessing Officer to decide a fresh in keeping in view the directions of the Tribunal (supra). This ground of appeal is accordingly, allowed for statistical purpose.
11. In the result, the appeal of the assessee is allowed partly for statistical purposes. The decision is pronounced in the open court on 12th February, 2016.