LUMMUS TECHNOLOGY HEAT TRANSFER B.V,GURUGRAM vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, INT. TAX, GURUGRAM, GURUGRAM

Ground No. 1 of appeal is general in nature, hence, require no separate adjudication. 7.1 In ground No. 2 of appeal, the assassee has assailed disallowance of assessee’s claim of deduction u/s.80G of the Act, in respect of contribution made to PM CARES Fund and PM NRF from the amounts set apart for CSR. In so far as the expenditure of Rs.1,98,27,369/- under CSR, the same is not under dispute. The assessee has placed on record receipts in respect of contribution towards PM CARES Fund and PM NRF. The assessee has claimed deduction in respect of contribution made towards PM CARES Fund and PM NRF. Both the said funds are eligible for deduction u/s. 80G of the Act. The coordinate Bench of Tribunal in the case of Cheil India (P.) Ltd. vs. DCIT (supra) while dealing with the similar issue placing reliance on the decision rendered in the case of Ratana Sagar P. Ltd. vs ACIT in decided on 29.08.2024, held that where donations are made which are eligible for deduction u/s. 80G of the Act, the same should be allowed. The deduction u/s. 80G of the Act cannot be denied merely on the ground that the donation amount was from the amount set apart for CSR under mandatory provisions of the Companies Act and was not voluntary in nature. We find similar view has been expressed by the Tribunal in the case of Interglobe Technology Quotient (P.) Ltd. vs. ACIT (supra) and various other cases. Thus, in light of undisputed fact of the case and the decisions referred above, we find merit in ground no. 2 of appeal. The AO is directed to allow the benefit of deduction u/s. (AY 2021-22) 80G of the Act in respect of amounts contributed towards PM CARES Fund and PM NRF under CSR. Thus, ground of appeal no. 2 is allowed. 7.2. In the ground no. 3 of appeal, the assessee has assailed attribution of income to the Branch Office in respect of offshore supplies made by Head Office (outside India) to Haldia Petrochemicals Ltd. in India. The assessee has referred to communications between Lummus Technology Heat Transfer BV Hague and Haldia Petrochemicals Ltd. in India at Pages 98 to 207 of the paper book. The quotations at page 98 and 99 of the paper book reveal that it is a communication between Lummus Hague and Haldia Petrochemicals Ltd. In the entire communication there is no reference or involvement of any activity being carried out by the Branch Office in India. The assessee has also placed on record trail of emails between Lummus Hague and Haldia Petrochemicals Ltd., with regard to confirmations, technical queries and settlement of the price. Again there is no reference of the assessess that is branch office in India. We find that this issue is a legacy issue arising since assessment year AY 2006-07. The Co-ordinate Bench decided the issue in favour of assessee reported as 42 taxmann.com 113 (Del.) (supra). The coordinate Bench decided the issue as under:- “4.1 Ground No. 13 of the appeal is against confirmation of addition of Rs. 2,89,06,431/-. 4.2 The facts apropos this ground are that the assessee was asked to furnish the details of sates made/services rendered in India by the HO directly and the copies of agreements with HO. The assessee submitted vide its letter dated 29.12.2009 that the above information was not available with the branch office. In the absence of such details forthcoming from the side of the assessee, the Assessing Officer proceeded to estimate the receipts of the assessed in respect of direct transactions between HO and Indian customers equal to the disclosed receipts of the assessee branch at Rs. 2.89 crore. The same was held to be Fees for technical services' (AY 2021-22) chargeable to tax @10%. That is how this amount of Rs. 2.89 crore was added to the assessee's total income, which has been assailed through this ground. 4.3 We have considered the rival submissions and perused the relevant material on record. It can be seen from the Assessing Officer's final order passed u/s 144C(13) that the entire issue has been discussed in a solitary para No. 6 of around 10 lines at page 37 of the order. It has been concluded that the assessee must have received a sum equal to its declared receipts in respect of direct transactions between the HO and its Indian customers and the further presumption is that it is in nature of fees for technical services. We are unable to appreciate the logic of the AO in drawing inferences, one after me other and the conclusions reached in this regard. There is no material worth the name to suggest, even remotely, that the assessee was rendering services to its head office or the Indian clients in respect of direct transactions between them. There is absolutely no bedrock for such presumption. The learned DR was required to invite our attention towards any material indicating the assessee's involvement in the direct transactions between the head office and Indian customers. In the name of reply, he took us through certain portions of the draft assessment order in which there is a reference to certain invoices of the HO indicating the role of the assessee in such direct transactions. On a careful scrutiny of the dates of such invoices, it can be seen that they relate to the financial year 2004-05 relevant to the preceding assessment year 2005-06. A copy of the assessment order for the A.Y. 2005-06 has been placid on record. It can be seen from such order dated 17.12.2007, that no addition was made in respect of such presumptions of the Assessing Officer. It is further relevant to note that the assessee's accounts were examined by the TPO, who has not pointed out even a single rupee expense attributable to the direct transactions between HO and Indian customers. When this is the position obtaining in this case, we fail to comprehend as to how an income can be estimated in this regard. Such addition made by the Assessing Officer is, therefore, directed to be deleted. This ground is allowed.” The said order of the Tribunal was accepted by the Revenue and no further appeal was filed by Department. Thereafter, in the subsequent assessment years i.e. AY 2007-08 and 2009-10 similar additions were made. The Tribunal granted relief to the assessee, the Revenue carried the issue in appeal before the Hon’ble High Court. The Hon’ble High Court after considering facts of the case as well as the (AY 2021-22) history of litigation on the issue held that following the principle of consistency there is no justification to entertain the appeals on the issue of attribution. Hence, dismissed appeals of the Revenue. In the impugned assessment year the Revenue has not been able to show any distinguishing factor. Thus, in light of the aforesaid decisions rendered in asseessee’s own case, we find no merit in confirming the addition on account of attribution of income in the hands of assessee. The addition is directed to be deleted the assessee succeeds on ground no. 3 of appeal. 7.3. In ground no.4 of appeal, the assessee has assailed disallowance u/s. 40(a)(i) of the Act for non-deduction of TDS in respect of reimbursement of salary by the assessee to Lummus LLC in respect of seconded employee. The Revenue has held such reimbursement in the nature of fee for technical services/fee for included services. The Counsel has drawn our attention to the secondment agreement at page 221 to 227 of the paper book. A perusal of the terms and conditions of the agreement reveal that the seconded employee Shri Rajesh Samarth for all intent and purposes was under the employment and control of the assessee. Lummus Technology LLC US had no control over the seconded employee as per the terms and conditions of Article 2.6 of the agreement. Even after termination of employment with the assessee, the seconded employee had no recourse to his employment with Lummus Technology LLC. It is not in disputed that the assessee has been deducting tax at source u/s. 192 of the Act on payment of salary. The Hon’ble Karnataka High Court in the case of DCIT vs. Flipkart Internet P. Ltd. (supra) held that where assessee an Indian company had entered into secondment agreement with USA entity and there were all Indication of employer employee relationship between the Indian company and seconded employee, the assessee company was not required to deduct tax u/s. 195 of the Act on payment made to (AY 2021-22) foreign entity towards reimbursement of salaries paid to seconded employee. Thus, in facts of the case in light of and aforesaid decision, we find merit in ground no.4 of appeal, hence, the same is allowed. 7.4. The ground number no. 5 of appeal and additional grounds of appeal are taken up together for adjudication. The assessee in aforesaid ground has assailed in making addition of Rs.26,83,615/- on account of interest on income tax refund received by the assessee during the relevant assessment year. The AO and DRP have held that interest on income tax refund shall be taxed under Article 7 of India, Netherlands Tax Treaty as Business Income, considering the same to connected with the PE of the assessee in India. In the instant case assessee is a Branch Office PE, the provisions of Article 7 of DTAA are not attracted. The reliance is placed by the Counsel for the assessee on thedecision rendered by Special Bench in the case of ACIT vs. Clough Engineering Ltd. 130 ITD 137 (Del.-Trib.) (SB). The question for consideration before the Special Bench was: “Whether, on the facts and in the circumstances of the case, interest on income-tax refund and fixed deposits with the bank is liable to tax with reference to Article 7 read with paragraph No.4 of Article 11 or paragraph no.2 of Article 11 of Indo- Australia Double Taxation Avoidance Agreement?” The Special Bench answered the question as under:- “11.4 Thus, we are again left with the fundamental question as to whether the debt-claim in this case can be said to be effectively connected with the PE. We have already held that the claim is connected with the PE in the sense that it has arisen on account of tax deduction at source from the receipts of the PE. However, it is also a fact that payment of tax is the responsibility of the foreign company. The same is determined after computation of its income and the tax forms not an expenditure for earning the income but an item of appropriation of profit. Therefore, even if the debt is connected with the receipts of the PE, it cannot be said to be effectively connected with such receipts because the responsibility to pay (AY 2021-22) the tax lies on the shoulders of the assessee-company from the final profit ascertained as on the last date of the previous year and on closing the books of account. It is for the company to pay the tax from any source available with it. It so happened in this case that the tax got automatically deducted from the receipts of the PE by operation of law. Such collection of tax by force of law would not establish effective connection of the indebtedness with the PE as ultimately it is only the appropriation of profit of the assessee company. However, we may add that we do not venture to say that the interest income has to be necessarily business income in nature for establishing the effective connection with the PE because that would render provision contained in paragraph 4 of Article XI redundant. Thus, there may be cases where interest may be taxable under the Act under the residuary head and yet be effectively connected with the PE. The bank interest in this case is an example of effective connection between the PE and the income as the indebtedness is closely connected with the funds of the PE. However, the salme cannot be said in respect of interest on income-tax refund. Such interest is not effectively connected with PE either on the basis of asset-test of activity-test. Accordingly, it is held that this part of interest is raxable under paragraph No. 2 of Article XI. Thus, the ground referred to the Special Bench is partly allowed. The Division Bench shall dispose off the appeal in conformity with this order. Considering facts of the instant case and the decision of Special Bench (supra), we direct the AO to apply treaty rates on interest on Income Tax refund. The ground of appeal no.5 of appeal is thus allowed. 7.5. The last issue in appeal by the assessee relates to foreign exchange loss. The assessee has suffered foreign exchange loss of Rs.53,62,585/- during the relevant period. The AO and the DRP has disallowed assessee’s claim of loss holding that the assessee cannot have loss on transactions with the head office. The ld. Counsel for the assessee has pointed that in the preceding assessment years, whenever, there was profit on foreign exchange transactions with the head office, the assessee had offered the same to tax and the AO accepted the same. Since, in impugned assessment year it is loss, the AO has taken a different position. The rule of (AY 2021-22) consistency demands that, if in preceding assessment years, the assessee has offered to tax foreign exchange gain in respect of transaction with its head office and the same was accepted, for parity of reasons, the foreign exchange loss should also be allowed. The AO is directed to allow foreign exchange loss to the assessee in the impugned assessment year for parity of reasons. Thus, ground of appeal