UK GRID SOLUTION LTD,UNITED KINGDOM vs. DCIT, CIRCLE-3(1)(1), INTERNATIONAL TAXATION, NEW DELHI

The assessee has come in appeal challenging the final assessment order dated 28.07.2022 passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act,1961 (hereinafter referred to as ‘the Act’) for the assessment year 2018-19 coupled with challenge of findings of Ld. DRP.

2087.Del.2022 UK Grid Solution Ltd, United Kingdom is more beneficial to the assessee in terms of beneficial provisions of Section 90(2) of the Act. Assessee is engaged in the business of designing, engineering, manufacturing and supply of electric equipment that help in the transmission and distribution of power, commissioning and servicing of transmission and distribution systems on turnkey basis. During the relevant assessment years, the assessee had earned income from various Indian customers which the assessee claimed was not taxable as income was from offshore supplies only. The case of assessee was selected for scrutiny due to large claim of refund against tax deducted source. The record shows the assessee was awarded a contract by Power Grid Corporation India Ltd. (hereinafter referred to as ‘PGCIL) for setting up a 3000 MW HUDC Terminal in Chhattisgarh, India.

2.1 There were three contracts of following nature;

‘First contract’, also called ‘off-shore contract’ was for supply of plant and equipment including spares outside India, Type test and Training to be conducted outside India.

‘Second’ and ‘third contract’ were‘on-shore supply contract’ and ‘on-shore service contract’ which were assigned to an associate enterprise M/s. GE T&D India Ltd (here in after also referred also as ‘ALSTOM-I’ or ‘Indian Associate’).

2.2 The Ld. AO, considered it to be a case of artificial division of composite contract into three special contracts by the assessee while all the responsibilities and liabilities of the project based with the assessee. Taking into consideration arecital of the contract, Ld. AO made following relevant observations in para no. 4 and 5 :-

“4. These provisions clearly indicate that the assessee’s role is an all-encompassing one for the purposes of the project i.e. the onus of completion of every step is on the assessee and it is answerable to PGCIL for the same at all 2

2087.Del.2022 UK Grid Solution Ltd, United Kingdom times. Hence, in no way can it be inferred from the contract document that the assessee’s association with and its responsibility towards the project is restricted to mere supply of equipments. Therefore, the contract with all its components has been awarded in full to the assessee.

“UK Grid has been awarded a single composite (EPC) contract on a turnkey basis by PGICL to complete a power project in India. The taxability of UK Grid in India is, therefore, to be decided as per the provisions of the Income-tax Act and relevant provisions of the India-UK DTAA. From the facts of the case, there is no doubt that UK Grid has a “business connection” under section 9(1 )(i) of the Act and a 'Construction PE’ under the provisions of Art. 5(2) of the India-UK DTAA. Therefore, the business profits of the PE of UK Grid are taxable in India as per the provisions of Article 7 of the India-IJK DTAA. The sub-article (2) of Article 7 of the DTAA which prescribes the mechanism is reproduced as under: “(2) Where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, the profits which that permanent establishment might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities 3

2087.Del.2022 UK Grid Solution Ltd, United Kingdom under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment shall be treated for the purposes of paragraph 1 of this Article as being the profits directly attributable to that permanent establishment. ” Therefore, the profits attributable to the PE should be the Arm’s length profit i.e. profit that an independent person under the same or similar conditions engaged in similar activities (EPC contract for Power Project on turnkey basis) should earn. From the above discussion, it is now clear that both offshore as well as onshore components of the single composite project have to be taken into account in determining profit attributable to the PE as leaving one part would deviate from Arm’s length profit. It is also noteworthy to mention that BEPS Action Plan 7 extensively dealt with and prohibited various arrangements by the taxpayers for artificial avoidance of PE status ingjudjng splitting up j)f_con tracts. This was included in Article 13 of the MU. Accordingly, as a minimum standard, the signatories of MLI would now modify their treaties to address arrangements directed to artificially avoid PE status. In view of this, in the present case, the arrangement of the assessee to split the Otherwise single contract into various contracts with a view to avoid PE status is not permissible. As UK Grid already has a PE in India, in the capacity of an awarded of contract, the offshore sub-contract would also form part of the same PE.”

5. The assessee approached the Ld. DRP which had sustained the draft assessment order except to the extent directing Ld. AO to exclude the receipts on account of off-shore supplies made by assessee to GE T&D and SFO, if they are not related to PGCIL contract.

1. That on the facts and circumstances of the case and in law, the assessment order dated 28.07.2022 passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (“the Act ) for assessment year 2018-19 assessing the total income of the Appellant at Rs. 131,37,79,750 is bad in law, void- ab-initio and therefore, liable to be quashed and/ or set aside.

2. That on the facts and circumstances of the case and in law, the assessment order passed under section 143(3)/ 144C(13) of the Act on 28.07.2022, being barred by limitation, is bad in law, and void-ab-initio. Re: Offshore supply receipts of Rs.l 107,81,49,081 from PGCIL 3. That the DRP/ assessing officer erred on facts and in law in holding that receipts of Rs. l107,81,49,081 from offshore supplies to Power Grid Corporation of India Ltd (“PGCIL”) are taxable in India under the provisions of the Act.

4. That the DRP/ assessing officer erred on facts and in law in arbitrarily holding that the Appellant had business connection in India during the subject assessment year.

5. That the DRP/ assessing officer erred on facts and in law in arbitrarily holding that GE T&D India Limited (“GETDIL”) constitutes Dependent Agent Permanent Establishment (“PE”) of the Appellant in India and that the Appellant has Construction PE in India.

6. That the DRP/ assessing officer erred on facts and in law in attributing 100% profits from offshore supplies made to PGCIL to the alleged business connection/ PE. 5

2087.Del.2022 UK Grid Solution Ltd, United Kingdom

7. Without prejudice, that the DRP/ assessing officer erred on facts and in law in computing incoms-fem-effehere supplies by applying section 44BBB of the Act.

8. That the DRP/ assessing officer erred on facts and in law in alleging that the Appellant was awarded single composite contract on turnkey basis, which was artificially split into three separate contracts to avoid payment of legitimate taxes in India. Re: Offshore supply receipts of Rs. 51,85,13,082 from GETDIL & Rs.1,35,55,339 from SFO Technologies 9. That the assessing officer erred on facts and in law in holding that receipts of Rs.51,85,13,082 from GETDIL and Rs.1,35,55,339 from SFO towards offshore supply were taxable in India, contrary to the binding directions of the DRP. 10. That the assessing officer erred on facts and in law in bringing to tax receipts of Rs.51,85,13,082 from offshore supply made to GETDIL, i.e., customer on the ground that said customer itself constituted Dependent Agent PE of the Appellant in India. 11. Without prejudice, that the assessing officer erred on facts and in law in bringing to tax receipts towards offshore supply from GETDIL and SFO Technologies by applying section 44BBB of the Act, not appreciating that said offshore supplies were not linked to any turnkey contract. Re: Global operation fee of Rs.8,12,37,030 received from GETDIL 12. That the DRP/ assessing officer erred on facts and in law in taxing global operation fee of Rs.8,12,37,030 received from GETDIL as Fees from Technical Services (“FTS”) under the provisions of the Act and the India-UK DTAA, without appreciating that provision of said services by the Appellant did not satisfy the ‘make available’ clause contained in Article 13(4)(c) of the India-UK DTAA. Re: Other grounds relating to computation of tax demand & penalty proceedings 13. That the assessing officer erred on facts and in law in levying interest under section 234A, 234B and 234C of the Act.

2087.Del.2022 UK Grid Solution Ltd, United Kingdom

The Appellant craves leave to add to, amend, alter or vary the above grounds of appeal at or before the time of hearing.”

The ground wise findings are as follows;

9.1 It was submitted that tax authorities below have also fallen in error in construing the business connection in India without appreciating that the sales were concluded outside India and the property in goods under the offshore agreement had passed outside India. No payment or consideration was received within India. Specially referring to judgment in IshikaWasma- Harima Heavy

2087.Del.2022 UK Grid Solution Ltd, United Kingdom Industries Ltd. vs. DIT : [2007] 288 ITR 408 (SC) Ld. Sr. Counsel submitted that Hon’ble Supreme Court has held in many words that when the transfer of property in goods and the payment are carried out outside India the transactions cannot be taxed in India. In this context, judgment in CIT vs. Hindustan Shipyard Ltd. 109 ITR 158 (AP) was also relied.

9.2 It was submitted that when the scope of work under the bid documents covered off-shores supply and off-shores services as distinguished from on- shore supply and construction work, Ld. Tax Authorities had fallen in error in considering the three contracts to be part of one consolidated contract. It was submitted that in case of contracts by consortium, the law is settled that when a project is executed by consortium then income of foreign entity has to be assessed on the business of income occurring to it in India. Specially referring to Board Circular dated 07.03.2016 he submitted that even the Board recognizes the fact that in case of projects executed under consortium arrangement and if each member is independently responsible for executing its part of work, thenaccordingly the income is taxable. In this context, he specially refered to judgment of Hon’ble Delhi High Court in Linde AG, Linde Engineering Division vs. DDIT : [2014] 365 ITR 1 (Del) of Income Tax.

9.3 He submitted thatoverstress is laid by Ld. Tax Authorities on the fact that the primary liability of execution of contracts and damage for beach of the contracts being upon the assessee ALSTOM only, so the ALSTOM-I was merely an extended arm. And thus the Ld. Tax Authorities have fallen in error in considering the associate M/s. ALSTOM-I to be Agency PE. It was submitted that there was no legal and financial dependency between the assessee and its associates.

9.4 Ld. Sr. Counsel submitted that the assessee had earned revenues from offshores supplies and no activity was performed in India for earning its 2087.Del.2022 UK Grid Solution Ltd, United Kingdom revenue. He specifically stressed on fact that no employee of the assessee visited India and as such there is no branch or place of business in India.

9.4.1 As with regard to Dependent PE it was submitted the Tax Authorities have not discussed any evidence and an incorrect observation is made by Ld. AO that GE India was actively involved in soliciting business for the assessee as the assessee had procured the contract by way of open bidding.

9.5 It was submitted that the Associate was engaged in independent contracts under the bid and was independent entity. Referring to the financial statements of GE T &D India Limited, available on page no. 429 to 437 for F.Y. 2017-18 and 438-445 for F.Y. 2018-19 it was submitted that related party transactions have been disclosed and it was submitted that the Indian associates has several independent source of revenue. The income earned from the two contracts was independently offered to Tax under the Act.

9.6 As with regard to the Associate constituting a Construction PE,he submitted that the associate was independent and responsible for concluding the contracts and the role of assessee was limited to off-shore supplies. In this context he specifically contended in regard to the findings of construction PE that there was no factual evidence to support the findings. Assessee was not involved into any activity of construction project and as “supply” is not included in the activities taxable in the provisions, so Article 5(2) of the treaty was not applicable.

9.7 He also referred to Section 44BBB of the Act and submitted that as assessee was merely a supplier to PGCIL so provisions which are otherwise applicable in case of business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with the turnkey power project is not applicable and the income received against offshore supply of equipments cannot be taxed by virtue of section 44BBB.

2087.Del.2022 UK Grid Solution Ltd, United Kingdom 9.8 As with regard to the submission that the agreements were not deliberately split for tax avoidance, Ld. Sr. Counsel relied Linde AG, Linde Engineering Division vs DDIT: [2014] 365 ITR 1 (Del) where the Department’s SLP dismissed in 242 Taxman 371 (SC). He also relied DIT vs Ericsson AB: 343 ITR 470 (Del).

9.8.1 In support of the submission that there is no business connection of assessee in India, Ld. Sr. Counsel relied, CIT vs. R D Aggarwal and Co. [1965] 56 ITR 20 (SC), CIT vs Hindustan Shipyard Ltd: 109 ITR 158 (AP) and CIT vs Atlas Steel Company Ltd: 164 ITR 401 (Cal).

9.8.2 As with regard to the submission that Offshore supply are not taxable under the Act, he relied Ishikawajma-Harima Heavy Industries Ltd vs DIT: [2007] 288 ITR 408 (SC), DIT vs LG Cable Ltd: [2011] 237 CTR 438 (Del), DIT vs Nokia Networks OY: 358 ITR 259 (Del) and Siemens Mobile Communications SPA vs DCIT: [2020] 182 ITD 479 (Del Trib.)

9.8.3 The non applicability of Section 44BBB qua offshore supply was supported by Ld. Sr. Counsel by relying DDIT vs Mitsui & Co Ltd: 118 taxmann.com 379 (Del Trib.), DOT vsWhessoe Oil & Gas Ltd: 87 taxmann.com 342 (Mum Trib.) and Atomstroy Export vs DCIT: (Mum Trib.)

9.8.4 He supported his contentions with regard to law on Dependent Agent Permanent Establishment (“PE”) under the India-UK DTAA he referred to the Copy of India-UK DTAA and section 182 of Indian Contract Act, 1872. He also cited judgments in National Petroleum Construction Company vs DIT: 383 ITR 648 (Del), Western Union Financial Services Incvs ADIT: 101 TTJ 56 (Del Trib.),Mitsui & Co Ltd vs ACIT: (Del Trib.), ITO vs International Reinsurance and Insurance Consultancy & Broking Services (P) Ltd: 142 taxmann.com 509 (Mum Trib.), DCIT vs Adobe

2087.Del.2022 UK Grid Solution Ltd, United Kingdom Systems Software Ireland Ltd: &Ors. dated 27.07.2022 (Del Trib.), Net App BV vs DDIT: [2017] 78 taxmann.com 97 (Del Trib.), TVM Ltd vs CIT: 237 ITR 230 (AAR) and KronesAktiengesellschaftvs CIT: ITA No.907/Del/2017 dated 30.12.2022 (Del Trib.)

9.8.5 The Ld. Sr. Counsel stressed that the onus is on Department to prove existence of PE and for that he relied CIT vs eFunds IT Solution: 399 ITR 34 (SC), DIT vs Samsung Heavy Industries Co Ltd: 426 ITR 1 (SC), DIT vs Mitsui & Co Ltd: 399 ITR 505 (Del) and AB SciexPte Ltd vs ACIT: 195 ITD 384 (Del Trib.)

9.8.6 As with regard to principles of attribution to business connection/ PE he relied DIT vs Morgan Stanley & Co Inc: 292 ITR 416 (SC), DIT vs Morgan Stanley & Co Inc: 292 ITR 416 (SC), The Anglo French Textile Co Ltd vs CIT: 25 ITR 27 (SC), Annamalais Timber Trust and Co vs CIT: 41 ITR 781 (Mad), CIT vsBertrams Scotts Ltd: 31 Taxman 444 (Cal), CIT vs Hyundai Heavy Industries Co Ltd: 291 ITR 482 (SC), Samsung Heavy Industries Co Ltd vs DIT: 265 CTR 109 (Uttarakhand), Affirmed by the Supreme Court in 426 ITR 1(SC), DCIT vs Roxon OY: 106 ITD 489 (Mum Trib.)

2087.Del.2022 UK Grid Solution Ltd, United Kingdom

12 At the same time the Ld. DRP bettered it little while discussing quite more of the recitals of the agreements and contracts but reached same finding that as there was no separate bid for each contract and that in case of any default in second or third contract, it was to be construed to be default of the assessee and result into right of termination and recovery of damages from the assessee by PGCIL, accordingly it too concluded that Associate as PE was involved throughout the contract period. DRP observed that the off-shore supply of equipments by the assessee would have been rendered meaningless in the absence of service of supervision, erection, commissioning etc. all of which was an integral and indivisible part of the contract.

2087.Del.2022 UK Grid Solution Ltd, United Kingdom and with different tax incidences. The adjudication of an issue should be on basis of wholesome reading of the contract and context of terms. In regard to this principle of law the Hon’ble Supreme Court in Ishikawajma-Harima Heavy Industries Ltd. (supra) has observed in para no. 60 as follows :-

In construing a contract, the terms and conditions there of are to be read as a whole. A contract must be construed keeping in view the intention of the parties. No doubt, the applicability of the tax laws would depend upon the nature of the contract, but the same should not be construed keeping in view the taxing provisions.

“WHEREAS the Employer is desirous of setting up ±800kV, 3000 MW HVDC Terminal ' Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under "National Grid improvement Project” and had invited bids for complete project- management, design, engineering, manufacture, testing, supply, port handling and customs clearance for the Plant and Equipment including mandatory Spares to be supplied from abroad, further handling, inland transportation and delivery at destination Site, unloading, storage, - handling at site, erection/installation including associated civil works, employer staff training, testing and commissioning including performance testing of Plant and Equipment including mandatory Spares and any other services as required for complete execution of the package. WHEREAS M/s. ALSTOM Grid 'UK Limited participated in the above referred bidding vide its First Stage bid proposal reference rro.T0193 dated 26.11.2011, updated Technical Bid, Compliance to Amendment No.-I and Clarification to the 2087.Del.2022 UK Grid Solution Ltd, United Kingdom provisions of the Bidding Documents pursuant to First Stage Bid Evaluation. submitted vide communication reference CC- CS/156-WR1/HVDC-1489/7/G10 dated 12.03.2012 and Second Stage Bid vide ref. No. T0193 dated 21st March 2012 read alongwith discount letter ref no. T- 0193/01 dated 22.03.2012. WHEREAS, as per the provisions of the Bidding Documents (Part I) and confirmations as per the documents referred in Notification of Award mentioned under Article 1.1 below, the construction of contracts shall be as follows: First Contract’ for CIF Indian Port of Entry supply of Plant and Equipment including mandatory Spares from outside India, Type Test and Training to be conducted outside India (also referred to as Off-Shore Contract), ‘Second Contract’ for Ex-works supply of Plant and Equipment including mandatory Spares from within India and Type Test to be conducted within India (also referred to as On- Shore Supply Contract), and Third Contract’ for all services to be performed in India covering, inter alia, port handling, port clearance, inland transportation, insurance, delivery at site, handling, storage, erection including associated civil works, testing and commissioning of all equipment and materials, including the equipment supplied under the First Contract end the Second Contract, Training in India etc. (also referred to as On-Shore Services Contract). WHEREAS M/s. ALSTOM Grid UK Limited in their Bid, had proposed M/s. ALSOM T&D India Limited having its Registered Office at A-18, First Floor, Okhla Noida-201301, U.P. Area, Phase-ll, New Delhi-110020 and business address as A-7, Sector-65, : ca-201301, (hereinafter referred to as “ALSTOM-l” as their Associate for the purpose of executing the On-Shore Supply Contract and On-Shore Services Contract) and furnished “ALSTOM-l” written unequivocal consent vide their letter dated 26.11.2011 (enclosed in their First Stage bid) to work as Employer’s independent Contractor, on the terms and conditions as laid down in the Bidding Documents.

2087.Del.2022 UK Grid Solution Ltd, United Kingdom

WHEREAS the associate proposed by ALSTOM has been accepted by the Employer, as above, subject to the condition that ALSTOM shall be overall responsible and liable for the execution of all the three Contracts irrespective of the fact that the Employer will enter into the ‘First Contract’ with them and the ‘Second Contract’ and the Third Contract’ with ALSTOM- I. Further, in the Contract Documents, for ‘First Contract’ the word ‘Contractor’ shall mean ALSTOM, who had submitted the bid and shall, for the purpose of 'Second Contract' and ‘Third Contract’, include' ALSTOM-I - the Permitted Associate of ALSTOM. Accordingly, without prejudice to the overall responsibility and the liability of ALSTOM for the execution of all the three Contracts, the word ‘Contractor’ wherever appearing in the ‘Second Contract'and the Third Contract’shall also mean ALSTOM-I. WHEREAS the Employer desires to engage the Contractor for the CIF Indian Port of Entry supply of all Plant and Equipment including mandatory Spares inter-alia including Design, engineering, manufacture, testing at manufacturer’s works and CIF supply of all off-shore equipment and materials from country(ies) outside India including Type Testing and training to be conducted outside India for the complete execution of the ±800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region. Interconnector for IPP Projects in Chhattisgarh under “National Grid Improvement Project” as detailed in the Contract Documents (“the Facilities"), and the Contractor has agreed to such engagement upon and subject to the terms and conditions hereinafter appearing. Article 6. ALSTOM having proposed ALSTOM-I as its Associate for the purpose of executing the On-Shore Supply Contract and On- Shore Services Contract and furnished ALSTOM-I’s written unequivocal consent to work as the Employer’s independent Contractor, on the terms and conditions as laid down in the Bidding Documents and, in accordance with the confirmations as per the documents referred in Notification of Award mentioned under Article "1.1 above, Contract Agreement Nos. CC-CS/156-WR1/HVDC-1489/7/G10/CA-II/4336 and CC- CS/156-WR1 /HVDC-1489/7/G10/CA-l11/4337 between the Employer and the Contractor’s Associate - ALSTOM-I has 15

2087.Del.2022 UK Grid Solution Ltd, United Kingdom also been made on 17.08.2012, respectively for the On-Shore Supply Contract (also referred to as the ‘Second Contract’) and On-Shore Services Contract (also referred to as the Third Contract’). The scope of ‘Second Contract’ includes Design, engineering, manufacture, testing at manufacturer’s works and Ex-works supply of all the equipment and materials including mandatory spares from within India and Type Testing, as detailed in the Contract Documents of said contract, required’ for the complete execution of ±800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under “National Grid Improvement Project”. The scope of ‘Third Contract’ includes all services to be performed covering, inter alia, port handling, port clearance, inland transportation, insurance, delivery at site, handling, storage, erection including associated civil works, testing and commissioning of all the Plant and Equipment including mandatory Spares supplied under the Off- Shore Contract and On-Shore Supply Contract, Training in India etc. and any other services specified in the Contract Documents of said contract, for complete execution of ±800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under “National Grid Improvement Project”. Notwithstanding the award of work under three separate Contracts in the aforesaid manner, ALSTOM shall be overall responsible to ensure the execution of all the three Contracts to achieve successful completion and operational acceptance / taking over of the facilities by the Employer as per the requirements stipulated in the respective Contract Documents. It is expressly understood and agreed by ALSTOM that any default or breach by its Associate, ALSTOM-l under the ‘Second Contract’ and/or Third Contract’ shall automatically be deemed as a default or breach of this ‘First Contract’ also and vice-versa, and any such default or breach or occurrence giving the Employer a right to terminate the ‘Second Contract’ and/or Third Contract’, either in full or in part, and/or recover damages under those contract(s), shall give the Employer an absolute right to terminate this Contract, at ALSTOM risk, cost and responsibility, either in full or in part and/or recover

2087.Del.2022 UK Grid Solution Ltd, United Kingdom damages under this ‘First Contract’ as well. However, such default or breach or occurrence in the ‘Second Contract’ and/or ‘Third Contract’, shall not automatically relieve ALSTOM of any of its obligations under this ‘First Contract’. It is also expressly understood and agreed by ALSTOM that the Plant and Equipment including mandatory Spares supplied by ALSTOM under this ‘First Contract’ and by its associate, ALSTOM-I under the ‘Second Contract’, when erected and commissioned by its associate, ALSTOM-I under the ‘Third Contract’ shall give satisfactory performance in accordance with the provisions of the Contract”. 14.1 Further, from the notification of award of off-shore contract dated 21.06.2012 and the relevant minutes dated 28.10.2011, page 125-127 of PB, relevant clauses are reproduced as below :-

“1.3 Your First Stage Bid submitted for the subject package under Proposal reference no. T0193 dated 26.11.2011; which was opened on 28th November, 2011. In your bid, you have confirmed that M/s. ALSTON T&D India (ALSTOM INDIA) (earlier known as M/s. AREVA T&D India Limited) shall be your Associate for the purpose of executing the On-Shore Supply Contract and On-Shore Services Contract (refer para 2.2 below) and furnished ALSTOM INDIA’S written unequivocal consent vide their letter dated 26.11.2011. ….. 12.1 We confirm having accepted your Bid referred to at para 1.3, 1.7 & 1.8 above) read in conjunction with all the specifications, terms & conditions of the Bidding Documents (referred to at para 1.2, 1.2.1, 1.2.2, 1.2.3 & 1.6 above) and your confirmations as per the documents referred above, and award on you the ‘Off-Shore Contract’ (also referred to as the ‘First Contract’) covering inter-alia supply on CIF Indian Port of Entry of all equipment and materials, mandatory spares including Type Testing to be conducted outside India, Training to be imparted abroad for the complete execution of the ±800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under “National Grid Improvement Project”, as detailed in the Bidding Documents referred hereinabove. The scope of work inter-alia includes the following: Design, 17

2087.Del.2022 UK Grid Solution Ltd, United Kingdom engineering, manufacture, testing at manufacturer’s works and CIF supply of all off-shore equipment and materials from country(ies) outside India including Type Testing and training to be conducted outside India. The scope of work under this Notification of Award (NOA) shall also include all such items which are not specifically mentioned in the Bidding Documents and/or your bid but are necessary for the successful completion of your scope under the Contract for the construction of ±800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under “National Grid Improvement Project”, unless otherwise specifically excluded in the Bidding Documents or in this NOA. 2.2 As per the Record Notes of Clarification Meetings (referred to in para 1.5 above) and the acceptance of proposed Associate confirmed vide our communication dated 01.03.2012 (referred to in para 1.6 above), we have notified your Associate M/s. ALSTOM T&D India Limited vide our Notification of Award Ref. No. CC-CS/156- WR1/HVDC- 1489/7/G10/NOA-II/4336 dated 21.06.2012 for award of 'On- Shore Supply Contract’ (also referred to as the ‘Second Contract’) for the subject package which includes the Ex- works supply of all equipment/materials including Type Testing to be conducted within India, required, for the complete execution of ±800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under "National Grid Improvement Project”, 'as set forth in the Bidding Documents., viz. Design, engineering, manufacture,, testing at manufacturer’s works and Ex-works supply of all the equipment and materials including mandatory spares and Type Testing from within India. We have also notified your Associate M/s. ALSTOM T&D India Limited vide. our Notification of Award Ref. No. CC-CS/156-WR1/HVDC- 1489/7/G10/NOA-lIl/4337 dated 21.06.2012 for award of ‘On- Shore Services Contract’ (also referred to as the Third Contract’) for performance of all other activities, as set forth in the Bidding Documents, viz. port handling, port clearance, inland transportation, insurance, delivery at site, handling, storage, erection including associated civil works, testing and commissioning of all equipment and materials, including the 2087.Del.2022 UK Grid Solution Ltd, United Kingdom equipment supplied under the First Contract and the Second Contract, Training in India etc. required for the complete execution of +800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under “National Grid Improvement Project” Notwithstanding the award of work under three separate Contracts in the aforesaid manner, you shall be overall responsible to ensure the execution of all the three Contracts to achieve successful completion and taking over of the works under the package by the Employer as per the requirements stipulated in the Bidding Documents. It is expressly understood and agreed by you that any default or breach by your Associate , M/s. ALSTOM T&D India Limited under the ‘Second Contract’ and/or the Third Contract’ shall automatically be deemed as a default or breach of this ‘First Contract’ also and vice-versa, and any such default or breach or occurrence „ giving us a right to terminate the 'Second Contract’ and/or 'Third Contract’, either in full or in part, and/or recover damages under those contract(s), shall give us an absolute right to terminate this Contract, at your risk, cost and responsibility, either in full or in part and/or recover damages under this ‘First Contract’ as well. However, such default or breach or occurrence in the ‘Second Contract’ and/or Third Contract’, shall not automatically relieve you of any of your obligations under this 'First Contract. It is also expressly understood and agreed by you that the equipment/materials supplied by you under this 'First Contract’ and by your Associate M/s. ALSTOM T&D India Limited under the ‘Second Contract’, when erected, installed & commissioned by your Associate M/s, ALSTOM T&D India Limited under the Third Contract' shall give satisfactory performance in accordance with the provisions of the Contract.”

2087.Del.2022 UK Grid Solution Ltd, United Kingdom contracts were signed and executed. Only the ‘first contract’ was executed and signed between the assessee and PGCIL.

20.1 Further in para 5, the Ld. DRP has taken into account ‘Part D’ of a document relating to “commercial issues”, and mentioned that it provided that “if ALSTOM-I fails to enter into the second contract and the third contract, the said contracts shall be entered into between ALSTOM and Power Grid in lines with the provisions of the bid document”. Now as a matter of fact this clause is part of Appendices 10, to the off-shore agreement which contains ‘specific agreements’ made during meetings held from 03.07.2012 to 05.07.2012 between the PGCIL and M/s. ALSTOM, along with its associate ALSTOM-I. This agreement was on the part of ALSTOM to execute second and third contract, merely as an assurance that at advance stage after the bid is accepted and before the contract is actually executed the bid is not frustrated. In any case when the three contract stand executed on 17.08.2012, the issues discussed in the meeting between 03.07.2012 and 05.07.2012 became superfluous but Ld. DRP has unnecessarily stressed upon the same to draw a conclusion that primary commitment in all the three contracts was of the assessee.

20.2 Further in para 5.2, the Ld. DRP has reproduced para 3.2 of the notification of award dated 21.06.2012 without understanding the context in which the same was made. As for the convenience para 5.2 of the order of DRP is reproduced as below :-

“5.2 It has also been clarified at para 3.2 therein that- “3.2 Notwithstanding the break-up of the Contract Price, the Contract shall, at all times, be construed as a single source responsibility Contract and any breach in any part of the Contract shall be treated as a breach of the entire Contract.” As a matter of fact that this para 3.2 is part of clause 3.0 in notification of award, which makes reference to contract price and it will be beneficial to 22

2087.Del.2022 UK Grid Solution Ltd, United Kingdom reproduce the whole of it, from the notification of award dated 21.06.2012, available at page no. 127 of paper book as under :-

“3.0 Contract Price 3.1 The total Contract Price for the entire scope of work under this Contract shall be GBP 107,590,567 + EURO 68,835,118+USD 13,559,144 (Great Britain Pound One Hundred Seven Million Five Hundred Ninety Thousand Five Hundred Sixty Seven Plus Euro Sixty Eight Million Eight Hundred Thirty Five Thousand One Hundred Eighteen Plus USD Thirteen mijlion Five Hundred Fifty Nine Thousand One Hundred ' Forty Four Only) as per the following break-up : Sl. No. Price Component Amount 1. CIF Price Component GBP 107,590,567 EURO 68,835,118 USD 13,559,144 2. Type Test Charges Included 3. Training Charges Included Total for Off-Shore Contract GBP 107,590,567 EURO 68,835,118 USD 13,559,144 3.2 Notwithstanding the break-up of the Contract Price, the Contract shall, at all times, be construed as a single source responsibility Contract and any breach in any part of the Contract shall be treated as a breach of the entire Contract. 20.3 Ld. DRP has fallen in error in considering that the reference here to “single source of responsibility” is with regard to three contracts but the matter of fact is that it was only in context to the contract price for the off-shore contract. The off shore contract had three components; first being ‘CIF price component’ for which the contract price was disclosed and further the assessee was supposed to provide ‘type test’ and ‘training’but the charges for same were included in the contract price for ‘CIF price component’ and in reference to that it was agreed that any breach in any part of the contract shall be treated as a breach of the entire contract. Here the entire contract has reference to the off- shore contract and not all the three contracts.

2087.Del.2022 UK Grid Solution Ltd, United Kingdom 20.4 Further, Ld. DRP has fallen in error in considering the ‘scope of work’ mentioned in the bid to be the contract which has been awarded by PGCIL to assessee while as discussed above, the notification of award of the off-shore contract dated 21.06.2012 gave the limited scope of work in off-shore contract and there is a separate delineation of scope of the word for second and third contract awarded to ASTOM-I. Thus Ld. DRP has fallen in error to conclude there is no separate delineation of work.

21.1 In this context, reliance can be placed on the judgment of Hon’ble Delhi High Court in Linde AG, Linde Engineering Division (supra) wherein dealing with the reasons for having such clauses to make parties to a consortium being joint and safely liable under a contract, Hon’ble High Court observed in para 53 and 55 as follows :

“53. We are also unable to accept the contention that the fact that Samsung and Linde had agreed to be jointly and severally liable for performance of the contract, would be sufficient to hold

2087.Del.2022 UK Grid Solution Ltd, United Kingdom that they constituted an Association of Persons for the purposes of the Act. Linde and Samsung agreeing to be jointly and severally liable to OPAL for due performance of the Contract only indicates that Linde and Samsung had accepted a contractual obligation towards a third party, the same does not by itself lead to a conclusion that the said members had formed an Association of Persons. Any entity/individual may agree, for its own business purposes, to accept a liability for due performance of an obligation of another. This by itself would not lead to a conclusion that the said persons had formed a common enterprise or an association which was moved by joint action for a common purpose. As a matter of illustration, let us take a case where a director of a company provides a personal guarantee for a loan taken by the company. Having stood as a surety for the company, the director and the company would be jointly and severally liable to the lender. However, they continue to be independent of each other and the fact that are jointly and severally liable cannot possibly lead to the conclusion that the company and its director constitute an Association of Persons for the purposes of the Act. In order for independent entities/individuals to be considered as an Association of Persons, they must exhibit some trappings of a partnership in relation to their common enterprise.” “55. In every project which is executed by multiple independent agencies, a certain level of cooperation and coordination is required to ensure that the agency involved performs its work in a timely manner as per a predetermined schedule in order to enable the other agency to commence and complete its portion of work. The level of cooperation as agreed between Linde and Samsung was also akin to the level of cooperation as expected from independent agencies executing a project. This can be understood by taking an illustration of a simple project for construction of a building. It is only after an Architect or a Designer provides the detailed drawings that a civil contractor can commence construction. Similarly, it is only after the civil construction is commenced and progressed to a certain level that space for electrical contractors is available for them to perform their work. The work of Interior finishing can take place only after the civil works are complete. The fact that each of the aforesaid agencies, namely, the architect, the civil and electrical contractors are required to complete their work in a pre- determined sequence and are required to cooperate with each

2087.Del.2022 UK Grid Solution Ltd, United Kingdom other in providing the necessary information and adhering to a specified schedule would not necessarily imply that the architect, civil contractors and electrical contractors had formed an Association of Persons. In this illustration each one of the participants works towards a common project with a certain level of cooperation. However, since the said participants do not act as a single cohesive entity, but perform their independent allocated works, they cannot be considered as an Association of Persons. In order to consider independent agencies as an Association of Persons, it is necessary that they form a joint enterprise with a greater level of common management. An element of mutual agency and joint action for mutual purpose is also necessary. Mere obligation to exchange information, between independent agencies, for co-ordinating their independent tasks would not result in an inference that the agencies had constituted an Association of Persons.”

2087.Del.2022 UK Grid Solution Ltd, United Kingdom applicant Hyosung in line with the proposal in the bidding document, observed in para 7.4 that;

By incorporating various safeguards in the contract, Power Grid took the necessary precautions to see that notwithstanding the split up of contract into three, the applicant and L&T would act in harmony and maintain requisite coordination for the timely and successful completion of project. Such a role assigned to the applicant by Power Grid was in the overall interest of the project. It is an arrangement conceived of and agreed to by the parties keeping in view the overall objective of successful commissioning of the project.

2087.Del.2022 UK Grid Solution Ltd, United Kingdom 25.1 There is no question of any agent and principle relationship between the assessee and the Indian associate for a very substantial reason that PGCIL has treated in its contract documents, ALSTOM-I to be its ‘Independent Contractor’. There is substance in the argument of Ld. Sr. Counsel on the basis of judgment of Hon’ble Supreme Court in CIT vs. E-funds IT solutions (supra) that the onus was on the department to prove the existence of PE. The Bench is of considered opinion that such an onus can be considered discharged by specific reference to the evidence. No evidence is brought on record to show that the Indian Associate was employed by any ‘act’ of the assessee to represent the assessee independently while dealing with PGCIL. On the contrary what is established is that it was the assessee at whose proposal, ALSTOM-I was accepted to be an Associate of the assessee and the employer PGCIL treated ALSTOM-I as its ‘independent contractor’ on the terms and conditions, as laid down in the bidding document. If there was any involvement of the employees of Indian Associate, at any stage in the meetings between assessee and the PGCIL that was bound to be there and outcome of the fact that assessee and its Indian associate were required to work in tandem and that does not give rise to existence of a dependent agent P E of the assessee.

2087.Del.2022 UK Grid Solution Ltd, United Kingdom the ‘First contract’ was merely under obligation to make off shore supplies and wherein property in the goods transferred outside Indian, therefore as Section 44BBB does not speak of engagement of a foreign company for ‘supply’ in connection with the turnkey Power Project, the provisions of Section 44BBB are not applicable. Thus Ld. DRP has fallen in error in sustaining application of Section 44BBB of the Act, on premises that the assessee is involved in the end to end execution of the project in India. The revenue derived by the assessee were on the basis of offshore supplies and not out of any construction, erection, testing or commissioning activities of a turnkey power project in India. Thus, the application of section 44BBB to such revenue, which is not per se taxable India, is not sustainable.

“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. (3) The principle of apportionment, wherein the territorial jurisdiction of a particular state determines its capacity to tax an event, has to be followed.” 29

2087.Del.2022 UK Grid Solution Ltd, United Kingdom

“20. In view of the directions of the Hon’ble DRP the receipts from GE T& D India Ltd. and SFO Technologies have been reexamined and it is held that Since the company constituted a dependent agent PE in India (GET&D) as far as the assessee’s entire operations in India were concerned and the same has been upheld by the Ld. DRP. It is pertinent to mention here that once PE has been established for a transaction, it needs not to be established for each and every transaction. Moreover, the supplies are of very high technical specifications, customised machinery and given that the assessee company is a leader in its field, these supplies were to be assembled and made operational/commissioning in India only by itself or its associated enterprises (which is GE T&D in this case), thus such receipts are taxable as discussed in preceding paras. Without prejudice to the above, the assessee company has not furnished copy of agreement of offshore supply with GE T&D and SFO Technologies. It has only furnished sample invoices in case of Offshore supply made to GE T&D. In absence of any underlying agreement, assessee’s claim that offshore supply made to GE T&D and SFO technologies is not related to PGIL contract can not be ascertained.In view of the above, the offshore supplies made to GE T&D and SFO Technologies are taxable as per DTAA and Income Tax Act. Further, the DRP has also upheld the taxability ofGlobal operation fee amounting to Rs. 15.27,62,000 as Fee for Technical services as per DTAA and Income Tax Act.

2087.Del.2022 UK Grid Solution Ltd, United Kingdom that the invoices as made available in the paper book from 281 to 371, have terms and conditions described on the purchase order. Thus, on the basis of general terms and conditions, purchase orders were raised and on the basis of which the offshore supplies were made to these two Indian companies. Ld. AO was under obligation to give effect to the orders of DRP in a substantive manner but without there being anything on record to show on the part of the Ld. AO that the supplies were in regard to PGCIL contract with the assessee, the addition was made by ignoring invoices. Thus, these grounds are sustained and decided in favour of the assessee.

Ground no. 12; In regard to this ground it can be appreciated that Ld.

“6.3 On perusal of the relevant Global Operation Fees Agreements for the years 2017 and 2018 entered into between GE T&D India Ltd and the assessee, which are available in the paper book filed in DRP proceedings, the following services, inter alia, are seen to be provided therein under the respective Heads- a) Technical support for manufacturing process. b) Test system- which includes Test System design, Test Software development and provision for upgrades and new products, design and provision of test jigs and fixtures, providing of technical support in respect of system failure, process performance, spares and maintenance and Training of local support engineers on system. c) Project managed introduction of new products

2087.Del.2022 UK Grid Solution Ltd, United Kingdom into manufacturing units d) Coordinate and manage introduction of design changes- Technical support and liaison between units and teams, E.g. R & D. e) Master Data- Creation of product configurators on Global IT system, creation of products and materials on global system for use within local unit, training for local units in adaptation of Bom’s, routings and configuration in line with global rules, providing of technical assistance and support and product structure realted issues and Training of local team in configurator development. f) Indirect support- Technical support to suppliers on process support, test system design and support, text fixture design and support, technical/quality issue resolution. g) Component approval – Provide technical data and specifications and Training of local support engineers on system use. h) Localisation- Provision of technical details, technical support for supplier development, facilitation of qualifications to global standard and facilitation of product approval for manufacture. i) Creation of technical documentation for products.

2087.Del.2022 UK Grid Solution Ltd, United Kingdom available’ and as to how the phrase ‘ Make available’ is interpreted under law, the Ld. Sr. Counsel relied CIT vs De Beers India Minerals (P) Ltd: 346 ITR 467 (Kar), DIT vs Guy Carpenter & Co Ltd: 346 ITR 504 (Del), Autoliv ASP Incvs DCIT (International Taxation): [2022] 194 ITD 253 (Del Trib.), Anand NVH Products Incvs ACIT: (Del Trib.), NTT Asia Pacific Holdings Pte Ltd vs. ACIT: 196 ITD 591 (Mum Trib.), Raymond Ltd vs DCIT: 86 ITD 791 (Mum Trib.), GE Energy Management Services Incvs ADIT: 193 ITD 485 (Del Trib.), Bombardier Transportation Sweden AB vs DCIT: 90 ITR(T) 405 (Del Trib.), Bio Rad Laboratories Incvs ACIT: ITA No.994 & 996/Del/2022 dated 30.12.2022 (Del Trib)Ld.

34.1 Supporting his contention that Managerial services are not FTS in absence of ‘managerial’ word in India-UK DTAA the ld. Sr. Counsel relied Steria (India) Ltd vs CIT: 386 ITR 390 (Del) and Everest Global Incvs DDIT: 194 ITD 729 (Del Trib.). Ld. DR however, defended the findings.

2087.Del.2022 UK Grid Solution Ltd, United Kingdom can deploy similar technology or technique in the future without dependent upon the provider. However, in the case in hand for the services rendered, there is renewal of contract on annual basis and the nature of services are all prima facie managerial in nature. They have also passed the arm’s length tests. Thus Ld. Tax authority below have fallen in error in taxing global operation fee of Rs.8,12,37,030 received from GETDIL as Fees from Technical Services (“FTS”) under the provisions of the Act and the India-UK DTAA, without appreciating that provision of said services by the Appellant did not satisfy the ‘make available’ clause contained in Article 13(4)(c) of the India-UK DTAA. Ground is adjudicated in favor of assessee.