2015 (1) TMI 353 - AT - Income Tax

Tribunal overturns tax decision on BTG equipment income, stresses detailed review.

M/s Shanghai Electric Group Co. Ltd. C/o M/s SRBC & Associates LLP Versus Deputy Director of Income Tax

The Tribunal set aside the Dispute Resolution Panel's decision regarding the taxability of income from the supply of BTG equipment and supervisory ... Non-speaking order by DRP - Determination of income u/s 44BB - Income from supervisory services - AO was of the view that the supply of the BTG equipment and supervisory services in respect of erection and commissioning of such equipment was a composite work contract and it cannot be divided and held one as contract for sale of equipment and another as contract for rendering of supervisory services - Held that:- The order of the DRP is cryptic and non-speaking without considering any submissions and arguments of the assessee - assessee's objection to the DRP is of more than 60 pages in which the assessee has not only dealt with the factual aspect but has also referred to the various decisions of the ITAT – DRP simply sustained the addition holding that the AO has taken the stand after detailed analysis of terms and contract entered into by the assessee - the order of the DRP needs to be set aside being cryptic and non-speaking – thus, the matter is to be remitted back to the AO – Decided in favour of assessee. Issues:1. Taxability of income from supply of BTG equipment and supervisory services under Section 44BBB.2. Determination of profit attributable to Permanent Establishment (PE) in India.3. Consideration of arguments and submissions by the Dispute Resolution Panel (DRP).4. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and China.5. Contradictory stand taken by the assessee before the Assessing Officer.6. Request for setting aside the matter to the file of the Assessing Officer or the DRP.Analysis:1. The appeal addressed the taxability of income from the supply of Boiler, Turbine & Generator (BTG) equipment and supervisory services under Section 44BBB of the Income-tax Act, 1961. The Assessing Officer concluded that the BTG equipment supply and supervisory services constituted a composite work contract, attributing 25% of the profit to a Permanent Establishment (PE) in India. The Dispute Resolution Panel (DRP) upheld the AO's decision, considering the global profit ratio and functions performed by the PE. However, the Tribunal found the DRP's order non-speaking and lacking consideration of the assessee's submissions and legal references.2. The Tribunal noted the DRP's failure to address the assessee's contentions, legal precedents, and the provisions of the DTAA between India and China. Emphasizing the purpose of the DRP, the Tribunal set aside the DRP's order as cryptic and non-speaking, advocating for a more detailed examination of the case.3. The contradictory stand taken by the assessee before the Assessing Officer regarding separate contracts for equipment supply and supervisory services raised concerns. The absence of agreements with all parties involved in equipment supply complicated the determination of the nature of contracts. The Tribunal agreed to set aside the matter and restore it to the Assessing Officer for a comprehensive review, emphasizing the need for all relevant agreements to be produced and examined.4. The Tribunal acknowledged the contradictory stance of the assessee in offering income under Section 44BBB for supervisory services while claiming separate contracts for equipment supply. It directed the Assessing Officer to reevaluate the case after examining all agreements related to equipment supply and supervision. The Tribunal stressed the importance of following due process and allowing the assessee to present all relevant documents for a fair assessment.5. The Tribunal concluded by allowing the appeal for statistical purposes, setting the stage for a thorough reassessment by the Assessing Officer with the opportunity for the assessee to present all necessary agreements and evidence. The decision aimed to ensure a comprehensive review of the case in accordance with the law and proper consideration of all relevant factors.