ITAT directs tax at 10% for BBMB Project receipts, remits royalty issue for computation under DTAA. Interest under section 234-B deleted.

Hitachi Ltd. Versus ADIT Circle – 1 (2), International Taxation, New Delhi

Hitachi Ltd. Versus ADIT Circle – 1 (2), International Taxation, New Delhi - TMI Issues Involved:
1. Validity of the assessment order.
2. Assessment of income at a higher amount than returned.
3. Following previous year’s order without considering current facts.
4. Non-compliance with ITAT Delhi 'D' Bench decisions.
5. Taxation of fees received as "fee for technical services."
6. Alleged internal arrangement and adjustment of profits.
7. Non-allowance of expenditure from business income.
8. Application of presumptive taxation under section 44-BB.
9. Taxation of income received from specific companies at a higher rate.
10. Charging of interest under section 234-B.
11. Initiation of penalty proceedings under Sections 271(1)(c) and 271(1)(b).

Detailed Analysis:

1. Validity of the Assessment Order:
The assessee contended that the assessment order was bad in law and on facts. However, this ground was dismissed as it was general in nature and required no adjudication.

2. Assessment of Income at a Higher Amount:
The assessee argued that the ADIT erred in assessing the income at Rs. 97,884,110/- against the returned income of Rs. 16,151,304/-. This ground was dismissed as it was not pressed by the assessee.

3. Following Previous Year’s Order:
The assessee claimed that the ADIT erred in following the previous year's order without considering the provisions of law and facts of the case. This ground was dismissed as it was not pressed by the assessee.

4. Non-compliance with ITAT Delhi 'D' Bench Decisions:
The assessee contended that the ADIT did not follow the ITAT Delhi 'D' Bench decisions for AY 1980-81 to 1985-86. This ground was dismissed as it was not pressed by the assessee.

5. Taxation of Fees Received as "Fee for Technical Services":
The assessee argued that the ADIT erred in holding fees received from Sumitomo Corporation for providing installation supervisory engineers as taxable "fee for technical services" at 20%. This ground was dismissed as it was not pressed by the assessee.

6. Alleged Internal Arrangement and Adjustment of Profits:
The AO noted that the assessee received fees from BBMB for onshore services and suspected an internal arrangement to adjust profits. The AO taxed the entire receipts as business income at 40% plus surcharge and education cess. The DRP upheld the AO’s order. The ITAT found that in similar circumstances for AY 2006-07, the CIT(A) had estimated the profit at 10% of the gross receipts, and this order was accepted by the Revenue. The ITAT directed that the receipts from BBMB Project be taxed at 10% to maintain consistency.

7. Non-allowance of Expenditure from Business Income:
The assessee argued that the ADIT did not allow any expenditure from business income earned from the BBMB project. The ITAT directed that the receipts from BBMB Project be taxed at 10% of the total receipts, considering the consistent treatment in previous and subsequent years.

8. Application of Presumptive Taxation under Section 44-BB:
The assessee contended that the ADIT erred in not applying the provisions of section 44-BB for contracts with Sumitomo Corporation and BBMB. The ITAT directed that the receipts from BBMB Project be taxed at 10% of the total receipts under the provisions of section 44BBB.

9. Taxation of Income Received from Specific Companies at a Higher Rate:
The AO taxed royalty and fees for technical services received from Brakes India, Tata Motors Ltd., and Sumitomo Corporation at 20% instead of 10%. The ITAT restored the issue to the AO to compute the taxes as per the applicable DTAA between India and Japan, which prescribes a tax rate of 10% for such income.

10. Charging of Interest under Section 234-B:
The assessee argued that being a non-resident company, it was not liable for interest under section 234-B as the entire tax was to be deducted at source by the payers. The ITAT, relying on the Delhi High Court decision in GE Packaged Power Inc., directed the deletion of interest charged under section 234-B.

11. Initiation of Penalty Proceedings under Sections 271(1)(c) and 271(1)(b):
The assessee contended that the penalty proceedings under sections 271(1)(c) and 271(1)(b) were not attracted. These grounds were dismissed as they were general in nature and required no adjudication.

Conclusion:
The ITAT partly allowed the appeal, directing that the receipts from BBMB Project be taxed at 10% of the total receipts and remitting the issue of taxability of royalty and fees for technical services to the AO for computation as per the applicable DTAA. The interest charged under section 234-B was directed to be deleted.