TaxTMI 
TaxTMI 
2006 (3) TMI 236
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....einafter referred to as APSEB). Japan Bank for International Co-operation (hereinafter referred to as JBIC) which was formerly known as 'Overseas Economic Cooperation Fund' had signed a loan agreement with President of India on 10th February, 1988. JBIC had agreed to lend the President of India 26101 Million Yen under the loan agreement for the purpose of implementing Srisailam Left Bank Project Power Station. The loan carried a simple interest @ 2.75 per annum. The loan amount was to be utilized for the purposes of procuring goods and services specified in the loan agreement. The loanee was to authorize the then A.P. State Electricity Board to implement the project through the Government of A.P. The project as defined in the loan agreement was Srisailam Left Bank Power Station Project. Under clause 4 of the loan agreement the borrower was to authorize APSEB to implement the project. The borrower was to furnish JBIC with the progress reports for the project on a quarterly basis until the project is completed. Two further agreements were entered into by and between JBIC and the President of India on 28th February, 1995 and 12th December, 1997. Under the second loan agreement....
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.... for the purposes of erecting and commissioning the generators, turbines and the other equipment. 3.2 The second agreement dated 7th September, 1994 was entered into between APSEB and Sumitomo Corporation with respect to Gas Insulated Switchgear. This agreement provided for contract price of Japanese Yen 4126.30 Million. The obligations of Sumitomo Corporation are specified in the said Agreement. In accordance with this agreement the contract price is for the purposes of supply of 400 KV Gas Insulated Switchgears complete with SF6 Gas Metal annexed double gas bars and the various other items set out in the Agreement. The Agreement also envisaged a payment of 122 Million Yen only for the purposes of supervising the erection. APSEB did not get the Gas Insulated Switchgear installed by Sumitomo Corporation. A separate contract for installation of Gas Insulated Switchgear was given to Larsen and Toubro Limited. The consideration paid for such installation was in the sum of Rs. 27 lakhs. The assessee claimed that it was not a turnkey contract whereby the procurement and installation were both the obligation of Sumitomo Corporation; it was a pure and simple case of supply of equipment....
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....art of taxable income under the purview of the Income-tax Act. Further paragraph 1 of Article 7 of the DTAA between India and Japan clearly lays down that profits of Japanese enterprise can be taxed in India only if it carries on business in India through a Permanent Establishment. It lays down further that even if a Permanent Establishment is present, only so much of the profit as is directly or indirectly attributable to that Permanent Establishment can be taxable. In the present case, no part of the income of Sumitomo Corporation in regard to sale of equipment under the three contracts was attributable directly or indirectly to the Permanent Establishment in India. The services were rendered by Sumitomo Corporation for which a consideration is mentioned as a part and parcel of the supply contract between Sumitomo Corporation and APGENCO. There was no supervising and erection service at project site, which was independent of supply contract. There were innumerable parts, which were shipped by Sumitomo Corporation all of which had to be assembled at site. This assembly requires the persons with technical expertise. The services being totally incidental to the supply of the machine....
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....ot made any payments to Sumitomo Corporation and as a matter of fact, Sumitomo Corporation had not been given any credit in the books of account maintained by the appellant. Consequently, there was neither a payment by the appellant nor a credit to Sumitomo Corporation in the books of account of the appellant as would attract the provisions of section 195 of the Act. (v) The ACIT ought to have appreciated that in substance, the payment made by the Sumitomo Corporation was as per the instructions of Government of AP/Government of India and that the Government of India treating it as a loan in favour of Government of AP and Government of AP in its turn treated it as a loan to the appellant APGENCO. (vi) The ACIT ought to have appreciated that the supply of equipment by Sumitomo Corporation did not result in any income chargeable under the provisions of the Income-tax Act and hence the basic condition of the provision as contained in sub-section (1) of section 195 of the Income-tax Act was not satisfied. The title to the equipment was transferred by Sumitomo Corporation to the appellant at the time such equipment was imported into India by the appellant and necessary....
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....her erred in grossing up the entire revenues as per the provisions of section 195A of the Income-tax Act, 1961. 3.9 The Commissioner (Appeals), on a consideration of facts of the case held at para 12.6 of his order that the contracts in question were not contracts of works or turnkey but one of sale. He held that the goods were not in deliverable state and hence the goods were sold in India. He applied the judgment of the Hon'ble Supreme Court in Transmission Corporation of A.P. Ltd. v. CIT [1999] 239 ITR 587 and held that assessee was liable to deduct tax as it had not approached the Assessing Officer. The Commissioner (Appeals) rejected the contention of the assessee that provisions of section 195 of the Act did not apply on the ground that there was constructive payment in favour of Sumitomo Corporation. He then considered the provisions of Double Taxation Avoidance Agreement (hereinafter referred to as DTAA) between India and Japan in para 16 of his order. He held that as per Article 7 of DTAA, the income was taxable in India and that provisions of section 195(1) were attracted. The Commissioner (Appeals) further held that in accordance with judgment of jurisdictional Hi....
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....ith the grounds of appeal of the assessee. The first issue is whether section 195 is applicable to the facts of the case in view of the complexity and multiplicity of agreements between various parties on terms of payment. Grounds 2, 3, 4 and 5 of the assessee's appeals dealing with the same read as follows: "(2) The learned Commissioner of Income-tax (Appeals)-V, erred in finding that there was an obligation on the part of the appellant to deduct taxes under the provisions of section 195 of the Act. In this behalf the Commissioner of Income-tax (Appeals) did not appreciate in proper perspective the submission of the appellant, that the appellant was not the payer of the amounts to non-residents and consequently there was no liability on the part of the appellant to deduct taxes. (3) The learned Commissioner of Income-tax (Appeals)-V ought to have appreciated that Japan Bank for International Corporation had given a loan to Government of India and that the Government of India in turn had given loan through Government of Andhra Pradesh to APSEB (predecessor of the appellant herein) and that the loan amount was for the purposes of implementation of Srisailam Lef....
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....agency to implement Srisailam Left Bank Power Station Project and directed the amount to be treated as loan owed by APSEB to the Government of Andhra Pradesh. He further submitted that the Government of A.P. after a lapse of several months used to issue Government orders giving clear instructions to the assessee as to the accounting treatment that was to be given in respect of the payments obtained by Sumitomo Corporation from Bank of India. The series of Government orders have been placed in the assessee's paper book from page 172 onwards. The learned counsel for the assessee submitted that the assessee had no control over the time of payment, actual payment, the quantum of payment and other particulars and it was only after long lapse of time that the payments obtained from Bank of India, Tokyo were communicated to the assessee for the purpose of accounting. He submitted that the accounting entries which have been passed in the books of account are by way of journal entries which were passed pursuant to the orders of Government of A.P. He submitted that the entries would show that the amount was paid by Government of India to Sumitomo Corporation though the assessee had credi....
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....ids of Sumitomo Corporation for the various contracts were accepted by the assessee and that Sumitomo Corporation was the contractor and the assessee the buyer and further that the assessee was solely responsible for payment to the non-resident and that such payment was to be made as mutually agreed to between the parties. The contract was only arranged in terms of the loan agreement dated 10-2-1988 and the manner of payment to be made in terms of loan agreement was mutually agreed. Thus he submitted that section 195 is clearly applicable to the facts of the case. As per the contracts between the parties, the mode or manner of payment by assessee to Sumitomo Corporation was mutually agreed to be made as prescribed in loan agreement dated 10-2-1988 entered into between the Government and OECF of Japan (now JBC). The assessee alone issued global tenders for execution of the projects and had the sole authority to negotiate and accept the bids of various tenderers and to specify its requirements. Neither the Government of India nor the Government of A.P. was party to any of the contracts between the assessee and M/s. Sumitomo Corporation. Thus he submitted that as far as the assessee a....
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....f the mode of payment, the fact remained that payment was made for and on behalf of the appellant only and it was the responsibility of the appellant to ensure that in case of such payment, adequate provision is made for ensuring that the TDS as per law in force is effected before releasing such payment. If considered necessary, the appellant could have communicated with the agency of the Government of India i.e., Department of Economic Affairs, prior to the release of payment. It must be mentioned in this connection that the appellant had earlier experienced difficulties in interpreting the provisions of TDS in respect of payment to overseas parties and the Hon'ble jurisdictional High Court had already interpreted such provision in its own case as far back as in 1984 as has been reported in 152 ITR 753. Further, the decision of the Hon'ble Apex Court in the case of Transmission Corporation of A.P. Limited, a sister undertaking, has made it absolutely clear that even in case of a trading receipt in the hands of non-resident which mayor may not include pure income attracts deduction of tax at source under section 195(1) of the Act. This is because, the language of section 19....
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....e alternative procedure of payment rather than payment in kind. This is because, payment in cash or cheque or draft are nothing but different procedures for making the money pass from the payer to the payee. In case of cheques and drafts, the bank acts as the medium of transfer of money. In the present case, the special procedure for payment adopted is slightly different from the conventional procedure. But, it is undoubtedly a case of constructive payment covered within the expression "any other mode" contained in the provisions of section 195(1). Therefore, the provisions of section 195(1) of the Act are squarely attracted." 9. The agreement in question was between the assessee and Sumitomo Corporation. The duties and liabilities between the parties were governed by these agreements. The assessee is the executing agency, which ultimately decides whether the contracting agency has complied with the terms of the agreement. The mode in which the finance has been found does not detract from the terms of the agreement. Coming to the reliance placed by the learned counsel for the assessee on the decision of the, Jodhpur Bench of the ITAT in the case of Hindustan Zinc Ltd. v. Dy. CIT....
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.... goods and services lie with the assessee-company and it is the assessee-company who has to process the claims and initiate the payment process in terms of the various agreements. The fact also remains that the payments have been made in this case for and on behalf of the assessee. It is the executing agency which triggers the payment and while passing a bill direction for deduction of tax as per section 195 while making a payment could be made by the assessee. No payment could have been released without the officers of the assessee-company passing the bills consequent to claim made by the contractor. Delay in passing of the entries in the books of account for whatever reason does not erase the fact that the payments have been made in the impugned assessment years. Once the payment is made section 195 of the Act is attracted. Thus we uphold the finding of the first appellate authority and dismiss this ground of the assessee. 10. The second issue is whether the equipment sold is to be considered as capital equipment and the sale having taken place outside India, for the purpose of ascertaining whether there is any liability on the assessee to deduct tax. Ground No. 6 of the asses....
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....91 per cent. Thus he contended that the quantum of payment made by way of supervisory charges is insignificant compared to the very value of the equipment. He relied on the jurisdictional High Court's decision in the case of CIT v. Sundwiger EMFG & Co. [2003] 262 ITR 110 (AP) and submitted that supervision was incidental to the sale of plant and machinery and, therefore, it must be treated as part of the sale price. Reliance was also placed on the decision of the Kolkata Bench of the Tribunal in the case of Dy. CIT v. ITC Ltd. [2002] 82 ITD 239. The proposition is that ancillary and subsidiary services linked to sale also partakes the character of sale and no part of income is taxable in India. He contended that sale has taken place outside India inasmuch as the contract for sale of Turbines and Generators as well as Switchgear clearly envisage that the title to the goods has passed outside India. His contention is that the contracts are FOB and freights were paid outside India. 12. The learned Standing Counsel for the Revenue, on the other hand controverts this argument and submits that contracts were turnkey contracts and not one of mere sale of equipment. At this juncture....
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....ing judgments: (1) Narsee Nagsee & Co. v. CIT [1959] 35 ITR 134 (Bom.) (2) Chhaganlal Savchand v. CIT [1966] 62 ITR 133 (Bom.) (3) ILR 1954 Rajasthan 778 at 794 (DB) (4) Padamsi v. Shankar AIR 1926 Nagpur 410 (5) Daulatram Rameshwarlal v. B.K. Wadeyar AIR 1958 Bom. 120 (DB) (6) Vasantha Viswanathan v. V.K. Elayawar [2001] 8 SCC 133. (7) C.G. Krishnaswami Naidu v. CIT [1966] 62 ITR 686 (Mad.) (8) CIT v. Standard Triumph Motor Co. Ltd. [1979] 119 ITR 573 (Mad.) (9) Standard Triumph Motor Co. Ltd. v. CIT [1993] 201 ITR 391 (SC) He submitted that the following points emerge from a reading of the above decisions: (i) Time of transfer of property in goods depends upon the intention of the parties. (ii) Intention of the parties to be gathered from the terms of the contract. (iii) Bill of lading operates as transfer of goods and in FOB contracts, it passes to seller when goods are put on board unless intended otherwise by the parties or is subject to special agreement. (iv) In the case of ascertained goods in an undeliverable state, property passes only when they are put ....
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....ision and commissioning and thus they were in deliverable state when they have been put on ship and nothing was required to be done. (iii) He once again referred to the decision of the Hon'ble Supreme Court in the case of Mahabir Commercial Co. Ltd. and submitted that therein it was held that in the case of contract for sale, the mere fact that the seller does certain acts even after the sale or retains certain amount of control over the assets sold even after the sale, it does not mean that the sale has not taken place earlier. He specifically referred to page 423 of the judgment which reads as follows: "But, where however, the seller exercises a right of disposal or where he agrees to deliver the goods at their destination, the carrier is the seller's agent and the delivery is not a final appropriation. The intention of the parties is, therefore, one of the important elements in determining the situs where the property passes to the buyer in pursuance of the contract." He distinguished the case law relied on by the learned Standing Counsel and submitted that these are contracts of sale pure and simple and the same had taken place outside India. 13.....
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....t it is a case of simple sale contract. 14. We have carefully considered the rival submissions. The principles that emerge from the various case laws relied upon by both the parties can be summarized as follows: (1) In the case of FOB contracts, the property in the goods passes on to the seller when the goods are put on board unless it is intended otherwise by the parties: (2) Intention of the parties has to be gathered from the terms of the contract. In this case there are three contracts. The first relates to pump-turbines, inlet valves, motor generator sets, associated auxiliary control and ancillary equipments. The second contract relates to 400 KV Gas Insulated Switchgear. The last contract relates to 400 KV XLPE Insulated Power Cables. 15. As far as 400 KV XLPE Power Cables are concerned, the question of they being brought to India in knocked down condition does not arise. The question of assembling or erection also does not arise. Section 44BBB of the Act applies only insofar as local service contract for installation of these cables is concerned. M/s. Sumitomo Corporation estimated the income from such activity and has already paid taxes thereof. ....
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....lving a complete product or service ready for immediate use." Going by the literal meaning, it appears that purchase of any machinery or even a small item like ceiling fan would tantamount to turnkey contract for it is to be a complete product which is ready for immediate use. Taking the example of a ceiling fan, once the ceiling fan is purchased it is at a place where the buyer requires the same to be installed and after fixing the blades to the motor and the pipe on which the motor is hung the product becomes completely operational on operating the switch. Thus purchasing a plant and machinery in this sense of the term can be called a turnkey job. Definitely it is distinct from the term works contract. The issue of consideration should be whether it is a "contract of work" or a "contract of sale". We do not see any merit in the argument of the learned Standing Counsel on this issue as it is the assessee-company, which has put up the power plant and only certain plant and machinery, were being purchased. Such purchase of plant and machinery just because they have to be handed over in a ready to function manner, does not make a supply contract into a turnkey contract in the sense t....
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..../warehouse, storage and supervision at site laying, termination, testing and commissioning of 5 circuits of 400 KV 1,000 sq. mm. XLPE cables (3 cables per circuit with the connected accessories) as set out in detail in these contract documents." In the agreement No. 1/88-89 between APSEB and EPDC International Ltd. executed on 10-2-1988, reference to the scope of services under Article 3 which is as follows: "3.1 Scope of services of retainer consultant for transfer of technology and know-how for engineering and project implementation of 990 MW, Srisailam Left Bank Power Station Project. The Retainer Consultant shall perform the services under this contract in accordance with the technical bid and terms of reference set forth as follows: 3.2 Scope of services by the retainer consultant. 3.2.1 The Retainer Consultant shall review the Project Report prepared by APSEB/CEA/CWC and advise the APSEB/CEA/CWC on the layout of water conducting system and underground caverns as well as that of equipments covering pump turbines, motor generators, transformers, processor based control and relaying equipment, EHV cable system. Bus ducts, Gas insulated/AIR ....
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....s prepared by APSEB covering various areas of work with reference to scheduled programmes pinpoint slippages and suggest corrective action required for restoring the schedule. 3.2.15 The Retainer Consultant shall also supply typical design memoranda relating to similar type of pumped storage Hydroelectric Schemes of comparable size for reference in APSEB/CEA/CWC as supplemental consultancy service subject to mutual consent. 3.2.16 The Retainer Consultant shall undertake other design and engineering works which may be entrusted to him by APSEB/CEA/CWC as supplemental consultancy services, subject to mutual consent. 3.2.17 The Retainer Consultant shall provide the latest technical know-how to CEA/CWC in design and engineering of pumped storage projects in addition to Srisailam Left Bank Power Station, if so desired by these organizations, as supplemental Consultancy Service subject to mutual consent. 3.2.18 The Retainer Consultant shall assist APSEB/CEA/CWC in submitting and reporting various kinds of documents to OECF and in applying for their approval. 3.2.19 To attend the co-ordination meetings and any other meetings at site of work and....
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...." The Hon'ble jurisdictional High Court in the case of CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146 (AP) considered the following points: "The assessee, the Visakhapatnam Port Trust, exported a large amount of iron ore. In order to speed up export operations it decided to install a plant known as "bucket wheel reclaimer." A German company tendered the contract for the supply of the equipment. An agreement was entered into between the German company and the Port Trust whereby the German company understood to supply the equipment and to delegate an engineer to supervise its installation. A company in Poona was employed to fabricate a steel plate (boom). The equipment supplied by the German company was to be embedded on the steel plate and delivered at Visakhapatnam. The assembling at the Visakhapatnam Port was to be done at the expense of the Port Trust. The term "erection" used in the contract meant payment of wages to the German supervising engineer and his travel expenses. Under clause 12(a) of the contract, the purchase price for the equipment was payable in German currency in Germany. Part of it was payable on conclusion of the contract and the balance was ....
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....f 400 KV Gas Insulated Switchgear. As the jurisdictional High Court has considered a number of judgments and had come to a conclusion and as we are applying the ratio of that judgment to the facts of this case, we do not wish to go into the various other judgments quoted by both the parties in this regard. 16.3 As regards the test of be applied for ascertaining the situs, the Hon'ble Gujarat High Court in the case of C.I.T. v. Saurashtra Cement& Chemical Industries Ltd. [1975] 101 ITR 502 has relied on the judgment of the Hon'ble Supreme Court in the case of Delhi Cloth & General Mills Co. Ltd. v. Harnam Singh AIR 1955 SC 590. At page 511 the Court observed thus: "In view of this clear-cut pronouncement of the Supreme Court, it is obvious that the amount of the unpaid price cannot be said to be a loan advanced by the non-resident company to the assessee-company nor can the non-resident company be said to be a lender to the assessee-company so far as that amount was concerned. Since the non-resident company cannot be said to have lent the amount of unpaid purchase price to the assessee-company either in cash or in kind, there is no question of interest payable by....
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....he company did was to send a representative when the contract was signed in India. Barring that action so far as the performance of the contract was concerned, the non-resident company nowhere came near the shores of India or territories of India. It puts the goods on board the ship concerned at a port in Europe. It received all the price in Europe and that too in terms of foreign currency. The plant was not to be erected or put up by the non-resident company but the assessee-company was to set up the plant in India. Even the instalments were to be paid in foreign currency. So far as the unpaid price was concerned, the amount was to be paid by bills of exchange drawn in a foreign country and accepted by the assessee-company in India. Thus, most of the elements of this contract are found to be most densely grouped with the country, namely, Italy, where the non-resident company, Messrs Ansaldo is carrying on its business of supplying plant and machinery and hence the debt which the assessee-company owed to the non-resident company was not an asset held by the non-resident company in India. Therefore, the interest which was payable in respect of this debt was not income arising from o....
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....estimated the income from such activity, paid taxes thereof and that there was no liability on the Appellant. The case of the assessee is that Sumitomo Corporation has recognized that it is liable to tax in respect of the installation work undertaken and has estimated its income under section 44BBB of the Act and filed is returns. It is, therefore, the case of the assessee that if the quantum was wrongly assessed then it is a matter for the Assessing Officer of Sumitomo Corporation to deal with the same and reliance is placed on the judgment the Gujarat High Court in the case of CIT v. Rishikesh Apartments Co-operative Housing Society Ltd. [2002] 253 ITR 310. His submission is that as the assessee has already paid the taxes, there is no liability on the appellant. The Revenue submits that the payment of advance tax by Sumitomo Corporation does not come to the rescue of the assessee as the impugned order is one passed under section 201 of the Act and not one which is passed under any regular assessment. 18.1 The judgment of the Hon'ble Gujarat High Court in the case of Rishikesh Apartments Co-operative Housing Society Ltd. is not applicable to the facts of the case as per ....
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.... Hon'ble Court further observed as under: "If the Revenue is permitted to levy interest under the provisions of section 201(1A) of the Act, even in a case where the person liable to pay the tax has paid the tax on the date due for the payment of the tax, the Revenue would derivate undue benefit or advantage by getting interest on the amount of tax which had already been paid on the due date. Such a position in our opinion cannot be permitted." 19.1 The contention of the learned counsel for the Revenue that the statutory provisions do not support the contentions of the assessee, in our considered opinion, is also not correct. 19.2 What is to be understood is that tax deduction at source is only provisional payment. The jurisdictional High Court in the case of Superintending Engineer, Upper Sileru had brought out this view at page 776 which reads as follows: "It should also be borne in mind that whatever tax is deducted at source under section 195 from out of the gross sum is not irretrievably lost to the recipient. It is only a provisional payment which will be made to the Central Government to the credit of the recipient. The provisions of the Act enable....
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....s no sum due which has remained unpaid. At best, the default could be from the date on which tax has to be deducted to the date on which the deductee filed his return of income and paid tax thereon. Otherwise, if after deductee filed his return and the assessments are completed or barred by limitation or accepted without any further demand then, to ask the tax deductor to deduct tax now and remit it to the Government and issue the certificate to the deductee and the deductee again going before the Department for refund of this tax with interest is nothing but an idle formality which is not contemplated under the scheme of the Act. TDS is termed as provisional payment by the jurisdictional High Court and once the interest of the revenue has been protected by the factum of the deductee filing the return and paying the taxes, it cannot be said that any person continues to be in default. The proposition that when no portion of the gross sums estimated can be considered as income accrued or arisen in India then liability to deduct tax under section 195 does not arise, is supported by the decision of the ITAT reported in Maharashtra State Electricity Board v. Dy. CIT [2004] 90 ITD 793 (M....
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....oyer after expiry of limitation period for completion of assessment of employees - Held, yes - Whether employer -assessee could be faulted for holding an honest opinion that conveyance allowance was not to be included in computation of income of employees while deducting tax at source so as to be declared as an assessee deemed to be in default and charged interest under section 201(1A) - Held, no." In the case of Gwalior Rayon Silk Co. Ltd. v. CIT [1993] 140 ITR 832 (MP) it is held as follows: "Held also, that where the regular assessment of an employee had been completed and the amount of tax was fully paid, the ITO (TDS) had no jurisdiction under section 201 to demand further tax from the employer in respect of tax sort deducted relates to such employee." In CIT v. M.P. Agro Morarji Fertilizers Ltd. [1989] 176 ITR 282 (MP) it was held that: "Where the regular assessment of an employee had been completed and the amount of tax fully paid by him, the Income-tax Officer (TDS) has no jurisdiction under section 201 of the Income-tax Act, 1961, to demand further tax from the employer in respect of tax short-deducted relating to such employee." 19.4 In case the....
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.... as it only clarifies the intention of the Legislature, as it always was, as held by the Hon'ble Supreme Court in the case of CAIT v. Plantation Corporation of Kerala Ltd [2001] 247 ITR 155 (SC). As per the Explanation, the Principal Officer and the Company of which he is the Principal Officer, which does not deduct tax shall be deemed to be an assessee in default if such tax has not been paid by the assessee direct. The word "then" clearly denotes the intention of the Legislature that the Principal Officer and the company shall not be considered to be assessees in default if the tax due is paid directly. The use of the word 'and' denotes cumulative conditions one of which is direct payment by deduction. Even under section 201(1A), simple interest at the rate of 12% is leviable from the date on which the tax was deductible to the date on which the tax is paid. The payment herein may be a direct payment by the assessee concerned. The word 'paid' does take into its fold the payment made directly by the assessee concerned. The Revenue's contention that it is not possible for it to ascertain the assessment details of the deductee and that the T.D.S. Officer cann....
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....non-residents may not be able to get back refund of excess tax deducted at source, if any, till the regular assessment is completed determining the tax payable by the non-residents on the total income chargeable under the provisions of the Act. We can only express the hope that the Central Board of Direct Taxes gives instructions to all the ITOs to expedite regular assessments on non-residents, from whom tax is deducted at source, giving top priority and facilitate smooth course of international trade involving large magnitude of trading operations. The tax authorities will do well to make an accelerated assessment on non-residents under section 194 of the Act, should circumstances require such a course in order to ensure that the non-residents get back expeditiously excess amounts of tax, if any, deducted at source under section 195." Thus even for the payment which is made for value of cost of goods purchased in the course of regular trade, tax should be deducted at source under section 195 of the Act. 19.8 The learned Standing Counsel has rightly pointed out that the very same assessee was party to the judgment in the case before the Hon'ble A.P. High Court as well as ....
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....ermanent establishment of Sumitomo Corporation carried on in India. The belated efforts on the part of the department to establish that the permanent establishment carried all the business is futile. Referring to the letters shown by the learned Standing Counsel, he submitted that the offices of Sumitomo Corporation at Chennai and Delhi merely acted as post office. The letters of transmittal and Power of Attorney executed show that it is a convenient location for dispatch of the notices etc. (3) The learned counsel for the assessee's case is that the contract envisaged designing, drawing and manufacturing of various sophisticated equipment and the question was whether the Liaison office has undertaken any of these activities. His case is that as no part of the manufacturing activity was done in India and as the Liaison offices did not carry out any managerial function and thus they did not constitute a permanent establishment. He referred to the correspondence on which Department relied on to show that all the processes of decision making which is key in any managerial function had taken place outside India and application of mind was entirely outside India. The mere a....
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....itted that the profit element thereon is to be estimated at 10%, which can be said to have been accrued to Sumitomo Corporation. Thus he argued that only 1 % of the total receipts could be treated on profit element which can be said to have been accrued to Sumitomo Corporation which is attributable to work done in India. He further relied on the judgment of the Hon'ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 and submitted that the instruction issued by the CBDT is binding on the Revenue. While conceding that in that circular the Board was considering the case of oil exploration companies, he submitted that the instructions analogous principle is applicable and at any rate the facts of the present case show that the value of supervision work in India is only between 2% to 3% of the total contract value which is much less than what is assumed in the instruction i.e., 10%. 21. The learned standing counsel for the Revenue, on the other hand, disputed the contention of the assessee and submitted that the first appellate authority has erred in scaling down the estimation to the rate of 15%. He vehemently contended that the Commissione....
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....over the non-resident to be convinced especially when no details of the gross receipts etc. are given by the non-resident. He submitted that in the absence of an appropriate application under section 195(2) of the Act with the relevant documentary evidence, the action of the TDS Officer cannot be found fault with on this score. 22. The first question that arises for our consideration is whether the non-resident has a permanent establishment in India and if so, any part of the transaction and profit thereon is attributable to the said permanent establishment. Before we go into these facts, we extract below for ready reference Article 5 and Article 7 of the Double Taxation Avoidance Agreement between India and Japan. "Article 5 1. For the purposes of this Convention, the term 'permanent establishment' means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term 'permanent establishment' includes especially: (a) a place of management; (b) a branch; (c) an office; (d) a factory (e) a workshop; (f) a mine, an oil or a gas well, a ....
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....ons of paragraphs 1 and 2, where a person other than an agent of an independent status to whom paragraph 8 applies is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first mentioned Contracting State, if (a) he has and habitually exercises in that Contracting State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 6 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph; (b) he has no such authority, but habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise; or (c) he habitually secures orders in the first-mentioned Contracting State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control as that enterprise. 8. An enterprise s....
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....e taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this article. 5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise. 6. For the purpose of the provisions of the preceding paragraph of this article, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. 7. Where profits include items of income which are dealt with separately in other articles of this convention, then the provisions of those articles shall not be affected by the provisions of this article." The undisputed fact is that the non-resident Sumitomo Corporation has filed its return in India and has paid advance tax and assessments were made. While so, we do not understand as to how the learned counsel for the assessee argues stating that there was no permanent establishment in this country. A plain reading of the Double Taxation A....
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....his issue has been decided by the jurisdictional High Court in favour of the assessee in the case of Superintending Engineer, Upper Sileru. At page 769 it was observed by the Hon'ble Court as follows: "We are unable to accept the contention of the learned counsel for the revenue that, because the assessee did not file an application under section 195(2), the ITO is empowered to call upon the assessee to pay tax under section 195 in respect of the entirety of the gross sum. It should be borne in mind that a person may be honestly under the impression that no part of the gross sum payable to the non-resident is chargeable to tax as income under the Act and, hence, he does not find it necessary to make an application under section 195(2). The ITO, on the other hand, may be again honestly under the impression that the gross sum of money includes some portion chargeable under the IT Act. Could it be said that, under such circumstances, the person responsible for making the payment could be punished or penalized by requiring him to pay the tax deductible on the entirety of the gross sum. The answer is clearly negative. We cannot accede to the contention of the learned counse....
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....argeable under the Act from out of gross sums of money paid, then section 195 is not attracted. This view is fortified by the following Board's Circulars: (1) Circular No. 23, dated 23-7-1969 (2) Circular No. 786, dated 7-2-2000 In Circular No. 23, para 3 reads as follows: "The following clarifications would be found useful in deciding questions regarding the applicability of the provisions of section 9 in certain specific situations: 1. Non-resident exporter selling goods from abroad to Indian importer - No liability will arise an accrual basis to the nonresident on the profits made to him where the transactions of sale between the two parties are on a principal to principal basis. In all cases, the real relationship between the parties has to be looked into on the basis of an agreement existing between them but where: (a) the purchases made by the resident are outright on his own account. (b) the transactions between the resident and the non-resident are made at arm's length and at prices which would be normally chargeable to other customers, (c) the non-resident exercises no control over the business of th....
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....uld arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No. 23 dated 23rd July, 1969 is drawn, where the taxability of 'Foreign Agents of Indian Exporters' was considered along with certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be not taxable in India. The relevant sections namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No. 23 still prevails. No tax is therefore deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. On being apprised of this position the Comptroller & Auditor General have agreed to drop the objection referred to above." The jurisdictional High Cou....
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.... Turbines and Generator sets. (ii) Clause 20.4 at page 46 in respect of contract for supply of 400 KV Gas insulated Switchgear (iii) Clause 20.4 at page 59 in respect of contract for 400 KV XLPE Insulated Power Cables (iv) Clause 20.4 at pages 74 & 75, in respect of contract for 400 KV XLPE Insulated Power Cables. 26.2 The assessee filed additional ground in respect of grossing up by relying on section 10(6A) and 10(6B) of the Act and submitted that the contract in question should be considered as one which is approved by the Government of India as the very genesis of the contract was an agreement between the Government of India and JBIC. He submitted that the APSEB was a nominee of the Government of India through GOAP to execute the contract. The contract was with the approval of the Government of India. He submitted that section 10(6A) clearly exempts the grossing up in such cases. 26.3 The learned Standing Counsel for the Revenue submitted that the reliance on section 10(6A) and 10(6B) is not relevant or is not applicable to the facts of the case as no evidence was filed by the assessee that the agreement between the assessee and the foreign comp....