TaxTMI 
TaxTMI 
2005 (11) TMI 365
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....and in law, the learned CIT(A) has erred in directing the Assessing Officer to consider the claim of the assessee for carry forward of the loss for set off against profits in subsequent years." 2. The facts in brief are that M/s. ABB Lummus Crest Ltd., U.K. (hereinafter referred to as 'U.K. Company') is a company incorporated in the United Kingdom. The said U.K. Company entered into a contract with M/s. Essar Oil Ltd., the assessee before us, for supervision of construction and commissioning activities in India for the refinery complex being built at Vadanar near Jamnagar in Gujarat by the assessee. India and United Kingdom have entered into and their subsists between them an Agreement for the Avoidance for Double Taxation ('DTAA' for short). For the year under consideration the assessee returned a loss of Rs. 66,20,690 which was accepted under section 143(1)(a) of the Act. Subsequently, this case was selected for scrutiny assessment. During the course of such assessment proceedings the Assessing Officer has discussed in detail the nature of services provided by the U.K. Company. The main services to be provided are as under : (i) Construction supervisory services of th....
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....rry out similar activity later by the assessee's personnel and as such, supervisory services do not constitute "Fees for technical services". It was also pointed out before the CIT(A) that the Tribunal in the case of General Electric Technical Services Co. Inc. in [IT Appeal No. 3328 (Bom.) of 1986] for assessment year 1981-82 and for subsequent years took a view that when major part of the expenses are incurred by the recipient on payment of wages (salary of labour) and/or on purchase of material, income is to be assessed as business income after allowing deduction of expenses incurred in connection with such business. The further arguments of the assessee, as mentioned by the CIT(A), were as under : "In the present case, out of total expenses of UKGBP 2,53,101,30, the expenses on manpower deployed in India amounted to UKGBP 1,65,043 out of which UKGBP 1,25,755 were not borne by the permanent establishment and, therefore, were not claimed as expenses in India. The other major expenses related to travel. Thus, the major costs were incurred on manpower deployment in India. In view of the foregoing, the income should be assessed after allowing deduction of expenses. ....
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....ection 44D read with section 115A of the Act cannot be sustained. Considering the facts and circumstances of the case and also the legal position, I agree with the views of A.R. that the provisions of Indo- UK DTAA are applicable in computing the total income of "ABB Lummus Crest Ltd., UK in India including the tax thereon. 4. The Assessing Officer is directed to compute the income (loss) arising to the above concern during the year as business income as laid down in Article 7 of the Indo-UK DTAA. He is also directed to consider the claim of appellant for carry forward of loss (to be determined) for set off against profits in subsequent years." 4. Before us the learned Departmental Representative strongly relied on the observations of the Assessing Officer. The learned counsel for the assessee, on the other hand, relied on the order of the CIT(A). It was also contended that the issue stands covered in favour of the assessee by the decisions of the Tribunal in the case of Dy. CIT v. Boston Consulting Group P. Ltd. [IT Appeal No. 447 (Mum.) of 2001] for the assessment year 1997-98, order dated 4-2-2005 in Dy. CIT v. Boston Consulting Group P. Ltd. [2005] 93 TTJ (Mum.) 293....
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....shment of those transactions bears to that of the enterprise as a whole shall be treated for the purposes of paragraph 1 of this Article as being the profits indirectly attributable to that permanent establishment. 4. Insofar as it has been customary in a Contracting State according to its law to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraphs 1 and 2 of this Article shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be necessary, the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles laid down in this Article. 5. Subject to paragraphs 6 and 7 of this Article, in the determination of the profits of a permanent establishment, there shall be allowed as deduction expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, which a....
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....he enterprise. 9. 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 provision of this Article." It is an admitted position that the terms of Article 7 of the DTAA between India and UK is similar to the terms of Article 7 of the DTAA between India and Singapore considered by the Tribunal in the case of Boston Consulting Group P. Ltd. (supra). In that case, the assessee was receiving income through its permanent establishment in India by providing strategy consultancy services such as marketing and sales strategy, business strategy and portfolio strategy, etc. to its clients in India and abroad. The Tribunal, after discussing the terms of Article 7 of the DTAA and referring to the provisions of sections 44D and 115A of the Income-tax Act, has held that such services clearly rule out the applicability of clauses (a) and (c) to Article 12(4) of the DTAA. As regards clause (b) of Article 12(4) the Tribunal held that only such services as are technical in nature are covered which may enable the recipient of services to apply the technology and not consu....