TaxTMI 
TaxTMI 
2009 (6) TMI 675
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....copies of the contracts executed in India. Copies of some contracts executed in India were collected by DCIT, Non-resident Circle, New Delhi which were transferred to the Assessing Officer of the assessee. According to that one contract was executed during the year with BPL Systems & Projects Limited ('BPL') for execution of the Cellular Mobile Project for the Bombay region on CIF basis for a total consideration of US$ 2,08,53,039. The Assessing Officer noted that it was performed by the Indian P.E. The assessee was asked to show cause as to why the profit of the above project should not be taxed since the project was performed by the Indian P.E. Despite various reminders, as per the Assessing Officer, the assessee did not furnish any information. Its value in Indian rupees was converted into Rs. 74,57,04,674. In the absence of any information about the consideration in respect of other contracts, the Assessing Officer estimated this amount at Rs. 10 crores. Thus the total turnover of the Indian projects, other than fees for technical services, was determined at Rs. 84,57,04,674. In response to the query as to why the profit be not computed under rule 10, the assessee replied vide ....
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....P.E. in India and hence the question of supply of equipment being attributable to the P.E. did not arise. He further referred to the new DTAA with Germany notified on 29-11-1996 which was to be applicable with effect from assessment year 1998-99 onwards. Considering the relevant clauses of DTAA, the learned CIT(A) opined that the assessee did not have any P.E. in India and hence no part of such income was chargeable to tax in India. 3. Before us the learned Departmental Representative contended that the assessee miserably failed to furnish relevant information/evidence at the assessment stage. While referring to the impugned order he submitted that the learned CIT(A) had not actually appreciated the facts in the light of the Treaty with Germany for determining precisely as to whether or not that the assessee had P.E. in India. It was further stated that neither the comments of the Assessing Officer were called for nor any remand report was sought and hence the learned CIT(A) fell in error in deciding the issue in assessee's favour in violation of rule 46A. On the question of P.E. in India, the learned D.R. submitted that the Assessing Officer had specifically asked about the numbe....
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.... information/evidence to the Assessing Officer, it will be in the fitness of things if the matter is sent back to the Assessing Officer for fresh computation of income. 4. Per contra the learned Counsel for the assessee contended that the ld. CIT(A) had rightly held that the assessee did not have any P.E. in India. It was put forth that there was contract of the assessee with BPL for the supply of equipment only and the services in this regard were rendered by Siemens Ltd., the Indian company, which had received the income in its individual right and offered the same for tax in its own hands. It was reiterated that the assessee did not have any P.E. in India and hence the Assessing Officer fell in error to hold so. He further argued that the Assessing Officer had considered the DTAA with France for fixing the assessee's liability to tax, whereas the assessee was tax resident of Germany and only the DTAA with Germany was required to be examined. It was submitted that the assessee did not have any taxable income from this contract as per Income-tax Act, 1961 and hence there was no question of going into DTAA with Germany. It was stated that the assessee had supplied the equipment to....
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....r, he placed on record a copy of the letter dated 15-3-2000, which has also been incidentally referred to in assessment order, as per which the complete detail was made available. It was, therefore, stated that the Assessing Officer fell in error in coming to the conclusion that the assessee had P.E. in India. The sum and substance of the learned A.R's submission was that the assessee is not liable to tax under the regular provisions of the Income-tax Act, 1961 and further DTAA with Germany also does not fasten any liability on the assessee in respect of offshore supply made by the assessee. It was further stated that the assessee had not earned any business income from any contract other than that with BPL which was not declared and hence the learned CIT(A) was justified in deleting the addition of Rs. 1 crore which was included in the total addition of Rs. 8.45 crores towards the estimated other contract receipt to the tune of Rs. 10 crores. 6. We have heard the rival submissions and perused the relevant material on record. The first issue raised by the learned D.R. is that since the assessee has P.E. in India and hence income from supply of equipment should also be brought to t....
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.... will examine if any income was received by the assessee in India or accrued to it in India. Thereafter we shall see if the deeming provisions of receipt or accrual are applicable. 8. As regards the mode of payment, the relevant governing clause is Article 6 of the contract along with Annexure 8. Clause 3.0 of the Annexure 8 provides for the payment outside India in the following words :- "3.0 Payments by telegraphic bank transfer by PURCHASER to CONTRACTOR shall be made in United States Dollar only and to the account No. 2013100 with Deutsche Bank AG, Munich Branch with reference to OEN MN KV 2. The PURCHASER shall provide the CONTRACTOR by telefax transfer details (e.g., amount, date, corresponding bank) not later than 24 hours after having taken the transfer." A cursory look at the above clause clearly indicates that the assessee received the payment outside India. Thus it can be seen that the assessee did not receive any income in India. 9. Now let us examine the facts of the instant case to determine if any income accrued to the assessee in India on account of this transaction. From the narration of the above facts it is clear that the assessee entered into contract with B....
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....t is noted that the assessee specifically stated, on the basis of contract with BPL, copy of which was available with the Assessing Officer, that the local activity with respect to the installation was the duty of Siemens India Limited in their independent capacity. The learned Senior A.R. stated at the Bar that the consideration received by Siemens India Limited was duly offered for taxation by them in their return of income, which has been accepted by the Revenue. Neither the Assessing Officer nor the learned DR has adversely commented on this submission. Further no material has been brought on record to demonstrate that the position so stated is not correct. Thus it becomes clear that the assessee only had supplied the equipment to BPL for the stated consideration offshore and no part of it relates to any onshore supply or onshore services. 10. It will be relevant to consider the judgment of the Hon'ble Supreme Court in the case of Ishikawajma Harima Heavy Industries Ltd. (supra), which has been heavily relied on behalf of the assessee. In this case the assessee was a resident of Japan. It was to develop, design, engineer and procure equipments and material supplies etc. to ere....
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.... from all encumbrances when it is delivered to the carrier at the port of shipment." 12. From the above clause of the contract it is patent that BPL acquired the absolute right in the property when it was delivered to the carrier at the port of shipment i.e., in Germany. The reference of the learned D.R. to the invoice for depicting that it was on CIF basis at Bombay and hence the right of the buyer in the property should be construed as getting vested in Bombay, is not acceptable. The INCO Terms, 1990 explains various relevant terms. Page 755 of it mentions that :- "'Cost, Insurance and Freight' means that the seller has the same obligation as under CFR but with the addition that he has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage. The seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIF term the seller is only required to obtain insurance on minimum coverage. The CIF term requires the seller to clear the goods for export. CFR, in turn, has been explained as "Cost and Freight" means that the seller must pay the cost and freight necessary to bring the goods to the nam....
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....of amount under consideration is quite distinct from the items specified in this section. Then clause (b) of sub-section (2) talks of income which 'accrues or arises or is deemed to accrue or arise in India'. Section 9 enlists certain items of incomes which are 'deemed to accrue or arise in India'. Sub-section (1) has clauses from (i) to (vii). The amount for the supply of offshore equipments cannot be in the nature of 'salaries', dividend, interest, royalty or fees for technical services, which items of income have been specifically dealt with in clauses (ii) to (vii) of section 9(1). Hence we are left with examining the applicability or otherwise of clause (i) of section 9(1). This provision states that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India or through or from any asset or source of income in India or through the transfer of a capital asset situated in India shall be deemed to accrue or arise in India. As it is the case of sale of equipment to the Indian party, possibly only the 'business connection' needs to be probed in as the applicability of the other components....
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....s any business connection which would attract the deeming provisions of section 9(1)(i). 15. Further Explanation 1(a) to section 9(1) provides that for the purposes of this clause, in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. From this Explanation, it is further amply clear that even if there is a business connection of the non-resident in India, then also only that part of the income shall be deemed to accrue or arise in India which is relatable to the operations carried out in India. So even if we presume for a moment, with which we do not agree, that there was any business connection of the assessee in India, still in the absence of any operations carried on by the assessee in India in this regard, there cannot be any question of bringing the case within the ambit of section 9(1). It is pertinent to mention that the assessee categorically stated before the Assessing Officer that the local activity with reference to installation was carried out by Siemens ....
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....in the foreign country, but are handed over in India against payment or acceptance, no portion of the profits will be chargeable to tax under the Income-tax Act, if this is the only operation carried on in India on behalf of the non-resident." 18. Circular No. 786, dated 7-2-2000 further clarifies the position qua commission and charges payable for services rendered outside India, it has been explained that no tax is deductible under section 195 on the export commission and other related charges payable to non-resident for services rendered outside India. In this Circular the afore-noted Circular No. 23, dated 23-7-1969 has also been duly considered. 19. On going through the above Circular and legal position it is clearly borne out that a sum of Rs. 74.57 crores represents the consideration for the exclusive supply of offshore equipment, which cannot be considered as leading to any taxable income resulting in the hands of the assessee. As regards the other alleged receipt of Rs. 10 crores considered by the Assessing Officer we find that the assessee categorically stated before the Assessing Officer that there was no such other contract from which business income could be said to ....
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....ts to ensure that the work of the customer does not come to halt, in case there arises some technical problem with any of the parts of the equipment. Further as is evident from the above clause that the TAC is not there to carry out any repair on behalf of the assessee. Its role is to accept the defective parts from BPL and then ship it back to the assessee for replacement or repair as the case may be. Further it has been stated that the TAC is no organization of the assessee but in fact part of Siemens Ltd., the Indian concern, which has the obligation to render the services to BPL for consideration as per their separate contract. Thus it is seen that the assessee cannot be said to have any P.E. in India through the TAC 2 Bombay. 22. Since the assessee is not liable to tax in the instant case in respect of offshore supply of equipments as per the regular provisions of the Income-tax Act, 1961, in our considered view there is no need to ascertain or fix any taxability as per DTAA. 23. This ground is, therefore, not allowed. 24. The second ground taken by the Revenue is against the chargeability of interest under section 234B. The Assessing Officer charged interest under this sec....