TaxTMI 
TaxTMI 
2013 (5) TMI 491
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....lizers Company Ltd (GNFC) for technical documentation/engineering, etc, which formed an integral part of the price of the Converter basket and connected hardware supplied on FOB basis from outside India." 2.1 The brief facts leading to the controversy are that the assessee is a leading chemical technology company in Denmark and engaged in supplying of Fertilizes technical know-how, engineering and technical services to various Indian companies in connection with projects, mainly in the fertilizers and petrochemical industry. The assessee has entered into an agreement with Gujarat Narmada Valley Fertilizers Company Ltd (GNFC) for supply of equipments along with associated materials as per the specific design and technical data to meet the specific requirements of the party's plant. 2.2 In the return of income, the assessee has claimed an amount of Euro 1,87,615.68( converted at the rate of Rs. 58.47) received from GNFC for revamp of Ammonia Loop as exempt from tax. The Assessing Officer noted that this amount received vide invoice no. 90029101 was claimed to be exempt on the ground that this amount has been received towards engineering fee which forms an integral part of the suppl....
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....ded drawings, manuals, mechanical design, diagram, operating manual, installation documentation etc., because without this information, the equipments cannot be utilised by the client. Thus, the ld AR has submitted that this information supplied by the assessee in the shape of process description, process flow diagrams, piping and instrument diagram, mechanical design etc., as per the specific requirement is an integral part of the overall cost of the equipment purchased by the party. Thus, the amount received for the services are purely in accordance with the exclusive purchase of property therein with reference to the supply of the equipments. The amount paid towards license, engineering, know-how etc., is not for the use of or the right to use, any design, model, plan secret formula or process as such but for the outright acquisition thereof and, hence, cannot be considered as royalty within the definition of the term as provided u/s 9 of the I T Act or under Article 13 of the Indo-Danish Tax Treaty. He has further contended that when certain technical equipments are imported by an Indian Party from the assessee, the know-hw and engineering becomes an integral part of such equip....
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....r technical services and license. Therefore, the payment for the supply of equipments and payment for technical services/information are exclusive and independent. There is not correlation or dependence of each other. He has relied upon the decision of the Hon'ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd vs Director of Income Tax reported in 288 ITR 408(SC) and submitted that the Hon'ble Supreme Court has held that for the purpose of taxability, the entire contract shall not be considered to be an integrated one so as to make the appellant to pay tax in India. The taxability events in execution of a contract may arise at several stages in several years and accordingly, the liability of the parties may also arise at every stage. Thus, even there is one contract, the price for each of the components of the contract is separate and therefore, the Hon'ble Supreme Court has held that the contract amount received under a single contract has to be considered separately for each of the components of the contract for the purpose of taxability in India. He has further submitted that in the earlier years, the Tribunal has not considered the decision of the Hon'ble ....
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....rated to the equipment and their installation at the premises of the buyer. It is not the case of A.O that assessee had supplied copy right design or other information which can enable the buyer i.e. Indian Company to manufacture S-200 Converters in its rights. The alleged information is as how to use S-200 Converters. If we look the clauses of the contract as well as the payment received by the assessee in the light of authoritative pronouncements of the Hon'ble Courts discussed supra, particularly keeping in mind the decision of Hon'ble Andhra Pradesh High Court, 262 ITR 110 wherein supplementary contracts for remittance made to the supervising staff deputed by the foreign company in India as well as paid towards other information were considered by the Hon'ble High Court as payments forming part of the main contract for setting up of the machinery and held that the supplementary contracts cannot be read in isolation and such payments cannot be treated within the ambit of expression "Royalty" It was also brought to our notice at the time of hearing that scope of royalty as provided in section 9(1)(vi) is much wider than the DTAT executed between India and Denmark, we find that th....
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....d in various decisions on which assessee has placed reliance. In case of income in the nature of royalty or fee for technical services is to be taxed irrespective of the fact whether the services or rights are rendered in India or not. Therefore, in view of the amended provisions contained in section 9, the Assessing Officer has rightly treated the amount as royalty and lial5ble to tax in India. Therefore, the action of the A.O. is upheld. The ground of appeal is upheld." 4.3 It is clear that the DRP held that the payment received by the assessee is towards the supply of technical know-how and therefore, it was treated as fee for technical services in terms of section 9(1)(vii) as well as Explanation to sec. 9 introduced by the Finance Act, 2010 retrospectively w.e.f 1.4.1976. 4.4 It is to be noted that the decision in the case of the assessee in the earlier years were prior to the retrospective amendment in sec 9 whereby the Explanation has been introduced retrospectively by the Finance Act 2010. Further, the decision of the Hon'ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd (supra) has also not been brought to the notice of the Tribunal and therefore, ....
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.... in goods as well as the payment, were carried on outside the Indian soil, the transaction could not have been taxed in India. (3) The principle of apportionment, wherein the territorial jurisdiction of a particular State determines its capacity to tax an event, has to be followed. (4) The fact that the contract was signed in India is of no material consequence, since all activities in connection with the offshore supply were outside India, and therefore cannot be deemed to accrue or arise in the country. (5) There exists a distinction between a business connection and a permanent establishment. As the permanent establishment cannot be said to be involved in the transaction, the aforementioned provision will have no application. The permanent establishment cannot be equated to a business connection, since the former is for the purpose of assessment of income of a non-resident under a Double Taxation Avoidance Agreement, and the latter is for the application of section 9 of the Income-tax Act. (6) Clause (a) of Explanation 1 to section 9(1)(i) states that only such part of the income as is attributable to the operations carried out in India, are taxable in India. (7) The existe....
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....ermanent establishment and therefore not taxable in India. (9) Applying the principle of apportionment to composite transactions which have some operations in one territory and some in others, is essential to determine the taxability of various operations. (10) The location of the source of income within India would not render sufficient nexus to tax the income from that source. (11) If the test applied by the Authority for Advance Rulings is to be adopted here too, then it would eliminate the difference between the connection between Indian and foreign operations, and the apportionment of income accordingly. (12) The services are inextricably linked to the supply of goods, and it must be considered in the same manner." 4.8 The authorities below have decided the issue by treating the payment as fee for technical services; however, the crucial fact of having two separate agreements for the year under consideration has not been considered and further the provisions of DTAA have also not been considered. Since the facts are distinguishable in the year under consideration and the decision of the Hon'ble Supreme court in the case of Ishikawajma-Harima Heavy Industries Ltd (supra) a....