TaxTMI 
TaxTMI 
2009 (12) TMI 852
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....dia Limited. Further the assessee company continued to execute contracts with Mangalore Refinery and Petrochemicals Limited (MRPL). 2.1 The assessee company filed its original return of income for assessment year 1996-97 on November 30, 1996, reporting a net taxable loss of Rs.135,257,667/-, under the above contracts, based on the provisions of the Agreement for avoidance of double taxation entered into between India and Japan (the treaty). The audit of the financials for the HBJ contract was under progress at the time of filing the original return of income and a copy of the unaudited financial statements was filed along with the return. Later, the assessee filed arevised return on February 18, 1997, enclosing the audited financial statements and the tax audit report in respect of the HBJ contract. In the revised return, the total loss under the head 'profits and gains from business and profession' was recomputed at Rs.45,851,657/-. 2.2 The Joint Commissioner of Income-tax, Special Range-12 completed the summary assessment under section 143(1)(a) of the Income-tax Act, 1961, on the original return accepting the loss reported. Subsequently, the case was selected for scrutiny.....
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....cy Pardiwalla, learned counsel for the assessee. 6. After hearing the rival contentions and perusing the papers on record as well as the orders of the authorities below and the case laws cited, we hold as follows. 7. Both the parties before us submitted that ground No. 1b relating to disallowance under Rule 6D in respect of domestic traveling expenses and ground No. 2 are misconceived and the Revenue should not have taken these grounds, for the reason that the first appellate authority had in fact decided these issues against the assessee. In view of these submissions, we dismiss ground No. 1b and ground No.2 of the Revenue's appeal as misconceived. 8. We now take up ground No. 1a and 1c. 8.1 Coming to ground No. 1a being 20% disallowance of foreign currency spent and ground No.1c being estimated disallowance under Rule 6D out of traveling expenses incurred outside India, both the parties submitted before us that the issue is clearly covered in assessee's favour by the decision of the E Bench of ITAT, Mumbai in ITA No. 4053/Mum/99 for the assessment year 1994-95 order dated 8^th June, 2005. The Tribunal at para 7 page 3 of that order observed that this is not a case whe....
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.... when an employee is on tour or visit to a place and is not applicable when a person is sent on deputation and is required to reside there for a considerable period of time, specifically when the accommodation is treated as a perquisite to the employee. Mr. Pardiwalla further supported the order of the CIT(Appeals) by referring to article 7(3) of the convention between Government of Japan for avoidance of double taxation and the prevention physical evasion with respect to tax on income and submitted that this article entitles the assessee to claim deduction of expenses incurred for the purpose of permanent establishment. He further referred to protocol to the DTAA with Japan dated 7^th March, 1989 specifically to paragraph 7, wherein it is stated that deductions in respect of executive and general administration as referred to in the said paragraph are to be allowed in accordance with the domestic law of India and submitted that the term"executive and general administrative expenses" have to be understood as in sub-clause (iv) to section 44C. He pointed out that the head office expenditure means executive and general administrative expenditure incurred by the assessee outside In....
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....India. Coming to DTAA and Protocol, the expenditure in question is what is expenditure in India as well as elsewhere. As far as executive and general administrative expenses incurred in India is concerned, the protocol clearly lays down that it shall be allowed in accordance with the domestic law of India. The argument of Mr. Padtiwalla that expenditure on rent incurred by the assessee for the purpose of providing accommodation to expart employees on deputation does not fall within para 7 of the protocol read with clause 3 of Article 7 of the Convention with Japan is not correct. In our humble opinion, rental expenditure in question falls within the ambit of executive and general administrative expenses and to the extent they are incurred within the country, the allowance or otherwise will be governed to the domestic law. Thus, this argument,in our humble opinion, has to be rejected. 14. Coming to the argument that section 37(4) applies only when the accommodation in question is used for the purpose of housing guests, we find that the Hon'ble Madras High Courtin the case of CIT, Tamil Nadu-III vs. Aruna Sugars Ltd. 123 ITR 619 at page 623 held as follows: &n....
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....commodation was taxed as a perquisite in the hands of the company, in our considered opinion, on the facts discussed above, it would be wrong to disallow expenditure u/s 37(5) by treating accommodation as a guest house. 16. For all these reasons, we agree with this limb of argument of Shri Pardiwalla and uphold the orders of the CIT (Appeals) and dismiss ground No. 3 of the Revenue's appeal. 17. Coming to ground No. 4, the issue relates to disallowance of an amount of Rs.63,86,848/- for want of requisite invoices. 17.1 After hearing rival contentions, we find that the payment in question was made to one General Electrical Technical Services Co. The payment pertains to two invoices. In fact, for the subsequent assessment year, an amount of US $ 4,38,299 was paid to the same party and was allowed as expenditure.. The assessee had provided the Nos. of the invoices raised by General Electrical Technical Services Co., but for some reasons could not produce the copy of the invoices. The first appellate authority considered the fact that the total sub contractor cost was Rs.6,48,48,040/- and the assessee was successful in furnishing copies of invoices of 90% of the cases and only....
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....nd that the agreement in question is in accordance with the policy. As this condition is satisfied, the tax on income derived by the foreign company, if it is payable under the terms of the agreement by the Government or the Indian concern, the tax so paid cannot form part of total income. Section 10(6A) clearly lays down the tax paid or payable, under such circumstances is exempt u/s 10(6A). We are unable to appreciate the argument of the Revenue that as this is a case of loss, the question of application of section 10(6A) does not arise. Once an amount has been paid as tax to the Central Government on behalf of a foreign company, by the Indian concern in terms of an agreement covered in clause (a) and clause (b) of section 10(6A), such payment cannot be treated as income. Thus, we uphold this finding of the first appellate authority and dismiss this ground of the Revenue. 19. In the result, the appeal of the Revenue is dismissed. 20. ITA No. 1326/Mum/2001.: (A.Y. : 1997-98) In this appeal filed by the Revenue for assessment year 1997-98, following grounds have been raised: 2. On the facts and in the circumstances of th....
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....he treaty. He submitted that it is not the case of the Revenue that there is a business connection and under such circumstances even under the treaty, this offshore supply contract cannot be taxed. He conte nded that the issue is squarely covered in his favour by the decision of the Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Co. Ltd. vs. Director of Income Tax 288 ITR 408. He specifically emphasized on the conclusions of the Hon'ble Supreme Court in this decision and submitted that section 9(1)(vii) is not attracted to the case on hand. He further pointed out that the earlier Bench of the Tribunal in this very case had earlier followed the decision of the Authority For Advance Rulings and had decided the case in favour of the Revenue. Subsequently as this decision of the Authority for Advance Rulings which was reported in 271 ITR 193 (AAR) was reversed by the Hon'ble Supreme Court, the Bench recalled the matter for fresh consideration. He further relied on the following case laws : : Motorala Inc. vs. CIT ITA No. 1318/Mum/2001 ITA No. 4107 & 4108/Mum/2002. &nb....
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....oint. " " SUPPLIER shall produce the Off-shore Equipment and Materials as per a list of supply given in Exhibit G on the basis of the design date and specification furnished by OWNER and as contained in the said Exhibit The supply shall be from sources outside India. SUPPLIER shall expeditiously ship the same to OWNER for delivery on CIF New Mangalore, Bombay Port basis or India International airports (as interpreted under incoterms 1990 Edition) in accordance with the schedule as set out in Exhibit E it being expressly agreed and understood between the Parties hereto that over-dimensioned consignments of the Offshore Equipment and Materials shall in all cases be for delivery on CIF New Mangalore Port basis." " OWNER shall perform or arrange to perform in a timely manner the following among others : (1) Obtaining the import licenses and approvals, (2) Obtaining all other approvals of the Government of India and its agencies as required, and (3) Customs Clearance. " ARTICLE 7- DELIVERY OF OFF-SHORE EQUIPMENT AND MATER....
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....r. 26. An examination of these clauses clearly indicate that the supply of equipment and materials was done outside India on CIF basis and it was MRPL which had imported these equipment. 27. Now we examine the legal position in the matter. The Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Co. Ltd. vs. Director of Income Tax 288 ITR 408 on the issueof offshore supply at page 446 para 99 held as under : "99. We, therefore, hold as under : Re : Offshore supply : (1) That only such part of the income, as is attributable to the operations carried out in India can be taxed in India. (2) Since all parts of the transaction in question, i.e. the transfer of property 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....
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....erall agreement; (c) the assessee had no business connection in India. (d) The sale of GSM mobile telephone system by the assessee to the cellular operators in India took place outside India, and hence, (e) No income accrued to the assessee in India from the sale of GSM mobile telephone system to various cellular operators in India. 29. In the case of M/s Siemens Aktiegesellschaft in ITA No. 1318/Mum/2001 dated 30^th June, 2009 the Bench of the Tribunal was considering a similar issue and after referring to the decision of the Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Co. Ltd. vs. Director of Income Tax (supra), followed the same. It observed that even though it was a composite contract, offshore supply of equipment and offshore services rendered by the assessee did not fall within the purview of section 9(1)(vii) since the entire services was rendered outside India. On the issue of delivery on CIF basis at para 13, it held as follows : " As of the above it follows that in the case of CIF, the property in goods passes on to the buyer at ....
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....hat the ld. CIT(A) was correct in holding that no addition was sustainable on account of offshore supply to Metro Railways." 31. Applying the propositions to the facts of the case, as it is amply clear from the contract that this is a offsho re supply of equipment on CIF basis outside India, for which payment is also being made outside India, no income accrues or arises in India. The fact that this is a composite contract or term fee contract does not make any difference. Thus we uphold the order of the first appellate authority, though on a different ground. 32. In the result, ground No. 1 of the Revenue is dismissed. 33. Coming to ground No. 2, the first appellate authority has observed that the assessee is maintaining books of account and is providing financial statement in the same manner for more than a decade. He also pointed out that the AO has not found anything to show that the assessee is not following regular method of accounting. In the earlier years, similar sets of financial statements and supporting documents were accepted by the AO. It is also found that the assessee had submitted 10 original general ledger books for inspection and also furnished detailed b....