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2014 (6) TMI 368
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....from the off-shore supply of equipment to tax in India. He further erred in holding/observing as under : (i) The dispute is only regarding the quantum of income to be taxed in India (para 5.3 page 5 of order) (ii) All the three contracts viz Contract for Offshore supply, Onshore supply and Onshore services were to be treated as one composite contract (para 5.2 page 5 of order). (b) Without prejudice to the above, the learned CIT(A) erred in observing in para 5.11 page 10 of the order that the only aspects of the off-shore contract that can be related to the business operations of the project office are training in India, other services rendered and the signing of the contract in India. He further erred in estimating the profit attributable to offshore contract at Rs.45,41,300/- 2. The learned CIT(A) erred in confirming the addition made by the A.O. in respect of the onshore contracts at Rs.58,70,409/-. He erred in confirming the action of the A.O. in rejecting the books of accounts of the project office under section 145(3) of the ITA and in estimating the profits from the onshore contract at 10% of the gross receipts. 3. Each one of the above grounds of appeal....
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....works etc., cables and other electrical and mechanical c. auxiliary systems for complete execution of the project. 4.1. The assessee obtained requisite permission from RBI for execution of onshore supply contract and onshore services contract with PGCI. The Registrar of Companies NCT of Delhi and Haryana had issued a certificate for the establishment of Place of Business in India to Pirelli Cavi e Systemi S.P.A. Milan Italy. The assessee offered income only from the contracts No.2 and 3 relating to onshore supplies and onshore services contract while maintaining that the income from offshore contract No.1 was not taxable in India. The A.O. held that all the three contracts are to be treated as a single or composite contract and for the reasons elaborated in the assessment order, held that the profit from the offshore contract was also taxable in India. The A.O. relied on the decision of the Authority for Advance Rulings in the case of Ishikawajima-Harima Heavy Industries Co. Ltd. and the provisions of DTAA between India and Italy for arriving at this finding. Consequent to the finding that offshore contract was taxable in India, A.O. proceeded to estimate the income of the asses....
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....he employees of PGCI in India. However, on the estimation of income when the A.O. estimated the income at 5% of the contract value, he considered only 20% of the same to be apportioned towards the profit attributable to the permanent establishment in India. Therefore, as against Rs.2.27 crores adopted by the A.O. CIT(A) confirmed the profit at Rs.45,41,300/- ie 1% of contract receipts. The assessee is aggrieved on this issue and raised revised ground No.1. 7. On the issue of onshore contracts and rejection of books of accounts, Ld. CIT(A) even though did not agree that the provisions of section 44BBB of I.T. Act are applicable to the facts of the case as the company has not entered into turnkey power project as per the provisions of the section, he accepted the A.O's contention of rejecting the books and estimated the income and approved estimation at 10% of the contract amount thereby, addition of Rs.58,70,409/- was upheld as against the loss returned by the assessee. 8. The next issue considered by the Ld. CIT(A) is with reference to the tax rate of 48% applied by the A.O. on the assessee's income determined. Following his predecessor's order in A.Y. 2001-02, he directed th....
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....amination of facts, therefore, not considered as it was raised as additional ground. In view of the above, the additional grounds raised by the assessee on this issue (addl Ground no 1) is accordingly rejected. 11. Coming to the merits of the issue, Ld. Counsel submitted that assessee has entered into three agreements with Power Grid Corporation and assessee ( PE- Project office) was only concerned with onshore activities on which assessee has incurred losses. Referring to the order of the A.O. and CIT(A) on the issue of offshore supply contract, Ld. Counsel submitted that assessee has entered into agreement much before the project office had come into operation. He referred to the findings in para 5.1, wherein the Ld. CIT(A) records that assessee had entered into three different contracts in February, 1998 for setting-up of Fibre Optic System in Hyderabad and business activity was permitted by the RBI w.e.f. 09.10.1998. He referred to the findings of the Ld. CIT(A) in that part that "as a result, the India Project Office of the assessee/appellant company came into existence for the purpose of executing two contracts i.e., onshore supply contract and (2) onshore service contract....
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..... It was submitted that according to the principles contained in section 9(1) of the I.T. Act and DTAA with Italy, it was submitted that only income attributable to Project Office should be taxable in India. Therefore, on the issue of offshore contract income, it was the submission that no part of the income arises in India and therefore, the findings of the Ld. CIT(A) are not correct. The Ld. Counsel went on to refer to the Judgment of the Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Co. Ltd. (supra) and also the decision of the Hon'ble Delhi High Court in the case of L.G. Cables Limited 197 taxman 100 to submit that when under an offshore contract, equipment was found transferred outside India, necessarily taxable income also accrued outside India and hence, no portion of such income was taxable in India. 11.2. Coming to the issue of onshore contracts, Ld. Counsel submitted that confirmation of income at 10% is not warranted as assessee has furnished books of accounts, audited reports and A.O. was only to see Indian books of accounts and not required to examine the foreign books of accounts. It was further submitted that A.O. nor Ld. CIT(A) establi....
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....ts which were clearly distinguishable. There is no dispute with regard to taxation of income stated to have been earned on onshore supply contract and onshore service contract. The only issue is the action of the A.O. in considering the offshore supply contract also for the purpose of taxation in India. There are certain factual errors committed by the Ld. CIT(A) while confirming the order. A) First of all, the offshore contract was entered into in the month of February, 1998 whereas India Project Office was established in June, 1998. Therefore, there is no co-relation with reference to signing up the contract in India to the PE i.e., India Project Office. Even though these facts were noted by the CIT(A). however, the Ld. CIT(A) considered that there is a role of Indian PE in entering the contract also. Ld. CIT(A) correctly analysed the ruling in the case of Ishaka Wajima- Harima Heavy Industries Co. Ltd. of the Hon'ble Supreme Court in coming to the conclusion that the profit shall be deemed to accrue or arise to the assessee in India only such part of profit as is reasonable attributable to operations carried out in India. He also correctly analysed the Article 7 of DTAA between ....
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....ell as the DTAA between India and Italy. Ordinarily, both finding as to the operations in India as well as determination of profits attributable to such operations are matter of fact. The burden of proof of India operations in the case of a non-resident were generally lie on the Revenue as it was contended that no part of the offshore contract was executed in India. Since the Ld. CIT(A) elaborately discussed the legal principles and arrived at a correct conclusions vide para 11 that India Project Office is liable under the Income Tax and the DTAA between India and Italy only to the extent of profit attributable to the business operations carried out by the permanent establishment in India. This position does not change even if all the three contracts signed by the parent company are treated to be single or composite contract. The cables are manufactured outside India and procurement of cables outside India fall beyond purview and jurisdiction of the provisions of Income Tax Act. Therefore, we are of the opinion that since the offshore contract is only for procurement of cables that too outside India and the training provided in India is incidental to the contract No.1 i.e., offshor....
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.... offshore contracts. Even though there seems to be merit in contentions, it is very difficult to examine them at this point of time in view of afflux of time. Cconsidering the facts as examined by the A.O. and Ld. CIT(A), we are of the opinion that estimation of income at 10% on the contracts relating to onshore supply and services is reasonable on the facts of the case. ITAT is generally estimating incomes from 10 % to 12.5% in main contractors cases. Since assessee undertook on contract basis the estimation at 10% is reasonable. Therefore, we are of the opinion that authorities are justified in estimating income on onshore contracts. Revised ground no 2 is rejected. 16. Next ground (Addl. Ground 2) is on levy of interest u/s 234B, 234D. It was the contention that interest under section 234B and 234D are not warranted on the facts of the case. Ld. Counsel relied on the decision of the Hon'ble Bombay High Court in the case of DIT (IT) vs. NGC Network Asia LLC Bombay 313 ITR 187 for the proposition that assessee is covered by the provisions of TDS there is no need to levy interest under section 234B. Likewise, he also questioned the levy of interest under section 234D stating tha....