TaxTMI 
TaxTMI 
2018 (8) TMI 52
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.... allowed relief to the assessee. 2. Whether on the facts and in circumstances of the case and in law, the CIT(A) has er red in holding that income f rom sale of products cannot be construed to be fees for technical services or Royal ty as it is outright transfer of title in the products by the assessee to ONGC. 3. Whether on the facts and in circumstances of the case and in law, the CIT(A) has erred in holding held that since such repair work is undertaken at the overseas workstation the question of taxabil ity of such receipts f rom repair work as attr ibutable to PE does not ar ise and direc ted the A.O to delete the addi t ion made f or the revenues earned by the assessee from repairs activity under ONGC contract. 4. The Appel lant prays that the order of the ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer restored. 5. The Appel lant craves leave to amend or al ter any ground or add a new ground which may be necessary." 2. Briefly stated, the assessee company which is incorporated under the laws of Australia is engaged in the business of supply of products, provision of services and undertaking activities rela....
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....(and related activities) under the contract with ONGC; and (iv) taxability of revenue from equipment rental and project management services under the contract with the ONGC. The CIT(A) after deliberating at length on the contentions advanced by the assessee in context of the aforesaid issues, dealt with the same as under: (A) Composite taxability of aggregate revenue from ONGC contrat: It was observed by the CIT(A) that the assessee during the year under consideration viz. A.Y 2011-12 had entered into a contract with ONGC for inspection and refurbishment of subsea equipment, supply of well completion tools and technicians for completion of balance work on field development project. The assessee had in its return of income offered revenue of Rs. 5,39,47,447/- in respect of ONGC contract for taxation under Sec. 44BB of the Act. It was observed by the CIT(A) that the said revenue comprised of viz. (i) Project management fees: Rs. 2,96,17,267/-; and Equipment rental: Rs. 2,43,30,180/-. Still further, a perusal of the notes forming part of the computation of income of the assessee revealed that the assessee had also received an amount aggregating to Rs. 4,97,76,660/- towards offsh....
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....y, repair work etc. , but according to requirement of a par t icular work, like 'Refurbishment of HXT retrieved f rom wel l G- 1 DB' , 'Testing of other 4 HXTs ( includes EFAT/SIT) and entire subsea system' etc. V) All the activi ties as classif ied by assessee are related wi th each other. For example I tem No.1.1 of scope of work which is in respect of 'Refurbishment of HXT retrieved from well G-1 DB'. The activities to be performed by assessee are given as under: "This requires complete stripping of the tree, QA/QC check of all components, replacement of damaged components, Assembly and testing to make it installation worthy and proposed to be taken up in Cameron's works in Melbourne. This work can be further divided into: i) Fixed Scope a) Cleaning, dismantling of tree into components, carry out QA/QC checks on the components and f irm up the requirement of repair/ replacement of components, if any. b) Reassembling and testing of tree. ii) Variable Scope: Replacement/ refurbishment of components based on QA / QC checks and jointly decided by Cameron, ONG, DNV" Perusal of above scope shows that this scope....
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.... to 44DA. Since, the subject amounts fall under 44DA, this exclusion in (iva) does not take the case out of purview of Royalty. V) All above facts show that assesse's case falls under 44DA." 6. During the course of the appellate proceedings, it was submitted by the assessee before the CIT(A) that the different activities referred under the contract between the assessee and ONGC were separate, divisible and independent of each other, as under: "a. Offshore products/ equipment supply; b. Offshore repair work (including related warehousing costs; including reimbursement for transport and logistic support); c. Equipment rental; and d. Project management services." It was the claim of the assessee that based on commercial negotiations between the parties and for administrative convenience a single contract was executed with ONGC for different independent activities, instead of executing multiple contracts for such independent activity between them. The assessee in order to buttress his contention that the ONGC contract contemplated separate, divisible and independent scope of work, submitted before the CIT(A), as under: "2.....
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....dependent and divisible scope of work under the contract was to be determined independently vis-a-vis each activity or whether the taxability was to be looked into on a composite basis for the aggregate revenue received by the assessee from the different activities undertaken under the ONGC contract, as determined by the A.O. It was observed by the CIT(A) that though admittedly a single contract was awarded by ONGC with respect to all the activities under the contract for inspection and refurbishment of sub-sea equipment, supply of well completion tools and technicians for completion of balance work of the G-1 and G-15 fields development projects, however, there were certain activities provided under the contract which were undertaken by the assessee outside India and the other activities were carried out in India. The CIT(A) observed that in case of composite contracts, as per the settled position of law the taxability of each separate, divisible and independent activity was required to be evaluated independently. The CIT(A) while concluding as hereinabove, relied on the judgments of the Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Limited. Vs. DIT (20....
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....o each other, but even the invoices were separately raised by the assessee for each of the above referred separate, independent and distinct activities. The CIT(A) noticed that the claim of the assessee that the aforementioned activities were independent of each other could also be gathered from the fact that the employees of the assessee working on activities carried out in India were separate and distinct from the employees working for the activities carried outside India. On the basis of the aforesaid observations, the CIT(A) following the principles laid down by the Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Limited (supra) and Hyundai Heavy Industries Company Ltd. (supra) and that of the High Court of Delhi in the case of Linde AG, Linde Engineering Division (supra), concluded that the claim of the assessee that the taxability of the different streams of revenues earned by it under the ONGC contract from each separate, independent and divisible work was to be considered independently, was found in order. In the backdrop of the aforesaid observations the CIT(A) directed the A.O to independently determine the taxability of revenue in the hands of t....
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....laim of the assessee that the receipts from such offshore supply of products were not liable to be brought to tax in India. 8. The CIT(A) observed that it was the claim of the assessee that since offshore supply of products was a separate and independent part of the contract with ONGC and the same were sold to the latter on FOB basis outside India, thus, the income earned there from could not be taxed in India. The CIT(A) in the backdrop of his aforesaid view that the taxability of each activity undertaken by the assessee under the ONGC contract was to be determined independently, thus, concluded that the taxation of income from offshore supply of products by the assessee to ONGC was to be looked into separately. The CIT(A) following the principles laid down by the Hon'ble Apex court in the case of Ishikawajima-Harima Heavy Industries Limited (supra) and Hyundai Heavy Industries Company Ltd. (supra), observed that in case of composite contracts income from offshore supply of equipment could not be subjected to tax in India, provided no part of the activities of such offshore supply was undertaken in India. On the basis of his aforesaid observations the CIT(A) concluded that as t....
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....fied the 'make available' criteria, as the operator was able to operate the system much after the service provider had left. The assessee rebutting the aforesaid observations of the A.O submitted viz. (i) that ONGC availed the services of the assessee to repair its existing equipment which required overhaul/maintenance; (ii) the entire repair services were rendered at the overseas work stations of the assessee (i.e outside India); (iii) the equipment identified by ONGC was transported to Australia/Malaysia depending upon the type of equipment and nature of services to be rendered; (iv) that after initial inspection the spares required to be replaced were identified and ONGC would make necessary requests for the supply of the same to the assessee; (v). the assessee would replace the spares in the course of repairing the overall equipment; (vi) the Indian PE of the assessee had no role to play in its aforesaid activities; (vii) that separate invoices were raised by the assessee for the repair activities and the consideration for the same was received outside India; (viii) that the activities of installation and commissioning of equipment was separately covered under the installation ....
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....the observations of the A.O that the installation and commissioning of equipment would involve technical expertise, observed that not only the said activities were separately covered under the ONGC contract, but even otherwise as during the year under consideration no installation/commissioning activities were carried out by the assessee, hence the issue of taxability of income from such activities did not arise. It was further observed by the CIT(A) that while rendering the repair work, no right to use the equipment was provided by the assessee to ONGC as the said equipment was owned by ONGC itself, hence the question of characterising the receipts as Royalty on the basis of conferring a right to use of such equipment did not arise. The CIT(A) further dislodging the claim of the A.O that the repair services rendered by the assessee brought the same within the sweep of FTS observed that undoubtedly the repairs carried out by the assessee involved technical expertise, however, the said repair work (and related activities) undertaken by the assessee under the ONGC contract did not 'make available' any technical knowledge, experience, skill or processes etc. to ONGC. Still further, it....
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....e computed under the head "Profit and gains of business or profession" in accordance with the provisions of the Act. It was noticed by the CIT(A) that for the purpose of Sec.44DA the term "royalty" shall have the same meaning as in Explanation 2 to Clause (vi) of Sub-section (1) of Sec. 9. On the basis of the aforesaid deliberations as regards the scope and gamut of Sec.44DA, it was observed by the CIT(A) that Explanation 2 to Sec. 9(1)(vi), which defined the term "royalty", though included the consideration received by a non-resident for use of any industrial, commercial or scientific equipment, but the same specifically excluded the amounts referred to in Sec.44BB. The CIT(A) further adverting to Sec.44BB which contemplates the special provisions for computing profit and gains in connection with the business of exploration etc. of mineral oils, observed that the same provided a presumptive basis for taxation of a nonresident engaged in the business of providing services or facilities in connection with or supplying plant and machinery on hire, used or to be used, in the prospecting for or the extraction or production of mineral oils. In the backdrop of the aforesaid facts, it was....
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....venue earned by the assessee from equipment rental as per the provisions of the Sec. 44BB of the Act. 12. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We shall first advert to the issue as to whether the taxability of different streams of revenues received by the assessee from separate, independent and divisible scope of work under a composite contract with ONGC had rightly been held by the CIT(A) to be determined independently vis-a-vis each activity, or whether the taxability of the same should have been made on a composite basis for the aggregate revenue received by the assessee from the said contract, as determined by the A.O. We find that admittedly only one contract was awarded by ONGC with respect to all the activities for inspection and refurbishment of subsea equipment, supply of well completion tools and technicians for completion of balance work of fields development project. As observed by us hereinabove, some of the activities under the contract were undertaken by the assessee outside India and the other activities had taken place in India. We find that the CIT(A)....
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....aid view that the taxability of revenue earned by the assessee from each separate, independent and divisible work under the ONGC contract was required to be evaluated independently, had also taken support of the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Hyundai Heavy Companies Ltd. (2007) 291 ITR 482 (SC). In the aforementioned case, the assessee a Korean company had entered into a composite contract having two types of operations viz. (i) one being fabrication in Korea; and (ii) the other consisting of installation in India. The Hon'ble Apex court in the backdrop of the facts involved in the said case observed that the profits earned by the Korean GE on supplies of fabricated platform could not be made attributable to its Indian PE as the installation PE came into existence only on conclusion of the transaction giving rise to the supply of the fabricated platform. On the basis of the aforesaid deliberations, it was observed by the Hon'ble Court that the profit on such supplies of fabricated platform cannot be said to be attributable to the Indian PE of the assessee. Rather, it was observed that even if it was to be assumed that the supplies of platform were nece....
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....d by the assessee from offshore supplies made under the ONGC contract. The CIT(A) observed that as the products identified by ONGC are requested on need basis as per their requirements, therefore, the interconnection of the revenue received by the assessee from offshore supply of goods with other activities under the ONGC contract was unwarranted. We find that the CIT(A) had observed that in case of offshore supplies made under the ONGC contract, the property in goods were transferred by the assessee to ONGC outside India and the entire sale was executed outside India. The CIT(A) had further observed that no part of the activities of the offshore supply of equipments were carried out in India. Further, the PE of the assessee in India also had no role to play in effectuating such transactions either pre or post such offshore supply. We find that the CIT(A) relying on the judgment of the Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries ltd. Vs. DIT (2007) 288 ITR 408 (SC) and CIT Vs. Hyundai Heavy Industries Company Ltd. (2007) 291 ITR 482 (SC), had observed that as in the case of the assessee no part of the activities of offshore supply of equipments by the assessee wer....
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....of FTS. We find that a perusal of Explanation 2 to Sec. 9(1)(vii) of the Act, reads as under: "[Explanation [2]- for the purpose of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy service (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries". It is clearly discernible from a perusal of Explanation 2 to Sec. 9(1)(vii), that where the consideration is received by the recipient for any "mining or like project" undertaken by him, the same would be excluded from the sweep of FTS. We are of the considered view that as the consideration received by the assessee for providing the repair work (and related activities) to ONGC are in context of the business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used, in the prospecting for, or extraction or production of mineral oils,....
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....ial pronouncements and the scope of the term "make available" as used in India- USA DTAA, had observed that mere rendering of the repair services by the assessee at its overseas work station did not satisfy the 'make available' condition as contemplated under Article XII(3)(g) of the India- Australia tax treaty. We thus, are persuaded to subscribe to the view taken by the CIT(A) that the rendering of the repair services by the assessee to ONGC cannot be characterised as royalty. Still further, we may herein observe that as the equipment is owned by ONGC itself, therefore, while rendering the repair services, no right to use the equipment can be said to have been provided by the assessee to ONGC. We thus, finding no infirmity in the order of the CIT(A) holding that the revenue received by the assessee from rendering of the repair services to ONGC cannot be brought within the sweep of FTS or Royalty, uphold the same. Before parting, we may further observe that as the repair works are undertaken at the overseas work stations of the assessee, therefore, the question of taxability of such receipts from rendering of the repair work as attributable to PE of the assessee in India does not ....