TaxTMI 
TaxTMI 
2017 (9) TMI 1822
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....alia in the business of providing innovative and environmentally sound solutions of a wide variety of customers in metal processing industries. During the year under consideration the assessee earned revenue from: (i) sale of equipment including spares,(ii) Revenue from supervisory services, (iii) sale of design and drawing, (iv) Manpower and other services etc. The assessee has electronically filed a return of 28.03.2014 for Assessment Year 2012- 13 declaring a total income of Rs. 5,27,43,560/-. The assesses case was selected for scrutiny U/s 143(2) of the Act. The AO after considering the submissions of the assessee made a draft order dated 27.03.2015 which was served on the assessee. In response, the assessee filed objections before the Hon`ble Dispute Resolution Panel(DRP)-2 under section 144C (2) of the Act. After considering the objections submitted by the assessee, the Hon`ble DRP gave directions vide order dated 04.11.2015. 4. First, we take assessee's appeal in ITA No.160/Kol/2016 wherein the assessee has raised the following grounds of appeal: "1.That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Deputy Commissioner ....
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....the assessee has raised a multiple grounds of appeal, but at the time of hearing the main grievance of the assessee has been confined to Ground No.2 and Ground No.3 and other grounds raised by the assessee, in this appeal, are general and consequential in nature. 6. The Ground No.2 raised by the assessee relates to increasing the net profit rate to 27.5% on the gross revenue from supervisory services against the net profit rate of 15.10% applied by the assessee. 6.1 The brief facts qua the issue are that during the year under consideration, the assessee has admitted a supervisory PE in India but has not prepared any separate books of accounts for supervisory services during the year as the contention of the assessee is that it had a belief that the supervisory services per se rendered on standalone basis would not create a PE in India. For the purpose of computation of profits, the assessee has therefore computed the average net profit percentage on sales earned by the comparable Indian companies and such margins as per assessee's computation works out to l5.10% on sales. The assessee has also furnished the details of Indian comparable companies relied upon by it for the ....
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....he assessee reported to have earned gross revenue from supervisory services amounting to Rs. 10,35,15,673/- out of which Rs. 1,85,60,360/-, being 17.93% of the gross revenue, was allocated to the Indian PE. In assessment, AO had enhanced this allocation to 27.50% which works out to Rs. 2,84,66,810/-. The DRP also confirmed the action of the AO for the reason that on identical facts and circumstances, the ITSC attributed profits @ 27.50% in the assessee's own case for A.Ys 2008-09 and 2009-10 respectively. For the AYs 2008-09 & 2009-10 before the ITSC and now for AY 2010-11 before the AO, the assessee admitted to have PE in India to which the impugned supervisory services were effectively connected, but no books of accounts were maintained for the same. This was in clear violation of provisions of section 40AD of the Act. In such circumstances, the factual finding of the ITSC towards attribution of profits to the extent of 27.50% on the revenue earned from supervisory activities in India cannot be faulted with and for the very same reason, the action of the AO in attributing profits @27.50% was rightly confirmed by DRP. We also hold so. This issue of assessee's appeal is dismissed."....
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....ngs the assessee submitted the copies of contracts for sale. On perusal of the copies of contracts for sale, the AO observed that the income arising from the said transactions should be considered taxable as Royalty under the provisions of the Act read with the provisions of the DTAA. In response to the question asked by the AO, the assessee company submitted the factual and legal position with regard to sale of design and drawings stating the followings: (i) Under the contracts, the scope of the assessee was limited to designs and drawings being in the nature of basic engineering for which work was done primarily outside the territory of India. Basic engineering includes sale of designs and drawings to the customers that pertain to the location plot plan, layout drawings, placement of various equipment, types of equipment to be installed, process description, manufacturing of indigenous equipment in India etc. that are needed as per specifications by the customers to erect the plant; (ii) The assessee has access to a wide range of technologies such as sinter plant technology, pellet plant technology etc that are required for the purpose of setting up/erection ....
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....ments, namely of Scientific Engineering House P. Ltd. vs. CIT (SC) [157 ITR 86], Modern Threads (India) Limited vs DCIT (Jaipur ITAT) [69 ITD 115], DIT vs Infrasoft Ltd. [39 Taxmann.com 88]. In support of its contention, the assessee had also relied upon certain clauses of contracts of supply of imported designs and drawings for Bhushan Power and Steel Plant - Pellet Plant]. However, the ld AO rejected the assessee`s submissions and noted that by the transfer of drawings, designs, engineering information, etc., the recipient was enabled to ensure the operation and maintenance of the plant set up and the manufacturing process of the plant. The recipient was enabled to use or was imparted with the information concerning industrial, commercial or scientific experience through the said transfer. This would necessarily being the payment within the ambit of "royalty" in terms of clause (iv) of Explanation 2 to section 9(1)(vi) of the Act as well as Article 12(3) of the India-German DTAA. In the case of CIT Vs. Klayman Porcelains Ltd. [1998] 96 Taxman 221 (AP), the Hon'ble Andhra Pradesh High Court held that: "...if the amount in question had been paid by the Indian company to....
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....ices by technical or other personnel but does not include payments for services mentioned in Article 15 of this Agreement." The Hon'ble DRP held that the said transaction is in the nature of FTS since (i) the assessee has access to a wide range of technologies for the purposes of setting up/erection of plants (ii) which were developed after research and after necessary modification and thereafter (iii) these designs and drawings were sold to Indian customer who used the same for internal business purpose of setting up of their plants. The ld. Counsel of the assessee could not rebut query in respect of categorization of the transactions as FTS. Therefore, in view of the above mentioned direction of the Hon'ble DRP, the addition made in the draft assessment order on account of Royalty from sale of Designs was categorized as Fees for Technical Services and assessed as such by AO. 7.3 Not being satisfied with the order of DRP/AO, the assessee is in appeal before us. The ld Counsel for the assessee has stated before us that said issue is fully covered by the judgment of Hon`ble ITAT Kolkata, in assessee`s own case for assessment years 2005-06 to 2007- 08, & 2010-11 and 2011-12, which....
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....ound of the assessee is allowed. 7.4 In the result, the appeal filed by the assessee (Ground No.3(a) & (b) ), is allowed. 8. Ground No. 4 and 5 raised by the assessee relates to charging of interest under sections 234A and 234B of the Act, which is consequential in nature and AO will recompute the same accordingly, therefore, it does not require adjudication. 9. Ground No. 6 and 7 raised by the assessee relates to penalty proceedings under section 271 (1) ( C ) of the Act, which is consequential in nature and therefore, it does not require adjudication. 10. Now we shall take the appeal filed by the Revenue in ITA No. 193/Kol/2016 for A.Y. 2012-13. The grounds of appeal taken by the Revenue in this appeal, reads as under:- i) On facts and in the circumstances of the case, the Ld. DRP erred in ignoring its own finding given in the preceding year in the assessee's own case for the A.Y. 2004-05. And failed to return a correct finding of the facts that the sale consideration was not sale simplicitor for overseas supply of equipment and included consideration for various tests and warranty provisions and therefore income attributable to such services rendered in Indi....
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....were independent and unrelated parties and purchased the equipment from the assessee on their own account and hence the price was at arm's length; (vi) The assessee was not legally or economically dependent upon the Indian customers; (vii) The contracts for the sale of equipment were concluded on a 'principal to principal' basis; (viii) Under the contracts, customer' inspection of the equipment was to be taken place outside India; and (ix) The assessee did not have any office or place of business in India. In response to the show cause notice issued to the assessee, the assessee submitted before the AO various clauses of contract i.e. delivery on FOB basis, terms of payment, inspection etc, for Tata KPO project. The assessee has also furnished an annexure highlighting the similar clauses in other contracts for sale of equipment for other projects as well. Based on the facts stated by the assessee, it has contended that all the activities relating to designing, fabrication and manufacturing took place outside India, the sale of equipment also took place outside India on principal to principal basis at arm's length and consideration was a....
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....re is no question of supervisory PE as the supervisory service contract has been awarded by the customer directly to Outotec (India) Private Limited or supervisory services has not been commenced till the end of the year under consideration etc and hence the question of any attribution on account of sale of equipment for such projects would not arise at all. The assessee also relied on ltem-1(a) of the Protocol of the DTAA, which mentions, with reference to Article 7 of the DTAA, that if machinery or equipment is delivered from Head Office etc, then their value should not be attributed to the profits of the building site of construction, assembly or installation project. In addition to the above, the assessee has also submitted that the supervisory PE has no role to play in offshore supplies as all the work relating to designing, fabrication and manufacturing of equipment was done outside India and sale has also taken place outside India. Based on the above mentioned contentions the assessee has claimed that the profits arising from sale of equipment is not taxable under the provisions of DTAA. During the assessment proceedings, the assessee also placed reliance upon various Jud....
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.... and sold to the assessee directly on export sale basis. The contract provides for delivery of equipment on FOB Foreign Port of Shipment payments i.e. 80-85% for each and every part equipment becom emsa jpoariytya bolef upon delivery of equipment on FOB foreign Port of Shipment the above payments are through irrevocable letter of credit which makes it clear that even if the ship does not sail or deliver the goods to the destination, the assessee receives payment out of Letter of Credit guaranteed by bank upon FOB delivery. Even the customer's inspection for equipment is outside India. The buyers were Indian customers and unrelated parties and purchased equipment from assessee on their own account. Moreover, sale was on principal to principal basis and at arm's length. The assessee entered into either separate contracts each with its own scope of supply or service with separate consideration or single contract with separate scope of supply and services as well as separate consideration. The findings of DRP and that of the AO that the contracts are single contract split into separate parts is not correct. Even if the contract is considered to be integrated one, then also the taxa....
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....l work relating to manufacturing, designing, fabrication etc. of equipment is done outside India and sold to the assessee directly on export sale basis. The contract provides for delivery of equipment on FOB Foreign Port of Shipment majority of payments i.e. 80-85% for each and every part of shipment becomes payable upon delivery of equipment on FOB foreign Port of Shipment the above payments are through irrevocable letter of credit which makes it clear that even if the ship does not sail or deliver the goods to the destination, the assessee receives payment out of Letter of Credit guaranteed by bank upon FOB delivery. Even the customer's inspection for equipment is outside India. The buyers were Indian customers and unrelated parties and purchased equipment from assessee on their own account. Moreover, sale was on principal to principal basis and at arm's length. The assessee entered into either separate contracts each with his own scope of supply or service with separate consideration or single contract with separate scope of supply and services as well as separate consideration. The findings of DRP and that of the AO that the contracts are single contract split into separate....