TaxTMI 
TaxTMI 
2019 (12) TMI 534
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....and CO#4 to JSW. Accoldingly, JSW, and the applicant had entered into the following two contracts: a. Contract #JSWPL/VJNR/CDQ/001 dated 30th September 2010 for supply of equipment for Japan portion. (Contract Price JPY 687, 100.000). b. Contact #JSWPWVJNR/CDQ/002 dated 30th September 2010 for supply of equipment for China portion. (Contract price JPY 3,249,100,000). The contract provided that carriage of equipment from port of shipment to Indian port shall be the responsibility of JSW on its own account. In addition, separate contracts were also awarded to the applicant by JSW for supply Of drawings and documents, offshore training and supervision services. It is in connection with the offshore supply of equipment and material that the applicant has approached this Authority and filed the present application on 29th March 2012 seeking advance ruling under section 245Q(1) of the Income Tax Act, 1961 on the following question related to the transaction: On the facts and circumstances of the case, whether amounts received/ receivable by Nippon Steel Engineering Ltd. ("Applicant" or "NSEC") , under contracts for co., offshore supply of Coke Dry Quenching ....
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....e supply of goods can be brought to tax in India, needs to be examined on the following two parameters: A. Whether the transfer of title in goods was outside India? B. Whether the payment was received outside India? Wherever the aforesaid twin tests were satisfied, income from offshore supply shall not be liable to tax in India. The applicant submitted that in his case also the transfer of title of good was outside India at the port of loading and the payment for the materials supplied was also received outside India. Accordingly, it was contended that the supply of equipment of materials was from outside India and no part of such remuneration had accrued or arisen in India. The applicant further submitted that the offshore supply of equipments had no business connection in India as sale of equipment to JSW was made independently from outside India on principal to principal basis and the sale was concluded outside India. It was also submitted that in connection with supply of equipment under the contract in question no business operation was carried out by the applicant in India. It was further submitted that the transaction was not taxable under India-Japan Ta....
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....ent has to be read along with the other contracts of drawings, training and supervision as the equipment cannot be installed without the involvement and supervision of the applicant and the offshore supply contract was inextricably linked with the other training and supervision contracts and thus all the four contracts constituted a composite contract. 6. The revenue pointed out that for making the bid for such intensive projects the applicant must have done elaborate pre-bid spade work involving site visit, surveys & inspection of various places through its employees, which would result in PE exposure for the applicant. The employees of the applicant must also have visited India for site surveys, protracted negotiations, data collection, consultation, signing of contracts etc; and the place, manner and mode of execution of the contract led to have a Fixed Place PE for the Applicant. Therefore, the income of the applicant arising out of these contracts was liable to be assessed as business income under Article 7 of the Treaty. The applicant also had a business connection as stipulated under section 9(l)(i) of the Act. On the basis of the information obtained regarding the visit ....
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....also drawn to the findings of the enquiries made by the revenue from JSW in connection with the project. The revenue pointed out that request for quotation (RFQ) was issued for the complete package and all the seven components of the package were evaluated together, which were intended to be awarded to the single party. Further that some of the components like training and supervision could not have been separated from the main contract and the single contract was split into seven contracts at the request of the applicant. The revenue placed reliance on the decision of Madras High Court in the case of Ansaldo Energia SPA (310 ITR 239) in support of the plea that in case the non-resident has a PE in India and it was involved in the transaction of off-shore supply of equipment, the income attributable to the operations carried out through PE was taxable in India. Reliance was also placed in the decision of Vodafone International Holdings (VBB) (204 Taxman 408)(SC) in support of the contention that the transaction has to be considered in its entirety and looked at as a whole. The revenue has also relied on the rulings of this Authority in the case of Roxar Maximum Reservoir Performanc....
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....m global leading suppliers, which were evaluated and then awarded to the applicant. There was no question of artificial loading of the price by the applicant in the-offshore supply contract as this would result in increasing the custom duty payment to be made by customer which the customer would not allow as it would be an additional cost to him. 11. With regard to Fixed Place PE, the applicant submitted that the contention of the revenue was merely based on surmises & conjectures. It was contended that the allegation of the revenue was based on assumptions that the employees would have visited India for the purpose of bids and discussions with customer and even their stay in a hotel prior to award of contract would result into constitution of a Fixed Place PE in India, which was misplaced and had no bearing on the constitution of Fixed Place PE. As regards service supervisory PE in connection with provision of engineering, training and supervision services it was submitted that there was no dispute regarding those activities as those transactions were offered for tax in India and further that the Supervisory PE had no role at all in offshore supply of eqipments and materials. T....
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....a" used in Section 245N(a) of the Act. Section 13 of the General Clauses Act, 1897 provides as under: Gender and number- In all Central Act and Regulations, unless there is anything repugnant in the subject or con text- (1) words importing the masculine gender shall be taken to include females; and (2) words in the singular shall include the plural, and vice versa. Thus, if there is nothing contrary provided in the relevant statute then the provision of General Clauses Act prevails and, therefore, a singular word has to be considered as including plural and vice versa. 14. The words of the Act are to be given their general and ordinary meaning, unless the context requires otherwise. While constructing the true and fair meaning of a word the context and the relevant rules and guidelines are also to be taken into account. Rule 44E(4) of the Income Tax Rules prescribes the fee payable along with the application for advance ruling. The said rule stipulates that the fee payable has to be worked out on the basis of amount of one or more transactions entered into or proposed to be undertaken by the applicant. It is thus evident from the above Rule that mor....
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....e given undue notability and prominence. One of the primary rules of statutory construction is that singular includes plural and vice-versa. This rule applies unless a contrary intention is manifest and exhibited. Merely because a statutory provision is drafted in singularity as opposed to plurality, is not enough to exclude application of the general rule that singular includes plural. The rule is not to be discarded on the ground that the relevant provision is singular or plural and the subsidiary and ancillary provision follow the same pattern. Contrary intention to exclude this generic rule is not to be Iightly inferred. Contrary intention is not assumed or formed by confining attention to a specific provision but it would be apposite to consider the provision in the setting and placement of . the legislation It is a substance and tenure of the statute which would be meaningfully and critically determinative. This is the mandate of Section 13 (2) of the General Clauses Act, 1897 (see Newspapers Ltd. v. State Industrial Tribunal AIR 1957 SC 532, Narshimha Murthy v. Susheelabai [1996] 4 SCC 644, J. Jayalalitha v. Union of India [1999] 5 SCC 138, Blue Metal Industries Ltd. v. RW D....
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....ve that on the face of it the preliminary objection raised by the Commissioner lacks not only merit but also rationality. After some reluctance Mr. Chopra has given up this objection, we, therefore, do not propose to deal with this aspect any further except to mention that section 13 of the General Clauses Act 1897 is a complete answer to the objection raised by the Commissioner. 19. The CBDT vide Office Memorandum F.No.370149/70/2019-TPL dated 28th August, 2019 has clarified that the use of words "a transaction" in sub-clause (iia) of clause (a) of section 245N of the Income Tax Act, 1961 does not preclude multiple transactions from the scope of "advance ruling" as defined in clause (a) of section 245N of the Act. 20. In view of the above interpretation of a singular word as given by the various Courts under Income Tax Act as well as other Acts, it is crystal clear that 'a transaction' appearing in Section 245N(a) of the Act would include more than one transaction. The provisions of the Income Tax Rules, the Notes to Form No, 34C and the clarification issued by the CBDT vide OM dated 28-08-2019 fortify this interpretation. However, a question may arise whether an app....
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.... & Documents [Engineering] and Training) The total purchase price for above mentioned scope shall be JPY 4, 159, 900, 000 (JPY Four Billion One Hundred Fifty Nine Million Nine Hundred Thousand Only.) The total purchase price shall remain firm and not subject to any cost escalation including fluctuations in the exchange rate between any currencies. Japanese Supply Portion shall be contracted by five separate contracts as follows: Contract#1: Equipment for NSE portion: JPY 687,100,000 (JPY Six Hundred Eighty-Seven Million and One Hundred Thousand Only), FOB berth term Japanese, Korean and/or other international seaports basis as per INCOTERMS 2000 as amended ("INCOTERMS 2000") Contract#2 : Eqpipment for BJCEEE (defined in (3) below) portion : JPY 3,249,100,000 (JPY Three Billion and Two Hundred Forty-Nine Million and One Hundred Thousand Only) FOB Berth Term Chinese and/or other international seaports as per INCOTERMS 2000 Contract#3: Engineering for NSE portion: JPY 10,000,000 (JPY Ten Million Only), CPT Bangalore Airport basis as per INCOTERMS 2000 Contract#4: Engineering for BJCEEE portion: J....
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....res are necessary or required for achieving the, acceptable limits of performance guarantee values specified under Technical Specification as per Annexure Il, over and above the list of Equipment specified in the Technical Specification as per Annexure Il for reasons solely attributable Co the Seller, the same shall be supplied by the Seller in the same conditions as Article 10.1.1, without any extra cost, to the purchaser. 3.3 Unless otherwise specified in the Contract, the Contract price shall be inclusive of the price of spares to be supplied with the Equipment as per the Technical Specification. 3.6 The purchaser shall be responsible for providing the Seller with the data, drawing and any other information at no cost to the Seller in accordance with the agreed schedule by both parties so that the Seller can implement the Contract in accordance with the terms and conditions thereof . 24. Thus, these two contracts were for supply of equipments along with spare parts. The contract price as per the supply contract agreement was JPY 687,100,000 for Japan portion and JPY 3,249,100,000 for China portion, which are in accordance with the price as mentioned in LOL T....
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..... Clause 16.1 of the supply contract stipulated as under: The Purchaser shall take suitable marine insurance policy for all the Equipment supplied by the Seller under this Contract for any loss/damage during transit after FOB delivery on the basis on INCOTERMS 2000. The Seller shall mention the Purchaser's Insurance Details in the commercial Invoice after obtaining the same from Purchaser. In case of any loss/damage, the Purchaser shall lodge and settle the claim with the insurance company. However, the Seller shall make effort to provide all necessary assistance in this regard. The Seller shall replace/ repair the lost/damaged Equipment at the request of the Purchaser subject to the written agreement by both parties on the costs and schedule of such replacement/repair. If the replacement is required, such replacement shall be subject to the same conditions as specified in Article 10.1.1." 28. The contract also stipulated for payment of liquidated damages for delay in delivery beyond grace period of four weeks and for non-achievement of performance guarantee values. In fact, the responsibility of erection of the equipments and preparation for various performance tes....
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....in India. The applicant did not reserve the right of disposal of goods during transit or otherwise. The goods were not in the custody of the applicant for the purpose of erection and installation but in the custody of JSW who had already become the owner of equipments well before the goods had reached the Indian port. 31. The condition that that applicant shall supervise the performance guarantee and will be responsible for the quality and satisfactory performance of the equipments also cannot be considered as a condition which postpones the transfer of title to the goods till that time. This stipulation was in the nature of warranty provision in the contract and it cannot be deemed that the transfer of title of the property has taken place in India on satisfactory performance guarantee test. In the case of Ishikawajima (supra) decided by the Hon'ble Supreme Court, there was a clause which contained an obligation on the part of the contractor to retain custody and control of the equipment and to take due care thereof until provisional acceptance of the work and the installation of equipments was also to be carried out by the contractor. In spite of these features, the Suprem....
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....ller. 33. The revenue has alleged a lop-sided attribution of cost to the contract for offshore supply of materials and equipments without any concrete evidence. The revenue has neither placed any material in support of such suspicion nor has any transfer pricing adjustment made in the case of the payee been brought on record to substantiate the same. We, therefore, do not find any merit in the allegation of revenue regarding artificial loading of the price by the applicant in respect of offshore supply Contracts. 34. The principle of apportionment of income on the basis of territorial nexus is now well accepted. Explanation I(a) to section 9(l)(i) of the Act stipulates that where all the operations are not carried out in India, only that part of income which can be reasonably attributed to the operations in India, would be deemed to accrue or arise in India. It, therefore, follows that in a composite contract where only a part of the operations is to be carried out in India, the assessee would not be liable for part of income that arises from operations conducted outside India. In such a case, income from the contract has to be appropriately apportioned. The Hon'ble Supre....
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.... responsibility of the entire turnkey contract in its capacity as a single bidder. Contracts I and II dealt with offshore supply of equipments along with designing and engineering and offshore service of supervision of erection, testing and commissioning; and contracts Ill and IV dealt with onshore supply of equipments and onshore services. Ansaldo had offered 20 per cent of income on contracts I and II to tax, whereas contracts Ill and IV were shown as loss making contracts. The Assessing Officer had treated the entire receipts under contract as fees for technical services and quantified tax accordingly. The Commissioner (Appeals), gave a finding that contract was split up into four contracts only for tax purpose; that there was uniformity of control in respect of all four contracts; and that price of contracts I and II was likely to be loaded higher to take care of other responsibilities and risks of assessee with respect to contracts Ill and IV on account of single bidder responsibility. He also held that Ansaldo had a PE and business connection in India and estimated profit on entire project, taking into consideration losses of contracts Ill and IV and the profit attributable t....
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....or erection and commissioning of 36 manometer gauges for the use of ONGC. The contract is clearly not one for sale of equipment. Nor is it one for mere erection of the equipment . It: is a composite contract for supply and erect ion at sites within the territory of India. What is paid for by ONGC is for Che supply and erection done in India. The payment is received by the applicant for the performance Of the contract as a whole in India. It is therefore clear that the income to the applicant accrued in India. The terms of the contract of the present case has already been reproduced earlier which clearly stipulates that applicant was not responsible for installation and commissioning of the CDQ units in the present case. 37. The facts of case of Alstom Transport SA, (supra) are also found to be distinct and different from the facts of the present case. In that case the tender was invited by BMRC for installing the signalling and communication system for the metro rail. This Authority had held that the same was not for supply of offshore equipments independently of the installation and commissioning, nor was it for independent installation and commissioning, divorced from the d....
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....es a permanent establishment only if lasts for more than six months. 5.4 An enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it carries on supervisory activities in that Contracting State for more than six months in connection with a building site or construction, installation or assembly project which is being undertaken in that Contracting State. 39. The applicant does not have any fixed place of business through which its business was wholly or partly carried on to be considered as PE under Article 5.1. As per Article 5.3 of India-Japan DTAA, a building site or construction, installation or assembly project constitutes PE, only if it had lasted for more than six months. Similarly as per Article 5.4, for the supervisory activities to constitute a PE, such activity should be carried on for more than six months. No such evidence has been brought on record by the revenue in respect of offshore supply contracts. There is no dispute to the fact that the applicant had a supervisory PE which was in respect of contract for supervision services and the income in respect of this ....
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.... supervisory PE would have been established much later at the time of supervision, after the offshore equipments would have reached the site. Apart from making a wild allegation the revenue has not brought on record anything to establish that the supervisory PE had any role in offshore supply of the equipments. 41. As already mentioned earlier the responsibility of erection of the equipments and preparation for various performance tests was on the purchaser and the applicant had only supervisory role therein. The contract for installation of CDQ units was assigned to L&T Ltd., wherein the applicant had no role at all. The revenue has relied upon the pre-bid activities including Minutes of the Meeting between the applicant and JSW authorities. All these works including the Minutes of Meetings were held prior to the award of the contract to the applicant. We have already taken a view in the case of Toshiba Corporation (supra) that at the me-bid stage and during the Meetings, the applicant could not be certain that the contract will be awarded to him and the business of the applicant can be said to have commenced only after the contract was awarded to it or the decision to awa....