TaxTMI 
TaxTMI 
2019 (1) TMI 1720
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....the loss of INR 7 55599323/-. The assessee has raised the following grounds of appeal in ITA No. 1064/Del/2013:- "1. That the assessing officer erred on facts and in law in completing the assessment of the appellant for the relevant assessment year, determining loss at Rs. 24,64,15,670, as against the loss of Rs. 75,55,99,323 returned by the appellant. Re: Existence of Permanent Establishment: 2. That the assessing officer erred on facts and in law in holding, on the basis of orders passed in assessment years 2007-08 and 2008-09, that the appellant had fixed place of business in India in terms of Article 5(1) of India Korea Double Taxation Avoidance Agreement ("DTAA"/"the Treaty"), in the form of Project office in India and that the appellant had executed Vasai East Development Project of ONGC (VED Project) through such project office. 2.1 That the assessing officer erred on facts and in law in not appreciating that since the activities carried out by the project office in India were of preparatory and auxiliary nature, no fixed place PE in India, in any case, was constituted having regard to provisions of Article 5(4) of the Treaty. 2.2....
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.... law in not appreciating that there being loss in the activities carried on outside India, no income could be attributed to the installation of PE of the appellant in India. 6. That the assessing officer erred on facts and in law in disallowing deduction of expenses totaling Rs. 2,55,57,055 invoking the provisions of section 40(a)(i)/(ia) of the Act. 6.1 That the assessing officer erred on facts and in law in holding as aforesaid, without even specifying the provision under which tax was deductible from barge hire charges. 6.2 That the assessing officer erred on facts and in law in not appreciating that payment made by the appellant, a non-resident, to a non-resident service provider was not subject to tax deduction at source under section 195 of the Act." 3. Brief facts of the case shows that assessee is a company Incorporated in South Korea and is a tax resident of South Korea. It is engaged in the business of heavy engineering and was awarded the Vasai East development Project by oil and natural gas Corp Ltd for the purpose of survey, design, engineering, procurement, fabrication, NT crores and weight coating, Load out, tie down, sea fastening, tran....
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....are not offer to taxation. He further relied upon the decision of the coordinate bench in case of the assessee for assessment year 2007 - 08 in Samsung Heavy Industries Co. Ltd. v. Addl. DIT (International Taxation) [2013] 40 taxmann.com 165/[2014] 61 SOT 35 (Delhi - Trib.) (URO) where the issue was decided in favour of the revenue. He therefore held that incomes earned by the assessee outside India are held to be attributable to the permanent establishment in India by way of project office for the contract. The learned AO further asked the details of expenses incurred for earning this income and also the audit report for the assessment year. Further in the decision of the coordinate bench of the assessee for earlier years of profit was deemed at the rate of 25% of the income by the learned assessing officer is not supported by any basis of working and therefore the matter was set aside to the file of the learned assessing officer for ascertaining to what extent the activities of the business carried out through its Mumbai project office for deciding the percentage of such attribution of outside Indian activity to Indian permanent establishment. On the basis of the audited accounts....
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.... stating that when the order was received on 01/11/2012 by the authorised representative of the assessee in India he forgot to inform the appellant about the receipt of the impugned assessment order. Later on 16/02/2013 he came to know about this order from the various file and immediately handed over the assessment order to the appellant. On receipt of the above order the assessee immediately filed the appeal on 22/2/2013. The learned authorised representative vehemently stated that assessee has only an authorised officer in India who was not conversant with the tax matters and further the assessee is a non-resident and all the directors of the appellant are residing outside India which caused this delay. He further stated that the delay is not deliberate or on account of any Malafied. He stated that even otherwise the assessee is not benefited by filing a delayed appeal. Therefore it was prayed that the appeal be admitted and adjudicated on the merits of the case in the interest of justice. 8. The learned Commissioner of income tax Department representative (international taxation) vehemently opposed the application of the assessee for condonation of delay stating that the rea....
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....It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so. Making a justice-oriented approach from this perspective, there was sufficient cause for condoning the delay in the institution of the appeal. The fact that it was the " State " which was seeking condonation and not a private party was altogether irrelevant. The doctrine of equality before law demands that all litigants, including the State as a litigant, are accorded the same treatment and the law is administered in an even-handed manner. There is no warrant for according a step-motherly treatment when the " State " is the applicant praying for condonation of delay. In fact, experience shows that on account of an impersonal machinery (no one in charge of the matter is directly hit or hurt by the judgment sought to be subjected to appeal) and the inherited bureaucratic methodology imbued with the note-making, file-pushing, and passing-on-the-buck ethos, delay on its part is less difficult to understand though more difficult to approve. In any event, the State which represents the ....
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.... 2.3 Further, no portion of offshore supply could have been executed by the Project office as it merely had two employees in India who were not qualified to carry out the intricate job of fabrication of platforms. Reliance, in this regard is placed on Schedule 8 of the audited accounts of the Project office available at Page 430 of Paperbook-3. The schedule categorically mentions that the employee remuneration was only to the extent of Rs. 28 Lakhs. The amount was paid to the two employees mentioned above. The accounts were duly placed before the assessing officer during the course of assessment proceedings. 2.4 It is further submitted that the assessee has consistently maintained that the Project office was merely carrying out communication and coordination activities, the assessing officer has brought no material on record to controvert the claim of the assessee. Reliance in this regard is placed on the decision of National Petroleum Construction Company [383 ITR 648] rendered by the Hon'ble Delhi High Court wherein it was held as under: "In absence of any material evidence to controvert the assessee's claim that its project office was only used ....
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....Convention. Para (1) of Article 7 states the general rule that business profits of an enterprise of one Contracting State may not be taxed by the other Contracting State unless the enterprise carries on its business in the Other Contracting State through its PE. The said para (l) further lays down that only so much of the profits attributable to the PE is taxable. Para (l) of Article further lays down that the attributable profit can be determined by the apportionment of the total profits of the assessee to its various parts or on the basis of an assumption that the PE is a distinct and separate enterprise having its own profits and distinct from GE." 3. DISALLOWANCE UNDER SECTION 4o(a)(i)/ 4o(a)(ia) OF THE ACT. 3.1 The Ld. AO vide final assessment order passed under section 143(3)/i44C(i3) of the Act has disallowed the following expenses on the ground that barge hire charges have been paid to the following parties without deducting tax at source:- Logistics enterprise Pvt Ltd Rs. 9,75,000/- Teras Transporters Pte Ltd Rs. 2,45,54,555/- 3.2 The aforementioned expenses amounting to Rs. 9,75,000/- and Rs. 2,45,54,555/- were disallowed under....
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....tax on payments to non-resident which are taxable in India. Thus, in case the payment is not taxable in India, the obligation to deduct tax does not trigger at all. 5.3 It is pertinent to note that as Teras Transporters Pte. Ltd. is a Company registered in Singapore, it has the option of being taxed under the provisions of the Agreement for avoidance of double taxation and prevention of fiscal evasion between India and Singapore ("DTAA"). 5.4 Charter and rental charges of the shipping business are specifically referred to in Article 8 of the Indo-Singapore DTAA. Hence, the same cannot be classified as royalty under Article 12 of the Indo-Singapore DTAA. The text of Article 8 of Indo-Singapore DTAA is reproduced as under: "ARTICLE 8 SHIPPING AND AIR TRANSPORT 1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State. 2. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency engaged in the operation of ships or aircraft 3. Interest ....
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.... Singapore. Hence, as the income of the party to whom payment is made is not taxable in India, there is no liability on the assessee to deduct tax at source, therefore, disallowance under section 40(a)(i) is liable to be deleted. 5.9 The assessee would like to place reliance on the decision of the Cochin Tribunal in the case of Mathewsons Exports & Imports (P.) Ltd [2014] 50 taxmann.com 378) wherein the ITAT held as under: "This Tribunal is of the considered opinion that Article 8 of the DTAA between government of India and Government of UAE would be applicable to the facts of the case, since it is more beneficial to the assessee. Article 8 of the DTAA, more particularly, sub-clause (2) clearly says that the profit from operation of the ship in international traffic will also include the charter or rental of ships incidental to such transportation. Therefore, this Tribunal is of the considered opinion that the profit arising to the non-resident company on charter of the vessel M.V. Thekkadi has to be taxed only in the UAE in view of the DTAA between Government of India and Government of UAE, more particularly, Article 8(1) of the DTAA. The material filed by the as....
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....and hence the principle of res judicata or continuity does not apply. He further stated that no profits have been attributed to the permanent establishment during any cannot be the guiding principles for attribution of profits for other years. He stated that for the year under appeal it can be seen that despite specific direction by the learned dispute resolution panel, the assessee failed to provide details of information relating to outside revenue the same being voluminous and are mostly in Korean language which have to be translated in English. Therefore he stated that on the basis of the little documents provided to the assessing Officer the learned assessing officer noted the functions carried out by the assessee during the year as compared to the functions during assessment year 2008 - 09. He further stated that no evidence was produced by the appellant either before the lower appellate authorities or before the coordinate bench to refute the same. He further analyzed the functions performed by the assessee for assessment year 2008 -09 vision of his 2009 - 10 and 2010 - 11. He further stated that no transfer pricing study report of the profit attribution study was furnished ....
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....he identical issue for Ay 2007-08 has held as under :- "3. A short summarization of the facts, as above, would indicate two things, namely, that (i) the appellant has a tax identity in India and a tax identity outside India and, accordingly, (ii) its tax liability in India is required to be apportioned. What mechanism will be adopted to apportion the same has, however, not been provided in the Agreement for avoidance of double taxation of income and the prevention of fiscal evasion entered by the Union of India with the Republic of Korea. 4. In paragraph 1 of Article 7 of the said Agreement, it has been provided that profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. It, therefore, recognizes two tax identities of an enterprise. The said paragraph makes it clear that the profits of the enterprise may be taxed in the other State only so much of the same which is attributable to that permanent establishment. 5. Paragraph 2 of Article 7 is as follows :- "Subject to the provisions of paragraph (3), where....
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....t carries on business in India through a permanent establishment situate in India. By submitting the return, appellant has held out that it is carrying on business in India through a permanent establishment situated in India. In the circumstances, the contention of the appellant, whether the Project Office of the appellant opened at Mumbai can be, or cannot be said to be a permanent establishment within the meaning of the said Agreement is of no consequence. In terms of the said Agreement, as it appears to us, if an enterprise does not have a tax identity in India in the form of a permanent establishment, it has no obligation to either submit any tax return with, or pay any tax to India. The question still remains, whether it was right on the part of the Taxing Authority to assess incometax liability of the appellant as was assessed in the instant case. In other words, can it be said that the Agreement permitted the Indian Taxing Authority to arbitrarily fix a part of the revenue to the permanent establishment of the appellant in India? As aforesaid, appellant held out that a part of the revenue was received by it for doing certain work in India. It did not contend that even those ....
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....earned assessing officer for the purpose of determining the profit attribution, we also respectfully following the decision of the coordinate bench as well as the honourable High Court set aside the issue back to the file of the learned assessing officer with a direction to the assessee to submit the profit attribution report with respect to assessment year 2009 - 10 and 2010 - 11 containing the exhaustive functions performed by the project office in relation to the offshore supply. The assessee is also directed to produce the site of the sale of goods with respect to the supply. Assessee is also directed to produce all the documents as decided by the learned assessing officer duly translated in English language along with the invoices and the nature of activities carried out by the assessee in accordance therewith. Accordingly ground number 4 and 5 of the appeal of the assessee is allowed with above direction. 20. Coming to the ground number 6 of the appeal of the assessee with respect to the disallowance under section 40 (a) (i) and (ia) of the act amounting to INR 25 557055/-. The 1st disallowances with respect to the payment made of INR 1 356923/- to M/s logistic enterprises....
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....ssessment year 2010 - 12 filed by the assessee against the order of the learned assistant director of income tax (international taxation), Dehradun dated 31/1/2014 passed under section 143 (3) read with section 144C (13) of the income tax act 1961 passed in pursuance to the direction of the learned dispute resolution panel - II, New Delhi dated 27/11/2013. The assessee has raised the following grounds of appeal in ITA No. 1909/Del/2014:- "1. That on the facts and in the circumstances of the case and in law, the Assistant Director of Income Tax, International Taxation, Dehradun ('the Ld. AO') has erred in framing the assessment order by assessing the income at Rs. 3,37,60,060 as against the returned loss of Rs. 6,00,88,170 based upon conjectures, surmises, preconceived notions and incorrect application of law. 1.1 While doing so, that the Ld. AO has erred merely mechanically relying upon the assessments framed in earlier years (i.e. AY 2007-08, 2008-09 and 2009-10) in respect of the Vasai East Development Project ('the contract' or 'VED'), without considering the detailed factual and legal submissions made by the appellant during the course ....
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....as grossly erred in ignoring the principles of taxation laid down by the Hon'ble Apex Court in the case of Ishikawajma Harima's : 288 ITR 408 (SC) in respect of taxability of turnkey contract where different parts of the contract is to be carried out in different tax jurisdictions. 4. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in holding that the title in the material/offshore supplies as per the contract was transferred in India. 5. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in holding that the entire profits from the work under the contracts arise in India and are liable to tax in India. 5.1 That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in charging to tax the entire outside India revenues by ignoring the attribution in accordance with Article 7(1) and Article 7(2) of the Treaty. 5.2 That the Ld. AO has erred in ignoring the High Court order wherein it has been held that whether the project office of the appellant is a PE or not is of no consequence as far as attribution of revenue in relation to outside Ind....
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....e that the expenses were actually incurred by the appellant. 8. That on the facts and circumstances of the case and in law, the Ld AO has erred in making a reference in the draft assessment order in respect of SIEPL project that TDS has been deducted at a lower rate of 2% instead of 10% for the payments to M/s HK Architecture India Pvt. Ltd. without appreciating that appropriate TDS has been deducted on such payments. 9. That the Ld. AO has erred in mechanically charging interest under section 234D of the Act without appreciating the fact that the refund as determined in the intimation under section I43(i) of the Act was not granted to the appellant. 10. That the Ld. AO has erred in mechanically initiating the proceedings under section 271B of the Act. 11. That the Ld. AO has erred in mechanically initiating proceedings under section 271(1) (c) of the Act." 25. The facts relating to that appeal shows that assessee filed its return of income on 8/10/2010 at the loss of INR 6 0086170. The draft assessment order was passed on 30/3/2013 on the identical facts and circumstances determining the total income of the assessee at INR 6 5206270/-. In the....