TaxTMI 
TaxTMI 
2021 (6) TMI 331
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....Dispute Resolution Panel (Ld DRP) has also erred in not directing the said sum to be excluded. 2. That the Ld AO/DRP has failed to appreciate that, the Appellant is a tax resident of Japan and is required to be assessed in accordance with the provisions of Double Tax Avoidance Agreement between India and Japan and the Appellant, since had no Permanent Establishment (PE) in India for supply made to Maruti Suzuki India Limited (MSIL) no income could be held to be taxable in India. 2.1 That the Ld AO/DRP has erred in making addition of Rs. 2,36,88,712/- in respect of an amount stated to be an income attributable for supplies made by Appellant to MSIL (i.e. the estimated and assumed sum) from Japan. The learned AO, has erred in not appreciating that such income, as has been held to be attributable on the supplies made, since was not attributable to its permanent establishment has been misconceived and the addition so made be thus held as untenable which addition deserves to be deleted. 2.2 That the Ld AO/DRP has erred in holding that the alleged profit of supplies of equipment by the Appellant to MSIL are taxable in India despite the fact that title of equipm....
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....re was no justification not to have set off business loss and to have further carried forward balance amount Rs. 1,85,52,164. 3. That the Ld. AO/DRP has grossly erred in adopting the amount of capital gain accrued to the appellant at Rs. 7,31,67,675 as against declared capital gain of Rs. 90,93,355 as declared in return of income, thus, enhancing the income by Rs. 6,40,74,320. 3.1 That the Ld. AO though computed the capital gain of Rs. 7,31,67,675 has erred in adopting the said sum at Rs. 1,50,72,540 which was really the tax calculated on such income. 3.2 That the Ld. AO/DRP erred in computing capital gain on sale of equity shares of Indian company, SML Isuzu Ltd by considering fair market value of shares as Rs. 393 per share as per rule 11 UA (1) (c) (ii) instead of Rs. 383.43 per share being the agreed sale price as per the share purchase agreement entered between the appellant and Isuzu Motors Ltd, Japan without any basis or any provision under the Act thus, enhancing the sales consideration at Rs. 62,56,09,233 instead of Rs. 61,03,74,932. 3.3 That the Ld AO/DRP erred in computing capital gain by considering total sales consideration at JPY 1,....
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....ng taxable income of Rs. 69,26,60,857/-. In the revised return of income, the assessee offered Rs. 23,71,30,394/- being supervisory fees which had not been earlier included on the ground that it has no supervisory PE in India and the PE received being integral part of supply is not taxable in India. The Hon'ble Delhi High Court vide its order dated 16/11/2015 in Assessment Year 1992-93 to 1996-97 accepted the contention of the assessee and held that the assessee did not have any PE for supervisory activities and income is taxable under Article 12(2) of the India- Japan DTAA. In such circumstances to maintain this and to avoid unending litigation, the assessee company offered the said sum of Rs. 23.71 crore to tax under Article 12(2) of the DTAA. The return was selected for scrutiny assessment. The Assessing Officer issued a draft assessment order dated 18/3/2016 under the provisions of Section 144C of the Income Tax Act thereby proposing to make following variation to the return income of the assessee:- Particulars Amount (in Rs.) as per revised return of income Amount (in Rs.) as assessed A Business Income Income from Various p....
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....come Rs. 73,14,22,028/- Rounded off u/s 288 Rs. 73,14,22,030/- Thus, the assessee company is assessed at total income of Rs. 73,14,22,030/- 4. Being aggrieved by the Assessment Order, the assessee filed present appeal before us. 5. The Ld. AR submitted that the assessee company i.e. M/s Sumitomo Corporation, Japan is a foreign company and is tax resident of Japan. For the AY 2013-14, it had filed its return of total income on 29.11.2013, declaring an income at Rs. 45,48,94,340/-, however revised the same on 27.03.2015 offering its taxable income at Rs. 70,17,54,131/-. In the revised return, the assessee had offered to tax (as had been offered in preceding year too) 'supervision fee', which is a sum of fee in the original return of income filed on 29.11.2013 and had been claimed as not taxable in India. The said sum of returned income is not in dispute and is not the subject matter of the instant appeal. The return of income filed by the assessee was selected for scrutiny and the ACIT by a draft order of assessment dated 18.03.2016 passed u/s l44C(l) of the Act, computed the total income of the assessee at Rs. 74,16,61,950/- ....
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....d income. The Ld. AR further contended that it has no PE in India for such supply. The Ld. AR submitted that the findings recorded in para 3.4 of the draft order that the assessee had entered into integrated contract for supply of the equipment and commissioning of the same is without any basis, completely misconceived and are erroneous. The Ld. AR submitted that the assessee does not undertake any activity of installation and commissioning of equipment supplied and was providing supervision services of the installation and commissioning to MSIL. Thus, the Ld. AR contended that in so far as the supplies made, no profit had accrued to it in India as it had not undertaken any activity of installation and commissioning of equipment supplied and was independently and separately providing supervision services of the installation and commissioning of such equipment, which is taxable under Article 12(2) of Double Taxation Avoidance Agreement (DTAA) and has also been so separately taxed in return of income. The Ld. AR submitted that the assessee had no PE in India under Article 5 of the Double Taxation Avoidance Agreement between India and Japan and that supplies of equipment to MSIL....
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....ly untenable and deserves to be deleted in as much as no such addition has been held sustainable. The Ld. AR reiterated that the assessee does not have PE in India. It has made no supplies from India. It is undisputed fact that the assessee, a foreign company has been making supplies from outside India and as such, since no income has accrued to it in India, said income could not be brought to tax. The findings of the DRP that the assessee is also engaged in installation and supervision, is wholly misplaced. It is undisputed fact that the assessee is not engaged in any installation. It is however not denied that it was making supervision of installation and had received supervision fee separately which is offered to tax in return of income and is an undisputed fact. Further the finding of the DRP that the transactions of offshore supply and installation and supervision by it, were closely interlinked and continuous is wholly irrelevant factor. The transactions of supplies made are independent and separate with the supervisory fee for MSIL. The consideration for supplier and supervision is also separate. In fact, the Assessing Officer himself has not brought to tax any such alleged ....
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.... citing an order of Tribunal in the case of Rolls Royce. It is apparent that such a finding is a vitiated finding in law and is wholly unsupported by any material. 10. In view of the aforesaid facts, the Ld. AR submitted that the issue involved in the appeal is squarely covered by the orders of the Tribunal and the findings recorded by the Assessing Officer for the succeeding assessment years. This is evident from the table placed at page 343 of the PB for the A.Ys 2014-15, 2015-16 and 2016-17, whereby, there is no dispute in case of offshore supply of equipment. The assessee had also placed on record the order of assessment for A.Y. 2016-17 to establish that no addition has been made by the Assessing Officer himself for the A.Y. 2016-17. The assessee, however, submits that the Hon'ble High Court of Delhi in the case of NPCC reported in [2016] 66 Taxman.com 15 has also held that income could be assessed to tax in India, where offshore supplies have been made and assessee does not have a PE in India. Similar is the findings of the Hon'ble Uttarakhand High Court in the case of M/s Samsung Heavy Industries Ltd. reported in 42 Taxman.com 140. 11. The Ld. DR submitted that the ass....
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....ayed that each and every invoice needs to be examined before arriving at the conclusion regarding the exact nature of transaction in question. One such invoice placed by the assessee in the paper book may be duly considered by the tribunal before deciding the case in hand. The Ld. DR submitted that the submissions in respect of the particular invoice does showcase that it is not a plain vanilla case of sale/purchase but the terms and conditions as per the agreement do provide for the rejection of equipment supplied by the assessee. If the equipment itself can be rejected even after its installation, in such a scenario, how one can take a position that sale was completed outside India. The Ld. DR prayed that the bench may also ask for the complete set of agreement and invoice in respect of the other supplies made during the year. The Ld. DR submitted that at page no. 80 of the paper book contains the list of equipment supplied by the assessee to MSIL. A particular item at sr. no. 4 mentions the Title of PO as "Design, manufacture and supply of cross bar type..... Press Line". This shows that the assessee is required to supply the equipment only after its design and manufacturing as ....
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....ferent if the buyer had the right to reject the equipment on the failure of the acceptance test carried out in India...." The court concluded that the taxable event took place outside India with the passing of the property from seller to buyer and acceptance test was not determinative of this factor. The court also added that the position might have been different if the buyer had the right to reject the equipment on the failure of the acceptance test carried out in India. This shows that the clause of rejection of equipment is determinative factor in deciding the transfer of title. If the supplied good to Indian client stands rejected, how it can be considered as completed outside India. 12. Based on the aforesaid clauses in the agreement in respect of the submitted invoice, it is evident that the assessee continued to undertake the risk of rejection of the supply, therefore, the transfer of ownership will not change the legal position that off-shore supply is taxable in India. It is a case where the functions in the nature of technical supervision have been performed by the assessee company in India. Further, while performing the supervisory functions, the intangible asset ....
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.... enterprise rather than with the permanent establishment. In view of the above, the Ld. DR prayed that the attribution made by the Assessing Officer in respect of supply made to MSIL may be upheld. The Ld. DR submitted that this submission may be duly considered in addition to the assessment order of the Assessing Officer. 15. In rejoinder, the Ld. AR submitted that aforesaid contention that are point no. i, ii & iii of para 5 raised by the Ld. DR does not emanate from the order of the Assessing Officer, nor the Assessing Officer adopted such basis to make addition. The Ld. AR further submitted that before the Tribunal, revenue can support the order of the Assessing Officer but cannot make out a new case. Aforesaid submission of the assessee is supported by following judicial precedents: i. The Mumbai Bench of the Tribunal in Ms. Aishwarya K. Rai 121 ITD 204 (Mum) held that the learned D.R. can support the action of the A.O. with any arguments and that he can rely on any case law in support of the A.O's cast but he cannot make out any new case which was not the subject matter of consideration by the A.O. or the first appellate authority. It further held that to fi....
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....r similar agreements (Purchase orders), the assessee was supplying equipments to M/s MSIL in past also, and while considering the taxability of offshore supplies made to MSIL, the Tribunal in its consolidated order dated 01.07.2019 pertaining to the AYs 2001-02 to 2003-04, 2007-08, 2010-11, 2011-12 and 2012-13, has held in para 9 that income arising from offshore supplies is not taxable in India. The Ld. AR further submitted that the facts and terms of the PO's for all pertaining to offshore supplies to MSIL are identical to the preceding years from A.Y. 2001-02 to 2012-13. This submission is borne out from the draft assessment order, where in para 3.2, the Assessing officer has stated that: "3.2. The submissions of the assessee have been considered and are not found acceptable. The facts of the case are identical to those in the preceding years and the submission of the assessee are almost on the same lines as in the preceding years except placing further reliance on the decisions in the case of Ahmed Bhai Umarbahi 18 ITR 372 (SC)." In such circumstances, grounds raised in the memo of appeal in respect of taxability of income arising from offshore supplies is covered i....
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....y be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken." 19. The Ld. AR submitted that in this case also once the issue has been decided in favour of the assessee by the Tribunal and in fact revenue itself has not appealed the same in A.Y. 2005-06, 2006-07, 2008-09 and 2009-10 before and also no addition in relation to the same have been made by Assessing Officer in the subsequent assessment years 2014-15, 2015-16 and 2016-17, thus the Ld. DR cannot be permitted to bring new aspect for the first time in the appeal before the Tribunal. In view thereof, once, the Assessing Officer himself has accepted that facts are similar to earlier years, and in the subsequent assessment years, the Assessing Officer himself has accepted that offshore supplies made to MSIL is not taxable in India, the addition made in this year is unsustainable in law. 20. In so far as the contention of the Ld. DR that terms and conditions as per the agreement do provide for the rejection of equipment supplied by the assessee and once the equipment itself can be rejected even after its installation, in such a scenario, the sale was not completed outside India,....
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....s. CIT, 86 ITR 147 wherein following principle was enunciated: "Even though the property in the goods may pass to the buyer when the documents are handed over, the buyer may yet retain the right to examine and repudiate the goods but this right generally which a buyer has in c.i.f. contract does not by itself indicate that the property in the goods has not passed to him. This supposed incongruity was sought to be explained per curiam in Kwei Tek Chao v. British Traders and Shippers Ltd. (1954) 2 K.B. 459. that if property passed when the documents are transferred that property is subject to the condition that the goods should re-vest in the seller if on an examination by the buyer he finds them not to be in accordance with the contract. It is not necessary to consider this aspect because in any case the ascertainment of the obligations under the contract will determine to what extent the transfer of property is subject to a condition or if the property passes conditionally whether the ownership left in the seller is the reversionary interest in the property in the event of the conditions subsequent operating to restore it to him. In any case where the performance of some c....
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....plied and was providing supervision services of the installation and commissioning to MSIL. As regards the supplies made by the assessee, no profit had accrued to it in India as it had not undertaken any activity of installation and commissioning of equipment supplied and was independently and separately providing supervision services of the installation and commissioning of such equipment, which is taxable under Article 12(2) of Double Taxation Avoidance Agreement (DTAA). The same is separately taxed in return of income by the assessee. The assessee had no PE in India under Article 5 of the Double Taxation Avoidance Agreement between India and Japan. The supplies of equipment to MSIL were not made in India. As regards to the inclusion of profit from offshore supplies made is concerned, same is no more res-integra. In fact, the facts of the present case are similar to the earlier years which are also verified by the Assessing Officer in the assessment order. In respect of the inclusion of the estimated profit, the Tribunal in its consolidated order dated 01.07.2019 pertaining to the A.Ys 2001-02 to 2003-04, 2007-08, 2010-11, 2011-12 and 2012-13 has held in para 9 that the goods ....
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.... transactions of supplies made are independent and separate with the supervisory fee for MSIL. The consideration for supplier and supervision is also separate. In fact, the Assessing Officer himself has not brought to tax any such amount from supplies made to MSIL from A.Y. 2014-15 onwards. This is evident from assessment order for A.Y. 2016-17. The Assessing Officer had framed an assessment on 24.12.2018, even before the Tribunal has pronounced its judgment on 01.07.2019, for the aforesaid assessment year, where he did not himself bring to tax any such sum. The Assessing Officer has specifically mentioned in its order: "3. The assessee is a company incorporated as per the rules of Japan, and is engaged in the business of supply of equipments for various projects & also executed erection & commissioning of the equipments at the various project sites in India. 4.The reply of the assessee as well as the audited financial results have been perused and no adverse inference could be drawn. " In the draft order of assessment in para 3.2, the Assessing Officer observed that the facts of the case are identical to those in the preceding years. Therefore, the Assessin....
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.... comparative chart reflecting the computation of capital gain as computed by the Assessing Officer. The Assessing Officer for computing capital gain, has incorrectly considered the assets transferred i.e. shares at fair market value for computing sale consideration as against the sale price/consideration accruing to it and so received as per SPA. The Assessing Officer has erroneously applied conversion rate, since the shares were sold in Japan for an agreed conversion rate in Yen and as such, for the purpose of computation of capital gain, exchange rate prevailing on the date of transfer need not to be adopted since consideration was already agreed in Yen payable by one nonresident to another non-resident in Japan and no remittance was to be made from India to Japan. There is no concept of any fair market value for the purposes of section 48 of the Act. Further, rule 11UA applied by the Assessing Officer for determining the fair market value has not applicability for Section 48 of the Act and also, provision of section 56 is not applicable on the assessee. The Assessing Officer has in any case has erred in not giving set off of longterm capital loss of Rs. 18,93,13,933/- . The A....
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....s in the light of various judgments and the factual matrix obtaining in this case. The circular cited by the 'A' was withdrawn in 2009. Hence the said circular had no force of guidance. As regards the complexity of the transactions the Panel is of the considered view that the transactions of offshore supply and installation and supervision by it were closely interlinked and continuous. In such circumstances the AO was justified in holding that the A' had a supervision PE. As regards attribution of profits the arguments of the A' and the AO were carefully considered by us. It was gathered from page no. 14 of the paper book para 3.4, that the AO computed the profit attributable to India from the A's business in India as under:- Total sale of the A' Globally = Rs. 2190357134 Net profit of the A' globally = Rs. 232.54 (billion year) Total sale of the 'A' globally Rs. 2190357134 Net profit of the 'A' globally Rs. 232.54 (billion year) Net profit %+ 3.09 Hence income from offshore supplies by 'A' to MSIL= 2190357134-3.09*50 10.0* 100" The calculation of the Assessing Officer was strongly objected to by the assessee in the cour....
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....ed that the assessee had transferred the shares under an agreement entered between the assessee and unrelated parties and as such said sale consideration could not have been disturbed. The Ld. AR at this stage submits that the genuineness of the agreement entered between two unrelated parties could not have been altered. This has been so held by the Apex Court in its judgment reported in 263 ITR 706 in the case of UOI vs. Azadi Bachao Andolan and reiterated in the later judgment reported in 341 ITR 1 in the case of Vodafone International Holdings B.V. vs. UOI (SC). The Ld. AR further contended that it is well settled rule of law that 'given that a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance'. The Ld. AR contended that the transaction of sale of shares was between two unrelated parties and was negotiated at the rate prevailing at the time the agreement was signed bases rate as per stock exchange duly mentioned in the agreement whereas the Assessing Officer adopted the fair market value rate as on date of transfer of shares quoted at stock exchange @393 per share. The Ld. AR further contended that rate agreed and received....
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..... AR also submitted that, the income chargeable under the head 'capital gains' the same is to be computed by adopting the full value of consideration received or accruing as a result of transfer of capital asset as per Section 48 of the Act. In such a situation the Ld. AR submitted that the] Assessing Officer could not have disregarded the amount which had accrued to the assessee as a result of transfer of shares, which shares were transferred under an agreement as per the amount of consideration determined therein. The Ld. AR thus submitted that the learned Assessing Officer had erred in adopting Rule 11UA(1)(c)(ii) of the Income Tax Rules which is applicable only in respect of section 56 of the Act and is inapplicable where capital gain is to be computed u/s 45 or 48 of the Act as per the present facts. In fact, the present transaction does not fall in any clause of section 56 of the Act. The Ld. AR further pointed out that section 45 specifically provides cases where sale consideration should be adopted at fair market value which does not cover the present case. The Ld. AR further submitted that the DRP thus ignored the provisions of section 48 of the Act where income is compute....
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....ebuttal, however without prejudice the Ld. AR submits in brief, in respect of such grounds as under: A. Regarding taxability of capital gains (Ground No. 3)  The assessee had held 15,91,881 equity shares of an Indian company i.e. M/s SML Issuzu Ltd. * 25.11.2011: It had entered into an agreement of sale of all of such shares to M/s Issuzu Motors Ltd. Japan (Pg. 191 -203) @ Rs. 383.42 (see Pg. 193 under definition of 'sale share price' of Paper book numbering) * Bombay Stock Exchange rate of the aforesaid shares on the prevailing date of agreement was Rs. 383.42 (see Pg. 193). * The assessee had transferred all such shares in Japan on 13.04.2012, when it had received the consideration in the year 2013-14. On 13.04.2012 stock exchange rate was Rs. 393.00 per share. * The AO, erroneously invoked Rule 11UA(C)(ii), and applied Bombay stock exchange rate as was on 13th April 2012 instead of adopting sale rate of 383.42, as per the agreement of sale and was also the rate as per BSE. The rate of sale was agreed at 383.42 (see Pg. 193). Rule 11UA(C)(ii) has no application. The Assessing Officer adopted conversion rate of yen to rupees at ....
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....ent as the consideration was payable in Yen by nonresident buyer to non-resident seller, both resident of Japan. The sale was made in Yen in Japan and the amount had been paid in Japan. These facts are not at all disputed by the Revenue authorities. While computing the capital gain, the Assessing Officer had adopted conversion rate (for converting capital gain in Yen to capital gain in Rs) i.e. telegraphic transfer buying rate at 0.62 instead of 0.6252. But under which method the same is adopted was not demonstrated by the Assessing Officer in the Assessment Order. It is not known as to what is the basis of the Assessing Officer to have adopted 0.62 instead of 0.6252 on the date of transfer of the shares in April 2012. Thus, the contentions of the Ld. AR that conversion rate for the purpose of computation of capital gain as per Rule 11UA of Income Tax Rules, 1962 is required to be adopted, the said rate was 0.6252 and as such the computation made by the assessee had been correctly adopted by it, appears to be just and proper. Thus, we direct the Assessing Officer to adopt the actual rate of conversion i.e. 0.6252 after verifying the same. Thus, we remand back this issue to the file....
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.... as allowing setoff against brought forward business loss, long term capital loss and full TDS credit, there will not be any liability of tax and consequential interest under section 234B of the Act. The Ld. AR submitted however if it is found that tax exceeded the amount paid by the assessee during the FY including TDS, then only interest could have been levied. The Assessing Officer be directed to verify the facts and be redirect to compute the interest payable u/s 234B of the Act. 41. The Ld. DR relied upon the Assessment Order. 42. We have heard both the parties and perused all the relevant material available on record. This ground is consequential ground, hence we direct the Assessing Officer to verify the facts and compute the interest payable u/s 234B of the Act. Ground No. 7 is partly allowed for statistical purpose. 43. As regards to Ground No. 8 pertaining to interest under Section 234C of the Act, the Ld. AR submitted that the Assessing Officer has levied interest u/s 234C of the Act of Rs. 76,23,106/-. The Ld. AR submitted that the interest under Section 234C is leviable on default in payment of advance tax installment on returned income and not on assessed inc....