TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 532
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.... Act. Assessee is engaged in the business of designing, engineering, manufacturing and supply of electric equipment that help in the transmission and distribution of power, commissioning and servicing of transmission and distribution systems on turnkey basis. During the relevant assessment years, the assessee had earned income from various Indian customers which the assessee claimed was not taxable as income was from offshore supplies only. The case of assessee was selected for scrutiny due to large claim of refund against tax deducted source. The record shows the assessee was awarded a contract by Power Grid Corporation India Ltd. (hereinafter referred to as 'PGCIL) for setting up a 3000 MW HUDC Terminal in Chhattisgarh, India. 2.1 There were three contracts of following nature; 'First contract', also called 'off-shore contract' was for supply of plant and equipment including spares outside India, Type test and Training to be conducted outside India. 'Second' and 'third contract' were'on-shore supply contract' and 'on-shore service contract' which were assigned to an associate enterprise M/s. GE T&D India Ltd (here in after also referred also as 'ALSTOM-I' or 'Indian Associat....
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....ndia as per the provisions of Article 7 of the India-IJK DTAA. The sub-article (2) of Article 7 of the DTAA which prescribes the mechanism is reproduced as under: "(2) Where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, the profits which that permanent establishment might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment shall be treated for the purposes of paragraph 1 of this Article as being the profits directly attributable to that permanent establishment. " Therefore, the profits attributable to the PE should be the Arm's length profit i.e. profit that an independent person under the same or similar conditions engaged in similar activities (EPC contract for Power Project on turnkey basis) should earn. From the above discussion, it is now clear that both offshore as well as onshore components of the single composite project have to be taken into account in determining profit attributable to the ....
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....8.07.2022, being barred by limitation, is bad in law, and void-ab-initio. Re: Offshore supply receipts of Rs.l 107,81,49,081 from PGCIL 3. That the DRP/ assessing officer erred on facts and in law in holding that receipts of Rs. l107,81,49,081 from offshore supplies to Power Grid Corporation of India Ltd ("PGCIL") are taxable in India under the provisions of the Act. 4. That the DRP/ assessing officer erred on facts and in law in arbitrarily holding that the Appellant had business connection in India during the subject assessment year. 5. That the DRP/ assessing officer erred on facts and in law in arbitrarily holding that GE T&D India Limited ("GETDIL") constitutes Dependent Agent Permanent Establishment ("PE") of the Appellant in India and that the Appellant has Construction PE in India. 6. That the DRP/ assessing officer erred on facts and in law in attributing 100% profits from offshore supplies made to PGCIL to the alleged business connection/ PE. 7. Without prejudice, that the DRP/ assessing officer erred on facts and in law in computing incoms-fem-effehere supplies by applying section 44BBB of the Act. 8. That the DRP/ assessing officer erred on facts and in la....
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....e agreements entered between the assessee, its associate ALSTOM-I and employer PGCIL. It was submitted that Ld. Tax Authorities have fallen in error in concluding that there was an artificial splitting of the contract between the assessee and ALSTOM-I. Referring to the contracts executed between the assessee and PGCIL, made available on page no. 6 to 249 of the paper book, it was submitted that engaging an Associate was an integral part of the bid proposal and the execution of two separate contracts between PGCIL and ALSTOM-I was part of bidding documents. It was submitted that Ld. Tax Authorities below have selectively construed the recitals of the bid and contract documents. 9.1 It was submitted that tax authorities below have also fallen in error in construing the business connection in India without appreciating that the sales were concluded outside India and the property in goods under the offshore agreement had passed outside India. No payment or consideration was received within India. Specially referring to judgment in IshikaWasma- Harima Heavy Industries Ltd. vs. DIT : [2007] 288 ITR 408 (SC) Ld. Sr. Counsel submitted that Hon'ble Supreme Court has held in many words that....
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.... to the financial statements of GE T &D India Limited, available on page no. 429 to 437 for F.Y. 2017-18 and 438-445 for F.Y. 2018-19 it was submitted that related party transactions have been disclosed and it was submitted that the Indian associates has several independent source of revenue. The income earned from the two contracts was independently offered to Tax under the Act. 9.6 As with regard to the Associate constituting a Construction PE, he submitted that the associate was independent and responsible for concluding the contracts and the role of assessee was limited to off-shore supplies. In this context he specifically contended in regard to the findings of construction PE that there was no factual evidence to support the findings. Assessee was not involved into any activity of construction project and as "supply" is not included in the activities taxable in the provisions, so Article 5(2) of the treaty was not applicable. 9.7 He also referred to Section 44BBB of the Act and submitted that as assessee was merely a supplier to PGCIL so provisions which are otherwise applicable in case of business of civil construction or the business of erection of plant or machinery or t....
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.... 399 ITR 34 (SC), DIT vs Samsung Heavy Industries Co Ltd: 426 ITR 1 (SC), DIT vs Mitsui & Co Ltd: 399 ITR 505 (Del) and AB SciexPte Ltd vs ACIT: 195 ITD 384 (Del Trib.) 9.8.6 As with regard to principles of attribution to business connection/ PE he relied DIT vs Morgan Stanley & Co Inc: 292 ITR 416 (SC), DIT vs Morgan Stanley & Co Inc: 292 ITR 416 (SC), The Anglo French Textile Co Ltd vs CIT: 25 ITR 27 (SC), Annamalais Timber Trust and Co vs CIT: 41 ITR 781 (Mad), CIT vsBertrams Scotts Ltd: 31 Taxman 444 (Cal), CIT vs Hyundai Heavy Industries Co Ltd: 291 ITR 482 (SC), Samsung Heavy Industries Co Ltd vs DIT: 265 CTR 109 (Uttarakhand), Affirmed by the Supreme Court in 426 ITR 1(SC), DCIT vs Roxon OY: 106 ITD 489 (Mum Trib.) 10. Ld. DR however, supported the findings of Ld. Tax Authorities below and submitted that it was not a case of consortium but one consolidated bid was fragmented. It was submitted that the PGCIL had invited bid and assessee was the contractor and the Associate, Indian entity was given authority to execute the local work while the responsibility continued to stay with the assessee. He referred to various clauses of agreement trying to show that when over all res....
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....arima Heavy Industries Ltd. (supra) has observed in para no. 60 as follows :- "In construing a contract, the terms and conditions there of are to be read as a whole. A contract must be construed keeping in view the intention of the parties. No doubt, the applicability of the tax laws would depend upon the nature of the contract, but the same should not be construed keeping in view the taxing provisions." 14. Thus, it will be relevant to reproduce some major clauses of agreements and contracts entered between the PGCIL and the assesse, unlike selectively done by the Revenue Authorities below. The Off-shore contract agreement along with 11 Appendices dated 17.08.2012 is available at page no. 6 to 43 of the paper book and is the basic document and the relevant clauses of same starting from page 9, are reproduced as below :- "WHEREAS the Employer is desirous of setting up +/-800kV, 3000 MW HVDC Terminal ' Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under "National Grid improvement Project" and had invited bids for complete project- management, design, engineering, manufacture, testing, supply, port handling and customs clea....
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.... the purpose of executing the On-Shore Supply Contract and On-Shore Services Contract) and furnished "ALSTOM-l" written unequivocal consent vide their letter dated 26.11.2011 (enclosed in their First Stage bid) to work as Employer's independent Contractor, on the terms and conditions as laid down in the Bidding Documents. WHEREAS the associate proposed by ALSTOM has been accepted by the Employer, as above, subject to the condition that ALSTOM shall be overall responsible and liable for the execution of all the three Contracts irrespective of the fact that the Employer will enter into the 'First Contract' with them and the 'Second Contract' and the Third Contract' with ALSTOMI. Further, in the Contract Documents, for 'First Contract' the word 'Contractor' shall mean ALSTOM, who had submitted the bid and shall, for the purpose of 'Second Contract' and 'Third Contract', include' ALSTOM-I - the Permitted Associate of ALSTOM. Accordingly, without prejudice to the overall responsibility and the liability of ALSTOM for the execution of all the three Contracts, the word 'Contractor' wherever appearing in the 'Second Contract'and the Third Contract'shall also mean ALSTOM-I....
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.... mandatory Spares supplied under the Off- Shore Contract and On-Shore Supply Contract, Training in India etc. and any other services specified in the Contract Documents of said contract, for complete execution of +/-800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under "National Grid Improvement Project". Notwithstanding the award of work under three separate Contracts in the aforesaid manner, ALSTOM shall be overall responsible to ensure the execution of all the three Contracts to achieve successful completion and operational acceptance / taking over of the facilities by the Employer as per the requirements stipulated in the respective Contract Documents. It is expressly understood and agreed by ALSTOM that any default or breach by its Associate, ALSTOM-l under the 'Second Contract' and/or Third Contract' shall automatically be deemed as a default or breach of this 'First Contract' also and vice-versa, and any such default or breach or occurrence giving the Employer a right to terminate the 'Second Contract' and/or Third Contract', either in full or in part, and/or recover damages under those contract....
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....nufacture, testing at manufacturer's works and CIF supply of all off-shore equipment and materials from country(ies) outside India including Type Testing and training to be conducted outside India. The scope of work under this Notification of Award (NOA) shall also include all such items which are not specifically mentioned in the Bidding Documents and/or your bid but are necessary for the successful completion of your scope under the Contract for the construction of +/-800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under "National Grid Improvement Project", unless otherwise specifically excluded in the Bidding Documents or in this NOA. 2.2 As per the Record Notes of Clarification Meetings (referred to in para 1.5 above) and the acceptance of proposed Associate confirmed vide our communication dated 01.03.2012 (referred to in para 1.6 above), we have notified your Associate M/s. ALSTOM T&D India Limited vide our Notification of Award Ref. No. CC-CS/156- WR1/HVDC- 1489/7/G10/NOA-II/4336 dated 21.06.2012 for award of 'On- Shore Supply Contract' (also referred to as the 'Second Contract') for the s....
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....mages under this 'First Contract' as well. However, such default or breach or occurrence in the 'Second Contract' and/or Third Contract', shall not automatically relieve you of any of your obligations under this 'First Contract. It is also expressly understood and agreed by you that the equipment/materials supplied by you under this 'First Contract' and by your Associate M/s. ALSTOM T&D India Limited under the 'Second Contract', when erected, installed & commissioned by your Associate M/s, ALSTOM T&D India Limited under the Third Contract' shall give satisfactory performance in accordance with the provisions of the Contract." 15. When these minutes dated 28.10.2011 are considered, the clause 1.3 makes it apparent that in the bid itself ALSTOM-I was proposed and confirmed as an Associate for the purpose of executing the on-shore supply and service contracts. So having an Indian Associate was an integral part of the Bid and not introduced at the discretion of the assessee. Reference in this context can be made to the bid document of September, 2011 containing special conditions of contract available at page no. 231 of the paper book which required that success full bidde....
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....ontract, required each party to perform its obligation under the respective contracts awarded to them separately and to receive the consideration under the contracts independent to each other. The terms negotiated and document executed firmly establish that there was no mix up in the role and identity. 19. The Ld. Tax Authorities below have actually fallen in error in construing the aforesaid discussed clauses because what appears to be a narrow and not a pragmatic approach. As observed above, they were selective in considering the bid and contract documents clauses and failed to take note of it as a whole and to understand the business prudence of such Bidding involving International entities, while dealing with Indian entities, for such infrastructural contracts. The Ld. AO has merely focused on the fact of three contracts, alleging that a single composite contract awarded on turnkey basis was split artificially into three sub-contracts by the assessee. The matter of fact happens to be it was a condition in bid and there was nothing on the part of assessee to do the splitting of a composite contract. 20. Then the Ld. DRP has fallen in error in making certain factual errors in o....
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....Contract Price 3.1 The total Contract Price for the entire scope of work under this Contract shall be GBP 107,590,567 + EURO 68,835,118+USD 13,559,144 (Great Britain Pound One Hundred Seven Million Five Hundred Ninety Thousand Five Hundred Sixty Seven Plus Euro Sixty Eight Million Eight Hundred Thirty Five Thousand One Hundred Eighteen Plus USD Thirteen mijlion Five Hundred Fifty Nine Thousand One Hundred ' Forty Four Only) as per the following break-up : Sl. No. Price Component Amount 1. CIF Price Component GBP EURO USD 107,590,567 68,835,118 13,559,144 2. Type Test Charges Included 3. Training Charges Included Total for Off-Shore Contract GBP EURO USD 107,590,567 68,835,118 13,559,144 3.2 Notwithstanding the break-up of the Contract Price, the Contract shall, at all times, be construed as a single source responsibility Contract and any breach in any part of the Contract shall be treated as a breach of the entire Contract. 20.3 Ld. DRP has fallen in error in considering that the reference here to "single source of responsibility" is with regard to three contracts but the matter of fact is that it was only in conte....
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....lso unable to accept the contention that the fact that Samsung and Linde had agreed to be jointly and severally liable for performance of the contract, would be sufficient to hold that they constituted an Association of Persons for the purposes of the Act. Linde and Samsung agreeing to be jointly and severally liable to OPAL for due performance of the Contract only indicates that Linde and Samsung had accepted a contractual obligation towards a third party, the same does not by itself lead to a conclusion that the said members had formed an Association of Persons. Any entity/individual may agree, for its own business purposes, to accept a liability for due performance of an obligation of another. This by itself would not lead to a conclusion that the said persons had formed a common enterprise or an association which was moved by joint action for a common purpose. As a matter of illustration, let us take a case where a director of a company provides a personal guarantee for a loan taken by the company. Having stood as a surety for the company, the director and the company would be jointly and severally liable to the lender. However, they continue to be independent of each other and....
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....dinating their independent tasks would not result in an inference that the agencies had constituted an Association of Persons." 22. Hon'ble Delhi High Court in the Linde AG Case (supra) has also referred to case of Hyundai Rotem Co., in re [2010] 323 ITR 277/190 taxman 314 (AAR) which was also referred by the assesse before Ld. Tax Authorities below and where the facts were that Hyosung Corporation submitted a bid for execution of the works relating to 800 KV/400KV Tehri Pooling Station which was floated by Power Grid Corporation of India Limited (Power Grid). The applicant was successful and its bid was accepted. As per the terms and conditions of the bid, the applicant could assign the whole or part of the work to an independent contractor subject to the approval of Power grid. In terms of this provision, the applicant requested that part of the contract relating to onshore supply and services be assigned to M/s L & T. Accordingly, Power Grid entered into a separate contract for onshore supplies and services with M/s L & T. Although, Hyosung continued to be responsible for the overall execution of the project, the scope of work of Hyosung was limited to the offshore portion of t....
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....sessee and the Indian associate for a very substantial reason that PGCIL has treated in its contract documents, ALSTOM-I to be its 'Independent Contractor'. There is substance in the argument of Ld. Sr. Counsel on the basis of judgment of Hon'ble Supreme Court in CIT vs. E-funds IT solutions (supra) that the onus was on the department to prove the existence of PE. The Bench is of considered opinion that such an onus can be considered discharged by specific reference to the evidence. No evidence is brought on record to show that the Indian Associate was employed by any 'act' of the assessee to represent the assessee independently while dealing with PGCIL. On the contrary what is established is that it was the assessee at whose proposal, ALSTOM-I was accepted to be an Associate of the assessee and the employer PGCIL treated ALSTOM-I as its 'independent contractor' on the terms and conditions, as laid down in the bidding document. If there was any involvement of the employees of Indian Associate, at any stage in the meetings between assessee and the PGCIL that was bound to be there and outcome of the fact that assessee and its Indian associate were required to work in tandem and that ....
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....such part of the income, as is attributable to the operations carried out in India can be taxed in India. (2) Since all parts of the transaction in question, i.e. the transfer of property in goods as well as the payment, were carried on outside the Indian soil, the transaction could not have been taxed in India. (3) The principle of apportionment, wherein the territorial jurisdiction of a particular state determines its capacity to tax an event, has to be followed." 29. Thus, the Bench is inclined to conclude that there was not an artificial split of bid into three separate contracts to avoid taxes in India.In the present case, the Indian Associate's non- involvement in off-shore transaction excludes it from being a part of the cause of the income itself, and thus there is no business connection. The Ld. Tax authorities below failed to appreciate the distinction between the existence of a business connection and the income accruing or arising out of such business connection, which is clear and explicit. It is established that assessee had no business connection or dependent agent PE or construction PE in India. The attribution of profit from off-shores supplies made to PGCIL t....
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.... offshore supply with GE T&D and SFO Technologies. It has only furnished sample invoices in case of Offshore supply made to GE T&D. In absence of any underlying agreement, assessee's claim that offshore supply made to GE T&D and SFO technologies is not related to PGIL contract can not be ascertained.In view of the above, the offshore supplies made to GE T&D and SFO Technologies are taxable as per DTAA and Income Tax Act. Further, the DRP has also upheld the taxability ofGlobal operation fee amounting to Rs. 15.27,62,000 as Fee for Technical services as per DTAA and Income Tax Act. 32. The Bench is of considered opinion that once the foundation of the findings of Ld. AO on the basis of dependent agent PE status of GE T&D India and SFO technologies in not sustained by this Bench, the foundation of his reasoning in para no above stands washed away. At the same time what comes up is that assessee had claimed that there was no agreement with GE T&D and SFO technologies and on the basis of orders and invoices generated, the supplies were made. Ld. AO has stressed on the agreement without appreciating that the invoices as made available in the paper book from 281 to 371, have terms and c....
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....Training of local team in configurator development. f) Indirect support- Technical support to suppliers on process support, test system design and support, text fixture design and support, technical/quality issue resolution. g) Component approval - Provide technical data and specifications and Training of local support engineers on system use. h) Localisation- Provision of technical details, technical support for supplier development, facilitation of qualifications to global standard and facilitation of product approval for manufacture. i) Creation of technical documentation for products. 34. In regard to this ground it was submitted on behalf of the assessee by Ld. Sr. Counsel that there were various services which were rendered for multiple functions to ALSTOM-I and those with regard to Global Industrialization function amounting to Rs. 7,15,24,966/- were offered to tax in the return of income and the balance services valued for Rs. 8,12,37,034/- were not offered to tax as the corresponding services do not fulfil the "make available" clause of paragraph 4(c) of Article 13 of the DTAA. Relying various judgments it was stressed that ALSTOM-I is not enabled to employ these ....