TaxTMI 
TaxTMI 
2023 (9) TMI 1036
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.... by way of this consolidated order for convenience. 2. Identical grounds have been raised in both the assessment years except the amount involved and therefore, for brevity, we are reproducing the grounds raised for assessment year 2008-09, as under:- 1. "Whether on the fact and in circumstances of the case and in law, the Ld.CIT(A) has justified in deleting demand of Rs. 2,63,79,636/- raised u/s 201(1) of the IT Act for the short deduction of tax. 2. Whether on the fact and in circumstances of the case and in law, the Ld.CIT(A) has justified in deleting demand of Rs. 1,26,62,225/- raised u/s 201(1A) of the IT Act for non payment of tax. 3. Whether on the fact and in circumstances of the case and in law, the Ld.CIT(A) has justified in admitting fresh evidence in appellate proceeding in violation of rule 46A of I.T. Rule 1962. 4. Whether on the fact and in circumstances of the case and in law, the Ld.CIT(A) has justified in holding that the income arises due to supplies & services from the contract assigned by the agreement dated 30/07/2007 to TESCOTEC S.P.A LUCCA, Italy arises in Italy in view of judgment of the Mumbai High Court given in the ....
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....e of installation, testing and commissioning of plant, same fall in the category of works contract and therefore, the assessee was liable to deduct tax at source on such payments. The Assessing Officer referred to clause 3 of the contract agreement relating to scope of supplies and services. He further referred to the decision of Hon'ble Supreme Court in the case of Hindustan Shipyard Ltd versus State of A.P. (2000) 6 SCC 579 and observed that contract for sale of the goods is different from the contract for works in labour. The Assessing Officer observed that non-resident rendered services in India and a portion of out of the payment made to him, has accrued to him in India and therefore, under the provisions of section 195 of the Act, not only to the income portion contained therein but on the gross sums, liability to deduct TDS arises. The Assessing Officer also held that in the case of composite contract, the assessee was required to make application under section 195(2) of the Act for determination of the appropriate portion of income of non-resident chargeable to tax in India and make deduction of tax at source accordingly, but the assessee failed in doing so. The Assessing O....
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....to by the appellant as well as the A.O. and after considering the judgments, the conclusions detailed subsequently are arrived at. The learned ARS of the appellant have vehemently contended that on the basis of their submissions detailed above, the appellant is not liable for deduction of tax u/s. 195 and accordingly, the liability fastened on the appellant company, is unjustified. The undisputed facts of the case are that the appellant has entered into a contract agreement with the Italian company for supply of a manufacturing facility for production of manufacture of 59 MT per day Toilet/ Facial Tissue paper (for short referred as plant) to be set up at the appellant's existing mill at Amlai, Distt. Shahdol, M.P. India for contracted price of EUR6,950,000 (equivalent to INR of 44,79,11,000) (wrongly taken by A.O as Rs.47,00,00,000/-). It also provides for supply of all supervisory services at the time of erection, commissioning, integration of the plant with the existing mill. The appellant has made the payment without making TDS on the ground that the impugned contract is a contract for sale and did not involve any component of income accruable to the non-resident company in....
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....ion, etc. services are part of the after-sales services. The price for supply of the plant was paid outside India. It was on firm CIF basis. The plant was handed over to the shipper on the strength of bill of lading. Therefore, the entire contract has attained culmination outside India and the appellant did not pay anything in India against the subsequent services. As a corollary, no income or profit has accrued or arisen to the foreign company in India and resultantly, the appellant was not required to make TDS u/s.195. I find substantial force in the appellant's submissions. As per clause 6.2 of the agreement "Machine Pre- Assembly", the contractor was required to pre-assemble the plant at their workshop prior to shipment in order to facilitate field erection. The different sections and their pre-assembling chronology are given therein. This important clause determines the completion of manufacture of the plant in Italy. The exercise referred in this clause is something akin to pre-drill exercise, that was to be supervised in India at the time of erection, start up and commissioning. The plant was delivered to the shipper in moveable packages. Copy of the bill of lading refle....
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....ment, (b) sales in that other State of goods or merchandise of the same or similar kind as those sold through that permanent established, or 31 other business activities carried on that other State of the same or similar kind as those effected through that permanent establishment". I have already held that as per agreement between the Italian Company & the Indian Company, entire Plant was manufactured in Italy. The title in goods was passed to the Indian Company on handing over shipping documents in Italy. Thus, all the business activities were performed in Italy. The income arising from such business activities cannot be taxed in India under Article 7 of DTAA between India and Italy. After title in goods passed in Italy, the machine was imported in India. On this ground alone, both these appeals fully succeed. Under the circumstances, I hold that no business was carried out by the Italian company in India. There is nothing brought on record to suggest that the foreign company has any permanent establishment in India. Consequently, I am of the considered opinion that DTAA between India and Italy applicable to the facts of the case is in full force and for the reas....
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....ntract agreement for pre-assembly of machine at the work shop of non-resident company before shipping to the assessee for facilitation of erection by the assessee company. The different section and their pre-assembling chronology were given therein. The entire plant was supplied in movable packages and assembled with the help of two local contractors engaged by the assessee. No documentary evidences are presented by the Assessing Officer or ld CIT(DR) to establish that plant was assembled or commissioned by the non-resident in India. In the absence of any such documentary evidence, no income can be accrued or arisen or deemed to have accrued or arisen to the non-resident in India under the provisions of the Act. Moreover, the Ld. CIT(A) examined the taxability of the non-resident under the provisions of the DTAA between India and Italy. The AO, in the Remand Report, had proposed that business income had arisen to the non-resident. However, there was no evidence to suggest that the Italian company had established a permanent establishment in India under the DTAA. Consequently, no business income was taxable in India under the DTAA. 9.1 In conclusion, as no income accrued to the n....