TaxTMI 
TaxTMI 
2024 (4) TMI 255
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....tions Ltd and erstwhile known as M/s. Alstom Grid UK Ltd filed its return of income for AY 2016-17 on 30.11.2016 declaring total income of Rs. 13,49,87,780/-. The assessee is in the business of designing, manufacturing, testing, post handling and supply of electronic equipment and help in the transmission and distribution of power, commissioning and servicing of transmission and distribution systems on turnkey basis. The assessee stated that it is a foreign company incorporated in United Kingdom (UK) and is tax resident therein. The assessee stated that it had received payments from various customers in India and claimed that certain receipts are not taxable in India on account of India-UK Double Taxation Avoidance Agreement (DTAA). The various receipts of the assessee as disclosed in Form 3CEB and that reflected in Form 26AS are tabulated as under:- Payer*<* (a) Total Receipts As Per 26AS /GBP (b) (Rs.) Offered to TAX out of (b) (C) (Rs.) Nature and Taxability (as claimed by the assessee in respect of amount in column V) Not offered to TAX by the Assessee in ITR for AY 2016-17 7 (e) (Rs.) (1) GE T&D India Limited 20.84,14.276/- 13.27.70.236/- Services provided to the....
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....AO concluded that even though the main single contract was artificially divided into three sub-contracts by the assessee, all the responsibilities and liabilities of the project were vested with the assessee itself i.e. UK Grid. The relevant part of the contract is reproduced as under. "Whereas the associate proposed by, ALSTOM ALSTOM (Now UK Grid) has been accepted by the Employer Vas above subject to the condition that ALSTOM (Now UK Grid) 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 ALSTOM- 6. The assessee has claimed that it has only been awarded the First Contract for execution, whereas the Second and Third Contracts have been awarded to its Indian Associate i.e. GE T&D India Ltd. (GE T&D India). Therefore, the assessee's contention is that if it has nothing to do with the other contracts, its taxability should not be affected by the nature or outcome of such contracts. 7. The ld AO further observed that a plain perusal of the tender documents indicate that the tender....
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....pply is governed by the project site itself. 9. Accordingly, the ld AO concluded that it is established beyond doubt that the assessee company has been awarded a single composite contract in respect of a turnkey power project by PGCIL. This was artificially segregated into three separate contracts offshore and onshore subsequently. Even if the construction of contracts may have been laid out in the tender itself, it is essential to understand the intent of doing so. The segregation, as is clearly evident from the tender and contract documents, is a consequential exercise in the instant case to simply facilitate execution of the contract. It has not been carried out with the intention of carving out an entirely independent role for the assessee that is more restrictive in scope and responsibility than what was originally intended. Further, the tender document does not mandate the involvement of an Indian associate for the completion of work under the contract. It is an option available for the contractor to exercise. The Indian associate, if any, is thus employed by the contractor in exercise of its own discretion based on its commercial considerations and is not envisaged as an in....
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....ng profit @10% thereon amounting to Rs. 59,94,94,888/- and taxed the same @40% plus applicable surcharge and cess. In respect of the offshore sales other than the PGCIL contract amounting to INR 468,42,64,711/-, it was held that these also constitute business receipts and are attributable to the business connection of the assessee in India. The profit rate on such receipts was assumed at 10%, being the standard benchmarking followed by the Act in various cases, which worked out to Rs. 46,84,26,471/- and taxed the same @ 40% plus applicable surcharge and education cess. In respect of the income from the assessee's group company amounting to Rs 20,84,14,276/-, it was held that these are in the nature of Fees for Technical Services u/s 9(1)(vii) of the Act and are taxable as per Section 115A of the Act. The assessee has offered Rs. 13,27,70,236/- out of the said amount. The balance amount of Rs. 7,56,44,040/- is being brought to tax as FTS taxable u/s 115A of the Act. 14. The assessee preferred objections before the ld DRP. The ld DRP held that the assessee is clearly fiscal transparent entity and hence, cannot be treated as tax resident of UK for the purpose of treaty benefit un....
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....xed Place Permanent Establishment ("PE") of the Appellant in India. 7. That the DRP/ assessing officer erred on facts and in law in arbitrarily holding that GETDIL constitutes Dependent Agent PE of the Appellant in India and that the Appellant has Installation/ Construction PE in India. 8. 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. 9. Without prejudice, that the DRP/ assessing officer erred on facts and in law in computing income from offshore supplies by applying section 44BBB of the Act. 10. That the DRP/ assessing officer erred on facts and in law in alleging that the Appellant was awarded single composite contract on turnkey basis, which was artificially split into three separate contracts to avoid establishment of PE in India and to avoid payment of legitimate taxes in India. 11. That the DRP/assessing officer erred on facts and in law in placing reliance on the Base Erosion and Profit Shifting ("BEPS") Action Plan 7 read with Article 13 of Multilateral Instrument, not appreciating that the same has no applicability qua the subject assessment year. ....
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....y of the other grounds raised by the assessee are covered by the order of this Tribunal in assessee's own case in ITA No. 2087/Del/2022 for AY 2018-19 dated 12.04.2023. For the sake of convenience, the relevant portion of the Tribunal order is reproduced below:- "9. Ground no 3 to 8.Ld. Sr. Counsel for the assessee/ appellant contended that Ld. Tax Authorities below have erred in understanding the nature of three 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 bus....
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....1 As with regard to Dependent PE it was submitted the Tax Authorities have not discussed any evidence and an incorrect observation is made by Ld. AO that GE India was actively involved in soliciting business for the assessee as the assessee had procured the contract by way of open bidding. 9.5 It was submitted that the Associate was engaged in independent contracts under the bid and was independent entity. Referring 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 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 a....
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....b.), DCIT vs Adobe Systems Software Ireland Ltd: ITA Nos.1978/Del/2019 &Ors. dated 27.07.2022 (Del Trib.), Net App BV vs DDIT: [2017] 78 taxmann.com 97 (Del Trib.), TVM Ltd vs CIT: 237 ITR 230 (AAR) and KronesAktiengesellschaftvs CIT: ITA No.907/Del/2017 dated 30.12.2022 (Del Trib.) 9.8.5 The Ld. Sr. Counsel stressed that the onus is on Department to prove existence of PE and for that he relied CIT vs eFunds IT Solution: 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. DR however, supported the findings....
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....o evasion of tax. The first and a very important concept that has to kept in mind is that the controversy regarding taxability event, in case of complex arrangement of contacts, may arise at several stages and with different tax incidences. The adjudication of an issue should be on basis of wholesome reading of the contract and context of terms. In regard to this principle of law the Hon'ble Supreme Court in Ishikawajma-Harima 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....
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....ract end the Second Contract, Training in India etc. (also referred to as On-Shore Services Contract). WHEREAS M/s. ALSTOM Grid UK Limited in their Bid, had proposed M/s. ALSOM T&D India Limited having its Registered Office at A-18, First Floor, Okhla Noida-201301, U.P. Area, Phase-ll, New Delhi-110020 and business address as A-7, Sector-65, ca-201301, (hereinafter referred to as "ALSTOM-1" as their Associate for the purpose of executing the On-Shore Supply Contract and On-Shore Services Contract) furnished "ALSTOM-1" written unequivocal consent vide their letter dated 26.11.2011 (enclosed in their First Stage 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 ALSTOM- 1. Further, in the Contract Documents, for 'First Contract' the word ....
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...., required' for the 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". The scope of 'Third Contract' includes all services to be performed covering, inter alia, port handling, port clearance, inland transportation, insurance, delivery at site, handling, storage, erection including associated civil works, testing and commissioning of all the Plant and Equipment including 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 acceptance / taking over of the facilities by the Employer as per the ....
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....Contract' (also referred to as the 'First Contract') covering inter-alia supply on CIF Indian Port of Entry of all equipment and materials, mandatory spares including Type Testing to be conducted outside India, Training to be imparted abroad for the complete execution of the +/-800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under "National Grid Improvement Project". as detailed in the Bidding Documents referred hereinabove. The scope of work inter-alia includes the following: Design, engineering, manufacture, 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 Chhattisg....
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....d and agreed by you that any default or breach by your Associate M/s. ALSTOM T&D India Limited under the Second Contract and/or the 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 us a right to terminate the 'Second Contract and/or Third Contract, either in full or in part, and/or recover damages under those contract(s), shall give us an absolute right to terminate this Contract, at your risk, cost and responsibility, either in full or in part and/or recover damages 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 ....
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....the mind of this Bench that at the stage of bid itself ALSTOM-I had joined the assessee in terms of the requirement of the bid. These clauses and stipulations go on to establish that there was a collaborative effort of the assessee and the Indian associate and as such there was not actually a consortium to which one contract was awarded with bifurcation at level of the members of Consortium. The award of separate off shore contract by the PGCIL to assessee and on shore contracts to the permitted associate ALSTOM-I, which was classified as independent contractor of employer, coupled with the execution of separate contracts with defined scope of work of each contract, 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 to be a narrow and not a pragmatic approach. As observed above, they were selective in considering the bi....
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.... convenience para 5.2 of the order of DRP is reproduced as below :- "5.2 It has also been clarified at para 3.2 therein that- "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," a matter of fact that this para 3.2 is part of clause 3.0 in notification of award, which makes reference to contract price and it will be beneficial to reproduce the whole of it, from the notification of award dated 21.06.2012, available at page no. 127 of paper book as under :- "3.0 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 million 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 1....
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....f Indian entity, like PGCIL, which negotiates and gets executed such infrastructural facility contracts. The intention being successful commissioning of the project and that it is not abandoned or frustrated due to involvement of many parties, each performing some part, by shouldering any delay or latches, on other unrelated party. 21.1 In this context, reliance can be placed on the judgment of Hon'ble Delhi High Court in Linde AG, Linde Engineering Division (supra) wherein dealing with the reasons for having such clauses to make parties to a consortium being joint and safely liable under a contract, Hon'ble High Court observed in para 53 and 55 as follows: "53. We are also 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 conclusio....
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.... and electrical contractors had formed an Association of Persons. In this illustration each one of the participants works towards a common project with a certain level of cooperation. However, since the said participants do not act as a single cohesive entity, but perform their independent allocated works, they cannot be considered as an Association of Persons. In order to consider agencies as an Association of Persons, it is necessary that they form a joint enterprise with a greater level of common management. An element of mutual agency and joint action for mutual purpose is also necessary. Mere obligation to exchange information, between independent agencies, for co-ordinating 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 P....
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....nue about an artificial split of contract is not sustained and it is established that the assessee has entered into the 'First Contract', in its independent capacity, there is no force in the finding of Ld. that GE India (Alostom-I) was actively involved in soliciting business for the assessee. In fact, there is substance in the contention of Ld. Sr. Counsel that in the bidding structure of present nature there is no question of someone 'soliciting' the business, as it was a case of open bid to which Indian and Foreign entities, both, were eligible to make the offer of bid. 25.1 There is no question of any agent and principle relationship between the assessee 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 brough....
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....hat the Revenue is not disputing the fact that under the 'First Contract' assessee was only supposed to make off shore supplies. Otherwise too it is appearing from the recitals of 'First Contract' that the procurement by PGCIL, was on the basis of, "CIF Indian Port of Entry supply". The title in property had passed out side India. The payments were also made outside India in terms of this contract. The settled proposition of law in this regard, rightly relied by Ld. Sr Counsel for assessee, is sustainable and the relevant conclusion in para 79, from the judgment of Hon'ble Supreme court in the case of Ishikawajma-Harima Heavy Industries Ltd. (supra)is reproduced below; "Re: Offshore Supply: (1) That only 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 b....
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....endent agent PE in India (GET&D) as far as the assessee's entire operations in India were concerned and the same has upheld by the Ld. DRP. It is pertinent to mention here that once PE has been established for a transaction, it needs not to be established for each and every transaction. Moreover, the supplies are of very high technical specifications, customised machinery and given that the assessee company is a leader in its field, these supplies were to be assembled and made operational/commissioning in India only by itself or its associated enterprises (which is GE T&D in this case), thus such receipts are taxable as discussed in preceding paras. Without prejudice to the above, the assessee company has not furnished copy of agreement of 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 DR....
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.... and new products, design and provision of test jigs and fixtures, providing of technical support in respect of system failure, process performance, spares and maintenance and Training of local support engineers on system. c) Project managed introduction of new products into manufacturing units d) Coordinate and manage introduction of design changes- Technical support and liaison between units and teams, E.g. R & D. e) Master Data-Creation of product configurators on Global IT system, creation of products and materials on global system for use within local unit, training for local units in adaptation of Bom's, routings and configuration in line with global rules, providing of technical assistance and support and product structure realted issues and Training of local team in configurator development. Indirect support- Technical support 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 devel....
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....lization of products, sources and procurement of raw materials, setting quality standers, supply general and contracts. The industrialization support for SMP services details and descriptions have been given in appendix II available at page no. 377 of the paper book. Ld. DRP has merely into consideration the sub-heads of Global Industrialization support services, which have infact already accrued to tax. Ld. Tax Authorities below have approached the issue with the very general discussion without appreciation of any evidence and facts to show that how the other services fall into the category make available clause. The essence of 'make available' clause is that the technical knowledge or skills of the provider should be imparted to be absorbed by the receiver so that the receiver can deploy similar technology or technique in the future without dependent upon the provider. However, in the case in hand for the services rendered, there is renewal of contract on annual basis and the nature of services are all prima facie managerial in nature. They have also passed the arm's length tests. Thus Ld. Tax authority below have fallen in error in taxing global operation fee of Rs. ....
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....d certificate specifically mentioned that the assessee company is a resident of UK in accordance with Article 4 of the treaty between India-UK DTAA. We find from the profit and loss account of the assessee for the period ended 31.12.2015 is enclosed in pages 318 to 328 of the PB wherein, there is a note written by the assessee which reads as under:- "the company acts as an undisclosed agent for General Electric Energy UK Ltd under terms which provide that General Electric Energy UK Ltd receives all trading income and pays all trading expenditure of the company." 22. The assessee had filed the return of income at UK for the accounting period commencing on or after 01.04.2015 till 31.12.2015 in UK declaring Nil income which are enclosed in pages 322 to 332 of the Paper Book. The entire financial statements for the period ended 31.12.2015 of General Electric Energy UK Ltd as prepared in accordance with UK laws are enclosed in pages 363 to 409 of the Paper Book. The income tax return filed by General Energy UK Ltd for the period of 01.04.2015 to 31.12.2015 are enclosed in pages 410 to 423 of the Paper Book. We find that the assessee is liable for tax for worldwide income. The assess....
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....o. 3 raised by the assessee is allowed. 24. Ground No. 6 raised by the assessee is challenging the action of the ld AO in holding that GETDIL constitutes fixed place permanent establishment in India. 25. We have heard the rival submissions and perused the material available on record. The assessee has a group company i.e. GETDIL. The ld AO observed that this Indian company was taking active part of the Indian leg of the composite contract and accordingly treated the Indian company i.e. GETDIL as Dependent Agent of the assessee. In this regard, we find that Indian company is independently acting on its own, having its own work force, having independent receipts and had suffered taxes in India. Hence, it cannot be construed as Dependent Agent Permanent Establishment (DAPE). The Indian entity does not have any authority to conclude contract. The contract is awarded based on global bids. Hence, we hold that the entire observations made by the ld AO in this regard are totally without any basis. Our view is further fortified by the decision of Hon'ble Jurisdictional High Court in the case National Petroleum Construction Company Vs. DIT reported in 383 ITR 648(Del) wherein, it was held ....
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.... The case of the assessee is that the tax due on the income of the assessee was subjected to tax deduction at source. Our attention was drawn to the computation of the tax liability in the hands of the assessee by the Assessing Officer which was placed on record. It was pointed out that the assessee had not paid any taxes by way of advance tax and total tax payable was adjusted against the tax deducted at source at Rs. 17.54 crores (approx.). The question which arises is that where the liability to pay tax was on the payer which in turn had to deduct tax at source, then the shortfall if any in the taxes due cannot be attributed to the assessee and for such default no interest chargeable, u/s 234B of the Act. 33. Under the provision of section 209(1)(d) of the Act, it is provided that against the income tax calculated under the provision of Act then amount of income tax which would be deductible or collectible at source during the said Financial Year from any income would be deducted. The provisions of section 234B of the Act deals with payment of Advance tax, whereas in the present case, this does not amount to default of payment of Advance tax, but amounts to default in deductio....