AI Drafter 
TaxTMI 
TaxTMI 
2024 (11) TMI 1196
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....Rs 32,97,07,175/-. 4. We have heard the rival submissions and perused the materials available on record. The assessee is a tax resident of Japan in terms of Article 4 of India-Japan DTAA (hereinafter referred to as the Treaty). The assessee is engaged in providing information technology support, maintenance support and software licensing services to various group entities including its Indian Associated Enterprises (AEs). The return of income for the assessment year 2019-20 was filed by the assessee declaring total income of Rs 27,96,72,140/- under section 139(1) of the Act. The details of various receipts derived by the assessee together with the tax treatment given in the return of income are tabulated as under:- S no. Name of the party Nature of receipt Amount (in INR) Taxability in ROI 1. Fujitsu India Private Limited (FIPL) Income from providing system software support services 1,83,68,284 Taxed at 10% rate on a gross basis as per the provisions of India-Japan tax treaty 2. Fujitsu Consulting India Private Limited (FCI) Income from supply of software 17,44,73,581 Taxed at 10% rate on a gross basis as per the provisions of India-J....
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.... UCO Bank, Delhi High Court during the pendency of the execution proceedings. Subsequently, the Hon'ble Delhi High Court disposed of the Execution Petition No. 126/2015 vide its order dated 2-5-2017 in favour of the assessee and directed to release the fund along with accrued interest on fixed deposits kept during the pendency of the said petition. Accordingly, the assessee was in receipt of interest portion thereon of Rs 2,80,03,480/- which was duly offered to tax by the assessee voluntarily in the return of income. The total amounts including the interest on fixed deposit amounting to Rs 35,77,10,655/- were transferred to Mizuho Bank Limited, Delhi by UCO Bank, Delhi in pursuance of the said order for remittance to be made to the assessee by taking necessary approval of income tax authorities. The bifurcation of the aforesaid sum remitted by Mizuho Bank Limited, Delhi is as under:- S. No Nature of Payment Amount in USD Amount in JPY Amount in INR 1 Outstanding amount of PO-I / II /III for the supplies made from outside India under the Contract with MTNL under the Arbitral Award 24,95,637-42 51,58,371.00 2 Interest on outstanding invoices....
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....hargeable to tax, which inter alia included Rs. 35,77,10,655/- being the arbitration amount received from Mizuho Bank Delhi, which had suffered tax deduction at the rate of 10% on account of dispute with MTNL. 10. The assessee filed objections before the Learned DRP and also filed additional evidences and contended that the above sum should not be taxed as it is an arbitral award arising out of contractual obligation and hence had to be construed as business income not chargeable to tax under the tax treaty in the absence of PE of the assessee in India. The assessee submitted the following additional evidences during proceedings before the Learned DRP:- a) Copy of the Memorandum of Understanding between assessee and Fujitsu India Pvt Ltd (FIPL). b) Copy of purchase orders from MTNL. c) Copy of the Arbitration Order passed in favour of the assessee. d) Copy of the orders passed by Hon'ble Delhi High Court dated 17-8- 2015, 18-11-2016 and 2-5-2017. e) Copy of application filed under section 197 of the Act requesting Nil withholding rate on receipts from Mizuho Bank. f) Copy of lower withholding certificate with regards to recei....
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....he India-Japan tax treaty. 12. The Learned DRP sought a rejoinder to the aforesaid remand report from the assessee which was duly submitted. The assessee specifically submitted that the Learned Assessing Officer has misread the Arbitral Award and its clauses and submitted that assessee is not only party to Arbitral Award which attained finality and had privity of contract with MTNL as the assessee is the party to consortium which was awarded the contract by MTNL. Considering the facts of the case, the Learned DRP admitted the additional evidences filed by the assessee. The Learned DRP, however, on merits of the issue, issued directions to the Learned AO to make factual verification of contentions of the assessee and pass speaking order thereon. The powers of the Learned DRP in setting aside the issue in violation of provisions of section 144C(8) of the Act is not in challenge before us. Hence we refrain to go into that aspect of the issue. 13. The Learned Assessing Officer pursuant to the directions of Learned DRP passed the final assessment order wherein the addition in respect of the aforesaid sum was made by holding that the receipts are in the nature of income from other ....
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.... for scribing the award. 18.8 The Respondent is allowed 30 days time from the date of this award for payment of the amount awarded hereby. Failing this, the entire awarded amount shall carry interest calculated @ 18% per annum with effect from the date falling 30 days after the date of this award." 15. From the above, the amount awarded as applicable to the assessee are as under:- USD - 2495637.42 (1952508.42 + 543129) JPY - 5158371 16. The Learned AR before us drew our attention to the written submissions filed by the assessee on merits of taxability of Arbitral Award. The following facts and observations made thereon are relevant for adjudication of this dispute which also duly meet the allegations casted on the assessee by the Learned AO in the assessment order :- "47. At pages 73 to 78, the Arbitral Tribunal set out the Undisputed Facts and the Claimant's case who are FIPL (an Indian Entity) and Appellant. For the sake of brevity, the same are not repeated here however the broad facts relevant to adjudicate the present issue are summarized below: a) 30.06.1998: MTNL invited tender for supply of CDMA technology on turnkey ba....
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....d in US dollars and Japanese Yen are to be credited by the Respondent by inter-bank funds transfer are as under: The above said particulars were filed by the Claimants under the copy to the Respondent. The above said particulars have not been disputed by the Respondent." h) The following points from the Arbitral Award also clearly indicate that the Appellant was a party to the contract with MTNL as held by the Arbitration Tribunal. Clause Particulars Remarks Clause 4.2 (refer Page no 73 of Paper Book) Undisputed Facts The Appellant jointly with FIPL submitted bid as Joint venture for MTNL contract, with FIPL as lead partner. Clause 4.6 (refer Page no 74 of Paper Book) Undisputed Facts As per purchase order dated July 2, 1999, Main equipment as per details in part-I, Annex "A" to be supplied by the Appellant. Clause 9.2 (refer Page no 108 of Paper Book) Clauses in the Tender documents The Arbitrator has referred to clause 5 of the instructions to bidders. In clause 5.1 and 5.2 it is clearly stated that upon successful bid the parties to joint venture jointly and severally liable for all obligation under the contract. Clause 18.1 (refer....
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....of business income. There is no dispute that the transaction in question is a trading transaction. Accordingly, in the absence of any PE in India, the same is not taxable in India. 54. The Appellant wishes to place reliance on the following judicial precedents: a. The Hon'ble Mumbai Tribunal in the case of Goldcrest Exports vs. ITO (2010) (134 TTJ 355) held that in the absence of a PE in India, compensation awarded under the arbitration award is not taxable in India. The relevant extract of the ruling is reproduced below for the Hon'ble Bench's ready reference: "9..... The foreign buyer has no PE in India. As per Article 5(5) of DTAA, even if any business is carried out through a broker or general commission agent or any other agent of an independent status, then it cannot be said that the non-resident has PE in India. We, therefore, hold that as M/s. Swissgen NV London, UK has no PE in India and hence the compensation awarded under arbitration award was not taxable in India..... (refer para 9 at Page no 141 of the CLC) b. The Hon'ble Vishakhapatnam Tribunal in the case of 3F industries Limited vs. ACIT (2019) 108 Taxma.nn.com ....
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....ation of the business. Undisputably there is no PE for the assessee in India. Hence in view of Article 7 of India Japan Tax Treaty, the same would not be chargeable to tax in India. 18. Now coming to the taxability of interest received on the compensation arising out of an Arbitral Award in the sum of Rs 2,80,03,480/-, though the assessee had voluntarily offered the same to tax in the return of income, the same, in our considered opinion, would not be chargeable to tax at all, in view of the decision of Hon'ble Supreme Court in the case of CIT vs Govinda Choudhary & Sons reported in 203 ITR 881 (SC) wherein it was held that such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by it. The Hon'ble Supreme Court specifically made an observation in Para 6 of its order that interest can be assessed under the head "income from other sources" only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to it de hors the business which is carried on by....