TaxTMI 
TaxTMI 
2024 (12) TMI 763
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.... year under consideration, the assessee filed its return of income on 14.03.2022 with returned income of Rs. 78,62,310/-. The return was selected for scrutiny under CASS. Notice u/s. 143(2) of the Act was issued on 27.06.2022. Further, notices under section 142(1) of the Act was also issued alongwith detailed questionnaire which was duly served on the assessee. During the year under consideration, the assessee Schindler (China) Elevator Pvt Ltd ('SCE' or the assessee) has raised invoices amounting to Rs. 26,55,11,031/- against Maharashtra Metro Rail Corporation Ltd (MMRCL) and Rs. 23,84,27,868/- against Delhi Metro Rail Corporation Limited (DMRCL). Both the receipts have been considered as non-taxable by the assessee. Vide notice u/s. 142(1) dated 23.08.2022, & 11.10.2022 the assessee was specifically asked to justify its claim as to why these receipts are not taxable in India. The assessee has replied that during the year under consideration, it supplied escalators to Delhi Metro Rail Corporation Limited ('DMRCL") and Maharashtra Metro Rail Corporation Limited ('MMRCL"). Therefore, the payment made by the DMRCL and MMRCL to the Assessee will be regarded as 'supply of goods' an....
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....see has filed objection to the draft assessment order before the Ld. DRP and has raised primarily 2 grounds of objections. "Ground of Objection 1: Addition of receipt emanating from offshore supplies of escalators and elevators to the total income of the assessee: He failed to appreciate and ought to have held that: a. designing and manufacture of the escalators/elevators has been done outside India i.e., in China, therefore, the receipts being in the nature of gross consideration towards offshore supply is not chargeable to tax in India; b. as per provisions of section 9(1)(i), only income which is arising from operations carried out in India are chargeable to tax in India and in absence of any business operations of the Assessee being carried out in India, no income is deemed to accrue or arise in India u/s 9 of the Act; c. the transaction was not taxable in India on account of the Indo-China DTAA; d. work to be performed by each party is separate and independent of each other along with specific demarcation in the risks and responsibilities, therefore, the contract is divisible contract; e. no activity in relation to....
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....ased on no valid material; g. the Assessee was only involved in the design, manufacture and supply of escalators and elevators to DMRCL & MMRCL which involve huge costs in comparison to servicing & maintenance activity. 5. However, the Ld. DRP vide order dated 22.09.2023 rejected the grounds of objection to the draft assessment order on the basis of following facts and inferences are drawn: (i) The actual taxable entity in this case is an AOP comprising of the Applicant, Schindler (China) Elevator Company Limited, China("SCE") and its Indian sister concern, Schindler India Private Limited and is a resident of India. Accordingly, no benefit of India-China DTAA could be afforded to the association. (ii) The off-shore supplies have been made by the applicant on Indian port of disembarkation basis and the delivery of the goods are to be taken as having been made in India. Therefore, the profit or supplies made by the applicant on CIF basis is liable to be taxed in India on the ground that the sale is completed in India. (iii) A single, indivisible, composite contract for transmission line project has been artificially segregated to make it appear ....
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.... of receipt emanating from offshore supplies of escalators and elevators to the total income of the Appellant: 1. On the facts and circumstances of the case and in law, the Ld. AO erred in adding a sum of Rs. 2,51,96,945/- out of receipts emanating from offshore supply of escalators and elevators to the total income of the Appellant. 2. The AO further inter alia erred in observing or commenting that the Appellant and SIPL constitute an AOP. 3. In the absence of Permanent Establishment in India, under Article 7 of the India-China Double Taxation Avoidance Agreement ("DTAA") and in the absence of any business connection as envisaged u/s. 9(1)(i) of the Act. the Appellant prays that the addition made by AO on aforesaid offshore supplies be deleted. Ground No. 2: Non-consideration of Net Loss incurred by the Appellant on offshore supply of escalators and elevators to DMRCL and MMRCL: 1. On the facts and circumstances of the case and in law, the Ld. AO erred in making an addition of Rs. 2.51,96,945/- to the total income of the Appellant in India ignoring the act that the Appellant had incurred net loss on the offshore supply of escalators and....
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....everally liable for the breach of clause of the contract and therefore it is an indivisible contract and the same cannot be split. f. As per recent order of Hon'ble Authority for Advance Rulings (AAR) in Re Roxar Maximum Reservoir Performance WLL (AAR), it has been held that a composite contract for installation & commissioning (as is the case of the assessee) cannot be split so as to exempt the profits from offshore supply of goods. g. The contract has been deliberately split through an artificial arrangement for avoiding formation of a permanent establishment in India in order to avoid taxability in India. h. The assessee and its sister concern SIPL has formed an Association of Person (AOP), which is obvious from the contract of installation and commissioning of elevator and escalator system and its delivery to MMRCL and DMRCL. Therefore, the assessee along with other members who formed an AOP are liable to be taxed in India as AOP. 8. It is therefore argued on behalf of the revenue that the assessment order is perfectly right and assessee is taxable in India. 9. The Ld. AR on behalf of assessee, at the very outset submitted that: a. ....
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....company a permanent establishment of the other. Indeed, this paragraph clarifies that merely because the two companies are related, one cannot be regarded as a permanent establishment (PE) of another merely because of the relationship. f. A comparative chart at page no. 170 of the paperbook is showing yearly turnover of SIPL based on its audited accounts vis-a-vis the value of the two contracts under consideration. It would be observed that the receipts under these contract forms an insignificant portion of the annual turnover of SIPL. Therefore, there is no possibility of even the SIPL being a "Dependent Agent" of the appellant so as to constituting its permanent establishment. 10. It is therefore vehemently argued that since the issue already stands decided in favour of the appellant/assessee for the 3 previous years by the Hon'ble Mumbai Tribunal in ITA No. 1617 & 2483/Mum/2022 for the A.Y. 2018-19 & 2019-20 and ITA No. 3355/Mum/2023 for A.Y. 2020-21 and it has been fairly submitted by the Ld. DR that no appeal has been filed by the department against the Hon'ble Tribunal orders in the appellant's own case and this information has been submitted on the perusa....
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....floated by DMRCL for the design, manufacturing, supply, installation, testing, and commissioning of escalators for Noida-Greater Noida MRTS project. Similarly, the aforesaid consortium bid for the tender floated by MMRCL for the design, manufacturing, supply, installation, testing, and commissioning of heavy-duty machine room less elevators and escalators for NMRCL Project. The bids were accepted by the DMRCL and MMRCL and letters of acceptance were issued. Subsequently, separate contract agreements were signed between the consortium and DMRCL, and the consortium and MMRCL. It is pertinent to note that the MOU entered into between the assessee and SIPL was made part of both the aforesaid contract agreements. From the perusal of the contract agreements, forming part of the paper book, we find that the consortium agreed to perform efficiently and faithfully all of the work under the agreement. It was also agreed that the consortium shall be jointly and severally liable for undertaking the contracts. Responsibility of each member of the consortium in respect of the contract is provided in the MOU entered between the assessee and SIPL. From the perusal of the MOU in respect of....
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.... perform the contract. Thereafter, each party is responsible for its own scope of work as agreed amongst them by way of MOU. The joint agreement can at best be for the purpose of completion of the contract for which the joint bid was made by the consortium. Due to the different expertise of the consortium members, the roles and responsibilities are also clearly demarcated, at the outset, at the time of bidding for the contract. Since multiple parties form part of the consortium, the members may choose a lead member amongst them for the purpose of representing the parties in such a contract and the same is only for administrative convenience and coordination. Therefore, for the purpose of taxation, it is relevant to take into consideration the roles/functions performed by each member of the consortium. 12. As per the assessee, the consideration received by SIPL in respect of its scope of work, i.e., clearance of material after reaching at port and transportation to the site as per contract conditions, installation, testing, commissioning, and maintenance of escalators, has already been offered for taxation in India. The Revenue has not brought any material to controvert the....
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....o the copy of sample invoices forming part of the paper book from pages no.239-243. From the perusal of the aforesaid invoices, it is evident that the same are in the name of DMRCL and MMRCL and the transaction is on a CIF basis. In the draft assessment order, it has been held that since the offshore supplies have been made by the assessee on an Indian port of disembarkation basis, therefore the delivery of the goods is to be taken as having been made in India. Thus, it has been held that the profit made by the assessee on a CIF basis is liable to be taxed in India on the basis that the sale is completed in India. We find that in a case, wherein the assessee made an offshore supply of equipment on a CIF basis at an Indian port, the coordinate bench of the Tribunal in JCIT vs Siemens Aktiengesellschaft, [2009] 34 SOT 16 (Mumbai) observed as under: "12. From the above clause of the contract it is patent that BPL acquired the absolute right in the property when it was delivered to the carrier at the port of shipment i.e., in Germany. The reference of the learned D.R. to the invoice for depicting that it was on CIF basis at Bombay and hence the right of the buyer in the proper....
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....ment of price. Our view is fortified by the judgment of the Hon'ble Supreme Court in Seth Pushalal Mansighka (P.) Ltd. v. CIT [1967] 66 ITR 159. As it is the case of offshore supply of equipment, it is axiomatic that this transaction got completed outside India. Thus no income accrued to the assessee in India towards this transaction." 15. Therefore, in the case of CIF, the property in goods passes on to the buyer at the port of shipment. Though the Cost, Insurance, and Freight, etc., are met by the seller but the property in the goods gets transferred to the buyer at the port of shipment. The buyer incurs all risks of loss of or damage to the goods from the port of shipment. Therefore, the title in property in the goods shipped by the assessee in the foreign port was transferred at the port of shipment itself. In Ishikawajma-Harima Heavy Industries Ltd. vs DIT, [2007] 288 ITR 408 (SC), the Hon'ble Supreme Court held that only such part of the income, as is attributable to the operations carried out in India can be taxed in India. It was further held that since all parts of the transactions in question, i.e. the transfer of property in goods as well as the payment, wer....
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....alter and / or to delete all or any of the above grounds of appeal." 19. During the hearing, both parties agreed that the facts for the year under consideration are similar to the preceding assessment year. Since similar issues have been decided in assessee's appeal being ITA No. 1679/Mum./2022, for the assessment year 2018-19, therefore, our findings/conclusion rendered in the said appeal shall apply mutatis mutandis. As a result, ground No. 1 raised in assessee's appeal is allowed. While grounds no.2 raised on without prejudice basis is dismissed as infructuous. 20. In the result, the appeal by the assessee is partly allowed. 21. To sum up, both appeals by the assessee are partly allowed." 14. With regard to the arguments of the revenue that the assessee is liable to be taxed as Association of Person (AOP) and also because there is joint and similar liability of the AOP, therefore, the Ld. AO has rightly taxed the assessee in India, the Ld. AR on behalf of the assessee and has argued that if the revenue was of the view that the receipt has to be taxed in this case as Association of Persons, why the Ld. AO has not proceeded to tax the assessee as Asso....