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2025 (1) TMI 806
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....ual and legal submissions made by the Assessee during the course of proceedings under the Income-tax Act, 1961 (Act). 1.2 That the Ld. DRP/Ld. AO erred both on facts of the case and in law, in computing income at Rs. 20,25,77,410/- instead of Rs. 5,24,25,082/- as declared by the Assessee. Specific Grounds of Appeal 2. Permanent Establishment ('PE') in India 2.1 That the Ld. DRP/ Ld. AO erred both on facts of the case and in law, in holding that the assessee has a PE in India as per the DTAA [Article 5(2)]. 2.2 That the entire order has been passed by the Ld. AO based on conjectures and surmises that the Assessee has a PE in India in connection with offshore supplies made by the Assessee in India without appreciating and considering factual submission made by the Assessee. 2.3 The Ld. AO/DRP erred both on facts and in law in not appreciating that Assessee does not satisfy the prescribed conditions/principles for determination of PE in India. 2.4 The Ld. AO while referring to the annual maintenance receipts received by the branch of the Assessee from a third party 'Cochin International Airport Ltd' has err....
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....on is established, to the extent more beneficial to the Assessee. 3.6 Ld. AO/Ld. DRP erred in not following up the decision of Hon'ble ITAT in Assessee's own case for AY 2019-20 wherein complete additions with respect to offshore sales were deleted. 4. Taxability of offshore supply of equipment under the DTAA 4.1 The Ld. DRP/ Ld. AO failed to consider the submission filed by the Assessee and did not pass a speaking order with respect to the argument of the Assessee that Force of Attraction Rule" does not apply to India-Singapore DTAA. 4.2 The AO has erred in law and in facts and has held that off-shore supplies are taxable without even once discussing the role being played by the alleged Indian PE since Article 7(1) of DTAA has to be read with Article 7(8) which provides that "directly or indirectly attributable to the PE" includes profits arising from transactions in which the PE has been involved and such profits shall only be regarded as attributable to the PE to the extent appropriate to the part played by the PE in those transactions. 5. Maintenance receipts received from Glidepath New Zealand ('Glidepath') ....
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..... 6. During the year under consideration, the assessee received receipts from India from the following payers, which have been claimed as non-taxable in India. S. No Name of Payer Amount (in Rs) 1 Mangalore Port Trust 9,90,13,900/- 2 Cochin International Airport Ltd 7,36,69,100/- 4 Airport Authority of India 80,16,68,252/- 5 Paradip Port Trust 2.07,60,750/- 6 Green Park Hotels and Resorts 44,550/- 7 Kerala Industrial and tech Consultancy Organisation Ltd 3,57,210/- 8 Cochin International Airport Ltd 14,80,925/- 9 Tirumala Tirupati Devasthanams 1,13,142/- 10 Glidepath Limited 5,18,12,031/- Total 104,89,19,860/- 7. The assessee has offered for tax the receipts on account of maintenance services provided to Cochin International Airport Ltd. as business receipts, it has reported interest income on receipts from Canara Bank and FTS Income on the receipts from SDS India. However, receipts from Mangalore Port Trust, Airport Authority of India and Cochin International Airport Ltd. amounting to Rs. 97,43,51,252/- have been claimed to be exempt. Additional receipts from Glidepath L....
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....spective customers. The ld AR submitted that the fact that the division of responsibilities outlined in the work orders had been transparently pre-agreed upon with the customers and that the payments to be made for separate items of work and the currency in which such payments were to be made were clearly specified in the work order, indicates that there was no artificial splitting of the contracts. 11. It is the say of the ld. counsel for the assessee that the title and risk in respect of offshore supply were transferred outside India. The arrangement between the assessee and SDVS cannot be construed as Joint Venture as it does not meet the criteria of a joint venture as defined by Hon'ble Supreme Court in the case of Faqir Chand Gulati v. Uppal Agencies (P.) Ltd. [2008] 10 SCC 345, which requires a shared business enterprise for profit, joint control, and pooled assets. A wholly owned subsidiary and a JV are two different concepts and therefore, the conclusion reached by the Assessing Officer that there is a JV is based on surmises and conjectures. 12. The ld. counsel for the assessee submitted that the Assessing Officer incorrectly concluded that the assessee's bra....
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....h subcontracted its maintenance to the assessee, who in turn subcontracted it to SDVS. It is argued that the compensation to SDVS was provided on a cost-plus arm's length markup and therefore, the receipt from Glidepath cannot be subjected to tax in the hands of the Assessee. 16. The ld AR further stated that the maintenance receipts from Glidepath cannot be taxed in the hands of the assessee as the SDVS has been remunerated on a cost-plus basis. It is argued that where there is an international transaction under which a non-resident compensates another enterprise at arm's length price taking into account all the risk-taking functions of the enterprise, nothing further would be left to be attributed to the enterprise in India. SDVS was adequately remunerated on which it has already paid its due tax in India and there is no reason for further attribution. Reliance was placed on the decision of the Hon'ble Supreme Court ruling in Morgan Stanley & Co. [2007] 162 taxman 165 (SC). 17. The ld AR further submitted, without prejudice, that any attribution of profit from offshore supply of equipment would need to be based on a detailed analysis of the FAR of the PE of the ....
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....ents - one comprising of supply of equipment and the other being installation, testing, commissioning and comprehensive annual maintenance. 22. The ld. DR vehemently stated that the assessee has assigned the aspect related to supply of equipment to itself and the other component of work i.e, installation, testing, commissioning, AMC has been assigned to the subsidiary of the assessee in India i.e. Smith Detection Systems Pvt Ltd. The ld. DR further stated that suo moto bifurcation by the assessee will not change the colour of transaction and the attribution of profit by the Assessing Officer/DRP cannot be faulted with. 23. It is submitted by the Ld DR that only the work orders received by the assessee which involves supply and installation of equipment has been furnished. The ld DR argued that it is left to the assessee from whom the installation/maintenance is to be made. Though, the assessee will supply the equipment, the installation of the equipment will be made by the Indian subsidiary of the assessee. The ld DR argued that the entire factum of entire contract won by the assessee cannot be lost sight of. 24. The ld. DR has submitted that the decision of Ishikawajima H....
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....d upon by the ld. counsel for the assessee and relevant documentary evidences brought on record in light of Rule 18(6) of the ITAT Rules. Though the assessee has raised as many as 6 grounds of appeal, but the sum and substance of the grievance of the assessee relates to the taxability of offshore supply of equipment under the Act and taxability of offshore supply of equipment under the India- Singapore Double Taxation Avoidance Agreement [DTAA]. 29. We find that identical issues arose in the AY 2019-20 in the assessee own case which was decided in favour of the assessee by the ITAT in ITA no. 2258/Del/2022 dated 22.02.2023. The same is extracted below:- 29. The core issue which needs to be addressed at the outset is to what extent the Force of Attraction Rule apply in the case of off shore supply/sales of goods/merchandise. The Hon'ble Supreme Court in the case of Hyundai Heavy Industries Co. [supra] had the occasion to address such issue. The relevant observations of the Hon'ble Supreme Court read as under: "The attraction rule implies that when an enterprise (GE) sets up a PE in another country, it brings itself within the fiscal jurisdiction of that ....
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....es such as this, where different severable parts of the composite contract is performed in different places, the principle of apportionment can be applied, to determine which fiscal jurisdiction can tax that particular part of the transaction. This principle helps determine, where the territorial jurisdiction of a particular state lies, to determine its capacity to tax an event. Applying it to composite transactions which have some operations in one territory and some in others, is essential to determine the taxability of various operations. XXXXX XXXXX 79. We, therefore, hold as under : 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 be followed. (4) The fact that the cont....
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.... and direct the Assessing Officer to delete the impugned addition. This grievance alongwith with all its sub grounds is allowed. 34. Respectfully following the findings of the coordinate bench of ITAT, Delhi bench in assessee own case for the AY 2019-20, we are of the considered view that there is no justification in attributing the profit on off shore sale of equipment in the hands of the assessee. There are no distinguishing facts or material placed before us to take a contrary view. Accordingly we direct the Assessing Officer to delete the impugned addition. The ground 1 to 4 along with the sub-grounds are allowed. 35. Ground no 5 relates to the receipt from Glidepath, New Zealand. We find that the AO has made the addition on account of absence of main documents and contract for the exact nature of work awarded to the assessee and the fact that the assessee engages in artificial splitting of contracts. 36. We are of the considered view that the assessee has fully explained that Glidepath had originally contracted with CIAL for a baggage handling system which subcontracted its maintenance to the assessee, who in turn subcontracted it to SDVS. We also find that the AO has....