TaxTMI 
TaxTMI 
2025 (4) TMI 794
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....ainst Date of Hearing 1. 5580/Del/2011 for AY: 2008-09 M/s. SMS Siemag AG Addl. DIT, Range- 2, Intl. Taxation, New Delhi Addl. DIT, New Delhi's order dated 13.10.2011 involving proceedings under Section 144C r.w.s. 143(3) of the Act. 03.03.2025 2. 2144/Del/2012 for AY: 2007-08 M/s. SMS Siemag AG DDIT (Intl. Taxation), Circle-2(2), New Delhi DIT [Intl. Taxation]-II, New Delhi's order dated 23.03.2012 involving proceedings under Section 263(1) of the Act. 11.03.2025 3. 1074/Del/2014 for AY: 2007-08 M/s. SMS Siemag AG DDIT (Intl. Taxation), Circle-2(2), New Delhi DDIT, Intl. Taxation, New Delhi's order dated 23.12.2013 involving proceedings under Sections 143(3) r.w.s. 144C/263 of the Act. 11.03.2025 4. 6106/Del/2012 for AY: 2009-10 M/s. SMS Siemag AG DDIT (Intl. Taxation), Circle-2(2), New Delhi DDIT, Intl. Taxation, New Delhi's order dated 28.09.2012 involving proceedings under Sections 143(3) r.w.s. 144C of the Act. 03.03.2025 5. 6359/Del/2014 for AY: 2010-11 M/s. SMS Siemag AG DDIT (Intl. Taxation), Circle-2(2), New Delhi DDIT, Intl. Taxation, New Delhi's order dated 23.09.2014 involving proc....
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....4C(3) of the Act. 03.03.2025 2. Heard both the parties at length through their respective learned representatives. Case files perused. 3. Learned senior counsel Mr. Percy Pardiwalla submits at the outset that all these fourteen cases involve identical substantive grounds; both in law and on facts. We thus treat 'M/s. SMS Group GmbH's ITA No. 5580/Del/2011 for AY: 2008-09 as the "lead" appeal raising the following substantive grounds: 1. That on the facts and circumstances of the case and in law the order of Additional Director of Income-tax (International Taxation), Delhi (A.O) u/s 143(3) in pursuance of direction issued u/s 144C by Dispute Resolution Panel (DRP) is perverse, bad in law and void, being contrary to law and principles of natural justice. 2. That the learned A.O./DRP has erred in computing income at Rs. 159,851,648/- as against returned income of Rs. 41,12,262/- 3.(a) That the learned A.O. and DRP have erred in law and on facts in holding that consideration received for supply of drawings and designs, forming integral part of the supply of equipment, received under various contracts is taxable as 'Fees for Technical Services'....
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....sident company as held by the jurisdictional High Court of Delhi in the case of Director of Income-tax Vs. Mitsubishi Corporation ITA No. 209/2009. 7. That the assessee may be allowed to add, supplement, revise, amend grounds as raised hereinabove. 4. Mr. Pardiwalla states very fairly that the assessee's 1st and 2nd grounds are general in nature. Rejected in very terms. 5. Next come assessee's third and fourth substantive grounds canvassing its inter-connected grievances that both the learned lower authorities have erred in law and on facts, inter alia, in treating its consideration received from supply of designs and drawings forming integral part of the sale/supply of equipments, received under various contracts, as taxable under section 9(1)(vii) of the Act, being in the nature of "fee for technical services" (FTS) under the above former and its receipt derived from sale of plant and equipments as alleged to have been concluded in India and assessable in India, involving varying sums; respectively. 6. We now advert to the basic relevant facts. The assessee herein "M/s. SMS Seimag AG" formerly known as "M/s. SMS Demag AG", is a German company engaged in the busi....
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....4,83,934/- qua sale/supply receipts of Euro 9,98,50,420 and assessed its total income at Rs.159,28,51,648/- in the assessment order. Firstly proposed the impugned twin additions in his draft assessment order dated 31.12.2010. The assessee filed it's statutory objections before the learned DRP which stood rejected in the former's directions dated 30th September, 2011, as follows: "2. The grounds of objection, filed as Appendix A with Form No. 35A, are as under: 1. That the order of learned Assessing Officer is bad both in law and on facts of the case. 2. That the learned Assessing Officer has erred in computing income at Rs. 176,00,77,547/- as against returned income of Rs. 41,12,262/- 3. That the learned Assessing Officer has erred in making assessment without providing adequate opportunity and thus acted contrary to principals of Natural Justice, which is illegal. 4. (a) That the learned Assessing Officer(A.O.) has erred in holding that consideration received by the assessee in relation to contract for supply of drawings and designs, is essentially in the nature of "Fees for Technical Services under the provisions of Section 9(1)(vil) o....
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....me Tax, Mumbai(228 ITR 408Sc). (d) That the learned Assessing Officer has erred in holding that the assessee has 'Fixed place P.E. in India where from business of the assessee was wholly or partly carried on. (e) That the learned Assessing Officer has erred in not considering the provisions of Protocol 1(a) of the DTAA between India and Germany as relied upon by the assessee, in terms of which, on the facts, no part of consideration for supply of equipment from Head Office, is attributed, to P.E., if any, in India. (f) That without prejudice the learned Assessing Officer has erred in invoking the Rule 10 of the Income-Tax Rules, in computing profit attributable in India in relation to supply of equipment. The said Rule has no application on facts. (g) Without prejudice, the learned Assessing Officer has erroneously held that on facts, profit attributable in respect of supplies was 75% of global profit rate. The said attribution is arbitrary, highly excessive and has no rationale whatsoever, and is against the principals of attribution as laid down under the provisions of Income-Tax, Act, DTAA between India and Germany and various decisions of....
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....consideration was also received abroad. The assessee furnished a detailed submission giving its reasons why this amount was not taxable in India and after considering these submissions the A.O has held that the receipts in question are taxable in India as fees for technical services in view of the provisions of Explanation to sub section (2) of sec 9 of the IT Act. 4.2 The assessee has made the following submissions contesting the above proposal: "1. At the outset it is submitted that payments received in respect of supplies of drawings and designs cannot be subject to tax in India as the same are inextricably linked to supplies of equipments and not pertaining to rendering of technical services. The Explanation 2 to Section 9(1)(vii) that defines fees for technical services does not apply where the consideration is for outright sale of plant with essential drawings and designs and not for rendering of engineering and technical services. Such payments would fall in the definition of business profits and cannot be subjected to tax unless the assessee had a P.E. and supplies are connected therewith. 2. A separate price is stipulated under the Agreements for....
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....e not linked to supply contract and thus held as fees for technical services. In second case of GMP International GmbH Vs. DIT (Intl. Tax) AAR/837/2009, the assessee company was engaged in the business of architectural designs and drawings. The company in response to a tender agreed to prepare drawings and designs for construction of a complex for Tamil Nadu Legislative Assembly. The scope of work in this case related to consultancy work and preparation of architectural designs and drawings. The ratio of these cases therefore do not help the case of revenue as essentially the contract here is of supply of plant and equipment along with drawings and designs. 4.3 The above submissions have been considered by this Panel. The main thrust of the assessee's argument is that all acts relating to the transaction have taken place outside India and that the designs and drawings are connected to the sale of the equipment and not for any engineering or technical services to the assessee. In order to come to a proper conclusion it would be appropriate to examine the terms of the relevant agreements. For this purpose the contract for supply of drawings and documents for Ste....
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....ation the above elements of the contract for the supply of drawings and design the Panel is of the view that it is not a case of a sale of commodity per se or a transaction which has taken place outside the Indian Territory. The rights and obligations of the purchaser and the Seller continue for a much longer period (five years). The designs and drawings also enable the purchaser to be able to perform all the functions relating to repair and maintenance of the equipment. To this extent it cannot be denied that there is no transfer of know how or 'making available' technical know-how by the Seller to the assessee Further even though the drawings and designs etc. are linked to the sale of equipment, the fact remains that a separate contract has been made between the two parties spelling out separate terms and conditions that govern this transaction. Therefore, the sale of equipment and the transfer of know-how under the agreement in respect of drawings, designs etch cannot be confounded with each other. Had it been inextricably linked with supply of equipment there would have been no reason to enter into two separate agreements. Taking into consideration the facts of the case....
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.... in Germany, supply of drawings and designs in relation to the plant from the Germany and rendering of technical services. The assessee recognized the receipts from drawings and designs and technical services to the following entities:- i Tata Iron Steel Co. Ltd. Rs.7,69,20,032/- ii. ISPAT Industries Ltd. Rs. 3,96,701/- iii SMS Demag Pvt. Ltd. Rs. 38,81,330/- Rs.8,11,98,063/- 6. The assessee has recognized the above revenue and offered to tax as 'Fee for technical services' @ 10% as per the DTAA between India and Germany. 7. During the course of assessment proceedings, the AO observed that the receipts from Jindal Steel and Power Limited amounting to Euro 12,15,200 (Rs.6,94,96,347/-) was shown as exempt in the return of income originally filed. The said Indian company had not deducted/paid any income-tax on the said consideration on the ground that the same is not liable to tax in India. Accordingly, a claim of exemption was made in the return of income filed by the assessee. However, the AO observed that the nature of receipts is same as that made from other Indian company in relation to supply of drawings and des....
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....ax in the absence of P.E. of the assessee in India, in the relevant year. Reference may be made to following clauses of the agreement with Jindal Steel & Power Ltd." 9. After considering the submissions of the assessee, ld. CIT (A) rejected the plea of the assessee on the jurisdictional issue and with regard to merits, ld. CIT (A) partly allowed the grounds raised by the assessee with the following observations :- "10.1 I have gone through various submissions made by the appellant and other material placed on record. At the outset, it is seen that the appellant has filed return in response to notice u/s 148 wherein certain incomes have been claimed as non-taxable which were offered to tax in original and revised returns. This action of the appellant is not as per law on the issue as Hon'ble Supreme Court has long ago in its decision in case of CIT v Sun Engineering Works Pvt. Ltd. 198 ITR 297 has laid down that reassessment jurisdiction is available only to the AO and not to the assessee and the assessee in reassessment proceedings cannot claim that certain incomes originally declared as taxable are not taxable. Therefore, the AO has rightly considered the inc....
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.... not accruing, arising or received in India or deemed to accrue or arise or received in India. (c) That the learned CIT (A) has erred in not accepting that supply of drawings and designs was inextricably linked to sale of plant and equipment and represented consideration of the nature of 'Business Profits' not liable to tax in India, as per the provisions of DTA between India and Germany read with Indian Income-tax Act. (d) That the learned CIT (A) has grossly erred in law in ignoring and not following the ratio of jurisdictional High Court of Delhi in the case of Mitsui Engineering and Shipbuilding [174 CTR 66(Delhi)] and other decisions as relied upon by the assessee. 4. That the learned CIT(A) has erred in ignoring the decision of Hon'ble High Court of Delhi in the case of DIT Vs Jacabs Civil Inc and other High Courts and upholding the chargeability of interest under section 234B, not attracted on facts of the case. 5. That the assessee may be allowed to add, supplement, revise, amend grounds as raised hereinabove." 11. At the time of hearing, ld. AR for the assessee brought to our notice relevant facts on record and he br....
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....by the assessee raising preliminary objections and brought to our notice relevant submissions made along with reliance of the decision of ITAT, Vishakhapatnam objecting to the reasons recorded for reopening the assessment. Further, he referred to page 1 of supplementary paper book, which are the submissions made before the ld. CIT (A) dated 19.11.2013 and he also brought to our notice page 2 of the assessment order and page 20 of the paper book which is the return of income filed in response to notice u/s 148 of the Act. He submitted that the assessee has rightly computed taxable income. He brought to our notice page 5 of the first appellate order and submitted that ld. CIT (A) has rejected the plea of the assessee wherein AO has made a reasoned observation that receipts for drawings and designs received from some clients is taxable then similar receipts from Jindal Steel and Power Limited should also be taxable and the assessee has wrongly taken these receipts as non-taxable. It was submitted that even if the AO has treated these receipts as FTS in reassessment order instead of treating them as business receipts as mentioned in the reasons recorded. However, ld. CIT (A) observed t....
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....s exempt from tax however when the case was reopened it has filed its return of income by bringing on record facts clearly and it was submitted before the AO as well as ld. CIT (A) that two invoices of Euro 2,35,000 and 30,500 relates to supply of drawings and designs to Jindal Steel and Power Limited and which is exempt from tax on the basis of ITAT, Vishakhapatnam decision which is in favour of the assessee (it is decided in the case of M/s. SMS Schloemann Siemag AG Germany vs. DCIT which is the sister concern of the assessee). With regard to third invoice of Euro 9,49,600, it was submitted before the ld. CIT (A) that it is relating to supply of equipment. We observed that ld. CIT (A) appreciated the above facts on record and deleted the addition made by the AO relating to supply of equipments. However, he did not consider the decision of ITAT, Vishakhapatnam relating to supply of drawings and designs as royalty/FTS and he proceeded to sustain the addition on the two invoices which assessee has not declared in their return of income. After considering the factual matrix on record, we observed that the ITAT, Vizag has considered the similar issue on record and decided the issue of....
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....drawings, schematic drawings or layouts, diagrams, configuration and calculations necessary to design the equipment, structure and systems, as the case may be. It also includes, the necessary calculations, functional descriptions, final equipment list, preliminary bills of materials for media systems, line routing drawings, main cables routings, foundation outlines with load data, motors and components list. It also includes reference component drawings with reference bills of material where applicable. Details design consists of the final design engineering to procure or manufacture the equipment and plants. It means the detail design of the equipment includes all necessary calculations, arrangement drawings, detail drawings for manufacturing where applicable, bills of materials, engineering of electrical components as well as associated standard and catalogue parts, instructions for manufacturing, assembly, inspection and construction if applicable, spare part lists, operation and maintenance instructions as the case may be. 13. Thus, from the details of design and drawings as well as documentation submission, schedule of drawings and designs, it is quite clear that draw....
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....s to be supplied overseas and form an integral part of the supplies, then such services rendered would not be available to tax under section 9(1)(vii) of the Act as FTS. The Hon'ble Court further held that in order to fall outside the scope of section 9(1)(vii) of the Act, the link between the supply of equipment and services must be strong and interlinked that the services in question are not capable of being considered as services on standalone basis and are, therefore, subsumed as a part of the supplies. In the facts of the present case, in our view, the supply of drawing and design cannot be considered on standalone basis as the purchaser could not have utilized such drawings and designs without the supply of plants and equipments. Even, it is not the case of the department that by purchasing the drawings and designs, the purchaser could have got the plants and equipments manufactured by a third party. Therefore, in our view, the ratio laid down by the Hon'ble Jurisdictional High Court in the aforesaid decision squarely apply to the facts of the present appeal. 16. In case of CIT Vs. Andhra Petrochemicals Ltd. reported in [2015] 373 ITR 207, the Hon'ble Andhra Pradesh ....
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....at as per the terms of the contract the assessee was required to provide duly qualified technical personnel for supervisory work and the consideration to be received for providing such personnel was fixed at daily rate. He submitted, fees for supervisory services being incidental to sale of plant do not fall within the ambit of Article 12 dealing with taxation of royalty and FTS. He submitted, the provision of such services is a normal part of contract of sale of plant to enable the supplier to ensure that the plant is properly erected, installed by the customer, keeping in view the performance guarantee obligation undertaken by it. He submitted, therefore, the amount is taxable as business profit, however, since, the tenure of supervisory services did not exceed the threshold limit of six months under Article 5(2)(j) of the treaty, there being no PE, amount is not taxable. 21. We have considered rival submissions and perused the materials on record. From the facts on record, it is observed, the assessee had entered into a contract for supply of electromagnetic stirrer. As per the scope of the contract, the assessee shall engineer, manufacture and deliver the plant and equ....
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....reconciliation of the assessee's designs and drawings vis-à-vis, the corresponding projects (supra), we direct the learned Assessing Officer to re-verify its details as per law within three effective opportunities. We make it clear that it shall be the assessee's onus only to plead and prove the relevant facts in the consequential reconciliation. These assessee's third and fourth substantive grounds succeed in very terms. 13. Next comes the assessee's fifth substantive ground challenging both the learned lower authorities' action holding its alleged reimbursements representing installation of SAP software, regular breakup and maintenances and intranet charges, as the case may be, as taxable in India, under the head "fee for technical services. We find that the DRP's directions dated 28.08.2014 in assessee's case itself for AY 2010-11 have already accepted the instant claim thereby concluding in para 15 thereof that the same are neither taxable as a "FTS" under section 9(1)(vii) of the Act for want of any technical services being provided nor royalty under section 9(1)(vii) Explanation 1 of the Act. All these clinching intervening developments have gone unrebutted from the....
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....er case ITA No. 2144/Del/2012 fails therefore. 18. So far as the assessee's latter appeal ITA No. 1074/Del/2014 is concerned, we note that all three substantive grounds of taxability of receipts derive from designs and drawings, off-shore sale of plants/equipments and section 234B interest involve identical set of facts as in the "lead" assessment year 2008-09. We thus accept the assessee's instant three substantive grounds in very terms. So is the outcome of it's main appeal ITA No. 1074/Del/2014, which stands allowed. ITA No. 6106/Del/2012 for AY: 2009-10 (SMS Siemag AG) 9. We note herein as well that assessee's former three substantive grounds of taxability of its receipts/income derived from sale of designs and drawings, off-shore sale/supply of plants and equipments and charging of section 234B industrial, involve identical set of facts as in the "lead" assessment year 2008-09, as fairly conceded by both the parties. We thus accept all these three substantive grounds in assessee's favour. 20. Lastly comes the assessee's sixth substantive grounds raising TDS credit issue, which mainly requires the Assessing Officer's afresh factual verification and computation th....
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....nterest; applicable in its case as per the statutory amendment (supra). 29. That being the case, we accept the assessee's former twin substantive grounds raising the issues of taxability of its income derived from sale of designs and drawings and off-shore supplies involving plants and equipments and restore the latter as many issues of TDS credit and section 234B back to the learned Assessing Officer for afresh factual verification and consequential computation in very terms 30. This appeal ITA No. 7569/Del/2017 is partly accepted. ITA No. 7570/Del/2017 for AY: 2014-15 (SMS Group GmbH) 31. This assessee's appeal raises identical four substantive grounds as in the preceding assessment year 2013-14, and therefore, in light of both the parties' fair stand adopted during the course of hearing, the same is partly accepted in very terms. Ordered accordingly. 32. This appeal ITA No. 7570/Del/2017 is partly allowed. ITA No.5521/Del/2018 for AY: 2015-16 (SMS Group GmbH) 33. This assessee's appeal, inter alia, raises three substantive grounds raising as many issues of taxability of its income/receipts arising from sale of designs and drawings, supply of plant and ....