TaxTMI 
TaxTMI 
2025 (11) TMI 915
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.... AO for existence of PE 9. Attribution of 100% profits from offshore supplies to the alleged PE 10. Application of section 44BBB of the Act 11 to 13 Offshore supply receipts from GETDIL and SFO Technologies, not related to PGCIL Contract 14 Global operation fee taxable as FTS 3. Shri Aditya Vohra, appearing on behalf of the assessee, at the outset, submitted that the assessee is not pressing ground no.2 of appeal challenging validity of assessment order on the ground of limitation. 3.1. Narrating facts of the case ld. Counsel for the assessee submits that, the assessee is a tax resident of the United Kingdom and holds valid TRC for the impugned assessment year. The assessee is engaged in the business of designing, engineering, manufacturing and supply of electric equipment. The assessee was awarded tenders by Power Grid Corporation of India Limited (in short 'PGCIL' )for offshore supply of goods for setting up a 3000 MW HVDC Terminal Package associated with Western/Northern Region Interconnector for IPP Projects in Chhattisgarh under 'National Grid Improvement Project" and upgradation of 3000 MW HVDC Terminals at Champa Pooling Station and Kurukshetra ....
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....u/s 9(1)(vii) of the Act. 3.3. The ld. Counsel submitted that similar additions were made by the Assessing Officer in the preceding assessment years. The assessee carried the issue in appeal before the Tribunal in ITA No.2087/Del/2022 for Assessment year 2018-19. The Tribunal vide order dated 12th April, 2023, decided all issues in favour of the assessee. Likewise, the appeals of the assessee for Assessment Years 2015-16, 2017-18 and 2020-21 were decided by the Tribunal vide single order dated 13.03.2024 reported as [2024] 160 taxmann.com 694 (Delhi Trib.). The issue relating to offshore supplies, existence of fixed place PE, DAPE and construction PE were decided in the favour of the assessee. Even the issue relating to taxation of Global Operation Fees as FTS was decided by the Tribunal in assessee's favour. Referring to para 6 of the Dispute Resolution Panel directions, the ld. Counsel pointed that the ld. Dispute Resolution Panel records that the factual and legal matrix in AY 2022-23 is similar to AY 2020-21. He further submits that the Tribunal has decided these issues in favour of the assessee, however, he ignores the order of the Tribunal by stating that the Department ha....
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....services (FTS) 33 to 35 32 to 35 Thus, for AY 2020-21 the Tribunal overturned findings of the Assessing Officer/DRP and decided the issues in favour of the assessee following its earlier order for AY 2018-19. 7. For the sake of completeness, relevant extract of findings of the Tribunal in assessee's appeal for AY 2018-19 are reproduced here in below:- On the issue of Offshore supply receipts from PGCIL: "11. Now, giving thoughtful consideration to the matter on record and the submissions, at the outset, the Bench feels relevant to observe that in the assessment order the Ld. AO has discussed more about the various provisions and principles of law governing the taxability in case of income which is deemed to accrue or arises in India for the purpose of Section 9 of the Act and how there has to be attribution to profit to the PE, without discussing the evidence in the case in hand, to give conclusive findings as to how the Indian associate of the assessee happens to be an agent or construction PE. His primary and ultimate reliance was on the fact that there was single composite contract which was divided into three contracts and that in two contracts, which we....
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....g from page 9, are reproduced as below :- "WHEREAS the Employer is desirous of setting up +/-800kV, 3000 MW HVDC Terminal ' Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under "National Grid improvement Project" and had invited bids for complete project- management, design, engineering, manufacture, testing, supply, port handling and customs clearance for the Plant and Equipment including mandatory Spares to be supplied from abroad, further handling, inland transportation and delivery at destination Site, unloading, storage, - handling at site, erection/installation including associated civil works, employer staff training, testing and commissioning including performance testing of Plant and Equipment including mandatory Spares and any other services as required for complete execution of the package. WHEREAS M/s. ALSTOM Grid 'UK Limited participated in the above referred bidding vide its First Stage bid proposal reference rro.T0193 dated 26.11.2011, updated Technical Bid, Compliance to Amendment No.-I and Clarification to the provisions of the Bidding Documents pursuant to First Stage Bid Evaluation. subm....
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....ntract' the word 'Contractor' shall mean ALSTOM, who had submitted the bid and shall, for the purpose of 'Second Contract' and 'Third Contract', include' ALSTOM-I - the Permitted Associate of ALSTOM. Accordingly, without prejudice to the overall responsibility and the liability of ALSTOM for the execution of all the three Contracts, the word 'Contractor' wherever appearing in the 'Second Contract' and the Third Contract' shall also mean ALSTOM-I. WHEREAS the Employer desires to engage the Contractor for the CIF Indian Port of Entry supply of all Plant and Equipment including mandatory Spares inter-alia including 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 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 Contract Documents ("the Facilities"), and the Contractor has agreed to such engagement upon and subject to t....
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....ipulated in the respective Contract Documents. It is expressly understood and agreed by ALSTOM that any default or breach by its Associate, ALSTOM-l under the 'Second Contract' and/or 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 the Employer 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 the Employer an absolute right to terminate this Contract, at ALSTOM 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 ALSTOM of any of its obligations under this 'First Contract'. It is also expressly understood and agreed by ALSTOM that the Plant and Equipment including mandatory Spares supplied by ALSTOM under this 'First Contract' and by its associate, ALSTOM-I under the 'Second Contract', when erected and commissioned by its associate, ALSTOM-I under the 'Third Contract' shall g....
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....e specifically excluded in the Bidding Documents or in this NOA. 2.2 As per the Record Notes of Clarification Meetings (referred to in para 1.5 above) and the acceptance of proposed Associate confirmed vide our communication dated 01.03.2012 (referred to in para 1.6 above), we have notified your Associate M/s. ALSTOM T&D India Limited vide our Notification of Award Ref. No. CC-CS/156- WR1/HVDC-1489/7/G10/NOA-II/4336 dated 21.06.2012 for award of 'On-Shore Supply Contract' (also referred to as the 'Second Contract') for the subject package which includes the Ex-works supply of all equipment/materials including Type Testing to be conducted within India, 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", 'as set forth in the Bidding Documents., viz. Design, engineering, manufacture, testing at manufacturer's works and Ex-works supply of all the equipment and materials including mandatory spares and Type Testing from within India. We have also notified your Associate M/s. ALSTOM T&D India Limited vide. our Not....
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.... 15. When these minutes dated 28.10.2011 are considered, the clause 1.3 makes it apparent that in the bid itself ALSTOM-I was proposed and confirmed as an Associate for the purpose of executing the on-shore supply and service contracts. So having an Indian Associate was an integral part of the Bid and not introduced at the discretion of the assessee. Reference in this context can be made to the bid document of September, 2011 containing special conditions of contract available at page no. 231 of the paper book which required that success full bidder shall be under an obligation for entering into the three contracts. The first for off-shore contract and second & third for on-shore supply contract. 16. Next in the notification of the award, the 'scope of contract' of the off shore contract, given to the assessee was limited to, "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. As distinguished with Scope of contract, meant for Second and Third Contracts. Thus there was not one scope of contract under whic....
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....hole and to understand the business prudence of such Bidding involving International entities, while dealing with Indian entities, for such infrastructural contracts. The Ld. AO has merely focused on the fact of three contracts, alleging that a single composite contract awarded on turnkey basis was split artificially into three sub-contracts by the assessee. The matter of fact happens to be it was a condition in bid and there was nothing on the part of assessee to do the splitting of a composite contract. 20. Then the Ld. DRP has fallen in error in making certain factual errors in observations. As for instance in para no. 5 of its order Ld. DRP mentions that there are only two signatories to all the three contracts namely PGCIL (the Employer) and the assessee company (the Contractor). The above discussion has established there were three different award of contract and three different contracts were signed and executed. Only the 'first contract' was executed and signed between the assessee and PGCIL. 20.1 Further in para 5, the Ld. DRP has taken into account 'Part D' of a document relating to "commercial issues", and mentioned that it provided that "if ALSTOM-I fa....
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.... USD 107,590,567 68,835,118 13,559,144 2. Type Test Charges Included 3. Training Charges Included Total for Off-Shore Contract GBP EURO USD 107,590,567 68,835,118 13,559,144 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. 20.3 Ld. DRP has fallen in error in considering that the reference here to "single source of responsibility" is with regard to three contracts but the matter of fact is that it was only in context to the contract price for the off-shore contract. The off shore contract had three components; first being 'CIF price component' for which the contract price was disclosed and further the assessee was supposed to provide 'type test' and 'training' but the charges for same were included in the contract price for 'CIF price component' and in reference to that it was agreed that any breach in any part of the contract shall be treated as a breach of the entire contract. Here the entire con....
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.... the same does not by itself lead to a conclusion that the said members had formed an Association of Persons. Any entity/individual may agree, for its own business purposes, to accept a liability for due performance of an obligation of another. This by itself would not lead to a conclusion that the said persons had formed a common enterprise or an association which was moved by joint action for a common purpose. As a matter of illustration, let us take a case where a director of a company provides a personal guarantee for a loan taken by the company. Having stood as a surety for the company, the director and the company would be jointly and severally liable to the lender. However, they continue to be independent of each other and the fact that are jointly and severally liable cannot possibly lead to the conclusion that the company and its director constitute an Association of Persons for the purposes of the Act. In order for independent entities/individuals to be considered as an Association of Persons, they must exhibit some trappings of a partnership in relation to their common enterprise." "55. In every project which is executed by multiple independent agencies, a certa....
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....relating to 800 KV/400KV Tehri Pooling Station which was floated by Power Grid Corporation of India Limited (Power Grid). The applicant was successful and its bid was accepted. As per the terms and conditions of the bid, the applicant could assign the whole or part of the work to an independent contractor subject to the approval of Power grid. In terms of this provision, the applicant requested that part of the contract relating to onshore supply and services be assigned to M/s L & T. Accordingly, Power Grid entered into a separate contract for onshore supplies and services with M/s L & T. Although, Hyosung continued to be responsible for the overall execution of the project, the scope of work of Hyosung was limited to the offshore portion of the contract. The facts of this case are quite identical; with PGCL being a common party and Ld. AAR in this matter vide application AAR no. 773 of 2008 order dated 17/6/2009, after taking into consideration the overall responsibility stipulations for the successful completion of the three contracts rested with the applicant Hyosung in line with the proposal in the bidding document, observed in para 7.4 that; "By incorporating various....
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....uch an onus can be considered discharged by specific reference to the evidence. No evidence is brought on record to show that the Indian Associate was employed by any 'act' of the assessee to represent the assessee independently while dealing with PGCIL. On the contrary what is established is that it was the assessee at whose proposal, ALSTOM-I was accepted to be an Associate of the assessee and the employer PGCIL treated ALSTOM-I as its 'independent contractor' on the terms and conditions, as laid down in the bidding document. If there was any involvement of the employees of Indian Associate, at any stage in the meetings between assessee and the PGCIL that was bound to be there and outcome of the fact that assessee and its Indian associate were required to work in tandemand that does not give rise to existence of a dependent agent P E of the assessee. 26. As with regard to the question of Indian Associate being a Construction PE again there is force the contention of Ld. Sr. Counsel that the findings of Ld. Tax Authorities below are not on the basis of any facts and evidence. The case of assessee as submitted and established is that under 'First contract' it was merely li....
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....rein the territorial jurisdiction of a particular state determines its capacity to tax an event, has to be followed." 29. Thus, the Bench is inclined to conclude that there was not an artificial split of bid into three separate contracts to avoid taxes in India. In the present case, the Indian Associate's non- involvement in offshore transaction excludes it from being a part of the cause of the income itself, and thus there is no business connection. The Ld. Tax authorities below failed to appreciate the distinction between the existence of a business connection and the income accruing or arising out of such business connection, which is clear and explicit. It is established that assessee had no business connection or dependent agent PE or construction PE in India. The attribution of profit from offshores supplies made to PGCIL to the alleged business connection or PE and application of Section 44BBB is not sustainable. The ld. Tax Authorities below have fallen in error to hold that off-shores supplies to PGCIL are taxable in India. The assessee was merely under liability for making off-shores supplies to PGCIL under the 'First contract' for which the revenue earned is not....
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....ove, the offshore supplies made to GE T&D and SFO Technologies are taxable as per DTAA and Income Tax Act. Further, the DRP has also upheld the taxability of Global operation fee amounting to Rs. 15.27,62,000 as Fee for Technical services as per DTAA and Income Tax Act. 32. The Bench is of considered opinion that once the foundation of the findings of Ld. AO on the basis of dependent agent PE status of GE T&D India and SFO technologies in not sustained by this Bench, the foundation of his reasoning in para no above stands washed away. At the same time what comes up is that assessee had claimed that there was no agreement with GE T&D and SFO technologies and on the basis of orders and invoices generated, the supplies were made. Ld. AO has stressed on the agreement without appreciating that the invoices as made available in the paper book from 281 to 371, have terms and conditions described on the purchase order. Thus, on the basis of general terms and conditions, purchase orders were raised and on the basis of which the offshore supplies were made to these two Indian companies. Ld. AO was under obligation to give effect to the orders of DRP in a substantive manner but witho....
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....proval - Provide technical data and specifications and Training of local support engineers on system use. h) Localisation- Provision of technical details, technical support for supplier development, facilitation of qualifications to global standard and facilitation of product approval for manufacture. i) Creation of technical documentation for products. 34. In regard to this ground it was submitted on behalf of the assessee by Ld. Sr. Counsel that there were various services which were rendered for multiple functions to ALSTOM-I and those with regard to Global Industrialization function amounting to Rs. 7,15,24,966/- were offered to tax in the return of income and the balance services valued for Rs. 8,12,37,034/- were not offered to tax as the corresponding services do not fulfil the "make available" clause of paragraph 4(c) of Article 13 of the DTAA. Relying various judgments it was stressed that ALSTOM-I is not enabled to employ these services on its own so the 'make available' clause is not applicable. The service provisions were primarily managerial in nature and do not involve any technical knowledge etc. to fulfil the make available test. In context....
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....nd 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 intaxing global operation fee of Rs. 8,12,37,030 received from GETDIL as Fees from Technical Services ("FTS") under the provisions of the Act and the India-UK DTAA, without appreciating that provision of said services by the Appellant did not satisfy the 'make available' clause contained in Article 13(4)(c) of the India-UK DTAA. Ground is adjudicated in favor of assessee. 36. Consequent to determination of raised and argued grounds no 3 to 12 in favour of assessee, the appeal is allowed. Impugned final assessment additions are deleted with consequential effects." 8. The Revenue has neither placed on record any material to controvert the order of the Tribunal in assessee's own case for preceding assessment years, nor the Revenue has furnished any order from the Hon'ble High Court reversing the Tribunal order or even granting stay on the said order. Therefore, we see no reason to take a different view in the impugned assessment year. 9. In so far as on the issue of holding GE T&D IL as assessee's PE in India....