TaxTMI 
TaxTMI 
2026 (1) TMI 75
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....ndia. The assessee is engaged in the business of designing and building projects including power plants, refineries, railway systems and communication networks. The case of the assessee was selected for scrutiny and notice u/s 143(2) of the Act was issued on 22.09.2019. 4. The assessee company was awarded a contract by Reliance Industries Limited (RIL) for engineering and procurement services related to its plant at Jamnagar SEZ and DTA area for off-side and utilities and an Engineering and Procurement Support Services Agreement. The agreement was entered into with M/s Reliance Industries Limited in the year 2012 and as per the terms of the contract, the assessee company is responsible for providing certain engineering information, engineering services, and support services in relation to procurement of machinery and equipment in relation to the construction of plant at RIL's refinery. The assessee declared total Revenue of Rs. 5,13,10,473/- received during the year from engineering and procurement support services provided to RIL which is not taxable in India as it has no Permanent Establishment (PE) in India. However, the AO was of the view that as per section 9(1)(vii) of the....
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....Hon'ble Dispute Resolution Panel-1. Delhi ('DRP') and the directions given therein are erroneous. 2. That on the facts and circumstances of the case and in law, the Ld. AO has erred in proposing and the DRP has erred in confirming the completion of assessment at a total income of INR 5.13,10,473 against "NIL" income declared. 3. That on the facts and circumstances of the case and in law, the Ld. AO has erred in proposing and the Hon'ble DRP has erred in confirming that the entirety of the service receipts of the Appellant from Reliance Industries Limited (RIL) are taxable in India as per the provisions of the Act and the Double Taxation Avoidance Agreement between India and UK (India-UK DIAA) 4. That on the facts and circumstances of the case and in law, the DRP has erred in holding that the Appellant had a Permanent Establishment in India. 5. That on the facts and circumstances of the case and in law, the Ld. AO has cred in proposing and the Hon'ble DRP has erred in confirming that the service receipts of the Appellant frown RII, are taxable in India as Fee for Technical Services (FIS) under Section 90(1)(vi) of the Act. 6. That....
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....irections on issues which continue to be almost same for AY 2018-19. The factual matrix of the case continues to be same for the AY under consideration. Accordingly, the panel shall not deviate from its earlier views and the same shall be basis of the directions for the year under consideration also." 10. The Ld. AR submits that ld. DRP has followed its directions given in preceding assessment years i.e. in AY 2016-17 and 2017-18. The directions given in para 3 to 7.3 are relevant, according to which, ld. DRP has held that assessee is having PE in India, therefore, the services rendered by it to RIL are taxable in India in terms of Article 13 of India-UK DTAA. The Ld. AR further drew our attention to para 7.3 of the orders of ld. DRP wherein ld. DRP observed that taxation of the income as FTS under Article 13 should be only on protective basis. However, from the perusal of the final assessment order under appeal, it could be seen that the AO has taxed the income on substantive basis, therefore, ld. AR submits that under identical circumstances in the case of assessee itself for Assessment Year 2016-17 and 2017-18 in ITA Nos. 8904/Del/2019 and 795/Del/202 respectively, the coordi....
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....RP to first treat the receipts as business income attributable to the PE and tax accordingly in terms with Articles 6 7 of the tax treaties and secondly treat the receipts as FTS/FIS to add it as business income on protective basis in terms of section 44DA of the Act. Neither of these directions have been carried out by the Assessing Office in the draft assessment orders. In the above DRP directions, there were specifically two directions: one on PE, which was the substantive addition, while the I'TS/FIS taxation was to be done on the protective basis. But in the current AY 2018-19 and AY 2020-21, the directions of the DRP are not ambiguous. 2 Facts of the case for AY 2018-19: The AO went through in great detail on how the engineering fees of Rs. 51,310,473/- satisfied the make available clause and were taxed the same as FIS under the act and DTAA. In the DRP order, the directions are not ambiguous. In Pam 4.2 and 4.3, DRP concluded that the receipts were in the nature of FTS and there is no PE question to be mised at all. In Para 4.5, the AO's view on treating them as FIS is upheld. There is no direction given to AO to treat them as part of a PE The AO ha....
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....ectural services, and 3. computer software development As explained in the memorandum of understanding, technical and consultancy services could make technology available in a variety of settings, activities and industries. Such services may, for example, relate to any of the following areas: 1. bio-technical services; 2. food processing; 3. environmental and ecological services; 4. communication through satellite or otherwise; 5. energy conservation; 6. exploration or exploitation of mineral oil or natural gas; 7. geological surveys, 8. scientific services; and 8. technical training d. AO on page 7 of 20 of the final assessment order for AY 2020-21 clearly brought out many case laws in favor of the department on how engineering services satisfy the make-available clause. In view of the same the department has rightfully taxed the amount as FIS 12. In rejoinder, the assessee has filed following written submissions and further placed reliance on the judgment of Hon'ble Delhi High Court in the case of Tungsten Automation England Ltd. vs. DCIT, [2025] 176 taxmann.com 497 (Delhi High C....
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....his regard is made to Tungsten Automation England Ltd. vs. DCIT, [2025] 176 taxmann.com 497 (Delhi High Court) [Paras 36, 40; 43; 46 and 51]. Certain terms of the Engineering and Procurement Support Services Agreement dated 16.10.2012 ("Agreement") [Page No. 21 of the Paper Book for AY 2018-19], which evidence that the make available condition is not satisfied, are tabulated below: S. No. Particulars Reference in the 1. Consideration to the Appellant is for performance of "Engineering and Procurement Support Services" simpliciter. Recitals; Articles II,1.; 11.3.1 III.1.; V.1.a. and 2.a. as well as Clause 1.1.3. to Annexure-A. 2. The relevant services have been rendered by the Appellant from outside India. Article II. 3. The relevant services are specific to the peculiarities of the refinery plant at Jamnagar. For any new project to be undertaken by RIL in the future, RIL would invariably have to avail the services of Contractors, such as the Appellant. It cannot be that provision of Engineering and Procurement Support Services by the Appellant to RIL equips RIL to perform the same independently in the future Articles 1.hh.; II.a.; II.2.a.; c.; II....
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.... any technology, even under the domestic law, such services cannot be FTS. 3. The reliance placed on the Technical Explanation to the Double Taxation Avoidance Agreement between India and the United States of America at Para 4.c. of the Written Submissions is dealt with in Tungsten Automation (Supra) [Refer Para 49]. 4. Foster Wheeler France S.A. vs. DDIT, [2016] 67 taxmann.com 120 (Income Tax Appellate Tribunal, Chennai) is factually distinguishable, since in the said case the specifications and procedures "made available" enabled the Assessee therein to render services independently to its customers. This has been recognised in Outotec Oyj vs. DDIT. [2016] 76 taxmann.com 33 (Income Tax Appellate Tribunal, Kolkata) 13. Heard both the parties and perused the materials available on record. Admittedly the facts as existed in the year under appeal are identical to the facts of the case of the assessee for Assessment Years 2016-17 and 2017-18. From the perusal of the draft assessment order as well as final assessment order passed in the present appeal, it could be seen that the AO in both the occasions followed the orders passed in preceding assessment years in the....
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.... income attributable to the PE and tax accordingly in terms with Articles 6 & 7 of the tax treaties and secondly treat the receipts as FTS/FIS to add it as business income on protective basis in terms of section 44DA of the Act. Neither of these directions have been carried out by the Assessing Office in the draft assessment orders. 11. At this stage, we may refer to certain provisions contained under section 144C of the Act. As per sub-section (5) of section 144C of the Act, the DRP after receiving objection shall issue such direction as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment. Sub-section (8) of section 144C empowers the DRP to confirm, reduce or enhance the variation proposed in the draft assessment order. Sub-section (10) of section 144C makes it clear that every direction issued by the DRP shall be binding on the Assessing Officer. Whereas, subsection (13) of section 144C mandates that after receiving the directions issued by the DRP under sub-section (5), the Assessing Officer shall complete the final assessment in conformity with the directions issued by learned DRP. Thus, a conjoint reading of the aforesaid p....
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....ment order dated 28th January 2015 is without jurisdiction and null and void. The draft assessment order dated 28th March 2014, having been passed in respect of entities which were not 'eligible assessee's', is also held to be invalid. 31. It is a matter of concern that the AO has in the present case has chosen to label the order of the DRP to be invalid and that is the justification for not complying with the said order. As already noticed, the DRP, in terms of Section 144C (15) (0) is a collegium of three Principal Commissioners of the Commissioner of Income Tax. The DRP admittedly is the superior authority in relation to an AO who in this case appears to be Additional CIT. Section 1440 (10) read with Section 144C (13) makes it abundantly clear that there is no option with an AO but to be bound by orders and subject to review by the DRP. It is bound by the DRP. A reference may also be made to the decision in Zuari Cement Limited (supra) where it was held that an order of assessment which is contrary to the mandatory provisions of Section 144C of the Act was declared as "one without jurisdiction, null and void and enforceable." It is therefore, for this r....
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.... assessment order, the question that the assessment has now become time barred as left open and it is open to the parties to take recourse of such remedy, as may be available to them in law." 37. As regards the conduct of the AO in the present case, the Court would only like to highlight the lead portion of the decision of the Supreme Court in Union of India v. Kamlakshi Finance Corporation Limited (supra). The facts in that case were that the according to the Assistant Collector ('AC'), the electrical insulation tapes manufactured by the Assessee, Kamlakshi Finance Corporation Limited ('KFCL') fell under the Tariff heading 39.19 of the Schedule to the Central Excise Tariff Act, 1985 whereas the Assessee was claiming they fell under Entry 85.47. The impugned order of the AO was set aside by the Collector (Appeals) who issued a direction to the AC to pass a fresh reasoned and speaking order. However, the AC declined to follow the order of the Collector (Appeals) and reiterated his earlier decision that was set aside by the Collector (Appeals). The writ petition filed by the Assessee was allowed by the Bombay High Court against which the Union of Ind....
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....merely required to comply with the directions given by the CIT (A) in the appellate order. However, the Assistant Commissioner look it upon himself to examine the case, as per his own understanding and therefore, had "gone to the extent of overreaching the orders of his superior authority, that is, the Commissioner (Appeals)." 40. Relying on the decision in Union of India v. Kamlakshi Finance Corporation Limited (supra) the Court set aside the rejection of claim of interest by the Petitioner in that case and directed the Assistant Commissioner to comply with the orders passed by the Commissioner Appeals). 41. The language used in the present case by the AO while disagreeing with the binding order of the DRP is wholly unacceptable. In the final assessment order dated 28th January 2015, the AO while discussing the order of the DRP observed inter alia in para 4.2 that "The DRP has not acted in accordance with the provisions of the Act while passing this order which is grossly illegal, against the intent of legislature, without following the basic principles of natural justice and adopting very narrow interpretation of the provisions of the Act" 42. In the ci....
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.... decided by the appropriate authority in accordance with law." 14. As could be seen from the aforesaid observations of the Hon'ble Jurisdictional High Court, non-implementation of directions of DRP in terms of section 144C renders the final assessment order wholly without jurisdiction and void-ab-initio. The plethora of decisions cited by learned counsel appearing for the assessee express similar view. Therefore, we do not intend to deal in detail with them. Thus, keeping in view the ratio laid down by Hon'ble Jurisdiction High Court, as discussed above, we hold that the impugned assessment orders are wholly without jurisdiction or in excess of jurisdiction, hence, void-ab-initio. Therefore, assessment orders under challenge in these appeals deserve to be quashed. Accordingly, we do so." 14. As observed above, facts are identical and AO has computed the income of the assessee on substantive basis though there is specific directions given by ld. DRP to charge income in the hands of assessee on "protective basis", therefore, in our view, the AO has exceeded his jurisdiction and flouted the directions given by the Ld. DRP, thus, the final order was passed in violat....