AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (2) TMI 1483
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3. The AO/Dispute Resolution Panel ('DRP') erred in holding that the royalty and fees for technical service income are taxable on an accrual basis as opposed to the receipt basis adopted by the Appellant. 4. The AO/DRP erred in taxing receipts from supply of software as income from composite contract/royalty income in the hands of the Appellant. 5. The AO/DRP failed to appreciate that receipts from supply of software are from Siemens Limited and not from with CMRL, and therefore should not have been taxed as receipts from alleged composite contract. 6. The AO/DRP failed to appreciate that no copyright right has been parted with by the Appellant in the software supplied. They, therefore, erred in holding that consideration for supply of software will result in royalty income. 7. The AO/DRP erred in holding that the Appellant and Siemens Limited allegedly constituted an Association of Persons (AOP) in respect of contract with Chennai Metro Rail Corporation Limited (CMRL"). 8. In the alternative and without prejudice to the above, the AO/DRP ought to have held that income in respect of contract with CMRL, to the extent it i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee during the year under consideration has receipts from Chennai Metro Rail Corporation Ltd. (CMRL) towards contract for design, manufacture, supply, installation, test and commission of signally, platform screen doors and telecommunications. The contract was transferred to the assessee from Siemens AG w.e.f. 01.08.2018. The AO noticed that an amount of Rs. 27,85,63,237/- pertaining to the contract on has not been offered to tax on the ground that they pertain to offshore supplies of goods which are not taxable in India. The AO further noticed that an amount of Rs. 1,19,721/- received for offshore supply of software is also not offered to tax in India. The AO issued a show-cause notice to the assessee as to why these receipts are not taxable in India. The assessee submitted that the transfer of title of the equipments and material is passed on to CMRL at CIF Port of Shipment and accordingly the payments received by the assessee are not taxable in India. The assessee further submitted that the equipments have been supplied outside India and therefore, income arising there from is not taxable in India. The AO did not accept the submissions of the assessee and proceeded to treat 5....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taxable income in India. With regard to FTS and royalty is has shown income on receipt basis as per the India Germany DTAA. The issue before us is, whether the income of the assessee is to be taxed on receipt basis as against accrual basis. The ld. AO has relied upon the judgment of Hon'ble Madras High Court in the case of Standard Triumph Motors Ltd.(119 ITR 573) which has held that in case of non- resident, Section 5(2)(a) of the Income tax Act i.e., will have no application and taxability will be determined only under Section 5(2)(b) of the Income Tax Act, i.e., by accrual. Subsequently, the Supreme Court in the case of Standard Triumph Motor Co Ltd. v. CIT [1993] 201 ITR 391 (SC) held that in the particular case, the credit entry to the account of the assessee non-resident in the books of Indian company amounted to receipt by the non-resident. Further, in the case of the assessee this issue has been settled by the Tribunal right from A.Yrs.1990-91,1991-92,1994-95,1996-97,1997- 98,2001-02,2002-03 and 2003-04. The ld. AO has not accepted the decision of the Tribunal stating that Revenue has preferred an appeal before the Hon'ble Bombay High Court. 79. The ld. DRP hel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m/2003 07.12.2009 1994-95 1499/M/1998 27.06.2005 1990-91 and 191-92 1499/M/1998 04.07.2005 82. Hence, we do not find any reason to take any different position. Before us the ld. DR had submitted that there is a reference in the case of Ampacet Cyprus Ltd. vs. DCIT reported in (2020) 119 Taxmann.com277 (Mumbai Trib) wherein the Tribunal has referred the matter to special Bench. In the context of the India- Cyprus Tax treaty where the issue is whether interest received should be taxed on receipt basis or on accrual basis. Since in assessee's own case this issue stands settled by the Tribunal and by the Hon'ble Bombay High Court which is binding on us and therefore, reliance placed by the ld. DR in the aforesaid matter to refer to the Special Bench is declined. Thus, this ground raised by the Revenue is dismissed." 7. From the perusal of the above findings of the Co-ordinate Bench, it is clear that the impugned issue is a recurring one and that the Hon'ble Bombay High Court and the Co-ordinate Bench have been consistently holding that the income is not taxable on accrual basis but on receipt basis. Therefore, respectfully following the decision of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elevant hardware and software are itemized separately on the same invoice, or when separate invoices are issued, or when updates to the software are supplied, or additional features are validated at a later date, such distinctions should not affect the stance. These software products are exclusively compatible with the equipment manufactured by the assessee and hold no utility on similar equipment produced by its competitors.- - Lastly, the software supplied by the assessee, as delineated in the three invoices mentioned in the DRP's directions, is exclusively designed for utilization with the Medical Diagnosis Devices manufactured by the assessee. 10.1 Apart from that, we find that this issue stands covered by the decision of the Tribunal in assessee's own case in various assessment years details of which are as under:- AY ITA No. Date of Order 2006-07 8094/Mum/2010 06.05.2014 2005-06 1174/Mum/2010 20.05.2014 2004-05 4502/Mum/2009 18.05.2012 2003-04 2520/Mum/2008 09.07.2010 2002-03 2099/Mum/2007 10.12.2008 2001-02 1957/Mum/2007 08.12.2008 11. The Tribunal in A.Y.2001-02 has held that suppl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dependently without any reference to the supply of corresponding equipment. He therefore treated the income earned by the assessee from the supply of software as in the nature of royalty and the same was brought 10 tax in the hands of the assessee as income from royalty. On appeal, the Ld. CIT(A) held that the value of software could not be taxed as royalty in the hands of the assessee following the decision of the Tribunal in assessee's own case on similar issue for the earlier years i.e. 2001-02 & 2002-03. He also took note of the fact that a similar issue was decided by his predecessor in favour of the assessee in assessment years 2003-04 & 2004-05." 13. Now, this issue of taxation of royalty under the DTAA has been decided by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited vs. CIT reported in (2021) 432 ITR 471(SC). The Hon'ble Supreme Court vide its order grouped various appeals before it into following four categories: - - The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non- resident supplier or manufacturer. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ices contained on the original. The Purchaser may make up to three copies of the Software Product to be used for back-up purposes only 3. LIMITATIONS ON END USER RIGHTS You shall not, and shall not enable or permit others to, copy, reverse engineer, decompile, disassemble, or otherwise attempt to discover the source code or algorithms of, the Software (except and only to the extent that such activity is expressly permitted by applicable law notwithstanding this limitation), or modify, or disable any features of, the Software, or create derivative works based on the Software. You may not rent, lease, lend, sublicense or provide commercial hosting services with the Software. The Purchaser shall not change, reverse engineer or reverse compile the Software Products and shall not extract any parts thereof. Furthermore, the Purchaser shall not remove any alpha numeric identifiers, markings and Copyright notices from the data carriers and shall copy such in their unchanged form. The above provisions shall apply analogously to all associated documentation. 4. You may not transfer this EULA or the rights to the Samsung Software granted herein to any third party unless it i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ged form. The above provisions shall apply analogously to all associated documentation. The Purchaser may make up to three copies of the Software Product to be used for back-up purposes only. Thus, the ratio and principle laid down by the Hon'ble Supreme Court is clearly applicable on the facts of the assessee's case and accordingly we hold that consideration received for supply of software cannot be taxed as royalty under India German DTAA. 16. During the course of hearing, the ld. DR had strongly relied upon the observation made in the assessment order and submitted that a review petition had also been filed before the Hon'ble Supreme Court in the matter of Engineering Analysis Centre of Excellence Pvt. Ltd., However, the same is not entertained because judgment of the Hon'ble Supreme Court as on to dfay is binding on us. Moreover, there are various other decisions of the Hon'ble High Courts on this issue which has been highlighted before us, the same is not being reproduced. Accordingly, we hold that this issue is covered in favour of the assessee not only in its own case as well as by the judgment of the Hon'ble Supreme Court and therefore, we hold that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erm 'Cost, Insurance, Freight, implies that the AOP/assessee has the obligation of Cost and Freight, with the additional responsibility that it has to procure marine insurance against the PGCIL' risk of loss or of damage to the goods during the carriage. In such cases, the delivery of the goods are to be taken as having been made in India. Therefore, the profit on offshore supplies made by the AOP are liable to be taxed in India on the ground that the sale is completed in India. 3. A single, indivisible, composite contract for transmission line project has been artificially segregated, solely with a purpose of avoiding taxed in India. The following facts of the case buttress such assertion: The 'association' proposed as above by applicant Siemens AG has been accepted by employer CMRL subject to the condition that Siemens AG takes the overall responsible and remains liable for the execution of all the works and commissioning of the project. Hence, Siemens AG is the overall in charge of the Contract and lead member of the association. Further, it is not known whether Siemens Limited (India) would have such qualification for eligibility of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he income so received by the assessee. Hence, the net taxable income from off-shore supplies is 5% in case of the assessee. Since, the tax rate in India for foreign companies is 40%, it is estimated that the tax payable by assessee Siemens Mobility Gmbh in India is 2% of the gross receipts from Off-shore supply of the equipment( cess and surcharge extra). 4.9. However, it has been held in the above discussion that the income from Offshore supplies have accrued to the A.O.P. comprising of assessee Siemens Mobility Gmbh and Siemens (India) Limited. Obviously, the relevant A.O.P. would be a resident of India for tax purposes. Therefore, the tax liability arising to the A.O.P. is liable to be determined and levied by the Assessing Officer concerned exercising jurisdiction over the resident A.O.P. The substantive determination and assessment of income of the A.O.P. is to be referred to Assessing Officer having jurisdiction over the relevant case. Hence, the demand arising from off-shore supplies in case of the assessee are only protectively assessed by this Order. However, in any eventuality, if it is held in any proceedings that taxability do not arise in the case of the refer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....13,86,600/- was found and it was explained that the said cash belongs to M/s. Fisher Health Resorts (P.) Ltd., having address at 2413, Kumar Capital, East Street, Pune-411001. M/s. Fisher Health Resorts (P.) Ltd., is engaged into the business of running health and fitness club having PAN AAACF2830J. A statement of oath of Shri Manoj Shah, GM (Finance) was recorded by the search party on 22-7-2017 wherein he had stated that total cash-in-hand of entity and all individuals is Rs. 13,98,728/-. However, during the search conducted u/s.132 of the Act at the registered office of the assessee, cash of Rs. 27,85,300/- was found in the cabin of Shri Keval Jain. It was submitted to the search party that an amount of Rs. 13,98,728/- belong to various group entities of the assessee and certain individuals which was also reconciled with their books of account. With regard to query raised by the search party for the excess cash of Rs. 13,86,600/-, Shri Manoj Shah stated that the said excess cash belongs to Fisher Health Resorts (P.) Ltd. It was also submitted that the assessee and Fisher Health Resorts (P.) Ltd., had common Director and hence, the cash belonging to Fisher Health Resorts (P.) Ltd....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ite the fact that the ld. CIT(A) having co-terminus powers with that of the ld. AO and the statute had conferred on him the power of enhancement of income by converting the protective addition into a substantive addition in the hands of the assessee company. Now, the short point that arises for our consideration is that whether any protective addition could at all survive when no substantive addition at all were made in the hands of any other person. We find that this issue has been addressed by the Co-ordinate Bench of Kolkata Tribunal in detail in the case of Vikash Iron & Steel (P.) Ltd. v. ITO [IT Appeal Nos. 332-334 (Kol.) of 2012, and ITO v. Vikash Iron & Steel (P.) Ltd. [IT Appeal Nos. 473 to 475 (Kol.) of 2011, dated 1-7-2015]. For the sake of convenience, the entire order is reproduced hereunder:- 'These appeals of the assessee and the Revenue are directed against separate orders of the CIT(A)-I, Kolkata in Appeal Nos. 173-175/CIT(A)- I/Ward-3(2)/10-11 dated 20-12-2011 and Appeal Nos. 509-511/CIT(A)- I/3(2)/09-10 dated 15-12-2010 respectively. Assessments were framed by I.T.O., Ward-3(2), Kolkata u/s 147/145(3) of the Income-tax Act, 1961 (hereinafter referred....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tice u/s 148 of the Income-tax Act, 1961." The ld. Counsel for the assessee made a categorical statement that no substantive addition is made only protective assessments are made in the hands of the assessee company. On query from the Bench the ld. JCIT, Sr. DR Shri Prabal Chowdhury fairly conceded that no substantive addition is made in the hands of any person but only protective addition is made. But he relied on the orders of the authorities qua the assessee's appeal. Qua Revenue's appeal, he relied on the assessment order. We find that this issue dealt with by CIT(A) vide para 5.1. of his appellate order which reads as under :- "5.1 The argument of the appellant is misplaced in view of the fact that addition has been made on the basis of information collected during the course of survey, enquiry and investigation made by the A.O. The protective addition was made in order to protect the interest of the revenue on the basis of the information received from the A.O. of the persons with whom the appellant has made transactions. Since the addition is protective and subject to outcome of assessment in the case of persons with whom appellant has made transact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....consideration before the Tribunal. 24. The Tribunal firstly explained the concept of Protective assessment, which was judicially recognized in the case of Lalji Haridas v. ITO [1961] 43 ITR 387. The Hon'ble Supreme Court held that where it appears to the income-tax authorities that certain income has been received doing the relevant assessment year; but it is not clear who has received that income and prima facie, it appears that income may have been received either by the A or B or by both together, it would be open to the relevant income-tax authority to determine the said question by taking appropriate proceedings both against A and B. The Supreme Court, however, observed that in the proceedings taken against the one or the other, an exhaustive enquiry should be made and the question as to who is liable to pay the tax in question should be determined after hearing objections and that the proceedings against the other person may also continue and be concluded but until proceedings against the one has been finally determined, no assessment order should be passed. A final determination had, therefore, to be made in one of the proceedings. 25. The Tribunal ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....scapement of income, which is the foundation for assessment or reassessment u/s 147. Even if for a moment we agree with the ld. DR that the protective addition is different from substantive addition and hence the reassessment proceedings be upheld, we find that ultimately the same conclusion will follow if the substantive addition is struck down at a place where it was made. In such a scenario the protective addition will get converted into substantive addition in the reassessment. That will also run contrary to the format of reassessment, being to tax an income which has escaped assessment. In that case again it will tantamount to reopening assessment on the basis of an item of income or disallowance, which has already been made in block assessment of the assessee, thereby leaving no income escaping assessment. Under these circumstances we are satisfied that having made addition of Rs. 527.85 lakhs in the block assessment, the Assessing Officer was not justified in forming the belief, either on substantive or protective basis, that the same income has escaped assessment in the instant year. CIT v. Wipro Finance Ltd. [2008] 10 DTR (Kar.) 281 relied on;" 5. We have heard th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....one and not of the other, and the respondent's case appears to be that in such circumstances protective assessments have to be made so that the income may not escape taxation altogether. In other words, the respondent's case clearly is that the notices issued against the two brothers by their respective Income-tax Officers are intended to determine who is responsible to pay tax for the income in question; now though Mr. Nambiar wanted to argue that protective or precautionary assessment of tax is not justified by any of the provisions of the Act he did not seriously contest the position that at the initial stage it would be open to the income-tax authorities to determine by proper proceedings who is in fact responsible for the payment of tax, and that is all that is being done at the present stage. In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....venue could not bring on record anything against the other parties or who are the other parties against whom substantive addition is to be made. There is no substantive addition made in any of the hand till date as conceded by the ld. Sr. DR before us now. In view of the above we are very clear that the reassessment proceedings initiated u/s 147/148 of the Act is invalid and hence quashed. The protective additions made by the A.O. are also quashed accordingly. 7. No other ground on merits was argued by either of the sides and hence we need not adjudicate those issues on merits. Accordingly these appeals of the assessee are allowed and that of the revenue's appeals are dismissed. 8. In the result the appeals of the assessee are allowed and the appeals of the revenue are dismissed.' 9.3 In the instant case before us, admittedly, no substantive addition of Rs. 13,86,600/- was made by the revenue either in the hands of M/s. Fisher Health Resorts (P.) Ltd or in the hands of any other person. In Respectfully following the aforesaid decision, since no substantive addition was made, the protective addition made in the hands of the assessee company does no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ayable under the contract independent of each other and Indian party is entitled to raise the bill separately for the work carried out by it and assessee had received consideration separately for the supply carried out by it through off-shore, it cannot be inferred that both the parties acted in consort to perform the contract together for the project. The nature of work undertaken is being executed by each member separately which has been clearly defined in Clause 5 and 6 of MOU. Once there is a separate invoicing and payments in respect of separate claim of work, then where is the question of treating them as AOP, because each member does not act as an agent of the other. In so far reliance placed on the joint and several liability' towards the DMRC as referred in Clause 9.1 has been imposed by DMRC, this was only to safeguard itself by having a better hold over the parties for timely and successful completion of the project which provides between the members of the consortium, each Party shall indemnify and hold harmless the other Party to its MOU from all costs, claims, actions, expenses or liabilities incurred by or imposed upon the other Party as a result of or in connect....