TaxTMI 
TaxTMI 
2025 (3) TMI 2101
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....eceived under various contracts is taxable as "Fees for Technical Services". (b). That the learned CIT(A) has failed to appreciate that on the facts and material on record, the receipts constituted "Business Profits" 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 DTAA between India and Switzerland read with the Income- tax Act, 1961 ('the Act'). (d). That the learned CIT(A) has grossly erred in law in ignoring and not following the decisions as relied upon by the appellant in the cases of: * CIT vs. Oil & Natural Gas Corporation Limited [2015] 376 ITR 306 (SC) * CIT vs. Hyundai Heavy Industries Company Limited [2007] 161 Taxmann 191 (SC) * Ishikawajma - Harima Heavy Industries Ltd. - Vs Director of Income Tax, Mumbai (288 ITR 408 SC) * National Petroleum Construction v. DIT [2016] 66 taxmann. com 16 (Delhi High C....
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....sions of DTA between India and Germany read with the Income- tax Act, 1961 ('the Act'). (d) That the learned CIT(A) have 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)]. 3. That the learned CIT(A) has erred in not granting the benefit of Most Favored Nation clause as provided in the protocol to Indo- Switzerland treaty. 3. In ground no. 2, the assessee has raised the issue of taxability of an amount of Rs. 2,84,92,345/- received from supply of drawings and designs as Fee for Technical Services (FTS). 4. Briefly the facts relating to the issue in dispute are, the assessee is a non- resident corporate entity incorporated in Switzerland and a tax resident of Switzerland. As stated, the assessee is engaged in the business of manufacturing and supply of plant, equipment, drawings as well as rendering of services of the nature of supervision of erection and commissioning. The assessee had entered into separate contracts with JSW Steel Ltd. for the following works: i. Supply of plant and equipment from Switzerland. ....
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....of detailed design and drawing is nothing but rendering of technical services. Hence, has to be treated as FTS under section 9(1)(vii) of the Act. While coming to such conclusion, he relied upon a decision of Hon'ble Karnataka High Court in case of AEG Aktiengesllschaft Vs. CIT, [2004] 267 ITR 209. 7. Having held so, he proceeded to examine whether the fees received can be deemed to accrue or arise in India within the meaning of section 9. While dealing with this aspect, he observed that the ratio laid down in case of Ishikawajima Harima Heavy Industries Ltd. Vs. DIT (2007) 288 ITR 408 will be of no help to the assessee due to introduction of explanation under section 9(2) of the Act, which makes it clear that the income of a non- resident shall be deemed to accrue or arise in India under clause (v) or (vii) of sub- section (1) to section 9 and shall be included in the total income of non- resident, whether or not, non- resident has a residence or place of business or business connection in India or the non- resident has rendered services in India. He held, since, the aforesaid amendment was introduced with retrospective effect from 1st June, 1976,it will apply to the asse....
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.... supply of drawings and designs as FTS, though, the sale of drawing and designs has taken place outside India under similar condition as the sale of equipment. He submitted, the contracts for supply of plant and equipment and supply of drawings and designs were entered on the same date and are inextricably connected. He submitted, supply of plant and equipment could not have been made, without the drawings and designs as the contractee could not have installed and commissioned the plant and machinery. He submitted, it is not the case of the Revenue that the drawings and designs could have been utilized by the contractee to get the plant and equipment manufactured from another manufacturer. Thus, the drawings and designs are in the nature of "as built drawings" and specifically with reference to the relevant plant and equipment. He submitted, the Departmental Authorities have not disputed the fact that the entire work relating to the drawings and designs was carried out outside India and also the title over such goods passed outside India. He submitted, the inseparability of two contracts is also not disputed by the departmental authorities. Despite that, he submitted, the departmen....
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....r a period more than six months. Therefore, in terms of Article 5(2)(j) of the DTAA, the assessee had a service PE in India. He submitted, once the assessee had a PE in India by virtue of exceptions provided under paragraph 6 of Article 12 of the DTAA, the provisions of Article 12 would have no application to the receipts from supply of designs and drawings, as, such amount can only be brought to tax in terms of Article 7 of the DTAA. However, he submitted, para (1) of Article 7 of the DTAA provides that only so much of the profit attributable to the PE can be brought to tax. He submitted, since, in the facts of the present case, the entire work of preparing the designs and drawings was carried out outside India, the PE having no role to play, the amount cannot be taxed in India. He submitted, the amount received is not taxable as FTS. 10. Strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals), the learned Departmental Representative submitted, the assessee has entered into separate contracts with JSW Steel Ltd. for supply of plants and equipments and supply of designs and drawings. He submitted, the scope of work under both the ....
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.... data as well as draft 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 i....
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....of material and equipments 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, th....