TaxTMI 
TaxTMI 
2026 (8) TMI 881
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....e details below:- S. No. ITA No. Name of Appellant A.Y. Order Dated of ld CIT(A) Order dated of the AO 1. 5164/Del/2017 DCIT, Circle (IT) Vs. Paul Wurth Italia SPA 2010-11 31.05.2017 30.04.2013 2. 5164/Del/2017 Paul Wurth Italia SPA Vs. DCIT, Circle (IT) 2010-11 31.05.2017 30.04.2013 3. 2370/Del/2018 DCIT, Circle (IT)Vs. Paul Wurth Italia SPA 2012-13 31.01.2018 14.05.2015 4. 2696/Del/2018 Paul Wurth Italia SPA Vs. DCIT, (IT) 2012-13 31.01.2018 14.05.2015 5. 883/Del/2018 DCIT, Circle (IT)Vs. Paul Wurth Italia SPA 2013-14 30.11.2017 25.04.2016 6. 948/Del/2018 Paul Wurth Italia SPA Vs. DCIT, (IT) 2013-14 30.11.2017 25.04.2016 7. 2950/Del/2019 DCIT, Circle (IT)Vs. Paul Wurth Italia SPA 2014-15 25.01.2019 30.01.2017 8. 3005/Del/2019 Paul Wurth Italia SPA Vs. DCIT, (IT) 2014-15 25.01.2019 30.01.2017 9. 9252/Del/2019 Paul Wurth Italia SPA Vs. DCIT, (IT) 2015-16* 03.09.2019 27.02.2018 * for A.Y. 2015-16 the revenue has not filed an appeal because as per the submission of the ld DR the income attributed a....
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....n the issue of taxability of offshore supply of equipment, designs and spare parts. While holding so, the ld CIT(A) held that a fixed place PE in terms of Article 5(1) of the DTAA is not constituted in the hands of the assessee. 2.2 However, the ld CIT(A) held that supervisory activities performed by the assessee in India do not constitute a supervisory PE under Article 5(2)(j) of the DTAA. Having held that the assessee has no PE in India, the ld CIT(A) proceeded to re-characterise the onshore supervisory receipts as fees for technical services ('FTS') under Article 13 of the DTAA instead of 'business profits' under Article 7. 2.3 In the appellate proceedings for the AY 2012-13, AY 2013-14, AY 2014-15 and AY 2015-16, the ld CIT(A) followed his earlier order of AY 2010-11 and granted relief on taxability of offshore supply of equipment, Integrated designs and spare parts, while also re-characterising supervisory revenue as 'FTS' rather than 'business profits' and enhanced the income accordingly. 2.4 Additionally, in the assessment years AY 2012-13, AY 2013-14, AY 2014-15 and AY 2015-16, the Hon'ble CIT(A) also re-characterised revenue from de....
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.... b)TATA Steel Limited; c) Bhushan Steel Limited; d) Steel Authority of India Limited; e) Bhushan Power and Steel Limited; and f) JSW Steel Limited The details of the contracts entered into by the assessee relevant for the years under consideration are enclosed as part of the relevant paper-books furnished on record. 5. The assessee had entered into separate agreements with such Indian customers which clearly provide for a divisible scope of work and specifies separate consideration payable for each activity to be performed such as: a) manufacture and delivery of equipment and integrated designs; b) designs for indigenous equipment; c) designs for civil works; d) supervision of erection and commissioning of the equipment by deputation of personnel at customer's site; and e) technical assistance services. 6. The plant and equipment supplied to various customers are designed, manufactured and fabricated according to each customer's requirements, at the assessee's premises/ factories located outside India. 7. The assessee supplied equipment, designs and....
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....of Article 5(1) of the DTAA is not constituted in the hands of the assessee. However, the Hon'ble CIT(A) held that supervisory activities performed by the assessee in India do not constitute a supervisory PE under Article 5(2)(j) of the DTAA. Having held that the assessee has no PE in India, the Hon'ble CIT(A) proceeded to re-characterise the onshore supervisory receipts as fees for technical services ('FTS') under Article 13 of the DTAA instead of 'business profits' under Article 7. 12. In the appellate proceedings for the AY 2012-13, AY 2013-14, AY 2014-15 and AY 2015-16, the Hon'ble CIT(A) followed his earlier order of AY 2010-11 and granted reliefon taxability of offshore supply of equipment, Integrated designs and spare parts, while also re-characterising supervisory revenue as 'FTS' rather than 'business profits'. 13. Additionally, in the assessment years AY 2012-13, AY 2013-14, AY 2014-15 and AY 2015-16, the Hon'ble CIT(A) also re-characterised revenue from designs relating to Indigenous equipment and civil works as royalty/ FTS and taxed the same under Article 13 of DTAA. 14. The assessee ha....
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..... Paul Wurth Italia provides operational and system design advice and on-site services for blast furnace operation and maintenance activities. Paul Wurth Italia is also an experienced partner for coke making projects. Paul Wurth portfolio includes the design and construction of complete coke oven plants, coke oven. batteries, coal processing plants. coke oven gas treatment. by-product and auxiliary plants. In India, Paulwurth Italia caters to iron and steel industry and non-ferrous metal sector. Paulwurth Italia, primarily, had entered into various contracts with Indian customers for offshore supplies. drawings and designs and supervisory activities with respect to Blast Furnace Projects. The Indian customers include Tata Steel Limited, Rashtriya Ispat Nigam Limited and Bhushan Steel Limited. Separate contracts have been entered into each for offshore supplies, drawings and designs and supervision activity and as a consequence, the price consideration has also been separately mentioned for each and every activity under the respective contracts." (emphasis supplied by us) 4.1 The AO noted that during the year the assessee had entered into agreements ....
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....activities and offered to tax in India. The AO further noted the stand of the assessee that the receipts on account of supervision would be offered to tax in the year in which the project would be completed since the assessee followed the completed contract method and the related expenses have been booked as WIP, which was accepted by the AO but which was not accepted by the ld CIT(A) in appeal, and taxed it as 'Royalty' and accordingly enhanced the income of the assessee, which is discussed in assessee's appeal in ITA No. 5164/Del/2017 for A.Y. 2010-11. Further, the AO noted that the assessee has not offered the payment pursuant to supply of equipment and designs and drawings agreements. The AO for the sake of brevity, referred to the agreements between the Assessee Company and Tata Steel Limited to as representative of other agreements as well to determine the taxability of payments received under these agreements as well those between the other two Indian customers. 4.5 The AO noted that in the case in the case under review, the assessee has itself admitted to the existence of PE and observed that the threshold for existence of PE was more stringent that of 'Business connecti....
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....ly presumed to meet the location test. Further, the AO noted that the duration of this activity is running into months and for that duration, the assessee has presence in India in form the contractual liability with the Indian clients. The AO noted that the premises of the client are sufficient to establish a PE of the assessee when the assessee is obliged to perform its services there. 4.9 The AO further noted that assessee already has a PE in respect of its supervisory services and therefore, it was unnecessary to scrutinize the circumstances around similar business activities to decide whether the conditions for a PE are met for all of them, as long as one PE can be established. The AO noted that when an enterprise is said to have a permanent establishment (PE) in another country, it exposes itself to taxation the entire gamut of income that it earns from carrying on activities in that other country, whether or not through that PE. The AO noted that the scope of Article 7 of Indo-Italy DTAA is wider in scope inasmuch as it incorporates the 'Force of Attraction' rule, according to which all profits of an entity having a PE in India is taxable in India, whether or not i....
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....supply of equipment, supervision services as well as foreign technicians' assistance agreements show that all these contracts are interrelated and all of them refer to a master Technical Specification - SBF/EIM/20 dated August 2008 agreement/schedule. Thereafter, the AO went into the various details of the agreement and the procedure of its execution and noted that the various steps in the operationalisation of such projects include drawing up the desired structure, manufacture and fabrication of the equipment, installation and commissioning of the equipment, its testing, supervision of such installation/commissioning work and training of the Indian clients' employees so as to enable them to operate the equipment. The AO noted that this whole thing has been broken down into smaller contracts for supply of drawings, supply of equipment, supervision fees etc. and this artificial decomposition is not conclusive to characterize the taxation of each step in isolation. The AO noted that the assessee has attempted to present a picture where each step is in isolation and has nothing to do with the earlier and later steps. The AO noted that the underlying objective for the Indian Cl....
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....AGREEMENT 9.1 Performance of Contract The Contractor shall be responsible for the due performance of the in all respects according to the intent and meaning of the designs, specifications and all other documents etc forming part of the Contract. Any approval that the Purchaser/Engineer may have given in respect of the stores, materials or other particulars work or workmanship involved in the Contract (whether or without test carried out by the contractor and witnessed by the Purchaser/Engineer) shall not bind the purchaser/engineer. Notwithstanding, any approval or acceptance given by the Purchaser/Engineer, it shall be lawful for the Purchaser/Engineer to reject the material after arrival at incoming material section or any time later on within the warranty period when the defect is detected, if it is found that the materials/equipment supplied by the Contractor are not in conformity with the terms and conditions in any or all respects." 4.15 Further, the AO noted that the assessee also has the responsibility for the "Work" as a whole as evident from the relevant clause in the TSL agreement. "1.1.7 Contractor's Responsibility for Complete....
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....he intention of the parties must be obtained from the Contractual provisions in question and the same is also codified in Section 19 of the Sale of Goods Act. 4.19 The AO further observed that in the present case, there is no clause pertaining to transfer of title and risks to the goods in question and hence, the same must be inferred from the conduct of the assessee. The AO noted that the Indian customer would take delivery of the goods and has the right to inspect and reject the goods once they are taken delivery of. In this regard, the AO observed that by applying Sections 24 read with Section 41 of the Sale of Goods Act, 1930, it would be evident that the title was transferred only when the buyer was satisfied with the quality and condition of the goods once they had been through transit. Furthermore, the AO noted that the Acceptance Test is also applicable to all the products supplied under the said contract in accordance with Clauses 17, 18 and 19. 4.20 The AO further noted that in view of the above fact observed that the title having therefore passed within India, the title to the goods has been passed in India. Referring to the recent ruling of the AAR which held in f....
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....s and drawings are part of the supplies of so called offshore supplies. The AO held that hence, they are also treated as taxable in India as in view of discussion in para no. 4 of the assessment orders wherein it has been held that the assessee has a business connection and PE in India. 4.25 The AO noted that the assessee has admitted that the receipt for 'supervision fees' was taxable in India and accepted the same. 4.26 Accordingly, the AO considered the amount of Rs. 251,05,76,366/- (Rs. 206,10,103,584/-, received on account of offshore supply of equipment/spares + Rs. 44,95,72,782/-, received on account of offshore drawings and designs) as the revenue considered for calculating the profit margin for the Indian projects. Taking a weighted average of the profit margin @ 4.9%, the AO calculated profit from Indian projects at Rs. 12, 42, 73, 530/- and attributed 50% of the profits arising from the Indian projects to the PE in India. Accordingly, the AO held that an amount of Rs. 6,21,36,765/- was the profit and income attributable to the assessee in India as as business profits and taxed it @ 40% under Article 7 r.w.s. 28 of the Act. 5. Aggrieved with the said order, the a....
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....egard, the ld CIT(A) noted the AO has gone on the assumption that if a subsidiary is created for the purpose of attending to the business of the group, the same must be taken to be a PE of the group in India, applying commonsense (as noted by the Ld. CIT(A) about the observation of the AO in the middle portion of page 5 of AO's order). However, the ld CIT(A) gave a finding that it has not been established by facts that the contracts were secured or concluded by the Indian subsidiary and the contracts were entered by the assessee. The ld CIT(A) also noted that it has not been established how the Indian company be treated as 'a place of management' for the foreign company to treat it as fix place PE. In this regard, the Ld. CIT(A) relied upon the decision of the Hon'ble Delhi High Court in the case of DIT vs. E Funds IT Solutions Delhi, 42 taxmann.com 50, which held that subsidiary in itself could not be considered as a fixed place PE or a dependent agency PE of the foreign company in India, merely, because the foreign entity has a supervisory PE in India, it cannot be assumed that the entire income in the form of sale of equipment (that too offshore), can be attributed to ha....
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....ion in India owing to the force of attraction rule embedded in Article 7(1) of the India- Italy Treaty? 2. Article 7 of the India Italy DTAA is reproduced ARTICLE 7 BUSINESS PROFITS 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to (a) that permanent establishment; (b) sales in that other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in that other State of the same or similar kind as those effected through that permanent establishment. Clause (a) represents the standard "Attribution" rule (taxing what the PE actually does). Clauses (b) and (c) represent the "Force of Attraction" rule. They expand the tax net to capture direct transactions by the Head Office (HO) in the Source State, provided those transactions ....
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.... respect of services rendered by the PE in India, any income inrespect of the services rendered to an Indian project, which is similar to the services rendered by the permanent establishment, is also to be taxed in India in the hands of the assessee, irrespective of the fact whether, such services are rendered through the permanent establishment, or directly by the general enterprise. There cannot be any professional services rendered in India which are not, at least indirectly, attributable to carrying out professional work in India. This indirect attribution, in view of the specific provisions of India-China tax treaty, is enough to bring the income from such services within ambit of taxability in India. The twin conditions to be, thus, satisfied for taxability of related profits are: (i) the services should be relatable to the services rendered by the PE in India; and (ii) the services should be 'directly or indirectly attributable to the Indian PE', i.e., rendered to a project or client in India. To the facts of the present case, both these conditions stands satisfied. The extension of taxability of profits of PE by including profits directly ....
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....) is that... if an enterprise has a permanent establishment in a state, that state may tax... profits of the enterprise derived from the other business activities of the same or similar kind as those effected through the permanent establishment... The profits from the services rendered by the head office are attracted to the Indian PE because they are of the same or similar nature." The Shanghai Electric judgment further clarifies that services rendered to an Indian project are taxable if they are effectively connected to the PE, even if rendered directly by the head office. "In addition to taxability of income in respect of services rendered by the PE in India, any income in respect of the services rendered to an Indian project, which is similar to the services rendered by the permanent establishment, is also to be taxed in India in the hands of the assessee, irrespective of the fact whether, such services are rendered through the permanent establishment, or directly by the general enterprise... In effect, profits relating to services rendered by assessee, whether rendered in India or outside India, in respect of Indian projects are taxable in India, and are attr....
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...., manufacture, and supplyof imported plant machinery and equipment with auxiliaries for the I blast furnace at Tata Steel Limited, Jamshedpur, is given. The salient features are discussed below. a. This is one single contract, and the contract was awarded to the assessee alone, unlike other contracts, where usually a consortium or some Indian players are involved, allowing the project to be considered divisible. Needless to say, the bidding for the contract would have been done also as a single bidder. There were no separate bidders or consortium bidding for the various parts of the contracts. b. Now Schedule I gives the scope of work and technical specification, which is on page 237. The scope of work includes design, procurement of materials, manufacture/fabrication, inspection, testing, and supply. Now in 1.0, General, it is clearly mentioned that technical specification no. SBF/EIM/20 dated August 2008 was agreed upon first. This technical specification acts as an "Umbrella Agreement" or a "Master Service Agreement" that governs every subsequent transaction. The separate contracts for supply and services are merely subsets or execution modules of this overarch....
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.... Explosives. The fact that the assessee is responsible for obtaining Indian regulatory approvals for the equipment proves that the assessee's responsibility for the goods extends into India. e. On page 241, schedule -2, the price is in EUROs. The majority of EPC contracts typically consist of two components: one in Indian rupees for installation and commission, but these prices are in euros for both. It is explicitly stated that the contract price for all contractual obligations to be fulfilled by the contractor under this agreement, including initial fills and commissioning items, shall be 47,560,000/-euros. Now this price is one price bid and not separate bids for various contracts. Now page 242 becomes important; therein, in Enclosure -1, it states that the breakup of the contract price would be provided on page 243. Now the contracts were never separate, and instead it was an artificial split. f. In page 244, scheduled -3, delivery and liquidated damages, and it is clear that the contractor is responsible for coordinating delivery of all equipment, and there is a clear-cut liquidated damages levy for delay of the entire contract. The liquidated damages are....
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....12 months. j. Page 262 gives the performance of the contract. Clause 9.1 clearly states that the contractor shall be responsible for the due performance of the contract in all respects according to the Intent and meaning of the designs, specifications, and all other documents forming part of the contract. This clearly shows the performance is not divisible; risks are also not divisible. On page 10.2, it is also mentioned that the contractor will also get all approvals from the statutory authorities, like approval of the boiler inspector for steam-related items, approval of the inspector for weights and measures, and approval of the controller of explosives. k. Page 266, clause 12.0, clearly shows that there was an inspection at the contractor's and/or subcontractor's premise. The entire check of quality of raw materials, quallty of workmanship, dimensional accuracy of manufactured parts, and functional tests all were done under the supervision of the customer. Now this cannot be high seas sales wherein there is no role for the Indian customer and he is not involved in any process. Every stage of the contract is integrated, and the final contract is execute....
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....tion, blowing and commissioning, and demonstration of performance tests-4450 man-days. On page 394 the deployment schedule clearly shows that foreign technicians were involved from the engineering to the commissioning stage. There is a master time schedule given in the technical specification that is the umbrella agreement, which is never disclosed to the department or ITAT. n. Page 414 gives the agreement for technical assistance for sourcing various items, and the scope clearly shows that, as per clause 1.1.1 (page 419), the risks are not dual assessee is involved in pre-ordering activities and dispatching to receipt of the items from various vendors. o. Now the superficial splitting of three agreements-one for the supply of equipment, design, and drawings; one for supervision services; and one for foreign technician assistance-shows that the scope was artificially split while the risk and liability for performance still continued as a whole. The contract was split, but the risk was not split. And again, supervision was all throughout the project, from engineering to commissioning. Now to say that the contract was not composite just because there are th....
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....t" and rather than just shipment, the contract is composite. "Provisional Acceptance Certificate" (PAC). This links the payment for goods directly to the performance of services in India. The Assessee's reliance on Ishikawajima-Harima is misplaced because, in that case, the Supreme Court found that the PE had no role in the offshore supply. In Paul Wurth, the PE's involvement is pervasive (design coordination, statutory approvals, inspection). Therefore, the later judgments of Shanghai Electric, Ansaldo, and Durr Systems-which distinguish Ishikawajima on the basis of PE involvement and risk retention-are the binding precedents applicable to this case. Hence, it is humbly submitted that the department appeal on the fact that the assessee had a PE in India and hence the supply of equipment (including drawings and designs) was attributable to such PE, rendering the profits from such supplies liable for taxation in India owing to the force of attraction rule embedded in Article 7(1) of the India-Italy Treaty may be upheld. The Hon'ble CIT(A) has not appreciated the facts stated above. (emphasis supplied by us) 7.1 Further, the Ld. CIT....
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....15 a. The departmental grounds of appeal are the same, and there is no variation in this. The submission made in AY 2010-11 is applicable. 3. For 2015-16-There is no departmental appeal. a. In the assessment order, the detailed description of the contracts is provided in para 5. b. Para 5.1.1 gives the nature of payment, and also on supervisory services the TDS is also deducted. c. Para 4 on page 10 gives the details of the existence of the business connection/PE. d. Para 6 again provides the nature of contracts and effectively proves they are composite in nature. All the tests stated in the earlier submissions are also applicable in this. e. Para 8.2, AO has clearly held that the payments on account of drawings of indigenous equipment are clearly linked to the PE and should be attributed to the PE. The entire contract is a single composite contract, and hence this cannot be done in isolation. f. Para 9 clearly shows that the assessee has admitted that the receipts for such services are taxable in India. g. Para 11 shows the AO has attributed only Rs 88,52,320/- to the PE, and since the same is below t....
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....osophy of FOA: "The basic philosophy underlying the force of attraction rule is that when an enterprise sets up a permanent establishment in another country, it brings itself within the fiscal jurisdiction of that another country to such a degree that such another country can properly tax all profits... whether the transactions are routed and performed through the PE or not". Scope of Taxability: Under this rule, profits are taxable if services are "relatable to the services rendered by the PE in India" and are "directly or indirectly attributable to the Indian PE". Nexus with Indian Projects: "In effect, profits relating to services rendered by assessee, whether rendered in India or outside India, in respect of Indian projects are taxable in India, and are attributable to the supervisory PE... as they are effectively connected with each other". 3. Business Connection and Profit Attribution Business Connection: The Tribunal found a "real and intimate relationship" between the assessee's activities outside and inside India, establishing a business connection under Section 9(1)(1) of the Income-tax Act. Attribution Rate: Based on a Fun....
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....contractee (CWGOC) supported the AOP status. Joint and Several Liability: Members agreed to be jointly and severally liable to the client for fulfilling project requirements and contractual or legal obligations. Collective Risk: Even with assigned scopes, members were not independently responsible for the risk of their specific work. Shared Costs: General deductions from payments by the client were apportioned among members (e.g., 80% to two members and 20% to the third), showing shared financial risk. Unified Insurance: A common representation was authorized to obtain insurance policies in the name of the consortium for all JV activities. 4. Profit and Revenue Sharing Despite claims of being an "independent contractor," the financial arrangements indicated mutual interest. Revenue Forfeiture: One member (Deepali Designs) agreed to "forego 23 per cent of its gross revenue" to another member, which the Tribunal classified as revenue sharing. Future Contract Sharing: Provisions existed for sharing the value of any new contracts awarded to the consortium, further proving ongoing unified interest. Judicial....
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....d that the assessee was given an "integrated end-to-end activity" of setting up a paper mill on a turnkey basis, covering design, supply, and performance runs. * Facade for Tax Purposes: In M/s. Ansaldo Energia SPA, the Madras High Court confirmed that split contracts were a "facade" and that they were "interlacing". The Court noted that the splitting was for the convenience of the assessee and that the client (NLC) safeguarded its interest by fixing "overall responsibility" on the appellant. 2. Determinants of Taxability and Permanent Establishment (PE) When a contract is found to be composite, income from offshore supplies (which is normally non-taxable if title passes abroad) may be taxed in India if a Permanent Establishment is involved. * Custody and Risk Transfer: In Durr Systems, the Tribunal held that because imported materials were kept in a "Storage area on site" under the assessee's custody until installation, the "passing of Risk on Equipment to customer is to happen only... post installation". This presence of a site office/storage area for more than the threshold period constituted a PE. * Payment Milestones vs....
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....e. This is only for any additional arguments taken by the assessee. Notwithstanding this, the submission made for AY 2010-11 is comprehensive and laysdown the direction of the department's arguments. It is humbly submitted that the Hon'ble bench can investigate any new contracts from the decision and decide as per the merits of each case." (emphasis supplied by us) 8. On the other hand, the ld AR supported the order of the ld CIT(A) and also filed a written submission dated 15.04.2026, which also includes an Appendix rebutting the submission of the ld CIT(DR) filed on 17.12.2025 and 22.12.2025. The relevant extracts of the same are reproduced as under: "C. DEPARTMENT'S APPEAL BEFORE ITAT (AY 2010-11, AY 2012-13, AY 2013- 14 and AY 2014-15) 5. Taxability of offshore supply of equipment, integrated designs, spare parts and designs for indigenous equipment and civil works 5.1. This issue relates to the addition made by Learned AO in respect of taxability of consideration for offshore supply of equipment, designs and spare parts. The Learned AO erroneously held that the title in respect of the aforesaid goods had passed in India and that the as....
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....property in respect of the goods pass to the buyer outside India. In various judicial pronouncements dealing with supply of machinery in turnkey contracts, it has been held that where the title / ownership in respect of the goods passes to the buyer at high seas, income from such offshore supplies is not liable to tax in India in terms of the Act. 5.6. In the instant case, all activities relating to manufacture, design, fabrication etc. of the plant and machinery has taken place in the factory of the assessee company in Italy. As per the relevant terms of the contract entered into with the Indian customers, the risk and title in the goods passed outside India. On sample basis, relevant terms of the offshore supply contract with TSL (Project M1030) are reproduced below for ease of reference: * Incoterm: INCOTERM has clearly been mentioned as Free on Board ('FOB), in terms of which, the ownership in the goods was transferred to the buyer as soon as the goods were loaded on the vessel at the port of embarkment [Refer Clause 1.1.1 (page 237 of Paper-book AY 2010-11) / clause 2.1 (page 241 of Paper-book AY 2010- 11)]. * Payment Terms: Payment was made outs....
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.... were placed for shipment. In the facts of Linde AG (supra), the payment was undertaken through a letter of credit and the buyer (OPAL) was named as the consignee. 5.10. In Mahabir Commercial Co Ltd v. CIT [1972] 86 ITR 417, the Hon'ble Supreme Court held that where the seller had sold goods on CIF basis through a letter of credit and handed over the shipping documents to the buyer or his agent, the sale of goods was complete outside India. Therefore, the Hon'ble Court concluded that the profit from sale was not liable to tax in India. 5.11. The High Court of Delhi In DIT v. LG Cables [2011] 237 CTR 438, was concerned with similar facts where the shipping documents clearly showed the name of the buyer (PGCIL) as the Importer. The terms of the contract indicated that the title in respect of the goods passed to the buyer as soon as the goods were loaded on the ship at the port of shipment and the shipping documents were handed over the nominated bank where the letter of credit was opened. The Hon'ble Court while relying on the Apex Court's decision in Ishikawajima (supra) held that the sale in respect of the equipment supplied was concluded outside I....
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....fied with the quality and condition of the goods. 5.15. The Learned AO failed to appreciate that the subject goods ought to be regarded as 'future goods' in terms of section 2(6) of SOGA. Section 23 of the SOGA governs the passage of title in respect of future goods. In terms of Section 23, the title passes when the goods are unconditionally appropriated. It is also provided that where the seller delivers the goods to the buyer or carrier or a bailee without any 'right of disposal, the seller is deemed to have unconditionally appropriated the goods to the contract. In the instant case, the goods have been delivered by the seller (i.e., the Assessee) to the carrier (shipping company) on FOB basis. Furthermore, the payment has been effectuated through Letter of Credit, i.e., the relevant title documents have been handed over to the bank. Furthermore, the buyer has been named as the consignee of the goods. Thus, it is amply clear that the seller did not retain any control over such goods. Moreover, nowhere does the contract indicate that the seller has retained the right of disposal of the goods. 5.16. Acceptance Test Clause is an irrelevant clause for pa....
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.... in any part of the equipment so supplied. Moreover, such defects in a part of the equipment shall not relieve the contractor from performing the remaining part of its contract. As per clause 25.2.1.1 to 25.2.1.4 (Page 283, Paper-book AY 2010-11), the situations whereby the Purchaser can cancel the contract are mentioned and none of the situations listed therein envisage a case where goods supplied are defective. In this regard, reliance is placed on the judgement of the Hon'ble Supreme Court in the case of Mahabir Commercial Co. Ltd. (supra) and Hon'ble Delhi High Court in the case of LG Cables Limited (supra) wherein, the Court has held that mere right to examine and repudiate the goods does not postpone the passage of title in the goods supplied. The Hon'ble Supreme Court in Mahabir Commercial Co. Ltd. (supra) held ... Even though the property in the goods may pass to the buyer when the documents are handed over, the buyer may yet retain the right to examine and repudiate the goods but this right generally which a buyer has in C.I.F. contract does not by itself indicate that the property in the goods has not passed to him..." Further, Hon'ble De....
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....the Supreme Court was also followed by the High Court of Delhi in the case of LG Cables Limited (supra) and Ericsson AB [2012] 343 ITR 470. 5.24. Moreover, whilst erroneously concluding that the contracts entered into by the assessee with Indian customers are composite 'works' contract, the learned AO placed reliance on certain judicial pronouncements which are not even applicable on the facts of the instant case on account of the following reasons: Decision relied by Learned AO Rebuttal Hindustan Shipyard v. State of AP [(2000) 6 SCC 579 (SC) Distinguished in Ishikawajima (supra) as the same relates to Indirect tax law Vodafone International Holdings B.V. v. UOI 317 taxmann.com 202 (SC) Distinguished in Linde AG (supra) as the 'look at approach' only related to tax avoidance scheme and doesn't decide the issue of 'situs' as is relevant for the instant case. Also distinguished in Michelin Tamil Nadu Tyres (P.) Ltd. [2018] 401 ITR 164 (AAR New Delhi) Advance Rulings in Alstom Transport SA [2012] 349 ITR 292 and Roxar Maximum Reservoir Performance WLL [2012] 349 ITR 189 Distinguished in DIT v. Nokia Networks Ο&Upsil....
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....gly presumed that the installation / commissioning site of the customer is a fixed place PE since such site is at the disposal of the assessee and is being used for carrying out the core business activities of the assessee. 5.30. It is settled beyond doubt by the Hon'ble Supreme Court in Formula One World Championship Ltd. v. CIT [2017] 80 taxmann.com 347 that a site can be regarded as a 'Fixed Place PE' only if there is a 'dominant control' over such site. Further, the Hon'ble Delhi High Court in the case of Progress Rail Locomotive Inc. (Formerly Electro Motive Diesel Inc.) v. DCIT [TS-374-HC-2024 (Del)] and PCIT v. Samsung Electronics Co. Ltd. [TS-21-HC-2025 (Delhi HC)] has held that a fixed place PE is not constituted in respect of an Indian subsidiary sans satisfaction of disposal test. 5.31. In the instant case, the employees of the assessee merely have access to the site office where they perform supervisory activities. Such employees cannot carry out any business activity for any other customer and enter or exit such site as a matter of will or right. The facilities shared by the Indian customer namely, TSL, continues to re....
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....s only under tax treaties rather than the provisions of the Act. It is axiomatic that the FOA clause, even if included in a particular tax treaty, cannot expand the scope of taxation under the provisions of the Act. As already submitted, income from supply of plant and equipment, designs and spare parts is not liable to tax under the provisions of Section 5 read with section 9 of the Act inasmuch as no part of the operations relating to supply of equipment is carried out in India. Therefore, expansion of the scope of taxation by invoking the FOA clause is unwarranted. 5.36. Without prejudice, even under the provisions of the DTAA, the FOA clause is not applicable in the facts of the instant case. The Learned AO has failed to appreciate that the FOA clause operates only if sales or business activities are carried out 'in the other State'. As such, only the income in relation to the sales or business activities carried out in India fall under the scope of the FOA clause. 5.37. As mentioned in above, the entire activities such as designing, fabrication, sale etc. pertaining to offshore supply of equipment, spares and designs were carried outside India, Thus, ....
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.... supplies. Whilst doing so, the learned AO wrongly held that the assessee's major activity comprised of marketing activity as well as part of manufacturing activity such as signing of contracts, training activity, conclusion of sale, installation, commissioning, testing etc. which took place on the Indian soil and are fully related to the activities in India and to the Indian projects. 5.40. It is submitted that he aforesaid contention of the Learned AO is erroneous on the following counts: a) place of signing is of no consequence as held by the Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Company Ltd.(supra); b) as established the title had passed outside India and, therefore, the sale cannot be said to be concluded in India; c) the learned AO failed to produce any evidence of carrying of any manufacturing or marketing activity by the assessee in India; d) the assessee did not perform any installation service but rather only supervision; and e) it is erroneous to factor in activities like training, commissioning, testing, supervision etc. in the attribution rate, as the said activities are a....
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....essee had entered into a single composite contract containing separate scope of work (1) offshore supply; (2) offshore services; (3) onshore supply; and (4) onshore services. As such, the contention of existence of divisible contracts in Ishikawa's Case is erroneous. 3 Para 6 (Page 5/13) The Assessee in the present case acted as a single bidder for a turnkey solution. The aspect of single bidder is irrelevant for determining taxability of offshore supply of goods. 4 Para 6 (Page 5/13) The risk of equipment does not transfer to the customer at the foreign port of shipment but remains with the Assessee till successful commissioning of the blast furnace in India. The title as well as risk of loss in the equipment got transferred to the customer at the foreign port of shipment (Refer Para 5.4 to 5.19 above of our detailed submissions). As held by the Delhi High Court in LG Cables [2011] 237 CTR 438, this aspect is irrelevant and does not postpone the passage of title. 5 Para 7(a) (Page 6/13) As per Page 231 of Paperbook AY 2010-11, Assessee has entered intoa single contract with customer, TATA Steel Limited, Jamshedpur for I Blast Furnace. ....
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....d) (Page 7/13) As per Page 239 of Paperbook AY 2010-11, Clause 1.1.11 (Submission of Progress Report), regular meetings took place between the Assessee and the Indian customer right from the stage of design, manufacture, and supply. This is a detailed project control milestone control report being demanded from the Assessee. Presence of such clause in generic in nature incorporated for the sole purpose of ensuring coordination and timely completion. These meetings re held at the stage of manufacture of goods and much before, the constitution of a Supervisory PE. Such meetings neither result in any PE on their own nor have the effect of postponement of the passage title of goods. It is established that the Permanent Establishment ("PE") staff attended these meetings in discussing parameters India design and manufacturing progress, thereby actively participating in the "offshore" activities from Indian soil. Nowhere does the subject clause contain presence of PE staff in attending meetings in India. The Supervisory PE admitted by the Assessee came into existence at a much later stage i.e., upon commencement of supervisory activities in India. As such, presence of PE....
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....ge 245, the performance guarantee parameters are for commissioning of the entire equipment and not for each component that has been artificially divided. It is submitted that clauses of Liquidated damages are irrelevant and do not have the effect of postponement of title. 11 Para 7(g) (Page 8/13) Para 7(h)(iii) (Page 8/13) Page 247 clearly shows that there is milestone payment, and as per Clause 4.1.4, certain price is not paid till commissioning of the project. The balance payment will be released on completion of integrated cold test or issuance of provisional acceptance certificate (Clause 4.1.5). Please refer to paragraph 5.16 of our written submissions wherein, it has been averred that retention of a small portion of the price till issuance of acceptance certificate is immaterial. 12 Para 7(i) (Page 9/13) Page 261, Clause 8.1.4, clearly shows that the contractor's guarantee of performance is for the whole project and not for individual parts. Further, Clause 8.2 shows that any repair would be carried out within 12 months. Even if it does not comply with technical specifications or is defective, everything would be replaced within 12 months.....
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....er, the relevant extracts of the submission of the Ld.AR as to why the case laws relied upon by the Ld. CIT DR in its submission filed on 17.12.2025 were not applicable in the case of the assessee are reproduced as under: "Further, in the subject synopsis, the learned DR has placed reliance on certain judicial pronouncements which are not applicable on facts of the instant case mentioned as under: 1. Shanghai Electric Group Co. Ltd. v. DCIT [2018] 170 ITD 34 (Del-Trib.) It is submitted that the reliance placed by the Ld. DR on the decision of Shangai Electric Group Co. Ltd is misplaced, inasmuch as the said decision is distinguishable on the facts. In the decision of DDIT v Mitsui & Co. Ltd. [2020] 118 taxmann.com 379, the Hon'ble Tribunal, while distinguishing the said case, has referred to paragraph 179 of the decision in Shanghai Electric Group Co. Ltd and held as under at paragraph 44: "44. In this case, the Tribunal has observed that in respect of the contracts entered into by Shanghai Electric Group Company Ltd., all the payments were related to entire work entrusted upon the company which included supervisory services that the company ....
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....e which was created for taxation purposes and was not actually engaged in executing onshore contracts. It is for this reason that the Madras High Court also noticed that the subsidiary company i. e., ASPL already existed in India prior to the award of the contract. In the instant case, there is no such allegation made by the Department and as a matter of fact also the respondent-assessee in the present case had established a Permanent Establishment in India after the award of the contract for the specific purpose of executing the onshore contract. Again in Ansaldo Energia SPA's case (supra), it is noteworthy that initially a single contract was awarded to Ansaldo Energia SPA's case (supra) and later on at the instance of Ansaldo Energia SPA's case (supra) the contract was split into four separate contracts. In the instant case, right from the inception and as part of the documents, two separate contracts, i. e., a contract for offshore supplies and another contract for onshore services were executed between the PGCIL and the respondent-assessee. Yet again, in Ansaldo Energia SPA's case (supra) there was a specific allegation that the contract was 'loaded on'....
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.... (Para 6 of decision]. It is submitted that the case of the assessee is on a different footing, as the assessee does not have any storage site in India. Durr Systems GmbH had claimed that it was only performing onshore supervision activities (which only was offered to tax in India), whilst the installation work was subcontracted to Durr Systems India had claimed that it was only performing supervision, while installation was given to Durr India Private Limited. However, a survey revealed that Durr Systems GmbH was also engaged in installation activities. Based on such incorrect statement, doubts were cast on the pricing of the contract. As such, the Hon'ble Tribunal applied the decision of Ansaldo Energia SpA (supra) to hold that revenue from offshore supplies is liable to tax in India. In the facts of the present case, there is no such finding of the revenue authorities which would warrant such a presumption. It is submitted that the Hon'ble Tribunal did not consider applicability of Protocol of DTAA between India and Germany, even though the assessee in such case had placed heavy reliance thereupon. Para 1(a) of the said Protocol (with reference....
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....extracts of the same are reproduced as under: "B. Rebuttal of Synopsis dated December 22, 2025 S. No. Para Reference Learned DR Synopsis Rebuttal of Synopsis 1 Para 1(d) (Page 1/10) PW India is a subsidiary of the Assessee. Please refer to para 5.27 our submissions wherein, it has been submitted that the said facts are irrelevant and do not have a bearing on the taxability of offshore supplies. PW India has authority to conclude contracts. It is submitted that PW India does neither have any such authority to conclude contracts, nor has the revenue adduced any evidence to substantiate such allegation. PW India/ Indian Associated Enterprise premises is at the disposal of the Assessee. Please refer to para 5.25 to 5.28 our submissions wherein, it has been submitted that the Indian AE cannot be regarded as a Fixed Place PE of the assessee 2 Para 4 (Page 3/10) Learned DR has placed reliance Hon'ble Delhi Bench of Tax Tribunal decision of Shanghai Electric Group Co. Ltd. (supra). Kindly refer to our rebuttal in para 1 above on inapplicability of subject decision to facts of the instant case. 3 Para 4 (Page 5/10) Learne....
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....urther, the AO noted that the assessee during the year had received the following payments from the Indian customers. Sr. No. Nature of Activity RINL TSL BSL Total (Amount in INR) 1 Offshore Supply of equipment 1,28,46,72,214/- 55,45,61,196/- 22,17,70,175/- 2,06,10,03,584/- 2 Offshore Drawing & Designs 1,24,49,048/- 27,61,07,781/- 16,10,15,953/- 44,95,72,782/- 3 Supervision 19,69,02,082/- 3,27,59,544/- 0 22,96,61,626/- 4 Technical assistance 0 2,19,34,898/- 0 2,19,34,898/- TOTAL 2,76,21,72,890/- 9.2 Out of the above receipts the assessee had not offered the items at serial no. 1 and 2 above on the ground that such goods were supplied outside the taxable territories of India and all activities in connection therewith were done outside India and were thus claimed as non-taxable in India under the provisions of the Act as well as the Agreement for Avoidance of Double Taxation between India and Italy. For all the years under appeal, the learned Assessing Officer passed assessment orders under section 143(3) read with section 144C(1) of the Act, wherein, it was held that the consideration ....
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.... broadly mentioned as below: SL. No Description of the contract for I blast furnace at Tata Steel Limited, Jamshedpur Price consideration and terms of delivery Page no. of the paper book 1 Agreement for design, manufacture and supply of imported plant machinery and equipment with auxiliaries. Price for Designs and Drawings for imported equipment/items- Euro- 4,510,000 on FOB basis Price for imported equipment/items - Euro- 43,050,000 on FOB basis 231 to 292 particularly at page no. 231 & 241 2 Agreement for supply of imported designs and drawings for manufacture of indigenous equipment Euro - 1,144,000 on FOB Italian Airport basis and net of withholding tax, corresponding surcharge and education such as service tax and corresponding educations cess 293 to 334 particularly at page no. 293 & 300 3 Agreement for supply of imported designs and drawings for civil and structural work, utility and other services, assembly, erection, refractory work, blowing in operation, commissioning and demonstration of performance tests Etc. Euro- 3,780,000 on FOB Italian Airport basis and net of withholding tax, corresponding surcharge and education such as....
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....41 of Paper-book AY 2010-11)]. * Payment Terms: Payment was made outside India in foreign currency through telegraphic transfer/ Irrevocable Letter of Credit, wherein, 90% as advance or at the time of delivery (unrelated to onshore services) [Refer Clause 4.2.1 and 4.2.2 (page 250 of Paper-book AY 2010-11)]. * Responsibility for Clearance: Tata Limited, London are the buying agent and authorised to liaise and make shipping arrangements on behalf of TSL i.e., purchaser. Further, TM International Logistics, Kolkata is the clearing agent of imported equipment on behalf of TSL [Refer Clause 5.2 (page 252 of Paper-book AY 2010-11), 5.4.2 (page 253 of Paper-book AY 2010-11) and 5.5 (page 254 of paper-book AY 2010-11)]. * Custom Clearance: Buyer i.e. TSL is responsible for custom clearance and payment of custom duty [Refer Clause 5.3 (page 253 of Paper-book AY 2010-11) and Clause 2.3.2 (page 242 of Paper-book AY 2010-11)]. * Shipping Arrangements: Shipping arrangements on behalf of buyer i.e., customer to be done by an independent party, TKM GmbH [Refer Clause 5.4.2 (page 253 of Paper-book AY 2010-11). * Responsibility for insurance: Buyer l.e.....
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....e equipment onto the vessel outside India. 9.8 In this regard, the Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Limited (supra) has held about the taxability of offshore supply and equipment by laying the guidelines as under: "Re: Offshore Supply: (1) That only such part of the income, as is attributable to the operations carried out in India can be taxed in India. (2) Since all parts of the transaction in question, i. e., the transfer of property in goods as well as the payment, were carried on outside the Indian soil, the transaction could not have been taxed in India. (3) The principle of apportionment, wherein the territorial jurisdiction of a particular State determines its capacity to tax an event, has to be followed. (4) The fact that the contract was signed in India is of no material consequence, since all activities in connection with the offshore supply were outside India, and therefore cannot be deemed to accrue or arise in the country. (5) There exists distinction between a business connection and a permanent establishment. As the permanent establishment cannot be said to be involved i....
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....y and the AE in India are the subsidiaries of their parent company M/s.Paulwurth SA, Luxemburg (having 100% shareholding). 3.2 The AE in India is a separate legal entity and was incorporated in 1993 for the purpose of undertaking blast furnace construction projects for the eminent Indian steel producers. Therefore, Indian AE is functioning independently and generating revenue from its operations by sale of products and sale of services etc. to its customers. So far as the assessee company is concerned, the Indian AE may provide some administrative support to the assessee company such as assistance regarding travel/local stay arrangements for their personnel in India as and when required by the assessee company." 9.10 Further, the AO has not discussed about any activity being carried out by PWI to show that it had any role in executing the above contract by the assessee with Tata Steel Ltd. regarding the supply of the offshore equipment and supply of the offshore drawings. In this regard, the AO notes that the contract with the Tata Steel Ltd. was signed by the AGM of PW India (Mr. S Dipam) as a witness to the Agreement to hold that PWI is a Fixed place PE of th....
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....er in the country of origin. The relevant extracts of the order is reproduced later in this order. 9.13 Similarly, the observation of the AO regarding the 'Right to Reject' in the agreement to mean that the title in the goods did not pass to the buyer in the country, we agree with the submission of the assessee that mere right of rejection cannot be construed to indicate that the title in the goods passed in India after delivery of goods. We note on the perusal of the agreement that such a right to reject does not result in 'repudiation' of contract. In this regard, reliance placed by the assessee on the judgement of the Hon'ble Supreme Court in the case of Mahabir Commercial Co. Ltd. (supra) and Hon'ble Delhi High Court in the case of LG Cables Limited (supra) wherein, the Court has held that mere right to examine and repudiate the goods does not postpone the passage of title in the goods supplied supports the stand of the assessee. The Hon'ble Supreme Court in Mahabir Commercial Co. Ltd. (supra) held "... Even though the property in the goods may pass to the buyer when the documents are handed over, the buyer may yet retain the right to examine and....
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....ing to the satisfaction of the buyer are in a separate agreement for a separate consideration which is clearly enunciated in the second agreement as follows:- "Whereas the employer desires to engage the contractor for performance of all activities within India subject to the terms and conditions hereinafter appearing." 28. As regards the payment for the performance of the activities within India, the contract price aggregating to INR 59,982,160 plus US Dollars 88,400 was specifically and separately fixed by Article (2) of the contract titled "Contract price in terms of payment". This consideration was separate from the consideration for the supply of equipment and there appears to be no justification to intermingle the two. The consideration for the offshore supply of equipment, it is repeated at the risk of repetition, accrued when the goods were sold. The performance of duties as envisaged in the second contract, viz., the Erection Contract, by no stretch of imagination can be conceived to postpone the transfer of property under paragraph 31. 2 of the agreement, which property passed on to the buyer simultaneously with the "loading onto the mode of transport to ....
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....The normal trade warrantees could not be mixed up and taken as a right of repudiation or right of disposal of equipment with the buyer or with the seller. The property in equipment having been passed on handing over the equipment to the ship with the delivery of documents to the bank under irrevocable letter of credit, the terms referred to above could not affect the passing of the property. Thus when goods were transferred outside India, the taxable income accrued outside India. It being not attributable to any operation carried out in India, no portion of the same was taxable in India. 31. We may note also that the buyer's right to examine and repudiate the goods in law does not by itself indicate that the property in the goods had not passed, as is evident from the provisions of section 59 of the Sale of Goods Act, which read as under:- "59. Remedy for breach of warranty. (1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he ma....
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....ving in two different countries, the contract may envisage, the seller sending the goods through a carrier and the payment being made either at that place or at the place where the buyer resides. In such a transaction the banks have come to play an important part and the bankers' commercial credit system facilitates merchants domiciled in different countries and assures payment to the seller on the one hand and delivery of the goods contracted for to the buyer on the other. This is done by means of what are known as letters of credit which under the terms of the contract the seller may insist on the buyer to provide for in a bank doing business in the place of the seller's domicile...." 33. In the case of Sri Ram Bearings Ltd. (supra) the Hon'ble Supreme Court held as under:- "The only controversy is with respect to the taxability of 165,000 US Dollars which is stipulated as the consideration for sale of trade secrets. The agreement specifically states that the said sale is effected in Japan. We are unable to see on what basis it can be said that any part of the said amount has been earned in India. " 34. Heavy reliance was placed by the learn....
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....ndent through its head-office and permanent establishment. Ansaldo Energia SPA's case (supra) is thus clearly inapplicable to the fact situation in the present case and is therefore of no avail to the revenue. 35. In the final analysis we have no hesitation in holding that viewed from any angle, the fact situation in the instant case is almost identical to that in the case of Ishikawajma Harima Heavy Industries Co. Ltd. (supra) and the law as enunciated by the Supreme Court in the said case will squarely apply to the facts of the present case. If at all there is a difference, the facts in the present case stand on a better footing than in Ishikawajma Harima Heavy Industries Co. Ltd. 's case (supra). In Ishikawajma Harima Heavy Industries Co. Ltd. 's case (supra) there was a turnkey contract with four separate component activities, viz., offshore supply, offshore services, onshore supply and onshore services awarded by Petronet LNG to a consortium of companies led by the Japanese company Ishikawajma-Harima. In the instant case there are two separate contracts i. e., offshore supply and the onshore services contract awarded by the PGCIL to the respondent-assessee....
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....se in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. In the instant case there were no operation qua the agreement for supply of equipment, which was carried out in India, and therefore, no income could be deemed to have accrued or arisen in India whether directly or indirectly or through any business connection in India. 38. In view of the aforesaid we answer the question No. 1 in the affirmative in favour of the respondent-assessee and against the Revenue. In these circumstances, question No. 2 does not arise for our consideration in the instant case. It may, however, be noted for academic interest alone that the question No. 2 has been answered by this Court in Director of Income tax v. Mitsubishi Corpn. [IT Appeal No. 491 of 2008, dated 30-8-2010]. 39. Accordingly, the appeal stands disposed of." 9.15 Further, the plea of the AO and the Ld. CIT DR that the concept of 'Force of Attraction' which is applicable in the India-Italy DTAA will apply in the present facts of the case on the profit on the supply of the offshore equipment and designs have been carefully perused by us but not found to b....
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....y after the offshore supplies were complete and, thus, attribution on that account is unwarranted. In this regard, similar observations were made by the Hon'ble Delhi High Court in the case of Director of Income Tax, New Delhi v. LG Cable Ltd. (supra). The relevant para no. 36 is reproduced for ready reference. "36. With regard to the setting up of a permanent establishment also, the permanent establishment of the respondent in the instant case, as in the case of Ishikawajma Harima Heavy Industries Co. Ltd. (supra), had no role to play in the execution of the offshore supply contract and as a matter of fact was set up for the sole purpose of enabling the performance of the onshore services contract." 9.18 Further, the Hon'ble Delhi High Court in the case of DIT vs. E Funds IT Solutions Delhi, 42 taxmann.com 50, held that subsidiary in itself could not be considered as a fixed place PE or a dependent agency PE of the foreign company in India. It further held that merely because the foreign entity has a supervisory PE in India, it cannot be assumed that the entire income in the form of sale of equipment (that too offshore), can be attributed to have been earned throug....
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....on of profits on supply of the offshore equipment, drawing and designs was not justified as the profit on the same was not taxable. Further, we have also held that the supervisory PE as admitted by the assessee cannot be invoked to attribute profits on supply of the offshore equipment, drawing and designs. Accordingly, we uphold the order of the ld CIT(A) in deleting the action of the AO in taxing Rs. 6,21,36,765/- as profits and income attributable to the assessee in India as business profit taxable @ 40% under Article 7 read with section 28 of the Act. Ground no. 1 of the appeal of the revenue is dismissed. 10. In the result, the appeal of the revenue is dismissed. 11. In the remaining departmental appeals being ITA Nos. 2370/Del/2018, 883/Del/2018, 2950/Del/2019 for A.Y. 2012-13,2013-14 and 2014-15 there is only one ground being ground no. 1 of the appeal which is identical to the ground no. 1 of the appeal in department's appeal being ITA No. 5254/Del/2017. The facts being identical in all these appeals our decision in ITA No. 5254/Del/2017 shall apply mutatis mutandis in respect of ground no. 1 of these appeals of the revenue. ITA No. 5164/Del/2017 for A.Y. 2010-11(As....
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.... For the above mentioned 2 contracts, the company's personnel visited customes sites in India. As per the number of days of visit for each contract and duration of each of the 2 contrats, PEs come into existence in terms of provisions of DTAA between India and Italy. As the activities in each of the 2 contracts would continue in FY 2010-11, 2011-12 and so on, the profit/(loss) of the said activities will be determined on completion of each project respectively. As such, receipts have been shown as advances and costs have been shown as work in progress. Therefore, no income has been declared for FY 2009-10. Cash basis followed. 5. The company has also received technical assistance fee in relation to a contract with Tata Steel Ltd. as per which the company has rendered certain services for sourcing of stipulated imported equipment/ items and preparation of appropriate documentation for enabling the customer for placing the orders to the recommended vendors for effecting the supplies. Such services rendered by PWIT are covered u/s 115A of the IT Act 1961 and therefore liable to tax @ 10.5575% of the gross amount, which was deducted at source and....
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....ch supervisory activities did exceed six months. 3. Here, it would be relevant to reproduce the provisions of Article 5(2)( j) of the DTAA as under. "ARTICLE 5(2) The term "permanent establishment" includes especially,- (j) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities (together with other such sites, project or activities, if any) continue for a period of more than six months, or where such project or supervisory activity, being incidental to the sale of machinery or equipment, continues for a period not exceeding six months and the charges payable for the project or supervisory activity exceed 10 per cent of the sale price of the machinery and equipment" 4. The aforesaid provisions do suggest that where activities of supervisory nature in India exceed a period of six months, a Permanent Establishment in terms of Article 5(2)(j) is constituted in India in the hands of the Appellant. In view of the fact that the Appellant was engaged in supervisory activities during the subject period which had exceeded the threshold of six month....
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....r attention to the decisions of Income Tax Appellate, Tribunal (ITAT) in case of GFA Anlagenbau GmbH [ITA TS-383-ITAT-2014) as well as the decisions of Hon'ble High Court of Delhi in case of CIT Vs Sumitomo Corporation [(287) CTR (Del) 420]. Your Honour had requested us to furnish our response as to why, the ratio of the aforesaid decisions ought not to be applicable in the instant case. 9. It may be mentioned that in the decision of Hon'ble Tribunal in the case of GFA Anlagenbau (supra), it was held that where an enterprise is engaged in supervisory activities without being engaged in construction, installation or assembly project, such supervisory activities would not lead to constitution of PE in India in terms of Article 5(2)(j) of the DTAA. 10. A bare perusal of the provisions of Article 5(2)(j) suggests that in order to fall within the purview of "supervisory activities in connection therewith" it is not necessary that the construction, installation and assembly project should be undertaken by the assessee himself. 11. The aforesaid view does also find support from the commentary on Model Tax Convention on Income and Capital, 2010 b....
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.... examine the issue of computation of profit of the PE under article 7 of the DTAA." (Emphasis supplied) 14. The aforesaid principle has been upheld by various benches of the Tribunal. In this regard, reliance is placed on the following decisions: JDIT Vs Krupp Uhde GmbH (2009) 28 SOT 254 (Mum) Aditya Birla Nuvo Ltd Vs ADIT [2011] 44 SOT 601 (Mum) 15. It would not be out of place to highlight that the revenue, themselves being aggrieved by the decision of the Hon'ble Tribunal in the case of GFA Anlagenbau (supra), has preferred an appeal before Andhra Pradesh High Court. The matter before the Hon'ble High Court is currently sub judice. As such, it is neither the case of the appellant nor the revenue that the supervisory activities, all by itself, do not lead to the incidence of PE in terms of Article 5 of the DTAA. In view thereof, it is most respectfully submitted that in the facts of the instant case, a supervisory PE in terms of Article 5(2)(j) of the DTAA does exist. 16. As regards the decision of the Hon'ble Delhi High Court in Sumitomo Corporation (supra), it is submitted that the facts of the ....
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....icant number of days when the foreign technicians were in India. The term effectively connected, as used in Article 12(5) of India-Japan DTAA is not to be construed as the opposite of legally connected but in the sense of something really connected. Similarly, the term effectively connected appears in clause 5 of Article 13 of India-Italy DTAA. The aforesaid has been held by the Hon'ble ITAT, Delhi Bench in the case of M/s Sumitomo Corporation, dated 27.02.2014, reported in 43 taxmann.com 2 (Delhi-Trib.), 31 ITR(T) 310, 162 TTJ 46 (Delhi-Trib.). In this case, the Hon'ble Delhi High Court, while discussing provisions of India-Japan DTAA, had set aside the matter to the ITAT Delhi, to consider and adjudicate the following ground: "Whether in the facts and circumstances of the case 'fee for technical services received by the assessee from M/s Maruti Udyog Ltd. was taxable under Article 12(2) or Article 12(5) read with Article 7(3) of DTAA?" 18 The Hon'ble ITAT in their order dated 27.02.2014, as aforesaid, at para 5 has elaborated and adjudicated the aforesaid ground. "As held earlier in this para, the solitary issue remains is wheth....
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.... (5) of DTAA between India and Japan is on the line of OECD Model Convention wherein the clause allows the state where the PE is located to tax only those profits which are economically attributable to the PE. The income should arise as a result of activities of PE. The state where the PE is located can tax the income only, if a connection exists, between the income and the PE. Thus, Article 12(5) of Indo Japan DTAA adopts "No Force of Attraction" principle. Similarly, the term "effectively connected" used in the language of Article 12 (5) of DTAA between Indo Japan is not to be construed as the opposite of "legally connected" but in the sense of something "really connected". The connection must be real in substance. In fact producing activities should be closely connected in terms of relationship besides being connected economically also with the PE. The facts of the case shows that LO was only facilitating the communication of the Head Office with MUL and was nowhere involved in the supervisory activities. Simply existence of the LO cannot be merely a basis that assessee was having supervisory PE in India. The facts show that LO was not permitted to carry out any trading, commerc....
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.... finding of ITAT that the period of supervision under each contract was less than the period of 180 days as contemplated in Article 5(4) of the DTAA. It is also held that where there are several sites where supervision is going on in a country, the rule is that the test of minimum period should be determined for each individual site or installation project. The assessee rendered supervision to the plant and machinery supplied by it from Japan. To supervise installation cannot be termed as having a PE in India when the same is not effectively connected with any PE in India." (emphasis supplied) Thereafter, in the same paragraph, the finding was given as follows by the Hon'ble ITAT. "Considering all these facts and oral and written submissions by both sides, we hold that the income is taxable as "fee for technical services" as per Article 12(2) of the DTAA between India and Japan. In view of the above observations and findings, we hold that the FTS received by the assessee for Assessment Years 1992-93, 1993-94, 1994-95 and 1996-97 are covered under Article 12 (2) of the Indo Japan DTAA and liable for the tax @ 20%." The matter travelled to Hon'ble D....
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....thout an office, telephone listing or bank account - has been held not to constitute a permanent establishment. Further, the fixed place of business need not be owned or leased by the foreign enterprise provided it is at the disposal of the enterprise in the sense of having some right to use the premises for the purposes of its business and not solely for the purposes of the project undertaken on behalf of the owner of the premises. (emphasis supplied) Here the assessee is clearly doing the supervision of project of the Indian company and has no fixed place of business. Only its technicians deputed to India in one project stayed in India for more than 180 days. Nothing was brought on record that the technicians are operating from a fixed place in the custody of assessee. As per the terms the stay and transportation are undertaken by Indian company. Applying the rationale of the Special Bench it cannot be said that the assessee has a fixed place of business for its supervisory activities. We also find support in the Tribunal decision of Airlines Rotables Ltd v. Jt. DIT (Internatonal Taxation) [2011] 44 SOT 368 (Mum) where providing spares and component support services for ....
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....nt personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply." For Article 12(5) to apply, the condition precedent is for the assessee to have a Permanent Establishment through which its activities are carried out and as we have discussed above such a condition is not met in the instant case. Therefore Article 12(5) which takes the scope of services out of FTS (Article 12) and into Article 7 read with Article 5 does not apply to the assessee's case. 12.8 This can also be examined in a different angle. A.O. has not invoked the service PE concept while considering the permanent establishment of the assessee in India. Admittedly, the basis for A.O's invoking the provisions of Article-5 of DTAA is on the basis of the fact that three of the technicians deputed for supervising the activities in the case of M/s. Jindal Steel Power Ltd., has stayed in India exceeding 183 days and filed their returns ....
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....ee should be assessed for its supervisory activities under Article 12 of the India-Germany DTAA. Therefore, we hold Ground Nos. 3, 4 and 5 in favour of the assessee." (emphasis supplied) An analysis of the order of Hon'ble ITAT, as aforesaid, is as hereinafter: The Hon'ble ITAT relied on the High Court decision in the case of Clouth Gummiwerke Akrineqesellschaft (238 ITR 861) (AP) (1999) to conclude that supervisory activities carried out by the technicians in India are taxable as FTS under the Income Tax Act. Further, the supervisory activities carried out at project sites in India would not constitute a fixed place PE under the provisions of the Income Tax Act as Foreign Company does not have the right to operate such sites independently. The ITAT thus held that supervisory activities fell within the ambit of Section 9(1)(vii) of the IT Act as FTS. It was observed that the concept of fixed place of business was no different from the general provision of Article 5(1) of Model Conventions and tax treaties. Hence, it was also held that such supervisory activities did not constitute a fixed place of business u/s 92F(iiia) of the Act, as the....
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....982) 65 Taxation (section 6) p. 12, (Appellate Tribunal decision)." (emphasis supplied) 7.4 In light of the above, I hold that the amounts received as consideration for supervisory activity amounting to Rs. 19,69,02,082/- and Rs. 3,27,59,544/-, are to be taxed as 'Fee for Technical Services' in the hands of the appellant. The same are to be taxed at the rate beneficial to the appellant, i.e., beneficial of the two- (i) IT Act, 1961 or (ii) The rates specified in the India-Italy DTAA." 16. Aggrieved with the said order, the assessee has filed an appeal before us on the following grounds of appeal: "2.1. That having regard to the facts of the case and in law, the Ld. CIT(A) has erred in characterizing revenue from supervisory activities as Fee for Technical Services ('FTS') in terms of Article 13 of the Agreement for Avoidance of Double Taxation between India and Italy ('DTAA'), instead of 'Business Profits' under Article 7, which were taxable in India on net basis; 2.2. That while making the impugned addition, as the Hon'ble CIT(A) grossly erred holding that incidence of a Permanent Establishment ('PE') in ter....
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.... details of which were furnished during the course of the proceedings before the Hon'ble CIT(A). 2.3. It is submitted that in all the years under appeal, the Ld. AO has accepted the stand of the assessee as regards existence of a supervisory PE is concerned. However, the Hon'ble CIT(A) has erred by rejecting the stand of the assessee on the following counts: a) the onshore duration of supervisory activities is for an insignificant duration; b) the supervisory revenue is not effectively connected to the PE in India; and c) supervisory activities by themselves, cannot lead to the existence of a PE in India. 2.4. Resultantly, the Hon'ble CIT(A) taxed the revenue from supervisory revenue received during the year on gross basis under Article 13. While doing so, the Hon'ble CIT(A) ignored the fact that the profit from supervisory activities had already been taxed under Article 7 in the returns of the assessee of subsequent years in which the relevant project had completed by following Completed Contract Method. Resultantly, the enhancement made by the Hon'ble CIT(A) also resulted in double taxation. 2.5. It is subm....
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....ect or supervisory activity, being incidental to the sale of machinery or equipment, continues for a period not exceeding six months and the charges payable for the project or supervisory activity exceed 10 per cent of the sale price of the machinery and equipment" 2.10. Based on such position, even if a PE exists for one project on account of its duration exceeding six months, it is immaterial to ascertain the separate duration of other onsite projects, as the combined duration would exceed six months. This position emanating in the DTAA between India and Italy has been acknowledged in the decision of JDIT v. Krupp Uhde GmbH [2009] 28 SOT 254 (Mum). 2.11. In view thereof, it is submitted that incidence of a supervisory PE under Article 5(2)(j) arises in the facts of the instant case. Supervisory revenue is effectively connected to PE in India 2.12. It is submitted that in the instant case, the supervisory activities itself have lead to constitution of PE under Article 5(2)(j) of the DTAA. It is therefore axiomatic that business profits from supervisory activities are effectively connected to as well as also attributable to the supervisory PE under Articl....
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....se of the assessee, the Hon'ble CIT(A) has grossly erred in following these decisions to hold that supervisory receipts can never be effectively connected to a PE. without appreciating the facts that existed in these cases and also misinterpreting the ratio of the Hon'ble High Court of Delhi. 2.17. In this regard, your Honours attention is drawn to the decision of the Hon'ble Delhi Bench of Tribunal in the case of Andritz AG v. DCIT [2024] 165 taxmann.com 76 wherein, it was held that onshore supervisory receipts shall constitute a PE under the DTAA between India and Austria. The Hon'ble Tribunal held that such receipts being effectively connected with the supervisory PE, shall be taxed on net basis as 'Business Profits' under Article 7 rather than 'FTS' under Article 12 of the DTAA. 2.18. In view thereof, it is humbly submitted that supervisory receipts are taxable under Article 7 of the DTAA instead of Article 13 of the DTAA. Supervisory activities all by themselves, can lead to constitution of PE in India 2.19. While passing the appellate order under section 250 of the Act, the Hon'ble CIT(A) relied on the de....
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....pon the United Nations Model Tax Convention, Article 5 of the said convention does also include a provision for Incidence of a supervisory PE. Furthermore, in the decision of GFA Anlagenbau GmbH (supra), the Vishakhapatnam Bench of the Tribunal relied upon the decisions of the Andhra Pradesh High Court in Clouth Gummiwerke Akrineqesellschaft v. CIT [1999] 238 ITR 861 as well as Vishakapatnam Port Trust [1983] 144 ITR 146, both of which are clearly distinguishable. The decision of Clouth Gummiwerke Akrineqesellschaft (supra) is not applicable to the present case, inasmuch as the decision was entirely based on the provisions of section 9(1)(vil) of the Act, without recourse to the relevant tax treaty. The decision of Hon'ble High Court of Andhra Pradesh in the case of Vishakapatnam Port Trust (supra) was based upon the definition of PE as per Article 2 of the erstwhile Agreement for Avoidance of Double Taxation between India and Germany, which has since, been replaced by the tax treaty between the two countries signed on June 19, 1995. The relevant Article 2 of the erstwhile Indo-German DTAA did not stipulate any provision for incidence of a PE by virtu....
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....le taxation of Income is unfounded, erroneous and Impermissible in law. 2.27. In this regard, reliance is placed on the decision of Andritz AG (supra) wherein at para 21, the Hon'ble Bench has held that where such revenue has already been offered in subsequent years which the department has accepted, no further addition can be made. 2.28. It is therefore submitted that incidence of a supervisory PE does arise in the hands of the assessee in all the years under litigation. Therefore, income from supervisory activities is liable to tax as business profits under Article 7 and not as FTS under Article 13. The arguments in support of the aforesaid ground are summarised hereunder: a) the assessee performed onshore supervisory activities for all relevant projects for a period exceeding six months; b) the revenue from supervisory activities is attributable to the supervisory PE and, thus, the same is taxable under Article 7 of the DTAA; c) a supervisory PE may arise independently even if the foreign assessee is not operating the building site, construction site, installation project, assembly project; and d) as the profits from the ....
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.... Hon'ble Court held that PE was not established whereas the personnel of the assessee company in the case of the present assessee had visited the sites in India, the duration of which exceeded six months in each case. The said finding of the Hon'ble Court wherein it held that supervisory PE is not constituted due to the fact that the period of supervision in the case of the individual contracts did not exceed the period of 180 days is reproduced as below: Article 5(4) of the India-Japan DTAA "An enterprise shall be deemed to have a permanent establishment in a contracting State and to carry on business through that permanent establishment if it carries on supervisory activities in that Contracting State for more than six months in connection with a building site or construction, installation or assembly project which is being undertaken in that Contracting State." Para 28 of the Order of the Hon'ble Delhi High Court. "28. It was in the above background that the ITAT examined each of the POs for the various AYs in a tabular form. On examination of the POs, a common feature which emerged was that the supervisors were to come from Japan and MUL had ....
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....ded under India - Austria DTAA. Drawing our attention to India - Austria Tax Treaty, he submitted that as per Article 7(5) & (6) read with Article 12(5) of the treaty, even assuming that onshore supervisory charges received by the assessee are in the nature of FTS, since they are effectively connected with the supervisory PE, they have to be taxed as business profits under Article 7 of the DTAA. He submitted, in that event, it has to be taxed on net basis after deduction of all expenses. Proceeding further, he submitted, the assessee followed accountancy policy of recognizing revenue from onshore supervisory services through project completion method. He submitted, since all the projects with SAIL were ongoing during the year under consideration, the assessee offered the income to tax on completion of projects in assessment year 2014-15 and the Assessing Officer, while completing the assessment, has also accepted such income. Therefore, he submitted, there is no reason to tax such income again in the impugned assessment year, as; it would amount to double addition of the same income. 17. Learned Departmental Representative relied upon the observations of the Assessing Offi....
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....s as FTS under Article 12(4) of the treaty on gross basis. We hold that the receipts from onshore services, being attached to the supervisory PE in India, have to be taxed on net basis under Article 7 of the treaty." 18.3 In this regard, the relevant provisions regarding the supervisory PE in the India-Austria DTAA and the India-Italy DTAA(applicable in the case of the assessee) are reproduced as under: India-Austria DTAA "ARTICLE 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially :- (i) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities (for the same or connected project, site or activities) continue for a period of more than six months" India-Italy DTAA. "ARTICLE 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business thr....
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....s. 26.80 crores) and further drawings for civil works (Rs. 9.6 crores) which was not offered to tax by the assessee alongwith the amount of Rs. 334.60 crores on account of supply (including drawing and designs) in respect of equipment supplied by the assessee outside India. However, the total receipts of the assessee amounting to Rs. 371.06 crores were considered as total revenue by the AO for attributing the profit to PE of the assessee. Thus, the receipts on account of drawings and designs for indigenous equipment (Rs. 26.80 crores) and further drawings for civil works (Rs. 9.6 crores) was taxed by the AO by considering the same as part of total revenue of Rs. 371.06 crores on the ground that the assessee had PE in India in the form of its subsidiary along with the receipts on account of sale of equipment (including drawings and designs) amounting to Rs. 334.60 crores made by the assessee to the Indian parties. The Ld. CIT (A) following the findings of his Ld predecessor, held that the income from supply of equipment (including drawings and designs) amounting to Rs. 334.60 crores which was in the nature of business income was not taxable in view of the Article 7 of the Treaty sin....
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....ssion of the appellant that these designs and drawings facilitate the customer in fabrication of indigenous equipment which should meet the parameters of equipment applied by appellant. The ld CIT(A) noted that this test also fails on the ground of inextricable link to supply or an integrated supply of equipment and design as held by the jurisdictional court. The ld CIT(A) took note of the fact that the courts have clearly held that only where there is a composite contract for supply of equipment and drawings of such equipment, shall the contract not be split for the consideration related to drawing. The Ld CIT(A) noted that in the assessee's case, it is a standalone contract for supply of drawing and design and further, such drawings are related to the indigenous equipment of the client. Accordingly, he held that the amount of Rs 26.80 crore which has already been received by the appellant in the FY 2011-12 is to be charged to tax as Royalty @ 10%. 22.2 Further the ld CIT(A) noted that during the current financial year an amount of Rs. 9.66 cr has been received by the assessee as consideration received for drawings provided by the appellant for carrying out civil works. The....
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.... on the issue that where drawings and designs were inextricably linked to the supply of equipment, they could not be separately treated for the purpose of sale. The AO has also treated them to be an integral part of the sale but effectively connected it to the PE deemed to exist in India. On this issue however, I do not fully agree with my predecessor that the entire receipts from sale of drawings and designs are not taxable in India. This is due to the reasons discussed in the following paragraphs. 4.2.3 During the course of appeal proceedings, the assessee submitted a Paperbook detailing the receipts, the copies of contracts, computation of income and also the copy of submissions made before the AO. On Pg 1 of the Paperbook, the assessee submitted the computation of income for the FY 2011-12, a table prepared by the assessee in respect of sale of equipment and sale of drawings and designs was as under: Amount to be disclosed in the tax return and claimed as exempt in Supply (including Drawings and Designs) Drawings Indigenous Equipment Drawings for civil works Tata-1030 35441210 RINL0870 96768626 BSL-0930....
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....id supplies, then the services rendered by Linde would not be amenable to tax under Section 9(1)(vii) of the Act. Consideration for such services would not be considered as "Fees for Technical Services" for the purposes of Section 9(1)(vii) of the Act. This view has also been expressed by the Authority Rotem Co., In re [2005] 279 ITR 165/148 Taxman 411 (AAR). The relevant extract of the said decision reads as under:- "16. The principle which emerges from the decisions in the aforementioned cases is that in a contract for manufacture, installation, sale or supply of goods the element of services will always be present. Where services are inextricably linked with manufacture, installation, sale or supply, they cannot be evaluated for the purpose of FTS; it is only where services are separable and independent that the FTS will be assessable." It is clarified 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 so strong and interlinked that the services in question are not capable of being considered as services on a standalone basis and are therefore subsumed as a part of the supplies.....
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....xceed 10 per cent.] 3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8. 4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is ....
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....e in a Contracting State when the payer is that State itself, a political sub-division, a local authority, a statutory body or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of royalties or fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due ....
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....as well as the Income Tax Act. The appellant was also given a specific opportunity to explain as to why this amount not be taxed as Royalty. The Appellate in his reply dated 27.11.2017 has simply stated that such drawings have been prepared and fabricated at Appellant's factory located outside India and therefore, are eligible to the same tax treatment as consideration for supply of equipment. This argument is totally fallacious and without any basis. The treatment for supply of equipment and supply of design is different since design and drawing is categorically covered in the definition of royalty. The appellant also states that these designs and drawings facilitate the customer in fabrication of indigenous equipment which should meet the parameters of equipment applied by appellant. This test also fails on the ground of inextricable link to supply or an integrated supply of equipment and design as held by the jurisdictional court. The courts have clearly held that only where there is a composite contract for supply of equipment and drawings of such equipment, shall the contract not be split for the consideration related to drawing. In the assessee's case, it is a standal....
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....he Agreement for Avoidance of Double Taxation between India and Italy ('DTAA') and thus rejecting the contention of the Appellant that the same was not liable to tax in India; 2.2. That without appreciating the facts of the case and erroneous interpretation of law, the Hon'ble CIT(A) has grossly erred in holding that relevant amount for offshore supply of certain drawings and designs was not inextricably linked to the offshore supply of equipment; 2.3. That without prejudice, the Hon'ble CIT(A) has grossly erred by failing to appreciate that supply of designs and drawings ought to be regarded as offshore sale of goods, which is not liable to tax in India under the Act as well as the DTAA;" 24. At the time of hearing, the Ld. AR filed the written submission which is reproduced as under: B. ASSESSEE'S APPEAL (AY 2010-11, AY 2012-13, AY 2013-14, AY 2014-15 and AY 2015-16) 1. ISSUE 1: Consideration for supply of designs for indigenous equipment and civil works cannot be characterised as royalty or FTS 1.1. The assessee had entered into contracts with inter alia, Tata Steel Limited ("TSL"), for supply of design....
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....(page 370 of the PB of AY 2010-11). The said clause states that that the designs etc. shall be used by the purchaser only for the purpose of 'completing, operating and maintaining the plant'. 1.5. The agreements for supply of designs for indigenous equipment (page 293, Paper- Book AY 2010-11) and civil construction (page 336, Paper-Book AY 2010-11) are themselves styled as 'Supply of Imported Designs' and thus, the parties intend it to be of the nature of goods. For instance, second paragraph of Clause 19.1 (page 328/page 370, Paper-Book AY 2010-11) of the designs contract with TSL states that that the designs etc. shall be used by the purchaser only for the purpose of 'completing, operating and maintaining the plant. 1.6. It is submitted that nowhere in the agreement does the purchaser/ customer receive any right to commercially exploit the Intellectual Property Rights ('IPR). The buyer utilises the designs only for self-consumption/ internal business purpose, rather than to exploit the incorporeal rights embedded in such design. The transfer of design by the assessee to various buyers ought to be regarded as supply of a product rather tha....
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....e a payment for use thereof unlike the definition in the Act which brings within its scope even consideration for a transfer. 1.11. A similar view has been held in the recent decisions of Delhi Bench of Hon'ble in the case of SMS Concast AG v. DDIT (ITA no. 1361/Del/2012) and DSD Noell GmbH v. Dy./ Asst. CIT (ITA no. 3186/Del/2016 & Ors) which has followed the judgement of jurisdictional high Court in Linde AG (supra). 1.12. Your Honours' attention is also drawn to the decision of the Kolkata Bench of the Hon'ble Tribunal in Outotec GmbH v. DDIT [2015] 172 TTJ 337. In the facts of the said decision, the assessee had entered into a similar contract with TSL for supply of imported designs and drawings for civil and structural work, utility and other services etc. on FOB basis (paragraph 28 of the decision). The said designs were needed as per the specifications by the customers to erect the plant. The Hon'ble Tribunal observed that the aforesaid designs were used by customers for the purpose of setting up plants rather than for commercial exploitation. As such, the Hon'ble Tribunal concluded that the aforesaid designs partake the character of bus....
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.... use of a 'copyright, for the purpose of the definition of 'Royalty', under the provisions of the Act. 1.16. It is also submitted that the Hon'ble CIT(A) contradicted himself by holding that the aforesaid designs are also of the nature of 'FTS', having already held the same to be 'royalty. It is submitted that both the aforesaid transactions are materially different and mutually exclusive. Whilst a transaction of royalty postulates use of IPRs, only a transaction of 'service' could be characterised as FTS. It is reiterated that the sale of imported designs is a transaction of sale of product rather than a 'contract of service'. In this regard, reliance is placed on the following decisions wherein it was held that supply of designs cannot be regarded as 'service' and, therefore, cannot be characterised as FTS: o Abishek Developers v. ITO [2008] 24 SOT 45 (Bang-Trib); o Skoda Export Co Ltd v. DCIT (ITA No. 1176/H/96) (Vizag-Trib.); o Hindustan Petroleum Corporation Ltd v. ADIT [2016] 69 taxmann.com 166 (Mum- Trib.); and o Outotec Finland OY v. DCIT [2019] taxmannn.com 69 (Kol-Tri....
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....utable to the PE in India and, therefore, not taxable under Article 7 of the DTAA." 25. We have heard the parties and perused the material on record. In this case, as discussed above, the ld CIT(A) noted that assessee had following receipts: a. Supply (including Drawings and Designs): Rs. 3346003381 b. Drawings Indigenous Equipment: Rs. 268049996 c. Drawings for civil works: Rs. 96608320 25.1 The ld CIT(A) noted that the item at Sr. No. (b) & (c) were in the nature of royalty as well as FTS and enhanced the income to that extent. The ld CIT(A) has given the reasons for such treatment in para no. 4.2.9 to 4.2.11 of his order which is reproduced earlier in this order on page no. 132 - 133. In this regard, the ld AR of the assessee submitted that the agreements for supply of designs for indigenous equipment (page 293, Paper-Book AY 2010-11) and civil construction (page 336, Paper-Book AY 2010-11) are themselves styled as 'Supply of Imported Designs' and thus, the parties intended it to be of the nature of goods. The ld AR submitted that for instance, second paragraph of Clause 19.1 (page 328/page 370, Paper-Book AY 2010-11) of the designs contr....
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....s, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. 4. The term "fees for technical services" as used in this Article means payments of any amount to any person other than payments to an employee of the person making payments, in consideration for the services of a managerial, technical or consultancy nature, including the provisions of services of technical or other personnel." 25.2 On similar facts the Kolkata Bench of this tribunal in the case of Outotec Gmbh v. DCIT (IT) (supra) held that sale of designs and drawings for the usage by the assessee for its own project and not giving any licence to use it for further use on commercial terms amounts to sale of a copyrighted article and therefore, income earned from that was in the nature of business income and not royalty. The relevant extract of the said order is reproduced as under: "__________7. Ground No. 3 (a) and (b) raised by the assessee relates to addition made by AO/DRP holding that the sale of designs and drawings by the appellant is not in the nature of sale of product and the income....
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....ed by the Indian customers for internal business purpose of setting up of their plants and not for any commercial exploitation; (v) Sale of designs and drawings has also been affected outside India. Copy of the sample airway bill evidencing that the delivery of designs and drawings for various projects has taken place outside India has been already enclosed with the submission; (vi) Consideration/payments for the basic engineering work were received by the assessee outside the territory of India in foreign currency. The assessee had further submitted to AO that the basic engineering packages sold by the assessee company to the Indian customers have been designed largely on the basis of standard technologies available with it. The consideration received by the assessee was therefore for the sale of a product which is embedded in the plant set up by the Indian customers. Accordingly, the income earned from the sale of designs and drawings is in the nature of business income being the consideration received from the sale of a product. The assessee had also submitted that the restriction imposed by it on the intellectual property in designs and drawings sold ....
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...., as defined in Explanation 2 of section 9(1). This is a question of fact to be determined on the facts and circumstances of each case and the terms of agreement under which there has been a transfer". The AO noted that in the present case, the supply of drawings, designs, engineering documents, etc. clearly fall within the ambit of expression "for imparting of any information concerning industrial, commercial or scientific experience" which is clearly stipulated in clause (iv) of Explanation 2 of section 9(1)(vi) of the Act as well as in Article 12(3) of the India-Germany DTAA. Further the judgment of Hon'ble Supreme Court in the case of Scientific Engineering House (P.) Ltd. (supra) relied upon by the assessee deals with the capitalization of assets in the books of purchaser and has no applicability in the case of the assessee. Similarly, other judgments relied upon by the assessee are based on their own facts and are not applicable in assessee's case. Therefore, the income from designs and drawings is held to be taxable as Royalty @ 10% on gross basis. The total income of the assessee with regard to designs and drawings is therefore computed as under: ....
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....n customers have been largely designed on the basis of standard technologies available with it. The consideration was, therefore, for the sale of the product, which is embedded in the plant set up by the Indian customers and does not constitute royalty and is in the nature of business income. Since the work was done outside India and sale was taken place outside India, such income is not taxable under the provisions of the Act and DTAA. Retaining intellectual property in designs and drawings is similar in the nature to the retaining of patented rights in any goods/machinery. Restriction on the intellectual property in designs and drawings sold by the assessee for the purpose of setting up a plant in India does not change the character of the transaction from the sale of the product to the use of licence/know-how. Normally, designs and drawings sold by foreign customers were used by Indian customers for internal business purposes for setting up of their plants and not for any commercial exploitation. Accordingly, the designs and drawings sold by the assessee tantamounts to the use of copyrighted article rather than use of a copyright and is, therefore, in the nature of business inco....
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....ncome from rendering testing and other services of Rs. 3,36,21,283/-. The assessee's case is that, income from sale of designs and drawings is a sale of copyrighted article and the income derived therefrom is business income and as the assessee does not have a permanent establishment in India, and hence the business profits are not taxable in India. On the issue of income from rendering of testing and other services, the assessee company relies on Article 12(5) of the India-Finland DTAA and as the services, in question, had been rendered outside India, it claimed that the same is not taxable in India. ............... 16. The similar issue was considered in the group case of the assessee in the case of Outotec Gmbh vs. DCIT in ITA No.160 & 193/Kol/2016 for Assessment Year 2012-13 wherein the decision in the case of Outotec Gmbh vs. DCIT in ITA No.431 & 432/Kol/2014 (supra) was followed. The findings of the Hon'ble DRP was that the transactions is in the nature of FTS that (i) the assessee had access to a wide range of technologies for the purpose of setting up/construction of the plants, (ii) it was developed after research and after necessary modification and ther....
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.... which would be deductible or collectible, in computation of its advance tax liability. The amendment introduced by Finance Act, 2012 in section 209(1)(d) is applicable only from the financial year 2012-13 onwards. As such, no interest under section 234B is applicable for the AY 2012-13. 3.2. For interest charged under section 234B for the AY 2015-16, the ground raised by the assessee is consequential in nature." 29. We have heard both the parties. On perusal of the judgement of the Hon'ble Supreme Court in the case of DIT v. Mitsubishi Corporation [2021] 130 taxmann.com 276, interest under section 234B of the Act cannot be charged in the case of a non-resident for the AYs prior to the AY 2013-14. Therefore, in view of the above judgement, the AO is directed to not to levy interest under section 234B of the Act, for the AY 2012-13. However, the assessee has not made any submission regarding the charging of interest u/s 234A of the Act even though a ground in this regard has been taken as above. The AO is directed to verify the factual position and to levy interest u/s 234A of the Act as per law. Ground No. 5 of the appeal is partly allowed. 30. Ground No. 1 to 4 ....
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....ecision in ITA No. 2696/Del/2018 shall apply mutatis mutandis in respect of the grounds. 39. Ground Nos. 3.1 to 3.5 of the appeal are identical to the Ground Nos. 2.1 to 2.3 and 3 of the appeal for A.Y. 2010-11 in respect of assessee's appeal in ITA No. 5164/Del/2017 regarding the action of the Ld. CIT (A) in characterising revenue from supervisory activities amounting to Rs. 26,11,02,807/- in terms of Article 13 of the DTAA as 'FTS' instead of business profits under Article 7 of the DTAA offered by the assessee. The facts being identical our decision in ITA No. 5164/Del/2017 shall apply mutatis mutandis in respect of these grounds. 40. Ground No. 5 of the appeal is reproduced as under: - "5. That the Hon'ble CIT(A) failed to dispose off the grounds taken by the Appellant in relation to levy of interest under Section 234A of the Act, which was not applicable in law and on the facts of the case." 41. In this regard, the assessee submitted as under: "4. Charging of interest under Section 234A of the Act (AY 2014-15) The Learned AO has erred in charging interest under section 234A of the Act. In this regard, we would humbly like to submit that the assess....
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....sessment order. 47.1 The AO is directed to verify the claim of the assessee and to allow TDS as per law. Ground No. 5 of the appeal is allowed for statistical purposes. 48. Ground No 6 of the appeal "6. That the Hon'ble CIT(A) has erred in sustaining the levy of interest under section 234B and 234C which was not applicable in law and on facts of the case." 48.1 In this regard, the assessee submitted as under: Charging of interest under Section 234B and Section 234C of the Act Interest under Section 234B 3.1. The learned AO has erred by charging interest under section 234B of the Act for the AY 2012-13 and AY 2015-16. Xxxxxxxxxxxxxxxxxxxxx 3.2. For interest charged under section 234B for the AY 2015-16, the ground raised by the assessee is consequential in nature. Interest under section 234C 3.3. Learned AO has erred in charging interest under section 234C of the Act for the AY 2012-13 and AY 2015-16. It is submitted that interest under section 234C of the Act is applicable on the returned Income and not the assessed income. Further, for the AY 2012-13 and AY 2015-16, the assessee was eligible to a tax ....