TMI Blog2014 (1) TMI 1300X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the assessee that outside the receipts pertaining to designing, fabrication and supply of material, activities carried out outside India is not taxable in India - So far as taxability of receipts pertaining to HMI (sub station) of Hyundai Heavy Industries Ltd. is concerned the matter is set aside and remitted back to the AO for fresh adjudication – Decided partly in favour of Assessee. Entire revenue taxed – Operations carried on outside India – Applicability of Provision of Article 7(3) and 7(5) of DTAA - Fabrication carried out of India – Held that:- The decision in Hyundai Heavy Industries Co. Ltd. Versus Director of Income-tax (International Taxation) [2011 (5) TMI 858 - ITAT DELHI] followed - The receipts pertaining to designing, fabrication and supply of material, the activities carried out outside India is not taxable in India. Error in computing income chargeable to tax – Disallowance of expenses for various projects outside India – Held that:- The decision in Hyundai Heavy Industries Co. Ltd. Versus Director of Income-tax (International Taxation) [2011 (5) TMI 858 - ITAT DELHI] - The AO has taxed 90% of the receipts from these contracts under a particular meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961 ("the Act") is bad in law and void ab-initio. 2.That on the facts and circumstances of the case in law, the Ld. AO erred in assessing the total income of the appellant at Rs. 60,64,23,550/- as against the declared income of Rs. 10,10,20,073/-. 3. That on the facts and circumstances of the case, the order of the Ld. DRP passed u/s 144C(5) of the Act is laconic and devoid of reasoning. 4. That on the facts and circumstances of the case and in law, the Ld. AO/DRP have I erred in not following the judgment of the Hon'ble Income Tax Appellate Tribunal (' IT A T') rendered in appellant's own case for A Y 2007-08 in ITA no. 5231/D/20 I0 which had dealt with exactly the same facts of the same contracts as were the subject matter of assessment in the impugned assessment order. 5. That on facts and circumstances of the case and in law the Ld. DRP has erred in disregarding the order dated 29.5.2012 passed by the Hon'ble Tribunal in ITA no. 5231/D/2010 for A Y 2007-08. 5.1 That by not following the order of the ITAT for A Y 2007-08 pertaining to the .same contracts as are subject matter of the impugned assessment order, the Ld. DRP/ AO have violated the judicial discipline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for services rendered in India. 8.1 That even if assuming that supplies were necessary for the purpose of activities of the permanent establishment ('PE') in India and even if further assuming that the supplies were an integral part, no part of profit on account of offshore activities can be attributed to th PE as undisputedly, all the designated work (designing fabrication and supply) were carried out outside India much before the date of arrival of structure in India. 9. That on the facts and circumstances of the case and in law, the Ld. AO/DRP grossly erred in holding that the Mumbai Office constitutes a Fixed Place PE under Article 5(1) of the DTAA, ignoring the decisions of Hon'ble Supreme Court in appellant's own case (reported in the 291 ITR 482) and the decision of Hon'ble ITA T, Delhi in the preceding years. 9.1 The Ld. AO/DRP erred in applying Article 5(1) to the facts of the case as against the specific provisions of Article 5(3) which applies to the case of the appellant. 9.2 That the Ld. AO/DRP erred in holding t!1at the PE stood constituted from the date of the notification of the award and not from the date when the installation 'activities commenced: 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n furnished. Regarding issue raised in the ground No. 14 of the appeal the Ld. AR submitted that it is a new issue raised in this year and he has fairly conceded that the Ld. DRP have rightly brought to tax interest from Citi Bank , Chennai amounting to Rs. 25,58,731/- at the maximum marginal rate under Article 12 (5) of the DTAA. In view of this submission of the Ld. AR, this ground is rejected. 3. For the assistance of the Bench, the Ld. AR has furnished a chart demonstrating similarities in the grounds raised in assessee's appeals before the Tribunal in asstt. Years 2007-08 and 2008-09. 4. The Ld. DR on the other hand placed reliance on the orders of the authorities while opposing the appeal. 5. The relevant facts are that the assessee is engaged in the business of offshore construction of the power projects. During the year under consideration the assessee had received revenues from the 4 projects. It bifurcated its revenue into two categories firstly inside India's revenue and secondly outside India revenue. The assessee admitted that during the year under consideration it has Permanent Establishment (PE) in India. It was submitted that Mumbai South Process Platform (MSP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court on the similar facts in the assessee's own case for the assessment years 1987-88 to 1988- 89 (291 ITR 482) and the Tribunal's order in assessee's own case for the assessment years 1995-96 to 1996-97 (in ITA No. 2290 and 2291/Del/2002), 1997-98 to 2004-05 (in ITA Nos. 265.4692, 264/Del/2007 2530 and 2975/Del/2006, 105 1407/D/2008) and assessment years 2006- 07 (in ITA Nos. 2086 2087/D/2009) respectively. This ground is also general in nature hence does not need independent adjudication. Ground No. 6, 6.1, 6.2 6.3 10. In these grounds the actions of the authorities below have been questioned in taxing the receipts of consideration under the various contracts for the work carried out outside India. The contention of Ld. AR remained that the authorities below have erred in not appreciating that the consideration for onshore/offshore services have been identified in the contracts which are entered into between two unrelated parties, one of them being public sector undertaking. They have also erred in relying upon the letter issued by the ONGC dated 11.12.2009 signed by GM (F A) in the context of an assessment year without appreciating and taking the cognigence of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontracts:- Name of the project Client Date of signing the contract Gross Revenues Received Inside India activities Outside India Activities MUT Pipeline Project ONGC 4th March 2004 296,221,608 135,393,996 MSP Platform Project ONGC 10th July, 2003 41,870,906 13,011,039 GMR (Operation and Maintenance Contract) GMR Power Corporation 15th May, 1997 130,667,433 42,407,199 HMI (Substation) Hyundai Motors India Limited 30th November, 2005 4,166,114 13. It was pointed out by the assessee that all the aforementioned contracts except for HMI (substation), which commenced in financial year2006-07 have continued since period relevant to asstt. year 2006-07 or earlier years during which similar issues on taxability of revenues therefrom have been a subject matter of dispute before various appellate authorities and have been considered and decided in assessee's favour. It was contended that being a tax recipient of South Korea the assessee is governed by the provisions of the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1985 with a specific approval of the Reserve Bank of India to explore and understand the business activities. 16. On query raised by the AO as to why the assessment in the present case be not completed in accordance with the draft assessment order for asstt. year 2007-08, the assessee had drawn attention of the AO to the order dated 31.5.2011 passed by a Tribunal in ITA No. 2086 2087/Del/2009 in assessee's own case for assessment year 2005-06 and 2006-07 with the submission that assessments in these asstt. years were completed by the then AO u/s 143 (3) of the Act on the same lines adopted by the assessee in is return of income for asstt. year 2008-09 under consideration. It was submitted that the said assessment was cancelled by the then Director of Income Tax International Taxation and jurisdiction u/s 263 of the Act was invoked. In the assessee's appeal questioning validity of the jurisdiction u/s 263 of the Act, the Tribunal vide its order dated 31.5.2011 held that the then AO had duly applied his mind on both the issues i.e. taxability of inside India income and outside India income and there was no justified cause for invoking jurisdiction u/s 263 of the Act. It was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place outside India. It was contended that the findings on misrepresentation of facts was given by the AO without affording any opportunity to the assessee of showing cause as to what facts were misrepresented before the Tribunal and the Hon'ble Supreme Court. The assessee also questioned the disallowance of material cost made by the AO on adhoc basis. The Ld. DRP after discussing the submissions of the assessee in detail has upheld the action of the AO. 19. In support of the grounds Ld. AR has basically placed reliance on the order of the Tribunal for the assessment year 2007-08(supra) with this submission that under similar set of facts in that year an identical issue has been decided by the Tribunal in favour of the assessee. Ld. DR on the other hand tired to justify the orders of the authorities below on the issue. 20. On perusal of order of the Tribunal for the assessment year 2007- 08 (supra) on the issue in the case of assessee itself, we find that during the year also MUT pipeline project, MSP platform project of ONGC and GMR (operation and maintenance contract) of GMR power Corporation were continuing since the period relevant to the assessment years 2004-05 or earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar even, litigation traveled upto the Hon'ble Supreme Court, the department is taking similar stand without pointing out any difference in the facts. Some correspondence by the LO in connection with getting clarification about technical aspects and contracts required by HO does not amount that LO has been actively participating in the bid; e) The scope of the work has been defined in clause 2.1.1 of the contract. The ONGC has accepted the work on design, engineering, procurement, fabrication, loading and transportation at the site abroad though its representative CEIL who has issued the certificate to this aspect; f) The lump sum break up of the price for each identifiable discrete segment of work after duly taking into location of work and expenditure has to be filled in the prescribed bidding form of the tender which suggests all the milestones and the payments are settled in advance. (g) There is a force in the contentions of the assesee that Assessing Officer has misconstrued the expression "provision" used for milestones payment in clause 3.2.1 of the contract. According to the Assessing Officer, payment was provisional, thus, it was tentative or an advance which would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. (j) Assessing Officer failed to appreciate controversy in the right perspective and observed that assessee did not make FOB sale of the material outside India and the property of the goods passed to ONGC on completion of the work in India. This aspect has already been looked into by the Hon'ble Supreme Court. The plea of apportionment of income under Explanation 1 to sec. 9(1)(i) provides that apportionment is applicable regardless of the place of the delivery. The Assessing Officer ought to have examined what are the operations carried out by the assessee within India; The profit of the PE are to be calculated as if the PE is hypothetically independent of the enterprise of which it is a PE. (k) All receipts for operation inside India have been offered to tax as income in earlier years as well as this year. The entire receipts from the installation work carried out in the offshore site since the arrival of material has been offered to tax." 21. The Tribunal accordingly held that the contracts are divisible. The receipts pertaining to designing, fabrication and supply of material, the activities carried out outside India is not taxable in India. Respectfully following this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case as against the specific provisions of Article 5(3) which as per the assessee is applicable to its case. In ground 9.2 the finding of the authorities below that PE stood constituted from the date of the notification of the award and not from the date when the installation activities commenced has been questioned. In ground No.10 the action of the authorities below in not following the principles of consistency also by Article 7(5) of the India Korea DTAA by adopting the new formula for estimating the income of the assessee for operation carried inside India, has been questioned. 23. We find that the isuses raised in these grounds have been covered by the Tribunal in the case of assesee itself for the assessment year 2007- 08 (supra) relevant para No. 32 of the order of the Tribunal has been reproduced hereinabove. 24. Respectfully following the decision taken therein in para 32 of the said order, we hold that the receipts pertaining to designing, fabrication and supply of material, the activities carried out outside India is not taxable in India. Other issues raised in these grounds have become infructuous. These grounds are accordingly disposed of. Ground Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f in the earlier assessment year, we set aside the order of the AO with a direction to him to take 10% of the gross revenue after allowing sub contracts cost and he will follow the procedures as adopted in Asstt. years 2004-05 to 2006-07. These grounds are thus allowed for statistical purposes. Ground No. 12 29. It is an alternative ground for ground Nos. 11,11.1 and 11.2. In these grounds the assesee has contended that the authorities below at the best could have taxed the inside India revenue @ 10% in view of the provisions of section 44BB of the Act. In view of above finding on ground Nos. 11,11.1 11.2, this alternative ground has become infructuous. It is rejected as such. Ground No.13 30. It is also an alternative ground to the above ground Nos. 11 to 12. In this ground the assessee has taken an alternative argument that determination of total income by the authorities below is arbitrary and capricious. In view of the above finding on ground Nos. 11 12 the present alternative ground does not stand. It is accordingly rejected. 23 Ground No. 14 31. In this ground the assessee has questioned action of the authorities below in bringing to tax interests earned from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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