TMI Blog2018 (7) TMI 1808X X X X Extracts X X X X X X X X Extracts X X X X ..... ully following the aforesaid decision of this tribunal in assessee’s own case for the Asst Year 2011-12, we uphold the action of the ld AO in treating the assessee as an Installation PE in respect of AAI Project but however restrict the profit attribution thereon to 10% of gross receipts. ONGC- ADDITIONAL (SAGAR LAXMI) PROJECT - Held that:- We are inclined to accept the arguments of the ld DR that the number of days taken by the assessee for executing the installation work is not on records and even before this tribunal, no details whatsoever in that regard were filed by the assessee. Hence we dismiss the plea of the ld AR that the assessee cannot be treated as an Installation PE. We hold that the assessee is to be treated as an ‘Installation PE’ in as much as there is no evidence produced by the assessee to prove the time duration taken for the project carried out by the assessee for executing the installation work. However, in line with various judicial decisions on the issue, we hold that only the onshore provision of services and onshore supply of equipments should be considered at 10% on gross basis as profits attributable to such Installation PE in India Charging of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a subsidiary of HITT N.V.. It is a company incorporated as per the laws of Netherlands operating in the international market for safety, security and efficiency of nautical and air traffic. It operates in the specialized market for traffic control, navigation and port management systems. The assessee has entered into contracts with Oil and Natural Gas Corporation of India (ONGC) . Director General of Lighthouse and Lightships (DGLL) and Airports Authority of India (AAI) for supply of equipment and services. During the year under consideration, the assessee received payments in respect of performance of services and supply of equipment under the following contracts in India :- a) Supply, Installation, testing and commissioning of Advances Surfaces Movement Guidance Control System (ASMGCS) at Chennai, Mumbai and Kolkata Airports by AAI [ AAI (Mumbai, Chennai and Kolkata) Project ]. b) Establishment of Vessel Traffic Service (VTS) system in the Gulf of Kuchchh (GOK Project) c) Contract to provide Annual Maintenance of the Vessel and Air Traffic Management System (VATMS) system for ONGC (ONGC VATMS AMC Project). The transactions of the assessee are covered under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The Ground 2.1. raised by the assessee is with regard to the action of the ld AO in holding that an Installation PE of the assessee exists in India. Without prejudice to earlier ground, the assessee had raised Ground 2.2. with regard to the action of the ld AO in attributing 10% gross consideration amount of supply of equipment and provision of services for both offshore and onshore to the alleged PE. Without prejudice to earlier grounds, the assessee had raised Ground 2.3. that no part of the income from offshore activities can be attributed to the alleged PE. 3.3. We find that these grounds had been adjudicated by this tribunal in assessee s own case for the Asst Year 2011-12 in ITA No. 390/Kol/2015 dated 4.4.2018 wherein it was held that the assessee herein constituted Installation PE in India. Further it was held that no attribution can be done on receipts from Offshore supply of equipment and Offshore provision of services. Only the profits attributed to the activities carried out in India shall be taxable and accordingly, only the onshore supply of equipment and onshore services rendered by the assessee, would have to be considered for taxing the onshore receipts at 10% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sea sale basis and the property in the equipment has passed outside India and for which payment was received outside India. Further, the off shore services consisted of labour services of sizing of equipment, tuning and testing of the equipment etc which were performed on the equipment in Netherlands. Therefore, the alleged Installation PE could not have been involved in such offshore supply and services since these were carried on by the assessee directly from Netherlands. Hence the profits from such offshore supply of equipment and services cannot be attributed to the Installation PE of the assessee in India. In this regard, we would like to place reliance on the decision of the Hon ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Limited vs DIT reported in 288 ITR 408 (SC) wherein it was clearly stated that in case the PE of a foreign company is not involved in any transaction carried out in India or outside India, no part of income earned from such transactions can be attributed to the PE in India. The Hon ble Supreme Court held there has to be some activity through PE for attracting the taxing statute and , if income arises without any activity of PE, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Installation PE in India. 3.4. The facts of Asst Years 2012-13 and 2013-14 are exactly similar to those of Asst Year 2011-12 and hence in order to maintain judicial consistency, we would like to follow the same. Hence the Grounds 2.1., 2.2., 2.3. (for Asst Year 2012-13) and Grounds 5.1., 5.2. and 5.3. (for Asst Year 2013-14) are disposed off accordingly. 4. ONGC AMC Project The brief facts of this project are that the assessee was awarded a contract in 2006 by ONGC for supply, installation, testing and commissioning of Vessel and Air Traffic Management System (VATMS) along with the provision of maintenance services. This contract envisaged a warranty period of 1 year after handing over of the project site and provision of Annual Maintenance Services (AMC services) for 6 years post such warranty period. The assessee started providing AMC services in relation to the VATMS system for a total period of 6 years, commencing from 1st October 2008, just after the completion of main contract for supply, installation , testing and commissioning of VATMS system (Page 327 of the paper book for Asst Year 2012-13 contains the AMC schedule ). Accordingly, the assessee provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 3.4. with regard to the action of the ld AO in holding that AMC services are taxable as Fees for Technical Services (FTS). 4.4. We find that these grounds had been adjudicated by this tribunal in assessee s own case for the Asst Year 2011-12 in ITA No. 390/Kol/2015 dated 4.4.2018 wherein it was held that the maintenance actvities carried out by the assessee does not constitute any PE in India and accordingly, in the absence of any PE, no attribution of profits could be done in India. The relevant operative portion of the said order is reproduced hereunder:- 4.9. We have heard the rival submissions and perused the materials available on record. We find that similar arguments were advanced by both ld AR and ld DR in the earlier year in assessee s own case for the Asst Year 2010-11. This tribunal for the Asst Year 2010-11 with regard to the impugned issue had held as under:- 47. We have given a very careful consideration to the rival submissions. Our conclusions in para-36 with regard to existence of an installation PE in respect of GOK Project will equally apply to this project also. Admittedly, no installation activity was carried out during the previous year and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. Accordingly, the Grounds 4.1 to 4.4. raised by the assessee are allowed. 4.5. The facts of Asst Years 2012-13 and 2013-14 are exactly similar to those of Asst Year 2011-12 and hence in order to maintain judicial consistency, we would like to follow the same. With regard to the aspect of AMC services being considered as FTS, we hold that these services do not make available any technical know how or knowledge to the personnel of the customer as per Article 12(5) of the India- Netherlands DTAA. Hence the Grounds 3.1., 3.2., 3.3. and 3.4. (for Asst Year 2012- 13) and Grounds 3.1. and 3.2. (for Asst Year 2013-14) are disposed off accordingly. 5. AIRPORTS AUTHORITY OF INDIA (Mumbai, Chennai and Kolkata Project) The brief facts of this issue is that the assessee was awarded a contract for supply, installation, testing and commissioning of Advanced Surface Movement Guidance Control System (ASMGCS) at Chennai, Mumbai and Kolkata Airports by the Airports Authority of India (AAI in short) in the year 2008. With respect to the services to be provided, as per the contract , the assessee would provide two kinds of services i.e (i) services which are in the nature of insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the installation activities were carried out at the Mumbai, Chennai and Kolkata Airports and were completed during the Asst Year 2012-13 and project was handed over to AAI. This is evident from the copies of Certificate of Completion of Installation, Commissioning and Training for these airports enclosed in pages 283 to 285 of paper book for Asst Year 2013-14. Accordingly, he argued that during this year, no installation activity was carried out by the assessee. During the year under consideration, the assessee supplied locally sourced materials /tools to AAI and raised an invoice of ₹ 39,33,569/- . He prayed for deletion of the profits attributed towards the alleged Installation PE. 5.4. The ld DR vehemently argued that the assessee constitutes Installation PE in India for both the assessment years under consideration in as much as the assessee had also not provided any details regarding the time duration of each site so as to conclude whether the project was completed within 6 months or not. 5.5. We have heard the rival submissions. We find that for the Asst Year 2012-13, the assessee had earned receipts out of onshore provision of services. For the Asst Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablishment situated therein, the profits of that permanent establishment shall not be determined on the basis of the total amount received by the enterprise, but shall be determined only on the basis of the remuneration which is attributable to the actual activity of the permanent establishment for such sales or business. Especially, in the case of contracts for the survey, supply, installation or construction of industrial, commercial or scientific equipment or premises, or of public works, when the enterprise has a permanent establishment, the profits of such permanent establishment shall not be determined on the basis of the total amount of the contract, but shall be determined only on the basis of that part of the contract which is effectively carried out by the permanent establishment in the State where the permanent establishment is situated. The profits related to that part of the contract which is carried out by the head office of the enterprise shall be taxable only in the State of which the enterprise is a resident. ( underlining provided by us) 2. 3 .. We hold that even as per the Protocol clause in the Indo-Netherlands Treaty, only the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India under Article 5(3) of the India-Netherlands DTAA and attributed total profits of ₹ 36,71,233/- in the following manner:- Amount received for Gross Receipts (Rs.) Rate of Attribution Attributed Profits (Rs.) Supply of equipment Off-shore supply of equipment 1,51,95,005 10% 15,19,501 On-shore supply of equipment 87,09,855 10% 8,70,986 Provision of Services Off-shore provision of services 3,64,905 50% 1,82,453 On-shore provision of services 21,96,585 50% 10,98,293 TOTAL 2,64,66,350 36,71,231 6.1. The ld AR argued that the ld AO had wrongly treated the assessee as an Installation PE in respect of this ONGC Sagar Laxmi Project. He argued that the time duration of 6 months is to be compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had received consideration in respect of onshore services to the tune of ₹ 3,53,42,381/- pursuant to 4 invoices raised on 13.8.2010. The assessee had also received a sum of ₹ 12,85,465/- (Euro 27842) towards onshore supply of equipment during the year under consideration. We hold that these two sums should be taken into account and profits attributable thereon at 10% should be added in the hands of the assessee treating the same as Installation PE . In this regard, we also find that India- Netherlands DTAA contains PROTOCOL clause in its treaty vis a vis various Articles in the Treaty and the relevant Article 7 of the Protocol is reproduced hereunder :- NETHERLANDS PROTOCOL At the moment of signing the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, this day concluded between the Kingdom of the Netherlands and the Republic of India, the undersigned have agreed that the following provisions shall form an integral part of the Convention. I. Ad Article 7 1. In respect of paragraphs 1 and 2 of Article 7, where an enterprise of one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y could be demanded in the form of surcharge and cess over and above what has been specified in the DTAA. The levy of surcharge and cess had consequentially increased the chargeability of interest u/s 234B of the Act. 7.1. The brief facts of this issue is that the assessee pleaded that interest u/s 234B of the Act are not applicable to a foreign entity like an assessee where entire receipts were covered under the provisions of section 195 of the Act and subjected to withholding tax. The ld AR argued that as per section 234B of the Act, an assessee is liable to pay interest only in a case where advance tax is payable by the assessee in the first instance. Under section 208 of the Act, advance tax is payable only if the tax on the current income as computed u/s 209(1)(a) of the Act, as reduced by the amount of income tax which would be deductible at source, were to exceed ₹ 10,000/-. He stated that the ld DRP for the Asst Year 2012-13 by following the decision of Hon ble Delhi High Court in the case of DIT vs GE Packaged Power Inc. reported in (2015) 56 taxmann.com 190 (Del HC) dated 12.1.2015 observed that payments to non-resident are subject to withholding tax u/s 195 of ..... 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