TMI Blog2019 (12) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... e 0M dated 28-08-2019 fortify this interpretation. However, a question may arise whether an applicant can file one application in respect of two unrelated set of transactions. In our opinion as the advance ruling is in respect of a transaction , an applicant can file one application in respect of related set of transactions. If the facts and circumstances of the two transactions are not identical and totally different, then such transactions may not be clubbed in one application. The facts clearly establish that the supply of equipment and material was made outside India and thus the transfer of title to the equipment and materials also took place while the goods were outside the territory of India. The payment for the offshore supply of equipments was also made outside the country in foreign currency as per the terms of contract. The revenue has relied upon the enquiries made from JSW in respect of the contention that all the seven contracts were not independent but part of the composite contract. This admission of JSW that the seven contracts were not evaluated separately and the evaluation was done from the entire package, does not prove that the contract was composite. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ND CO # 4 vide Contract # JSWPL/VJNR/CDQ/OOI for Japan portion and Contract # JSWPL/VJNR/CDQ/002 for China portion dated 30 September 2010 awarded by JSW Projects Ltd., are not chargeable to tax in India under the provisions of Income-Tax Act 1961 and Double Taxation avoidance agreement between India and Japan - AAR NO. 1303 OF 2012 - - - Dated:- 16-10-2019 - Narendra Prasad Sinha, Member (Revenue), Ranjana P. Desai Chairperson And Ramayan Yadav Member (Law) Nageshwar Rao, Shatanik Chakrabarty and Ms. Viyushti Rawat, Advs. for the Applicant. ORDER Narendra Prasad Sinha, Nippon Steel Engineering Co. Limited, Japan ( the applicant or NSEC ) is a foreign company incorporated under the laws of Japan and is engaged in the business of steel plants and environmental plants. The applicant is an engineering company with a strong presence in the steel plant business sector and has delivered a number of Coke Dry Quenching units worldwide. JSW Projects Ltd. ( JSW ) had awarded contracts to the applicant for purchase of equipments for Coke Dry Quenching (CDQ) for its project located in the state of Karnataka. The applicant's scope of work under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2. I and 10.2.2 of the contract which clearly stated that the title and risk in equipment supplied under the contracts shall pass to the purchaser on FOB basis as per INCOTERMS 2000. Thus the intention of the parties was clear that the ' transfer of title risk shall take place outside India. The Bill of Lading named JSW as the consignee of the goods and the commercial invoice was drawn by the applicant on JSW. Further, the Marine Insurance Policy was taken by the purchaser on its own for all the equipments supplied by the applicant under the contract for any loss/damage during transit after FOB delivery on the basis of INCOTERMS 2000. The applicant submitted that in view of the above facts, the transaction for offshore supply of equipment was completed outside India and the property in goods had passed to JSW outside India. Accordingly, no portion of income from offshore supply outside India had accrued or arisen to the applicant in India. In this regard, reliance was also placed on the decision of Hon'ble Supreme Court in the case of Pushalal Mansinghka (P) Ltd. Vs CIT (66 ITR 159)(SC) and Mahabir Commercial co. Ltd. vs CIT(86 ITR 417) (SC). 3. It was further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 245N of the Act advance ruling means a determination by the Authority in relation to a transaction which has been undertaken or is proposed to be undertaken by the non-resident applicant . According to the revenue the applicant can raise question in respect of only one transaction as the word used in the Act is 'a transaction , whereas in the present case the applicant had raised question in respect of two transactions, which was not permissible within the scope of the provisions of the Act, The revenue, therefore, submitted that the present application needs to be rejected on this ground. The revenue had no objection if two separate applications were filed in respect of the two transactions as mentioned in the question of the present application. 5. On merits, the revenue pointed out that the applicant had entered into separate contracts with JSW for supply of drawings and documents, for offshore training and for supervision services; apart from the contract for offshore supply of equipments and spares. It was submitted that all the contracts with JSW were related contracts and the contract for supply of equipment cannot be seen in isolation as they were ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the applicant was carried out. Accordingly, the applicant had a Fixed Place permanent establishment (PE) to carry on its business activities. 7. The revenue has drawn our attention to Article 6 of India - Japan Protocol and contended that profit directly or indirectly attributable to the permanent establishment is taxable in India. It was submitted that the profit should be considered as attributable to the PE even if the contract of the order relating to sale was made or placed directly with the overseas head office of the enterprise rather than with the PE. The revenue also submitted that the employees of the applicant company also created a Dependent Agent Permanent Establishment (DAPE) in view of their exclusive and extensive business meetings and participation in all post bid discussion, as per Article 5(4) of the India-Japan treaty, The revenue further submitted that the employees of the applicant who had concluded contracts with JSW had the authority to conclude such contracts on behalf of the applicant. Since all the contracts with JSW projects were signed by such employees, the requirement of habitual and repeated exercise of authority was also satisfied. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other contracts were artificially split and the offshore contract being loaded with some consideration pertaining to other six contracts could not be ruled out. Rejoinder of the Applicant 10. In rejoinder the applicant strongly denied the contention of the revenue that the contract was a composite one which was split at the instance of the applicant into different contracts. It was submitted that the applicant vide Letter of lntent (Lol) dated 01/09/2010 was required to undertake supply of equipments, engineering, training and supervision services under different contracts and the contract price for each such contract was specifically mentioned in the LoI and, therefore, the taxable events and situs of income was clearly determinable for each contract. The applicant had only requested for separate contract in respect of supply of equipments from two different countries i.e. Japan and China. Further the applicant was not entrusted with the work of installation of CDQ units, but had recommended JSW to adopt L T Ltd. for this work. Our attention was also drawn to the Minutes of the Meeting dated 19/08/2010 wherein the responsibility for testing and commissioning, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. JSWPL/VJNR/CDQ/001 for Japan portion and contract No. JSWPL/VJNR/CDQ/002 for China portion both dated 30 September 2010. The revenue has contended that the expression a transaction used in Section 245N(a) of the I.T. Act implies a single transaction. As the question raised in the present application is in respect of two transactions, the revenue has requested to reject the application. No such objection was raised by the revenue at the stage of admission of the application. It has been held by the Hon'ble Andhra Pradesh High Court in the case of Sanofi Pasteur Holdings SA (354 ITR 316) that the Authority for Advance Ruling, a quasi-judicial authority exercising jurisdiction under a legislative grant, has no inherent power to review its decision. Therefore the order of this authority dated 22nd November, 2013 admitting the application cannot be reviewed. On merits also the request of the revenue is not found sustainable for the reasons as discussed hereunder. Whether ' a transaction n/s 245N means one transaction? 13. The provision of section 245N of the I.T. Act defines advance ruling as under: unless the context otherwise 245N. In this Chap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant can file an application in respect of more than one transaction. 15. It has been held by the Hon'ble Karnataka High Coun in the case of CIT Vs, D, Ananda Basappa (309 ITR 329) that the expression should not be understood to indicate a singular number. Though this decision was given in the context of investment of capital gain in a house property to claim exemption u/s 54 of the Act, the fact that a was not synonymous with one was categorical in this judgement. In another case of CIT Vs. Snit. K G Rukminiamma (331 ITR 211), Hon'ble the Karnataka High Court has held in the context of exemption u/s 54 that the deliberate use of a instead of one could only mean that the intention was to allow benefit for more than one residential house. 16. In the context of an international transaction as referred in Section 92C of the I.T. Act, the Hon'ble Delhi High Court has held in the case of CIT Vs Sony Ericsson Mobile Communication India Private Limited (374 ITR 118) (Delhi) that an transaction does not mean a single independent transaction. The finding of the Court in this context was as under: 79. At this stage and before we examine the TNM M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal interpreted the word 'machine' to be 'machines' and, in our opinion, this restrictive interpretation notification since completely rightly the very diluted so. It seems by purpose of this which led into clarification/modification by the Government through the aforesaid letter. 18.In the case of Fidelity North Star Fund (228 ITR 641) (AAR), decided by this Authority a preliminary objection was raised on the ground that the application had a series of transactions. However, this objection was not pressed and the matter was not dealt in detail in the said ruling except the mention of provision of Section 13 of the General Clause Act. The relevant part of this ruling as under: - 8. Mr. T. N. Chopra, learned counsel appearing for the Commissioner, has put forth preliminary objection as to the jurisdiction of the Authority to entertain these applications . The premise on which this objection proceeds is that section 245N of the Act defines advance ruling' as determination by the Authority in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant so also in relation to the tax liability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any merit in the request of the revenue to reject the application for the reason that the application is in respect of two transactions. Taxability of offshore supply of Eqipments 21. As regards the taxability of the amount received/receivable from JSW for offshore supply of CDQ units for CO#3 and CO#4 vide Contract #JSWPL/VJNR/CDQ/00I for Japan portion and Contract #JSWPL/VJNR/CDQ/002 for China portion, both dated 30th September 2010, it is seen that JSW had issued Letter of Intent (LoI) vide letter JSWPL/TNGL/01 dated 01/09/2010. The scope of supply as per this LoI was as under-: The scope of this LoI includes Manufacture, Supply, Supervision of Erection Testing and Commissioning and Training for Coke Dry Quenching unit (CDQ) for CO # 3 and CO # 4 along with spare parts as per the Technical Specifications. The scope is also inclusive of supply of drawing and documents for Coke Dry Quenching unit for CO # 3 and CO # 4 as per the Technical Specifications. If Technical Specifications are to be revised, such revision shall be made subject to the adjustment of the price and schedule, if any by mutual written agreement. 22. It is thus seen that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervision services. (3) For Chinese Supervision Services : Contract#7, The estimated man-days of Chinese supervision services are 6300 man-days (working day basis, but stand by day not attributable to the Seller is counted as working day.) Daily rate per working day for Chinese engineers is USD 240 (USD Two hundred forty Only) and for interpreters is USD 120 (USD One Hundred Twenty Only). The daily rate is also inclusive of charges towards lodging, boarding and travelling during supervision services. Separate contract (Contract#7) shall be issued for Chinese supervision services on M/S Beijing JC Energy Environment Engineering Co., Ltd., China. ( BJCEEE ) 23. It is thus found that separate contracts were envisaged in the Lol itself in respect of supply of equipments, engineering, training and supervision services and accordingly separate contracts were made in respect of these services. In the present application we are concerned only with Contract and Contract #2 of Lol for which separate Supply Contracts were signed between the applicant and JSW on 30th September 2010. It is seen that all the terms and conditions of the two contracts for supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be valid for 18 (eighteen) Months from 01.09.2010. 25. Clause 7 of the supply contract agreement stipulated that all taxes, levies dues, duties, fees, license and other charges of whatever nature levied in India, in connection with execution of the contract shall be wholly borne and paid by the purchaser i.e. JSW, directly to the relevant statutory authorities. Further, clause 10.1.1 of the contract stipulated that the equipment under the contract shall be delivered on FOB berth terms, Japanese, Korean, Chinese and or other international seaport basis according to INCOTERMS 2000, within 13 months from 01.09.2010 for CDQ for CO#3 and within 15 months from 01.09.2010 for CDQ for CO#4. In addition, clause 9.1 of the contract stipulated that the purchaser shall arrange the vessel for carriage of the equipment from the port of shipment to Chennai port (India) at its own responsibility and its own account. 26. As regards the transfer of title and risk of the equipments supplied by the applicant is concerned, clause 10.2 of the supply agreement stipulated as under: 10.2 Transfer of Title and Risk: 10.2. 1 Transfer of Title in respect of Equipment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e used to convey the same from the country of origin and upon endorsement of despatch document in favour of the purchaser. The invoice Was generated by the applicant in the name of JSW, who is also the consignee in the Bill of Lading. The Bill of Entry is also found to be in the name of JSW. These facts clearly establish that the supply of equipment and material was made outside India and thus the transfer of title to the equipment and materials also took place while the goods were outside the territory of India. The payment for the offshore supply of equipments was also made outside the country in foreign currency as per the terms of contract. 30. In the case of Mahabir Commercial Company Limited (86 ITR 417) Hon'ble Supreme Court has enunciated the principle that under CIF contract, the property in the goods, passes once the documents are tendered by the seller to the buyer or the agent, as required under the contract. It was further held that where the seller retains control over the goods by either obtaining a bill of lading in his name or to his order, the property in the goods does not pass to the buyer until he endorses the bill to the buyer and delivers the docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue has relied upon the enquiries made from JSW in respect of the contention that all the seven contracts were not independent but part of the composite contract. This admission of JSW that the seven contracts were not evaluated separately and the evaluation was done from the entire package, does not prove that the contract was composite. It was further submitted that JSW had confirmed that the contract was split at the request of Nippon Steel. This submission is not found to be correct. The letter dated 14.11.2018 of JSW that has been relied upon in this respect is reproduced below:- We are in receipt of your notice under reference asking us to clarify the reply filed by us vide our letter dated 25th October , 2018 to Question No. of your earlier notice dated 5 September , 2018 . Such question no. 7 of your earlier notice was with regard to confirm whether single contract for which REQ was issued was split into 7 contract at the request of Nippon Steel. In this regard, we submit as under: Since the supply of equipments and services from Nippon Steel are from two different countries i.e., Japan and China, orders were placed accordingly and contracts were spli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia. (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. In view of the Clause (a) of Explanation I to Section 9(l)(i) and respectfully following the decision of the Apex Court in the case of Ishikawajima Harima Heavy Industries Ltd., we are clear that no income arising in the hands of the applicant from the off-shore supply of equipments can be held to be chargeable to tax in India, under the Income tax Act 1961, as the sale was completed outside India and there was no accrual or deemed accrual in India. The essence of this decision of the Hon'ble Supreme Court, was also followed in the cases of Hyosung Corp. (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centage of taxable profit properly. Thus the facts Of this case are found to be different and distinguishable from the facts of the present case. Further, the principle that income from offshore supply of eqipments is not liable to tax in India was not controverted in this case as well. 36. The reliance place by the revenue on the ruling of this Authority in the case of Roxar Maximum Reservoir Performance WLL (supra) is found to be misplaced. In that case the applicant had entered into a contract with ONGC for services for supply, installation and commissioning of 36 manometer gauges and it was held that it was a composite contract for supply and erection at sites within the territory of India and what was paid for by ONGC was for the supply and erection done in India. The tender was invited in that case for supply, erection and commissioning and contract was entered into for that purpose only. Under these circumstances the Authority had held that the contract cannot affect the object of the tender or the terms of the tender notification and that a separate payment schedule, if any, agreed to, cannot alter the terms of the tender. To quote from the order: A contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not found applicable in the present case. Whether the applicant has a PE in India in connection with offshore supplp contracts? 38. The revenue has contended that in view of the continuity of the activities and the onus cast on the applicant for successful completion of the performance guarantee tests, it had the permanent establishment (PE) in India. It was contended that elaborate pre-bid work was done which involved site visits, inspection at site through its employees, pre-bid discussions etc. and, therefore, the applicant had a Fixed Place PE. Further that the applicant had a business connection as stipulated u/s 9(l)(i) of the Act. As per Article 5.1 of Indo-Japan DTAA the term 'permanent establishment' means a fixed place of business through which the business of enterprise is wholly or partly carried on. The other relevant features of the PE as per the DTAA which are relevant in the present case are as under-I 5.2 The term' permanent establishment ' includes especially: (a) a place of management (b) a branch (c) an office (d) a factory (e) a workshop ; (f) a mine, an oil or gas wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her than an agent of an independent status to whom paragraph 8 applies - is acting in a Contracting State on behalf Of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State, if (b) (c) (a) he has and habitualIy exercises in that Contracting State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 6 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph; (b) he has no such authority, but habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise; or (c) he habitualIy secures orders in the first mentioned Contracting State, wholly or aImost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common 40. The reliance of revenue on Article 5.7 of India-Japan DTAA is found to be mispla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to offshore supply of contract was executed from PE of the Applicant in India, if any. From the details as made available to us we do not find stay of employees of the applicant for a period exceeding six months after the issue of Letter of Intent dated 01.09.2010. However, if the revenue finds evidence to conclude that there was a PE based on stay of employees of the applicant for a period exceeding six months after the issue of Letter of Intent dated 01.09.2010 the income in respect of off-shore supply contract, to the extent it is attributable to the operation of the PE, can be subjected to tax in the hands of the applicant as per Article 7.1 of DTAA. AS already mentioned earlier we do not have any evidence in respect of offshore supply work being undertaken by the supervisory PE Of the applicant. 42. Further, from the terms of the contract as already discussed earlier, there is no element of Fee for Technical Services (FTS) involved in the contracts for offshore supply of equipments. As per scope of supply of these contracts, it was the Purchaser who was responsible for providing the Seller with the data, drawing and any other information at no cost so that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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