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2015 (6) TMI 609 - AT - Income TaxTaxability of supply of equipment in India - India-Germany Double Taxation Avoidance Agreement (DTAA) - Held that:- The designing, procurement of material, fabrication and manufacturing of equipment was undertaken outside India. From the facts of the case it is clear that the Company is not involved in the manufacturing of equipment and such equipment were sourced from third party vendors based outside India. From the agreements and documents it is clear that the equipment was directly sold by the assessee on export sale basis and the title/ownership in the equipment was transferred outside India i.e. before the equipment reached India. Even the consideration/payment for sale of equipment was received outside India in foreign currency and majority of the payment (80% - 85% including 10% advance) for each and every part of shipment becomes payable upon delivery of equipment on FOB foreign port of shipment once shipping and other documents are send to the customer. Such payments are made through irrevocable letter of credit. From the documents and evidences it is very much clear that the buyers were the Indian customers who were independent and unrelated parties and purchased the equipment from the assessee on their own account. From the agreements it can be gathered that the contracts for the sale of equipment were concluded on a ‘principal to principal’ basis. Under the contracts, customers’ inspection of the equipment was to be taken place outside India and assessee did not have any office or place of business in India Accordingly, the clause of acceptance tests is merely in the nature of warranty provisions. Even the reliance placed by AO on various clauses of Sales of Goods Act is misplaced. Since the Hon'ble Delhi High Court in the case of LG Cables Ltd., [2010 (12) TMI 948 - Delhi High Court ] after considering the provisions of Sales of Goods Act held that such acceptance tests are merely in the nature of warranty provisions. Even there is no PE for sale of equipment in view of the decision of Hon'ble Supreme Court in the case of Hyundai Heavy Industries, [2007 (5) TMI 196 - SUPREME Court] and in addition to this, there is no concept called sale PE under DTAA. In light of the facts and legal position, we hold that the profit arising to the assessee from sale of equipment is not taxable in India. - Decided in favour of assessee. Assessing the income from supervisory services - what profit percentage can be attributed to such activity in the absence of any books of account maintained by the assessee? - DRP has decided this issue of taxability of income earned from supervisory services in India by the assessee and adopted the profit margins at 27.5% of profit attribution - Held that:- the assessee reported to have earned gross revenue from supervisory services amounting to ₹ 10,35,15,673/- out of which ₹ 1,85,60,360/-, being 17.93% of the gross revenue, was allocated to the Indian PE. In assessment, AO had enhanced this allocation to 27.50% which works out to ₹ 2,84,66,810/-. The DRP also confirmed the action of the AO for the reason that on identical facts and circumstances, the ITSC attributed profits @ 27.50% in the assessee’s own case for AYs 2008-09 and 2009-10 respectively. For the AYs 2008-09 & 2009-10 before the ITSC and now for AY 2010-11 before the AO, the assessee admitted to have PE in India to which the impugned supervisory services were effectively connected, but no books of accounts were maintained for the same. This was in clear violation of provisions of section 40AD of the Act. In such circumstances, the factual finding of the ITSC towards attribution of profits to the extent of 27.50% on the revenue earned from supervisory activities in India cannot be faulted with and for the very same reason, the action of the AO in attributing profits @ 27.50% was rightly confirmed by DRP - Decided against assessee. Income earned from supply of designs and drawings in India - AO/DRP erred in holding that the income earned by the appellant from sale of designs and drawings is taxable as Royalty under Article 12(3) of the DTAA read with the provisions of Section 9(1)(vi) of the Act and is not in the nature of sale of product - Held that:- 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 income. - Decided in favour of assessee. Disallowance of credit for TDS - Held that:- The claim of the assessee is that the original TDS certificates were submitted before the AO during the course of assessment proceedings in support of its claim of TDS. But the AO has not allowed the claim in full. We direct the AO to verify the TDS certificates and allow the claim actually.- Decided in favour of assessee for statistical purposes.
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