2017 (2) TMI 634 - ITAT KOLKATA

Transfer of copyrights - India-Netherlands DTAA - whether the consideration received for provisions of such services is taxable as FTS under the provisions of India- Netherlands DTAA or not? - PE in India - Held that:- The action of the DRP in directing the treat the sum of Euro 154655 as FTS cannot be sustained. A perusal of the invoice in this regard together with the purchase order clearly shows that what the Assessee did was installation, testing and commission and training. The training was half-day training and was intended to familiarize the Assessee with the operation of the equipment. In the light of the India-Netherlands DTAA Article 12(5)(b) and in the light of the various judicial pronouncements referred to in the earlier paragraphs on this issue, it cannot be said that the services rendered “make available” technical knowledge, experience, skill, know-how or process etc. It cannot be said that the sum in question was in the nature of FTS chargeable to tax under the Treaty.

Assessment of income from Gulf of Kuchch (GOK) Project - PE in India - Held that:- For constituting Installation PE within the meaning of Article 5(3) of the India-Netherlands DTAA the test of duration of time for which the activities are carried out in India becomes relevant. In the present case the question is computation of the duration of time. The supply of equipments that have to be installed by the consortium could be said to be a direct preparation for coming into existence of an Installation PE. The DRP has not given any specific reason for coming to the conclusion that there existed an installation PE of the Assessee in India except to observe that the project has to be seen in a holistic way. Even if one were to look at the project in a holistic way, the question still remains open whether the supply of equipments by itself would constitute an installation PE. There are no provisions in the treaty providing for circumstances such as the present one when it can be said that an installation PE has come into existence. There are no circumstances brought out to show that the parties resorted to treaty abuse. In the given circumstances, we are unable to uphold the findings of the DRP that there existed an Installation PE of the Assessee and profit arising out of off-shore supply of equipments are attributable to the installation PE and therefore taxable in India as business profits. Since the Assessee did not have a PE in India, such profits cannot be brought to tax in India.

Taxation of income arising out of Assessee’s AMC contract with ONGC for supply, installation, testing and commissioning of Vessel and Air Traffic Management System (VATMS) - Held that:- since the VATMS equipment was already accepted and handed over to the customer in the year 2007 and no installation activity was carried out in India during the subject year, it cannot be held that the Assessee had an 'Installation PE' in India in the subject year. As far as the conclusion of the revenue that the independent contractor of the Assessee in India created a virtual presence of the Assessee in India so as to create an installation PE, given that the entire onshore maintenance contract has been performed by an independent local contractor in India, it cannot be said that the business of the Assessee has been carried out by the presence of the local contractor in India, so as to create its PE in India. The examination of whether a PE exists needs to be determined based on the activities of the foreign enterprise in India. Since no activities have been carried out by the Assessee in India with respect of such maintenance activity, it is unreasonable to conclude that the business of the Assessee was carried out in India through such subcontractor, to constitute its PE in India. We therefore hold that receipts in the form of AMC fees from ONGC on VATMS cannot be brought to tax in India as business income. In view of the above conclusion, the question of what quantum of income has to be attributed to the PE in India that is agitated in Gr.No.D-3 & 4 do not require any consideration.

Taxation of income arising out of Extra Work Contract performed by the Assessee in respect of contract with ONGC for supply, installation, testing and commissioning of Vessel and Air Traffic Management System (VATMS) - Held that:- The revenue cannot bifurcate the consideration towards software and license embedded in the equipment from the combined sale value of the equipment and accessories and seek to bring to tax the amount bifurcated for software as in the nature of "Royalty" as envisaged under section 9(l)(vi) of the Act. For the reasons given in para 41 to 47 of this order, we hold that there was no installation PE in existence in so far as the ONGC VATMS AMC project is concerned. Therefore the receipts in question cannot be brought to tax India.

Credit of taxes deducted at source- Held that:- It would be just and appropriate to direct the AO to consider the TDS certificate produced by the Assessee and after verification allow credit for prepaid taxes without insisting on the TDS being reflected in Form 26AS. The ground is treated as allowed.