TMI Blog2009 (6) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... allow relief to the assessee If the income is taxable as per the domestic law, then the assessee can opt for the provisions of the DTAA for extincting or marginalizing the liability so created. If the income is not taxable and there does not exist any tax liability of the assessee as per the regular provisions of the Act, it is simple and plain that the DTAA cannot be invoked to create any such tax liability. The object of the DTAA is not to create any fresh tax liability if it is not there as per domestic law but to restrict it, if it exists and is permissible. If there is no tax liability as per domestic law then the DTAA cannot create it. Circular No. 786, dated 7-2-2000 further clarifies the position qua commission and charges payable for services rendered outside India, it has been explained that no tax is deductible u/s 195 on the export commission and other related charges payable to non-resident for services rendered outside India. Therefore, as clearly borne out that a sum of Rs. 74.57 crores represents the consideration for the exclusive supply of offshore equipment, which cannot be considered as leading to any taxable income resulting in the hands of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 all the payments made to the assessee are subjected to deduction of tax at source. Under these circumstances, the assessee cannot be said to have committed any default in not paying the advance tax for which the liability to pay interest u/s 234B could be fastened on it. Our view is fortified by the Special Bench order of the Tribunal in Motorola Inc. v. Dy. CIT [ 2005 (6) TMI 226 - ITAT DELHI-A] , which stands impliedly affirmed by the Hon ble jurisdictional High Court in D.I. (International Taxation) v. NGC Network Asia Ltd.[ 2009 (1) TMI 174 - BOMBAY HIGH COURT] . Respectfully following the precedent, we accept the opinion of the learned CIT(A) on this count in ordering to delete the levy of interest u/s 234B. This ground also fails. Bringing to tax the fees for technical services on accrual basis - assessee disclosed the fees for technical services on receipt basis - AO and CIT(A) has recorded that the royalty and fees for technical services was to be recognized on accrual basis - HELD THAT:- It is noted that in assessment year 1980-81 the Tribunal decided the issue against the assessee by holding that royalty and fees for technical services should be accounted for on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.E. The assessee was asked to show cause as to why the profit of the above project should not be taxed since the project was performed by the Indian P.E. Despite various reminders, as per the Assessing Officer, the assessee did not furnish any information. Its value in Indian rupees was converted into Rs. 74,57,04,674. In the absence of any information about the consideration in respect of other contracts, the Assessing Officer estimated this amount at Rs. 10 crores. Thus the total turnover of the Indian projects, other than fees for technical services, was determined at Rs. 84,57,04,674. In response to the query as to why the profit be not computed under rule 10, the assessee replied vide its letter dated 15-3-2000, some part of which has been extracted in the assessment order, that it did not have any employees stationed in India for carrying out any activity on its behalf. It was further stated that some of its employee were deputed to Siemens Ltd., who were on their rolls under their supervision and control for the purposes of fulfilling of the obligations of the M/s. Siemens Limited, the Indian company. It was further clarified that all the onshore operations were the respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended that the assessee miserably failed to furnish relevant information/evidence at the assessment stage. While referring to the impugned order he submitted that the learned CIT(A) had not actually appreciated the facts in the light of the Treaty with Germany for determining precisely as to whether or not that the assessee had P.E. in India. It was further stated that neither the comments of the Assessing Officer were called for nor any remand report was sought and hence the learned CIT(A) fell in error in deciding the issue in assessee s favour in violation of rule 46A. On the question of P.E. in India, the learned D.R. submitted that the Assessing Officer had specifically asked about the number of employees of the assessee who had come to India in the execution of the contract with BPL for the purposes of ascertaining if the assessee had P.E. in India or not. No information was provided by the assessee. He further stated that the Assessing Officer had a copy of contract between the assessee and BPL but the contract between BPL and Siemens India Limited was not provided. While referring to the copy of contract between BPL and the assessee, he stated that Article 1 of the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, which had received the income in its individual right and offered the same for tax in its own hands. It was reiterated that the assessee did not have any P.E. in India and hence the Assessing Officer fell in error to hold so. He further argued that the Assessing Officer had considered the DTAA with France for fixing the assessee s liability to tax, whereas the assessee was tax resident of Germany and only the DTAA with Germany was required to be examined. It was submitted that the assessee did not have any taxable income from this contract as per Income-tax Act, 1961 and hence there was no question of going into DTAA with Germany. It was stated that the assessee had supplied the equipment to BPL outside India and the payment was also received outside India. While referring to Article 15 of the contract dated 10-3-1995, he pointed out that the ownership of equipment was to be delivered to the carrier at the port of the shipment and the equipment was to become the absolute property of the purchaser free from any encum-brances at the time of delivery at the port of shipment only. Refuting the allegations of the learned D.R. that the property in goods passed over to BPL in Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAA with Germany also does not fasten any liability on the assessee in respect of offshore supply made by the assessee. It was further stated that the assessee had not earned any business income from any contract other than that with BPL which was not declared and hence the learned CIT(A) was justified in deleting the addition of Rs. 1 crore which was included in the total addition of Rs. 8.45 crores towards the estimated other contract receipt to the tune of Rs. 10 crores. 6. We have heard the rival submissions and perused the relevant material on record. The first issue raised by the learned D.R. is that since the assessee has P.E. in India and hence income from supply of equipment should also be brought to tax. The contention of the revenue in this part of the ground is that the provisions of DTAA will be attracted on the assessee as it has PE in India and hence the income will be taxable. In our considered opinion, this contention deserves the fate of rejection. Section 90(1) empowers the Central Government to enter into an contract with the Government of any country outside India for the granting of relief in respect of income on which have been paid both income-tax under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RACTOR shall be made in United States Dollar only and to the account No. 2013100 with Deutsche Bank AG, Munich Branch with reference to OEN MN KV 2. The PURCHASER shall provide the CONTRACTOR by telefax transfer details ( e.g., amount, date, corresponding bank) not later than 24 hours after having taken the transfer." A cursory look at the above clause clearly indicates that the assessee received the payment outside India. Thus it can be seen that the assessee did not receive any income in India. 9. Now let us examine the facts of the instant case to determine if any income accrued to the assessee in India on account of this transaction. From the narration of the above facts it is clear that the assessee entered into contract with BPL for the supply of equipment on offshore basis. The offshore supply of equipment from abroad, in common parlance, means that the supply of goods is made outside India. Ordinarily in such a case, the Indian party opens a letter of credit and nominates a bank to issue irrevocable LOC favouring the foreign party. Equipment is handed over to ship and Bill of Lading etc. are delivered to the nominated bank. With such delivery of bill of lading and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Revenue. Neither the Assessing Officer nor the learned DR has adversely commented on this submission. Further no material has been brought on record to demonstrate that the position so stated is not correct. Thus it becomes clear that the assessee only had supplied the equipment to BPL for the stated consideration offshore and no part of it relates to any onshore supply or onshore services. 10. It will be relevant to consider the judgment of the Hon ble Supreme Court in the case of Ishikawajma Harima Heavy Industries Ltd. ( supra ), which has been heavily relied on behalf of the assessee. In this case the assessee was a resident of Japan. It was to develop, design, engineer and procure equipments and material supplies etc. to erect and construct storage tanks of 5 MMTPA capacity. The project was to be completed in 41 months. The contract involved ( i ) offshore supply, ( ii ) offshore services, ( iii ) onshore supply, ( iv ) onshore services and ( v ) construction and erection. The price was payable for offshore supply and offshore services in US dollar and that of onshore supply and onshore services and construction and erection partly in US dollar and partly in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be construed as getting vested in Bombay, is not acceptable. The INCO Terms, 1990 explains various relevant terms. Page 755 of it mentions that : " Cost, Insurance and Freight means that the seller has the same obligation as under CFR but with the addition that he has to procure marine insurance against the buyer s risk of loss of or damage to the goods during the carriage. The seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIF term the seller is only required to obtain insurance on minimum coverage. The CIF term requires the seller to clear the goods for export. CFR, in turn, has been explained as "Cost and Freight" means that the seller must pay the cost and freight necessary to bring the goods to the named port of destination but the risk of losses of or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is transferred from the seller to the buyer when the goods pass the ship s rail in the port of shipment. It has further been explained that in the case of CIF the seller must deliver the goods on board the vessel at the port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be in the nature of salaries , dividend, interest, royalty or fees for technical services, which items of income have been specifically dealt with in clauses ( ii ) to ( vii ) of section 9(1). Hence we are left with examining the applicability or otherwise of clause ( i ) of section 9(1). This provision states that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India or through or from any asset or source of income in India or through the transfer of a capital asset situated in India shall be deemed to accrue or arise in India. As it is the case of sale of equipment to the Indian party, possibly only the business connection needs to be probed in as the applicability of the other components of clause ( i ) is manifestly ruled out. Now we will concentrate on examining if the assessee, as a result of this transaction, can be said to have any business connection in India so as to attract section 9(1). At this stage it will be pertinent to mention, even at the cost of repetition, that the assessee received the payment in the previous year relevant to the assessment year under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as is reasonably attributable to the operations carried out in India. From this Explanation, it is further amply clear that even if there is a business connection of the non-resident in India, then also only that part of the income shall be deemed to accrue or arise in India which is relatable to the operations carried out in India. So even if we presume for a moment, with which we do not agree, that there was any business connection of the assessee in India, still in the absence of any operations carried on by the assessee in India in this regard, there cannot be any question of bringing the case within the ambit of section 9(1). It is pertinent to mention that the assessee categorically stated before the Assessing Officer that the local activity with reference to installation was carried out by Siemens Limited in their independent capacity. It has further been claimed that income from such services has been duly offered for taxation by the Indian company, which has not been disputed by the learned D.R. 16. We, therefore, hold that no part of the income as relatable to the sale of equipment by the assessee can be said to have deemed to accrue or arise to the assessee in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for services rendered outside India, it has been explained that no tax is deductible under section 195 on the export commission and other related charges payable to non-resident for services rendered outside India. In this Circular the afore-noted Circular No. 23, dated 23-7-1969 has also been duly considered. 19. On going through the above Circular and legal position it is clearly borne out that a sum of Rs. 74.57 crores represents the consideration for the exclusive supply of offshore equipment, which cannot be considered as leading to any taxable income resulting in the hands of the assessee. As regards the other alleged receipt of Rs. 10 crores considered by the Assessing Officer we find that the assessee categorically stated before the Assessing Officer that there was no such other contract from which business income could be said to have been earned by the assessee. The reference to three contracts is in respect of fees for technical services which was separately offered for taxation voluntarily by the assessee. The Assessing Officer went to estimate the further receipt at Rs. 10 crores without any material, worth the name, in his hands to indicate, even remotely, that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p it back to the assessee for replacement or repair as the case may be. Further it has been stated that the TAC is no organization of the assessee but in fact part of Siemens Ltd., the Indian concern, which has the obligation to render the services to BPL for consideration as per their separate contract. Thus it is seen that the assessee cannot be said to have any P.E. in India through the TAC 2 Bombay. 22. Since the assessee is not liable to tax in the instant case in respect of offshore supply of equipments as per the regular provisions of the Income-tax Act, 1961, in our considered view there is no need to ascertain or fix any taxability as per DTAA. 23. This ground is, therefore, not allowed. 24. The second ground taken by the Revenue is against the chargeability of interest under section 234B. The Assessing Officer charged interest under this section. The learned CIT(A) held that the assessee could not be subjected to interest as it was not liable to pay advance tax. After considering the rival submissions and perusing the relevant material on record we observe that section 195 provides that any person responsible for paying to a non-resident, any sum chargeable un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, he did not accept the assessee s contention that paragraphs 3 and 4 of Article VIIIA of the DTAA require the taxation on receipt basis. The view of the Assessing Officer was, therefore, upheld. 27. We have heard the rival submissions and perused the relevant material on record. It is noted that in assessment year 1980-81 the Tribunal decided the issue against the assessee by holding that royalty and fees for technical services should be accounted for on accrual basis. Thereafter the language employed by Article VIIIA of DTAA was considered which implied that the royalty and fees for technical services should be reckoned for taxation only when it is received and not otherwise. Considering this position the Tribunal in assessee s own case for assessment years 1990-91, 1991-92, 1994-95 and 1996-97 decided the issue in assessee s favour by holding that royalty and fees for technical services was to be considered on receipt basis and not accrual basis. Recently the Tribunal in assessee s own case for assessment year 2001-02 has reiterated the same view by following the afore-noted earlier year s order in assessee s favour. The order of the learned CIT(A), being not in conform ..... X X X X Extracts X X X X X X X X Extracts X X X X
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