TMI Blog2010 (11) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... tive expenses incurred by the foreign head office and foreign companies operating through branches in India - HELD THAT:- In this regard the assessee had field time sheet, on daily basis for each employee in the organization and have recorded the man hours on daily basis through ERP software.The time spent on the Indian Projects are properly segregated. The same have been-verified by the auditors and certified. In the remand report the AO has not found fault with the same. In such circumstances we are of the view that the findings of the CIT(A) have to be accepted. Once it is held that the disputed expenses are directly related to the Indian Project then the provisions of section 44C will not come into operation. In this view of the matter, we do not find any infirmity in the order of the CIT(A) and Ground No. 2 of the revenue in both the appeals are dismissed. services provided by Samsung Corporation is not technical in nature and hence, the fees received cannot be taxed in India in absence of PE in India - HELD THAT:- Admittedly the payments were made by the assessee to Samsung Engineers through the head office outside India and since the services were also rendered outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts interest income and income from insurance, should be taxable as business income instead of "income from other sources". 3. The assessee is a company incorporated in Korea and is engaged in lumpsum turnkey projects relating to procurement, engineering and construction. The assessee was awarded two contracts in the last quarter of 1999 viz. Diesel Hydro Treating unit (DHDT) and FCC, LPG and Gasoline Treatment Unit by Indian Oil Corporation Ltd. (IOCL) involving Residual Process Design, Detailed Engineering, Procurement, Supply, Fabrication, Transportation, Construction, Installation, mechanical testing, Pro commissioning, Commissioning and Mechanical guarantee for Barauni Refinery Expansion Project at Barauni Refinery, Bihar. For the purpose of executing the contract the assessee has obtained RBI permission on 26-11-1999 to set up project office at New Delhi and site office at Barauni, Bihar. The assessee filed return of income for Assessment year 2001-02 on 30-10-2001 declaring the profits of the projects in India Rs. 41,47,186 and for assessment year 2002-03 on 28-10-2002 declaring loss of Rs. 9,36,88,288 based on project completion method. The assessee had offered the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various projects. Hence, the interest income and insurance claim is directly related to the business of the assessee and should be treated as business income. It was further submitted that the RBI has permitted to open a Project Office and Site Office for the purpose of executing the contract with Indian Oil Corporation Ltd. for the expansion of Barauni Refinery. The approval of the RBI for operation in India is restricted exclusively for the execution of the contract with IOCL. Hence, the income is inextricably connected with the Project Office in India. He placed reliance on the following judicial precedents. (1) CIT v. Lok Holdings [2009] 308 ITR 356 (Bom.) (2) CIT v. Indo Swiss Jewels Ltd. [2006] 284 ITR 389 (Bom.) (3) CIT v. Vidyut Steel Ltd. [1996] 219 ITR 30 (AP) (4) CIT v. Koshika Telecom Ltd. [2006] 28 ITR 479 (Delhi) As far as amount received on insurance claim it was submitted that the same is business income of the project office. It was submitted that the insurance claim of Rs. 48,59,861 included in the other income has been received by the project office from New India Insurance Company for the loss on account of theft, burglary and fire. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 3006/M/05 and Ground No. 2 in ITA No. 3700/M/05 reads as follows: ITA 3006/M/05- Ground No. 2 "2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the expenditure of Rs. 31,93,79,280 on employee remuneration and welfare expenses which were incurred in Korea and debited in the books of accounts of the Indian project office should not be restricted to the limit prescribed under section 44C of the Income-tax Act, 1961. The CIT(A) has failed to consider that section 44C was introduced to get over difficulties in scrutinizing claims in respect of general administrative expenses incurred by the foreign head office and foreign companies operating through branches in India sometimes try to reduce incidence of tax in India by inflating their claims in respect of head office expenses." ITA 3700/MUM/05- Ground No. 2 "2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the amount of Rs. 7,98,44,820 cannot, be treated as general and administrative over heads and was, therefore, allowable." 11. The assessee claimed deduction for the expenses to Rs. 31,93,79,280 (being salary of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Indian project and not in the nature of overheads, since proper time sheets are maintained for each department. The same has been certified by a Certified Public Accountant of Korea (CPA). The assessee submitted that section 44C of the Act is not applicable, since assessee has not claimed any expenses of Head Office in Rupee portion and further entire income is offered to tax and not only PE based income. Further, the assessee submitted, Offshore man hour statements for various months of the relevant year and independent auditor s report confirming that only employees salary relating to Direct Project Teams who have directly work on FCC and DHDT project have been debited to cost of sales and does not include any allocation of administrative overheads as supportive evidence before CIT(A). The CIT(A) called for a remand report from the Assessing Officer. The Assessing Officer confirmed no objection to the admission of the additional evidence vide letter No. DDIT(IT) 2(1)/Remand Rep./2004-05 dated 1-10-2004 for assessment year 2001-02 and letter No. DDIT(IT) 2(1)/Remand Rep./2004-05 dated 4-3-2005. The CIT(A) considering the additional details field by the assessee and remand repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... field time sheet, on daily basis for each employee in the organization and have recorded the man hours on daily basis through ERP software. The time spent on the Indian Projects are properly segregated. The same have been-verified by the auditors and certified. In the remand report the Assessing Officer has not found fault with the same. In such circumstances we are of the view that the findings of the CIT(A) have to be accepted. Once it is held that the disputed expenses are directly related to the Indian Project then the provisions of section 44C of-the Act will not come into operation. In this view of the matter, we do not find any infirmity in the order of the CIT(A). Consequently, the order of the CIT(A) is confirmed and Ground No. 2 of the revenue in both the appeals are dismissed. 15. Ground No. 3 raised by the revenue in ITA No. 3006/M/05 and Ground No. 3 raised in ITA No. 3700/M/05 reads as follows: ITA 3006/M/05-Ground No. 3 "3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the services provided by Samsung Corporation is not technical in nature and hence, the fees received cannot be taxed in India in absence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in case of Linde AG v. ITO [1997] 62 ITD 330 wherein ii was held that though procurement services required industrial and scientific experience, it did not mean imparting of any information concerning industrial, commercial or scientific experience. Hence it was not royalty under the treaty. The CIT(A) considered the above submissions of the assessee and held that the case of assessee is similar to the facts of the case: of Linde AG and hence payments towards procurements charges can be termed as commission and "not fees for technical services". Further it was held that, since Samsung Corporation does not have a PE in India, the procurement service fees cannot be brought to tax in India. Hence section 40( a )( i ) cannot be invoked. 18. Before us ld. D.R relied on the order of the Assessing Officer. The ld. Counsel for the assessee on the other hand, reiterated the submissions as were made before CIT(A). 19. We have considered the rival submissions we are of the view that the assessee utilized the services of Samsung Corporation located all over the world for procurement of best quality materials of various suppliers from various countries in the world at best price. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -Ground No. 4 "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that clause ( h ) and ( j ) of Rule 6DD is applicable in the case of the assessee without appreciating the fact that Barauni is a well established township and the above clauses of Rule 6 DD are not applicable in assessee s case." ITA 3700/M/05-Ground No. 4 "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that clause ( h ) and ( j ) of Rule 6DD is applicable in the case of the assessee without appreciating the fact that Barauni is a well established township and the above clauses of Rule 6 DD are not applicable in assessee s case. 22. During the assessment proceedings the Assessing Officer has made a disallowance of Rs. 22,32,116 at 20 per cent of Rs. 1,11,60,580 for assessment year 2001-02 and Rs. 36,11,592 at 20 per cent of Rs. 1,80,57,963 for assessment year 2002-03 under section 40A(3) of the Act. Aggrieved by the action of the assessment year the assessee preferred an appeal before the CIT(A) and made the following submissions. That it was a foreign company which has established Project office for a temporary pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments of salary to Korean staff and Indian staff are covered by these exceptions provided under clause ( h ) and ( j ) of Rule 6DD. The relevant clauses are as under: "Clause ( h ) of Rule 6DD states that: "Where the payment is made in a village or town, which on the date of such payment is not served any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town." Clause ( j ) of Rule 6DD states that: "Where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from the salary in accordance with the provisions of section 192 of the Act, and when such employee- -Is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and -Does not maintain any account in any bank at such place or ship". The CIT(A) considered the fact that since the site office at Barauni, is 1000 kms way from the Project Office in New Delhi and there are no banks at the site office, the employees cannot visit the banks at the Project Office for receiving the salary payments. Hence, the assessee s case is cov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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