TMI Blog2013 (5) TMI 491X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant to pay tax in India as well as the retrospective amendment in section 9 has not been considered in the earlier years, therefore, the issue has to be decided on the basis of the facts of the year under consideration. Since certain crucial aspects and facts have not examined by the authorities below therefore, in the interest of justice, remit this issue to the record of the AO for deciding the same after considering all the relevant facts as well as the decisions on the point. - ITA No. 8364/Mum/2010 - - - Dated:- 5-4-2013 - Shri Rajendra Singh, AM And Vijay Pal Rao, JM,JJ. For the Petitioner : Sh H. P. Agarwal/Mr Ashish Kumar Gupta For the Respondent : Sh Mahesh Kumar ORDER Per Vijay Pal Rao, JM. Appeal in ITA No.8364/Mum/2010 is by the assessee against the assessment order dated 13.10.2010 passed u/s 143(3) r.w.s 144C(13) of the IT Act in pursuant to the directions of the Dispute Resolution Panel (DRP) passed u/s 144C(5) of the Act for the AY 2007-08. Appeal in ITA No. 7008/Mum/2011 is by the revenue against the order dated 22.7.2011 of the Commissioner of Income Tax(Appeals) for the Assessment Year 2008-09. 2 First we will take up the appeal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter has been considered and decided by the Tribunal in favour of the assessee for the AYs 1998-99 to 1990-91 vide order dated 29.5.2006. The DRP did not agree with the contention of the assessee and held that the amount in question was received by the assessee vide a separate invoice which was not part of supply of the equipments. Therefore, the fee received by the assessee is for the supply of technical know-how, which is independent of equipment sales. Accordingly, the DRP held that taxability of the fee for services is determined in terms of section 9(1)(vii) of the Act. While deciding the issue, the DRP has considered the retrospective amendment whereby the Explanation to section 9 has been introduced by the Finance Act 2010 w.e.f 1.4.1976 and observed that the said Explanation has not been considered in the decisions which have been relied upon by the assessee. Hence, the DRP concurred with the proposed addition made by the Assessing Officer by treating the amount as royalty/fee for technical services. Consequently, the Assessing Officer passed the impugned assessment order whereby the amount in question received by the assessee is treated as liable to tax in India. 3. Bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the price of the equipment and technical know-how were separately given; whereas for the AY under consideration, the assessee has entered into two separate agreements one for supply of equipments and another for supply of technical know-how services. He has further submitted that the assessee has also raised two separate invoices one for the supply of goods and another for the supply of technical now-how services. He has further submitted that the assessee is in the business of rendering engineering services. 3.2 The ld DR has filed copy of the agreement and submitted that a separate agreement for engineering and technical assistance services was entered into. He has referred article 3 of the agreement dated 23.11.2006 and submitted that the assessee granted to GNFC a non exclusive, non transferable right and license regarding ammonia loop revamp designed and implemented using Topose Technical Information and engineering services. The ld DR has then referred article 6.2 and 6.3 of the agreement and submitted that in consideration of the rights and licenses granted by the assessee for the supply of engineering package, GNFC shall pay a net fixed lump sum fee of Euro 1,680,000 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the earlier years, the Tribunal has specifically held that it is not royalty but the payment is for the services supplied being integral part of the supply of equipments; therefore, the payment was part and parcel of the contract of supply of equipments. He has further submitted that though there are two separate agreements entered for the year under consideration; but there is no change in the facts and circumstances as well as the nature of payment and the terms of the agreement. The ld AR has submitted that the terms and the additions of the agreement are identical in the earlier years as in the year under consideration. The only difference is that in the earlier year, only agreement contains all the terms and conditions whereas for the year under consideration, the terms and conditions have been bifurcated in two separate agreements. He has strongly relied upon the decision of the Tribunal in assessee's own case for the earlier years. 4. We have considered the rival submissions as well as the relevant material on record. There is no dispute that in the earlier years, the issue has been decided by the Tribunal; but on the issue of royalty. For the AY 1988-89 to 1990-91, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars." 4.1 In the subsequent AY, the Tribunal has followed the earlier years order and decided the issue in similar terms. It is clear from the decision of the Tribunal for the earlier years that the payment received by the assessee towards the information, design and other material was held as necessary for installation of the equipments supplied by the assessee as an integral part of the payment for the supply of the equipments and therefore, not covered the expression' royalty' provided u/s 9(1)(vi) of the IT act as well as under DTAA. 4.2 For the year under consideration, the DRP has decided the issue as under; "The arguments of the assessee and the Tribunal's decisions have been considered. It is seen that the claim of the assessee is based on the fact that engineering and know how formed an integral part of the sale on FOB basis and therefore was not taxable In India. It is to be seen that the amount paid in respect of technical documentation / Engineering are in the nature of Fee for Technical Services and not similar to payments made for purchase of goods. If the know-how was part of the sale as claimed by the assessee, there would have been no need to draw a separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l years. The liability of the parties may also arise at several stages. The obligations under the contract are distinct ones. The supply obligation is distinct and separate from the service obligation. The price for each of the component of the contract is separate. Similarly offshore supply and offshore services have separately been dealt with. The prices in each of the segment are also different. 4.6 Thus, it has been held by the Hon'ble Supreme Court that though under a single turnkey contract, the price of each component of the contract is separate and taxable events in the execution of the contract may arise at every stage in several years and therefore, the prices of each segment are also different. Though, the contract was executed in India; but parts thereof to be carried out outside India would not be taxable in India. Thus, it is clear that under a single contract for the purpose of taxability of the income, the payment received for the execution of different parts of the contract has to be treated separately as per the real nature of the execution of work and payment. 4.7 The Hon'ble Supreme Court has concluded in para 73 bifurcating the income attributable to the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utable to the operations in India viz. the place of execution of the contract, assuming the offshore elements form an integral part of the contract. (3) Section 9(1)(vii) of the Act read with the Memo cannot be given a wide meaning so as to hold that the amendment was only to include the income of non-resident taxpayers received by them outside India from Indian concerns for services rendered outside India. (4) The test of residence, as applied in international law also, is that of the taxpayer and not that of the recipient of such services. (5) For section 9(1)(vii) to be applicable, it is necessary that the ser- vices not only be utilized within India, but also be rendered in India or have such a "live link" with India that the entire income from fees as envisaged in article 12 of the DTAA becomes taxable in India. (6) The terms "effectively connected" and "attributable to" are to be construed differently even if the offshore services and the permanent establishment were connected. (7) Section 9(1)(vii)(c) of the Act in this case would have no application as there is nothing to show that the income derived by a non- resident company irrespective of where rendered, was u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en-ed in accepting the claim of the assessee regarding the non taxability of the amount received from Gujrat Narmada Valley fertilizers ltd, Gujrat State Fertilizers and Chemical ltd and Numaligarh Refinary ltd on account of technical document ation/ engineering etc. without appreciating the facts that fees received are separate and distinct from the machinery and equipment supplied. 2. The appellant prays that the order of the ld. CIT(A) on the above ground be set aside and that of the assessing officer restored." The issue in this appeal is common as in the appeal of the assessee for the Assessment Year 2007-08. 6. We have heard the ld DR as well as the ld AR of the assessee and considered the relevant material on record. The facts are identical to the facts for the Assessment Year 2007-08. We have decided the identical issue in the appeal of the assessee for the AY 2007-08. Accordingly, we set aside the impugned order of the CIT(A) and remand the matter to the record of the Assessing Officer on the identical terms as for the Assessment Year 2007-08. 8 In the result, the appeal filed by the assessee as well as the revenue are allowed for statistical purpose. Order Pron ..... X X X X Extracts X X X X X X X X Extracts X X X X
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