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2016 (2) TMI 229 - ITAT MUMBAI

2016 (2) TMI 229 - ITAT MUMBAI - TMI - Taxability of contract receipt in India - Held that:- There is merit in the submissions of the Ld A.R that the profit attributable to Indian operations should be determined by undertaking FAR analysis. Since the assessee had taken the view that the profit arising from supply of equipments was not taxable in India, it appears that the assessee did not consider it necessary to put up its arguments on the profitability issue. Further, it is stated that the ass .....

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o the file of the AO with the direction to examine the same afresh by duly considering the information and explanations that may be furnished by the assessee. The assessee is also directed to furnish evidences supporting various expenses claimed by it and also make its submissions with regard to the income attributable to the Indian operations.- Decided partly in favour of assessee for statistical purposes. - I.T.A. No.8863/Mum/2011 - Dated:- 6-1-2016 - SHRI B.R.BASKARAN, AM AND PAWAN SINGH, JM .....

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eceipts is liable for taxation in India. 3. The facts relating to the above said issue are stated in brief. The assessee is a Israel company. An Indian company named Hindustan Petroleum Corporation Limited (HPCL) floated tenders to supply, install /implement and support retail automation systems on select HPCL retail outlets. The assessee won the bid for executing the work, which consisted of supplying certain equipments and installation of automation systems. During the year under consideration .....

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supply of equipments from Israel to HPCL sites and (b) installation of systems at the HPCL sites. It was further explained that the assessee has entered into a sub-contracting agreement with Honeywell Automation India Ltd (HAIL) for installation and commissioning of equipments in the automation system. The assessee submitted that, as per the sub-contracting agreement, it has supplied the equipments to HAIL outside India and the payments relating to the same was also received outside India. Accor .....

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roject office in India. Accordingly, the AO/DRP held that the project office constitutes Permanent Establishment in India. It is pertinent to note that it is the assessee, who had raised invoices upon HPCL for supply of equipments and services and not the sub-contractor HAIL. The invoices for supply of equipments and warrant service charges was raised for a sum aggregating to US $ 46,83,522. The assessee did not offer the profit arising from the above said amount for the reasons stated above, wh .....

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nal tax as no evidence produced - 5,000 (c) Rates & Taxes as there is no proof - 2,444 (d) Sundry expenses as no evidence filed - 13,09,647 The assessee is aggrieved by the decision taken by the AO/DRP in respect of all the issues. 6. The Assessing officer had placed reliance on the decision rendered by the Hon ble High Court of Madras in the case of Ansaldo Energia SPA Vs. ITO (2009)(310 ITR 237), wherein the High Court held that the sub division of a composite contract according to the con .....

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hment in India had no role to play in the transaction. Accordingly the Hon ble Supreme Court held that the income arising without any activity of permanent establishment is not liable for taxation in India. 7. Accordingly, the Ld A.R contended that the it has supplied the necessary equipments offshore and has also received the payment offshore. The assessee has sub-contracted the work of installation and Commissioning only to HAIL. He further submitted that the assessee has opened the Project Of .....

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own convenience. Further, the equipments were supplied to the sub-contractor, but the invoices were raised upon HPCL. He submitted that the sub-contracting of the work is only one of the methods of executing the contract. The assessee has taken fully responsibility in this work and hence the splitting of contract at the level of sub-contractor at the convenience of the assessee should not be recognised. Accordingly he submitted that the ratio laid down by the Hon ble Madras High Court in the cas .....

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e same. Thereafter, it has entered into a sub-contracting work with HAIL to implement the automation systems. As per the said contract, the assessee has supplied the equipments to HAIL. However, it is pertinent to note that the assessee has raised the bill towards supply of equipments upon HPCL and not on HAIL. The payment for the supply of equipments was also received from the HPCL. 10. The assessee has contended that the invoices relating to equipments were raised in US $ and the same strength .....

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equipments in US $. In our view, the manner of rasing invoices may not be relevant to determine the taxability of any receipt. 11. The tender document further states that the liability to pay all taxes, duties, cess, levies etc. is placed upon the bidder (vendor). Further, it is provided that the bidder (vendor) shall provide a Bank Guarantee to HPCL as security for performance of the implementation of vendor s obligation and/or discharge of implementation of vendor s liability in connection wi .....

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ob as per the requirement of the job/contract and as per international practices in the first instance itself. If required, vendor will be required to revisit those milestores which are already signed off and will be required to make suitable correctness at no extract cost to HPCL. It is further stated as under in clause 14.0 of the tender document:- 14.1 The vendor shall indemnify HPCL and every member, officer and employee of HPCL also the Project team and his staff against all the actions, pr .....

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nd keep indemnified HPCL against all such damages, proceedings, costs, charges and expenses whatsoever in respect thereof or in relation thereto. 14.2 The vendor will be fully responsible and liable for the persons engaged by him or agencies engaged by him and no claims can be made against HPCL by such persons or any other persons/agencies in any respect during or after the completion of the contract. The above said clauses show that the entire liability arising out of the impugned contract is p .....

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agreement shall in no case exceed the lesser of the amount paid by Orpak to Honeywell or the contract price for the specific product or service that gives riseto the breach to the extent permitted by applicable law, these limitations and exclusions will apply regardless of whether liability arises from breach of contract, warranty tort (including but not limited to negligence), by operation of law or otherwise. Thus, we notice that the liability of sub-contractor is limited. We have noticed earl .....

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ising out of the implementation of the contract is placed upon the assessee. Further, we notice that the HPCL has not entered into any separate contract with the assessee and it has given only a Purchase Order to the assessee and it only envisages supply of products named as Core automation of various functions. Thus the HPCL has intended to purchase products (equipments as well as the softwares) relating to automation of various functions relating to petrol pumps through the tender and it did n .....

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rk is only one of the methods of executing the contract undertaken by the assessee, since it is the assessee which has taken up full responsibility for executing the contract. Hence there is no merit in the contentions of the assessee that the contract consists of two separate parts consisting of supply of equipments and installation of the same. Under the facts and circumstances of the case, the said contention could not accepted and hence the assessee could not place reliance on the decision r .....

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he decision rendered by the Hon ble Madras High Court in the case of Ansaldo Energia SPA (supra). Accordingly, we uphold the view taken by the assessing officer that the impugned contract is a composite contract. 16. The Ld A.R further contended that the assessee does not have a Permanent Establishment in India and hence no part of its profit is attributable to the Indian operations. The Ld A.R submitted that M/s HAIL is an agent of independent status and hence, in terms of Article 5 and 6 of In .....

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r view, the assessing officer was justified in treating the same as Permanent Establishment and hence the profit attributable to Indian operations needs to be determined and assessed in India. 18. In this regard, the Ld A.R put up an alternative argument that the assessing officer was not justified in adopting the rate of profit at 17.7% on the basis of global profit and further attributing 75% of the same as the profit attributable to the Indian operation. The Ld A.R submitted that the profit a .....

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