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Gifford and Partners Ltd. Versus Deputy Director of International, Taxation (1) , Kolkata and Gifford and Partners Ltd. Versus Assistant Director of International, Taxation -1 (1) , Kolkata

2016 (4) TMI 413 - ITAT KOLKATA

TDS u/s 194J - disallowance under section 40(a)(ia) as payments made to the Indian sub consultants, for delay in deposit of TDS effected on such payments - existence of PE in India - Held that:- Requirement of Article 5(1) of the DTAA is not satisfied in the present case. Carrying on of business involves the carrying on in a country of virtually any activity related to the business of the enterprise. As we have already seen the availability of office space for use by the Assessee at the premises .....

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at the Assessee filed a return of income including all receipts from the contract with GRSE cannot be the basis to come to a conclusion that there was an admission by the Assessee that it had a PE in India. Existence of PE in India has to be established on the basis of evidence and by application of the requirements as contemplated in DTAA.

On the question whether the Assessee having filed a return of income admitting income on the basis that it had a PE in India can thereafter make a .....

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e of business through which the business of the Assessee was wholly or partly carried on in India. As such, the Assessee would be entitled to the benefit of the provisions of section 115A of the Act and be taxed at 20% of the Gross receipts. We also hold that tax liability borne by GRSE will also need to be grossed up for arriving at Gross receipts of the Assessee and after such grossing up such receipts have to be taxed at 20%.

Levy of interest u/s.234-B & 234-C - Held that:- Once it .....

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ever, in such a case, the non-resident is liable to pay tax and the question of payment of advance tax would not arise. The provisions of Sec.209(1)(d) have been amended by the Finance Act, 2012 but those amendments are not relevant for the present case which relates to AY 2007-08. We therefore hold that the assessee was not liable to pay any interest under sec.234-B. - ITA No.2082/Kol/2010, ITA No.1489Kol/2011 - Dated:- 6-4-2016 - Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM For The Appel .....

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rch Shipbuilders and Engineers Ltd.,(GRSE) is a Government Company. GRSE was desirous of carrying out modernisation of its existing shipyard and approached the Assessee to provide consultancy services for modernisation of GRSE s Garden Research Shipyard. The terms of the Agreement between the Assessee and GRSE is contained in an agreement dated 29.4.2004 which later was amended by memorandum of Amendment to original Agreement on different occasions. The nature of services to be performed by the .....

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for the services to be rendered by the Assessee is set out in Clause 5.3 of the Agreement. Clause 5.3 of the Agreement refers to Appendix-1.5 to the Agreement. Appendix 1.5 refers to three stages of work to be performed by the Assessee viz., Stage-1 Draft Project Report(DPR); Stage-2 (Design Stage); Stage-3 Construction Supervision Stage. The mode of payment for each stage of work is also given in Appendix 1.5. The relevant portion of Appendix 1.5 is as follows: APPENDIX 1.5 FEES FOR CONSULTANCY .....

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ontract will be a Lump-sum type of Contract with stage-wise payments. ……… Clause 1.8 of the Agreement provides for the place in which the services are to be rendered and the same reads as follows: 1.8. LOCATION The services shall be performed at the premises of Garden Reach Shipyard, Kolkata and, where the location of a particular task is not so specified, at such locations, as GRSE may approve. The mode of payment of consideration and the taxes if any, payable by GRSE to th .....

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le to ensure that they meet such liability. The payment of consideration by GRSE to the Assessee is net of taxes, i.e., tax liability, if any, of the Assessee had to be borne by GRSE. The AO/Assessee as well as the Dispute Resolution Panel (DRP) have proceeded on the basis that the tax liability of the Assessee, if any, on income that accrues to the Assessee in India was to be borne by GRSE. 3. The provisions of Income Tax Act, 1961 (Act), in brief, with regard to taxation of income of a non-res .....

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d subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person. Sec.5(2) of the Act (2) the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India durin .....

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India (d) through the transfer of any capital asset in India. 2) Income which falls under the head Salaries ; if it is earned in India. 3) Income from Salaries which is payable by Government to a citizen of India for services rendered outside India. 4) Dividend by an Indian Company outside India 5) Interest 6) Royalty 7) Fees for technical Services If income of a non-resident is taxable in India as per provisions of the Sec.5(2) of the Act read with Sec.9(1) of the Act, thereafter one has to see .....

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c.90 (2) of the Act it is provided that where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) of Sec.90 for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. 4. It is not in dis .....

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ilding Engineers ('GRSE') in India for rendering the following services with regard to modernisation of the existing shipyard of GRSE:- Preparation of concept papers, Preliminary project report (PPR); Detailed project report (DPR); Engineering services; Project management services; and Post - construction service • The said services were to be performed both from India as well as from the United Kingdom ('UK'). The local services were rendered through independent Indian subc .....

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relevant to AY 07-08, the Assessee received a sum of ₹ 2,86,61,214/- from GRSE which sum was credited in profit and loss account. The corresponding expenditure in connection with execution of work in India of ₹ 1,06,81,827/- was debited as an expenditure in the profit and loss account. In the return of income filed for AY 2007-08 the Assessee (filed on 8 November 2007) offered a profit of ₹ 1,57,39,112 to tax, after setting off brought forward losses of ₹ 2,240,274. The A .....

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Notice under section 142(1) of the Act seeking information/clarification from the Assessee, was also issued on 3 August 2009. 7. The following issues were raised by the AO during the course of the assessment proceedings:- I. Issue of disallowance under section 40(a)(ia) of the Act, of payments made to the Indian sub consultants, for delay in deposit of TDS effected on such payments, under section 194J of the Act. As we have already seen, the Assessee made payments to persons resident in India u .....

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of the view that the expenditure claimed as deduction cannot be allowed as a deduction in view of the provisions of Sec.40(a)(ia) of the Act which reads thus: 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession -. ….. (ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a res .....

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. As we have already seen, the Assessee made payments to non-residents in India under the Act M/S.Appledore, U.K., who acted as sub-consultants. The Assessee entered in a contract with GRSE for rendering consultancy services for modernisation of their shipyard project. The scope of work envisaged- Preparation of concept plan, preliminary project report (PPR) and detailed project report (DPR). Design, detailed engineering, drawing and tender documents for works contract. Project management and co .....

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ject report and detailed project report, and render evaluation. The terms of the Agreeement between the Assessee and M/S.Appledore are contained in an agreement dated 20.5.2004 (copy of the same is at pages 128 to 133 of the paper book). Schedule-1 to this agreement details the following as the services to be rendered by M/S.Appledore, viz., Conceptual and outline Design, Technical Specifications for Plant and Equipment, Review and comment on Prequalification documents, Review and comment on Bid .....

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he ld. AO requested the Assessee to explain as to why the payment, made by the head office of Gifford, without deduction of tax, should not be disallowed u/s 40(a)(i) of the Act. In reply, the Assessee submitted that:- • Payments made by the Assessee to Appledore was not taxable in India in terms of section 9(1)(vii)(c) of the Act; • Without prejudice to the above, payments made by the Assessee to Appledore was not FTS in terms of Article 13(4)( c) of the DT AA and accordingly was not .....

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for and services rendered in the UK. The Assessee submitted that Appledore, being a non-resident in terms of section 5(2) of the Act, would be chargeable to tax in India only in the event of income accrues or arises in India or is deemed to accrue or arise in India or income is received or is deemed to be received in India and not otherwise. Explanation I to section 5(2) provides that income accruing or arising outside India shall not be deemed to be arising in India, within the meaning of this .....

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t the income declared in the return of income. According to the AO, the payments made to sub-consultants were payments made to non-residents and therefore in terms of Sec.195 of the Act, the Assessee ought to have deducted at source on such payments in terms of Secc.194J of the Act. The Assessee had not deducted tax at source on such payments. As a consequence, the AO was of the view that the expenditure claimed as deduction cannot be allowed as a deduction in view of the provisions of Sec.40(a) .....

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utside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of Section 200: 3. Issue of grossing up of the USD component of the receipts of the Assessee as the tax on the same was being borne by GRSE at the rate of 15% .....

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es in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement. The AO therefore proposed to increase the income or receipts of the Assessee as provided u/s.195A of the Act. 8. During the course of the assessment proceedings the Assessee filed its submission on 18th December 2009, wherein the following contentions were made by the Assessee:- 1. The Assessee does not have a Permanent Establishment ( PE) in India; 2. The c .....

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) Services have to be rendered in India, for taxability in India, as per the ratio of the Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. iii) The services cannot be taxed under FTS owing to the 'make-available' clause contained in Article 13 of the DTAA 9. With respect to the submission filed on 18 December 2009 as stated above, the Assessee also filed an application under section 144A of the Act, to the Addl. DIT(IT)-I, Kolkata ('ADIT') reques .....

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ch directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and such directions shall be binding on the Assessing Officer. The ADIT vide letter dated 23 December 2009 gave the following finding/direction to the AO:- 1. The ADIT held that the Assessee s claim that there was no accrual of income in India and therefore the sums received from GRSE cannot be brought to tax in India, is contrary it s own return of income wherein the Assessee had of .....

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ng to the above conclusion, the ADIT held that the contract between the parties did not provide rendering of two types of services viz., (1) to be rendered from UK and (2) Services to be rendered in India. According to ADIT, the contract refers to a single, consolidated contract for rendering of services and there is no split of the services into onshore and offshore services as referred to by the Assessee. 2. Without prejudice to the rejection of the claim of the Assessee, a finding was given t .....

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rendered, from the UK. 10. The ld. AO in line with the directions of the ADIT rejected the contentions of the Assessee on point (1) and (2) referred to above. With regard to point No.(3) on the existence of PE of the Assessee in India and taxability of receipts in USD, for services rendered from UK, the AO first made a reference to the various terms of the contract between the Assessee and GRSE and came to the following conclusions: 1. The AO referred to a letter dated 14.9.2009 by the Assessee .....

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xable in India. 2. According to the AO the contract between the Assessee and GRSE provided for completion of project in three stages. According to the AO the scope of work as per the contract was such as to require continuous involvement of the Assessee and its sub-consultants/associates with GRSE at the project site of GRSE. Even in respect of reports prepared at UK, the necessary technical details had to be collected and scrutinized by the Assessee and its subconsultants/ associates. 3. Accord .....

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view that from a reading of the contract, it was clear that the contract was only for rendering of consultancy services and that the whole scope of work has to be completed in three stages. It is a single contract and is not a divisible one. According to the AO, Appendix 1.5 of the contract, contains only a bifurcation of the total consideration to be paid to the Assessee, in USD and in INR, without any mention of the services being 'Offshore' or 'Onshore'. The AO also referred .....

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n the visiting card. The visiting card also contained the following description Consultant s Kolkata Office, 43/46, Garden Reach Road, Kolkata-700 024. 11. For the above reasons, the AO in his draft assessment order under section 143(3), read with section 144C of the Act, dated 30 December 2009, came to the conclusion that the Assessee had a PE in India within the meaning of Article 5 (1) as well as Article 5 (2) of the India-UK DTAA and that the consultancy services to be rendered are effective .....

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ot acceptable. 'Principle of consistency' is an important principle of accountancy which should be followed. The final conclusion of the AO was: f)…there exists a PE in the case of the Assessee in India within the meaning of Article 5 of the Indo-UK DTAA. The consideration for consultancy services provided by the Assessee to GRSE is in the nature of Fees for Technical Services (FTS) within the meaning of Article 13 of Indo-UK DTAA. Since the FTS is arising in India and the Assesse .....

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so disallowed expenditure to the extent of ₹ 30,09,179 on the ground that the same relates to period prior to the previous year relevant to AY 2007-08. The AO also held that since taxes of the Assessee were to be borne by GRSE, the receipts of the Assessee from GRSE have to be grossed up. The AO ultimately determined the total income of the Assesssee as follows: 8. Subject to the above, the total income of the Assessee is computed as under: Net profit as per P/L. Account 1,79,79,386 Add: D .....

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P) in accordance with the provisions of Sec.144C of the Act. The following issues were raised by the Assessee before the DRP. 14. Issue with regard to existence of PE in India. The Assessee drew attention of the DRP to the scope of work of the Assessee with GRSE, as follows: Phase -1 Preparation of a macro level concept plan for the modernization of the entire ship building yard including the installation of a Ship Lift, considering a new Modular shop and improvements to the module building, mod .....

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estimates for the entire Project and the detailed item wise cost estimate for the different packages envisaged for the modernization; Detailed requirements of Services/ Facilities, estimates of power requirements, provision of Sub- station, Compressed Air etc; Preparation of draft tender documents for the various packages; and Obtaining timely approvals from various statutory bodies. During the previous year relevant to AY 2007-08, the Assessee was involved in the activities pertaining to this p .....

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sessee concerned and services that were rendered Onshore, by the independent Indian sub-consultants, appointed by the Assessee. 15. It was pointed out that the Contract Value was payable partly in USD and partly in INR. This was to ensure that, whilst the fees payable to the Assessee for the services (which was rendered from the UK office of the Assessee) would be in USD, the INR part was to accommodate the payments to be made to the Indian subconsultants, by the Assessee. It was pointed out tha .....

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eed by the Ld. AO in his impugned order at Page 18. It was submitted that the information once collected, was sent to the head office of the Assessee, for necessary analysis and subsequent churning of the Concept Plan and Drawings etc. It was reiterated that for Phase - I and Il, no service had been rendered in India and the limited number of visits that was made by the Assessee to the GRSE site, was only for the collection of information, which was necessary for the purposes of the reports and .....

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the DRP to the provisions of Article 5(3)( d) of the DTAA, which reads as follows: "3. The term "permanent establishment" shall not be deemed to include: (a)………………………. (b) . ……………………… (c) . …………………….. (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchan .....

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shall not be deemed to be arising in India within the meaning of this section by reason only of the fact that it has taken into account in the balance sheet prepared in India. Moreover, treatment of item under the taxation regime is independent of its accounting treatment. In this regard attention was drawn to the decision of the Hon ble Supreme Court in the case of Kedarnath Jute Mfg Co Ltd vs CIT (Central) Calcutta 82 ITR 363 (1971) (SC) wherein it was held that whether the assessee is entitl .....

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icle 5 of the DTAA and hence no part of income earned by the Assessee during the year ended 31 March 2007, from execution of the contract of GRSE, can be taxed in India. 19. Issue of taxability of payments received in USD The Assessee submitted that it had rendered services and raised invoices on GRSE separately, for services rendered outside India and services rendered in India. The local services had been rendered only through its independent Indian, sub-contractors and foreign services were r .....

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is a tax treaty between India and the country of the non-resident, there is no question of invoking section 9 of the Act. Article 13 of the DTAA deals with incomes under the head 'Royalties and Fees for Technical Services'. Even in relation to income of Gifford, a resident of the UK, Article 13 of the DTAA would not help the revenue authorities to bring it in the tax net, as services rendered outside India would have nothing to do with the PE in India. It was argued that thus, if any se .....

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entire services having been rendered outside India, the income arising there from cannot be attributable to the PE so as to bring it within the charge of tax. The distinction between existence of a business connection and the income accruing or arising out of such business connection is clear and explicit. It was pointed out that in the present case, the PE's non-involvement, in this transaction, excludes it from being a part of the cause of income and thus, there is no business connection. .....

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involved in Phase-II of the contract with GRSE involving the preparation of the engineering drawings and report. The said services were performed and carried out entirely from the UK with some support obtained from the independent Indian sub-consultants who were paid in INR from Rupee component of the contact value. 20. Without prejudice to the above contention, it was contended that even if the Assessee is deemed to have constituted a PE in India, then the taxability thereof, would be governed .....

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in this regard drew attention of the DRP to the commentary of Klaus Vogel on Double Taxation Conventions, wherein it has been stated as under: "As regards the profits made by the enterprise in the State of the permanent establishment, a distinction must always be made between those profits which result from the permanent establishment's activities and those made, without any interposition of the permanent establishment, by the head office or any other part of the enterprise ." It .....

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be applied to determine the respective right to taxation of different countries. The following observations of the Hon ble Supreme Court in this regard were brought to the notice of the DRP. "In cases such as this, where different severable parts of the composite contract is performed in different places, the principle of apportionment can be applied, to determine which fiscal jurisdiction, can tax that particular part of the transaction …… …………&he .....

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for a non-resident to be taxed on income for services, such a service had to be rendered in India, and had to be part of a business or profession carried on by such person in India. The appellants had provided services to persons resident in India, and through they had been used here, they had not been rendered in India . ……………………. ………………………… ..... However, even in relat .....

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.) wherein the transaction entered into by the assessee partly took place in one territory and partly in another. The Hon'ble High Court of Bombay referred to the decision in the case of Ishikawajma Harima (supra). The relevant extract is stated as under: "In the above judgement, Apex Court observed that "Section 9(J)(vii) of the Act must be read with section 5 thereof, which takes within its purview the territorial nexus on the basis whereof tax is required to be levied, namely, ( .....

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bove judicial pronouncement, it can be said that in case any part of the services are being rendered outside India then income should be apportioned so that the income from the services rendered outside India is not taxed in India. It was pointed out that the decision of the Hon ble Bombay High Court in the case of Clifford Chance (supra) was rendered post the amendment of section 9(1)(vii)(c) by the Finance Act, 2010 w..e.f. 1-6-1976, whereby the following explanation was added to Sec.9 of the .....

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;ble Bombay High Court observed that whatever is payable by a resident to a non- resident by way of fees for services would not always come within the purview of section 9(1 )(vii) of the Act. It must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax. It also laid down that section 9(1)(vii)(c) envisages the fulfilment of two conditions: services which are source of income sought to be taxed in India must be (a) utilised in India, and (b) rendered in Ind .....

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the utilisation of the service in India, as laid down by the Supreme Court, remains untouched and unaffected. 23. It was submitted that in the case of the Assessee it would be evident from the contract of the Assessee with GRSE, that services rendered by the Assessee from UK have nothing to do with the local activities which are separately performed and accounted for. Such offshore services rendered from outside India are independent and not connected with the activities carried on in India. It .....

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r section 115A of the Act on gross receipts by way of 'Fees for technical services' ('FTS') as provisions of section 44DA are not applicable from the facts and circumstances of the case. In this regard, the relevant provisions of section 115A of the Act, needs to be looked into. The same reads as under:- "115A(I) Where the total income of- (a) .......... (b) a non-resident (not being a company) or a foreign company, includes any income by way of royalty or fees for technical .....

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accordance with that policy, then, subject to the provisions of sub-sections (lA) and (2), the income-tax payable shall be the aggregate of,- (A) ............ (AA) ......... (B) The amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of thirty per cent if such fees for technical services are received in pursuance of an agreement made on or before the 31 st day of May, 1997 and twenty per cent where such fees for .....

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Such agreement was made after 31st day of May, 1997 but before the 1st day of June, 2005; and iii) such income does not fall within the purview of sub-section (1) of section 44DA of the Act. 25. It was claimed by the Assessee that in the instant case, there is no doubt that the Assessee fulfills condition (i) and condition (ii) as mentioned above. As regards condition no. (iii), the provisions of sub-section (1) of section 44DA of the Act needs to be analysed in light of the facts of the Assesse .....

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ofessional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head "Profits and gains of business or profession" in accordance with the provisions of this Act :" FTS would fall within the purview of section 44DA(1) of the Act, on .....

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does not have a PE in India in terms of section 92F(iiia) of the Act, the payments received from GRSE would not fall within the purview of section 44DA of the Act. As such, the Assessee would be entitled to the benefit of the provisions of section 115A of the Act and be taxed at 20% of the Gross receipts. 26. It was contended that the definition of PE under the Act has a much narrower meaning as compared to that in the DTAA. As such, an instance of PE being established under the provisions of th .....

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place of business is constituted only where there is a physical location at the disposal of foreign enterprise. Disposal would imply right to use the premises at any point of time and for whatever purposes. If no right is created in favour of the employees of the foreign company to enter the office of the Indian company as they pleased for the purpose of carrying out whatever activities of the foreign company, then the office of the Indian company could not be viewed as a projection of the fore .....

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to GRSE's contract. 27. In view of the above, it was contended that the Assessee did not haveg a PE in India in terms of section 92F(iiia) of the Act and accordingly tax ought to have been levied at 20% on the Gross receipt of the Assessee under the provisions of section 115A of the Act. This contention of the Assessee was however, without prejudice to the contention that the Assessee does not have a PE in India in terms of the DTAA and its entire income is not chargeable to tax. 28. Issue o .....

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placed reliance on the decision of the Hon ble Supreme Court in the case of Goetz (India) Ltd. (supra) wherein it was held that claim made in the course of assessment proceedings without filing a revised return of income, cannot be entertained by the AO. In this regard, the Assessee placed reliance on the decision in the case of Chicago Pneumatic India Ltd. vs. DCIT 15 SOT 252 (2007) (ITAT) (Del). The Delhi ITAT, in the context of allow ability of new claims during the assessment proceedings wit .....

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e of Goetz (India) Ltd., (supra) in the following manner: ….As far as the decision of the Hon'ble Apex Court in the case of Goetze (India) Ltd. (supra) is concerned, there is no dispute that the same is binding on everybody concerned. In the said decision, the Hon'ble Apex Court has also ruled that Appellate Tribunal may adjudicate the issue if a claim is made by any party subject to satisfaction of prescribed rules, hence, even the Hon'ble Apex Court has not barred the assess .....

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e, this situation has necessarily to be looked upon from the angle of duties of Assessing Authorities as stated earlier, CEDT is the Apex body for tax administration and it can also issue directions which are for the benefit of the assessee's though such directions may not be inconsonance with the provisions of law, hence, if a circular is now issued directing the assessing authorities to grant reliefs/refunds while completing the assessment proceedings, even though such circular may be at v .....

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me and for this purpose, the Assessing Officer may grant reliefs/ refunds suo motu or can do so on being pointed out by the assessee in the course of assessment proceedings for which assessee has not filed revised return, although, as per law, the assessee is required to file the revised return ..... " Further, reliance was also placed on the decision in the case CIT vs Ramco International 221 CTR 491 (2008) HC (P&H) wherein the Punjab and Haryana High Court, distinguished the judgement .....

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Assessee submitted before the DRP that it had entered in a contract with GRSE for rendering consultancy services for modernisation of their shipyard project. The scope of work envisaged -Preparation of concept plan, preliminary project report (PPR) and detailed project report (DPR). -Design, detailed engineering, drawing and tender documents for works contract. -Project management and construction supervision services. The scope of consultancy services was to be rendered partly from the UK. and .....

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he UK and the consideration of Rs.l0,637,462 for rendering such services was paid by the head office of the Assessee from their Sterling account, maintained in the UK. No part of the Appledore's fees were paid in India. No taxes were deducted by the Assessee on the remittances made to Appledore. In course of the assessment proceedings, the ld. AO requested the Assessee to explain as to why the payment, made by the head office of Gifford, without deduction of tax, should not be disallowed u/s .....

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ts made to Appledore. 31. It was submitted that tax is deductible under section 195 of the Act when any sum chargeable to tax under the provisions of the Act, is paid to a non-resident, not being a company, or to a foreign company. Payment was made by Gifford who is a resident in the UK to Appledore who is also a resident in the UK. Such payments were made for and services rendered in the UK. The Assessee also pointed out that it would be erroneous to assume as if services rendered by the head o .....

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ing or arising outside India, shall not be deemed arising in India, within the meaning of this section, by reason only of the fact that it has been taken into account in a Balance sheet prepared in India. Therefore, only by reasons of the fact that the payment was made to Appledore by the head office of Gifford in the UK and that such payment is taken into account in the balance sheet of PE in India, it shall not be automatically considered that such income of Appledore is income received in Ind .....

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quot;That, in relation to offshore services, section 9(I)(vii)(c) required two conditions to be met: to be taxable in India the services which were the source of the income sought to be taxed had to be rendered in India as well as utilised in India. In this case, both these conditions were not satisfied simultaneously, thereby excluding the income from the ambit of taxation in India. Thus, for a non-resident to be taxed on income for services, such a service had to be rendered within India, and .....

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in the purview of section 9(1)(vii)(c) of the Act. It must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax. Whereas a resident would come within the purview of section 9(1)(vii) of the Act, a non-resident would not, as services of a non-resident to a resident utilised in India may not have much relevance in determining whether the income of the non-resident accrues or arises in India. It must have a direct live link between the services rendered in Ind .....

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ource of income sought to be taxed in India must be (1) utilised in India and (2) rendered in India. In the present case, both these conditions have not been satisfied simultaneously. 33. It was submitted that it is true that the Finance Act 2007 has amended section 9 of the Act, with retrospective effect from 1.6.1976, by insertion of an explanation after sub-section (2) providing that interest, royalty, technical fees, will be taxable in India "whether or not the non-resident has a reside .....

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sidered the issue in a recent case in the matter of Cl'I' vs. Siemens Aktiongesellschaft (2009) 310 ITR 320 BOM). The issue was whether the Double Taxation Avoidance Agreement between India and Germany overrides the domestic law, which treats the royalty to be taxable as Indian income. Double Taxation Avoidance Agreement between India and Germany provides that in respect of Royalty and Technical Fees, where it is paid as a part of business agreement, the element of Royalty and Technical .....

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endment under the domestic law can have no effect. Therefore, the decision of the Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. is still a valid law and the said decision is squarely applicable to the subject case. 34. It was submitted that Article 13(4) defines FTS to mean payments of any kind, to any person, in consideration for the rendering of any technical or consultancy services (including the provision of services of technical services or other personnel) which: ( .....

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tion of FTS has two parts. The first part deals with rendering of any technical or consultancy services which are ancillary and subsidiary to the application or enjoyment of the right to use property for which payment is received as "Royalty" as defined in paragraph 3(a) & 3(b) of Article 13 of the DT AA. The contract with GRSE envisaged only for rendering consultancy services for modernisation of the shipyard project and did not involve transfer of any right to use property for wh .....

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skill, etc. In other words, the technical knowledge, experience, skill, etc. must be made available to the Assessee, so as to be covered within its scope, and mere providing of such services, without making them available to the Assessee, shall not serve the purpose and hence, will be outside the ambit of the Article. "Rendering of any technical or consultancy service" is followed by "which made available technical knowledge, experience, skill and know-how". In this context .....

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c) of article 13 (4) does not stop at that. 1t carves out a qualification thereto by employing the words "which make available technical experience, skill, know-how or processes". Rendering technical or consultancy service is followed by a relative pronoun "which" and it has the effect of qualifying the services. That means, the technical or consultancy service rendered should be of such a nature that "make available" to the recipient technical knowledge, know-how a .....

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to the terminology "make available", the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and a lot of technical knowledge and experience of the service provider would have gone into it. But that is not enough to all within the description of services which make available the technical knowledge, etc. The technical knowledge or .....

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the clinical reports. The service rendered by the doctor cannot be said to have made available to the patient, the knowledge and expertise possessed by the doctor. On the other hand, if the same doctor teaches or trains students on the aspects of diagnosis or techniques of surgery. that will amount to making available the technical knowledge and experience of the doctor. It was pointed out that similar view has been taken in the case of Mahindra & Mahindra vs. DCIT (2009-TIOL-255- ITAT-MUM-S .....

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owledge, skill, etc. as a result of service provided to it, which can be subsequently utilized by it. Thus, payments made by it, for services provided do not fall within the scope of FTS, as laid out in Article l3( 4)( c) of DT AA and, as such, the payments made by the Assessee were not taxable in India and the Assessee was not under obligation to deduct tax. It was thus submitted that Article 13 of the DTAA does not apply to the instant case. Payment made by head office of Gifford to Appledore .....

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e of ₹ 9,684,307 was been booked as 'Consultancy charges'. The invoices relating to the same were submitted to the AO. The Id. AO, in the impugned order, was of the view that the following invoices, pertained to work done during the period prior to the relevant previous year relating to AY 2008-09. He therefore disallowed the claim of the Assessee for deduction of the following expenses as prior period expenses: Invoice raised by Amount (Rs.) Description of work Period of work Date .....

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he benefit of deduction of such expenses in computation of its total income. The only area of doubt is the period for which such deduction is to be claimed. The Id. AO in the impugned order has not allowed the deduction for the said expenses during the year under review, however, the Id. AO did not comment on the period in which the deduction should be allowed. The limited prayer of the Assessee before the DRP was to give credit for such consultancy charges amounting to ₹ 30,09,179, either .....

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ar ended 31 March 2007, the net consideration (net of TDS borne by GRSE) received in USD (converted into INR) amounted to ₹ 24.393,589. It was submitted to the Id. AO that the 'grossing up' was done as per the provisions of section 195A of the Act, for the purpose of computation of TDS liability and that there is no need to recognize such notional income as there is no provision either in section 2(24) or in section 28 of the Act for deeming the same as income/profits and gains fro .....

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d back to the total income of the Assessee. The limited prayer of the Assessee before DRP was to direct the Id. AO be directed to give consequential relief to the Assessee with regard to grossing up of the income, once the first grounds of objection is decided in favour of the Assessee. 40. Besides the above objections, the Assessee also raised issues with regard to the action of the AO in not granting credit for taxes deducted at source as claimed by the Assessee. The levy of interest u/s.234-B .....

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to pay advance tax of the Assessee would be less than ₹ 5000 and therefore no interest u/s.234B of the Act could be levied. The Assessee in this regard placed reliance on the decision of the ITAT Delhi in the case of Sedco Forex International Drilling Vs. DCIT 72 ITD 415 (Del). 41. The DRP dealt with the issues raised by the Assessee as follows: 5. Ground No. 1 - Permanent Establishment of the Assessee in India: (a) On perusal of the Contract of Consultancy Services for Modernization of G .....

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ial use by GRSE. The consultancy fee for the whole Contract was agreed upon to be paid as a lump sum amount in USD and lNR as per the convenience of the assessee. There is no mention in the Contract of the name of the foreign sub-consultant for payment in the foreign currency and the nature of consultancy services to be rendered by the foreign sub-consultant. GRSE was to make payment or remit the consideration amount on the basis of bills to be raised by the assessee as consultant in the bank ac .....

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that GRSE would provide to the consultant i.e. the assessee air-conditioned office space of about 50 sq. mt. inside the Garden Reach Shipyard with a telephone and fax facility for the duration of the Contract and the consultant had to bear the charges for local, STD & ISD calls, faxes & e-mail for all the three stages of the project. These facts as per the Contract clearly indicate that the assessee maintained permanent office in India for rendering consultancy services to GRSE. Article .....

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fice, 43/46, Garden Reach Road, Kolkata- 700024". Moreover, the assessee filed its returns for the year under consideration as well as for earlier years as PE in India and accounted for the entire consultancy fees received from GRSE both in foreign currency as well as in rupees and also claimed deduction of all the expenses. The assessee has not disputed the taxability of consultancy fees received in rupees as PE in India and disputed the taxability of consultancy fees received in USD only .....

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had PE in India for the entire amount of consultancy fees received from GRSE. b) In view of the discussions at (a) above, the Panel is of the considered view that the AO was justified in holding that the income earned by the assessee in USD for execution of the Contract was attributable to its PE in India and hence taxable in India. c) In view of the Panel's view as expressed above that the assessee had PE in India for the entire amount of consultancy fee received from GRSE and on the facts .....

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The assessee filed the return of income as PE in India and disclosed the entire income received in USD & in INR. In course of the assessment proceedings, the assessee made a fresh claim that it did not have any PE in India, and without prejudice to this claim, the income earned by it in USD was not connected to the PE in India. The AO besides dealing with the assessee's fresh claims on merits held that the assessee's fresh claims without filing a revised return could not be entertain .....

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in view of the CBDT's Circular F. No. 81/27/65-ITCB), dated 18th May, 1965. The facts of the cited case law were that the assessee made claim for deductions u/s.80HH & 801 in the original return and later filed a revised return in which the claim of deductions u/s.80HH & 801 was not revised; however, the assessee made revised claim of said deductions by filing a revised working during the assessment proceedings. It is evident that the claim of deductions u/s.80HH & 801 was not a .....

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im. In the assessee's case, the fresh claims as above were contrary to . the assessee's stand in the earlier years and were not in the nature of any deduction which could be allowable being a patent and undisputed mistake in the computation of income. In fact, the assessee disputed the taxability of income / receipt in USD under charging Sections of the Act and also the basic issue of its status as PE. Therefore, the decision cited by the assessee has no relevance to the facts of the ass .....

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per law. The ratio of this decision also does not support the assessee's contention. In view of the above discussions, the Panel is of the considered view that the AO rightly held that the fresh claims made by the assessee without filing a revised return could not be entertained in the light of the decision of Apex Court in the case of Goetze (I) Ltd. vs. CIT, 284 ITR 323. 6. Ground No. 2 - Payments made to Appledore: a) As per the Contract, the assessee as a consultant was required to rende .....

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y it to Gifford in connection with GRSE project located in India. The entire amount of consultancy fee was included in the accounts of PE and expenses by way of payment to Appledore were claimed in the accounts of PE. The place of services rendered by Appledore and also the place of payment made to Appledore were immaterial as long as the source of income was in India and the expenses were claimed against the receipts arising from the said source of income. Section 9 of the LT. Act, 1961 was ame .....

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or business connection in India; or (ii) the non-resident has rendered services in India." In view of the above stated amendment, the income by way of fees for technical services payable by a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India, was deemed to accrue or arise in India, whether or not the non- resident .....

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case of CIT vs. Siemens Aktiongesellschaft (2009) 310 ITR 320. Therefore, the AO was justified in law by holding that the principles laid down in the above mentioned decisions did not apply to the assessee. c) The 'sub-consultancy' agreement of the assessee with Appledore was for 'Design Consultancy Services'. The items of 'sub-consultancy' services as listed in Schedule - 1 of the said agreement included Scope of Sub-Consultancy Services for Shipyard Modernization, Conc .....

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re is a branch of Engineering and preparation and submission of 'drawings' or 'design' by the Architect is in the nature of technical services. Therefore, the Appledore had also provided technical services by providing the design or review report as per the items of subconsultancy services specified in the 'sub-consultancy agreement'. Therefore, the AO was justified in bolding that the payment made by the assessee to Appledore was for transfer of technical plan or technic .....

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ts the finding of the AO because the technical report and design prepared and submitted by Appledore were for the specific GRSE project and the same was to be utilized only by GRSE and no one else for the entire period until the completion of the said. project and even afterwards for diagnosing and correcting any fault in the project, if noticed at a later date. As such, the technical knowledge, design and experience of Appledore were made available to the assessee who in turn made the same avai .....

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ingly the assessee was required to deduct tax at source u/s. 195 of the Act. If the assessee had a view that the said payment was not chargeable to tax under the Act, then it would have made an application under sub-Section - 2 of Section 195 of the Act to the Assessing Officer seeking an order to that effect. The assessee did not do so and took the plea of non taxability of the payment to Appledore only when the AO required the assessee to explain why the said payment claimed as expenditure sho .....

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A.y. 2007-08. The said expenses did not crystallize during the previous year relevant A.Y. 2007- 08 because the invoices were raised in the previous year relevant to A.Y. 2008- 09. The AO was, therefore, justified in disallowing the above expenses. However, the assessee's request for allowing the deduction of the above expenses in A.Y. 2008-09 may be considered by the AO as per law. 8. Ground No. 4 - Grossing up: The assessee's contention that the 'grossing up' was done as per t .....

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him was otherwise correct in law. The amount of tax deducted at source is deemed income of the payee (i.e. the assessee) as per the provisions of Section 198 of the Act. The payer (i.e. GRSE) of the income treated the amount of TDS as part of outgoing for the purpose of claiming deduction in its computation of total income. Section 199 states that the credit for TDS can be granted to the payee only when the income on which the tax at source has been deducted is included in the computation of tot .....

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ssed the fair order of assessment dated 21.9.2010 giving effect to the directions of the DRP. Aggrieved by the order of the AO dated 21.9.2010, the Assessee is in appeal before the Tribunal. The grounds of appeal raised by the Assessee reads thus: I. For that the Assessing Officer and Dispute Resolution Panel (hereinafter collectively referred to as the 'authorities below') erred in holding that that the Appellant is having a Permanent Establishment ('PE') in India in terms of Do .....

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ties below erred in holding that any income not attributable to the activities performed in India cart be charged to tax in India as or for any reason alleged or at all; IV. For that the authorities below erred in holding that the Appellant's claims that it did not have any PE in India or that the income earned in respect of the activities outside India in USD was not assessable in India, could not be entertained without filing a revised return: V. For that the authorities below erred in dis .....

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and unsustainable on facts and in law; VII. For that the authorities below erred in disallowing a sum of ₹ 2,858,996 on the ground of delayed deposit of tax deducted at source; VIII. For that the authorities below erred in holding that a sum of ₹ 3,733, 151 was to be added to the income on account of grossing up; IX. For that the authorities below erred in holding that any interest could be charged under section 234B and/ or 234C of the Act. The Appellant craves leave to add, alter, .....

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om. It is engaged in the business of providing consultancy services for execution of projects. Garden Research Shipbuilders and Engineers Ltd.,(GRSE) is a Government Company. GRSE was desirous of carrying out modernisation of its existing shipyard and approached the Assessee to provide conlsultancy service for modernisation of GRSE s Garden Research Shipyard. The terms of the Agreement between the Assessee and GRSE is contained in an agreement dated 29.4.2004 which later was amended by memorandu .....

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as GRSE may approve. 46. The scope of work to be carried out by the Assessee for GRSE as per the agreement can be divided into three phases: Phase -1 Preparation of a macro level concept plan for the modernization of the entire ship building yard including the installation of a Ship Lift, considering a new Modular shop and improvements to the module building, module handling and transporting, pre-outfitting, material planning and control and all other practices in order to achieve the level and .....

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etailed requirements of Services/ Facilities, estimates of power requirements, provision of Sub- station, Compressed Air etc; Preparation of draft tender documents for the various packages; and Obtaining timely approvals from various statutory bodies. During the previous year relevant to AY 2007-08, the Assessee was involved in the activities pertaining to this phase. Phase - III Issuance of the detailed working drawings to the Contractors (separate from the Assessee), as independently selected .....

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e Agreement provides as follows: 3.10. DOCUMENTS PREPARED BY THE CONSULTANT TO BE THE PROPERTY OF GRSE All plans, drawings, specifications, designs, reports and other documents prepared by the Consultant in performing the Services shall become and remain the exclusive property of GRSE, and the Consultant shall =, not later than upon termination or expiration of this Contract, deliver all such documents to GRSE, together with a detailed inventory thereof. The Consultant shall not use the said doc .....

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re and all other technical resources, have submitted their offer to provide all required technical and ancillary services for providing Consultancy Services for Modernisation of Garden Reach Shipyard and whereas GRSE have accepted the said offer of the Consultant under the terms and conditions as mentioned hereunder. 49. The manner in which the services are rendered by the Assessee under the Agreement necessarily involves visit by the Assessee s representative to the existing shipyard of GRSE, c .....

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s etc.), which does not require much of presence of the representatives of the Assessee in India. The details of the man hours spent in India and in UK for rendering services to GRSE have been given at page-106 of the paper book and it shows that only 234 man hours were spent in India and 6,360 man hours were spent in UK. The claim of the Assessee in this regard has not been disbelieved by the revenue authorities. The sub-consultant of the Assessee in UK, M/S.Appledore, was rendering services fr .....

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is given at pages 107 & 108 of the paper book. The same is also given as an annexure to this order for better appreciation of facts. The billing in USD are services claimed to have been rendered from UK and the billing in India rupee are for services rendered in India. 50. From the nature of the services to be rendered by the Assessee there can be no doubt that the payment in question falls within the definition of Fees for Technical Services as given in Sec.9(1)(vii) (b) read with Explanati .....

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r for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : …… Explanation [ 2].-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for th .....

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2 as under: "Explanation. - For the removal of doubts, it is hereby declared that for the purpose of this Section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-Section (1) and shall be included in the total income of the nonresident, whether or not, - (i) the non-resident has residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India." In view of .....

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endment to Section 9 of the Act, by the Finance Act, 2010 the decision of the Supreme Court in the case of Ishikawajma Harima Heavy Industries Ltd. vs. CIT, 288 ITR 408 as well as the decision of the Bombay High Court in the case of CIT vs. Siemens Aktiongesellschaft (2009) 310 ITR 320, rendered in the context of the law that prevailed prior to the aforesaid statutory amendment will not be of any help to the plea of the Assessee. As far as the decision of the Hon ble Special Bench ITAT in the ca .....

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of the India-UK Treaty is not applicable because the stay of the partner exceeded 90 days, then the taxability of the income would be determined by s. 9(1)(i) of the Act. It was held that for determination of income u/s 9(1)(i), the territorial nexus doctrine plays an important part and if the income arises out of operations in more than one jurisdiction, it would not be correct to contend that the entire income accrues or arises in each of the jurisdictions. The High Court applied the law laid .....

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, was not considered at all by the Tribunal. 52. Having held that the income in question accrues and arises in India and therefore taxable in India, we will now proceed to examine the taxability of the income in question under the DTAA between India and UK. Article 13 of the DTAA provides for taxation of income in the form of Fees for Technical Services between the source country (India) and the resident country (UK). The relevant clauses of the DTAA provides as follows: ARTICLE 13 ROYALTIES AND .....

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l not exceed : (a) In the case of royalties within paragraph 3(a) of this Articles, and fees for technical services within paragraphs 4 (a) and (c) of this Article - (i) During the first five years for which this Convention has effect ; (aa) 15 per cent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first mentioned Contracting State or a political sub-division of that State, and (bb) 20 .....

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subject to paragraph 5, of this Article, the term "fees for technical services" means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ; or (b) are ancillary and subsid .....

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er Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 (Business profits) or Article 15 (Independe .....

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th which the obligation to make payments was incurred and the payments are borne by that permanent establishment or fixed base then the royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 52. The nature of services rendered by the Asseessee under the Agreement with GRSE was of the nature of technical or consultancy service and would be providing Technical services within the meaning of the DTAA .....

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ment of the right, property or information for which a payment described in paragraph 3(a) of this Article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received: or (c) make available technical knowledge, experience, skill, know-how or processes, or consist of development and transfer of a technical plan or technical design. The definition of FTS has two parts. The first part deals with render .....

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es are payable. Hence, there is no application of the first part of the definition in the subject case. The second part of the definition relates to the fees for rendering any technical or consultancy services which are made available to the Assessee. 54. As far as applicability of Clause (c) of Article 13(4) of the Indo-UK DTAA is concerned, it has been the contention of the Assessee that the said clause contemplates that fees paid should be for making available of the technical knowledge, expe .....

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ntion of the Assessee is that the meaning of the expression "make available" has been considered in several judicial pronouncements and the essence of those decisions was that , the technical or consultancy service rendered should be of such a nature that "make available" to the recipient technical knowledge, know-how and the like. The service should be aimed at end result in transmitting the technical knowledge, etc., so that the payer of service could derive an enduring ben .....

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lar contract comes to an end. The services offered may be the product of intense technological effort and a lot of technical knowledge and experience of the service provider would have gone into it. 55. We have already seen clause 3.10 of the Agreement between the Assessee and GRSE (see para-47 of this order) which provides that all plans, drawings, specifications, designs, reports and other documents prepared by the Consultant in performing the Services shall become and remain the exclusive pro .....

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c.115A of the Act. 56. As can be seen from a reading of Article 13(6) of the DTAA, Fees for technical services shall not be taxed under Article 13(2) if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixe .....

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he DTAA. That would depend on the question whether the Assessee had a permanent establishment in India. In all Double Taxation Avoidance Agreement the basic concept is that an enterprise should be liable for tax on profits earned in a country that is not the country of residence of the enterprise, unless the enterprise has a real and significant or substantial economic nexus with the country in which the profits accrue. An enterprise will only have such a real and significant or substantial nexu .....

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ch the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" shall include especially : (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) premises used as a sales outlet or for receiving or soliciting orders; (g) a warehouse in relation to a person providing store facilities for others; (h) a mine, an oil or gas well, quarry on other place of extraction of natural resources; (i) an installation or struct .....

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exceed 10 per cent of the sale price of the machinery and equipment; (k) the furnishing of services including managerial services, other than those taxable under Article 13 (Royalties and fees for technical services), within a Contracting State by an enterprise through employees or other personnel, but only if: (i) activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve-month period; or (ii) services are performed within that S .....

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o be used in, the prospecting for, or extraction or production of, mineral oils in that state. 3. . The term "permanent establishment" shall not be deemed to include: (a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display; (c) the maintenance of a stock of goods or merchandise belonging to th .....

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rovision shall not be applicable where the enterprise maintains any other fixed place of business in the other Contracting State for any purpose or purposes other than the purposes specified in this paragraph; (f) the maintenance of a fixed place of businesses solely for any combination of activities mentioned in sub-paragraphs (a) to (e) of the paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. .....

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or merchandise for the enterprise; or (b) he habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise from which he regularly delivers goods or merchandise for or on behalf of the enterprise; or (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and the enterprises controlling, controlled by, or subject to the same common control, as that enterprise. 5. An enterprise of a Cont .....

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a controlling interest in it or are subject to same common control) he shall not be considered to be an agent of an independent status for the purposes of this paragraph. 6. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent est .....

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stipulates three criteria viz., (a) Place of business i.e., some physical presence e.g., some premises or equipment, which are used in business; (b) Place of business should be fixed in the sense that it is a distinct place which exhibits some degree of permanence. The fact that an enterprise has a certain amount of space at its disposal, which is used for business activity is sufficient to constitute a place of business. No formal legal right to use that place is therefore the requirement. (c) .....

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has been the contention of the Assessee that for a place or an office to be treated as PE. it must be at the disposal of the enterprise i.e. the assesssee must be able to occupy the premises in its own right and use the same for the purpose of carrying its business in India. It has been the stand of the Assessee that it does not have any office branch or fixed place of business in India. It was maintaining its books of accounts relating to the GRSE project and complying with taxation matters in .....

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at the project site, does not satisfy the 'Fixed place of business test' as the said premises was not used by the Assessee for its own business, but rather it was used only for the limited purposes of executing the contract undertaken for the customer, i.e. GRSE wherein in the contract between GRSE and the Assessee it has been mentioned that the employees of the Assessee at the GRSE premises would have to observe the rules and regulations of GRSE. 60. In this regard it is worthwhile to .....

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arrying out the business in India by Assessee. The Office place provided by GRSE therefore cannot be occupied by Assessee or their personnel as a right for carrying out their business in India. It has been the further stand of the Assessee that the use of such premises is further restricted as Appendix 1.3 of the contract specifically provides that the consultant when working inside the premises of GRSE, shall observe GRSE's rules and regulations and special permissions shall be obtained whe .....

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e premises need not be owned or even rented by the enterprise, provided they are at the disposal of the enterprise .... This has given rise to some difficulties where premises are made available to a foreign enterprise for the purposes of carrying out particular work on behalf of the owner of the premises in that situation, the space provided is not lit the disposal of the enterprise since it has no right to occupy the premises but is merely given access for the purposes of the project. ...... t .....

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permanent establishment, the mere presence of an enterprise at a particular location does not necessarily mean that that location is at the disposal of that enterprise. " 63. Attention was also drawn to the decision of the Special Bench ITAT in the case of Motorola Inc. 95 ITD 269 (Delhi-SB) wherein while dealing with the issue of 'Disposal Test' the Special Bench has held as under: Disposal would imply right to use the premises at any point of time for whatever purposes. In other .....

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n gratis that they could enter the office of ECI for the work of Ericsson. That did not create any right in the favour of the employees of Ericsson to enter the office of ECI as they pleased for the purpose of carrying out the activities of Ericsson. Nor did it create any impression in the minds of the business customers of Ericsson in India that the office of ECI could be viewed as a projection of Ericsson 's activities in India". 64. Reliance was also placed on the decision of ITAT in .....

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n enterprise for the purpose of its own business activities. This place has to be owned, rented or otherwise at the disposal of the assessee, and a mere occasional factual use of place does not suffice. .... 13. It is thus necessary that, in order to give a positive finding about existence of the PE, not only that there should be a physical location through which the business enterprise is carried out, but also such a place should be at the disposal of the foreign enterprise in the sense that fo .....

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r when that consignment is given for standby purposes to the airline. It is thus clear that not only that the assessee did not have any right to use the location of consignment stock, such a location was also not used for the purposes of assessee's business. There is also no projection of the assessee at this physical location in the sense that the business of the assessee is not carried out, or sought to be carried out or even projected, from these locations. When the physical locations at .....

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sal test so as to make it a PE. - Even the use of the premises for providing services under the contract is restricted as the Assessee and its personnel had to observe GRSE's Rules and Regulations and require special permission to use such office premises beyond normal working hours. 66. The learned DR relied on the following circumstances to substantiate the conclusion of the Revenue authorities that there existed a PE of the Assessee in India viz., a) Article- 5 of the India-UK DTAA define .....

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xes & e-mails for all the three stages of the project. b) It the course of assessment proceedings, the A.O. sent his Inspector to the Garden Reach Shipyard to conduct enquiry and the enquiry revealed that one Shri Subrata Mitra was available there as Resident Engineer of "Gifford" and the address printed on his visiting card was - "Consultant's Kolkata Office, 43/46, Garden Reach Road, Kolkata- 700 024. c) According to Appendix 1.3 of the Contract between the Asssessee and .....

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of technical nature in terms of provisions of section 9(1)(vii) of the Income- tax Act, 1961 read with Article 13 of the India-UK DTAA and the contract as a whole in respect of which the fees for technical services arose and that such payment was effectively connected with the PE in India. Therefore, Article 13(6) would apply and the gross receipts by way of fees for technical services (received by the assessee both in foreign currency and Indian currency) are includible in the computation of b .....

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ts, the DR relied on the order of the AO/DRP. 68. We have given a very careful consideration to the rival submissions. Clause 5.2 of the Agreement for rendering of consultancy and technical services between the Assessee and GRSE reads thus: 5.2. SERVICES, FACILITIES AND PROPERTY OF GRSE GRSE shall make available to the Consultant s Personnel for the purpose of the Services, facilities and property described in Appendix-1.4. APPENDIX-1.4 of the Contract reads thus: FACILITIES TO BE PROVIDED BY GR .....

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ts, when working inside GRSE premises shall observe GRSE s rules and regulation and a special permission shall be obtained when it is necessary to work beyond normal working hours as per the requirement of Project work. 69. The presence of the Assessee in India during the previous year was only in connection with the Agreement for modernisation of shipyard of GRSE. The Assessee had not carried on any other business in India. The provision of office space inside the Garden Reach Shipyard cannot t .....

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ess in India but the Assessee should carry on business in India through that fixed place of business. This requirement of Article 5(1) of the DTAA is not satisfied in the present case. Carrying on of business involves the carrying on in a country of virtually any activity related to the business of the enterprise. As we have already seen the availability of office space for use by the Assessee at the premises of GRSE was for the limited purpose of rendering of services agreed between the Assesse .....

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RSE cannot be the basis to come to a conclusion that there was an admission by the Assessee that it had a PE in India. Existence of PE in India has to be established on the basis of evidence and by application of the requirements as contemplated in DTAA. 70. On the question whether the Assessee having filed a return of income admitting income on the basis that it had a PE in India can thereafter make a claim that there was no PE of the Assessee in India without filing a revised return of income, .....

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ited decisions, the tribunal and the Hon ble High Court has taken a view that a claim made without filing a revised return of income can be entertained. In the case of Ramco International (supra) the Hon ble Punjab and Haryana High Court, distinguished the judgement of Goetze allowed the claim of the Assessee which was made in course of the assessment proceedings and not by filing revised return. In view of the above judicial pronouncements, we are of the view that the action of the ld. AO of no .....

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. A reading of Article 13(2) of the DTAA (reproduced in the earlier part of this order) would show that taxation has to be in according with the Act. The provisions contained in the Act in this regard are Sec.115A of the Act. In this regard, the relevant provisions of section 115A of the Act, needs to be looked into. We have already reproduced the provisions of Sec.115A of the Act and Sec.44AD of the Act in the earlier part of this order. U/S.115A of the Act, Income by way of FTS received by a n .....

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see fulfills condition (i) and condition (ii) as mentioned above. As regards condition no. (iii), the provisions of sub-section (1) of section 44DA of the Act, FTS would fall within the purview of section 44DA(1) of the Act, only if it is actively connected to the PE of the non-resident in India. PE for the purpose of this section has been defined in section 92F(iiia) of the Act which reads as under:- "(iiia) "permanent establishment", referred to in clause (iii), includes a fixed .....

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need to be grossed up for arriving at Gross receipts of the Assessee and after such grossing up such receipts have to be taxed at 20%. We hold accordingly. 74. In view of the above conclusion, the issue with regard to disallowance of prior period expenses, disallowance u/s.40(a)(i) & 40(a)(ia) of the Act, do not require any consideration as those disallowances will not be relevant when income is taxed u/s.115A of the Act. 75. The next aspect that needs to be considered is the levy of intere .....

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uld be less than ₹ 5000 and therefore no interest u/s.234B & 2234-C of the Act could be levied. The Assessee in this regard placed reliance on the decision of the ITAT Delhi in the case of Sedco Forex International Drilling Vs. DCIT 72 ITD 415 (Del). In this regard reliance was also placed on the decision in the case of Motorola Inc. and others v. DCIT (supra), wherein the Hon'ble Tribunal has held that no interest is payable by a taxpayer if his entire tax was deductible at source .....

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the advancetax. They are entitled to take into account the tax which is deductible by the payer. though not actually deducted. Consequently, there is no liability to pay interest. The decision of the CIT(A) to cancel the interest U/S 234B is upheld on merits. " The issue was confirmed by the Delhi HC in the case of DIT vs. Ericsson AB [2011] 16 taxmann.com 371 (Delhi). Reliance was also placed on the decision in the case of DIT vs. Jacobs Civil Incorporated [2010] 194 Taxman 495 (Delhi) (Pa .....

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(1) (d) of the Act. For this reason. it would not be permissible for the Revenue to charge any interest under Section 234B of the Act. . Reliance was also be placed on following decisions laying down identical proposition as set out above. DIT(lnternational Taxation) v Maersk Co. Ltd. 2011) 198 Taxman 518 (Uttarakhand) (FB). Sedco Forex International Drilling v Dy ClIT [2000] 72 ITD 415 (Del); Rheinbraun Engg. & Wasser Gmbh v DCIT 1. T. A 0.1915/ Born / 96 dated 3 October 1997 (Bom); M.M. R .....

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(d) lays down four situations under which advance tax payable by the assessee is to be computed. In the present case we are not concerned with clauses (a) to (c). Clause (d) of sub-Section (1) of Sec.209 is relevant for the present case and it reads thus:- "(d) The income-tax calculated under clause (a) or clause (b) or clause (c) shall, in each case, be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year under any provision .....

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.e. any person responsible for paying to a non-resident, to deduct income tax at source at the rates in force from such payments excluding those incomes which are chargeable under the head 'Salaries'. Therefore, the entire tax is to be deducted at source which is payable on such payments made by the payee to the nonresident. Sec.201 of the Act lays down the consequences of failure to deduct or pay. These consequences include not only the liability to pay the amount which such a person wa .....

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