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HITT Holland Institute of Traffic Technology B.V. Kolkata Versus D.D.I.T. (Intl. T) -1 Technology B.V. Kolkata Kolkata.

Transfer of copyrights - India-Netherlands DTAA - whether the consideration received for provisions of such services is taxable as FTS under the provisions of India- Netherlands DTAA or not? - PE in India - Held that:- The action of the DRP in directing the treat the sum of Euro 154655 as FTS cannot be sustained. A perusal of the invoice in this regard together with the purchase order clearly shows that what the Assessee did was installation, testing and commission and training. The training was .....

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- Assessment of income from Gulf of Kuchch (GOK) Project - PE in India - Held that:- For constituting Installation PE within the meaning of Article 5(3) of the India-Netherlands DTAA the test of duration of time for which the activities are carried out in India becomes relevant. In the present case the question is computation of the duration of time. The supply of equipments that have to be installed by the consortium could be said to be a direct preparation for coming into existence of an .....

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d that an installation PE has come into existence. There are no circumstances brought out to show that the parties resorted to treaty abuse. In the given circumstances, we are unable to uphold the findings of the DRP that there existed an Installation PE of the Assessee and profit arising out of off-shore supply of equipments are attributable to the installation PE and therefore taxable in India as business profits. Since the Assessee did not have a PE in India, such profits cannot be brought to .....

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f the revenue that the independent contractor of the Assessee in India created a virtual presence of the Assessee in India so as to create an installation PE, given that the entire onshore maintenance contract has been performed by an independent local contractor in India, it cannot be said that the business of the Assessee has been carried out by the presence of the local contractor in India, so as to create its PE in India. The examination of whether a PE exists needs to be determined based on .....

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m of income has to be attributed to the PE in India that is agitated in Gr.No.D-3 & 4 do not require any consideration. - Taxation of income arising out of Extra Work Contract performed by the Assessee in respect of contract with ONGC for supply, installation, testing and commissioning of Vessel and Air Traffic Management System (VATMS) - Held that:- The revenue cannot bifurcate the consideration towards software and license embedded in the equipment from the combined sale value of the equip .....

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ider the TDS certificate produced by the Assessee and after verification allow credit for prepaid taxes without insisting on the TDS being reflected in Form 26AS. The ground is treated as allowed. - I.T.A No. 574/Kol/2014 - Dated:- 8-2-2017 - Sri N.V.Vasudevan, JM and Dr.Arjun Lal Saini, AM For The Appellant : Shri S.K.Agarwal, AR For The Respondent : Shri.G.Mallikarjuna, CIT(DR) ORDER Per N.V.Vasudevan, JM This is an appeal by the Assessee against the order of D.D.I.T.(IT)-1, Kolkata (also refe .....

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atural Gas Corporation of India ("ONGC"), Director General of Lighthouse and Lightships ("DGLL") and Airports Authority of India ("AAI") for rendering services and supply of equipments. The Assessee received payments in respect of performance of services and supply of equipment under the following contracts in India: • Supply, installation, testing and commissioning of Advances Surface Movement Guidance Control System (,ASMGCS') at Chennai, Mumbai and Kolka .....

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t) • Contract to provide interface between the VATMS network and the naval network to enable down load of data by navy from the Y ATMS (ONGC V ATMS - Extra Work) 3. The nature of activities undertaken by the Assessee and receipts from the said activities during the subject year for each project was as follows: HITT Holland Institute of Traffic Technology BV AY 2010-11 Details of Income Revenue from various Projects Activity Revenue (EUR) Revenue (INR) AAI (Mumbai, Kolkata and Chennai) Proje .....

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174 10,863,038 Total 192,174 11,459,338 ONGC (Extra Work)Project Offshore Supply of Services 54,419 3,244,976 GRAND TOTAL 1,803,493 93,124,598 Note : The revenue have been earned by the Assessee in foreign currency - USD for GOK project and Euro for other projects. Such profits have been converted to INR as per the mechanism prescribed under Rule 115 of the Income tax Rules, 1962 ( Rules ) using an exchange rate Euro = INR 59.63 and USD= INR 44.67 being the TT Buying rate of such currencies on t .....

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090 1,794,267 Onshore Supply of Software 85,500 59,592 25,908 1,544,894 Onshore Supply of Services 154,655 69,706 84,949 5,065,524 Total 274,165 133,218 140,947 8,404,685 GOK Project Offshore Supply of Hardware 907,813 907,813 0 0 Offshore Supply of Services 55,937 53,531 2,405 107,444 Total 963,749 961,344 2,405 107,444 ONGC (AMC)Project Offshore Supply of Services 10,000 9,570 430 25,641 Onshore Supply of Services 182,174 182,174 0 0 Total 192,174 191,744 430 25,641 ONGC (Extra Work)Project Of .....

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05 for the GOK Project, However, it has not performed any activity in relation to any of its contracts in India from the said PO. The project office has only been used to collect money and pay certain expenses on behalf of the Assessee through its bank account. Therefore, no part of the contract execution has been carried out through the PO in India. Therefore the Assessee did not have a Permanent Establishment (PE) in India. This has been accepted by the DRP in its directions dated 23.12.2013 a .....

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income shall be deemed to have accrued or arisen in India. Section 90 of the Act provides that Central Government may enter into an agreement with the Government of any country outside India for avoidance of Double Taxation of income under the Act and under the corresponding law in force in that country. Section 90(2) provides that where such agreement exists with any country outside India, then in relation to an assessee to whom such agreement applies, the provisions of the Act, shall apply on .....

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the basis of the facts in each case, the criteria being the extent to which the Non-Resident has set a firm foot in the soil of the other country. If a non-resident is considered as having a Permanent Establishment (PE) in the other country then income attributable to the PE will be taxed in the other country. As to whether the income attributable to the PE alone has to be taxed in the other country or any other income which accrues to the Non-Resident in the other country having no connection .....

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ffected through the PE, which is referred to as Limited Force of Attraction principle. Some provide for taxing profits/income from all transactions whether they are attributable to PE or not or whether they are of the same kind of transactions carried on by the PE or not, which is referred to as Full Force of Attraction principle. As to which principle is applicable in a given case depends on the clauses of the convention between two countries. Article 7(1) of the DTAA between India and Netherla .....

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ng income of INR 1,19,26,000 pertaining to training income received from AAI(Mumbai, Chennai and Kolkata Airport) Project as 'Fees for technical services', taxable on a 'gross' basis at the rate of 10 percent as per the provisions of Article 12(2) of the India-Netherlands Double Taxation Avoidance Agreement (' DTAA'). The assessee's return was selected for regular assessment under section 143(2) of the Act and the draft assessment order was forwarded by the Learned AO .....

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a as per the provisions of Article 5(3) of the India-Netherlands DTAA, on account of existence of the GOK and ONGC projects for a period exceeding 6 months The learned AO by applying various ad-hoc attribution methods, attributed income to the PE in India as follows :- Project Amount (INR) AAI(Mumbai, Chennai & Kolkata airports) 6,103,903 AAI (Delhi Airport) 7,519,082 Gulf of Kaach (GOK) Contract 4,305,071.25 ONGC VARMS - Annual Maintenance Contract 5,729,669 ONGC VATMS - Extra Work Contract .....

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9. Before we deal with the various grounds of appeal of the Assessee, it has to be clarified that the various grounds of appeal have been raised by the Assessee in respect of determination of income in respect of each of the project set out in paragraph-3 of this order from which the Assessee derived income during the previous year. We deem it convenient to decide the issues raised by the Assessee in the same order in which grounds of appeal have been raised by the Assessee before us. 10. Groun .....

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and composite contract should be offered to tax in India since such contract is indivisible for tax purposes. 11. The Assessee was awarded a contract by Airports Authority of India (AAI) for Supply, Installation, Testing & Commissioning (SITC) of Advance Surface Movement Guidance Control System (ASMGC) at Chennai, Mumbai and Kolkata Airports. The Purchase order of AAI was dated 15.4.2008. Annexure-I to the said purchase order gives the details of items to the supplied. Clause-1 of the said .....

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tract consist of supply of equipments besides training charges. The Assessee in its return of income offered to tax the training income received from AAI(Mumbai, Chennai and Kolkata Airport) Project during the previous year as 'Fees for technical services', taxable on a 'gross' basis at the rate of 10 percent as per the provisions of Article 12(2) of the India-Netherlands Double Taxation Avoidance Agreement (' DTAA'). The AO however held that the Assessee had a Project Of .....

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nt situated therein, or performs professional 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. Invoking the aforesaid provisions the A .....

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t correct in treating the aforesaid defunct PO as the PE of the assessee in India. The DRP in their directions held that the PO was not involved in the business activity related to the said project and hence, no part of the profits can be attributed to the PO. The Revenue has accepted the above directions of the DRP. In view of the above, the above ground has no impact on income. The learned counsel for the Assessee therefore prayed that the relevant ground may be treated as infructuous. Ground .....

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ew Delhi Airport dated 4.12.2008 is placed at page 242 to 250 of the Assessee s paper book. The operative portion of the purchase order reads thus: Airports Authority of India (AAI), hereinafter referred to as Purchaser is pleased to place a purchase order on M/S.HITT Holland Institute of Traffic Technology B.V., Netherlands, hereinafter referred to as supplier, for supply, installation, testing & commissioning (SITC) of ATC System at New Delhi Airport as per details in Annexure-I 1. PRICE: .....

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per book and the description and break up of the sum of Euro 274165 is as follows: Description Qty Amount VAT% Net Amount SITC of ATC System at New Delhi Airport 1.1 Hardware Cost 1.00 35,800 35,800 1.2 Software and Licenses 1.00 90,000 90,000 1.3 Project Management Services, Installation Testing and Commissioning and training 1.00 162795 162795 1.5 Discount 5% -14430 -14430 274165 The AO found that the invoice dated 11.12.2008 did not pertain to the previous year relevant to AY 2010-11. The Ass .....

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s of Article 7(1) of the DTAA between India and Netherlands only profits attributable to the PE can be brought to tax. It was argued that since the supply of equipments was off-shore, there was no accrual of income in India. It was also the plea of the Assessee that it is not correct to look at all revenues arising from separate and distinct transactions, as part of a composite contract and that these contracts were divisible and independent contract for different activities. 14. The AO however .....

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usiness income was not correct. The DRP nevertheless directed that AO to treat the payment made for supply of software and its license viz., (Rupee equivalent of Euro 85,500 ) as payment towards royalty u/s.9(1)(vi) of the Act. The DRP also held that all revenues arising from separate and distinct transactions, are part of a composite contract and that these contracts were indivisible and dependent contract for different activities. It can be seen from Annexure-2 to this order which is part of t .....

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e Assessee in bringing to tax Euro 85500 as royalty and Gr.B-3 relates to the grievance of the Assessee in brining to tax Euro 162795 as Fees for Technical Services . B. Airport Authority of India (Delhi Airport) Project: Ground 1 The Ld.AO has erred in proposing and the Hon'ble DRP has further erred in confirming that all the revenue from separate and distinct transactions, being part of a single and composite contract should be offered to tax in India since such contract is indivisible for .....

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#39;royalty' under the provisions of Article 12(4) of the India-Netherlands DTAA or not. The first aspect to be decided is whether the software and licenses were part of the hardware or not. In this regard, we have perused the relevant material on record. A perusal of Annexure-2 to this order which is annexure-I to the purchase order dated 4.12.2008 by AAI, shows that the supply is of ATC System and are part and parcel of the equipment. Though Software and Licenses is shown as a separate ite .....

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ftware and licenses were part of the hardware and imbedded therein. The AO or the DRP have not in their orders given any finding that the software and licenses are independent of the hardware as no specific plea in this regard was put forth by the Assessee before them. We however hold, in the given facts and circumstances of the case and the overall evidence on record, that the software and licenses are part of the hardware supplied by the Assessee. 17. It is the plea of the learned counsel for .....

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liance on the certain judicial pronouncements. Our attention was drawn to the decision of the Hon'ble Delhi High Court in the case of DIT v. Ericsson AB (2012) 343 ITR 470 (Delhi HC) wherein it was held that if software supply is an integral part of the equipment system and such software loaded on the hardware doesn't have any independent existence, it is not permissible for the Revenue to assess sale of hardware and sale of software separately. The relevant extracts have been reproduced .....

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cellular operator for providing the cellular services to its customers. There could not be any independent use of such software. 61. We thus hold that payment received by the assessee was towards the title and GSM ·system of which software was an inseparable part incapable of independent use and it was a contra for supply of goods. Therefore, no part of the payment therefore can be classified as payment towards royalty. " 18. Our attention was also drawn to a decision of the Hon' .....

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annot be treated as 'Royalty'. The relevant extract has been given below: It has already been established on the basis of facts before us that the transaction involved in this case was that of sale of diamond scanning machine. The customer had no interest in the software except to the extent of effective functioning of the machine. Thus, in view of the judgments discussed above, it has to be treated as transaction of sale of machine in the hands of the assessee and the amount bifurcated .....

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el Lucent Canada (2015) 372 ITR 476 (Delhi HC) DOIT vs Reliance Industries Ltd. (20 J 6) 69 taxmann.com 3 11 (Mumbai ITAT) Motorola Inc. v/s DCIT (2005) 95 ITD 269 (Delhi SB) ADIT vs Siemens Aktiengesellschaft (2013) 19 ITR(T) 336 (Mumbai ITAT) 20. The learned DR relied on the directions of the DRP. We have considered the rival contentions. In the light of the judicial pronouncements referred to above, we are of the view that the sale of equipment and its accessories with software imbedded in th .....

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the Act. 21. In view of the above conclusion, we do not wish to go into the other arguments raised by the learned counsel for the Assessee that what was transferred by the Assessee as software embedded in the equipment will not amount to transfer of 'copyright' but only transfer of a 'copyrighted article'. In this regard the submission was: • As per Article 12(4) of the India-Netherlands DTAA, the term 'royalties', inter-alia, mean payments of any kind received as a .....

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ftware, adapt the software in any manner, sell the software etc. is for a copyrighted article' and not a 'copyright' since the intellectual property right to the software is not transferred. Such a consideration is for purchase of goods and is not 'royalty'. These judicial pronouncement have been given below: CIT vs Dynamic Vertical Software India Pvt. Ltd. (2011) 332 ITR 222 (Delhi HC); DIT v. Nokia Networks O.Y. (2013) 358 ITR 259 (Delhi HC) Dassault Systems (2010) 322 ITR .....

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elhi HC) • In the present case, the software was supplied for the mere purpose of operating the equipment supplied under the Project. The Ld. DRP also in its directions (at page 116 of the paperbook) has also observed that the Assessee "has granted software and licenses to use the software for the purpose of operating the equipment supplied". • Accordingly, it cannot be held that the consideration received by the Assessee for supply of such software/ licenses for the mere pur .....

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fect from 01 April 1976, clarifying that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use computer software. Based on this amendment, the Hon 'ble DRP has held that the amount of consideration for supply of software in the present case also amounts to 'royalty'. • In this regard, reliance was placed on the following judicial pronouncements wherein courts have h .....

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schaft (2009) 310 ITR 320 (Bombay HC) B4U International Holdings Ltd vs DCIT (2012) 18 ITR(T) 62 (Mumbai ITA T) Sanofi Pastuer Holding vs. GOI (2013) 354 ITR 316 (AP HC) 23. In view of the above, it was submitted that in case of supply of equipment along with related software, the consideration amount for the software cannot be taxed as 'Royalty' in terms of Article 12 of the India-Netherlands DTAA. As we have already stated since we have come to the conclusion that the software in quest .....

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he systems of the airport) is in the nature of training income, despite the fact that very limited time was spent on training (one half day training) and; The Ld.AO has erred in proposing and Hon'ble DRP has further erred in confirming that such income is in the nature of 'fees for technical services' ('FTS') under Article 12(5) of the India Netherlands DTAA since such services 'make available' technical knowledge, skills etc. to the customer. 25. We have already seen .....

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the net consideration for these services is EUR 154,655 (equivalent to INR 9,222,093) which has been assumed as FTS in the assessment order. It was the plea of the Assessee that the AO has wrongly assumed the entire consideration amount towards training of employees for assessing it as FTS. From the purchase order, it would be clear that the consideration amount is for various other services and training of employees is only for ½ day, which is only to familiarize the customer with the u .....

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12(5)(b) of the India-Netherlands DTAA defines the term 'fees for technical services' as follows: 'fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragr .....

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a-Netherlands DTAA). As per Article 12 of the India Singapore DTAA, the term 'make available' has been explained as follows: (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein" It was submitted that the above interpretation of term 'make available has also been adopted in the Memorandum of understanding to the India-US DTAA. 27. It was further submitted that t .....

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(Karnataka HC) Raymond Ltd. (2003) 86 ITD 791 (Mumbai ITAT) - Intertek Testing Services India (2008) 307 ITR 418 (AAR) C.E.S.C Ltd vs. DCIT (2003) 275 ITR 15 (Kolkata IT AT) Guy Carpenter & Co. Ltd. (2012) 346 ITR 504 (Delhi HC) Andaman Sea Food (P.) Ltd. (2012) 18 ITR(T) 509 (Kolkata ITAT) - Income-tax Officer, Ward 12 (2), Kolkata v . Right Florists (P.) Ltd. (20]3) 25 ITR(T) 639 (Kolkata ITA T) B4U International Holdings Ltd. (2012) 18 ITR(T) 62 (Mumbai JT AT) Ernst and Young (P) Ltd. in .....

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oration Limited vs. ACIT (2015) 153 ITD 679 (Jabalpur ITAT) has held that installation, commissioning or assembly activities do not involve transfer of technology and are hence not taxable as FTS. The relevant extract of the judgment has been reproduced below: "By no stretch of logic, installation or assembly activities even involve transfer of technology in the sense that recipient of these services can perform such services on his own without recourse to the service provider, nor has it b .....

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herefore, such activities in relation to installation, testing and commissioning etc. cannot 'make available' any technical knowledge, skills etc. to AAI and therefore, the consideration received by the appellant for such services is not in the nature of FTS as per Article 12 of the India-Netherlands DTAA. Further, income in respect of such services cannot be taxed even as business income, in the absence of a PE of the appellant in India, as per the provisions of Article 7 of India-Nethe .....

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an also be seen from the nature of the training as appearing in the purchase order - one hands on Training session (1/2 day) on site (Page 249 of the paperbook). It was submitted that such training provided did not involve provision of any technical knowledge/ know-how to the customer but was provided only to familiarize them with the equipment and hence, it cannot be said that any technical services were made available to the customer. In this regard, reliance was placed on the decision in the .....

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ing down identical proposition United Helicharters (P) Ltd. (2013) 60 SOT 58 (Mumbai ITAT) Lloyds Register Industrial Services (India) (P.) Ltd. (2010) 36 SOT 293 (Mumbai ITAT). 31. The learned DR relied on the Directions of the DRP. After considering the rival contentions, we are of the view that the action of the DRP in directing the treat the sum of Euro 154655 as FTS cannot be sustained. A perusal of the invoice in this regard together with the purchase order clearly shows that what the Asse .....

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e sum in question was in the nature of FTS chargeable to tax under the Treaty. We therefore allow Gr.B-3 raised by the Assessee. 32. The next dispute is with reference to the Gulf of Kuchch (GOK) Project. Grd.C raised by the Assessee in the grounds of appeal deal with the grievance of the Assessee in respect of assessment of income from this project. The Government of India (Ministry of Shipping, Directorate General of Lighthouses and lightships) intended (GOK), Gujarat. For this project an agre .....

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page 252-255 and consortium agreement is at PB page 256-280). The responsibilities of each of the members of the consortium are set oout in annexure to the consortium agreement. Supply, installation, testing and commission of integrated Automatic identification System Base Stations equipments with Associated software is the primary responsibility of the Assessee. In the terms of the consortium agreement, TCIL raised purchase order dated 24.6.2005 on the Assessee for offshore supply of equipment .....

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ubject matter of dispute in the Grounds of appeal C raised by the Assessee. Ground 1 The Ld.AO has erred in proposing and Hon'ble DRP has further erred in confirming that the appellant has an Installation Permanent Establishment ('PE') in India as per Article 5(3) of the India Netherlands DTAA, considering the fact that the project has been in existence in India for a period of more than six months. Ground 2 The Ld. AO has erred in proposing and Hon'ble DRP has further erred in c .....

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ee had undertaken off-shore supply of equipment and offshore provision of services under this project. The Ld. AO in the draft assessment order had alleged that the PO of the Assessee is a Fixed Place PE of the appellant in India and that the appellant also had an 'Installation PE' in India as per Article 5(3) of the India-Netherlands DTAA. However, the Hon 'ble DRP Panel held that since no business activity has been carried out by the defunct PO, the same cannot be treated as a PE o .....

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R) I Off-shore supply of equipment 907,813 40,551,986 4,055,198 2 Off-shore provision of services 55,937 2,498,689 249,869 TOTAL 963,749 43,050,675 4,305,067 Further, while passing the assessment order, the Ld. AO has observed that as per Sale of Goods Act, 1932 ('SOG Act'), sale is concluded at the time of its acceptance and that' Acceptance' does not mean mere receipt of goods but means checking the goods to ascertain whether they are as per the contract and the buyer has been .....

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that the supply of equipments was attributable to such PE and therefore the income from supply of equipments is chargeable to tax in India under the India-Netherlands DTAA is unsustainable. It was contended that the AO has not appreciated the facts of the case and the correct legal position that during the subject year no installation activity has been carried out for the GOK project. Under this project, the Assessee has only undertaken off shore supply of equipment and off shore services perfo .....

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the assessee could not be said to have an 'Installation PE' in India: Andhra Pradesh High Court in Commissioner v . Visakhapatnam Port Trust (1983) 144 ITR 146 (AP HC) Uhde Gmbh V. Deputy Commissioner Of Income-Tax (1997) 57 TTJ 447 (Mumbai IT AT) Deputy Commissioner of Income-tax v. CIT Alcatel (1993) 47 ITD 275 (Delhi ITAT) In light of the above submissions, it was argued that it cannot be concluded that 'Installation PE' in terms of Article 5(3) of the India Netherlands DTAA g .....

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nstallation project which is squarely covered under Article 5(3) of the India- Netherlands DTAA. The Assessee s claim that no installation activity has happened during the subject assessment year cannot be accepted as the project has to be seen in a holistic way. In the project undertaken, based on the consortium agreement, the assessee company plays a major role and contributes significantly in the composite work and the project has continued for more than 12 months. 3.15. In view of the above .....

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ia- Netherlands DTAA requires a fixed place of business for constitution of a PE. That has been found to be not in existence by the DRP. For constituting Installation PE within the meaning of Article 5(3) of the India-Netherlands DTAA the test of duration of time for which the activities are carried out in India becomes relevant. In the present case the question is computation of the duration of time. The supply of equipments that have to be installed by the consortium could be said to be a dire .....

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tarts. The DRP s direction clearly holds the view that no installation activity happened during the relevant previous year. The decisions cited on behalf of the Assessee hold the view that unless installation activities commence an installation PE cannot be said to have been constituted. There are no provisions in the treaty providing for circumstances such as the present one when it can be said that an installation PE has come into existence. There are no circumstances brought out to show that .....

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the other grounds Gr.C2 to 6 do not require any consideration. The learned counsel has in support of Gr.C-2 to 6 submitted that the off shore sale of equipment was on CIF basis to TCIL and TCIL further sold it to DGLL on high sea sales basis wherein the title in the goods passed outside India and the payment in respect of the same also was received outside India. Accordingly, income from such off-shore supply of equipment was not offered to tax in India by the appellant since the same did not a .....

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y disregarded the documents furnished by the Assessee proving that the equipment was supplied at the off-shore level. The learned counsel for the Assessee placed reliance on several judicial pronouncement in support of his claim that income from off-shore supply of equipment cannot be taxed in India. In particular strong reliance was placed on the decision of the Hon ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Limited vs. DIT (2007) 288 ITR 408 (SC). The learned DR howe .....

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f income arising out of Assessee s AMC contract with ONGC for supply, installation, testing and commissioning of Vessel and Air Traffic Management System (VATMS). The grievance of the Assessee are projected in Gr. D raised by the Assessee before the Tribunal. 39. In the year 2006, the Assessee was awarded a contract by ONGC for supply, installation, testing and commissioning of Vessel and Air Traffic Management System (VATMS) system along with the provision of maintenance services. This contract .....

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r 2008 i.e. after the project was handed over to the customer. (PB page 323 contains the AMC Schedule). Accordingly, during the relevant previous year relevant to AY 2010-11, the Assessee provided AMC services for the VATMS equipment installed by it in earlier years. These maintenance services were performed both off-shore, remotely from the Netherlands and on-shore in India. The on-shore services were subcontracted to a local independent contractor viz. Elcome Marine Service Private Limited (&q .....

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during the previous year, the presence of its personnel in India was merely for a period of 54 days, the purpose of which was mainly for discussions with customers about the status of the project, hurdles faced etc. Such personnel did not utilize any fixed place during their visit to India and largely stayed at hotels, visited offices of the customers etc. 40. The revenue brought to tax the AMC fee received as business profits attributable to an installation PE in terms of Article 5(3) of India .....

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as raised Gr.D-1 & 2 challenging the finding of the DRP that there existed an installation PE of the Assessee during the relevant Previous year. These grounds read as follows: Ground 0.1 The Ld.AO has erred in proposing and Hon'ble DRP has further erred in confirming that the appellant has an 'Installation Permanent Establishment' ('PE') in India as per Article 5(3) of the India Netherlands DTAA as the project has been in existence for a period of more than six months. Gr .....

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that the AO has concluded that since the ONGC project i.e. the project for supply, installation, testing and commissioning of VATMS system (along with the provision of AMC services) has been continuing since the year 2006, the specified threshold of six months as mentioned in Article 5(3) of the India Netherlands DTAA has clearly been exceeded. It was his submission that the AO has not appreciated the facts of the case that the installation activity in the project in question was completed in Oc .....

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pointed out that these maintenance services included visiting the sites for cleaning, checks, local fault repair etc., by the local contractor and limited remote assistance by the Assessee from the Netherlands. Accordingly, such maintenance services cannot be considered as 'installation activity' leading to creation of an 'Installation PE' of the appellant in India under Article 5(3) of the India-Netherlands DTAA. It was therefore submitted that in view of the above stated facts, .....

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mmissioner v. Visakhapatnam Pori Trust (1983) 144 ITR 146 (AP HC) UHDE GMBH V. DEPUTY COMMISSIO ER OF INCOME-TAX [1997] 57 TTJ 447 (Mumbai ITAT) Deputy Commissioner of Income-tax v. CIT Alcatel [1993] 47 ITD 275 (Delhi ITAT) 43. It was further submitted that Maintenance Services performed post completion of installation cannot lead to 'Installation PE'. It was reiterated that formal acceptance of the VATMS system for the ONGC Project was done in October 2007 and the one year warranty per .....

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d counsel for the Assessee drew ouor attention to the OECD model commentary and available judicial guidance, an 'Installation PE' ceases to exist when the work at a site of a project/ site/ equipment is completed or the same is formally accepted and handed over to the customer. Therefore, once the project site/ equipment is accepted and handed over to the customer, any services (including maintenance services etc.) provided post such acceptance cannot be regarded as part of 'Installa .....

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ernational tax commentator Klaus Vogel in his commentary "Klaus Vogel on Double Taxation Conventions" wherein he has opined that repairs and maintenance services performed after the formal acceptance of the installation work by the customer shall not be included in the minimum threshold for constitution of an 'Installation PE'. The relevant extract of the commentary is given below: "Repair and Maintenance work performed after such formal acceptance or taking delivery is no .....

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place PE of the Assessee in India through which it carried on business and therefore the revenue cannot take recourse to Article 5(1) of the India-Netherlands DTAA. It was reiterated that the employees of the Assessee were present in India merely for a period of 54 days during the subject year, that too for discussions with customers about the status of the projects, hurdles faced etc. Hence, it cannot be said that the Assessee has a fixed place PE in India for this Project. It was therefore con .....

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. It was submitted that even assuming that the entire maintenance activity was performed by Elcome (an independent local contractor), it cannot be said that the business of appellant was carried out in India, so as to constitute its PE in India. In this regard the argument of the learned counsel for the Assessee was that the business of the foreign enterprise was not carried out in India and as per Article 5(1) of the India-Netherlands DTAA, the term 'Permanent Establishment' means: &quo .....

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the project site, should be considered as the PE of the foreign enterprise in India. It was reiterated that all the on-shore work performed as part of this contract was sub-contracted to Elcome, a local independent contractor. The Assessee provided only limited technical support to the contractor remotely from the Netherlands. Further, Elcome did not setup any office etc. at the project site. The learned counsel placed reliance on the decision of the Hon'ble Delhi High Court in the case of N .....

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herlands DTAA are to be read harmoniously. It was submitted that the conditions specified under Installation PE [Article 5(3)] cannot be viewed as a water-tight compartment without taking color from other clauses of PE, such as Fixed place PE [Article 5( 1)]. The two clauses, providing for Installation PE and Fixed Place PE, should be read harmoniously, as part of the same concept. In relation to a building site and construction/ installation project, the foreign enterprise should conduct or car .....

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315 ITR 334 (AAR) BKI/HAM VOF vs. ACIT (200 I) 70 TTJ 480 (Delhi IT AT) Fugro Engineers B.Y. v. Assistant Commissioner of Income tax (OS D), Range-I, Dehradun (2008) 26 SOT 78 (Delhi ITAT) It was submitted that since the Assessee was not involved in any activity at the project site in India, it does not satisfy the 'business test' as prescribed in Article 5( 1) of the India Netherlands DTAA and therefore it cannot be said to have an Installation PE in India, even if it is assumed that t .....

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ch has undertaken the performance of a comprehensive project subcontracts parts of such a project to other enterprises (subcontractors), the period spent by a subcontractor working on the building site must be considered as being time spent by the general contractor on the building project. " It was argued that the commentary clearly states that only when a general contractor has undertaken a comprehensive project and he subcontracts parts of the project to other sub-contractors, the period .....

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have given a very careful consideration to the rival submissions. Our conclusions in para-36 with regard to existence of an installation PE in respect of GOK Project will equally apply to this project also. Admittedly, no installation activity was carried out during the previous year and therefore the question of an installation PE of the Assessee existing during the previous year does not arise for consideration at all. We are in complete agreement with the contentions put forth by the learned .....

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reate an installation PE, given that the entire onshore maintenance contract has been performed by an independent local contractor in India, it cannot be said that the business of the Assessee has been carried out by the presence of the local contractor in India, so as to create its PE in India. The examination of whether a PE exists needs to be determined based on the activities of the foreign enterprise in India. Since no activities have been carried out by the Assessee in India with respect o .....

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ext issue that arises for consideration in this appeal is the taxation of income arising out of Extra Work Contract performed by the Assessee in respect of contract with ONGC for supply, installation, testing and commissioning of Vessel and Air Traffic Management System (VATMS). The grievance of the Assessee are projected in Gr. E raised by the Assessee before the Tribunal. 49. We have already seen while deciding the Gr. D that the Assessee installed VATMS system (completed in October 2007) for .....

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e Netherlands, and the Assessee had during the subject year received consideration for provision of such remote off-shore assistance in relation to providing such interface. The revenue held that the receipt was in the nature of Royalty chargeable to tax. The revenue further concluded that since there was an installation PE and the receipt of royalty was attributable to the PE, the same has to be taxed as business income. Since no details were furnished by the Assessee, the revenue invoked Sec.4 .....

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sel for the Assessee submitted that the DRP was not right in considering the receipt in question as royalty. In this regard it was submitted that during the previous year the Assessee had only undertaken off-shore provision of services under the project. Such services were in relation to interface of the VATMS system with the naval network. Accordingly, no software was supplied by the Assessee during the subject year (such software was supplied by the Assessee in earlier years) and only services .....

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in the equipment merely facilitates its functioning and there is no independent existence/ use of such loaded software. By supplying such software, the appellant has not provided the codes/ program language underlying such software to the customer. The customer was handed over the equipment as a whole and did not have any knowledge of the codes/ language in the software. Therefore, such payments for software installed on the equipment are not in the nature of 'royalty 'income as per the .....

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the Assessee reiterated submissions made with respect to the concept of 'Make Available' in context of FTS in case of the AAI (Delhi) Project and submitted that the said arguments are squarely applicable to this ground also. Accordingly, for the sake of brevity and to avoid repetition, we are not reproducing those submissions. Further, based on the submissions made in Ground No. D 1 and 2 of the ONGC Annual Maintenance Contract, the learned counsel for the Assessee submitted that the Ass .....

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e issue decided in Gr. B -2. The conclusions given therein in para-16 to 20 will be equally applicable to this ground also. To avoid repetition and lengthen the order, we do not wish to reproduce the same. Suffice it to say that the sale of equipment and its accessories with software imbedded in the equipments cannot be taxed in the hands of the assessee as business income as the Asssessee does not have a PE in India to which the profits can be said to be attributable. In the circumstances, the .....

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stion cannot be brought to tax India. We hold and direct accordingly. In view of the above conclusion, the grievance projected by the Assessee in Gr.E-2 does not require any consideration. 52. Ground F 0.1 raised by the Assessee reads thus: The Ld.AO has erred in levying interest under section 234A and section 234B of the Act despite the directions of the Hon'ble DRP to not to do so. 53. The learned counsel for the Assessee submitted that pursuant to filing of a rectification application und .....

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986,285 to the Assessee. It was submitted that the Assessee had claimed credit of taxes deducted at source ('TDS ') of INR 2,852,660 in its income tax return for the subject year. However, while passing the assessment order, the Ld. AO has allowed credit of TDS only to the extent of INR 1,866,375. Hence, there is a short credit amounting to 1NR 986,285 on the apparent ground that the same is not appearing in the online tax credit statement i.e. Form 26AS of the appellant for the subject .....

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28 January 2014 to the Ld. AO. Copy of the TDS Certificates is also enclosed on page no. 362 to 364 of the paper book. It is the plea of the learned counsel for the Assessee that even if the amount of TDS credit is not being reflected in the Form 26AS, Form 16A (TDS Certificates) is used by a deductor are conclusive evidence of TDS being deducted and therefore, the credit of the same shall be appropriately granted to the deductee on the basis of such TDS certificates. The fault on the part of d .....

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