TMI Blog2018 (4) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... t required in as much as the ld AO had not adduced any reasoning to construe the subject mentioned receipt of ₹ 28,06,200/- from AAI as attributed towards training. Hence the basic premise that it is towards training fails. Accordingly knowing the year of completion of training does not have any relevance in this regard. In view of all, we hold that the additional amount received from AAI in the sum of ₹ 28,06,200/- towards installation, commissioning and testing charges is not taxable as FTS within the meaning of Article 12(5) of the India – Netherlands DTAA. The same is not received towards training as assumed by the ld AO. Accordingly the addition made by the ld AO in this regard is to be deleted - Decided in favour of assessee. Profits attributable to the Installation PE in India - whether only the onshore provision of services and onshore supply of equipments at 10% on gross basis as profits attributable to the Installation PE in India as against the action of the ld AO in taking the total receipts (i.e both offshore and onshore activities)? - Held that:- The consideration received in respect of offshore supply of equipments and services and profits attributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 234D of the Act is consequential in nature and we direct the ld AO to kindly verify the actual refund figure granted to the assessee earlier and take the same while charging interest u/s 234D - I.T.A No. 390/Kol/2015 - - - Dated:- 4-4-2018 - Hon ble Shri Aby. T. Varkey, JM And Shri M.Balaganesh, AM For the Appellant : Shri Avisekh Kejriwal, AR For the Respondent : Shri G. Mallikarjuna, CIT DR ORDER Per M.Balaganesh, AM 1. This appeal is directed against the order of the Learned DCIT, International Taxation, Circle 1(1), Kolkata [ hereinafter referred to as the ld AO] for the Asst Year 2011-12 under section 143(3) of the Income Tax Act, 1961, [ hereinafter referred to as the Act ] dated 9.2.2015, pursuant to the directions of the Learned Dispute Resolution Panel [hereinafter referred to as ld DRP] issued u/s 144C(5) r.w.s 144C(8) of the Act dated 30.12.2014. 2. The brief facts of this appeal is that the assessee is a subsidiary of HITT N.V.. It is a company incorporated as per the laws of Netherlands operating in the international market for safety, security and efficiency of nautical and air traffic. It operates in the specialized market for traffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tallation, commissioning and testing services for Mumbai Airport. As per the said letter, this additional payment was with respect to deployment of additional resources to meet AAI s urgent operational requirement being installation efforts beyond the contractual obligations. Accordingly, the corresponding invoice (enclosed in page 180 of paper book) which was raised mentioned the payment to be for Additional expenses Mumbai . The total amount eligible as per the contract to the assessee for Mumbai Airport was Euro 585162 towards Installation, Testing Commissioning Charges. This sum of Euro 45,000 was paid to the assessee as an additional sum for Mumbai Airport for deploying additional resources to meet urgent operational requirements. The assessee reflected this additional income of Euro 45,000 under installation, commissioning and testing services . The ld AO alleged that the consideration of Euro 45,000 (Rs 28,0,6200/-) received by the assessee during the subject year for providing servies pertaining to installation, testing, commissioning etc is for provding training to the customer and hence, taxable as Fees for Technical Services (FTS) under the provisions of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouble 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 only to the extent they are more beneficial to that assessee. India and Netherlands have entered into an Agreement for A voidance of Double Taxation (DTAA) with effect from 21-1-1989 and therefore the taxability of any income that accrues or arises in India to the assessee who is non-resident in India and a tax resident of Netherlands will have to be determined in accordance with the said DTAA. As to when a non-resident would be considered as having a PE in the other country is generally decided on 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n letter of AAI dated 28.10.2010 is reproduced below:- Ref. No. AAI/ASMGCS/BB/2010 Dated: October 28,2018 To, M/s HITT Holland Institute of Traffic Technology B.V., Oude Apeldoomsewag 41-45, 7333, NR Apeldoom The Netherlands Subject: Supply, Installation, Testing and Commissioning (SITC) of ASMGCS for Chennai,Kolkata and Mumbai Airports Reference: 1. Purchase Order No. AAI/PO-02/2008-09/ASMGCS/MM-CC- BB/CNS(P)/2007 dated 15.04.2008 2. Purchase Order Amendment No. 1 dated 16.04.2008 3. Purchase Order Amendment No. 2 dated 17.04.2008 4. Purchase Order Amendment No. 3 dated 16.09.2008 Sir, Reference may kindly be made to your letter ref. no. 20100804_JVG dated 4 th August, 2010 regarding partial delivery for one SMR only at Mumbai Airport to achieve the partial coverage of the ASMGCS at Mumbai Airport as soon as possible wherein additional financial burden due to deployment of additional resources to meet the AAI s urgent operational requirement by installation efforts beyond the contractual obligations have been indicated. AAI has approved additional cost of Euro 45,000 (Euro Forty Five Thousand only) towards the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, experience, skill, know- how or processes, which enables the person acquiring the services to apply the technology contained therein. The ld AR pleaded that the installation, commissioning activities do not involve transfer of technology and hence are not taxable as FTS. Reliance in this regard was placed on the co-ordinate bench decision of Jabalpur Tribunal in the case of Birla Corporation Limited vs ACIT reported in 153 ITD 679 wherein it was held that :- 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 been the case of the authorities below. For this short reason alone, the installation, commissioning or assembly activities cannot constitute fees for technical services, or fees for included services as these are termed in Indo US tax treaty. 2.5.4. We find that the Chennai Tribunal in the case of DDIT vs Ford India Ltd reported in (2017) 78 taxmann.com 5 dated 31.1.2017 followed the decision of Birla Corporation Ltd rendered by Jabalpur Tribunal supra and held as under:- 37. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation and training and separate amounts were bifurcated towards the same in the contract. That bifurcation itself is to be questioned in as much as the total contract is towards installation and training . He argued that moreover, since the assessee is engaged in rendering of services for air traffic movement , it cannot be said that once the installation, testing and commissioning is done, there is no requirement of training services to be rendered by the assessee. According to ld DR, training is a continuous process and an integral part of installation and commissioning. We find that the contract separately provided for training services and separate consideration was fixed for the same. Hence it would be inappropriate to question the contract in this year after the completion of the contract. The main contract value was examined in the earlier years and income has been received in the past. Infact the assessee had offered close to Euro 200000 as per the contract towards training in the earlier year(s), in addition to amounts received towards installation, commissioning and testing. Hence the bifurcation of the sums towards installation and training as per the contract has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity pertaining to this project. During the year under consideration, the assessee received payments for the following offshore supply of equipment / services / training and onshore supply of equipment / services:- Sl. No. Amount received for Amount (USD) Amount (INR) Off-shore work 1 Off-shore supply of equipment 471,967 20,875,121 2 Off-shore provision of services 400,000 17,692,000 3 Training income received* 61,807 2,733,702 On-shore work 4 On-shore provision of services 765,484 35,342,381 5 On-shore supply of equipment 27,842 1,285,465 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in holding that the GOK project is a composite contract and consequently has erred in estimating the profits in respect of all activities (offshore supply of equipment, services training and onshore supply of equipment services) as attributable to the alleged PE at INR 77,92,867, being 10% of the gross consideration amount, for determining the income chargeable to tax in India. 3.4 Without prejudice to the above, on the facts and in the circumstances of the case and in law, even assuming that an Installation PE of the appellant is constituted, no part of income in respect of offshore supply of equipment, services and training can be attributed to the alleged PE in India for taxing as business profits under Article 7 of the India-Netherlands DTAA. 3.2. We have heard the rival submissions. The ld AR before us fairly stated that the assessee be treated as an Installation PE but pleaded for treating only the onshore provision of services and onshore supply of equipments at 10% on gross basis as profits attributable to the Installation PE in India as against the action of the ld AO in taking the total receipts (i.e both offshore and onshore activities). This is bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uipment and services cannot be attributed to the Installation PE of the assessee in India. In this regard, we would like to place reliance on the decision of the Hon ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Limited vs DIT reported in 288 ITR 408 (SC) wherein it was clearly stated that in case the PE of a foreign company is not involved in any transaction carried out in India or outside India, no part of income earned from such transactions can be attributed to the PE in India. The Hon ble Supreme Court held there has to be some activity through PE for attracting the taxing statute and , if income arises without any activity of PE, even under DTAA, taxation liability in respect of overseas services would not arise in India. In the case before the Hon ble Supreme Court, the foreign enterprise was to develop, design , engineer and procure equipment, materials and supplies to erect and construct storage tanks in India. The Hon ble Supreme Court held that the off-shore supply and off-shore services under the contract were not taxable in India since all activities in connection with offshore activites were carried out outside India, and had nothing to do with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this regard, we also find that India-Netherlands DTAA contains PROTOCOL clause in its treaty vis a vis various Articles in the Treaty and the relevant Article 7 of the Protocol is reproduced hereunder :- NETHERLANDS PROTOCOL At the moment of signing the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, this day concluded between the Kingdom of the Netherlands and the Republic of India, the undersigned have agreed that the following provisions shall form an integral part of the Convention. I. Ad Article 7 1. In respect of paragraphs 1 and 2 of Article 7, where an enterprise of one of the States sells goods or merchandise or carries on business in the other State through a permanent establishment situated therein, the profits of that permanent establishment shall not be determined on the basis of the total amount received by the enterprise, but shall be determined only on the basis of the remuneration which is attributable to the actual activity of the permanent establishment for such sales or business. Especially, in the case of contracts for the survey, supply, install ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the year under consideration and only maintenance services were undertaken through a sub- contractor in India. The copy of the invoices are enclosed in pages 281 to 284 of the paper book. 4.1. The ld AO brought to tax the AMC fee received as business profits attributable to an Installation PE in terms of Article 5(3) of the India-Netherlands DTAA. According to the revenue, the ONGC project was in existence for a period of more than six months and therefore constituted an Installation PE of the assessee in India. The revenue further relied on the fact that a subcontractor had carried out AMC work in India on behalf of the assessee and therefore the assessee had a virtual presence in India for execution of the project. Aggrieved, the assessee is in appeal before us on the following grounds:- 4.1. On the facts and in the circumstances of the case and in law, the ld. AO has erred in holding that the appellant has an Installation PE in India as per Article 5(3) of the India-Netherlands DTAA in respect of the ONGC AMC Project. The ld. AO has further erred in stating that the independent third party sub-contractor providing the AMC services to ONGC could virtually be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 5(3) of the India-Netherlands DTAA, the term 'Permanent Establishment' includes a building site or construction, installation or assembly project constitutes a permanent establishment only where such site or project continues for a period of more than six months. It was submitted that the ld 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 ld AO has not appreciated the facts of the case that the installation activity in the project in question was completed in October 2007 and no installation activity has been carried out by the assessee (or any contractor) in India during the subject year. The assessee has only provided maintenance services during the subject year on equipment which was handed over to ONGC in 2008. The ONGC in its letter dated 1 October 2008 has specifically confirmed that the system/ equipment was installed/ completed on 1st October 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e customer. Therefore, once the project site/ equipment is accepted and handedover to the customer, any services (including maintenance services etc.) provided post such acceptance cannot be regarded as part of 'Installation activity' leading to creation of an Installation PE. The ld AR also placed reliance on the judgment of the Hon'ble AAR in the case of Airports Authority of India, In re [2008] 299 ITR 102 (AAR - New Delhi), wherein the AAR observed that an earlier 'Installation PE' could not have any bearing on the contract for repairs and maintenance work to be carried out post completion of such installation. It was pointed out that the above position has also been confirmed by International 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only limited technical support to the contractor remotely from the Netherlands. Further, Elcome did not setup any office etc. at the project site. The ld AR placed reliance on the decision of the Hon'ble Delhi High Court in the case of National Petroleum Construction Co. v. DIT (International Taxation) reported in (2016) 383 ITR 648 (Del) wherein it has been held as follows: The activities at site carried on by any contractor through a subcontractor would not count towards the duration of the contractor's PE, as in that case, the construction site or project cannot be construed as a fixed place of business of the contractor and would fail one of the essential tests of paragraph 1 of Article 5 of the DTAA. 4.7. It was argued that Articles 5(1) and 5(3) of the India-Netherlands 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 colour 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. 4.9. We have heard the rival submissions and perused the materials available on record. We find that similar arguments were advanced by both ld AR and ld DR in the earlier year in assessee s own case for the Asst Year 2010-11. This tribunal for the Asst Year 2010-11 with regard to the impugned issue had held as under:- 47. We 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 counsel for the Assessee on this aspect. Accordingly, we hold that since the VATMS equipment was already accepted and handedover to the customer in the year 2007 and no installation activity was carried out in India during the subject year, it cannot be held that the Assessee had an 'Installation PE' in India in the subject year. As far as the conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were covered under the provisions of section 195 of the Act. The ld AR argued that as per section 234B of the Act, an assessee is liable to pay interest only in a case where advance tax is payable by the assessee in the first instance. U/s 208 of the Act, advance tax is payable only if the tax on the current income as computed u/s 209(1)(a) of the Act, as reduced by the amount of income tax which would be deductible at source, were to exceed ₹ 10,000/-. During the year under consideration, the ld DRP relied upon the decision of the Hon ble Delhi High Court in the case of DIT vs Alcatel Lucent USA Inc. reported in (2014) 45 taxmann.com 422 dated 7.11.2013 wherein it was held that where non-resident assessee accepted its liability to be taxed in India at first appellate stage, all consequences under the Act including liability to pay interest under section 234 would follow; assessee could not be permitted to shift responsibility to Indian payers for not deducting tax at source from remittances, after leading them to believe that no tax was deductible. Accordingly, the ld AO pursuant to the directions of the ld DRP charged interest u/s 234B of the Act. The ld AO also charged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law too is answered against the revenue, and in favour of the assessee. 5.3. We also find that the ld DRP for the year under appeal before us had held this issue in favour of the revenue. But the ld DRP for the Asst Year 2012-13, had held this issue in favour of the assessee by following the decision of the Hon ble Delhi High Court in the case of GE Packaged Power Inc supra. Hence respectfully following the subsequent decisions of Hon ble Delhi High Court which had distinguished its earlier decision in Alcatel Lucent USA supra, we hold that interest u/s 234B of the Act is not chargeable on the assessee in the instant case. 5.4. With regard to charging of interest u/s 234D of the Act, the ld AR stated that the ld AO erred in considering the refund figure of ₹ 37,44,400/- (as refund granted earlier to the assessee) instead of considering the correct refund figure which was actually granted to the assessee at ₹ 17,38,138/- and consequently erred in charging excess interest u/s 234D of the Act. We find that this factual aspect requires verification by the ld AO. We hold that the charging of interest u/s 234D of the Act is consequential in nature and we direct the ld ..... 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