TMI Blog2017 (9) TMI 1822X X X X Extracts X X X X X X X X Extracts X X X X ..... a copyrighted article and therefore, income earned there from is in the nature of business income. Hence, this ground of the assessee is allowed. Assessment of income with regard to the sale of equipment - AO had rejected the contentions of the assessee and held that a profit percentage of 10%, would be a reasonable percentage - HELD THAT:- As decided in assessee' own case [ 2015 (6) TMI 609 - ITAT KOLKATA] after considering the provisions of Sales of Goods Act held that such acceptance tests are merely in the nature of warranty provisions. Even there is no PE for sale of equipment in view of the decision of Hon'ble Supreme Court in the case of Hyundai Heavy Industries, [ 2007 (5) TMI 196 - SUPREME COURT] and in addition to this, there is no concept called sale PE under DTAA. In light of the facts and legal position, we hold that the profit arising to the assessee from sale of equipment is not taxable in India. This issue of assessee s appeal is allowed - ITA No.160/Kol/2016, ITA No.193/Kol/2016 - - - Dated:- 8-9-2017 - SHRI N. C. VASUDEVAN, JM AND DR. A.L.SAINI, AM For the Appellant : Shri G. Mallikarjuna, CIT DR. For the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gross revenue from supervisory services against the net profit rate of 15.10% applied by the appellant. Taxability of income from supply of design and drawings 3.(a)That on the facts and in the circumstances of the case and in law, Ld.AO/ DRP erred in holding that the sale of designs and drawings by the appellant is not in the nature of sale of product and the income earned from such sale is taxable under Article 12 of India-Germany Double Taxation Avoidance Agreement (DTAA). b).That on the facts and in the circumstances of the case and in law, Ld. DRP erred in holding that the income earned by the appellant from sale of designs and drawings is taxable as Fees for Technical Services as per Article 12 of the DTAA, ignoring the decision of Hon'ble ITAT, Kolkata in appellant's own case for earlier years wherein it was held that sale of designs and drawings by the appellant is in the nature of sale of product. Levy of interest u/s 234A of the Act 4. That on the facts and in the circumstances of the case, Ld.AO erred in computing the interest under Section 234A of the Act which is consequential in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f gross revenue. Since this is purely a factual matter and the facts under the year under consideration are also same, therefore it was held by AO that it would be reasonable to apply a net profit percentage of 27 5% on the gross revenue for the current year. Thus by, applying the revised net profit rate of 27.5% the taxable income from rendering of supervisory services was computed by AO, as follows: Particular Revenue from Supervisory service ₹ 5,47,53,435/- Rs. Profit @ 27.5% ₹ 1,50,57,195/- Less: Already offered in ROI filed (@ 15.10%) ₹ 82,67,769/- Net income added on Supervisory services ₹ 67,89,426/- 6.2 The assessee company filed the objection before the Hon`ble DRP against the proposed addition of ₹ 67,89,426/- on account of supervisory services. But the Hon`ble DRP dismissed the assessee`s objection stating that the assessee admitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in attributing profits @27.50% was rightly confirmed by DRP. We also hold so. This issue of assessee s appeal is dismissed. (ii).In assessee s own case ITA NO.331,332,334/kol/2015 A.Y 2004-05 to 2007-08 ITA no.328,329,330/kol/2015 Outotec Gambh A.Y 20005-06 to 2007-08 ITA no.274,275,276,277: 8. The DRP also confirmed the action of the AO for the reason that on identical facts and circumstances, the ITSC attributed profits @27.50% in the assessee s own case for AYs 2008-09 and 2009-10 respectively. For the AYs 2008-09 2009-10 before the ITSC and now for AY 2010-11 before the AO, the assessee admitted to have PE in India to which the impugned supervisory services were effectively connected, but now books of accounts were maintained / or the same. This was in clear violation of provisions of section 40AD of the Act. In such circumstances, the factual finding of the ITSC towards attribution of profits to the extent of 27.50% on the revenue earned from supervisory activities in India cannot be faulted with and for the very same reason, the action of the AO in attributing profits @27.50% was rightly confirmed by DRP. We also hold so. This issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct the plant; (ii) The assessee has access to a wide range of technologies such as sinter plant technology, pellet plant technology etc that are required for the purpose of setting up/erection of plants. Such technologies are developed after undertaking various research and development activities; (iii) The designs and drawings are largely the products of the aforesaid technologies that are sold to its Indian customers after being modified, to meet their requirements. The modification activities have been performed by the assessee in its own country i.e. the entire work has been undertaken / performed outside India; (iv) The designs and drawings sold by the assessee were used by the Indian customers for internal business purpose of setting up of their plants and not for any commercial exploitation; (v) Sale of designs and drawings has also been affected outside India. Copy of the sample airway bill evidencing that the delivery of designs and drawings for various projects has taken place outside India has been already enclosed with the submission; (vi) Consideration /payments for the basic engineering work were re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act as well as Article 12(3) of the India-German DTAA. In the case of CIT Vs. Klayman Porcelains Ltd. [1998] 96 Taxman 221 (AP), the Hon ble Andhra Pradesh High Court held that: ...if the amount in question had been paid by the Indian company to the nonresident company for imparting of any information concerning the working of or use of patent, invention, model, design, secret formula or process or similar property or if it was paid for imparting of any informatio onr ctroandcee rmnainrgk technical, industrial, commercial or scientific knowledge, experience or skill, the amount would fall within the meaning of royalty , as defined in Explanation 2 of section 9(1). This is a question of fact to be determined on the facts and circumstances of each case and the terms of agreement under which there has been a transfer . The AO noted that in the present case, the supply of drawings, designs, engineering documents, etc. clearly fall within the ambit of expression for imparting of any information concerning industrial, commercial or scientific experience which is clearly stipulated in clause (iv) of Explanation 2 of section 9(1)(vi) of the Act as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Royalty from sale of Designs was categorized as Fees for Technical Services and assessed as such by AO. 7.3 Not being satisfied with the order of DRP/AO, the assessee is in appeal before us. The ld Counsel for the assessee has stated before us that said issue is fully covered by the judgment of Hon`ble ITAT Kolkata, in assessee`s own case for assessment years 2005-06 to 2007- 08, 2010-11 and 2011-12, which are reproduced below: (i).In assessee s own case ITA NO.431/432/kol/2014 A.Y 2010-11 ITA No.283/kol/2015 Outotec Gambh A.Y 2011-12 37.From the above facts and legal position, it is clear that the basic engineering packages sold by the assessee to the Indian customers have been largely designed on the basis of standard technologies available with it. The consideration was, therefore, for the sale of the product, which is embedded in the plant set up by the Indian customers and does not constitute royalty and is in the nature of business income. Since the work was done outside India and sale was taken place outside India, such income is not taxable under the provisions of the Act and DTAA. Retaining intellectual property in desig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the Revenue in this appeal, reads as under:- i) On facts and in the circumstances of the case, the Ld. DRP erred in ignoring its own finding given in the preceding year in the assessee s own case for the A.Y. 2004-05. And failed to return a correct finding of the facts that the sale consideration was not sale simplicitor for overseas supply of equipment and included consideration for various tests and warranty provisions and therefore income attributable to such services rendered in India is taxable in India as decision of the coordinate Bench in Posco Engineering and Construction Limited v. ADIT (2014) 148 ITD 527 ( Delhi Tribunal). ii). Even if the AO fails to notice the relevant facts and fails to cause proper enquiry, it was incumbent upon DRP to return a correct finding of facts by making appropriate enquiry or getting such inquiry conducted in view of the law laid down by Hon ble Delhi Court in CIT v. Janasampark Advertising and Marketing (2015) 231 Taxman 384 (Del)/375 ITR 373 (Del) and having not done so, the direction of DRP is bad in law and should be set aside. iii). The department craves leave to raise any additional grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, the assessee submitted before the AO various clauses of contract i.e. delivery on FOB basis, terms of payment, inspection etc, for Tata KPO project. The assessee has also furnished an annexure highlighting the similar clauses in other contracts for sale of equipment for other projects as well. Based on the facts stated by the assessee, it has contended that all the activities relating to designing, fabrication and manufacturing took place outside India, the sale of equipment also took place outside India on principal to principal basis at arm's length and consideration was also received outside India in foreign currency. The assessee has also submitted that the clauses relating to acceptance tests mentioned under the various contracts for sale of equipment are merely in the nature of warranty provisions and would not have any impact on transfer of title, property in the sale of equipment. Accordingly, the assessee has submitted that it has not carried out any operations in India with regard to sale of equipment and hence the profits arising to it from sale of equipment is not taxable in India in terms of Section 5 read with Section 9(1)(i) of the Act since E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be attributed to the profits of the building site of construction, assembly or installation project. In addition to the above, the assessee has also submitted that the supervisory PE has no role to play in offshore supplies as all the work relating to designing, fabrication and manufacturing of equipment was done outside India and sale has also taken place outside India. Based on the above mentioned contentions the assessee has claimed that the profits arising from sale of equipment is not taxable under the provisions of DTAA. During the assessment proceedings, the assessee also placed reliance upon various Judicial Pronouncements, namely Ishikawajma-Harima Heavy industries Ltd us DIT [288 lTR 408], CIT and Anr. Vs Hyundai Heavy Industries Co. Ltd. (SC) 291 ITR 482}, DIT Vs. Ericsson A.B., New Delhi (343 ITR 470 and Director of Income Tax vs M/s Nokia Networks Oy (253 CTR 417), DIT Vs. LG Cable Ltd. (Del HC) [237 CTR 438] etc. The assessee had contended that the title / property in equipment was transferred outside India and hence sale has taken place outside India. However, the AO had rejected the contentions of the assessee and held that a profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Port of Shipment the above payments are through irrevocable letter of credit which makes it clear that even if the ship does not sail or deliver the goods to the destination, the assessee receives payment out of Letter of Credit guaranteed by bank upon FOB delivery. Even the customer's inspection for equipment is outside India. The buyers were Indian customers and unrelated parties and purchased equipment from assessee on their own account. Moreover, sale was on principal to principal basis and at arm s length. The assessee entered into either separate contracts each with its own scope of supply or service with separate consideration or single contract with separate scope of supply and services as well as separate consideration. The findings of DRP and that of the AO that the contracts are single contract split into separate parts is not correct. Even if the contract is considered to be integrated one, then also the taxability of each of the component has to be determined separately based on the decision of Hon'ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd., supra. Further, the reliance placed by DRP on the case of AAR of Alstom Transport SA, supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts i.e. 80-85% for each and every part of shipment becomes payable upon delivery of equipment on FOB foreign Port of Shipment the above payments are through irrevocable letter of credit which makes it clear that even if the ship does not sail or deliver the goods to the destination, the assessee receives payment out of Letter of Credit guaranteed by bank upon FOB delivery. Even the customer's inspection for equipment is outside India. The buyers were Indian customers and unrelated parties and purchased equipment from assessee on their own account. Moreover, sale was on principal to principal basis and at arm s length. The assessee entered into either separate contracts each with his own scope of supply or service with separate consideration or single contract with separate scope of supply and services as well as separate consideration. The findings of DRP and that of the AO that the contracts are single contract split into separate parts is not correct. Even if the contract is considered to be integrated one, then also the taxability of each of the component has to be determined separately based on the decision of Hon ble Supreme Court in the case of Ishikawajma-Harima Heavy I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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