TMI Blog2021 (6) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... supplies made are independent and separate with the supervisory fee for MSIL. The consideration for supplier and supervision is also separate. In fact, the Assessing Officer himself has not brought to tax any such amount from supplies made to MSIL from A.Y. 2014-15 onwards. This is evident from assessment order for A.Y. 2016-17. The Assessing Officer had framed an assessment on 24.12.2018, even before the Tribunal has pronounced its judgment on 01.07.2019, for the aforesaid assessment year, where he did not himself bring to tax any such sum. Therefore, the Assessing Officer as well as the DRP was not correct in making addition in respect of income from offshore/foreign supplies and thereby no allowing setting off of business loss against such income. Computation of long-term capital gain on transfer of shares to a non-resident - sale was made in Yen in Japan - conversion rate of currecny - HELD THAT:- Assessee computed capital gain on the transfer of shares held and owned by it of M/s SML Isuzu Ltd. (Indian company) to Isuzu Motors Ltd., Japan (non-resident) based upon the terms of the Share Purchase Agreement (SPA) under which the transfer of the shares was made. Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue is remanded back to the file of the Assessing Officer for this specific purpose. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 6 is partly allowed for statistical purpose. Interest under Section 234C - HELD THAT:- It is pertinent to note that the interest under Section 234C is leviable on default in payment of advance tax installment on returned income, but in the present case it is done on assessed income. Thus, when there is no default on the part of the assessee in payment of advance tax as per returned income, such interest levied is not justified by the Assessing Officer. The interest u/s 234C of the Act is levied only when the assessee fails to deposit the tax based upon its return of income. But in the present case, as per the return of income tax payable aggregated which was duly discharged by TDS. These facts were not disputed by the Ld. DR at the time of hearing. - ITA No. 1881/DEL/2017 - - - Dated:- 9-6-2021 - Shri R. K. Panda, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Appellant : Sh. C. S. Aggarwal, Sr. Adv., Sh. Ravi Pratap Mall, Adv For the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commissioning and testing of equipment in India. The aforesaid findings are based on no material whatsoever. 2.4 That the Ld AO/DRP has erred in holding, without any basis, that the negotiation and signing of the contract took place in India and thus PE was established without considering the fact that even the contracts were signed outside India and no negotiation took place in India in respect of such offshore supply. 2.5 That the Ld AO/DRP has erred on facts in holding and that to without any basis, that the Appellant has entered into integrated contract for supply of equipment and commissioning, and PE was established to undertake the contractual obligation. In-fact the appellant did not carry out any such activity in India in respect of such offshore supplies. Thus, the allegation of the Ld AO/DRP is totally baseless. 2.6 Without prejudice to above, the Ld AO/DRP has erred in attributing 35% of the alleged profit in respect of offshore supplies to the alleged PE of the Appellant in India without seeing actual facts of the appellant, such a conclusion is arbitrary and is untenable. 2.7 That the Ld. AO/DRP has failed to appreciate that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulted into higher addition in capital gain. 3.5 Without prejudice above, the Ld. AO/DRP as provided under statute was required to adopt Telegraphic Transfer Buying Rate to convert the capital gain (from JPY to INR) whereas he has adopted incorrect rate as per rule 115A. 3.6 Without prejudice to above, the Ld. AO/DRP erred in not allowing the set off of the brought forward long term capital losses of ₹ 7,31,67,675 to the appellant against the capital gain so computed and further carrying forward the balance capital loss. 4. That the DRP has erred in passing a non-speaking order while dismissing the grounds relating to capital gain referred in para 3.2 to 3.5. 5. That the learned AO has erroneously stated that the reasons mentioned in the order may be treated as satisfactory for initiating penalty proceedings under section 271 (1 )(c) of the Act for furnishing inaccurate particulars of income and concealment of particular of income with respect to the additions made. 6. That the Ld. AO has erred in not allowing full credit of TDS as claimed by appellant at the time of filing return of income. The credit of TDS allowed at ₹ 4,58,48,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to MSIL) Nil 3,39,28,632 Total business income from Project and supplies Nil (Loss of ₹ 1,27,500 carried forward 3,38,01,132 (without allowing any set-off B Fee for Technical Services Supervision fee 68,63,32,947 68,63,32,947 C Long Term Capital Gain Nil (LTCG of ₹ 90,93,355 was set off against brought forward losses) 15,072,540 (without allowing any set-off) D Interest income (taxable @ 10% under DTAA) 64,55,329 64,55,329 Total Assessed income as per draft assessment order 69,27,88,276 74,16,61,950 The Assessing Officer duly accepted the position on taxability of the supervision fee as per Article 12(2) of the Indo-Japan DTAA in line with the Hon ble Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us. 5. The Ld. AR submitted that the assessee company i.e. M/s Sumitomo Corporation, Japan is a foreign company and is tax resident of Japan. For the AY 2013-14, it had filed its return of total income on 29.11.2013, declaring an income at ₹ 45,48,94,340/-, however revised the same on 27.03.2015 offering its taxable income at ₹ 70,17,54,131/-. In the revised return, the assessee had offered to tax (as had been offered in preceding year too) supervision fee , which is a sum of fee in the original return of income filed on 29.11.2013 and had been claimed as not taxable in India. The said sum of returned income is not in dispute and is not the subject matter of the instant appeal. The return of income filed by the assessee was selected for scrutiny and the ACIT by a draft order of assessment dated 18.03.2016 passed u/s l44C(l) of the Act, computed the total income of the assessee at ₹ 74,16,61,950/- as against the returned income of ₹ 70,17,54,131/-. The Ld. AR submitted that the Assessing Officer while computing the total income of the assessee at ₹ 74,16,61,950 in his draft order, had made following additions: (i) ₹ 3,38,01,132/-, as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the equipment and commissioning of the same is without any basis, completely misconceived and are erroneous. The Ld. AR submitted that the assessee does not undertake any activity of installation and commissioning of equipment supplied and was providing supervision services of the installation and commissioning to MSIL. Thus, the Ld. AR contended that in so far as the supplies made, no profit had accrued to it in India as it had not undertaken any activity of installation and commissioning of equipment supplied and was independently and separately providing supervision services of the installation and commissioning of such equipment, which is taxable under Article 12(2) of Double Taxation Avoidance Agreement (DTAA) and has also been so separately taxed in return of income. The Ld. AR submitted that the assessee had no PE in India under Article 5 of the Double Taxation Avoidance Agreement between India and Japan and that supplies of equipment to MSIL has not been made in India. Alternatively and without prejudice, the Ld. AR further contended that even if it is held that the assessee has a PE in India then too, no amount of alleged profit could be taxed in India since no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee, a foreign company has been making supplies from outside India and as such, since no income has accrued to it in India, said income could not be brought to tax. The findings of the DRP that the assessee is also engaged in installation and supervision, is wholly misplaced. It is undisputed fact that the assessee is not engaged in any installation. It is however not denied that it was making supervision of installation and had received supervision fee separately which is offered to tax in return of income and is an undisputed fact. Further the finding of the DRP that the transactions of offshore supply and installation and supervision by it, were closely interlinked and continuous is wholly irrelevant factor. The transactions of supplies made are independent and separate with the supervisory fee for MSIL. The consideration for supplier and supervision is also separate. In fact, the Assessing Officer himself has not brought to tax any such alleged profit from supplies made to MSIL from A.Y. 2014-15 onwards. This is evident from assessment order for A.Y. 2016-17. The Assessing Officer had framed an assessment on 24.12.2018, even before the Tribunal has pronounced it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the issue involved in the appeal is squarely covered by the orders of the Tribunal and the findings recorded by the Assessing Officer for the succeeding assessment years. This is evident from the table placed at page 343 of the PB for the A.Ys 2014-15, 2015-16 and 2016-17, whereby, there is no dispute in case of offshore supply of equipment. The assessee had also placed on record the order of assessment for A.Y. 2016-17 to establish that no addition has been made by the Assessing Officer himself for the A.Y. 2016-17. The assessee, however, submits that the Hon ble High Court of Delhi in the case of NPCC reported in [2016] 66 Taxman.com 15 has also held that income could be assessed to tax in India, where offshore supplies have been made and assessee does not have a PE in India. Similar is the findings of the Hon ble Uttarakhand High Court in the case of M/s Samsung Heavy Industries Ltd. reported in 42 Taxman.com 140. 11. The Ld. DR submitted that the assessee is tax resident of Japan. The assessee claimed that no income could be held to be taxable in India since PE did not exist in respect of supply made to MSIL (Maruti Suzuki India Limited). The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal before deciding the case in hand. The Ld. DR submitted that the submissions in respect of the particular invoice does showcase that it is not a plain vanilla case of sale/purchase but the terms and conditions as per the agreement do provide for the rejection of equipment supplied by the assessee. If the equipment itself can be rejected even after its installation, in such a scenario, how one can take a position that sale was completed outside India. The Ld. DR prayed that the bench may also ask for the complete set of agreement and invoice in respect of the other supplies made during the year. The Ld. DR submitted that at page no. 80 of the paper book contains the list of equipment supplied by the assessee to MSIL. A particular item at sr. no. 4 mentions the Title of PO as Design, manufacture and supply of cross bar type .. Press Line . This shows that the assessee is required to supply the equipment only after its design and manufacturing as per the given requirements of the client. Further, the assessee submitted copy of PO (PO No. 245563) in respect of only one item which is appearing at serial no. 7 of the list. Perusal of the invoice and related agreements shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eller to buyer and acceptance test was not determinative of this factor. The court also added that the position might have been different if the buyer had the right to reject the equipment on the failure of the acceptance test carried out in India. This shows that the clause of rejection of equipment is determinative factor in deciding the transfer of title. If the supplied good to Indian client stands rejected, how it can be considered as completed outside India. 12. Based on the aforesaid clauses in the agreement in respect of the submitted invoice, it is evident that the assessee continued to undertake the risk of rejection of the supply, therefore, the transfer of ownership will not change the legal position that off-shore supply is taxable in India. It is a case where the functions in the nature of technical supervision have been performed by the assessee company in India. Further, while performing the supervisory functions, the intangible asset in the form of technical know-how has been put to use. Therefore, there is a need to attribute further profits to the PE for those functions/risks as discussed above that have not been considered. The Ld. DR prayed that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this submission may be duly considered in addition to the assessment order of the Assessing Officer. 15. In rejoinder, the Ld. AR submitted that aforesaid contention that are point no. i, ii iii of para 5 raised by the Ld. DR does not emanate from the order of the Assessing Officer, nor the Assessing Officer adopted such basis to make addition. The Ld. AR further submitted that before the Tribunal, revenue can support the order of the Assessing Officer but cannot make out a new case. Aforesaid submission of the assessee is supported by following judicial precedents: i. The Mumbai Bench of the Tribunal in Ms. Aishwarya K. Rai 121 ITD 204 (Mum) held that the learned D.R. can support the action of the A.O. with any arguments and that he can rely on any case law in support of the A.O s cast but he cannot make out any new case which was not the subject matter of consideration by the A.O. or the first appellate authority. It further held that to find fault in the assessment order is outside the; domain of the argument of the Ld. DR., as such powers vests with the Commissioner u/s 263 for revising any order which is erroneous and prejudicial to the interests of Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning to the AYs 2001-02 to 2003-04, 2007-08, 2010-11, 2011-12 and 2012-13, has held in para 9 that income arising from offshore supplies is not taxable in India. The Ld. AR further submitted that the facts and terms of the PO s for all pertaining to offshore supplies to MSIL are identical to the preceding years from A.Y. 2001-02 to 2012-13. This submission is borne out from the draft assessment order, where in para 3.2, the Assessing officer has stated that: 3.2. The submissions of the assessee have been considered and are not found acceptable. The facts of the case are identical to those in the preceding years and the submission of the assessee are almost on the same lines as in the preceding years except placing further reliance on the decisions in the case of Ahmed Bhai Umarbahi 18 ITR 372 (SC). In such circumstances, grounds raised in the memo of appeal in respect of taxability of income arising from offshore supplies is covered in favour of the assessee by the order of the Tribunal for preceding assessment years in the case of the assessee itself, and hence the addition made is liable to be deleted. 18. The Ld. AR submitted that in subsequent assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in fact revenue itself has not appealed the same in A.Y. 2005-06, 2006-07, 2008-09 and 2009-10 before and also no addition in relation to the same have been made by Assessing Officer in the subsequent assessment years 2014-15, 2015-16 and 2016-17, thus the Ld. DR cannot be permitted to bring new aspect for the first time in the appeal before the Tribunal. In view thereof, once, the Assessing Officer himself has accepted that facts are similar to earlier years, and in the subsequent assessment years, the Assessing Officer himself has accepted that offshore supplies made to MSIL is not taxable in India, the addition made in this year is unsustainable in law. 20. In so far as the contention of the Ld. DR that terms and conditions as per the agreement do provide for the rejection of equipment supplied by the assessee and once the equipment itself can be rejected even after its installation, in such a scenario, the sale was not completed outside India, the Ld. AR submitted that such a condition is wholly fallacious and misconceived. The Ld. AR submitted that in this case, acceptance of equipment is not the essence of contract, but time is the essence of contract. Further, un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the goods but this right generally which a buyer has in c.i.f. contract does not by itself indicate that the property in the goods has not passed to him. This supposed incongruity was sought to be explained per curiam in Kwei Tek Chao v. British Traders and Shippers Ltd. (1954) 2 K.B. 459. that if property passed when the documents are transferred that property is subject to the condition that the goods should re-vest in the seller if on an examination by the buyer he finds them not to be in accordance with the contract. It is not necessary to consider this aspect because in any case the ascertainment of the obligations under the contract will determine to what extent the transfer of property is subject to a condition or if the property passes conditionally whether the ownership left in the seller is the reversionary interest in the property in the event of the conditions subsequent operating to restore it to him. In any case where the performance of some condition is imposed upon the buyer but is not made a condition of the transfer of the property, the property once passed is not revested in the seller by the buyer's subsequent default. 22. The Ld. AR further submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installation and commissioning of equipment supplied and was independently and separately providing supervision services of the installation and commissioning of such equipment, which is taxable under Article 12(2) of Double Taxation Avoidance Agreement (DTAA). The same is separately taxed in return of income by the assessee. The assessee had no PE in India under Article 5 of the Double Taxation Avoidance Agreement between India and Japan. The supplies of equipment to MSIL were not made in India. As regards to the inclusion of profit from offshore supplies made is concerned, same is no more res-integra. In fact, the facts of the present case are similar to the earlier years which are also verified by the Assessing Officer in the assessment order. In respect of the inclusion of the estimated profit, the Tribunal in its consolidated order dated 01.07.2019 pertaining to the A.Ys 2001-02 to 2003-04, 2007-08, 2010-11, 2011-12 and 2012-13 has held in para 9 that the goods were sold from outside India. the Tribunal held as under: 9. In the present case the goods were sold to MUL from outside India. Thus, the risk and title were also transferred outside India and no transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax any such amount from supplies made to MSIL from A.Y. 2014-15 onwards. This is evident from assessment order for A.Y. 2016-17. The Assessing Officer had framed an assessment on 24.12.2018, even before the Tribunal has pronounced its judgment on 01.07.2019, for the aforesaid assessment year, where he did not himself bring to tax any such sum. The Assessing Officer has specifically mentioned in its order: 3. The assessee is a company incorporated as per the rules of Japan, and is engaged in the business of supply of equipments for various projects also executed erection commissioning of the equipments at the various project sites in India. 4.The reply of the assessee as well as the audited financial results have been perused and no adverse inference could be drawn. In the draft order of assessment in para 3.2, the Assessing Officer observed that the facts of the case are identical to those in the preceding years. Therefore, the Assessing Officer as well as the DRP was not correct in making addition in respect of income from offshore/foreign supplies and thereby no allowing setting off of business loss against such income. Ground Nos. 2, 2.1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y considered the assets transferred i.e. shares at fair market value for computing sale consideration as against the sale price/consideration accruing to it and so received as per SPA. The Assessing Officer has erroneously applied conversion rate, since the shares were sold in Japan for an agreed conversion rate in Yen and as such, for the purpose of computation of capital gain, exchange rate prevailing on the date of transfer need not to be adopted since consideration was already agreed in Yen payable by one nonresident to another non-resident in Japan and no remittance was to be made from India to Japan. There is no concept of any fair market value for the purposes of section 48 of the Act. Further, rule 11UA applied by the Assessing Officer for determining the fair market value has not applicability for Section 48 of the Act and also, provision of section 56 is not applicable on the assessee. The Assessing Officer has in any case has erred in not giving set off of longterm capital loss of ₹ 18,93,13,933/- . The Assessing Officer has not given any opportunity of being heard before re-computing the capital gain, thereby not following the principle of natural justice. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular had no force of guidance. As regards the complexity of the transactions the Panel is of the considered view that the transactions of offshore supply and installation and supervision by it were closely interlinked and continuous. In such circumstances the AO was justified in holding that the A had a supervision PE. As regards attribution of profits the arguments of the A and the AO were carefully considered by us. It was gathered from page no. 14 of the paper book para 3.4, that the AO computed the profit attributable to India from the A s business in India as under:- Total sale of the A Globally = ₹ 2190357134 Net profit of the A globally = ₹ 232.54 (billion year) Total sale of the A globally ₹ 2190357134 Net profit of the A globally ₹ 232.54 (billion year) Net profit %+ 3.09 Hence income from offshore supplies by A to MSIL= 2190357134-3.09*50 10.0* 100 The calculation of the Assessing Officer was strongl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made under an agreement. In other words, the Ld. AR contended that the assessee had transferred the shares under an agreement entered between the assessee and unrelated parties and as such said sale consideration could not have been disturbed. The Ld. AR at this stage submits that the genuineness of the agreement entered between two unrelated parties could not have been altered. This has been so held by the Apex Court in its judgment reported in 263 ITR 706 in the case of UOI vs. Azadi Bachao Andolan and reiterated in the later judgment reported in 341 ITR 1 in the case of Vodafone International Holdings B.V. vs. UOI (SC). The Ld. AR further contended that it is well settled rule of law that given that a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance . The Ld. AR contended that the transaction of sale of shares was between two unrelated parties and was negotiated at the rate prevailing at the time the agreement was signed bases rate as per stock exchange duly mentioned in the agreement whereas the Assessing Officer adopted the fair market value rate as on date of transfer of shares quoted at stock exchange @393 per shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applies for the purpose of income from other sources . The Ld. AR also submitted that, the income chargeable under the head capital gains the same is to be computed by adopting the full value of consideration received or accruing as a result of transfer of capital asset as per Section 48 of the Act. In such a situation the Ld. AR submitted that the] Assessing Officer could not have disregarded the amount which had accrued to the assessee as a result of transfer of shares, which shares were transferred under an agreement as per the amount of consideration determined therein. The Ld. AR thus submitted that the learned Assessing Officer had erred in adopting Rule 11UA(1)(c)(ii) of the Income Tax Rules which is applicable only in respect of section 56 of the Act and is inapplicable where capital gain is to be computed u/s 45 or 48 of the Act as per the present facts. In fact, the present transaction does not fall in any clause of section 56 of the Act. The Ld. AR further pointed out that section 45 specifically provides cases where sale consideration should be adopted at fair market value which does not cover the present case. The Ld. AR further submitted that the DRP thus ignored ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue in his reply submission has not made any adverse comments or rebuttal, however without prejudice the Ld. AR submits in brief, in respect of such grounds as under: A. Regarding taxability of capital gains (Ground No. 3) The assessee had held 15,91,881 equity shares of an Indian company i.e. M/s SML Issuzu Ltd. 25.11.2011: It had entered into an agreement of sale of all of such shares to M/s Issuzu Motors Ltd. Japan (Pg. 191 -203) @ ₹ 383.42 (see Pg. 193 under definition of sale share price of Paper book numbering) Bombay Stock Exchange rate of the aforesaid shares on the prevailing date of agreement was ₹ 383.42 (see Pg. 193). The assessee had transferred all such shares in Japan on 13.04.2012, when it had received the consideration in the year 2013-14. On 13.04.2012 stock exchange rate was ₹ 393.00 per share. The AO, erroneously invoked Rule 11UA(C)(ii), and applied Bombay stock exchange rate as was on 13th April 2012 instead of adopting sale rate of 383.42, as per the agreement of sale and was also the rate as per BSE. The rate of sale was agreed at 383.42 (see Pg. 193). Rule 11UA(C)(ii) has no applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 1.62 per Yen, whereas, the conversion rate on the date of agreement to sell i.e. 25.11.2011 was ₹ 1.49 per Yen as agreed in Share Purchase Agreement as the consideration was payable in Yen by nonresident buyer to non-resident seller, both resident of Japan. The sale was made in Yen in Japan and the amount had been paid in Japan. These facts are not at all disputed by the Revenue authorities. While computing the capital gain, the Assessing Officer had adopted conversion rate (for converting capital gain in Yen to capital gain in Rs) i.e. telegraphic transfer buying rate at 0.62 instead of 0.6252. But under which method the same is adopted was not demonstrated by the Assessing Officer in the Assessment Order. It is not known as to what is the basis of the Assessing Officer to have adopted 0.62 instead of 0.6252 on the date of transfer of the shares in April 2012. Thus, the contentions of the Ld. AR that conversion rate for the purpose of computation of capital gain as per Rule 11UA of Income Tax Rules, 1962 is required to be adopted, the said rate was 0.6252 and as such the computation made by the assessee had been correctly adopted by it, appears to be just and proper. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had paid due taxes on its income, and hence no interest u/s 234B of the Act is payable. Further, in case due relief is granted based on merits of the case as well as allowing setoff against brought forward business loss, long term capital loss and full TDS credit, there will not be any liability of tax and consequential interest under section 234B of the Act. The Ld. AR submitted however if it is found that tax exceeded the amount paid by the assessee during the FY including TDS, then only interest could have been levied. The Assessing Officer be directed to verify the facts and be redirect to compute the interest payable u/s 234B of the Act. 41. The Ld. DR relied upon the Assessment Order. 42. We have heard both the parties and perused all the relevant material available on record. This ground is consequential ground, hence we direct the Assessing Officer to verify the facts and compute the interest payable u/s 234B of the Act. Ground No. 7 is partly allowed for statistical purpose. 43. As regards to Ground No. 8 pertaining to interest under Section 234C of the Act, the Ld. AR submitted that the Assessing Officer has levied interest u/s 234C of the Act of & ..... X X X X Extracts X X X X X X X X Extracts X X X X
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