TMI Blog2022 (7) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... to principle basis. The transaction was at arm s length and the consideration is also received outside India in foreign currency. As in ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES LTD. VERSUS DIRECTOR OF INCOME-TAX [ 2007 (1) TMI 91 - SUPREME COURT] where income arises out of operations performed in more than one jurisdiction, then it has a nexus with each of the jurisdictions and no one state can exercise its right to tax the income which has not arisen in that state. Accordingly, only that part of the work which is attributable to business operations carried out by the Appellant in India is taxable in India. In the present case, therefore, at the most the supervisory services for installation and commissioning etc., provided in India at the premises of the buyer, can be considered to be taxed in India. The appellant had submitted during the assessment proceeding that it had offered tax on such services (Installation, commissioning and supervision) on gross basis at the rate of 10.506% u/s 115A of the Act. The assessing officer has not disputed this fact in the assessment order. He has not made any separate addition on this account. The only addition made by the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in upholding the levy of surcharge and education cess on income from troubleshooting services which is chargeable to tax at special rate of 15% as per India-USA Double Taxation Avoidance Agreement ( DTAA ). (b) The learned CIT(A) erred in not appreciating that as per para 1 (b)(i) of Article 2 of India-USA DTAA, tax has been defined to cover income tax including any surcharge thereon. (c) The learned CIT(A) erred in not considering circular 728 dated 30 October 1995 which provides for application of rates as per DTAA or the relevant Finance Act whichever is beneficial to the assessee. (d) The learned CIT(A) erred in not following the binding decision of the jurisdictional Honourable Income Tax Appellate Tribunal, Delhi in the case of OSRAM India Pvt. Ltd. vs. DCIT, CPC-TDS [ITA 4052/Del/2015. 2. The assessee has raised the issue of levy of surcharge and education cess. This issue is no longer res integra as amended involved to the clarification has been brought in the memorandum explaining the provisions in the Finance Bill, 2022 wherein it was clarified that the deduction for taxes paid as cess cannot be allowed as a deduction. 3. In this regard, we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowed in the assessments for the year 1962-63 and onwards. 9. On the other hand, the Kolkata ITAT has delivered a judgment in the favour of revenue by relying on the Hon'ble Supreme Court's in the case of K. Srinivasan, 83 ITR 346 held that surcharge or additional tax would be included within the meaning of income- tax. The Finance Act, 2004 through which education cess was introduced, describes education cess as an additional surcharge levied to finance the Government's commitment to universalise quality basic education. As per the provisions of Finance Act, 2011, the amount of income-tax as increased by the applicable surcharge, shall be further increased by an additional surcharge, to be called the Education Cess on income-tax , calculated at the rate of 2% of such incometax and surcharge. 10. Accordingly, the Kolkata ITAT held that A perusal of the provisions of the Finance Act 2004 and Finance Act 2011 would show that it has been specifically provided that 'education cess' is an additional surcharge levied on the income-tax. The same have not been brought into the knowledge of the Hon'ble High Courts in the cases of Sesa Goa Ltd Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the same equipment in India. (ii) Whether on the facts and in law, the CIT(A) has erred in not considering the fact that the sale of equipment (turbine/gas producer assembly Tauras 60) and the services (commissioning, start-up and installation) provided by the assessee are inextricably related and form integral part of composite services. (iii) Whether on the facts and in law, the CIT(A) has erred in not considering the fact that the provision of services are in respect of the equipment supplied and cannot be viewed as independent transactions and the inter relationship of supply of equipment and services thereof cannot be diverged. (iv) Whether on the facts and in law, the CIT(A) has erred in not considering that the dominant intent of the parties was not to merely provide Service or merely sell the equipment but was to set up/establish the turbine rotor/gas producer assembly for power generation on similar lines of a turnkey project. (v) Whether on the facts and in law, the CIT(A) has erred in not considering that the risk title to goods passed in India and the place where such risk of title passed is secondary to the contract as the dominant intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso observed by the assessing officer that there is no evidence either in respect of the claim that the equipment was provided in exchange of similar equipment used by SI group. The assessing officer did not accept the claim of the appellant that the risk over the goods was passed outside India and the sale is concluded outside India when the installation and commissioning and start-up of power generator set supplied was carried out in India. The assessing officer therefore held that the overhauling receipts are on account of sale of equipment and the sale was concluded in India. Accordingly the revenues earned on such sale was held to be chargeable as per the provision of section 9(1) of the Act and 25% of gross receipts in respect of such sale was considered as profit and an addition of Rs.1,14,58,250/- was added to the total income of the appellant. 17. On perusal of the purchase order, provided by the appellant as Annexure-3 of the submission, it is found by the ld. CIT(A) that the SI group Ltd. had placed and order of supply of accessories that is turbine rotor/gas producer assembly Taurus 60 - T 7001 for power generation set 7001. The total value of such purchased was U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it is evident enough that the supply of accessories Taurus 60 is nothing but a sale transaction only. In view of the above discussion, the assessing officer has correctly held that the relevant revenue receipt is on account of sale only. 19. On the issue whether such income on account of sale of goods is taxable in India or not. It was submitted by the appellant that even if the income is treated as sale of goods, the same shall not be taxable in India since the delivery of equipment has taken place in USA under an ex-works arrangement. The appellant has relied upon the 'Inco Terms Rules 2010' wherein 'Ex-works' means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point. 20. On examination of the purchase order, the airway bill and the invoice, it was found that the freight terms are exworks, USA. It is evident that the delivery of the s' equipment was concluded in USA itself and thereby the risk to the equipmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annexure 9 of the submission dated 12.05.2017, was also submitted. Vide this invoice the appellant submits that the purchase order no. 1202517 in regard to troubleshooting services is separate from the purchase order towards the overhauling services which was 120518. The appellant submits that these services were under different contracts and that the contention of the assessing officer that the installation and commissioning and start-up of power generator set is through the contract of equipment purchase is erroneous. 23. On perusal of the purchase order 1202517, Ld. CIT(A) found that the invoice total of US $ 15,189.03 is in regard to certain services wherein rates of regular man-hours and overtime man-hours are prescribed. It is not clear from the said invoice that the same is for any specific troubleshooting services. Without taking into account the invoice furnished by the appellant in support of the receipts of troubleshooting services, it has to be examined that whether by providing installation and commissioning by the technicians /engineers of the appellant company, the sale of equipment can be considered as concluded in India. 24. The purchase order in regard to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sen in that state. Accordingly, only that part of the work which is attributable to business operations carried out by the Appellant in India is taxable in India. In the present case, therefore, at the most the supervisory services for installation and commissioning etc., provided in India at the premises of the buyer, can be considered to be taxed in India. 28. The appellant had submitted during the assessment proceeding that it had offered tax on such services (Installation, commissioning and supervision) on gross basis at the rate of 10.506% u/s 115A of the Act. The assessing officer has not disputed this fact in the assessment order. He has not made any separate addition on this account. The only addition made by the assessing officer is of Rs.1,14,58,250/, on account of sale of the machine to SI Group-India Ltd. 29. In view of the above discussion, it was, therefore, held that the receipts on account of supply/sale of equipment Taurus 60 and other accessories cannot be taxed in India as all the activities in relation to manufacturing of the equipment took place outside India. The services rendered by the personnel of the appellant company for the purpose of installation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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