TMI Blog2017 (11) TMI 2023X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Revenue : Shri Samuel Darse-CIT-DR. For the Assessee : None ORDER PER RAJENDRA, AM Challenging the order, dtd. 30/03/2015, of CIT(A)-55, Mumbai the Assessing Officer (AO) has filed the present appeal. Assessee-company, incorporated in United Kingdom (UK), filed its return of income, 30/03/2010, declaring total income of Rs. 1.53 crores. The AO completed the assessment, on 25/02/2011, u/s.144C(3) r.w.s. 143 (3) of the Act, determining its income at Rs. 43.07 crores. 2. Effective ground of appeal is about deleting the addition of Rs.2.77 crores. During the assessment proceedings, the AO found that during the year under appeal, the assessee along with Punj Lloyd Ltd. (PLL) had jointly bid for a contract awarded by Ratnagiri Gas and Power Private Ltd.(RPPGL)on 08/09/06 for the completion of RGPPL s LNG terminal at Dabhol. The work under the contract was to be completed on Engineering Procurement and Construction (EPC) basis. A complete specification and scope of work of each of the two joint ventures was described in the Detailed Letter of Acceptance (DLOA), dated/08/2006, that the DLOA also specified the total lump sum contract value for the work to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertaining to construction and commissioning exercise, that any attempt by the assessee to discover a sub contract for purchase of goods was a mis representation of facts, that RPPGL did not intend to prove your equipments/material is a principal independent of construction-testing-commission contract entered with the JV, that the contract was a single monoliths to achieve a specific purpose, that it was impossible to separate consumption of material and civil construction from the DLOA, that no distinction was made between the various heads of the contract, that the amount of US dollar 21.5 million and Rs. 54.2 crores was indicative of the sums against the all the services, that it was not a contract in itself, that the supply of material for the overall scope of work was not a contract independent of the contract for completion of balance work on jetty, that the assessee had not explained as to why the expenditure in Indian rupees was taken as an exercise in procurement conducted wholly outside India, that RP PGL did not intend to procure material independent of construction contract, as per the terms of the contract RP PGL did not be at the risk on the change in the procurement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction would include cost of material and men, election of plant and machinery could not be used to procurement of material or application of manpower. Finally, he held that once the income of the assessee was chargeable to tax in India under section 44BBB the entire contractual revenue, and not a portion of it, would be taxed in India. He made an addition of Rs. 27, 74, 34, 096/-to the total income of the assessee. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA) and made elaborate submissions. It also relied upon certain case laws. He called for a remand report from the AO with regard to the additional evidences filed before him for the first time. Referring to the judgments of honorable Supreme Court in the cases of Ishikawajima Harima Heavy Industries Ltd. (282 ITR 482) and Hundai Heavy Industries Company Ltd. (291 ITR 482), he held that entire contractual revenue on account of offshore procurement could not be brought to tax under section 44BBB of the Act, that the consideration received by the assessee for offshore supply of equipment was not chargeable to tax in India, that the AO was not justified in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of material, made by the assessee, was linked to its PE in India. The establishment of the assessee was not a business connection, as alleged by the AO, through which it had derived its income. Therefore, the sums included under the head offshore procurements included the sums payable towards supply of equipment and machinery procured from outside India. There is no doubt that there was a clear demarcation in the work and cost between the members of the JV i.e. the assesse and PLL. We find that in the case of Ishikawajima Harima Heavy Industries Ltd. (supra), the Hon ble Apex court has dealt with the similar issue, where agreement had two parts. Fact of the Ishikawajima were that the assessee, a non-resident company incorporated in Japan, along with five other enterprises formed a consortium. The consortium was awarded by Petronet a turnkey project for setting up a liquefied natural gas (LNG) receiving, storage and regasifi cation facility in Gujarat. The contract specified the role and responsibility of each member of the consortium and the consideration to be paid separately for the respective work of each member. The appellant was to develop, design, engineer, procure equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the offshore supply, certain operations were inextricably interlinked in India, such as, signing of the contract in India which imposed liability on the appellant to procure equipment and machinery in India and receiving, unloading, storing and transporting, paying demurrage and other incidental charges on account of delay in clearance. The price of the goods covered not only their price but also of all these operations which were carried out in India and from which income accrued to the appellant. Therefore, income accrued to the appellant from the offshore supply through business connection in India and some operations of the business were carried out in India. Profits were deemed to accrue/ arise to the applicant in India from offshore supply of equipment/machinery but the profits deemed to accrue/arise in India would be only such part of the profits as was reasonably attributable to the operations carried out in India. (ii) That having regard to article 7(1) of the Convention for Avoidance of Double Taxation and Fiscal Evasion with respect to Taxes on Income between India and Japan read with paragraph 6 of the Protocol supply of equipment or machinery (sale of which was comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e permanent establishment excluded the applicability of the principle that where there was a permanent establishment, the State of the permanent establishment should be allowed to tax all income derived by the enterprise from sources in the State irrespective of whether or not such income was economically connected with the permanent establishment. The State of the permanent establishment was allowed to tax only those profits which were economically attributable to the permanent establishment, i.e., those which resulted from the permanent establishment s activities, which were economically from the business carried on by the permanent establishment. In this case, the permanent establishment s non-involvement in the transaction of offshore supply, excluded it from being a part of the cause of the income itself and thus there was no business connection. (iv) That for attracting the tax there had to be some activities through the permanent establishment. If income arose without any activity of the permanent establishment, even under the Convention the taxation liability in respect of overseas services would not arise in India. Section 9 spelled out the extent to which the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia the services which were the source of the income sought to be taxed had to be rendered in India as well as utilized in India. In this case, both these conditions were not satisfied simultaneously, thereby excluding the income from the ambit of taxation in India. Thus for a non-resident to be taxed on income for services, such a service had to be rendered within India, and had to be part of a business or profession carried on by such person in India. The appellants had provided services to persons resident in India, and though they had been used here, they had not been rendered in India. (ix) That whatever was payable by a resident to a non-resident by way of technical fees would not always come within the purview of section 9(1)(vii). It must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax. (x) That even in relation to such income, viz., income from offshore services, the provisions of article 7 of the Convention would be applicable, as services rendered outside India would have nothing to do with the permanent establishment in India. Thus, if any services had been rendered by the head office of the appellant outside India ..... X X X X Extracts X X X X X X X X Extracts X X X X
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