TMI Blog2023 (6) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... proposition that unless Revenue is able to prove that the assessee has a PE in India, its business profits cannot be subject to tax in India. This view is supported by decision of R B Falcon Offshore Ltd [ 2010 (9) TMI 741 - ITAT, DELHI] In this case, ITAT clearly held that in absence of a PE, section 44BB has no application. As referred in Hon ble Supreme Court decision in the case of ADIT vs. E-Funds [ 2017 (10) TMI 1011 - SUPREME COURT] burden of proving the existence of PE lies on the Revenue which has not been discharged. In this view of the matter, assessee succeeds that there is no finding of PE in this case, hence section 44BB will not apply. Decided in favour of assessee. - Stay Appln. No. 100/Del/2023 (in ITA No. 521/Del./2023) - - - Dated:- 6-6-2023 - SHRI SHAMIM YAHYA , ACCOUNTANT MEMBER And SHRI KUL BHARAT , JUDICIAL MEMBER For the Assessee : Shri Sachit Jolly , Advocate Shri Soham Dua , Advocate Ms. Disha Jham , Advocate For the Revenue : Shri Vijay Vasanta , CIT DR ORDER PER SHAMIM YAHYA , ACCOUNTANT MEMBER : This appeal filed by the assessee is directed against the order of Assessing Officer passed pursuant to the directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Appellant in India. 10. That on the facts and circumstances of the case, the AO and the DRP erred in making an addition of Rs.60,87,01,615/- under Section 44BB(1) of the Act towards profits and gains of business or profession representing 10% of total contract revenue of Rs.6,08,70,16,150/- without appreciating that the said provision does not apply to sale of goods and equipment. 11. That on the facts and circumstances of the case, the AO and the DRP erred in not appreciating that the project office of the Appellant has already been compensated on an arm's length basis and no further attribution was required to be made in the hands of the alleged PE of the Appellant in India. 12. Without prejudice to the above, on the facts and circumstances of the case, the AO and the DRP erred in facts and circumstances of the case in not allowing the deduction of arm's length remuneration which has already been offered to tax in the hands of the Appellant's project office in India while calculating the total assessed income of the Appellant during the instant year under consideration. 13. Without prejudice to the above, on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee Company which forms the PE of the Assessee Company . The AO further held that the assessee was also involved in survey, installation and commissioning of the equipment in India and since the payments were not bifurcable the entire receipt of the assessee was taxable in India under Section 44BB of the Act. The findings of the AO were based on information said to be provided by ONGC under Section 133(6) of the Act. Before the DRP, the assessee contended that the AO has failed to point out which consortium member and which office constituted PE of the assessee. The assessee also contended that the AO has failed to point out the nature of PE and when such PE was constituted. Without prejudice, it was also argued that Section 44BB does not apply to offshore sale of equipment. The DRP held that Section 44BB applies and the issue of PE is academic in nature. Insofar as the alternate contention of the assessee regarding non applicability of Section 44BB to offshore sales, the DRP placed reliance on the decision of the Supreme Court in ONCC vs CIT (2015) 59 Taxmann.com 1, to hold that offshore supplies are also covered within the ambit of Section 44BB. 4. Against the above or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DRP and the AO are contrary to the decision of the Hon ble Supreme Court in Sedco Forex(supra) as well as decisions of this Tribunal in R B Falcon Offshore Ltd. (supra) and Mitsui (supra). 12. On this ground alone the appeal of the Appellant deserves to be allowed. 13. During the course of hearing the Ld. DR pointed out that the AO had in the show cause notice extracted at page 2 of the draft order, required the assessee by a fixed place PE should not be constituted in your case since there was a project office in India. 14. In this regard, it is submitted that the finding of the AO in the draft order is not that the project office constitutes PE but some alleged consortium members who is working on behalf of the appellant which form the PE. The DRP on the other hand, holds that the question of PE is academic and on that basis the final order has been issued. Therefore, merely because the AO issued a show cause asking why fixed place PE should not be constituted does not mean that the finding is to that effect. 15. In any case, the Hon ble Supreme Court in the case of ADIT v. E-Funds (2018) 13 SCC 294, Para 16 at pg. 125 of attached compilation, has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 224-225 of attached compilation) demonstrates that none of the taxpayers therein were involved in offshore supply of equipment. Therefore, the said decision has no relevance in the present case. 20. During the course of hearing, the submission of the Ld. DR was that since this was composite contract Section 44BB is automatic. It was also contended that the Appellant had overall responsibility towards 0 GC and therefore, Section 44BB shall apply. 21. Both the aforesaid arguments are only stated to be reject. At first it is submitted that the Appellant's scope of work was restricted to manufacture and supply of the equipment. (See page 433, and 441 of Paperbook along with page 7 of the draft assessment order) Even the consideration payable to the assessee was clearly identifiable at 31.28% of the total contract value (See page 442 of Paper book) 22. The argument that 44BB shall apply to every turnkey project has been specifically rejected by the Hon'ble Supreme Court in the cases of Ishikawajma Harima Heavy Industries Co. Ltd., (2007) 3 SCC 481, Paras 14 at pgs. 238-239, 30 at pg. 245 86-88 at pgs. 257-258 of attached compilation; CIT v. Hyundai Heavy In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 42 or section 44D or section 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections. (2) The amounts referred to in sub-section (1) shall be the following, namely : (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. (3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication. We may refer to this ITAT order para 11 wherein it has been held as under :- 11. Ground nos.3, 4, 5 7 6 are in regard to computation of income and the application of presumptive scheme of taxation/s 44BB of the Act. This section provides for computation of business income on a presumptive basis at 10% of the aggregate amount paid or payable to the assessee. This machinery provision will admittedly come into operation only when the income is liable to be computed under the Act. That can be done only if the assessee has a PE in India. We have already decided the matter of PE against the revenue and in favour of the assessee. Therefore, there is no question of computation of business income in this case. As to when does the specific PE come into existence or how the offshore supply of equipment is attributable to the PE has not been identified by the AO. Assessee s counsel has specifically mentioned that there is no finding in the assessment order as to which consortium member and which office of such consortium member constitutes PE of the assessee in India. Assessee has challenged the aforesaid finding before the DRP. DRP did not address the issue but held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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