TaxTMI 
TaxTMI 
2023 (10) TMI 1417
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....The Commissioner of Income-tax (Appeals) - 16 [CIT(A)] has failed to appreciate the fact that since the supply of equipment takes place outside India and the property in the equipment passes to the customer outside India, no income accrues or arises in India in the hands of the appellant both under the Income-tax Act, 1961 as well as Article 7 read with the Protocol of the DTAA between India and Germany. (ii) The CIT(A) erred in confirming the profit attribution from supply of equipment, on an ad-hoc basis, without taking into consideration the actual financial result of the operation of the contract. 2. Non adjudication of the Grounds of appeal by CIT(A) The CIT(A) has erred in not adjudicating the Ground No. 4 and Ground No. 5 of Form 35 placed before him. 3. Against attribution of Profits Based On Budgeted Revenues and Expenses of the Appellant, Instead Of Actual Performance of the Business The CIT(A) erred in computing the attributable profits by applying the revenues and expenses of the appellant as per budgets as against the actual performance of the business, ignoring the principle that tax can only be levied on actual income and not on a notional basis. Consequen....
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....selscaft, Stuttgart. The Durr group is one of the largest leading group in the area of automobiles. The group plans and builds complete paint shops and final assembly facilities. The appellant operating in India through its subsidiary M/s. Durr India private Limited. The appellant operates two divisions viz., (i) paint and assembly division and (ii) measuring and process system division. The paint and assembly division offers production and paint finishing technology mainly for automotive body shells. The Measuring and process systems division produce machines and systems that are used in engine and drive construction as well as final assembly. The appellant has entered into various contracts with Indian clients like Mahindra Automotive (Cab), Mahindra Automotives (Passengers), Ford India Pvt Ltd., Volkswagen India Pvt Ltd and Tata Motors Ltd. The contract between the appellant and the company deals with supply and delivery of the equipment and supervision, installation, erection and commissioning activity. The appellant company does not involve in any installation activity. The installation, erection and commissioning of the projects has been handled by the wholly owned subsidiary....
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....all not be added to PE. Further, the onus is on the revenue to prove otherwise and not on basis of presumptions and allegations. Since, there is no PE, there can be no tax avoidance of PE i.e., no application of protocol 1(c). The Ld. Counsel for the assessee, further submitted that the Hon'ble Supreme Court in the case of DIT(IT) vs Samsung Heavy Industries Co. Ltd., [2020] 117 Taxmann.com 870 (SC), has stated the law on what constitutes a PE under Article 5, and as per observations of Hon'ble Supreme Court, no PE in India in absence of core activities by project office. The Tribunal has not considered the decision of Hon'ble Supreme Court in the above case while deciding the issue for earlier assessment years. However, the ITAT merely went on a nomenclature without substantiating how the activity of storage results in a profit so as to constitute a storage PE. The Ld. Counsel for the assessee, further submitted that the revenue has attributed profits to Indian PE based on budgeted revenue and expenses instead of actual performance of the business, ignoring the principle that tax can only be levied on actual income and not on a notional basis. Further, there is duplication of inco....
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....e Ld AR submitted the same plea taken before the AO/DRP and on the grounds above. Per contra, the Ld Standing Counsel relied on the orders of the lower authorities, his counter, supra. It is clear from the elaborate facts viz in case of Ford contract, examination of RFQ, proposal by Durr Germany in response to RFQ, Letter of Intent, Proposal given to Ford by Durr Germany, Purchase Order, Organisational Chart, Project progress/Final report, transfer of risk on supply and acceptance, statement from paint shop Manager, Ford India etc, it was proved beyond doubt that the contract was a single composite contract and that at the RFQ stage what was envisaged was a single composite, turnkey contract. It is Durr Germany by its proposal insisted that the contract should be split into supply and supervisory. Thus, the assessee company has not entered into two different contracts naturally. It is at the instance of Durr Germany, Ford India has split the contract and issued three purchase orders. Since the risks and responsibilities of the entire contract vest with Durr Germany, on successful execution of the entire project (being a turnkey project), only, the liability ceases to exist. The sit....
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....d and the same is captured in earlier paras. Various documents, agreements, invoices obtained and enclosed to the remand report confirms these facts. As per the Ground 1(a), it is claimed by the assessee that it has not participated in the execution of the installation and commissioning of the plant and hence there can be no question of attributing any portion of income to the assessee. However as per the documents obtained during survey it is seen that the assessee was directly involved in the installation and commissioning in India and the technical personnel on the rolls of the assessee were stationed in the client premises in India to oversee the operations. Hence the contentions of the assessee are found to be wrong and accordingly they are rejected. Accordingly, the assessee's contentions are proved to be false. Accordingly, the objection raised by the assessee is rejected." 7.5 Therefore, it is clear that all the activities of the assessee from engineering stage to supply erection, installation, commissioning and completion are all inextricably and organically linked and hence, the turnkey contract is a single composite contract between Ford India and Durr Systems GmbH (....
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....t attribution to Indian PE and elimination of duplication income in respect of service contract, the Tribunal after considering relevant facts held that the assessee has failed to provide basic information and other details to prove that computation of profit attribution was erroneous. However, accepting the plea of the Ld. Counsel for the assessee has set aside the issue of computation of profit attribution, and elimination of duplication of income in respect of service contract revenue, to the file of the Ld. Assessing Officer/TPO. The relevant findings of the Tribunal are as under: 3. However, considering the plea of Ld. AR with respect to correct computations, the issue of computation of income was restored to the file of Ld. AO / TPO with following directions: - 8. On the issue of mistakes in the computation, the Ld AR submitted that supplies are added to the total income by applying an ad-hoc markup rate. On the transactions with Ford India, the Ld AR submitted that down payment invoices considered as supplies as per the RR, a basic error which leads to same payment being counted twice resulting in double taxation. The AO also erred in determining taxable income of the PE....
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....to be reconciled year-wise and the assessee was directed to reconcile the same. The assessee, vide reply dated 04.10.2019, inter-alia, admitted that downpayment invoices of Ford India do not form part of the PO and the same were over and above total PO value. This amount was revised to 4,23,12,142 Euros by the assessee which do not include installation and commissioning revenue. The Ld. AO held that it was thus clear that invoices were raised separately for supply, installation and commissioning. No details of profit earned were made available by the assessee and the assessee did not file any reconciliation for the income which was taxed twice along with convincing evidences. 4.3 Accordingly, these details were again sought from the assessee, vide letter dated 05.11.2019. The assessee, vide reply dated 14.11.2019, filed certain details of supplies made to Ford India along with details of income accrued on mercantile basis under supervisory contract etc. The Ld. AO rejected the plea that downpayment invoices as unearthed by the department during survey proceedings were mere documents that facilitate the release of payment. The assessee did not show that these downpayment invoices ....
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....s, which already stood adjudicated by the Tribunal. The assessee also raised a plea of double taxation of income without demonstrating the same. No separate books are being maintained for Indian operations and therefore, the method of accounting would lose relevance in such a case. Per query from the bench, Ld. AR has failed to provide any such information or computations before us. In such an eventuality, lower authorities would be left with no option but to determine the profits as per material available on record, which they have correctly done. During hearing, Ld. AR has pleaded for another opportunity to provide the complete details as well as computations to the lower authorities. Accepting the same, we direct Ld. AO / TPO to provide another opportunity of hearing to the assessee to place before it the complete details of invoices raised by it, in all the heads, under the contract and income offered by it over various years. The computation of income which arose to the assessee under the contract shall also be quantified. The complete onus, in this regard, would be on assessee. We order so. For the said limited purpose only, the issue of computation of income stand restored b....