9911796707
TMI Blog2025 (1) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.04.2022 & 21.04.2022 for Assessment Year 2014-15, 2015-16, 2016-17 & 2017-18 respectively. 3. Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. We take up the assessee's appeal being ITA No.1073/Del/2014 for AY 2005-06 as lead case to adjudicate the issues under consideration. 4. The relevant facts of the case are, assessee filed its return of income on 29.11.2006 declaring income at Rs. 8,11,98,063/-. The return was processed under section 143(1) of the Income-tax Act, 1961 (for short 'the Act') on returned income. Subsequently, the case was selected for reassessment and notices u/s 148 of the Act was issued and served on the assessee. In response, assessee filed its return of income at Rs. 78,44,243/-. Notices u/s 142(1) was issued and served on the assessee. In response, ld. AR for the assessee attended the proceedings and filed the relevant information as called for. 5. Assessee is a company incorporated under the laws of Germany. It is engaged in the business of supply of plant, equipment, drawings and rendering of technical services to customers in the metallurgical sector in various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services". He has failed to consider that consideration for supply of equipment in any case is not liable to tax in India, which position he has himself accepted in respect of other supplies. As such an amount of Rs. 5,27,63,546/- included relating to supply of equipment is in any case not liable to tax under Art 12 of the DTA as erroneously referred to by the AO. 9.4 Regarding non-taxability of consideration for sale of drawings and designs, it was submitted to the AO that the said claim was based on the following:- (a) Terms of contract; (b) Decisions of ITAT in the case of the assessee where such receipts for the sale of drawing and designs were not held to be taxable in various Assessment Years (c) Decisions of Hon'ble Madras High Court in the case of CIT Vs. Neyveli Lignite Corporation Ltd (Neyveli), 243 ITR 459. (d) Decision of Hon'ble High Court of Delhi in the case of Mitsui Engineering & Ship Building 259 ITR 248. 9.5 Pursuant to the contractual terms, consideration for sale of drawings and designs is not liable to tax in India as the same does not accrue or arise in India. Even under the provisions of DTAA between India and Germany, the same is not li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indo-Germany DTAA. It is pertinent to note that for taxation of FTS under Article 12 of DTAA, existence of PE in India is not required. Accordingly, I find no infirmity in action of the AO in bringing this sum to tax as FTS taxable on gross basis @ 10% as per DTAA. Accordingly, the AO is directed to give relief regarding Rs. 5,27,63,546 as discussed supra. The ground of appeal is partly allowed." 10. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :- "1. That the order of learned Commissioner of Income-tax (Appeals) [CIT (A)) is bad both in law and on facts of the case. 2. That the Ld. CIT (A) has erred in holding that the reassessment proceedings Initiated by Ld. A.O. are valid. 3. (a) That the learned CIT (A) has erred in law and on facts in holding that consideration received for supply of drawings and designs forming integral part of the supply of equipment, received under various contracts is taxable as "Fees for Technical Services". (b) That the learned CIT (A) has failed to appreciate that on the facts and material on record, the receipts constituted "Business Profits" not accruing, arising or received in India or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons for reopening. The AO has mentioned the sum involved therein. He submitted that the sum mentioned in the reasons are Rs. 31,11,699/- and he also brought to our notice page 19 of the paper book which is the annexure of the reasons to believe. The amount mentioned in page 19 and reasons to believe recorded are wrong and factually incorrect. He submitted that basis of reasons are factually incorrect. Accordingly, he brought to our notice page 25 of the paper book which is the decision of ITAT, Vishakhapatnam for AY 1992-93 wherein ITAT considered the facts on record and held by referring to the case of CIT v. Klayman Porcelains Ltd. (1988) 229 ITR 735 (AP) wherein Hon'ble Andhra Pradesh High Court held that the design and documentation fees cannot be considered as royalty but is only to be considered as part of plant supplied from abroad. Further he brought to our notice pages 30 to 38 of the paper book wherein ITAT, Vishakhapatnam gave relief to the assessee on the similar ground. 12. Ld. AR for the assessee brought to our notice page 67 of the paper book which is the letter submitted by the assessee raising preliminary objections and brought to our notice relevant submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He was of the view that assessee has offered to tax receipts from other parties whereas it has not offered to tax the receipts from Jindal Steel and Power Limited. Accordingly, he proceeded to reopen the assessment by recording the relevant reasons on record. Assessee before us raised the issue that the AO has wrongly recorded the reasons with the wrong sum of money and with the factually incorrect observation. After considering the facts on record, we observed that as per the information on record, the AO was of the opinion that there is substantial receipts not offered to tax by the assessee and accordingly, he reopened the assessment. Even though there is a small factual error, however the gross amount in terms of rupees mentioned in the reasons supplied to the assessee and the additions made in the assessment order are same. Therefore, we are not inclined to proceed with the objections raised by the assessee for reopening of the assessment. 16. Coming to the issue on merits, we observed that the assessee has declared three invoices in its return of income as exempt from tax however when the case was reopened it has filed its return of income by bringing on record facts clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax (Appeals) 43, New Delhi("CIT (A)") is bad both in law and on facts of the case. 2. That the Ld. CIT(A) has wrongly mentioned the of the Appellant as name SMS Concast UK Limited (PAN: AAMCS7193M) instead of SMS Concast AG (PAN: AADCC2848Q) 3.1. That the Ld. CIT(A) has erred in upholding the amount received for drawings and designs supplied to the Indian customer amounting to Rs. 55,37,502/-/- as taxable in India as "Fee for Technical Services" ("FTS") under the Income Tax Act, 1961 ("the Act") and in terms of Article 12 of the DTAA between India and Switzerland ("the DTAA"); 3.2. That the Ld. CIT (A) erred in rejecting the argument of the appellant that the receipts of Rs, 55,37,502/- towards drawings and designs constitute "Business Profits" and is not taxable in terms of the provisions of Article 7 of the DTAA; 3.3. That the Ld. CIT (A) erred in holding that the drawings and designs relevant to said amount supplied by the appellant are not inextricably linked to the main equipment supplied from outside India and as such, the receipts there of is taxable in India as FTS; 3.4. That without prejudice to the aforesaid grounds, the Ld. CIT(A) has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this ground is already decided by us in Ground No.4 in AY 2005-06 above. Since the facts are exactly similar to AY 2005-06 our above findings in AY 2005- 06 are applicable mutatis mutandis in AY 2014-15. Accordingly, Ground No.3 is allowed for statistical purposes with the same direction. 22. Ground No.5 is covered by Para No.21 in ITA No.1361/Del/2012 for AY 2008-09 in assessee's own case and the ITAT decided the same against the assessee. For the sake of clarity, Para 21 of the aforesaid order is reproduced below :- "21. We have considered rival submissions and perused the materials on record. From the facts on record, it is observed, the assessee had entered into a contract for supply of electromagnetic stirrer. As per the scope of the contract, the assessee shall engineer, manufacture and deliver the plant and equipment. The scope of contract also included supervision, erection and commissioning of plant and equipment. As per assessee's own admission, technical personnel were deputed to supervise the erection and commissioning of the plant and equipment. Thus, it is quite clear, in course of such supervisory activity, the qualified technical personnel deputed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the assessee eligible for the chargeability under the Article 7 and section 44DA, the number of days of the supervisory activity were sought to be submitted by the assessee. In this regard, assessee submitted that the yearwise details of the days on which supervisory activities were carried out. He observed that the period of activity was only 30 days in the FY 2013-14. Therefore, the supervision activity did not last above the period of six months as required under the Treaty with Switzerland. The assessee was asked to submit on the abovesaid receipts not to be charged as royalty or FTS since a deemed PE did not come into being in accordance with Article 5 of the India-Switzerland Treaty for the current assessment year. 27. In this regard, assessee submitted that supervisory activity was to be seen from the date of commencing of the installation to the date conclusion of the commissioning. Further assessee submitted that six months referred to in the Treaty could extend over more than one financial year and the activity which resulted in the deemed PE has to be judged in totality spanning over a number of financial year. 28. Further assessee also made another argument that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard, he brought to our notice page 95 of the paper book which is a Balance Sheet of the assessee and he highlighted that the same are disclosed as inventories. He also brought to our notice relevant accounting policies disclosed by the assessee in its Notes to Financial Statements placed at page 97 of the paper book. For the sake of clarity, it is reproduced below:- "2. SIGNIFICANT ACCOUNTING POLICIES a) Basis of Preparation The accounts have been prepared for the supervision activities carried on in India under the contracts with Indian customers where the Company has deemed Permanent Establishments (P.E.) as per the respective contracts under the Double Taxation Avoidance Agreement between India and Switzerland Under the contracts, the Company is entitled to receive consideration for services to be rendered, over the periods of respective contracts. b) Basis of Preparation of financial statements Revenues and costs are recognized on cash basis on the basis of the completed contract method i Profit from service activity is recognized on completion of each of the supervision contract based on the receipts from the customers. ii. Amounts received from customers till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r he brought to our notice page 382 of the paper book which is the Switzerland Treaty and brought to our notice Article 5 Clause J and submitted that as per the definition, "a building site or construction, installation or assembly project or supervisory activity in connection therewith". Further he brought to our notice Clause L as per which, furnishing of technical services other than services as defined in Article 12, within a contracting state by an enterprise through employees or other personnel but only if more than 90 days within any 12 months period. He submitted that the abovesaid provision is special provision mentioned in Switzerland Treaty, therefore, any contract exceeding 90 days then only it is PE. In this regard, he relied on the decision of coordinate Bench in the case of Andritz AG vs. DDIT in ITA No.5991/Del2015 & Ors. dated 27.06.2024 and brought to our notice para 20 of the order and the relevant finding is reproduced as under :- "20. Having held so, now we will deal with other aspect of the issue. It is the case of the assessee that the revenue from onshore supervisory services, is recognized based on project completion method followed year by year. It is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. In this regard, he brought to our notice the decision of GFA Anlagenbau Gmbh (supra) relied by the ld. DR. He submitted that the Revenue itself insisted that it will fall under Article 7. He brought to our notice that AO itself necessitated that the relevant transaction be charged to tax as per Article 7 and he stated that similar issue was submitted by the Revenue in the case of Vishkhapatnam Port Trust (supra) also. 36. Considered the rival submissions and material placed on record. We observed that the issue under consideration in which ld. CIT (A) has enhanced the addition on the other supervisory services provided by the assessee in the new project for a period of 30 days. It is fact on record that both sides accepted that the supervision services were provided for a period less than six months and assessee followed the method of accounting on the basis of contract completion method and accordingly it has also offered the same in the year of completion i.e. in AY 2016-17. Considering the facts on record, we observed that the issue under consideration is exactly similar to the facts in Andritz AG (supra) wherein coordinate Bench has remitted the issue back to the file of AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) misdirected himself by observing that the supervisory activities undertaken by the Appellant were not effectively connected with PE and as such not taxable as 'Business Profits' under Article 7 of the DTAA. (d) That the Ld. CIT(A) erred in making enhancement amounting to Rs. 41,23,586/- to income by holding supervisory receipts liable to tax as FTS, which are not liable to tax in the relevant year, as per system of accounting followed by the assessee and always accepted. 3. (a) That the Ld. CIT(A) has erred in upholding the taxability of consideration of Rs. 42,07,915/- for supervisory services, rendered for a period less than six months, as FTS under the Act and DTAA. (b) That the Ld. CIT(A) has erred in rejecting the claim of the appellant to treat the proceeds towards such supervisory services as non-taxable business profits in the absence of Permanent Establishment ("PE") in India for relevant contracts in terms of Article 7 of the DTAA. 4. That that impugned order of the Ld. CIT(A) is founded on misplaced reliance on judicial precedents, wrongful appreciation of facts and erroneous interpretation of law and hence, the said order is bad in law. 5. That the L ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
