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2009 (12) TMI 952 - AT - Income TaxComputation of Profit - Offshore supply of material/equipment contract - deletion of addition made by the AO by computing profit at 5% of the turnover arising from the supply of equipment to GPEC - assessee-company entered into two contracts - supply of material/equipment for consideration of DM 713 millions - design and engineering of erection material/equipment for consideration of DM 32 millions - AO noted that the assessee has a PE in India during the year under consideration also and as a result of that, the payments received or receivable in GPEC contracts for supplies were held to be taxable. ld CIT(A) deleted the addition. HELD THAT - We have gone through the copy of agreement with GPEC, which is available on record. Albeit in this year the party with whom the contracts were entered, namely GPEC, is different, as against M/s BPL system and Project Limited, with whom the contract was entered into the preceding year yet the major terms of the contract, in so far as they are relevant for our decision on this issue, are mutatis mutandis similar. The learned Departmental Representative failed to invite our attention towards any clause of the instant contract by which departure is required from the view taken by the Tribunal in the immediately preceding year. We find that the Central Board of Direct Taxes vide Circular No.7 of 2009 dated 22.10.2009 has withdrawn Circular No.23 dated 23.7.169 and also Circular No. 786 dated 7.2.2000. According to para 3 of this Circular No.7 of 2009 the earlier circular No.23 dated 23.7.1969 is withdrawn with immediate effect . Similar is the fate for Circular No. 786. It, therefore, becomes clear that the Circulars on which the Tribunal has placed reliance while deciding the case for assessment year 1997-98 in assessee's own case hold good for the instant year as well. It is axiomatic that a Circular in operation through the assessment year 1998-99 cannot be held to be in-operational simply by reason of the fact that it has been withdrawn in the year 2009. The withdrawal of such Circulars will be effective only after the said date of 22 October, 2009 by which these Circulars have been withdrawn 'with immediate effect'. Therefore, We are reminded of the Full Bench judgement of the Hon'ble Kerala High Court in CIT vs. B.M. Edwards, India Seafood 1979 (2) TMI 70 - KERALA HIGH COURT . In the light of the ratio decidendi of the aforenoted judgment, we hold held that Circular no. 23 dated 23.7.1969 and 786 dated 7.2.2000 which were operative in the assessment year under consideration are binding even if withdrawn by the later Circular of the year 2009. We hold that the income from the offshore supplies is not taxable in the hands of the assessee under the regular provisions of the Act. In such a situation there is no need to examine the provisions of DTAA for ascertaining whether there is a permanent establishment of the assessee in india or not. For the foregoing reasons, we are of the considered opinion that there is no infirmity in the impugned order on this issue requiring any interference. These grounds, therefore, stand dismissed. Taxability of income on accrual - Both the sides are in agreement that similar issue came up before the Tribunal in assessee own in assessment year 1997-98 and other years. following the view taken in assessee own case for several other years starting from 1990-91 onwards has held that the fees for technical services should be taxed only on receipt basis and not on accrual basis. Respectfully following the precedents we allow this ground of appeal. Protective addition - whether the income was to be taxed on an accrual basis or on a cash basis - computation of royalty and fees for technical services on accrual basis against the income on receipt basis - AO held that such income was to be taxed on accrual basis. CIT(A) approved the action of the AO. HELD THAT - It is observed that the Tribunal has consistently held that the amount of royalty and fees for technical services is to be taxed on receipt basis and not on accrual basis. Similar finding has been given above in respect of the instant assessment year as well. As a natural corollary, no fault can be found in the action of the Revenue Authorities in considering the amount as taxable on receipt basis. Consequently the protective addition made by the AO is held to be substantive. This ground taken by the assessee is dismissed.
Issues:
1. Deletion of addition by the Assessing Officer 2. Taxability of income on accrual or actual receipt basis 3. Charging of interest under sections 234B and 234C 4. Jurisdiction of CIT(A) to uphold protective addition Analysis: Deletion of addition by the Assessing Officer: - The Revenue appealed against the deletion of an addition made by the Assessing Officer amounting to a significant sum by computing profit at a certain percentage of the turnover arising from specific contracts. - The CIT(A) deleted the addition based on previous Tribunal decisions and circulars supporting the non-taxability of income from offshore supplies in India. - The Tribunal upheld the CIT(A)'s decision, citing precedents and Circulars that were in force during the relevant assessment year, emphasizing that the withdrawal of Circulars in later years does not impact their applicability for earlier years. - The judgment referred to a Full Bench decision of the Kerala High Court to support the binding nature of Circulars operational during the relevant assessment year. - Ultimately, the Tribunal concluded that income from offshore supplies was not taxable in India under the regular provisions of the Income-tax Act, 1961. Taxability of income on accrual or actual receipt basis: - The issue of taxing fees for technical services on receipt basis rather than accrual basis was raised in the appeal. - The Tribunal, following previous decisions, held that such income should be taxed only on receipt basis and not on accrual basis. - The Tribunal allowed this ground of appeal, emphasizing consistency in its approach to similar issues across different assessment years. Charging of interest under sections 234B and 234C: - The issue of charging interest under sections 234B and 234C was raised in the appeal. - The Tribunal found the circumstances similar to previous years and upheld the CIT(A)'s decision not to charge interest under these sections, following precedents and consistency in its approach. Jurisdiction of CIT(A) to uphold protective addition: - The assessee challenged the jurisdiction of the CIT(A) to uphold a protective addition and argued for taxation on an accrual basis. - The Tribunal noted that the amount of royalty and fees for technical services should be taxed on receipt basis, not on accrual basis. - Consequently, the Tribunal dismissed the ground taken by the assessee, upholding the action of the Revenue Authorities in considering the amount as taxable on a receipt basis. This detailed analysis of the judgment highlights the key issues addressed by the Tribunal, the legal principles applied, and the conclusions reached for each issue raised in the appeals and cross-objections related to the assessment years 1998-99 and 1999-2000.
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