2010 (1) TMI 633 - AT - Income Tax

DTAA - Ld. CIT(A) erred in holding that the amount of Rs.71,11,594/- received for supervision during start up and commissioning is not chargeable to tax as there is no PE of the assessee in India - Since, the period of stay of the assessee s personnel is less than 6 months in all the five projects going on during the year, no income attributable to PE would be taxable in India In respect of the income from supply of the technical know-how, engineering and documentation, the assessee was consistently offering the entire income treating the same as royalty/fees for technical services and also paying the tax at the rate of 10% as per the Article 12 & 13 of the DTAA between India and Germany - Only in this assessment year, the assessee has changed his stand and now claiming that it should be treated as business profit and as there is no P.E As there is supporting evidence the ground taken by assessee is accordingly dismissed

Summary

Issues:
1. Taxability of supervision charges for start-up and commissioning services.
2. Taxability of income from supply of engineering, documentation, and technical know-how.

Issue 1: Taxability of supervision charges for start-up and commissioning services:

The case involved cross-appeals by the Revenue and the assessee against the order of the Ld CIT(A) for the A.Y. 2001-02. The Revenue contended that the supervision charges received by the assessee should be taxable in India. The assessee, a foreign company, provided various services including supervision during start-up and commissioning. The Revenue argued that the supervisory activity in India constituted a Permanent Establishment (P.E) and hence the income should be taxed. However, the Ld CIT(A) ruled in favor of the assessee, stating that under the new treaty with Germany, income from supervision activities is taxable only if the activity continues for more than six months. As the stay of the assessee's personnel in India was less than six months, the income was not taxable in India. The ITAT upheld the CIT(A)'s decision, confirming that there was no P.E. in India and therefore the supervision charges were not taxable.

Issue 2: Taxability of income from supply of engineering, documentation, and technical know-how:

Regarding the income from the supply of engineering, documentation, and technical know-how, the assessee consistently treated it as royalty/fees for technical services and paid tax at a lower rate under the DTAA between India and Germany. However, in the A.Y. 2001-02, the assessee argued that this income should be treated as business profit under Article 7 of the DTAA, claiming exemption due to the absence of a P.E. The Revenue disagreed and taxed the income. The ITAT found that the assessee had not provided sufficient evidence to support the claim that these services were incidental to the supply of plant and equipment. As the assessee had previously treated these services differently for tax purposes, the ITAT upheld the Revenue's decision to tax this income. The ITAT dismissed the assessee's appeal, confirming that the income from these services was taxable.

In conclusion, the ITAT upheld the decisions of the Ld CIT(A) and dismissed both the Revenue's and the assessee's appeals. The judgment provided clarity on the taxability of supervision charges and income from specific services under the India-Germany DTAA for the A.Y. 2001-02.