2023 (8) TMI 1372 - AT - Income Tax

Revision u/s 263 - taxability of the income received by the assessee on off shore supplies made to DMRC and the engineering services provided to BTIN with reference to the DTAA between India and Thailand - As per CIT engineering services provided by the assessee to Bombardier Transportation India Limited (BTIN) falls under the definition of royalty and, therefore, the assessment order passed by AO was erroneous and prejudicial to the interest of Revenue - HELD THAT - As noticed that while completing assessment of the assessee for the assessment years 2013-14 to 2015-16 and also for the immediately succeeding assessment year to the assessment year under consideration i.e. 2017-18 the AO thoroughly examined the taxability of the income received by the assessee on off shore supplies made to DMRC and the engineering services provided to BTIN with reference to the DTAA between India and Thailand and the conclusion was drawn by the AO that these incomes are not taxable. This consistent approach was departed by the Revenue for the assessment years 2016-17, 2018-19 and 2019-20 for one reason or the other, which, in our view, is not justified. The ratio of the decision of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT wherein the apex court rejected the plea of the Revenue that res judicata does not apply to tax matters and held that where the facts are identical there is no change in law, the judicial authorities are bound by the decision of the previous year applies to the present case. Therefore, on this ground alone we direct the AO to delete the addition made towards off shore supplies and also for providing engineering services accepting the stand of the assessee that they are not taxable under DTAA between India and Thailand. Even on merits the case of the appellant is covered by the decision of the Tribunal in assessee s group company, namely, Bombardier Transportation Sweden AB Vs. DCIT 2020 (10) TMI 1205 - ITAT DELHI held that appellant does not have any place of business in India and all business activities with respect to offshore supplies are carried outside India. The equipment supply has been manufactured at overseas manufacturing facility of the appellant and sale of equipment has occurred outside India and payment has also been received by the appellant and outside India. Thus, even on merits the addition made towards off shore supplies is liable to be deleted.

Summary

Issues Involved:
1. Taxability of income received from offshore supplies to DMRC.
2. Taxability of engineering services provided to BTIN.
3. Applicability of the India-Thailand DTAA.
4. Consistency in tax treatment across different assessment years.
5. Determination of 'royalty' versus 'Fees for Technical Services' (FTS).

Summary:

Issue 1: Taxability of Income from Offshore Supplies to DMRC
The Tribunal noted that the assessee, a tax resident of Thailand, had consistently been assessed for offshore supplies made to DMRC in prior years (2013-14 to 2015-16 and 2017-18) without any tax liability in India. The offshore supplies were made under a contract with DMRC, where the transfer of ownership/title occurred outside India. The Tribunal held that the income from these supplies was not taxable in India, as the facts and circumstances remained unchanged, and the consistent approach should not be unsettled. The decision of the Hon'ble Supreme Court in Radhasoami Satsang Vs. CIT was cited, emphasizing that identical facts and unchanged law mandate consistency in judicial decisions.

Issue 2: Taxability of Engineering Services Provided to BTIN
The assessee provided engineering services to BTIN, which were treated as 'royalty' by the Assessing Officer (AO) under section 9(1)(vi) of the Act. The assessee argued that these services should be classified as 'Fees for Technical Services' (FTS) and, in the absence of a specific article in the India-Thailand DTAA dealing with FTS, the income should be considered 'Business Profits' under Article 7. Since the assessee did not have a Permanent Establishment (PE) in India, the income could not be taxed in India. The Tribunal agreed with the assessee, noting the consistency in prior assessments where such services were not taxed, and directed the AO to delete the addition made towards engineering services.

Issue 3: Applicability of the India-Thailand DTAA
The Tribunal examined the provisions of the India-Thailand DTAA and concluded that the income from offshore supplies and engineering services did not meet the criteria for taxation in India. The DTAA provisions were applied consistently in prior assessments, and the Tribunal found no justification for deviating from this established position.

Issue 4: Consistency in Tax Treatment Across Different Assessment Years
The Tribunal emphasized the importance of consistency in tax treatment, referencing the Supreme Court's decision in Radhasoami Satsang Vs. CIT. The Tribunal noted that the AO had accepted the non-taxability of offshore supplies and engineering services in prior years, and there was no change in the business operations or legal provisions to warrant a different treatment for the assessment years 2016-17, 2018-19, and 2019-20.

Issue 5: Determination of 'Royalty' versus 'Fees for Technical Services' (FTS)
The Tribunal analyzed the nature of the engineering services provided to BTIN and concluded that these services were technical in nature and should be classified as FTS. Since the India-Thailand DTAA does not have a specific article for FTS, the income should be treated as 'Business Profits.' Given the absence of a PE in India, the Tribunal directed that the income from these services should not be taxed in India.

Conclusion:
The Tribunal allowed the appeals of the assessee, holding that the income from offshore supplies to DMRC and engineering services provided to BTIN were not taxable in India under the provisions of the India-Thailand DTAA. The Tribunal directed the AO to delete the additions made for the assessment years 2016-17, 2018-19, and 2019-20.