2018 (4) TMI 504 - AT - Income Tax

FTS under Article 12(5) of India-Netherlands DTAA - additional amount sanctioned by AAI during the year over and above the contract amount for Mumbai Airport to be treated as installation commissioning & testing services or as amounts received towards training - assessee claimed that the additional consideration received for provision of services pertaining to installation testing and commissioning and hence the same cannot be treated as FTS - Held that - Bifurcation of the sums towards installation and training as per the contract has been accepted by the revenue in the past and cannot be questioned in the year under consideration. Also we find that there is absolutely no evidence brought on record by the ld AO that the subject mentioned receipt of Rs. 28, 06, 200/- from AAI is towards training. DR later argued that in such a case the year of completion of training need to be looked into and accordingly prayed for setting aside of this issue to the file of ld AO. We feel that this is not required in as much as the ld AO had not adduced any reasoning to construe the subject mentioned receipt of Rs. 28, 06, 200/- from AAI as attributed towards training. Hence the basic premise that it is towards training fails. Accordingly knowing the year of completion of training does not have any relevance in this regard. In view of all we hold that the additional amount received from AAI in the sum of Rs. 28, 06, 200/- towards installation commissioning and testing charges is not taxable as FTS within the meaning of Article 12(5) of the India Netherlands DTAA. The same is not received towards training as assumed by the ld AO. Accordingly the addition made by the ld AO in this regard is to be deleted - Decided in favour of assessee. Profits attributable to the Installation PE in India - whether only the onshore provision of services and onshore supply of equipments at 10% on gross basis as profits attributable to the Installation PE in India as against the action of the ld AO in taking the total receipts (i.e both offshore and onshore activities)? - Held that - The consideration received in respect of offshore supply of equipments and services and profits attribution @ 10% on the same should not be added in the hands of the assessee construing it as Installation PE in India. The assessee had received consideration in respect of onshore services to the tune of Rs. 3, 53, 42, 381/- pursuant to 4 invoices raised on 13.8.2010. The assessee had also received a sum of Rs. 12, 85, 465/- (Euro 27842) towards onshore supply of equipment during the year under consideration. We hold that these two sums should be taken into account and profits attributable thereon at 10% should be added in the hands of the assessee treating the same as Installation PE - even as per the Protocol clause in the Indo-Netherlands Treaty only the profits attributable to the activities carried out in India shall be taxable and accordingly only the onshore services rendered by the assessee would have to be considered by the ld AO for taxing the onshore receipts at 10% . Tax the AMC fee received as business profits attributable to an Installation PE in terms of Article 5(3) of the India-Netherlands DTAA - virtual presence of the assessee in India through the subcontractor - Held that - AMC services provided post completion of installation activities at the site of customer cannot lead to carrying out installation activities for the purpose of constitution of an Installation PE in india. Further it is held that presence of an Indian contractor to which the assessee has sub-contracted the whole AMC work on principal-to-principal basis does not create any virtual presence of the assessee in India.- Decided in favour of assessee. Charging of interest u/s 234B and 234D - Held that - Interest u/s 234B of the Act is not chargeable on the assessee in the instant case as interest u/s 234B of the Act cannot be levied for alleged failure to pay advance tax where entire receipts are covered u/s 195 of the Act. See CIT International Taxation vs ZTE Corporation 2017 (1) TMI 1338 - DELHI HIGH COURT With regard to charging of interest u/s 234D AO erred in considering the refund figure of Rs. 37, 44, 400/- (as refund granted earlier to the assessee) instead of considering the correct refund figure which was actually granted to the assessee at Rs. 17, 38, 138/- and consequently erred in charging excess interest u/s 234D of the Act. We find that this factual aspect requires verification by the ld AO. We hold that the charging of interest u/s 234D of the Act is consequential in nature and we direct the ld AO to kindly verify the actual refund figure granted to the assessee earlier and take the same while charging interest u/s 234D

Summary

Issues Involved:
1. Treatment of additional amount received for services as "Fees for Technical Services" (FTS).
2. Attribution of profits to the Installation Permanent Establishment (PE) for the Gulf of Kuchch (GOK) Project.
3. Attribution of profits to the Installation PE for the ONGC AMC Project.
4. Charging of interest under Sections 234B and 234D of the Income Tax Act.

Detailed Analysis:

1. Treatment of Additional Amount Received for Services as "Fees for Technical Services" (FTS)
The primary issue was whether the additional amount of Rs. 28,06,200 received by the assessee for services rendered in the AAI Mumbai Project should be treated as consideration for training and thus taxable as FTS under Article 12(5) of the India-Netherlands DTAA.

Findings:
- The additional amount was sanctioned by AAI for deploying additional resources to meet urgent operational requirements, beyond the original contract obligations.
- The Tribunal held that the additional amount was for installation, commissioning, and testing services, not for training.
- The Tribunal referred to Article 12(5) of the India-Netherlands DTAA, which defines FTS and concluded that the services did not "make available" technical knowledge, skills, or processes to AAI.
- It was determined that the income from these services is not taxable as FTS under the DTAA and cannot be taxed as business income in the absence of a PE in India.

Conclusion:
The additional amount of Rs. 28,06,200 was not taxable as FTS. The addition made by the AO was deleted.

2. Attribution of Profits to the Installation PE for the Gulf of Kuchch (GOK) Project
The issue was whether the assessee had an Installation PE in India under Article 5(3) of the India-Netherlands DTAA and whether the entire receipts from the project should be attributed to this PE.

Findings:
- The Tribunal accepted the assessee's concession that it had an Installation PE but limited the profits attributable to this PE to onshore services and onshore supply of equipment.
- Offshore supply of equipment and services were performed outside India and were not attributable to the Installation PE.
- The Tribunal relied on the Supreme Court decision in Ishikawajima Harima Heavy Industries Ltd., which stated that income from offshore activities not involving the PE cannot be taxed in India.
- The Protocol to the DTAA was also considered, which mandates that only the profits attributable to activities carried out in India should be taxed.

Conclusion:
The profits attributable to the Installation PE were restricted to onshore services and onshore supply of equipment. The addition based on total receipts was reduced accordingly.

3. Attribution of Profits to the Installation PE for the ONGC AMC Project
The issue was whether the AMC fees received by the assessee for maintenance services should be attributed to an Installation PE in India.

Findings:
- The Tribunal noted that the installation activities were completed in 2007, and the AMC services provided subsequently did not constitute installation activities.
- It was held that maintenance services post-installation do not create an Installation PE.
- The Tribunal also found that subcontracting the AMC services to an independent contractor did not create a virtual presence of the assessee in India.

Conclusion:
The AMC fees were not attributable to an Installation PE, and the addition made by the AO was deleted.

4. Charging of Interest under Sections 234B and 234D of the Income Tax Act
The issue was whether interest under Sections 234B and 234D should be levied on the assessee.

Findings:
- The Tribunal relied on the Delhi High Court decision in GE Packaged Power Inc., which held that interest under Section 234B is not applicable where the entire income is subject to TDS under Section 195.
- The Tribunal directed the AO to verify the correct refund figure for computing interest under Section 234D.

Conclusion:
Interest under Section 234B was not chargeable. The issue of interest under Section 234D was remanded to the AO for verification and recomputation.

Final Order:
The appeal was partly allowed for statistical purposes.