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2019 (7) TMI 527 - AT - Income TaxIncome accrued in India - profit on supply of equipment - PE in India - offshore supply - contracts for supplies and services executed in India for MUL - DTAA between India and Japan - HELD THAT - In the present case the goods were sold to MUL from outside India. Thus, the risk and title were also transferred outside India and no transaction took place in India. The custom clearance, inland transportation were also done by the MUL on its own and assessee at no stage involved in the said activities. There was no PE involved in the sale. In fact supervision was done after the supply of equipments. The revenue could not establish that the assessee is having fixed place PE or supervisory PE. The ratio laid by the Hon ble Apex Court in case of M/s Ishikawajima Harima Heavy Industries Ltd. 2007 (1) TMI 91 - SUPREME COURT is applicable in the present case. Therefore, Ground Nos. 1 to 1.4 and 2 to 2.1 of the Revenue s appeal is dismissed. Supervisory PE in terms of Article 5(4) of the DTAA - Taxability of FTS - DR s isolated Purchase Order having more than 180 days - HELD THAT - The period of supervision in case of individual contracts did not exceed a period of 180 days except the one purchase order mentioned hereinabove and they did not constitute supervisory PE in terms of Article 5(4) of the DTAA. DR s isolated Purchase Order having more than 180 days cannot establish that each individual Purchase Orders are interlinked. In fact, these Purchase Orders are very much independent and separate from each other and thus, does not constitute the supervisory PE or fixed PE. AR also submitted during the hearing that the sole Purchase Order which has more than 180 days has been offered to tax in earlier Assessment Year i.e. 1999-00. Hence, the issue raised in the present appeal filed by the Revenue is squarely covered by the decision of the Tribunal for A.Y. 1999-00 which is now confirmed by the Hon ble High Court as well as by the Hon ble Supreme Court. Thus, in the present case the FTS was liable to be taxed at 20% under Article 12(2) of the DTAA. Hence, Ground Nos. 3 to 3.1 in Revenue s appeal are dismissed. Interest u/s 234B - role of the assessee/payee/deductee in short-deduction or non-deduction of tax - HELD THAT - There was no requirement to pay advance taxes in respect of income which was liable to tax deduction at source. Hence, no interest under section 234B of the Act is leviable. This issue is covered in favour of the assessee by the jurisdictional High Court in case of Mitsubishi Corporation and Jacobs Incorporated 2010 (8) TMI 37 - DELHI HIGH COURT wherein it is categorically held that interest is not leviable on the assessee since its entire income is subject to tax deduction at source. Taxability of receipts from O M contract - FTS and is to be taxed on gross basis without allowing any deduction for expenditure u/s 44D OR Business income - assessee declare loss - HELD THAT - This issue is covered by the order of the Tribunal in assessee s own case for AY 1999-00, wherein after going through the facts of O M contract, held that the services received by the assessee does not fall under FTS and has to be considered as service in relation to construction, assembly of project i.e. business income. Thus, the amount received under O M agreement is business income and taxable under article 7(3) of DTAA on net basis. Disallowance of amount paid by the assessee on the ground that liability which doesn t relate to the assessee - expenditure in respect of transportation of the material supplied - HELD THAT - Under Article 5 of the agreement between assessee and ETPL, however, the assessee had authorized, which merely entitled ETPL to collect receive contract price from SSNNL for each portion. The Ld. AR rightly submitted that there is a difference between accrual of income and incurring of expenditure. Under the agreement entered by assessee with ETPL, it has incurred a liability and in fact paid the said sum on transportation to ETPL. It is not denied that the assessee under the contract with SSNNL could have recovered the amount. However, in the absence of any agreement with SSNNL, to pay the extra amount due to escalation of cost, no income has either accrued or was received by the assessee. There is no a finding given by the Assessing Officer that assessee has not honored the commitment. Thus, the assessee has paid to ETPL under its contractual liability even though the same could not be recovered from SSNNL. Therefore, the disallowance made of the expenditure incurred of ₹ 16,80,400/- which has been physically paid by the assessee is to be allowed by the AO. Interest income not declared - AO held that the assessee has not disclosed the interest income earned in the original return of income and also the revised return of income - HELD THAT - From the records it can be seen that during the assessment proceeding, the assessee submitted revised return of income filed on 30th March, 2009 vide e-filing acknowledgment in which the interest income was disclosed and tax was paid on it. Inadvertently, the income was not captured in the head of income from other sources , however, the same was duly included in the tax payable and tax was paid on it. Further, the assessee filed submission on 8th September, 2009 with the Assessing Officer informing about the revised computing of income wherein interest income was disclosed in the computation of income. Thus, the assessee completely disclosed the interest income in Schedule S1 of the revised return of income form filed on 30th March, 2009. It is only inadvertent error in the filing of the revised return form but the tax was paid suo-moto before the enquiry of the AO. Therefore, it is not a deliberate mistake on part of the assessee and the tax is also duly paid by the assessee. Therefore, the AO was not right in making the said addition.
Issues Involved:
1. Existence of Permanent Establishment (PE) in India. 2. Taxability of offshore supply income. 3. Taxability of supervision fees. 4. Levy of interest under section 234B of the Income Tax Act. 5. Disallowance of business loss and expenses. 6. Credit of tax deducted at source. Detailed Analysis: 1. Existence of Permanent Establishment (PE) in India: - The Revenue argued that the assessee had a fixed-place PE in India due to its long-standing presence at Maruti Udyog Limited (MUL) and other projects. - The CIT(A) and Tribunal found that the assessee did not have a PE in India for the offshore supply of equipment to MUL, relying on earlier Tribunal decisions and the Supreme Court judgment in Ishikawajima Harima Heavy Industries Ltd. (288 ITR 408 (SC)). - The Tribunal held that the activities conducted in India were limited to supervision after the supply, which did not constitute a PE under the India-Japan DTAA. 2. Taxability of Offshore Supply Income: - The Revenue contended that the income from offshore supply of equipment to MUL and SSNNL was taxable in India. - The Tribunal found that the title and risk of the equipment transferred outside India, and no part of the offshore supply income was taxable in India. - The Tribunal relied on the Supreme Court judgment in Ishikawajima Harima Heavy Industries Ltd. and concluded that the offshore supply was completed outside India, and the income was not attributable to any PE in India. 3. Taxability of Supervision Fees: - The Revenue argued that supervision fees received from MUL should be taxed as Fee for Technical Services (FTS) under Article 12(5) of the India-Japan DTAA. - The Tribunal held that the supervision fees were taxable under Article 12(2) at 20%, as the supervision activities did not constitute a PE in India. - The Tribunal noted that the supervision activities were independent contracts and did not exceed the 180-day threshold for constituting a supervisory PE. 4. Levy of Interest under Section 234B: - The Revenue contended that interest under section 234B was applicable as the assessee had not paid advance tax. - The Tribunal, relying on the jurisdictional High Court decisions in Mitsubishi Corporation and Jacobs Incorporated, held that interest under section 234B was not leviable as the entire income was subject to tax deduction at source (TDS). 5. Disallowance of Business Loss and Expenses: - The Tribunal addressed the disallowance of business loss and expenses related to various projects, including the Vijjeswaram Project and Sardar Sarovar Narmada Nigam Limited (SSNNL) Project. - The Tribunal held that the expenses incurred for the Operation & Maintenance (O&M) contract and transportation services were legitimate business expenses and should be allowed. - The Tribunal found that the additional compensation received for the EPC contract was business income and not FTS, and thus taxable on a net basis. 6. Credit of Tax Deducted at Source: - The Tribunal directed the Assessing Officer to grant the credit of tax deducted at source (TDS) as claimed by the assessee, noting that the details were provided and the non-granting of credit was uncalled for. Conclusion: The Tribunal dismissed the appeals filed by the Revenue and allowed the appeals filed by the assessee, holding that the offshore supply income was not taxable in India, the supervision fees were taxable at 20% under Article 12(2) of the DTAA, and the interest under section 234B was not leviable. The Tribunal also directed the allowance of business expenses and the granting of TDS credit as claimed by the assessee.
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