2023 (10) TMI 1417 - AT - Income Tax

TP Adjustment - treating project office of the appellant as PE in India, in respect of supply contract and computation of profit attribution to Indian PE - HELD THAT - We find that this issue is squarely covered in favour of the revenue by the decision of ITAT, Chennai Benches in assessee s own case for assessment years 2013-14 2014-15 2023 (2) TMI 1321 - ITAT CHENNAI where the Tribunal held that contracts entered into by the appellant with Indian clients is single composite contract and income arising there from was to be assessed in the hands of the assessee, because the project office of the appellant constitute a PE in India. Computation of profit attribution to Indian PE and elimination of duplication income in respect of service contract - Tribunal after considering relevant facts held that the assessee has failed to provide basic information and other details to prove that computation of profit attribution was erroneous. Accepting the plea of the assessee has set aside the issue of computation of profit attribution, and elimination of duplication of income in respect of service contract revenue, to the file of the AO/TPO. Assessee has failed to provide necessary information to justify his arguments that, there is an error in computation of profit attribution to PE in India and also failed to substantiate his arguments that there is a duplication of income in respect of service contract revenue. The appellant failed to provide basic information, considering the plea of the assessee and also consistent with view taken by the co-ordinate bench in assessee s own case for assessment years 2013-14 2014-15, we set aside the issue of computation of profit attribution and duplication of income in respect of service contract revenue to the file of the AO for the limited purpose of computation of income. The assessee is directed to provide the requisite details to ascertain correct amount of profit attributable to Indian PE. Appeal of allowed for statistical purposes.

Summary

Issues Involved:
1. Taxability of supply of equipment
2. Non-adjudication of grounds of appeal by CIT(A)
3. Attribution of profits based on budgeted revenues and expenses instead of actual performance
4. Legal fiction of Indian PE under the DTAA
5. Duplication of income
6. Request for leave to add, alter, amend, and/or supplement grounds of appeal

Issue-wise Detailed Analysis:

1. Taxability of Supply of Equipment:
The appellant contended that since the supply of equipment occurred outside India and the property in the equipment passed to the customer outside India, no income should accrue or arise in India under the Income-tax Act, 1961, and the DTAA between India and Germany. The CIT(A) failed to appreciate this fact and erroneously confirmed profit attribution from the supply of equipment on an ad-hoc basis without considering the actual financial results of the contract operations. The Tribunal upheld the CIT(A)'s decision, referencing a prior ruling where the contract was deemed a single composite contract, thereby constituting a PE in India.

2. Non-adjudication of Grounds of Appeal by CIT(A):
The assessee argued that the CIT(A) did not adjudicate Ground No. 4 and Ground No. 5 of Form 35. However, during the hearing, the appellant chose not to press this ground, resulting in its dismissal.

3. Attribution of Profits Based on Budgeted Revenues and Expenses:
The CIT(A) computed attributable profits using the appellant's budgeted figures rather than actual performance, leading to an assessed income of Rs. 6,12,87,462/- attributable to the Indian PE. The appellant argued that tax should only be levied on actual income, not on a notional basis. The Tribunal found that the appellant failed to provide necessary details to support claims of erroneous computation and duplication of income. Consequently, the matter was remitted back to the Assessing Officer/TPO for a fresh examination, directing the appellant to furnish all relevant materials.

4. Legal Fiction of Indian PE under the DTAA:
The TPO assumed that the contract entered by Durr Germany was subcontracted to its Indian PE, which the appellant contested, arguing that Durr Germany and its Indian PE are a single entity incapable of doing business with itself. The TPO's assumption of a value chain and the use of inappropriate comparables were also challenged. The Tribunal upheld the TPO's findings that all activities from engineering to commissioning were inextricably linked, constituting a single composite contract, thus affirming the existence of a PE in India.

5. Duplication of Income:
The appellant claimed that the CIT(A) confirmed the attribution of supply and services contract value to the PE in India, leading to double taxation of Rs. 89,90,006/- under supervisory services. The Tribunal acknowledged the appellant's failure to provide detailed information but remitted the issue back to the Assessing Officer/TPO for fresh computation and elimination of any duplication of income, directing the appellant to submit requisite details.

6. Request for Leave to Add, Alter, Amend, and/or Supplement Grounds of Appeal:
The appellant's request to add, alter, amend, and/or supplement grounds of appeal was noted, but no specific action was taken on this request within the judgment.

Conclusion:
The Tribunal upheld the CIT(A)'s findings on the composite nature of the contract and the existence of a PE in India, while remitting the issue of profit attribution and duplication of income back to the Assessing Officer/TPO for fresh examination. The appeals for the assessment years 2009-10 to 2011-12 were partly allowed for statistical purposes, with directions for the appellant to provide necessary details to ascertain the correct amount of profit attributable to the Indian PE.