2018 (8) TMI 270 - AT - Income Tax

Installation PE in India - Gulf of Kuchch (GOK) Project - Held that - These grounds had been adjudicated by this tribunal in assessee s own case for the Asst Years 2012-13 and 2013-14 2018 (7) TMI 1808 - ITAT KOLKATA wherein it was held that the assessee herein constituted Installation PE in India. Further it was held that no attribution can be done on receipts from Offshore supply of equipment and Offshore provision of services. Only the profits attributed to the activities carried out in India shall be taxable and accordingly, only the onshore supply of equipment and onshore services rendered by the assessee, would have to be considered 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 - Held that - We find that this tribunal had considered the same issue in assessee s own case for the Asst Years 2010-11 , 2011-12 , 2012-13 and 2013-14 and had held that the AMC services provided post completion of installation actvities at the site of the customer, cannot lead to carrying out installation activities for the purpose of constitution of an Installation PE in India. Further, it was also held that the 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. It was held that since no business activities were carried out by the assessee in India, it is unreasonable to conclude that the assessee has any PE in India. With regard to the aspect of AMC services being considered as FTS, we hold that these services do not make available any technical know how or knowledge to the personnel of the customer as per Article 12(5) of the India-Netherlands DTAA.

Issues Involved:

1. Existence of an Installation Permanent Establishment (PE) in India.
2. Attribution of profits to the alleged PE.
3. Taxability of offshore supply of equipment and services.
4. Taxability of Annual Maintenance Contract (AMC) services as business profits or Fees for Technical Services (FTS).

Issue-wise Detailed Analysis:

1. Existence of an Installation Permanent Establishment (PE) in India:

The main contention was whether the assessee had an Installation PE in India. The assessee, a subsidiary of a Netherlands-based company, entered into contracts with ONGC, DGLL, and AAI for the supply of equipment and services. The assessee argued that its Project Office (PO) in India was not operational and did not participate in the project activities. The tribunal referred to previous judgments in the assessee’s own case for AY 2012-13 and 2013-14, where it was held that the assessee constituted an Installation PE in India. The tribunal reiterated that the offshore supply of equipment and services could not be attributed to the Installation PE in India as these activities were carried out outside India.

2. Attribution of Profits to the Alleged PE:

The tribunal examined whether profits from offshore activities should be attributed to the Installation PE. It was held that no attribution could be done on receipts from offshore supply of equipment and offshore provision of services. Only profits attributed to activities carried out in India were taxable. Consequently, only the onshore supply of equipment and onshore services rendered by the assessee were considered for taxing the onshore receipts at 10%.

3. Taxability of Offshore Supply of Equipment and Services:

The tribunal referenced the Supreme Court’s decision in Ishikawajima Harima Heavy Industries Ltd vs DIT, which stated that if the PE of a foreign company is not involved in any transaction carried out in India or outside India, no part of income earned from such transactions can be attributed to the PE in India. The tribunal also cited the AAR’s decision in Michelin Tamil Nadu Tyres (P) Ltd., which held that no income from the offshore supply of equipment would be taxable in India since the transfer of property and payment occurred outside India. Thus, the tribunal concluded that the consideration received for offshore supply of equipment and services should not be added to the assessee’s income in India.

4. Taxability of Annual Maintenance Contract (AMC) Services:

The assessee provided AMC services for the VATMS system installed for ONGC. The revenue argued that the AMC fees received should be taxed as business profits attributable to an Installation PE in India. The tribunal referred to previous judgments in the assessee’s own case for AY 2010-11, 2011-12, 2012-13, and 2013-14, which held that AMC services provided post-completion of installation activities did not constitute an Installation PE in India. The tribunal also noted that the presence of an Indian contractor, to whom the AMC work was subcontracted, did not create a virtual presence of the assessee in India. Additionally, the tribunal held that AMC services did not make available any technical know-how or knowledge to the customer’s personnel and thus could not be taxed as Fees for Technical Services (FTS) under Article 12(5) of the India-Netherlands DTAA.

Conclusion:

The tribunal concluded that the assessee constituted an Installation PE in India, but no attribution could be done on receipts from offshore supply of equipment and services. Only onshore activities were taxable at 10%. The AMC services did not constitute an Installation PE, and the presence of an Indian subcontractor did not create a virtual presence of the assessee in India. The AMC services were not taxable as FTS. Consequently, the appeal of the assessee was partly allowed for statistical purposes.

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