2025 (4) TMI 794 - AT - Income Tax

Accrual of Income in Inda - Fees for Technical Services u/s 9(1)(vii) of the Income Tax Act - consideration received from supply of designs and drawings forming integral part of the sale/supply of equipments received under various contracts - whether amounts received towards reimbursement of cost towards intranet SAP are liable to tax in India as Fees for Technical Services ? - HELD THAT - As the earlier learned coordinate bench(es) has already decided the issue of taxability of assessee s income be it from sale of designs and drawings or offshore sale of plant and machinery against the department by quoting the corresponding adjudication right from AY 1992-93 onwards whilst holding that the impugned receipts are not taxable in India under the provisions of the Act. Coming to the Revenue s foregoing limited objection of reconciliation of the assessee s designs and drawings vis- -vis the corresponding projects we direct the learned AO to re-verify its details as per law within three effective opportunities. We make it clear that it shall be the assessee s onus only to plead and prove the relevant facts in the consequential reconciliation. Reimbursements representing installation of SAP software regular breakup and maintenances and intranet charges as taxable in India under the head fee for technical services - We find that the DRP s directions in assessee s case itself for AY 2010-11 have already accepted the instant claim thereby concluding that the same are neither taxable as a FTS under section 9(1)(vii) of the Act for want of any technical services being provided nor royalty under section 9(1)(vii) Explanation 1 of the Act. All these clinching intervening developments have gone unrebutted from the Revenue side. We thus adopt judicial consistency in absence of any distinction of facts or law as the case may be to delete the impugned addition. The assessee s firth substantive ground is accepted. Chargeability of interest in its case under section 234B being a non-resident - Suffice to say the case law DIT Vs. Mitsubishi Corporation 2021 (9) TMI 875 - SUPREME COURT has already settled the instant issue in assessee s favour and against the department thereby holding that section 209(1) proviso inserted in the Act vide Finance Act 2012 carries prospective effect only. We reiterate that the assessment year before us is AY 2008- 09. That being the case we accept the assessee s sixth substantive ground in very terms.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the consideration received for supply of drawings and designs, forming an integral part of the supply of equipment, is taxable as 'Fees for Technical Services' under Section 9(1)(vii) of the Income Tax Act.
Whether the sale of plant and equipment is concluded in India and thus taxable, based on the assumption that risk and title passed in India.
Whether the assessee has a 'Fixed Place Permanent Establishment' (PE) in India, making the income attributable to such PE taxable in India.
The applicability of Protocol 1(a) of the Double Taxation Avoidance Agreement (DTAA) between India and Germany in determining the taxability of income.
The correctness of attributing 30% of global profit to the Indian operations and its taxability.
Whether reimbursements for intranet and SAP costs are taxable as 'Fees for Technical Services'.
The applicability of interest under Section 234B of the Income Tax Act for non-resident companies.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Consideration for Drawings and Designs

Legal Framework and Precedents: The relevant legal provisions include Section 9(1)(vii) of the Income Tax Act, which defines 'Fees for Technical Services' (FTS). The DTAA between India and Germany also provides guidance on the taxability of such income.
Court's Interpretation and Reasoning: The Tribunal examined whether the receipts from drawings and designs are inextricably linked to the supply of equipment. It considered previous judgments, including those of the Supreme Court and High Courts, which have ruled on similar issues.
Key Evidence and Findings: The Tribunal noted that the contracts for supply of equipment and drawings were separate but executed on the same date. The terms of the contracts indicated that the drawings and designs were essential for the equipment supplied.
Application of Law to Facts: The Tribunal concluded that the supply of drawings and designs was not a standalone service but part of the overall supply of equipment. Therefore, it should not be taxed as FTS.
Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the designs and drawings were taxable as FTS, emphasizing the contractual linkage with equipment supply.
Conclusions: The Tribunal ruled that the receipts from the supply of drawings and designs are not taxable as FTS in India.

Issue 2: Taxability of Sale of Plant and Equipment

Legal Framework and Precedents: The provisions of the Income Tax Act and the DTAA were considered, alongside precedents like Ishikawajma-Harima Heavy Industries Ltd. Vs DIT.
Court's Interpretation and Reasoning: The Tribunal examined the terms of the contracts to determine where the sale was concluded and whether the income is attributable to a PE in India.
Key Evidence and Findings: The contracts indicated that the sale was concluded outside India, with risk and title passing outside the country.
Application of Law to Facts: The Tribunal found that the sale of equipment was an off-shore transaction and not taxable in India.
Treatment of Competing Arguments: The Tribunal dismissed the Revenue's contention that the sale was concluded in India.
Conclusions: The Tribunal ruled that the income from the sale of plant and equipment is not taxable in India.

Issue 3: Existence of Permanent Establishment

Legal Framework and Precedents: The definition of a Permanent Establishment (PE) under the DTAA and the Income Tax Act was considered.
Court's Interpretation and Reasoning: The Tribunal analyzed whether the assessee had a fixed place of business in India that constituted a PE.
Key Evidence and Findings: The Tribunal found no evidence of a fixed place of business in India.
Application of Law to Facts: The Tribunal determined that the assessee did not have a PE in India.
Treatment of Competing Arguments: The Tribunal rejected the Revenue's claim of a PE based on the facts presented.
Conclusions: The Tribunal concluded that the assessee did not have a PE in India.

Issue 4: Reimbursements for Intranet and SAP Costs

Legal Framework and Precedents: The provisions of Section 9(1)(vii) regarding FTS were considered.
Court's Interpretation and Reasoning: The Tribunal evaluated whether reimbursements for intranet and SAP costs constituted FTS.
Key Evidence and Findings: The Tribunal found that these reimbursements did not involve technical services.
Application of Law to Facts: The Tribunal ruled that these reimbursements are not taxable as FTS.
Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument for taxability under FTS.
Conclusions: The Tribunal ruled that reimbursements for intranet and SAP costs are not taxable as FTS.

Issue 5: Interest under Section 234B

Legal Framework and Precedents: The applicability of Section 234B interest for non-resident companies was considered, with reference to the Supreme Court's ruling in DIT Vs. Mitsubishi Corporation.
Court's Interpretation and Reasoning: The Tribunal noted that Section 234B interest is not applicable to non-residents if the entire tax is deductible at source.
Key Evidence and Findings: The Tribunal found that the assessee, being a non-resident, was not liable for Section 234B interest.
Application of Law to Facts: The Tribunal applied the Supreme Court's ruling to the facts of the case.
Treatment of Competing Arguments: The Tribunal rejected the Revenue's claim for Section 234B interest.
Conclusions: The Tribunal ruled that Section 234B interest is not applicable to the assessee.

3. SIGNIFICANT HOLDINGS

The Tribunal established that the consideration for drawings and designs linked to equipment supply is not taxable as 'Fees for Technical Services' under Section 9(1)(vii).
The Tribunal held that the income from the sale of plant and equipment, concluded outside India, is not taxable in India.
It was determined that the assessee did not have a 'Fixed Place Permanent Establishment' in India.
The Tribunal ruled that reimbursements for intranet and SAP costs are not taxable as 'Fees for Technical Services'.
The Tribunal concluded that Section 234B interest is not applicable to non-resident companies like the assessee.

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