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TMI Blog2012 (11) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... under the System Co-ordination & Control Project Eastern Region; - Overhead Fibre Optic Cable System Package under WR SC & C Project; - Overhead Fibre Optic Cable Package for Package-2A under Power grid's Diversification into Telecommunication Project (PDT 2A) - Fibre Optic Cable Package for Package - 1B under Power grid's Diversification into Telecommunication project (PDT 1B); - Fibre Optic Cabling Project -OPGW for NDPL 2.1. For the purpose of executing the five contracts mentioned above, LGCL had set up a project office in India after obtaining requisite approvals from the Reserve Bank of India. 2.2. It was also claimed by the assessee during the assessment proceedings that the "Power Grid Corporation of India Limited (PGCIL) imported certain materials from LGCL, Korea, PGCIL deducted tax at source while making payments to LGCL. Since the material was supplied outside India, no incomes accrue or arise in India and none is taxable in India. However, since tax has been deducted, credit for tax deducted at source against such supplies has been claimed against other income of LGCL. Such TDS certificates are of Rs. 24,38,547. 2.3. AO observed, inter alia, that: "4.7.1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completion of the project. Due to this fact, the offshore supply of equipments cannot be taken as a separate and distinct activity, but it is a part of the whole project. - In respect of contract No. C-31 003-8958-1 INOA-1/942 dated 21.06.2002, the LG had offered unconditional discount of 5% on the CIF prices and 18.2% on local currency portion (reference Page 10 of the record notes of Post Bid Meeting). This meeting was attended by Mr. C.H. Kim, Mr. N.Y. Kim and Mr. J.S. Gill from LG side. This meeting was in respect of both the contracts. There were no separate meetings for the offshore supply and onshore services portion of the contract. - If anyone peruses all the contracts together, which are full of clauses leading to one ultimate conclusion that, the offshore supply cannot be separated from the onshore services contract. - The two contracts are not independent of each other but are totally dependent on each other and one cannot be completed without the other. The contracts of offshore supply equipment and onshore services contract involving erection and commissioning of the equipment are interrelated, inextricably linked, inter dependent and one cannot exists without th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es otherwise. 4.7.4 The reliance of the assessee on the decision of Hon'ble Supreme Court in the case of Commissioner of Income Tax vs R.D. Aggarwal and Co., is of no help to it, because as per the ratio of the decision, from the start of the activity of offshore supply till the commissioning, the assessee was in control and responsible for all the intermediate activities. The transactions relating to offshore supply and erection of equipment at the site are inter-related and are certainly not isolated transaction. The activity of offshore supply is not incidental to the main activity of commissioning of equipment but it is indivisible and without the first one the final activity was not possible. 4.7.5 The reference to Instruction No. 1829 issued by the CBDT in respect of turn key power project is also of no help to the assessee, because the instruction refers to supply of equipments and materials FOB at ports outside India. In case of the assessee, the supplies are on CIF terms. 4.7.6 The has further contended that no part of the activity relating to offshore supply is carried out by the project office, is also unacceptable, for the reason that the contracts for such supply wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the addition in the appellant's case for AY 2002-03 had not considered certain points like the two contracts in fact being one composite contract. Project office of the appellant being involved in off-shore supplies, an Indian agent assisted in off-shore supplies and therefore attribution of income was required to be made and finally that the ale of the off-shore supplies was completed only after customs clearance. ITAT, Delhi vide order passed on 13 August 2010 in LS Cable Ltd. Vs. DDIT (ITA nos. 3634, 3635 and 3636 of 2009),have again deleted this addition reversing the order of the CIT(A) for AY 2003-04 to 2005-06. A tabulated summary of the issues raised by the CIT(A) which had not been considered by the ITAT in their earlier order and the observations of the ITAT, Delhi on these issues has been reproduced above. 10. The facts of the year under consideration are similar to the facts of the earlier years. The AO while making this addition for the current year has relied on the order of assessment order for AY 2005-06 (para 4.6 & 5 of the assessment order). Respectfully following the order of the Jurisdictional ITAT and the order of the Hon'ble Delhi HC in the appellant's ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent under the Double Taxation Avoidance Agreement), would be irrelevant in the instant case. Clause (a) of Explanation (1) to Section 9(i) would not be attracted at all which provides that in the case of a business where all operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. In the instant case there were no operation qua the agreement for supply of equipment, which was carried out in India, and therefore, no income could be deemed to have accrued or arisen in India whether directly or indirectly or through any business connection in India. 38. In view of the aforesaid we answer the question no. 1 in the affirmative in favour of the respondent- assessee and against the Revenue. In these circumstances, question no. 2 does not arise for our consideration in the instant case. It may, however, be noted for academic interest alone that the question no. 2 has been answered by this Court in ITA no. 491/2008 and other connected matters titled as Director of Income tax Vs. M/s Mitsubishi Corporation decided ..... X X X X Extracts X X X X X X X X Extracts X X X X
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