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TMI Blog2014 (10) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... 1- Assessment year 2006-07 ITA No.1294/Hyd/11- Assessment year 2008-09 ITA No.1274/Hyd/12- Assessment year 2009-10 2. Facts of the case in brief are that the assessee is a foreign company incorporated in Germany. It is engaged in the activity of supervision, erection, commissioning of plant and machinery for steel and allied plants in India. Assessee filed the return of income for the assessment year 2005-06 reflecting gross receipts of Rs. 8,19,32,566 on 27.10.2005. During the year under consideration, the assessee had received contractual receipts aggregating to Rs. 8,19,32,526 from the M/s. Tata Iron & Steel Co. Limited, Bombay, M/s. SMS Demag Pvt. Ltd., New Delhi and M/s. Jindal Strips Ltd., Bhubaneshwar, Steel Authority of India for rendering technical and supervision services. It was also noticed that the assessee had rendered services to the above mentioned resident companies by engaging foreign technicians at the work-sites in India and the total stay of technicians deputed by the assessee-company on one project in the case of Jindal Strips Ltd had exceeded 183 days. ( 220 days). On the basis of these particulars of stay, Assessing Officer concluded that the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of 'fees for technical services'. The assessee admitted for the assessment year 2007-08 that it accounted on receipt basis, stating that receipt by way of fees for technical services are chargeable to tax in India on receipt basis as per Double Taxation Avoidance Agreement (DTAA) between India and Germany. On going through the information furnished AO noticed that some of the contracts undertaken by the assessee in India have continued for a period exceeding six months. The assessing officer held that the DTAA between India and Germany deals with Permanent Establishment (PE) in Article 5 and held that since the assessee is found to be carrying on its activities in India through its employees for periods exceeding six months, to assess its income, the assessee is to be assessed under S.44D or S.44DA read with other applicable sections of the IT Act, and called for objections for the proposal. The assessing officer considered the objections raised by the assessee, but choose to treat it as having Permanent Establishment in India as per Article 5(2)(i) of DTAA between India and Germany and held that the assessee has PE in India since its activities continued for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITA No.1649/Hyd/2010 for assessment year 2007-08, are as follows:- "1. That the order of learned Asst. Director of Income-tax (International Taxation) I, Hyderabad (A.O) and the Dispute Resolution panel(DRP), Hyderabad are bad in law and on facts of the case. 2. That the learned A.O has erred in assessing income of the assessee for the relevant assessment year at Rs. 8,15,25,440/- chargeable to tax @ 40% plus applicable surcharge and educational cess. 3. That the learned A.O. has erred in holding that the assessee had a 'Permanent Establishment' ('P.E.') in India and that all the amounts received under various contracts were chargeable to tax under Article 7 of Double Taxation Avoidance Agreement between India and Germany (DTAA) dealing with taxation of 'Business Profits'. 4. That the learned A.O./DRP has erred in rejecting the contention of the assessee that the amounts received by the assessee were chargeable to tax as 'Fees for Technical Services' under the provisions of section 9(1)(vii) Income-tax Act read with Article 12 of DTAA between India and Germany @ 10% of the gross amount. 5. That while rejecting the contention of the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and also the decision of ACIT vs. Enron Global Exploration & Production Ltd., 120 TTJ (Del.) 774. It was further submitted that provision of mere accommodation to technicians cannot be considered as a fixed place of business for non-resident and relied on the decision of A.P. High Court in the case of Visakhapatnam Port Trust (supra). It was further submitted that the tests prescribed for establishing PE have not been fulfilled. Without prejudice to the above contentions, it was also submitted that Article 12(5) of DTAA prescribes that fees earned through the permanent establishment can only be considered under Article 7. In this case, out of many projects supervised by the assessee only in one such project, A.O. could identify that technicians have rendered services more than six months and so the other projects where PE was not established cannot be brought to tax under Article-7. He referred to the facts on record to submit that A.O. was wrong in considering the entire project receipts for assessing at higher rate even though only in one such project there was stay of technical persons above six months. He then referred to the domestic law, definition of permanent establishmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as follows: "It is difficult to agree with the arguments of learned counsel for the assessee. The two supervisors were deputed only for the purpose of rendering technical services and nowhere is it disclosed that they were engaged for the purpose of constructing the plant. Therefore, the amounts of DM 33,000 and DM 32,542, respectively, are income under section 9 (1) (vii) of the Act and are taxable. ...." Hence as per the jurisdictional High Court supervisory activities are to be considered under the ambit of S.9(1)(vii) i.e., Fees for Technical Services. We believe this rationale would apply to the instant case too and hence the assessee's supervisory activities have been correctly offered to tax u/s.9 (1) (vii) read with sec 44D/Sec.115A 12.2 It is noted that under the Act, Permanent Establishment is defined in S.92F (iiia) "....includes a fixed place of business through which the business of the enterprise is wholly or partly carried on". The supervisory activities do not constitute a fixed place of business in as much as the assessee renders its services at the project sites of its clients and does not by itself own or operate such sites independently but rather prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e., whether the assessee's supervisory activities would constitute a Permanent Establishment being a "fixed place of business", we refer to the decision of Special Bench of the Tribunal in the case of Motorola Inc. (supra) where in the Hon'ble Special Bench observed as follows: '127. We now turn to the provisions contained in Article 5 of the DTAA. Article 5.1 states that the term "Permanent Establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. The thrust of the Assessing Officer's contention has been that since the employees of the assessee and / or LME came to India frequently and since the Indian company (ECI) provided facilities to these employees, the office of ECI constituted a fixed place of business for the assessee. The OECD commentary on Double Taxation refers to a "fixed place" as a link between the place of business and a specific geographical point. It has to have a certain degree of permanency. It is emphasized that to constitute a "fixed place of business", the foreign enterprise must have at its disposal certain premises or a part thereof. Phillip Baker in his. Commentary on Double ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tBMF 2 SWI 288 (1992); DTC Austria/Korea; correctly, OstBMF 4 SWI 6 (1994): DTA Austria/Germany; of, also infra m.no.81). Planning and supervision proper carried on by a separate enterprise is not covered, according to MC Comm. An enterprise that did no more than plan and supervise building works could at most, MC Comm. continues, constitute a permanent establishment under the general rule of Article 5(q), but its fixed place of business could normally not be considered as 'permanent'." It is very clear that Article 5(2)(i), though it talks about supervisory activities, does not cover the instant case as assessee do not have any building site or construction site of its own. The activities being of a technical nature clearly fall under the Fees for Technical Service (FTS) i.e., Article 12 of the India-German DTAA and is taxable at the rates specified therein. 12.7 Furthermore, Article 12(5) cannot apply to remove the assessee from the Article 12 and jump to Article 7 r.w. Article 5. Article 12(5) reads as follows: "Article 12 - Royalties and Fees for Technical Services .... 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.9. As for contention that the period of supervisory activities did not exceed a period of six months in all projects and such projects of the assessee do not constitute 'Permanent Establishment' we do not find it necessary to adjudicate on this ground, as we have held that supervisory activities have to be in connection with the non-resident's "building site, construction or assembly project". Since we have held that the receipts of the assessee are in the nature of 'FTS' and do not fall under Article 7 read with rticle 5, there is no need to adjudicate this contention. Before parting with this aspect, we may note that even otherwise, we find it incorrect to aggregate all contracts of the foreign company in India and consider it as one. Unless otherwise linked with each other, contracts should be individually assessed with respect to the duration test. We are supported in this behalf by the decision of the Bombay Bench of the Tribunal in ADI T V/s. Valentine Maritime (Mauritius) Ltd. in ITA No.1532/Mum/05 dated 5th April, 2010, wherein this position has been lucidly explained. 12.10 In conclusion, in light of the facts and circumstances of the instant case, we are of the opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing considered that on merits there is no case for treating the fees for technical services received by the assessee as business income, we now deal with other issue of reopening under section 148 for A.Ys. 2005-06, 2006-07 and 2008-09. Consequent to the findings in A.Y. 2007-08, the A.O. reopened the assessment in other years which were originally accepted under section 143(1). 16.1 Learned counsel for the assessee submitted that when the entire receipts are declared as income and tax was paid at a particular rate, there is no scope for alleging any escapement of income. Taking us through the provisions of section 147, learned counsel for the assessee contended that the main provisions of S.147 would not apply at all in this case as "no income chargeable to tax has escaped assessment". He also invited our specific attention to the Explanation 2 to of S.147, which reads as follows:- "S.147....... Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; On going through the facts of the present case, the following facts are noticed (i) Return of income was filed by the assessee (ii) No assessment was made as processing under section 143(1)(a) cannot be considered as assessment in view of Hon'ble Supreme Court's decision in the case of ACIT v. Rajesh Javeri Stock Brokers (P) Ltd (291 ITR 500) . Therefore, there was no application of mind by the Assessing Officer at the processing stage of this case of the assessee, and thus there is no change of opinion by the Assessing Officer while issuing notice u/s 147 of the IT Act. (iii) During the course of proceedings in the case of the assessee for AY 2007-08, It was observed by the Assessing Officer that the assessee is having PE in India and hence in view of DTAA provisions. the amounts received by the assessee should have been taxed under the head business income while the assessee had offered the same under the head fee from technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as total income. In our considered opinion, the DRP has wrongly considered assessee's case as a case of claiming excess relief in the return which situation was not considered in clause (b) of the provisions of section 147. Therefore, assessee's contention that neither clause (b) nor clause (c) of the Explanation would apply is a valid contention. Moreover DRP also relied on a decision given in the context of Motor Vehicle Act where the provision refer to tax but not income as is the case under IT Act 1961. The decisions relied on by DRP also were considered out of context. In view of this, we are of the opinion that reopening of assessment on the facts of the case is not justifiable. However, this entire discussion becomes academic in nature as we have already upheld the assessee's contention that the amount can only be brought to tax as fees for technical services and cannot be considered as business income. The respective grounds on this issue are considered allowed. 17. In the appeal for assessment year 2009-10, viz. ITA No.1274/Hyd/2012, there is one more ground raised by the assessee, wherein it has been alleged that proper credit for TDS amounting to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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