9911796707
TMI Blog2016 (9) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... s the assessee was eligible to claim benefit under the treaty. As per Article 7(1) of the India US DTAA, the business income of a US entity can be taxed in India only if it had PE in India. The AO held that assessee had PE in India for installation and commissioning and supply which also included the indigenous supply and presence of its personnel/ entities for providing training to ONGC personnel. These observations are primarily with reference to the contract being treated as a composite contract and does not refer to which PE as per Article 5 of the India-US treaty was there. Admittedly the assessee had no fixed place of business in India and its employees only gave training for proper execution of the project. Further, assessee company did not take the services of any person in India except for supply of indigenous parts and, therefore, there was no dependent agent PE in India also. The AO has not brought on record any evidence to substantiate that the income from offshore supplies was attributable to alleged PE. Further, if we consider the AO’s view that there was installation PE, then too as per Article 5(2)(j)&(k), there should have been presence for more than 120 days then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of ONGC at supplier's premises in USA and followed by training at ONGC site at Dehradun, Jorhat and Kolkata. 2.4. The assessee company had filed return of income declaring Nil income for AY 2008-09 and had not offered any revenue/ receipts from the contract during the FY 2007-08 relevant to AY 2008-09. However, in the return filed for AY 2009-10, which came under scrutiny, assessee had offered revenues earned on account of installation and inspection amounting to US $ 88613 under the provisions of section 44BB and DPR of 10% and had offered training component given to ONGC engineers in India at US $ 146058 as per provisions of article 12 of DTAA at 15% gross. Thus, in AY 2009-10, the assessee had not offered to tax the supply of goods from the outside India under the claim that income had not accrued/ arisen or deemed to accrue or arisen in India of such sales of goods. The training receipts in respect of training imparted at assessee's premises had also not been offered to tax. Therefore, notice u/s 148 was issued on 29.10.2012 requiring the assessee to file its return of income for AY 2008-09. The assessee vide its reply dated 11.12.2012 stated that return filed originally on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia, ignoring the fact that - (a) The Appellant has entered into a pure supply contract with installation and other services incidental to such supply. (b) Even if it is assumed that it is not a pure supply contract, it should be considered as a divisible contract with consideration against supply, installation and training separately identified. (c) Even if it is assumed that contract with ONGC is composite in nature, the taxability of various income streams should be determined separately. (d) The Appellant does not have a PE in India; No facts were brought on record by the AO to establish the existence of PE. (e) In the absence of the Appellant having a PE in India, the consideration from contract with ONGC is not taxable in India. (f) Without prejudice to above, even assuming (though not conceded) that the Appellant has a PE in India, the Ld. AO/Ld. DRP has failed to bring any material on record which could substantiate that the income from contract with ONGC is attributable to the alleged PE. 4. That on the facts and in the circumstances of the case and in law, the Ld. AO/ Ld. DRP has erred in taxing the offshore supplies in India. 5. That on the facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... training outside India. 4.1. Ld. counsel pointed out that return for AY 2008-09 was filed on 9.9.2009 at Nil income, which was processed u/s 143(1). However, for AY 2009-10, assessee had offered revenue from training and installation but no income was offered for off shore supply and services. Assessment was completed u/s 143(3). In this assessment it was held that assessee was having a PE in India and supply was liable to tax on the ground that it was a composite contract. 4.2. Thereafter, matter travelled before ld. DRP, which held that the supplies took place in FY 2007-08 and not in FY 2008-09 and, therefore, the additions were to be made in AY 2008-09. Accordingly, notice u/s 148 was issued. He submitted that it is a case of change of opinion. 5. Ld. CIT(DR) submitted that granting of certificate u/s 195 cannot be equated with assessment proceedings, because that is purely administrative act and has no bearing on the final assessment to be made. 6. Before we proceed to decide this issue, we may point out that assessee filed an application for admission of additional ground on the ground that DRP had abstained from giving any finding on reassessment proceedings. However, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 429 12,000 1,000 85,429 3 25,000 500 10,714 6,000 250 42,464 4 50,000 1,000 21,429 12,000 1,000 85,429 5 50,000 1,000 21,429 12,000 1,000 85,429 6 50,000 1,000 21,429 12,000 1,000 85,429 7 25,000 500 10,714 6,000 250 42,464 Total 350,000 7,000 150,000 84,000 8,500 599,500 8.2. In addition to this, the assessee company was also required to supply indigenous goods value of US $ 589010. The total supply (US $ 59822417 + US $ 589010 and services US $ 589500) amounted to US $ 61010927. The summarized break up of consideration under the contract with ONGC was as under: Particulars Amount (in USD) Supplies -Off-shore 59,822,416.80 -On-shore 589,010.00 Total (A) 60,411,426.80 Services - Training (Off-shore) 350,000 - Training (On-shore) 150,000 - Installation 7,000 - Inspection 84,000 Total (B) 591,000 Service tax © 8,500 Total consideration (A+B+C) 61,010,926.80 8.3. Ld. counsel referred to page 69 of PB to demonstrate that the contract was labeled as supply/ purchase order. 8.4. Ld. counsel further referred to page 71 of the PB wherein the delivery/ completion period is given, which reads as under: Delivery/ Compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of payments are contained, which are reproduced hereunder: 14.1 90% payment of ordered value of imported material through irrevocable Letter of Credit, valid for a period of 210 days for shipment and additional IJ days fur negotiation of documents. The payment shall be made against proof of dispatch and production of other relevant documents as mentioned at clause 17 of this purchase order. Part payment will be allowed for the value of the units mentioned for each consignee/user provided the complete items meant for each consignee/user are shipped/air-freighted. The supplier @ would present the documents for negotiations for the value of complete units consignee-wise after the same are shipped/airfreighted. The Letter of Credit will be opened by Manager(F&A)-KDMIPE, ONGC, Dehradun. The LC will be established in favour of supplier in any prime bank in USA. 14.2 Payment of balance 10% of ordered value of imported items, 100% value of installation & commissioning charges, 100% value of indigenous items and 100% training charges through separate irrevocable letter of credit, after satisfactory completion of installation, commissioning, acceptance and training as per provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 248 of the PB, wherein clause 1.10 of Annexure 2 to the contract reads as under: "Services: shall mean those services ancillary to the supply of goods, such as transportation and insurance and any other incidental services, such as installation, commissioning, provision of technical assistance, training and other such obligations of the SUPPLIER covered under the contract. 8.11. Thus, he submitted that services were merely incidental or ancillary to main supply. He, therefore, submitted that it is not at all a case of composite contract but a pure supply contract or in the alternative a divisible contract, because payment of consideration for various activities was not dependent on the completion of other activities or whole contract. Ld. counsel pointed out that AO did not deal with the arguments of the assessee company on this count. 9. Ld. CIT(DR) relied on the order of AO, passed in pursuance to the directions of ld. DRP and submitted that contract is to be looked as it is. 10. We have considered the submissions of both the parties and have perused the record of the case. From the various covenants, reproduced above, it is evident that assessee had entered into a single ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. 10.4. Admittedly no portion of the offshore supplies involved any activities in India as all the activities in relation to the earning of income from offshore supplies took place outside India. Now even assuming that on account of contract being signed in India, a business connection had been established, still we have to examine the issue from India US DTAA point of view as the assessee was eligible to claim benefit under the treaty. As per Article 7(1) of the India US DTAA, the business income of a US entity can be taxed in India only if it had PE in India. The AO held that assessee had PE in India for installation and commissioning and supply which also included the indigenous supply and presence of its personnel/ entities for providing training to ONGC personnel. These observations are primarily with reference to the contract being treated as a composite contract and does not refer to which PE as per Article 5 of the India-US treaty was there. Admittedly the assessee had no fixed place of business in India and its employees only gave training for pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeded on the assumption that it was a composite contract and, thus, taxed the revenues from all the streams irrespective of the true nature of contract. If the assessee only reimbursed the third party cost which supplied the material directly to its indentor then no profit can be attributed to this activity. 13.1. Ld. counsel has referred to various invoices on this count, but since this aspect has not at all been examined by AO, therefore, it would be in the interest of justice that this matter is restored back to the file of AO for examining the assessee's contention and if it is found that no profit was earned out of this activity, then no income can be attributed to this aspect. In the result ground no. 5 is allowed for statistical purposes. 14. Ground no. 6: Regarding taxing of consideration for installation and inspection activity, the main contention of ld. counsel for the assessee is that the revenue earned by assessee from this activity cannot be taxed as the necessary condition for installation PE as contemplated under Article 5(2)(j)&(k) are not fulfilled as assessee's presence in India was not for 120 days. He also submitted that assessee company did not render ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P was justified in attributing only 15% of the total revenue from these activities to alleged PE. All were foreign nationals who imparted training. Therefore, very small portion of overall activity could be attributed to alleged PE. In the result ground nos. 9 & 10 are dismissed subject to aforementioned observation. 21. Ground no. 11. Charging of interest is consequential. The AO shall recalculate the charging of interest u/s 234B, if any, while giving effect to appellate order. Revenue's appeal (ITA no. 1580/Del/2015): 22. Department is only aggrieved by the finding of ld. DRP in applying a profit rate of 15% on the gross contractual receipts of the assessee from M/s ONGC as against the proposed action of the AO to apply an estimated profit rate of 25% for computing the taxable income of the assessee. 23. We have decided this issue vide ground nos. 8 & 9 of assessee's appeal and have upheld the estimation of 15% being income attributable to alleged PE only in respect of installation and training in India. This will, of course, be subject to AO's finding on PE being there or not, in terms of our observations made earlier. In the result, ground raised by department is dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
