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TMI Blog2016 (8) TMI 1412X X X X Extracts X X X X X X X X Extracts X X X X ..... e 26 of the DTAA between India and UK - Decided in favour of the assessee. Application of mark-up of 27.08% instead of 16.21% proposed by the TPO - Held that:- matter relating to the determination of Arm’s Length Price of the services rendered by the Liaison Offices was referred by the AO to the TPO who passed the order dated 18.01.2013 u/s 92CA(3) of the Act holding that Arm’s Length margin should be taken at 16.21% as against 15% in the earlier year of the cost incurred by the LO. However, the AO worked out the Arm’s Length Price by applying the mark-up of 27.08% instead of @ 16.21% of the cost and made the addition of ₹ 1,12,009/- by holding that income was to be added to the Liaison Offices costs incurred by the assessee, under transfer pricing provisions for the reason that the Liaison Offices had provided services to its head office. This issue is co-related with the issues raised in Ground Nos. 4, 5 and 7 to 11 which we have already adjudicated in the former part of this order in favour of the assessee, so it becomes academic in nature and hence dismissed Treating of the receipts from operation & maintenance agreement (O&M) project of Godavari as FTS within the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of power plant of net profit and loss basis. Treating the other incomes from Godavari Operation & Maintenance Project as FTS and taxing the same on gross basis instead of net basis u/s 44D - Held that:- The identical issue relating to the treatment of the other income as FTS and taxing as business income on net basis u/s 44D of the Act has been decided for the assessment years 2007-08 and 2008-09 respectively held nterest received by the assessee in U.K. on bank accounts maintained in U.K. cannot be taxed in India. We find force in the submissions of the assessee as on the point of law there is no dispute between the assessee and the Revenue. The assessee has only current account in India and all the interest amount has arisen out of Bank accounts in U.K. and, therefore, the same should not have been subjected to tax in India at all. We allow this ground of appeal. The AO is directed to exclude interest earned outside India under Article 12(2) of the DTAA and tax interest earned in India as normal income. AO is at liberty to examine such interest income whether taxable as income from other sources or as business income. Interest on foreign bank accounts accruing outside In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering the relevant facts already available on the record and after providing due and reasonable opportunity of being heard to the assessee. - Appeal of the assessee is partly allowed and partly allowed for statistical purposes. - ITA No. 801/Del/2014 - - - Dated:- 11-8-2016 - Sh. N. K. Saini, AM and Ms. Suchitra Kamble, JM For The Assessee : Sh. Pradeep Dinodia, Adv. Sh. R.K. Kapoor, CA Ms. Pallavi Dinodia, CA For The Revenue : Sh. Anand Kedia, CIT DR ORDER Per N. K. Saini, AM: This is an appeal by the assessee against the order dated 15.01.2014 passed by the AO u/s 144C(13) r.w.s. 143(3)/147 of the Income Tax Act, 1961 (hereinafter referred to as the Act). 2. Following grounds have been raised in this appeal: 1.0 That the order passed u/s 143(3) read with section 144C of the Income-tax Act, is bad in law. 2.0 The computation of the total income of the assessee by the AO at the instance of the DRP at ₹ 386,356,928/- as against returned income of 9,66,73,030/- is wholly illegal, untenable and on erroneous grounds. 3.0 That the contentions of the Ld. AO/TPO/DRP are bad in law and against the jurisdictional hierarchy to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in facts of the case in treating the receipts of the assessee under the Operation and Maintenance Agreement (O M) as Fees for technical Service u/s 9(1)(vii) of the Act and Article 13(4)(c) of the DTAA between India and UK and taxing the same on a gross basis. 13.0 That the opinion of the Ld. AO/DRP that the assessee is making available technical knowledge, experience, skill, know-how or processes as per the provisions of Article 13(4)(c) of the DTAA to M/s SPGL under the O M is unreasonable, erroneous, factually incorrect and illegal. 14.0 The taxation of receipts of the assessee under the Godavari O M Project of ₹ 349,470,079/- on a gross basis at the rate of 30% u/s 44D read with Section 115A of the Act by the Ld. AO and upheld by DRP is erroneous and bad in law. 15.0 That the Ld. AO at the instance of DRP has grossly erred in law in proposing tax on a gross basis on all the following other incomes of the assessee from Godavari Operation Maintenance Project instead of on net basis by not following the order of the Hon'ble Delhi ITAT in the assessee's own case: i. Interest from Foreign banks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out prejudice to one another. 21.0 The appellant craves leave to add, amend, alter, change vary or substitute any of the aforesaid grounds or raise an additional ground if it becomes necessary to do so in the interest of justice. 3. The assessee has also raised following additional grounds: 22. That the learned Assessing Officer has grossly erred in law and on facts and circumstances of the assessee's case in not allowing the adjustment of unabsorbed brought forward losses and unabsorbed depreciation of the Income Tax Act while determining the taxable income for the current year. 23. That the learned Assessing Officer failed to give the adjustment of brought forward losses and unabsorbed depreciation as per law although the same was claimed in the Return of Income and all the details/information for the same was available before him in the Return of Income and Tax Audit Report filed by the assessee. 24. That the Learned DRP and consequently Assessing Officer have erred in law and on facts and in the circumstances of the case in erroneously charging the interest u/s 234B while computing demand. 4. As regards to the admission of the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. 7. Ground Nos. 1 to 3, 20 21 are general in nature, Ground Nos. 9 19 were not pressed so these ground do not require any adjudication on our part. 8. Vide Ground Nos. 4, 5, 7, 8, 10 11, the grievance of the assessee relates to the application of transfer pricing regulations on the Liaison Office of the assessee and the addition made on account of Arm s Length Price. 9. Facts related to this issue in brief are that the assessee is a company incorporated under the laws of United Kingdom and is one of the group companies of Rolls Royce Group. The principle activities of the assessee are relating to Erection, Commissioning, Supervision, Installation and Operations Maintenance of huge power plants and other projects. The style of functioning of the assessee is that it negotiates an agreement and thereafter to execute the same sets project offices. The assessee filed the return of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable under sections 29-44 of IT Act, would amount to more than 100% of its revenue. If we see assessment year 2000-01 at page 308, the total cost is 81% of the revenue and the assessee is left with 19% of the revenue to incur indirect cost etc., whereas by invoking section 44D, the Revenue has taxed 30% of gross receipts. So, in effect at least 11% in excess of gross receipts has to be paid by the assessee which is a non-resident company, and which is not the case with a domestic company similarly or identically placed. A domestic company, even if it makes a profit of 19% in the example given above, it will be subjected to 35% tax which will be 6.65% of its revenue as against 30% in the assessee s case. Thus the assessee had been discriminated against and the protection under Art. 26 of the DTAA be provided to the assessee. We have also considered the other aspects of the case that the agreement did not envisage any training of personnel or making available any skill, know-how, development and transfer of any design etc. as envisaged u/s 9(1)(vii) Explanation 2 or Article 13(4)(c) of the DTAA between India and UK by the assessee to Spectrum. The training in the pre-operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween India and UK. The numerous judgements cited by the assessee clearly point out to the fact that making available technical knowledge, experience, skill, know-how, a process or development and transfer of technical plant of a technical design is essential to fall within the definition of fees for technical services under the Indo-UK Treaty. Respectfully following these decisions, we hold that in any case as per Article 13.4(c) of the Indo-UK Treaty, the assessee has not made available any technical knowledge, experience, skill, know-how, or process or development and transfer of any technical plan, a technical design to Spectrum. We have also carefully considered the matter. Art.26 of the DTAA, subclauses (1) and (2) of the same read as under:- Art. 26 Non discrimination: 1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected. 2. The taxation on a permanent establishment which an enterprise of a Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009/- by holding that income was to be added to the Liaison Offices costs incurred by the assessee, under transfer pricing provisions for the reason that the Liaison Offices had provided services to its head office. This issue is co-related with the issues raised in Ground Nos. 4, 5 and 7 to 11 which we have already adjudicated in the former part of this order in favour of the assessee, so it becomes academic in nature and hence dismissed. 15. Vide Ground Nos. 12 14, the grievance of the assessee relates to the treating of the receipts from operation maintenance agreement (O M) project of Godavari as FTS within the meaning of explanation-II to Section 9(1)(vii) of the Act and Article 13(4)(c) of the DTAA between India and UK and taxing the same on gross basis u/s 44D of the Act. 16. As regards to this issue the ld. Counsel for the assessee submitted that the AO had followed his order for the assessment year 2005-06 which has been adjudicated by the ITAT in favour of the assessee. A reference was made to para 6 at page no. 5 of the order dated 04.05.2012 in ITA No. 1599/Del/2011 and subsequently for the assessment years 2007-08 2008-09 in ITA Nos. 5437 5438/Del/2011 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any angle, the income received by the assessee from M/s Spectrum was not a fee for technical services, we therefore direct the AO to compute assessee s income and profit and gains of business from operation and maintenance of power plant of net profit and loss basis. We direct accordingly. 19. So, respectfully following the aforesaid referred to order in assessee s own case, the AO is directed to decide the issue as per the aforesaid directions given for the assessment years 2007-08 and 2008-09, since the facts for the year under consideration are identical to the facts involved in the case pertaining to the said assessment years. 20. Next issue vide Ground No. 13 relates to the action of the AO in holding that the assessee was making available technical knowledge, experience, skill, know-how or processes as per the provisions of Article 13(4)(c) of the DTAA to M/s SPGL under the O M. 21. As regards to this issue the ld. Counsel for the assessee at the very outset that it is covered in favour of the assessee vide aforesaid referred to order dated 04.05.2012 for the assessment years 2007-08 and 2008-09 wherein relevant findings has been given in para 81 at page no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maintenance Project as FTS and taxing the same on gross basis instead of net basis u/s 44D of the Act. 24. As regards to the aforesaid issues the ld. Counsel for the assessee at the very outset stated that an identical issue has already been decided by the ITAT in favour of the assessee wherein direction has been given to tax the income on net basis. A reference was made to para 56 on page 54 of the order dated 15.10.2010 for the assessment years 1998-99 to 2004-05 in ITA Nos. 1410 to 1413/Del/2007, 1682 1683/Del/2008 and 1297/Del/2008 respectively. Subsequently, the said order has been followed for the assessment years 2005-06 2007-08 and 2008-09 in ITA Nos. 1599/Del/2011 and 5437 5438/Del/2011 respectively. It was also pointed out that various receipts mentioned in the aforesaid ground no. 15 relating to the year under consideration were credited to the profit and loss account in the schedule of other income which comprises of interest on foreign bank account accruing outside India (Rs.32,50,114), interest from Indian bank account (Rs.6,76,473/-), profit on sale of fixed assets (Rs.1,22,643/-), liabilities no longer required written back (Rs.2,22,756/-), exchange gain (R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest earned in the U.K. Banks is not taxable in India, whereas other interest earned in India is taxable as other income. 42. The assessee had, during the year, credited the receipts to the Profit and Loss Account, in the Schedule of other income and it was mainly interest on foreign bank accounts amounting to ₹ 58,65,222/- accruing outside India and liabilities amounting to ₹ 33,29,254/- no longer required written back, profit on sale of FA, of ₹ 6,25,000/- and provision written back and misc. income of ₹ 7,83,618/-. All these items have been dealt with by the Tribunal (supra) for assessment year 2004-05. In accordance with the Tribunal order, the interest earned on foreign bank accounts is not chargeable to tax in India and the balance other income requires to be taxed on net basis. So, respectfully following the aforesaid referred to order, the AO is directed to decide this issue in accordance with the aforesaid directions given by the ITAT in the order pertaining to the earlier assessment years. 27. In the present case, it is noticed that the issues raised by the assessee in grounds 16(a), 16(b) 18 are covered vide para 83 at page no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to Profit on sale of assets under Art. 14 of DTAA as per local laws in India arises only in assessment year 2000-01. The assessee has submitted that profit on sale of assets can only be taxed if the gross block of the particular assets of the assessee ceases to exist. Till such time profit or loss on the sale of such assets is irrelevant as according to the assessee, the gross block continues to exist even after crediting the sale to the WDV of the assets, no profit or loss should have been recognized. The AO is directed to verify this position. If the gross block exists of the particular assets even after crediting the sale amount, WDV of that block of assets would get reduced and that would not be subjected to tax separately. In case it exceeds the WDV of the Block of assets, then it would be brought to tax u/s 50 of the Income Tax Act. We direct accordingly. 47. The Tribunal, with regard to EPC Project, held that tax is to be levied if the block ceases to exist. Undeniably, the same principle is applicable here also. However, undisputedly, the block has not ceased to exist and, therefore, tax is not exigible. So, respectfully following the aforesaid referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities to discriminate against the assessee, a UK registered company and accord it less favourable treatment than a domestic company and therefore, section 44AD cannot be invoked in assessee s case. Thus, looking from any angle, the income received by the assessee from M/s Spectrum was not a fee for technical services, we therefore direct the AO to compute assessee s income and profit and gains of business from operation and maintenance of power plant of net profit and loss basis. We direct accordingly. 51. The matter being covered by the Tribunal order as above, the other income should be taxed on net basis. Accordingly, Ground No. 1(e) is accepted. 31. So, respectfully following the aforesaid referred to order of the Tribunal, the issues under consideration are decided in favour of the assessee in the same manner as has been done by the ITAT while deciding the cases of the assessee for the other years. 32. It is noticed that the issue raised by the assessee vide Ground No. 15(v) is covered vide paras 57 58 at page no. 26 of the aforesaid referred to order dated 04.05.2012 which read as under: 57. Concerning Ground No. 3(b), it has been held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom other sources and where taxed as per Section 115A of the Act read with the benefit of DTAA which should be granted since it is not connected to the PE of the assessee in the year in which it arises. The reliance was placed on the judgment of the Hon ble Uttrakhan High Court in the case of B J Services Company Middle East Ltd. Vs ACIT, Range-1, Dehradun reported at 2015-TII-55-HC-UKHAND-INTL (copy of the said order was furnished which is placed on the record). 36. In his rival submissions the ld. DR supported the order of the AO and submitted that the decision given by the Hon ble Uttrakhand High Court was on a different issue and related to the reopening of the assessment, so the facts of the said case are distinguishable from the facts involved in the case of the assessee. It was further submitted that the issue is covered in favour of the revenue by the decision of the ITAT Delhi Bench B (Special Bench) in the case of ACIT, Range-1, Dehradun Vs Clough Engineering Ltd. reported at 130 ITD 137. 37. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, nothing is clear from the orders ..... 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