9911796707
TMI Blog2019 (12) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant had entered into the following two contracts: a. Contract #JSWPL/VJNR/CDQ/001 dated 30th September 2010 for supply of equipment for Japan portion. (Contract Price JPY 687, 100.000). b. Contact #JSWPWVJNR/CDQ/002 dated 30th September 2010 for supply of equipment for China portion. (Contract price JPY 3,249,100,000). The contract provided that carriage of equipment from port of shipment to Indian port shall be the responsibility of JSW on its own account. In addition, separate contracts were also awarded to the applicant by JSW for supply Of drawings and documents, offshore training and supervision services. It is in connection with the offshore supply of equipment and material that the applicant has approached this Authority and filed the present application on 29th March 2012 seeking advance ruling under section 245Q(1) of the Income Tax Act, 1961 on the following question related to the transaction: On the facts and circumstances of the case, whether amounts received/ receivable by Nippon Steel Engineering Ltd. ("Applicant" or "NSEC") , under contracts for co., offshore supply of Coke Dry Quenching (CDQ) Units for CO#3 AND CO # 4 vide Contract JSWPL/VJNR/C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined on the following two parameters: A. Whether the transfer of title in goods was outside India? B. Whether the payment was received outside India? Wherever the aforesaid twin tests were satisfied, income from offshore supply shall not be liable to tax in India. The applicant submitted that in his case also the transfer of title of good was outside India at the port of loading and the payment for the materials supplied was also received outside India. Accordingly, it was contended that the supply of equipment of materials was from outside India and no part of such remuneration had accrued or arisen in India. The applicant further submitted that the offshore supply of equipments had no business connection in India as sale of equipment to JSW was made independently from outside India on principal to principal basis and the sale was concluded outside India. It was also submitted that in connection with supply of equipment under the contract in question no business operation was carried out by the applicant in India. It was further submitted that the transaction was not taxable under India-Japan Tax Treaty. The applicant had relied upon the following decisions in support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led without the involvement and supervision of the applicant and the offshore supply contract was inextricably linked with the other training and supervision contracts and thus all the four contracts constituted a composite contract. 6. The revenue pointed out that for making the bid for such intensive projects the applicant must have done elaborate pre-bid spade work involving site visit, surveys & inspection of various places through its employees, which would result in PE exposure for the applicant. The employees of the applicant must also have visited India for site surveys, protracted negotiations, data collection, consultation, signing of contracts etc; and the place, manner and mode of execution of the contract led to have a Fixed Place PE for the Applicant. Therefore, the income of the applicant arising out of these contracts was liable to be assessed as business income under Article 7 of the Treaty. The applicant also had a business connection as stipulated under section 9(l)(i) of the Act. On the basis of the information obtained regarding the visit and stay of the personnel of the applicant in connection with the projects with JSW, the following persons were found to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r quotation (RFQ) was issued for the complete package and all the seven components of the package were evaluated together, which were intended to be awarded to the single party. Further that some of the components like training and supervision could not have been separated from the main contract and the single contract was split into seven contracts at the request of the applicant. The revenue placed reliance on the decision of Madras High Court in the case of Ansaldo Energia SPA (310 ITR 239) in support of the plea that in case the non-resident has a PE in India and it was involved in the transaction of off-shore supply of equipment, the income attributable to the operations carried out through PE was taxable in India. Reliance was also placed in the decision of Vodafone International Holdings (VBB) (204 Taxman 408)(SC) in support of the contention that the transaction has to be considered in its entirety and looked at as a whole. The revenue has also relied on the rulings of this Authority in the case of Roxar Maximum Reservoir Performance WLL dated 07/05/2012 (21 Taxmann.com 128) and Alstom Transport SA dated 07/06/2012 (22 Taxmann.com 304). The revenue also submitted that the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant in the-offshore supply contract as this would result in increasing the custom duty payment to be made by customer which the customer would not allow as it would be an additional cost to him. 11. With regard to Fixed Place PE, the applicant submitted that the contention of the revenue was merely based on surmises & conjectures. It was contended that the allegation of the revenue was based on assumptions that the employees would have visited India for the purpose of bids and discussions with customer and even their stay in a hotel prior to award of contract would result into constitution of a Fixed Place PE in India, which was misplaced and had no bearing on the constitution of Fixed Place PE. As regards service supervisory PE in connection with provision of engineering, training and supervision services it was submitted that there was no dispute regarding those activities as those transactions were offered for tax in India and further that the Supervisory PE had no role at all in offshore supply of eqipments and materials. The applicant further submitted that the decisions of Vodafone (supra) and Roxar and Alstom (supra) relied upon by the revenue, were considered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is anything repugnant in the subject or con text- (1) words importing the masculine gender shall be taken to include females; and (2) words in the singular shall include the plural, and vice versa. Thus, if there is nothing contrary provided in the relevant statute then the provision of General Clauses Act prevails and, therefore, a singular word has to be considered as including plural and vice versa. 14. The words of the Act are to be given their general and ordinary meaning, unless the context requires otherwise. While constructing the true and fair meaning of a word the context and the relevant rules and guidelines are also to be taken into account. Rule 44E(4) of the Income Tax Rules prescribes the fee payable along with the application for advance ruling. The said rule stipulates that the fee payable has to be worked out on the basis of amount of one or more transactions entered into or proposed to be undertaken by the applicant. It is thus evident from the above Rule that more than one transaction is envisaged in the application of an applicant. Further, a non-resident applicant is required to file application in Form No. 34C. The Notes to the said Form also clar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibited. Merely because a statutory provision is drafted in singularity as opposed to plurality, is not enough to exclude application of the general rule that singular includes plural. The rule is not to be discarded on the ground that the relevant provision is singular or plural and the subsidiary and ancillary provision follow the same pattern. Contrary intention to exclude this generic rule is not to be Iightly inferred. Contrary intention is not assumed or formed by confining attention to a specific provision but it would be apposite to consider the provision in the setting and placement of . the legislation It is a substance and tenure of the statute which would be meaningfully and critically determinative. This is the mandate of Section 13 (2) of the General Clauses Act, 1897 (see Newspapers Ltd. v. State Industrial Tribunal AIR 1957 SC 532, Narshimha Murthy v. Susheelabai [1996] 4 SCC 644, J. Jayalalitha v. Union of India [1999] 5 SCC 138, Blue Metal Industries Ltd. v. RW Dilley (1960] 3 All ER 437, Floor v. Davis Inspector of Taxes [1979] 2 All ER 677, Sin Pon Amalgamated (H.K.) Ltd. v. Attorny General [1965] 1 All ER 225 (PC) 17. The Hon'ble Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l with this aspect any further except to mention that section 13 of the General Clauses Act 1897 is a complete answer to the objection raised by the Commissioner. 19. The CBDT vide Office Memorandum F.No.370149/70/2019-TPL dated 28th August, 2019 has clarified that the use of words "a transaction" in sub-clause (iia) of clause (a) of section 245N of the Income Tax Act, 1961 does not preclude multiple transactions from the scope of "advance ruling" as defined in clause (a) of section 245N of the Act. 20. In view of the above interpretation of a singular word as given by the various Courts under Income Tax Act as well as other Acts, it is crystal clear that 'a transaction' appearing in Section 245N(a) of the Act would include more than one transaction. The provisions of the Income Tax Rules, the Notes to Form No, 34C and the clarification issued by the CBDT vide OM dated 28-08-2019 fortify this interpretation. However, a question may arise whether an applicant can file one application in respect of two unrelated set of transactions. In our opinion as the advance ruling is in respect of "a transaction", an applicant can file one application in respect of related set of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm and not subject to any cost escalation including fluctuations in the exchange rate between any currencies. Japanese Supply Portion shall be contracted by five separate contracts as follows: Contract#1: Equipment for NSE portion: JPY 687,100,000 (JPY Six Hundred Eighty-Seven Million and One Hundred Thousand Only), FOB berth term Japanese, Korean and/or other international seaports basis as per INCOTERMS 2000 as amended ("INCOTERMS 2000") Contract#2 : Eqpipment for BJCEEE (defined in (3) below) portion : JPY 3,249,100,000 (JPY Three Billion and Two Hundred Forty-Nine Million and One Hundred Thousand Only) FOB Berth Term Chinese and/or other international seaports as per INCOTERMS 2000 Contract#3: Engineering for NSE portion: JPY 10,000,000 (JPY Ten Million Only), CPT Bangalore Airport basis as per INCOTERMS 2000 Contract#4: Engineering for BJCEEE portion: JPY 194,200, 000 (JPY One Hundred Ninety Four Million and Two Hundred Thousand Only), CPT Bangalore Airport basis as per INCOTERMS 2000 Contract#5: Training for BJCEEE portion: JPY 19, 500, 000 (JPY Nineteen Million and Five Hundred Thousand Only) (2) For Japanese Supervision Services Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as Article 10.1.1, without any extra cost, to the purchaser. 3.3 Unless otherwise specified in the Contract, the Contract price shall be inclusive of the price of spares to be supplied with the Equipment as per the Technical Specification. 3.6 The purchaser shall be responsible for providing the Seller with the data, drawing and any other information at no cost to the Seller in accordance with the agreed schedule by both parties so that the Seller can implement the Contract in accordance with the terms and conditions thereof . 24. Thus, these two contracts were for supply of equipments along with spare parts. The contract price as per the supply contract agreement was JPY 687,100,000 for Japan portion and JPY 3,249,100,000 for China portion, which are in accordance with the price as mentioned in LOL The contract price for supply of equipment was on FOB berth term, Japanese, Korean, Chinese and/or other international seaports basis in accordance with INCOTERMS 2000. The terms of payment of FOB price component of plant and equipments was specified in clause 5 of the contracts as under: The Purchaser shall open Letter of Credit for 100% (one hundred percent) of the Contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of any loss/damage, the Purchaser shall lodge and settle the claim with the insurance company. However, the Seller shall make effort to provide all necessary assistance in this regard. The Seller shall replace/ repair the lost/damaged Equipment at the request of the Purchaser subject to the written agreement by both parties on the costs and schedule of such replacement/repair. If the replacement is required, such replacement shall be subject to the same conditions as specified in Article 10.1.1." 28. The contract also stipulated for payment of liquidated damages for delay in delivery beyond grace period of four weeks and for non-achievement of performance guarantee values. In fact, the responsibility of erection of the equipments and preparation for various performance tests was on the purchaser. The Clause 14.1 of the contract in respect of performance guarantee stipulated as under: The Purchaser in consultation with the Seller shall ensure that the Purchaser has completed the erection of the Equipment and all preparation has been, made for the no load test, commissioning and performance guarantee Tests, which shall be conducted for the CDQ for CO#3 and CO#4 separately, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsible for the quality and satisfactory performance of the equipments also cannot be considered as a condition which postpones the transfer of title to the goods till that time. This stipulation was in the nature of warranty provision in the contract and it cannot be deemed that the transfer of title of the property has taken place in India on satisfactory performance guarantee test. In the case of Ishikawajima (supra) decided by the Hon'ble Supreme Court, there was a clause which contained an obligation on the part of the contractor to retain custody and control of the equipment and to take due care thereof until provisional acceptance of the work and the installation of equipments was also to be carried out by the contractor. In spite of these features, the Supreme Court had concluded that the offshore supply of goods had taken place outside India and did not give rise to any taxable income in India under the provisions of the Act. In fact, that case was a case of composite contract, whereas in the present case there is a separate and exclusive contract for supply of goods offshore. The argument of the revenue that all the seven contracts were part of one unified contract has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l loading of the price by the applicant in respect of offshore supply Contracts. 34. The principle of apportionment of income on the basis of territorial nexus is now well accepted. Explanation I(a) to section 9(l)(i) of the Act stipulates that where all the operations are not carried out in India, only that part of income which can be reasonably attributed to the operations in India, would be deemed to accrue or arise in India. It, therefore, follows that in a composite contract where only a part of the operations is to be carried out in India, the assessee would not be liable for part of income that arises from operations conducted outside India. In such a case, income from the contract has to be appropriately apportioned. The Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd v. DIT (supra) had considered this aspect and held that merely because the project is a turnkey. project it would not necessarily imply that for purposes of taxability, the entire contract is to be considered as an integrated one. The taxable income in execution of a contract may arise at several stages and the same would have to be considered on the anvil of territorial nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts. The Assessing Officer had treated the entire receipts under contract as fees for technical services and quantified tax accordingly. The Commissioner (Appeals), gave a finding that contract was split up into four contracts only for tax purpose; that there was uniformity of control in respect of all four contracts; and that price of contracts I and II was likely to be loaded higher to take care of other responsibilities and risks of assessee with respect to contracts Ill and IV on account of single bidder responsibility. He also held that Ansaldo had a PE and business connection in India and estimated profit on entire project, taking into consideration losses of contracts Ill and IV and the profit attributable to PE. The Tribunal while upholding the findings Of Commissioner (Appeals), held that 25 per cent of activity could have been done outside India and, therefore, taking into account profit margins of similar companies, directed to tax entire profit in context of contracts II, Ill and IV and to tax 75 per cent of profit with regard to contract I. The High Court upheld the findings of Tribunal regarding PE and business connection of assessee in India as correct. However, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the applicant accrued in India. The terms of the contract of the present case has already been reproduced earlier which clearly stipulates that applicant was not responsible for installation and commissioning of the CDQ units in the present case. 37. The facts of case of Alstom Transport SA, (supra) are also found to be distinct and different from the facts of the present case. In that case the tender was invited by BMRC for installing the signalling and communication system for the metro rail. This Authority had held that the same was not for supply of offshore equipments independently of the installation and commissioning, nor was it for independent installation and commissioning, divorced from the design and supply of the equipments necessary. As the supply of offshore equipments was not independent of installation and commissioning, it was held that such a contract has necessarily to be read as a whole and it cannot be split up to treat a part of it as confined to offshore supply of equipment not capable of being taxed in India. In the present case, however, the contract for installation and commissioning was divorced from the contract of offshore supply of materials. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partly carried on to be considered as PE under Article 5.1. As per Article 5.3 of India-Japan DTAA, a building site or construction, installation or assembly project constitutes PE, only if it had lasted for more than six months. Similarly as per Article 5.4, for the supervisory activities to constitute a PE, such activity should be carried on for more than six months. No such evidence has been brought on record by the revenue in respect of offshore supply contracts. There is no dispute to the fact that the applicant had a supervisory PE which was in respect of contract for supervision services and the income in respect of this supervisory PE had already been offered to tax in India. The revenue has alleged that the supervisory PE was also involved in offshore supply contract for equipments, for which no evidence has been brought on record. It was contended by revenue that even employees of the applicant could be agent, which can create a dependent PE. Further that the employees of the applicant had concluded contracts on behalf of the applicant and the revenue had relied upon the Article 5.7 of India-Japan DTAA in this regard. The said article is found to be as under: 5.7. Notw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein the applicant had no role at all. The revenue has relied upon the pre-bid activities including Minutes of the Meeting between the applicant and JSW authorities. All these works including the Minutes of Meetings were held prior to the award of the contract to the applicant. We have already taken a view in the case of Toshiba Corporation (supra) that at the me-bid stage and during the Meetings, the applicant could not be certain that the contract will be awarded to him and the business of the applicant can be said to have commenced only after the contract was awarded to it or the decision to award the contract was communicated to it. The first indication of commencement of business in this case was the Letter of Intent dated issued by JSW to the applicant. The supply contracts were signed on 30th September, 2010. Therefore, the negotiations that might have taken place during the period from ()1.09.2010 to 30.09.2010 i.e. between issue of Lol and supply contracts, might at best be considered as connected with the business of the applicant. On the evidences as available, we cannot rule that the applicant had a PE falling within the specific description of Article 5 of DTAA. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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