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TMI Blog2020 (12) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment Year 2011-12, we are in agreement with the contentions of the Ld. AR. However, the only thing remaining to be verified is whether there was no secondment of any employee to India for the contract BS-02. The AO/TPO is directed to verify the same and if no such secondment of any employee is there, the AO/TPO is to delete the addition with respect to PE. The AO/TPO shll allow adequate opportunity to the assessee in this regard. - ITA No.4185/Del/2018, ITA No.4448/Del/2018 - - - Dated:- 27-11-2020 - Shri R.K. Panda, Accountant Member And Shri Sudhanshu Srivastava, Judicial Member For the Appellant : Sh. Deepak Chopra, Advocate, Sh. Anmol Anand, Advocate, Ms. Priya Tandon, Advocate For the Respondent : Sh. Raman Chopra, CIT-DR ORDER PER SUDHANSHU SRIVASTAVA, JM: ITA No.4185/Del/2018 is the Department s appeal preferred against the order passed by the Ld. Commissioner of Income Tax (Appeals)-42, New Delhi {(CIT (A)} vide order dated 31.03.2018 for Assessment Year 2012-13, whereas, ITA No. 4448/Del/2018 is the Assessee s Cross Appeal for the same year. 2.0. The brief facts of the case are that the assessee company is registered and incorporated unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in the consortium as an independent member and that the same cannot be taken as constituting PE in India through which the business of the assessee was being undertaken. It was also the assessee s submission before the Assessing Officer that the equipments supplied to DMRC had been manufactured at its overseas manufacturing facility and further the sale of equipment had also occurred outside India and payments had also been received outside India and, therefore, in view of the provisions of India-Sweden Tax Treaty the income would not be taxable in India in absence of PE in respect of the offshore supply of train control and signaling equipment to DMRC under Contract BS02. The Assessing Officer was not convinced with the submissions of the assessee and observed that the facts were identical to the facts in AY 2011-12 and in view of the findings of the Ld. DRP in AY 2011-12, BTIN was held to be PE of the assessee in India in respect of Contract BS02 with DMRC. The Assessing Officer proceeded to make an addition of ₹ 27,30,829/- being income attributable to the PE. 2.3. During the course of assessment proceedings, it was further observed by the Assessing Officer that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port and did not satisfy the make available test. 2.5. However, the Ld. CIT (A) upheld the action of the AO in holding that BTIN be considered Permanent Establishment of the assessee in India. For this, the Ld. CIT (A) also relied on the directions of the Ld. DRP for AY 2011-12, wherein, the Ld. DRP had upheld the findings of the AO/TPO in this regard with respect to PE in India. While dismissing the assessee s appeal, the Ld. CIT (A) also observed that there was no change of facts from Assessment Year 2011-12 to the present year in appeal. 2.6. Aggrieved with the order of the Ld. CIT (A), now both the assessee as well as the Department has approached this Tribunal and have challenged the orders of the First Appellate Authority by raising the following grounds of appeal:- Grounds of Appeal of ITA No.4185/Del/2018 1. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that in view of MFN status to the OCED member countries, definition of FTS as given in Indo-Portugal DTAA may be imported in Indo-Sweden DTAA, without there being any notification to this effect u/s 90(1) of the IT Act, 1961 and thus holding that satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in observing that BTIN was dependent upon the Appellant company for all the technical know and that the Appellant was controlling and monitoring the activities of BTIN in respect of BS-02 contract. 10. That the CIT (A) failed to appreciate that BTIN was separately charging/billing DMRC for all the services rendered by it and all the receipt to BTIN from BS-02 Contract had been duly offered to tax in India by BTIN. 11. That the CIT (A) erred in repeatedly referring to the RS-2 contract in complete ignorance of the fact that the contract under consideration was BS-02 , i.e., the contract for train controlling and signalling system between DMRC and the consortium consisting of the Appellant and BTIN. 12. That the CIT (A)/ AO erred in attributing 35% of the gross profits from the supply of goods to DMRC as attributable to the alleged marketing and other activities of BTIN in India, which activities were never carried out during the year under consideration by BTIN. 13. That the CIT (A) erred in concluding that basis the additional risk, there was a requirement to attribute additional income to the PE. 14. That without prejudice, the CIT (A)/AO gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder consideration, the appellant has rendered services like marketing, sales, design development, project management customer services etc. and has received fees amounting to ₹ 1.16 crores which have not been offered for tax in the return of income. It is equally true that the appellant is HUB entity for RCS business of Bombardier group and accordingly, the appellant rendered intermediary services to BTIN. 22. Since the appellant is a tax resident of Sweden, it is entitled to benefits of Indo Sweden DTAA and protocols thereof, and Protocol 7 of the Treaty provides scope of taxability of FTS which is restricted on account of agreement between India and a third state. We find that under the India Portuguese Treaty, scope of FTS is restricted on account of requirement of Make Available clause. 23. On this basis, the CITA in A.Y 2010 11, has categorically observed that the said intermediary services rendered by the appellant to BTIN does not satisfy the Make Available clause and does not amount to FTS. 24. In our considered opinion, the technical or consultancy services rendered should be aimed at and result in transmitting technical knowledge, etc., so that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oughtful consideration to the rival contentions and have carefully perused the relevant documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. The undisputed fact is that the supplies made under the BS-02 agreement were off shore supplies. The Hon'ble Supreme Court in the case of Ishikawajima HarimaHeavy Industries Ltd 158 Taxman 259 has categorically held that only such part of the income as is attributable to the operations carried out in India can be taxed in India. Same view was taken by the Hon'ble High Court of Delhi in the case of Nortel Networks India International Inc Ors 386 ITR 0353. 36. We have also considered the agreement between the appellant and BTIN. We find that as per this MOU, scope of work between eh appellant and BTIN are clearly bifurcated. The relevant part reads as under: WHEREAS BT Sweden, BT India and their subsidiaries/affiliates as a fully integrated group are desirous and possess full capability to effectively execute the Project. WHEREAS in view of the prescribed 'eligibility criteria as detailed in Clause A 5.2 (b) of Instructions to Tenderers('ITT) of DMRC Tender BS02 docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he joint and several liability towards DMRC for any default by any party, the party not responsible for the respective default will have the right to be indemnified by the other party, 3. Co-operation Principles . 3.1 It is clarified that the proposed arrangements between ~_ scope shall be on 'principal to principal' basis. 3.2 The co-operation defined in this MoU is on an exclusive basis and shall be subject to BT internal policies and guidelines. 3.3 In the event of contract, this MoU will be further elaborated for detailed clarity of scope split In meeting the overall project requirement 3.4 3.5 The detailed interfaces and scope of supply services is defined after taking into consideration each entities experience ond capabilities while considering the requirement of the tender document of DMRC and in particular the need to involve suitable local partners. 14. The date of letter of acceptance is 17-09-2007 while the MoU is dated 11-10-2007. Thus, the MoU between B T Sweden and BUN has been signed after the contract has been accepted 37. As mentioned elsewhere, the appellant does not have any place of business in India and all business activi ..... 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