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TMI Blog2022 (7) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... s on rates considered as per Double Taxation Avoidance (c) Agreement ('DTAA') vide the rectification application. The learned CIT(A) erred in not appreciating that when a specific provision of the Income-tax Act, 1961 ('the Act') is not applied while passing an order, it constitutes a mistake apparent on record. (d) The learned CIT(A) therefore erred in concluding that the Appellant is seeking modification of the order in the garb of rectification without appreciating that provisions of section 90(2) of the Act providing for application of beneficial rate of tax as per DTAA had not been applied and hence constituted mistake apparent on record. (e) The learned CIT(A) erred in not upholding justice by adjudicating on merits of the rectification application. 2 Erroneous levy of surcharge and education cess (a) The learned C1T(A) erred in upholding the levy of surcharge and education cess on income from troubleshooting services which is chargeable to tax at special rate of 15% as per India-USA Double Taxation Avoidance Agreement ('DTAA'). (b) The learned CIT(A) erred in not appreciating that as per para 1 (b)(i) of Article 2 of India-USA DTAA, tax has been defined to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court have given favourable judgements by relying on the CBDT Circular dated 18 May 1967. Several Income-tax Appellate Tribunals (ITAT) of different jurisdictions have relied on the above two judgements and have allowed deduction on payment of "Cess". 8. The relevant part of the CBDT circular is reproduced below: Clause 40(a)(ii) of the IT Bill, 1961 as introduced in the Parliament stood as under: "(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains". When the matter came up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the year 1962-63 and onwards. 9. On the other hand, the Kolkata ITAT has delivered a judgment in the favour of revenue by relying on the Hon'ble Supreme Court's in the case of K. Srinivasan, 83 ITR 346 held that surcharge or "additional tax" would be included within the meaning of income- tax. The Finance Act, 2004 through which education ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not an allowable expenditure while computing profits and gains from business or profession. This implies that the amendment will take effect retrospectively from the Assessment Year (AY) 2005-06. 14. Since the matter has attained finality even after considering the provision of DTAA, we hereby hold that the grounds taken by the assessee are liable to be dismissed. ITA No.441/Del/2018 (Revenue's Appeal) 15. The grounds raised by the Revenue are as under: "(i) Whether on the facts and in law, the CIT(A) has erred in holding that the receipts on account of supply of overhauled equipment (turbine/gas producer assembly Tauras 60) are not taxable in India by ignoring the crucial fact that the assessee is providing services (commissioning, start-up and installation) for the same equipment in India. (ii) Whether on the facts and in law, the CIT(A) has erred in not considering the fact that the sale of equipment (turbine/gas producer assembly Tauras 60) and the services (commissioning, start-up and installation) provided by the assessee are inextricably related and form integral part of composite services. (iii) Whether on the facts and in law, the CIT(A) has erred in not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from overhauling services performed by the appellant. Further, the receipts from alleged overhauling services was claimed as not taxable by virtue of article 12 of India USA double taxation avoidance treaty. The appellant claims that these services do not "make available" any technical knowledge, experience or expertise to the customers. Alternatively, it is claimed by the appellant, that even if the receipt is not treated as received for overhauling services and treated as sale of goods, then the same shall not be taxable in India since the delivery of equipment has taken place in USA under an ex-works arrangement. 5.2 It was held by the Assessing Officer that the receipts under this contract cannot be considered as overhauling revenues. It is also observed by the assessing officer that there is no evidence either in respect of the claim that the equipment was provided in exchange of similar equipment used by SI group. The assessing officer did not accept the claim of the appellant that the risk over the goods was passed outside India and the sale is concluded outside India when the installation and commissioning and start-up of power generator set supplied was carried out in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y bill etc confirm that after receiving a purchase order from SI group Ltd the appellant company has manufactured the items for shipping the same to the premise of SI group Ltd in India. There is no evidence on record which suggests that the old equipment was sent to the appellant company for overhauling purposes. Even the buyback of accessories, against which SI group Ltd has got certain discount from the appellant company, can be considered as a separate sale transaction. However, x the issue here is to examine whether the purchase order was made for buying a new Z" equipment at all or it was on account of providing overhauling services to the old equipment of SI group Ltd. On examination of all the relevant documents produced in Z this regard it is evident enough that the supply of accessories Taurus 60 is nothing but a sale transaction only. In view of the above discussion, the assessing officer has correctly held that the relevant revenue receipt is on account of sale only. 19. On the issue whether such income on account of sale of goods is taxable in India or not. It was submitted by the appellant that even if the income is treated as sale of goods, the same shall not be tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed outside India in foreign currency. 22. The assessing officer has considered this sale as concluded in India on the basis that the commissioning, start up and installation activities were carried out by the technicians/engineers of the applicant company in the premise of the buyer in India. It is submitted by the appellant that though the appellant had also supervised turbine change out for SI group, the service is a distinguished service from the overhauling services and hence does not form part of the alleged overhauling services rendered to SI group. It was also submitted that the receipts from such service has been offered to tax as troubleshooting services on gross basis at the rate of 10.506%. In this regard an invoice, as per annexure 9 of the submission dated 12.05.2017, was also submitted. Vide this invoice the appellant submits that the purchase order no. 1202517 in regard to troubleshooting services is separate from the purchase order towards the overhauling services which was 120518. The appellant submits that these services were under different contracts and that the contention of the assessing officer that the installation and commissioning and start-up of power ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of operation in more than one jurisdiction would have territorial nexus with each of the jurisdiction on actual basis. If that be so, it may not be correct to contend that the entire income 'accrues or arises' in each of the jurisdiction. The Authority has proceeded on the basis that supplies in question had taken place offshore. It, however, has rendered, its opinion on the premise that offshore supplies or offshore services were intimately connected with the turnkey project. " 27. Thus, as held by the Apex Court, where income arises out of operations performed in more than one jurisdiction, then it has a nexus with each of the jurisdictions and no one state can exercise its right to tax the income which has not arisen in that state. Accordingly, only that part of the work which is attributable to business operations carried out by the Appellant in India is taxable in India. In the present case, therefore, at the most the supervisory services for installation and commissioning etc., provided in India at the premises of the buyer, can be considered to be taxed in India. 28. The appellant had submitted during the assessment proceeding that it had offered tax on such servi ..... 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