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TMI Blog2023 (4) TMI 986X X X X Extracts X X X X X X X X Extracts X X X X ..... pply, unless, even a remote link between the activities of other projects is established with the PE in relation to PKSPDC-Baglihar Project. That being the case, we hold that Force of Attraction Rule does not apply. This ground is allowed. Interest u/s 234B and 234C is not chargeable where tax is deductible at source. The reliance placed on GE Packages Power Inc [ 2015 (1) TMI 1168 - DELHI HIGH COURT] is apt. - ITA No. 5614/Del/2011, ITA No. 5615/Del/2011 - - - Dated:- 31-3-2023 - SHRI G.S. PANNU, HON BLE PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER Foir the Appellant : Sh. Satyan Sethi , Advocate For the Department : Ms. Rashmita Jha , CIT ( DR ) ORDER Per Saktijit Dey, JM Captioned appeals have been filed by the assessees against the final assessment orders passed by the Assessing Officer for the assessment year 2008-09, in pursuance to the directions of learned Dispute Resolution Panel (DRP). Since, the grounds raised in both the appeals are identical, except variation in the figures, for the sake of brevity, the grounds raised in ITA No. 5614/Del/2011 are reproduced hereunder for ease of reference: 1. Alleging that the Appellant constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aglihar Project (JKSPDC-BCS), JKHCL and JVL projects. Insofar as receipts from contract with JKSPDC- Baglihar Project, the assessee itself admitted of existence of PE and offered the income to tax by applying the rate of 20%. However, insofar as the other two projects are concerned, viz., JKHCL and JVL, though, the assessee by treating such receipts as Fee for Technical Services (FTS) under Article 12 of India-Germany Double Taxation Avoidance Agreement (DTAA) offered to tax ₹ 10% on gross basis, however, the Assessing Officer did not accept assessee's claim. As far as the contract with JKHCL is concerned, the Assessing Officer referring to clause 4.3 of the contract observed, since JKHCL has made office space available to the assessee, it will constitute a Permanent Establishment (PE) of the assessee in India in terms of Article 5(2) read with Article 5(1) of the tax treaty. Further, the Assessing Officer observed that since the assessee has a PE in respect of JKSPDC- Baglihar Project, the activities of other contracts being connected to that PE, would be taxable in India under section 44DA of the Act. 4. Without prejudice, the Assessing Officer observed that irrespec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be belonging to the concerned entity and some space made available by the client/contractee in its own complex. Further, on perusal of the relevant contract, it is observed that the scope of work entrusted to the assessee is to provide services as a design review consultant related to the project undertaken by JKHCL. As per the scope of work, the assessee is required to depute personnel to carry out design review work and make comments on the civil design to ensure feasibility of the project and its components and to suggest design optimization with reference to its layout. The documents to be reviewed by the assessee's personnel are as under: i. General project drawings ii. Detailed construction drawings including geological drawings iii. Reports on geological, geotechnical investigations incl. sources of construction materials. iv. Engineering reports on stability of structures including underground excavations, hydraulic model texts, seismic risk analyses including seismic loads to be applied to individual structures, sediment transport in the river, hydrological data and flood characteristics for relevant return periods. 8. The terms of the contract also sti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion rule is not applicable to the assessee in view of article 7 (1) of the treaty between India and Germany DTAA. The contention of the assessee was that as per protocol of the treaty, the force of attraction rule in this treaty restricts the application of the rule to a case where, the PE is involved in the transaction and the transaction is restored to avoid taxation in the source state and both these contentions needs to be satisfied so as to attract the rule. The PE constituted in India by the assessee under the contract with JKSPDC- Phase- 2 was not involved in any other project executed in India during the relevant previous year. For supporting this statement, the assessee submitted various contracts entered into by the assessee with different independent unrelated parties. Most of these contracting parties are government or semi government or private organisations. The assessee constitutes PE on account of undertaking supervisory activities as provided in article 5 (2) (i) of the treaty in relation to construction of Hydro Power Projects at Baglihar in the state of Jammu Kashmir. In respect of the balance contracts, based on specific contract requirements, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contracts with JKSPDC was involved in any way in the earning of income from technical services rendered by the assessee and other contracts in India. We find force in the contention of the assessee, that the PE constitute in India by the assessee under Phase- II of the contract with JKSPDC did not play any role or contributed in any manner to the execution of the other contracts or earning of FTS under other contracts and cannot thus be said to be involved with any other projects in India. Accordingly, FTS received by the assessee from rendering of technical services and other contracts cannot be said to be involved directly or indirectly in any manner to the PE constituted in India under the contract with JKSPDC- Phase- II and are formed for the purpose of deliberate avoidance of tax. Therefore, we find merit in the argument of the Ld. AR that such income by way of FTS is to be subjected to tax ₹ 10 % under article 12 of the treaty and cannot be subject to tax ₹ 20 % as contemplated by the Assessing Officer. As per the Revenue' s contention, it is undisputed fact that the income earned by the assessee was in the nature of FTS, there is business connection and inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Coordinate Bench (supra) will squarely apply to the facts of the present appeal. That being the case, respectfully following the decision of the Coordinate Bench, we direct the Assessing Officer to delete the addition. Ground Nos. 1 and 2 are allowed. 9. After carefully examining the facts involved in the earlier assessment years as decided by the Tribunal and the impugned assessment year, we are of the view, though, the projects are different, however, the facts relating to the issue in dispute are more or less identical. Therefore, the observations of the Tribunal in assessment years 2006-07 and 2007-08 would squarely apply to the facts of the present appeals. 10. Insofar as JVL project is concerned, the Assessing Officer has not even alleged the existence of PE. Merely applying Force of Attraction Rule he has brought to tax the receipts under section 44D/44DA of the Act. In view of the aforesaid, we are inclined to delete the additions made by the Assessing Officer under Section 44D/44DA of the Act and direct the Assessing Officer to compute assessee's income under Article 12 of India - Germany DTAA. These grounds are allowed. 11. In ground No. 3, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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