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TMI Blog2023 (7) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... considered cumulatively and as a part of sale and supply of plant and equipment. Once the income from supply of plant and equipment is held to be not taxable in India, since, the sale transaction was completed outside India, the same logic applies even to the amount received from supply of drawings and designs. Thus, we hold that the amount received by the assessee from supply of drawings and designs is not taxable in India as FTS. This ground is allowed. FTS under Article 12 of India Switzerland DTAA - supervisory services relating to erection and commissioning - HELD THAT:- As assessee had entered into a contract for supply of electromagnetic stirrer. As per the scope of the contract, the assessee shall engineer, manufacture and deliver the plant and equipment. The scope of contract also included supervision, erection and commissioning of plant and equipment. As per assessee s own admission, technical personnel were deputed to supervise the erection and commissioning of the plant and equipment. Thus, it is quite clear, in course of such supervisory activity, the qualified technical personnel deputed by the assessee must have imparted technical services for erection and commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gns as Fee for Technical Services (FTS). 4. Briefly the facts relating to the issue in dispute are, the assessee is a non-resident corporate entity incorporated in Switzerland and a tax resident of Switzerland. As stated, the assessee is engaged in the business of manufacturing and supply of plant, equipment, drawings as well as rendering of services of the nature of supervision of erection and commissioning. The assessee had entered into separate contracts with JSW Steel Ltd. for the following works: i. Supply of plant and equipment from Switzerland. ii. Supply of drawings and designs in relation to such plant from Switzerland iii. Supervision of erection and commissioning of the equipments supplied. 5. For the assessment year under dispute, the assessee filed its return of income on 26.09.2008 declaring nil income. In course of assessment proceedings, the Assessing officer on verifying the details available on record found that in the year under consideration, the assessee has received revenue from the following activities: a) Sale of drawings and designs Rs. 2,84,92,345/- b) Receipts from sale of equipments Euro 10,46,66,390/- c) Receipts from supervisory services or erection an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it clear that the income of a non-resident shall be deemed to accrue or arise in India under clause (v) or (vii) of sub-section (1) to section 9 and shall be included in the total income of non-resident, whether or not, non-resident has a residence or place of business or business connection in India or the non-resident has rendered services in India. He held, since, the aforesaid amendment was introduced with retrospective effect from 1st June, 1976, it will apply to the assessee. Thereafter, referring to various judicial precedents as well as definition of FTS under Article 12(4) of India Switzerland DTAA, the Assessing Officer ultimately concluded that the amount received by the assessee towards supply of drawings and designs is taxable in India as FTS. Challenging the additions so made, the assessee preferred an appeal before learned first appellate authority. However, learned Commissioner (Appeals) upheld the additions made by the Assessing Officer. 8. Before us, learned counsel appearing for the assessee submitted that the assessee had entered into a contract with JSW Steel Ltd. for supply and sale of plants and equipments for 1 X 8 Strand Billet Caster for Long Product Plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are in the nature of as built drawings and specifically with reference to the relevant plant and equipment. He submitted, the Departmental Authorities have not disputed the fact that the entire work relating to the drawings and designs was carried out outside India and also the title over such goods passed outside India. He submitted, the inseparability of two contracts is also not disputed by the departmental authorities. Despite that, he submitted, the departmental authorities have concluded that the amount received from sale of drawings and designs in the nature of FTS both under the Act as well as under the DTAA. He submitted, had it been a case of supply of designs and drawings on standalone basis, for grant of right to use of commercial exploitation by the customer, the amount received could have been characterized, either as royalty or as FTS. However, when the supply of drawings and designs is coupled with supply of equipment, which is manufactured in accordance with the designs supply, the amount received can neither be characterized as royalty, nor as FTS. He submitted, in such a scenario to ascertain the true nature of the receipt, one has to apply the test of pith and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted, the amount received is not taxable as FTS. 10. Strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals), the learned Departmental Representative submitted, the assessee has entered into separate contracts with JSW Steel Ltd. for supply of plants and equipments and supply of designs and drawings. He submitted, the scope of work under both the contracts are different. Even, the considerations to be received for the work to be done under the two contracts have been separately identified. Thus, he submitted, it cannot be said that the contracts are inextricably linked to each other. Drawing our attention to the contract for supply of designs and drawings, learned Departmental Representative submitted, the designs and drawings are delivered in India. He submitted, even in case of any dispute, the seat of arbitration is also in India. Thus, he submitted, the contractual terms clearly demonstrate that the transfer of title over the drawings and designs passed in India. In any case of the matter, he submitted, drawings and designs are part of technical services. Therefore, it falls within the definition of FTS, both under the domestic law a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omponents as well as associated standard and catalogue parts, instructions for manufacturing, assembly, inspection and construction if applicable, spare part lists, operation and maintenance instructions as the case may be. 13. Thus, from the details of design and drawings as well as documentation submission, schedule of drawings and designs, it is quite clear that drawings and designs supplied by the assessee are specifically related to the supply of plant and equipments for the JSW Steel Project. 13. On a reading of both the contracts, it is observed, though, the contracts have been separately executed, one for supply of plant and equipment and the other one for supply of drawings and designs, however, they have been executed on the very same date. One more crucial fact emerging from the drawing and design contract is, as per clause 17.1.1(iii), the purchaser is vested with the right to terminate the contract unilaterally, inter alia, due to the delay in delivery of the equipment in excess of 120 days for the reasons solely attributable to the seller and seller fails to take necessary remedial action. Thus, from the aforesaid condition imposed in the contract, it is very much cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave got the plants and equipments manufactured by a third party. Therefore, in our view, the ratio laid down by the Hon ble Jurisdictional High Court in the aforesaid decision squarely apply to the facts of the present appeal. 16. In case of CIT Vs. Andhra Petrochemicals Ltd. reported in [2015] 373 ITR 207, the Hon ble Andhra Pradesh High court has observed that different components of the contract cannot be read in isolation. Similar view has also been expressed by the Hon ble Delhi High Court in case of CIT Vs. Mitsui Engineering and Ship Building (supra). 17. Insofar as the decision of the Hon ble Karnataka High Court in case of AEG Aktiengesllshaft Vs. CIT (supra), in view of the ratio laid down by the Hon ble High Court in case of Linde Engineering Division Vs. DIT (supra), there is no need for much deliberation on the said decision. 18. At this stage, we must address some of the submissions made by learned Departmental Representative. Before us, learned Departmental Representative has submitted that the amount received for supply of drawings and designs is taxable in India, as, they have been delivered at Bangalore Airport and the seat of arbitration is in India. We do not fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered rival submissions and perused the materials on record. From the facts on record, it is observed, the assessee had entered into a contract for supply of electromagnetic stirrer. As per the scope of the contract, the assessee shall engineer, manufacture and deliver the plant and equipment. The scope of contract also included supervision, erection and commissioning of plant and equipment. As per assessee s own admission, technical personnel were deputed to supervise the erection and commissioning of the plant and equipment. Thus, it is quite clear, in course of such supervisory activity, the qualified technical personnel deputed by the assessee must have imparted technical services for erection and commissioning of the plant and equipment. Therefore, in our considered opinion, the amount received clearly falls within the definition of FTS, both under the domestic law as well as under the treaty provision. Once the receipts fall within the definition of FTS under Article 12(4) of the DTAA as well as the domestic law, it becomes immaterial whether the assessee has a PE in India or not. Therefore, in our view, the amount in dispute having qualified as FTS, has rightly been bro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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