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TMI Blog2023 (8) TMI 957X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate entity incorporated under the laws of Germany and a tax resident of Germany. As stated by the Assessing Officer, the assessee is engaged in the business of integration and manufacturing of complete rolling stocks and railway applications. Delhi Metro Rail Corporation (DMRC) had floated an International Competitive Bid for design, manufacture, supply, testing, commissioning, training and transfer of technology of 340 Electrical Multiple Units (EMU) known as RS2 Contract. Intending to participate in the bid of the DMRC, the assessee entered into a Memorandum of Understanding (MoU) with BTIL to collectively participate in the bid and submit its tender. The joint bid submitted by the assessee and BTIL was accepted by DMRC and RS2 Contract was executed between the DMRC and the Consortium on 19.07.2007. As far as the terms of understanding between the Consortium partners, viz., assessee and BTIL, the scope of work under the bid was specifically defined to be performed by each of the partners. As per the terms of the MoU, the participation ratio between the assessee and BTIL for RS2 Contract would be 70% and 30%. As per the terms of RS2 Contract, the Consortium is to provide pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t office of the assessee in India constitutes a fixed place PE in India in terms of Article 5(1) of India - Germany DTAA. He further observed that the expatriate employees of the assessee have frequently visited India and spent total number of 364 man-days in India in the year under consideration. Accordingly, the Assessing Officer attributed profit, both, in respect of offshore and onshore supplies and services to the alleged PE of the assessee in India in the form of project office. Against the draft assessment order so passed, the assessee raised objections before learned DRP. 6. While dealing with assessee's objection, learned DRP granted substantial relief to the assessee qua the attribution of profit in relation to onshore supply and services. However, insofar as, income from offshore supply of 8 train sets, learned DRP, though, agreed with the assessee that the project office had no involvement with offshore supply, hence, no profit attribution can be made to the PE. However, learned DRP held that the assessee had a fixed place PE in the form of BTIL. Accordingly, learned DRP directed the Assessing Officer to attribute profit to the PE in respect of income earned from offsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BTIL as fixed place PE has not been satisfied. In this context, he relied upon the decision of the Hon'ble Supreme Court in case of Formula One World Championship Ltd. Vs. CIT (2017) 15 SCC 602 (SC) and the decision of Tribunal in ITA No. 859/Del/2016, order dated 29.10.2020. 9. Learned counsel for the assessee submitted, in assessee's own case in assessment year 2012-13, learned Commissioner (Appeals) being conscious of the directions of learned DRP in the impugned assessment year held that BTIL does not constitute a PE of the assessee. Further, he submitted, Tribunal's decision in case of Nortel Networks India International Inc. Vs. DDIT (2014) 49 taxmann.com 147 relied upon by learned DRP is completely misplaced as the said decision has been overruled by the Hon'ble Delhi High Court in case of Nortel Networks India International Inc. Vs. DIT (2016) 386 ITR 353 (Delhi HC). Thus, he submitted, neither the project office, nor BTIL constitute a fixed place of assessee in India in terms of section 5(1) of the treaty. 10. Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned DRP. Drawing our attention to the RS2 Contract with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PE. 13. Thus, the issue which arises for consideration is whether BTIL can be considered to be a fixed place PE of the assessee so as to attribute profit on receipts from offshore supplies. Undisputedly, DMRC has awarded the Contract, termed as RS2 Contract, to a consortium formed by the assessee and BTIL, an Indian company. As per the terms of Contract with DMRC, the scope of work between the Consortium partners, i.e., the assessee and the BTIL is well defined. The scope of work of the assessee is as under: * BTG will be responsible for design, vehicle integration and setting up production for all trains (off shore and indigenous). * BTG will supply trains and components manufactured offshore and indigenous. * BTG will provide training to DMRC officials in Europe and also undertake integrated testing and commissioning of Trains on the Section of Service trails. * BTG will provide unit exchange spares, Mandatory Spares, Recommended Spares, Consumable Spares for a period of three years, special tools, testing and diagnostic equipment. * BTG will be responsible for warranty during the Defects Liability Period (DLP) * BTG will be responsible for the transfer of prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning, offshore manufacture and supply, offshore training etc. BTIL has been paid for all onshore activities. It is a fact on record that the payments received under Cost Centre D have been offered to tax in India by BTIL. In fact, the transaction between BTIL and the assessee have been subjected to transfer pricing analysis by the Transfer Pricing Officer (TPO) and adjustment was suggested to the Arm's Length Price (ALP). Thus, on a conjoint reading of the contract between the DMRC and the consortium partners and the Consortium Agreement would make it clear that not only the scope of work under the contract given to Consortium partner is well defined but the cost relating to such scope of work has also been specifically demarcated under different cost centres. 17. Thus, it can be safely concluded that though DMRC executed a single contract with the Consortium partners, however, the scope of work to be performed by each of Consortium partner has been well-defined and demarcated. Therefore, essentially the contract is a divisible Contract. On a careful perusal of observations of learned DRP, it is observed that learned DRP has misconstrued the terms of the agreement between the DMRC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in India, has held that BTIL is not the PE of the assessee. In fact, while considering identical nature of dispute in case of Bombardier Transportation Sweden AB Vs. DCIT (supra), the Coordinate Bench, while considering the dispute relating to offshore supply made under a somewhat similar Contract with DMRC held that receipts from offshore supplies cannot be taxed in India in view of the ratio laid down by the Hon'ble Supreme Court in case of Ishikawajma Harima Heavy Industries Ltd. Vs. DIT, 158 Taxman 259. 20. At this stage, it is relevant to observe, learned DRP, while coming to conclusion that BTIL constitutes fixed place PE in India, has relied upon the decision of the Tribunal in case of Nortel Networks India International Inc. However, the decision of the Tribunal stands reversed by the Hon'ble Jurisdiction High Court in Nortel Networks International Inc. Vs. DIT [2016] 386 ITR 253 (Delhi). Thus, analyzing the facts and materials on record in the touchstone of the ratio laid down in the judicial precedents cited before us, we are of the view that none of the conditions of fixed place PE as enshrined under Article 5(1) of India - Germany tax treaty stand satisfied to cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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