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TMI Blog2024 (7) TMI 1013X X X X Extracts X X X X X X X X Extracts X X X X ..... dent of the assessee. Thus, it has to be held that offshore supply of design and engineering, being closely linked to the offshore supply of plant and equipment, it cannot be segregated from the offshore supply of plant and machinery, as the basic nature and character of both the transactions are identical. Therefore, when offshore supply of plant and equipment is not taxable, offshore supply of design and engineering cannot be made taxable. As we analyze with the fact involved in case of SMS Concast AG [ 2023 (7) TMI 164 - ITAT DELHI ] it would be clear that assessee s case stands on a better footing as the contracts under which the assessee has received the payment are composite contracts. Therefore, the ratio laid down in case of SMS Concast AG (supra) squarely applies to assessee s case. Identical view has been expressed by the Coordinate Bench in case of DSD Noell GMBH (supra). Therefore, respectfully following the decisions of the Coordinate Bench, as noted above, we hold that the amount in dispute is not taxable in India. Taxability of amount received towards onshore supervisory services as FTS by applying the rate of 10% on gross basis - HELD THAT:- It is a fact that the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Article 12(4) of tax treaty, irrespective of the fact whether the assessee had a PE in India or not. As relying on SMS Concast AG [ 2023 (7) TMI 164 - ITAT DELHI ] 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 brought to tax at the hands of the assessee. Decided against assessee. Taxability of reimbursement of expenses from Indian group companies as FTS - assessee had entered into a cost contribution contract with other group entities for group information and business services - HELD THAT:- Cost incurred by the assessee for providing such services are allocated by way of specific allocation key to all the group companies, including the Indian entities. The cost incurred for providing such services was invoiced to all the entities including Indian entities and the assessee received the reimbursement of cost without any market up. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e filed for the impugned assessment year on 26.03.2013, the assessee declared nil income and claimed refund of Rs. 17,71,634/- In course of assessment proceedings, the Assessing Officer, while examining the details available on record, noticed the aforesaid sources of revenue earned from India. As far as receipts from offshore supply of plants and equipments, the Assessing Officer accepted assessee s claim of non-taxability of such receipts. Insofar as offshore supply of drawings and designs, the Assessing Officer, after negating assessee s claim of non-taxability, observed that the contracts under which the assessee had received the amount, are composite contracts involving supply and services. He observed that the nature of services provided by the assessee to the Indian client are technical, hence, have to be treated as FTS under section 9(1)(vii) of the Act read with Article 12 of India Austria DTAA. He observed that provision of design and engineering services is an intrinsic part of the contract and cannot be seen in isolation. 6. He observed, design and engineering services are amongst the initial works that would kick-start the implementation of the contract. Referring to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply of plant and equipment is held as non-taxable, the receipts from offshore supply of design and engineering cannot be taxed. He submitted, not only in the year under dispute but in all subsequent years, the Assessing Officer has accepted assessee s claim that receipts from offshore supply of plant and equipment are not taxable. He submitted, receipts from offshore supply of design and engineering, being identical to offshore supply of plant and equipment, cannot be made taxable. He submitted, the issue is otherwise squarely covered by the decision of the Coordinate Bench in the following cases: (i) SMS Concast AG Vs. DDIT, [2023] 153 taxmann.com 718 (Delhi Trib.) (ii) DSD Noell GMBH Vs. DCIT, [2023] 157 taxmann.com 64 (Delhi Trib.) 9. Learned Departmental Representative, while strongly relying upon the observations of the Assessing Officer and learned first appellate authority, submitted that the very fact that the payers have withheld tax on the payments towards design and engineering in terms with the contract, establish that both parties have accepted that the receipts are taxable in India. In reply, learned counsel for the assessee submitted that merely because payer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity had entered into a separate contract with JSW Steel Ltd. and an Indian entity for offshore supply of plant and equipment, offshore supply of drawings and design and supervision of erection and commissioning of equipment and its supply. While deciding the issue, whether the receipt towards design and engineering is taxable as FTS, the Coordinate Bench has held as under: 11. We have considered rival submissions in the light of decisions relied upon and perused the materials on record. The short issue arising for consideration is, whether the amount received by the assessee for supply of drawing and design is taxable as FTS in India. Insofar as the factual aspect of the issue is concerned, there is no dispute that the designs and drawings were made outside India in Switzerland and were supplied to the contractee from Switzerland. It is a fact that the sale transaction qua the drawings and designs was completed in Switzerland and amounts were received in Switzerland. It is also a fact on record that both the supply of equipments and supply of designs and drawings are in relation to a single project of the contractee, viz., 1 X 8 Strand Billet Caster for Long Product Plants requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract for supply of design and drawing in that eventuality. Thus, the aforesaid fact makes it clear that the contract for supply of drawings and designs is inextricably linked to the contract for supply of plant and equipment. 14. Undisputedly, though, the Assessing Officer has brought to tax the receipts from supply of plant and equipment by treating it as business profit of the assessee connected to the PE, however, learned first appellate authority has reversed the decision of the Assessing Officer by holding that since the plants and equipments were supplied from outside India and the sale transaction has concluded outside India, the receipts cannot be taxed in India. Admittedly, against the aforesaid decision of the first appellate authority, the Revenue is not in appeal. Thus, when the supply of plant and equipment has been treated as sale transaction completed outside India, hence, not taxable in India, the sale and supply of drawings and designs being inextricably linked to sale and supply of plant and equipment has to be considered cumulatively and as a part of sale and supply of plant and equipment. 15. In case of Linde Engineering Division Vs. DIT (supra), the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made at Chennai Airport and the seat of arbitration is also in India. Therefore, 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, after considering the totality of facts and circumstances, 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. 13. If we examine the facts of assessee s case and analyze with the fact involved in case of SMS Concast AG (supra), it would be clear that assessee s case stands on a better footing as the contracts under which the assessee has received the payment are composite contracts. Therefore, the ratio laid down in case of SMS Concast AG (supra) squarely applies to assessee s case. Identical view has been expressed by the Coordinate Bench in case of DSD Noell GMBH (supra). Therefore, respectfully following the decisions of the Coordinate Bench, as noted above, we hold that the amount in dispute is not taxable in India. 14. In Ground no. 4, the assessee has called into question th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted, there is no reason to tax such income again in the impugned assessment year, as; it would amount to double addition of the same income. 17. Learned Departmental Representative relied upon the observations of the Assessing Officer and learned first appellate authority. 18. We have considered rival submissions and perused the materials on record. Before we proceed to decide the issue, we must observe that the assessee has admitted that onshore supervisory services were provided to SAIL through supervisory PE in India. Thus, it is established on record that the assessee had a supervisory PE. There is also no dispute to the fact that, being a tax resident of Austria, the assessee is entitled to avail benefit under India - Austria DTAA. The Assessing Officer, undoubtedly, has treated the receipts as FTS and taxed it at the rate of 10% on gross basis. Learned first appellate authority endorsed the view of the Assessing Officer on the reasoning that in terms of Article 12(4) of the treaty, the amount received towards onshore supervisory services has to be taxed as FTS at the rate of 10%. 19. On a reading of Article 7 of India Austria DTAA, it becomes clear that business profits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es etc. We have already discussed earlier that as per Article 7(5) of the treaty, the business profits of the PE has to be determined by the same method year by year, unless there is good and sufficient reasons to depart from the said method. 21. Before us, learned counsel appearing for the assessee has submitted that the assessee has followed project completion method year by year and the department has also accepted it in all other assessment years. In fact, it is his submission that in assessment year 2014-15, the entire receipts from onshore supervisory services has been offered by the assessee and the Assessing Officer has assessed it. 22. Keeping in view the aforesaid submission of the assessee, we direct the Assessing Officer to factually verify, whether the receipts in dispute were offered to tax by the assessee in assessment year 2014-15 and, in case, it is found to be so, no further addition can be made in the impugned assessment year. Ground is allowed for statistical purposes. 23. In ground no. 5, the assessee has challenged the taxability of certain other supervisory fee in India. Briefly the facts are, during the year under consideration, the assessee has provided sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 brought to tax at the hands of the assessee. This ground is dismissed. 28. The ratio laid down by the Coordinate Bench, as above, would squarely apply to the present case. Therefore, we decide the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12] 24 taxmann.com 76 (Delhi) 32. The ground is allowed. 33. In ground nos. 7 and 8, the assessee has challenged the levy of interest under section 234D of the Act and withdrawal of interest under section 244A of the Act. 34. It is the specific case of the assessee that, though, refund was computed, however, it was never granted to the assessee. Therefore, there is no question of levy of interest under section 234D and withdrawal of interest under section 244A of the Act. Keeping in view the nature of dispute, we direct the Assessing Officer to factually verify assessee s claim and decide it in accordance with law. The grounds are allowed for statistical purposes. 35. Ground no. 9, being general in nature, is dismissed. 36. In the result, the appeal is partly allowed. ITA No.288/Del/2017 (Assessee s Appeal) Assessment Year: 2012-13 37. Ground no.1 is a general ground, hence does not require adjudication. 38. In ground no. 2, the assessee has raised the issue of taxability of amount received towards offshore supply of design and engineering. The issue raised in this ground is identical to the issue raised in ground no. 3 of ITA No.5991/Del/2015 decided by us in earlier part of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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