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TMI Blog2024 (11) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee from GEPIL in respect of offshore supplies made to it - DRP confirmed the above action of the Assessing Officer on the ground that it had confirmed the action of the Assessing Officer in the draft assessment order for Assessment Year 2018-19 and in earlier years by holding that the assessee has a PE in the form of a fixed place and dependent agent PE (DAPE) through GEPIL - HELD THAT:- As we have seen that the Co-ordinate Bench of the Tribunal [ 2024 (3) TMI 1369 - ITAT DELHI] for Assessment Years 2018-19 and 2019-20 in the case of the assessee and as discussed above, had held that there is no business connection of the assessee in India and also there does not exist fixed place PE or construction PE of the assessee in India and provisions of Section 44BBB of the Act are not applicable in its case. Therefore, we hold that amount received by the assessee from GE Power India Ltd. (GEPIL) is not taxable in India. Levying interest under 234B is consequential in nature. AO is directed to levy interest u/s 234B. - Shri Vikas Awasthy, Judicial Member And Shri Brajesh Kumar Singh, Accountant Member For the Assessee : Shri Ajay Vohra, Sr. Adv. Shri Aditya Vohra, Adv. Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there exists Dependent Agent Permanent Establishment ( PE ) of the Appellant in India. 9. That the DRP/ assessing officer erred on facts and in law in arbitrarily holding that there exists Fixed Place PE of the Appellant in India. 10. That the DRP/ assessing officer erred on facts and in law in arbitrarily holding that the Appellant has Construction PE in India. 11. That the DRP/ assessing officer erred on facts and in law in arbitrarily holding that the Appellant has Service PE in India. 12. That the DRP/ assessing officer erred on facts and in law in arbitrarily holding that the Appellant has PE in India in the aforesaid forms, without bringing on record any evidence and without testing whether the threshold conditions for formation of each form of PE, as provided in Article 5 of the India-France Double Taxation Avoidance Agreement, stood satisfied for the assessment year under consideration. 13. That the DRP/ assessing officer erred on facts and in law in attributing entire alleged profits from offshore supplies made to THDC to the alleged business connection/ PE, without appreciating that no part of the activity relating to said offshore supplies was undertaken by the all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work relating to the project which it had got by forming a consortium formed by the assessee, Hindustan Construction Company Ltd ( HCC ) and GE Power India Ltd, by participating in bidding invited by THDC for EPC execution and completion of Tehri Pumped Storage Plant (4 X 250MW) and was awarded the contract. In this regard, an Agreement dated 23.07.2011 was entered into between THDC and the consortium formed by the assessee, HCC and GE Power India Ltd, which is hereinafter referred to as THDC Overall Agreement . The Assessing Officer further noted that post-bidding even though the main single contract was artificially divided into five of subcontracts by the assessee the entire scope of work was to be executed on a co-ordinated basis. The Assessing Officer noted that the assessee had not been able to establish that the contracts were not split artificially to prevent tax liability. Further, the AO held that the main single, composite and integrated contract agreement was artificially split and divided into sub-contracts by the assessee and execution was done by the assessee and its affiliate. The AO further noted that GEPIL executes all the onshore activities related to these group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd, by participating in bidding invited by THDC for EPC execution and completion of Tehri Pumped Storage Plant (4 X 250MW) and was awarded the contract. In this regard, an Agreement dated 23.07.2011 was entered into between THDC and the consortium formed by the assessee, HCC and GE Power India Ltd, which is hereinafter referred to as THDC Overall Agreement . As per the THDC Overall Agreement, it was agreed that the project shall be executed on a coordinated basis, inter alia, through 5 separate contracts. The assessee was awarded Contract No.3, i.e., contract to supply electro-mechanical plant machinery and hydro-mechanical plant machinery (Offshore Component) of 4 x 250 MW Tehri Pumped Storage Plant. Under the said Contract No.3, the assessee received consideration from THDC for offshore supply of plant and equipment. 5.1 The facts and the reasons for making the addition of Rs. 86,76,30,943/- received by the assessee from Offshore supply to THDC India Ltd. has been discussed as above, mainly, on the ground that the assessee had artificially split the composite contract to avoid establishment of the PE in India and tax payment in India and that the assessee has a PE in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of assessee. An element of continuity had been observed between the businesses of the assessee from supply to successful supervision as per the PGCIL, contract. The assessee has an admitted Fixed place PE in Indie w.r.t. PGCIL contract. Consequently, a part of the profits arising from the PGCIL contract from the offshore supply of equipment's need to be attributed to the FIXED PLACE PE of the assessee. In support her conclusion the AO has also placed reliance upon the decision of Hon'ble ITAT Delhi in the case of Voitch Paper GmbH (2020) in which the facts are similar to those in the case of the assessee. In view of the above, the panel upholds the decision of the AO and the objections raised by the assessee in ground number 3 are rejected 4.2.4 Since, there is no change in the factual matrix, the panel finds no ground to interfere with the conclusion of the AO as regards taxability of receipts from offshore sale of equipments. 4.2.5 As regards the attribution of income from offshore supply of equipments, the AO has observed that both offshore as well as onshore component of single composite project have to be taken into account in determining profit attributable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim written off 3,20,01,335 Total 45,73,15,202 7. The assessee thereafter filed objections against the aforesaid draft assessment order before the Learned Dispute Resolution Panel ( ld. DRP ), ITA No.2085 2086/Del/2022 GE Hydro France Page | 5 which were dismissed. Pursuant to the directions issued by the ld. DRP under section 144C(5) of the Act, the ld. AO passed final assessment order dated 29.07.2022 under section 143(3) r.w.s. 144C(13) of the Act, assessing the total income of the assessee at Rs. 46,93,12,952/-. 8. The assessee filed application u/s 154 of the Act before the ld. AO on 04.08.2022 for rectification of certain mistakes apparent from record. The said rectification application was disposed of vide order dated 24.12.2022 wherein assessed income was recomputed at Rs. 9,53,13,511/-. The computation of total income after rectification is as under: S. No. Particulars Amount (In Rs. ) Whether addition in dispute before the Tribunal 1. 10% of receipts from THDC for offshore supply 3,84,63,687 Yes Ground Nos. 3 to 9 2. Income from onshore activity from NHPC. 3,10,53,628 No Offered to tax in the ITR itself 3. Income from fees for technical services from GEPIL 96,45,476 No O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery and Hydro Mechanical Plant mechanical (onshore Services) of 4 x 250 MW Tehri Pumped Storage Plant Alstom Project India Limited 9.2. As is evident from the above, under the THDC Agreement, the assessee is executing Contract No.3, i.e., supply of electromechanical plant machinery and hydro-mechanical plant machinery (Offshore Component). The said Contract No.3 is hereinafter referred to as THDC Contract No.3 for Offshore Supply . As per the said THDC Contract No.3 for Offshore Supply read with Particular Conditions of Contract, the transfer of ownership, for the plants and equipment (including spares) supplied from foreign country, was done on FOB basis. The relevant clause is reproduced hereunder:- Sub-Clause 7.7 Ownership of Plant and Material The Ownership of imported material will be transfer on FOB basis. The ownership of indigenous material will transfer on Ex. Work basis 9.3. As per the THDC Overall Agreement, the consortium members are jointly and severally responsible and liable to THDC. Separate roles and responsibilities of consortium members emanate under the aforesaid THDC Overall Agreement, which are separate and independent of each other, and separate consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions laid down by the employee therein, with no intention to form an Association of Persons (AOP), work to be performed by both members was separate, definite and divisible, no member had any role to play with respect to scope of work allocated to other member, payments to be made for separate items of work were specified in the respective contract and consideration was to be paid directly to the concerned members in accordance with separate invoices raised by them, the members neither shared costs nor risks and also managed their own deliverables, it could not be said that the members formed an AOP for being assessed to tax as such. Thereafter, CBDT issued Circular No.7/2016 with a view to avoiding tax disputes and providing consistency in approach while handling cases where consortium is formed to implement large infrastructure projects, particularly EPC contracts and Turnkey contracts, wherein certain attributes were enumerated for deciding whether a consortium arrangement would be treated as AOP or not. In view of the said Circular, Special Leave Petition (SLP) filed by the Department against the aforesaid decision in the case of Linde AG, was dismissed by the Hon ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artificial avoidance of PE status, which has now been included in Article 13 - Artificial Avoidance of Permanent Establishment Status through the Specific Activity Exemptions of the Multilateral Instrument ( MLI ), and therefore, the arrangement of the assessee to split the otherwise single contract into various contracts with a view to avoid PE status is not permissible. In this regard, we find that the application of BEPS Action Plan 7 read with Article 13 Multilateral Instrument is an issue which was in the air and was in nascent stage as the OECD members had not come into consensus for the same so as to make it applicable for the years under consideration. Accordingly, the same cannot be applied for the AY under consideration. 9.8. We find that the ld. AO had made the addition towards offshore supplies by observing that there is a business connection of the assessee in India u/s 9(1)(i) of the Act. We are unable to comprehend ourselves to accept to this proposition in as much as title transfer in respect of equipment supplied by the assessee to THDC on an offshore basis happened outside India. Payments are made in foreign currency and that too are received by the assessee outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee with respect to PGCIL contract without appreciating the fact that the receipts were earned by the assessee herein from THDC and NHPC project during the year under consideration. There was no contract undertaken by the assessee with PGCIL and no amounts were received from PGCIL by the assessee. This clearly proves the complete non-application of mind on the part of the ld. AO. Either way, it is trite law that onus is on the revenue to establish that there exists a PE of the foreign entity in India, which has not been discharged by the revenue in the instant case. Reliance in this regard is placed on the decision of Hon ble Supreme Court in the case of CIT vs eFunds IT Solution reported in 399 ITR 34 (SC) ; DIT vs Samsung Heavy Industries Co Ltd reported in 117 taxmann.com 870 (SC) ; decision of Hon ble Jurisdictional High Court in the case of DIT vs Mitsui Co. Ltd reported in 399 ITR 505 (Del); decision of Hon ble Jurisdictional High Court in the case of National Petroleum Construction Co vs DCIT reported in 421 ITR 24 (Del). Hence we have no hesitation to hold that the assessee does not have a Fixed Place PE in India and accordingly no income earned by the assessee from op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the assessee in India by applying the provisions of section 44BBB of the Act which provide that 10% of the amount paid or payable in or outside India to a foreign company or any person on its behalf, on account of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government, shall be deemed to be the income chargeable to tax under the head Profits and gains from business or profession‟. We find that since the amount under consideration pertain to offshore supply of plant and equipment, for which sale was completed outside India and title to the goods was transferred outside India without any role of the alleged PE in India, the provisions of section 44BBB of the Act per se cannot be made applicable in the instant case. We find that reliance in this regard was placed on the co-ordinate bench of Delhi Tribunal in the case of DDIT vs Mitsui Co Ltd reported in 118 taxmann.com 379. Even otherwise, we have already held that that there is no PE of the assessee in India and hence as per Article 7 read with Protocol thereon of India UK DTAA, income earned out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company vide the above order for Assessment Years 2018-19 and 2019-20 had held that there is no business connection of the assessee in India and also there does not exist fixed place PE or construction PE of the assessee in India and provisions of Section 44BBB of the Act are not applicable in its case and had deleted the said addition. Following the same, the addition made by the ld. AO by bringing to tax receipts amounting to Rs. 86,76,13,943/- from offshore supply is hereby directed to be deleted. Ground nos. 4 to 13 of the appeal is allowed. 7. Following the decision of the Co-ordinate Bench, since we have held that there is no PE of the assessee in India, the other argument advanced by the ld. AR that there would be no attribution of profits in view of operational or net loss at global level in ground no.14, need not be gone into as adjudication of the same would become merely academic in nature. 8. Ground no.15 is against the DRP/assessing officer in bringing to tax receipts amounting to Rs. 3,07,83,774 received by the assessee from GEPIL in respect of offshore supplies made to it. 8.1 The Assessing Officer has brought to tax the above amount amounting to Rs. 3,07,83,774/- r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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