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TMI Blog2025 (1) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... as Fees for Technical Services (FTS) or Business Profits under the Double Taxation Avoidance Agreement (DTAA) between India and Germany - Coming to the issue on merits, we observed that the assessee has declared three invoices in its return of income as exempt from tax however when the case was reopened it has filed its return of income by bringing on record facts clearly and it was submitted before the AO as well as ld. CIT (A) that two invoices of Euro 2,35,000 and 30,500 relates to supply of drawings and designs to Jindal Steel and Power Limited and which is exempt from tax on the basis of ITAT, Vishakhapatnam decision which is in favour of the assessee (it is decided in the case of M/s. SMS Schloemann Siemag AG Germany [ 2001 (4) TMI 62 - ANDHRA PRADESH HIGH COURT] which is the sister concern of the assessee). With regard to third invoice of Euro 9,49,600, it was submitted before the ld. CIT (A) that it is relating to supply of equipment. CIT (A) appreciated the above facts on record and deleted the addition made by the AO relating to supply of equipments. However, he did not consider the decision of ITAT, Vishakhapatnam relating to supply of drawings and designs as royalty/FT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi (hereinafter referred to Ld. CIT (A) ) dated 02.01.2014 for Assessment Year 2005-06. 2. The assessee, SMS Concast AG, has filed four appeals against the separate orders of ld. Commissioner of Income-tax (Appeals)-43, New Delhi (hereinafter referred to Ld. CIT (A) ) dated 31.01.2018, 16.01.2019, 21.04.2022 21.04.2022 for Assessment Year 2014-15, 2015-16, 2016-17 2017-18 respectively. 3. Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. We take up the assessee s appeal being ITA No.1073/Del/2014 for AY 2005-06 as lead case to adjudicate the issues under consideration. 4. The relevant facts of the case are, assessee filed its return of income on 29.11.2006 declaring income at Rs. 8,11,98,063/-. The return was processed under section 143(1) of the Income-tax Act, 1961 (for short the Act ) on returned income. Subsequently, the case was selected for reassessment and notices u/s 148 of the Act was issued and served on the assessee. In response, assessee filed its return of income at Rs. 78,44,243/-. Notices u/s 142(1) was issued and served on the assessee. In response, ld. AR for the assessee at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and design Rs.1,67,32,800 (b) Offshore supply of equipment Rs.5,27,63,546 Rs.6,94,96,346 The learned AO in the reassessment order as made, has erroneously treated the whole of the amount including that for the supply of equipment as Fees for Technical Services . He has failed to consider that consideration for supply of equipment in any case is not liable to tax in India, which position he has himself accepted in respect of other supplies. As such an amount of Rs. 5,27,63,546/- included relating to supply of equipment is in any case not liable to tax under Art 12 of the DTA as erroneously referred to by the AO. 9.4 Regarding non-taxability of consideration for sale of drawings and designs, it was submitted to the AO that the said claim was based on the following:- (a) Terms of contract; (b) Decisions of ITAT in the case of the assessee where such receipts for the sale of drawing and designs were not held to be taxable in various Assessment Years (c) Decisions of Hon'ble Madras High Court in the case of CIT Vs. Neyveli Lignite Corporation Ltd (Neyveli), 243 ITR 459. (d) Decision of Hon'ble High Court of Delhi in the case of Mitsui Engineering Ship Building 259 ITR 248. 9.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant has not explained how these receipts are different from similar receipts from other clients. Receipts for drawings and designs are in nature of fee for technical services (FTS) both u/s 9(1)(vii) of the act and Article 12 of Indo-Germany DTAA. It is pertinent to note that for taxation of FTS under Article 12 of DTAA, existence of PE in India is not required. Accordingly, I find no infirmity in action of the AO in bringing this sum to tax as FTS taxable on gross basis @ 10% as per DTAA. Accordingly, the AO is directed to give relief regarding Rs. 5,27,63,546 as discussed supra. The ground of appeal is partly allowed. 10. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :- 1. That the order of learned Commissioner of Income-tax (Appeals) [CIT (A)) is bad both in law and on facts of the case. 2. That the Ld. CIT (A) has erred in holding that the reassessment proceedings Initiated by Ld. A.O. are valid. 3. (a) That the learned CIT (A) has erred in law and on facts in holding that consideration received for supply of drawings and designs forming integral part of the supply of equipment, received under various contracts is taxable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ARC and the other invoice is relating to supply of equipment for electronic ARC. Further he brought to our notice page 15 of the paper book which is issued by the AO u/s 148 dated 28.03.2011 alongwith the reasons for reopening. The AO has mentioned the sum involved therein. He submitted that the sum mentioned in the reasons are Rs. 31,11,699/- and he also brought to our notice page 19 of the paper book which is the annexure of the reasons to believe. The amount mentioned in page 19 and reasons to believe recorded are wrong and factually incorrect. He submitted that basis of reasons are factually incorrect. Accordingly, he brought to our notice page 25 of the paper book which is the decision of ITAT, Vishakhapatnam for AY 1992-93 wherein ITAT considered the facts on record and held by referring to the case of CIT v. Klayman Porcelains Ltd. (1988) 229 ITR 735 (AP) wherein Hon ble Andhra Pradesh High Court held that the design and documentation fees cannot be considered as royalty but is only to be considered as part of plant supplied from abroad. Further he brought to our notice pages 30 to 38 of the paper book wherein ITAT, Vishakhapatnam gave relief to the assessee on the similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment records observed that the assessee has not offered to tax certain receipts from Jindal Steel and Power Limited and he was of the opinion that the income escaped in this assessment year. He was of the view that assessee has offered to tax receipts from other parties whereas it has not offered to tax the receipts from Jindal Steel and Power Limited. Accordingly, he proceeded to reopen the assessment by recording the relevant reasons on record. Assessee before us raised the issue that the AO has wrongly recorded the reasons with the wrong sum of money and with the factually incorrect observation. After considering the facts on record, we observed that as per the information on record, the AO was of the opinion that there is substantial receipts not offered to tax by the assessee and accordingly, he reopened the assessment. Even though there is a small factual error, however the gross amount in terms of rupees mentioned in the reasons supplied to the assessee and the additions made in the assessment order are same. Therefore, we are not inclined to proceed with the objections raised by the assessee for reopening of the assessment. 16. Coming to the issue on merits, we ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue is dismissed. 19. Now we take ITA No.2695/Del/2018 for AY 2014-15. The assessee has taken the following grounds of appeal in Assessment Year 2014-15 :- 1. That the order of learned Commissioner of Income-tax (Appeals) 43, New Delhi( CIT (A) ) is bad both in law and on facts of the case. 2. That the Ld. CIT(A) has wrongly mentioned the of the Appellant as name SMS Concast UK Limited (PAN: AAMCS7193M) instead of SMS Concast AG (PAN: AADCC2848Q) 3.1. That the Ld. CIT(A) has erred in upholding the amount received for drawings and designs supplied to the Indian customer amounting to Rs. 55,37,502/-/- as taxable in India as Fee for Technical Services ( FTS ) under the Income Tax Act, 1961 ( the Act ) and in terms of Article 12 of the DTAA between India and Switzerland ( the DTAA ); 3.2. That the Ld. CIT (A) erred in rejecting the argument of the appellant that the receipts of Rs, 55,37,502/- towards drawings and designs constitute Business Profits and is not taxable in terms of the provisions of Article 7 of the DTAA; 3.3. That the Ld. CIT (A) erred in holding that the drawings and designs relevant to said amount supplied by the appellant are not inextricably linked to the main equipm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 271(1)(c). 20. Grounds No.1, 2 6 are general in nature, hence does not require any adjudication. 21. Ground No.3 is with regard to drawings and designs, this ground is already decided by us in Ground No.4 in AY 2005-06 above. Since the facts are exactly similar to AY 2005-06 our above findings in AY 2005- 06 are applicable mutatis mutandis in AY 2014-15. Accordingly, Ground No.3 is allowed for statistical purposes with the same direction. 22. Ground No.5 is covered by Para No.21 in ITA No.1361/Del/2012 for AY 2008-09 in assessee s own case and the ITAT decided the same against the assessee. For the sake of clarity, Para 21 of the aforesaid order is reproduced below :- 21. We have 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 commissionin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in which project is completed. In order to verify the correctness of the contention of the assessee, where a PE is existed for supervision making the assessee eligible for the chargeability under the Article 7 and section 44DA, the number of days of the supervisory activity were sought to be submitted by the assessee. In this regard, assessee submitted that the yearwise details of the days on which supervisory activities were carried out. He observed that the period of activity was only 30 days in the FY 2013-14. Therefore, the supervision activity did not last above the period of six months as required under the Treaty with Switzerland. The assessee was asked to submit on the abovesaid receipts not to be charged as royalty or FTS since a deemed PE did not come into being in accordance with Article 5 of the India-Switzerland Treaty for the current assessment year. 27. In this regard, assessee submitted that supervisory activity was to be seen from the date of commencing of the installation to the date conclusion of the commissioning. Further assessee submitted that six months referred to in the Treaty could extend over more than one financial year and the activity which resulted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n advance basis. Whatever expenditure incurred by the assessee on the specific contract are incurred or treated as work-in-progress. In this regard, he brought to our notice page 95 of the paper book which is a Balance Sheet of the assessee and he highlighted that the same are disclosed as inventories. He also brought to our notice relevant accounting policies disclosed by the assessee in its Notes to Financial Statements placed at page 97 of the paper book. For the sake of clarity, it is reproduced below:- 2. SIGNIFICANT ACCOUNTING POLICIES a) Basis of Preparation The accounts have been prepared for the supervision activities carried on in India under the contracts with Indian customers where the Company has deemed Permanent Establishments (P.E.) as per the respective contracts under the Double Taxation Avoidance Agreement between India and Switzerland Under the contracts, the Company is entitled to receive consideration for services to be rendered, over the periods of respective contracts. b) Basis of Preparation of financial statements Revenues and costs are recognized on cash basis on the basis of the completed contract method i Profit from service activity is recognized on com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e last page of the assessment order wherein he has accepted the submissions of the assessee. 32. Further he brought to our notice page 382 of the paper book which is the Switzerland Treaty and brought to our notice Article 5 Clause J and submitted that as per the definition, a building site or construction, installation or assembly project or supervisory activity in connection therewith . Further he brought to our notice Clause L as per which, furnishing of technical services other than services as defined in Article 12, within a contracting state by an enterprise through employees or other personnel but only if more than 90 days within any 12 months period. He submitted that the abovesaid provision is special provision mentioned in Switzerland Treaty, therefore, any contract exceeding 90 days then only it is PE. In this regard, he relied on the decision of coordinate Bench in the case of Andritz AG vs. DDIT in ITA No.5991/Del2015 Ors. dated 27.06.2024 and brought to our notice para 20 of the order and the relevant finding is reproduced as under :- 20. Having held so, now we will deal with other aspect of the issue. It is the case of the assessee that the revenue from onshore super ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of PE, the supervisory services means, the provider of services does not own the project site. In this regard, he brought to our notice the decision of GFA Anlagenbau Gmbh (supra) relied by the ld. DR. He submitted that the Revenue itself insisted that it will fall under Article 7. He brought to our notice that AO itself necessitated that the relevant transaction be charged to tax as per Article 7 and he stated that similar issue was submitted by the Revenue in the case of Vishkhapatnam Port Trust (supra) also. 36. Considered the rival submissions and material placed on record. We observed that the issue under consideration in which ld. CIT (A) has enhanced the addition on the other supervisory services provided by the assessee in the new project for a period of 30 days. It is fact on record that both sides accepted that the supervision services were provided for a period less than six months and assessee followed the method of accounting on the basis of contract completion method and accordingly it has also offered the same in the year of completion i.e. in AY 2016-17. Considering the facts on record, we observed that the issue under consideration is exactly similar to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(2)(j) of the DTAA. (c) That while making the impugned addition, the Ld. CIT(A) misdirected himself by observing that the supervisory activities undertaken by the Appellant were not effectively connected with PE and as such not taxable as 'Business Profits' under Article 7 of the DTAA. (d) That the Ld. CIT(A) erred in making enhancement amounting to Rs. 41,23,586/- to income by holding supervisory receipts liable to tax as FTS, which are not liable to tax in the relevant year, as per system of accounting followed by the assessee and always accepted. 3. (a) That the Ld. CIT(A) has erred in upholding the taxability of consideration of Rs. 42,07,915/- for supervisory services, rendered for a period less than six months, as FTS under the Act and DTAA. (b) That the Ld. CIT(A) has erred in rejecting the claim of the appellant to treat the proceeds towards such supervisory services as non-taxable business profits in the absence of Permanent Establishment ( PE ) in India for relevant contracts in terms of Article 7 of the DTAA. 4. That that impugned order of the Ld. CIT(A) is founded on misplaced reliance on judicial precedents, wrongful appreciation of facts and erroneous interpr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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