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TMI Blog2023 (2) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... of wholesale distribution of electronic products and rendition of related after sales, repairs and technical support services to customers in various parts of the world, including India. The sales and support services were provided to customers through third party channel partners, viz., distributors and retailers. For the assessment year under dispute, the assessee had the following receipts from India: (a) From rendition of technical support and repair and maintenance services - Rs. 19,52,78,490/- (b) From off-shore sale of products - USD $2,09,19,539/- 4. In the return of income filed for the impugned assessment years on 02.11.2017, the assessee claimed both the receipts as not chargeable to tax in India and sought refund of the Tax Deducted at Source (TDS). The return of income filed by the assessee was selected for scrutiny. In course of the assessment proceeding, the Assessing Officer issued notices under section 142(1) and 143(2) of the Act seeking various information. In response to the queries raised, the assessee furnished its reply alongwith various details including the agreements entered with third party channel partners as well as an Indian entity, viz., Communi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of proceeding under section 263 of the Act, the Revisionary Authority issued one more show-cause notice on 07.02.2022 seeking further information with regard to remittances from India and to explain the reason for not offering them to tax in India. In response to the said notice, the assessee filed further submissions/reply before the Revisionary Authority explaining the reason, why the receipts from India were not offered to tax. It was submitted by the assessee that the amount received towards repairs and maintenance support services cannot be taxed in India, considering the fact that such services were rendered outside India without any of the personnel of the assessee visiting India, hence cannot be treated as FTS under section 9(1)(vii) of the Act or under Article 12 of the DTAA. 6. As regards the amount received towards off-shore sales of products, it was submitted by the assessee that products were directly sold to the customers from outside India and remittances were also received outside India. It was submitted, sales were effected from outside Indian and remittances were also received outside India. Thus, since, the title over goods passed outside India, the receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnology Inc. a tax resident of USA is the ultimate parent company, who is the owner of the intellectual property of Zebra products. He submitted, just for the purpose of deriving tax benefit the parent company interposed two wholly owned subsidiaries one at Jersey and other in Singapore. Thereafter, referring to OECD BEPS papers, learned CIT concluded that since, the assessee is a part of tax avoidance arrangement and indulged on treaty shopping, it will not be entitled to avail the benefit of India-Singapore DTAA. Thus, he held that the receipts from rendition of repairs and support services as well as off-shore sales are to be taxed in India under the provisions of the Act. 8. Having held so, he proceeded to compute the taxable income by directing the Assessing Officer to tax the income from FTS at the rate of 10% on gross basis as per section 115A of the Act. 9. As far as receipts from off-shore sales are concerned, he computed the business income at Rs. 27,12,42,743/- and directed the Assessing Officer to tax it at the rate of 40%. Accordingly, he passed the order under section 263 of the Act. 10. Before us, learned counsel appearing for the assessee made detailed submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT that the assesse has made available technical knowhow, knowledge, skill etc. to CTDIPL is completely wrong, as, instead of assessee receiving any payment from CTDIPL towards rendition of service, it is the assessee who makes payment to CTDIPL. Thus, he submitted, the receipts from repair and support services cannot be treated as FTS either under section 9(1)(vi) read with Article 12 of the DTAA. 13. As regards receipts from off-shore sales of products, learned counsel submitted, entire sale transaction was completed outside the territory of India in Singapore as per the terms of the contract with the third party channel partners. The amounts are transmitted to assessee's bank account abroad. Thus, he submitted, the sale transaction was completed outside India and the title of goods passed overseas. Thus, under no circumstances, the receipts from sale of products can be taxed in India. Further, he submitted, though, assessee had receipts from off-shore sales in assessment year 2016-17, however, no such addition was made, either by the Assessing Officer or by DRP. 14. Proceeding further, he submitted, the CIT without giving show-cause notice or providing any opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , ITA No. 519/Del/2021, dated 19th January, 2022 27. DIT Vs. Jyoti Foundation [2013] 357 ITR 388 (Delhi) 28. Ambuja Cements Ltd. Vs. CIT, LTU, ITA No. 3563/Mum/2016, dated 10th November, 2017 15. Learned Departmental Representative strongly relied upon the observations of learned CIT and submitted that the assessee has a dedicated support centre in India, which provides services to customers/end users. Therefore, the make available condition gets satisfied as through the transfer of technical knowledge, know-how, skill etc., the support centre in India is able to provide services to customers. 16. As regards the receipts from off-shore sale of products, learned Departmental Representative submitted, one has to look at the transaction as a whole and not to adopt a dissecting approach. He submitted, the nature of contract, the terms involved, the conduct of the parties etc. clearly show that only for tax purpose contract was split up. Therefore, substance over form approach has to be adopted. He submitted, learned CIT has given a categorical observation that the assessee has a business connection in India in terms of section 9(1)(i). Thus, he submitted, the receipts from off-sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer has not enquired into various aspects as pointed out in the revision order. At the cost of repetition, we must observe in the return of income filed for the impugned assessment year the assessee had claimed the receipts from repair and support services to be in the nature of business profit and in absence of a PE is not taxable in India. As regards receipts from off-shore sale of Zebra products, it is the claim of the assessee that sales were concluded outside the territory of Indian, hence, profits derived from sale of such products are not taxable in India. It is relevant to observe, the Singapore Revenue Authorities have issued a TRC in favour of the assessee valid for the impugned assessment year. In course of assessment proceeding, the Assessing Officer, on 24.08.2018 issued a notice under section 143(2) of the Act, calling upon the assessee to justify the claims made in the return of income. In response to the said notice, the assessee furnished its reply on 11th December, 2018. Thereafter, on 07.01.2019, the Assessing Officer issued a notice under section 142(1) of the Act alongwith a questionnaire, wherein, following details/documents were called for: 1 Give detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee, in connection with the India projects with their PAN Nos. 19. Give the list of your AEs in India, if any. Also give the details of transactions entered with them. 20. Please give names of your employees who visited India during the relevant period purpose of their visit and duration of stay in India. 21. Please furnish the above details at S.No.17 with respect of the employees of your associated enterprises (AEs), the applicable. 22. Please give the names and address of the employees - resident and non-resident, who were working for each project. Also give the duration of their stay at each project site. This should be supported with documentary evidences. Also give the details of salary of such employees. All these details should be project wise. 23. Please furnish the list of all bank accounts maintained by the company giving the following details (along with statement of account, for the relevant period. 24. A/c No., Type of account, Name of the bank, Address of the branch. 25. Details of the expenses incurred and income received by you in foreign currencies. Please support it with documentary evidences. 26. Copy of the tax residency certificate r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act calling upon the assessee to furnish the list of Indian customers and copy of agreements for international transactions entered with the customers in India. In response to the said notice, the assessee furnished its reply on 8th November, 2019 with the details called for. After examining assessee's submissions and other evidences brought on record, including the final assessment order passed for the immediately preceding assessment year, i.e., assessment years 2016-17, the Assessing Officer proceeded to accept assessee's claim regarding non-taxability of receipts from rendition of repair and support services as well as sale of products. Thus, the aforesaid facts clearly reveal that in course of assessment proceeding, the Assessing Officer, indeed, has made detailed inquiry regarding the nature of receipts from repair and support services as well as off-shore sale of products. It is relevant to observe, in the return of income filed for the assessment year 2016-17, the assessee had made identical claim with regard to receipts from rendition of repair and support services as well as off-shore sale of products. While framing the draft assessment order, the Assessing Officer, thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the DRP, the Commissioner of Income Tax (International Taxation)-3, New Delhi, who was the administrative head, in letter dated 09.05.2019 concurred with the observations/views of the Assessing Officer in the remand report. After considering the remand report of the Assessing Officer, learned DRP disposed of the objections by directing the Assessing Officer to delete the addition made by treating the receipt from rendition of repair and support services as FTS. In terms with the directions of learned DRP, the Assessing Officer passed the final assessment order deleting the addition made. Thus, from the aforesaid narration facts it is quite obvious that the nature of receipts, both from rendition of repair and support services as well as off-shore sale of Zebra products was examined by the Assessing Officer in assessment year 2016-17 and after thorough inquiry, assessee's claim was accepted. In the impugned assessment year, as facts on record would reveal, the Assessing Officer has conducted necessary inquiry with regard to the activities carried out by the assessee and receipts earned there from. He has called for and examined the agreements with the Indian customers. Thus, it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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