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TMI Blog2009 (6) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... ualitative difference between two situations, viz., firstly when one contract is made for two or more items specifying the consideration for each part separately and when two or more separate contracts are made in respect of the same transaction. The mere fact that the assessee effected sale of equipment to an Indian party, that in itself, cannot be construed as resulting into any business connection in India. The Hon ble Supreme Court considered almost similar circumstances in CIT vs. R.D. Aggarwal Co.[ 1964 (10) TMI 9 - SUPREME COURT] . It was held by their Lordships that there was no business connection. It has been explained that business connection predicates an element of continuity between the business of the non-resident and the activity in the taxable territories. So going by the argument of the ld DR, even if we presume for a moment, with which we do not agree, that there was any business connection of the assessee in India, still in the absence of any operations carried on by the assessee in India, there cannot be any question of bringing the case within the ambit of s. 9(1). We, therefore, hold that no part of the income, to that extent, can be said to have deemed to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uately if the impugned order of CIT is set aside and the matter is restored to the file of AO. We order accordingly and direct him to compute the income from all projects, other than off shore supplies for metro railway , as per the books of account which the assessee is now claiming to have in its possession. Chargeability of interest u/s. 234B - AO charged interest - CIT(A) held that the assessee could not be subjected to interest as it was not liable to pay advance tax - HELD THAT:- The assessee in the instant case is a non-resident and hence any person responsible for paying to it is under obligation for deducting tax at source if income is chargeable to tax under the Act. Sec. 208 provides that the advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year is five thousand rupees or more. Sec. 209(1)(d) states that the income-tax calculated under cls. (a) to (c) shall be reduced by the amount of income-tax which would be deductible at source during the said financial year under any provision of this Act from any income. By virtue of s. 195 all the payments made to the assessee are subjected to TDS. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered into and formed integral part of the contract. The assessee was called upon to explain as to why the offshore supply should also not be considered for working out the profits from its Indian PE. The assessee explained that such profit was exempt under Circular No. 23, dt. 23rd July, 1969. The AO recorded that the assessee had not given details of FOB supply in respect of other contracts. The books of account were also not produced in support of Claim of huge losses. The assessee was required to explain as to why the income should not be determined as per r. 10 of the IT Rules, 1962. The assessee agitated that the supply of goods and technical services contract should not be treated as a single contract. The AO did not find any substance in this argument as in his opinion the supply of equipment was an integral part of the project undertaken by the assessee and hence the income therefrom could not escape tax as the project was executed in India by the assessee. He held that the assessee had its PE in India. In the absence of any supporting documents towards the veracity of the claim for expenses, the AO opined that the income was required to be determined under r. 10. He noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is of Rs. 3.17 crores which is towards offshore supply to the Metro Railway project. There is no receipt on account on "imported services" as is referred to in the contract worth Rs. 1.05 crores. Thus in the present appeals we are concerned only with the imported supplies on FOB basis at Rs. 3.17 crores. 5. The learned Departmental Representative has relied on cl. 1.2 of the contract with Metro Railway Calcutta. Sub-cl. (3) of this clause states that the works also includes supervision by the assessee of the installation work done by Metro Railway for laying of cable. installation of telecommunication equipment, etc., cl. 12.4 of the contract states that the work also includes complete inspection, testing and commissioning of the works so installed under the supervision jointly along with Metro Railway. It is on the basis of these clauses that the learned Departmental Representative contended that the entire receipt from Metro Railway, including towards the supply of the equipment was liable to be considered as appropriation towards a composite contract both for supplying the equipment and also supervision of installation. In his opinion, there was no scope for bifurcation betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d offshore services in US Dollar and that of onshore supply and onshore services and construction and erection partly in US Dollar and partly in Indian Rupees. It filed an application before the Authority for Advance Rulings for determination of its tax liability with reference to "offshore supply and offshore services". No issue was raised as regards the liability to pay income-tax on onshore supply and onshore services and its activity relating to construction and erection. It was contended before the authority that the contract was a divisible one and hence there was no liability to pay tax in regard to offshore supply and offshore services. The authority opined that the assessee was liable to pay direct taxes by considering the provisions of s. 5 r/w s. 9 as well as DTAA. The Hon'ble Supreme Court held that the onshore supply and onshore services together with construction did contain element of income and hence tax was payable in India which was not disputed by the assessee as well. However, as regards the taxation of the price of goods supplied by way of offshore supply and consideration for rendition of services, the Hon'ble Court opined that the contract was a composite arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee by holding such amount as receipt towards 'offshore supplies'. Further, there is no quarrel that the said payment was received by the assessee outside India. 10. Sec. 4, which is a charging section, provides that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act in respect of the total income of the previous year of every person. Sec. 5(2) deals with the scope of total income of non-residents and provides that subject to the provisions of the Act, the total income of non-resident includes income from whatever sources which is received or is deemed to be received in India or accrues or arises or is deemed to accrue or arise in India during such year. Clause (a) of this sub-section encompasses the income which 'is received or is deemed to be received in India' in the relevant year. Obviously the above referred consideration was not received in India. The expression 'income deemed to be received' in India has been defined in s. 7 of the Act, which refers to the annual accretion in the prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tro Rail project, again there are two receipts viz., one is towards onshore supplies, income from which again the assessee is admitting to be chargeable in India. It is only the last item, being the offshore supplies, income from which the assessee is contesting as not taxable. It is seen that this receipt is only towards supply of equipment and no part of it relates to indigenous or offshore services, for which there is a mention of separate consideration in the contract with Metro Railways. We have to decide whether such offshore sale of equipment by non-resident magnetizes any taxability on that count. It is true that the assessee sold the equipment to an Indian party. But this in itself is not sufficient to prove that the assessee had a 'business connection' in India and thus the profit from the sale, should be brought to tax. Here is a case in which the contract for the supply of equipment, was accepted by the assessee in foreign country; offshore supply of the equipment was made and thus the property in goods passed to the buyer in the foreign country; payment was received by the assessee in foreign country. It is true that the business connection is a commercial connection, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent, can be said to have deemed to accrue or arise to the assessee in India within the meaning of s. 9. 13. This position has been accepted by the CBDT also vide Circular No. 23, dt. 23rd July, 1969. Para 3 of the circular reads as under: "3. The following clarifications would be found useful in deciding questions regarding the applicability of the provisions of s. 9 in certain specific situations- 1. Non-resident exporter selling goods from abroad to Indian importer.-(i) No liability will arise on accrual basis to the non-resident on the profits made by him where the transactions of sale between the two parties are on a principal-to-principal basis. In all cases, the real relationship between the parties has to be looked into on the basis of an agreement existing between then but where- (a) the purchases made by the resident are outright on his own account, (b) the transactions between the resident and the non-resident are made at arm's length and at prices which would be normally chargeable to other customers, (c) the non-resident exercises no control over the business of the resident and sales are made by the latter on his own account, or (d) the payment to the non-resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 9(1)(ii) of the IT Act, 1961 as the title of the goods will pass outside India and the payments are also to be made outside India. This will be so even if there is an overall agreement as mentioned above. As already indicated no payments will be made under the overall agreement nor will the supplier of equipment, etc. be a contractor for providing technical services abroad, for doing the civil works at the site or for installation, erection, testing, etc. Even if the supplier's employees take part in the final erection or commissioning of the equipment supplied, the taxability will not be affected. Therefore, in respect of these sales no part of the income will be deemed to accrue or arise in India." 16. On going through the CBDTs view in the above instruction, it is abundantly clear that no part of income can be deemed to accrue or arise in India due to sale of equipment on FOB basis. The contract of the assessee with Metro Railways clearly stipulates in cl. 1.1 that the total value of the contract will be on FOB basis for supply and services. There is no reason why the mandate of this instruction rendered in the context of "power projects" should not be applied to other si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan & Anr. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) has held to this extent. Similar view has been taken by the Hon'ble Bombay High Court in the case of CIT vs. Siemens Aktiongesellschaft (2008) 220 CTR (Bom) 425 : (2009) 310 ITR 320 (Bom). Circular No. 333, dt. 2nd April, 1982 [(1982) 81 CTR (TLT) 18] also lays down accordingly. As the assessee is not liable to tax in the instant case in respect of offshore supply of equipments as per the regular provisions of the IT Act, 1961, in our considered view, there is no question of ascertaining or fixing any taxability as per DTAA. This ground is, therefore, not allowed. 20. Ground No. 2 of the Revenue's appeal and the only ground of the assessee's appeal deal with the computation of income. 21. We have noted above that the assessee did not produce the books of account or vouchers etc. in the claim of huge losses. The AO applied r. 10 and hence determined the income @ 10 per cent of the total revenue. It was contended before the learned CIT(A) that the assessee was prepared to produce books of account, bills and vouchers before the AO which were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for the charging of interest under s. 234A in the assessment order. Our attention has been drawn to the fact that the assessee filed its return of income on 30th Nov., 1995 i.e., by the due date under s. 139(1). The copy of the acknowledgement of the IT return is available at p. 1 of the paper book. Under the circumstances there cannot be any question of charging interest under s. 234A, which is levied for furnishing the return of income after the due date. The learned Departmental Representative fairly conceded the factual position in this regard. We, therefore, dismiss this ground of appeal. 25. The last ground taken by the Revenue is against the chargeability of interest under s. 234B. The AO charged interest under this section. The learned CIT(A) held that the assessee could not be subjected to interest as it was not liable to pay advance tax. After considering the rival submissions and perusing the relevant material on record we observe that s. 195 provides that any person responsible for paying to a non-resident, any sum chargeable under the provisions of this Act, shall at the time of credit of such income to the account of the payee or at the time of payment thereof, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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