M/s. Idiada Automotive Technology, Kolkata V. DDIT, New Delhi

ITA 1056/DEL/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1145 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 24-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI
• Assessee Lawyers: DR RAKESH GUPTA
• Keywords: Business income; Double taxation relief; Permanent establishment; Non-deduction of tax; TDS; Set aside
• Section: 271(1)(c); 44AD; 5(2); 44BB; 9(1); 115A; 9(1); 9(1); 44DA; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER SH. M. BALA GANESH, ACCOUNTANT MEMBER ITA NO. 1056/DEL/2014 : ASSTT. YEAR : 2 007-08 IDIADA AUTOMOTIVE TECHNOLOGY, SH. S. KALYANASUNDARAM, A/R, FLAT 1A, 1 ST FLOOR, 240, NSC BOSE ROAD, KOLKATA-700040 VS D CIT, CIRCLE-3(2), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A ABCI5985Q ASSESSEE BY : DR. RAKESH GUPTA, ADV. & SH. SOMIL AGGARWAL, ADV. REVENUE BY : SH. SATPAL GULATI, CIT DR DATE OF HEAR ING: 22.01.2020 DATE OF PRONOUNCEMENT: 29.05.2020 ORDER PER AMIT SHUKLA, JUDICIAL MEMBER: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSE E AGAINST FINAL ASSESSMENT ORDER DATED 17.12.2013 PAS SED U/S 144C(5) R.W.S. 143(3)/254 WITH A DIRECTION GIVE N BY THE DISPUTE RESOLUTION PANEL-1, NEW DELHI VIDE ORDE R DATED 24.10.2013. 2. IN THE GROUNDS OF APPEAL, ASSESSEE HAS RAISED FOLLOWING GROUNDS: ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 2 1. THAT HAVING REGARDS TO THE FACTS AND CIRCUMSTAN CES OF THE CASE LD. AO/ HON'BLE DRP HAS ERRED IN LAW AN D ON FACTS IN BRINGING TO TAX AMOUNT OF RS.4,89,36,72 3/- BY HOLDING INTER-ALIA THAT THE ENTIRE RECEIPTS RECE IVABLE UNDER THE CONTRACT WITH NATRIP WAS TAXABLE AS BUSINESS INCOME IN INDIA AND THAT TOO ON THE GROUND THAT ASSESSEE HAD A PERMANENT ESTABLISHMENT (PE) IN INDIA. 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER T HE ACTION OF LD. AO/DRP IN BRINGING TO TAX AMOUNT OF R S. 4,89,36,723/- BY HOLDING INTER-ALIA THAT THE ENTIRE RECEIPTS RECEIVABLE UNDER THE CONTRACT WITH NATRIP WAS TAXABLE AS BUSINESS INCOME IN INDIA AND THAT TOO ON THE GROUND THAT ASSESSEE HAD A PERMANENT ESTABLISHMENT (PE) IN INDIA IS BAD IN LAW AND AGAINST THE FACTS A ND CIRCUMSTANCES OF THE CASE. 3. THAT HAVING REGARDS TO THE FACTS AND CIRCUMSTANC ES OF THE CASE LD. AO/DRP HAS ERRED IN LAW AND ON FACT S IN PRESUMING 75% OF TOTAL RECEIPTS AS ATTRIBUTABLE TO THE ALLEGED PE. 4. THAT HAVING REGARDS TO THE FACTS AND CIRCUMSTANC ES OF THE CASE LD. AO/ HON'BLE DRP HAS ERRED IN LAW AN D ON FACTS IN DISALLOWING THE AGGREGATE EXPENDITURE P AID TO M/S GPO INGENERIA S.A., M/S AVL IBERICA S.A., MR . ALEX PUNSET INCURRED FOR THE PURPOSE OF EARNING INC OME IN CONNECTION WITH DRIP AND ENGINEERING SERVICES IN RELATION TO NATRIP PROJECT. 5. THAT HAVING REGARDS TO THE FACTS AND CIRCUMSTANC ES OF THE CASE LD. AO/ HON'BLE DRP HAS ERRED IN LAW AN D ON FACTS IN DISALLOWING THE EXPENSE OF RS. 70,00,00 0/- PAID TO M/S IMACS FOR NON-DEDUCTION OF TAX AT SOURC E U/S 40(A)(IA). 6. THAT HAVING REGARDS TO THE FACTS AND CIRCUMSTANC ES OF THE CASE LD. AO/ HON'BLE DRP HAS ERRED IN LAW AN D ON FACTS IN DISALLOWING THE FOLLOWING EXPENSES: ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 3 LEGAL FEES OF RS.9,61,054/- PAID TO M/S GARRIGUES TOWARDS THEIR CHARGES IN CONNECTION WITH VETTING BA NK GUARANTEE AND PROJECT CONSULTANCY AGREEMENT. CHARGES OF RS.2,83,258/- PAID TO COPCA, NEW DELHI FROM SPAIN FOR OCCUPYING THEIR PREMISES FROM SEPTEM BER 2006 TO NOVEMBER 2006. BANK CHARGES OFRS. 3,62,938/- PAID TO LA CAIXA BA NK FOR BANK GUARANTEE COMMISSION IN RESPECT OF BANK GUARANTEE PROVIDED TO NAPTRIP AS PER PROJECT CONSULTANCY AGREEMENT. 7. THAT WITHOUT PREJUDICE TO THE ASSESSEE'S CLAIM T HAT NO PART OF ITS REVENUE FOR THE SUBJECT YEAR COULD B E ATTRIBUTED TO THE ALLEGED PE IN INDIA, THE LD. AO A S WELL AS LD. DRP HAS GROSSLY ERRED IN FACTS AND LAW IN NO T ALLOWING DEDUCTION FOR THE PERSONNEL EXPENSES AND TRAVEL EXPENSES INCURRED BY IT IN RELATION TO VISIT S MADE BY ITS PERSONNEL IN INDIA, WHILE ASSIGNING ANY REAS ON FOR NOT ALLOWING THE DEDUCTION. 8. THAT THE LD. AO HAS GROSSLY ERRED IN FACTS AND L AW IN INITIATING THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 3. FACTS IN BRIEF ARE THAT IN THIS CASE, ORIGINAL ASSESSMENT WAS PASSED ON 25.10.2010 FOLLOWING THE DIRECTIONS OF THE LD. DRP. HOWEVER, THE TRIBUNAL HA S SET ASIDE THE MATTER TO THE FILE OF THE AO FOR DECIDING IT AFRESH WITHOUT SPECIFIC DIRECTIONS. THUS, THIS IS T HE ORDER PASSED UNDER SET ASIDE PROCEEDINGS. THE ASSESSEE, M /S IDIADA AUTOMOTIVE TECHNOLOGY IS A COMPANY INCORPORA TED IN SPAIN (IN SHORT IDIADA). A CONSORTIUM LED BY IDI ADA WAS SELECTED BY GOVERNMENT OF INDIA AS GLOBAL CONSULTANTS FOR NATIONAL AUTOMOTIVE TESTING AND R& D INFRASTRUCTURE PROJECT (NATRIP), THROUGH GLOBAL TE NDERING ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 4 PROCESS, PROVIDING CONSULTANCY AND ADVISING ON THE MATTER PERTAINING TO IMPLEMENTATION OF THE PROJECT WHICH PRINCIPALLY ENVISAGED THE FOLLOWING ACTIVITY: (I) SETTING UP OF FULL REGULATORY AND PRE-COMPETITI VE DEVELOPMENTAL TESTING FACILITIES IN NORTHERN INDIA; (II) SETTING UP OF FULL REGULATORY AND PRE-COMPETIT IVE DEVELOPMENTAL TESTING FACILITIES IN SOUTHERN INDIA; (III) MAJOR UP-GRADATION OF FACILITIES AT ARAI AND VRDE LOCATED IN THE WEST; (IV) SETTING UP OF WORLD CLASS PROVING GROUNDS AT A SUITABLE LOCATION TO BE DECIDED IN CONSULTATION WIT H EXPERTS/GLOBAL CONSULTANTS; (V) SETTING UP OF NATIONAL FACILITY FOR TESTING OF TRACTORS AND OFF-ROAD VEHICLES. REGIONAL IN USE VEHICLE MANAGEMENT CENTER TOGETHER WITH NATIONAL ACCIDENT ANALYSIS FACILITY AND ALSO SPECIALIZED DRIVING TRAI NING SCHOOL AT RAE BAREILLY; (VI) SETTING UP OF NATIONAL SPECIALIZED HILL AREA DRIVING TRAINING CENTRE AND REGIONAL IN USE VEHICLE MANAGEMENT CENTER FOR THE NORTH EAST AT SILCHAR. 4. THE PROJECT WAS BROADLY SPLIT INTO THREE CATEGOR IES: I. FOR DPIR :RS . 8,59,00,000 II. FOR ENGINEERING SERVICES :RS.15,22,00,00 0 III. FOR CONSTRUCTION SUPERVISION :RS.17,69,0 0,000 5. AN AGREEMENT WAS SIGNED BETWEEN THE IDIADA AND NATRIP IMPLEMENTATION SOCIETY (NATIS) ON 27.01.2006 AT A TOTAL COST OF RS.39.50 CRORES AND FOLLOWING ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 5 RESPONSIBILITIES WERE ENTRUSTED TO GLOBAL CONSULTAN TS UNDER THIS AGREEMENT: I. TO PREPARE A DETAILED PROJECT IMPLEMENTATION REP ORT (DPIR) BASED ON CERTAIN KEY DELIVERABLES; II. TO PREPARE DETAILED CIVIL ENGINEERING DRAWINGS, DESIGNS, DETAILED ARCHITECTURAL PLANS ETC. AND PREPARATION OF BID DOCUMENTS FOR CIVIL WORKS AND EQUIPMENT PROCUREMENT; AND III. TO UNDERTAKE CONSTRUCTION SUPERVISION AND TO PROVIDE ASSISTANCE IN PROCUREMENT AND COMMISSIONING AND TO PROVIDE TRAINING TO OPERATORS AND MANAGEMENT . 6. ONE IMPORTANT FACT NOTED BY THE AO AND ALSO HIGHLIGHTED BEFORE US BY THE LD. COUNSEL FOR THE AS SESSEE IS THAT, LATER ON, IN TERMS OF GOVERNING COUNCILS APPROVAL, THE CONSTRUCTION SUPERVISION TASK HAS BEE N REMOVED FROM IDIADAS SCOPE OF WORK COSTING RS.17.69 CRORES. ANOTHER TWO ACTIVITIES WORTH RS.21.81 CRORE S WERE ONLY TO BE CONTINUED FURTHER. APART FROM THAT, W.E. F. F.Y. 2009-10 I.E. ASSESSMENT YEAR 2010-11, IN ADDITION T O THE ABOVE, NATRIP HAS ALSO AVAILED CONSULTANCY SERVICES FOR PRE-SHIPMENT INSPECTION AND TENDER EVALUATION OF EQUIPMENT TENDERS FROM IDIADA FOR WHICH SEPARATE PO S WERE ISSUED FROM TIME TO TIME. AS ON DATE, NATIS HA S ALSO STOPPED AVAILING ANY CONSULTANCY SERVICES FROM IDIA DA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS SHOWN RECEIPT OF RS.7,40,91,233/- FROM NATIS, WHICH WAS STATED TO BE IN CONNECTION WITH PROJECT CONSULTANCY ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 6 AGREEMENT ENTERED INTO BY A CONSORTIUM. THE ASSESSE ES CONTENTION WAS THAT THESE SERVICES WERE IN THE NATU RE OF FEES FOR TECHNICAL SERVICES RENDERED FROM SPAIN A ND SINCE THERE IS NO PERMANENT ESTABLISHMENT (PE) IN I NDIA IN RESPECT OF RENDERING OF THESE SERVICES, THEREFOR E, SAME IS TAXABLE U/S 115A OF THE ACT ONLY, IN VIEW OF ART ICLE 13(4) OF THE INDIA SPAIN DTAA WHERE THE TAXABLE RAT ES APPLICABLE FOR FTS WAS 10%. IT WAS FURTHER BROUGHT ON RECORD THAT, ONLY SERVICES WHICH WERE TO BE PERFORM ED THROUGH PROJECT OFFICE WAS CONSTRUCTION SUPERVISIO N WHICH WOULD FALL WITHIN THE SCOPE OF ARTICLE 5(1) R EAD WITH 7(1) AND WOULD BE TAXED IN INDIA AT RATES APPLICABL E TO FOREIGN COMPANIES. ANOTHER IMPORTANT FACT BROUGHT O N RECORD IS THAT, THE ASSESSEE AT THE TIME OF RECEIVI NG THE PAYMENT FILED AN APPLICATION U/S 195/197 OF THE ACT BEFORE THE DEPARTMENT REQUESTING TO ISSUE AUTHORIZA TION TO RECEIVE THE PAYMENT IN RESPECT OF CONSULTANCY CO NTRACT ENTERED INTO ON 27.01.2006. THE ITO, TDS, WARD-1(2) , INTERNATIONAL TAXATION AFTER EXAMINING THE CONTRACT AND DETAILS, HELD THAT SERVICES PERFORMED ARE IN THE NA TURE OF FEES FOR TECHNICAL SERVICES AS DEFINED UNDER ARTICL E 13 OF INDIA SPAIN DTAA. THE COPY OF ORDER DATED 14.02.200 7 U/S 195/197 HAS BEEN PLACED IN THE PAPER BOOK AT PA GE 34 & 35. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE AS TO WHY THE GROSS RECEIPTS SHO WN AS ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 7 FTS SHOULD NOT BE TAXED AS BUSINESS PROFIT, SINCE T HEY ARE EFFECTIVELY CONNECTED WITH PE IN INDIA. IN RESP ONSE, THE ASSESSEE FILED VARIOUS REPLIES, THE CONTENT OF WHICH HAVE BEEN SUMMARIZED BY THE AO IN THE FOLLOWING MANNER: THERE IS NO PERMANENT ESTABLISHMENT IN INDIA IN RESPECT OF RENDERING OF SERVICES RELATING TO PREPARATION OF DPIR AND ENGINEERING SERVICES. THE SERVICES WERE RENDERED FROM OUTSIDE INDIA AND, THEREFORE, SUCH CONSIDERATION IS TAXABLE U/S 15A OF THE ACT ONLY. THE VOLUME OF DOCUMENTATION ALREADY SUBMITTED DEMONSTRATES THAT THE ACTIVITY OF DETAILED ENGINEERING HAS BEEN RENDERED OUTSIDE INDIA. EVEN IF IT WAS TO BE CONCLUDED THAT THE SERVICES RELATING TO DPIR AND ENGINEERING TOGETHER WITH THOS E RELATING TO CONSTRUCTION SUPERVISION ARE EFFECTIVEL Y CONNECTED WITH PE, THEN ARTICLE 7(1) ALLOWS THE AUTHORITIES IN INDIA TO TAX ONLY THE PROFITS ATTRIBUTABLE TO THE PE UNDER ARTICLE 7. THESE ARE IN THE NATURE OF START UP EXPENSES WHICH WAS IN RELATION TO THE INDIA PROJECT OFFICE THAT WA S SET UP FOR THE PURPOSE OF CONSTRUCTION SUPERVISION. THE ACTIVITY OF CONSTRUCTION SUPERVISION COMMENCED ONLY IN FISCAL YEAR 2008-09 AND THEREFORE AS PER ACCOUNTING PRINCIPLES, THE EXPENSES TILL ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 8 COMMENCEMENT OF OPERATIONS WERE TO BE DEBITED AS START UP' EXPENSES. NO EXPENSES RELATING TO FTS HAVE BEEN INCURRED IN INDIA AND, THEREFORE, COULD NOT HAVE BEEN RECOGNIZE D IN INDIA. THE ONLY EXPENSES THAT HAVE BEEN BOOKED I N THE INDIAN RECORDS ARE THOSE RELATING TO THE PROJEC T OFFICER ACTIVITY OF CONSTRUCTION SUPERVISION. IT WAS FROM AY 2009-10 THAT ASSESSMENT ORDER HAS BEEN PASSED HOLDING THAT THE ASSESSEE HAS A PE IN RESPECT OF THE ENTIRE PROJECT WITH NATRIP AND THE RECEIPTS ARE EFFECTIVELY CONNECTED WITH THE PE. THE ASSESSEE HAS NOT GONE TO APPEAL ON THIS ACCOUNT. THUS, IS REQUESTED TO ALLOW ALL THE EXPENSES INCURR ED IN SPAIN & INDIA AND ALL THE EXPENSES OF THE PROJEC T OFFICE SHOULD ALSO BE ALLOWED. 8. HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION AND HAS INCORPORATED THE VARIOUS TERMS O F THE CONTRACT AND THE SCOPE OF THE WORK, ETC. WHICH HAS ALSO BEEN INCORPORATED FROM PAGE 5 TO 12 OF THE IMPUGNED ORDER. THE NATURE OF CONTRACT HAS BEEN SUMMARIZED B Y HIM AND THE CONCLUSIONS DRAWN THEREAFTER ARE IN THE FOLLOWING MANNER: 5.2. THE NATURE OF THE CONTRACT CAN BE SUMMARIZED BELOW: THE VERY NATURE OF THE AFORESAID SCOPE OF WORK AS EXTRACTED ABOVE, AND THE GEOGRAPHICAL SPREAD OF THE ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 9 SITES AND THE CONSIDERABLE PRIMARY DATA TO BE COLLECTED WILL REQUIRE A SUBSTANTIAL PE PRESENCE IN INDIA FOR EXECUTION AND COMPLETION OF DELIVERABLES. FOR THIS PURPOSE, THE CONSORTIUM WILL CREATE A SPECIALIZED CONSTRUCTION SUPERVISION TEAM WHICH WIL L FORMED BY EXPERIENCED ENGINEERS. THE TEAM WILL BE LEAD BY THE CONSTRUCTION SUPERVISO R WHO WILL COORDINATE THE ON SITE TEAMS AND CENTRAL IZE ALL COMMUNICATIONS WITH THE NATRIP OFFICE. SO, IF IS PLANNED TO ASSIGN AN ON SITE' TEAM FOR E ACH CENTER DURING ALL THE CONSTRUCTION WORKS. THESE TEA MS WILL BE SPECIALIZED IN CIVIL WORKS AND UTILITIES AN D THEIR PRINCIPAL TASKS WILL COMPRISE: SUPERVISION OF EXECUTION OF THE WORKS IN ACCORDANCE WITH THE TECHNICAL FUNCTIONAL SPECIFICATIONS OF THE DPIR AND THE DETAILED CIVIL ENGINEERING PROJECT. ATTENDANCE AT THE COORDINATION MEETINGS WITH ALL TH E CONTRACTORS SUPERVISION OF THE PLANNING PROGRESS SUPERVISION OF THE CONSTRUCTION COSTS SUPERVISION OF THE CONTROL QUALIFY PROGRAMME RESULTS COORDINATION OF THE CIVIL CONTRACTORS WITH THE TEST EQUIPMENTS SUPPLIERS ORGANIZATION OF THE COMMISSIONING OF THE UTILITIES (ELECTRICITY, HVAC, FLUIDS, FUEL SUPPLY) ORGANIZATION OF THE COMMISSIONING OF THE AUXILIARY BUILDINGS, LABORATORIES AND CIVIL WORKS. CLOSE OUT OF THE PROJECT: ACCEPTANCE CERTIFICATES O PEN ISSUE LIST AND WRAP-UP MEETINGS. 5.3. THE FOLLOWING CONCLUSION CAN BE DRAWN AFTER READING THE GENERAL PROVISIONS OF THE CONTRACT IS A S UNDER: ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 10 THE PROJECT CONSULTANCY AGREEMENT IS SIGNED BETWEEN THREE CONSORTIUM PARTNERS AND THE DEFINITION OF CONSULTANT AND ARTICLE T OF THE AGREEMENT SUPPORTS THE FINDING OF CONSORTIUM. THE CONSULTANT HAS BEEN RETAINED FOR THE ENTIRE PRO JECT THE SCOPE OF WORK FOR WHICH END TO END IS AS PER ACTIVITY SCHEDULE AT ANNEXURE B (REFER ARTICLE 1.1 OF AGREEMENT) EXTRACTED ABOVE HAS PROJECT MILESTONES A S PER ANNEXURE C AND PROJECT SITES AS PER ANNEXURE C. THE SERVICES TO BE DELIVERED ARE AS PER ANNEXURE D OF THE AGREEMENT AND PERUSAL OF THIS WILL CLEARLY INDI CATE THAT THE EXISTENCE OF A PE IS AN ESSENTIAL PRECONDI TION OF THE CONTRACT. ALL SERVICES ARE BASED ON A DETAILED SITE ANALYSIS WHICH CANNOT BE ACCOMPLISHED WITHOUT A PE AND PRESENCE OF CONSORTIUM MEMBERS 'ON-SITE' TEAMS AND EXPERTS AND CONSORTIUM TESTING EQUIPMENT EXPERTS FO R COMMISSIONING ETC AT THE VARIOUS SITES INCLUDING A HUGE GEOGRAPHICAL SPREAD COVERING MANESAR, SILCHAR, RAE BAREILLY, M.P. AND CHENNAI. APPLICANTS ATTEMPTS TO SPLIT THE CONTRACT AND STATE THAT THESE SERVICES WERE RENDERED FROM SPAIN IS NOT SUPPORTED BY THE ACTIVITY SCHEDULE OR THE KEY DELIVERABLES WHICH BY THE VERY NATURE OF THE SCOPE OF WORK AS EXTRACTED ABOVE WILL REQUIRE A PE IN INDIA FOR EXECUTION AND DELIVERY OF DELIVERABLES. SPECIALIZED CONSTRUCTION SUPERVISION TEAMS ARE REQUIRED TO BE CREATED BY THE CONSORTIUM AND ANNEXURE E GIVES A DETAILED ORGANIZATION CHART WHIC H IS EVIDENCE OF THE SUBSTANTIAL PRESENCE OF THE CONSORTIUM IN INDIA. THE SCOPE OF WORK FOR THE FIRST PHASE IS PREPARATI ON OF A DPIR FOR UPGRADATION OF THE FACILITIES AT ARAI AND VRDE, AND INSTALLATION OF THE FIVE NEW AUTOMOBILES TEST CENTERS, THE APPLICANTS ATTEMPT TO SPLIT THE CONTRACT AND STATE THAT THESE SERVICES WERE RENDERE D FROM SPAIN IS NOT SUPPORTED BY THE ACTIVITY SCHEDUL E ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 11 OR THE KEY DELIVERABLES WHICH REQUIRE A PE IN INDIA FOR EXECUTION AND DELIVERY ACROSS THE HUGE GEOGRAPHICAL SPREAD OF THE COUNTRY AS DISCUSSED SUPRA. THIS FINDING IS ALSO DIRECTLY CORROBORATED BY THE A BOVE FINDINGS AND THE METHODOLOGY FOR DPIR (PG 65 OF PB) 'CLEARLY LAYS DOWN THAT STUDY WILL INVOLVE PRIMARY RESEARCH I.E. RESULTING IN PRESENCE OF PE INVOLVING THE FOLLOWING: 6. METHODOLOGY CONSULTANT'S STUDY WILL INVOLVE BOTH PRIMARY AND SECONDARY RESEARCH UNDER PRIMARY RESEARCH, CONSULTANT WILL COVER THE FOLLOWINGS: -FOR THE SITE ANALYSIS, CONSULTANT WILL MEET URBAN LOCAL BODIES (ULBS), ENVIRONMENTAL AGENCIES, ELECTRICITY SUPPLY COMPANIES, WATER SUPPLY COMPANIE S OR WATER AUTHORITIES, TELECOMMUNICATION COMPANIES AND COMPANIES OR ORGANIZATIONS THAT CAN PROVIDE GENERAL EXISTING INFORMATION ABOUT THE LAND (GEOLOG Y, HYDROGEOLOGY, TOPOGRAPHY) AND THE WEATHER CONDITIONS. CONSULTANT PROPOSES TO MEET THE FOLLOWING FOR THE MARKET STUDY: 1. OEMS, INDUSTRY ASSOCIATIONS AND COMPONENT MANUFACTURERS IN INDIA TO GAUGE THEIR REQUIREMENTS. 2. GOVERNMENT OF INDIA TO UNDERSTAND EVOLVEMENT OF POLICIES FOR STANDARDS AND EMISSIONS NORMS. 3. ARAI AND VRDE TO UNDERSTAND EXISTING TESTS BEING OFFERED AND PRICING STRATEGIES. 4. OTHER AGENCIES FOR REVIEWING TEST FACILITIES AND PR ICING STRATEGIES IN NEIGHBORING COUNTRIES AND IN THE WEST . ARTICLE 7 AND 8 OF THE AGREEMENT REGARDING REPORT WHERE IT IS LAID-DOWN THAT THE CONSULTANT AND THE ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 12 CLIENT SHALL MEET ON A REGULAR BASIS AND THAT THE CONSULTANT SHALL ENSURE THE AVAILABILITY OF ITS PERSONNEL TO ATTEND SUCH MEETINGS AS WELL AS OTHER MEETINGS WITH OTHER ADVISORS AND CONTRACTORS ETC. INSPECTION OF SERVICES BEING PERFORMED IS ALSO PROVIDED FOR AND THE AVAILABILITY OF PERSONNEL TO DISCUSS REPORTS AND INFORMATION TO BE PROVIDED BY T HE CONSULTANT ON THE 4TH DAY OF EACH MONTH. CLEARLY THESE CANNOT BE ACHIEVED WITHOUT A PE. AT THE END OF EACH PHASE A DETAILED PROJECT IMPLEMENTATION REPORT TO NATIS COVERING DELIVERABLE S IS REQUIRED FROM THE CONSULTANT AS PER AGREEMENT. 5.4. IN LIGHTS OF THE ABOVE DISCUSSION THE SUBMISSI ON OF THE ASSESSEE IS NOT ACCEPTED DUE TO THE FOLLOWIN G REASONS: FTS SERVICES CANNOT BE STATED TO HAVE BEEN RENDERED DIRECTLY FROM SPAIN AND NO EXPENSES RELATING TO THE SE HAVE BEEN INCURRED IN INDIA. THAT THERE WAS A SERVICE PE, PROJECT OFFICER PE AT EACH SITE AND FOR RENDERING SERVICES RELATING TO PREPARA TION OF DPIR AND ENGINEERING SERVICES. INDIA PROJECT OFFICES WERE SET UP NOT JUST FOR LIMI TED PURPOSE OF CONSTRUCTION SUPERVISION ACTIVITIES. EVEN FOR DIPR AND ENGINEERING DRAWINGS THE PRIMARY RESEARCH HAD TO BE DONE IN INDIA. THE METHODOLOGY UNDER PRIMARY RESEARCH SHOWS THAT SERVICES ARE TO BE BASES ON A DETAILED SITE ANALYSI S, COLLECTION OF PRIMARY EVIDENCE, AFTER MEETING URBAN LOCAL BODIES (ULBS), ENVIRONMENTAL AGENCIES, ELECTRICITY SUPPLY COMPANIES, WATER SUPPLY COMPANIE S OR WATER AUTHORITIES, TELECOMMUNICATION COMPANIES AND COMPANIES OR ORGANIZATIONS THAT CAN PROVIDE GENERAL EXISTING INFORMATION ABOUT THE LAND (GEOLOG Y, HYDROLOGY, TOPOGRAPHY) AND THE WEATHER CONDITIONS. ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 13 PRIMARY RESEARCH ALSO REQUIRES THAT THE APPLICANT CONDUCT A MARKET STUDY TO UNDERSTAND OEMS, INDUSTRY ASSOCIATIONS AND COMPONENT MANUFACTURES IN INDIA TO GAUGE THEIR REQUIREMENTS. GOVERNMENT OF INDIA TO UNDERSTAND EVOLVEMENT OF POLICIES FOR STANDARDS AND EMISSIONS NORMS, ARAI AND VRDE TO UNDERSTAND EXISTING TESTS BEING OFFERED AND PRICING STRATEGIES , OTHER AGENCIES FOR REVIEWING TEST FACILITIES AND PR ICING STRATEGIES IN NEIGHBORING COUNTRIES AND IN THE WEST . THE ASSESSEE GOT THE CONTRACT FOR THE PURPOSES OF PROVIDING CONSULTANCY AND ADVISING ON THE MATTER PERTAINING TO IMPLEMENTATION OF THE PROJECT. IT WAS A CONSOLIDATED AGREEMENT. FOLLOWING RESPONSIBILITIES WERE ENTRUSTED TO THE ASSESSEE UNDER THIS AGREEMENT : TO PREPARE A DETAILED PROJECT IMPLEMENTATION REPORT (DPIR) BASED ON CERTAIN KEY DELIVERABLES; TO PREPARE DETAILED CIVIL ENGINEERING DRAWINGS, DESIGNS, DETAILED ARCHITECTURAL PLANS ETC AND PREPARATION OF BID DOCUMENTS FOR CIVIL WORKS AND EQUIPMENT PROCUREMENT; AND TO UNDERTAKE CONSTRUCTION SUPERVISION AND TO PROVID E ASSISTANCE IN PROCUREMENT AND COMMISSIONING AND TO PROVIDE TRAINING TO OPERATORS AND MANAGEMENT. HENCE CONSTRUCTION SUPERVISION WAS A PART OF THE PROJECT. WITHOUT ANY FIXED PLACE OF BUSINESS THE CONTRACT CANT BE IMPLEMENTED. NATRIP HAS CLARIFIED THAT NATIS HAD ENTERED INTO A CONSOLIDATE CONSULTANCY AGREEMENT WITH IDIADA FOR AVAILING SERVICES RELATED TO DPIR, DETAILED ENGINEERING AND CONSTRUCTION SUPERVISION. THE SERVICES HAD BEEN DIVIDED INTO PROJECT MILESTONES A ND INTERIM MILESTONES IN RELATION TO THE IDENTIFIED PR OJECT SITES ONLY FOR THE PURPOSE OF FACILITATING PAYMENT AND TIMELY IMPLEMENTATION OF THE PROJECT. HENCE THE CLA IM ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 14 OF THE ASSESSEE THAT ONLY CONSTRUCTION SUPERVISION NECESSITATED ESTABLISHMENT OF PROJECT OFFICE IN IND IA. THE ASSESSEE FURTHER SUBCONTRACTED THE CONTRACT TO ITS CONSORTIUM PARTNER NAMELY IMACS (ICRA MANAGEMENT CONSULTANCY SERVICES) AND GPO INGENIERA S.A. THE CONFIRMATIONS OF BOTH THE PARTIES ARE PLACED ON REC ORD. AS PER THE ASSESSEE, IT HAS ITSELF DONE ONLY CONSTRUCTION SUPERVISION. EVEN IF THE OTHER MILESTO NES WERE SUBCONTRACTED TO OUTSIDE PARTIES, THE FULL AND UNDIVIDED RESPONSIBILITY AND LIABILITY FOR ENSURING THE PERFORMANCE OF OBLIGATIONS AND COORDINATION AMONG PARTIES LIES WITH THE ASSESSEE. ONE OF THE SUBCONTRACTED PARTIES IS AN INDIAN CONCE RN WHILE THE OTHER PARTY IS A NON RESIDENT. EFFECTIVE COORDINATION AMONG PARITIES IS NECESSARY CONSIDERIN G THE NATURE OF PROJECT. WITHOUT HAVING A BASE IN IND IA IT IS NOT PRACTICALLY POSSIBLE TO PROVIDE DETAILED ENGINEERING RELATED TO DIFFERENT PROJECT SITES SITU ATED IN DIFFERENT PARTS OF INDIA. THE ASSESSEE HAS SUBMITTED THAT ITS EMPLOYEES HAVE VISITED INDIA FOR A SHORT PERIOD AND STAYED IN HOTE LS. THE SUMMARY OF VISITS IS NOT SUPPORTED BY EVIDENCE. THE EXPATRIATES OR THE OFFICIALS OF THE ASSESSEE AN D WERE REGULARLY VISITING THE NATRIP AUTHORITIES REGARDING DISCUSSION OR NEGOTIATION MEETING HELD IN INDIA AS PER THE DETAILS SUBMITTED DURING THE ORIGI NAL ASSESSMENT. THE DETAILS OF THEIR STAY OR FROM WHERE THEY WERE OPERATING THEIR BUSINESS HAVE NOT BEEN FILED. THIS FACT HAS ALSO BEEN MENTIONED IN THE ORIGINAL ASSESSMENT PROCEEDINGS, IT IS WORTHWHILE T O MENTION THAT MR. INDRANIL GUPTA WHOM THE ASSESSEE CLAIMS TO BE THE COUNTRY HEAD OF THE ASSESSEES BUSINESS OPERATION FROM 1ST SEPTEMBER 2006 WAS EARLIER IN THE ICRA MANAGEMENT TEAM AS IS SUBMITTED BY ICRA. ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 15 THE ASSESSEE HAS NOT CHALLENGED THE VIEW OF THE DEPARTMENT THAT IT HAS A PE IN INDIA EVEN FOR DPIR. DETAILED ENGINEERING AS MENTIONED IN THE ASSESSMENT ORDER FOR AY 2009-10. THE CONTRACT DOCUMENTS ARE INTENDED TO BE CORRELATI VE, COMPLEMENTARY AND MUTUALLY EXPLANATORY AND THE CONTRACT IS TO BE CONSIDERED AS A WHOLE. 5.5. IN VIEW OF THE ABOVE IT IS HELD THAT THE ASSES SEEE HAS BUSINESS CONNECTION AS WELL AS PE IN INDIA BEFO RE THE ESTABLISHMENT OF PROJECT OFFICE AND ALL THE REC EIPTS RECEIVED FROM NATRIP ON ACCOUNT OF DPIR. DETAILED ENGINEERING & CONSTRUCTION SUPERVISION ARE EFFECTIV ELY CONNECTED WITH THE PE IN INDIA. 9. THEREAFTER HE HAS ATTRIBUTED PROFITS PE PROJECT AT 75% OF THE INCOME FROM NATRIP AND BROUGHT TO TAX AMOUNT OF RS.4,89,36,723/- AND ONLY SUM OF RS. 66,31,701/- WAS ALLOWED BY HIM U/S 44AD OF THE ACT. THE LD. DRP HAS ALSO CONFIRMED THE SAID FINDING OF THE AO ON THIS POINT. 10. IN SUM AND SUBSTANCES, THE LD. DRP HAS HELD; FIRSTLY, THE NATURE OF SERVICES RENDERED, I.E., WIT H RESPECT TO PREPARATION OF DPIR WOULD BE COVERED UNDER THE DEFINITION OF FTS NOT ONLY UNDER THE DOMESTIC BUT ALSO ARTICLE 13(4). SECONDLY, WITH RESPECT TO THE PE, THE FINAL CONCLUS ION OF THE LD. DRP READS AS UNDER: 7.1 THIS GROUND OF OBJECTION IS WITHOUT PREJUDICE TO THE GROUNDS 1 TO 4 AND PERTAINS TO THE / EXISTENCE OF SERVICE PE OF THE ASSESSEE IN INDIA. ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 16 7.2 THE AO IN THE DRAFT ORDER PARA 5.4 AND 5.5 (REPRODUCED EARLIER IN THESE DIRECTIONS) HAS HELD T HAT THE FACTS OF THE CASE PROVE THAT SERVICE PE HAD BEE N ESTABLISHED EVEN BEFORE THE ESTABLISHMENT OF THE PROJECT OFFICE IN INDIA ON 1-9-2006. 7.3 THE ASSESSEE HAS SUBMITTED THAT THERE WAS NO PE IN INDIA AS THE DPIR WAS SUBMITTED ON 8-8-2006 EVEN BEFORE THE SETTING UP OF THE PROJECT OFFICE WHICH W AS OR 1.9.2006. THERE IS FUNDAMENTAL DIFFERENCE BETWEEN A Y 2009-10 AND THE CURRENT YEAR AND THEREFORE, THE FINDING OF EXISTENCE OF PE IN AY 2009-10 IS NOT RELEVANT IN AY 2007-08. IT IS FURTHER SUBMITTED THA T IMACS PERFORMED THE TASKS REQUIRED TO BE DONE IN INDIA IN NORMAL COURSE OF ITS BUSINESS AND THEREFOR E WORK THROUGH AN AGENT OF INDEPENDENT STATUS CANNOT GIVE RISE TO A PE HOLDING REGULAR MEETINGS WITH CLI ENT ABOUT THE PROGRESS OF WORK CANNOT CONSTITUTE A PE. WITHOUT PREJUDICE, THE ASSESSEE HAS SUBMITTED THAT EVEN IF SERVICES PE IS ESTABLISHED, 100% OF THE PRO FITS CANNOT BE ATTRIBUTED TO THE PE, EVEN THOUGH THEY MA Y BE EFFECTIVELY CONNECTED THEREWITH. 7.4 THE PANEL HAS EXAMINED THE MATTER, IT IS SEEN FROM THE COPY OF THE AGREEMENT AND ITS ANNEXURES THAT THE TASK OF PREPARATION OF DPIR COULD NOT HAVE TO COMPLETE WITHOUT DETAILED SITE VISITS IN INDIA AND UNDER TAKING DETAILED INTERACTION WITH THE PERSONS CONCERNED AS INDICATED IN PARA 3.7, 3.8.1, 3.8.2, 4 .5.2 TO 4.5.5 ABOVE. THE TASK OF DETAILED ENGINEERING, WHICH WAS TAKEN UP SUBSEQUENTLY BY THE ASSESSEE, ALSO COULD NOT HAVE BEEN COMPLETED WITHOUT EXTENSIV E USE OF OFFICES IN INDIA. BOTH THESE TASKS HAVE BEEN UNDER TAKEN DURING THE FY 2006-07. MOREOVER, THERE HAD BEEN CONSIDERABLE VISITS TO INDIA BY THE EXPATRIATES FOR CARRYING OUT THESE TASKS ADMITTED Y THE PROJECT OFFICE WAS SETUP ON 01.09.2006. UNDER THESE FACTS AND CIRCUMSTANCES, IT IS NOT POSSIBLE T O ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 17 ACCEPT THE CONTENTION OF THE ASSESSEE THAT THERE WA S NO PE IN EXISTENCE IN THE CONCERNED PERIOD. HOWEVER, THERE IS FORCE IN THE ASSESSEE S ARGUMENTS THAT THE ENTRE PROFIT CANNOT TO BE ATTRIBUTABLE TO THE PE IN INDIA THE AO HAS COMPUTED THE INCOME FROM THE RECEIPTS DURING THE YEAR DETERMINING GROSS TOTAL INCOME AT RS.6,74,55,532/- WITHOUT APPORTIONING ANY INCOME TO THE HEAD OFFICE M SPAM AS THE MAJOR ACTIVITY WAS BEING PERFORMED IN INDIA AND FOR THE PROJECT OF INDIA IT WOULD BE APPROPRIATE IF THE GRO SS, TOTAL INCOME TO THE EXTENT OF 75% IS ATTRIBUTED TO THE INCOME FROM INDIA AND REST 25% TO THE HEAD OFFICE F OR THE REASON THAT THE SUBSTANTIVE PART OF ACTIVITY OF DPIR AND ENGINEERING RELATES TO INDIA AND WAS ALSO PERFORMED IN INDIA. THE AO IS THEREFORE, DIRECTED T O GIVE APPROPRIATE RELIEF ON THIS ACCOUNT WHILE PASSI NG THE FINAL ORDER. 11. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, DR . RAKESH GUPTA AFTER EXPLAINING THE BACKGROUND OF THE CASE SUBMITTED THAT UNDER THE AGREEMENT DATED 27.01.2006; THE PROJECT WAS SPLIT INTO THREE MAIN CATEGORIES, I.E., A) DETAILED PROJECT IMPLEMENTATIO N REPORT; (DPIR) B) ENGINEERING SERVICES; AND C) CONSTRUCTION SUPERVISION. AS CLEAR FROM THE RECORD AND ALSO ACCEPTED BY THE AO, THE CONSTRUCTION SUPERVISI ON WAS CANCELLED AND DPIR & ENGINEERING SERVICES WAS T O BE PROVIDED DIRECTLY BY THE HEAD OFFICE IDIADA FROM SP AIN. IT WAS ONLY CONSTRUCTION SUPERVISION WHICH WAS TO BE PROVIDED THROUGH A PROJECT OFFICE IN INDIA. IT IS A LSO A MATTER OF RECORD THAT THE PROJECT OFFICE WAS ESTABL ISHED ON 01.09.2006. NOWHERE FROM THE AGREEMENT COULD THE ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 18 NATURE OF SERVICES BE INFERRED THAT DPIR AND ENGINE ERING SERVICES WAS PERFORMED THROUGH PE IN INDIA, ALBEIT IT WAS PERFORMED WHOLLY FROM SPAIN. THEREFORE, THE ASSESSE E ITSELF HAS OFFERED THE INCOME AS FTS. SINCE, CONSTR UCTION SUPERVISION WAS A NON-STARTER WHICH ALONE COULD HAV E BEEN CONSIDERED AND RENDERED THROUGH PROJECT OFFICE . THEREFORE, DURING THIS PERIOD FOR OTHER SERVICES NO PE COULD HAVE CONSTITUTED IN INDIA AND THAT IS THE REA SON WHY, ORDER U/S 195/197 WAS PASSED AFTER CONSIDERING THE ENTIRE AGREEMENT AS WELL AS MATERIAL PLACED ON RECO RD THAT SERVICES RENDERED HAS PURELY IN THE CATEGORY O F FTS. ONE VERY IMPORTANT FACT WHICH HE POINTED OUT THAT, ALL THE PAYMENT WAS MADE PRIOR TO 01.09.2006 I.E. BEFORE TH E ESTABLISHMENT OF PROJECT OFFICE IN INDIA WHICH IS E VIDENT FROM TDS CERTIFICATE PLACED IN THE PAPER BOOK AT PA GE 80. THIS CLEARLY SHOWS THAT THE ENTIRE PAYMENT HAS BEEN RECEIVED FROM THE PERIOD 01.05.2006 TO 31.08.2006. THUS, PRIOR TO EARNING OF INCOME, PROJECT OFFICE WAS NOT EVEN ESTABLISHED IN INDIA. IN SUPPORT, HE DREW OUR ATTEN TION TO THE CERTIFICATE OF ESTABLISHMENT OF PROJECT OFFICE WHICH HAS BEEN PLACED AT PAPER BOOK PAGE 54 WHICH HAS BEEN ESTABLISHED W.E.F. 01.09.2006 ISSUED BY REGISTRAR O F COMPANIES. HE ALSO DREW OUR ATTENTION TO A REPLY SUBMITTED BEFORE THE AO DATED 18.12.2009, THE RELEV ANT CONTENTS FOR THE SAKE OF READY REFERENCE IS REPRODU CED HEREIN BELOW: ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 19 WE HAVE ALREADY SUBMITTED DOCUMENTS TO ESTABLISH THAT THESE SERVICES WERE RENDERED FROM SPAIN (FOR EXAMPLE: LETTERS EXCHANGED BETWEEN ASSESSEE AND THE CLIENT, NATRIP). WE NOW WISH TO REITERATE THE FOLLOWING: 1. REFERENCE MAY BE MADE TO LETTER DT. 20.11.2009 ISSUED BY NATRIP, WHEREIN THEY HAVE CONFIRMED THAT ALL THE PAYMENTS RELATE TO DPIR AND ENGINEERING AND NO PAYMENT RELATES TO CONSTRUCTION SUPERVISION. 2. IN THEIR SAID LETTER DT. 20.11.2009, NATRIP HAVE ALSO MENTIONED THAT THEY ARE LIABLE TO PAY SERVICE TAX AS SERVICE RECIPIENT UNDER IMPORT OF SERVICES RULES. THE REFERENCE IS TO THE TAXATION OF SERVICES (PROVIDED FROM OUTSIDE INDIA AND RECEIVED IN INDIA) RULES 2006'. IN OTHER WORDS, NATRIP HAS PAID SERVICE TAX AS SERVICE RECIPIENT BECAUSE THE SERVICES HAVE BEEN PROVIDED FROM SPAIN. HAD THE SERVICES BEEN PROVIDED FROM ANY PERMANENT ESTABLISHMENT, THEN THE IMPORT OF SERVICE RULES WOULD NOT APPLY AT ALL. THIS, TOO, CONFIRMS THAT SERVICES WERE RENDERED FROM SPAIN AND NOT FROM ANY PERMANENT ESTABLISHMENT. 3. THE CONFIRMATIONS FROM NATRIP VIDE THEIR LETTER ABOVE-MENTIONED IS MATCHING IN FULL WITH THE TDS CERTIFICATE ISSUED BY THEM DURING THE YEAR. THE TDS CERTIFICATE HAS ALREADY BEEN SUBMITTED TO YOU. WITHOUT PREJUDICE TO OUR CONTENTION THAT NO PART OF ENGINEERING SERVICES HAS BEEN PROVIDED THROUGH PROJECT OFFICE AT ANY POINT IN TIME, IT MAY BE SEEN THAT THE DATES OF PAYMENT FOR DPIR AND ENGINEERING SERVICES IS BEFORE THE DATE & FORMATION OF PROJECT OFFICE. THEREFORE, THE QUESTION OF SERVI CES BEING RENDERED THROUGH PROJECT OFFICE DOES NOT ARISE IN ANY CASE. ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 20 4. THE DETAILS OF VISITS OF SHORT DURATION UNDERTAKEN BY PERSONNEL FROM SPAIN IN CONNECTION WITH DPIR AND ENGINEERING SERVICES RELATING TO SPAIN FOR A.Y. 2007-08 ARE ALL PRIOR TO DATE OF FORMATION OF THE PROJECT OFFICE AS WELL AS DATE OF OPENING OF BANKING ACCOUNT. THIS, TOO, PROVES THAT THE SERVICES HAVE NOT BEEN RENDERED THROUGH ANY PERMANENT ESTABLISHMENT. THEREFORE, IT IS EVIDENT FROM MATERIAL-ON RECORD TH AT SERVICES RENDERED ARE NOT ATTRIBUTABLE TO ANY PERMANENT ESTABLISHMENT. IN FACT, IT IS FURTHER SUBMITTED THAT THERE IS NO MATERIAL ON RECORD TO ESTABLISH THAT SERVICES HAVE BEEN RENDERED THROUGH A PERMANENT ESTABLISHMENT AND THEREFORE, ANY ASSESSMENT IN ACCORDANCE WITH SECTION 44DA WOULD BE BASED ON MERE PRESUMPTION AND NOT ON RECORDED FACTS. THEREFORE, WE SUBMIT ONCE AGAIN THAT THE NATURE OF SERVICES RENDERED IN 'FEES FOR TECHNICAL SERVICES AS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VII). WE A LSO SUBMIT THAT SINCE THE MATERIAL ON RECORD AS WELL AS CLEAR INFERENCES FROM / OTHER DOCUMENTS SUBMITTED B Y US ESTABLISH THAT NO SERVICES ARE ATTRIBUTABLE TO A NY PERMANENT ESTABLISHMENT; SECTION 44DA FINDS NO APPLICABILITY IN THE INSTANT MATTER. FURTHERMORE, I F NO SERVICES ARE ATTRIBUTABLE TO ANY PERMANENT ESTABLISHMENT, THEN ARTICLE 7 READ WITH ARTICLE 5 O F THE DTAC, TOO, DOES NOT APPLY AND THE PAYMENTS ARE COVERED BY ARTICLE 13. 12. ANOTHER IMPORTANT FACT BROUGHT ON RECORD BY HIM WAS THAT THE DEPARTMENT COULD NOT PROVE OR THERE WAS AN Y MATERIAL TO PROVE THAT THERE WAS ANY KIND OF SERVIC E PE IN TERMS OF ARTICLE 5(2)(K) OF INDIA-SPAIN DTAA. THE N UMBER OF DAYS OF THE PERSONNEL VISITED IN INDIA DURING TH E YEAR ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 21 WAS ONLY 77 DAYS AND NOT EXCEEDED THE PERIOD OF 183 DAYS. THUS, HE CONCLUDED BY SUBMITTING THAT; FIRSTLY, THE PROJECT OFFICE WAS ESTABLISHED ONLY FO R THE PURPOSE OF CARRYING OUT CONSTRUCTION SUPERVISION ACTIVITY WHICH WAS A NON-STARTER AND IN FACT STOOD CANCELLED; SECONDLY, THE PROJECT OFFICE WAS ESTABLISHED ON 01.09.2006 AND PRIOR TO THAT THERE WAS NO FIXED PLA CE OR OTHERWISE ANY PLACE OF BUSINESS IN INDIA; THIRDLY, DPIR AND ENGINEERING SERVICES WERE PROVIDE D FROM SPAIN AND NONE OF THESE SERVICES WERE PROVIDED IN INDIA OR THROUGH ANY PERSONNEL IN INDIA; AND LASTLY, ALL THE PAYMENTS IN CONNECTION WITH DPIR AN D ENGINEERING SERVICES RENDERED FROM SPAIN FOR THE ASSESSMENT YEAR 2007-08 WERE PRIOR TO DATE OF FORMATION OF PROJECT OFFICE AS WELL AS PRIOR TO THE DATE OF OPENING OF BANKING ACCOUNT, THEREFORE, IT CANNOT BE INFERRED THAT INCOME EARNED DURING THE YEAR RELATED TO ANY PROJECT OFFICE OR ANY PE IN IND IA. 13. ON THE OTHER HAND, THE LD. CIT DR HAS FILED HIS WRITTEN SUBMISSION WHICH FOR THE SAKE OF READY REFE RENCE IS REPRODUCED HEREIN BELOW: THE ISSUE INVOLVED IN THIS CASE IS THAT WHETHER AO IS CORRECT IN HOLDING THE EXISTENCE OF PE OR NOT? IF Y ES, THE ATTRIBUTION OF INCOME TO PE IN CASE. ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 22 2. THE FACTS OF THE CASE ARE THAT THE APPELLANT LED CONSORTIUM SIGNED THE AGREEMENT WITH NATIS ON 27.01.2006. THE PROJECT ENVISAGES THE FOLLOWING:- (A) SETTING UP OF FULL REGULATORY AND PRE-COMPETITI VE DEVELOPMENT TESTING FACILITIES IN NORTHERN INDIA. (B) SETTING UP OF FULL REGULATORY AND PRE-COMPETITI VE DEVELOPMENT TESTING FACILITIES IN SOUTHERN INDIA. (C) MAJOR UP-GRADATION OF FACILITIES AT ARAI AND VRDE LOCATED IN THE WEST. (D) SETTING UP OF WORLD CLASS PROVING GROUND AT A SUITABLE LOCATION TO BE DECIDED IN CONSULTATION WIT H EXPERTS/GLOBAL CONSULTANTS. (E) SETTING UP OF NATIONAL FACILITY FOR TRACTORS AN D OFF-ROAD VEHICLES. REGIONAL IN-USE VEHICLE MANAGEMENT CENTRE TOGETHER WITH NATIONAL ACCIDENT ANALYSIS FACILITY AND ALSO SPECIALIZED DRIVING TRAINING SCHOOL AT RAE BAREILLY. (F) SETTING UP OF NATIONAL SPECIALIZED HILL AREA DRIVING TRAINING CENTRE AND REGIONAL USE VEHICLE MANAGEMENT CENTRE FOR THE NORTH EAST AT SILCHAR. 3. THE SCOPE OF WORK INCLUDES 3 TASKS (REFER ANNEXU RE D OF CONTRACT) (A) PREPARATION OF DETAILED PROJECT IMPLEMENTATION REPORT FOR THE PROJECT ON KEY DELIVERABLES (B) DETAILED AVAIL ENGINEERING AND PREPARATION OF BED DOCUMENTS FOR CIVIL WORKS AND EQUIPMENT PROCUREMENT. ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 23 (C) CONSTRUCTION SUPERVISION, PROCUREMENT AND COMMISSIONING ASSISTANCE INCLUDING TRAINING AND SKILL DEVELOPMENT FOR OPERATORS AND MANAGEMENT. 4. THE INTERLACING OF THE AFORESAID 3 TASKS IS EVID ENT FROM FOLLOWING PHRASES IN THE ANNEXURE D FOR SERVIC ES AND KEY DELIVERABLES. TASK NO 2- 'DETAILED CIVIL ENGINEERING AND PREPARATION OF BID DOCUMENTS FOR CI VIL WORKS AND EQUIPMENT PROCUREMENT' STARTS FORM THE PHRASE 'THE RESULT OF DETAILED ENGINEERING WILL HE THE PROJECT DOCUMENTATION STRUCTURED IN PACKAGES AS DEFINED BY DPIR'THE RELEVANT EXTRACTS OF THE AGREEMENT ARE PASTED BELOW: 1. DETAILED CIVIL ENGINEERING PROJECT THE RESULT OF THE DETAILED ENGINEERING WILL BE THE PROJECT DOCUMENTATION STRUCTURED IN PACKAGES AS DEFINED BY THE DPIR. EACH DOCUMENTATION PACKAGE WILL CONTAIN ALL THE INFORMATION THAT THE CONTRACTO RS WOULD NEED FOR QUOTATION PURPOSES AND WILL BE THE BASIS FOR THEM TO EXECUTE THE WORKS. 5. THUS, THE ABOVE TERMS OF THE AGREEMENT SHOW THAT THE TASK 2 IS TO THE PERFORMED IN ACCORDANCE WITH T ASK 1 I.E. DPIR. FURTHER IT MENTIONS THAT THE PROJECT W ILL BE DEVELOPED WHERE ADAPTATION OF MASTER PLAN OF EACH CENTRE DEFINED BY DPIR (TASK 1) TO THE DEFINITIVE S ITES. 6. TASK NO.3 - 'CONSTRUCTION SUPERVISION...' MENTIO NS THAT CONSTRUCTION SUPERVISION OF IMPLEMENTATION WOR KS IN EACH OF CONSTRUCTION ACTIVITY SITES ACCORDING TO THE MASTER PLANS OF THE DETAILED CIVIL ENGINEERING PROJ ECT. THE RELEVANT EXTRACTS OF THE AGREEMENT ARE PASTED BELOW: 1. CONSTRUCTION SUPERVISION ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 24 THE SERVICES OFFERED IN THIS STAGE COMPRISE THE CONSTRUCTION SUPERVISION OF TIE IMPLEMENTATION WORKS IN EACH OF THE CONSTRUCTION ACTIVITY SITES ACCORDING TO THE MASTER PLANS OF THE DETAILED CIVIL ENGINEERING PROJECT. FOR THIS PURPOSE, THE CONSORTIUM WILL CREATE A SPECIALIZED CONSTRUCTION SUPERVISION TEAM WHICH WILL FORMED BY EXPERIENCED ENGINEERS. THE TEAM WILL BE LEAD BY THE CONSTRUCTION SUPERVISOR WHO WILL COORDINATE THE ON SITE TEAMS AND CENTRALIZE ALL COMMUNICATIONS WITH THE NATRIP OFFICE, SO, IT IS PLANNED TO ASSIGN AN ON SITE TEAM FOR EACH CENTER DURING ALL THE CONSTRUCTION WORKS. THESE TEAMS WILL BE SPECIALIZED IN CIVIL WORKS AND' UTILITIES AND TH EIR PRINCIPAL TASKS WILL COMPRISE: SUPERVISION OF EXECUTION OF THE WORKS IN ACCORDANCE WITH THE TECHNICAL FUNCTIONAL SPECIFICATIONS OF THE DPIR AND THE DETAILED CIVIL ENGINEERING PROJECT. 7. THUS, IT IS EVIDENT FROM PERUSAL OF KEY DELIVERA BLES OF ALL 3 TASKS THAT FIRST TASK IS THE FOUNDATION FO R SECOND TASK AND THE SECOND TASK IS FOUNDATION FOR THIRD TASK. EFFECTIVELY, ALL THREE TASKS ARE INEXTR ICABLY CONNECTED IN THIS CASE. 8. IT IS RELEVANT TO REPRODUCE THE CLAUSE K OF ARTI CLE 5(2) OF INDIA SPAIN DTAA WHICH READS AS UNDER: 'A BUILDING SITE OR CONSTRUCTION, INSTALLATION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, WHERE SUCH SITE, PROJECT OR ACTIVITIES (TOGETHER WITH OTHER SUCH SITES, PROJECT S OR ACTIVITIES, IF ANY) CONTINUE FOR A PERIOD OF MORE T HAN SIX MONTHS IN ANY TWELVE-MONTHS PERIOD, OR WHERE SUCH PROJECT OR SUPERVISORY ACTIVITY, BEING INCIDENTAL TO THE SALE OF MACHINERY OR EQUIPMENT, CONTINUES FOR A PERIOD NOT EXCEEDING SIX MONTHS AND ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 25 THE CHARGES PAYABLE FOR THE PROJECT OR SUPERVISORY ACTIVITY EXCEED 10 PER CENT OF THE SALE PRICE OF TH E MACHINERY AND EQUIPMENT. 9. IT MAY BE RELEVANT TO APPRECIATE THE SCOPE OF TE RMS IN THE PHRASE 'BUILDING SITE, CONSTRUCTION, INSTALL ATION OR ASSEMBLY PROJECT' AT PARA 3 OF ARTICLE 5 OF DTAA OECD COMMENTARY IS OF RELEVANCE IN THIS REGARD. AS PER OECD COMMENTARY, 'THE TERM BUILDING SITE OR CONSTRUCTION OR INSTALLATION PROJECT INCLUDES NOT ONLY THE CONSTRUCTION OF BUILDINGS BUT ALSO THE CONSTRUCTION OF ROADS, BRIDGES OR CANALS, THE RENOVATION (INVOLVING MORE THAN MERE MAINTENANCE OR REDECORATION) OF BUILDINGS BRIDGES OR CANALS, THE LAYING OF PIPE-LINES AND EXCAVATING AND DREDGING. ADDITIONALLY THE TERM INSTALLATION PROJECT IS NOT RESTRICTED TO ON INSTALLATION RELATED TO A CONSTRUC TION PROJECT; IT ALSO INCLUDES THE INSTALLATION OF NEW EQUIPMENT, SUCH AS A COMPLEX MACHINE, IN SN EXISTING BUILDING OR OUTDOORS. ON-SITE PLANNING AND SUPERVISION OF THE ERECTION OF A BUILDING ARE COVER ED BY PARAGRAPH 3. STATES WISHING TO MODIFY THE TEXT OF THE PARAGRAPH TO PROVIDE EXPRESSLY FOR THAT RESU LT ARE FREE TO DO SO IN THEIR BILATERAL CONVENTIONS.' 10. IN THE PRESENT CASE, THE SERVICES ARE IN THE NA TURE OF SITE PLANNING AND THUS, ARE COVERED AS PER ARTIC LE 5(2)(K) OF DTAA. 11. IT IS ALSO RELEVANT TO ADD THAT ISSUE 'WHETHER THE EXPRESSIONS 'MINING PROJECTS' OR 'LIKE PROJECTS' OCCURRING IN EXPLANATION 2 TO SECTION 9(1) OF THE A CT WOULD COVER RENDERING OF SERVICE LIKE IMPARTING OF TRAINING AND CARRYING OUT DRILLING OPERATIONS FOR EXPLORATION OF AND EXTRACTION OF OIL AND NATURAL GA S OR NOT?' WAS THERE BEFORE HON'BLE SUPREME COURT. IN TH IS REGARD, HON'BLE SUPREME COURT IN THE CASE OF ONGC ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 26 (CIVIL APPEAL NO. 731 OF 2007) HELD THAT MINING OPERATIONS AND THE EXPRESSIONS 'MINING PROJECTS' OR 'LIKE PROJECTS' OCCURRING IN EXPLANATION 2 TO SECTI ON 9(1) OF THE ACT WOULD COVER RENDERING OF SERVICE LI KE IMPARTING OF TRAINING AND CARRYING OUT DRILLING OPERATIONS FOR EXPLORATION OF AND EXTRACTION OF OIL AND NATURAL GAS AND HENCE PAYMENTS MADE UNDER SUCH AGREEMENT TO A NON-RESIDENT/FOREIGN COMPANY WOULD BE CHARGEABLE TO TAX UNDER THE PROVISIONS OF SECTIO N 44BB AND NOT SECTION 44D OF THE ACT. IT IS FURTHER HELD THAT 'WE DO NOT SEE HOW ANY OTHER VIEW CAN BE TAKEN IF THE WORKS OR SERVICES MENTIONED UNDER A PARTICULAR AGREEMENT IS DIRECTLY ASSOCIATED OR INEXTRICABLY CONNECTED WITH PROSPECTING, EXTRACTION OR PRODUCTIO N OF MINERAL OIL. KEEPING IN MIND THE ABOVE PROVISION , WE HAVE LOOKED INTO EACH OF THE CONTRACTS INVOLVED IN THE PRESENT GROUP OF CASES AND FIND THAT THE BRI EF DESCRIPTION OF THE WORKS COVERED UNDER EACH OF THE SAID CONTRACTS AS CULLED OUT BY THE APPELLANTS AND PLACED BEFORE THE COURT IS CORRECT.' '.....THE ABOVE FACTS WOULD INDICATE THAT THE PITH AND SUBSTANCE OF EACH OF THE CONTRACTS/AGREEMENTS IS INEXTRICABLY CONNECTED WITH PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OIL. THE DOMINANT PURPOSE OF EACH OF SUCH AGREEMENT IS FOR PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OI LS THOUGH THERE MAY BE CERTAIN ANCILLARY WORKS CONTEMPLATED THEREUNDER. IF THAT BE SO, WE WILL HAVE NO HESITATION IN HOLDING THAT THE PAYMENTS MADE BY ONGC AND RECEIVED BY THE NON-RESIDENT ASSESSEES OR FOREIGN COMPANIES UNDER THE SAID CONTRACTS IS MORE APPROPRIATELY ASSESSABLE UNDER THE PROVISIONS OF SECTION 44 BB AND NOT SECTION 44D OF THE ACT' ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 27 12. IT IS DISCUSSED ABOVE THAT THE ACTIVITIES PERFO RMED IN THIS CASE ARE INEXTRICABLY CONNECTED WITH CONSTRUCTION WORK. THUS, THE PRINCIPLE LAID DOWN BY HON'BLE SUPREME COURT SQUARELY APPLIES IN THIS CASE . THUS, THE CASE OF THE APPELLANT IS COVERED UNDER ARTICLE 5(2)(K) OF DTAA. 13. AS REGARDS THE ISSUE OF STAY OF EXPATS BELOW THRESHOLD PERIOD, IT IS SUBMITTED THAT THE DURATION OF THE ACTIVITIES NEED TO BE EXAMINED AS AGAINST THE S TAY OF EXPATS IN INDIA. IT IS ALSO IMPORTANT TO NOTE TH AT THE PROJECT HAS TO BE SEEN IN WHOLE AND NOT TASK WISE BECAUSE THE ARTICLE 5(2)(K) CLEARLY PROVIDES FOR NO T ONLY PROJECT AND SITE BUT EVEN OTHER SITES AND PROJECTS IF ANY. SO, THE ACTIVITY DURATION NEEDS TO BE SEEN WIT H REFERENCE TO THE ENTIRE PROJECT AND NOT TASK WISE. 14. IN THIS REGARD, IT IS RELEVANT TO REFER TO TEXT OF 'KLAUS VOGEL ON DOUBLE TAXATION CONVENTIONS, THIRD EDITION', WHICH PROVIDED THAT THE MINIMUM PERIOD FO R CONSIDERING A CONSTRUCTION SITE/PROJECT AS A PE OF AN ENTERPRISE WOULD BEGIN WHEN THE ENTERPRISE STARTS T O PERFORM BUSINESS ACTIVITIES ON THE SPOT IN CONNECTI ON WITH THE BUILDING SITE OR CONSTRUCTION OR ASSEMBLY OF THE PROJECT AND ANY INTERRUPTIONS IN THE MINIMUM PERIOD SHOULD ALSO BE INCLUDED FOR DETERMINING THE MINIMUM PERIOD. THE COMMENTARY BY A. SKAAR SUPPORTS THE POSITION THAT TIME SPENT ON ONSITE PLANNING WOULD ALSO BE INCLUDED IN COMPUTING THE DURATION WHILE CONSIDERING WHETHER A PE OF AN ENTERPRISE EXISTED. 15. IN VIEW OF THE ABOVE DISCUSSION, IT IS SUBMITTE D THAT THE FACTS OF THE PRESENT CASE ARE CLEARLY FALL UNDER INCLUSIVE DEFINITION OF PERMANENT ESTABLISHME NT AS PER ARTICLE 5(2)(K) BECAUSE THE TASK 1 AND 2 TOGETHER HAVE DURATION RUNNING OVER THE COMPLETE YE AR AND THUS QUALIFIES THE THRESHOLD PERIOD AS LAID DOW N IN ARTICLE 5(2)(K) OF THE DTAA. WITHOUT PREJUDICE, IT IS ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 28 ALSO IMPORTANT TO NOTE THAT THE STAY PERIOD OF EXPA TS FOR SUPERVISING TASK 2 NEED TO BE AGGREGATED TO CHE CK THE THRESHOLD PERIOD TO TRIGGER PE IN THIS CASE. IT IS FURTHER HIGHLIGHTED THAT THE APPELLANT ON ITS OWN A LSO ADMITTED THE POSITION OF PE IN SUBSEQUENT YEARS. TH IS IS THE POSITION EVEN WHERE THE APPELLANT CLAIMED TH AT THE CONSTRUCTION SUPERVISION PHASE COULD NOT BE TAK EN UP. THUS, EVEN IN ABSENCE OF CONSTRUCTION SUPERVISI ON (TASK 3), THE APPELLANT ADMITTED THE POSITION OF PE IN SUBSEQUENT YEAR(S). 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS A S WELL AS MATERIAL REFERRED TO BEFORE US. TO PUT IT IN SUC CINCT MANNER, IDIADA WHICH IS THE SPANISH BASED COMPANY AND IN TERMS OF AGREEMENT ENTERED WITH NATRIP ON 27.01.2006, IT WAS REQUIRED TO CARRY OUT PROJECT IN INDIA WHICH WAS SPLIT INTO THREE CATEGORIES, I.E., DETAIL ED PROJECT IMPLEMENTATION REPORT (DPIR), ENGINEERING SERVICES AND CONSTRUCTION SUPERVISION. HOWEVER, IT IS AN ADMITTED FACT THAT ONLY THE FIRST TWO SERVICES WERE CARRIED OUT, I.E., DPIR AND ENGINEERING SERVICES. THE CONSTRUCTION SUPERVISION AS ENVISAGED IN THE AGREEM ENT WAS NEVER CARRIED OUT. ANOTHER IMPORTANT FACT IS TH AT, FOR THE FIRST TIME PROJECT OFFICE WAS ESTABLISHED IN IN DIA ON 01.09.2006 WHICH WAS FOR THE PURPOSE OF CARRYING OU T CONSTRUCTION SUPERVISION ACTIVITY WHICH LATER ON WA S REMOVED FROM IDIARAS SCOPE OF WORK. LASTLY, ANOTHE R IMPORTANT FACT WAS THAT THE ASSESSEE HAD RECEIVED AMOUNT OF RS.7,40,91,233/- ON ACCOUNT OF DPIR AND ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 29 ENGINEERING SERVICES AND ALL THE PAYMENTS WERE RECE IVED BETWEEN THE PERIOD 01.05.2006 TO 31.08.2006 WHICH I S EVIDENT FROM INVOICES RAISED AS WELL AS TDS CERTIFI CATE IN FORM NO. 16A PLACED AT PAPER BOOK PAGE 80. THE CASE OF THE ASSESSEE ALL THROUGHOUT HAS BEEN THAT THERE WAS NO PE IN INDIA AND THE DETAILED PROJECT IMPLEMENTATION REPORT WAS SUBMITTED TO NATRIP ON 08.08.2006, THAT IS, BEFORE THE SETTING UP FOR THE PROJECT OFFICE ON 01. 09.2006 AND SECONDLY, THE PROJECT OFFICE WAS ONLY FOR THE P URPOSE OF CARRYING OUT CONSTRUCTION SUPERVISION AND ONLY Q UA THIS ACTIVITY PE COULD HAVE SAID TO BEEN ESTABLISHE D IN INDIA WHICH WAS NOT CARRIED OUT NOR ANY OTHER ACTIV ITY WAS CARRIED OUT FROM PROJECT OFFICE. FROM THE PERUS AL OF THE FINDINGS GIVEN AND MATERIAL ON RECORD, IT EMERG ES THAT THE SERVICE RELATING TO DPIR AND ENGINEERING SERVIC ES WERE PROVIDED FROM OUTSIDE INDIA, I.E., FROM SPAIN WHERE THE HEAD OFFICE OF THE IDIADA IS SITUATED. THE CASE OF THE REVENUE IS THAT LOOKING TO THE NATURE OF CONTRACT A S DISCERNABLE FROM THE AGREEMENT VARIOUS SUPERVISION AND PLANNING AND CONSTRUCTION, ETC. THE CONTRACT CANNOT BE SPLIT AND THESE ARE COMPOSITE ACTIVITIES WHICH REQU IRES LOT OF PRIMARY RESEARCH AND MARKET RESEARCH WHICH ARE PREPARATORY IN NATURE WHICH CANNOT BE CARRIED OUT WITHOUT ANY PE IN INDIA BEFORE SETTING UP OF PROJEC T OFFICE IN INDIA. ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 30 15. FROM THE PERUSAL OF THE RELEVANT FINDING OF T HE ASSESSING OFFICER AS INCORPORATED ABOVE, IT IS SEEN THAT VARIOUS KIND OF PRESUMPTION HAS BEEN DRAWN BY HIM L IKE; I) FOR CARRYING OUT SUCH SERVICES, EXISTENCE OF PE IS ESSENTIAL PRECONDITION; II) ALL THE SERVICES ARE BA SED ON DETAILED SITE ANALYSIS WHICH CANNOT BE CARRIED OUT WITHOUT A PE; III) FTS CANNOT BE HELD TO BE RENDERED DIRECT LY FROM SPAIN BECAUSE NO EXPENSES RELATING TO FTS HAS BEEN INCURRED IN INDIA; IV) AT THE SAME TIME HOLDS THAT THERE IS A SERVICE PE AS WELL AS PROJECT OFFICE PE AT EACH S ITE FOR RENDERING SERVICES RELATING TO PREPARATION OF DPIR AND ENGINEERING SERVICES; AND V) INDIA PROJECT OFFICE W AS SET UP NOT FOR THE LIMITED PURPOSE OF CONSTRUCTION AND SUPERVISION ACTIVITIES. HOWEVER, NOWHERE THERE IS A NY WHISPER IN HIS ORDER AS TO WHAT KIND OF PLACE OF BU SINESS WAS THERE IN INDIA PRIOR TO 01.09.2006, I.E., BEFOR E THE ESTABLISHMENT OF PROJECT OFFICE FROM WHERE AND THRO UGH WHICH ASSESSEE HAS CARRIED OUT DPIR AND ENGINEERING SERVICES. HE HAS NOT EVEN MENTIONED AS TO HOW MANY PERSONNEL HAD VISITED INDIA FOR RENDERING OF THESE SERVICES AND FOR HOW MANY DAYS THEY HAVE STAYED IN INDIA. HI S ENTIRE CONCLUSION IS BASED ON HYPOTHESIS THAT, BEFO RE CARRYING OUT SUCH SERVICES, CERTAIN PRIMARY RESEARC H MUST HAVE BEEN DONE IN INDIA AND SOME KIND OF SITE ANALY SIS AND MARKET STRATEGY IS REQUIRED WHICH IS NOT POSSIB LE WITHOUT ANY PE. ASSESSING OFFICER HAS PRESUMED THAT THE ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 31 ENTIRE AGREEMENT AND THE SCOPE OF WORK DESCRIBE THE REIN MUST HAVE BEEN CARRIED OUT DURING THE RELEVANT FINA NCIAL YEAR. ADMITTEDLY, THE ASSESSEES REVENUE WAS ONLY R S.7.40 CRORES APPROX OUT OF THE TOTAL COST AS PER AGREEMEN T OF RS.39.50 CRORES. THE AMOUNT OF RS.7.40 CRORES WAS P URELY FROM RENDERING OF SERVICES FROM SPAIN. NOWHERE ASSE SSING OFFICER FROM THE RECORD COULD ESTABLISH THAT THESE SERVICES HAVE BEEN PERFORMED THROUGH ANY PE IN INDIA PRIOR T O ESTABLISH ON 01.09.2006, EXCEPT FOR HIS OWN PRESUMP TIONS AND SURMISE. HE HAS ALSO FAILED TO TAKE NOTE OF THE FACT THAT, NO PAYMENTS FROM SUCH SERVICES HAVE BEEN RECE IVED AFTER 31.08.2006. THUS, NEITHER THERE IS ANY MATERI AL ON RECORD OR FINDING THAT ASSESSEE HAS RECEIVED ANY PA YMENT OR HAS PERFORMED ANY SERVICES AFTER THE ESTABLISHME NT OF PO ON 01.09.2006 OR THROUGH ANY PERSONNEL IN INDIA OR THROUGH ANY OTHER FIXED PLACE IN INDIA. MERELY INCORPORATING VARIOUS TERMS OF AGREEMENT SANS ANY ACTUAL ACTIVITIES CARRIED OUT CANNOT DETERMINE THE EXISTEN CE OF PE, BECAUSE WHAT IS REQUIRED TO BE SEEN IS, WHETHER ANY INCOME HAS ACCRUED OR HAS ARISEN FROM ANY ACTIVITY CARRIED OUT THROUGH PERMANENT ESTABLISHMENT IN INDI A. IF THE ONLY ACTIVITIES THROUGH WHICH THE ASSESSEE HAS EARNED INCOME IS WITH RESPECT TO DPIR AND ENGINEERING SERV ICES WHICH WAS CARRIED FROM OUTSIDE INDIA; AND IF NONE O F THE OTHER ACTIVITIES OF CLAUSE AS GIVEN AGREEMENT HAVE COME INTO FORCE DURING THIS YEAR, THEN HOLDING THAT ENTI RE ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 32 INCOME EARNED DURING THE YEAR IS FROM ANY HYPOTHETI CAL FIXED PLACED OF BUSINESS OF PE WOULD BE ERRONEOUS. 16. BEFORE US, THE LD. DR HAS SOUGHT TO JUSTIFY THA T THERE WAS A PE IN TERMS OF CLAUSE (K) OF ARTICLE 5(2) OF INDIA- SPAIN DTAA WHICH READS AS UNDER: 'A BUILDING SITE OR CONSTRUCTION, INSTALLATION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, WHERE SUCH SITE, PROJECT OR ACTIVITIES (TOGETHER WITH OTHER SUCH SITES, PROJECT S OR ACTIVITIES, IF ANY) CONTINUE FOR A PERIOD OF MORE T HAN SIX MONTHS IN ANY TWELVE-MONTHS PERIOD, OR WHERE SUCH PROJECT OR SUPERVISORY ACTIVITY, BEING INCIDEN TAL TO THE SALE OF MACHINERY OR EQUIPMENT, CONTINUES FO R A PERIOD NOT EXCEEDING SIX MONTHS AND THE CHARGES PAYABLE FOR THE PROJECT OR SUPERVISORY ACTIVITY EXC EED 10 PER CENT OF THE SALE PRICE OF THE MACHINERY AND EQUIPMENT. 17. EVEN IF IT IS ACCEPTED THAT THERE WAS A SOME KI ND OF ACTIVITY WHICH FALLS WITHIN CLAUSE (K), THEN SUCH A CTIVITY TO FALL WITHIN THE AMBIT IN SCOPE OF PE HAS TO PASS TI ME PERIOD TEST PRESCRIBED THEREIN, THAT, IS 6 MONTHS I N ANY 12 MONTHS PERIOD FOR WHICH SUCH PROJECT OR SUPERVIS ORY ACTIVITY WAS CARRIED OUT. THERE IS NO SUCH MATERIAL OR FINDING IN THE IMPUGNED ORDER THAT ANY SUCH KIND OF PROJECT OR SUPERVISORY ACTIVITY WAS CARRIED OUT FOR MORE THAN SIX MONTHS IN INDIA. THERE HAS TO BE SOME KIND OF ONSITE PLANNING AND SUPERVISION ACTIVITY WHICH IS COMPLETELY ABSENT HERE IN THIS CASE, FIRSTLY , FOR THE REASON THAT THE SERVICES HAVE BEEN RENDERED FROM OUTSIDE I NDIA ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 33 AND SECONDLY , THERE IS NO FINDING THAT ANY PERSONNEL OF ASSESSEE HAVE BEEN PERFORMING ANY KIND OF SUCH ACTI VITY IN INDIA FOR A PERIOD OF MORE THAN SIX MONTHS. ACTI VITY DURATION CAN BE SEEN ONCE ANY KIND OF SUCH ACTIVITI ES HAS BEEN CARRIED OUT ON ANY SITE OR ANY PROJECT IN INDI A, WHICH FINDING IS ABSENT COMPLETELY IN THE IMPUGNED ORDERS, EXCEPT FOR HYPOTHESIS AND PRESUMPTION WITHO UT LOOKING THE REAL ACTIVITY AND THE INCOME EARNED. IT HAS TO COME ON RECORD THAT THERE WAS SOME KIND OF ACTUAL ACTIVITY WHICH WAS CARRIED OUT ESPECIALLY PRIOR TO 01.09.2006 THROUGH ANY FIXED PLACED OF BUSINESS OR THROUGH ANY PERSONNEL IN INDIA HAVING CROSSED THE THRESHOLD PERIOD OF SIX MONTHS. THUS, IN OUR OPINIO N, IN VIEW OF OUR FINDING ABOVE, WE HOLD THAT THERE IS NO PERMANENT ESTABLISHMENTS DURING THE RELEVANT ASSESSMENT YEAR 2007-08 FOR THE ACTIVITIES RELATING TO DPIR AND ENGINEERING SERVICES FROM WHICH THE ASSESS EE HAS EARNED THE REVENUE AND SAME CANNOT BE TAXED AS BUSINESS PROFIT CARRIED OUT THROUGH PE IN INDIA. IT IS IN THE NATURE OF FTS WHICH IS TO BE TAXED IN ACCORDANC E WITH ARTICLE 13(4) OF INDIA-SPAIN DTAA. IN THE RESULT TH IS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 18. THE OTHER GROUNDS ARE GENERAL IN NATURE AND THE SAME ARE NOT ADJUDICATED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ITA NO. 1056/DEL/2014 IDIADA AUTOMOTIVE TECHNOLOGY 34 ORDER PRONOUNCED IN THE OPEN COURT ON 29/05/2020. SD/- SD/- (BALA GANESH) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDIC IAL MEMBER DATED: 29/05/2020 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR