M/s. Hyundai Heavy Industries Co. Ltd., Dehradun V. ADIT, Dehradun

ITA 1089/DEL/2014

• Counselvise Citation: 108920114 RSA 2014
• Duration Of Justice: 1 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 29-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 25-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV SHARMA
• Assessee Lawyers: S D KAPILA R R MAURYA; NEETAN NAGPAL
• Keywords: Business income; Transfer pricing; Double taxation relief; Opportunity of being heard; Deemed to accrue or arise in india; Permanent establishment; Wholly owned subsidiary; Tax effect
• Section: 43B; 5(2); 234B; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI B.C. MEENA ITA NO. 1089/DEL/2014 ASSESSMENT YEAR: 2009-10 HYUNDAI HEAVY INDUSTRIES CO. LTD., VS. ADIT, C/O. M/S. HEMANT ARORA & CO. INTERNATIONAL TAXAT ION, 1, TYAGI ROAD, DEHRADUN. DEHRADUN. (PAN: AAACH5727Q) (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI SD KAP ILA, R.R. MAURYA, AR & NEETAN NAGPAL, CA RESPONDENT BY: SHRI SANJEEV SHA RMA, CIT( DR) DATE OF HEARING : 13.03.2015 DATE OF PRONOUNCEMENT: 05 :06.2015 ORDER PER I.C. SUDHIR: JUDICIAL MEMBER THE ASSESSEE HAS QUESTIONED ORDERS OF THE AUTHORITI ES BELOW ON THE FOLLOWING GROUND: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED A.O./DRP ERRED IN: 1. ASSESSING THE TOTAL INCOME OF THE APPELLANT AT RS.21,17,72,916 AS AGAINST THE RETURNED INCOME OF RS.4,62,51,710. 2. IN PASSING LACONIC ORDER U/S. 144C, WITHOUT APPLICA TION OF MIND AND IN CONTRAVENTION OF THE SETTLED PRINCIPLES OF JUDICIAL DISCIPLINE. 2 3. HOLDING THAT THE CONSIDERATION DENOMINATED IN U.S. DOLLARS AND RECEIVED BY THE APPELLANT OUTSIDE INDIA FOR SUP PLY OF SPARES AND TOOL-KITS ETC. FROM KOREA ON FOB BASIS, AS PER THE TERMS OF THE O & M CONTRACT WITH GMR, IS ATTRIBUTAB LE TO THE CHENNAI PE OF THE APPELLANT. 4. WITHOUT PREJUDICE THE GROUND NO. 3, LD. A.O./DRP ER RED IN ATTRIBUTING THE ENTIRE GROSS REVENUE OF RS.5,16,57, 291 PERTAINING TO SUPPLY OF SPARES FROM OUTSIDE INDIA F OR THE GMR PROJECT TO THE CHENNAI PE. 5. ILLEGALLY DETERMINING THE PROFIT OF THE PE FROM OPE RATIONS INSIDE INDIA CONTRARY TO THE SHOW-CAUSE NOTICE DATE D 20.3.2013 WHEREIN (AS IN THE CASE OTHER FTWW PROJEC TS) THE APPELLANT WAS ASKED TO EXPLAIN AS TO WHY SUCH PROFI T SHOULD NOT BE ESTIMATED AT 25 PERCENT OF THE GROSS REVENUE FROM THE GMR PROJECT. 6. IN ARBITRARILY DETERMINING THE PROFIT FROM OPERATIO NS INSIDE INDIA AT RS. 11.23 CRORES AS AGAINST GROSS REVENUE OF RS.15.80 CRORE. 7. HOLDING THAT THE MUMBAI OFFICE CONSTITUTES A FIXED PLACE PE UNDER ARTICLE 5(1) OF THE DTAA FOR THE PURPOSE OF T AXING ROYALTIES RECEIVED FROM ITS 100% SUBSIDIARY HYUNDAI CONSTRUCTION EQUIPMENT INDIA (PVT.) LTD. (HCEIPL), PUNE. 8. IN TAXING THE APPELLANTS INCOME BY WAY OF ROYALTIE S FROM HCEIPL AS BUSINESS INCOME UNDER ARTICLE 7 OF THE DT AA READ WITH SEC. 44DA OF THE ACT. 9. TAXING THE RECEIPT OF INTEREST FROM HCEIPL FOR DE LAY IN PAYMENT OF ROYALTIES AS BUSINESS INCOME INSTEAD OF TAXING IT 3 AS INCOME FROM INTEREST FROM A DEBT-CLAIM UNDER A RTICLE 12(2) OF THE DTAA. 10. TAXING AS BUSINESS INCOME THE SUM OF RS.1,02,63,772 RECEIVED BY THE APPELLANT BY WAY OF REIMBURSEMENT O F ACTUAL AMOUNT OF SERVICE TAX PAID ON BEHALF OF GMR. (ADMIT TED ADDITIONAL GROUND). 11. WITHOUT PREJUDICE TO GROUND NO.10, EVEN ASSUMING TH AT REIMBURSEMENT OF SERVICE TAX IS BUSINESS RECEIPT TH E LEARNED A.O. HAS ERRED IN NOT ALLOWING THE DEDUCTION OF THE SAME AMOUNT UNDER SEC. 43B OF THE ACT. 2. BESIDES ABOVE, THE ASSESSEE HAS ALSO MO VED AN APPLICATION UNDER RULE 11 OF THE APPELLATE TRIBUNAL RULES SEEKING PER MISSION TO RAISE FOLLOWING ADDITIONAL GROUND FOR THE ADJUDICATION OF THE BENCH: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN LEVYING INTE REST UNDER SEC. 234B AMOUNTING TO RS.4,58,63,237 OF THE INCOME-TAX ACT, 1961. 2.1 THE LEARNED AR SUBMITTED THAT THE ISSUE RA ISED IN THE ADDITIONAL GROUND IS LEGAL IN NATURE AND DOES NOT NEED CONSIDE RATION OF FRESH MATERIAL OUTSIDE THE RECORD TO ADJUDICATE THE ISSUE. THE LEA RNED CIT(DR) ON THE OTHER HAND OPPOSED THE APPLICATION. 2.2 CONSIDERING THE ABOVE SUBMISSION, WE CON CUR WITH THE SUBMISSION OF THE ASSESSEE THAT THE ISSUE RAISED IN THE ADDITI ONAL GROUND IS LEGAL IN NATURE 4 AND FOR ADJUDICATION OF THE SAME, NO FRESH MATERIAL OUTSIDE THE RECORD IS REQUIRED TO BE CONSIDERED. WE THUS ALLOW THIS ADDIT IONAL GROUND FOR ADJUDICATION OF THE BENCH. THE ISSUE WILL BE DEALT WITH IN THE LAST GROUND OF THE ORDER. 3. GROUND NOS. 1 AND 2 ARE GENERAL IN NATURE, HENCE, DO NOT NEED INDEPENDENT ADJUDICATION. 4. IN GROUND NOS. 7 TO 9, THE ISSUE OF EXI STENCE OF FIXED PLACE PE IN MUMBAI TREATING ITS LIAISON OFFICE AS SUCH FOR THE PURPOSE OF TAXING ROYALTIES RECEIVED FROM HYUNDAI CONSTRUCTION EQUIPMENT INDIA (P) LTD. (HCEIPL) HAS BEEN RAISED, WHICH WILL BE DECIDED AS ISSUE NO. 1. IN THE GROUNDS NOS. 3 TO 6 , THE ISSUE RAISED AS TO WHETHER THE ASSESSING OFFICER IS JUSTIFIED IN ATTRIBUTING INCOME FROM SUPPLY OF SPARES FOB, ULSAN , KOREA AS PER CONTRACT WITH GMR POWER LTD. WILL BE DECIDED UNDER THE HEADI NG ISSUE NO.2. 5. HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY T HE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILA BLE ON RECORD AND THE DECISIONS RELIED UPON. 6. WE FIND THAT THE ABOVE GROUND NOS. 3 TO 9 INVOLV E FOLLOWING TWO ISSUES: 5 I) AS TO WHETHER MUMBAI LIAISON OFFICE IS FIXED PL ACED PE UNDER ARTICLE 5 OF DTAA WITH KOREA FOR THE PURPOSE OF TAX ING ROYALTIES RECEIVED FROM HCEIPL AND INTEREST EARNED ON DELAYED PAYMENT OF ROYALTY AS BUSINESS INCOME? (GROUND NOS. 7 TO 9). II) AS TO WHETHER THE ASSESSING OFFICER IS JUSTIFIE D IN ATTRIBUTING INCOME FROM SUPPLY OF SPARES FOB, ULSAN, KOREA AS P ER CONTRACT WITH GMR POWER LTD. ? (GROUND NOS. 3 TO 6) . 7. ISSUE NO.1 : THE ASSESSING OFFICER HAS DEALT WITH THE ISSUE AT PAGE NOS. 1 TO 3, 6, 10 TO 12 OF THE ASSESSMENT ORDER. T HE LEARNED DRP HAS DEALT WITH THE ISSUE AT PAGE NO. 8 OF THE ORDER. 8. THE RELEVANT FACTS ARE THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF OFFSHORE CONSTRUCTION AND POWER PROJECT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED REVENUES FROM THE FOLLOWING PROJECTS: SL.NO. NAME OF PROJECT NAME OF THE COMPANY SCOPE OF WORK REVENUE FOR THE YEAR 2008-09 1. MUMBAI URAN TRUNK PIPELINE PROJECT (MUT) OIL & NATURAL GAS CORPORATION LTD. (ONGC) EPC CONTRACT FOR COMPLETE NEW OIL AND GAS TRUNK PIPELINES ON URAN TERMINAL NIL 2. GMR DIESEL GENERATOR POWER PROJECT (GMR O & M) GMR OPERATIONS AND MAINTENANCE 153,721,278 6 3. HYUNDAI CONSTRUCTION EQUIPMENT INDIA PVT. LTD. (HCEIPL) HCEIPL LICENSE TO USE TECHNOLOGY * KNOW HOW OWNED BY HHI KOREA FOR MANUFACTURING PACKAGING AND SELLING OF PRODUCTS BY HCEIPL 10,113,047 4. SMALL CAR TCF CONVEYOR TATA MOTORS LTD. INSTALLATION COMMISSIONING PRODUCTION SUPPORT AND TRAINING FOR MAIN LINE CONVEYOR 47,824,501 5. SHIFTING PROJECT TATA MOTORS LTD. SHIFTING OF PLANT FROM SINGUR TO GUJRAT DISMANTLING OPERATIONS ALONE 5,993,936 6. 250 UPD TATA MOTORS LTD. INSTALLATION, COMMISSIONING, PRODUCTION SUPPORT & TRAINING FOR MAIN LINE CONVEYOR 12,948,046 7. NISSAN MOTOR INDIA PRIVATE LTD. T & C NISSAN MOTOR INDIA PVT. LTD. INSTALLATION, COMMISSIONING, PRODUCTION SUPPORT & TRAINING FOR MAIN LINE CONVEYOR 6,800,702 9. AT THE OUTSET OF HEARING, THE LEARNED AR SUBMITT ED THAT THE ISSUE RAISED REGARDING THE PE HAS BEEN DECIDED BY THE ITA T IN THE ASSESSEES OWN 7 CASE FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO. 523 1/DEL/2011 AND IN THE ASSESSMENT YEAR 1998-99 TO 2004-05 REPORTED IN 31 S OT 482 (DEL.) AND BY THE DECISION OF HON'BLE SUPREME COURT IN THE ASSESS EES OWN CASE REPORTED IN (2007) 291 ITR 482 (S.C). 10. THE FURTHER CONTENTION OF THE LEARNED AR REGARD ING THE RECEIPT FROM HCEIPL REMAINED THAT THE HCEIPL IS 100% SUBSIDIARY OF THE ASSESSEE COMPANY. HCEIPL HAS SET UP PLANT IN PUNE FOR MANUFA CTURING CONSTRUCTION AND EARTHMOVING EQUIPMENT. IT OBTAINED TECHNOLOGY A ND KNOWHOW FROM THE ASSESSEE UNDER THE AGREEMENT DATED 20.3.2008. IT PA ID FTS/ROYALTY TO THE ASSESSEE WHICH HAS BEEN FOUND TO BE AT ARMS LENGTH PRICE BY THE LEARNED TPO. THE CONTENTION OF THE ASSESSEE REMAINED THAT I T HAS NO PE IN INDIA AS THE TECHNOLOGY INCLUDING TRAINING IS PROVIDED TO HC EIPL IN KOREA. 11. THE LEARNED AR SUBMITTED FURTHER AS UNDER: I) AO/DRP HAVE CONFUSED HCIPL ROYALTY CONTRACT WIT H FTS CONTRACTS WITH TATA & NISSAN, WHICH ARE FOR INSTALLATION PROJECTS. HCEI PL (100% SUBSIDIARY OF HHI) PAYS ROYALTY @ 2% ON SALES OF CONSTRUCTION EQUIPME NT MANUFACTURED BY IT UNDER TECHNOLOGY AGREEMENT DATED 20.3.2008 (PG. 122/VOL.- I) (SUMMARY OF PGS. 68- 72/AM). DRP IS NOT CORRECT IN FOLLOWING ITS OWN ORD ER THAT MUMBAI LO IS FIXED PE, WHICH IS CONTRARY TO PAST HISTORY OF THE CASE & JURISDICTIONAL HIGH COURT IN 8 BKI HAM (347 ITR 570 UTTRA.) HOWEVER, EVEN ASSUMING THE LO IS FIXED PLACE PE, IT HAS NO REOLE AS THE RECEIPT OF ROYALTY IS FOR DI RECT TRANSFER OF TECHNOLOGY TO HCEIPL (PARA 6 OF DRP AT PG. 44/AM). INTEREST IS ON DELAY IN PAYMENT OF ROYALY BY HCEIPL AND THEREFORE TAXABLE @ 15 PERCENT UNDER ART. 12 OF DTAA, BEING INTEREST ON DEBT CLAIM. ACCORDING TO AO, IT IS BU SINESS RECEIPT & THEREFORE TAXABLE @ 40%. II) TATA & NISSAN INSTALLATION PROJECTS LASTED FO R PERIOD BEYOND 9 MONTHS PRESCRIBED IN ART. 5(3) OF DTAA. THE ASSESSEE OFFER ED IT FOR TAX AS FTS TAX @ 10% OF GROSS RECEIPT. THE AO TAXES IT AS BUSINESS INCOME U/S 44DA READ WITH ART. 7 OF DTAA BY ESTIMATING PROFIT @ 25% OF GROSS RECEIPT. ISSUE ACADEMIC. TAX EFFECT SAME. III) NO PROJECT THIS YEAR HAS NEXUS WITH MUMBAI L. O. THE AO HAS MERE CUT AND PASTE ASSESSMENT ORDERS FOR EARLIER YEARS, RELATING TO ONGC PROJECTS, WHICH ALSO HAVE NOT BEEN ACCEPTED BY TRIBUNAL EARLIER (PG. 631 G/VOL-IV). THERE IS NO ONGC PROJECT THIS YEAR. IV) THOUGH HHI HAD CLAIMED EXPENSES OF RS. 94.93 L AKHS IN RESPECT OF MUT CONTRACT WITH ONGC. THE CLAIM WAS WITHDRAWN AS ALL CONTRACTS WITH ONGC WERE COMPLETED IN EARLIER YEARS. 12. THE CONTENTION OF THE LEARNED CIT(DR) REMAINED THAT THE AGREEMENT IS DATED 20.3.2008 AND PROVISIONS OF SEC. 44DA WILL AP PLY IF THE ROYALTY RECEIVED IS EFFECTIVELY CONNECTED TO THE PE OF THE ASSESSEE. HE SUBMITTED FURTHER THAT AS PER ARTICLE 14.3(B), AN ENGINEER IS DEPUTED TO SUPERVIS E THE PLANT WHICH IS PART OF 9 TECHNOLOGY AGREEMENT (PAGES 122 TO 140 OF THE PAPER BOOK VOL.I). AS THE SERVICES ARE PERFORMED AT A FIXED PLACE AND BUSINES S BY THE EMPLOYEE OF THE ASSESSEE, THE CORRESPONDING FEE/ROYALTY IS EFFECTIV ELY CONNECTED TO PE AND CAN BE WORKED OUT BY APPLYING THE FEE PER MAN DAY. HE REFE RRED PAGE NO. 133 OF THE PAPER BOOK I. THE LEARNED CIT(DR) CONTENDED THAT THE ROYALTY EFFECTIVELY CONNECTED WITH PE AND TAXABLE AS PER PROVISIONS OF SEC. 44DA CAN BE WORKED OUT BY DEDUCTING EXPENSES INCURRED ON THE DEPUTED EMPLO YEE FROM THE ROYALTY ATTRIBUTABLE TO SERVICES OF EMPLOYEES. 13. THE LEARNED AR REJOINED WITH THE SUBMIS SION THAT THE LEARNED CIT(DR) IS NOW TRYING TO MAKE OUT AN ALTOGETHER A NEW CASE WHICH IS NOT BORN OUT OF THE FACTS NOR IS THE CASE OF THE ASSESSING OFFICER/DRP. THE CASE OF THE ASSESSING OFFICER IS THAT MUMBAI LIAISONING OFFICE IS PE FOR THE PURPOSE OF HCEIPL ALSO. THIS IS ALSO ENDORSED BY THE DRP HOLDING THAT FACTS ARE SAME AS IN THE CASE OF OLD ONGC CONTRACT. THE LEARNED AR CONTENDED FURTHER TH AT IT IS OPTIONAL FOR THE HCEIPL TO OBTAIN SUPERVISING SERVICES OF AN ENGINEE R OF THE ASSESSEE COMPANY. HE REFERRED PAGE NOS. 116 OF THE PAPER BOOK VOL. I WHEREIN THE ASSESSEE HAD FURNISHED THE DETAILS OF EXPATRIATES DEPUTED ON IN DIA FTS PROJECTS. IT IS CLEAR FROM THAT STATEMENT THAT NO ENGINEER WAS DEPUTED TO INDIA FOR HCEIPL PROJECT. 10 FURTHER, THE SUMMARY OF INVOICES RAISED DURING THE YEAR TOGETHER WITH COPY OF RELEVANT INVOICES SUBMITTED TO THE ASSESSING OFFICE R CLEARLY SHOW THAT BOTH THE RECEIPTS ARE ON ACCOUNT OF TECHNOLOGY FEE AND NO IN VOICE WAS RAISED ON ACCOUNT OF SUPERVISION. HE SUBMITTED FURTHER THAT THERE IS NO CONCEPT OF SUPERVISION PE IN KOREA DTAA. EVEN IF A SUPERVISOR IS DEPUTED, NO PE IN INDIA IS FORMED. THERE IS NO FIXED PLACE PE AS THE SUPERVISOR IS DEPUTED NO T FOR THE BUSINESS OF THE KOREAN COMPANY BUT THAT OF HCEIPL, AN INDIAN COMPAN Y. SUPERVISION IN CONNECTION WITH A CONSTRUCTION/INSTALLATION PE WOU LD CONSTITUTE PE ONLY IF SUCH SUPERVISORY ACTIVITIES CONTINUE FOR MORE THAN NINE MONTHS. THERE IS NO ALLEGATION TO THIS EFFECT EITHER BY THE LEARNED CIT(DR) OR THE ASSESSING OFFICER/LEARNED CIT(APPEALS). HENCE, THE INTEREST ON DELAYED PAYMEN T OF ROYALTY BY HCEIPL CANNOT BE TAXED AS BUSINESS INCOME UNDER SEC. 44DA @ 40%, BUT @ 15% AS PER ARTICLE 12 OF THE DTAA WITH KOREA. 14. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT SINCE BEGINNING THE REVENUES CONTENTION HAS BEEN THAT THE ASSESSEES M UMBAI OFFICE IS A FIXED PLACED PERMANENT ESTABLISHMENT (PE) WITHIN THE MEAN ING OF ARTICLE 5(1) AND 5(2) OF THE TREATY. THE ASSESSEE ON THE OTHER HAND HAS ALWAYS MAINTAINED A POSITION THAT WHEREVER THE PROJECTS DURATION EXCEED S A PERIOD OF NINE MONTHS STIPULATED IN ARTICLE 5(3) OF THE TREATY, IT HAS AN INSTALLATION PE, ELSE IT DOES 11 NOT HAVE ANY PE IN INDIA. THE DRP HAS NOTED THAT T HE ASSESSEE HAD RELIED UPON THE PRINCIPLES OF GENERALIA SPECIALIBUSNON DER OGANT AND ACCORDINGLY HAS TAKEN A STAND THAT ARTICLE 5(3) BEING A MORE SPECIF IC PROVISION OVERRIDE ARTICLE 5(1) AND 5(2). HOWEVER, THE LEARNED DRP FOU ND THAT THE ABOVE PROPOSITION OF THE ASSESSING OFFICER ON SIMILAR FAC TS HAS BEEN CONFIRMED BY THEM IN EARLIER YEARS. THE LEARNED DRP HAS NOTED FU RTHER THAT THERE IS NO CHANGE IN ASSESSEES BUSINESS AND THE LIAISON OFFIC E AT MUMBAI IS A FIXED PLACE OF BUSINESS AVAILABLE TO THE ASSESSEE AS PER ASSESSEES OWN ADMISSION. THE LEARNED DRP HAS UPHELD THE PROPOSITION OF THE A SSESSING OFFICER THAT ASSESSEE HAD A PE IN INDIA. IN THIS REGARD, DRP HA S FOLLOWED THEIR DECISIONS FOR THE PAST YEARS. THE CONTENTION OF THE LEARNED A R ON THE ISSUE REMAINED THAT THE LEARNED DRP HAS FOLLOWED ITS OWN ORDERS FO R THE EARLIER YEARS IGNORING THE FACT THAT THE ITAT HAD ALREADY OVERRUL ED IT. IN SUPPORT, THE LEARNED AR HAS REFERRED ORDERS OF THE ITAT FOR THE ASSESSMENT YEARS 2007- 08 AND 2008-09 MADE AVAILABLE AT PAGE NOS. 566 AND 624 OF THE PAPER BOOK. 15. HAVING GONE THROUGH THE ORDERS OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF FOR THE ASSESSMENT YEARS 2007-08 AN D 2008-09, AS CITED ABOVE BY THE LEARNED AR, WE FIND THAT THE ISSUE OF MUMBAI LIAISONING OFFICE CONSTITUTES PE WAS IN RELATION TO THE CONTRACT WITH ONGC AND IN THE 12 ASSESSMENT YEAR 2007-08, THE ITAT IN PARA NO. 26 AT PAGE NO. 38 OF THE ORDER DATED 29.5.2012 IN ITA NO.5231/DEL/2010 ON TH E ASPECT PROPOUNDED BY THE ASSESSING OFFICER AS TO WHETHER MUMBAI OFFIC E CONSTITUTING A PE OR NOT, THE ITAT HAS NOTED THAT FOR HOLDING THAT IT CO NSTITUTES A PE, THE ASSESSING OFFICER HAD MADE REFERENCE TO A LARGE NUM BER OF CORRESPONDENCE IN ORDER TO DEMONSTRATE THAT PE WAS IN EXISTENCE. T HE ITAT HAS NOTED FURTHER THAT THE ISSUE REGARDING EXISTENCE OF PE WA S NOT DISPUTED BY THE ASSESSEE AND THE DISPUTE INSTEAD WAS AS TO HOW MUCH PROFIT WAS ATTRIBUTABLE TO THE PE. WE THUS FIND THAT THE ISSUE REGARDING TH E EXISTENCE OF PE AT MUMBAI RELATION TO CONTRACTED PROJECT WITH ONGC IN THE ASSESSMENT YEAR 2007-08 HAS NOT BEEN DISPUTED BY THE ASSESSEE AND I T HAS BEEN ACCEPTED AS SUCH BY THE ITAT. AGAIN IN THE ASSESSMENT YEAR 2008 -09, THE ITAT VIDE ITS ORDER DATED 30.7.2013 IN ITA NO.5284/DEL/2012 AT PA GE NO. 19 AND IN PARA NO. 20 HAS NOTED THAT IN GROUND NO.9 OF THE APPEAL, THE ASSESSEE HAS QUESTIONED FINDING OF THE AUTHORITIES BELOW THAT MU MBAI OFFICE CONSTITUTES A FIXED PLACE PE UNDER ARTICLE 5(1) OF THE DTAA. IN P ARA NO. 23 AT PATE NO. 20 OF THE SAID ORDER, THE ITAT HAS DECIDED THE GROU ND FOLLOWING ITS EARLIER ORDER FOR THE ASSESSMENT YEAR 2007-08. THE ITAT HAS REPRODUCED PARA NO. 32 OF ITS ORDER FOR THE ASSESSMENT YEAR 2007-08 AND FOLLOWING THE SAME, HAS HELD THAT THE RECEIPTS PERTAINING TO DESIGNING, FAB RICATION AND SUPPLY OF 13 MATERIAL, THE ACTIVITIES CARRIED OUT OUTSIDE INDIA IS NOT TAXABLE IN INDIA. IN VIEW OF THIS FINDING, THE ITAT HAS HELD THAT THE OT HER ISSUES RAISED IN THE GROUNDS N. 7 TO 10 HAVE BECOME INFRUCTUOUS. IN NUT SHELL, WE FIND THAT THE ISSUE AS TO WHETHER MUMBAI LIAISON OFFICE IS FIXED PLACE PE IN RELATION TO CONTRACT WITH ONGC UNDER ARTICLE 5 OF THE TREATY WI TH KOREA HAS NOT BEEN DISPUTED BY THE ASSESSEE IN THE ASSESSMENT YEAR 200 7-08 BEFORE THE ITAT AND THE SAME HAS BEEN FOLLOWED IN THE ASSESSMENT YE AR 2008-09 IN THE ORDER OF THE ITAT IN THIS REGARD. 16. IN VIEW OF THE ABOVE DISCUSSION, WE FIND THAT T HE AUTHORITIES BELOW HAS SIMPLY FOLLOWED ITS ORDERS FOR EARLIER ASSESSMENT Y EARS ON THE ISSUE OF TREATING THE MUMBAI LIASIONING OFFICE AS PE. HOWEVE R, TO DECIDE THE ISSUE AS TO WHETHER MUMBAI LIAISONING IS PE FOR THE PURPO SE OF HCEIPL AS WELL FOR THE PURPOSE OF TAXING ROYALTIES RECEIVED FROM H CEIPL AND INTEREST EARNED ON DELAYED PAYMENT OF ROYALTY AS BUSINESS I NCOME, VERIFICATION OF THE ABOVE ASPECTS OF THE FACTS/CONTENTIONS RAISED B Y THE LEARNED AR IS REQUIRED TO BE MADE AFRESH TO MEET OUT THE ENDS OF JUSTICE. WE THUS SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDED THE ISSUE RAISED IN GROUND NOS. 7 TO 9 AFRESH AFTER AFFORDING OPPORTUNI TY OF BEING HEARD TO THE 14 ASSESSEE UNDER THE ABOVE STATED BACKGROUND. THE GRO UND NOS. 7 TO 9 ARE THUS ALLOWED FOR STATISTICAL PURPOSES. 17. ISSUE NO. 2 : THE REVENUES STAND REMAINED THAT BIFURCATION OF INCOME FROM GMR PROJECT IN ITEM OF INSIDE INDIA AND OUT SIDE INDIA IS NOT CORRECT. THE CONTENTION OF THE ASSESSEE IS THAT IT IS THE LAST TENTH COMPLETE YEAR OF THE CONTRACT AND THE FINDINGS OF THE ASSESS ING OFFICER/DRP ARE NOT ONLY CONTRARY TO THE TERMS OF THE CONTRACT BUT IT I S ALSO CONTRARY TO THE TAX TREATMENT APPROVED BY THE ITAT EVER SINCE ASSESSMEN T YEAR 1999-00. THE FURTHER CONTENTION OF THE ASSESSEE REMAINED THAT TH ERE WAS NO DISPUTE THAT OPERATIONS AND MAINTENANCE SERVICES RENDERED BY THE ASSESSEE ARE TECHNICAL SERVICES, WHICH WERE EFFECTIVELY CONNECTED WITH TH E CHENNAI PE. THOUGH, THE PE MAINTAINED ACCOUNTS WHICH WERE DULY AUDITED, THE ASSESSEE COULD NOT FURNISH ALL THE BILLS, VOUCHERS ETC. FOR ITS CLAIM OF EXPENSES. IT WAS BECAUSE THE ASSESSEE HAS WOUND UP THE CHENNAI PE BY THE TIM E THE ASSESSMENT PROCEEDINGS WERE TAKEN UP. IT WAS THE REASON THAT THE ASSESSING OFFICER VIDE ORDER DATED 20.3.2013 REQUIRED THE ASSESSEE TO SHOW -CAUSE NOTICE AS TO WHY INCOME SHOULD NOT BE TAXED AS BUSINESS PROFIT UNDER SEC. 44BA. SUMMARY OF DISPUTED ISSUES: PARTICULARS INTEREST INCOME BUSINESS INCOME GMR CONTRACT GMR CONTRACT GMR GMR PROJECT 15 GMR HCEIPL PUNE O&M INCOME OF CHENNAI PE DECLARED BY ASSESSEE INCOME OF PE INDIAN OPERATIONS AS PER A.O. INCOME FROM OFFSHORE SUPPLY AS PER ASSESSEE OFFSHORE SUPPLY- INCOME ASSESSED INCOME DECLARED INCOME ASSESSED (INTEREST INCOME) INCOME 4,736,065 55,744,993 112,284,805 NIL 10 0% OF GROSS RECEIPT OF RS.5,16,57,291 5,57,44,993 16,38,42,098 TAX DEDUCTED 7,10,410 826/VOL.V 4,591,785 114/VOL.1(197 ORDER) 821- 825/VOL-V 4,591,785 - 18. THE ASSESSEE ADMITTED THAT DURING THE YEAR, IT HAD PERMANENT ESTABLISHMENT (PE) IN INDIA IN RELATION TO GMR CONT RACT. MUT CONTRACT WAS WITH ONGC AND GMR PROJECT WAS WITH VASAI POWER CORP ORATION LTD. BESIDES, THE ASSESSEE HAD ALSO ENTERED INTO CONTRAC T WITH SCEIPL, TATA MOTORS LTD. AND NISSAN DURING THE YEAR. THE ASSESS EE HAS SHOWN INCOME FROM FEE FOR TECHNICAL SERVICES UNDER SEC. 115A FRO M CONTRACTS WITH SECIPL, TATA MOTORS AND NISSAN MOTORS. UNDER THE GMR PROJEC T, THE ASSESSEE WAS REQUIRED TO PROVIDE SERVICES RELATING TO DESIGN, EN GINEERING, PROCUREMENT, FABRICATION, CONSTRUCTION, MANUFACTURE, TRANSPORT, DEMONSTRATION, TESTING, COMMISSIONING AND STARTUP OF THE UNITS AND FACILITI ES IN RESPECT OF A 200 MG. CAPACITY DIESEL ENGINE BASED POWER GENERATING FACIL ITIES CONSISTING OF FOUR UNITS OF 50 MG. NEAR BASING BRIDGE, CHENNAI. 16 19. THE ASSESSEE SUBMITTED THAT THE GMR CONTRACT WA S AN OLD CONTRACT RUNNING FROM ASSESSMENT YEAR 1998-99 AND SINCE ASSE SSMENT YEAR 1998-99, THE ASSESSEE HAS BEEN CLAIMING PART OF RECEIPTS FRO M GMR CONTRACT ON ACCOUNT OF OPERATIONS CARRIED OUTSIDE INDIA, TO BE NOT TAXABLE IN ACCORDANCE WITH THE PROVISIONS OF SEC. 5(2) READ WITH SEC. 9 O F THE ACT AND ALSO ARTICLE-7 OF THE DTAA. IT WAS POINTED OUT THAT THE ISSUE WITH REGARD TO TAXABILITY OF REVENUE FROM OPERATIONS CARRIED OUTSIDE INDIA, IN R ESPECT OF THIS YEAR CONTRACT, HAS BEEN A SUBJECT OF DISPUTE WITH THE RE VENUE RIGHT FROM THE ASSESSMENT YEAR 1998-99 AND HAS TRAVELLED UP TO THE ITAT AND HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE I.E. THE APPELLAT E AUTHORITIES HAVE CONFIRMED THE SAME TO BE NOT TAXABLE IN INDIA. IT W AS POINTED OUT THAT FOR THE ASSESSMENT YEARS 1998-99 TO 2004-05, THE ITAT VIDE ITS ORDER DATED 29.5.2009 (31 SOT 482) HELD THAT INCOME FROM OFFSHO RE OPERATIONS CANNOT BE BROUGHT TO TAX IN INDIA. FOR THE ASSESSMENT YEAR S 2005-06 AND 2006-07, THE THEN ASSESSING OFFICER HERSELF DID NOT TAX INCO ME FROM OUTSIDE INDIA OPERATION IN THE LIGHT OF THE DECISION OF HON'BLE S UPREME COURT IN THE CASE OF ASSESSEE ITSELF REPORTED IN 291 ITR 482 (S.C). FOR THE ASSESSMENT YEAR 2007- 08, THE ITAT VIDE ORDER DATED 29.5.2012 HAS HELD TH E REVENUES FROM OUTSIDE INDIA OPERATION AS NON-TAXABLE IN INDIA. THE ASSESS ING OFFICER DID NOT AGREE 17 WITH THE ASSESSEE AND FOLLOWING ITS OWN ORDER FOR T HE ASSESSMENT YEAR 2007- 08 HAS DECIDED THE ISSUE AGAINST THE ASSESSEE THAT MUMBAI LIAISON OFFICE IS A P.E. AND IS CONNECTED WITH ONGC OR GMR PROJECT. THE LEARNED DRP HAS UPHELD THE SAME. 20. THE LEARNED AR SUBMITTED THAT FOR GMR (OPER ATIONS & MAINTENANCE) CONTRACT, CONSIDERATION RECEIVED IS UNDISPUTABLY FO R TECHNICAL SERVICES, WHICH WERE RENDERED BY CHENNAI PE WITHIN INDIA. YET, THE AO A RBITRARILY AND UNILATERALLY TAXES BUSINESS INCOME AT 75% OF GROSS RECEIPTS, THUS CONT RADICTING HIS OWN SHOW CAUSE NOTICE DT. 20.3.2013, WHEREBY HE SOUGH TO TAX 25% O F GMR RECEIPT AS BUSINESS INCOME. THERE IS NO ALLEGATION THAT PRICE RECEIVED FROM OFF-SHORE SUPPLY OF SPARES ETC IS NOT ARM'S LENGTH PRICE OR THAT IT CONTAINS A NY ELEMENT OF SERVICE RENDERED BY THE PE. CUSTOM DUTY & CLEARANCE FOR IS REIMBURSED B Y GMR (PG. 250/VOL.-II) . AS PER CL. 9.1 AT PG. 24 OF THE CONTRACT, ASSESSEE PR0 CURES MATERIAL AND SPARE PARTS ON BEHALF OF GMR AND TITLE TO THE IMPORTED GOODS PASS TO GMR ON DELIVERY AT SITE. THUS NO OPERATION IS CARRIED OUT BY THE PE IN INDIA IN RESPECT OF IMPORTED GOODS USED IN THE PROJECT (REF. EXPL. 1 TO SEC. 9(1)(I) R EAD ITAT ORDER FOR 2007-08 AT PG. 614/VOL.-IV) 21. WE FIND THAT THE ISSUE NO. 2 CONSISTS OF THE FO LLOWING SUB-ISSUES: 18 A) WHETHER THE LD. AO HAS ESTIMATED THE INCOME FROM GM R POWER (BOTH FOR SUPPLY OF SPARES FROM OUTSIDE INDIA AND FROM OPERATIONS AN D MAINTENANCES SERVICES PROVIDED BY THE CHENNAI IN INDIA) ARBITRARILY AND I N UTTER DISREGARD OF THE SHOW- CAUSE NOTICE AS PER ORDER-SHEET ENTRY DATED 20.3.20 13 AND THE ASSESSEE'S REPLY DATED 22-25/3/2013? B) WHETHER THE LD. AO IS JUSTIFIED IN IGNORING TRIBUNA L'S ORDER FOR EARLIER YEARS HOLDING THAT NO INCOME FOR SUPPLY OF SPARES FROM OU TSIDE INDIA WAS TAXABLE? C) WHETHER IN ABSENCE OF ANY ALLEGATION THAT THE SUPPL Y OF SPARES WAS NOT MADE AT ARM'S LENGTH PRICE OR THAT THE PRICE FOR THE GOODS INCLUDED ANY ELEMENT OF SERVICE RENDERED BY THE CHENNAI PE IN INDIA, THERE IS NOTHI NG LEFT FOR ATTRIBUTION TO THE PE? D) WHETHER THE INCOME OF CHENNAI PE FROM GMR PROJECT S HOULD NOT BE ASSESSED U/S 44DA READ WITH SEC. 115A IN THE SAME MANNER AS IN T HE CASE OF OTHER FTS PROJECTS AND AS SHOW-CAUSED BY THE AO AS ORDER SHEE T ENTRY DATED 20.3.2013? 22. IN SUPPORT OF THE ISSUE NO.2 CONSISTING OF THE ABOVE SUB-ISSUES, THE LEARNED AR SUBMITTED AS UNDER: GMR PROJECT GMR CONTRACT (ANNEXURE 6/ PAPER BOOK) 22.1 THE ASSESSEE HAD CONSTRUCTED & INSTALLED 200 M EGAWATT DIESEL POWER PLANT CONSISTING OF 4 UNITS 50 MEGA WATTS EACH FOR GMR VA SAVI POWER CORPORATION LTD., CHENNAI (GMR) (A LISTED INDIAN COMPANY) IN 1997-98. APART FROM SUPPLY, INSTALLATION AND COMMISSIONING OF THE SAID PLANT, THE AGREEMENT ALSO PROVIDED FOR MAINTENANCE, OPERATIONS AND SUPPLY OF SPARES & TOOLS FOR NEXT TE N YEARS AFTER THE EXPIRY OF INITIAL WARRANTY PERIOD. THE CONTRACT BETWEEN TWO UNRELATED PARTIES, WHICH DESCRIBES THE OPERATOR'S OBLIGATIONS THEREIN. 22.2. THE CONTRACT DATED 15.5.1997 FOR 'OPERATION A ND MAINTENANCE', OF THE POWER PLANT IS IN TWO PARTS:- I) OPERATIONS & MAINTENANCE SERVICES (INCLUDING SUP PLY OF LOCALLY AVAILABLE PARTS AND MATERIAL) TO BE RENDERED BY CHENNAI PE FOR WHIC H CONSIDERATION IS PAID BY GMR LTD. IN INDIAN RUPEE. 19 II) PROCUREMENT AND SUPPLY OF SPARES AND TOOLS FROM OUTSIDE INDIA (INVOICES AT PG. 110/VOL.-I READ WITH ANNEXURE A TO SCH. 4 FOR WHICH PAYMENT IS MADE IN US DOLLARS. ESTIMATE OF INCOME BY THE AO/DRP 22.3 THE REVENUE'S STAND IS THAT BIFURCATION OF INC OME FROM GMR PROJECT IN ITEM OF 'INSIDE INDIA' AND 'OUTSIDE INDIA' IS NOT CORRECT. THIS IS THE LAST COMPLETE YEAR OF THE CONTRACT. THE FINDINGS OF THE AO / DRP ARE NOT ONLY CONTRARY TO THE TERMS OF THE CONTRACT, BUT IT IS ALSO CONTRARY TO THE TAX TREATMENT APPROV ED BY THE TRIBUNAL EVER SINCE A.Y. 1999- 2000. 22.4 FURTHER, THERE IS NO DISPUTE THAT THE OPERATIO NS AND MAINTENANCE SERVICES RENDERED BY THE ASSESSEE ARE 'TECHNICAL SERVICES', WHICH WER E EFFECTIVELY CONNECTED WITH THE CHENNAI PE. THOUGH, THE PE MAINTAINS ACCOUNTS, WHI CH ARE DULY AUDITED, THE ASSESSEE COULD NOT FURNISH ALL THE BILLS, VOUCHERS ETC FOR I TS CLAIM OF EXPENSES. THIS IS BECAUSE THE ASSESSEE HAD WOUND UP THE CHENNAI PE BY THE TIME TH E ASSESSMENT PROCEEDINGS WERE TAKEN UP. 22.5 IT IS FOR THIS REASON THAT THE LD. A.O. ISSUED DT. 20.3.2013 REQUIRING THE ASSESSEE TO SHOW-CAUSE AS TO WHY INCOME SHOULD NOT BE TAXED AS BUSINESS PROFIT U/S 44DA @ 25% OF GROSS RECEIPTS FROM GMR. THE LD. AO IGNORED THE ASS ESSEE'S REPLY DT. 22-25/3/2013 AND ALLOWED 30% OF TH ECOST OF MATERIAL BOOKED. THIS RE SULTED IN TAXING MORE THAN 70% OF THE GROSS RECEIPTS THE GMR FOR OPERATION INSIDE INDIA. THIS UNILATERAL ACT OF THE ASSESSING OFFICER IS IN GROSS VIOLATION OF PRINCIPLE OF NATUR AL JUSTICE. FURTHER, THE LD. AO HAS GIVEN NO REASON AS TO WHY FTS INCOME FROM MGR PE SHOULD B E TAXED DIFFERENTLY THAN INCOME BY WAY OF PROJECTS EXECUTED FOR TATA MOTOR, NISSAN MOTORS & HCEIPL. THE LD. AO HAS TAXED FTS FROM THOSE PROJECTS U/S 44DA BY ESTIMATIN G BUSINESS INCOME OF THE PE AT 25%, THUS TAXING IT AS EFFECTIVE RATE OF 10% OF GROSS RE CEIPT. 22.6 TAX TREATMENT BY THE LD. AO IS ARBITRARY AND C APRICIOUS AND THEREFORE MAY BE DELETED. 22.7 THE CONTRACT ENVISAGES THAT VARIOUS PARTS AND COMPONENTS OF THE POWER PLANT WOULD HAVE A LIMITED ECONOMIC LIFE AS DETAILED IN T HE SCHEDULE 5 OF THE CONTRACT (PL. REF. CL. 7.3 & SCHEDULE 5). IT IS MEASURED IN TERMS OF N UMBER OF OPERATING HOURS. 20 22.8 THE ASSESSEE HAS TO SUBMIT THE ANNUAL PLAN FOR ECASTING THE REQUIREMENT OF SPARES, TOOLS AND MATERIAL TO BE PROCURED AND SUPPLIED DOME STICALLY AND ABROAD FOR EVERY FORTHCOMING FINANCIAL YEAR. ON APPROVAL OF THE ANN UAL PLAN BY GMR THE FORECAST THE YEAR'S REQUIREMENT OF SUPPLIES IS BROKEN DOWN INTO 12 MONTHLY INVOICES FOR PROCUREMENT AND SUPPLY OF SPARES & TOOLS ETC. (CL. 10 R.W. SCHEDULE IV, V & VA OF THE CONTRACT) . THE MONTHLY INVOICES ARE DULY VERIFIED BY GMR BEFORE MA KING PAYMENT. ANY SURPLUS INVENTORY PROCURED FOR GMR AT THE END OF A YEAR, IT IS CARRIED FORWARD AND ADJUSTED AGAINST REQUIREMENT FORECAST FOR NEXT YEAR. A SUMMA RY OF THE TERMS OF THE GMR CONTRACT IS ANNEXED. 22.9 THE CUSTOM DUTY AND CLEARING CHARGES ETC. ARE FULLY REIMBURSED BY GMR ON THE BASIS OF INVOICES RAISED ON THE ASSESSEE BY THE C&F AGENT (PG. 250/VOL.-II) . THE REVENUE HAS NEVER TREATED THIS AMOUNT OF REIMBURSEMENT OF C USTOM DUTY, CLEARING CHARGES AND INTERNAL TRANSPORT TO THE SITE AS INCOME OF THE PE. THERE IS NO DISPUTE ON THIS ISSUE. PRICE OF SPARES ETC. IMPORTED FROM KOREA AT ARM'S L ENGTH:- 22.10 THE REVENUE HAS ALWAYS ACCEPTED THE VALUE AN D QUANTUM OF THE IMPORTS OF SPARE PARTS AND TOOLS BY GMR. THE TRANSACTIONS BETWEEN GM R & ASSESSEE'S ARE CLEARLY AT ARM'S LENGTH. THE PRICE OF SUPPLY OF SPARE PARTS , TOOL KITS AND OTHER MATERIAL FOB FROM ULSAN, KOREA CLEARLY DOES NOT INCLUDE ANY ELEMENT O F SERVICE RENDERED BY THE PE. INDEED, NO SUCH ALLEGATION HAS BEEN MADE BY THE REVENUE. TH E SUPPLY OF SPARES ETC. FROM OUTSIDE INDIA AND INCOME THEREFROM HAD NEVER BEEN ATTRIBUTE D TO THE PE TILL A.Y. 2007-08. HOWEVER, THE HON'BLE TRIBUNAL RELATED IT FOR A.Y. 2 007-08 & 2008-09. IN THIS CONNECTION, ATTENTION IS DRAWN TO FOLLOWING:- I) SHOW CAUSE NOTICE DT. 20.3.2013 - PG. 661/ VOL-IV AT PG. 5 OF COMPILATION. II) REPLY DT. 22-25.3.2013 - PG. 646/ VOL-IV AT PG. 7 OF COMPILATION. III) ORDER SHEET OF AO ON 25.3.2013- PG. 661/ VOL-IV AT PG. 5 OF COMPILATION. IV) AO PASSES ASSESSMENT ORDER ON 28.3.2013 - PG. 29/APPEAL MEMO. V) ASSESSEE RAISES OBJECTION BEFORE DRP - OBJECTION 6/PG. 54/APPEAL MEMO VI) DRP DOES NOT CONSIDER IT - PARA 7&8 AT PGS. 44-45 OF APPEAL MEMO. Q. 2(B) IGNORING TRIBUNAL ORDERS FOR PRECEDING YEA RS:- I) HISTORY OF LITIGATION - PG. 201-204/VOL.-II II) ORDER OF ITAT 2007-08 - PG. 566 AT 583-584- 619/ VOL.-IV III) ITAT 2008-09 - PG. 631G & 631H/VOL.-IV IV) SUBMISSIONS BEFORE AO DT. 25.2.2013 - PG. 548/VOL.-IV Q. 2(C) SALES OF SPARES TO GMR AT ALP. 21 I) UTTRAKHAND HIGH COURT JUDGMENT - A.Y. 1994-95 & 199 5-96. PG. 46/COMP. II) TRIBUNAL ORDER FOR A.Y. 1994-95 & 1995-96. PG. 41 AT 42-44/AM. III) CONTRACT WITH GMR VASAI POWER - ANNEXURE B OF PAPER BOOK IV) WRITTEN 'NOTE' ON THIS ISSUE. V) FOR ALL THE ELEMENTS OF SERVICES IN INDIA, THE INCO ME OF CHENNAI PE OFFERED TO TAX. 23. THE LEARNED CIT(DR) MADE THE FOLLOWING SUBMISSI ONS: MAY IT PLEASE THE HONBLE BENCH: THE REVENUE IS IN RECEIPT OF THE REVISED (CONCISE) GROUNDS OF APPEAL DATED 21.10.2014 FILED BY THE ASSESSEE. THE REVENUE DOES NOT HAVE ANY OBJECTION FOR DROPPING SOME OF THE ORIGINAL GRO UNDS OF APPEAL BY THE ASSESSEE. GMR PROJECT ALLEGED OUTSIDE INDIA REVENUE : 1. THIS CONCERN GROUND NOS. 3 AND 4 OF THE ASSESSEE. D URING THE YEAR ASSESSEE HAS PROVIDED OPERATION AND MAINTENANCE SER VICES IN RESPECT OF 200 MW POWER GENERATION PLANT OF GMR VAS AI POWER CORPORATION LTD. (GMR). DURING THE YEAR ASSESSEE HA S SHOWN RECEIPT OF IN R 15,37,21,278 AND OFFERED THE SAME T O TAX. HOWEVER, IT HAS ALSO INVOICED AN AMOUNT OF USDF 1,1 25,889 (INR 5,16,57,291) TO GMR BY RAISING AN INVOICE OF USD 94 ,372 EACH MONTH FOR 11 MONTHS AND USD 87,796 FOR THE MONTH OF APRIL 2008. THIS AMOUNT OF USD 1,125,889 HAS NOT BEEN OFFERED T O TAX FOR THE REASON THAT SUPPLY OF SPARES IS MADE FROM OUTSIDE I NDIA ON FOB BASIS, AS PER THE TERMS OF O & M CONTRACT WITH GMR. GMR HAS DEDUCTED TAX OUT OF THESE PAYMENTS (PAGE 110 P.B). THE ASSESSEE 22 HAD EARLIER SUPPLIED AND INSTALLED THE POWER PLANT AND HAS BEEN OPERATING AND MAINTAINING THE POWER PLANT. IT HAS BEEN OPERATING AND MAINTAINING THE POWER PLAN ON REGULAR BASIS PUR SUANT TO THE OPERATION AND MAINTENANCE AGREEMENT WITH GMR ENTERE D ON 15.5.1997. 2. PAGE 8 OF THE ASSESSMENT ORDER NOTES THAT IT IS A C ONCEDED FACT THE ASSESSEES CHENNAI PROJECT OFFICE (IN RESPECT OF GM R CONTRACT) CONSTITUTES A PE UNDER THE PROVISIONS OF ARTICLE 5( 3) OF THE DTAA. ARTICLE 5.1, 5.2, 6.3, 6.4 OF THE OPERATION AND MAI NTENANCE AGREEMENT EXPLICITLY REFERS TO PROJECT SITE THAT CO NSTITUTES A FIXED PLACE PE AS PER PARAGRAPH 1 OF ARTICLE 5 OF THE DTA A. SCHEDULE 7 OF THE AGREEMENT CONTAINS INFORMATION ON MANPOWER F OR OPERATION AND MAINTENANCE OF THE PROJECT THAT INCLUDE 4 SUPER VISOR OF HHI (HYUNDAI HEAVY INDUSTRIES) AND 78 INDIAN EMPLOYEES. 3. A.O. HAS DISCUSSED THE ISSUE FIRST ON PAGES 14 AND 15 OF THE ASSESSMENT ORDER AND THEN ON PARAGRAPHS 13.3 TO 13. 7 (PAGES 17 AND 18 OF THE ASSESSMENT ORDER). TP ORDER IN REGARD TO GMR PROJECT IS DISCUSSED ON PAGES 20 AND 21 OF THE ORDE R. 4. CONSIDERING THE AGREEMENT AS A WHOLE (AVAILABLE IN A SEPARATE PAPER BOOK) IT IS CLEAR THAT THE ASSESSEE IS OPERAT ING AND MAINTAINING THE PROJECT FACILITIES OF POWER PLANT O F GMR. THE AGREEMENT WAS TO EXPIRE ON THE 10 ANNIVERSARY OF TH E COMMERCIAL OPERATION DATE OF THE LAST UNIT TO BE PLACED IN COM MERCIAL OPERATION. ARTICLE 3.1 MENTIONS GENERAL SCOPE OF TH E WORK. ASSESSEE (THE OPERATOR) WAS TO PROVIDE ALL WORKS NE CESSARY FOR THE OPERATION AND MAINTENANCE OF THE PROJECT FACILITIES . THE WORK SCOPE FOR THE OPERATING PERIOD IS GIVEN IN ARTICLE 3.4 O F THE AGREEMENT. 23 THE OPERATOR IS RESPONSIBLE FOR THE OPERATION AND M AINTENANCE OF EACH PART OF THE PROJECT FACILITIES. 5. BASED ON THESE FACTS ON RECORD IT IS CLEAR THAT THE ASSESSEE HAS BEEN PHYSICALLY PRESENT AT THE PROJECT SITE SINCE AT LEA ST 1997. IT IS OPERATING AND MAINTAINING THE PLANT. THERE IS NO DI SPUTE THAT THE ASSESSEE HAS PERMANENT ESTABLISHMENT IN INDIA IN RE SPECT OF THIS PROJECT AS PER PROVISIONS OF ARTICLE 5 OF THE DTAA AND PROFITS ATTRIBUTABLE SUCH A PE ARE TAXABLE IN INDIA. 6. THE ASSESSEE HAS CLAIMED THAT CONSIDERATION DENOMI NATED IN U.S. DOLLARS AND RECEIVED BY IT OUTSIDE INDIA FOR SUPPLY OF SPARES AND TOOL KITS ETC. FROM KOREA ON FOB BASIS IS NOT TAXAB LE AND NOT ATTRIBUTABLE TO PE. IT'S CLAIM THAT AMOUNT RECEIVED IS ON ACCOUNT OF OFFSHORE SALES OR ACTIVITIES CARRIED OUTSIDE INDIA IS THE VERSION OF THE ASSESSEE AND NOT SUPPORTED BY THE AGREEMENT WIT H GMR. THE ASSESSEE HAS NOT MADE ANY SALES TO GMR. IT IMPORTED THE SPARES, IF ANY, ON ITS OWN ACCOUNT FOR THE PURPOSE OF EXECUTIN G THE AGREEMENT. IT HAS THE OBLIGATION TO PROVIDE SPARES AND CONSUMABLES UNDER THE AGREEMENT. THESE SPARES AND C ONSUMABLES ARE USED BY THE ASSESSEE IN OPERATION AND MAINTENAN CE OF POWER PLANT. THE ASSESSEE USES THE SPARES AND TOOL KITS D URING THE COURSE OF ITS BUSINESS OF OPERATION AND MAINTENANCE OF THE PROJECT. THE AGREEMENT DOES NOT PROVIDE THAT SPARES ARE TO BE SO LD TO GMR. IN RESPECT OF TRANSACTION OF SPARES THERE ARE NO TWO P ARTIES. ARTICLE 6.3 OF THE AGREEMENT OBLIGES THE ASSESSEE TO MAINTA IN BOOKS AND RECORDS. THE ASSESSEE IS BEING A FIXED AMOUNT PER M ONTH ON ACCOUNT OF SPARES AND TOLL KITS IN USD IRRESPECTIVE OF ACTUAL 24 PURCHASES AND USE OF SPARES AND TOOL KITS IN THE MA INTENANCE. PAGES 250 AND 251 OF THE PB SHOW THAT ASSESSEE IS I NCURRING EXPENSES ON CLEARING AND FORWARDING. IT IS PAYING C USTOMS DUTY ON IMPORT OF SPARES. THIS INDICATES THAT THE ASSESSEE IS PURCHASING/IMPORTING SPARES AGAINST FIXED PAYMENTS MADE BY GMR. SPARES IMPORT BY THE ASSESSEE IS FOR THE GMR P ROJECT. ITS CLEARING AGENCY IS CUSTOMS CLEARING THE SPARES. IT IS IMPORTING THE SPARES (OF WHAT AMOUNT DURING THE YEAR, INFORMATION ON INVOICES AND AMOUNT NOT ON RECORD) FOR THE PROJECT AGAINST W HICH IT IS RECEIVING THE AMOUNT FROM GMR THE DIFFERENCE OF REC EIPTS AND EXPENSES IS ITS INCOME AND SHOULD HAVE BEEN OFFERED TO TAX. 7. THE RELIANCE OF THE ASSESSEE ON THE ORDER OF THE HON'BLE SUPREME COURT IN ITS OWN CASE (2911TR 482) DOES NOT HELP ITS CASE IN THIS YEAR AS THAT DECISION WAS BASED ON THE FACTS I N THE CONTRACT WITH THE ONGC. ASSESSEE HAS RELIED ON PARAGRAPH 11 OF TH E DECISION (PAGE 230 OF PB-II). IN THAT CASE THE SALES WERE DIRECTLY BILLED TO THE INDIAN CUSTOMER (ONGC). IN THIS CASE AS MENTIONED ABOVE TH E ASSESSEE DID NOT MAKE ANY SALE TO GMR AND UTILIZED THE SPARES, I F ANY, FOR THE PROJECT. IT HAS NOT PROVIDED ANY INFORMATION ON THE PURCHASES OF SPARE PARTS, IF ANY, AGAINST THE AMOUNTS RECEIVED FROM GM R. 8. ASSESSEE HAS ALSO RELIED ON PARAGRAPH 32 OF THE HON'BLE ITAT ORDER FOR AY 2007-08 (PAGES 610- 615 OF PB-IV). THI S OBSERVATION OF THE ITA'[QERTAINED TO_ILLIGC CONTRACT. IN CASE OF GMR AGREEMENT THERE IS NO FABRICATION/INSTALLATION WORK CARRIED OUT BY THE ASSESSEE IN KOREA. THE ASSESSEE HAS BEEN PAID A LUM P SUM AMOUNT DECIDED IN 1997 FOR SPARES TO BE USED IN THE PROJEC T OF GMR. THERE 25 WERE NO ACTIVITIES/OPERATIONS ARRIVED OUTSIDE INDIA IN REGARD TO USE OF SPARES. THE RATIO OF THIS DECISION IS NOT APPLICABL E TO THE FACTS DURING THE YEAR. 9. ASSESSEE HAS ALSO PLACED RELIANCE ON PARAGRAPH 24 OF THE HON'BLE ITAT ORDER FOR AY 2008-09 (PAGE 327 OF APPE AL PB). THIS DECISION IS ALSO WITH REGARD TO CONTRACT WITH THE O NGC AND FOR THE REASONS STATED IN PARAGRAPH 10, NOT APPLICABLE FOR GMR PROJECT. 10. THE CLAIM OF THE ASSESSEE THAT OFFSHORE SUPPLIES AR E NOT TAXABLE BASED ON DECISIONS IN ITS OWN CASE IS NOT RELEVANT AS FOR THE FACTS OF THE CASE FOR THIS YEAR ARE CONCERNED. THERE ARE NO SALE S LEAVE ASIDE OFFSHORE SALES. THE ASSESSEE HAS ONLY BEEN PAID IN USD ON ACCOUNT OF SPARES AND PAYMENTS TO ASSESSEE BY GMR ARE ITS RECE IPTS AND IT COULD HAVE CLAIMED EXPENSES FOR PURCHASES MADE IT, IF ANY . IN ABSENCE OF PROOF OF ANY EXPENSES INCURRED BY THE ASSESSEE, THE AO HAS RIGHTY TAXED WHOLE AMOUNT. 11. THE ASSESSEE RECEIVED MONTHLY FIXED AMOUNTS F ROM GMR FOR PROCURING SPARES AND TOOL KITS FOR POWER PLANT. THE SPARES HAVE BEEN IMPORTED AND USED IN THE MAINTENANCE OF POWER PLANT . THE PURCHASE/IMPORT OF SPARES/TOOLS IS INEXTRICABLY AND ESSENTIALLY LINKED TO THE POWER PLANT OPERATION AND MAINTENANCE AND TH ERE IS NO DOUBT THAT THESE ACTIVITIES ARE CARRIED OUT IN INDIA AND THROUGH THE PE. ANY INCOME EARNED ON ACCOUNT OF OPERATIONS CARRIED OUT IN INDIA (IRRESPECTIVE OF PLACE OF TITLE TRANSFER) IS AN INC OME DEEMED TO ACCRUE OR ARISE IN INDIA (EXPLANATION TO SECTION 9(1)(I) O F THE ACT). SIMILARLY, THE PROFITS ATTRIBUTABLE TO PE ARE TAXABLE IN INDIA . TAXATION OF DEEMED 26 INCOME UNDER SECTION 9(1) (I) IS NOT DEPENDENT ON T HE TRANSFER OF TITLE, IF ANY, BUT ON THE BUSINESS CONNECTION AND EXTENT O F OPERATIONS IN LNDIA 12. PLACE OF TRANSFER OF TITLE (THOUGH NOT PROVE D BY THE ASSESSEE THAT IT WAS OUTSIDE OF INDIA)L DOES NOT AFFECT THE TAXAB ILITY OF TRANSACTIONS UNDER THE INCOME TAX ACT AND THE DTAA. TRANSFER OF TITLE MAY BE RELEVANT FOR THE PURPOSE OF DECIDING THE PLACE OF A CCRUAL OF INCOME BUT NOT FOR THE PURPOSES OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. THE INCOME ATTRIBUTABLE TO THE ACTIVITIES PERFORMED/OPE RATIONS CARRIED OUT IN INDIA IS TAXABLE IN INDIA. THE REVENUE PLACES RE LIANCE ON THE DECISIONS OF THE HON'BLE APEX COURT IN THE CASE OF CIT V. AHMEDBHAI UMARBHAI AND CO. [1950] 18 ITR 472 (SC), ANGLO FREN CH TEXTILE COMPANY LTD V. CIT [1954] 25 ITR 27 (SC) AND CARBOR ANDUM CO. V. CIT [1977] 108 ITR 335 (SC) IN THIS REGARD. THE HON 'BLE SUPREME COURT IN THE CASE OF CARBORANDUM CO. (PAGE 343) HAS HELD THAT INCOME ACCRUING OR ARISING FROM ANY BUSINESS CONNECTION IN THE TAXABLE TERRITORIES - EVEN THOUGH THE INCOME MAY ACCRUE OR ARISE OUTSIDE THE TAXABLE TERRITORIES- WILL BE DEEMED TO BE INCOME AC CRUING OR ARISING IN SUCH TERRITORY PROVIDED OPERATIONS IN CONNECTION WI TH SUCH BUSINESS, EITHER ALL OR A PART, ARE CARRIED OUT IN THE TAXABL E TERRITORIES. THIS PRINCIPLE OF APPORTIONMENT OF PROFIT IS ALSO AUTHOR ISED BY CLAUSE (A) OF EXPLANATION 1 TO SECTION 9(1) (I) OF THE ACT AND TH IS PRINCIPLE IS ALSO APPLICABLE FOR ATTRIBUTING THE PROFITS TO A PERMANE NT ESTABLISHMENT AS PROVIDED IN ARTICLE 7 OF THE DTAA. THE HON'BLE SC H AD RULED IN CASE OF THE ASSESSEE THAT PROFITS ON ACCOUNT OF SALE THA T ARE ATTRIBUTABLE TO INDIAN PE ARE TAXABLE IN INDIA. VARIOUS OPERATIONS/ BUNDLE OF ACTIVITIES IN CONNECTION WITH PURCHASE AND USE OF SPARES AND T OOL KITS ARE BEING 27 CARRIED OUT IN INDIA. GMR IS NOT PAYING FOR ANY OUT OF INDIA ACTIVITIES BUT IN REGARD TO OPERATION AND MAINTENANCE OF POWER PLANT IN CHENNAI. INCOME FROM INSIDE INDIA ACTIVITIES 13. THIS CONCERNS (CONCISE) GROUNDS OF APPEAL NU MBERING 5 AND 6. 14. PARAGRAPHS 13.3 TO 13.11 AND THEN PARAGRAPH 13. 12 (B) ON PAGES 20 AND 21 OF THE ASSESSMENT ORDER DEALS WITH ISSUE. AS AGAINST INCOME OF INR 5, 57,44, 993 SHOWN BY THE ASSESSEE, THE AO WORKED OUT INCOME AT RS 11, 22, 84, 805. 15. THE ASSESSEE HAD SUBMITTED THE ACCOUNT STATEM ENTS (PAGES 26 TO 50 OF PB-L). THE ASSESSEE DID NOT PRODUCE THE SU PPORTING BILLS AND INVOICES FOR THE EXPENSES. ON RECEIPTS OF INR 158,0 65, 108, THE ASSESSEE HAD SHOWN A PROFIT OF INR 57, 426, 852 (PA GE 31 OF PB-L). 16. IN ABSENCE OF THE SUPPORTING DOCUMENTS FOR THE EXPENSES, THE REVENUE STRONGLY RELIES ON THE ORDER OF THE AO THAT WAS CONFIRMED BY THE DRP. THE DETAILS OF EXTENT OF EXPENSES INCURRED BY THE ASSESSEE CAN BE KINDLY SEEN FROM PAGES 530 TO 531 OF PB-III WHICH IS INFORMATION ON TAX DEDUCTED AT SOURCE BY THE ASSESS EE. ASSESSEE HAS FILED COPY OF LEDGER ACCOUNTS; HOWEVER, SUPPORTING DOCUMENTS WERE NOT PRODUCED BY THE ASSESSEE. 24. THE LEARNED AR REJOINED WITH THE FOLLOWING CONT ENTIONS: VIDE WRITTEN REPLY DT.29.10.2014, THE LD CIT (DR) HAS MADE CERTAIN CONTENTIONS, WHICH ARE MET POINT-WISE IN THIS REJOI NDER:- 1) GMR PROJECT: 28 I) DRS CONTENTION THAT SALES OF SPARES TO GMR IS FOB KOREA IS NOT SUP PORTED BY THE AGREEMENT WITH GMR. REJOINDER: THIS CONTENTION IS FACTUALLY INCORRECT. PLEASE REFE R CLAUSE 10.2 & 10.4 OF THE AGREEMENT READ WITH SCHEDULES 4, 5& 5A OF THE GMR AGREEMENT. MOST OF PARTS LIKE PISTON RINGS FUEL PUMP STUFFING BOX ETC. USED IN THE GMR POW ER PLANT HAVE LIMITED ECONOMIC LIFE AND HAVE TO BE PERIODICALLY REPLACED IN EACH OF THE FOUR 200 MEGAWATT POWER PLANTS. AT THE BEGINNING OF EVERY FINANCIAL YEAR ANNUAL PROCU REMENT PLAN IS APPROVED BY GMR AND 12 EQUATED MONTHLY INVOICES ARE RAISED BOTH FOR MAT ERIAL PROCURED LOCALLY AND ABROAD. AT THE END OF THE YEAR, NECESSARY ADJUSTMENT ENTRIES A RE PASSED BY GMR ADJUSTING THE CLOSING UNUSED INVENTORY TOWARDS NEXT YEAR'S ANNUAL PLAN FOR IMPORTS. SCHEDULE 4 BIFURCATES IMPORTED PORTION AND LOCAL RUPEE PORTION. SCHEDULE 5 GIVES THE LIST OF REPAIR KITS COSTS US $ (FOB ULSAN) AND IT EM-WISE NUMBER OF SPARES AND PARTS REQUIRED TO BE UNPORTED BY GMR. SIMILAR LIST IN RES PECT DEISEL ENGINES FOB ULSAN IS ENUMERATED IN SCHEDULE 5A. THUS, THE SCHEDULES TO T HE AGREEMENT MAKES IT CLEAR SPAREPARTS ARE EXPORTED FOB FROM KOREAN PORT (ULSAN ). II) DRS CONTENTION PAGE 250-251 OF THE PB SHOW THAT THE ASSESSEE IS I NCURRING EXPENSES ON CLEARING AND FORWARDING. REJOINDER: PAGES 250-51 (VOL. II) IS THE COPY OF CLEARING & FORWARDING A/C IN THE LE DGER. THE BILLS RAISED BY C & F AGENT ON N. JAMNADAS & CO. AND JM B AXI & CO. ARE PAID AND REIMBURSEMENTS ARE RECEIVED FROM GMR. NEITHER THESE PAYMENT ARE BOOKED AS EXPENSE AND NOR IS THE REIMBURSEMENT FROM GMR IS BOOKED AS INCOME EVER SINCE FY 1995-96. THIS POSITION PREVAILS THIS YEAR ALSO. THE LD. AO H AS ACCEPTED THIS POSITION AND HAS NOT INTERFUSED WITH IT. THUS, THE ASSESSEE, FOR THE SAK E OF CONVENIENCE, DEALS WITH C & F AGENTS ON BEHALF OF GMR. III) CIT (DR) :- 'ITAT ORDERS FOR AY 2007-08 & 2008-09 IS IN REGARD TO ONGC CONTRACT AND ARE NOT APPLICABLE TO GMR CONTRACT.' REJOINDER: PARAGRAPH 20 OF TRIBUNALS ORDER FOR AY 2008-09 AT PG 6319/PB IV READS AS UNDER:- 'ON PERUSAL OF ORDER OF THE TRIBUNAL FOR THE ASSESS MENT YEAR 2007-08 (SUPRA) ON THE ISSUE IN THE CASE OF ASSESSEE ITSELF, WE FIND THAT DURING THE YE AR ALSO MUT PIPELINE PROJECT, MSP PLATFORM PROJECT OF ONGC AND GMR (OPERATION AND MAINTENANCE CONTRACT) OF GMR POWER CORPORATION WERE CONTINUING SINCE THE PERIOD RELEVANT TO THE AS SESSMENT YEARS 2004-05 OR EARLIER YEARS WHEREAS THE PROJECT HMI (SUB STATION) OF HYUNDAI MO TORS INDIA LTD. HAS CONTINUED FROM THE ASSESSMENT YEAR 2006-07. IN THE ASSESSMENT YEAR 200 7-08, THE TRIBUNAL HAS DEALT WITH THE ISSUE RELATING TO MUT PIPELINE PROJECT, MSP PLATFORM PROJ ECT, OF ONGC, AND GMR (OPERATION AND MAINTENANCE CONTRACT) PROJECTS WHICH ARE ALSO UNDER CONSIDERATION IN THE ASSESSMENT YEAR IN 29 QUESTION. AFTER DISCUSSING THE ISSUE IN DETAIL THE TRIBUNAL HAS SUMMARIZED THE REASONS FOR NOT CONCURRING WITH THE AO...' FINALLY IN PARAGRAPH 24, THE TRIBUNAL HOLDS:- 'RESPECTFULLY FOLLOWING THE DECISION TAKEN THEREIN IN PARA 32 OF THE SAID ORDER, WE HOLD THAT THE RECEIPTS PERTAINING TO DESIGNING, FABRICATION AND S UPPLY OF MATERIAL, THE ACTIVITIES CARRIED OUT OUTSIDE INDIA IS NOT TAXABLE IN INDIA. OTHER ISSUES RAISED IN THESE GROUNDS HAVE BECOME INFRUCTUOUS. THESE GROUNDS ARE ACCORDINGLY DISPOSED OF.' IV) CIT (DR):- BOTH IN TERMS OF THE PROVISIONS OF THE TREATY OR EX PLANATION TO SECTION 9 (1) (I) PROFITS ARE ATTRIBUTABLE TO INDIA. IT IS NOT DEPEND ENT ON THE TRANSFER OF TITLE. HENCE, 100% OF SALE OF SPARES FROM OUTSIDE INDIA IS TAXABL E IN INDIA. REJOINDER: THE LD. DRS CONTENTION IS SELF CONTRADICTORY. IT I S SETTLED LAW THAT ONLY THAT MUCH OF PROFIT OF THE GE IS ATTRIBUTABLE TO THE PE, WHICH R EPRESENTS THE ELEMENT OF SERVICE BY THE PE IN INDIA INCLUDED IN THE PRICE CHARGED BY GE FOR SUPPLY OF OF SPARES & PARTS SOLD FROM OUTSIDE INDIA. THE CHENNAI PE CHARGES GMR FOR ALL ITS ACTIVITIES I N INDIA. SINCE THERE IS NO ALLEGATION THAT THE SALE PRICE OF MATERIAL EXPORTED FROM KOREA IS NOT AT ARMS LENGTH PRICE OR THAT IT INCLUDES ANY ELEMENT OF SERVICE BY THE PE IN INDIA, NO FURTHER PROFIT CAN BE ATTRIBUTED TO THE PE. THIS HAS BEEN SO DECIDED BY THE APEX COURT IN OUR OWN CASE IN 291 ITR 482. THERE IS ANOTHER REASON AS TO WHY THE ADDITION MADE BY AO IS NOT JUSTIFIABLE. THE ORDER SHEET ENTRY DATED 20.3.2013, READS AS UNDER:- 'GMR PROJECT YOU ARE REQUESTED TO SHOW-CAUSE WHY PROFIT MAY NOT BE ESTIMATED @ 25% ON GMR PROJECT. (PG.661/ VOL. IV) HOWEVER, WHEN THE LD. AO REALIZED LATER THAT THE AS SESSEE HAD DECLARED PROFIT, WHICH WAS ABOUT 30% OF GROSS RECEIPTS FROM GMR (BOTH INSIDE & OUTSIDE INDIA), HE SUO-MOTU AND WITHOUT GIVING ANY NOTICE TO ASSESSEE ESTIMATED 100 % OF GROSS RECEIPT FROM SALE OF SPARES FROM OUTSIDE INDIA AND ABOUT 70% OF THE GROSS RECEI PTS OF THE PE FOR O &M SERVICE INSIDE INDIA AS BUSINESS PROFIT ATTRIBUTABLE TO THE PE. TH IS IS CLEARLY ILLEGAL LD. D.R.S REPLY IS SILENT ON THIS ASPECT OF THE MATTER. HCEIPL HCEIPL IS 100% SUBSIDIARY OF THE ASSESSEE COMPANY. HCEIPL HAS SET UP PLANT IN PUNE FOR MANUFACTURING CONSTRUCTION & EARTH MOVING EQUIP MENT. IT OBTAINS TECHNOLOGY AND KNOW-HOW FROM THE ASSESSEE UNDER AN AGREEMENT DT. 2 0THE MARCH, 2008. IT PAYS FTS/ROYALTY TO THE ASSESSEE, WHICH HAS BEEN FOUND T O BE AT ARMS LENGTH PRICE BY THE TPO. THE ASSESSEE HAS NO PE IN INDIA AS THE TECHNOL OGY INCLUDING TRAINING, IS PROVIDED TO HCEIPL IN KOREA. CIT (DR) CONTENTION: 30 AS PER ARTICLE 14.3 (B), AN ENGINEER IS DIPUTED TO SUPERVISE THE PLANT.. AS THE SERVICES ARE PERFORMED AT A FIXED PLACE & BUSINESS BY THE EMPLOY EES OF THE ASSESSEE THE CORRESPONDING FEE / ROYALTY IS EFFECTIVELY CONNECTED TO PE. REJOINDER: THE LD. D.R. HAS SOUGHT TO MAKE OUT AN ALTOGETHER A NEW CASE, WHICH IS NOT BORNE OUT OF FACTS AND NOR IS THIS THE CASE OF THE AO/DRP. THE CASE OF THE LD. AO IS THAT MUMBAI LO IS PE FOR THE PURPOSE OF HEIPL ALSO. THIS IS ALSO ENDORSED BY THE DRP HOLDING THAT FACTS ARE SAME AS IN THE CASE OF OLD ONGC CONTRACTS. CLAUSE 14 (3) OF THE AGREEMENT READS AS UNDER: 'THE PARTIES SHALL JOINTLY FORMULATE A TRAINING PRO GRAM FOR THE PARTY B AND SHALL SPECIFY THE QUALIFICATIONS OF PERSONNEL SUITABLE FOR RECEIVING SUCH TRAINING. THE PARTY A SHALL BE RESPONSIBLE FOR SUCH TRAINING IN ORDER TO ENSURE THE EMPLOYEES OF THE PARTY B RECEIVE ADEQUATE TRAINING IN THE USE OF THE TECHNOLOGY AND KNOW-HOW FOR THE MANUFACT URE, PACKAGING, MARKETING AND SALE OF THE PRODUCTS. IN PARTICULAR, THE PARTY A SHALL PROVIDE : (A) ANNUALLY 450 MAN-DAYS OF TRAINING FOR THE PART Y B'S EMPLOYEES AT THE PARTY A'S PLANT IN THE REPUBLIC OF KOREA PROVIDED THAT THE EXPENSES FO R AIR-TICKETS, BOARD AND LODGING FOR THESE EMPLOYEES SHALL BE BORNE BY THE PARTY B; AND (B) ANNUALLY 180 MAN-DAYS OF SUPERVISION BY AN ENGI NEER PROVIDED BY THE PARTY A AT THE PLANT PROVIDED THAT THE PARTY B SHALL BEAR THE EXPE NSES OF THE AIR-TICKETS AND LOCAL TRANSPORTATION FOR THE PARTY A'S ENGINEER AND SHALL PAY TO THE PAR TY A FOUR HUNDRED US DOLLARS (US$400.00) PER CALENDAR MAN-DAY (INCLUDING TRAVELING DAYS) WHICH T HE PARTY A'S ENGINEER IS REQUIRED OR REQUESTED BY THE PARTY B TO STAY BEYOND THE 180 MAN-DAYS SUPE RVISION PERIOD.' IT IS OBVIOUS THAT IT IS OPTIONAL FOR THE HCEIPL TO OBTAIN SUPERVISING SERVICES OF AN ENGINEER OF THE ASSESSEE COMPANY. IN THIS CONNECTIO N, PLEASE REFER TO PG.116/ PB-1 , WHEREIN THE ASSESSEE HAD FURNISHED THE DETAILS OF EXPATRIATES DEPUTED ON INDIA FTS PROJECTS. IT IS CLEAR FROM THAT STATEMENT THAT NO ENGINEER WAS DEPUTED TO INDIA FOR HCEIPL PROJECT. FURTHER, THE SUMMARY OF INVOICES RA ISED DURING THE YEAR TOGETHER WITH COPY OF RELEVANT INVOICES SUBMITTED TO THE AO CLEAR LY SHOWS THAT BOTH THE RECEIPTS ARE ON ACCOUNT OF TECHNOLOGY FEE AND NO INVOICE WAS RAISED ON ACCOUNT OF SUPERVISION. (PGS. 186 & 195OF PB/1) FURTHER, THERE IS NO CONCEPT OF SUPERVISION PE IN KOREAN DTAA. EVEN IF A SUPERVISOR IS DEPUTED, NO PE IN INDIA IS FORMED. THERE IS NO FIXE D PLACE PE AS THE SUPERVISOR IS DEPUTED NOT FOR THE BUSINESS OF THE KOREAN COMPANY, BUT THAT OF HCEIPL, AN INDIAN COMPANY. SUPERVISION IN CONNECTION WITH A CONSTRU CTION/ INSTALLATION PE WOULD CONSTITUTE PE ONLY IF SUCH SUPERVISORY ACTIVITIES C ONTINUE FOR MORE THAN 9 MONTHS. (ARTICLE 5 (3) OF THE DTAA AT PG.21/ COMPENDIUM) . THERE IS NO ALLEGATION TO THIS EFFECT EITHER BY TH E LD. DR ON THE AO/CIT (A). 31 HENCE, THE INTEREST ON DELAYED PAYMENT OF ROYALTY B Y HCEIPL CANNOT BE TAXED AS BUSINESS INCOME U/S 44DA @ 40%, BUT @ 15% AS PER AR TICLE 12 OF THE DTAA WITH KOREA. FINDINGS: 25. THE CLAIM OF THE ASSESSEE AS PER THE ABOVE DISC USSION REMAINED THAT THE OFFSHORE SUPPLIES ARE NOT TAXABLE AND LEARNED A R PLACED RELIANCE ON THE DECISIONS OF THE ITAT IN ITS OWN CASE ON AN IDENTIC AL ISSUE FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09 (SUPRA) DECIDE D IN FAVOUR OF THE ASSESSEE. THE CONTENTION OF THE REVENUE REMAINED TH AT BIFURCATION OF INCOME FROM GMR PROJECT IN ITEMS OF INSIDE INDIA AND OU TSIDE INDIA IS NOT CORRECT. THE SUBMISSIONS OF THE LEARNED AR REMAINED THAT IT IS THE LAST TENTH COMPLETE YEAR OF THE CONTRACT AND FINDING OF THE AU THORITIES BELOW ARE NOT ONLY CONTRARY TO THE TERMS OF THE CONTRACT BUT IT I S ALSO CONTRARY TO THE TAX TREATMENT APPROVED BY THE ITAT EVER SINCE ASSESSMEN T YEAR 1999-00. THE CONTENTIONS OF THE LEARNED CIT(DR) AS DISCUSSED IN DETAIL IN THE ABOVE PARAGRAPHS REMAINED THAT THE CLAIM OF THE ASSESSEE THAT OFFSHORE SUPPLIES ARE NOT TAXABLE BASED ON THE DECISIONS IN ITS OWN CASE BY THE ITAT IS NOT RELEVANT SO FAR AS THE FACTS OF THE CASE FOR THIS Y EAR ARE CONCERNED. IN THE PRECEDING PARAGRAPHS, THE LEARNED CIT(DR) HAS TRIED TO DISTINGUISH THE FACTS OF THE CASE ON THE ISSUE DURING THE YEAR. IN THE RE JOINDER, THE LEARNED AR HAS ALSO TRIED TO MEET OUT THE CONTENTIONS OF THE LEARN ED CIT(DR) THAT FACTS OF 32 THE PRESENT YEAR ARE DISTINGUISHABLE FROM THE EARLI ER YEARS ON THE ISSUE. IN THE ASSESSMENT YEAR 2008-09, THE ITAT HAS GIVEN ITS FINDINGS ON THE ISSUE VIDE PARA NOS. 20 TO 24 OF THE ORDER REPRODUCED HER EUNDER FOR A READY REFERENCE: 20. ON PERUSAL OF ORDER OF THE TRIBUNAL FOR THE AS SESSMENT YEAR 2007-08 SUPRA) ON THE ISSUE IN THE CASE OF ASSESSEE ITSELF, WE FIND THAT DURING THE YEAR ALSO MUT PIPELINE PROJECT, MSP PLATFORM PROJEC T OF ONGC AND GMR(OPERATION AND MAINTENANCE CONTRACT) OF GMR POWE R CORPORATION WERE CONTINUING SINCE THE PERIOD RELEVANT TO THE AS SESSMENT YEARS 2004- 05 OR EARLIER YEARS WHEREAS THE PROJECT HMI (SUB ST ATION) OF HYUNDAI MOTORS INDIA LTD. HAS CONTINUED FROM THE ASSESSMENT YEAR 2006-07. IN THE ASSESSMENT YEAR 2007-08, THE TRIBUNAL HAS DEALT WIT H THE ISSUE RELATING TO MUT PIPELINE PROJECT, MSP PLATFORM PROJECT, OF ONGC , AND GMR (OPERATION AND MAINTENANCE CONTRACT) PROJECTS WHICH ARE ALSO UNDER CONSIDERATION IN THE ASSESSMENT YEAR IN QUESTION. A FTER DISCUSSING THE ISSUE IN DETAIL THE TRIBUNAL HAS SUMMARIZED THE REA SONS FOR NOT CONCURRING WITH THE AO THAT CONTRACTS ARE INDIVISIBLE AND THE RECEIPTS PERTAINS TO PRE- ENGINEERING SERVICES, DESIGNING, FABRICATION, PROCU REMENT HAVE ELEMENT OF INCOME ATTRIBUTABLE TO PE OF THE ASSESSEE IN INDIA VIDE PARA NO. 32 OF THE ORDER AS UNDER :- 32. APART FROM THE ABOVE DISCUSSION, WE SUMMARIZE THE REASONS FOR NOT CONCURRING WITH THE ASSESSING OFFICER THAT CONTRACTS ARE INDIVISIBLE AND THE RECEIPTS PERTAIN TO PRE-ENGINEE RING SERVICES, DESIGNING, FABRICATION, PROCUREMENT HAVE ELEMENT OF INCOME ATTRIBUTABLE TO PE OF THE ASSESSEE IN INDIA : 33 A) THE ONGC HAS FLOATED INTERNATIONAL TENDER. THE A SSESSEE HAS WON THE TENDER BY GIVING LOWEST BID. PRIOR TO FILIN G SEALED BID, IT IS ILLEGAL FOR THE BIDDER TO NEGOTIATE THE BID. EVEN T HE DEPARTMENT HAS NOT LEVELLED ANY ALLEGATION TO THIS EFFECT,. TH E BIDDER CAN MAIL QUERIES ON TECHNICAL ASPECT OF THE TENDER. THUS, IT SUGGESTS THAT TRANSACTIONS OF THE ASSESSEE WITH THE ONGC WERE AT ARMS LENGTH PRICE AND THEY ARE NOT ASSOCIATE CONCERNS OF EACH OTHER. (K) ALL RECEIPTS FOR OPERATION INSIDE INDIA HAVE BE EN OFFERED TO TAX AS INCOME IN EARLIER YEARS AS WELL AS THIS YEAR. TH E ENTIRE RECEIPTS FROM THE INSTALLATION WORK CARRIED OUT IN THE OFFSHORE SITE SINCE THE ARRIVAL OF MATERIAL HAS BEEN OFFERED TO T AX. 21. THE TRIBUNAL ACCORDINGLY HELD THAT THE CONTRACT S ARE DIVISIBLE. THE RECEIPTS PERTAINING TO DESIGNING, FABRICATION AND S UPPLY OF MATERIAL, THE ACTIVITIES CARRIED OUT OUTSIDE INDIA IS NOT TAXABLE IN INDIA. RESPECTFULLY FOLLOWING THIS DECISION ON IDENTICAL ISSUE IN THE A SSESSMENT YEAR UNDER CONSIDERATION WE DECIDE THE ISSUE RAISED IN THE GRO UNDS NOS. 6, 6.1 TO 6.3 RELATING TO MUT PIPELINE PROJECT, MSP PLATFORM PROJ ECT, OF ONGC AND GMR (OPERATION AND MAINTENANCE CONTRACT) PROJECTS IN FA VOUR OF THE ASSESSEE WITH THIS FINDING THAT THE OUTSIDE RECEIPTS PERTAIN ING TO DESIGNING, FABRICATION AND SUPPLY OF MATERIAL, ACTIVITIES CARR IED OUT OUTSIDE INDIA IS NOT TAXABLE IN INDIA. SO FAR AS TAXABILITY OF RECEIPTS PERTAINING TO HMI (SUB STATION) OF HYUNDAI HEAVY INDUSTRIES LTD. IS CONCER NED THE MATTER IS SET ASIDE TO THE FILE OF THE AO TO EXAMINE THE ISSUE IN RELATION TO THESE PROJECT IN VIEW OF FINDING OF THE TRIBUNAL ON THE ISSUE IN RELATION TO THE ABOVE STATED THREE PROJECTS AND DECIDE THE ISSUE ACCORDIN GLY AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 6 (CONSISTING OF GROUND NOS. 6.1, 6.2 & 6.3) ARE THUS PARTLY ALLOWED . 34 GROUND NOS. 7,8, 8.1,9,9.1,10 22. IN THESE GROUNDS ASSESSEE HAS QUESTIONED ACTION OF THE AUTHORITIES BELOW IN TAXING THE ENTIRE REVENUE OF RS. 190812234 /- PERTAINING TO OUTSIDE INDIA OPERATIONS AS INCOME OF THE ASSESEE. IT HAS BEEN CONTENDED BY THE ASSESEE THAT THE AUTHORITIES BELOW HAVE ERRE D IN TAXING THE REVENUE OF OPERATION OUTSIDE INDIA DISREGARDING THE PRINCIP LE OF ATTRIBUTION ENVISAGED IN ARTICLE 7(3) AND PRINCIPLE OF CONSISTE NCY ENVISAGED IN ARTICLE 7 (5) OF DTAA, ESPECIALLY CONSIDERING THE FACTS THA T IN ABSENCE OF ALLEGATION THAT THE PAYMENT BY ONGC FOR OPERATION O UTSIDE INDIA WAS NOT AT ARMS LENGTH OR THAT IT INCLUDED ANY WORK CARRIE D OUT FOR SERVICES RENDERED IN INDIA. IN GROUND NO. 8.1 THE GRIEVANCE OF THE ASSESEE REMAINED THAT EVEN ASSUMING THAT SUPPLIES WERE NECE SSARY FOR THE PURPOSE OF ACTIVITIES OF THE PERMANENT ESTABLISHMEN T (PE) IN INDIA AND EVEN IF FURTHER ASSUMING THAT THE SUPPLIES WERE AN INTEGRAL PART, NO PART OF PROFIT ON ACCOUNT OF OFF SHORE ACTIVITIES CAN BE AT TRIBUTED TO THE PE AS UNDISPUTEDLY, ALL THE DESIGNATED WORK, DESIGNING, F ABRICATION AND SUPPLY WERE CARRIED OUT OUTSIDE INDIA MUCH BEFORE THE DATE OF ARRIVAL OF STRUCTURE IN INDIA. IN GROUND NO. 9 OF THE APPEAL THE ASSESSE E HAS QUESTIONED FINDING OF THE AUTHORITIES BELOW THAT MUMBAI OFFICE CONSTITUTES A FIXED PLACE PE UNDER ARTICLE 5(1) OF THE DTAA. IN GROUND NO. 9. 1 THE ACTION OF THE AUTHORITIES BELOW HAVE BEEN QUESTIONED WHEREBY THEY HAVE APPLIED ARTICLE 5(1) TO THE FACTS OF THE CASE AS AGAINST THE SPECIF IC PROVISIONS OF ARTICLE 5(3) WHICH AS PER THE ASSESSEE IS APPLICABLE TO ITS CASE. IN GROUND 9.2 THE FINDING OF THE AUTHORITIES BELOW THAT PE STOOD CONS TITUTED FROM THE DATE OF THE NOTIFICATION OF THE AWARD AND NOT FROM THE DATE WHEN THE INSTALLATION ACTIVITIES COMMENCED HAS BEEN QUESTIONED. IN GROUND NO.10 THE ACTION OF THE AUTHORITIES BELOW IN NOT FOLLOWING THE PRINCIPL ES OF CONSISTENCY ALSO BY ARTICLE 7(5) OF THE INDIA KOREA DTAA BY ADOPTING TH E NEW FORMULA FOR ESTIMATING THE INCOME OF THE ASSESSEE FOR OPERATION CARRIED INSIDE INDIA, HAS BEEN QUESTIONED. 35 23. WE FIND THAT THE ISSUES RAISED IN THESE GROUNDS HAVE BEEN COVERED BY THE TRIBUNAL IN THE CASE OF ASSESEE ITSELF FOR THE ASSESSMENT YEAR 2007-08 (SUPRA) RELEVANT PARA NO. 32 OF THE ORDER OF THE TR IBUNAL HAS BEEN REPRODUCED HEREINABOVE. 24. RESPECTFULLY FOLLOWING THE DECISION TAKEN THERE IN IN PARA 32 OF THE SAID ORDER, WE HOLD THAT THE RECEIPTS PERTAINING TO DESI GNING, FABRICATION AND SUPPLY OF MATERIAL, THE ACTIVITIES CARRIED OUT OUTS IDE INDIA IS NOT TAXABLE IN INDIA. OTHER ISSUES RAISED IN THESE GROUNDS HAVE BE COME INFRUCTUOUS. THESE GROUNDS ARE ACCORDINGLY DISPOSED OF. 25.1 WE THUS FIND THAT THERE IS NO DISPUTE THAT EXI STENCE OF PE WAS THERE DURING THE YEAR AND THE YEAR UNDER CONSIDERATION WA S LAST YEAR OF COMPLETING THE CONTRACT. IT IS A WELL ESTABLISHED PROPOSITION OF LAW THAT THE AUTHORITIES BELOW HAVE TO FOLLOW THE DECISION OF ITAT ON AN IDE NTICAL ISSUE AND THE ITAT HAS TO MAINTAIN CONSISTENCY IN ITS APPROACH ON AN IDENTICAL ISSUE UNDER THE SIMILAR FACTS ADOPTED IN EARLIER YEARS. SINCE T HE LEARNED CIT(DR) HAS DISPUTED THIS CLAIM OF THE ASSESSEE THAT DURING THE YEAR FACTS ON THE ISSUE ARE SIMILAR TO EARLIER YEARS AND THE LEARNED AR HAS AL SO TRIED TO MEET OUT THE EFFORTS OF THE LEARNED CIT(DR) DISTINGUISHING THE F ACTS OF THE CASE ON THE ISSUE DURING THE YEAR, WE ARE OF THE VIEW THAT BEFO RE FOLLOWING THE ORDER OF EARLIER YEARS ON THE ISSUE BY THE ITAT, IT IS NECES SARY TO ASCERTAIN THAT THE FACTS RELATING TO THE ISSUES RAISED IN GROUND NOS. 3 TO 6 IN THE APPEAL FOR THIS 36 YEAR ARE SIMILAR TO THE FACTS OF THE EARLIER YEARS I.E. ASSESSMENT YEARS 2007-08 AND 2008-09. WE ACCORDINGLY SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO ASCERTAIN THAT FACTS LIKE PERFORMANCE OF THE ASSESSEE AS PER THE TERMS OF CONTRACT WITH GMR AND OTHERS REGARDING OPE RATION AND MAINTENANCE OF THE PROJECT AND SUPPLY OF SPARE AND TOOL KITS FR OM KOREA, OFFSHORE SALES OR ACTIVITIES CLAIMED TO BE CARRIED OUTSIDE INDIA, ETC. AS WELL AS INCOME FROM INSIDE INDIA ACTIVITIES ON THE ISSUES DURING THE YE AR, ARE SIMILAR TO THE FACTS OF THE EARLIER YEARS I.E. 2007-08 AND 2008-09 AFTER VE RIFYING THE ABOVE SUBMISSIONS OF THE PARTIES IN THIS REGARD AND AFFOR DING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN VIEW OF MATERIALS AVAILABL E ON RECORD. IF THE ASSESSING OFFICER AFTER VERIFICATION FINDS THAT THE FACTS OF THIS YEAR ON THE ISSUES RAISED IN GROUND NOS. 3 TO 6 ARE SIMILAR TO THE FACTS OF THE EARLIER YEARS ON THE ISSUES THEN HE IS DIRECTED TO DECIDE THE ISS UES FOLLOWING THE DECISION OF THE ITAT IN THIS REGARD FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09 AND OF THE HON'BLE SUPREME COURT IN THE CASE OF ASSESSE E REPORTED IN 291 ITR 482. THE GROUND NOS. 3 TO 6 INVOLVING THE ISSUE NO. 2 ARE THUS ALLOWED FOR STATISTICAL PURPOSES. GROUND NOS. 10 & 11 : 37 26. IT IS REGARDING DEDUCTION OF SERVICE TAX. THE ASSESSEE NEED TO EXPLAIN THAT NO EXPENSES IN RELATION TO SERVICE TAX ARE DEB ITED IN THE PROFIT AND LOSS ACCOUNT. AT PAGE NO. 644 OF P.B-IV, ASSESSEE HAS FI LED INFORMATION ON SERVICE TAX. THE MATTER IS THUS SET ASIDE TO THE FI LE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AFTER GIVING OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THAT NO EXPENSES IN RELATION TO SERVICE TAX ARE DE BITED IN THE PROFIT AND LOSS ACCOUNT. THE GROUND NOS. 10 & 11 ARE ACCORDINGLY AL LOWED FOR STATITSTICAL PURPOSES. ADDITIONAL GROUND : 27. INTEREST UNDER SECTION 234B OF THE ACT 27.1 THE LEARNED AR CONTENDED THAT THE ISSUE IS COV ERED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT OF UTTRAKHAND IN THE CASE OF MAERSKS SHIPPING 334 ITR 79 AND THE DECISION OF HONBLE D ELHI HIGH COURT IN THE CASE OF ALCATEL 264 CTR (DELHI) 240 IS NOT APPLIC ABLE. HE SUBMITTED FURTHER THAT THE APPELLANT IS A FOREIGN COMPANY AND DURING THE YEAR WAS IN RECEIPT OF INCOME FOR ITS OUTSIDE INDIA AND INSIDE INDIA ACTIVITIES FROM TATA MOTORS LTD., NISSAN MOTORS LTD., HCEIPL AND GMR. AL L RECEIPTS OF THE ASSESSEE WERE SUBJECT TO DEDUCTION OF TAX AT SOURCE AS FEE FOR TECHNICAL SERVICES AT 10% AS PRESCRIBED UNDER SEC. 115A EXCEP T THOSE FROM GMR, ON WHICH THAT WAS DEDUCTED IN ACCORDANCE WITH THE ORDE R OBTAINED UNDER SEC. 38 197 OF THE ACT FOR LOWER DEDUCTION OF TAX. THE ASSE SSEE ALSO RECEIVED INTEREST INCOME ON WHICH ALSO TAX WAS DULY DEDUCTED AT THE R ATE OF 15% IN ACCORDANCE WITH ARTICLE 12 OF THE DTAA AS ENTERED I NTO BETWEEN INDIA AND REPUBLIC OF KOREA. HE SUBMITTED FURTHER THAT FOR TH E ASSESSMENT YEAR UNDER CONSIDERATION, THE PROVISIONS OF SEC. 234B ARE ATTR ACTED ONLY WHEN THE ASSESSEE, WHO IS LIABLE TO PAY ADVANCE TAX UNDER SE C. 208 OF THE ACT HAS FAILED TO PAY SUCH TAX. SINCE THE ENTIRE INCOME OF THE ASSESSEE WAS SUBJECT TO TAX DEDUCIBLE AT SOURCE AND TAX WAS DEDUCTED AT SOU RCE WAS THE PAYER, THERE WAS NO LIABILITY TO PAY ADVANCE TAX UNDER SEC. 208 OF THE ACT AND IN ABSENCE OF ANY LIABILITY TO PAY ADVANCE TAX, THE PROVISIONS OF SEC. 234B OF THE ACT COULD NOT BE INVOKED. THE LEARNED AR POINTED OUT FU RTHER THAT INTEREST UNDER SEC. 234B AMOUNTING TO RS.4,58,63,237 CANNOT BE LEV IED IN THE LIGHT OF THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE ASST. YEAR 2007-08 IN ITA NO. 5231/DEL/2010 ON IDENTICAL ISSUE. 27.2 THE LEARNED CIT(DR) CONTENDED THAT INTEREST UN DER SECTION 234B OF THE ACT WOULD BE PAYABLE IF THE TAX PAYABLE WORKS O UT MORE THAN TDS DONE IN CASE OF THE ASSESSEE. IN THAT CASE, THE ASSESSEE WAS LIABLE TO PAY ADVANCE TAX AND FAILURE TO PAY THE SAME RESULTS INTO CHARGI NG OF INTEREST UNDER SECTION 234B OF THE ACT. 39 27.3 THE LEARNED CIT(DR) SUBMITTED FURTHER THAT IN THIS CASE, THE ASSESSEE HAD OBTAINED AN ORDER UNDER SECTION 197 OF THE ACT AND GMR WAS DIRECTED TO DEDUCT TAX @0.48% BASED ON THIS ORDER. HON'BLE DELHI HIGH COURT IN THE CASE OF JACOBS CIVIL INCORPORATED AND OTHERS IN PARAGRAPH 6 OF THE DECISION HAS HELD THAT INTEREST UNDER SECTION 234B IS CHARGEABLE AFTER ESTABLISHING THAT THE PAYEE HAS ROLE IN SUCH A LOWE R OR NO DEDUCTION OF TAX. IN THE PRESENT CASE, ASSESSEE HAS FULL ROLE IN LOWE R DEDUCTION OF TAX, AS IT HAD OBTAINED ORDER SECTION 197 OF THE ACT AT LOWER RATE AND PROVIDED TO GMR. IN SUCH A CASE, THE PAYER GMR WAS NOT AT FAULT AND NO ORDER UNDER SECTION 201(1) CAN BE PASSED IN THAT CASE AS THEY DEDUCTED TAX AS PER ORDER UNDER SECTION 197 OF THE ACT. AS THE TAX WAS NOT PAID COR RECTLY AND THERE WAS A SHORTFALL IN PAYMENT OF TAX, THEREFORE, THE INTERES T UNDER SECTION 234B IS PAYABLE BY THE ASSESSEE. 27.4 CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THA T THE AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE DELHI BENCH OF THE ITAT IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESSM ENT YEAR 2007-08 (SUPRA). WE THUS, SET ASIDE THE MATTER TO THE FILE OF THE A. O. TO DECIDE THE ISSUE AFRESH IN VIEW OF THE DECISION OF THE ITAT ON THE I SSUE FOR THE ASSESSMENT YEAR 2007-08 WHICH IS BASED ON THE DECISION OF HON BLE JURISDICTIONAL UTTRAKHAND HIGH COURT IN THE CASE OF CIT VS. SEDCO FOREX INTERNATIONAL 40 DRILLING CO. LTD.- 264 ITR 320 (UTTRAKHAND), AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ADDITIONAL GROUND IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 28. IN RESULT, THE APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 05.06 .2015 SD/- SD/- ( B.C. MEENA ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 05 /06/2015 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR DATE DRAFT DICTATED ON COMPUTER 05.06.2015 DRAFT PLACED BEFORE AUTHOR 05 .06.2015 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 05.06.2015 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 05.0 6.2015 APPROVED DRAFT COMES TO THE SR.PS/PS 08.06.2015 KEPT FOR PRONOUNCEMENT ON 05.06.2015 FILE SENT TO THE BENCH CLERK 08.06.2015 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.