DCIT, Dehradun V. M/s. ION Geophysical Corporation, Gurgaon

ITA 1580/DEL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7346 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 18-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUJ ARORA
• Assessee Lawyers: GAURAV SAXENA; YISHA GOEL; SHARAD GOYAL; S P SINGH SHRI MANONEET DALAL
• Keywords: Business income; Double taxation relief; Opportunity of being heard; Deemed to accrue or arise in india; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 92F; 92A; 234B; 147; 148; 92

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG : JUDICIAL MEMBER STAY NO. 206/DEL/2016 ( IN ITA NO. 1607/DEL/2015) ASSTT. YR. 2008-09 AND ITA NO. 1607/DEL/2015 ASSTT. YR. 2008-09 ION GEOPHYSICAL CORPORATION VS. DCIT CIRCLE-2, (FORMERLY KNOWN AS DEHRADUN. INPUT OUTPUT INC.) C/O DELOITTE HASKINS & SELLS, 7 TH FLOOR, BUILDING NO. 10, TOWER B, DLF CYBER CITY COMPLEX, DLF CITY PHASE-II, GURGAON. PAN: AABCI 6763 Q AND ITA NO. 1580/DEL/2015 ASSTT. YR: 2008-09 DCIT CIRCLE-2, VS. ION GEOPHYSICAL CORPORATION (APPELLANT) ( RESPONDENT) ASSESSEE BY : SHRI S.P. SINGH SHRI MANONEET DALAL ADV. & SHRI GAURAV SAXENA CA & SHRI SHARAD GOYAL CA & MS. YISHA GOEL ADV.. DEPARTMENT BY : SHRI ANUJ ARORA CIT(DR) DATE OF HEARING : 26/07/2016. DATE OF ORDER : 19/08/2016. 2 O R D E R PER S.V. MEHROTRA, A.M: THE CAPTIONED STAY PETITION AND THE CROSS APPEALS, PREFERRED BY THE ASSESSEE AS WELL AS THE REVENUE, ARISE OUT OF ASSESSMENT ORD ER DATED 29.01.2015 PASSED BY THE AO U/S 143(3)/148/144C(13), PURSUANT TO DRP DIR ECTIONS U/S 144C(5) OF THE INCOME TAX ACT, 1961, RELATING TO AY 2008-09. ALL T HESE MATTERS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMPOSIT E ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY, A TAX RESIDENT OF USA, WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF EQUIPMENTS, USED IN THE SEISMIC INDUSTRY. THE PRODUCTS INCLUDED CABLE BASED / CABLE LESS AND RADIO CONTROLLED SEISMIC DATA ACQUISITION SYSTEMS, DIGITA L AND ANALOG GEOPHONE SENSORS. VIBROSEIS, VEHICLES AND SOURCE CONTROLLERS FOR DETO NATOR AND VIBRATOR ENERGY SOURCES. 2.1. DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE WAS ENGAGED IN EXECUTION OF CONTRACT WITH M/S ONGC LTD. VIDE CONTRACT NO. MA T/IMP/E-II/3(2735)/2005- 06/ZA23LO6004 DATED 3.1.2006. THE CONTRACT WAS FOR SUPPLY ORDER WIRELINE DISTRIBUTED TELEMETRY DATA ACQUISITION SYSTEMS INCL UDING SENSORS PLACED ON M/S INPUT & OUTPUT INC., TEXAS, USA (OLD NAME OF ASSESS EE). 2.2. UNDER THIS CONTRACT, THE ASSESSEE HAD MADE SUP PLIES TO ONGC OF EQUIPMENT, MATERIAL, GENERAL STORES AND SERVICES, AS SPECIFIED IN ANNEXURE 1 OF THE CONTRACT, WHICH HAD BEEN SPECIFICALLY MENTIONED IN THE CONTRA CT. 2.3. AS PER THE CONTRACT, CERTAIN INDIGENOUS ITEMS WERE ALSO TO BE SUPPLIED IN RESPECT OF EACH UNIT SUPPLIED BY THE ASSESSEE. THES E ITEMS WERE PROCURED AND SUPPLIED FROM INDIA TO ONGC AT ITS VARIOUS LOCATION S. THE CONTRACT ALSO INCLUDED 3 INSTALLATIONS AND COMMISSIONING OF EQUIPMENT SUPPLI ED ALONG WITH NECESSARY HARDWARE AND SOFTWARE BY THIRD PARTY IN RESPECT O F BOTH INDIGENOUS AND FOREIGN ITEMS, PROVISION OF TRAINING TO THE EMPLOYEES AND E NGINEERS OF ONGC AT SUPPLIERS PREMISES IN USA AND FOLLOWED BY TRAINING AT ONGC SI TE AT DEHRADUN, JORHAT AND KOLKATA. 2.4. THE ASSESSEE COMPANY HAD FILED RETURN OF INCOM E DECLARING NIL INCOME FOR AY 2008-09 AND HAD NOT OFFERED ANY REVENUE/ RECEIPT S FROM THE CONTRACT DURING THE FY 2007-08 RELEVANT TO AY 2008-09. HOWEVER, IN THE RETURN FILED FOR AY 2009-10, WHICH CAME UNDER SCRUTINY, ASSESSEE HAD OFFERED REV ENUES EARNED ON ACCOUNT OF INSTALLATION AND INSPECTION AMOUNTING TO US $ 88613 UNDER THE PROVISIONS OF SECTION 44BB AND DPR OF 10% AND HAD OFFERED TRAININ G COMPONENT GIVEN TO ONGC ENGINEERS IN INDIA AT US $ 146058 AS PER PROVI SIONS OF ARTICLE 12 OF DTAA AT 15% GROSS. THUS, IN AY 2009-10, THE ASSESSEE HAD NOT OFFERED TO TAX THE SUPPLY OF GOODS FROM THE OUTSIDE INDIA UNDER THE CLAIM THA T INCOME HAD NOT ACCRUED/ ARISEN OR DEEMED TO ACCRUE OR ARISEN IN INDIA OF SU CH SALES OF GOODS. THE TRAINING RECEIPTS IN RESPECT OF TRAINING IMPARTED AT ASSESSE ES PREMISES HAD ALSO NOT BEEN OFFERED TO TAX. THEREFORE, NOTICE U/S 148 WAS ISSUE D ON 29.10.2012 REQUIRING THE ASSESSEE TO FILE ITS RETURN OF INCOME FOR AY 2008-0 9. THE ASSESSEE VIDE ITS REPLY DATED 11.12.2012 STATED THAT RETURN FILED ORIGINALL Y ON 9.9.2009 MAY BE TREATED AS RETURN IN RESPONSE TO NOTICE U/S 148. 2.5. THE AO AFTER DISPOSING OFF THE ASSESSEES OBJE CTIONS IN REGARD TO THE REASONS RECORDED, ANALYZED THE CONTRACT AND CONCLUDED THAT IT WAS A COMPOSITE CONTRACT GIVEN ON TRUNKEY BASIS AND THE OFF SHORE SUPPLY OF THE EQUIPMENT WAS NOTHING BUT ESSENTIAL MATERIAL REQUIRED FOR EXECUTION OF THE PR OJECT, WHICH WAS SHOWN TO HAVE BEEN SUPPLIED BY THE ASSESSEE TO THE ONGC TO BRING THE SAME TO INDIA FOR USE BY THE ASSESSEE ITSELF FOR THE PURPOSES OF EXECUTION O F THE SUBJECT CONTRACT. HE COMPUTED THE INCOME @ 25% AS UNDER: 4 TOTAL RECEIPTS AS WORKED OUT ABOVE USD 6,05,10,9 26 CONVERTED IN INR @ RS. 49 PER ROI RS. 295,50,35,3 74/- INCOME @ 25% AS DISCUSSED ABOVE RS. 74,12,58,844/- TOTAL INCOME ROUNDED OFF RS. 74,12,58,840/- 2.6. LD. DRP APPROVED THE AOS DRAFT ORDER, BUT DI RECTED FOR COMPUTING THE PROFITS ATTRIBUTABLE TO PE @ 15%. BEING AGGRIEVED, BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT ARE IN APPEAL BEFORE US. ASSESSES APPEAL (ITA NO. 1607) : 3. FOLLOWING GROUNDS ARE RAISED: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE ORDER PASSED BY THE LD. ASSESSING O FFICER ('AO') IS BAD IN LAW AND VOID AB-INITIO. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. AO HAS FAILED TO CARRY OUT THE ASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT IN ACCORDA NCE WITH THE PROVISIONS OF THE INCOME TAX LAW READ WITH JUDI CIAL PRECEDENTS. REASON BEING: (A) THERE WAS AN UNREASONABLE DELAY OF MORE THAN 13 MONTHS IN REJECTING THE OBJECTIONS FILED BY THE APPELLANT AGA INST THE REASONS PROVIDED FOR OPENING OF THE ASSESSMENT PROC EEDINGS UNDER SECTION 147 OF THE ACT. (B) CONSIDERING THE OBJECTIONS WERE REJECTED BY THE AO AFTER A LONG DELAY, THE ASSESSMENT WAS COMPLETED WITHIN A V ERY SHORT PERIOD OF TIME WITHOUT PROVIDING THE APPELLANT ADEQ UATE OPPORTUNITY OF BEING HEARD AND OPPORTUNITY TO THE A PPELLANT TO FURTHER CHALLENGE THE REJECTION ORDER. (C) THE FACTS MENTIONED IN THE REASONS TO BELIEVE W ERE ERRONEOUS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. AO/ LD. DRP HAS ERRED IN TREATI NG THE CONTRACT WITH OIL AND NATURAL GAS CORPORATION ('ONG C') FOR SUPPLIES, INSTALLATION AND TRAINING AS A COMPOSITE CONTRACT AND 5 HOLDING THAT THE APPELLANT HAS A PERMANENT ESTABLIS HMENT ('PE') IN INDIA, IGNORING THE FACT THAT - (A) THE APPELLANT HAS ENTERED INTO A PURE SUPPLY CONTRACT WITH INSTALLATION AND OTHER SERVICES INCIDENTAL TO SUCH SUPPLY. (B) EVEN IF IT IS ASSUMED THAT IT IS NOT A PURE SU PPLY CONTRACT, IT SHOULD BE CONSIDERED AS A DIVISIBLE CONTRACT WITH C ONSIDERATION AGAINST SUPPLY, INSTALLATION AND TRAINING SEPARATEL Y IDENTIFIED. (C) EVEN IF IT IS ASSUMED THAT CONTRACT WITH ONGC I S COMPOSITE IN NATURE, THE TAXABILITY OF VARIOUS INCOME STREAMS SHOULD BE DETERMINED SEPARATELY. (D) THE APPELLANT DOES NOT HAVE A PE IN INDIA; NO F ACTS WERE BROUGHT ON RECORD BY THE AO TO ESTABLISH THE EXISTE NCE OF PE. (E) IN THE ABSENCE OF THE APPELLANT HAVING A PE IN INDIA, THE CONSIDERATION FROM CONTRACT WITH ONGC IS NOT TAXABL E IN INDIA. (F) WITHOUT PREJUDICE TO ABOVE, EVEN ASSUMING (THOU GH NOT CONCEDED) THAT THE APPELLANT HAS A PE IN INDIA, THE LD. AO/LD. DRP HAS FAILED TO BRING ANY MATERIAL ON RECORD WHIC H COULD SUBSTANTIATE THAT THE INCOME FROM CONTRACT WITH ONG C IS ATTRIBUTABLE TO THE ALLEGED PE. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. AO/ LD. DRP HAS ERRED IN TAXING THE OFF- SHORE SUPPLIES IN INDIA. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. AO/ LD. DRP HAS ERRED IN TAXING THE ON- SHORE SUPPLIES IN INDIA 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. AO/ LD. DRP HAS ERRED IN TAXING THE CONSIDERATION FOR INSTALLATION AND INSPECTION ACTIV ITIES IN INDIA 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. AO/ LD. DRP HAS ERRED IN TAXING THE CONSIDERATION FOR TRAINING SERVICES. 8. THAT THE LD. AO/ LD. DRP HAS FAILED TO PROVIDE P LAUSIBLE EXPLANATIONS FOR REJECTING THE ARGUMENTS OF THE APP ELLANT REGARDING NON-TAXABILITY OF VARIOUS INCOME STREAMS. 6 9. THAT THE LD. AO I LD. DRP HAS ERRED ON FACTS AND IN LAW IN ESTIMATING THE INCOME ATTRIBUTABLE TO ALLEGED PE IN INDIA AT THE RATE OF 15%, INSTEAD OF DETERMINING THE INCOME ATTRIBUTABLE TO THE ALLEGED PE UNDER SECTION 92 OF THE ACT (READ WITH SECTIONS 92A TO 92F OF THE ACT AND RULES 10A TO 10E OF THE RULES). 10. THAT THE LD. AO/ LD. DRP HAS FAILED TO PROVIDE ANY RATIONALE FOR ATTRIBUTING INCOME AT THE RATE OF 15% OF GROSS RECEIPTS 11. THAT THE LD. AO HAS ERRED IN CHARGING INTEREST UNDER SECTION 234B OF THE ACT TO THE APPELLANT. 4. APROPOS GROUND NO. 2, RELATING TO CHALLENGE TO R EASSESSMENT PROCEEDINGS, LD. COUNSEL POINTED OUT THAT ASSESSEE IS A TAX RESIDENT OF USA. IT HAS NO PE IN INDIA. ONLY THE CONTRACT WAS SIGNED IN INDIA. HE REFERRED TO PAGE 25 OF THE PB, WHEREIN LETTER DATED 1.3.2007 REGARDING NO OBJECTION CERTI FICATE IN CASE OF M/S INPUT/ OUTPUT INC. USA, FOR RELEASING PAYMENT OF USD 61010 92672 ONLY AGAINST PURCHASE ORDER NO. MAT/IMP/E-II/3(2735)/2005-06/ZA2 3LO6004 DATED 3.1.2007 IS CONTAINED. HE ALSO FILED COPY OF ORDER PASSED U /S 195(2) DATED 26.2.2007 IN COURSE OF HEARING WHEREIN ONGC WAS, INTER ALIA, DIR ECTED TO DEDUCT TDS AFTER APPLYING DPR 2% ON GROSS VALUE OF THE SUPPLY OF MAT ERIAL INSIDE INDIA. HOWEVER, ONGC WAS ALSO DIRECTED TO DEDUCT TDS AFTER APPLYING DPR 105% ON THE INSTALLATION AND COMMISSIONING OF 15% (INCLUDING NE CESSARY CHART) ON 3 RD PARTY INSPECTION CHARGES, TRAINING CHARGES INSIDE INDIA U NDER THE DTAA. FURTHER, IT WAS DIRECTED THAT NO DEDUCTION OF TAX AT SOURCE ON THE GROSS VALUE OF THE SUPPLY OF MATERIAL OUTSIDE INDIA AND TRAINING OUTSIDE INDIA. THUS, HE POINTED OUT THAT THE AO HAD DULY APPLIED HIS MIND AND ALLOWED THE PAYMENT T O BE RELEASED WITHOUT DEDUCTION OF TDS IN RESPECT OF SUPPLY OF MATERIAL O UTSIDE INDIA AND TRAINING OUTSIDE INDIA. 7 4.1. LD. COUNSEL POINTED OUT THAT RETURN FOR AY 200 8-09 WAS FILED ON 9.9.2009 AT NIL INCOME, WHICH WAS PROCESSED U/S 143(1). HOWEVER , FOR AY 2009-10, ASSESSEE HAD OFFERED REVENUE FROM TRAINING AND INSTALLATION BUT NO INCOME WAS OFFERED FOR OFF SHORE SUPPLY AND SERVICES. ASSESSMENT WAS COMPL ETED U/S 143(3). IN THIS ASSESSMENT IT WAS HELD THAT ASSESSEE WAS HAVING A P E IN INDIA AND SUPPLY WAS LIABLE TO TAX ON THE GROUND THAT IT WAS A COMPOSITE CONTRACT. 4.2. THEREAFTER, MATTER TRAVELLED BEFORE LD. DRP, W HICH HELD THAT THE SUPPLIES TOOK PLACE IN FY 2007-08 AND NOT IN FY 2008-09 AND, THEREFORE, THE ADDITIONS WERE TO BE MADE IN AY 2008-09. ACCORDINGLY, NOTICE U/S 1 48 WAS ISSUED. HE SUBMITTED THAT IT IS A CASE OF CHANGE OF OPINION. 5. LD. CIT(DR) SUBMITTED THAT GRANTING OF CERTIFICA TE U/S 195 CANNOT BE EQUATED WITH ASSESSMENT PROCEEDINGS, BECAUSE THAT IS PUREL Y ADMINISTRATIVE ACT AND HAS NO BEARING ON THE FINAL ASSESSMENT TO BE MADE. 6. BEFORE WE PROCEED TO DECIDE THIS ISSUE, WE MAY P OINT OUT THAT ASSESSEE FILED AN APPLICATION FOR ADMISSION OF ADDITIONAL GROUND O N THE GROUND THAT DRP HAD ABSTAINED FROM GIVING ANY FINDING ON REASSESSMENT P ROCEEDINGS. HOWEVER, IN COURSE OF HARING, HE DID NOT PRESS THIS GROUND. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. IN OUR OPINION, THE ORDER P ASSED U/S 195 ONLY PRIMA FACIE DETERMINES THE INCOME CHARGEABLE FOR THE PURPOSES O F TDS. THIS CANNOT BE EQUATED WITH ASSESSMENT PROCEEDINGS U/S 143(3). IT IS ONLY IN CASE WHERE AO HAS FORMED AN OPINION WHILE FRAMING ASSESSMENT U/S 143(3) THAT REASSESSMENT PROCEEDINGS CANNOT BE INITIATED ON MERE CHANGE OF OPINION. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE TECHNICAL OBJECTION RAISED BY ASSESSEE ON IN ITIATION OF REASSESSMENT PROCEEDINGS. IN THE RESULT GROUND NO. 2 IS REJECTED . 8. GROUND NOS. 3 & 4 : NOW COMING TO THE MERITS OF THE CASE, THE FIRST ASPECT WHICH IS TO BE DECIDED IS WHETHER IT WAS A COMPOSITE CONTRACT, AS HELD BY 8 AO, OR A PURE SUPPLY CONTRACT OR A DIVISIBLE CONTRA CT, AS CLAIMED BY ASSESSEE. AS PER THE CONTRACT, CONTAINED AT PAGE 68 OF PB AND AS NOTED BY LD. DRP, THE ASSESSEE COMPANY HAD TO SUPPLY THE FOLLOWING EQUIPMENTS: S. NO. DESCRIPTION OF GOODS PRICE (IN USD) 1 4 UNITS OF COMPLETE 3D DATA ACQUISITION ANALOG 20 00 CHANNELS SYSTEM ALONG WITH ALL NECESSARY MODULES 10,483,172.92 2 2 UNITS OF COMPLETE 3D DATA ACQUISITION ANALOG 30 00 CHANNELS SYSTEM ALONG WITH ALL NECESSARY MODULES 6,959,453.98 3 1 UNIT OF COMPLETE 3D DATA ACQUISITION ANALOG 400 0 CHANNELS SYSTEM ALONG WITH ALL NECESSARY MODULES 4,328,930.47 4 2 UNITS OF COMPLETE 3D DATA ACQUISITION DIGITAL 2000 ACQUISITION POINTS (AP) SYSTEM ALONG WITH ALL NECES SARY MODULES 7,966,969.47 5 2 UNITS OF COMPLETE 3D DATA ACQUISITION DIGITAL 3000 ACQUISITION POINTS (AP) SYSTEM ALONG WITH ALL NECES SARY MODULES 11,169,995.90 6 2 UNITS OF COMPLETE 3D DATA ACQUISITION DIGITAL 3000 ACQUISITION POINTS (AP) SYSTEM ALONG WITH ALL NECES SARY MODULES 14,270,065.90 7 1 UNIT OF COMPLETE 3D DATA ACQUISITION ANALOG SYS TEM WITH 4000 CHANNELS FOR TRANSITION ZONE ALONG WITH NECES SARY MODULES 4,643,827.73 TOTAL 59,822,416.80 8.1. THE ASSESSEE COMPANY ALSO REQUIRED TO PROVIDE OFF SHORE AND ON SHORE TRAINING INSTALLATION AND THIRD PARTY INSPECTION. DETAILS OF CONSIDERATION FOR SUCH SERVICES AGAINST EACH OF THE ITEMS MENTIONED IN THE ABOVE DETAILS WERE AS UNDER: S. NO. OFF-SHORE TRAINING INSTALLATION ON-SHORE TRAINING INSPECTION SERVICE TAX TOTAL 1 100,000 2,000 42,856 24,000 4,000 172,856 2 50,000 1,000 21,429 12,000 1,000 85,429 3 25,000 500 10,714 6,000 250 42,464 4 50,000 1,000 21,429 12,000 1,000 85,429 5 50,000 1,000 21,429 12,000 1,000 85,429 9 6 50,000 1,000 21,429 12,000 1,000 85,429 7 25,000 500 10,714 6,000 250 42,464 TOTAL 350,000 7,000 150,000 84,000 8,500 599,500 8.2. IN ADDITION TO THIS, THE ASSESSEE COMPANY WAS ALSO REQUIRED TO SUPPLY INDIGENOUS GOODS VALUE OF US $ 589010. THE TOTAL SU PPLY (US $ 59822417 + US $ 589010 AND SERVICES US $ 589500) AMOUNTED TO US $ 61010927. THE SUMMARIZED BREAK UP OF CONSIDERATION UNDER THE CONTRACT WITH O NGC WAS AS UNDER: PARTICULARS AMOUNT (IN USD) SUPPLIES -OFF-SHORE 59,822,416.80 -ON-SHORE 589,010.00 TOTAL (A) 60,411,426.80 SERVICES - TRAINING (OFF-SHORE) 350,000 - TRAINING (ON-SHORE) 150,000 - INSTALLATION 7,000 - INSPECTION 84,000 TOTAL (B) 591,000 SERVICE TAX 8,500 TOTAL CONSIDERATION (A+B+C) 61,010,926.80 8.3. LD. COUNSEL REFERRED TO PAGE 69 OF PB TO DEMON STRATE THAT THE CONTRACT WAS LABELED AS SUPPLY/ PURCHASE ORDER. 8.4. LD. COUNSEL FURTHER REFERRED TO PAGE 71 OF THE PB WHEREIN THE DELIVERY/ COMPLETION PERIOD IS GIVEN, WHICH READS AS UNDER: DELIVERY/ COMPLETION PERIOD 1. DELIVERY OF MATERIAL : MUST BE DISPATCHED AS PER BELOW MENTIONED SCHEDULE: 10 - WITHIN 120 DAYS FROM LOA: 2 UNITS FOR FRONTIER B ASIN (FB), DEHRADUN EXCEPT HYDROPHONES OF UNITS PERTAINING TO FRONTIER BASIN, DEHRADUN - WITHIN 150 DAYS FROM LOA: 4 UNITS FOR GEOPHYSICA L SERVICES (GS), BARODA (WR) AND HYDROPHONES OF 2 UNITS OF FRO NTIER BASIN(FB), DEHRADUN - WITHIN 180 DAYS FROM LOA: 3 UNITS FOR GS, CHENNA I (SR) - WITHIN 210 DAYS FROM LOA: 2 UNITS FOR GS-KOLKATA (CR) AND 3 UNITS OF GS, JORHAT (ER) II. INSTALLATION, COMMISSIONING AND ACCEPTANCE : WITHIN 30 DAYS FOR ALL THE SYSTEMS PERTAINING TO EACH ULTIMAT E CONSIGNEE FROM THE DATE OF RECEIPT OF INTIMATION BY RESPECTIV E ULTIMATE CONSIGNEE. THE INTIMATION WILL BE SENT BY HEAD, GEO PHYSICAL SERVICES OF CONCERNED WORK CENTER AFTER RECEIPT OF ALL THE ITEMS OF TELEMETRY SYSTEMS BELONGING TO THAT SITE TO THE SUPPLIER (I.E, M/S INPUT/ OUTPUT INC., USA). B. TRAININGS : I. AT SUPPLIER'S PREMISES. USA : SUPPLIER WILL IMPART TRAINING TO 14 GEOPHYSICISTS O F ONGC FOR A PERIOD OF FOUR (4) WEEKS AND 14 ENGINEERS FOR A P ERIOD OF SIX WEEKS. TRAINING WILL BE COMPLETED BEFORE COMPLETION OF DELIVERY (DISPATCH) OF ALL THE SYSTEMS. THE SCHEDUL E OF TRAINING IS GIVEN AT APPENDIX-IM. II. AT FIVE SITES OF ONGC IN INDIA SUPPLIER WILL IMPART ONE TRAINING EACH FOR GEOPHYSI CISTS AND ENGINEERS FOR A PERIOD OF 2 WEEKS EACH AT ONGC-JORH AT, CHENNAI.BARODA, KOLKATA AND DEHRADUN FOR A BATCHES OF MAXIMUM OF R GEOPHYSICISTS & 8 ENGINEERS FOR EACH S ITE. THE TRAINING WILL BE COMPLETED DURING INSTALLATION AND COMMISSIONING OF THE SYSTEMS AT THE CONCERNED SITE. 11 8.5. HE FURTHER REFERRED TO PAGE 72 OF THE PB, WHER EIN TERMS OF DELIVERY ARE CONTAINED, WHICH ARE REPRODUCED HEREUNDER: FOR IMPORTED ITEMS TO AIRFREIGHT : FCA, DUBAI AIRP ORT. UAE FOR IMPORTED ITEMS TO BE SEA-FREIGHTED: FOB, DUBAI SEAPORT FOR INDIGENOUS ITEMS TO BE SUPPLIED FROM INDIA: FOR DESTINATION BARODAIJORHATLCHENOAILKOLKATA1DEHRA DUN (DEPENDING UPON THE DESTINATION) ONGC RESERVES THE RIGHT TO CHANGE TERMS OF DELIVERY FOR SEA- FREIGHTED ITEMS FROM FOB TO C&F BASIS ON THE BASIS OF SEA- FREIGHT AMOUNTS QUOTED BY M/S INPUT-OUTPUT, USA IN HIS OFFER . 8.6. WITH REFERENCE TO THESE TERMS OF DELIVERY, LD. COUNSEL SUBMITTED THAT IT IS EVIDENT THAT RIGHT TO PROPERTY IN THE ITEMS PASSED IN DUBAI AND NOT IN INDIA. 8.7. LD. COUNSEL FURTHER REFERRED TO PAGE 75 OF THE PB, WHEREIN TERMS OF PAYMENTS ARE CONTAINED, WHICH ARE REPRODUCED HEREUNDER: 14.1 90% PAYMENT OF ORDERED VALUE OF IMPORTED MATER IAL THROUGH IRREVOCABLE LETTER OF CREDIT, VALID FOR A P ERIOD OF 210 DAYS FOR SHIPMENT AND ADDITIONAL IJ DAYS FUR NEGOTI ATION OF DOCUMENTS. THE PAYMENT SHALL BE MADE AGAINST PROOF OF DISPATCH AND PRODUCTION OF OTHER RELEVANT DOCUMENTS AS MENTIONED AT CLAUSE 17 OF THIS PURCHASE ORDER. PART PAYMENT WILL BE ALLOWED FOR THE VALUE OF THE UNITS MENTIONE D FOR EACH CONSIGNEE/USER PROVIDED THE COMPLETE ITEMS MEANT FO R EACH CONSIGNEE/USER ARE SHIPPED/AIR-FREIGHTED. THE SUPPL IER @ WOULD PRESENT THE DOCUMENTS FOR NEGOTIATIONS FOR THE VALU E OF COMPLETE UNITS CONSIGNEE-WISE AFTER THE SAME ARE SH IPPED/AIR- FREIGHTED.THE LETTER OF CREDIT WILL BE OPENED BY MANAGER(F&A)-KDMIPE, ONGC, DEHRADUN. THE LC WILL BE ESTABLISHED IN FAVOUR OF SUPPLIER IN ANY PRIME BANK IN USA. 14.2 PAYMENT OF BALANCE 10% OF ORDERED VALUE OF IMP ORTED ITEMS, 100% VALUE OF INSTALLATION & COMMISSIONING C HARGES, 100% VALUE OF INDIGENOUS ITEMS AND 100% TRAINING CH ARGES THROUGH SEPARATE IRREVOCABLE LETTER OF CREDIT, AFTE R SATISFACTORY COMPLETION OF INSTALLATION, COMMISSIONING, ACCEPTAN CE AND TRAINING AS PER PROVISIONS OF SUPPLY ORDER. THE PAY MENT WILL BE 12 MADE AGAINST PRESENTATION OF FOLLOWING DOCUMENTS BY SUPPLIER THROUGH THEIR BANK TO STATE BANK OF INDIA, TEL BHAV AN BRANCH, DEHRADUN-248 003 (INDIA) : A) INVOICE AS PER SUPPLY ORDER, IN TRIPLICATE, DRAW N IN THE NAME OF OIL & NATURAL GAS CORPORATION LTD. AND DULY MANUALLY SIGNED BY THE SUPPLIER OR HIS AUTHORISED REPRESENTA TIVE B) QUALITY CONTROL CERTIFICATE ISSUED JOINTLY BY HE AD- QUALITY ASSURANCE AND INDENTOR OF CONCERNED REGION. C) CERTIFICATE OF TPI FOR EACH SYSTEM AS PER PARA 1 0.1 (B) ABOVE. D) ORIGINAL CERTIFICATE(S) OF SATISFACTORY INSTALLA TION, COMMISSIONING, ACCEPTANCE ISSUED BY HEAD, GEOPHYSIC AL SERVICES OR HIS AUTH. REP. OF CONCERNED SITE. E) CERTIFICATE OF SATISFACTORY COMPLETION OF TRAINI NG (IN INDIA & AT SUPPLIER'S PREMISE); AT USA) BY CONCERNED INDE NTOR OR HIS AUTH. REPRESENTATIVE. 14.3 ALL FOREIGN BANK CHARGES TOWARDS ADVISING NEGOTIATIONS/CABLE CHARGES AND CONFIRMATIONS OF LET TER OF CREDIT CHARGES, IF REQUIRED, WILL BE BORNE BY THE SUPPLIER . ALL INDIAN BANK CHARGES WILL, HOWEVER BE BORNE BY ONGC. 14.4 THE CORPORATE &, PERSONNEL TAX LIABILITY (IMPO SED ON HIS EMPLOYEES AND THE EMPLOYEES OF HIS SUB-CONTRACTOR, VENDORS, BANK-UP CONSULTANTS ETC. ON ACCOUNT OF THEIR ASSOCI ATION WITH OR FOR PERFORMANCE OF THE WORK IN INDIA) AGAINST THIS ORDER WILL BE BORNE BY SUPPLIER. THIS IS NOT A TAX PROTECTED CONT RACT AND ONGC WILL SIMPLY RECOVER THE TAX ASSESSED BY TAX AU THORITIES FROM THE PAYMENT DUE TO SUPPLIER. 8.8. WITH REFERENCE TO AFOREMENTIONED COVENANTS OF THE CONTRACT, LD. COUNSEL POINTED OUT THAT ALL THE ITEMS WERE RELATED TO SUPP LY OF EQUIPMENT AND INSTALLATIONS AND COMMISSIONING AND TRAINING. THEREFORE, IT WAS N OT A TRUNKEY CONTRACT. THE ORDER WAS FOR SUPPLY/ PURCHASE OF EQUIPMENT AS CONT RACT REFERS TO SUPPLIER AND INDENTOR. 8.9. LD. COUNSEL FURTHER SUBMITTED THAT THE EQUIPME NT BEING A SCIENTIFIC EQUIPMENT, REQUIRED PROPER TRAINING. THE INSTALLATI ON AND TRAININGS WERE, THUS, PART 13 OF SUPPLY OF EQUIPMENT. HE SUBMITTED THAT IT IS ME RE A CASE OF DELIVERY BY ONE PERSON FOLLOWED BY VISIT OF TECHNICIANS WHO INSTALL ED THE MACHINE AND TRAINED THE PERSONS WHO WOULD BE OPERATING. 8.10. LD. COUNSEL FURTHER POINTED OUT THAT CONTRACT CLEARLY SPECIFIES PRICES OF EQUIPMENT, INSTALLATION AND TRAINING BOTH WITHIN AN D OUTSIDE INDIA, WHICH IS EVIDENT FROM ANNEXURE 1 TO THE CONTRACT. LD. COUNSEL FURTHE R REFERRED TO PAGE 248 OF THE PB, WHEREIN CLAUSE 1.10 OF ANNEXURE 2 TO THE CONTRA CT READS AS UNDER: SERVICES : SHALL MEAN THOSE SERVICES ANCILLARY TO THE SUPPLY OF GOODS, SUCH AS TRANSPORTATION AND INSURANCE AND ANY OTHER INCIDENTAL SERVICES, SUCH AS INSTALLATION, COMMISSI ONING, PROVISION OF TECHNICAL ASSISTANCE, TRAINING AND OTH ER SUCH OBLIGATIONS OF THE SUPPLIER COVERED UNDER THE CONTR ACT . 8.11. THUS, HE SUBMITTED THAT SERVICES WERE MERELY INCIDENTAL OR ANCILLARY TO MAIN SUPPLY. HE, THEREFORE, SUBMITTED THAT IT IS NOT AT ALL A CASE OF COMPOSITE CONTRACT BUT A PURE SUPPLY CONTRACT OR IN THE ALTERNATIVE A DIVI SIBLE CONTRACT, BECAUSE PAYMENT OF CONSIDERATION FOR VARIOUS ACTIVITIES WAS NOT DEPEND ENT ON THE COMPLETION OF OTHER ACTIVITIES OR WHOLE CONTRACT. LD. COUNSEL POINTED O UT THAT AO DID NOT DEAL WITH THE ARGUMENTS OF THE ASSESSEE COMPANY ON THIS COUNT. 9. LD. CIT(DR) RELIED ON THE ORDER OF AO, PASSED IN PURSUANCE TO THE DIRECTIONS OF LD. DRP AND SUBMITTED THAT CONTRACT IS TO BE LOO KED AS IT IS. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. FROM THE VARIOUS COVENANTS , REPRODUCED ABOVE, IT IS EVIDENT THAT ASSESSEE HAD ENTERED INTO A SINGLE CONTRACT WI TH MULTIPLE SCOPE OF WORK AND, THEREFORE, IT COULD NOT BE CONSIDERED AS A COMPOSIT E CONTRACT WHERE THE CONSIDERATION FOR THE CONTRACT AS A WHOLE IS CONTEM PLATED. FROM THE TERMS OF CONTRACT IT IS EVIDENT THAT THE WHOLE CONTRACT WAS DIVISIBLE INTO DIFFERENT COMPONENTS, THE CONSIDERATION FOR WHICH WAS SEPARAT ELY CONTEMPLATED IN THE 14 CONTRACT ITSELF. FURTHER, FROM THE ASSESSMENT ORDER IT IS EVIDENT THAT AO HAD AGGREGATED THE INCOME FROM VARIOUS STREAMS AND HAD NOT ADOPTED ANY SPECIFIC VALUE OF THE CONTRACT. 10.1. HAVING HELD THAT IT WAS A DIVISIBLE CONTRACT WITH MULTIPLE SCOPE OF WORK, WE HAVE TO FIND OUT WHERE THE TITLE IN GOODS PASSED. I F TITLE IN GOODS PASSED OFF SHORE, THEN NO INCOME CAN BE ATTRIBUTED FROM THIS PART OF THE CONTRACT IN INDIA. AT PAGE 82 OF PB WHEREIN THE ANNEXURE 1 TO THE SUPPLY ORDER IS CONTAINED, THE CONTRACT CLEARLY MENTIONS THE CONSIDERATION IN RESPECT OF EQUIPMENT, INSTALLATION AND COMMISSIONING, THIRD PARTY CHARGES, SERVICE TAX CHA RGES FOR TRAINING FOR VARIOUS SERVICES SEPARATELY. AS PER THE TERMS OF DELIVERY, REPRODUCED EARLIER, IT IS EVIDENT THAT TERMS FOR IMPORTED ITEMS THROUGH SEA WAS FOB A ND THROUGH AIR IT WAS FCA. FCA IMPLIES THAT SELLER FULFILLS HIS OBLIGATIONS TO DELIVER WHEN HE HAS HANDED OVER THE GOODS, CLEARED FOR EXPORT, INTO THE CHARGE OF T HE CARRIER NAMED BY THE BUYER AT THE NAMED PLACE OF POINT AND FOB IMPLIES THAT THE S ELLER FULFILLS HIS OBLIGATION TO DELIVER WHEN THE GOODS HAVE PASSED OVER THE SHIPS RAIL AT THE NAMED PORT OF SHIPMENT. THIS MEANS THAT THE BUYER IS TO BEAR ALL COSTS AND RISKS OF LOSS OF OR DAMAGE TO THE GOODS FROM THAT POINT. 10.2. UNDER BOTH THE CIRCUMSTANCES, VIZ. THROUGH AI R OR THROUGH SEA, THE TITLE IN GOODS PASSED OFF SHORE AND, THEREFORE, NO PART OF T HE CONSIDERATION COULD BE ATTRIBUTED TO THE SUPPLIES IN INDIA. THESE ASPECTS BECOME FURTHER CLEAR IF WE EXAMINE THE DISPATCH INSTRUCTIONS, PACKING AND INSU RANCE COVENANT, SHIPPING ARRANGEMENT AS PER COVENANT 18. 10.3. NOW LET US EXAMINE THIS ISSUE FROM THE PERSPE CTIVE OF INCOME-TAX ACT. SECTION 9(1)(I) OF THE ACT PROVIDES THAT INCOME SHA LL BE DEEMED TO ACCRUE OR ARISE IN INDIA IF SUCH INCOME HAS ACCRUED OR ARISEN THROU GH OR FROM A BUSINESS CONNECTION IN INDIA. FURTHER, EXPLANATION 1 TO SECT ION 9(1)(I) OF THE ACT PROVIDES THAT WHERE A BUSINESS, OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE 15 INCOME OF THE BUSINESS DEEMED TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPE RATIONS CARRIED OUT IN INDIA. 10.4. ADMITTEDLY NO PORTION OF THE OFFSHORE SUPPLIE S INVOLVED ANY ACTIVITIES IN INDIA AS ALL THE ACTIVITIES IN RELATION TO THE EARN ING OF INCOME FROM OFFSHORE SUPPLIES TOOK PLACE OUTSIDE INDIA. NOW EVEN ASSUMING THAT ON ACCOUNT OF CONTRACT BEING SIGNED IN INDIA, A BUSINESS CONNECTION HAD BEEN EST ABLISHED, STILL WE HAVE TO EXAMINE THE ISSUE FROM INDIA US DTAA POINT OF VIEW AS THE ASSESSEE WAS ELIGIBLE TO CLAIM BENEFIT UNDER THE TREATY. AS PER ARTICLE 7 (1) OF THE INDIA US DTAA, THE BUSINESS INCOME OF A US ENTITY CAN BE TAXED IN INDI A ONLY IF IT HAD PE IN INDIA. THE AO HELD THAT ASSESSEE HAD PE IN INDIA FOR INSTALLAT ION AND COMMISSIONING AND SUPPLY WHICH ALSO INCLUDED THE INDIGENOUS SUPPLY AN D PRESENCE OF ITS PERSONNEL/ ENTITIES FOR PROVIDING TRAINING TO ONGC PERSONNEL. THESE OBSERVATIONS ARE PRIMARILY WITH REFERENCE TO THE CONTRACT BEING TREA TED AS A COMPOSITE CONTRACT AND DOES NOT REFER TO WHICH PE AS PER ARTICLE 5 OF THE INDIA-US TREATY WAS THERE. ADMITTEDLY THE ASSESSEE HAD NO FIXED PLACE OF BUSIN ESS IN INDIA AND ITS EMPLOYEES ONLY GAVE TRAINING FOR PROPER EXECUTION OF THE PROJ ECT. FURTHER, ASSESSEE COMPANY DID NOT TAKE THE SERVICES OF ANY PERSON IN INDIA EX CEPT FOR SUPPLY OF INDIGENOUS PARTS AND, THEREFORE, THERE WAS NO DEPENDENT AGENT PE IN INDIA ALSO. THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SUBSTANTIATE THAT THE INCOME FROM OFFSHORE SUPPLIES WAS ATTRIBUTABLE TO ALLEGED PE. 10.5. FURTHER, IF WE CONSIDER THE AOS VIEW THAT TH ERE WAS INSTALLATION PE, THEN TOO AS PER ARTICLE 5(2)(J)&(K), THERE SHOULD HAVE BEEN PRESENCE FOR MORE THAN 120 DAYS THEN ONLY INSTALLATION PE COULD BE CONSIDERED. THE AO HAS NOT COMMENTED ON THIS ASPECT. THEREFORE, THE ENTIRE FINDINGS OF AO ON THE ISSUE RELATING TO PE ARE WITHOUT ANY BASIS. THEREFORE, CONSIDERED FROM ALL PERSPECTI VES NO INCOME CAN BE ATTRIBUTED TO THE OFFSHORE SUPPLY. IN THE RESULT GROUND NOS. 3 & 4 ARE ALLOWED. 16 11. NOW COMING TO GROUND NO. 5, LD. COUNSEL POINTED OUT THAT AS FAR AS ONSHORE SUPPLY OF EQUIPMENT WAS CONCERNED, IT WAS SUB-CONTR ACTED TO THIRD PARTY NAMELY HGS (INDIA) SALES AND SERVICES PRIVATE LIMITED (HG S INDIA). LD. COUNSEL POINTED OUT THAT HGS INDIA SUPPLIED GOODS DIRECTLY TO ONGC AMOUNTING TO USD 589,010. THE SAME AMOUNT OF INVOICES WAS RAISED BY HGS INDIA TO THE ASSESSEE COMPANY AND BY THE ASSESSEE COMPANY TO ONGC, HENCE, NO PROFIT WAS EARNED ON THIS TRANSACTION. IN SUPPORT OF HIS CONTENTION, LD. COUNSEL REFERRED TO PAGES 315 TO 321 OF PB. AT PAGE 315, THE QUOTATION FROM HGS INDI A, ADDRESSED TO ASSESSEE IS CONTAINED, IN WHICH IT WAS CLEARLY MENTIONED THAT T HE CONSIGNMENT WILL BE DISPATCHED FROM HGSISSPL TO THE RESPECTIVE ONGC REG IONS IN INDIA FREIGHT PAID AND INSURED UPTO EACH DESTINATION. 11.1. LD. COUNSEL POINTED OUT THAT IT WAS REIMBURSE MENT TO THIRD PARTY OF ACTUAL VALUE AVAILED. IN SUPPORT OF HIS CONTENTION, LD. CO UNSEL REFERRED TO PAGE 96 OF THE PB, WHEREIN TOTAL ORDER VALUE IS CONTAINED, WHEREIN IN RESPECT OF INDIGENOUS ITEMS FOR DESTINATION VALUE HAS BEEN MENTIONED AT USD 589 010. LD. COUNSEL ALSO REFERRED TO PAGE 291 OF PB, WHEREIN DETAILS OF INV OICES RAISED ON ONGC ARE CONTAINED. 12. LD. DR RELIED ON THE ORDER OF AO AND SUBMITTED THAT AO HAS NOT EXAMINED THE ASSESSEES CLAIM OF NO PROFIT BEING INVOLVED IN THE TRANSACTION. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE ASSESSEES CONTENTIONS WERE NOT APPRECIATED BY LOWER REVENUE AUTHORITIES OWING TO THE FACT THAT THEY PRO CEEDED ON THE ASSUMPTION THAT IT WAS A COMPOSITE CONTRACT AND, THUS, TAXED THE REVEN UES FROM ALL THE STREAMS IRRESPECTIVE OF THE TRUE NATURE OF CONTRACT. IF THE ASSESSEE ONLY REIMBURSED THE THIRD PARTY COST WHICH SUPPLIED THE MATERIAL DIRECTLY TO ITS INDENTOR THEN NO PROFIT CAN BE ATTRIBUTED TO THIS ACTIVITY. 17 13.1. LD. COUNSEL HAS REFERRED TO VARIOUS INVOICES ON THIS COUNT, BUT SINCE THIS ASPECT HAS NOT AT ALL BEEN EXAMINED BY AO, THEREFOR E, IT WOULD BE IN THE INTEREST OF JUSTICE THAT THIS MATTER IS RESTORED BACK TO THE FI LE OF AO FOR EXAMINING THE ASSESSEES CONTENTION AND IF IT IS FOUND THAT NO PR OFIT WAS EARNED OUT OF THIS ACTIVITY, THEN NO INCOME CAN BE ATTRIBUTED TO THIS ASPECT. IN THE RESULT GROUND NO. 5 IS ALLOWED FOR STATISTICAL PURPOSES. 14. GROUND NO. 6: REGARDING TAXING OF CONSIDERATION FOR INSTALLATION AND INSPECTION ACTIVITY, THE MAIN CONTENTION OF LD. COU NSEL FOR THE ASSESSEE IS THAT THE REVENUE EARNED BY ASSESSEE FROM THIS ACTIVITY CANNO T BE TAXED AS THE NECESSARY CONDITION FOR INSTALLATION PE AS CONTEMPLATED UNDER ARTICLE 5(2)(J)&(K) ARE NOT FULFILLED AS ASSESSEES PRESENCE IN INDIA WAS NOT F OR 120 DAYS. HE ALSO SUBMITTED THAT ASSESSEE COMPANY DID NOT RENDER INSTALLATION A ND INSPECTION SERVICES TO ONGC IN A MANNER WHICH EQUIPS ONGC WITH SUCH KNOWLEDGE A ND SKILL SO THAT ONGC CAN INDEPENDENTLY CARRY OUT INSTALLATION AND INSPECTION IN FUTURE WITHOUT RECOURSE TO THE ASSESSEE COMPANY. WE FIND THAT BOTH THESE ASPECTS W ERE NOT EXAMINED BY AO AND, THEREFORE, IT WILL BE IN THE INTEREST OF JUSTICE TH AT FOR PROPER VERIFICATION OF FACTS ON THIS COUNT, THE MATTER IS RESTORED BACK TO THE FILE OF AO. WE ORDER ACCORDINGLY. GROUND NO. 6 IS ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO. 7: AT THE TIME OF HEARING LD. COUNSE L SUBMITTED THAT THIS GROUND IS NOT PRESSED AS IT IS. HE, HOWEVER, REFERRED TO PAGE 8 OF AOS ORDER AND POINTED OUT THAT SINCE ONSHORE REVENUE HAS BEEN TAXED IN AY 2009-10, SO THE SAME SHOULD NOT BE TAXED IN AY 2008-09. HE SUBMITTED THAT THE M ATTER MAY BE REFERRED BACK TO THE AO FOR VERIFICATION SO AS TO AVOID ANY DOUBLE T AXATION. 15.1. HAVING HEARD BOTH THE PARTIES, WE REFRAIN FRO M GIVING ANY DIRECTION AS THE GROUND IS NOT PRESSED. IN THE RESULT, THIS GROUND I S DISMISSED. 16. GROUND NO. 8: AO INCLUDED USD 8500 IN REGARD TO SERVICE TAX AS ONE OF THE COMPONENT OF RECEIPT UNDER THE CONTRACT. LD. COUNSE L POINTED OUT THAT THIS ASPECT IS 18 COVERED UNDER GROUND NO. 8 RAISED BY ASSESSEE. HE SUBMITTED THAT ON THIS SERVICE TAX NO INCOME WAS EARNED BY ASSESSEE AS THIS WAS A REVERSE CHARGE AND IS TO BE EXCLUDED. 17. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THI S ISSUE HAS NOT BEEN INDEPENDENTLY EXAMINED BY LOWER REVENUE AUTHORITIES AS THE ENTIRE ISSUE WAS CONSIDERED IN THE BACK DROP OF FINDING THAT IT WAS A COMPOSITE CONTRACT. THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF AO TO EXAMINE THE ISSUE DE NOVO. 18. GROUND NOS. 9 & 10: VIDE GROUND NOS. 9 & 10 THE ASSESSEE HAS ASSAILED THE FINDINGS OF LD. AO/ DRP FOR ESTIMATING THE INCOME A TTRIBUTABLE TO ALLEGED PE IN INDIA @ 15%. 19. AS WE HAVE ALREADY HELD THAT THE MATTER REGARDI NG INSTALLATION PE IS TO BE VERIFIED BY AO. IF AO REACHES A CONCLUSION THAT THE RE WAS INSTALLATION PE, THEN THE INCOME HAS TO BE ATTRIBUTED CONSIDERING THE EXTENT OF FUNCTIONS PERFORMED IN RELATION TO INSTALLATION. 20. LD. COUNSEL HAS POINTED OUT THAT TOTAL PROPORTI ON OF COMPONENTS OTHER THAN SUPPLIES WAS .99% ONLY. FROM THIS IT IS EVIDENT THA T THE FUNCTIONS PERFORMED IN REGARD TO INSTALLATION, INSPECT, TRAINING ETC. WERE QUITE NOMINAL AS COMPARED TO THE OVERALL CONTRACT AND, THEREFORE, THE LD. DRP WAS JU STIFIED IN ATTRIBUTING ONLY 15% OF THE TOTAL REVENUE FROM THESE ACTIVITIES TO ALLEGED PE. ALL WERE FOREIGN NATIONALS WHO IMPARTED TRAINING. THEREFORE, VERY SMALL PORTIO N OF OVERALL ACTIVITY COULD BE ATTRIBUTED TO ALLEGED PE. IN THE RESULT GROUND NOS. 9 & 10 ARE DISMISSED SUBJECT TO AFOREMENTIONED OBSERVATION. 21. GROUND NO. 11. CHARGING OF INTEREST IS CONSEQUE NTIAL. THE AO SHALL RECALCULATE THE CHARGING OF INTEREST U/S 234B, IF A NY, WHILE GIVING EFFECT TO APPELLATE ORDER. 19 REVENUES APPEAL (ITA NO. 1580/DEL/2015): 22. DEPARTMENT IS ONLY AGGRIEVED BY THE FINDING OF LD. DRP IN APPLYING A PROFIT RATE OF 15% ON THE GROSS CONTRACTUAL RECEIPTS OF TH E ASSESSEE FROM M/S ONGC AS AGAINST THE PROPOSED ACTION OF THE AO TO APPLY AN E STIMATED PROFIT RATE OF 25% FOR COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. 23. WE HAVE DECIDED THIS ISSUE VIDE GROUND NOS. 8 & 9 OF ASSESSEES APPEAL AND HAVE UPHELD THE ESTIMATION OF 15% BEING INCOME ATTR IBUTABLE TO ALLEGED PE ONLY IN RESPECT OF INSTALLATION AND TRAINING IN INDIA. THIS WILL, OF COURSE, BE SUBJECT TO AOS FINDING ON PE BEING THERE OR NOT, IN TERMS OF OUR OBSERVATIONS MADE EARLIER. IN THE RESULT, GROUND RAISED BY DEPARTMENT IS DISMISSED. STAY NO. 206/DEL/2016: 24. SINCE THE APPEALS PREFERRED BY THE ASSESSEE AS WELL AS THE REVENUE HAVE DISPOSED OF, THEREFORE, THE STAY PETITION HAS BEEN RENDERED INFRUCTUOUS AND STANDS DISMISSED ACCORDINGLY. 25. IN THE RESULT, STAY NO. 206/DEL/2016 IS DISMISS ED, ASSESSEES APPEAL BEING ITA NO. 1607/DEL/2015 IS PARTLY ALLOWED AND DEPARTM ENTAL APPEAL BEING ITA NO. 1580/DEL/2015 IS DISMISSED. ORDER PRONOUNCEMENT IN OPEN COURT ON 19/08/2016. SD/- SD/- ( C.M. GARG ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19/08/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.