GFA Anlagenbau GmbH, New Delhi V. ADIT, Hyderabad

ITA 1649/HYD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77978 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 22-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: F V IRANI
• Keywords: Reopening of assessment; Business income; Depreciation; Transfer pricing; Double taxation relief; Opportunity of being heard; International transaction; Permanent establishment; Difference of opinion; Change of opinion
• Section: 143(3); 5(2); 234B; 147; 148; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1292/HYD/2011 ASSESSMENT YEAR 2005-06 ITA.NO.1293/HYD/2011 ASSESSMENT YEAR 2006-07 ITA.NO.1649/HYD/2010 ASSESSMENT YEAR 2007-08 ITA.NO.1294/HYD/2011 ASSESSMENT YEAR 2008-09 ITA.NO.2226/HYD/2011 ASSESSMENT YEAR 2008-09 ITA.NO.1274/HYD/2012 ASSESSMENT YEAR 2009-10 M/S. GFA ANLAGENBAU GMBH, NEW DELHI ( PAN - AAACG 8080 Q ) V/S. DY./ASSTT. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION)-I, HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: MR. F.V. IRANI REVENUE BY: MR. P. SOMASEKHAR REDDY, DATE OF HEARING: 19.06.2014 DATE OF PRONOUNCEMENT: 27.06.2014 O R D E R PER B. RAMAKOTAIAH, A.M. THERE ARE SIX APPEALS IN THIS BUNCH. WHILE ITA NO.2226/HYD/2011 IS DIRECTED AGAINST THE ORDER OF T HE COMMISSIONER OF INCOME-TAX (APPEALS)-V, HYDERABAD D ATED 31.10.2011 FOR THE ASSESSMENT YEAR 2008-09, THE REM AINING FIVE ARE DIRECTED AGAINST THE ORDERS OF ASSESSMENT PASSED BY THE ASSESSING OFFICER, VIZ. ASSISTANT DIRECTOR OF INCOME-TAX(INTE RNATIONAL TAXATION)- I, HYDERABAD, IN PURSUANCE OF THE ORDERS OF DISPUTE RESOLUTION PANEL(DRP) HYDERABAD, FOR THE ASSESSMENT YEARS 2005 -2006 TO 2009- 2010. SINCE COMMON ISSUES ARE INVOLVED, THESE APPEA LS ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 2 ITA NO.1649/HYD/10 -ASSESSMENT YEAR 2007-08 ITA NO.1292/HYD/11- ASSESSMENT YEAR 2005-06 ITA NO.1293/HYD/11- ASSESSMENT YEAR 2006-07 ITA NO.1294/HYD/11- ASSESSMENT YEAR 2008-09 ITA NO.1274/HYD/12- ASSESSMENT YEAR 2009-10 2. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E IS A FOREIGN COMPANY INCORPORATED IN GERMANY. IT IS ENG AGED IN THE ACTIVITY OF SUPERVISION, ERECTION, COMMISSIONING OF PLANT AND MACHINERY FOR STEEL AND ALLIED PLANTS IN INDIA. ASS ESSEE FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 RE FLECTING GROSS RECEIPTS OF RS.8,19,32,566 ON 27.10.2005. DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECEIVED CONTRACTUA L RECEIPTS AGGREGATING TO RS.8,19,32,526 FROM THE M/S. TATA IR ON & STEEL CO. LIMITED, BOMBAY, M/S. SMS DEMAG PVT. LTD., NEW DELH I AND M/S. JINDAL STRIPS LTD., BHUBANESHWAR, STEEL AUTHORITY O F INDIA FOR RENDERING TECHNICAL AND SUPERVISION SERVICES. IT W AS ALSO NOTICED THAT THE ASSESSEE HAD RENDERED SERVICES TO THE ABOV E MENTIONED RESIDENT COMPANIES BY ENGAGING FOREIGN TECHNICIANS AT THE WORK-SITES IN INDIA AND THE TOTAL STAY OF TECHNICIANS DEPUTED BY THE ASSESSEE- COMPANY ON ONE PROJECT IN THE CASE OF JINDAL STRIPS LTD HAD EXCEEDED 183 DAYS. ( 220 DAYS). ON THE BASIS OF THESE PARTIC ULARS OF STAY, ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE WAS H AVING PERMANENT ESTABLISHMENT WITHIN THE MEANING OF ARTICLE 5 OF DT AA BETWEEN INDIA AND GERMANY. AO WAS OF THE VIEW THAT THE INCOME OF THE ASSESSEE WAS LIABLE TO BE TAXED UNDER THE HEAD BUSINESS PRO FITS IN TERMS OF ARTICLE 7 OF THE DTAA BETWEEN INDIA AND GERMANY. A CCORDINGLY, THE ASSESSING OFFICER ISSUED NOTICE UNDER S.148 TO THE ASSESSEE ON 30.3.2010. NO EXPENDITURE WAS ALLOWED TO ASSESSEE A ND ENTIRE RECEIPTS IN RESPECTIVE YEARS WERE TAXED AS BUSINES S INCOME AT HIGHER RATE. ULTIMATELY, AS PER THE DIRECTIONS OF THE DISP UTES RESOLUTION PANEL IN TERMS OF S.144C OF THE ACT CONTAINED IN IT S ORDER DATED ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 3 12.4.2011, THE ASSESSING OFFICER PROCEEDED TO ASSES S THE TOTAL CONTRACTUAL RECEIPTS OF RS.8,19,32,526, AFTER ALLOW ING DEDUCTION AT 50% FROM THE GROSS RECEIPTS TOWARDS EXPENDITURE INC URRED IN RELATION TO THE EXECUTION OF CONTRACTS, DETERMINED THE INCOM E AT RS.4,09,66,263, IMPOSING TAX APPLYING A RATE OF 40% IN ADDITION TO SURCHARGE AND EDUCATION CESS, AS APPLICABLE UNDER T HE PROVISIONS OF S.44DA OF THE ACT, I.E. TREATING THE SAME AS PROFIT S AND GAINS OF THE BUSINESS, VIDE ASSESSMENT ORDER DATED 5 TH MAY, 2011 PASSED UNDER S.143(3) READ WITH S.144C OF THE ACT. 3. FACTS OF THE CASE ARE SIMILAR IN ALL OTHER YEAR S, EXCEPT FOR THE FACT THAT THE ISSUE OF REOPENING OF ASSESSMENT UNDER S.148 WAS NOT THERE IN THE ASSESSMENT YEAR 2007-08, AND FOR T HE DIFFERENCE IN THE AMOUNTS OF GROSS RECEIPTS AND THE INCOMES DETER MINED THEREUPON. 4. EVEN THOUGH ASSESSEE HAS RAISED THE ISSUE OF RE OPENING UNDER SECTION 147 IN ASSESSMENT YEARS 2005-06, 2006 -07, 2008-09, THE ISSUE IS TO BE DECIDED ON MERITS FOR A.Y. 2007- 08. THEREFORE, SINCE THE ISSUE IS COMMON IN ALL THE YEARS, WE INTEND TO DECIDE THE ISSUE ON MERITS FIRST. FACTS OF THE CASE, AS TAKEN FROM T HE APPEAL FOR THE ASSESSMENT YEAR 2007-08, ARE AS FOLLOWS- 5. THE ASSESSEE COMPANY ENTERED INTO AGREEMENT WIT H THE FOLLOWING PURCHASERS FOR THE ASSESSMENT YEAR 2007-0 8- - (A) TATA STEEL (B) SMS DEMAG P. LTD. (C) SAIL (D) JINDAL STEEL AND POWER LTD. ASSESSEE COMPANY WAS AWARDED CONTRACT BY THE ABOVE PURCHASERS FOR SUPERVISION, ERECTION, RAMP UP, COMMISSIONING, DEMO NSTRATION OF ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 4 PERFORMANCE, PERFORMANCE GUARANTEE TEST, ETC. OF VA RIOUS PLANT AND MACHINERY FOR THEIR STEEL AND ALLIED PLANTS. THEY ENGAGED EXPERIENCED FOREIGN TECHNICIANS AT THE WORK SITES AND OTHER PLA CES IN INDIA AND THE RECEIPTS WERE CATEGORISED AS IN THE NATURE OF FEES FOR TECHNICAL SERVICES. THE ASSESSEE ADMITTED FOR THE ASSESSMENT YEAR 2007-08 THAT IT ACCOUNTED ON RECEIPT BASIS, STATING THAT RE CEIPT BY WAY OF FEES FOR TECHNICAL SERVICES ARE CHARGEABLE TO TAX IN IND IA ON RECEIPT BASIS AS PER DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND GERMANY. ON GOING THROUGH THE INFORMATION FURNI SHED AO NOTICED THAT SOME OF THE CONTRACTS UNDERTAKEN BY TH E ASSESSEE IN INDIA HAVE CONTINUED FOR A PERIOD EXCEEDING SIX MON THS. THE ASSESSING OFFICER HELD THAT THE DTAA BETWEEN INDIA AND GERMANY DEALS WITH PERMANENT ESTABLISHMENT (PE) IN ARTICLE 5 AND HELD THAT SINCE THE ASSESSEE IS FOUND TO BE CARRYING ON ITS A CTIVITIES IN INDIA THROUGH ITS EMPLOYEES FOR PERIODS EXCEEDING SIX MON THS, TO ASSESS ITS INCOME, THE ASSESSEE IS TO BE ASSESSED UNDER S.44D OR S.44DA READ WITH OTHER APPLICABLE SECTIONS OF THE IT ACT, AND C ALLED FOR OBJECTIONS FOR THE PROPOSAL. THE ASSESSING OFFICER CONSIDERED THE OBJECTIONS RAISED BY THE ASSESSEE, BUT CHOOSE TO TREAT IT AS H AVING PERMANENT ESTABLISHMENT IN INDIA AS PER ARTICLE 5(2)(I) OF DT AA BETWEEN INDIA AND GERMANY AND HELD THAT THE ASSESSEE HAS PE IN IN DIA SINCE ITS ACTIVITIES CONTINUED FOR A PERIOD EXCEEDING SIX MON THS. AO OBSERVED THAT THE ASSESSEES CONTRACT WITH JINDAL STEEL AND POWER LIMITED CONTINUED FOR 220 DAYS AND THE TECHNICIANS OF THE A SSESSEE COMPANY STAYED IN INDIA TILL THE COMPLETION OF THE WORK, AN D THEIR INCOME-TAX RETURNS WERE ALSO FILED IN INDIA AND HENCE, THERE I S A PERMANENT ESTABLISHMENT IN INDIA, AS PER ARTICLE 5(1) READ WI TH ARTICLE 5(2) AS PER INDO-GERMAN DTAA. THE ASSESSING OFFICER HELD THAT T HE ACTIVITIES OF THE ASSESSEE IN INDIA ARE IN THE NATURE OF TECHNICA L SUPERVISION FOR THE EXECUTION OF THE PROJECT, ASSESSEE WAS EARNING ITS INCOME BY ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 5 PROVIDING TECHNICAL SERVICES FROM ITS PE LOCATED IN INDIA WHICH IS IN THE NATURE OF FEE FOR TECHNICAL SERVICES (FTS) UNDE R ARTICLE 12 OF THE DTAA. FURTHER, AS PER ARTICLE 12(5), THE EARNINGS OF FTS BY THE ASSESSEE IS EFFECTIVELY CONNECTED WITH THE PE OF TH E ASSESSEE IN INDIA AND ACCORDINGLY, HE HELD THAT PROVISIONS OF ARTICLE 7(3) WILL BE APPLICABLE. IT WAS FURTHER CONCLUDED THAT AS PER A RTICLE 7 UNDER BUSINESS PROFITS, THE INCOME OF THE ASSESSEE WILL BE DETERMINED AS PER PROVISIONS OF CLAUSE 3 OF ARTICLE 7, WHEREIN IT WAS STATED THAT THE ALLOWANCE OF EXPENDITURE WOULD BE GOVERNED AS PER D OMESTIC LAW OF THE CONTRACTING STATE IN WHICH THE PE IS SITUATED. THE ASSESSING OFFICER, THEREFORE, DETERMINED THE TAXABLE INCOME A CCORDINGLY. 6. THE ASSESSEE RAISED OBJECTIONS BEFORE THE DISP UTES RESOLUTION PANEL, SUBMITTING THAT THE ASSESSEE WAS NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA AS IT HAS NO FIXED PLACE OF BUSINESS. IN THIS CONTEXT, REFERENCE WAS MADE TO T HE PROVISIONS OF S.44DA ALONG WITH S.92F(IIIA). THE ASSESSEE ALSO R ELIED ON THE DECISION OF ANDHRA PRADESH HIGH COURT IN THE CASE O F CIT VS. VISAKHAPATNAM PORT TRUST 144 ITR 146. THE DISPUTES RESOLUTION PANEL HELD THAT THE PROVISIONS OF RELEVANT CONTRACT AGREEMENT AS WELL AS THE PROVISIONS OF ARTICLE 5 OF DTAA BETWEEN INDI A AND GERMANY CLEARLY ESTABLISH THAT THE ASSESSEE WAS HAVING PERM ANENT ESTABLISHMENT IN INDIA DURING THE RELEVANT PERIOD. FURTHER WITH REGARD TO THE DEDUCTION OF EXPENDITURE DRP HELD THA T THE ASSESSEE WAS ENTITLED TO DEDUCTION OF 50% OF GROSS RECEIPTS FROM ALL PROJECTS TOWARDS EXPENDITURE. THUS, THE DRP PARTLY ACCEPTED THE OBJECTIONS OF THE ASSESSEE AND GAVE DIRECTIONS UNDER S.144C(5) OF THE ACT. 7. STILL AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE U S AND THE GROUNDS OF APPEAL, AS TAKEN BY THE ASSESSEE IN ITA NO.1649/HYD/2010 FOR ASSESSMENT YEAR 2007-08, ARE A S FOLLOWS- ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 6 1. THAT THE ORDER OF LEARNED ASST. DIRECTOR OF INC OME- TAX (INTERNATIONAL TAXATION) I, HYDERABAD (A.O) AND THE DISPUTE RESOLUTION PANEL(DRP), HYDERABAD ARE BAD IN LAW AND ON FACTS OF THE CASE. 2. THAT THE LEARNED A.O HAS ERRED IN ASSESSING INC OME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR AT RS.8,15,25,440/- CHARGEABLE TO TAX @ 40% PLUS APPLICABLE SURCHARGE AND EDUCATIONAL CESS. 3. THAT THE LEARNED A.O. HAS ERRED IN HOLDING THAT THE ASSESSEE HAD A PERMANENT ESTABLISHMENT (P.E.) IN INDIA AND THAT ALL THE AMOUNTS RECEIVED UNDER VARIOUS CONTRACTS WERE CHARGEABLE TO TAX UNDER ARTICLE 7 OF DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND GERMANY (DTAA) DEALING WITH TAXATION OF BUSINESS PROFITS. 4. THAT THE LEARNED A.O./DRP HAS ERRED IN REJECTIN G THE CONTENTION OF THE ASSESSEE THAT THE AMOUNTS RECEIVED BY THE ASSESSEE WERE CHARGEABLE TO TAX AS FEES FOR TECHNICAL SERVICES UNDER THE PROVISIONS OF SECTION 9(1)(VII) INCOME-TAX ACT READ WITH ARTICLE 12 OF DTAA BETWEEN INDIA AND GERMANY @ 10% OF THE GROSS AMOUNT. 5. THAT WHILE REJECTING THE CONTENTION OF THE ASSES SEE AS REFERRED TO GROUND NO.(4), THE A.O/DRP ERRED IN IGNORING I) THE POSITION AS ACCEPTED BY THE REVENUE IN THE PRECEDING YEARS ON SIMILAR FACTS; II)THE DECISION OF THE JURISDICTIONAL HIGH COURT OF ANDHRA PRADESH; AND III) THE STATUTORY LEGAL PROVISION OF LAW. 6. THAT THE LD A.O. HAS ERRED IN DOUBLY INCLUDING A N AMOUNT FOR RS..8,26,229 IN RELATION TO THE CONTRACT WITH TATA STEEL LIMITED, ON ERRONEOUS ASSUMPTION AND WITHOUT PROPER CONSIDERATION OF THE DETAILS AN D FACTS THAT THE AMOUNT HAD BEEN INCLUDED TAXED IN THE ASSESSMENT YEAR 2006-07. 7. WITHOUT PREJUDICE, THE LEARNED A.O. WHILE COMPUTING INCOME OF THE ASSESSEE AS BUSINESS PROFITS HAD ERRED IN RESTRICTING THE DEDUCTIBILITY OF COSTS AND EXPENDITURE , ON ARBITRARY BASIS, AT 50% ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 7 OF THE CONTRACTUAL RECEIPTS. 8. THAT THE LEARNED A.O., DRP HAS ERRED IN REJECTI NG THE OBJECTIONS AS RAISED BY THE ASSESSEE WITH RESPECT TO THE JURISDICTION OF THE LEARNED A.O. AN D COMPLETION OF THE ASSESSMENT, WITHOUT PROVIDING ADEQUATE OPPORTUNITY. 9. THAT THE LEARNED A.O. HAS ERRED I LEVYING INTERE ST U/S.234A, 234B & 234C OF THE INCOME-TAX ACT WHICH SECTIONS ARE NOT APPLICABLE ON FACTS AND IN LAW. 10. .... FOR THE OTHER ASSESSMENT YEARS ALSO, EXCEPT IN ITA NO.2226/HYD/2011 RELATING TO ASSESSMENT YEAR 2008-0 9, CORRESPONDING GROUNDS ARE SIMILAR. 8. LEARNED COUNSEL REFERRING TO THE CONTENTIONS MADE BEFORE THE A.O. AND DRP SUBMITTED THAT ASSESSEE WAS DECLARING INCOMES AS FEES FOR TECHNICAL SERVICES AND FOR THE FIRST TIME, A.O. TREATED THE SAME AS INCOME FROM BUSINESS INVOKING A RTICLE-5(2)(I) HOLDING THAT ASSESSEE HAS PERMANENT ESTABLISHMENT J UST BECAUSE ASSESSEES TECHNICAL PERSONNEL DEPUTED HAVE EXCEEDE D SIX MONTHS PERIOD OF THEIR STAY IN INDIA. HE REFERRED TO PROVI SIONS OF ARTICLE 12 RELATED TO FEES FOR TECHNICAL SERVICES AND ALSO CLA USE (5) OF ARTICLE 12 TO SUBMIT THAT UNDER THE CLAUSE ASSESSEE SHOULD CAR RY ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT EST ABLISHMENT SITUATED THEREIN. THEN ONLY PROVISIONS OF ARTICLE 7 CAN BE INVOKED. REFERRING TO THE TERM PERMANENT ESTABLISHMENT AS P ER ARTICLE 5, IT WAS SUBMITTED THAT A.O. INVOKED 5(2)(I) TO INVOKE A RTICLE 7. IT WAS THE CONTENTION THAT FIXED PLACE OF BUSINESS CONTEMPLATE D UNDER THE SUB- CLAUSE SHOULD BE OWNED BY ASSESSEE AND SHOULD NOT B E A PLACE WHERE THEIR SUPERVISORS ATTEND TO WORK PROVIDED BY THE CO NTRACTEE. HE ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 8 REFERRED TO COMMENTARY OF KLAUSE-VOGEL AND ALSO THE DECISION OF ACIT VS. ENRON GLOBAL EXPLORATION & PRODUCTION LTD., 120 TTJ (DEL.) 774. IT WAS FURTHER SUBMITTED THAT PROVISION OF MERE ACC OMMODATION TO TECHNICIANS CANNOT BE CONSIDERED AS A FIXED PLACE O F BUSINESS FOR NON-RESIDENT AND RELIED ON THE DECISION OF A.P. HIG H COURT IN THE CASE OF VISAKHAPATNAM PORT TRUST (SUPRA). IT WAS FURTHER SUBMITTED THAT THE TESTS PRESCRIBED FOR ESTABLISHING PE HAVE NOT B EEN FULFILLED. WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS, IT WAS ALSO SUBMITTED THAT ARTICLE 12(5) OF DTAA PRESCRIBES THAT FEES EAR NED THROUGH THE PERMANENT ESTABLISHMENT CAN ONLY BE CONSIDERED UNDE R ARTICLE 7. IN THIS CASE, OUT OF MANY PROJECTS SUPERVISED BY THE A SSESSEE ONLY IN ONE SUCH PROJECT, A.O. COULD IDENTIFY THAT TECHNICI ANS HAVE RENDERED SERVICES MORE THAN SIX MONTHS AND SO THE OTHER PROJ ECTS WHERE PE WAS NOT ESTABLISHED CANNOT BE BROUGHT TO TAX UNDER ARTICLE-7. HE REFERRED TO THE FACTS ON RECORD TO SUBMIT THAT A.O. WAS WRONG IN CONSIDERING THE ENTIRE PROJECT RECEIPTS FOR ASSESSI NG AT HIGHER RATE EVEN THOUGH ONLY IN ONE SUCH PROJECT THERE WAS STAY OF TECHNICAL PERSONS ABOVE SIX MONTHS. HE THEN REFERRED TO THE D OMESTIC LAW, DEFINITION OF PERMANENT ESTABLISHMENT, PROVISIONS O F SECTION 44DA, 115-A (B) AND RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTH GUJRAT ROOFING TILES MANUFACTURER S ASSOCIATION VS. STATE OF GUJARAT AND OTHERS (1976) 4 SCC 601 FOR IN TERPRETING THE STATUTES PARTICULARLY THE WORD INCLUDES USED IN S ECTION 44DA. HE ALSO SUBMITTED ALTERNATELY THAT IN CASE THE EXPENDI TURE ALLOWABLE TO ASSESSEE WAS INCREASED, THE TAX PAID BY ASSESSEE AT GROSS LEVEL WOULD BE MORE THAN THE TAX PAYABLE ON NET INCOME AS DETER MINED BY DRP. THE LEARNED COUNSEL FOR THE ASSESSEE STRONGLY CONTE NDED THAT MERE SUPERVISORY ACTIVITIES PERFORMED BY THE ASSESSEE WO ULD NOT ATTRACT THE DEFINITION OF PERMANENT ESTABLISHMENT AND BUSIN ESS INCOME HENCE, THERE IS NO PERMANENT ESTABLISHMENT FOR THE ASSESSEE IN INDIA. ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 9 HE SUBMITTED THAT THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF MOTOROLA INC VS. DCIT 96 TTJ (DEL) (SB) 1 W OULD SQUARELY APPLY TO THE PRESENT CASE. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELI ED ON THE IMPUGNED ORDER OF THE DISPUTES RESOLUTION PANEL. 10. WE HAVE HEARD BOTH PARTIES AND PERUSED THE IMP UGNED ORDERS OF THE AUTHORITIES AND OTHER MATERIAL ON REC ORD, INCLUDING THE DECISIONS CITED BY THE PARTIES BEFORE US. GROUND NO S.1 AND 2 ARE GENERAL IN NATURE AND DO NOT CALL FOR INDEPENDENT A DJUDICATION. 11. GROUND NOS.3-5 ARE ON THE SHORT POINT WHETHER THE ASSESSEES SUPERVISORY SERVICES ARE IN THE NATURE O F FEES FOR TECHNICAL SERVICES (FTS) TAXABLE UNDER S.9(1)(VII) / ARTICLE 12 OF INDIA-GERMAN DTAA OR WHETHER THE SERVICES CONSTITUTE A PERMANEN T ESTABLISHMENT (PE) IN INDIA TAXABLE UNDER S.9(1)(I) / ARTICLE 7 R EAD WITH ARTICLE 5 OF THE INDIA-GERMAN DTAA. 12. BEFORE WE ANALYZE WHETHER THE ASSESSEE HAS A PE BY ITS SUPERVISORY ACTIVITIES, WE NOTE THAT THE ASSESSEE H AS ALL ALONG BEEN ASSESSED, ACCEPTING INCOMES AS FEES FOR TECHNICAL S ERVICES (FTS) RENDERED TO VARIOUS PARTIES IN INDIA. IN ASSESSMENT YEAR 2007-08, THERE HAS BEEN A SCRUTINY ASSESSMENT I.E. 143(3) WH EREIN THE ASSESSING OFFICER HAS HELD THAT THE ASSESSEE HAS A PERMANENT ESTABLISHMENT AND SHOULD BE TAXABLE AS BUSINESS INC OME. FURTHERMORE, THE EXPENSES FOR THIS PERMANENT ESTABL ISHMENT HAVE BEEN ESTIMATED ON AN AD-HOC BY THE LEARNED DISPUTE RESOLUTION PANEL. ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 10 12.1 AS FOR THE PROVISIONS OF THE INCOME TAX ACT 1961, WE FIND THAT IN CLOUTH GUMMIWERKE AKRINEQESELLSCHAFT VS. CI T 238 ITR 861 THE JURISDICTIONAL HONBLE A.P. HIGH COURT HELD AS FOLLOWS: IT IS DIFFICULT TO AGREE WITH THE ARGUMENTS OF LEAR NED COUNSEL FOR THE ASSESSEE. THE TWO SUPERVISORS WERE DEPUTED ONLY FOR THE PURPOSE OF RENDERING TECHNICAL SERVICES AND NOWHERE IS IT DISCLOSED THAT THEY WERE ENGAGED FOR THE PURPOSE OF CONSTRUCTING THE PLANT. THEREFORE, THE AMOUNTS OF DM 33,000 AND DM 32,542, RESPECTIVELY, ARE INCOME UNDER SECTION 9 (1) (VII) OF THE ACT AND ARE TAXABLE. . HENCE AS PER THE JURISDICTIONAL HIGH COURT SUPERVIS ORY ACTIVITIES ARE TO BE CONSIDERED UNDER THE AMBIT OF S.9(1)(VII) I.E ., FEES FOR TECHNICAL SERVICES. WE BELIEVE THIS RATIONALE WOULD APPLY TO THE INSTANT CASE TOO AND HENCE THE ASSESSEES SUPERVISORY ACTIVITIES HAV E BEEN CORRECTLY OFFERED TO TAX U/S.9 (1) (VII) READ WITH SEC 44D / SEC.115A 12.2. IT IS NOTED THAT UNDER THE ACT, PERMANENT E STABLISHMENT IS DEFINED IN S.92F (IIIA) . INCLUDES A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF THE ENTERPRISE IS WHOLLY OR P ARTLY CARRIED ON. THE SUPERVISORY ACTIVITIES DO NOT CONSTITUTE A FIXE D PLACE OF BUSINESS IN AS MUCH AS THE ASSESSEE RENDERS ITS SERVICES AT THE PROJECT SITES OF ITS CLIENTS AND DOES NOT BY ITSELF OWN OR OPERATE S UCH SITES INDEPENDENTLY BUT RATHER PROVIDED UNDER CONTRACT TE RMS BY ITS CLIENTS. THE CONCEPT OF FIXED PLACE OF BUSINESS IN THE ACT IS NO DIFFERENT FROM THE GENERAL PROVISION OF ARTICLE 5(1 ) FOUND IN THE MODEL CONVENTIONS AND THE INDIAN TREATIES AND IN THAT CON TEXT WE RELY AND FIND SUPPORT FROM THE FINDINGS OF THE MOTOROLA INC VS. DCIT 95 ITD 269 (DEL.) (SB) DISCUSSED IN MORE DETAIL BELOW. ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 11 12.3. NOW COMING TO INTERPRETATION OF THE PROVISIONS OF D TAA, WE FIND IN THE CASE OF CIT V/S. VISHAKAPTNAM PORT TRUST (1983) 144 ITR 146 (AP), THE HONBLE A.P. HIGH COURT ELABORATELY DEALT WITH THE DEFINITION OF THE TERM PERMANENT ESTABLISHMENT AN D HELD AS FOLLOWS- THE EXPRESSION PERMANENT ESTABLISHMENT USED IN T HE DOUBLE TAXATION AVOIDANCE AGREEMENTS POSTULATES THE EXISTE NCE OF SUBSTANTIAL ELEMENT OF AN ENDURING OR PERMANENT NA TURE OF A FOREIGN ENTERPRISE IN ANOTHER COUNTRY WHICH CAN BE ATTRIBUTED TO A FIXED PLACE OF BUSINESS IN THAT COUNTRY. IT SHOU LD BE OF SUCH A NATURE THAT IT WOULD AMOUNT TO A VIRTUAL PROJECTION OF THE FOREIGN ENTERPRISE OF ONE COUNTRY INTO THE SOIL OF ANOTHER COUNTRY. THE HONBLE HIGH COURT IN THAT CASE, PROCEEDED TO H OLD THAT MERE SUPERVISORY ACTIVITIES WILL NOT FORM A PERMANENT ES TABLISHMENT. 12.4. THOUGH RATIONALE OF A.P HIGH COURT CAN BE A DOPTED, IT IS WORTHWHILE TO NOTE AT THIS JUNCTURE, THAT THE INDIA N-GERMAN DTAA AT THAT TIME WAS DIFFERENT FROM THE CURRENT TREATY, AN D THE RELEVANT PROVISION OF THE PRESENT TREATY READS AS FOLLOWS- ARTICLE 5 : PERMANENT ESTABLISHMENT 1. FOR THE P URPOSES OF THIS AGREEMENT, THE TERM PERMANENT ESTABLISHMENT MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. 2. THE TERM PERMANENT ESTABLISHMENT INCLUDES ESPE CIALLY, (A) A PLACE OF MANAGEMENT ; (B) A BRANCH ; (C) AN OFFICE ; (D) A FACTORY ; (E) A WORKSHOP ; (F) A MINE, AN OIL OR GAS WELL, A QUARRY OR ANY OTHER PLACE OF EXTRACTION OF NATURAL RESOURCES, INCLUDING AN INSTALLATION OR STRUCTURE USED FOR THE EXPLORATION OR EXPLOITATION ; (G) A WAREHOUSE OR SALES OUTLET ; ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 12 (H) A FARM, PLANTATION OR OTHER PLACE WHERE AGRICUL TURAL, FORESTRY, PLANTATION OR RELATED ACTIVITIES ARE CARR IED ON ; AND (I) A BUILDING SITE OR CONSTRUCTION, INSTALLA TION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, WHERE SUCH SITE, PROJECT OR ACTIVITIES CONTINUE FOR A PERIOD EXCEEDING SIX MONTHS. . 12.5. WITH RESPECT TO ARTICLE 5(1) I.E., WHETHER THE ASSESSEES SUPERVISORY ACTIVITIES WOULD CONSTITUTE A PERMANENT ESTABLISHMENT BEING A FIXED PLACE OF BUSINESS, WE REFER TO THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA INC. VS. DCIT 95 ITD 269 (DEL.) (SB) WHERE IN THE HONBLE SPECIAL BENCH OBSERVED AS FOLL OWS: 127. WE NOW TURN TO THE PROVISIONS CONTAINED IN AR TICLE 5 OF THE DTAA. ARTICLE 5.1 STATES THAT THE TERM 'PERMANENT E STABLISHMENT' MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE B USINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. THE T HRUST OF THE ASSESSING OFFICER'S CONTENTION HAS BEEN THAT SINCE THE EMPLOYEES OF THE ASSESSEE AND / OR LME CAME TO INDIA FREQUENT LY AND SINCE THE INDIAN COMPANY (ECI) PROVIDED FACILITIES TO THE SE EMPLOYEES, THE OFFICE OF ECI CONSTITUTED A FIXED PLACE OF BUSI NESS FOR THE ASSESSEE. THE OECD COMMENTARY ON DOUBLE TAXATION REFERS TO A 'FIXED PLACE' AS A LINK BETWEEN THE PLACE OF B USINESS AND A SPECIFIC GEOGRAPHICAL POINT. IT HAS TO HAVE A CERTAIN DEGREE OF PERMANENCY. IT IS EMPHASIZED THAT TO CONS TITUTE A 'FIXED PLACE OF BUSINESS', THE FOREIGN ENTERPRISE MUST HAVE AT ITS DISPOSAL CERTAIN PREMISES OR A PART THE REOF. PHILLIP BAKER IN HIS. COMMENTARY ON DOUBLE TAXATION CONVENTIONS AND INTERNATIONAL TAX LAW (3RD EDITION) STATES THAT THE NATURE OF THE FIXED PLACE OF BUSINESS IS VERY M UCH THAT OF A PHYSICAL LOCATION, I.E. ONE MUST BE ABLE TO POINT T O A PHYSICAL LOCATION AT THE DISPOSAL OF THE ENTERPRISE THROUGH WHICH THE BUSINESS IS CARRIED ON. ON THE OTHER HAND, POSSESSI ON OF A MAILING ADDRESS IN A STATE WITHOUT AN OFFICE, TELEP HONE LISTING OR BANK ACCOUNT - HAS BEEN HELD NOT TO CONSTITUTE A PE RMANENT ESTABLISHMENT. FURTHER, THE FIXED PLACE OF BUSINESS NEED NOT BE OWNED OR LEASED BY THE FOREIGN ENTERPRISE PROVID ED IT IS AT THE DISPOSAL OF THE ENTERPRISE IN THE SENSE OF H AVING SOME RIGHT TO USE THE PREMISES FOR THE PURPOSES OF ITS BUSINESS AND NOT SOLELY FOR THE PURPOSES OF THE PRO JECT ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 13 UNDERTAKEN ON BEHALF OF THE OWNER OF THE PREMISES . (EMPHASIS SUPPLIED) HERE THE ASSESSEE IS CLEARLY DOING THE SUPERVISION OF PROJECT OF THE INDIAN COMPANY AND HAS NO FIXED PLACE OF BUSINESS. ONLY ITS TECHNICIANS DEPUTED TO INDIA IN ONE PROJECT STAYED IN INDIA FOR MORE THAN 180 DAYS. NOTHING WAS BROUGHT ON RECORD THAT T HE TECHNICIANS ARE OPERATING FROM A FIXED PLACE IN THE CUSTODY OF ASSESSEE. AS PER THE TERMS THE STAY AND TRANSPORTATION ARE UNDERTAKEN BY INDIAN COMPANY. APPLYING THE RATIONALE OF THE SPECIAL BENCH IT CANN OT BE SAID THAT THE ASSESSEE HAS A FIXED PLACE OF BUSINESS FOR ITS SUPE RVISORY ACTIVITIES. WE ALSO FIND SUPPORT IN THE TRIBUNAL DECISION OF AIRLINES ROTABLES LTD VS. JDIT (131 TTJ MUMBAI 385) WHERE PROVIDING SPARES AND COMPONENT SUPPORT SERVICES FOR AIRCRAFTS BY UK COMPANY TO JAL INDIA WERE NOT HELD TO CONSTITUTE A PERMANENT ESTABLISHMENT IN IND IA. 12.6. NOW COMING TO THE SPECIFIC PE CLAUSE, NAMEL Y ARTICLE 5(2)(I) INVOKED BY AO /DRP, A LITERAL READING OF TH E ARTICLE LEADS TO THE CONCLUSION THAT SUPERVISORY ACTIVITIES BY THEMSELVE S CANNOT CONSTITUTE A PE; THEY ARE TO BE IN CONNECTION WITH A BUILDING, CONSTRUCTION OR ASSEMBLY ACTIVITY OF THE NON-RESIDENT WHICH IS NOT THE CASE HERE AS THE ASSESSEE PROVIDES ONLY SUPERVISORY ACTIVITIES. WE FIND SUPPORT IN THE INTERNATIONALLY RENOWNED BOOK OF FAMOUS AUTHOR KLA US VOGEL (THIRD EDITION), IT HAS BEEN STATED AT PAGE 306, M.,N.74 A S FOLLOWS- ACCORDING TO PARAGRAPH 17 MC COMM.ART.59 (SUPRA M. NO.66), PLANNING AND SUPERVISION IS INCLUDED IN THE TERM B UILDING SITE OR CONSTRUCTION PROJECT ONLY IF CARRIED ON BY THE BUI LDING CONTRACTOR HIMSELF (THAT IS OVERLOOKED BY OSTBMF 2 SWI 288(199 2); DTC AUSTRIA/KOREA; CORRECTLY, OSTBMF 4 SWI 6 (1994): DT A AUSTRIA/GERMANY; CF, ALSO INFRA M.NO.81). PLANNING AND SUPERVISION PROPER CARRIED ON BY A SEPARATE ENTERPR ISE IS NOT COVERED, ACCORDING TO MC COMM. AN ENTERPRISE THAT D ID NO MORE THAN PLAN AND SUPERVISE BUILDING WORKS COULD AT MOS T, MC COMM. CONTINUES, CONSTITUTE A PERMANENT ESTABLISHME NT UNDER ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 14 THE GENERAL RULE OF ARTICLE 5(Q), BUT ITS FIXED PLA CE OF BUSINESS COULD NORMALLY NOT BE CONSIDERED AS PERMANENT. IT IS VERY CLEAR THAT ARTICLE 5(2)(I), THOUGH IT TA LKS ABOUT SUPERVISORY ACTIVITIES, DOES NOT COVER THE INSTANT CASE AS ASSE SSEE DO NOT HAVE ANY BUILDING SITE OR CONSTRUCTION SITE OF ITS OWN. THE ACTIVITIES BEING OF A TECHNICAL NATURE CLEARLY FALL UNDER THE FEES FOR TECHNICAL S ERVICE (FTS) I.E., ARTICLE 12 OF THE INDIA-GERMAN DTAA AND IS TA XABLE AT THE RATES SPECIFIED THEREIN. 12.7 FURTHERMORE, ARTICLE 12(5) CANNOT APPLY TO REMOVE THE ASSESSEE FROM THE ARTICLE 12 AND JUMP TO ARTICLE 7 R.W. ARTICLE 5. ARTICLE 12(5) READS AS FOLLOWS: ARTICLE 12 ROYALTIES AND FEES FOR TECHNICAL SERV ICES . 5. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT A PPLY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR T ECHNICAL SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH TH E ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISE, THR OUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFOR MS IN THAT OTHER STATE INDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT, PROPERTY OR C ONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICA L SERVICES ARE PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANE NT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE, THE PROV ISIONS OF ARTICLE 7 OR ARTICLE 14, AS THE CASE MAY BE, SHALL APPLY. FOR ARTICLE 12(5) TO APPLY, THE CONDITION PRECEDENT IS FOR THE ASSESSEE TO HAVE A PERMANENT ESTABLISHMENT THROUGH WHICH ITS ACTIVITIES ARE CARRIED OUT AND AS WE HAVE DISCUSSED ABOVE SUCH A C ONDITION IS NOT MET IN THE INSTANT CASE. THEREFORE ARTICLE 12(5) WH ICH TAKES THE SCOPE OF SERVICES OUT OF FTS (ARTICLE 12) AND INTO ARTICL E 7 READ WITH ARTICLE 5 DOES NOT APPLY TO THE ASSESSEES CASE. ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 15 12.8. THIS CAN ALSO BE EXAMINED IN A DIFFERENT ANG LE. A.O. HAS NOT INVOKED THE SERVICE PE CONCEPT WHILE CONSIDERIN G THE PERMANENT ESTABLISHMENT OF THE ASSESSEE IN INDIA. ADMITTEDLY, THE BASIS FOR A.OS INVOKING THE PROVISIONS OF ARTICLE-5 OF DTAA IS ON THE BASIS OF THE FACT THAT THREE OF THE TECHNICIANS DEPUTED FOR SUPERVISI NG THE ACTIVITIES IN THE CASE OF M/S. JINDAL STEEL POWER LTD., HAS STAYE D IN INDIA EXCEEDING 183 DAYS AND FILED THEIR RETURNS WITH ITO (INTERNATIONAL TAXATION), MUMBAI. THE TECHNICIANS ARE (A) SCHEFER RUDIGER HERMANN (B) ZIMMER KINROAD ERNST (C) ICHA FRANZ OTTO. JUST BECAUSE THESE THREE TECHNICIANS STAYED IN INDIA WHILE SUPERVISING THE WORK UNDERTAKEN BY THE ASSESSEE IN INDIA, IT CANNOT BE C ONSIDERED THAT THEIR PLACE OF STAY CAN BE FIXED PLACE OF BUSINESS FOR THE ASSESSEE. HAD THE A.O. EXAMINED THE TOTAL PERIOD OF DEPUTING TECHNICIANS TO INDIA AND ALSO EXAMINED WHETHER ESTABLISHMENT WHERE ASSESSEE HAD ANY PERMANENT PLACE TO SUPERVISE THE ACTIVITIES, THEN, ISSUE COULD BE EXAMINED IN THE LIGHT OF SERVICE PE CONSIDERATIONS. HOWEVER, A.O. ONLY UNDERTOOK THE ISSUE OF STAY OF TECHNICIANS IN INDIA , WHICH IN OUR OPINION CANNOT BE CONSIDERED FOR EXAMINING THE PER MANENT ESTABLISHMENT OF ASSESSEE IN ITS SUPERVISING WORK. ON THIS REASON ALSO, WE ARE OF THE OPINION THAT A.O. HAS NOT MADE OUT ANY CASE FOR INVOKING ARTICLE-7 OF DTAA. 12.9. AS FOR CONTENTION THAT THE PERIOD OF SUPERVISORY AC TIVITIES DID NOT EXCEED A PERIOD OF SIX MONTHS IN ALL PROJEC TS AND SUCH PROJECTS OF THE ASSESSEE DO NOT CONSTITUTE PERMANENT ESTABL ISHMENT WE DO NOT FIND IT NECESSARY TO ADJUDICATE ON THIS GROUND, AS WE HAVE HELD THAT SUPERVISORY ACTIVITIES HAVE TO BE IN CONNECTION WIT H THE NON-RESIDENTS BUILDING SITE, CONSTRUCTION OR ASSEMBLY PROJECT. SINCE WE HAVE HELD THAT THE RECEIPTS OF THE ASSESSEE ARE IN THE NATURE OF FTS AND DO NOT FALL UNDER ARTICLE 7 READ WITH ARTICLE 5, THERE IS NO NEED TO ADJUDICATE ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 16 THIS CONTENTION. BEFORE PARTING WITH THIS ASPECT, WE MAY NOTE THAT EVEN OTHERWISE, WE FIND IT INCORRECT TO AGGREGATE A LL CONTRACTS OF THE FOREIGN COMPANY IN INDIA AND CONSIDER IT AS ONE. U NLESS OTHERWISE LINKED WITH EACH OTHER, CONTRACTS SHOULD BE INDIVID UALLY ASSESSED WITH RESPECT TO THE DURATION TEST. WE ARE SUPPORTED IN T HIS BEHALF BY THE DECISION OF THE BOMBAY BENCH OF THE TRIBUNAL IN ADI T V/S. VALENTINE MARITIME (MAURITIUS) LTD. IN ITA NO.1532/MUM/05 DAT ED 5 TH APRIL, 2010, WHEREIN THIS POSITION HAS BEEN LUCIDLY EXPLA INED. 12.10. IN CONCLUSION, IN LIGHT OF THE FACTS AND CIR CUMSTANCES OF THE INSTANT CASE, WE ARE OF THE OPINION THAT THE AS SESSEES SUPERVISORY ACTIVITIES DO NOT CONSTITUTE A PERMANENT ESTABLISHM ENT IN INDIA UNDER THE PROVISIONS OF THE INDIAN INCOME TAX ACT AS WELL AS ARTICLE 5 OF THE INDIA-GERMAN TREATY. ASSESSEE SHOULD BE ASSESSED FO R ITS SUPERVISORY ACTIVITIES UNDER ARTICLE 12 OF THE INDIA-GERMANY DT AA. THEREFORE, WE HOLD GROUND NOS. 3, 4 AND 5 IN FAVOUR OF THE ASSESS EE. 13. AS FOR GROUND NO.6, IT IS ABOUT INCLUSION OF RS 8,26,229 AS RECEIPTS FROM TATA STEEL PROJECT. THERE SEEMS TO BE NO RECONCILIATION ASKED BY AO AND MADE ADDITION ON HIS ENQUIRY. IT WA S THE SUBMISSION BEFORE DRP THAT INVOICE NO 5121491 DT. 02.03.06 FOR RS.12,24,129 INCLUDED IN RECEIPTS WAS IN FACT OFFERED IN AY 2006 -07. FURTHER AO HAS CONSIDERED LOWER AMOUNT BY 4925 EUROS IN ANOTHER IN VOICE WHICH RESULTED IN NET ADDITION. DRP DID NOT DEAL WITH THI S OBJECTION AT ALL. THEREFORE WE DIRECT THE ASSESSING OFFICER TO LOOK I NTO THE MATTER AFRESH AND RECONCILE THE AMOUNTS RELATING TO THE CONTRACT OF TATA STEEL LIMITED WITH THE ASSESSEE. THIS GROUND IS ACCORDI NGLY ALLOWED FOR STATISTICAL PURPOSES. ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 17 14. THERE ARE OTHER GROUNDS RAISED BY THE ASSESS EE IN THE COURSE OF APPEALS. GROUND NOS. 7 AND 8, RELATING TO ALLOWABIL ITY OF DEDUCTION TOWARDS EXPENDITURE AGAINST THE BUSINESS INCOME DET ERMINED, BECOME ACADEMIC IN LIGHT OF OUR FINDINGS ON GROUNDS NO.3 T O 5 ABOVE AND HENCE, WE ARE NOT INCLINED TO ADJUDICATE UPON THE S AME. THE SAME, BEING ACADEMIC, ARE ACCORDINGLY REJECTED. 15. GROUND NO.9 RELATES TO LEVY OF INTEREST UNDER S.234A, 234B AND 234C OF THE INCOME-TAX ACT, 1961. 15.1. WE HEARD BOTH SIDES ON THIS ISSUE. AS FOR INTEREST UNDER S.234A, THE GRIEVANCE OF THE ASSESSEE IS THAT THE S AME HAS BEEN WRONGLY COMPUTED. IN RELATION TO THIS GRIEVANCE, W E DIRECT THAT THE ASSESSING OFFICER, WHILE REFRAMING THE ASSESSMENTS FOR THESE YEARS, TO VERIFY THE CLAIM OF THE ASSESSEE, AND RE-COMPUTE TH E INTEREST CORRECTLY. AS FOR INTEREST UNDER S.234B AND 234C, WE FIND THAT WHERE TAX IS DEDUCTIBLE AT SOURCE, ASSESSEES LIABILITY TO INTER EST UNDER S.234B AND 234C DOES NOT ARISE, IN VIEW OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF NGC NETWORK ASIA LLP(222 CTR 85)(BOM ). WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO RE-COMP UTE THE INTEREST UNDER S.234B AND 234C IN THE LIGHT OF THE DECISION OF THE BOMBAY HIGH COURT REFERRED TO ABOVE. THIS GROUND, IS THUS PARTLY ALLOWED. 16. HAVING CONSIDERED THAT ON MERITS THERE IS NO C ASE FOR TREATING THE FEES FOR TECHNICAL SERVICES RECEIVED B Y THE ASSESSEE AS BUSINESS INCOME, WE NOW DEAL WITH OTHER ISSUE OF R EOPENING UNDER SECTION 148 FOR A.YS. 2005-06, 2006-07 AND 2008-09. CONSEQUENT TO THE FINDINGS IN A.Y. 2007-08, THE A.O. REOPENED THE ASSESSMENT IN OTHER YEARS WHICH WERE ORIGINALLY ACCEPTED UNDER SE CTION 143(1). ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 18 16.1. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHEN THE ENTIRE RECEIPTS ARE DECLARED AS INCOME AND TAX WAS PAID AT A PARTICULAR RATE, THERE IS NO SCOPE FOR ALLEGING ANY ESCAPEMENT OF INCOME. TAKING US THROUGH THE PROVISIONS OF SECTIO N 147, LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE MAIN PR OVISIONS OF S.147 WOULD NOT APPLY AT ALL IN THIS CASE AS 'NO INCOME C HARGEABLE TO TAX HAS ESCAPED ASSESSMENT'. HE ALSO INVITED OUR SPECIFIC ATTENTION TO THE EXPLANATION 2 TO OF S.147, WHICH READS AS FOLLOWS- 'S.147. EXPLANATION 2.FOR THE PURPOSES OF THIS SECTION, TH E FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARG EABLE TO TAX HAS ESCAPED ASSESSMENT, NAMELY : (A) WHERE NO RETURN OF INCOME HAS BEEN FURNISHED B Y THE ASSESSEE ALTHOUGH HIS TOTAL INCOME OR THE TOTAL INC OME OF ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE U NDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED THE MAXIMUM AMOUN T WHICH IS NOT CHARGEABLE TO INCOME-TAX ; (B) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED B Y THE ASSESSING OFFICER THAT THE ASSESSEE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN ; (BA) WHERE THE ASSESSEE HAS FAILED TO FURNISH A REP ORT IN RESPECT OF ANY INTERNATIONAL TRANSACTION WHICH HE WAS SO RE QUIRED UNDER SECTION 92E; (C) WHERE AN ASSESSMENT HAS BEEN MADE, BUT (I) INCOME CHARGEABLE TO TAX HAS BEEN UNDER-ASSESSED; O R (II) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE ; O R (III) SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT ; OR ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 19 (IV) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTH ER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED; (D) WHERE A PERSON IS FOUND TO HAVE ANY ASSET (INC LUDING FINANCIAL INTEREST IN ANY ENTITY) LOCATED OUTSIDE I NDIA.' HE SUBMITTED THAT NEITHER CLAUSE (B) NOR CLAUSE (C) OF THE ABOVE EXPLANATION WOULD APPLY, AS THE ASSESSEE HAD NOT UN DERSTATED THE INCOME OR CLAIMED ANY EXCESSIVE LOSS OR DEDUCTION O R ALLOWANCE OR RELIEF IN THE RETURN, AS STATED IN THE SAID CLAUSE. HE THEREFORE, SUBMITTED THAT THE REOPENING OF THE ASSESSMENT IS N OT VALID. 16.2. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON T HE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES, TAK ING US THROUGH THE RELEVANT PORTIONS OF THE DETAILED ORDER OF THE DISP UTES RESOLUTION PANEL DATED 12.4.2011 FOR THE ASSESSMENT YEAR 2005- 06. 16.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON T HE ISSUE OF LEGALITY AND VALIDITY OF REOPENING OF THE ASSESS MENT AND PERUSED THE ORDERS OF THE AUTHORITIES AND OTHER MATERIAL ON RECORD. THE DISPUTES RESOLUTION HAS CONSIDERED THE OBJECTIONS O F THE ASSESSEE TO THE REOPENING OF THE ASSESSMENT AND REJECTED THE SA ME. THE DISPUTES RESOLUTION PANEL HAS HELD IN PARA 4.3 AS FOLLOWS- 4.3 WE ALSO DO NOT AGREE WITH THE ASSESSEE'S CLAIM THAT ASSESSEE'S CASE IS NOT COVERED UNDER CLAUSE (B) OF EXPLANATION 2 OF SECTION 147 IN ORDER TO EXAMINE THIS ISSUE, THE EXPLANATION 2 TO SEC 147 [CLAUSE (B)] IS REPRODUCED AS UNDER 'EXPLANATION 2.-FOR THE PURPOSES OF THIS SECTION, T HE FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARG EABLE TO TAX HAS ESCAPED ASSESSMENT, NAMELY:- . (B) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS UNDE RSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS, DEDUCTION, AL LOWANCE OR ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 20 RELIEF IN THE RETURN; ON GOING THROUGH THE FACTS OF THE PRESENT CASE, THE FOLLOWING FACTS ARE NOTICED I) RETURN OF INCOME WAS FILED BY THE ASSESSEE II) NO ASSESSMENT WAS MADE AS PROCESSING UNDER SECT ION 143(1)(A) CANNOT BE CONSIDERED AS ASSESSMENT IN VIE W OF HON'BLE SUPREME COURT'S DECISION IN THE CASE OF ACI T VS RAJESH JAVERI STOCK BROKERS (P) LTD (291 ITR 500) . THEREF ORE, THERE WAS NO APPLICATION OF MIND BY THE ASSESSING OFFICER AT THE PROCESSING STAGE OF THIS CASE OF THE ASSESSEE, AND THUS THERE IS NO CHANGE OF OPINION BY THE ASSESSING OFFICER WHILE ISSUING NOTICE U/S 147 OF THE IT ACT. III) DURING THE COURSE OF PROCEEDINGS IN THE CASE O F THE ASSESSEE FOR AY 2007-08, IT WAS OBSERVED BY THE ASSESSING OF FICER THAT THE ASSESSEE IS HAVING PE IN INDIA AND HENCE IN VIE W OF DTAA PROVISIONS. THE AMOUNTS RECEIVED BY THE ASSESSEE SH OULD HAVE BEEN TAXED UNDER THE HEAD BUSINESS INCOME WHILE THE ASSESSEE HAD OFFERED THE SAME UNDER THE HEAD FEE FROM TECHNI CAL SERVICES, I.E. THE INCOME SHOULD HAVE TAXED AT THE RATE OF 40% WHEREAS THE SAME HAS BEEN TAXED AT THE RATE OF 10%. THUS THE ASSESSEE HAS CLAIMED EXCESS RELIEF U/S 90 READ WITH DT AA PROVISIONS. IN VIEW OF THE ABOVE OBSERVATIONS IT CAN BE CONCLUD ED THAT THE PRESENT CASE IS SQUARELY COVERED UNDER CLAUSE (B) O F EXPLANATION 2 OF SECTION 147 OF THE IT ACT AND HENCE THE ASSESSEE 'S CLAIM THAT THE PROCEEDINGS U/S 147 ARE INVALID AND INITIATED WITHOUT SANCTION OF LAW IS NOT TENABLE. 16.4 WE ARE OF THE CONSIDERED OPINION THAT DRP HAS ERRED IN CONSIDERING THAT THE CASE IS COVERED UNDER CLAUSE(B ) OF EXPLANATION- 2 TO SECTION 147. AS CAN BE SEEN FROM THE PROVISION EXTRACTED ABOVE, EXPLANATION 2(B) CAN ONLY BE INVOKED WHERE ASSESSEE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LO SS OR DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN. THIS IS NOT A C ASE OF UNDERSTATING THE INCOME AS THE SAME INCOME RECEIVED BY THE ASSE SSEE WAS BROUGHT TO TAX AT A DIFFERENT RATE. THERE IS NO DIF FERENCE BETWEEN THE ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 21 RETURNED INCOME AND ASSESSED INCOME, UP TO THE DRAF T ORDER STAGE. IT IS ALSO NOT A CASE WHERE ASSESSEE CLAIMED EXCESS LO SS OR DEDUCTION OR ALLOWANCE. THE ISSUE WAS CONSIDERED BY THE DRP A S EXCESS RELIEF IN RETURN. HOWEVER, THE WORD RELIEF CANNOT BE US ED IN THE CONTEXT OF AVAILING LESSER RATE OF TAX. IF ONE COMPARES THE SU B-CLAUSE-II IN CLAUSE (C) OF EXPLANATION-2, IT SPECIFICALLY STATES THAT INCOME HAS BEEN ASSESSED TO A LOW RATE AND SUB-CLAUSE-III SPE CIFICALLY FOR A SITUATION WHERE SUCH INCOME HAS BEEN MADE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT. THEREFORE, UNDER CLAUSE-(C) WHERE ASSESSMENT HAS BEEN MADE, REOPENING CAN BE DONE WHERE INCOME H AS BEEN ASSESSED TO A LOW RATE OR EXCESSIVE RELIEF WAS ALLO WED. HOWEVER, SUCH SEGREGATION WAS NOT MADE OUT IN CLAUSE (B) WHERE ON LY RELIEF WAS MENTIONED AND NOT AT TOO LOW A RATE IF AT ALL, IT CAN ONLY BE CATEGORISED AS A CASE OF ASSESSING AT TOO LOW A RA TE. ASSESSEE HAS OFFERED THE INCOME UNDER PROVISIONS OF SECTION 9(1) (VII) OFFERING GROSS RECEIPTS TO TAX AT 10% OF THE GROSS RECEIPTS WHEREA S THE A.O. CONSIDERED THE INCOME AT 42.23% ON THE NET INCOME. IN FACT, STRICTLY SPEAKING THE DRP DIRECTIONS IN ALLOWING 50% OF THE AMOUNT AS EXPENDITURE FOR EARNING INCOME HAS RESULTED IN TOTA L INCOME BEING DETERMINED AT 50% OF THE AMOUNT OFFERED BY THE ASSE SSEE AS TOTAL INCOME. IN OUR CONSIDERED OPINION, THE DRP HAS WRON GLY CONSIDERED ASSESSEES CASE AS A CASE OF CLAIMING EXCESS RELIEF IN THE RETURN WHICH SITUATION WAS NOT CONSIDERED IN CLAUSE (B) OF THE P ROVISIONS OF SECTION 147. THEREFORE, ASSESSEES CONTENTION THAT NEITHER CLAUSE (B) NOR CLAUSE (C) OF THE EXPLANATION WOULD APPLY IS A VALID CONTENTION. MOREOVER DRP ALSO RELIED ON A DECISION GIVEN IN THE CONTEXT OF MOTOR VEHICLE ACT WHERE THE PROVISION REFER TO TAX BUT NO T INCOME AS IS THE CASE UNDER IT ACT 1961. THE DECISIONS RELIED ON BY DRP ALSO WERE CONSIDERED OUT OF CONTEXT. IN VIEW OF THIS, WE ARE OF THE OPINION THAT REOPENING OF ASSESSMENT ON THE FACTS OF THE CASE IS NOT JUSTIFIABLE. ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 22 HOWEVER, THIS ENTIRE DISCUSSION BECOMES ACADEMIC IN NATURE AS WE HAVE ALREADY UPHELD THE ASSESSEES CONTENTION THAT THE AMOUNT CAN ONLY BE BROUGHT TO TAX AS FEES FOR TECHNICAL SERVIC ES AND CANNOT BE CONSIDERED AS BUSINESS INCOME. THE RESPECTIVE GROUN DS ON THIS ISSUE ARE CONSIDERED ALLOWED. 17. IN THE APPEAL FOR ASSESSMENT YEAR 2009-10, VIZ . ITA NO.1274/HYD/2012, THERE IS ONE MORE GROUND RAISED B Y THE ASSESSEE, WHEREIN IT HAS BEEN ALLEGED THAT PROPER C REDIT FOR TDS AMOUNTING TO RS.24,13,136, HAS NOT BEEN GRANTED BY THE ASSESSING OFFICER. ON CAREFUL CONSIDERATION OF THE MATTER O N THIS ASPECT, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE, AND GRANT APPROPRIATE RELIEF, IF ANY, IN ACCORDANCE WIT H LAW AND AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASS ESSEE. 18. THE RESPECTIVE GROUNDS RAISED IN AY 2005-0 6, 2006-07,2007- 08,2009-10 ON THE ABOVE ISSUES ARE ACCORDINGLY TREA TED AS ALLOWED. ITA.NO.2226/HYD/2011 : 19. NOW TURNING TO ITA NO.2226/HYD/2011 FOR ASSESSMENT YEAR 2008-09, GROUNDS RAISED BY THE AS SESSEE READ AS FOLLOWS- 1. THAT THE ORDER OF LD CIT(A) IS BAD BOTH IN LAW AND ON FACTS OF THE CASE. 2. THAT THE LD CIT(A) HAS ERRED IN PASSING THE ORDER WITHOUT PROVIDING SUFFICIENT OPPORTUNITY OF BEING HEARD. 3. WITHOUT PREJUDICE, THE LD CIT(A) HAS ERRED IN DISMISSING THE APPEAL ERRONEOUSLY AND NOT DECIDING THE ISSUE AS RAISED. ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 23 4. THAT THE APPEAL IS WITHIN TIME AS THE ORDER OF LD CIT(A) WAS RECEIVED ON05.11.2011. 5. .. 20. WE HAVE CONSIDERED THE CONTENTIONS OF RIVAL PA RTIES AND PERUSED THE INTIMATION PLACED ON RECORD. THIS APPEA L EMANATES FROM THE INTIMATION DATED 26.12.2009 PASSED UNDER SECTIO N 143(1) OF THE ACT FOR THE A.Y. 2008-09 BY THE DY. DIRECTOR OF INC OME TAX (INTL. TAXATION). LD. CIT(A) IN THE IMPUGNED ORDER TAKEN N OTE OF THE REGULAR ASSESSMENT VIDE ORDER DATED 15.05.2011 AND OBSERVED THAT INTIMATION UNDER SECTION 143(1) HAS MERGED WITH THE REGULAR ASSESSMENT CONSEQUENTIALLY, INTIMATION UNDER SECTI ON 143(1) IS NO LONGER APPELLABLE. IT WAS THE CONTENTION THAT THE LD. CIT(A) DID NOT ADJUDICATE THE LEVY OF ADDITIONAL TAX AND ALSO THE ARGUMENT THAT A.O. EXCEEDED HIS JURISDICTION IN CHANGING THE RATE OF T AX WITHOUT ANY BASIS. IT IS TO BE NOTED THAT A.O. CERTAINLY EXCEED ED THE POWERS GRANTED UNDER THE PROVISIONS OF SECTION 143(1) IN R AISING THE DEMAND WITHOUT MAKING ANY ADJUSTMENT OF THE TOTAL INCOME. UNDER THE PROVISIONS OF SECTION 143(1). A.O. IS EMPOWERED TO MAKE THE ADJUSTMENT (I) ANY ARITHMETIC ERROR IN THE RETURN O R AN INCORRECT CLAIM IF SUCH INCORRECT CLAIM IS APPARENT FROM ANY INFORMATION IN THE RETURN. THE CASE OF THE ASSESSEE DOES NOT FALL UNDE R EITHER OF THE ABOVE ADJUSTMENTS PERMITTED UNDER SECTION 143(1). A .O. WITHOUT ANY MENTION OR NOTE IN THE INTIMATION SIMPLY TAXED THE AMOUNT UNDER THE HEAD BUSINESS WHERE AS ASSESSEE HAS OFFERED THE INCOME AS FEES FOR TECHNICAL SERVICES. IN VIEW OF THIS, THE I NTIMATION PASSED BY THE A.O. HAS TO BE MODIFIED. WE HAVE ALREADY DECIDE D THE ISSUE OF TAXING THE INCOME IN THE ABOVE APPEALS. THEREFORE, TO THAT EXTENT, IN THE ORDER UNDER SECTION 143(3) READ WITH SECTION 14 7 ASSESSEE GOT RELIEF, BUT THE DEMAND IN INTIMATION RAISED WAS NOT MODIFIED BY AO. ACCORDINGLY, A.O. IS DIRECTED TO REDUCE THE DEMAND BY MODIFYING THE ITA.NO.1649/HYD/2010 AND OTHERS GFA ANAGENBAU GMBH, NEW DELHI 24 RATE OF TAX AND ACCEPT THE ASSESSEES RETURN AS SUC H. APPEAL IS CONSIDERED AS ALLOWED. 21. TO SUM UP, ITA NO.1649/HYD/2010, ITA NOS.1292 TO 1294/HYD/2011, 1274/HYD/2012 AND ITA NO.2226/HYD/2011 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.06.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 27 TH JUNE, 2014 VBP/- COPY TO 1. M/S. GFA ANLAGENBAU GMBH, C/O. MOHINDER PURI & C O, CAS, 1 A-D VANDHNA, 11, TOLSTOY MARG, NEW DELHI 2. DY./ASST. DIRECTOR INCOME-TAX, INTERNATIONAL TA XATION I, HYDERABAD 3. DISPUTE RESOLUTION PANEL, COMMISSIONER OF INCOME - TAX(APPEALS) II, HYDERABAD 4. COMMISSIONER OF INCOME-TAX(APPEALS)-V HYDERAB AD COMMISSIONER OF INCOME-TAX IV, HYDERABAD 5. D.R. ITAT A BENCH, HYDERABAD.