M/s. Samsung Heavy Industries Co. Ltd., Gurgaon V. ADIT, New Delhi

ITA 1909/DEL/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7396 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 28-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 01-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Double taxation relief; Retrospective amendment; Permanent establishment; Condonation of delay
• Section: 40(a)(ia); 195

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 1064/DEL/2013 AND 1909/DEL/2014 (ASSESSMENT YEAR: 2009 - 10 AND 2010 - 11 ) SAMSUNG HEAVY INDUSTRIES CO. LTD, 530, JANGPYEONG - RI, SINHYEON - EUP GEOJE - SI GYEONGSANGNAM - DO 656710 PAN: AAJCS7859K VS. ADIT, INTERNATIONAL TAXATION, DEHRADUN (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVI SHARMA, ADV REVENUE BY: SHRI G.K. DHA L L, CIT DR(INTERNATIONAL TAXATION) DATE OF HEARING 12/10/2018 DATE OF PRONOUNCEMENT 09/1/2019 O R D E R PER PRASHANT MAHARISHI, A. M. 1. TH ESE ARE THE TWO APPEALS FILED BY THE ASSESSEE FOR AY 2009 - 10 AND 2010 - 11 INVOLVING C IDENTICAL ISSUES, ARGUED TOGETHER AND DISPOSED OF BY THIS COMMON ORDER. 2. FOR ASSESSMENT YEAR 2009 10 ASSESSEE HAS FILED APPEAL AGAINST THE ORDER OF THE ASSISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, DEHR ADUN (THE LEARNED ASSESSING OFFICER) PASSED U/S 143 (3) READ WITH SECTION 144C (13) OF THE INCOME TAX ACT, 1961 PASSED IN PURSUANCE OF DIRECTION OF THE LEARNED THE DISPUTE RESOLUTION PANEL II, DELHI DATED 6/9/2012 UNDER SECTION 144C (5) OF THE INCOME TAX ACT WHEREIN THE TOTAL INCOME OF THE ASSESSEE IS DETERMINED AT RUPEES LOSS OF INR 246415671/ AGAINST THE RETURN OF INCOME FILED BY THE ASSESSEE ON 25/7/2008 AT THE LOSS OF INR 7 55599323/ . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA N O. 1064/DEL/2013: - 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPLETING THE ASSESSMENT OF THE APPELLANT FOR THE RELEVANT ASSESSMENT YEAR, PAGE | 2 DETERMINING LOSS AT RS.24,64,15,670, AS AGAINST THE LOSS OF RS.75,55,99,323 RETURNED BY THE APPELLANT. RE: EXISTENCE OF PERMANENT ESTABLISHMENT: 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING, ON THE BASIS OF ORDERS PASSED IN ASSESSMENT YEARS 2007 - 08 AND 2008 - 09, THAT THE APPELLANT HAD FIXED PLACE OF BUSINESS IN INDIA IN TERMS OF ARTICLE 5(1) OF INDIA KOREA DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA/THE TREATY), IN THE FORM OF PROJECT OFFICE IN INDIA AND THAT THE APPELLANT HAD EXECUTED VASAI EAST DEVELOPMENT PROJECT OF ONGC (VED PROJECT) THROUGH SUCH PROJECT OFFICE. 2.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE ACTIVITIES CARRIED OUT BY THE PROJECT OFFICE IN INDIA WERE OF PREPARATORY AND AUXILIARY NATURE, NO FIXED PLACE PE IN INDIA, IN ANY CASE, WAS CONSTITUTED HAVING REGARD TO PR OVISIONS OF ARTICLE 5(4) OF THE TREATY. 2.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ALLEGING THAT THE APPELLANT HAD DURING THE COURSE OF ASSESSMENT PROCEEDINGS ACCEPTED THAT IT HAS A PE IN INDIA DURING THE RELEVANT PREVIOUS YEAR, NOT APPREC IATING THAT THE APPELLANT HAD ONLY ACCEPTED THAT IT HAD INSTALLATION PE IN INDIA IN TERMS OF ARTICLE 5(3) AND NOT FIXED PLACE PE IN TERMS OF ARTICLE 5(1) OF THE TREATY. 2.3 THAT WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APP RECIATING THAT IN CASE OF INSTALLATION PROJECT, THE SPECIFIC PROVISIONS OF ARTICLE 5(3) AND NOT GENERAL PROVISIONS OF ARTICLE 5(1) OF THE TREATY RELATING TO FIXED PLACE PE WOULD APPLY. 3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ALLEGING THA T THE APPELLANT ALSO HAD DEPENDENT AGENT PERMANENT ESTABLISHMENT (PE) IN INDIA. RE: ATTRIBUTION OF INCOME: WITHOUT PREJUDICE: 4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ATTRIBUTING REVENUES FROM ACTIVITIES CARRIED ON OUTSIDE INDIA TO THE ALLEGED PE OF THE APPELLANT IN INDIA, WITHOUT APPRECIATING THAT THE ALLEGED PE OF THE APPELLANT HAD NO ROLE TO PLAY IN DESIGN, FABRICATION, ETC. OF THE PLATFORMS WHICH WAS CARRIED ON OUTSIDE INDIA. 4.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW I N ATTRIBUTING ON ADHOC BASIS 25% OF THE OUTSIDE INDIA REVENUES RELATING TO THE VED PROJECT, TO THE ALLEGED PE OF THE APPELLANT IN INDIA, REJECTING THE ACCOUNTS OF THE APPELLANT IN RESPECT OF THE OPERATIONS CARRIED ON OUTSIDE INDIA. 4.2 THAT THE ASSESSING O FFICER ERRED ON FACTS AND IN LAW IN ALLEGING THAT THE ACCOUNTS OF THE OUTSIDE INDIA OPERATIONS WERE UNAUDITED AND COULD NOT BE RELIED UPON IN ABSENCE OF SUPPORTING BILLS. 4.3 THAT WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDIN G 25% TO THE GROSS REVENUES BILLED BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR IN RESPECT OF ACTIVITY CARRIED OUTSIDE INDIA PAGE | 3 INSTEAD OF THE GROSS REVENUES RELATING TO OUTSIDE INDIA OPERATIONS AS APPEARING IN THE AUDITED ACCOUNTS, PREPARED ON PERCENTA GE COMPLETION METHOD REGULARLY FOLLOWED BY THE APPELLANT, AS THE INCOME ATTRIBUTABLE TO THE ALLEGED PE IN INDIA, INSPITE OF THE DIRECTIONS OF THE DRP TO CONSIDER THE REVENUES ON PERCENTAGE OF COMPLETION METHOD REGULARLY FOLLOWED BY THE APPELLANT. 5. THAT W ITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THERE BEING LOSS IN THE ACTIVITIES CARRIED ON OUTSIDE INDIA, NO INCOME COULD BE ATTRIBUTED TO THE INSTALLATION OF PE OF THE APPELLANT IN INDIA. 6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING DEDUCTION OF EXPENSES TOTALING RS.2,55,57,055 INVOKING THE PROVISIONS OF SECTION 40(A)(I)/(IA) OF THE ACT. 6.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING AS AFORESAID, WITHOUT EVEN SPEC IFYING THE PROVISION UNDER WHICH TAX WAS DEDUCTIBLE FROM BARGE HIRE CHARGES. 6.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT PAYMENT MADE BY THE APPELLANT, A NON - RESIDENT, TO A NON - RESIDENT SERVICE PROVIDER WAS NOT SUBJECT TO TAX DEDUCTION AT SOURCE UNDER SECTION 195 OF THE ACT. 3. BRIEF FACTS OF THE CASE SHOWS THAT ASSESSEE IS A COMPANY INCORPORATED IN SOUTH KOREA AND IS A TAX RESIDENT OF SOUTH KOREA. IT IS ENGAGED IN THE BUSINESS OF HEAVY ENGINEERING AND WAS AWARDED THE V ASAI EAST DEVELOPMENT PROJECT BY OIL AND NATURAL GAS CORP LTD FOR THE PURPOSE OF SURVEY, DESIGN, ENGINEERING, PROCUREMENT, FABRICATION, NT CRORES AND WEIGHT COATING, LOAD OUT, TIE DOWN, SEA FASTENING, TRANSPORTATION, INSTALLATION AND MODIFICATION AT EXISTI NG FACILITIES AND HOOK UP, TESTING, PRE - COMMISSIONING, START - UP AND COMMISSIONING OF THE ENTIRE FACILITIES. THE ASSESSEE FILED ITS RETURN OF INCOME AT THE LOSS OF INR 75 5599323/ - CLAIMING BENEFIT OF DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND K OREA AND CLAIMED TO BE A TAX RESIDENT OF THE KOREA. THE ASSESSEE FURNISHED THE TAX RESIDENCY CERTIFICATE TO ESTABLISH THIS FACT. THE ASSESSEE SIGNED THE CONTRACT WITH ONGC FOR EXECUTION OF THE PROJECT ON 28/2/2006. 4. ACCORDING TO THE CONTRACT THE CLAIM OF THE ASSESSEE IS THAT IT CARRIES OUT CERTAIN ACTIVITIES WITHIN INDIA AND CERTAIN ACTIVITIES OUTSIDE INDIA. ACCORDINGLY IT STATED THAT IT CARRIES OUT COORDINATION AND COMMUNICATION ACTIVITIES IN INDIA, DESIGN AND ENGINEERING ACTIVITIES IN MALAYSIA, FABRICAT ION ENQUIRY AND MALAYSIA AND TRANSPORTATION/LOADING FROM MALAYSIA TO INDIA. FURTHER ON ARRIVAL OF GOODS FROM MALAYSIA TO INDIA INSTALLATION AND COMMISSIONING ACTIVITIES ARE CARRIED OUT IN INDIA AT MUMBAI OFFSHORE. IT IS PAGE | 4 THE CLAIM OF THE ASSESSEE THAT IN PURSUANCE TO THE ABOVE CONTRACT THE ONGC ASKED THE ASSESSEE TO OPEN A PROJECT OFFICE IN MUMBAI FOR THE PURPOSE OF COORDINATION AND COMMUNICATION BETWEEN THE PARTIES TO THE CONTRACT WHICH ASSESSEE DID BY OBTAINING THE APPROVAL OF THE RESERVE BANK OF INDIA O N 24/5/2006. IT RECRUITED TWO EMPLOYEES. ON THE BASIS OF THESE FACTS THE CLAIM OF THE ASSESSEE IS THAT IT IS CONSISTENTLY OFFERING TAX ON FROM INSIDE INDIA ACTIVITIES LIKE INSTALLATION AND COMMISSIONING OF THE PLATFORM . THIS REVENUE WAS RECOGNIZED AS T AXABLE IN INDIA DUE TO AN ADMITTED POSITION THAT ASSESSEE HAD AN INSTALLATION PERMANENT ESTABLISHMENT IN INDIA. ACCORDINGLY IN THIS YEAR ALSO THE ASSESSEE FILED ITS RETURN OF INCOME SHOWING LOSS IN RESPECT OF ONE SURE ACTIVITY THAT IS INSTALLATION AND COM MISSIONING. 5. THE LEARNED ASSESSING OFFICER MUST DRAFT ASSESSMENT ORDER ON 30/12/2011 DETERMINING THE TOTAL LOSS OF THE ASSESSEE AT INR 24 6415 670/ WHEREIN HE HELD THAT REVENUE ON FROM OFFSHORE SUPPLY OF EQUIPMENT OF INR 4 83626597/ - OF WHICH THE INCOME IS TO BE ATTRI BUTED TO THE PE AS INCOME OF THE ASSESSEE. HE FURTHER DISALLOWED INR 20 552 9555/ FOR NON - DEDUCTION OF TAX AT SOURCE. HE REFERRED TO HIS OWN FINDING FOR ASSESSMENT YEAR 2007 08 AND 2008 09 HOLDING THAT OUTSIDE INDIA REVENUES ON BY THE ASSESSEE ARE T AXABLE IN INDIA AND SUCH RECEIPTS ARE NOT OFFER TO TAXATION. HE FURTHER RELIED UPON THE DECISION OF THE COORDINATE BENCH IN CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2007 08 IN ITA NUMBER 5237/DEL/2010 WHERE THE ISSUE WAS DECIDED IN FAVOUR OF THE REVENUE . HE THEREFORE HELD THAT INCOMES EARNED BY THE ASSESSEE OUTSIDE INDIA ARE HELD TO BE ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT IN INDIA BY WAY OF PROJECT OFFICE FOR THE CONTRACT. THE LEARNED AO FURTHER ASKED THE DETAILS OF EXPENSES INCURRED FOR EARNING THIS INCOME AND ALSO THE AUDIT REPORT FOR THE ASSESSMENT YEAR. FURTHER IN THE DECISION OF THE COORDINATE BENCH OF THE ASSESSEE FOR EARLIER YEARS OF PROFIT WAS DEEMED AT THE RATE OF 25% OF THE INCOME BY THE LEARNED ASSESSING OFFICER IS NOT SUPPORTED BY AN Y BASIS OF WORKING AND THEREFORE THE MATTER WAS SET ASIDE TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR ASCERTAINING TO WHAT EXTENT THE ACTIVITIES OF THE BUSINESS CARRIED OUT THROUGH ITS MUMBAI PROJECT OFFICE FOR DECIDING THE PERCENTAGE OF SUCH ATTRIBUT ION OF OUTSIDE INDIAN ACTIVITY TO INDIAN PERMANENT ESTABLISHMENT. ON THE BASIS OF THE AUDITED ACCOUNTS OF THE ASSESSEE THE LEARNED ASSESSING OFFICER TEST CHECK PAGE | 5 BASIS EXAMINE THEM AND FOUND THAT ASSESSEE HAS MADE PAYMENT FOR BARGE HIRE CHARGES TO SOME PART IES ON WHICH TAX HAS NOT BEEN DEDUCTED. SUCH SUM IS ALSO REQUIRED TO BE DISALLOWED AND THEREFORE HE DISALLOWED A SUM OF INR 975,000 PAGE 2 LOGISTIC ENTERPRISES PRIVATE LIMITED AS PER PROVISIONS OF SECTION 40 (A) (I.E. A) AND INR 2 4582055 AS PER PROVISION S OF SECTION 40 (A) (I.E.) OF THE INCOME TAX ACT. 6. THE ASSESSEE FILED ITS OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL AGAINST THE HOLDING OF THE EXISTENCE OF THE PERMANENT ESTABLISHMENT WHICH WAS UPHELD ON THE BASIS OF THE SIMILAR ISSUE IN THE EARLIER ASS ESSMENT YEAR. FURTHER WITH RESPECT TO THE ATTRIBUTION OF THE INCOME, AFTER OBTAINING THE REPLY OF THE LEARNED ASSESSING OFFICER HELD THAT THE SUFFICIENT OPPORTUNITY HAD BEEN GIVEN BY THE AO DURING THE ASSESSMENT PROCEEDINGS AND ALSO THE OPPORTUNITY WAS GI VEN BY THE DISPUTE RESOLUTION PANEL BUT THE ASSESSEE COULD NOT FURNISH THE REQUIRED INFORMATION AND EVIDENCES. HOWEVER CONSIDERING THE SUBMISSION OF THE ASSESSEE THAT THE INFORMATION ARE VOLUMINOUS AND ARE MOSTLY IN KOREAN LANGUAGE WHICH HAVE TO BE TRANSL ATED IN ENGLISH THE ASSESSING OFFICER WAS ALSO DIRECTED TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE. THE LEARNED ASSESSING OFFICER GAVE AN OPPORTUNITY TO THE ASSESSEE TO PROVIDE THE EVIDENCES HOWEVER ASSESSEE DID NOT FILE ANY INFORMATION. FURTHER CERTAI N VERIFICATIONS IS DIRECTED BY THE LEARNED DISPUTE RESOLUTION PANEL WERE ALSO CARRIED OUT BY THE LEARNED ASSESSING OFFICER. WITH RESPECT TO THE NON - DEDUCTION OF TAX AT SOURCE IT ACCEPTED CERTAIN OBJECTIONS OF THE ASSESSEE HOWEVER THE ADDITION WAS RESTRICT ED TO INR 20 550 29555 ON ACCOUNT OF PAYMENT OF INR 975,000 TO M/S LOGISTIC ENTERPRISES PRIVATE LIMITED AND INR 2 4554555 TO M/S TERAS TRANSPORTER PRIVATE LIMITED. ACCORDINGLY THE ASSESSMENT ORDER WAS PASSED DETERMINING TOTAL LOSS OF THE ASSESSEE OF INR 246415671/ - . AGAINST THIS ORDER THE ASSESSEE HAS PREFERRED THIS APPEAL. 7. FIRSTLY THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER ON 29/10/2012 WHICH WAS RECEIVED BY THE ASSESSEE ON 01/11/2012 HOWEVER THE IMPUGNED APPEAL WAS FILED ON 22/02/2013 THEREBY CA USING DELAY OF 53 DAYS IN FILING OF THE APPEAL. THE ASSESSEE HAS PREFERRED AN APPLICATION FOR CONDONATION OF DELAY IN FILING APPEAL ON 15/5/2013 . THE REASON OF THE DELAYS EXPLAINED BY THE ASSESSEE STATING THAT WHEN THE ORDER WAS RECEIVED ON 01/11/2012 BY PAGE | 6 THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE IN INDIA HE FORGOT TO INFORM THE APPELLANT ABOUT THE RECEIPT OF THE IMPUGNED ASSESSMENT ORDER. LATER ON 16/02/2013 HE CAME TO KNOW ABOUT THIS ORDER FROM THE VARIOUS FILE AND IMMEDIATELY HANDED OVER THE ASSESS MENT ORDER TO THE APPELLANT. ON RECEIPT OF THE ABOVE ORDER THE ASSESSEE IMMEDIATELY FILED THE APPEAL ON 22/2/2013. THE LEARNED AUTHORISED REPRESENTATIVE VEHEMENTLY STATED THAT ASSESSEE HAS ONLY AN AUTHORISED OFFICER IN INDIA WHO WAS NOT CONVERSANT WITH T HE TAX MATTERS AND FURTHER THE ASSESSEE IS A NON - RESIDENT AND ALL THE DIRECTORS OF THE APPELLANT ARE RESIDING OUTSIDE INDIA WHICH CAUSED THIS DELAY. HE FURTHER STATED THAT THE DELAY IS NOT DELIBERATE OR ON ACCOUNT OF ANY MALAFIED. HE STATED THAT EVEN OTH ERWISE THE ASSESSEE IS NOT BENEFITED BY FILING A DELAYED APPEAL. THEREFORE IT WAS PRAYED THAT THE APPEAL BE ADMITTED AND ADJUDICATED ON THE MERITS OF THE CASE IN THE INTEREST OF JUSTICE. 8. THE LEARNED COMMISSIONER OF INCOME TAX DEPARTMENT REPRESENTATIVE (IN TERNATIONAL TAXATION) VEHEMENTLY OPPOSED THE APPLICATION OF THE ASSESSEE FOR CONDONATION OF DELAY STATING THAT THE REASONS STATED BY THE ASSESSEE DOES NOT INSPIRE ANY CONFIDENCE AND THEREFORE THE DELAY SHOULD NOT BE CONDONED. 9. WE HAVE CAREFULLY CONSIDERED T HE RIVAL CONTENTION AND PERUSED THE FACTS STATED BY THE ASSESSEE IN ITS APPLICATION FOR CONDONATION OF DELAY WHICH IS ALSO SUPPORTED BY THE AFFIDAVIT OF THE AUTHORISED OFFICER AND IT IS APPARENT THAT NO SOONER DID THE ASSESSEE CAME TO KNOW ABOUT THE ASSESS MENT ORDER IT TOOK IMMEDIATE STEPS FOR FILING OF THE APPEAL. IT IS ALSO FACT THAT ASSESSEE IS NOT BENEFITED BY CAUSING DELAY IN FILING OF THE APPEAL. FURTHER AS HELD BY HONOURABLE SUPREME COURT IN [1987] 167 ITR 471 (SC) COLLECTOR, LAND ACQUISITION VS MS T. KATIJI AND OTHERS AS UNDER: - AND SUCH A LIBERAL APPROACH IS ADOPTED ON PRINCIPLE AS IT IS REALIZED THAT : 1. ORDINARILY, A LITIGANT DOES NOT STAND TO BENEFIT BY LODGING AN APPEAL LATE. 2. REFUSING TO CONDONE DELAY CAN RESULT IN A MERITORIOUS MATTER BEING THROWN OUT AT THE VERY THRESHOLD AND CAUSE OF JUSTICE BEING DEFEATED. AS AGAINST THIS, WHEN DELAY IS CONDONED, THE HIGHEST THAT CAN HAPPEN IS THAT A CAUSE WOULD BE DECIDED ON MERITS AFTE R HEARING THE PARTIES. --------------------------------------------------------------------------- 1.' ANY APPEAL OR ANY APPLICATION, OTHER THAN AN APPLICATION UNDER ANY OF THE PROVISIONS OF ORDER XXI OF THE CODE OF CIVIL PROCEDURE, 1908, MAY BE ADMITTED AFTER THE PRESCRIBED PERIOD IF THE APPELLANT OR THE APPLICANT SATISFIES THE COURT THAT HE HAD PAGE | 7 SUFFICIENT CAUSE FOR NOT PREFERRING THE APPEAL OR MAKING THE APPLICATION WITHIN SUCH PERIOD.' PAGE NO : 0473 3. ' EVERY DAY'S DELAY MUST BE EXPLAINED ' DOES NOT MEAN THAT A PEDANTIC APPROACH SHOULD BE MADE. WHY NOT EVERY HOUR'S DELAY, EVERY SECOND'S DELAY? THE DOCTRINE MUST BE APPLIED IN A RATIONAL, COMMON SENSE AND PRAGMATIC MANNER. 4. WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERATIONS ARE PITTED AGAINST EACH OTHER, THE CAUSE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED, FOR THE OTHER SIDE CANNOT CLAIM TO HAVE VESTED RIGHT IN INJUSTICE BEING DONE BECAUSE OF A NON - DELIBERATE DELAY. 5. THERE IS NO PRESUMPTION THAT DELAY IS OCCASIONED DELIBERATELY, OR ON ACCO UNT OF CULPABLE NEGLIGENCE, OR ON ACCOUNT OF MALA FIDES. A LITIGANT DOES NOT STAND TO BENEFIT BY RESORTING TO DELAY. IN FACT, HE RUNS A SERIOUS RISK. 6. IT MUST BE GRASPED THAT THE JUDICIARY IS RESPECTED NOT ON ACCOUNT OF ITS POWER TO LEGALIZE INJUSTICE O N TECHNICAL GROUNDS BUT BECAUSE IT IS CAPABLE OF REMOVING INJUSTICE AND IS EXPECTED TO DO SO. MAKING A JUSTICE - ORIENTED APPROACH FROM THIS PERSPECTIVE, THERE WAS SUFFICIENT CAUSE FOR CONDONING THE DELAY IN THE INSTITUTION OF THE APPEAL. THE FACT THAT IT W AS THE ' STATE ' WHICH WAS SEEKING CONDONATION AND NOT A PRIVATE PARTY WAS ALTOGETHER IRRELEVANT. THE DOCTRINE OF EQUALITY BEFORE LAW DEMANDS THAT ALL LITIGANTS, INCLUDING THE STATE AS A LITIGANT, ARE ACCORDED THE SAME TREATMENT AND THE LAW IS ADMINISTERED IN AN EVEN - HANDED MANNER. THERE IS NO WARRANT FOR ACCORDING A STEP - MOTHERLY TREATMENT WHEN THE ' STATE ' IS THE APPLICANT PRAYING FOR CONDONATION OF DELAY. IN FACT, EXPERIENCE SHOWS THAT ON ACCOUNT OF AN IMPERSONAL MACHINERY (NO ONE IN CHARGE OF THE MATTE R IS DIRECTLY HIT OR HURT BY THE JUDGMENT SOUGHT TO BE SUBJECTED TO APPEAL) AND THE INHERITED BUREAUCRATIC METHODOLOGY IMBUED WITH THE NOTE - MAKING, FILE - PUSHING, AND PASSING - ON - THE - BUCK ETHOS, DELAY ON ITS PART IS LESS DIFFICULT TO UNDERSTAND THOUGH MORE D IFFICULT TO APPROVE. IN ANY EVENT, THE STATE WHICH REPRESENTS THE COLLECTIVE CAUSE OF THE COMMUNITY, DOES NOT DESERVE A LITIGANT NON GRATA STATUS. THE COURTS, THEREFORE, HAVE TO BE INFORMED OF THE SPIRIT AND PHILOSOPHY OF THE PROVISION IN THE COURSE OF THE INTERPRETATION OF THE EXPRESSION ' SUFFICIENT CAUSE '. SO ALSO THE SAME APPROACH HAS TO BE EVIDENCED IN ITS APPLICATION TO MATTERS AT HAND WITH THE END IN VIEW TO DO EVEN - HANDED JUSTICE ON MERITS IN PREFERENCE TO THE APPROACH WHICH SCUTTLES A DECISION ON MERITS. TURNING TO THE FACTS OF THE MATTER GIVING RISE TO THE PRESENT APPEAL, WE ARE SATISFIED THAT SUFFICIENT CAUSE EXISTS FOR THE DELAY. THE ORDER OF THE HIGH COURT DISMISSING THE APPEAL BEFORE IT AS TIME - BARRED, IS THEREFORE, SET ASIDE. DELAY IS CONDONE D. AND THE MATTER IS REMITTED TO THE HIGH COURT. THE HIGH COURT WILL NOW PAGE NO : 0474 DISPOSE OF THE APPEAL ON MERITS AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO BOTH THE SIDES. THEREFORE FOLLOWING THOSE PRINCIPLES AS LAID DOWN BY THE HONOURA BLE SUPREME COURT, WHICH ARE ALSO FULFILLED BY THE ASSESSEE, WE CONDONE THE DELAY IN FILING THE APPEAL. 10. GROUND NUMBER 1 OF THE APPEAL IS GENERAL IN NATURE AND NO SPECTATOR ARGUMENTS WERE ADVANCED BEFORE US AND HENCE SAME IS DISMISSED. PAGE | 8 11. GROUND NUMBER 2 AND 3 OF THE APPEAL OF THE ASSESSEE IS AGAINST THE EXISTENCE OF PERMANENT ESTABLISHMENT. ON THE ISSUE OF TAXABILITY OF OFFSHORE SUPPLY AND DISALLOWANCE OF EXPENSES ON ACCOUNT OF NON DEDUCTION OF TAX SUBMITTED AS UNDER : - TAXABILITY OF OFFSHORE SUPPLY 2.1 THE SUBMISSION OF THE ASSESSEE/APPELLANT IS THAT THE FACTS OF THE CURRENT YEAR UNDISPUTEDLY ARE IDENTICAL WITH THE FACT OF THE PREVIOUS YEAR. THE ISSUE OF TAXABILITY OF OFFSHORE SUPPLY OF EQUIPMENT IS COVERED BY THE JUDGMENT OF THE HIGH COURT IN ASSESSEE S OWN CASE FOR AY 2007 - 08. FURTHER, THIS HONBLE TRIBUNAL IN ITS ORDER FOR AY 2008 - 09 HAS CATEGORICALLY FOUND THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO PROVE THAT THE FIXED PLACE PERMANENT ESTABLISHMENT (IN FORM OF A PROJECT OFF ICE) HAS PLAYED ANY ROLE IN OFFSHORE SUPPLY OF EQUIPMENT. 2.2 IT IS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT THE PROJECT OFFICE WAS OPENED IN PURSUANCE TO THE AFORESAID CONTRACT WITH ONGC. THE ASSESSEE WAS MANDATED AS PER CLAUSE 3.2 OF THE CONTRACT TO OPEN A PROJECT OFFICE IN MUMBAI WITHOUT WHICH NO PAYMENT WOULD HAVE BEEN MADE TO THE COMPANY. 2.3 FURTHER, NO PORTION OF OFFSHORE SUPPLY COULD HAVE BEEN EXECUTED BY THE PROJECT OFFICE AS IT MERELY HAD TWO EMPLOYEES IN INDIA W HO WERE NOT QUALIFIED TO CARRY OUT THE INTRICATE JOB OF FABRICATION OF PLATFORMS. RELIANCE, IN THIS REGARD IS PLACED ON SCHEDULE 8 OF THE AUDITED ACCOUNTS OF THE PROJECT OFFICE AVAILABLE AT PAGE 430 OF PAPERBOOK - 3. THE SCHEDULE CATEGORICALLY MENTIONS THAT THE EMPLOYEE REMUNERATION WAS ONLY TO THE EXTENT OF RS. 28 LAKHS. THE AMOUNT WAS PAID TO THE TWO EMPLOYEES MENTIONED ABOVE. THE ACCOUNTS WERE DULY PLACED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2.4 IT IS FURTHER SUBMITTED THAT THE ASSESSEE HAS CONSISTENTLY MAINTAINED THAT THE PROJECT OFFICE WAS MERELY CARRYING OUT COMMUNICATION AND COORDINATION ACTIVITIES, THE ASSESSING OFFICER HAS BROUGHT NO MATERIAL ON RECORD TO CONTROVERT THE CLAIM OF THE ASSESSEE. RELIANCE IN THIS REGAR D IS PLACED ON THE DECISION OF NATIONAL PETROLEUM CONSTRUCTION COMPANY [383 ITR 648] RENDERED BY THE HONBLE DELHI HIGH COURT WHEREIN IT WAS HELD AS UNDER: IN ABSENCE OF ANY MATERIAL EVIDENCE TO CONTROVERT THE ASSESSEE'S CLAIM THAT ITS PROJECT OFFICE WAS ONLY USED AS A COMMUNICATION CHANNEL, THE SAME HAS TO BE ACCEPTED. THUS, THE NEXT ASPECT TO BE CONSIDERED IS WHETHER ACTING AS A COMMUNICATION CHANNEL WOULD FALL WITHIN THE EXCEPTION OF CLAUSE (E) OF PARAGRAPH 3 OF ARTICLE 5 OF THE DTAA. [PARA 25]' 2.5 YOU R HONORS ARE FURTHER, REQUESTED TO TAKE COGNIZANCE OF THE FACT THAT IT IS NOT THE CASE OF THE ASSESSING OFFICER (EVEN IN THE CURRENT YEAR) THAT THE PROJECT OFFICE HAS PLAYED A ROLE IN OFFSHORE SUPPLY OF EQUIPMENT, RATHER, IT IS PAGE | 9 ALLEGED BY HIM THAT BECAUSE THERE IS A PROJECT OFFICE IN INDIA, REVENUE FROM OFFSHORE SUPPLY SHOULD BE ATTRIBUTED TO IT. 2.6 THE ASSESSING OFFICER, WHILE MAKING AN ADDITION ON ACCOUNT OF REVENUE EARNED FROM OFFSHORE SUPPLY EQUIPMENT, FAILED TO TAKE COGNIZANCE OF ARTICLE 7(1) OF THE I NDIA - KOREA DOUBLE TAXATION AVOIDANCE AGREEMENT. ARTICLE 7(1) MANDATES THAT ONLY THE PROFITS WHICH ARE EARNED THROUGH THE PERMANENT ESTABLISHMENT ARE TO BE BROUGHT TO TAX IN INDIA. THEREFORE, THE INCOME OF THE ASSESSEE CANNOT BE TAXED UNLESS IT IS SHOWN THA T INCOME GENERATING ACTIVITIES WERE CARRIED OUT THROUGH THE PERMANENT ESTABLISHMENT, MERE EXISTENCE OF A PE IS NOT ENOUGH TO FASTEN TAX LIABILITY. 2.7 IN THE INSTANT CASE, SINCE THE ASSESSEE IS A TAX RESIDENT OF KOREA AND HENCE THE INCOME EARNED BY VIRTUE OF OFFSHORE SUPPLY OF PLATFORMS IS TO BE TAXED ONLY IN KOREA AND NOT IN INDIA. THIS IS UNLESS THE AO IS ABLE TO BRING EVIDENCE ON RECORD THAT THE SAME WERE CARRIED OUT THROUGH THE ASSESSEE'S PE IN INDIA, A BURDEN WHICH HAS NOT BEEN DISCHARGED BY THE ASSESS ING OFFICER. 2.8 IN LIGHT OF THE ABOVE SUBMISSIONS, IT IS PRAYED THAT THE APPEAL OF THE ASSESSEE BE KINDLY ALLOWED AND IT BE FURTHER HELD THAT NO INCOME FROM OFFSHORE SUPPLIES COULD BE ATTRIBUTED TO ASSESSEES PE. 2.9 RELIANCE IS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF HYUNDAI HEAVY INDUSTRIES CO. LTD. (210 CTR 178) WHEREIN, HYUNDAI HEAVY HAD A PROJECT OFFICE IN MUMBAI JUST LIKE THE ASSESSEE IN THE INSTANT CASE. (REFER PARA 3 OF THE JUDGEMENT). HOWEVER, THE HONBLE COURT HELD THAT NOT HING PERTAINING TO OFFSHORE SUPPLY OF EQUIPMENT CAN BE TAXED HERE IN INDIA AS THE WORK OF OFFSHORE SUPPLY WAS NOT CARRIED OUT THROUGH THE ASSESSEE PE IN INDIA, REFER RELEVANT PARA 11 OF THE JUDGEMENT: ON READING ARTICLE 7OF THE CADT, IT IS CLEAR THAT THE SAID ARTICLE IS BASED ON OECD MODEL CONVENTION. PARA (1) OF ARTICLE 7 STATES THE GENERAL RULE THAT BUSINESS PROFITS OF AN ENTERPRISE OF ONE CONTRACTING STATE MAY NOT BE TAXED BY THE OTHER CONTRACTING STATE UNLESS THE ENTERPRISE CARRIES ON ITS BUSINESS IN T HE OTHER CONTRACTING STATE THROUGH ITS PE. THE SAID PARA (L) FURTHER LAYS DOWN THAT ONLY SO MUCH OF THE PROFITS ATTRIBUTABLE TO THE PE IS TAXABLE. PARA (L) OF ARTICLE FURTHER LAYS DOWN THAT THE ATTRIBUTABLE PROFIT CAN BE DETERMINED BY THE APPORTIONMENT OF THE TOTAL PROFITS OF THE ASSESSEE TO ITS VARIOUS PARTS OR ON THE BASIS OF AN ASSUMPTION THAT THE PE IS A DISTINCT AND SEPARATE ENTERPRISE HAVING ITS OWN PROFITS AND DISTINCT FROM GE. 3. DISALLOWANCE UNDER SECTION 4O(A)(I)/ 4O(A)(IA) OF THE ACT. 3.1 THE LD . AO VIDE FINAL ASSESSMENT ORDER PASSED UNDER SECTION 143(3)/I44C(I3) OF THE ACT HAS DISALLOWED THE FOLLOWING EXPENSES ON THE GROUND THAT BARGE HIRE CHARGES HAVE BEEN PAID TO THE FOLLOWING PARTIES WITHOUT DEDUCTING TAX AT SOURCE: - LOGISTICS ENTERPRISE PV T LTD RS. 9,75,000/ - PAGE | 10 TERAS TRANSPORTERS PTE LTD RS. 2,45,54,555/ - 3.2 THE AFOREMENTIONED EXPENSES AMOUNTING TO RS. 9,75,000/ - AND RS. 2,45,54,555/ - WERE DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT AND SECTION 40(A)(I) OF THE ACT RESPECTIVELY. A) ALLO WABILITY OF EXPENDITURE - PAYMENTS MADE TO LOGISTICS ENTERPRISE PVT LTD 4.1 THE LD. AO HAS DISALLOWED THE PAYMENT MADE TO LOGISTIC ENTERPRISE PVT. LTD TOWARDS BARGE HIRE CHARGES UNDER SECTION 4O(A)(IA) OF THE ACT ON ACCOUNT OF NON - DEDUCTION OF TAX AT SOURCE . HOWEVER, THE ASSESSEE HAS ONLY REIMBURSED BARGE HIRE CHARGES TO LOGISTIC ENTERPRISE PVT. LTD. WHICH IS CLEAR FROM PERUSAL OF INVOICE DATED JUNE 03, 2008 (REFER PAGE 371 OF PAPERBOOK IV) RAISED BY LOGISTIC ENTERPRISE PVT. LTD. ON THE ASSESSEE. 4.2 THEREFO RE, IT IS ABSOLUTELY CLEAR THAT THE AFOREMENTIONED INVOICE IS ON ACCOUNT OF REIMBURSEMENT OF EXPENSES INCURRED BY LOGISTIC ENTERPRISE AND HENCE, THE LIABILITY TO DEDUCT TAX AT SOURCE FROM PAYMENTS MADE TO SERVICE PROVIDER, IF ANY, WAS THAT OF LOGISTIC ENTE RPRISES AND NOT THE ASSESSEE. 4.3 FURTHERMORE THE DISALLOWANCE MADE BY THE AO WAS WITHOUT EVEN SPECIFYING THE PROVISION UNDER WHICH THE TAX WAS DEDUCTIBLE THEREFROM. HENCE THE SAME NEED TO BE ALLOWED AS AN EXPENSES UNDER THE INCOME TAX ACT. 4.4 THE ASSESSE E WOULD LIKE TO PLACE FURTHER RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. SIEMENS AKTIONGESELLSCHAFT: 220 CTR 425 WHEREIN IT WAS HELD THAT REIMBURSEMENT OF EXPENSES IN RESPECT TECHNICAL ASSISTANCE RENDERED BY THE ASSESSE E CAN, IN NO CIRCUMSTANCES, BE REGARDED AS INCOME OF THE ASSESSEE. 4.5 IN VIEW OF THE ABOVE FACTS AND JUDICIAL PRECEDENT, THE ASSESSEE HUMBLY SUBMITS THAT NO DISALLOWANCE MADE BY THE LD AO UNDER SECTION 4O(A)(IA) OF THE ACT ON PAYMENTS MADE TO LOGISTICS EN TERPRISE PVT LTD AMOUNTING TO RS. 9,75,000/ - IS WARRANTED IN THIS CASE AS THESE PAYMENTS REPRESENT PURE REIMBURSEMENT OF EXPENSES WITHOUT ANY INCOME ELEMENT. B) ALLOWABILITY OF EXPENDITURE - PAYMENT MADE TO TERAS TRANSPORTERS PTE. LTD. 5.1 THE LD. AO HAS DI SALLOWED THE PAYMENT MADE TO TERAS TRANSPORTERS PTE. LTD. TOWARDS BARGE HIRE CHARGES UNDER SECTION 4O(A)(I) OF THE ACT ON ACCOUNT OF NON - DEDUCTION OF TAX AT SOURCE. 5.2 PAYMENTS MADE TO NON - RESIDENTS ARE SUBJECT TO TAX DEDUCTION UNDER SECTION 195 OF THE AC T. IT IS SUBMITTED THAT HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY (P) LTD. VS. CIT (327 ITR 456) HAS HELD THAT SECTION 195 OF THE ACT PROVIDES OBLIGATION TO DEDUCT TAX ON PAYMENTS TO NON - RESIDENT WHICH ARE TAXABLE IN INDIA. THUS, IN CASE THE PAYMENT IS NOT TAXABLE IN INDIA, THE OBLIGATION TO DEDUCT TAX DOES NOT TRIGGER AT ALL. PAGE | 11 5.3 IT IS PERTINENT TO NOTE THAT AS TERAS TRANSPORTERS PTE. LTD. IS A COMPANY REGISTERED IN SINGAPORE, IT HAS THE OPTION OF BEING TAXED UNDER THE PROVISIONS OF THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION BETWEEN INDIA AND SINGAPORE (DTAA). 5.4 CHARTER AND RENTAL CHARGES OF THE SHIPPING BUSINESS ARE SPECIFICALLY REFERRED TO IN ARTICLE 8 OF THE INDO - SINGAPORE DTAA. HENCE, THE SAME CANNOT BE CLASSIFIED AS ROYALTY UNDER ARTICLE 12 OF THE INDO - SINGAPORE DTAA. THE TEXT OF ARTICLE 8 OF INDO - SINGAPORE DTAA IS REPRODUCED AS UNDER: ARTICLE 8 SHIPPING AND AIR TRANSPORT 1. PROFITS DERIVED BY AN ENTERPRISE OF A CONTRACTING STATE FROM THE OPER ATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THAT STATE. 2. THE PROVISIONS OF PARAGRAPH 1 SHALL ALSO APPLY TO PROFITS FROM THE PARTICIPATION IN A POOL, A JOINT BUSINESS OR AN INTERNATIONAL OPERATING AGENCY ENGAGED IN THE OPE RATION OF SHIPS OR AIRCRAFT 3. INTEREST ON FUNDS CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE REGARDED AS PROFITS DERIVED FROM THE OPERATION OF SUCH SHIPS OR AIRCRAFT, AND THE PROVISIONS OF ARTICLE 11 SHALL NOT APPLY IN RELATION TO SUCH INTEREST. 4. FOR THE PURPOSES OF THIS ARTICLE, PROFITS FROM THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL MEAN PROFITS DERIVED FROM THE TRANSPORTATION BY SEA OR AIR OF PASSENGERS, MAIL, LIVESTOCK OR GOODS CARRIED O N BY THE OW NERS OR LESSEES OR CHARTERERS OF THE SHIPS OR AIRCRAFT, INCLUDING PROFITS FROM: A) THE SALE OF TICKETS FOR SUCH TRANSPORTATION ON BEHALF OF OTHER ENTERPRISES; B) THE INCIDENTAL LEASE OF SHIPS OR AIRCRAFT USED IN SUCH TRANSPORTATION; C) THE USE, MAINTENANCE OR RENTAL OR CONTAINERS (INCLUDING TRAILERS AND RELATED EQUIPMENT FOR THE TRANSPORT OF CONTAINERS) IN CONNECTION WITH SUCH TRANSPORTATION; AND D) ANY OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATION. 5.5 THEREFORE, AS TERAS TRANSPOR TERS PTE. LTD IS A COMPANY INCORPORATED IN SINGAPORE, HENCE, IN LIGHT OF ARTICLE 8(1) READ WITH ARTICLE 8(4) OF THE INDO - SINGAPORE DTAA, RENTAL/HIRE CHARGES OF THE VESSEL PAID TO TERAS TRANSPORTERS PTE. LTD WOULD ONLY BE TAXABLE IN SINGAPORE AND NOTHING WI LL BE TAXABLE IN INDIA. PAGE | 12 5.6 IT IS FURTHER SUBMITTED THAT BARGES OPERATE IN INTERNATIONAL WATERS AND CARRY GOODS FROM VARIOUS PORTS. THESE GOODS (FABRICATED PARTS OF PLATFORMS) ARE DELIVERED ON INDIAN HIGH SEAS, WHERE THEY ARE INSTALLED BY THE ASSESSEE. TO SUPPORT THE CONTENTION, A SAMPLE BILL OF LADING ALONG WITH BARGE ENTRY CERTIFICATE AND LIST OF GOODS AS APPROVED BY THE INDIAN AUTHORITIES ARE ATTACHED AS ANNEXURE 5.7 IN ABSENCE OF TAXABILITY OF THE RENTAL / HIRING CHARGES PAID TO TERAS TRANSPORTERS PTE. LTD IN INDIA FOR HIRE OF BARGES WHICH IS A SHIP AS PER THE DECISION OF THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF DCIT V. ORION AGENCIES LTD [~2QO 9 32 SOT 527 (MUMBAI)L. PROVISIONS OF SECTION 195 OF THE ACT WOULD NOT BE APPLICABLE AND THE ASSESSEE WOULD NO T BE REQUIRED TO DEDUCT ANY TAXES IN INDIA. 5.8 IN OTHER WORDS, AS TERAS TRANSPORTER IS A SHIPPING COMPANY COVERED UNDER THE PROVISION OF THE ARTICLE 8 OF INDO - SINGAPORE DTAA, HENCE THE AMOUNT RECEIVED BY THE SAID COMPANY IS TO BE TAXED IN THE STATE WHERE THE COMPANY PRINCIPAL BUSINESS IS SITUATED I.E. IN SINGAPORE. HENCE, AS THE INCOME OF THE PARTY TO WHOM PAYMENT IS MADE IS NOT TAXABLE IN INDIA, THERE IS NO LIABILITY ON THE ASSESSEE TO DEDUCT TAX AT SOURCE, THEREFORE, DISALLOWANCE UNDER SECTION 40 (A)(I) I S LIABLE TO BE DELETED. 5.9 THE ASSESSEE WOULD LIKE TO PLACE RELIANCE ON THE DECISION OF THE COCHIN TRIBUNAL IN THE CASE OF MATHEWSONS EXPORTS & IMPORTS (P.) LTD [2014] 50 TAXMANN.COM 378) WHEREIN THE ITAT HELD AS UNDER: THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT ARTICLE 8 OF THE DTAA BETWEEN GOVERNMENT OF INDIA AND GOVERNMENT OF UAE WOULD BE APPLICABLE TO THE FACTS OF THE CASE, SINCE IT IS MORE BENEFICIAL TO THE ASSESSEE. ARTICLE 8 OF THE DTAA, MORE PARTICULARLY, SUB - CLAUSE (2) CLEARLY SAYS THAT THE PROFIT FROM OPERATION OF THE SHIP IN INTERNATIONAL TRAFFIC WILL ALSO INCLUDE THE CHARTER OR RENTAL OF SHIPS INCIDENTAL TO SUCH TRANSPORTATION. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE PROFIT ARISING TO THE NON - RESIDENT COMPANY ON CHAR TER OF THE VESSEL M.V. THEKKADI HAS TO BE TAXED ONLY IN THE UAE IN VIEW OF THE DTAA BETWEEN GOVERNMENT OF INDIA AND GOVERNMENT OF UAE, MORE PARTICULARLY, ARTICLE 8(1) OF THE DTAA. THE MATERIAL FILED BY THE ASSESSEE CLEARLY SHOWS THAT THE VESSEL M.V. THEKKA DI WAS OPERATED BETWEEN TUTICORIN PORT TO MALI PORT IN MALDIVES. THEREFORE, IT OPERATES IN INTERNATIONAL TRAFFIC/WATERS. 5.10 THEREFORE, IN LIGHT OF THE AFOREMENTIONED JUDICIAL PRECEDENTS, IT IS CRYSTAL CLEAR THAT IN ABSENCE OF TAXABILITY OF THE RENTAL / HIRING CHARGES PAID TO TERAS TRANSPORTERS PTE. LTD IN INDIA, PROVISIONS OF SECTION 195 OF THE ACT WOULD NOT BE APPLICABLE AND THE ASSESSEE WOULD NOT BE REQUIRED TO DEDUCT ANY TAXES IN INDIA. HENCE, NO DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT IS WARRA NTED IN THIS CASE. PAGE | 13 12. THE LEARNED COMMISSIONER OF INCOME TAX DEPARTMENT REPRESENTATIVE (INTERNATIONAL TAXATION) SUBMITTED THAT WITH RESPECT TO THE FIXED PLACE OF PERMANENT ESTABLISHMENT UNDER ARTICLE 5 (1) OF DOUBLE TAXATION AVOIDANCE AGREEMENT HAS ALREADY BEEN CONFIRMED BY THE COORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NUMBER 5237/DEL/2010 FOR ASSESSMENT YEAR 2007 08. HE FURTHER REFERRED TO THE VARIOUS FINDING OF THE COORDINATE BENCH WITH RESPECT TO THE COMPOSITE CONTRACT OF THE ASSESSEE WITH ONGC AN D FURTHER REFERRED TO THE FINDING OF THE CONTINENT BENCH ON ACCOUNT OF ROLE PLAYED BY AND THE FUNCTIONS OF THE PERMANENT ESTABLISHMENT. HE FURTHER SUBMITTED THAT NONE OF THE ABOVE FINDINGS WERE CONTROVERTED BY THE HONOURABLE HIGH COURT ON THE ORDER OF THE COORDINATE BENCH BEING CHALLENGED THERE . HE FURTHER STATED THAT HONOURABLE HIGH COURT HAS ALSO CONFIRMED THE EXISTENCE OF THE PERMANENT ESTABLISHMENT. HE SUBMITTED THAT ONLY POINT OF DEPARTURE BETWEEN THE DECISION OF THE COORDINATE BENCH AND HONOURABLE HIGH COURT IS WITH RESPECT TO THE WAY INCOME WAS ATTRIBUTED TO THE PERMANENT ESTABLISHMENT. THE HONOURABLE HIGH COURT ALLOWED THE APPEAL OF THE ASSESSEE AND SET ASIDE THE ORDER OF THE HONOURABLE TRIBUNAL TO THE FILE OF THE LEARNED ASSESSING OFFICER WHERE THE 25% OF THE GROSS RECEIPT WAS ATTRIBUTED BY THE LEARNED ASSESSING OFFICER. THEREFORE HIS ARGUMENT WAS THAT THE PERMANENT ESTABLISHMENT OF THE ASSESSEE IS UPHELD BY THE HONOURABLE HIGH COURT IN THE EARLIER YEARS AND THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE COMPARED TO THOSE YEARS AND THEREFORE THE PERMANENT ESTABLISHMENT IS UPHELD. 13. WITH RESPECT TO THE ATTRIBUTION OF INCOME TO THE PERMANENT ESTABLISHMENT, HE STATED THAT THE ATTRIBUTION OF PROFIT TO THE PERMANENT ESTABLISHMENT IS AN EXERCISE OF FACTS ONLY AND HENCE THE PRINCIPLE OF RES JUDICATA OR CONTINUITY DOES NOT APPLY. HE FURTHER STATED THAT NO PROFITS HAVE BEEN ATTRIBUTED TO THE PERMANENT ESTABLISHMENT DURING ANY C ANNOT BE THE GUIDING PRINCIPLES FOR ATTRIBUTION OF PROFITS FOR OTHER YEARS. HE STATED THAT FOR THE YEAR UNDER APPEAL IT CAN BE SEEN THAT DESPITE SPECIFIC DIRECTION BY THE LEARNED DISPUTE RESOLUTION PANEL, THE ASSESSEE FAILED TO PROVIDE DETAILS OF INFORMAT ION RELATING TO OUTSIDE REVENUE THE SAME BEING VOLUMINOUS AND ARE MOSTLY IN KOREAN LANGUAGE WHICH HAVE TO BE TRANSLATED IN ENGLISH. THEREFORE HE STATED THAT ON THE BASIS OF THE LITTLE DOCUMENTS PROVIDED TO THE ASSESSING PAGE | 14 OFFICER THE LEARNED ASSESSING OFFIC ER NOTED THE FUNCTIONS CARRIED OUT BY THE ASSESSEE DURING THE YEAR AS COMPARED TO THE FUNCTIONS DURING ASSESSMENT YEAR 2008 09. HE FURTHER STATED THAT NO EVIDENCE WAS PRODUCED BY THE APPELLANT EITHER BEFORE THE LOWER APPELLATE AUTHORITIES OR BEFORE THE COORDINATE BENCH TO REFUTE THE SAME. HE FURTHER ANALYZED THE FUNCTIONS PERFORMED BY THE ASSESSEE FOR ASSESSMENT YEAR 2008 - 09 VISION OF HIS 2009 10 AND 2010 11. HE FURTHER STATED THAT NO TRANSFER PRICING STUDY REPORT OF THE PROFIT ATTRIBUTION STUDY W AS FURNISHED BY THE APPELLANT FOR ASSESSMENT YEAR 2009 10. HE FURTHER STATED THAT APPELLANT DID NOT FURNISH ANY REPLY OR OTHER DOCUMENTS BEFORE THE ASSESSING OFFICER CONSEQUENT TO THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL. FURTHER WITH RESP ECT TO THE ASSESSMENT YEAR 2010 11, HE FURTHER STATED THAT EVEN THOUGH THE APPELLANT FURNISHED THE PROFIT ATTRIBUTION REPORT AFTER EXAMINING THE SAME THE LEARNED ASSESSING OFFICER HAS OBSERVED THAT THE FUNCTIONAL ANALYSIS CONTAINED THEREIN DOES NOT REPRE SENT THE CORRECT PICTURE OF THE PROJECT OFFICE IN INDIA AS OBSERVED BY THE COORDINATE BENCH IN ITS ORDER FOR ASSESSMENT YEAR 2007 08. THEREFORE HE SUBMITTED THAT THE ACTION OF THE LEARNED ASSESSING OFFICER MAY BE AFFIRMED AND THE APPEAL OF THE ASSESSEE MAY BE DISMISSED. 14. EVEN OTHERWISE HE SUBMITTED THAT THE PROFIT ATTRIBUTION WITH RESPECT TO THE EARNING OF OUTSIDE INDIA MUST BE DECIDED ON THE BASIS OF THE ROLE OF THE PROJECT OFFICE WITH RESPECT TO THE COMPOSITE CONTRACT BY THE ASSESSEE IN INDIA. HE THERE FORE SUBMITTED THAT THE PROJECT OFFICE HAS A VERY INTIMATE CONNECTION WITH THE ACTIVITIES RELATING TO THE CONTRACT BEING CARRIED ON OUTSIDE INDIA AND THE MATERIALS ARE NOT DELIVERED 3 ON - BOARD BASIS AND ONGC HAS CLARIFIED THAT THE TITLE TO THE SUPPLY PASSE D INSIDE INDIA. 15. WITH RESPECT TO THE DISALLOWANCE OF EXPENSES FOR NON - DEDUCTION OF TAX DEDUCTION AT SOURCE HE RELIED UPON THE ORDER OF THE LEARNED DISPUTE RESOLUTION PANEL. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE ORDERS OF TH E LOWER AUTHORITIES. THE 1 ST ISSUE REQUIRED TO BE EXAMINED IS WHETHER THERE IS ANY PERMANENT ESTABLISHMENT OF THE ASSESSEE IN INDIA OR NOT. FURTHER WHETHER THE PROJECT OFFICE HAS ANY ROLE TO PLAY WITH RESPECT TO THE OFFSHORE SUPPLY OF THE GOODS IN THE IM PUGNED CONTRACT. IDENTICAL ISSUE PAGE | 15 HAS BEEN EXAMINED IN CASE OF THE ASSESSEE WITH RESPECT TO THE SAME CONTRACT BY THE COORDINATE BENCH IN EARLIER YEARS WHEREIN IT HAS BEEN HELD THAT THE ASSESSEE HAS A PERMANENT ESTABLISHMENT IN INDIA AND THE ACTIVITIES CARR IED ON TO THE EXTENT OF THE PROJECT OFFICE OF THE ASSESSEE IS REQUIRED TO BE ATTRIBUTED AS INCOME ACCRUING AND ARISING TO THE ASSESSEE IN INDIA. TO THIS EXTENT, THE ORDER CHALLENGED BY THE ASSESSEE OF THE COORDINATE BENCH BEFORE THE HONOURABLE HIGH COURT HAS BEEN UPHELD. HONOURABLE HIGH COURT IN ITA NO 1 OF 2012 DATED 27/12/2013 WHILE DEALING WITH THE IDENTICAL ISSUE FOR AY 2007 - 08 HAS HELD AS UNDER : - 3. A SHORT SUMMARIZATION OF THE FACTS, AS ABOVE, WOULD INDICATE TWO THINGS, NAMELY, THAT (I) THE A PPELLANT HAS A TAX IDENTITY IN INDIA AND A TAX IDENTITY OUTSIDE INDIA AND, ACCORDINGLY, (II) ITS TAX LIABILITY IN INDIA IS REQUIRED TO BE APPORTIONED. WHAT MECHANISM WILL BE ADOPTED TO APPORTION THE SAME HAS, HOWEVER, NOT BEEN PROVIDED IN THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION OF INCOME AND THE PREVENTION OF FISCAL EVASION ENTERED BY THE UNION OF INDIA WITH THE REPUBLIC OF KOREA. 4. IN PARAGRAPH 1 OF ARTICLE 7 OF THE SAID AGREEMENT, IT HAS BEEN PROVIDED THAT PROFITS OF AN ENTERPRISE OF A CONTRA CTING STATE SHALL BE TAXABLE ONLY IN THAT STATE UNLESS THE ENTERPRISE CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. IT, THEREFORE, RECOGNIZES TWO TAX IDENTITIES OF AN ENTERPRISE. THE SAID PARAGRAPH M AKES IT CLEAR THAT THE PROFITS OF THE ENTERPRISE MAY BE TAXED IN THE OTHER STATE ONLY SO MUCH OF THE SAME WHICH IS ATTRIBUTABLE TO THAT PERMANENT ESTABLISHMENT. 5. PARAGRAPH 2 OF ARTICLE 7 IS AS FOLLOWS : - SUBJECT TO THE PROVISIONS OF PARAGRAPH (3), WHERE AN ENTERPRISE OF A CONTRACTING STATE CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, THERE SHALL IN EACH CONTRACTING STATE BE ATTRIBUTED TO THAT PERMANENT ESTABLISHMENT THE PROFITS WHICH IT MIGHT BE EXPECTED TO MAKE IF IT WERE A DISTINCT AND SEPARATE ENTERPRISE ENGAGED IN THE SAME OR SIMILAR ACTIVITIES UNDER THE SAME PAGE | 16 OR SIMILAR CONDITIONS AND DEALING WHOLLY INDEPENDENTLY WITH THE ENTERPRISE OF WHICH IT IS A PERMANENT ESTABLISHMENT. 6. IN THE EVENT, AN ENTERPRISE HAVING A TAX IDENTITY IN ONE CONTRACTING STATE FOR HAVING A PERMANENT ESTABLISHMENT THERE, AND DEALING WHOLLY INDEPENDENTLY WITH ITS OTHER TAX ENTITY SITUATE IN THE OTHER CONTRACTING STATE, THE PROFIT ATTRIBUTABLE TO THE FIRST TAX IDE NTITY WILL BE PROFIT WHICH MIGHT BE EXPECTED TO BE MADE. 7. THEREFORE, THE SAID AGREEMENT DOES NOT GIVE ANY GUIDANCE TO ASCERTAIN WHAT INCOME IS ATTRIBUTABLE TO WHICH TAX ENTITY UNLESS PROFIT IS GENERATED BY ONE TAX ENTITY DEALING WITH THE OTHER TAX EN TITY. 8. IN THE INSTANT CASE, APPELLANT HELD OUT THAT A PART OF THE MONEY RECEIVED BY IT WAS ATTRIBUTABLE TO WITHIN INDIA ACTIVITIES AND THE REMAINING ON ACCOUNT OF OUT OF INDIA ACTIVITIES. APPELLANT WAS NOT GENERATING ANY REVENUE BY DEALING WITH EITHE R ITS INDIAN TAX IDENTITY, OR ITS KOREAN TAX IDENTITY. IT WAS GENERATING REVENUE BY DEALING WITH O.N.G.C. UNDER THE SAID CONTRACT. IT CONFESSED THAT A PART OF SUCH REVENUE WAS EARNED BY IT FOR HAVING HAD CARRIED OUT WITHIN INDIA ACTIVITIES. IT ASSERTED AND CONTINUES TO ASSERT THAT THE REMAINING REVENUE WAS GENERATED BY CARRYING OUT OUT OF INDIA ACTIVITIES. THERE IS NO FINDING ANYWHERE THAT THE REVENUE EARNED AND SAID TO HAVE BEEN ON ACCOUNT OF OUT OF INDIA ACTIVITY WAS EARNED, IN FACT, ON ACCOUNT OF W ITHIN INDIA ACTIVITY. 9. BEING A RESIDENT OF KOREA, APPELLANT IS GOVERNED BY THE INCOME - TAX LAWS APPLICABLE TO THE CLASS OF ASSESSEES AS THAT OF THE APPELLANT AS PREVALENT IN KOREA. THEREFORE, IT HAS A TAX IDENTITY IN KOREA. IN ADDITION THERETO, APPELL ANT HAS SUBMITTED TO THE JURISDICTION OF INDIAN TAXING AUTHORITIES BY FURNISHING RETURN OF INCOME AND, THEREBY, ACKNOWLEDGED THAT IT HAS ALSO A TAX IDENTITY IN INDIA. THE QUESTION IS, THIS IDENTITY IS COVERED BY WHICH PROVISION OF THE AGREEMENT. IN TERMS O F PARAGRAPH 1 OF ARTICLE 7, APPELLANT WILL ACQUIRE ITS TAX IDENTITY IN PAGE | 17 INDIA ONLY WHEN IT CARRIES ON BUSINESS IN INDIA THROUGH A PERMANENT ESTABLISHMENT SITUATE IN INDIA. BY SUBMITTING THE RETURN, APPELLANT HAS HELD OUT THAT IT IS CARRYING ON BUSINESS IN I NDIA THROUGH A PERMANENT ESTABLISHMENT SITUATED IN INDIA. IN THE CIRCUMSTANCES, THE CONTENTION OF THE APPELLANT, WHETHER THE PROJECT OFFICE OF THE APPELLANT OPENED AT MUMBAI CAN BE, OR CANNOT BE SAID TO BE A PERMANENT ESTABLISHMENT WITHIN THE MEANING OF TH E SAID AGREEMENT IS OF NO CONSEQUENCE. IN TERMS OF THE SAID AGREEMENT, AS IT APPEARS TO US, IF AN ENTERPRISE DOES NOT HAVE A TAX IDENTITY IN INDIA IN THE FORM OF A PERMANENT ESTABLISHMENT, IT HAS NO OBLIGATION TO EITHER SUBMIT ANY TAX RETURN WITH, OR PAY A NY TAX TO INDIA. THE QUESTION STILL REMAINS, WHETHER IT WAS RIGHT ON THE PART OF THE TAXING AUTHORITY TO ASSESS INCOMETAX LIABILITY OF THE APPELLANT AS WAS ASSESSED IN THE INSTANT CASE. IN OTHER WORDS, CAN IT BE SAID THAT THE AGREEMENT PERMITTED THE INDI AN TAXING AUTHORITY TO ARBITRARILY FIX A PART OF THE REVENUE TO THE PERMANENT ESTABLISHMENT OF THE APPELLANT IN INDIA? AS AFORESAID, APPELLANT HELD OUT THAT A PART OF THE REVENUE WAS RECEIVED BY IT FOR DOING CERTAIN WORK IN INDIA. IT DID NOT CONTEND THAT E VEN THOSE WORKS WERE DONE BY OR THROUGH ITS PROJECT OFFICE AT MUMBAI. ON THE OTHER HAND, THERE IS NOT EVEN A FINDING THAT 25 PER CENT OF THE GROSS REVENUE OF THE APPELLANT WAS ATTRIBUTABLE TO THE BUSINESS CARRIED OUT BY THE PROJECT OFFICE OF THE APPELLANT. ONE HAS TO READ ARTICLE 5 OF THE AGREEMENT IN ORDER TO UNDERSTAND WHAT A PERMANENT ESTABLISHMENT IS, IN TERMS WHEREOF PERMANENT ESTABLISHMENT MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. IN THE INSTANT CASE, ACCORDING TO THE REVENUE, THE PROJECT OFFICE OF THE APPELLANT IN MUMBAI IS THE PERMANENT ESTABLISHMENT OF THE APPELLANT IN INDIA THROUGH WHICH IT CARRIED ON BUSINESS DURING THE RELEVANT ASSESSMENT YEAR AND 25 PER CENT OF THE GROSS RECEIPT I S ATTRIBUTABLE TO THE SAID BUSINESS. NEITHER THE ASSESSING OFFICER, NOR THE TRIBUNAL HAS MADE ANY EFFORT TO BRING ON RECORD ANY EVIDENCE TO JUSTIFY THE SAME. PAGE | 18 17. FURTHER FOR ASSESSMENT YEAR 2008 9 IN CASE OF ASSESSEE IN ITA NUMBER 05/01/2003/DEL/2011 THE COORDINATE BENCH WIDE ORDER DATED 27/9/2013 HAS DEALT WITH THE WHOLE ISSUE AND AS PER PARA NUMBER 6 OF THAT ORDER SET ASIDE THE ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER TO CONSIDER PARA NUMBER 78 OF THE ORDER OF THE COORDINATE BENCH IN IT A NUMBER 5737/DEL/2010. IN VIEW OF THIS IT IS APPARENT THAT FOR THAT ASSESSMENT YEAR ALSO THE EXISTENCE OF THE PERMANENT ESTABLISHMENT WAS UPHELD AND ONLY FOR THE PURPOSE OF THE PROFIT ATTRIBUTION THE MATTER WAS SET ASIDE TO THE FILE OF THE LEARNED ASSESS ING OFFICER. 18. IN VIEW OF THE BINDING PRECEDENTS AVAILABLE, RESPECTFULLY FOLLOWING THE SAME WE DISMISS GROUND NUMBER 2 AND 3 OF THE APPEAL OF THE ASSESSEE. 19. COMING TO GROUND NUMBER 4 OF THE APPEAL WHICH IS AGAINST THE ATTRIBUTION OF INCOME WHERE THE LEARNED A SSESSING OFFICER HAS UPHELD 25% OF THE GROSS REVENUE BUILD BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR IN RESPECT OF ACTIVITY CARRIED OUT OUTSIDE INDIA. FURTHER WHILE GROUND NUMBER 5 OF THE APPEAL OF THE ASSESSEE IT HAS BEEN STATED THAT THERE BEING LOSS IN THE ACTIVITIES CARRIED ON OUTSIDE INDIA NO INCOME COULD BE ATTRIBUTED TO THE INSTALLATION PE OF THE APPELLANT IN INDIA. AS IN THE EARLIER YEARS THE COORDINATE BENCH SET ASIDE THE ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER AS WELL AS FOR ASSESSMENT YEAR 2007 08 AND 2008 09 THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR THE PURPOSE OF DETERMINING THE PROFIT ATTRIBUTION, WE ALSO RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH AS WELL AS THE HONOURABLE HIGH COURT SET ASIDE THE ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER WITH A DIRECTION TO THE ASSESSEE TO SUBMIT THE PROFIT ATTRIBUTION REPORT WITH RESPECT TO ASSESSMENT YEAR 2009 10 AND 2010 11 CONTAINING THE EXHAUSTIVE FUNCTIONS PERFORMED BY THE PROJECT OFFICE IN RELATION TO THE OFFSHORE SUPPLY. THE ASSESSEE IS ALSO DIRECTED TO PRODUCE THE SITE OF THE SALE OF GOODS WITH RESPECT TO THE SUPPLY. ASSESSEE IS ALSO DIRECTED TO PRODUCE ALL THE DOCUMENTS AS DECIDED BY THE LEARNED ASSES SING OFFICER DULY TRANSLATED IN ENGLISH LANGUAGE ALONG WITH THE INVOICES AND THE NATURE OF ACTIVITIES CARRIED OUT BY THE ASSESSEE IN ACCORDANCE THEREWITH. ACCORDINGLY GROUND NUMBER 4 AND 5 OF THE APPEAL OF THE ASSESSEE IS ALLOWED WITH ABOVE DIRECTION. PAGE | 19 20. COM ING TO THE GROUND NUMBER 6 OF THE APPEAL OF THE ASSESSEE WITH RESPECT TO THE DISALLOWANCE UNDER SECTION 40 (A) ( I ) AND (I A) OF THE ACT AMOUNTING TO INR 25 557055/ - . THE 1 ST DISALLOWANCES WITH RESPECT TO THE PAYMENT MADE OF INR 1 356923/ TO M/S LOGISTIC E NTERPRISES PRIVATE LIMITED. THE ASSESSEE HAS PRODUCED THE COPY OF THE DEBIT NOTE DATED 3 IS/6/2008 PERTAINING TO THE REIMBURSEMENT OF AMOUNT PAID TO MONTH REPORT IN SPECIAL ECONOMIC JOHN LTD FOR M.V.DOLPHIN NUMBER 33 AS INSTRUCTED BY THE ASSESSEE. ACCORD ING TO THE ABOVE DEBIT NOTE IT IS CRYSTAL CLEAR THAT THE AMOUNT REPRESENTS THE REIMBURSEMENT OF THE EXPENDITURE. AS THE ABOVE AMOUNT IS REIMBURSEMENT THERE IS NO REQUIREMENT OF TAX DEDUCTION AT SOURCE ON THE ABOVE SUM. EVEN OTHERWISE THE ASSESSEE IS A NO N - RESIDENT HOWEVER THE RECIPIENT OF THE INCOME IS A RESIDENT COMPANY. THEREFORE IF THE RECIPIENT COMPANY HAS INCORPORATED THE ABOVE AMOUNT IN ITS INCOME AND ASSESSEE FULFILS THE NECESSARY CONDITION AS LAID DOWN UNDER SECTION 201 (1) OF THE INCOME TAX ACT THE ABOVE AMOUNT CANNOT BE DISALLOWED. IN VIEW OF THIS WE SET ASIDE THESE DISALLOWANCE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER WITH A DIRECTION TO THE ASSESSEE TO PRODUCE NECESSARY DETAIL WITH RESPECT TO THE ABOVE COMPANY. THE AO MAY EXAMINE TH E SAME AND IF THE NECESSARY CONDITIONS ARE SATISFIED IN TERMS OF THE RETROSPECTIVE AMENDMENT MADE BY THE FINANCE ACT 2012, THE DISALLOWANCE MAY BE DELETED. 21. WITH RESPECT TO THE 2 ND DISALLOWANCE OF INR 2455 4555/ - PAID TO M/S TERRAS TRANSPORTERS PTE LTD SING APORE THE ASSESSEE HAS CLAIMED THAT IS THE RECIPIENT OF THE INCOME IS A RESIDENT OF SINGAPORE AND ACCORDING TO ARTICLE 8 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT THE INCOME IS CHARGEABLE TO TAX ONLY IN SINGAPORE AND NOT IN INDIA. HOWEVER THE ASSESSEE HA S NOT ADDRESSED ARTICLE 24 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT WHICH IS LIMITATION OF THE BENEFIT AVAILABLE TO THE RESIDENT OF SINGAPORE COMPANY. IN VIEW OF THIS THE DISALLOWANCE WITH RESPECT TO ABOVE PAYMENT IS ALSO SET ASIDE TO THE FILE OF THE LE ARNED ASSESSING OFFICER WITH A DIRECTION TO THE ASSESSEE TO PROVE BEFORE THE ASSESSING OFFICER THAT RECIPIENT OF THE INCOME IS ELIGIBLE FOR BENEFIT OF DOUBLE TAXATION AVOIDANCE AGREEMENT WITH RESPECT TO ARTICLE 8 AND 24 OF THE DOUBLE TAXATION AVOIDANCE OF INDIA AND SINGAPORE. 22. ACCORDINGLY GROUND NUMBER 6 OF THE APPEAL OF THE ASSESSEE SET ASIDE TO THE FILE OF THE LEARNED ASSESSING OFFICER. PAGE | 20 23. ACCORDINGLY ITA NUMBER 1064/DEL/2013 FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2009 10 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 24. NOW WE COME TO THE APPEAL OF THE ASSESSEE IN ITA NUMBER 1909/DEL/2014 FOR ASSESSMENT YEAR 2010 12 FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), DEHRADUN DATED 31/1/ 2014 PASSED UNDER SECTION 143 (3) READ WITH SECTION 144C (13) OF THE INCOME TAX ACT 1961 PASSED IN PURSUANCE TO THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL II, NEW DELHI DATED 27/11/2013. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 1909 /DEL/201 4 : - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, DEHRADUN (THE LD. AO) HAS ERRED IN FRAMING THE ASSESSMENT ORDER BY ASSESSING THE INCOME AT RS 3 ,37,60,060 AS AGAINST THE RETURNED LOSS OF RS.6,00,88,170 BASED UPON CONJECTURES, SURMISES, PRECONCEIVED NOTIONS AND INCORRECT APPLICATION OF LAW. 1.1. WHILE DOING SO, THAT THE LD. AO HAS ERRED MERELY MECHANICALLY RELYING UPON THE ASSESSMENTS FRAMED IN EARLIER YEARS (I.E. AY 2007 - 08, 2008 - 09 AND 2009 - 10) IN RESPECT OF THE VASAI EAST DEVELOPMENT PROJECT ('THE CONTRACT' OR VED), WITHOUT CONSIDERING THE DETAILED FACTUAL AND LEGAL SUBMISSIONS MADE BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDING . 1.2. ALSO, THE LD. AO IGNORED THE DECISION OF HONBLE HIGH COURT OF UTTARAKHAND DATED DECEMBER 27, 2013 IN THE CASE OF APPELLANT ITSELF FOR AY 2007 - 08 (THE HIGH COURT ORDER) WHEREIN HONBLE HIGH COURT SET ASIDE THE ORDER OF THE HONBLE INCOME TAX APPEL LATE TRIBUNAL (ITAT) AND THE ASSESSMENT ORDER IN RELATION TO ATTRIBUTION OF OUTSIDE INDIA REVENUES TO THE ALLEGED PE OF THE APPELLANT IN INDIA. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN CONCLUDING THAT THE AP PELLANT HAS A FIXED PLACE PERMANENT ESTABLISHMENT (PE) IN INDIA UNDER ARTICLE 5 OF THE INDIA - KOREA DOUBLE TAXATION AVOIDANCE AGREEMENT (THE TREATY) IN THE FORM OF PROJECT OFFICE IN INDIA IN RESPECT OF THE VED PROJECT. 2.1. THAT THE LD. AO HAS ERRED I N IGNORING THE FACTS THAT ACTIVITIES CARRIED OUT BY THE PROJECT OFFICE IN INDIA ARE MERELY PREPARATORY AND AUXILIARY AND CANNOT BE CONSIDERED AS BUSINESS ACTIVITIES IN INDIA. 2.2. THAT THE LD. AO HAS ERRED IN IGNORING THE FACT THAT THE ACTIVITIES LIKE BIDD ING FOR THE CONTRACT, AWARDING OF THE CONTACT, SIGNING OF THE CONTRACT AND SITE SURVEYS CANNOT LEAD TO ESTABLISHMENT OF PE IN INDIA. PAGE | 21 2.3 THAT THE LD. AO HAS ERRED IN IGNORING THE FACTS, CIRCUMSTANCES AND THE LEGAL POSITION THAT IF AT ALL THERE COULD BE A P E OF THE APPELLANT IN INDIA THAT COULD ONLY BE INSTALLATION/ASSEMBLY PE AS PER ARTICLE 5(3) OF THE TREATY. 2.4. THAT THE LD. AO HAS ERRED IN IGNORING THE LEGAL POSITION THAT SPECIFIC PROVISIONS I.E. ARTICLE 5(3) IN RESPECT OF INSTALLATION/ ASSEMBLY PE OVE RRIDES THE GENERAL PROVISIONS I.E. ARTICLE 5(1) AND (2), AND THUS, NO PE IN THE FORM OF PROJECT OFFICE CAN COME INTO PLACE WHERE THE APPELLANT IS PERFORMING INSTALLATION ACTIVITIES IN INDIA. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN HOLDING THAT THE CONTRACT IS NOT A DIVISIBLE CONTRACT. 3.1. THAT THE LD. AO HAS ERRED IN HOLDING THAT THE ENTIRE RECEIPTS FROM OFFSHORE SUPPLIES (I.E. DESIGN & ENGINEERING, FABRICATION AND SUPPLY OF PLATFORM) IS TAXABLE IN IN DIA WITHOUT APPRECIATING THE ACTUAL POSITION THAT THE ENTIRE ACTIVITY IN RELATION OF OFFSHORE SUPPLIES (I.E. DESIGN & ENGINEERING, FABRICATION AND SUPPLY OF PLATFORM) WAS CARRIED OUT OUTSIDE INDIA. 3.2. THAT THE LD. AO HAS GROSSLY ERRED IN IGNORING THE PR INCIPLES OF TAXATION LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF ISHIKAWAJMA HARIMAS : 288 ITR 408 (SC) IN RESPECT OF TAXABILITY OF TURNKEY CONTRACT WHERE DIFFERENT PARTS OF THE CONTRACT IS TO BE CARRIED OUT IN DIFFERENT TAX JURISDICTIONS. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN HOLDING THAT THE TITLE IN THE MATERIAL/OFFSHORE SUPPLIES AS PER THE CONTRACT WAS TRANSFERRED IN INDIA. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN HOLDING THAT THE ENTIRE PROFITS FROM THE WORK UNDER THE CONTRACTS ARISE IN INDIA AND ARE LIABLE TO TAX IN INDIA. 5.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN CHARGING TO TAX TH E ENTIRE OUTSIDE INDIA REVENUES BY IGNORING THE ATTRIBUTION IN ACCORDANCE WITH ARTICLE 7(1) AND ARTICLE 7(2) OF THE TREATY. 5.2. THAT THE LD. AO HAS ERRED IN IGNORING THE HIGH COURT ORDER WHEREIN IT HAS BEEN HELD THAT WHETHER THE PROJECT OFFICE OF THE APPE LLANT IS A PE OR NOT IS OF NO CONSEQUENCE AS FAR AS ATTRIBUTION OF REVENUE IN RELATION TO OUTSIDE INDIA ACTIVITIES IS CONCERNED, IN THE ABSENCE OF ANY EVIDENCE TO JUSTIFY THAT THE APPELLANT WAS CARRYING ANY BUSINESS ACTIVITY THROUGH THE PO. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN IGNORING THE EXPENSES WHICH RESULTED INTO NET LOSS IN RESPECT OF OPERATIONS OUTSIDE INDIA IN ACCORDANCE WITH ARTICLE 7(3) OF THE TREATY. 6.1. WITHOUT ADMITTING THAT THE APPELLANT IS LIABL E TO TAX IN INDIA, THE LD. AO HAS ERRED IN NOT FOLLOWING THE DIRECTIONS OF HONBLE DRP WHEREIN IT DIRECTED THE LD. AO TO APPLY THE PRINCIPLES OF ATTRIBUTION OF INCOME BASED ON ARMS LENGTH PRINCIPLES (I.E. FUNCTION, ASSET AND RISK ANALYSIS OF ACTIVITIES CA RRIED OUT IN INDIA) AS PER ARTICLE PAGE | 22 7(2) OF THE TREATY WHILE DETERMINING THE PROFITS OF THE ALLEGED PE AND THE LD. AO FURTHER ERRED IN IGNORING THE PE ATTRIBUTION STUDY FILED BY THE APPELLANT DURING THE COURSE OF PROCEEDINGS BEFORE THE HONBLE DRP AND LD. A O WHICH WAS PREPARED ON THE BASIS OF FUNCTIONS, ASSETS AND RISK ANALYSIS. 6.2. WITHOUT ADMITTING THAT THE APPELLANT IS LIABLE TO TAX IN INDIA AND ALSO WITHOUT PREJUDICE TO THE SUBMISSION OF THE APPELLANT THAT NOTHING IN RELATION TO OUTSIDE INDIA REVENUE C OULD BE TAXED IN INDIA AS THE APPELLANT ACTUALLY INCURRED LOSSES IN RELATION TO VED PROJECT, THE LD. AO ERRED IN NOT FOLLOWING THE DIRECTIONS OF HONBLE DRP WHEREIN IT DIRECTED THE LD. AO TO CONSIDER THE GLOBAL PROFIT RANGE OF 6% TO 8% (IN RELATION TO BOTH INSIDE AND OUTSIDE INDIA ACTIVITIES TAKEN TOGETHER) OF THE APPELLANT AS REFLECTING IN THE GLOBAL FINANCIAL STATEMENTS FILED BY THE APPELLANT DURING THE COURSE OF HEARING BEFORE THE HONBLE DRP. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD AO HAS ERRED IN MAKING AN AD - HOC DISALLOWANCE OF RS. 1,20,87,351 OF THE - EXPENDITURE INCURRED UNDER THE HEAD 'CONSTRUCTION EXPENSES' FOR. THE PROJECT ENTERED BY THE APPELLANT WITH SAMSUNG ELECTRONICS INDIA PRIVATE LIMITED ('SIEPL') DATED NOVEMBER 9, 20 09. 7.1. THAT THE LD. AO HAS ERRED IN DISALLOWING AN AMOUNT OF RS. 1,20,87,351 ON THE ALLEGED GROUND OF NON - PRODUCTION OF COPIES OF 100 PERCENT BILLS/ INVOICES AND WITHOUT APPRECIATING THAT THE DETAILS FILED BE THE APPELLANT CONTAINED PROOF OF TAX DEDUCTE D AT SOURCE ON CONSTRUCTION EXPENSES AND DEPOSITED TO THE ACCOUNT OF CENTRAL GOVERNMENT WHICH IS A CONCLUSIVE EVIDENCE TO PROVE THAT THE EXPENSES WERE ACTUALLY INCURRED BY THE APPELLANT. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE L D AO HAS ERRED IN MAKING A REFERENCE IN THE DRAFT ASSESSMENT ORDER IN RESPECT OF SIEPL PROJECT THAT TDS HAS BEEN DEDUCTED AT A LOWER RATE OF 2% INSTEAD OF IO% FOR THE PAYMENTS TO M/S HK ARCHITECTURE INDIA PVT. LTD. WITHOUT APPRECIATING THAT APPROPRIATE TDS HAS BEEN DEDUCTED ON SUCH PAYMENTS. 9. THAT THE LD. AO HAS ERRED IN MECHANICALLY CHARGING INTEREST UNDER SECTION 234D OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE REFUND AS DETERMINED IN THE INTIMATION UNDER SECTION I43(I) OF THE ACT WAS NOT GRANTED TO THE APPELLANT. 10. THAT THE LD. AO HAS ERRED IN MECHANICALLY INITIATING THE PROCEEDINGS UNDER SECTION 271B OF THE ACT. 11. THAT THE LD. AO HAS ERRED IN MECHANICALLY INITIATING PROCEEDINGS UNDER SECTION 271(1) (C) OF THE ACT. 25. THE FACTS RELATING TO THA T APPEAL SHOWS THAT ASSESSEE FILED ITS RETURN OF INCOME ON 8/10/2010 AT THE LOSS OF INR 6 0086170 . THE DRAFT ASSESSMENT ORDER WAS PASSED ON 30/3/2013 ON THE IDENTICAL FACTS AND CIRCUMSTANCES DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT INR 6 5206270/ . IN THE SIMILAR CIRCUMSTANCES AND THE FACT THE LEARNED ASSESSING OFFICER HAS PAGE | 23 ATTRIBUTED THE INCOME AT THE RATE OF 25% OF INR 3 27043527/ - BEING INR 8 1760881/ FROM OUTSIDE INDIA ACTIVITIES HOLDING THAT ASSESSEE HAS A PERMANENT ESTABLISHMENT IN INDIA IN T HE FORM OF A PROJECT OFFICE AND THE PROFIT AS ATTRIBUTABLE TO THE SAME. IN THIS YEAR ALSO THE ASSESSEE FAILED TO SUBSTANTIATE THE VARIOUS EXPENDITURE WITH RESPECT TO THE PROFIT ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT. FURTHER THE ASSESSEE HAS INCURRE D AND EXPENDITURE OF INR 21 7660 7783 UNDER THE HEAD CONSTRUCTION EXPENSES AND THE ASSESSEE COULD ONLY FILED COPIES OF THE BILLS ON A SIMPLE BASIS AND THEREFORE THE LEARNED ASSESSING OFFICER DISALLOWED 20% OF THE ABOVE EXPENSES BEING INR 4 3533556 ON A DOC K BASIS. ON THE OBJECTION BEFORE THE LEARNED DISPUTE RESOLUTION PANEL IT WAS DIRECTED THAT ONLY CLEARING AND FORWARDING, ELECTRICAL WORK, ELECTION AND FABRICATION, INTERIOR PAINTING AND TRANSPORTATION CHARGES AMOUNTING IN ALL TO INR 12 087351 IS REQUIRED TO BE DISALLOWED. THE ABOVE AMOUNT WAS DETERMINED BY THE LEARNED DISPUTE RESOLUTION PANEL AFTER VERIFICATION OF THE EXPENSES. HOWEVER THE LEARNED ASSESSING OFFICER HELD THAT ON THESE PAYMENTS WHICH WERE LIABLE TO TAX DEDUCTION AT SOURCE , THE ASSESSEE CO ULD NOT PRODUCE COPIES OF THE BILLS AND VOUCHERS IN RESPECT OF THE ABOVE EXPENDITURE AND THEREFORE THE WHOLE EXPENDITURE HAVE BEEN DISALLOWED BY THE LEARNED ASSESSING OFFICER. CONSEQUENTLY ASSESSMENT ORDER UNDER SECTION 143 (3) READ WITH SECTION 144C (13) OF THE INCOME TAX ACT WAS PASSED ON 31/1/2014 AGAINST WHICH THE ASSESSEE HAS PREFERRED THIS APPEAL. 26. THE ARGUMENTS OF BOTH THE PARTIES REMAINED THE SAME. THE LEARNED AUTHORISED REPRESENTATIVE WITH RESPECT TO THE DISALLOWANCE ON ACCOUNT OF CONSTRUCTION EXP ENSES WHICH WAS DISALLOWED ON ACCOUNT OF NON - SUBMISSION OF THE BILLS AND VOUCHERS, ASSESSEE SUBMITTED THAT IT HAS MANAGED TO COLLECT BILLS FOR THE REST OF THE AMOUNT AS WELL AND ACCORDINGLY PRAYS THAT THE MATTER MAY BE REMANDED TO THE ASSESSING OFFICER WIT H A DIRECTION TO VERIFY THE ABOVE SAID CLAIM. TO THE ABOVE ARGUMENT THE LEARNED DEPARTMENTAL REPRESENTATIVE STATED THAT ASSESSEE HAS BEEN GIVEN ENOUGH OPPORTUNITY BEFORE THE ASSESSING OFFICER AND THE LEARNED DISPUTE RESOLUTION PANEL AND THEREFORE THE MATT ER SHOULD NOT BE SET ASIDE ONCE AGAIN TO THE FILE OF THE LEARNED ASSESSING OFFICER. 27. THE GROUND NUMBER 1 - 6 OF THE APPEAL IS IDENTICAL TO THE VARIOUS ISSUES RAISED IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 10. PAGE | 24 ACCORDINGLY WE UPHOLD THE ORDE R OF THE LEARNED ASSESSING OFFICER WITH RESPECT TO THE EXISTENCE OF THE PERMANENT ESTABLISHMENT IN INDIA IN THE FORM OF THE PROJECT OFFICE. HOWEVER WITH RESPECT TO THE ATTRIBUTION OF THE PROFIT WE SET ASIDE THE WHOLE ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER TO DECIDE IN ACCORDANCE WITH THE DIRECTION OF THE COORDINATE BENCH FOR ASSESSMENT YEAR 2008 09 IN TERMS OF PARA NUMBER 79 OF THE ORDER OF THE ITAT FOR ASSESSMENT YEAR 2007 08. ACCORDINGLY THE ATTRIBUTION ISSUE IS ALSO RESTORED BACK T O THE FILE OF THE LEARNED ASSESSING OFFICER WITH A SIMILAR DIRECTION TO THE ASSESSEE AS GIVEN IN APPEAL FOR ASSESSMENT YEAR 2009 10. ACCORDINGLY GROUND NUMBER 1 6 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WITH ABOVE DIRECTION. 28. WITH RESPECT TO GR OUND NUMBER 7 OF THE AD HOC DISALLOWANCE OF INR 1 2087351 OF THE EXPENDITURE INCURRED UNDER THE HEAD CONSTRUCTION EXPENSES FOR WHICH THE ASSESSEE COULD NOT PRODUCE THE BILLS, IN THE INTEREST OF THE JUSTICE 1 MORE OPPORTUNITIES GIVEN TO THE ASSESSEE TO PROD UCE THE NECESSARY BILLS AS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE BEFORE THE ASSESSING OFFICER. THE LEARNED ASSESSING OFFICER MAY EXAMINE THE DETAILS IN THE BILLS PRODUCED BY THE ASSESSEE, IF ANY, AND THEN DECIDE THE WHOLE ISSUE AFRESH. ACCOR DINGLY GROUND NUMBER 7 - 8 OF THE APPEAL OF THE ASSESSEE ARE SET ASIDE TO THE FILE OF THE LEARNED ASSESSING OFFICER. ACCORDINGLY THESE GROUNDS ARE ALLOWED WITH ABOVE DIRECTION. 29. GROUND NUMBER 9 11 OF THE APPEAL OF THE ASSESSEE ARE GENERAL IN NATURE AND TH EREFORE IN ABSENCE OF ANY SPECIFIC ARGUMENTS, THERE DISMISSED. 30. ACCORDINGLY APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2010 11 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 31. ACCORDINGLY APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 10 AND 2010 11 IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 0 9 / 0 1 / 201 9 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 9 / 0 1 / 201 9 COPY FORWARDED TO 1. APPLICANT PAGE | 25 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI