THE DDIT (IT)-2(1), MUMBAI V. M/S. TOYO ENGINEERING CORPORATION, MUMBAI

ITA 2139/MUM/2006

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70703 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 29-07-2013
• Assessment Year: 1998-1999
• Appeal Filed On: 05-04-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: INDRA ANAND
• Assessee Lawyers: AJAY SHRIVASTAVA
• Keywords: Double taxation relief; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Advance ruling
• Section: 143(3); 234B; 148

Judgement Text

, IN THE IN IN THE IN IN THE IN IN THE INCOME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL L BENCH, L BENCH, L BENCH, L BENCH, MUMBAI MUMBAI MUMBAI MUMBAI . , !' !' !' !' , . BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI B. R B. R B. R B. RAMAKOTAIAH AMAKOTAIAH AMAKOTAIAH AMAKOTAIAH, AM , AM , AM , AM & && & SHRI SHRI SHRI SHRI VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO, ,, , JM JMJM JM ./ I.T.A. N I.T.A. N I.T.A. N I.T.A. NO. O.O. O.8192/MUM/2004 8192/MUM/2004 8192/MUM/2004 8192/MUM/2004 - -- - A. Y- -- -1999-2000 ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 565/MUM/2005 565/MUM/2005 565/MUM/2005 565/MUM/2005 - A.Y-2000-2001 ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.3310/MUM/2005 3310/MUM/2005 3310/MUM/2005 3310/MUM/2005 - A.Y-1996-1997 ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.3311/MUM/2005 3311/MUM/2005 3311/MUM/2005 3311/MUM/2005 - A.Y-1997-1998 ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.3312/MUM/2005 3312/MUM/2005 3312/MUM/2005 3312/MUM/2005 - A.Y-2001-2002 & ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.2552/MUM/2006 2552/MUM/2006 2552/MUM/2006 2552/MUM/2006 - A.Y-1998-1999 ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.2553/MUM/2006 2553/MUM/2006 2553/MUM/2006 2553/MUM/2006 - A.Y-2002-2003 TOYO ENGINEERING CORPORATION, C/O- BILIMORIA MEHTA & CO., CHARTERED ACCOUNTANTS, 216, SETHNA BUILDING, SHAMALDAS GANDHI MARG, MUMBAI-400002 # # # # / VS. THE DEPUTY DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, RANGE 2-(1), SCINDIA HOUSE, BALLARD PIER, MUMBAI-400021 ( $% / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( &'$% / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.4035/MUM/2005 4035/MUM/2005 4035/MUM/2005 4035/MUM/2005 - -- - A. Y- -- -1996-1997 ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.3698/MU 3698/MU 3698/MU 3698/MUM/2005 M/2005 M/2005 M/2005 - A.Y-1997-1998 & ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 2139/MUM/2006 2139/MUM/2006 2139/MUM/2006 2139/MUM/2006 - A.Y-1998-1999 DDIT (IT)-2(1), ROOM NO. 120, SCINDIA HOUSE, BALLARD ESTATE, N. M. ROAD, MUMBAI-400038 # # # # / VS. TOYO ENGINEERING CORPORATION, C/O- BILIMORIA MEHTA & CO., CHARTERED ACCOUNTANTS, 216, SETHNA BUILDING, SHAMALDAS GANDHI MARG, MUMBAI-400002 $ ./ ') ./ PAN/GIR NO. :AAACT5370K ( $% / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( &'$% / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) $% $% $% $% * * * * / APPELLANT BY : MS. MADHUR AGARWAL & MS. INDRA ANAND &'$% &'$% &'$% &'$% + ++ + * * * * /RESPONDENT BY : MR. AJAY SHRIVASTAVA # # # # + ++ + , , , , / DATE OF HEARING : 29 TH JULY 2013 -. -. -. -. + ++ +, , , , /DATE OF PRONOUNCEMENT: 23 RD AUGUST 2013 ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 2 / / O R D E R PER BENCH FOR THE ASSESSMENT YEAR 1996-97 TO 1998-99 THERE A RE CROSS APPEALS BY THE ASSESSEE AS WELL AS REVENUE AGAINST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX(APPEALS). 2. THE ASSESSEE HAS ALSO IMPUGNED THE ORDERS OF THE CIT(A) FOR THE ASSESSMENT YEAR 1999-2000 TO 2002-03 BY WAY OF FOUR APPEALS. 3. FIRST WE WILL TAKE UP THE ASSESSEES APPEAL IN I TA NO. 8921/2004 FOR THE ASSESSMENT YEAR 1999-2000. 4. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN HOLDING THAT THE OFFSHORE DESIGN REVENUES EARNED BY APPELLANTS HEAD OFFICE IN JAPAN ARE LIABLE TO TAX IN INDIA. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN NOT APPLYING THE PROVISIONS OF ARTICLE 24 OF THE AGREEM ENT FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA-JAPAN AN D THEREBY ERRONEOUSLY CONFIRMING THE TAX RATE APPLIED BY THE ASSESSING OFFICER @ 48 PERCENT FOR COMPUTING THE APPELLANTS TAX LIABILITY, INSTEAD OF 35 PERCENT AS APPLICABLE TO DOMESTIC COM PANIES. 3: THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN DENYING EXEMPTION UNDER SECTION 1 0(6A) OF THE ACT TO THE APPELLANT DESPITE THE FACT THAT THE CONTRACTS WITH MRPL ARE APPROVED BY THE CENTRAL GOVERNMENT. 5. GROUND NO. 1 REGARDING THE TAXABILITY OF OFFSHOR E DESIGN REVENUES EARNED BY THE ASSESSEES HEAD OFFICE. THE ASSESSEE IS A NON-RESIDENT COMPANY INCORPORATED IN JAPAN. THE ASSESSEE SPECIAL ISES IN VARIOUS ACTIVITIES INCLUDING UNDERTAKING WORK RELATED TO DE SIGN, ENGINEERING, ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 3 ERECTION, EQUIPMENT PROCUREMENT, SUPERVISION AND CO NSTRUCTION OF CHEMICAL, FERTILIZER, PETROLEUM, PETROCHEMICAL AND OTHER PLANTS. THE ASSESSEE OPERATES IN INDIA THROUGH PROJECT OFFICES ESTABLISHED IN INDIA AFTER OBTAINING RELEVANT APPROVALS FROM RBI. DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT UNDER CONSIDERATION THE ASSESSEE EXECUTED THE PROJECT MANAGEMENT CONTRACTS AWARDED BY MANGALO RE REFINERY AND PETROCHEMICALS LIMITED (MRPL). THE ASSESSEE ALSO EX ECUTED THE CCR-2 PROJECT MANAGEMENT CONTRACT WITH MRPL AND THE OFFSH ORE SUPPLY CONTRACT AWARDED BY HPL AND CFCL. APART FROM THE ABOVE THE A SSESSEE HAS ALSO EXECUTED OFFSHORE DESIGN CONTRACTS AND WITH MRPL AN D CFCL. THE ASSESSEE HAS NOT OFFERED TO TAX THE INCOME EARNED U NDER THE OFFSHORE DESIGN CONTRACT AND CLAIMED THAT THE SAID INCOME IS NOT CHARGEABLE TO TAX IN INDIA. ALTERNATIVELY THE ASSESSEE ARGUED BEFORE THE AO THAT THE INCOME EARNED UNDER OFFSHORE DESIGN CONTRACTS WAS NOT ATTR IBUTABLE TO THE ASSESSEES PE IN INDIA AND HENCE, THE SAME WAS NOT TAXABLE AS PER THE PROVISIONS OF INDO-JAPAN DTAA. THE AO CONCLUDED THA T THE REVENUE UNDER PROJECT MANAGEMENT CONTRACT AND OFFSHORE DESIGN CON TRACT WITH MRPL, HPL AND CFCL CONSTITUTE FEES FOR TECHNICAL SERVICES (FTS) AND ACCORDINGLY THE REVENUE UNDER OFFSHORE SUPPLY CONTRACT AND OFFS HORE DESIGN CONTRACT EARNED BY THE ASSESSEE WAS HELD TO BE TAXABLE IN IN DIA. ON APPEAL BEFORE CIT(A) THE ASSESSEE CONTENDED THAT THE REVENUE EARN ED UNDER OFFSHORE DESIGN CONTRACT WILL NOT BE TAXABLE IN INDIA WITHIN ARTICLE 12 OF THE INDO- JAPAN DTAA AS IT IS NOT A ROYALTY OR FEES FOR TECHN ICAL SERVICES. IN SUPPORT OF ITS CONTENTION THE ASSESSEE RELIED UPON THE RULI NG OF ADVANCE AUTHORITY ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 4 RULING IN CASE OF PRO-QUICK CORPORATION. THE ASSESS EE HAS FURTHER CONTENDED BEFORE THE CIT(A) THAT THE OFFSHORE DESIG N CONTRACT IS IN NATURE OF PROVISION OF EXTENDED BASIC ENGINEERING AND THE DESIGN TRANSFER TO INDIAN CUSTOMERS BY THE ASSESSEE ARE ONLY FOR THE P URPOSE OF CONSTRUCTION PURPOSE IN INDIA AND SPECIFIC TO THE CONTRACT EXECU TED BY THE ASSESSEE. THE REVENUE RECEIVED BY THE ASSESSEE UNDER OFFSHORE DESIGN CONTRACT IS NOT FOR USE OF OR RIGHT TO USE INDUSTRIAL, COMMERCI AL OR SCIENTIFIC EQUIPMENT THEREFORE, THE SAID REVENUE CANNOT BE CONSIDERED AS ROYALTY OR FEES FOR TECHNICAL SERVICES UNDER INDO-JAPAN TREATY. ALTERNA TIVELY THE ASSESSEE CONTENDED THAT EVEN IF THE PAYMENT RECEIVED BY THE ASSESSEE UNDER OFFSHORE DESIGN CONTRACT ARE CLASSIFIED AS ROYALTY OR FEES FOR TECHNICAL SERVICES THIS WOULD BE COVERED UNDER THE EXCLUSION CLAUSE CONTAIN IN ARTICLE 12(5) OF INDO-JAPAN TREATY. IN SUPPORT OF I TS CONTENTION THE ASSESSEE RELIED UPON RULING OF AUTHORITY OF ADVANCE RULING A AR IN CASE OF BECHTEL 228 ITR 487. THE CIT(A) DID NOT AGREE WITH THE CONT ENTION OF THE ASSESSEE AND CONFIRM THE ACTION OF THE AO IN TREATING THE RE VENUE RECEIVED BY THE ASSESSEE UNDER THE OFFSHORE DESIGN CONTRACT AS ROY ALTY/ FEES FOR TECHNICAL SERVICES AND TAXABLE IN INDIA. 6. BEFORE US THE LD. AR OF THE ASSESSEE HAS REITERA TED THE CONTENTIONS AS RAISED BEFORE THE AUTHORITIES BELOW AND FURTHER CONTENDED THAT THE ISSUE IS COVERED BY THE DECISION OF HONBLE SUPREME COURT IN CASE OF ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES LTD. V. DIT 28 8 ITR 408. THE LD. AR HAS CONTENDED THAT THE HONBLE SUPREME COURT HAS DE ALT WITH AN IDENTICAL ISSUE IN THE SAID DECISION AND HELD THAT THOUGH THE CONTRACT WAS EXECUTED ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 5 IN INDIA BUT PART THEREOF WILL HAVE TO BE CARRIED O UT OUTSIDE INDIA WOULD NOT MAKE THE ENTIRE INCOME DERIVED BY THE CONTRACTOR TO BE TAXABLE IN INDIA. HE HAS FURTHER SUBMITTED THAT THE HONBLE SUPREME C OURT HAS OBSERVED THAT THE CONTRACT MAY BE TURNKEY CONTRACT BUT THE S AME BY ITSELF DOES NOT MEAN EVEN FOR THE PURPOSE OF TAXABILITY THAT THE EN TIRE CONTRACT MUST BE CONSIDERED TO BE AN INTEGRATED ONE SO AS TO MAKE TH E ASSESSEE TO PAY TAX IN INDIA. THE LD. AR AS FURTHER SUBMITTED THAT SUBS EQUENT TO THE DECISION OF HONBLE SUPREME COURT IN CASE OF ISHIKAWAJIMA-HA RIMA HEAVY INDUSTRIES LTD. THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2009-10 HAS CONSIDERED AN IDENTICAL ISSUE AND DECIDED THE SAME IN FAVOUR OF T HE ASSESSEE IN CASE OF IHI CORPORATION VS ADIT REPORTED 58 SOT 225. THEREF ORE, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE DECI SION OF THIS TRIBUNAL. 7. ON THE OTHER HAND THE LD. DR HAS SUBMITTED THAT THE REVENUE EARNED BY THE ASSESSEE UNDER OFFSHORE DESIGN CONTRA CT IS NOTHING BUT FEES FOR TECHNICAL SERVICES. HE HAS FURTHER CONTENDED TH AT THIS ISSUE IS FACTUAL AND DEPEND ON THE FACTS RECORDED IN THE CONTRACT IT SELF. WHEN THE CONTRACT IS FOR DESIGNING THEN THE INCOME CONSTITUTE FEES FO R TECHNICAL SERVICES. HE HAS FURTHER CONTENDED THAT THE OBSERVATION OF HONB LE SUPREME COURT IN CASE OF IHI LTD. IS ONLY OBITER-DICTA AND THEREFORE BINDING ONLY IN THE SAID CASE. HE HAS REFERRED SECTION 9(1)(VII) OF THE INCO ME TAX ACT AND SUBMITTED THAT AFTER INSERTION OF EXPLANATION VIDE FINANCE ACT 2010, WITH RETROSPECTIVE EFFECT FROM 1976 FOR THE PURPOSE OF C LAUSE V, VI AND VII OF SUB-SECTION (1) IT IS IMMATERIAL WHETHER THE NON-R ESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDI A OR RENDERED SERVICES ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 6 IN INDIA FOR INCLUDING THE INCOME BY WAY OF FEES FO R TECHNICAL SERVICES IN THE TOTAL INCOME. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE SO FAR AS T HE CONTRACT HAS BEEN EXECUTED IN INDIA AND THE ASSESSEE IS HAVING PERMAN ENT ESTABLISHMENT IN INDIA. THE LIMITED QUESTION BEFORE US IS REGARDING THE NATURE OF REVENUE EARNED BY THE ASSESSEE UNDER THE OFFSHORE DESIGN CO NTRACT AND TAXABILITY OF THE SAME IN INDIA AS PER THE PROVISIONS OF THE I NCOME TAX ACT AS WELL AS UNDER INDO-JAPAN DTAA. SO FAR AS THE NATURE OF THE REVENUE EARNED UNDER OFFSHORE DESIGN CONTRACT IS CONCERNED, THERE IS NO DISPUTE THAT THE ASSESSEE HAS RENDERED THE SERVICES WHICH ARE TECHNI CAL IN NATURE AND NOTHING HAS BEEN BROUGHT BEFORE US TO CONTRAVENT FI NDINGS GIVEN BY THE AO AND CIT(A) AND THAT THE REVENUE EARNED BY THE A SSESSEE UNDER THE SAID CONTRACT IS NOT ROYALTY/ FEES FOR TECHNICAL SE RVICES. EVEN OTHERWISE THE ASSESSEE HAS NOT DISPUTED THAT THE REVENUE IS E ARNED FOR TRANSFER OF DESIGN FOR THE PURPOSE OF EXECUTION OF THE PROJECT UNDER THE CONTRACT. THUS, THE REVENUE EARNED BY THE ASSESSEE IS FOR REN DERING THE SERVICES AND NOT SALE OF DESIGN. THE TAXABILITY OF FEES FOR TECHNICAL SERVICES HAS TO BE EXAMINED AS PER THE PROVISIONS OF ACT U/S 9(1)(V II) AS WELL AS THE PROVISIONS OF DTAA. IN ORDER TO DETERMINE THE TAXAB ILITY OF FEES FOR TECHNICAL SERVICES SECTION 9(1)(VII) CONTEMPLATES T HE VARIOUS CONDITION AS UNDER: (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVICE S PAYABLE BY- (A) THE GOVERNMENT; OR ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 7 (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FE ES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PR OFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; O R (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROFE SSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKI NG OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA: [PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SH ALL APPLY IN RELATION TO ANY INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE TH E 1 ST DAY OF APRIL, 1976, AND APPROVED BY THE CENTRAL GOVERNMENT .] [EXPLANATION 1. FOR THE PURPOSES OF THE FOREGOING PROVISO, AN AGREEMENT MADE ON OR AFTER THE 1 ST DAY OF APRIL, 1976, SHALL BE DEEMED TO HAVE BEEN MADE BEFORE THAT DATE IF THE AG REEMENT IS MADE IN ACCORDANCE WITH PROPOSALS APPROVED BY THE C ENTRAL GOVERNMENT BEFORE THAT DATE. ] EXPLANATION [2].- FOR THE PURPOSES OF THIS CLAUSE, FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGER IAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION ASSEMBLY, MINING OR LIKE PROJE CT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE IN COME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES.] 9. FURTHER IT IS RELEVANT TO NOTE THAT THE FINANCE ACT 2010 HAS SUBSTITUTED EXPLANATION BELOW TO SECTION 9(2) WITH RETROSPECTIVE EFFECT FROM 1976 WHICH READS AS UNDER: [EXPLANATION FOR THE REMOVAL OF DOUBTS, IT IS HE REBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER C LAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB-SECTION (1) AND SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NON-RESIDENT, WHETHER OR NOT,- (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF B USINESS OR BUSINESS CONNECTION IN INDIA; OR (II) THE NON-RESIDENT HAS RENDERED SERVICES IN IND IA. ] ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 8 10. AS PER CLAUSE (B) OF SECTION 9(1)(VII) IF THE F EES FOR TECHNICAL SERVICES IS PAYABLE BY PERSONS WHO IS RESIDENT THEN THERE IS NO REQUIREMENT THAT THE SERVICES ARE RENDERED IN INDIA . FURTHER AFTER SUBSTITUTION OF THE EXPLANATION BELOW SECTION 9(2) THE INCOME FROM FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO BE ACCRUE D AND ARISED IN INDIA TO A NON-RESIDENT WHETHER OR NOT THE NON-RESIDENT H AS RENDERED SERVICES IN INDIA, OR HAS ANY RESIDENCE OR PLACE OF BUSINESS OR CONNECTION IN INDIA. THEREFORE, RENDERING OF SERVICE IS NOT A PRE CONDIT ION FOR ATTRACTING SECTION 9(1)(VII) WHEN THE FEES FOR TECHNICAL SERVICES ARE PAYABLE BY A PERSON WHO IS RESIDENT. THERE IS NO DISPUTE IN THE CASE IN HAND THAT THE FEES FOR TECHNICAL SERVICES ARE PAYABLE BY THE PERSONS WHO I S RESIDENT IN INDIA THEREFORE, UNDER THE PROVISIONS OF STATUTE THE INCO ME OF FEES FOR TECHNICAL SERVICES IN QUESTION IS TAXABLE IN INDIA. 11. TURNING TO THE TAXABILITY OF SUCH INCOME UNDER INDO-JAPAN DTAA WE NOTE THAT ARTICLE 12 DEALS WITH THE INCOME FROM ROY ALTY AND FEES FOR TECHNICAL SERVICES. THE ASSESSEE HAS TAKEN AN ALTER NATIVE PLEA THAT SINCE THE ASSESSEE HAS A PERMANENT ESTABLISHMENT IN INDIA THEREFORE, THE FEES FOR TECHNICAL SERVICES DOES NOT ATTRACT ARTICLE 12 IN VIEW OF THE EXCLUSION CLAUSE AS PER PARA (5) OF ARTICLE 12. AT THIS STAGE WE REPRODUCE ARTICLE 12(5) AS UNDER: 5. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT APPLY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHN ICAL SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES OR F EES FOR TECHNICAL SERVICES ARISE, THROUGH A PERMANENT ESTABLISHMENT S ITUATED THEREIN, OR PERFORMS IN THAT OTHER CONTRACTING STAT E INDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THERE IN, AND THE ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 9 RIGHT, PROPERTY OR CONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE PAID IS EFFECTIVELY CONN ECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE , THE PROVISIONS OF ARTICLE 7 OR ARTICLE 14, AS THE CASE MAY BE, SHALL APPLY. 12. THERE IS NO DISPUTE THAT IF A NON-RESIDENT HAS A PERMANENT ESTABLISHMENT AND FEES FOR TECHNICAL SERVICES ARISE THROUGH A PERMANENT ESTABLISHMENT SITUATED IN THE OTHER CONTRACTING STA TE THEN THE PROVISIONS OF PARA 1 & 2 OF ARTICLE 12 SHALL NOT APPLY AND SUC H INCOME FOR FEES FOR TECHNICAL SERVICES/ROYALTY WILL FALL UNDER THE PROV ISIONS OF ARTICLE 7 OR ARTICLE 14 AS CASE MAY BE. IN THE CASE IN HAND THE ASSESSEE HAS CATEGORICALLY STATED THAT THE PERMANENT ESTABLISHME NT HAS NO ROLE IN EARNING THE FEES FOR TECHNICAL SERVICES/ROYALTY IN QUESTION. HAVING SAID SO THAT THE PERMANENT ESTABLISHMENT OF THE ASSESSEE HA S NO ROLE IN EARNING OF THE INCOME FROM FEES FOR TECHNICAL SERVICES UNDE R OFFSHORE DESIGN CONTRACT THEN THE EXCLUSION CLAUSE UNDER ARTICLE 12 (5) OF INDO-JAPAN TREATY SHALL NOT BE ATTRACTED AND CONSEQUENTLY THE PROVISI ONS OF ARTICLE 12 RELATING TO FEES FOR TECHNICAL SERVICES WILL BE APP LICABLE. THE AUTHORITIES BELOW HAVE NOT CONSIDERED THE RELEVANT PROVISIONS O F DTAA AND PARTICULARLY ARTICLE 12 OF INDO-JAPAN TREATY IN THE LIGHT OF THE TERMS AND CONDITIONS OF THE CONTRACT IN QUESTION TO ARRIVE AT THE FINDING THAT THE INCOME IN QUESTION IS TAXABLE IN INDIA EVEN UNDER I NDO-JAPAN DTAA. ACCORDINGLY IN THE INTEREST OF JUSTICE WE REMIT THI S ISSUE TO THE RECORD OF THE ASSESSING OFFICER FOR LIMITED PURPOSE OF EXAMIN ATION OF THE CONTRACT IN QUESTION AND TAXABILITY OF THE INCOME UNDER THE SAI D CONTRACT AS PER THE PROVISIONS OF ARTICLE 12 OF INDO-JAPAN DTAA. ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 10 13. GROUND NO. 2 REGARDING THE RATE OF TAX. WE HAV E HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATER IAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998-99 VIDE ORDER DATED 24.12.2009 IN ITA NO. 3520/M/2005 IN PA RA 37 AS UNDER: 37. MR. PERCY PARDIWALLA WAS FAIR IN SUBMITTING T HAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE R EVENUE BY THE DECISION IN THE CASE OF CHOHUNG BANK VS DCIT (I NT. TAXATION) 102 ITD 45. RESPECTFULLY FOLLOWING THE SAME, WE HOL D THAT THE AO WAS RIGHT IN APPLYING TAX RATE OF 48% AS PER THE AC T INSTEAD OF 35% AS CLAIMED BY THE ASSESSEE INVOKING PROVISIONS OF ARTICLE 24 OF INDIAN JAPAN TREATY. 14. SINCE THE ISSUE HAS ALREADY BEEN DECIDED AGAINS T THE ASSESSEE THEREFORE FOLLOWING THE EARLIER ORDER OF THIS TRIBU NAL WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 15. GROUND NO. 3 REGARDING EXEMPTION U/S 10(6A). WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVAN T MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE HAS BEEN CONS IDERED AND DECIDED BY THIS TRIBUNAL IS ASSESSEES OWN CASE IN ASSESSMENT YEAR 1996-97 IN ITA NO. 4054/M/1999 VIDE ORDER DATED 24.12.2009 IN PARA 18 TO 18.2 AS UNDER: 18. COMING TO GROUND NO. 5 THE SOLE ARGUMENT OF M R. NARENDER SINGH, LEARNED DR, IS THAT THE ASSESSEE HAS FILED L OSS RETURN AND HENCE HE WAS NOT LIABLE TO PAY ANY INCOME-TAX IN IN DIA AND UNDER THOSE CIRCUMSTANCES THE TAX PAID BY MRPL COULD NOT BE EXEMPT U/S 10(6A). 18.1 WE FIND THAT SECTION 1 0(6A) READS A FOLLOWS: ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 11 (6A) WHERE IN THE CASE OF A FOREIGN COMPANY DERIVI NG INCOME BY WAY OF ROYALTY OR FEES FOR TECHNICAL SERV ICES RECEIVED FROM GOVERNMENT OR AN INDIAN CONCERN IN PURSUANCE OF AN AGREEMENT MADE BY THE FOREIGN COMPA NY WITH GOVERNMENT OR THE INDIAN CONCERN AFTER THE 3L DAY OF MARCH, 1976 [BUT BEFORE THE 1ST DAY OF JUNE, 2002] [AND. - (A) WHERE THE AGREEMENT RELATES TO A MATTER INCLUDE D IN THE INDUSTRIAL POLICY, FOR THE TIME BEING IN FORCE, OF THE GOVERNMENT OF INDIA SUCH AGREEMENT IS IN ACCORDANCE WITH THAT POLICY; AND (B) IN ANY OTHER CASE, THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERNMENT, THE TAX ON SUCH INCOME IS PAYABLE, UNDER THE TERMS OF THE AGREEMENT, BY GOVERNMENT OR THE INDIAN CONCERN TO T HE CENTRAL GOVERNMENT, THE TAX SO PAID]. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE- (A) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SA ME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB- SECTION (1) OF SECTION 9; (B)FOREIGN COMPANY SHALL HAVE THE SAME MEANING AS IN SECTION 80B. (C) ROYALTY SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9;]. 18.2 THE UNDISPUTED FACT IS THAT THE AGREEMENT IN T HIS CASE RELATES TO A MATTER INCLUDED IN THE INDUSTRIAL POLI CY FOR THE TIME BEING ENFORCED BY GOVERNMENT OF INDIA AND THAT THE AGREEMENT IN QUESTION IS IN ACCORDANCE WITH THE POLICY. AS TH IS CONDITION IS SATISFIED, THE TAX ON INCOME DERIVED BY THE FOREIGN COMPANY, IF IT IS PAYABLE UNDER THE TERMS OF THE AGREEMENT BY THE GOVERNMENT OR THE INDIAN CONCERN, THE TAX SO PAID CANNOT FORM PART OF TOTAL INCOME. SECTION 10(6A) CLEARLY LAYS DOWN THE TAX PA ID OR PAYABLE, UNDER SUCH CIRCUMSTANCES IS EXEMPT U/S 10( 6A). WE ARE UNABLE TO APPRECIATE THE ARGUMENT OF THE REVENUE TH AT AS THIS IS A CASE OF LOSS, THE QUESTION OF APPLICATION OF SECT ION 10(6A) DOES NOT ARISE. ONCE AN AMOUNT HAS BEEN PAID AS TAX TO T HE CENTRAL GOVERNMENT ON BEHALF OF A FOREIGN COMPANY, BY THE INDIAN CONCERN IN TERMS OF AN AGREEMENT COVERED IN CLAUSE (A) AND CLAUSE (B) OF SECTION 10(6A), SUCH PAYMENT CANNOT B E TREATED AS INCOME. THUS, WE UPHOLD THIS FINDING OF THE FIRST A PPELLATE AUTHORITY AND DISMISS THIS GROUND OF THE REVENUE. ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 12 16. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NO. 5 ITA NO. 5 ITA NO. 5 ITA NO. 565/M/2005 65/M/2005 65/M/2005 65/M/2005, ,, , A.Y A.YA.Y A.Y- -- - 2000 2000 2000 2000- -- -01 0101 01 17. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) HAS ERRED IN HOLDING THAT OFFSHORE DESIGN REVENUES EARNED BY THE APPELLANTS HEAD OFFICE IN JAPAN ARE LIABLE TO TAX I N INDIA. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPLYING THE PROVISIONS OF ARTICLE 24 OF THE AG REEMENT FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA- JAPAN A ND THEREBY ERRONEOUSLY CONFIRMING THE TAX RATE APPLIED BY THE ASSESSING OFFICER @ 48 PERCENT FOR COMPUTING THE APPELLANTS T AX LIABILITY, INSTEAD OF 35 PERCENT AS APPLICABLE TO DOMESTIC COM PANIES. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DENYING EXEMPTION UNDER SECTION 1 0(6A) OF THE ACT TO THE APPELLANT DESPITE THE FACT THE CONTRACT WITH MRPL A RE APPROVED BY THE CENTRAL GOVERNMENT. 18. GROUND NO. 1 IS COMMON TO GROUND NO. 1 FOR THE ASSESSMENT YEAR 1999-2000 IN VIEW OF OUR FINDING FOR THE ASSESSMENT YEAR 1999-2000, THIS ISSUE SET ASIDE FOR LIMITED PROPOSE TO THE RECORD O F THE AO WITH SIMILAR DIRECTIONS. 19. GROUND NO. 2 IS COMMON FOR THE ASSESSMENT YEAR 1999-2000. IN VIEW OF OUR FINDING OF GROUND NO. 2 FOR THE ASSESSM ENT YEAR 1999-2000, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 20. GROUND NO. 3 IS COMMON TO THE GROUND NO. 3 FOR THE ASSESSMENT YEAR 1999-2000. IN VIEW OUT FINDING FOR THE ASSESSM ENT YEAR 1999-2000, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 13 ITA NO. 3312/ ITA NO. 3312/ ITA NO. 3312/ ITA NO. 3312/M MM M/ // /2005, A. Y. 2005, A. Y. 2005, A. Y. 2005, A. Y.- -- - 2001 2001 2001 2001- -- -02 0202 02 21. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: GROUND 1: THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS)- XXXI HAS ERRED IN CONCLUDING THAT THAT THE OFFSHORE DESIGN REVENUES EARNED BY THE APPELLANT ARE TAXABLE IN IND IA. GROUND 2: THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)- XXXI HAS ERRED IN CONCLUDING THAT ASSESSEES INCOME FROM OFFSHORE AND ONSHORE SUPPLY CONTRACT ARE TAXABLE AT 48 PERCENT GROUND 3: THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)- XXXI HAS ERRED IN CONCLUDING THAT RELIEF UNDER SECT ION 10(6A) IS NOT AVAILABLE TO THE ASSESSEE. GROUND 4: THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)- XXXI HAS ERRED IN CONCLUDING THAT THE INTEREST UNDE R SECTION 234D ARE LEVIABLE ON THE ASSESSEE FOR MATTERS RELAT ING TO A.Y.2001-02. 22. GROUND NO. 1 TO 3 ARE COMMON TO THE GROUND NO. 1 TO 3 FOR THE ASSESSMENT YEAR 1999-2000. IN VIEW OF OUR FINDING F OR THE A.Y. 1999-2000 GROUND NO. 1 IS SET ASIDE FOR LIMITED PURPOSE TO TH E RECORD OF THE AO, GROUND NO. 2 IS DECIDED AGAINST THE ASSESSEE AND GR OUND NO. 3 IS DECIDED IN FAVOUR OF THE ASSESSEE. 23. GROUND NO. 4 REGARDING LEVY OF INTEREST U/S 234 D. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE REL EVANT MATERIAL ON RECORD. THE LD. AR OF THE ASSESSEE HAS FAIRLY CONCE DED THAT THIS ISSUE IS NOW DECIDED AGAINST THE ASSESSEE BY THE HONBLE JUR ISDICTION HIGH COURT IN CASE OF CIT VS INDIAN OIL CORPORATION 254 CTR 113 IN PARA 24-27 AS UNDER: 24) MR. MURLIDHAR FURTHER SUBMITTED THAT EVEN IF S ECTION 234D IS APPLICABLE TO ALL REFUNDS PAID PRIOR TO 1/06/2003 I N RESPECT OF ASSESSMENTS COMPLETED POST 1/06/2003 INTEREST PAYAB LE ON SUCH REFUND WOULD COMMENCE ONLY FROM 1/06/2003 ONWARDS. HE RELIED ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 14 UPON THE DECISION OF KERALA HIGH COURT IN CIT V. KE RALA CHEMICALS AND PROTEINS LTD. REPORTED IN 323 ITR 584. 25) THE AFORESAID DECISION WAS RENDERED PRIOR TO TH E INTRODUCTION OF EXPLANATION-2 TO SECTION 234D OF THE ACT. THE KE RALA HIGH COURT WHICH HAD NO OCCASION TO CONSIDER EXPLANATION 2 HELD THAT AS THE PROVISION OF INTEREST IS NOT INTRODUCED WITH REFERENCE TO ANY ASSESSMENT YEAR, IT MUST BE TAKEN TO APPLY ONLY WITH EFFECT FROM 1/06/2003. THIS SUBMISSION OF THE RESPONDENT-A SSESSEE WOULD REQUIRE LIMITING THE CLEAR WORDS OF A DECLARA TORY AMENDMENT IN AN EXPLANATION 2 TO SECTION 234D OF TH E ACT WHICH SPECIFICALLY PROVIDES THAT IT SHALL ALSO APPLY TO A N ASSESSMENT YEAR COMMENCING BEFORE 1/06/2003. THE ONLY QUALIFYI NG CRITERION IS THAT PROCEEDINGS IN RESPECT OF SUCH ASSESSMENT I S COMPLETED AFTER 1/06/2003. ONCE THE EXPLANATION IS HELD TO BE RETROSPECTIVE IN RELATION TO THE ASSESSMENT YEARS COMMENCING BEFO RE 1/6/2003 IT WOULD NOT BE OPEN TO RESTRICT THE OPERATION OF S ECTION 234D OF THE ACT ONLY WITH EFFECT FROM 1/6/2003. 26) A STATUTE COULD BE RETROSPECTIVE IN OPERATION B EING EXPRESSLY STATED OR BY NECESSARY IMPLICATION. THE C ASE OF THE REVENUE IS THAT SECTION 234D AS INTRODUCED ON 1ST J UNE, 2003 WAS RETROSPECTIVE IN OPERATION BY NECESSARY IMPLICA TION. HOWEVER, AS DOUBTS WERE RAISED ABOUT ITS RETROSPECT IVITY, THE SAME WAS CLARIFIED BY ADDING AN EXPLANATION TO SECT ION 234D BY FINANCE ACT, 2012. UNDER THE ACT WHAT IS BROUGHT TO TAX IS NOT THE INCOME OF THE ASSESSEE IN THE ASSESSMENT YEAR B UT THE INCOME OF THE ASSESSEE IN THE PREVIOUS YEAR. THE LI ABILITY TO TAX ARISES ON ACCOUNT OF THE FINANCE ACT WHICH FIXES TH E RATE AT WHICH THE TAX IS TO BE PAID. THE LAW TO BE APPLIED IS AS EXISTING ON THE 1ST DAY OF APRIL OF THE PREVIOUS YEAR. IN SUPPORT T HE COUNSEL FOR THE RESPONDENT RELIED UPON THE DECISION OF THE SUPR EME COURT IN KARIMTHURAVI TEA ESTATE LTD. V. STATE OF KERALA 60 ITF? 262, MAHARAJAH OF PITHAPURM V. CIT 13 ITR 221 (PC) AND C IT V. SCINDIA STEAM NAVIGATION CO. LTD. 42 ITR 539. THE AFORESAID DECISIONS ARE NOT RELEVANT FOR OUR PURPOSE PARTICULARLY, IN V IEW OF THE FACT THAT EXPLANATION 2 TO SECTION 234D OF THE ACT AS IN TRODUCED BY THE FINANCE ACT,2012 BEING DECLARATORY IN NATURE WO ULD BE RETROSPECTIVE. THIS AMENDMENT MAKE IT CLEAT THAT IT SHALL APPLY ASSESSMENT YEARS EVEN PRIOR TO 1/06/2003. 27) IN VIEW OF THE ABOVE, WE HOLD THAT THE DECISION OF THE TRIBUNAL IN ITO V. EKTA PROMOTERS PVT. LTD. REPORTE D IN 113 LTD 719 WHICH HAS BEEN FOLLOWED IN THE IMPUGNED ORDER B Y THE TRIBUNAL IS NOT CORRECT. ONE MORE ASPECT OF THE MAT TER WHICH MUST BE BORNE IN MIND IS THAT TILL SUCH TIME AS THE ASSESSMENT PROCEEDINGS ARE COMPLETED IN RESPECT OF ANY ASSESSM ENT YEAR, THE AMENDMENT MADE TO THE ACT WOULD BE APPLICABLE E VEN IN CASE OF PENDING PROCEEDINGS. IT IS NOT THE CASE OF THE RESPONDENT ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 15 THAT THE PROCEEDING IN REGARD TO REFUND WHICH HAS B EEN GRANTED UNDER SECTION-143(1) OF THE ACT ARE CONCLUDED AND F INAL. THE REFUND WHICH HAS BEEN GRANTED UNDER SECTION 143(1) OF THE ACT IS PROVISIONAL, TO BE FINALLY DETERMINED WHEN FINAL AS SESSMENT ORDER IS PASSED UNDER SECTION 143(3) OF THE ACT. EXPLANAT ION-2 TO SECTION 234D OF THE ACT MAKES IT CLEAR THAT IT WOUL D BE APPLICABLE TO PENDING PROCEEDINGS I.E. WHERE ASSESSMENT IN RES PECT OF SUCH ASSESSMENT YEAR IS NOT COMPLETED ON 1/6/2003. 24. FOLLOWING THE DECISION OF HONBLE JURISDICTION HIGH COURT WE DECIDE THIS ISSUE AGAINST THE ASSESSEE IN FAVOUR OF THE RE VENUE. ITA NO. 2553/ ITA NO. 2553/ ITA NO. 2553/ ITA NO. 2553/M/ M/M/ M/2006, A. Y. 2006, A. Y. 2006, A. Y. 2006, A. Y. - -- - 2002 2002 2002 2002- -- -03 0303 03 25. GROUND NO. 1 AND 2 ARE COMMON TO THE GROUND NO. 1 AND 2 FOR THE ASSESSMENT YEARS 1999-2000 AND 2001-02. IN VIEW OF OUR FINDING FOR THE ASSESSMENT YEAR 1999-2000 GROUND NO. 1 IS SET ASIDE FOR LIMITED PURPOSE TO THE RECORD OF THE AO AND GROUND NO. 2 FOR THE AS SESSMENT YEAR 2001- 02 IS DECIDED AGAINST THE ASSESSEE. ITA NO. 4035/ ITA NO. 4035/ ITA NO. 4035/ ITA NO. 4035/M/ M/M/ M/2005, 3698/ 2005, 3698/ 2005, 3698/ 2005, 3698/M/ M/M/ M/2005 AND 2139/ 2005 AND 2139/ 2005 AND 2139/ 2005 AND 2139/M/ M/M/ M/2006 2006 2006 2006 26. THE REVENUE HAS RAISED COMMON GROUNDS IN THESE APPEALS. THE GROUNDS RAISED FOR THE ASSESSMENT YEAR 1996-97 ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE REVEN UES FROM PROJECT MANAGEMENT CONTRACT ARE TO BE TAXED ON NET INCOME BASIS WITHOUT APPRECIATING THAT: I. THE ASSESSEE IS NOT AT ALL IN THE BUSINESS OF CO NSTRUCTION AND; II. WHILE COMPUTING INCOME IN ACCORDANCE WITH ARTIC LE 7(3) OF THE TAX TREATY BETWEEN INDIA AND JAPAN, THE LIMITATION OF THE DOMESTIC TAX LAW HAS TO BE OBSERVED. ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 16 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT NO LIABILITY U /S 234B ARISE, IGNORING THE FACT: (I) THAT SINCE THE TAX DEDUCTED AT SOURCE WAS NOT A DEQUATE TO MEET THE ENTIRE TAX LIABILITY, IT WAS OBLIGATION ON THE PART OF THE ASSESSEE TO MAKE THE DEFICIT GOOD BY MAKING THE PAYMENTS TOWARDS THE ADVANCE TAX; (II) THAT SINCE THE ASSESSEE FAILED TO PAY THE ADVA NCE TAX, THE ASSESSING OFFICER WAS RIGHT IN CHARGING INTEREST U/ S 234B OF THE I.T. ACT, 1961. 27. GROUND NO. 1 IS REGARDING REVENUE FROM PMC TO B E TAXED ON NET OR GROSS INCOME BASIS. WE HAVE HEARD THE LD. DR AS WEL L AS THE LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBU NAL IN ASSESSEES OWN CASE IN THE APPEAL FILED BY THE REVENUE IN ITA NO. 8193/2004 FOR THE ASSESSMENT YEAR 1999-2000 VIDE ORDER DATED 3.4.2012 AND THE SUMMARY OF THE FINDING IS GIVEN IN PARA 13 AS UNDER: 13. THE SUMMARY OF OUR CONCLUSION ON THIS GROUND I S AS UNDER: A. UNDER THE ACT: (I) THE RECEIPTS FROM PROJECT MANAGEMENT CONTRACTS ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES COVERED U/S 9 (L)(VII). (II) INCOME FROM SUCH FEES FOR TECHNICAL SERVICES I S REQUIRED TO BE COMPUTED U/S 44D. B. AS PER SECTION 90(2), THE ASSESSEE IS ENTITLED T O BE GOVERNED BY THE PROVISIONS OF THE ACT OR DTAA WHICHEVER IS M ORE BENEFICIAL TO HIM. IN THE PRESENT CASE THE PROVISIONS OF THE D TAA ARE MORE BENEFICIAL AND HENCE THE ASSESSEE SHALL BE ENTITLED TO THE COMPUTATION OF ITS INCOME FROM PMCS AS PER THE DTAA . C. UNDER DTAA (I) THE AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUNT OF PMC IS CHARGEABLE AS BUSINESS PROFITS UNDER ARTICLE 7. ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 17 (II) BUSINESS PROFITS ARE TO BE COMPUTED IN TERMS O F PARA 3 OF ARTICLE 7 READ WITH PARAS 7 AND 8 OF THE PROTOCOL. 28. IN VIEW OF THE ORDER OF THIS TRIBUNAL IN ASSESS EES OWN CASE FOR THE ASSESSMENT YEAR 1999-2000 THIS ISSUE IS REMANDED TO THE RECORD OF THE ASSESSING OFFICER AS PER THE TERMS OF THE SAID ORDE R. 29. GROUND NO. 2 IS REGARDING INTEREST U/S 234B. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MA TERIAL ON RECORD. THIS ISSUE HAS ALSO BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1999-2000 VIDE ORD ER DATED 3.4.2012 IN PARA 14 & 15 AS UNDER: 14. LAST GROUND IS AGAINST THE DIRECTION OF THE LE ARNED CIT(A) FOR NOT CHARGING INTEREST U/S 234B AND 234C. 15. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ISSUE OF CHARGI NG OF INTEREST U/S 2348 IN THE PRESENT CASE IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF DIRECTOR OF INCOMETAX (INTERNATIONAL TAXATION) V. NGC NETWORK ASIA LLC [(2009) 313 ITR 187 (BOM.)J IN WHICH IT HA S BEEN HELD THAT WHEN THE DUTY IS CAST ON THE PAYER TO DEDUCT T AX AT SOURCE, ON FAILURE OF THE PAYER TO DO SO, NO INTEREST CAN B E CHARGED FROM THE PAYEE ASSESSEE U/S 234B. THE SAME VIEW HAS BEEN REITERATED IN DIT (IT) V. KRUPP UDHE GMBH[(2010) 38 DTR (BOM.) 251]. AS THE ASSESSEE BEFORE US IS A NON-RESIDENT, NATURALLY ANY AMOUNT PAYABLE TO IT WHICH IS CHARGEABLE TO TAX UNDER THE ACT, IS OTHERWISE LIABLE FOR DEDUCTION OF TAX AT SOURCE. IN THAT VIEW OF THE MATTER AND RESPECTFULLY FOLLOWING THE ABOVE PRECEDE NTS, WE HOLD THAT NO INTEREST CAN BE CHARGED U/S 234B AND 234C O F THE ACT. THIS GROUND IS NOT ALLOWED. 30. FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL WE DECIDE THIS ISSUE AGAINST THE REVENUE. ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 18 ITA NO. 3310/ ITA NO. 3310/ ITA NO. 3310/ ITA NO. 3310/M/ M/M/ M/2005, 3311/ 2005, 3311/ 2005, 3311/ 2005, 3311/M/ M/M/ M/2005 AND 2552/ 2005 AND 2552/ 2005 AND 2552/ 2005 AND 2552/M/ M/M/ M/2006 2006 2006 2006 FOR A.Y FOR A.Y FOR A.Y FOR A.YS.1996 S.1996 S.1996 S.1996- -- - 97,1997 97,1997 97,1997 97,1997- -- -98,1998 98,1998 98,1998 98,1998- -- -99 9999 99 31. THE ASSESSEE HAS RAISED THE FOLLOWING COMMON GR OUNDS. THE GROUNDS RAISED IN ITA NO. 3310/M/2005 ARE AS UNDER: GROUND 1: THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS)- XXXI HAS ERRED IN HOLDING THAT RE-ASSESSMENT PROCEE DINGS INITIATED BY THE DDIT UNDER SECTION 148 OF THE ACT AS VALID. GROUND 2: THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)- XXXI HAS ERRED IN CONCLUDING THAT THE APPELLANT HAS EARNED AN AMOUNT OF JPY 350,000,000 IN RESPECT OF THE OFFSHOR E DESIGN CONTRACT WITH MRPL AND THAT THE OFFSHORE DESIGN REV ENUES EARNED BY THE APPELLANT ARE TAXABLE IN INDIA. GROUND3: THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- XXXI HAS ERRED IN CONCLUDING THAT THE INTEREST UNDE R SECTION 234D IS CHARGEABLE TO THE ASSESSEE FOR MATTERS RELA TING TO A.Y.1996-97. 32. GROUND NO. 1 IS REGARDING VALIDITY OF REOPENING . AT THE TIME OF HEARING THE LD. AR OF THE ASSESSEE HAS STATED THAT THE ASSESSEE DOES NOT PRESS GROUND NO. 1 IN ALL THREE APPEALS FOR THE ASS ESSMENT YEARS 1996-97 TO 1998-99 AND THE SAME MAY BE DISMISSED AS NOT PRE SSED. THE LD. DR HAS NOT RAISED ANY OBJECTION IF THE GROUND NO. 1 OF ASSESSEES APPEALS IS DISMISSED AS NOT PRESSED. ACCORDINGLY THE GROUND NO . 1 IN THE ASSESSEES APPEALS FOR THE ASSESSMENT YEARS 1996-97 TO 1998-99 IS DISMISSED BEING NOT PRESSED. 33. GROUND NO. 2 IS REGARDING OFFSHORE DESIGN REVEN UE. THIS GROUND IS COMMON IN ALL THE THREE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1996-97 TO 1998-99. IN VIEW OF OUR FINDING ON THIS ISSUE FOR ASSESSMENT ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 19 YEAR 1999-2000 THIS ISSUE IS REMITTED FOR LIMITED P URPOSE TO THE RECORD OF THE AO. 34. GROUND NO. 3 IS REGARDING LEVY OF INTEREST U/S 234D. WE HAVE HEARD THE LD. AR AS WELL AS THE LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS GROUND IS COMMON TO THE GROUND NO. 4 O F ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2001-02. ACCORDINGLY, IN VI EW OF OUR FINDING AS WELL AS DECISION OF HONBLE JURISDICTION HIGH COURT IN CASE OF CIT VS OIC 254 CTR 113 THIS ISSUE IS DECIDED AGAINST THE ASSES SEE AND IN FAVOUR OF THE REVENUE. 35. FOR THE ASSESSMENT YEAR 1998-99 THE ASSESSEE HA S ALSO RAISED GROUND NO. 3 AND 4 AS UNDER: GROUND 3: THE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED CIT(A) HAS ERRED IN NOT GIVING EXEMPTION UNDER SECT ION 10(6A) IN RESPECT OF ITS FOREIGN CURRENCY REVENUES EARNED UND ER PMCS TO THE APPELLANT. GROUND 4: THE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING TAXATION OF THE REVEN UES EARNED BY THE APPELLANT AT THE TAX RATE OF 48 PERCENT AS PER THE ACT, INSTEAD OF 35 PERCENT, THEREBY NOT APPLYING THE PROVISIONS OF ARTICLE 24 OF THE TREATY. 36. GROUND NO. 3 IS REGARDING EXEMPTION U/S 10(6A). THIS ISSUE IS COMMON TO THE GROUND NO. 3 IN THE ASSESSEE APPEAL F OR ASSESSMENT YEAR 1999-2000. IN VIEW OF OUR FINDING ON THIS ISSUE FOR THE ASSESSMENT YEAR 1999-2000, THIS GROUND IS ALLOWED. 37. GROUND NO. 4 IS REGARDING RATE OF TAX. THIS GRO UND IS COMMON TO THE GROUND NO. 2 OF THE ASSESSMENT YEAR 1999-2000 AND I N VIEW OF OUR FINDING ITA NO.8192/M/2004, 565, 3312, 3310, 4035 & 3698/M/2005 & 2553, 2139/M/2006 TOYO ENGINEERING CORPORATION 20 FOR THE ASSESSMENT YEAR 1999-2000. THIS ISSUE IS DE CIDED AGAINST THE ASSESSEE. 38. IN THE RESULT, THE APPEALS OF THE ASSESSEE AS W ELL AS REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF AUGUST 2013 / + -. 0 1#2 23 RD 3 , + 3 SD/- SD/- ( . ) (B. RAMAKOTAIAH) ACCOUNTANT MEMBER ( !' ) 4 (VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 23 RD AUGUST 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI