Shanghai Electric Group Co. Ltd., Noida V. DCIT, New Delhi

ITA 224/DEL/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2750 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 10-04-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUJ ARORA
• Keywords: Capital asset; Business income; Double taxation relief; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Advance ruling; Initiation of penalty proceedings; Reassessment proceedings
• Section: 143(3); 142(1); 5(2); 234B; 147; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO. 224/DEL/2015 (ASSESSMENT YEAR: 2007-08) ITA NO. 225/DEL/2015 (ASSESSMENT YEAR: 2008-09) ITA NO. 226/DEL/2015 (ASSESSMENT YEAR: 2009-10) ITA NO. 227/DEL/2015 (ASSESSMENT YEAR: 2011-12) ITA NO. 3552/DEL/2015 (ASSESSMENT YEAR: 2010-11) ITA NO. 58/DEL/2017 (ASSESSMENT YEAR: 2012-13) ITA NO. 59/DEL/2017 (ASSESSMENT YEAR: 2013-14) SHANGHAI ELECTRIC GROUP CO. LTD. C/O M/S SRBC 7 ASSOCIATES LLP 4 TH & 5 TH FLOOR, PLOT NO. 2B, TOWER-2 SECTOR-126, NOIDA, UP. VS. DCIT CIRCLE-3,(1)(2) INTERNATIONAL TAXATION, NEW DELHI PAN : AAPCS1357N (APPELLANT) (RESPONDENT) APPELLANT BY : SH. DEEPAK CHOPRA, MS. MANASVINI BAJPAI, SH. ANKUL GOEL, ADVS. RESPONDENT BY : SH. ANUJ ARORA, CIT, DR DATE OF HEARING : 02.05.2017 DATE OF PRONOUNCEMENT : 14.07.2017 SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 2 O R D E R PER BEENA A. PILLAI, J.M : 1. THE PRESENT APPEALS HAVE BEEN FILED BY ASSESSEE FO R RELEVANT ASSESSMENT YEARS, AGAINST FINAL ASSESSMENT ORDERS P ASSED BY LD. AO, PURSUANT TO DIRECTIONS OF DRP, THE DETAILS OF W HICH ARE AS UNDER: S. NO. ASST. YEAR DATE OF DRP DIRECTIONS DATE OF IMPUGNED ORDER BY LD.AO PASSED U/S. 1. 2007 - 08 28/11 /14 04/12/14 147/148/143 (3) 2. 2008 - 09 28/11/14 04/12/14 147/148/143 (3) 3. 2009 - 10 28/11/14 04/12/14 147/148/143 (3) 4. 2010 - 11 10/04/15 05/05/15 143 (3) R.W144C 5. 2011 - 12 28/11/14 04/12/14 143 (3) 6. 2012 - 13 24/11/16 07/12/16 143 (3) R.W144C 7. 2013 - 14 24/11/16 07/12/16 143 (3) R.W144C BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A FOREIGN COMPANY, INCORPORATED UNDER THE LAWS OF PEOPLES REPUBLIC OF CHINA, AND IS ENGAGED IN THE B USINESS OF SUPPLY OF BOILER, TURBINE AND GENERATOR (BTG) EQUIP MENTS TO VARIOUS COMPANIES FOR SETTING UP OF POWER PLANTS IN INDIA. LD. COUNSEL SUBMITTED THAT, ASSESSEE FILED ITS RETURN O F INCOME FOR ONSHORE SERVICES RENDERED IN INDIA FOR ASSESSMENT Y EAR 2010-11 WHEREIN IT HAD OFFERED TO TAX THE REMUNERATION ARIS ING FROM SUPERVISORY SERVICES UNDER THE PROVISIONS OF SECTIO N 44 BBB OF THE ACT. HE SUBMITTED THAT NO PORTIONS OF INCOME ARISIN G FROM OFFSHORE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 3 SUPPLIES WERE OFFERED TO TAX SINCE THE SALE OF BTG EQUIPMENTS WAS CONCLUDED OUTSIDE INDIA. HE SUBMITTED THAT NO PORTI ON OF PROFIT ARISING FROM OFFSHORE SALES WAS LIABLE TO BE TAXED IN INDIA. LD. COUNSEL SUBMITTED THAT IT WAS ON THE BASIS OF ASSES SMENT MADE FOR ASSESSMENT YEAR 2010-11 THAT THE LD. AO REOPENED PR ECEDING ASSESSMENT YEARS FROM ASSESSMENT YEAR 2007-08 TO 20 09-10. WE SHALL 1 ST DEAL WITH FACTS AS OBSERVED BY AUTHORITIES BELOW F OR ASSESSMENT YEAR 2010-11, WHICH IS BEING CONSIDERED AS THE LEAD CASE. THE GROUNDS RAISED BY ASSESSEE FOR A.Y: 2010- 11 ARE AS UNDER: RE: GENERAL GROUNDS 1. THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING O FFICER (AO) UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 (THE ACT) IS BAD IN LAW, VOID AB-INITIO AND IN CONTRAVENTION OF THE SETTLED POSITION OF LAW . 1.1 THAT THE AO ERRED IN COMPLETING ASSESSMENT AT A TOT AL INCOME OF RS. 81,82,49,730 AS AGAINST THE RETURNED INCOME OF RS. 77,274,388. RE: TAXABILITY OF ONSHORE SERVICE 2. THAT THE AO ERRED IN TAXING INCOME ARISING FROM ONS HORE SERVICES UNDER THE HEAD BUSINESS PROFITS SOLELY O N THE PREMISE THAT THE APPELLANT HAD ACCEPTED THE EXISTEN CE OF A PE. 2.1 THAT THE AO HAS ERRED IN HOLDING THAT ONSHORE REVE NUE FROM ERECTION, COMMISSIONING, TESTING AND SUPERVISION OF ERECTION/COMMISSIONING/TESTING OF BTG EQUIPMENT WAS NOT ELIGIBLE FOR TAXATION UNDER SECTION 44BBB OF THE AC T. 2.2 THAT THE AO HAS ERRED IN FACTS AND LAW IN NOT APPR ECIATING THAT THE APPELLANT HAS RENDERED ONSHORE SERVICES IN CONNECTION WITH TURNKEY POWER PROJECTS AWARDED TO THE INDIAN C USTOMERS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 4 AND AS SUCH UNDER THE PROVISION, THE APPELLANT WAS NOT REQUIRED TO UNDERTAKE THE TURNKEY PROJECT ITSELF. 2.3 THAT WITHOUT PREJUDICE, THE AO HAS ERRED IN DET ERMINING PROFITS FROM ONSHORE SERVICES AT AN ARBITRARY NET P ROFIT RATE OF 25% WITHOUT CONSIDERING THE SEGMENTAL PROFIT RATE O F 1.69% IN GLOBAL FINANCIALS OF THE APPELLANT. 2.4 THAT WITHOUT PREJUDICE, THE AO HAS ERRED IN TA XING REVENUE FROM ONSHORE SERVICES AT AN ARBITRARY NET PROFIT RA TE OF 25% AS AGAINST THE GLOBAL PROFITABILITY OF 8.29%. RE : TAXABILITY OF OFFSHORE SUPPLY 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO GROSSLY ERRED IN BRINGING TO TAX REVENUES ARISING F ROM OFF-SHORE SUPPLIES TO TAX IN INDIA. 3.1 THAT THE AO GROSSLY ERRED IN LAW IN TREATING TH E OFFSHORE SUPPLY CONTRACTS ENTERED INTO BY THE APPELLANT AS B EING WORKS CONTRACT. 3.2 THAT THE AO GROSSLY MISCONSTRUED THE TERMS OF T HE OFFSHORE SUPPLY CONTRACTS ENTERED INTO BY THE APPEL LANT WHICH WERE PREDOMINANTLY FOR THE PURPOSES OF SUPPLY OF BO ILERS, STEAM TURBINE, GENERATOR SET AND AUXILIARIES AND NO T FOR DESIGNING ANY EQUIPMENT IN INDIA. 3.3 THAT THE AO GROSSLY ERRED IN LAW IN ASSUMING TH AT THE SUPPLY OF OFF SHORE EQUIPMENT WAS NECESSARY AND INC IDENTAL TO DESIGN, MANUFACTURE AND ERECTION IN INDIA WITHOUT B RINGING ANY EVIDENCE ON RECORD THAT ANY DESIGNING OR MANUFACTUR ING HAD TAKEN PLACE IN INDIA. 3.4 THAT THE AO MISCONSTRUED AND MISAPPLIED THE JUD GMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MITSUI ENGINEERING AND SHIP BUILDING (259 ITR 248) WHICH DISAPPROVED THE REVENUES STAND TO SEGREGATE A PORTI ON OF REVENUE TOWARDS DESIGNING SO AS TO BRING SUCH REVEN UE TO TAX IN INDIA UNDER SECTION 9(L)(VI) OF THE ACT WHEN THE PRICE PAID WAS FOR SUPPLY OF MACHINERY. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 5 3.5 THAT THE AO ALSO GROSSLY ERRED ON FACTS AND IN LAW IN CONCLUDING THAT THE OFF SHORE PORTION OF SUPPLIES W AS ATTRIBUTABLE TO THE SUPERVISORY PE OF THE APPELLANT IN INDIA WHEN SUCH PE, IF ANY, CAME INTO EXISTENCE MUCH AFTE R THE SUPPLY HAD TAKEN PLACE. 3.6 THE AO ALSO GROSSLY ERRED IN CONCLUDING THAT TH E APPELLANT HAD CARRIED OUT THE BUSINESS OF DESIGN, M ANUFACTURE, SUPPLY, SUPERVISION OF EQUIPMENT FROM A FIXED PLACE OF BUSINESS IN INDIA WITHOUT BRINGING ANY EVIDENCE ON RECORD IN SUPPORT OF SUCH CONCLUSIONS. 3.7 THAT THE AO ALSO ERRED IN CONCLUDING THAT ALL TRANSACTIONS INCLUDING SUPPLY OF EQUIPMENT HAD TAKE N PLACE WITH THE INVOLVEMENT OF THE PE IN INDIA AND FOR THI S REASON PROFITS ARISING ON OFF SHORE SUPPLIES WERE ATTRIBUT ABLE TO THE PE IN INDIA. 3.8 THAT THE AO HAS ERRED IN ASSESSING THAT THE APP ELLANT HAS UNDERTAKEN SITE SURVEY, GEOLOGICAL SURVEY, SOIL TESTING, INLAND TRANSPORTATION OF BTG EQUIPMENTS IN INDIA WH ICH IN FACT HAS NOT BEEN UNDERTAKEN BY THE APPELLANT. 3.9 THAT THE AO HAS ERRED IN CONCLUDING THAT PE IN INDIA HAS BEEN INVOLVED IN CONDUCTING TRAINING OF PROJECT OWNER PERSONNEL IN INDIA COMPLETELY IGNORING THE FACT THA T SUCH TRAININGS HAD BEEN CONDUCTED OUTSIDE INDIA. 3.10 THAT THE AO HAS ERRED IN FACTS AND IN LAW IN C ONCLUDING THAT PRE-BID ACTIVITIES LIKE BID PREPARATION, NEGOT IATION, SIGNING OF CONTRACT AND SITE SURVEY CONDUCTED IN INDIA RESU LTS IN CONSTITUTION OF FIXED PLACE PE AND PART OF THE PROF ITS SHOULD BE ATTRIBUTED TO SUCH OPERATIONS WHEN SUCH ACTIVITIES ARE NON- REVENUE BEARING. 3.11 THAT WITHOUT PREJUDICE THE AO ALSO ERRED IN AS SUMING THE TOTAL PROFITABILITY FROM OFFSHORE SUPPLIES AT 8 .29 % OF THE GROSS AMOUNT AND NOT CONSIDERING THE SEGMENTAL PROF IT RATE OF 1.69% WHILE ATTRIBUTING 25% OF SUCH PROFITS TO TAX IN INDIA. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 6 4. THAT THE AO GROSSLY ERRED IN LAW IN LEVYING INT EREST UNDER SECTION 234B AND 234C OF THE ACT. 5. THAT THE AO ALSO ERRED IN INITIATING PENALTY PRO CEEDINGS UNDER SECTION 27(1)(C) OF THE ACT FOR ALLEGED CONCEALMENT/FURNISHING INACCURATE PARTICULARS OF IN COME IN RELATION TO OFFSHORE SUPPLIES REVENUES. 3. BRIEF FACTS FOR THE YEAR UNDER CONSIDERATION ARE A S UNDER: ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UN DER CONSIDERATION ON 28.09.2011 DECLARING A TOTAL INCOME OF ONSHORE R EVENUE FROM SUPERVISORY SERVICES AMOUNTING TO RS.7,35,30,835/-U NDER SECTION 44 BBB OF ACT. DURING THE COURSE OF ASSESSMENT PROC EEDINGS ASSESSEE FILED REVISED COMPUTATION DECLARING TOTAL INCOME OF RS.7,72,74,388/-. RETURN WAS PROCESSED UNDER SECTIO N 143(1) OF THE ACT, AND NOTICE UNDER SECTION 143(2) AND 142(1) ALO NG WITH DETAILED QUESTIONNAIRE, WAS ISSUED AND SERVED UPON THE ASSES SEE. IN RESPONSE TO THESE NOTICES, REPRESENTATIVES OF ASSES SEE APPEARED BEFORE LD. AO FROM TIME TO TIME AND CASE WAS DISCUS SED. 4. LD.AO OBSERVED THAT DURING YEAR UNDER CONSIDERATIO N ASSESSEE HAD ENGAGED IN EXECUTION OF CONTRACTS WITH THE FOLL OWING PARTIES: 1. ROSA POWER SUPPLY COMPANY LTD. 2. RELIANCE INFRASTRUCTURE LTD. (FORMERLY KNOWN AS REL IANCE ENERGY LTD.) 3. EMCO ENERGY LTD. 4. JINDAL STEEL AND POWER LTD. 5. JSW STEEL LTD. 6. JSW ENERGY LTD. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 7 5. IT WAS ALSO OBSERVED THAT ASSESSEE HAD PROVIDED SU PERVISORY SERVICES FOR ERECTIONS/COMMISSIONING OF BTG EQUIPME NTS AT PROJECT OWNERS SITE. IT WAS ALSO OBSERVED THAT ASSESSEE OFF ERED SUPERVISORY SERVICE FEE RECEIVED UNDER SECTION 44 BB B OF THE A CT. LD. AO ACCORDINGLY ISSUED SHOW CAUSE VIDE ORDER SHEET ENTR Y DATED 11.12.2012, WHEREIN ASSESSEE WAS ASKED TO SUBMIT TH E BASIS FOR CLAIMING INCOME FROM OFFSHORE SUPPLIES AS NOT TAXAB LE IN INDIA. BEFORE LD. AO ASSESSEE SUBMITTED THAT: NO PORTION OF INCOME FROM SUPPLY OF EQUIPMENTS IS R ECEIVED DIRECTLY OR INDIRECTLY BY IT IN INDIA; NO PORTION OF INCOME ACCRUES OR RISES TO IT IN INDI A; AND NO PORTION OF INCOME COULD BE DEEMED TO ACCRUE OR A RISE IN INDIA, 6. IT WAS SUBMITTED BY ASSESSEE THAT, BY VIRTUE OF EX PLANATION 1 TO SECTION 9 OF THE ACT, WHICH INTER ALIA CLARIFIES THAT IN CASE OF SUCH BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIE D OUT IN INDIA ONLY SUCH PART OF INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS OF THE BUSINESS CARRIED OUT IN INDIA AND THAT IT HAS NOT RECEIVED A NY PORTION OF INCOME PERTAINING TO OFFSHORE SUPPLY IN INDIA, AS T HE ENTIRE CONSIDERATION WAS RECEIVED IN FOREIGN CURRENCY THRO UGH WIRE TRANSFERS/LETTER OF CREDIT OUTSIDE INDIA. ASSESSEE THUS, SUBMITTED THAT, NO PORTION OF CONSIDERATION OF OFFSHORE SUPPL Y CAN BE RECEIVED OR COULD BE DEEMED TO HAVE BEEN RECEIVED IN INDIA. ASSESSEE SUBMITTED THAT TRANSFER OF TITLE IN BTG EQUIPMENTS SUPPLIED BY ASSESSEE, TAKES PLACE IN FAVOR OF BUYERS OUTSIDE IN DIA, AND HENCE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 8 THE SAME SUBSTANTIATES THE FACT THAT INCOME FROM OF FSHORE SUPPLY, CANNOT BE SAID TO ACCRUE OR ARISE IN INDIA. IN THIS REGARD ASSESSEE PLACED RELIANCE UPON THE PROVISIONS OF SALE OF GOOD S ACT, 1930, AND SIGNIFICANCE OF BILL OF LADING. ASSESSEE SUBMITTED THAT THE SALE OF EQUIPMENTS HAVE BEEN EFFECTUATED WITH THE BUYERS IN DEPENDENTLY FROM OUTSIDE INDIA ON PRINCIPAL TO PRINCIPAL BASIS. ASSESSEE PLACED HEAVY RELIANCE UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES CO. LTD. REPORTED IN 288 ITR 408, CIT VS. HYUNDAI HEAVY INDUSTRIES CO. L TD., REPORTED IN (2007) 291 ITR 482 AND DECISION OF DELHI TRIBUNAL IN THE CASE OF LG CABLE LTD VS. DIT REPORTED IN 113 ITD 113. APART FROM THESE DECISIONS, ASSESSEE RELIED UPON VARIOUS OTHER DECIS IONS WHICH ARE AS UNDER: DITVS. ERICSSON AM. (DELHI HIGH COURT) (343 ITR 370) DIT VS. NOKIA NETWORKS OY [ITA NO. 512/ 2007;1138/ 2006; 503/ 2007; 505/2007- DELHI HIGH COURT] JSC TECHNOPROW EXPORT VS. DIT [A.A.R. NO. 827 OF 2009] COMMISSIONER OF INCOME TAX VS. R.D. AGGANVAL AND CO . [(1965) 56ITR 20 (SC)] MEWAR TEXTILE MILLS LTD (91 ITR 542) (SC) INCOME TAX OFFICER V. SHRI RAM BEARINGS LID, [(1997 ) 224 ITR 724 (SC)] ACIT VS. ANDHRA PRADESH POWER GENERATION CORPN. LTD . [2QQ9- TIOE-346-1TAT- HYD] SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 9 XELO PTY LIMITED VS. DDIT [(A.A.R.) ITA NOS. 4107, 4108, 4380, 4381/MMN/2002] DEEPAK CABLES (INDIA) LIMITED [AAR NO. 940 C/2003] HYOSITNG CORPORATION [AAR NO. 773 OF 2008] FURTHER AFFIRMED BY HON'BLE DELHI HIGH COURT [WP (C) NO. 2765/2010 AND CM. NO. 5515/2010] SEPCO III ELECTRIC POWER CONSTRUCTION CORPORATION [ APPLICATION NO. 1 OF 2011 IN AAR NO. 1008 OF 2010] IS CABLE LTD. IAAR NO. 858-861 OF 2009] JOINT STOCK COMPANY FOREIGN ECONOMIC ASSOCIATION 'TECHNOPROUI EXPORT' [AAR NO. 827 OF 2009] TECHNIP ITALY SPA VS. ADDL C1T [ITA NO, 434 (DEL.) 2010]. 7. ASSESSEE PLACED RELIANCE UPON THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DT AA) BETWEEN INDIA AND CHINA TO SUBMIT THAT INCOME FROM OFFSHORE SUPPLY IS NOT LIABLE TO BE TAXED AS P ER THE PROVISIONS OF INDIA CHINA DTAA. IT WAS SUBMITTED THAT AS PER A RTICLE 7 (2) OF INDIA CHINA TAX TREATY, ATTRIBUTION OF PROFIT TO PE CANNOT BE DETERMINED ON ASSUMPTION BASIS AS PE IS A DISTINCT AND SEPARATE ENTERPRISE HAVING ITS OWN PROFITS AND DISTINCT FROM FOREIGN COMPANY. IT HAS BEEN SUBMITTED THAT ONLY SO MUCH OF PROFITS OF ASSESSEE HAVING ECONOMIC NEXUS WITH PE IN INDIA CAN BE TAXED IN INDIA. ASSESSEE FURTHER SUBMITTED THAT DURING THE ASSESSME NT YEAR 2010- 11 ASSESSEES EMPLOYEES RENDERED SUPERVISORY SERVIC ES IN INDIA FOR MORE THAN 183 DAYS. ACCORDINGLY IT WAS SUBMITTED TH AT AS PER ARTICLE 5 (2) (J) OF INDIA CHINA TAX TREATY, ASSESS EE HAD SUPERVISORY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 10 PE IN INDIA, WHICH HAS ALREADY BEEN OFFERED TO TAX U/S.44BBB OF THE ACT. 8. SUBSEQUENTLY ASSESSING OFFICER ISSUED NOTICE TO AS SESSEE TO SHOW CAUSE AS TO WHY INCOME FROM SUPERVISORY SERVIC ES SHOULD NOT BE TAXED AS FEE FOR TECHNICAL SERVICES(FTS), IN RES PONSE TO WHICH ASSESSEE SUBMITTED VIDE LETTER DATED 19.03.2013, TH AT ASSESSEE WAS ENGAGED IN RENDERING SERVICES IN CONNECTION WITH CO NSTRUCTION OF PROJECT BEING POWER PLANT IN INDIA AND ACTIVITIES O F SUPERVISION OF ERECTION TESTING AND COMMISSIONING OF THE POWER PLA NT, AGAINST WHICH ASSESSEE RECEIVED REVENUES WERE COVERED BY EX CLUSIONARY CLAUSE OF DEFINITION OF FTS. ASSESSEE SUBMITTED THA T INCOME DERIVED BY ASSESSEE IN RESPECT OF SUPERVISORY ACTIVITIES CA NNOT BE TREATED AS FTS AS DEFINED UNDER THE INCOME TAX ACT 1961. ACCOR DING TO ASSESSEE, SECTION 44 BBB OF THE ACT IS APPLICABLE T O A NON-RESIDENT, WHO IS ENGAGED IN ANY ONE OF THE FOLLOWING BUSINESS IN CONNECTION WITH A TURNKEY POWER PROJECT; 9. CIVIL CONSTRUCTION, ERECTION OF PLANT OR MACHINERY , TESTING OF PLANT OR MACHINERY, AND COMMISSIONING OF PLANT OR M ACHINERY. ASSESSEE PLACED RELIANCE UPON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF CIT VS. HYUNDAI HEAVY INDUSTRIES CO. LTD. (SUPRA), WHEREIN HONBLE COURT HELD THAT, REVENUES FROM INS TALLATION AND COMMISSIONING ARE TAXABLE ON DEEMED INCOME BASI S UNDER SECTION 44 BB (WHICH IS IN PARI MATERIA TO THE DEEMING PROVISIONS OF SECTION 44 BBB AND APPLIES IN CASE OF FOREIGN COMPA NIES ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION ETC IN CERTAIN T URNKEY POWER PROJECTS) OF THE ACT. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 11 10. LD. AO THEREAFTER ANALYZED THE CONTRACTS IN ORDER TO ASCERTAIN TRUE NATURE OF INCOME RECEIVED FROM DIFFERENT CONTR ACTS. AFTER CONSIDERING THE SUBMISSIONS ADVANCED BY ASSESSEE, L D.AO OBSERVED AS UNDER: THE ASSESSEE ENTERED INTO CONTRACTUAL AGREEMENT FOR SUPPLY OF BOILER, TURBINE AND GENERATOR EQUIPMENT TO VARIOUS COMPANIES (PROJECT OWNERS) SETTING UP POWER PLANTS IN INDIA; THERE ARE OFFSHORE SUPPLY AND ONSHORE SERVICES; FROM THE PERUSAL OF SCOPE OF ACTIVITIES IT IS SEEN THAT ASSESSEE IS CARRYING OUT ALL THE DRAWINGS, DESIGN AND ENGINE ERING ALONG WITH SUPERVISING THE COMMISSIONING AND ERECTION OF BTG EQUIPMENTS; FROM THE SCOPE OF ACTIVITIES, IT IS CLEAR THAT THES E ARE OF THE NATURE OF COMPOSITE CONTRACT ACTIVITY AND ACTIVITIE S HAVE BEEN DISSECTED JUST FOR THE PURPOSE OF TAX AVOIDANCE; THE SIUS OF WORK IS IN INDIA AND OBJECTIVE OF COMPO SITE NATURE OF WORK IS TO PROVIDE THE GOODS IN DELIVERABLE AND ACCEPTABLE STATE TO OWNERS IN INDIA. ALTHOUGH CONTRACTUAL ACTIVITY IS SO PREPARED TO SHO W DELIVERY OF EQUIPMENT OUTSIDE INDIA, BUT TITLE AND CUSTODY OF E QUIPMENT PASSES ONLY AT PORT OF RECEIPT IN INDIA WHERE REPRE SENTATIVE OF OWNER/BUYER CHECK AND INTIMATES DEFICIENCIES ETC., TO FOR REPLACEMENT. 11. LD.AO OBSERVED THAT SOME OF THE CLAUSES IN THE CON TRACT INDICATE THAT ASSESSEE HAS RENDERED TECHNICAL SERVI CES FOR ITS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 12 PERFORMANCE AND SETUP OF A POWER PLANT IN WORKING C ONDITION. IT WAS ALSO OBSERVED THAT THE RESPONSIBILITY OF THE AS SESSEE IS DISCHARGED ONLY ON ISSUE OF TAKE OVER CERTIFICATE B Y THE PROJECT OWNER UPON SUCCESSFUL COMPLETION OF ALL THE PERFORM ANCE GUARANTEE TESTS TO BE CONDUCTED AT THE PROJECT SITE. LD.AO OB SERVED THAT ASSESSEE WAS LIABLE TO PAY LIQUIDATED DAMAGES IN CA SE OF ANY SHORTFALL IN PERFORMANCE, AFTER RETESTS. LD. AO HEL D THAT IT WAS NOT A SIMPLE CASE OF SUPPLY OF GOODS WHERE SOME SERVICES WERE REQUIRED TO BE CARRIED ON BY ASSESSEE, INCIDENTAL TO SALE. HE O BSERVED THAT DESIGNING, MANUFACTURING AND SUPERVISION, ERECTION AND COMMISSIONING OF BTG EQUIPMENTS WERE COMPLETE RESPO NSIBILITY OF ASSESSEE UNDER THE SAME CONTRACT. IT WAS ALSO NOT A CASE WHERE SEPARATE CONTRACT WAS SIGNED BY DIFFERENT PARTIES T O EXECUTE A PROJECT. 12. LD. AO PLACED RELIANCE UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MITSUI ENGINEERING AND SHIPBUILDING CO LTD REPORTED IN 259 ITR 248 WHEREIN THE CONTENTION WAS THAT THE FINDING THAT THE CONTRACT FOR DESIGNING, ENGINEERIN G, MANUFACTURING, SHOP TESTING AND BACKING UP TO F.O.B. PORT OF EMBAR KATION COULD NOT BE SPLIT UP SINCE THE ENTIRE CONTRACT WAS TO BE READ TOGETHER AND WAS FOR ONE COMPLETE TRANSACTION. IT WAS IN SUCH SE T OF FACTS AND CIRCUMSTANCES THAT HONBLE COURT HELD THAT, IT WAS NOT POSSIBLE TO APPORTION THE CONSIDERATION FOR DESIGN ON ONE PART AND THE OTHER ACTIVITIES ON THE OTHER PART 13. LD. AO PROCEEDED TO ATTRIBUTE PROFITS FROM OFFSHOR E SUPPLY TO THE SUPERVISORY PE OF ASSESSEE IN INDIA. LD. AO OBS ERVED THAT IN THE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 13 INSTANT CASE EXISTENCE OF PE IS IN THE FORM OF SUPE RVISORY PE, IS NOT IN DISPUTE. LD. AO THEREFORE WENT INTO ANALYSING TH E FACT OF ASSESSEE. IT WAS FOUND THAT ASSESSEE WAS ENGAGED IN THE ACTIVITIES OF DRAWING AND DESIGNS, MANUFACTURING, SUPPLY OF EQUIP MENT, MARKETING AND RELATED ACTIVITIES LIKE TRAINING OWNE R PERSONNEL AND SUPERVISION OF ERECTION, INSTILLATION AND COMMISSIO NING. LD. AO OBSERVED THAT DRAWINGS, DESIGN AND MANUFACTURING OF EQUIPMENT WAS DONE OUTSIDE INDIA BUT MARKETING AND RELATED AC TIVITIES AND SUPERVISION OF ERECTION AND COMMISSIONING WAS CARRI ED OUT IN INDIA. LD.AO THUS CONCLUDED THAT THE SUPERVISORY PE OF ASS ESSEE IN INDIA, WAS DIRECTLY INVOLVED IN SUPERVISION AND SUPPLY OF BTG EQUIPMENTS, NEEDED TO SET UP A FULLY FUNCTIONAL POWER PLANT. HE THUS PASSED DRAFT ORDER COMPUTING PROFITS AT 8.1%, ON THE BASIS OF GLOBAL PROFIT AND LOSS A/C AND ATTRIBUTION OF SUCH PROFIT TO INDI AN OPERATIONS TOWARDS THE ROLE OF SUPERVISORY PE, AT 25% . 14. AGAINST THE DRAFT ASSESSMENT ORDER, ASSESSEE FILED OBJECTIONS BEFORE DRP, WHO UPHELD THE ATTRIBUTION AT 25% TO TH E PE IN INDIA, IN RESPECT OF OFFSHORE SUPPLY OF BTG EQUIPMENTS. 15. AGGRIEVED BY DIRECTIONS OF DRP, ASSESSEE PREFERRED APPEAL BEFORE THIS TRIBUNAL. 16. IN THE MEANTIME, LD.DIT INTERNATIONAL TAXATION-II, NEW DELHI, ISSUED NOTICE UNDER SECTION 263 DATED 11.04.2014 TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER MAY NOT BE TREATED AS E RRONEOUS IN SO FAR AS JUDICIAL TO THE INTEREST OF REVENUE ON FOLLO WING ISSUES: A. TAXABILITY OF RECEIPTS ON ACCOUNT OF SUPERVISORY SE RVICES UNDER SECTION 44 BBB OF THE ACT; AND SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 14 B. EXISTENCE OF PERMANENT ESTABLISHMENT. 17. LD. DIT(IT)-II, HELD THAT ASSESSEE IS NOT ENTITLED TO BE TAXED UNDER SECTION 44 BBB FOR ONSHORE SERVICES AND FURTH ER HELD THAT INCOME FROM SUPERVISORY PE IN RESPECT OF ONSHORE SE RVICE REVENUE VIA ASSESSEE IS TAXABLE IN INDIA AS BUSINESS INCOME WITH ATTRIBUTION AT 25% ON GROSS BASIS. 18. AGAINST THIS ORDER OF LD. DIT (IT)-II ASSESSEE DID NOT PREFER ANY APPEAL AND ACCEPTED THE SAME. 19. ORDER PASSED BY LD. AO, PURSUANT TO DIRECTIONS OF DRP, WAS APPEALED BY ASSESSEE BEFORE THIS TRIBUNAL. THIS TRI BUNAL VIDE ORDER DATED 05.09.2014 IN ITA NO. 344/DEL/2014 SET ASIDE THE ASSESSMENT TO LD. AO WITH CERTAIN DIRECTIONS AS UND ER: 8. SECTION 44 BBB IS APPLICABLE FOR COMPUTING THE PROFITS AND GAINS A FOREIGN COMPANY IS ENGAGED IN THE BUSIN ESS OF CIVIL CONSTRUCTION OR IN CERTAIN TURNKEY POWER PROJ ECTS. THUS, ASSESSEE IS TAKING CONTRADICTORY STAND WHILE OFFERI NG INCOME IN RESPECT OF SUPERVISORY SERVICE AGREEMENT AND IN RESPECT OF EQUIPMENT SUPPLY AGREEMENT. MOREOVER THE CONTENTION OF LD. DR THAT ALL THE AGREEMENTS RELATI NG TO EQUIPMENT SUPPLY AND SUPERVISORY CONTRACT WERE NOT FURNISHED BEFORE THE ASSESSING OFFICER HAS NOT BEEN DENIED BY LD. COUNSEL. HE OFFERED TO FURNISH THOSE AGREEME NTS BEFORE US BUT WHEN CERTAIN CRUCIAL AGREEMENTS WERE NOT BEFORE THE ASSESSING OFFICER, IT WOULD BE APPROPRIA TE THAT 1 ST THOSE AGREEMENTS ARE EXAMINED BY THE ASSESSING OFFI CER AND THEREAFTER, HE MAY TAKE A VIEW IN ACCORDANCE WI TH LAW. IF ASSESSEE IS NOT SATISFIED WITH THE VIEW TAKEN BY ASSESSING OFFICER, HE MAY AVAIL APPROPRIATE REMEDY AS MAY BE PERMISSIBLE IN LAW. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THE MAT TER TO THE FILE OF ASSESSING OFFICER. WE DIRECT HIM TO ALLOW A DEQUATE OPPORTUNITY TO THE ASSESSEE TO PRODUCE ALL THE AGRE EMENTS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 15 IN RESPECT OF EQUIPMENT SUPPLY AS WELL AS SUPERVISI ON OF ERECTION OF THOSE EQUIPMENTS. WE ALSO DIRECT THE AS SESSEE TO PRODUCE ALL THESE DOCUMENTS AND ANY OTHER DOCUME NT, EVIDENCE OR EXPLANATION WHICH MAY BE RELEVANT FOR DETERMINATION OF TAXABLE INCOME OF THE ASSESSEE. THEREAFTER, THE ASSESSING OFFICER IS DIRECTED TO PA SS THE ORDER IN ACCORDANCE WITH LAW. WE ALSO OBSERVE THAT IF THE LESSEE IS NOT SATISFIED WITH THE ORDER OF ASSESSING OFFICER AND FILED OBJECTIONS BEFORE THE DRP, TENDED DRP WIL L PASS A SPEAKING ORDER IS CONSIDERING THE ASSESSEES OBJECT ION IN ACCORDANCE WITH LAW. 20. AGAINST THIS ORDER OF THIS TRIBUNAL ASSESSEE PREFER RED AN APPEAL BEFORE HONBLE HIGH COURT. HONBLE HIGH COUR T BY ORDER DATED 23.02.2015 IN CM NO. 1861/2014 AND 2293/2015 IN ITA NO. 688/2014 REMANDED THE MATTER TO DRP, FOR ADJUDICATI ON WITH DIRECTIONS AS UNDER: 6. THIS COURT NOTICES AT THE OUTSET THAT IN THE PR ESENT CASE, WHILST FRAMING THE INITIAL DRAFT ASSESSMENT ORDER O N 28/03/13, THE ASSESSING OFFICER DEEMED IT EXPEDIENT TO CONFINE THE SCRUTINY TO A CERTAIN SUBJECT MATTER. F INALLY THE ASSESSMENT ORDER WAS MADE AFTER TAKING INTO ACCOUNT THE ORDER OF THE DRP WHICH WAS NATURALLY DETERMINED IN TURN BY THE REFERENCE IN THE DRAFT ASSESSMENT ORDER. THE REAFTER, THE DRP ISSUED NOTICES UNDER SECTION 263 AND MADE H IS FINAL ORDER ON 29/08/2014. EVEN AT THIS STAGE, THE DRP DID NOT DEEM IT EXPEDIENT TO ENLARGE THE SCOPE OF T HE SCRUTINY FOR A Y 2010-11. THE DRPS DETERMINATION I N THE CIRCUMSTANCES, CONCERNING THE A.Y: 20010-11, MADE E ARLIER ON 30/10/13, STOOD. IT IS A MATTER OF RECORD THAT T HE REVENUE DID NOT CHOOSE TO EITHER REOPEN THE ASSESSM ENT IN ANY MANNER NOT CALL INTO QUESTION THE DECISION OF T HE DRP IN TERMS OF SECTION 253 (2A) WHICH ENABLES REVENUE TO APPROACH THE ITAT IN RESPECT OF ANY OF ITS GRIEVANC ES AGAINST THE ORDER OF THE DIT. THIS PROVISION WAS SU PPORTED SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 16 BY FINANCE ACT, 2012 W.E.F. 01/07/12 - I.E. HE. BEF ORE THE DRAFT ASSESSMENT ORDER WAS MADE IN RESPECT OF A Y 2 010- 11. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION T HAT THE RESTRICTED REMAND TO THE AO WAS NOT JUSTIFIED. AT T HE SAME TIME, THIS COURT IS NOT PERSUADED TO THE SUBMISSION S OF REVENUE THAT THE ASSESSEE CONSIDERED THE ENTIRETY O F CIRCUMSTANCES FOR THE OTHER YEARS IN ITS ORDER DATE D 28/11/14 WHICH LEAD TO THE FINAL ASSESSMENT ORDER D ATED 04/12/2014, WHICH IS IN TURN IS A SUBJECT MATTER OF THE ASSESSEES APPEAL BEFORE THE ITAT, THE LATTER COURS E IS THE MOST APPROPRIATE ONE. THIS IS BECAUSE THE ITATS IMPUGNED ORDER IN THIS CASE FOLLOWED BY THE DRP WAS CRYPTIC IN ITS ORDER AND HAD NOTHING TO SAY IN RESP ECT OF DRAFT ASSESSMENT ORDER, INITIALLY FRAMED ON 28/03/1 3. IN THE CIRCUMSTANCES AND GIVEN THE FACT THAT THE ENTIR ETY OF THE CIRCUMSTANCES WERE GONE INTO TWO STAGES I.E. WH EN THE FIRST DRAFT ASSESSMENT ORDER WAS MADE AND SUBSEQUEN TLY UNDER SECTION 263, THE COURSE OF ACTION URGED BY TH E REVENUE GIVEN THAT IT ALSO DID NOT ARTICULATE GRIEV ANCE OF THE DRPS ORDER IS NOT APPROPRIATE. IT WOULD BE IN THE FITNESS OF THINGS THAT THE MATTER IS REMITTED TO TH E DRP RATHER THAN AO WHICH WOULD CONSIDER THE MATTER REFE RRED TO IT (ON 28/03/2013) AND AFTER HEARING THE SUBMISS IONS OF THE PARTIES DEAL WITH THEM WITH PROPER REASONED ORD ER, BUT IN ACCORDANCE WITH LAW. THE DRP SHALL ENDEAVOUR TO COMPLETE ITS PROCEEDINGS AND MAKE FINAL ORDER WITHI N 8 WEEKS FROM TODAY. IT GOES WITHOUT SAYING THAT AO SH ALL (ON RECEIPT OF DRPS ORDER) PASSED THE FINAL ASSESSMENT IN ACCORDANCE WITH LAW AS MANDATED IN THE INCOME TAX A CT. 21. ACCORDINGLY DRP PURSUANT TO DIRECTIONS OF HONBLE DELHI HIGH COURT, DEALT WITH THE OBJECTIONS RAISED BY ASSESSEE IN FORM 35A, DATED 15/04/13 AGAINST DRAFT ASSESSMENT ORDER PASSE D BY LD. AO DATED 28.03.2013, WHICH ARE AS UNDER: 1. LD. AO HAS ERRED ON THE FACTS AND LAW IN ALLEGI NG THAT RECEIVES FROM OFFSHORE SUPPLY OF EQUIPMENT ARE TAXABLE IN IN DIA: SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 17 I. WHILE HOLDING THAT OFFSHORE SUPPLY RECEIPTS ARE TAX ABLE IN INDIA, THE LD.AO HAS ERRED IN LAW AND FACTS THAT THE 2 SEP ARATE CONTRACTS ENTERED WITH PROJECT OWNERS FOR SUPPLY AN D SUPERVISION ARE COMPOSITE CONTRACTS II. THAT THE SUPPLY WHICH CONSTITUTES 99.75% OF THE TOT AL VALUE OF 2 CONTRACTS TAKEN TOGETHER IS INCIDENTAL TO THE SUPER VISION SERVICES WHICH CONSTITUTES LESS THAN 0.25% OF THE T OTAL CONTRACT VALUE III. WITHOUT PREJUDICE TO OUR ARGUMENTS THAT 2 CONTRACTS ARE SEPARATE IF THE CONTRACT IS TREATED AS COMPOSITE CO NTRACTS THEN SUPERVISION SERVICES ARE INCIDENTAL TO OFFSHOR E SUPPLY AND ARE NOT TAXABLE IN INDIA 2. THAT THE LD. AO ERRED IN LAW AND FACTS IN HOLDIN G THAT THE ASSESSEE HAS A FIXED PLACE IN INDIA 3. THAT THE LD. AO ERRED IN HOLDING THAT THE PE WAS INVOLVED IN CARRYING OUT MARKETING ACTIVITIES WHEN THE PE WAS I NVOLVED ONLY IN SUPERVISING THE DIRECTIONS OF CONTRACTS 4. THAT THE LD. AO ERRED IN FACTS IN HOLDING THAT T HE ASSESSEE IS INVOLVED IN THE OPERATION OF THE POWER PROJECT 5. WITHOUT PREJUDICE THE LD.AO HAS ERRED IN ALLEGIN G THAT THE TOTAL PROFITS FROM OFFSHORE SUPPLY WAS 8.29% OF GROSS REV ENUE OF OFFSHORE SUPPLY AND NOT CONSIDERING THE SEGMENTAL P ROFITS OF 1.69% AND IN ATTRIBUTING 25% THEREOF TO INDIA EVEN THOUGH NO PART OF THE ACTIVITY RELATING TO OFFSHORE SUPPLY WAS CARRIED IN INDIA 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. AEO HAS ERRED IN PROPOSING TO INITIATE PENALTY PROC EEDINGS UNDER SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 18 SECTION 271 (1) (C) OF THE ACT AGAINST THE ASSESSEE , WHICH IS BAD IN LAW ALL THE ABOVE GROUNDS OF OBJECTIONS ARE WITHOUT PRE JUDICE TO EACH OTHER. THE ASSESSEE CRAVES FOR LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE OBJECTIONS WITH THE DRP. THE DRP DEALT WITH THE OBJECTIONS INDEPENDENTLY. DR P OBSERVED AND HELD AS UNDER: ON PERUSAL OF CONTRACTS ENTERED INTO BY ASSESSEE WI TH THE PROJECT OWNERS, DRP OBSERVED THAT: THERE ARE 2 SEPARATE CONTRACTS, HOWEVER THESE ARE I N THE NATURE OF COMPOSITE CONTRACT INSTEAD OF TURNKEY CON TRACT AS ALLEGED BY ASSESSEE; UNDISPUTEDLY THE ASSESSEE HAS A LONG PRESENCE IN IN DIA WHERE IT IS DOING ACTIVITIES RELATING TO ERECTION, TESTING AND COMMISSIONING OF EQUIPMENT SUPPLIED BY IT; THAT THE OBLIGATION OF ASSESSEE DID NOT END WITH SU PPLY OF BTG EQUIPMENTS, RATHER IT CONTINUED AND ENDED ONLY ON RECEIPT OF TAKEOVER CERTIFICATE ISSUED BY PROJECT OWNER, AFTER ERECTION, TESTING AND COMMISSIONING OF THE EQUIPMEN T SUPPLIED BY IT AND UPON SUCCESSFUL PERFORMANCE GUAR ANTEE TESTS BEING CONDUCTED AT THE PROJECT SITE. THAT ASSESSEE HAS ITSELF OFFERED REVENUE FROM ONSHO RE ACTIVITIES AS TAXABLE IN ITS RETURN OF INCOME UNDER SECTION 44 BB B OF THE ACT; SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 19 THERE EXISTS A SUPERVISORY PE IN INDIA DURING ERECT ION, TESTING STAGE UNDER ARTICLE 5 (2) (J) OF INDIA CHIN A TAX TREATY; AS PER ARTICLE 7 OF INDIA CHINA TAX TREATY, BUSINES S PROFITS OF ASSESSEE SHALL BE TAXABLE IN INDIA IF IT HAS A P ERMANENT ESTABLISHMENT IN INDIA. IT DOES NOT TALK ABOUT ANY SPECIAL TYPE OF PE FOR THE PURPOSE OUT OF VARIOUS KINDS OF PE MENTIONED IN ARTICLE 5 (1)/(2); THAT ASSESSEE HAS EXECUTED MANY CONTRACTS IN INDIA WHICH WERE PENDING FOR MANY YEARS. NEGOTIATIONS FOR NEW CONTRACTS HAPPENED IN INDIA, AND FOR THESE PURPOSE EMPLOYEES OF ASSESSEE, HAVE COME TO INDIA ON VARIOU S OCCASIONS. IT OBSERVED THAT ASSESSEE HAS NOT FURNIS HED MANY INFORMATION REGARDING PLACE WHERE DO THEY STAY AND PERIOD OF THEIR STAY ETC; THAT THE EQUIPMENTS SUPPLIED IS HIGHLY CUSTOMISED A ND MANUFACTURED ACCORDING TO THE SPECIFIC REQUIREMENT OF RESPECTIVE PROJECT OWNER. FOR THIS INTENSIVE SITE S URVEY, GEOLOGICAL SURVEY AND SOIL TESTING ETC., IS NEEDED TO BE DONE AND THESE OPERATIONS REQUIRED PRESENCE OF ASSESSEE S EXPERTISE IN INDIA FOR A SUFFICIENT DURATION OF TIM E AND SINCE ASSESSEE IS EXECUTING SEVERAL CONTRACTS IN INDIA TH ESE ACTIVITIES IN FACT BECOME A REGULAR FEATURE THROUGH OUT THE YEAR; IT IS OBSERVED THAT SUPPLY CONTRACTS ALSO HAVE A CL AUSE FOR TRAINING OF PERSONNEL OF PROJECT OWNER BY ASSESSEE AND ASSESSEE IS RESPONSIBLE FOR OFFLOADING AND TRANSPOR TATION OF SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 20 EQUIPMENT FROM PORT OF ARRIVAL IN INDIA TO PLACE OF INSTALLATION. ASSESSEE WAS CONTRACTUALLY RESPONSIBL E FOR REPAIRS AND WARRANTY OBLIGATIONS UNDER SUPPLY CONTR ACTS AND FOR THESE PURPOSE FOR WHICH ASSESSEE NEEDS TO H AVE SOMEPLACE IN INDIA FROM OR THROUGH WHICH THESE ACTI VITIES COULD BE CARRIED OUT; THE PANEL AGREED WITH THE SUBMISSIONS OF ASSESSEE T HAT EVEN IF THE CONTRACT IS A COMPOSITE CONTRACT, PROFI T CAN BE ATTRIBUTED TO ONLY THOSE OPERATIONS WHICH ARE CARRI ED OUT IN INDIA THROUGH PE. THOUGH ACTUAL MANUFACTURING OF EQUIPMENT HAS OCCURRED OUTSIDE INDIA, SEVERAL OPERA TIONS WHICH ARE NECESSARY FOR MEETING WITH THE SUPPLY OBL IGATIONS HAVE BEEN CARRIED OUT IN INDIA FOR INSTANCE THESE A RE BID PREPARATION, NEGOTIATION AND SIGNING OF CONTRACT, S ITE SURVEYS, SITE PREPARATION, DATA COLLECTION, CONSULT ATION WITH OWNERS, REPAIRS AND WARRANTY SERVICES ETC. DRP THEN CONCLUDED AS UNDER: PERUSAL OF THE TERMS OF THE CONTRACT SHOWS THAT OBL IGATION OF ASSESSEE DOES NOT END AFTER SUPPLY OF BTG EQUIPMENT S, RATHER THESE CONTINUE AND END ONLY AFTER ERECTION, TESTING AND COMMISSIONING OF EQUIPMENT SUPPLIED BY IT, AND UNTI L THE PERFORMANCE GUARANTEE TESTS WERE PERFORMED SUCCESSF ULLY AT ALL PROJECT SITE AND PROJECT OWNERS ISSUES THAT TAK EOVER CERTIFICATE TO ASSESSEE AS A PROOF OF FINAL ACCEPTA NCE OF BTG. IT WAS THUS CONCLUDED THAT IT WAS A COMPOSITE CONTRACT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 21 THE ASSESSEE HAS A LONG PRESENCE IN INDIA WHERE IT IS DOING ACTIVITIES RELATING TO ERECTION, TESTING AND COMMIS SIONING OF EQUIPMENTS SUPPLIED. THESE ACTIVITIES ARE ECONOMICA LLY SIGNIFICANT AND PROFIT EARNING WHICH CANNOT BE CONS IDERED IN ISOLATION. RATHER, IT IS A CONTINUED RELATIONSHIP B ETWEEN ASSESSEE AND THE PROJECT OWNERS IN INDIA. ASSESSEE IS COMING TO INDIA FOR NEGOTIATION OF CONTRACTS. THE ACTIVITI ES INCLUDED LIKE SITE VISITS AND VARIOUS SITE/GEOLOGICAL SURVEY S TO BE CONDUCTED, AND THEREFORE THE CRITERIA IS AS PRESCRI BED BY HONBLE SUPREME COURT IN THE CASE OF CIT VS R.D AGA RWAL & CO., REPORTED IN (1965) 56 ITR 20 FOR EXISTENCE OF BUSINESS CONNECTION IN INDIA ARE FULFILLED. THEREFORE, CONTR ACTS BECOME TAXABLE IN INDIA UNDER THE DOMESTIC LAW, AS THERE E XISTED A BUSINESS CONNECTION IN INDIA. IT HAS BEEN HELD THAT IT WAS ESTABLISHED IN INDIA P RIOR TO START OF SUPPLY OF EQUIPMENT IN INDIA AND EXISTENCE OF A FIXED PLACE PE IS NOT A PRE-RQUISITE FOR BRINGING BUSINESS PROF IT TO TAX IN INDIA ANY KIND OF PE AS MENTIONED IN ARTICLE 5 OF T HE DTAA WOULD BE ENOUGH TO BRING THE PROFITS ARISING FROM S UPPLIES TO TAX IN INDIA, IF PROFITS ARE DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO PE. ALTHOUGH THE MANUFACTURING IS DONE OUTSIDE INDIA, A CTIVITIES LIKE BID PREPARATION, NEGOTIATION AND SIGNING OF CO NTRACTS, SITE SURVEYS, SITE PREPARATION, DATA COLLECTION, CONSULT ATION WITH OWNERS, REPAIRS AND WARRANTY SERVICES ETC COULD ONL Y BE CARRIED OUT THROUGH PE IN INDIA. THUS DRP CONCLUDED THAT THE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 22 SAID ACTIVITIES NEEDED ASSESSEE TO REMAIN IN INDIA, AND THUS HAS TO BE BROUGHT TO TAX IN INDIA. IT WAS FURTHER OBSERVED THAT ASSESSEE DID NOT FURNI SH ANY INFORMATION WITH REGARD TO PLACE AND PERIOD OF STAY OF EXPATS. AS NEGOTIATIONS OF NEW CONTRACT HAPPENED IN INDIA, THE PROTRACTED NEGOTIATION, SIGNING OF CONTRACTS, SITE SURVEYS, ERECTION, COMMISSIONING, PERIODICAL REVIEWS AND CON SULTATION WITH OWNERS, PRESENCE OF EMPLOYEES OF ASSESSEE WAS REQUIRED. DRP THUS CONCLUDED THAT ASSESSEE KNEW ABOUT SUCH NE CESSITY FOR DEPUTING EMPLOYEES AND THAT EVEN WHERE NO PROJE CT OFFICE WAS AVAILABLE, THE HOTEL WERE SUCH EMPLOYEES STAYED , WILL CONSTITUTE A PERMANENT ESTABLISHMENT OF BUSINESS IN INDIA. IT FURTHER HELD THAT THE EQUIPMENTS MANUFACTURED BY ASSESSEE WERE HIGHLY CUSTOMISED ACCORDING TO SPECIFIC REQUIR EMENT. ASSESSEE WAS ALSO RESPONSIBLE FOR OFFLOADING AND TRANSPORTATION OF EQUIPMENT FROM PORT OF ARRIVAL IN INDIA TO PLACE OF INSTALLATION AND REPAIRS AND WARRANTY OBLI GATION UNDER SUPPLY CONTRACT. AS PER DTAA, BUSINESS INCOME IS TAXABLE IN INDIA ON LY BY VIRTUE OF EXISTENCE OF PE AND AS PE EXISTS IN PRESE NT CASE DRP HELD THAT INCOME FROM SUPPLY CONTRACT WERE TAXABLE IN INDIA. 22. BASED ON THE OBSERVATIONS AND DIRECTIONS OF DRP, L D. AO PASSED IMPUGNED ASSESSMENT ORDER, AGAINST WHICH, AS SESSEE IS IN APPEAL BEFORE US. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 23 23. BEFORE DEALING WITH THE ARGUMENTS ADVANCED BY BOTH THE SIDES WE SHALL BRIEFLY STATE THE FACTUAL POSITION AS RECO RDED BY AUTHORITIES BELOW IN EACH OF THE ASSESSMENT YEARS UNDER CONSIDE RATION. ASSESSMENT YEAR 2007-08 TO 2009-10 24. ASSESSEE DID NOT FILE RETURN OF INCOME FOR ASSESSM ENT YEAR 2007-08, 2008-09 AND 2009-10. ACCORDINGLY, NOTICE U NDER SECTION 148 WAS ISSUED ON 26.03.2013 REQUIRING ASSESSEE TO FILE ITS RETURN OF INCOME FOR THE RESPECTIVE ASSESSMENT YEARS, AFTE R RECORDING THE REASONS WHICH ARE REPRODUCED AS HEREUNDER: M/S SHANGHAI ELECTRIC GROUP COMPANY LTD (SEC) IS A COMPANY INCORPORATED UNDER THE LAWS OF PEOPLES REPUBLIC OF CHINA AND IS ENGAGED IN THE BUSINESS OF SUPPLY OF BOILER, TURBINE AND GENERATOR (BTG) EQUIP MENTS TO VARIOUS COMPANIES (PROJECT OWNERS) SETTING UP OF A PLANTS IN INDIA. DURING THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YE AR 2010-11, F EEC WAS ENGAGED IN EXCLUSION OF CONTRACT S WITH THE FOLLOWING: ROSA POWER SUPPLY CO. LTD., REL IANCE INFRASTRUCTURE LTD (FORMERLY KNOWN AS RELIANCE ENER GY LTD) EMCO ENERGY LTD, JINDAL STEEL & POWER LTD, JSW LTD & JSW ENERGY LTD. SEC HAS ALSO PROVIDED SUPERVISORY SERVICES FOR ERECTIONS/COMMISSIONING OF SUCH EQUIPMENTS AT PROJECT OWNERS SITE. THE ELECTION AND COMMISSIONING IS DONE BY 3 RD PARTIES IN INDIA APPOINTED BY THE PROJECT OWNERS. THE ASSESSEE HAS OFFERED SUPERVISORY SERVICE FEE RECEIVED UNDER SECTION 44 B B B OF THE ACT. DURING COURSE OF ASSESSMENT PROCEEDINGS IT HAS BEEN ESTABLISHED THAT OFFSHORE SUPPLIES ARE TAXABLE LEAVING A DETAILED FINDING THAT THE CONTRACT ENTERE D WAS A COMPOSITE CONTRACT AND A PROFIT OF 8.29% HAS BEEN T AKEN AS PROFIT EARNED (ON THE BASIS OF GLOBAL PROFIT RAT E) BY THE COMPANY AND 25% OF SUCH PROFITS HAS BEEN ATTRIBUTED TO PERMANENT ESTABLISHMENT (PE) IN INDIA. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 24 ALSO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS F OR A Y 2010-11, VIDE LETTER DATED 13/03/13, THE ASSESSEE HAS FILED DETAILS OF OFFSHORE SUPPLIES FOR A Y 2007-08 AMOUNTING TO USD4, 36,79, 200.30 AND ONSHORE SERVIC ES FOR A Y 2007-08 AMOUNTING TO USD 26,88,000/- AND TAXABILITY OF BOTH NEEDS EXAMINATION. ALSO PROFIT ATTRIBUTABLE TO PE HAS NOT BEEN OFFERED FOR TAXATIO N. BESIDES, AS PER RECORD AVAILABLE ASSESSEE HAS NOT F ILED RETURN OF INCOME FOR A Y 2007-08 AND AS PER EXPLANA TION 2 (A) OF SECTION 147 OF THE ACT, THE ASSESSEE HAS ESCAPEMENT OF INCOME, CHARGEABLE TO TAX. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER (AO) HA S REASONS TO BELIEVE THAT INCOME CHARGEABLE TO TAX IN EXCESS OF ONE LAKH RUPEES HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147/148 OF THE I.T. A CT, 1961. 25. SIMILAR REASONS WERE RECORDED WITH THE STATISTICS FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10. AGAINST THESE REASONS RECORDED ASSESSEE FILED OBJECTIONS TOWARDS THE INIT IATION OF REOPENING OF PROCEEDINGS WHICH WERE DISPOSED OF AFT ER DUE CONSIDERATION BY LD. AO. 26. DURING THE REASSESSMENT PROCEEDINGS LD. AO OBSERVE D THAT ASSESSEE HAD ENTERED INTO FOLLOWING CONTRACTS FOR T HE RESPECTIVE ASSESSMENT YEARS THE DETAILS OF WHICH ARE AS UNDER: S. NO. ASST. Y EAR DETAILS OF PARTIES WITH WHOM CONTRACTS WERE EXECUTED 1. 2007 - 08 1 . RELIANCE ENERGY LTD. 2. JSW ENERGY LTD. 2. 2008 - 09 1 . RELIANCE ENERGY LTD. 2. JSW ENERGY LTD. 3. JSW STEEL LTD. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 25 4 . ROSA POWER SUPPLY COMPANY LTD. 5. JSW ENERGY (RATNAGIRI) LTD. 6. JINDAL STEEL AND POWER LTD. 3. 2009 - 10 1 . RELIANCE ENERGY LTD. 2. JSW ENERGY LTD. 3. JSW STEEL LTD. 4. ROSA POWER SUPPLY COMPANY LTD. 5. JSW ENERGY (RATNAGIRI) LTD. 6. JINDAL STEEL AND POWER LTD. 27. LD. AO OBSERVED THAT ASSESSEE HAD PROVIDED SUPERVI SORY SERVICES FOR ERECTIONS/COMMISSIONING OF SUCH EQUIPM ENTS AT THE PROJECT OWNERS SITE. IT WAS OBSERVED THAT ASSESSEE OFFERED SUPERVISORY SERVICE FEE RECEIVED UNDER SECTION 44 B BB OF THE ACT. IN RESPECT OF THE SUPPLY OF BTG EQUIPMENTS, ASSESSEE H AD CONTENDED THAT SINCE THESE ARE OFFSHORE SUPPLIES, THE INCOME EARNED WERE NOT TAXABLE IN INDIA. LD. AO, BASED ON THE FINDINGS AND OBSERVATIONS OF HIS PREDECESSOR FOR ASSESSMENT YEAR 2010-11, ATTRIB UTED 25% OF PROFIT BASED ON GLOBAL PROFITABILITY STATEMENT ACCR UING FROM OFFSHORE SUPPLY TO PE IN INDIA. 28. AGAINST THE DRAFT ASSESSMENT ORDER PASSED FOR THES E ASSESSMENT YEARS ASSESSEE FILED ITS OBJECTION BEFOR E THE DRP. 29. LD. DRP BASED ITS OBSERVATIONS, DEPENDING UPON ORD ER PASSED FOR ASSESSMENT YEAR 2010-11. ACCORDINGLY DRP ISSUED ENHANCEMENT NOTICES, TO SHOW CAUSE AS TO WHY SUPERVISORY RECEIP TS SHOULD NOT BE TAXED CONSIDERING 25% NET PROFIT RATE. DRP HELD THA T IT IS QUITE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 26 REASONABLE TO ESTIMATE THE NET PROFIT AT 25% OF SUP ERVISORY RECEIPTS. THE DRP ALSO NOTED THAT ASSESSEE HAD AGREED TO THIS NET PROFIT RATE IN THE ORDER UNDER SECTION 263 FOR ASSESSMENT YEAR 2010-11. IT ACCORDINGLY DIRECTED THE LD. AO TO COMPUTE TAXABLE PROFITS OUT OF SUPERVISORY RECEIPTS AT 25%. PURSUANT TO THESE DIRE CTIONS LD. AO PASSED THE IMPUGNED ASSESSMENT ORDER FOR ASSESSMENT YEARS 2007- 08, 2008-09 AND 2009-10. AGGRIEVED BY THE IMPUGNED ASSESSMENT ORDER IS ASSES SEE IS IN APPEAL BEFORE US NOW. ASSESSMENT YEAR 2011-12 30. DURING THE REASSESSMENT PROCEEDINGS LD. AO OBSERVE D THAT ASSESSEE HAD ENTERED INTO FOLLOWING CONTRACTS FOR T HIS ASSESSMENT YEAR, THE DETAILS OF WHICH ARE AS UNDER: S. NO. ASST. YR DETAILS OF PARTIES WITH WHOM CONTRACTS WERE EXECUTED 1. 2011 - 12 1 . RELIANCE ENERGY LTD. 2. JSW ENERGY LTD. 3. JSW STEEL LTD. 4. ROSA POWER SUPPLY COMPANY LTD. 5. JSW ENERGY (RATNAGIRI) LTD. 6. JINDAL STEEL AND POWER LTD 31. LD. AO OBSERVED THAT ASSESSEE PROVIDED SUPERVISORY SERVICES FOR ERECTIONS/COMMISSIONING OF SUCH EQUIPMENTS AT T HE PROJECT OWNERS SITE. IT HAS FURTHER BEEN OBSERVED THAT ASSE SSEE HAS OFFERED SUPERVISORY SERVICE FEE RECEIVED UNDER SECTION 44 B BB OF THE ACT. IN RESPECT OF THE SUPPLY OF BTG EQUIPMENTS, ASSESSEE H AD CONTENDED THAT SINCE THESE ARE OFFSHORE SUPPLIES HENCE WERE N OT TAXABLE IN SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 27 INDIA. LD. AO, BASED ON THE FINDINGS AND OBSERVATIO NS OF HIS PREDECESSOR FOR ASSESSMENT YEAR 2010-11 ATTRIBUTED 25% OF PROFIT BASED ON GLOBAL PROFITABILITY STATEMENT ACCRUING FR OM OFFSHORE SUPPLY TO PE IN INDIA. 32. AGAINST THE DRAFT ASSESSMENT ORDER PASSED FOR THES E ASSESSMENT YEARS ASSESSEE FILED ITS OBJECTION BEFOR E THE DRP. 33. AS THE ASSESSEE COULD NOT FURNISH ORIGINAL SITE RE CORDS MAINTAINED DURING ERECTION COMMISSIONING AND TESTIN G OF BTG EQUIPMENT AND NOT MAINTAINING SPECIFIC BOOKS OF ACC OUNTS IN INDIA IT THEREFORE UPHELD ADDITION MADE BY LD. AO, APPLYI NG 25% OF THE NET PROFIT RATE FOR TAXING THE ONSHORE SERVICE REVE NUES AND NOT COMPUTING THE SUPERVISION FEES UNDER SECTION 44 BBB OF THE ACT. PURSUANT TO THESE DIRECTIONS, LD. AO PASSED THE IMP UGNED ASSESSMENT ORDER FOR ASSESSMENT YEARS 2011-12. 34. AGGRIEVED BY THE IMPUGNED ASSESSMENT ORDER IS ASSE SSEE IS IN APPEAL BEFORE US NOW. 35. THUS IT IS OBSERVED FROM THE RECORDS THAT FROM ASS ESSMENT YEAR 2008-09, 2009-10 AND 2011-12 LD. AO REOPENED T HE ASSESSMENT BASED ON THE FINDINGS OF HIS PREDECESSOR IN ASSESSMENT YEAR 2010-11. ASSESSMENT YEAR 2012-13 & 2013-14 36. DURING THE REASSESSMENT PROCEEDINGS LD. AO OBSERVE D THAT ASSESSEE HAD ENTERED INTO FOLLOWING CONTRACTS FOR T HE RESPECTIVE ASSESSMENT YEARS THE DETAILS OF WHICH ARE AS UNDER: S. NO. ASST.YR DETAILS OF PARTIES WITH WHOM CONTRACTS WERE EXECUTED SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 28 1. 201 2 - 1 3 & 2013-14 1 . BUTIBORI PROJECT 2. ROSA I PROJECT 3. ROSA II PROJECT 4. RATNAGIRI PROJECT 5. JINDAL PROJECT 6. WARORA PROJECT 7. CHANDRAPUR PROJECT 8. LAGUNA PROJECT 37. LD. AO OBSERVED THAT ASSESSEE PROVIDED SUPERVISORY SERVICES FOR ERECTIONS/COMMISSIONING OF EQUIPMENTS SUPPLIED BY IT, AT THE PROJECT OWNERS SITE. IT WAS OBSERVED THAT ASSESSEE OFFERED SUPERVISORY SERVICE FEE RECEIVED, UNDER SECTION 44 BBB OF THE ACT. 38. HOWEVER IN RESPECT OF SUPPLY OF BTG EQUIPMENTS, AS SESSEE CONTENDED THAT, SINCE THESE WERE OFFSHORE SUPPLIES, HENCE WERE NOT TAXABLE IN INDIA. LD.AO, BASED ON THE FINDINGS AND OBSERVATIONS OF HIS PREDECESSOR FOR ASSESSMENT YEAR 2010-11, ATTRIB UTED 25% OF PROFIT BASED ON GLOBAL PROFITABILITY STATEMENT ACCR UING FROM OFFSHORE SUPPLY TO PE IN INDIA. AGAINST DRAFT ASSESSMENT ORD ER, FOR THESE ASSESSMENT YEARS ASSESSEE FILED OBJECTION BEFORE DR P. 39. DRP BASED ON ITS OBSERVATIONS MADE IN ASSESSMENT Y EAR 2010- 11, ISSUED ENHANCEMENT NOTICE TO SHOW CAUSE AS TO W HY, SUPERVISORY RECEIPTS SHOULD NOT BE TAXED, CONSIDERI NG 25% NET PROFIT RATE. AS ASSESSEE DID NOT FURNISH ANY ACCOUNTS PERT AINING TO SUPERVISORY PE, DRP HELD THAT IT IS QUITE REASONABL E TO ESTIMATE THE NET PROFIT AT 25% TO THE SUPERVISORY RECEIPTS. THE DRP ALSO NOTED THAT ASSESSEE HAD AGREED TO THIS NET PROFIT RATE IN THE ORDER UNDER SECTION 263 FOR ASSESSMENT YEAR 2010-11. IT ACCORDI NGLY DIRECTED SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 29 LD.AO TO COMPUTE TAXABLE PROFITS OUT OF SUPERVISORY RECEIPTS AT 25%. PURSUANT TO THESE DIRECTIONS LD.AO PASSED IMPU GNED ASSESSMENT ORDER FOR ASSESSMENT YEARS 2012-13 & 201 3-14. 40. AGGRIEVED BY THE IMPUGNED ASSESSMENT ORDERS, ASSES SEE IS IN APPEAL BEFORE US FOR ALL THE ABOVE ASSESSMENT YEARS . 41. LD. COUNSEL AT THE OUTSET SUBMITTED THAT, ALL THE G ROUNDS RAISED IN THE YEARS UNDER CONSIDERATION BEFORE US ARE SIMI LAR AND IDENTICAL BASED ON SAME FACTS. HE SUBMITTED THAT GROUND NOS. 1 AND 1.1, ARE GENERAL IN NATURE, WHICH DO NOT REQUIRE ADJUDIC ATION, GROUND NO. 2 RAISED IN ALL THE ASSESSMENT YEARS UNDER CONSIDERAT ION, REGARDING TAXABILITY OF RECEIVED FROM ONSHORE SERVI CES UNDER SECTION 44BBB OF THE ACT IS NOT PRESSED. ACCORDINGLY WE DO NOT INTEND TO ADJUDICATE THIS GROUND. GROUND NO. 3 RELATES TO TAXING OF OFFSHORE SUPPLY IN INDIA, GROUND NO. 4 IS ON LEVY OF INTEREST UNDER SECTION 234B AND C OF THE ACT; AND GROUND NO. 5 IS AN INITIATION OF PENALTY PROCEEDINGS UNDER SECT ION 271(1)(C ) OF THE ACT, IS PREMATURE AT THIS STAGE. 42. THE MAIN ISSUE THAT NEEDS TO BE ADDRESSED IS IN RE SPECT OF TAXABILITY OF OFFSHORE SUPPLY IN INDIA. LD.COUNSEL IN WRITTEN SUBMISSION DATED 04.05.2017 HAS FORMULATED FOLLOWIN G ISSUES FOR OUR CONSIDERATION: 1. WHETHER THE CONTRACTS FOR OFFSHORE SUPPLIES AND PRO VISIONS OF ONSHORE SERVICES WERE COMPOSITE CONTRACTS? SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 30 2. WHETHER THE TITLE IN GOODS IS PASSED OUTSIDE INDIA OR IN INDIA UPON COMPLETION OF THE TESTING, COMMISSIONING OF TH E BTG EQUIPMENT AND UPON ISSUE OF COMPLETION CERTIFICATE? 3. WHETHER THERE EXISTED A BUSINESS CONNECTION OF THE APPELLANT IN INDIA? 4. WHETHER IN TERMS OF EXPLANATION 1 R.W SECTION 9 (1) (I) OF THE ACT, ANY PORTION OF THE PROFITS ARISING FROM OFFSHORE SU PPLIES WERE TAXABLE IN INDIA? 5. WHETHER THERE EXISTED A PE OF THE APPELLANT IN INDI A? 6. WHETHER ANY PORTION OF PROFITS ARISING FROM OFFSHOR E SUPPLIES WAS TAXABLE IN INDIA IN TERMS OF ARTICLE 7 (1) OF T HE DTAA BETWEEN INDIA AND CHINA? 7. ALTERNATIVELY, IF THERE EXISTED A SUPERVISORY PE OF THE APPELLANT IN INDIA IN TERMS OF PROVIDING ON SHORE SERVICES (S UPERVISION OF ERECTION/COMMISSIONING ETC), WHETHER THE PROFITS AR ISING FROM OFFSHORE SUPPLIES COULD BE ATTRIBUTED TO SUCH PE IN INDIA? 43. IN OUR CONSIDERED OPINION ON ANSWERING THE ABOVE I SSUES THE ENTIRE CONTROVERSY INVOLVED IN THESE APPEALS COULD BE RESOLVED. LD. COUNSEL SUBMITTED AS UNDER: 44. FROM THE SUBMISSIONS FILED IN THE PAPER BOOK, LD. COUNSEL REFERRED TO CERTAIN AGREEMENTS, FOR EXAMINING SCOPE OF WORK AND TERMS AND CONDITIONS OF CONTRACTS, ENTERED INTO BY ASSESS EE. REFERENCE IN THIS REGARD WAS MADE TO THE CHART TITLED AS 'DETAILS OF SCOPE OF ERECTION, COMMISSIONING, PERFORMANCE GUARANTEE TESTS AND SUPE RVISION SERVICES' SUBMITTED BY LD. COUNSEL, DURING THE COURSE OF ARGU MENTS WHICH HAS BEEN ONCE AGAIN FILED IN A SUMMARISED MANNER ON 02. 05.2017. THIS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 31 CHART CONTAINS PAGE NUMBERS REFERRING TO CERTAIN CL AUSES OF AGREEMENTS LIKE COVENANTS/RECITALS, SCOPE, CONTRACT PRICE, MOD E OF PAYMENT, INCOTERMS, DRAWINGS, WARRANTY, TRANSPORTATION AND A RBITRATION. HOWEVER, WHAT IS OF SEMINAL IMPORTANCE IS, WHERE TR ANSFER OF TITLE IN GOODS TOOK PLACE. SCOPE OF WORK FOR YAMUNA CONTRACT AND KINDA CONTRACT AS ILLUSTRATED BY LD. COUNSEL IS AS UNDER BELOW: YAMUNA CONTRACT (AT SERIAL NO. 1 OF THE CHART SUBMI TTED BY THE ASSESSEE) (AT PAGE 335 OF THE PAPER BOOK PART I I FOR ASSESSMENT YEAR 2007-08) 45. IT HAS BEEN SUBMITTED THAT THIS CONTRACT WAS BETWE EN RELIANCE ENERGY LTD. (PURCHASER), SHANGHAI ELECTRIC (GROUP) CORPORATION AND SHANGHAI ELECTRIC GROUP CO. LTD., AND THE CONTRACT IS FOR EQUIPMENT AND MANDATORY SPARES SUPPLY AND SERVICE C ONTRACT. IT WAS SUBMITTED THAT THIS CONTRACT PROVIDES THE PROCE SS OF SETTING UP OF A 2 X 300 MW THERMAL POWER PLANT AT YAMUNA NAGAR FOR HARYANA POWER CORPORATION LTD.,(OWNER). I T WAS SUBMITTED BY LD. COUNSEL THAT AS PER THE CONTRACT, THE OWNER HAS SELECTED THE PURCHASER (I.E. RELIANCE ENERGY) FOR C ONSTRUCTION OF THE FACILITY/PLANT IN THE MANNER DESCRIBED IN THE CONTR ACT BETWEEN THE OWNER AND PURCHASER. 46. IT HAS BEEN SUBMITTED THAT, THE CONTRACTOR HAS SUB MITTED AN OFFER FOR SUPPLY OF BOILERS, TURBINES, GENERATORS A ND AUXILIARIES (REFERRED TO AS THE BTG PACKAGE) FOR THE FACILITY/P LANT. 47. LD. COUNSEL SUBMITTED THAT THE SCOPE OF WORK IS DE SCRIBED IN ARTICLE 4.2 AT PAGE 338 THAT DIVIDES SCOPE OF WORK BETWEEN THE PARTIES IN TWO PARTS (A) THE FIRST PART (OF SHANGHA I CORPORATION) SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 32 WHICH SHALL COVER THE SUPPLY OF ALL EQUIPMENT AND M ATERIALS INCLUDING ASSOCIATED ACCESSORIES AND MANDATORY SPAR ES RELATED TO BTG PACKAGE OF CFR KANDLA PORT BASIS. LD. COUNSEL S UBMITTED THAT CLAUSE 5 OF THE CONTRACT PROVIDES THE BREAK-UP OF THE PRICE WHERE THE OFF SHORE SUPPLIES AND SERVICES ARE SEPAR ATELY PROVIDED FOR (ON SHORE SERVICES TO BE PROVIDED BY. A RELATED PARTY). 49. LD. COUNSEL THEN REFERRED TO NEXT PROJECT BEING KI NDA CONTRACT IN THE LIST. LD. COUNSEL SUBMITTED AS UNDER: KINDA CONTRACT - FOR SUPPLY OF BOILERS AND STEAM TURBINE GENERATORS (AT SERIAL NO. 2 OF THE CHART SUBMITTED BY THE ASSESSEE) (AGREEMENT AT PAGE 920 OF THE PAPER BOOK PART 11 FO R ASSESSMENT YEAR 2010-11) 50. LD. COUNSEL SUBMITTED THAT THIS CONTRACT IS BETWEE N JSW ENERGY (VIJAINAGAR) LTD. (OWNER) AND SHANGHAI ELECT RIC CORPORATION. OWNER INTENDS TO BUILD A 2 X 300 MW POWER PROJECT A ND REQUIRES SUPPLY OF BOILERS, STEAM TURBINE GENERATORS SET AND AUXILIARIES (BTG) FOR THE PROJECT. IT HAS BEEN SUBMITTED THAT O WNER HAS APPOINTED TATA CONSULTANCY ENGINEERS LTD. AS PROJEC T ENGINEER. 51. IN THE SECOND CHART SUBMITTED BY ASSESSEE GIVES DE TAILS OF SCOPE OF WORK, PRICE, SERVICE CONTRACTS, IN TERMS, WARRANTY, AND TRANSPORTATION HAVE BEEN SEPARATELY PROVIDED. 52. LD. COUNSEL SUBMITTED THAT THESE CONTRACTS WOULD S HOW; THE OWNERS WERE BUILDING POWER PLANTS IN INDIA AND AS S UCH REQUIRED ASSESSEE TO PROVIDE BTG EQUIPMENT. HE SUBMITTED THA T THIS INTENTION OF PARTIES IS APPARENT FROM A PLAIN READI NG OF CONTRACTS. LD. COUNSEL REFERRED TO OTHER AGREEMENTS HAVING SIM ILAR CLAUSES SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 33 AND SUBMITTED THAT THESE CONTRACTS ARE NOT FOR EXEC UTION OF 'WORK' AS REVENUE IS CONTENDING, SO AS TO BRING THEM WITHI N THE CATEGORY OF COMPOSITE CONTRACTS. LD. COUNSEL PLACED RELIANCE UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF IS HIKAWAJIMA HARIMA (SUPRA), TO DISTINGUISH THE DECISION RELIED UPON BY LD. CIT. DR DELIVERED BY HONBLE SUPREME COURT IN THE CASE O F HINDUSTAN SHIPYARD (SUPRA). HONBLE SUPREME COURT IN HINDUSTA N SHIPYARD(SUPRA) CATEGORISED CONTRACTS AS WORKS CONT RACTS WHERE IT IS A CONTRACT FOR WORK IN WHICH THE USE OF MATERIAL S IS ACCESSORY OR INCIDENTAL TO EXECUTION OF THE WORK. LD. COUNSEL SU BMITTED THAT THIS IS NOT THE SITUATION IN THE ASSESSEES CASE. HE SUB MITTED THAT INTENTION OF THE PARTIES IS TO ACQUIRE AND TO PROVI DE BTG EQUIPMENT, AND THAT THESE CONTRACTS AND NOT FOR EXECUTION OF A NY WORK, AS IS BEING MADE OUT BY REVENUE. 53. REFERRING TO VARIOUS PARAGRAPHS FROM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJIMA HARIMA (S UPRA) LD. COUNSEL SUBMITTED THAT: WHAT IS OF SEMINAL IMPORTANCE HERE IS THAT THE CON CLUSION OF THE COURT THAT EVEN WHERE THERE ARE COMPOSITE CONTR ACTS, THE PRINCIPLE OF ATTRIBUTION HAS TO BE APPLIED. HE SUBM ITTED THAT HONBLE COURT ALSO HELD THAT, WHERE DIFFERENT PARTS ARE CLEARLY IDENTIFIABLE, IT CANNOT BE HELD THAT THE, PROFITS A RISING FROM OFF SHORE SUPPLIES WERE LIABLE TO BE TAXED IN INDIA. TH US, WHETHER THE CONTRACTS WERE COMPOSITE OR NOT ARE OF NO CONSE QUENCE. 54. LD. COUNSEL PLACED RELIANCE ON THE DECISION OF JUR ISDICTIONAL HIGH COURT IN THE CASE OF LG CABLE VS. DIT REPORTED IN 197 TAXMAN 100 . LD. COUNSEL IN THE WRITTEN SUBMISSION DEALT WITH THIS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 34 DECISION AS UNDER: THE NATURE AND SCOPE OF WORK IN THAT CASE WAS AS UN DER- BRIEFLY THE FACTUAL MATRIX GIVING RISE TO THE PRESENT APPEAL IS AS FOLLOWS. THE RESPONDENT LG CABLE LTD. ('LGCL') IS A COMPANY INCORPORATED UNDER THE LAWS O F SOUTH KOREA HAVING ITS REGISTERED OFFICE AT ASEM TO WER (19-20F), 159 SAMSUNG DONG, GANGNAMGU, SEOL 135-090 KOREA. LGCL WAS AWARDED TWO CONTRACTS ON 26 TH FEB., 2001 BY THE POWER GRID CORPORATION OF INDIA LTD. ('PGCIL'). THE FIRST WAS FOR ONSHORE EXECUTION OF T HE FIBRE OPTIC CABLING SYSTEM PACKAGE PROJECT UNDER THE SYST EM CO-ORDINATION AND CONTROL PROJECT FOR THE EASTERN R EGION INVOLVING ONSHORE SERVICES. INCLUDING ERECTION/INST ALLATION. TESTING AND COMMUNICATING. ETC., OF THE FIBRE OF TH E CABLING SYSTEM. THE SECOND CONTRACT WAS (OR OFFSHORE SUPPLY OF EQUIPMENT AND OFFSHORE SERVICES. DURING THE FINANCI AL YEAR 2001-02, LGCL HAD SET UP A 'PROJECT OFFICE' IN INDIA AFTER OBTAINING REQUISITE APPROVAL FROM THE RBI. THE SERVICES UNDER THE ONSHORE CONTRACT WERE RENDERED BY LGCL THROUGH ITS PROJECT OFFICE IN INDIA FOR WHICH SEPAR ATE BOOKS OF ACCOUNT WERE MAINTAINED BY THE ASSESSEE. THE INC OME ATTRIBUTABLE TO THE ACTIVITIES CARRIED OUT IN INDIA IN CONNECTION WITH ONSHORE CONTRACT WAS OFFERED TO TAX ON A NET INCOME BASIS IN THE RETURN OF INCOME FILED BY T HE ASSESSE IN TERMS OF ARTS. 5 AND 7 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT ('DTAA') BETWEEN LNDIA AND KOREA. AS REGARDS OFFSHORE SUPPLY CONTRACT, HOWEVER, IT WA S CLAIMED BY THE ASSESSEE THAT THIS INCOME WAS NOT LI ABLE TO TAX IN INDIA AS THE INCOME WHOLLY ACCRUED OR AROSE IN KOREA. IT WAS ALSO CLAIMED THAT THE ENTIRE CONTRACT WAS CARRIED OUT IN KOREA AND WAS SUBJECT TO INCOME TAX IN KOREA. THE TRANSFER OF TITLE ALONG WITH THE ATTENDA NT RISKS HAD ENTIRELY PASSED ON TO PGCIL THE FINDINGS OF THE CIT(A) IN THE CASE OF LG CABLES ARE SUBMITTED TO BE AS UNDER- THE ASSESSEE IMPUGNED THE ABOVE ASSESSMENT IN APPEAL BEFORE THE CIT (A), REHYDRATING ITS SUBMISSI ON THAT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 35 THE TRANSFER OF TITLE IN THE EQUIPMENT SUPPLIED BY IT HAD TAKEN PLACE IN FAVOUR OF PGCIL OUTSIDE INDIA AND HE NCE INCOME OF OFFSHORE SUPPLY EQUIPMENT COULD NOT BE SA ID TO ACCRUE OR ARISE IN INDIA. AFTER COMPARING AND CONTR ASTING BOTH THE AGREEMENTS AND IN PARTICULAR ART. 6 THEREOF, THE CIT(A) HELD AS UNDER: '4.1 FROM THE COMBINED READING OF ART. 6 OF BOTH THE AGREEMENTS, THE FACTS EMERGE: (1) NOTWITHSTANDING THE AWARD OF WORK UNDER TWO SEP ARATE AGREEMENTS, THE CONTRACTOR (THE APPELLANT) HAS THE OVERALL RESPONSIBILITY FOR THE EXECUTION OF ALL THE WORK RI GHT FROM THE BEGINNING TILL THE END. (2) NOTWITHSTANDING THE AWARD OF WORK UNDER TWO SEP ARATE AGREEMENTS, IN CASE OF DEFAULT OR BREACH UNDER ONE CONTRACT THE SAME SHALL AUTOMATICALLY BE DEEMED TO BE A DEFAULT OR BREACH UNDER BOTH THE CONTRACTS', THIS M EANS THAT IF THERE IS A DEFAULT IN ANY PART OF ONE CONTR ACT BY THE APPELLANT, BOTH THE CONTRACTS ARE LIABLE TO BE CANC ELLED. (3) NOTWITHSTANDING THE AWARD OF WORK UNDER TWO SEP ARATE AGREEMENTS, IT WAS AGREED BY THE APPELLANT THAT THE EQUIPMENT/MATERIAL SUPPLIED BY IT TO PGCIL UNDER TH E FIRST CONTRACT, WHEN ERECTED AND COMMISSIONED BY THE APPE LLANT UNDER THE SECOND CONTRACT SHALL GIVE SATISFACTORY PERFORMANCE IN ACCORDANCE WITH THE PROVISIONS OF TH E CONTRACT. THIS CONDITION HAS BEEN SPECIFIED IN ART, 6 OF THE ONSHORE ERECTION CONTRACT. THIS CLEARLY SHOWS THAT EVEN IN THE ONSHORE ERECTION CON TRACT IT IS THE RESPONSIBILITY OF THE APPELLANT THAT THE MATERIALS/EQUIPMENT SUPPLIED BY IT UNDER THE OFFSHO RE EQUIPMENT SUPPLY CONTRACT SHALL GIVE SATISFACTORY PERFORMANCE. THE SAME RESPONSIBILITY HAS BEEN CAST ON THE APPELLANT IN ART. 6 OF THE OFFSHORE SUPPLY OF EQUIPMENT ALSO. (4) NOTWITHSTANDING THE AWARD OF CONTRACT UNDER TWO SEPARATE AGREEMENTS, THE CONTRACTOR (APPELLANT) SHA LL ACHIEVE SUCCESSFUL COMPLETION OF THE PROJECT UNDER BOTH CONTRACTS AND SUCCESSFUL TAKING OVER THE PROJECT BY PGCIL. ' SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 36 6. THE CIT(A) HELD THAT IT WAS CLEAR FROM THE FOREG OING THAT THE TWO CONTRACTS WERE NOT INDEPENDENT OF EACH OTHE R AS CLAIMED BY THE ASSESSEE, THAT THERE WAS INTERRELATI ON AND INTER-DEPENDENCE BETWEEN THE TWO AGREEMENTS AND THA T ONE COULD NOT EXIST WITHOUT THE OTHER. THUS, THE CI T(A) CONCLUDED THAT THOUGH THERE WERE TWO AGREEMENTS, IN FACT, IT WAS A COMPOSITE CONTRACT FOR SUPPLY OF EQUIPMENT AS WELL AS EXECUTION, ERECTION AND INSTALLATION OF EQU IPMENT IN INDIA. HE FURTHER OBSERVED THAT A COLOURABLE DEVICE HAD BEEN ADOPTED BY THE ASSESSEE TO CONCEAL ITS REAL TA X LIABILITY. THE SUPPLY OF OFFSHORE EQUIPMENT WAS INEXTRICABLY LINKED WITH THE OPERATIONS TO BE CARRI ED IN INDIA. HE, THEREFORE, HELD THAT THE DECISION OF THE AAR IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES CO . LTD., IN RE (SUPRA) WAS APPLICABLE TO THE FACTS OF THE CASE. APPLYING ART. 7 OF THE DTAA, THE CIT(A) HELD THAT T HE INCOME FROM THE OFFSHORE SALE OF GOODS COULD BE DEE MED TO BE ACCRUED TO ASSESSEE IN INDIA AND WAS TAXABLE IN INDIA IN TERMS OF S. 9(1)(I) OF THE ACT. THE COMPUTATION OF INCOME OF THE ASSESSEE AT RS. 1,05,48,950 MADE BY THE AO A S WELL AS THE LEVY OF INTEREST UNDER SS. 234B AND 234 C BY THE AO WAS ALSO UPHELD. RESULTANTLY, THE APPEAL FIL ED BY THE ASSESSEE WAS DISMISSED. THE FINDINGS OF THE HIGH COURT WERE AS UNDER- 28. AS REGARDS THE PAYMENT FOR THE PERFORMANCE OF THE ACTIVITIES WITHIN INDIA, THE CONTRACT PRICE AGGREGA TING TO INR 59982,160 PLUS US DOLLARS 88,400 WAS SPECIFICAL LY AND SEPARATELY FIXED BY ART. ( 2) OF THE CONTRACT TITLED 'CONTRACT PRICE IN TERMS OF PAYMENT'. THIS CONSIDER ATION WAS SEPARATE FROM THE CONSIDERATION FOR THE SUPPLY OF EQUIPMENT AND THERE APPEARS TO BE NO JUSTIFICATION TO INTERMINGLE THE TWO. THE CONSIDERATION FOR THE OFFS HORE SUPPLY OF EQUIPMENT, IT IS REPEATED AT THE RISK OF REPETITION, ACCRUED WHEN THE GOODS WERE SOLD. THE PERFORMANCE O F DUTIES AS ENVISAGED IN THE SECOND CONTRACT, VIZ., T HE ERECTION CONTRACT, BY NO STRETCH OF IMAGINATION CAN BE CONCEIVED TO POSTPONE THE TRANSFER OF PROPERTY UNDE R PARA 31.2 OF THE AGREEMENT, WHICH PROPERTY PASSED ON TO THE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 37 BUYER SIMULTANEOUSLY WITH THE 'LOADING ON TO THE MO DE OF TRANSPORT TO BE USED TO CONVEY THE PLANT AND EQUIPM ENT FROM THE COUNTRY ORIGIN TO THE COUNTRY OF IMPORT'. ALTHOUGH THE ENTIRE CONSIDERATION WAS NOT PAID ON SHIPMENT O F EQUIPMENT, BUT NON-PAYMENT OF A PART OF THE PRICE C OULD NOT PREVENT THE TRANSFER OF EQUIPMENT. THE PASSING OF THE PROPERTY TO THE PURCHASER, AS RIGHTLY HELD BY THE T RIBUNAL HAD, NOTHING TO DO WITH THE PAYMENT OF THE ENTIRE P RICE OF THE EQUIPMENT. THE PASSING OF THE PROPERTY TO THE PURCHASER, AS RIGHTLY HELD BY THE TRIBUNAL HAD, NOT HING TO DO WITH THE PAYMENT OF THE ENTIRE PRICE OF THE EQUI PMENT TO THE SELLER. EVEN OTHERWISE A SUBSTANTIAL AMOUNT IN THIS CASE WAS PAID TO THE SELLER OUTSIDE INDIA AND THE T RIBUNAL OBSERVED THAT FOR THE UNPAID PRICE THE PURCHASER CO ULD HAVE RESORTED TO THE PROVISIONS OF S. 46 OF THE SALE OF GOODS ACT, WHICH READ AS UNDER: (1) SUBJECT TO THE PROVISIONS OF THIS ACT AND OF ANY LAW FOR THE TIME BEING IN FORCE, NOTWITHSTANDING THAT THE PROPERTY IN THE GOODS MAY HAVE PASSED TO THE BUYER, THE UNPAID SELLER OF GOOD S, AS SUCH HAS BY IMPLICATION OF LAW- (A) A LIEN ON THE GOODS FOR THE PRICE WHI LE HE IS IN POSSESSION OF THEM; (B) IN CASE OF THE INSOLVENCY OF THE BUYER, RIGHT OF STOPPING THE GOODS IN TRANSIT AFTER HE HAS PARTED WITH THE POSSE SSION OF THEM; (E) A RIGHT OF RESALE AS LIMITED BY THIS AC T. (2) WHERE THE PROPERTY IN GOODS HAS NOT PASSED TO THE BUYER, THE UNPAID SELLER HAS, IN ADDITION TO HIS OT HER REMEDIES, A RIGHT OF WITHHOLDING DELIVERY SIMILAR T O AND CO- EXTENSIVE WITH HIS RIGHTS OF LIEN AND STOPPAGE IN T RANSIT WHERE THE PROPERTY HAS PASSED TO THE BUYER. ' 29. THUS, THE MERE FACT THAT 15 PER CENT OF THE PAYMENT WAS TO BE RETAINED BY THE PGCIL TO BE PAID 30 DAYS AFTER OPERATIONAL ACCEPTANCE ON ERECTION AND COMPLETION O F THE SYSTEM CANNOT BE CONSTRUED TO MEAN THAT THE TITLE I N THE GOODS DID NOT PASS TO THE BUYER IN THE COUNTRY OF ORIGIN. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 38 30. THEN AGAIN, IN OUR CONSIDERED OPINION, UNDUE IMPORTANCE CANNOT BE ATTACHED TO THE FACT THAT THE AGREEMENT IMPOSED ON THE ASSESSEE-COMPANY THE OBLIGATION TO HAND OVER THE EQUIPMENT FUNCTIONALLY COMPLETED. THIS OBLIGATION HAS BEEN RIGHTLY CONSTRU ED BY THE TRIBUNAL TO BE IN THE NATURE OF A TRADE WARRANT Y AND THE TRIBUNAL IN THIS REGARD HAS RIGHTLY OBSERVED AS FOLLOWS: '14.1 BUT IN THE CASE IN HAND, THERE IS NO POWER EI THER WITH THE SELLER (THE ASSESSEE) OR WITH BUYER (PGCIL ) TO REPUDIATE THE CONTRACT. WARRANTY IS TO GIVE EQUIPME NT AFTER ERECTION IN THE RUNNING CONDITION. THE NORMAL TRADE WARRANTEES COULD NOT BE MIXED UP AND TAKEN AS A RIG HT OF REPUDIATION OR RIGHT OF DISPOSAL OF EQUIPMENT WITH THE BUYER OR WITH THE SELLER. THE PROPERTY IN EQUIPMENT HAVING BEEN PASSED ON HANDING OVER THE EQUIPMENT TO THE SH IP WITH THE DELIVERY OF DOCUMENTS TO THE BANK UNDER IRREVOCABLE LETTER OF CREDIT, THE TERMS REFERRED TO ABOVE COULD NOT AFFECT THE PASSING OF THE PROPERTY. THUS WHEN GOODS WERE TRANSFERRED OUTSIDE INDIA, THE TAXABLE INCOME ACCRUED OUTSIDE INDIA. IT BEING NOT ATTRIBUTABLE TO ANY OPERATION CARRIED OUT IN INDIA, NO PORTION OF THE SAME WAS TAXABLE IN INDIA. ' 31. WE MAY NOTE ALSO THAT THE BUYER'S RIGHT TO EXAM INE AND REPUDIATE THE GOODS IN LAW DOES NOT BY ITSELF I NDICATE THAT THE PROPERTY IN THE GOODS HAD NOT PASSED, AS I S EVIDENT FROM THE PROVISIONS OF S. 59 OF THE SALE OF GOODS ACT, WHICH READ AS UNDER: '59. REMEDY FOR BREACH OF WARRANTY-(1) WHERE THERE IS A BREACH OF WARRANTY BY THE SELLER, OR WHERE THE BUYE R ELECTS OR IS COMPELLED TO TREAT ANY BREACH OF A CONDITION ON THE PART OF THE SELLER AS A BREACH OF WARRANTY, THE BUY ER IS NOT BY REASON ONLY OF SUCH BREACH OF WARRANTY ENTITLED TO REJECT THE GOODS, BUT HE MAY- (A) SET UP AGAINST THE SELLER THE BREACH OF WARRANT Y IN DIMINUTION OR EXTINCTION OF THE PRICE; OR (B) SUE THE SELLER FOR DAMAGES FOR BREACH OF WARRAN TY. (2) THE FACT THAT A BUYER HAS SET UP A BREACH OF WA RRANTY IN DIMINUTION OR EXTINCTION OF THE PRICE DOES NOT P REVENT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 39 HIM FROM SUING FOR THE SAME BREACH OF WARRANTY IF H E HAS SUFFERED FURTHER DAMAGE. ' 32. THE AFORESAID POSITION WAS ACCEPTED IN THE CASE OF KWEITEK CHAO VS. BRITISH TRADERS & SHIPPERS LTD 2 Q.B. 459 (QB) WHICH WAS DULY APPROVED BY THE SUPREME COURT IN THE CASE OF MAHABIR COMMERCIAL CO. LTD (SUPRA) W HEREIN IT WAS HELD AS UNDER: ' ..... WHERE IN PURSUANCE OF THE CONTRACT THE SELL ER DELIVERS THE GOODS TO THE BUYER OR TO A CARRIER OR OTHER BAI LEE WHETHER NAMED BY THE BUYER OR NOT FOR THE PURPOSES OF TRANSMISSION TO THE BUYER AND DOES NOT RESERVE THE RIGHT OF DISPOSAL HE IS DEEMED TO HAVE UNCONDITIONALLY APPROPRIATED THE GOODS TO THE CONTRACT. THE BUYER'S ASSENT TO THE PASSING OF THE PROPERTY IN THE SAID CIRCUMST ANCES IS IMPLIED AND THAT WHEN THE SELLER DISPATCHES THE GOO DS AND DELIVERS THEM TO THE COMMON CARRIER FOR PURPOSES OF TRANSIT TO THE BUYER, THE COMMON CARRIER NOT ONLY RECEIVES THE GOODS AS AGENT OF THE BUYER BUT ALSO ASSENTS TO THE APPROPRIATION MADE BY THE SELLER. WHERE HOWEVER THE INTENTION IS CLEARLY INDICATED AND THE CARRIER ASSE NTS IT IS IMMATERIAL BY WHAT DOCUMENT THE CONSIGNMENT IS EFFE CTED IN CASES WHERE THE SELLER BEARS THE FREIGHT FOR THE TRANSMISSION OF THE GOODS FREE OF COST TO THE BUYER , THE PROPERTY IN THE GOODS PASSES TO THE BUYER AS SOON AS THEY ARE SENT TO THE CARRIER, THOUGH THERE MAY BE A PROVISION THAT THEY ARE TO BE PAID FOR BY THE BUYER ON BEHALF OF THE SELLER AFTER THE ARRIVAL OF THE GOODS . BUT WHERE HOWEVER THE SELLER EXERCISES A RIGHT OF DISPO SAL OR WHERE HE AGREES TO DELIVER THE GOODS AT THEIR DESTI NATION, THE CARRIER IS THE SELLER'S AGENT AND THE DELIVERY IS NOT A FINAL APPROPRIATION. THE INTENTION OF THE PARTIES I S THEREFORE ONE OF THE IMPORTANT ELEMENTS IN DETERMINING THE SI TUS WHERE THE PROPERTY PASSES TO THE BUYER IN PURSUANCE OF THE CONTRACT. THE DECIDED CASES ARE OF LITTLE HELP AND ARE ONLY ILLUSTRATIVE OF THE PRINCIPLES WHICH ARE APPLI CABLE FOR DETERMINING WHEN THE GOODS ARE UNCONDITIONALLY APPROPRIATED TO THE CONTRACT. IN THE CASE OF TRANSA CTIONS OF SALE OF GOODS BETWEEN THE BUYER AND SELLER LIVING I N TWO SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 40 DIFFERENT COUNTRIES, THE CONTRACT MAY ENVISAGE, THE SELLER SENDING THE GOODS THROUGH A CARRIER AND THE PAYMENT BEING MADE EITHER AT THAT PLACE OR AT THE PLACE WHE RE THE BUYER RESIDES. IN SUCH A TRANSACTION THE BANKS HAVE COME TO PLAY AN IMPORTANT PART AND THE BANKERS' COMMERCI AL CREDIT SYSTEM FACILITATES MERCHANTS DOMICILED IN DI FFERENT COUNTRIES AND ASSURES PAYMENT TO THE SELLER ON THE ONE HAND AND DELIVERY OF THE GOODS CONTRACTED FOR TO TH E BUYER ON THE OTHER. THIS IS DONE BY MEANS OF WHAT ARE KNO WN AS LETTERS OF CREDIT WHICH UNDER THE TERMS OF THE CONT RACT THE SELLER MAY INSIST ON THE BUYER TO PROVIDE FOR IN A BANK DOING BUSINESS IN THE PLACE OF THE SELLER'S DOMICIL E . ... ' 35. IN THE FINAL ANALYSIS WE HAVE NO HESITATION IN HOLDING HAT VIEWED FROM ANY ANGLE, THE FACT SITUATI ON IN THE INSTANT CASE IS ALMOST IDENTICAL TO THAT IN THE ' CASE OF ISHIKAWAJMA (SUPRA) AND THE LAW AS ENUNCIATED BY TH E SUPREME COURT IN THE SAID CASE WILL SQUARELY APPLY TO THE FACTS OF THE PRESENT CASE. IF AT ALL THERE IS A DIF FERENCE, THE FACTS IN THE PRESENT CASE STAND ON A BETTER FOOTING THAN IN ISHIKAWAJMA (SUPRA). IN ISHIKAWAJMA (SUPRA) THERE W AS A TURNKEY CONTRACT WITH FOUR SEPARATE COMPONENT ACTIV ITIES, VIZ., OFFSHORE SUPPLY, OFFSHORE SERVICES, ONSHORE S UPPLY AND ONSHORE SERVICES AWARDED BY PETRONET LNG TO A CONSORTIUM OF COMPANIES LED BY THE JAPANESE COMPANY ISHIKAWAJMA-HARIMA. IN THE INSTANT CASE THERE ARE T WO SEPARATE CONTRACTS I.E., OFFSHORE SUPPLY AND THE ON SHORE SERVICES CONTRACT AWARDED BY THE PGCIL TO THE RESPO NDENT- ASSESSEE. AS IN THE SAID CASE THE CONSIDERATIONS FO R OFFSHORE CONTRACT AND ONSHORE CONTRACT ARE SEPARATE AND DISTINCT FROM EACH OTHER, IN AS MUCH AS THE CONSIDE RATION IN THE CASE OF OFFSHORE SUPPLY CONTRACT WAS RECEIVE D OUTSIDE INDIA THROUGH THE MECHANISM OF A LETTER OF CREDIT IN FOREIGN EXCHANGE WHILE THE CONSIDERATION FOR ONSHOR E CONTRACT WAS RECEIVED, FOR THE MOST IN INDIAN RUPEE S WITH A NOMINAL AMOUNT IN FOREIGN CURRENCY, THE LATTER BEIN G FOR TRAINING CHARGES. THE TITLE TO THE EQUIPMENT SUPPLI ED FROM OUTSIDE INDIA WAS TRANSFERRED IN FAVOUR OF PGCIL OU TSIDE INDIA. IN THE CASE OF ISHIKAWAJMA (SUPRA), IT WAS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 41 TRANSFERRED ON THE HIGH SEAS BUT IN THE INSTANT CAS E, IT WAS TRANSFERRED IN THE COUNTRY OF ORIGIN ITSELF AS SOON AS THE GOODS WERE LOADED UPON THE MODE OF TRANSFER TO BE U SED TO CONVEY THE PLANT AND MACHINERY, I.E., THE SHIPPING VESSEL, EVEN PRIOR TO THE GOODS REACHING THE HIGH SEAS. ONC E THE TITLE WAS TRANSFERRED IN THE AFORESAID MANNER, THER E WAS NO PROVISION EITHER IN THE AGREEMENT OR IN LAW PROV IDING A RECOURSE TO THE RESPONDENTS TO TAKE BACK THE TITLE. 55. LD. COUNSEL SUBMITTED THAT THE ISSUE OF COMPOSITE C ONTRACTS HAS BEEN ANALYSED THREADBARE BY HONBLE SUPREME COU RT, AS WELL AS THE JURISDICTIONAL HIGH COURT AND AS SUCH WHAT T HE REVENUE IS NOW CONTENDING IS REINVENTING THE WHEEL. HE SUBMITT ED THAT THE LEGAL POSITION IS WELL SETTLED. HE POINTED OUT THAT THE ABOVE POSITION HAS CONSISTENTLY BEEN FOLLOWED EVEN BY THE AUTHORIT Y FOR ADVANCE RULINGS (AAR). 56. LD. COUNSEL RELIED ON A DECISION DELIVERED BY AAR IN THE CASE OF JSC FOREIGN ECONOMIC ASSOCIATION (322 ITR 409) ( AAR). HE SUBMITTED THAT IN THIS CASE THE AAR CONSIDERED THE ISSUE ON MORE OR LESS IDENTICAL CIRCUMSTANCES AND FACTS. TO HIGHL IGHT THE CONTENTIONS OF AAR CERTAIN RELEVANT SECTIONS OF THE SAID RULING HAS BEEN REFERRED TO WHICH IS REPRODUCED HEREUNDER FOR REFERENCE. 57. THE FACTS AS NOTED BY AAR IN THAT CASE ARE AS UNDE R- THE APPLICANT IS A COMPANY INCORPORATED IN RUSSIA AND ALSO IS TAX RESIDENT OF THAT COUNTRY. IT IS ONE OF THE LEADING COMPANIES IN THE FIELD OF POWER PROJECT CONSTRUCTIO N AND EXPORT OF ELECTRIC POWER AND IS FURTHER ENGAGED IN THE BUSINE SS OF CONSTRUCTION AND COMMISSIONING OF POWER PROJECT. IN RESPONSE TO THE TENDER FLOATED BY THE NATIONAL THERMAL POWER CORPORATION (NTPC), T HE APPLICANT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 42 SUCCESSFULLY BID THE TENDER AND THREE SEPARATE FOLL OWING CONTRACTS ARE ENTERED INTO WITH THE NTPC : (1) OFFSHORE SUPPLY CONTRACT- CONTRACT NO. CS-9558- 102-2-FC- COA-4520 DT. 25TH MARCH, 2005. ('OFFSHORE SUPPLY CO NTRACT NO. 4520') FOR DESIGN, ENGINEERING, MANUFACTURE, INSPEC TION AND TESTING AT SUPPLIER'S WORKS, PACKING, FORWARDING AN D DISPATCH FROM MANUFACTURER'S WORKS TO THE PORT OF DISEMBARKA TION IN INDIA OF ALL OFFSHORE PLANT AND EQUIPMENT INCLUDING MANDA TORY SPARES. (2) ONSHORE SUPPLY CONTRACT-CONTRACT NO. CS-9558-10 2-2-SC- COA-4521 DT. 25TH MARCH, 2005. (3) ONSHORE SERVICES CONTRACT-CONTRACT NO. CS-9558- 102-2-TC- COA-4522 DT. 25TH MARCH, 2005. IN THIS CASE WE ARE CONCERNED ONLY WITH THE OFFSHORE SUPPLY CONTRACT NO. 4520 AND THEREFORE, IT IS UNNECESSARY TO DELVE INTO OTHER CONTRACTS. THE V ALUE OF THE OFFSHORE SUPPLY CONTRACT IS US$ 391,121,452 (RS. 17,084,185,023) TO BE PAID IN FOREIGN CURRENCY IN E XECUTION OF OFFSHORE SUPPLY CONTRACT. ACCORDING TO THE APPLICAN T, THE TRANSACTION OF OFFSHORE PLANT AND EQUIPMENT ETC. WA S COMPLETED OUTSIDE INDIA AND THAT THE PROPERTY IN GOODS PASSED TO NTPC OUTSIDE INDIA AND NO PORTION OF INCOME FROM THE OFF SHORE SUPPLY ACCRUES OR ARISES TO THE APPLICANT IN INDIA OR RECE IVED FROM THE NTPC WITHIN INDIA AND THEREFORE IT IS NOT LIABLE TO PAY ANY TAX UNDER THE IT ACT. (1) THE AUTHORITY MADE THE FOLLOWING OBSERVATIONS WHILE ADJUDICATING ON THE ISSUE- (2) THE APPLICANT BANKS ITS SUPPORT MAINLY ON THE JUDGMENT OF THE SUPREME COURT IN ISHIKAWAJMA (SUPRA) AND ALSO THE RULING OF THIS AUTHORITY IN HYOSUNG CORPORATION, (2009) 314 ITR 343 (AAR). THE HON'BLE SUPREME COURT IN ISHIKAWAJMA'S CASE (SUPRA) HAS HELD AS FOLLOWS: (1) THAT ONLY SUCH PART OF THE INCOME, AS IS ATTRIBUTAB LE TO THE OPERATIONS CARRIED OUT IN INDIA CAN BE TAXED IN INDIA. (2) SINCE ALL PARTS OF THE TRANSACTION IN QUESTION, I.E . THE TRANSFER OF PROPERTY IN GOODS AS WELL AS THE PAYMEN T, WERE CARRIED ON OUTSIDE THE INDIAN SOIL, THE TRANSA CTION SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 43 COULD NOT HAVE BEEN TAXED IN INDIA. (3) THE PRINCIPLE OF APPORTIONMENT, WHEREIN THE TERRITO RIAL JURISDICTION OF A PARTICULAR STATE DETERMINES ITS CAPACITY TO TAX AN EVENT, HAS TO BE FOLLOWED (4) THE FACT THAT THE CONTRACT WAS SIGNED IN INDIA IS O F NO MATERIAL CONSEQUENCE, SINCE AIL ACTIVITIES IN CONNE CTION WITH THE OFFSHORE SUPPLY WERE OUTSIDE INDIA, AND THEREFORE CANNOT BE DEEMED TO ACCRUE OR ARISE IN TH E COUNTRY. THIS AUTHORITY HAD AN OCCASION TO DEAL WITH SUCH TY PE OF CASE IN HYOSUNG CORPORATIONS CASE (SUPRA) AND THE R ELEVANT PASSAGE IS EXTRACTED BELOW: '10.1 THE ABOVE EVENTS WOULD INDICATE THAT THE TITL E TO GOODS STOOD TRANSFERRED TO POWER GRID OUTSIDE THE T ERRITORY OF INDIA. THE TITLE PASSED ON TO POWER GRID WELL BE FORE THE GOODS REACHED THE INDIAN PORT OR THE TERRITORIAL WA TERS OF INDIA. THE BILL OF LADING CONTAINS THE NAME OF POWE R GRID AS THE CONSIGNEE. THE DOCUMENTS WERE PRESENTED TO THE APPLICANT'S BANKER FOR NEGOTIATION SOON AFTER THE G OODS WERE SHIPPED FOB AND BILL OF LADING WAS ISSUED. TWO DAYS LATER, THE AMOUNT EQUIVALENT TO 70 PER CENT OF THE VALUE W AS TRANSFERRED TO THE APPLICANT'S ACCOUNT ON THE SAME DAY. THIS MODUS OPERANDI IS IN ACCORDANCE WITH PARA 2.4.4 OF THE LOA. THE BILL OF ENTRY WHICH WAS PREPARED ABOUT 15 DAYS AFTER SHIPMENT ALSO SHOWS POWER GRID AS THE IMPORTE R. EVEN IN THE INSURANCE POLICY TAKEN BY THE APPLICANT POWER GRID HAS BEEN NAMED AS THE BENEFICIARY. THE CUSTOMS DUTY WAS PAID BY OR ON BEH ALF OF POWER GRID BEFORE THE GOODS WERE TAKEN DELIVERY. TH ESE FACTS UNERRINGLY LEAD TO THE CONCLUSION THAT IN ACC ORDANCE WITH THE CONTRACTUAL STIPULATIONS, THE TRANSFER OF TITLE TO THE EQUIPMEN T AND MATERIALS TOOK PLACE WHILE THE GOODS WERE OUTSIDE T HE TERRITORY OF INDIA. THE EVENTS MATCH WITH THE NOMEN CLATURE OFFSHORE SUPPLY CONTRACT' AND THE EXPRESS STIPULATI ON THAT THE TRANSFER OF TITLE TO EQUIPMENT AND MATERIALS SHALL PASS ON TO POWER GRID AT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 44 FOB PORT OF SHIPMENT WITH THE NEGOTIATION OF SHIPPI NG DOCUMENTS. IT IS WORTHY OF NOTE THAT THE APPLICANT HAS NOT RESERVED THE RIGHT OF DISPOSAL DURING TRANSIT OR OT HERWISE. THE FACT THAT THE APPLICANT IS NOT RELIEVED OF THE RESPONSIBILITY FOR LOSS OR DAMA GE TO THE GOODS UNTIL THE FINAL TAKE OVER AND ACCEPTANCE OF T HE GOODS AND THAT THE GOODS ARE LEFT IN THE CUSTODY OF THE A PPLICANT TILL THE STAGE OF ERECTION AND INSTALLATION ARE NOT INCONSISTENT WITH THE POWER GRID HAVING ALREADY BECOME THE OWNER OF EQUIPMENT WELL BEFORE THE GOODS REACHED THE INDIAN PORT. THESE ARE SPECIAL SAFEGUARDS WHICH POWER GRID WANTE D TO HAVE KEEPING IN VIEW THE OPERATIONAL EXIGENCIES AND OVERALL OBLIGATIONS OF THE APPLICANT UNDER THE CONTRACT. IT IS TRITE THAT RISK NEED NOT PASS SIMULTANEOUSLY WITH THE TITLE TO GOODS. THERE COULD BE SPECIAL STIPULATION BETWEEN THE PART IES IN THIS BEHALF. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE APPLICANT, THE APPLICANT, BY TAKING CARE OF GOO DS AT THE SITE IN INDIA TILL INSTALLATION, ASSUMED THE CAPACI TY OF A BAILEE. AS REGARDS THE STIPULATION THAT THE SUPPLIE R SHALL CONTINUE TO BE RESPONSIBLE FOR THE QUALITY AND PERF ORMANCE OF THE GOODS UNTIL THE FINAL TAKE OVER ON TESTING O F THE EQUIPMENT, IT CANNOT BE CONSTRUED TO BE A CONDITION WHICH POSTPONES THE TRANSFER OF TITLE TO THE GOODS TILL T HAT TIME. IT IS MORE IN THE NATURE OF WARRANTY PROVISION IN THE CON TRACT. ' FURTHER, AFTER REFERRING TO THE DECISION OF SUPREME COURT IN ISHIKAWAJMA (SUPRA), IT OBSERVED: '10.7 IT MAY BE NOTICED THAT THE CLAUSES IN THE CON TRACT CONSIDERED BY THE SUPREME COURT ALSO CONTAINED AN OBLIGATION ON THE PART OF THE CONTRACTOR TO RETAIN CUSTODY AND CONTROL OF EQUIPMENT AND TO TAKE DUE CARE OF EQUIPM ENT AND TO TAKE DUE CARE THEREOF UNTIL PROVISIONAL ACCEPTA NCE OF THE WORK. MOREOVER, INSTALLATION OF EQUIPMENT WAS ALSO TO BE CARRIED OUT BY THE CONTRACTOR. IN SPITE OF THESE FE ATURES, THE SUPREME COURT CAME TO THE CONCLUSION THAT THE OFFSH ORE SUPPLY OF GOODS WHICH TOOK PLACE OUTSIDE INDIA DOES NOT GIVE RISE TO ANY TAXABLE INCOME IN INDIA UNDER THE PROVISIONS OF THE ACT. THE APPLICANT'S CASE EVEN STANDS ON A B ETTER SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 45 FOOTING INASMUCH THERE IS A SEPARATE AND EXCLUSIVE CONTRACT WITH THE APPLICANT FOR THE SUPPLY OF GOODS OFFSHORE . ' 6. THE FACTS OF THE PRESENT CASE AND THE SALIENT FE ATURES OF CONTRACT ARE ALMOST THE SAME AND THE SAID RULING WH ICH FOLLOWED THE DECISION OF SUPREME COURT IN ISHIKAWAJ MA'S CASE (SUPRA) FULLY SUPPORTS THE APPLICANT'S CASE. I N THIS CASE, THE BILL OF LADING FILED BY THE APPLICANT SHOWS THA T THE PORT OF LOADING IS ILYICHEVSK, IN UKRAINE AND THE PORT O F DISCHARGE AT HALDIA IN INDIA. THE DESCRIPTION OF CARGO IS ALS O INDICATED THEREIN. IN ANOTHER BILL OF LADING THE PORT OF LOAD ING IS NOVOROSSIYSK IN RUSSIA AND PORT OF DISCHARGE AT HAL DIA IN INDIA. THE COPIES OF BILL OF ENTRY ARE ALSO FILED B Y THE APPLICANT. THESE GO TO SHOW THAT THE CONSIGNEE/IMPO RTER IS NTPC. THE COMMERCIAL INVOICE HAS ALSO BEEN FILED. I T SHOWS THAT THE INVOICE WAS RAISED A FEW DAYS AFTER SHIPME NT AND ALL THE MATERIAL DOCUMENTS INCLUDING SIGHT DRAFT, B ILL OF LADING, FREIGHT PAID MEMO, INSURANCE CERTIFICATE WE RE ENCLOSED. THE TERMS OF CONTRACT AND THE ABOVE DOCUMENTS GO TO SHOW THAT THE TRANSACTION OF OFFSHORE PLANT AND EQUIPMEN T WAS COMPLETED IN THE HIGH SEAS AND THE PROPERTY IN GOOD S PASSED TO THE NTPC OUTSIDE INDIA. AS PER CL. 31 OF GENERAL CONDITIONS OF CONTRACT THE OWNERSHIP OF PLANT AND EQUIPMENT SUPPLIED UNDER THE OWNERSHIP CONTRACT NO. 4520 SHALL PASS ON TO NTPC UPON LADING ON THE SHIP AND U PON ENDORSEMENT OF THE DISPATCH DOCUMENTS IN FAVOUR OF THE NTPC. THE CONSIDERATION OF SALE OF OFFSHORE WAS REM ITTED TO THE APPLICANT DIRECTLY OUTSIDE INDIA BY MEANS OF ESTABLISHING LLC. HENCE NO PORTION OF CONSIDERATION FOR OFFSHORE SUPPLY WAS RECEIVED OR COULD BE DEEMED TO HAVE BEEN RECEIVED IN INDIA AND THEREFORE NOT LIABLE TO TAX. FURTHER NO INCOME ACCRUES OR ARISES IN INDIA TO THE APPLICANT ATTRACTING INCOME-TAX. 58. LD. COUNSEL PLACED RELIANCE UPON DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF DIT VS. ERICSSON AB (343 ITR 470) AND SUBMITTED THAT OBSERVATIONS MADE BY HONBLE HIGH CO URT HAVE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 46 BEARING ON THE ISSUE AT HAND. HE SUBMITTED THAT HON BLE COURT HELD AS UNDER: THE PLACE OF NEGOTIATION. THE PLACE OF SIGNING OF A GREEMENT. OR FORMAL ACCEPTANCE THEREOF OR OVERALL RESPONSIBILITY OF THE ASSESSEE ARE IRRELEVANT CIRCUMSTANCES. SINCE THE TRANSACTION REL ATES TO THE SALE OF GOODS. THE RELEVANT FACTOR AND DETERMINATIVE FACTOR WOULD BE AS TO WHERE THE PROPERTY IN THE GOODS PASSES. IN THE PRES ENT CASE. THE FINDING IS THAT PROPERTY PASSED ON THE HIGH SEAS. C ONCEDEDLV. THE GOODS WERE MANUFACTURED OUTSIDE INDIA AND EVEN THE SALE HAS TAKEN PLACE OUTSIDE INDIA. ONCE THAT FACT IS ESTABLISHED. EVEN IN THOSE CASES WHERE IT IS ONE COMPOSITE CONTRACT (THOUGH IT IS NO T FOUND TO BE SO IN THE PRESENT CASE) SUPPLY HAS TO BE SEGREGATED FROM THE INSTALLATION AND ONLY THEN WOULD QUESTION OF APPORTIONMENT ARISE HAVING REGARD TO THE EXPRESS LANGUAGE OF S. 9(1)0). WHICH MAKES T HE INCOME TAXABLE IN INDIA TO THE EXTENT IT ARISES IN INDIA. MERELY B ECAUSE THE ACTIVITIES, NAMELY, THE SUPPLY ACTIVITY AND THE INSTALLATION AC TIVITY ARE TO BE CARRIED OUT BY TWO SEPARATE COMPANIES WHO ARE PART OF THE SAME GROUP CANNOT RESULT IN THE TRANSACTION BEING TREATE D AS ONE COMPOSITE TRANSACTION THIS IS MORE SO WHEN BOTH THE ENTITIES PERFORM THEIR OWN INDEPENDENT OBLIGATIONS, RECEIVE APPROPRIATE SEPARA TE REMUNERATION AND, AS FOUND BY THE TRIBUNAL, ARE NOT FINANCIALLY OR TECHNICALLY DEPENDENT ON EACH OTHER. FURTHER, ALL OF THEM ARE A SSESSED IN RESPECT OF THE INCOME THAT HAS ACCRUED TO THEM AND EVEN THE REVENUE HAS, IN THE COURSE OF ITS ARGUMENTS, ACCEPTED THAT IT IS NOT THEIR CASE THAT ONLY ONE ASSESSMENT HAS TO BE MADE TREATING THE TRA NSACTION AS ONE WORKS CONTRACT. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 47 59. LD. COUNSEL SUBMITTED THAT ON THE ISSUE OF WHETHER TRANSFER IN FAVOUR OF PURCHASER HAPPENS ONLY AFTER THE ACCEPTAN CE TEST IS COMPLETE HAS BEEN DEALT BY HON'BLE DELHI HIGH COURT IN THE CASE OF DIT VS. NOKIA NETWORKS OY(358 ITR 259) AS UNDER- THE TERMS OF CONTRACT MAKE IT CLEAR THAT ACCEPTANC E TEST IS NOT A MATERIAL EVENT FOR PASSING OF THE TITLE AND RISK IN THE EQUIPMENT SUPPLIED IT IS BECAUSE OF THE REASON THAT EVEN IF SUCH TEST FOUND OUT THAT THE SYSTEM DID NOT CONFORM TO THE CONTRACTUAL PARAMETERS, AS PER ARTICLE 21.1 OF THE SUPPLY CONTRACT, THE ONLY CONSEQUENCE WOULD BE THAT THE CE LLULAR OPERATOR WOULD BE ENTITLED TO CALL UPON THE ASSESSE E TO CURE THE DEFECT BY REPAIRING OR REPLACING THE DEFECTIVE PART. IF THERE WAS DELAY CAUSED DUE TO THE ACCEPTANCE TEST NOT BEI NG COMPLIED WITH, ARTICLE 19 OF THE SUPPLY CONTRACT PROVIDED FOR DAMAGES. THUS, THE TAXABLE EVENT TOOK PLACE OUTSIDE INDIA WITH THE PASSING OF THE PROPERTY FROM SELLER TO BUY ER AND ACCEPTANCE TEST WAS NOT DETERMINATIVE OF THIS FACTO R. 60. HE SUBMITTED THAT IN NOKIA (SUPRA) HON'BLE DELHI H IGH COURT OBSERVED AS UNDER:- THUS THE PLACES OF NEGOTIATION. THE PLACE OF SIGNIN G OF AGREEMENT OR FORMAL ACCEPTANCE THEREOF OR OVERALL RESPONSIBILITY OF THE ASSESSEE ARE IRRELEVANT CIRCU MSTANCES. SINCE THE TRANSACTION RELATES TO THE SALE OF GOODS. THE RELEVANT FACTOR AND DETERMINATIVE FACTOR WOULD BE AS TO WHER E THE PROPERTY IN THE GOODS PASSES. IN THE PRESENT CASE, THE FINDING IS THAT PROPERTY PASSED ON THE HIGH SEAS. IN THE PR ESENT CASE, THE GOODS WERE MANUFACTURED OUTSIDE INDIA AND EVEN THE SALE HAS TAKEN PLACE OUTSIDE INDIA. ONCE THAT F ACT IS ESTABLISHED, EVEN IN THOSE CASES WHERE IT IS ONE CO MPOSITE CONTRACT (THOUGH IT IS NOT FOUND TO BE SO IN THE PR ESENT CASE) SUPPLY HAS TO BE SEGREGATED FROM THE INSTALLATION A ND ONLY THEN WOULD QUESTION OF APPORTIONMENT ARISE HAVING REGARD TO THE EXPRESSED LANGUAGE OF S. 9 (1) (I) OF SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 48 THE ACT, WHICH MAKES THE INCOME TAXABLE IN INDIA TO THE EXTENT IT ARISES IN INDIA. 61. HE SUBMITTED THAT, FROM WELL SETTLED LEGAL POSITIO N, SUBMISSIONS ADVANCED BY REVENUE TO RAISE ISSUES OF PLACE OF SIGNING OF CONTRACT, PLACE OF NEGOTIATION, ACCEPTAN CE TESTS ETC. HAVE NO LEGS TO STAND ON. IT IS APPARENT THAT NO PROFITS ARISING FROM OFF SHORE SUPPLIES COULD BE BROUGHT TO TAX IN INDIA IN THE PRESENT CASE. 62. ON THE ISSUE OF WHETHER ANY PORTION OF THE PROFITS FROM OFF SHORE SUPPLIES WAS TAXABLE IN INDIA IN TERMS OF SEC TION 9 READ WITH EXPLANATION 1 OF THE ACT, LD. COUNSEL IN REJOINDER SUBMITTED AS UNDER: 63. HE SUBMITTED THAT THE FUNDAMENTAL ISSUE WHICH REQU IRES CONSIDERATION OF THE HON'BLE TRIBUNAL IS, WHETHER T HE NON-RESIDENT ASSESSEE IN THE PRESENT CASE WAS TAXABLE IN INDIA I N RESPECT OF THE PROFITS, ARISING FROM OFF SHORE SUPPLIES. HE REFERR ED TO PROVISIONS OF SECTION 5 OF THE ACT DEFINING THE SCOPE OF TOTAL IN COME. SECTION 5(2) OF THE ACT PROVIDES AS UNDER- (2) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTA L INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WH ICH- (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDI A IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARI SE TO HIM IN INDIA DURING SUCH YEAR. 64. LD. COUNSEL SUBMITTED THAT, PROVISIONS OF SUB-SECT ION 2(A) OF SECTION 5 ARE NOT APPLICABLE ON THE FACTS OF THE CA SE, SINCE TITLE OF GOODS HAS BEEN TRANSFERRED OUTSIDE INDIA ON CFR BAS IS INCOTERMS 2000. THE PAYMENTS ALSO HAVE BEEN RECEIVED BY ASSES SEE OUTSIDE INDIA. HE THEN REFERRED TO THE PROVISIONS OF SUB-SE CTION 2(B) OF SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 49 SECTION 5, WHICH DEALS WITH THE ACCRUAL OF INCOME O R DEEMED ACCRUAL OF INCOME TO SUCH NON-RESIDENT ASSESSEE IN INDIA. L D. COUNSEL REFERRED TO SECTION 9 OF THE ACT WHICH DEALS WITH INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. HE SUBMITTED THAT PROVIS IONS OF SECTION 9(1) OF THE ACT PROVIDES FOR ALL INCOME ACCRUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, OR THROUGH OR FROM ANY PROPERT Y IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN IN DIA, OR THROUGH THE TRANSFER OF A CAPITAL ASSET SITUATE IN INDIA .. .. 65. LD. COUNSEL SUBMITTED THAT, INCOME DOES NOT ACCRUE S OR ARISES IN THE HANDS OF ASSESSEE THROUGH OR FROM ANY 'BUSIN ESS CONNECTION' IN INDIA. IT HAS BEEN SUBMITTED THAT, WHILE PASSING DRAFT ORDER, LD. AO DID NOT ANYWHERE HOLD THAT THERE EXISTED A BUSIN ESS CONNECTION OF ASSESSEE IN INDIA. HE SUBMITTED THAT AFTER HOLDI NG THAT THE CONTRACTS WERE COMPOSITE IN NATURE AND COULD NOT BE SPLIT UP, LD.AO PROCEEDED TO HOLD THE EXISTENCE OF A SUPERVIS ORY PE AND ATTRIBUTED INCOME TO SUCH PE WHICH HAS UPHELD BY DR P. 66. LD. COUNSEL THUS TRIED TO EMPHASIS THAT THERE IS N O SCOPE OF APPLICABILITY OF SECTION 9 OF THE ACT. HE SUBMITTED THAT AS PER SETTLED PRINCIPLE OF LAW, THAT IN ABSENCE OF ANY FINDING OF EXISTENCE OF A BUSINESS CONNECTION, ASSESSEE COULD NOT BE BROUGHT TO TAX IN INDIA. HE FURTHER SUBMITTED THAT, WITHOUT PREJUDICE, AND A SSUMING BUT NOT ADMITTING THAT THERE DID EXIST A 'BUSINESS CONNECTI ON' OF ASSESSEE IN INDIA, THE PRINCIPLE OF ATTRIBUTION WOULD IMMEDIATE LY BECOME APPLICABLE AS ENVISAGED IN EXPLANATION 1 AND 3 TO S ECTION 9(1) OF THE ACT. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 50 67. IT WAS SUBMITTED THAT, WHAT IS OF SEMINAL IMPORTAN CE AND CRUX OF THE ISSUE INVOLVED HEREIN IS THAT, THE ENTIRE EN DEAVOUR OF THE REVENUE IS TO BRING PORTION OF THE PROFITS ARISING FROM THE OFFSHORE SUPPLIES TO TAX IN INDIA. LD COUNSEL SUBMITTED THAT WHAT IS CRITICAL TO KEEP IN MIND IS, THE EVENT OF SUPPLY OF BTG EQUI PMENT. IT IS AN ADMITTED FACTUAL POSITION THAT THE MANUFACTURE OF T HE BTG EQUIPMENT HAPPENED OUTSIDE INDIA. THUS, WHAT IS LEF T IS TO DETERMINE AS TO WHETHER THE TAXABLE EVENT OF TRANSF ER OF GOODS TO THE CUSTOMERS HAPPENED IN INDIA OR SUCH EVENT HAPPENED OUTSIDE THE INDIAN TERRITORIES. 68. IT HAS BEEN SUBMITTED THAT TERM CFR HAS BEEN EXPLA INED AS COST AND FREIGHT (CFR) AND MEANS THAT THE SELLER PA YS FOR TRANSPORTATION TO THE PORT OF SHIPMENT, LOADING AND FREIGHT. THE BUYER PAYS FOR THE INSURANCE AND TRANSPORTATION OF THE GOODS FROM THE PORT OF DESTINATION TO HIS FACTORY. THE PASSING OF RISK OCCURS WHEN THE GOODS PASS THE SHIPS RAIL AT THE PORT OF SHIPMENT. 69. LD. COUNSEL TRIED TO ESTABLISH THAT TITLE AND RISK IN GOODS PASSED ON OUTSIDE INDIA. IT HAS BEEN SUBMITTED THAT THIS POSITION HAS NOT BEEN DISPUTED BY THE REVENUE. HE SUBMITTED THAT AUTHORITIES BELOW ARE OF THE OPINION THAT SINCE THE SE ARE COMPOSITE CONTRACTS THE LIABILITY OF THE ASSESSEE DOES NOT EN D HERE AND CONTINUES TILL THE ACTUAL HANDING OVER AFTER COMPLE TION OF PG TESTING. IT HAS BEEN SUBMITTED THAT THIS ARGUMENT O F REVENUE HAS BEEN DISCARDED BY HONBLE SUPREME COURT AS WELL AS THE JURISDICTIONAL HIGH COURT, AND IT HAS BEEN HELD THA T THIS IS NOT A DETERMINATIVE TEST. LD. COUNSEL THEN WENT TO THE SU BMIT THE PLAY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 51 BETWEEN THE PROVISIONS OF SECTION 9 READ WITH EXPLA NATION 1 AND 3 OF THE ACT WHICH HAS BEEN DEALT WITH IN DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF NORTEL NETWORKS INDIA INT ERNATIONAL INC. VS. DIT (386 1TR 353) . 70. IT WAS SUBMITTED THAT THIS WAS A CASE WHERE THIS R EVENUE SOUGHT TO TAX THE PROFITS ARISING FROM OFF SHORE SU PPLIES IN INDIA BY ALLEGING THAT THERE EXISTED A BUSINESS CONNECTION I N TERMS OF SECTION 9 OF THE ACT. HE SUBMITTED THAT THIS ISSUE WAS CONS IDERED AND ANSWERED BY THE COURT AS UNDER:- 43. IT IS APPARENT FROM THE PLAIN READING OF SECTIO N 9(1) OF THE ACT THAT ALL INCOME WHICH ACCRUES OR ARISES THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA WOULD BE DEEMED TO ACC RUE OR ARISE IN INDIA. IN CIT V. R.D. AGGARWAL & CO.: (1965) 56 ITR 20 (SC), THE SUPREME COURT OBSERVED THAT BUSINESS CONNECTION WOU LD MEAN A RELATION BETWEEN A BUSINESS CARRIED ON BY A NON- RESIDENT AND SOME ACTIVITY IN THE TAXABLE TERRITORIES WHICH ARE ATTRIBUTABLE DIRECTLY OR INDIRECTLY TO THE EARNINGS, PROFITS OR GAINS OF SUCH BUSINESS HOWEVER, BY VIRTUE OF EXPLANATION 1 TO SEC TION 9(1) OF THE ACT, ONLY SUCH PART OF THE INCOME WHICH IS REAS ONABLY ATTRIBUTABLE TO OPERATIONS CARRIED OUT IN INDIA WOU LD BE TAXABLE. THUS, IF IT IS ACCEPTED THAT THE ASSESSEE HAS RECEI VED ONLY THE CONSIDERATION FOR THE EQUIPMENT MANUFACTURED AND DE LIVERED OVERSEAS, IT WOULD BE DIFFICULT TO UPHOLD THE VIEW THAT ANY PART OF ASSESSEES INCOME IS CHARGEABLE TO TAX UNDER THE AC T AS NO PORTION OF THE SAID INCOME COULD BE ATTRIBUTED TO O PERATIONS IN INDIA. 44. THERE IS LITTLE MATERIAL ON RECORD TO HOLD TH AT NORTEL INDIA HABITUALLY EXERCISES ANY AUTHORITY ON BEHALF OF THE ASSESSEE OR NORTEL CANADA TO CONCLUDE CONTRACTS ON THEIR BEHALF . THERE IS ALSO NO MATERIAL ON RECORD WHICH WOULD INDICATE THAT NOR TEL INDIA MAINTAINED ANY STOCKS OF GOODS OR MERCHANDISE IN IN DIA FROM WHICH GOODS WERE REGULARLY DELIVERED ON BEHALF OF T HE ASSESSEE OR NORTEL CANADA. THUS, BY VIRTUE OF EXPLANATION 2 READ WITH EXPLANATION 3 TO SECTION 9(L)(I) OF THE ACT, N O PART OF SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 52 ASSESSEES INCOME COULD BE BROUGHT TO TAX UNDER THE ACT. IT IS ONLY WHEN A NON-RESIDENT ASSESSEES INCOME IS TAXAB LE UNDER THE ACT THAT THE QUESTION WHETHER ANY BENEFIT UNDER THE DOUBLE TAXATION AVOIDANCE TREATY IS REQUIRED TO BE EXAMINE D. 47. AS NOTICED EARLIER, THERE SEEMS TO BE NO DISPUT E THAT THE TITLE TO THE EQUIPMENT PASSED IN FAVOUR OF RELIANCE OVERS EAS. HOWEVER, THE AO, CIT (A) AND ITAT DID NOT CONSIDER THE SAME TO BE RELEVANT AS ACCORDING TO THEM, THE EQUIPMENT CON TINUED TO BE IN THE POSSESSION OF THE NORTEL GROUP' TILL ITS FI NAL ACCEPTANCE BY RELIANCE. IN OUR VIEW, EVEN IF IT IS ACCEPTED THAT THE EQUIPMENT SUPPLIED OVERSEAS CONTINUED TO BE IN POSSESSION OF NORTEL INDIA TILL THE FINAL ACCEPTANCE BY RELIANCE, THE SAME WOU LD NOT IMPLY THAT THE ASSESSEES INCOME FROM SUPPLY OF EQUIPMENT COULD BE TAXED UNDER THE ACT. CLAUSE (A) OF EXPLANATION 1 TO SECTION 9(L)(I) OF THE ACT POSTULATES THE PRINCIPLE OF APPORTIONMEN T AND ONLY SUCH INCOME THAT CAN BE ~ REASONABLY ATTRIBUTED TO OPERA TIONS IN INDIA WOULD BE CHARGEABLE TO TAX UNDER THE ACT. THE POSITION IN ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES (SUPRA) WAS AL SO SIMILAR. THERE TOO, THE EQUIPMENTS WERE SUPPLIED OVERSEAS AN D THE CONTRACTOR CONTINUED TO RETAIN CONTROL OF EQUIPMENT AND MATERIAL TILL THE PROVISIONAL ACCEPTANCE OF THE WORK OR THE TERMINATION OF THE CONTRACT. 71. LD. COUNSEL SUBMITTED THAT MERE EXISTENCE OF A BUS INESS CONNECTION IS NOT ENOUGH TO TRIGGER TAXABILITY IN I NDIA AND THAT TO APPLY THE PRINCIPLE OF APPORTIONMENT AS ENVISAGED I N EXPLANATION 1 AND 3 TO SECTION 9(1) OF THE ACT, THERE MUST BE SOM E ACTIVITY CARRIED OUT IN INDIA RELATING TO THE OFF SHORE SUPPLIES. LD . COUNSEL SUBMITTED THAT NO EVIDENCE HAS BEEN BROUGHT ON RECO RD TO SHOW THAT SOME PORTION OF ACTIVITIES RELATING TO OFF SHO RE SUPPLIES WERE CARRIED OUT IN INDIA. IT HAS BEEN SUBMITTED THAT ON THIS GROUND ALONE NO PROFIT ARISING FROM OFF SHORE SUPPLIES COU LD BE BROUGHT TO TAX IN INDIA. LD. COUNSEL SUBMITTED WHEN TAXABILITY IS NOT ESTABLISHED UNDER THE PROVISIONS OF THE INCOME TAX ACT, THERE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 53 CANNOT BE ANY RECOURSE TO THE PROVISIONS OF DTAA TO IMPOSE TAX ON ASSESSEE. 72. LD. COUNSEL SUBMITTED AS MANDATED IN SEVERAL JUDGM ENTS OF THE JURISDICTIONAL HIGH COURT AS WELL AS THE APEX C OURT ONCE THERE DOES NOT ARISE ANY TAXABILITY OF ASSESSEE UNDER PRO VISIONS OF THE ACT ITSELF, THERE IS NO REQUIREMENT FOR US TO EXAMINE T HE PROVISIONS OF THE DTAA. THE ASSESSEE ALSO RELIED ON THE FOLLOWING JUDGMENTS IN SUPPORT OF THIS CONTENTION- ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES LTD. VS. DIT [ 2007] 288 1TR 408 (SC)(PG. 1593/ PARA 89) DIT VS. NOKIA NETWORKS OY [2013] 358 ITR 259 (DEL)( PARA 28/ PG 1697) DIT VS. ERICSSON A.B. [2012] 343 ITR 470 (DEL) (PAR A 47/ PG. 21 OF COPY OF JUDGEMENT PROVIDED ON 2.05.2017) 83. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF LINDE AG VS. DIT (365 ITR 1) (DELHI) WHERE IN THIS CONTEXT THE HONBLE COURT HELD AS UND ER- 73. IT IS APPARENT THAT THE ABOVE QUESTIONS ARE IN TWO PARTS. THE FIRST BEING WHETHER THE INCOME RECEIVED/RECEIVA BLE IN RESPECT OF THE SPECIFIED ITEMS OF WORK IS LIABLE TO TAX IN INDIA UNDER THE PROVISIONS OF THE ACT. THE SECOND PART IS WHETHER THE INCOME RECEIVED IN RESPECT OF THE SPECIFIED ITE MS OF WORK IS TAXABLE UNDER THE DTAA. DOUBLE TAXATION AVOIDANC E AGREEMENTS DO NOT CONTAIN ANY CHARGING PROVISIONS B Y VIRTUE OF WHICH INCOME TAX IS LEVIED. INCOME TAX IS CHARGE D BY VIRTUE OF SECTION 4 READ WITH SECTION 5 OF THE ACT. IT IS ONLY IN THE EVENT THAT AN ASSESSEE IS LIABLE TO PAY TAX UND ER THE INCOME TAX ACT (DE HORS ANY DOUBLE TAXATION AVOIDAN CE ASREEMENTS) THAT THE QUESTION OF EXAMINING WHETHER THE ASSESSEE IS ENTITLED TO ANY BENEFIT UNDER THE RELEV ANT DOUBLE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 54 TAXATION AVOIDANCE AGREEMENT WOULD ARISE. ANY INCOME WHICH IS NOT LIABLE TO TAX UNDER THE NORMAL PROVISI ONS OF THE ACT WOULD NOT BE BOUGHT TO TAX ONLY BY VIRTUE OF A DOUBLE TAXATION AVOIDANCE AGREEMENT. IT WOULD THUS , BE ESSENTIAL TO FIRST EXAMINE WHETHER ANY AMOUNT RECEIVABLE/RECE IVED BY LINDE IN RESPECT OF DESIGN AND ENGINEERING OR FOR S UPPLY OF EQUIPMENT IS LIABLE TO TAX UNDER THE ACT. IN THE EV ENT, A PORTION OF INCOME IS NOT EXIGIBLE TO TAX UNDER THE ACT, IT WOULD NOT BE NECESSARY TO CONSIDER WHETHER THE DTAA IS APPLICABLE. 73. THUS, LD. COUNSEL CONCLUDED BY SUBMITTING THAT IN ABSENCE OF TAXABILITY UNDER THE PROVISIONS OF THE ACT, NO PORT ION OF THE PROFITS ARISING FROM OFF SHORE SUPPLIES COULD BE BROUGHT TO TAX IN INDIA IN THE PRESENT CASE. ON THE CONTRARY, LD CIT DR SUBMITTED AS UNDER: 74. DURING THE COURSE OF HEARING LD. CIT (DR) SUBMITTE D THAT HE WOULD RAISE THREE CONTENTIONS SEQUENTIALLY WHICH AR E AS UNDER: 1. ON COMPOSITE NATURE OF CONTRACT ENTERED INTO BY ASS ESSEE; 2. EXISTENCE OF PE IN INDIA; 3. ATTRIBUTION TO INCOME TO SUCH PE. ON COMPOSITE NATURE OF CONTRACTS. 75. THE FIRST CONTENTION OF LD. CIT (DR) WAS THAT, CON TRACTS ENTERED INTO BY ASSESSEE WITH THE PROJECT OWNERS WERE COMPO SITE CONTRACTS. IN SUPPORT OF THIS CONTENTION, HE REFERRED TO ROSA -I CONTRACT. REFERRING TO TERMS OF THE CONTRACT, LD. CIT DR SUBM ITTED THAT THE CONTRACT WERE FOR ENGINEERING, PROCUREMENT AND CONS TRUCTION (EPC). THE LD. CIT (DR) ALLEGED THAT THERE WERE POS T BID NEGOTIATIONS TO ARRIVE AT SUCH AN ELABORATE CONTRACT AND FOR SUC H NEGOTIATIONS THE PRESENCE OF SR. PERSONNEL OF ASSESSEE WOULD HAV E BEEN REQUIRED SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 55 IN INDIA. IT WAS ALSO SUBMITTED THAT SCOPE OF WORK AWARDED TO ASSESSEE WAS THE BTG PACKAGE WHICH REQUIRED ASSESSE E TO DELIVER A FUNCTIONAL UNIT LD. CIT DR SUBMITTED THAT SINCE ERE CTION COMMISSIONING OF BTG PACKAGE WAS DONE UNDER THE SUP ERVISION OF ASSESSEE, IT IS EVIDENT THAT THE PACKAGE WAS IMPLEM ENTED IN INDIA. IT WAS ALSO SUBMITTED THAT SINCE ASSESSEE CONTRACTUALL Y WAS REQUIRED TO MEET, ENTIRE PERFORMANCE GUARANTEE TESTS AND TO GET THE ACCEPTANCE CERTIFICATE FROM THE OWNER, THE WORK WOU LD BE DELIVERED IN A FUNCTIONAL SHAPE. HE SUBMITTED THAT SCOPE OF W ORK OF ASSESSEE WAS AN INTEGRATED WORKS CONTRACTS. 76. SIMILAR OBSERVATIONS WERE MADE BY HIM IN RESPECT O F BUTIBORI PROJECT TO ESTABLISH THE SCOPE OF WORK UNDER THE CO NTRACT WAS A COMPOSITE WORKS CONTRACT. LD. CIT.DR RELIED UPON TH E DECISION OF; HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN SHIP YARD LTD. VS. STATE OF ANDHRA PRADESH (2000) 6 SCC 579; MADRAS HIGH COURT IN THE CASE OF ANSALDO ENERGIA SP A 178 TAXMANN 57; RULING OF THE AUTHORITY FOR ADVANCE RULING IN CASE OF ROXAR MAXIMUM RESERVOIR PERFORMANCE WLL 207 TAXMANN PAGE 293/349 ITR 189. 77. LD. CIT DR SUBMITTED THAT THE GOODS HAVE BEEN ACTU ALLY DELIVERED TO THE PROJECT OWNERS WITHIN THE TERRITOR IES OF INDIA AS PER THE PORT OF DESTINATION AGREED UPON BETWEEN THE PAR TIES IN THE RESPECTIVE AGREEMENTS. THE LD. CIT.DR SUBMITTED THA T WHILE OBJECTIONS RAISED BY ASSESSEE WERE PENDING BEFORE D RP, THE DRP REPEATEDLY CALLED UPON ASSESSEE TO FURNISH INFORMAT ION AND SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 56 DOCUMENTS RELATING TO INVITATION TO TENDER, RFP, MI NUTES OF MEETING, CORRESPONDENCE REGARDING NEGOTIATIONS OF THE AGREEM ENT, DETAILS OF EXPENSES INCURRED IN INDIA ETC. IT WAS SUBMITTED TH AT THESE DOCUMENTS WOULD HAVE A BEARING ON WHETHER ASSESSEE HAD A PE IN INDIA WHICH WERE NOT COMPLIED WITH. PERMANENT ESTABLISHMENT 78. HE FILED A DETAILED WRITTEN SUBMISSION OF HIS ARGU MENTS WHICH IS PLACED ON RECORD. WHILE SUBMITTING ARGUMENTS TO PROVE THE EXISTENCE OF PE LD. CIT.DR SUBMITTED THAT THERE IS AN OVERLAP IN RESPECT OF PERIOD IN WHICH SUPPLIES WERE MADE, AND SUPERVISION SURVEYS COMMENCED. IN THE WRITTEN SUBMISSION FILED BY HIM HE HAD SUBMITTED THAT IT WAS UNDISPUTED THAT ASSESSEE HAD A SUPERVISORY PE IN INDIA, EVER SINCE JANUARY, 2007. LD. CIT.DR EMPHASIZED THAT, KEEPING IN VIEW ARTICLE 5(1) READ WITH ARTICL E 5(2) (J) OF DTAA, THE SUPERVISION PE HAD TO BE AGGREGATED AS UNDER AR TICLE 5(2)(J). HE SUBMITTED THAT THE TERM PERMANENT ESTABLISHMENT INC LUDES A BUILDING, SITE OR CONSTRUCTION INSTALLATION OR ASSE MBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THERE WITH, WH ERE SUCH SITE PROJECT OR ACTIVITIES CONTINUED FOR A PERIOD OF MOR E THAN 183 DAYS,. LD. CIT DR PLACED RELIANCE UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF E-FUNDS IT SOLUTION REPORTED I N (2014) 364 ITR 256, TO BUTTRESS HIS ARGUMENTS. ATTRIBUTION OF PROFIT : SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 57 79. UNDER THIS HEAD LD. CIT DR SUBMITTED THE BOTTOM LI NE CASE BY PLACING RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF POSCO ENGINEERING AND CONSTRUCTIONS COMPANY LTD. VS. ADIT REPORTED IN 2014 TAXMNN.COM 500 (DELHI TRI) . 80. HE SUBMITTED THAT THE PRICE OF EQUIPMENT INCLUDED COMPENSATION FOR CERTAIN ACTIVITIES WHICH WERE CARR IED OUT AT SITE. HE SUBMITTED THAT THE CONTRACTS ENTERED INTO BY ASS ESSEE WITH THE PROJECT OWNERS ARE INDIVISIBLE IN NATURE AND THAT T HE RESPONSIBILITY OF THE ASSESSEE DOES NOT END WITH MERE SUPPLY OF BT G EQUIPMENT BUT IS EXTENDED TO PROVIDE SUPERVISORY SERVICES IN INDIA FOR ERECTION OF POWER PLANT, INCOME RECEIVED BY ASSESSEE FROM OF FSHORE SUPPLY IS DEEMED TO HAVE BEEN RECEIVED IN INDIA AND THEREFORE THE SAME IS ATTRIBUTABLE TO THE SUPERVISORY PE IN INDIA. REJOINDER BY LD. COUNSEL: 81. IN REJOINDER TO THE SUBMISSIONS BY LD. CIT DR, LD. COUNSEL SUBMITTED THAT AS REGARD THE QUESTION OF WHETHER TH E CONTRACTS WERE OF A COMPOSITE NATURE OR NOT, LOOSES SIGNIFICANCE I N VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD. VS. DIT [(2007) 288 ITR 408 . LD. COUNSEL SUBMITTED THAT THE DECISION RELIED UPON BY LD. CIT.DR IN THE CASE OF ANSALDO ENERGIA (SUPRA) HAS ALSO BEEN D ISCUSSED BY HONBLE DELHI HIGH COURT LG CABLE (2011) 237 CTR 13 8 AND IT WAS DISTINGUISHED. HE SUBMITTED THAT SIMILAR PLEA WAS T AKEN BY REVENUE BEFORE THE AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF JOINT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 58 STOCK COMPANY FOREIGN ECONOMIC ASSOCIATION 322 ITR 409 . THE AAR IN PARA 39 OF ITS DECISION DEALT WITH THE CONTENTIO N OF REVENUE THAT THE MAIN EQUIPMENT TO BE INSTALLED AT THE SITE IS A BOILER, AND THE PIECEMEAL EQUIPMENT AND THE PARTS REQUIRED FOR ASSE MBLING THE BOILER HAVE NO INDEPENDENT EXISTENCE AND THEREFORE, THE SUPPLIES, EQUIPMENT AND MATERIAL ARE INTEGRALLY CONNECTED WIT H THE ERECTION OF THE BOILER IN INDIA. THE AAR REJECTED THIS ARGUM ENT WHICH WAS MADE TO DISTINGUISH THE JUDGMENT IN ISHIKAWAJIMA - HARIMA HEAVY INDUSTRIES LTD. (SUPRA) AND HELD THAT THERE WAS NOT HING IN LAW WHICH PREVENTED THE PARTIES FROM ENTERING INTO A CO NTRACT FOR SALE OF MATERIAL FOR A SPECIFIED CONSIDERATION ALTHOUGH THE Y WERE MEANT TO BE UTILIZED IN THE FABRICATION AND INSTALLATION OF COMPLETE PLANT OR UNIT. 82. LD. COUNSEL REFERRING TO THE DECISION VODAFONE INTERNATIONAL HOLDINGS REPORTED 341 ITR 1, RELIED BY LD.CIT DR SUBMITTED THAT FOR THE PURPOSE OF INCOME THE LOOK AT TEST MUST BE AP PLIED. RELIANCE WAS PLACED ON AAR RULING IN ROXAR MAXIMUM RESERVOIR PERFORMANCE WLL(SUPRA) WHERE THE AUTHORITY APPARENT LY SEEMS TO HAVE APPLIED THE LOOK AT TEST AND CONCLUDED THAT THE HONBLE SUPREME COURTS DECISION OF ISHIKAWAJIMA HARIMA HEA VY INDUSTRIES LTD.(SUPRA). LD.COUNSEL SUBMITTED THAT IT WOULD BE RELEVANT TO ADDRESS THE ISSUE WHICH THE LD.CIT.DR HAS RAISED RE GARDING SHIFTING OF PROFITS TO OFFSHORE CONTRACTS AS WAS THE CASE IN ANSALDO (SUPRA). LD.COUNSEL SUBMITTED THAT THERE IS NO SUCH ALLEGATI ON IN THE PRESENT CASE AND REVENUE RECEIVED IN RESPECT OF SUP ERVISION ACTIVITY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 59 WERE IN EXCESS OF 77 CRORES. HE SUBMITTED THAT, NON E OF THE AVERMENTS MADE OUT BY LD.CIT DR HAVE ANY BEARING ON THIS MATTER. 83. LD. COUNSEL THEN REFERRED TO THE DECISION OF THE H ON'BLE SUPREME COURT IN HINDUSTAN SHIPYARD LTD. VS. STATE OF ANDHRA PRADESH (2000) 6 SCC 579, WHICH HAS BEEN RELIED BY LD. CIT DR. IT IS SUBMITTED BY LD. COUNSEL THAT THE ASSESSING OFFI CER HAD ALSO REFERRED TO THIS JUDGMENT TO DRAW A CONCLUSION THA T THE FACTS OF THE PRESENT CASE WERE FITTING IN THE TWO OF THE CATEGOR IES, WHICH REFERRED TO A CONTRACT FOR WORK IN WHICH THE USE OF MATERIAL IS ACCESSORY OR INCIDENTAL TO THE EXECUTION OF THE WORK. LD. COUNSE L SUBMITTED THAT ASSESSEE'S CASE IS THAT IT IS ESSENTIALLY A CONTRAC T FOR SUPPLY OF GOODS WHERE SOME WORK IS REQUIRED TO BE DONE AS INCIDENTA L TO THE SALE. HE FURTHER SUBMITTED THAT THE DECISION OF HINDUSTAN SH IPYARD LTD. (SUPRA) HAS BEEN CONSIDERED BY HON'BLE SUPREME COUR T IN THE CASE OF ISHIKAWAJIMA - HARIMA HEAVY INDUSTRIES LTD. (SUP RA) WHEREIN, HON'BLE SUPREME COURT OBSERVED THAT, IT IS ONLY FOR THE PURPOSES OF TAXATION THAT THE TERMS OF CONTRACT ARE REQUIRED TO BE CONSTRUED. HE SUBMITTED THAT THE COURT THEREIN OBSERVED THAT A TU RN-KEY CONTRACT MAY INVOLVE SUPPLY OF MATERIALS USED IN EXECUTION O F CONTRACT FOR PRICE AS ALSO FOR USE OF THE MATERIALS BY WORKS AND LABOR BUT SAME MAY HAVE NO RELATION WITH THE TAXABILITY. EVENTUALL Y, THE HON'BLE SUPREME COURT APPLIED THE TEST OF TERRITORIAL NEXUS AND THE PRINCIPLE OF ATTRIBUTION TO CONCLUDE THAT NO PORTIO N OF THE PROFITS ARISING FROM THE OFFSHORE SUPPLY COULD BE BROUGHT T O TAX IN INDIA. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 60 84. LD. COUNSEL SUBMITTED THAT EVEN IF IT IS ASSUMED T HAT THE CONTRACTS ENTERED INTO BY ASSESSEE WERE COMPOSITE C ONTRACTS, WHAT REALLY HAS TO BE SEEN IS WHETHER ANY PORTION OF THE ACTIVITY RELATING TO OFFSHORE SUPPLIES WERE CARRIED OUT IN INDIA. HE FURTHER SUBMITTED THAT, IT IS A SETTLED PRINCIPLE OF LAW THAT IN A SU PPLY CONTRACT THE REVENUE ARISES ONLY ONCE THE SUPPLIES HAS BEEN MADE AND DOES NOT ARISE AT ANY PRECEDING OR SUBSEQUENT STAGE. HE THUS SUBMITTED THAT THE ASSUMPTIONS AND PRESUMPTIONS OF THE REVENUE REG ARDING PLACE OF NEGOTIATION, SIGNING OF CONTRACT, COMPLETION OF ACCEPTANCE TEST ARE OF NO CONSEQUENCE. LD. COUNSEL DREW OUR ATTENTION ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF DCIT VS. ROXON OY (2007) 106 ITD 489 . IT WAS SUBMITTED THAT THIS DECISION HAS BEEN REND ERED IN CONTEXT OF THE PRINCIPLE OF ATTRIBUTION WHERE A PE ALSO COMES INTO EXISTENCE AND WAS A CASE OF SUPPLIES UNDER A TURN-K EY CONTRACT. HE SUBMITTED THAT THE PRINCIPLE OF ATTRIBUTION HAS BEE N EXPLAINED IN THE JUDGMENT AND BASICALLY IT IS HELD THAT WHAT CAN BE BROUGHT TO TAX IN INDIA IS ONLY THE PROFITS ARISING FROM THE A CTIVITIES CARRIED OUT IN INDIA. LD. COUNSEL EMPHASIZED THAT PROVISIONS OF SECTION 9 READ WITH EXPLANATION 1 CANVASES THIS APPROACH, WHICH IS IN CONSISTENCE WITH DOUBLE TAX AVOIDANCE AGREEMENTS. HE SUBMITTED THAT IN A RECENT JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF NORTEL NETWORKS INDIA INTERNATIONAL INC. (2016) 386 ITR 35 3 ON THE FACTS OF THAT CASE, HONBLE HIGH COURT HELD THAT PROFITS ARI SING FROM OFFSHORE SUPPLIES CANNOT BE BROUGHT TO TAX IN INDIA GIVEN TH E SPECIFIC MANDATE OF EXPLANATION 1, WHICH IS THE ATTRIBUTION RULE. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 61 85. ON THE ISSUE OF EXISTENCE OF PERMANENT ESTABLISHME NT, LD. COUNSEL SUBMITTED AS UNDER: LD. COUNSEL SUBMITTED THAT, AS REGARDS LD. CIT.DR'S CONTENTIONS THAT THERE WAS AN OVERLAPPING OF THE OFFSHORE SUPPL IES AND SUPERVISION ACTIVITIES FOR ERECTION AND COMMISSIONI NG, IT IS POINTED OUT THAT SAME HAS BEEN CLEARLY INDICATED AS SUCH IN THE CHART SUBMITTED BY ASSESSEE BEFORE THIS TRIBUNAL, AND IS NOT A NEW MATERIAL FACT BEING BROUGHT TO THE ATTENTION OF THI S HON'BLE TRIBUNAL. HE SUBMITTED THAT IN-SPITE OF THE FACT THAT THERE M AY BE AN OVERLAPPING PERIOD BETWEEN THE OFFSHORE SUPPLIES AN D THE SUPERVISION SERVICES, THE DEPARTMENT, STILL HAS TO APPLY THE TEST OF ATTRIBUTION, AS FAR AS THE OFFSHORE SUPPLIES IS CON CERNED. LD. COUNSEL SUBMITTED THAT THE FUNDAMENTAL PRINCIPLE WH ICH HAS BEEN ENUNCIATED BY THE COURT REPEATEDLY IS THAT WHETHER PROVISIONS OF DOMESTIC LAW ARE APPLIED OR DTAA, STILL ONE HAS TO SATISFY THE ATTRIBUTION RULE AND IT IS ONLY THE PROFIT ARISING FROM SUCH ACTIVITIES CARRIED OUT IN INDIA THAT CAN BE BROUGHT TO TAX IN INDIA. HE SUBMITTED THAT IN THE ENTIRE SUBMISSION MADE BY THE LD. CIT DR, NOT A WORD HAS BEEN SAID AS TO HOW ANY ACTIVITY PER TAINING TO THE OFFSHORE SUPPLIES WAS CARRIED OUT IN INDIA. LD.COUN SEL, SUBMITTED THAT THE ARGUMENT OF AN OVERLAPPING PERIOD LACKS SU BSTANCE AND HAS NO BEARING ON THE MATTER. 86. LD. COUNSEL THEN ADVERTED TO THE ARGUMENT OF LD. C IT.DR, REGARDING THE INTER PLAY BETWEEN ARTICLE 5 (2) AND ARTICLE 5 (1) OF THE DTAA I.E. TO SAY THAT IF ANY INSTANCE OF PERMANENT ESTABLISHMENT AS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 62 CONTAINED IN ARTICLE 5 (2) IS PREVALENT, THEN AUTOM ATICALLY IT CONSTITUTES A FIXED PLACE OF BUSINESS WITHIN THE ME ANING OF ARTICLE 5 (1) OF THE DTAA AND HENCE PROFITS ARISING FROM OFFS HORE SUPPLIES SHOULD BE BROUGHT TO TAX IN INDIA. IT IS SUBMITTED BY LD. COUNSEL THAT READING AND UNDERSTANDING OF DEPARTMENT, QUA THE PROVISIONS OF ARTICLE 5 ARE TOTALLY INCORRECT. HE SUBMITTED T HAT THE DECISION RELIED UPON BY THE DR OF THE DELHI HIGH COURT IN TH E CASE OF E- FUNDS IT SOLUTION (SUPRA), DOES NOT LAY DOWN THIS P RINCIPLE. LD. COUNSEL SUBMITTED THAT LD. CIT DR RELIED ON PARA 25 OF THE SAID DECISION, AND HAS MORE SPECIFICALLY LAID EMPHASIS W HERE THE COURT OBSERVED THAT A MINE, OIL OR GAS WELL OR A PLANTATI ON OR A FACTORY IN MOST CASES WOULD SATISFY REQUIREMENTS OF ARTICLE 5 (1). LD. COUNSEL SUBMITTED THAT A CLOSE READING OF PARA 25 OF THE DE CISION, WOULD CLEARLY SHOW THAT HONBLE COURT HAS SPECIFICALLY HE LD THAT TO CREATE A LOCATION PE, THE REQUIREMENTS OF ARTICLE 5(1) SHOUL D BE INDEPENDENTLY SATISFIED. HE SUBMITTED THAT THE OBSE RVATIONS OF THE COURT WERE RENDERED IN CONTEXT OF EXAMPLES OF A MIN E, AND OIL OR GAS WELL, A QUARRY OR ANY OTHER PLACE OF EXTRACTION OF NATURAL RESOURCES AND WERE NOT EVEN EXAMINED BY THE COURT IN THE CONT EXT OF SUB- CLAUSE (J) WHICH RELATES TO BUILDING SITE OR CONSTR UCTION, INSTALLATION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CO NNECTION THEREWITH. HE SUBMITTED THAT SECOND LINE OF PARAGRA PH 25 CLEARLY SHOWS THIS AND HENCE THE PROPOSITION THAT LD.CIT.DR EXTRACTED OUT OF THIS PARAGRAPH DOES NOT EXIST . SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 63 87. LD. COUNSEL SUBMITTED THAT THE CONTENTION PUT FORT H BY THE LD. CIT.DR REGARDING THE EXISTENCE OF A FIXED PLACE PE OWING TO A SUPERVISION PE IS COMPLETELY MISPLACED. HE SUBMITTE D THAT CORRECT ENUNCIATION OF LAW REGARDING THE INTER PLAY BETWEEN THE PROVISIONS OF ARTICLE 5(1) AND ARTICLE 5 (2) OF THE TREATY HAS BEEN EXPLAINED BY MUMBAI ITAT IN THE CASE OF LINKLATERS LLP VS. ITO [ (2010)132 TTJ 0020/(2011) 9 ITR 217] . LD. COUNSEL SUBMITTED THAT ASSESSEE HAS TAKEN A PLEA THAT THE PROVISION OF ARTICLE 5 (2) WH ERE SPECIFIC INSTANCES OF PE HAD BEEN INDICATED WOULD HAVE TO AL SO MEET THE REQUIREMENTS OF ARTICLE 5 (1) AND AS SUCH IN ORDER TO ESTABLISH PE IN INDIA IN TERMS OF ARTICLE 5 (2) THE CONDITION OF AR TICLE 5(1) I.E. FIXED PLACE PE MUST ALSO BE SATISFIED. HE SUBMITTED THAT IN PARA 84 OF THE JUDGMENT WHILE RECORDING THE CONTENTIONS OF THE REV ENUE, THE COURT TOOK NOTE OF THE CONTENTION PUT FORTH BY REVENUE, T HAT ONCE CONDITIONS LAID OUT IN ARTICLE 5 (2) WAS SATISFIED, NOTHING FURTHER WAS REQUIRED TO HOLD THE EXISTENCE OF A PE. AS REGARDS THE CONTENTION OF REVENUE IT WAS SUBMITTED THAT THE PROVISIONS OF AR TICLE 5(1) AND 5 (2) DO NOT HAVE TO BE READ TOGETHER. IT WAS SUBMITTED BY LD. COUNSEL THAT IF, CONDITIONS OF ARTICLE 5 (1) ARE TO BE READ WITH THE ONES STIPULATED IN ARTICLE 5 (2), THEN THAT WOULD MAKE A RTICLE 5(2) OTIOSE AND UNNECESSARY. HE SUBMITTED THAT ARTICLE 5(2) CAN NOT BE READ ON A STANDALONE BASIS. LD. COUNSEL REFERRED TO THE OBS ERVATIONS MADE BY THIS HONBLE TRIBUNAL IN LINKLETTERS LLP ( SUPRA ) AS UNDER :- '88. THE FACES ADMITTED OMITTED WHERE THE ARTICLE 5(1) OF THE INDIA UK TAX TREATY REFERS TO THE REQUIREMENTS OF, WHAT I S OFTEN TERMED SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 64 AS, BASIC RULE PE. THIS REFERS TO A FIXED PLACE OF BUSINESS THROUGH WHICH BUSINESS OF THE ENTERPRISE IS WHOLLY OR PARTL Y CARRIED OUT. ELABORATING UPON THE SCOPE OF THIS PROVISION, A CO- ORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF AIRLINE ROTABLESLT D. UK V. JOINT DIRECTOR OF INCOME-TAX 40 DTR 226 AND AFTER ANALYSI S OF EARLIER DECISIONS OF THIS TRIBUNAL IN THE CASES OF WESTERN UNION FINANCIAL SERVICES INC. V.ASSTT. DIT [2007] 104ITD 34 (DELHI) AND MOTOROLA INC. V. DY. CIT[2005] 95 ITD 2691 (DELHI) (SB), HAS OBSERVED THAT, 'THERE ARE THREE CRITERIONS EMBEDDED IN THIS DEFINI TION - PHYSICAL CRITERION I.E., EXISTENCE OF PHYSICAL LOCATION, SUB JECTIVE CRITERION, I.E., RIGHT TO USE THAT PLACE, FUNCTIONALITY CRITER ION, I.E., CARRYING OUT OF BUSINESS THOUGH THAT PLACE. IT IS ONLY WHEN THES E THREE CONDITIONS ARE SATISFIED, A PE UNDER THE BASIC RULE CAN BE SAID TO HAVE COME INTO EXISTENCE '. 89. ARTICLE 5(2), HOWEVER, CONSISTS OF TWO HETEROGE NEOUS CATEGORIES OF PERMANENT ESTABLISHMENTS. THE FIRST CATEGORY CON SISTS OF ILLUSTRATIONS OF WHAT WOULD CONSTITUTE A PE, EVEN U NDER THE BASIC RULE, AND THE SECOND CATEGORY CONSISTS OF, WHAT CAN BE TERMED AS, EXTENSIONS OF THE BASIC RULE AND DEEMED PERMANENT ESTABLISHMENTS. WHILE CLAUSES (A) TO (I) OF ARTICLE 5(2), IN OUR HUMBLE UNDERSTANDING, FORM PART OF THE FORMER CATEG ORY, I.E., ILLUSTRATIVE OF THE BASIC RULE, CLAUSES (J) AND (K) , AS WE UNDERSTAND, FORM PART OF THE SECOND CATEGORY, I. E., EXTENSIONS OF THE BASIC RULE. THE DESCRIPTIONS IN THESE TWO CATEGORIES ARE LISTED UNDER SEPARATE SUB-ARTICLES IN OECD MODEL CONVENTIONS, UN MODEL CO NVENTION SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 65 AND EVEN UNDER US MODEL CONVENTIONS. THE VERY FACT THAT THESE TWO CATEGORIES HAVE BEEN SEGREGATED IN THESE MODEL CONVENTIONS ALSO SHOWS THAT THESE TWO CATEGORIES BELONG TO DIFF ERENT GENUS.... .......90. A PLAIN READING OF ARTICLE 5(2) OF INDIA -UK TAX TREATY, IN THE LIGHT OF THE ABOVE DISCUSSIONS, CLEARLY SHOWS ARTIC LE 5(2) OF INDIA- UK TAX TREATY IS A MIXTURE OF WHAT IS USUALLY CONTA INED IN ARTICLE 5(2) AND ARTICLE 5(3) IN ALL MAJOR MODEL CONVENTION S I.E., UN MODEL CONVENTION, OECD MODEL CONVENTION AN US MODEL CONVE NTION. THE CLAUSES CONSISTING IN ARTICLE 5(2) OF INDIA-UK TAX TREATY ARE, THEREFORE, NOT HOMOGENEOUS AND THESE CLAUSES DO NOT BELONG TO THE SAME GENUS. ONE CANNOT THEREFORE PROCEED ON THE BASIS, AS HAS BEEN URGED BY THE LEARNED SENIOR COUNSEL FOR TH E ASSESSEE, THAT SOME DEGREE OF UNIFORMITY IN TREATMENT OF ALL THESE SUB- CLAUSES IS WARRANTED. WHAT APPLIES TO CLAUSES (A) T O (I) OF THIS ARTICLE DOES NOT NECESSARILY ALSO APPLY TO ARTICLES (I) AND (K) OF THIS ARTICLE 5. AS REGARDS THE FIRST CATEGORY OF PERMANE NT ESTABLISHMENTS, I.E., UNDER CLAUSES {A) TO ( I), OE CD MODEL CONVENTION COMMENTARY WHICH IS ALSO ADOPTED BY THE UN MODEL CONVENTION COMMENTARY, DOES STATE THAT THE SECOND P ARAGRAPH OF MODEL CONVENTIONS, 'IT CONTAINS A LIST, BY NO MEANS EXHAUSTIVE, OF EXAMPLES, EACH OF WHICH CAN BE REGARDED, PRIMA FACI E, CONSTITUTING A PERMANENT ESTABLISHMENT', AND THAT ' AS THESE EXAMPLES ARE TO BE SEEN AGAINST THE BACKGROUND OF G ENERAL DEFINITION GIVEN IN PARAGRAPH 1, IT IS ASSUMED THAT THE CONTRACTING STATES INTERPRET THE ITEMS LISTED, 'A PLACE OF MANA GEMENT', 'A SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 66 BRANCH', 'AN OFFICE' ETC., IN SUCH A WAY THAT SUCH PLACES CONSTITUTE PERMANENT ESTABLISHMENT ONLY IF THEY MEET THE REQUI REMENT OF PARAGRAPH 1'. EVEN BY THE OECD MODEL CONVENTION COMMENTARIES, HOWEVER, THIS THEORY IS NOT EXTENDED TO THE ITEMS IN SECOND CATEGORY I.E., (I) AND (K }. SO FAR AS PA RAGRAPH 3 OF THE OECD MODEL CONVENTIONS DEALING WITH THESE ITEMS ARE CONCERNED, OCED MODEL CONVENTION COMMENTARY STATES AS FOLLOWS : 'THIS PARAGRAPH PROVIDES EXPRESSLY THAT A BUILDING SITE OR CONSTRUCTION OR INSTALLATION PROJECT CONSTITUTES A PERMANENT ESTABLISHMENT ONLY IF IT LASTS MORE THAN TWELVE MON THS. ANY OF THOSE ITEMS WHICH DOES NOT MEET THIS CONDITION DOES NOT OF ITSELF CONSTITUTE A PERMANENT ESTABLISHMENT, EVEN I F THERE IS WITHIN IT AN INSTALLATION, FOR INSTANCE AN OFFICE O R A WORKSHOP WITHIN THE MEANING OF PARAGRAPH 2, ASSOCIATED WITH THE CONSTRUCTION ACTIVITY. WHERE, HOWEVER, SUCH AN OFFI CE OR WORKSHOP IS USED FOR A NUMBER OF CONSTRUCTION PROJE CTS AND THE ACTIVITIES PERFORMED THEREIN GO BEYOND THOSE ME NTIONED IN PARAGRAPH, IT WILL BE CONSIDERED A PERMANENT ESTABL ISHMENT IF THE CONDITIONS OF THE ARTICLE ARE OTHERWISE MET EVE N IF ONE OF THE PROJECTS INVOLVED . . . LASTS FOR MORE THAN 12 MONTHS.' [EMPHASIS SUPPLIED] 91. IT IS THUS CLEAR THAT, EVEN AS PER THE OECD MOD EL CONVENTION, ONE OF THE ITEMS INCLUDED IN ARTICLE 5( 2), I.E., 5(2)(J), OF INDIA-UK TAX TREATY IS SUCH THAT IT WOU LD NOT CONSTITUTE PERMANENT ESTABLISHMENT UNDER THE BASIC RULE OF SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 67 ARTICLE 5(1), AND IT IS ONLY ON ACCOUNT OF DEEMING FICTION PROVIDED BY THE PROVISION OF ARTICLE 5(2)(J), IT CA N BE TREATED AS A PERMANENT ESTABLISHMENT. WE ARE IN CONSIDERED AGR EEMENT WITH THIS ANALYSIS IN OECD MODEL CONVENTION COMMENT ARY, AND, FOR THIS REASON, WE ARE UNABLE TO APPROVE LEAR NED COUNSEL'S ARGUMENT THAT ARTICLE 5(2) OF INDIA- UK T AX TREATY ONLY PROVIDES EXAMPLES OF SITUATIONS COVERED BY ART ICLE 5 (1), (EMPHASIS SUPPLIED) 88. LD. COUNSEL CONTROVERTED THE CONTENTION OF LD. CIT . DR REGARDING CONTINUOUS EXISTENCE OF PE EVER SINCE JAN UARY 2007 OWING TO THE OVERLAPPING OF THE TIME PERIODS OF THE SUPPLIES AND SUPERVISION SERVICES AND THE ARGUMENT THAT THE SUPE RVISION WAS A CORE REVENUE GENERATING BUSINESS ACTIVITY AND THAT SUCH SUPERVISION INCOME WAS THROUGH SUCH PE. HE SUBMITTED THAT IT HA S NO BEARING ON THE MATTER BECAUSE WHAT NEEDS TO BE DETERMINED I N THE PRESENT CASES IS THAT, IN-SPITE OF THE EXISTENCE OF THE SUP ERVISORY PE, WHETHER ANY PART OF THE ACTIVITY RELATING TO OFFSHO RE SUPPLIES WAS CARRIED OUT IN INDIA. HE SUBMITTED THAT LD. CIT. DR HAS NOT BEEN ABLE TO BRING ANY EVIDENCE ON RECORD THAT, ANY PORT ION OF SUCH ACTIVITIES WAS CARRIED OUT IN INDIA. HE SUBMITTED T HAT EVEN IF THERE WAS AN EXISTING SUPERVISORY PE EVER SINCE JANUARY 2 007, STILL NO PROFITS ARISING FROM THE OFFSHORE SUPPLIES COULD BE BROUGHT TO TAX IN INDIA. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 68 89. LD. COUNSEL VERY STRONGLY EMPHASIZED THAT THE QU ESTION OF GOING INTO THE DTAA WOULD ARISE, ONLY IF TAXABILITY OF THE ASSESSEE HAS BEEN ESTABLISHED UNDER THE PROVISIONS OF SECTIO N 9(1) OF THE INCOME TAX ACT. HE SUBMITTED THAT WHOLE QUESTION OF WHETHER THERE WAS A PE OR NOT, AND WHETHER PROFITS ARISING FROM T HE OFFSHORE SUPPLIES COULD BE BROUGHT TO TAX, WOULD BE REDUNDAN T, IF TAXABILITY IS NOT ESTABLISHED IN SECTION 9(1). HE PLACED RELIA NCE ON THE OBSERVATIONS BY HONBLE DELHI HIGH COURT IN THE CA SE OF NORTEL NETWORKS INDIA INTERNATIONAL INC. VS. DIT (SUPRA) W HEREIN, DISMISSED THE PLEA THAT THE PROFITS ARISING FROM OF FSHORE SUPPLIES WERE BEING BROUGHT TO TAX IN INDIA BY THE DEPARTMEN T, OWING TO THE ALLEGATION OF A FIXED PLACE OF A BUSINESS IN THE FO RM OF THE INDIAN SUBSIDIARY. HONBLE HIGH COURT EXAMINED THE PROVISI ONS OF SECTION 9 READ WITH EXPLANATION 1, AND WHILE FOLLOWING THE SETTLED PRINCIPLE OF LAW IN TERMS OF THE JUDGMENT OF THE HON'BLE SUPR EME COURT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD. V S. DIT (SUPRA), HELD THAT UNDER SECTION 9 OF THE ACT ITSELF, TAXABI LITY WAS NOT ESTABLISHED AND HENCE THERE WAS NO OCCASION TO EVEN REFER TO THE PROVISION OF DTAA. HE SUBMITTED THAT THIS POSITION WAS EARLIER ENUMERATED BY HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. NOK IA NETWORKS [(2013) 358 ITR 259] WHEREIN HONBLE COURT HELD THAT IN THE ABSENCE OF ANY ACTIVITIES RELATING TO THE OFFSH ORE SUPPLIES BEING CARRIED OUT IN INDIA, NO PORTION OF SUCH PROFITS CO ULD BE TAXED IN INDIA UNDER SECTION 9 OF THE ACT. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 69 90. LD. COUNSEL CONTROVERTED REVENUE'S SUBMISSION T HAT TITLE IN THE EQUIPMENT DID NOT PASS TO THE OWNER TILL THE FI NAL ACCEPTANCE OF THE BTG PACKAGE WAS NOT COMPLETED. HE SUBMITTED THA T STAND OF THE REVENUE HAS ALREADY BEEN DEALT WITH BY THE JURI SDICTIONAL HIGH COURT IN THE CASE OF DIT VS. L.G. CABLE LTD.(SUPRA), WHEREIN IN PARAGRAPH 29 & 30 THE HON'BLE HIGH COURT HAS HELD A S UNDER: '29. THUS, THE MERE FACT THAT 15% OF THE PAYMENT WA S TO BE RETAINED BY THE PGCIL TO BE PAID 30 DAYS AFTER OPER ATIONAL ACCEPTANCE ON ERECTION AND COMPLETION OF THE SYSTEM CANNOT BE CONSTRUED TO MEAN THAT THE TITLE IN THE GOODS DID N OT PASS TO THE BUYER IN THE COUNTRY OF ORIGIN. 30. THEN AGAIN, IN OUR CONSIDERED OPINION, UNDUE IM PORTANCE CANNOT BE ATTACHED TO THE FACT THAT THE AGREEMENT I MPOSED ON THE ASSESSEE-COMPANY THE OBLIGATION TO HANDOVER THE EQU IPMENT FUNCTIONALLY COMPLETED. THIS OBLIGATION HAS BEEN RI GHTLY CONSTRUED BY THE TRIBUNAL TO BE IN THE NATURE OF A TRADE WARRANTY AND THE TRIBUNAL IN THIS REGARD HAS RIGHTLY OBSERVE D AS FOLLOWS:' 91. HE SUBMITTED THAT THE CONTENTION OF LD. CIT. DR R EGARDING COMPOSITE NATURE OF CONTRACTS AS WELL AS TRANSFER O F TITLE NOT BEING COMPLETE TILL THE FINAL ACCEPTANCE BY OWNERS HAS NO LEGS TO STAND ON. LD. COUNSEL SUBMITTED THAT THE ARGUMENTS ADVANCED B Y LD. CIT. DR ARE NOTHING BUT AN EFFORT TO REINVENT THE WHEEL, WH ICH HAS BEEN FUNCTIONING NORMALLY EVER SINCE THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ISHIKAWAJIMA - HARIMA HEAVY IN DUSTRIES LTD. (SUPRA.) 92. ON THE ISSUE ATTRIBUTION OF PROFITS LD. COUNSEL S UBMITS AS UNDER: SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 70 LD. COUNSEL REFERRED TO THE WRITTEN SUBMISSION FI LED BY LD. CIT DR, WHEREIN RELIANCE HAS BEEN PLACED ON THE POS CO ENGINEERING & CONSTRUCTION CO. LTD. (SUPRA) JUDGMEN T. LD. CIT DR HAD REFERRED TO BUTIBORI PROJECT AND ROSA-I PROJECT . HE SUBMITTED THAT THIS RELIANCE WAS PLACED ONLY TO ESTABLISH THA T SUPERVISION ACTIVITY WAS RELATING TO THE PG TESTING OF THE BTG PACKAGE AND NOT ANY OTHER ACTIVITY, THUS, WOULD RESULT IN INCOME TO BE ATTRIBUTED TO SUCH ACTIVITY. LD. COUNSEL SUBMITTED THAT HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SUN ENGINEERING WORKS (P.) LTD. [(1992) 198 ITR 27], SPECIFICALLY SHUNNED THE PRACTICE OF READING JUDGM ENTS OUT OF CONTEXT, AND WITHOUT APPRECIATING THE DIFFERENCE IN FACTS. LD.COUNSEL SUBMITTED THAT LD. CIT DR HAS COMPARED A PPLES WITH ORANGES, WITHOUT EXPLAINING THE SCOPE OF WORK IN PO SCO ENGINEERING & CONSTRUCTION CO. LTD. (SUPRA). LD. CO UNSEL SUBMITTED THAT FACTS IN POSCO ENGINEERING & CONSTRUCTION CO. LTD. (SUPRA) ARE THAT POSCO ENGINEERING, NAGARJUNA CONSTRUCTION COMPANY AND STEEL AUTHORITY OF INDIA, FORMED A CONSORTIUM F OR SETTING UP OF A BLAST FURNACE COMPLEX IN WEST BENGAL. HE SUBMITTED THAT THIS TRIBUNAL THEREIN DEALT WITH THE QUESTION RAISED BY DEPARTMENT, WHETHER THE CONTRACT IN THAT CASE WAS A COMPOSITE C ONTRACT. LD. COUNSEL SUBMITTED THAT IN THE FACTS OF THAT CASE TH ERE WERE FOUR CONTRACTS BEING, OFFSHORE SUPPLIES OF EQUIPMENT, ON SHORE SUPPLY OF EQUIPMENT, ONSHORE SERVICES AND DESIGN AND ENGINEER ING SERVICES HE SUBMITTED THAT THE TRIBUNAL THEREIN NOTED THAT, ONE CONTRACT HAD BEEN ENTERED INTO BY THE ASSESSEE WITH STEEL AUTHOR ITY OF INDIA WHEREIN THE PREAMBLE OF CONTRACT INDICATED THAT IT HAD BEEN ENTERED SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 71 INTO FOR SETTING UP A BLAST FURNACE COMPLEX. THEREA FTER, THE TRIBUNAL NOTED THAT EACH ACTIVITY HAS BEEN DEMARCAT ED, AND PRICES HAS BEEN INDICATED IN THE CONTRACT AND THEN CAME TO THE CONCLUSION THAT THE ASSESSING OFFICER WAS NOT CORRECT IN HOLDI NG THAT IT WAS A COMPOSITE CONTRACT DEVOID OF ANY BIFURCATION TOWARD S ONSHORE OFFSHORE SUPPLIES AND SERVICES. 93. LD. COUNSEL SUBMITTED THAT EMERGING PRINCIPLE FROM THE DECISION OF POSCO ENGINEERING & CONSTRUCTION CO. LT D. (SUPRA) WAS THAT, IF THE COMPONENTS ARE DISTINCTLY IDENTIFIABLE EVEN IN A SINGLE CONTRACT IT CANNOT BE CONSIDERED AS COMPOSITE CONTR ACT. THIS FINDING OF THE TRIBUNAL WAS RENDERED BY FOLLOWING THE SUPRE ME COURT JUDGMENT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY I NDUTRIES (SUPRA). THIS TRIBUNAL IN POSCO (SUPRA) ON THESE SPECIFIC FACTS OBSERVED THAT, SIMPLY BECAUSE SUPPLY OF EQUIPMENT A ND RENDITION OF SERVICES IS TO ONE PARTY, FOR A COMMON PURPOSE, IT COULD NOT BE TREATED AS A COMPOSITE CONTRACT. LD.COUNSEL FURTHER SUBMITTED THAT, THIS TRIBUNAL THEN PROCEEDED TO EXAMINE, WHETHER IN COME FROM OFFSHORE SUPPLY OF EQUIPMENT COULD BE BROUGHT TO TA X IN INDIA. THERE THE DR TOOK A PLEA THAT, IF SALE CONSIDERATIO N INCLUDED COMPENSATION TOWARDS RENDERING OF SOME SERVICES IN CONNECTION WITH INSTALLATION AND COMMISSIONING OF EQUIPMENT OF INDIA, THEN TO THAT EXTENT INCOME SHOULD BE BROUGHT TO TAX IN INDI A. IN PARA 4.7.2, THIS TRIBUNAL ALSO NOTED THE POSITION OF REVENUE TH AT TRANSFER OF TITLE OUTSIDE INDIA WAS NOT RELEVANT AND IT WAS THE PERFO RMANCE GUARANTEE WHICH WAS IMPORTANT AND DECISIVE OF THE T AXABILITY OF SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 72 INCOME. AS HAS BEEN THE CONSISTENT POSITION OF THE DEPARTMENT, LD. COUNSEL SUBMITTED THAT DR FAILED TO SHOW ANY SUCH A CTIVITY, AND TRIBUNAL NOTES IN THE SAID PARAGRAPH THAT THE DR KE PT HARPING ON THE GENERAL SUBMISSIONS THAT THE CONSTRUCTION OF TH E PLANT WHICH INCLUDED OFFSHORE SUPPLIES COULD NOT HAVE BEEN COMP LETED WITHOUT INVOLVEMENT OF PE. LD. COUNSEL SUBMITTED THAT IN PA RA 4.7.2 (LC) , LD. CIT DR'S CONTENTION WERE NOTED BY THE TRIBUNAL ON THE FACTS OF THAT CASE IN OFFSHORE SUPPLY CONTRACT, THAT THE ASS ESSEE THEREIN WAS TO PROVIDE TRAINING, INSTILLATION, TESTING, COMMIS SIONING OF SUCH EQUIPMENT IN INDIA WHICH SHOWED THAT THE ASSESSEE W AS REQUIRED TO PUT THE EQUIPMENT IN A DELIVERABLE STATE IN INDIA. HE SUBMITTED THAT THE TRIBUNAL NOTED IN THIS PARAGRAPH THE CONTENTION OF THE REVENUE THAT SINCE SO MANY ACTIVITIES WERE TO BE DONE IN IN DIA IN CONNECTION WITH THE TRAINING, INSTALLATION AND COMMISSIONING O F THE EQUIPMENT, THE PROPERTY IN THE EQUIPMENT WOULD PASS ONLY ON CO MPLETION OF SUCH ACTIVITIES IN INDIA. IN PARA 4.7.2 (LD), THE T RIBUNAL GAVE ITS FINDING THAT ON THE FACTS OF THAT CASE THERE WAS MA TERIAL ON RECORD TO INDICATE THAT APART FROM TRAINING THE ASSESSEE WAS OBLIGED TO CARRY OUT CERTAIN ACTIVITIES ASSOCIATED WITH THE ERECTION AND COMMISSIONING OF THE EQUIPMENT IN INDIA. 94. LD. COUNSEL SUBMITTED THAT IN THE CASE OF POSCO( SUPRA), TRIBUNAL ADDRESSED THE QUESTION THAT, IRRESPECTIVE OF SUCH ACTIVITIES IN INDIA THE DECISIVE QUESTION TO BE ANSWERED WAS W HETHER THE TITLE IN THE GOODS PASSED IN INDIA OR OFFSHORE. LD. COUNS EL SUBMITTED THAT REVENUE'S ARGUMENTS WERE REJECTED BY TRIBUNAL BY FO LLOWING THE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 73 SPECIAL BENCH DECISION IN THE CASE OF MOTOROLA INC V. DCIT [2005] 95 ITD 269 AS WELL AS THAT OF THE SUPREME COURT IN ISHIKAWAJI MA (SUPRA) JUDGMENT. 95. THE NEXT QUESTION DECIDED BY TRIBUNAL IN POSCO WAS WHETHER THE SALE PRICE INCLUDED ANY CONSIDERATION F OR SERVICES RENDERED OR TO BE RENDERED IN INDIA. WHILE REFERRIN G TO THE SUMMARY OF PRICES IN PARA 4.7.2 (2.B) , THE TRIBUNAL FOUND THAT THE SCHEDULE OF SUMMARY OF PRICES INCLUDED FOREIGN SUPERVISION C HARGES WHICH WERE SUPERVISION CHARGES IN INDIA DURING ERECTION, START UP, COMMISSIONING AND PERFORMANCE GUARANTEE TESTS. IT W AS IN THIS CONTEXT THAT THE TRIBUNAL CAME TO THE CONCLUSION IN PARA (2.D) THAT CERTAIN REVENUES HAD TO BE ATTRIBUTED ON ACCOUNT OF THE ALLEGED ACTIVITIES CARRIED OUT IN INDIA WHICH WERE BUILT IN TO THE OVERALL PRICE OF THE EQUIPMENT. 96. COMING TO THE FACTS OF THE PRESENT CASE, LD. C OUNSEL SUBMITTED THAT THERE ARE SEPARATE CONTRACTS FOR ONS HORE SERVICES (BARRING ROSA), WHERE IT IS CLEARLY PROVIDED THAT A SSESSEE SHALL BE PROVIDING SUPERVISION SERVICES IN RESPECT OF ERECTI ON, COMMISSIONING, PERFORMANCE GUARANTEE TESTING ETC. H E SUBMITTED THAT THERE ARE INSTANCES, WHERE APART FROM PROVIDIN G SUPERVISION SERVICES IN RESPECT OF THESE ACTIVITIES, THE ACTUAL ERECTION, COMMISSIONING, PERFORMANCE, GUARANTEE AND PG TESTIN G WAS DONE BY THE ASSESSEE IN INDIA. LD. COUNSEL SUBMITTED THA T ALL PROFITS ARISING ON ACCOUNT OF THESE ACTIVITIES IN INDIA HAV E ALREADY BEEN OFFERED TO TAX AND AS SUCH THERE IS NO REVENUE WHIC H PERTAINS TO ANY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 74 ACTIVITIES CARRIED OUT IN INDIA WHICH HAS ALREADY N OT BEEN OFFERED AND BROUGHT TO TAX BY THE DEPARTMENT. THUS, ACCORDI NG TO HIM RELIANCE PLACED ON POSCO(SUPRA) BY LD.CIT.DR IS OF NO CONSEQUENCE AND DOES NOT APPLY TO THE FACTS OF THE PRESENT CASE. 97. LD. COUNSEL SUBMITTED THAT MUCH EMPHASIS WAS PAID BY LD. CIT.DR ON TRAINING OF THE OWNER'S PERSONNEL BY ASSESSEE VIS- A- VIS THE OPERATION OF BTG EQUIPMENT. THIS SUBMISSION BY LD. CIT. DR WAS IN SUPPORT OF HIS OVERALL CONTENTION THAT, I F ORIGINAL PRICE OF THE EQUIPMENT INCLUDED CERTAIN ACTIVITIES TO BE CAR RIED OUT IN INDIA THEN THE SAME SHOULD BE BROUGHT TO TAX IN INDIA. LD . COUNSEL SUBMITTED THAT THE ENTIRE ENDEAVOR OF LD. CIT.DR IS TO CONFUSE THE FACTS, WITH THE ULTIMATE OBJECTIVE OF SEEKING A REM AND. IT WAS SUBMITTED BY LD. CIT.DR THAT A BARE PERUSAL OF THE BOTIBOORI PROJECT, TERMS AND CONDITIONS WHERE THE PRICES IN RESPECT OF THE SAID PROJECT INDICATED THAT LUMP-SUM PRICE INDICATE , (A) A PRICE OF 111 MILLION DOLLARS AS FULL CONSIDERATION FOR THE E QUIPMENT SUPPLY PRICE ON CFR INDIAN PORT, AND (B) A PRICE OF 4 MIL LION DOLLARS HAS BEEN GIVEN AS FULL CONSIDERATION FOR THE AGGREGATE SERVICES PRICE FOR THE ERECTION OF TURBINE AND GENERATOR, SUPERVISION OF ERECTION OF BALANCE BTG PACKAGE, SUPERVISION OF TESTING AND CO MMISSIONING, CONDUCTING OF PERFORMANCE TESTING, TRAINING OF OWNE R'S PERSONNEL. 98. LD. COUNSEL SUBMITTED THAT FROM THE CONTRACT IT CAN BE SEEN THAT THE COMPONENT OF TRAINING IS ALREADY INCLUDED IN THE SERVICES PORTION, FOR WHICH SEPARATE VALUE HAS BEEN INDICATE D. THUS, THE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 75 ENTIRE CASE OF THE REVENUE THAT TRAINING WAS BUILT INTO THE PRICE OF THE EQUIPMENT FALLS FLAT INTO ITS CASE. 99. LD. COUNSEL REFERRED KINDA PHASE IV CONTRACT, WH ICH IS ON PAGE 1280 IN VOL.-II OF PAPER BOOK FOR ASSESSMENT Y EAR 2012-13 AND 2013-14. HE SUBMITTED THAT IN THIS CONTRACT, TH E SCOPE OF CONTRACT HAS BEEN GIVEN ON PAGE 1287 WHICH PROVIDES FOR SUPPLY OF BTG EQUIPMENT TO THE OWNER. THE CONTRACT PRICE IS G IVEN IN CLAUSE 13 ON PAGE 1304 WHICH IS USD 106 MILLION 25,000 ONL Y WHICH INCLUDES USD 150000 TOWARDS TRAINING OF THE OWNER'S PERSONNEL AS PROVIDED IN CLAUSE 40. CLAUSE 40 OF THE AGREEMENT I S AT PAGE 1327 OF THE PAPER BOOK WHICH PROVIDES THAT THE SUPPLIER, I.E THE ASSESSEE SHALL PROVIDE TRAINING IN ENGLISH TO THE OWNER'S PE RSONNEL FOR 10 MONTHS IN PEOPLE REPUBLIC OF CHINA. THUS, THE ARGUM ENT OF THE DR THAT TRAINING WAS CARRIED OUT IN INDIA IS UNSUBSTAN TIATED AND AT BEST ONLY A WILD AND GENERAL AVERMENT WHICH THE DEP ARTMENT USUALLY MAKES, AS NOTED BY THE TRIBUNAL IN POSCO(SU PRA) JUDGMENT IN PARA 4.7.2 (L.B). THIS AVERMENT IS FURTHER SUBST ANTIATED BY THE KINDA SUPPLEMENT CONTRACT WHICH IS AT PAGE NO. 1073 OF PAPER BOOK VOL.-ILL FOR ASSESSMENT YEAR 2010-1,1 WHERE AGAIN C LAUSE 40 OF THE AGREEMENT ON PAGE 1119 PROVIDES THE TRAINING HAS TO BE CARRIED OUT IN CHINA. SIMILAR CLAUSE IS FOUND IN THE RATNAGIRI CONTRACT AT PAGE 117 OF PAPER BOOK VOL.-III FOR ASSESSMENT YEAR 2010 -11 WHERE AGAIN CLAUSE 40 ON PAGE 1182, IT IS PROVIDED THAT TRAININ G HAS TO BE PROVIDED IN CHINA. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 76 100 . LD. COUNSEL SUBMITTED THAT IN VIEW OF THE ABOV E, IT HAS BEEN ESTABLISHED BEYOND DOUBT THAT THE ALLEGATIONS MADE BY LD. CIT. DR ARE BASELESS AND CORRECT PICTURE IS, THAT WHERE TRA INING HAS BEEN INCLUDED IN THE OFFSHORE SUPPLY PRICE, SUCH TRAININ G HAS BEEN CONDUCTED IN CHINA AND IN ALL CASES WHERE TRAINING WAS TO BE PROVIDED IN INDIA IT HAS BEEN INCLUDED IN THE ONSHO RE SERVICES PORTION AND HAS ALREADY BEEN OFFERED TO TAX. 101. LD. COUNSEL SUBMITTED THAT, TO BE FAIR TO THE D EPARTMENT, THERE ARE CERTAIN CONTRACTS NAMELY (I) THE HISAR CO NTRACT AT PAGE 980 IN VOL.-II OF THE PAPER BOOK RELATING TO THE AS SESSMENT YEAR 2010-11, WHERE THE SCOPE OF WORK HAS BEEN GIVEN ON PAGE 989 CLAUSE I. HE SUBMITTED THAT A CLOSER PERUSAL OF SCO PE OF WORK REVEALS THAT AT POINT NO. G, THAT THE TRAINING OF O WNER'S PERSONNEL FOR USE OF THE EQUIPMENT IS INCLUDED IN THE PRICE OF TH E CONTRACT. 102. LD. COUNSEL SUBMITTED THAT IN FIRST BLUSH IT WOUL D BE SEEN THAT THE TRAINING WOULD FORM PART OF THE OFFSHORE S UPPLIES BUT A CLOSER SCRUTINY OF THE CONTRACT REVEALS OTHERWISE. HE SUBMITTED THAT ON PAGE 1022 OF THE SAME PAPER BOOK, THE GENERAL CO NDITIONS OF THE CONTRACT PROVIDES FOR TRAINING TO BE PROVIDED AT SI TE FOR A PERIOD OF 9 MONTHS AND WHICH IS GENERALLY TO BE PROVIDED FOR TR AINING THE PERSONNEL TO BE ABLE TO OPERATE THE EQUIPMENT. LD. COUNSEL SUBMITTED THAT THE QUESTION WHICH ARISES IS, WHETHE R THIS CAN BE THE TRAINING HAVING ITS OWN EXISTENCE OR WHETHER SU CH ACTIVITY HAS TO BE TREATED AS MERELY INCIDENTAL TO THE SUPPLY OF EQUIPMENT. LD. COUNSEL SUBMITTED THAT THIS PECULIAR ASPECT WAS CO NSIDERED BY THE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 77 HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF PIRE LLI CAVI E SISTENI VS. ACIT (2014) 151 1TD 19 . IN PARA 13 (C) OF ITS JUDGMENT, THE TRIBUNAL HAS ACCEPTED THE SUBMISSION OF ASSESSEE T HEREIN, THAT IMPRINTING OF TRAINING OF PERSONNEL IS ONLY INCIDEN TAL TO SUPPLY, AND IS NOT A REVENUE GENERATING ACTIVITY SEPARATELY. HE SUBMITTED THAT SIMILAR OBSERVATIONS WERE MADE BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF LINDE AG VS. DDIT (2014) 365 ITR L(DEL) , WHERE THE QUESTION THAT WAS BEING CONSIDERED WAS THAT, WHETHE R IN A CASE OF SUPPLY, ACTIVITIES RELATING TO DESIGN AND ENGINEERI NG COULD BE SEPARATELY BROUGHT TO TAX AS FEE FOR TECHNICAL SERV ICES. IN PARES 94 AND 95, HONBLE COURT WAS OF THE OPINION THAT IN EV ERY CONTRACT FOR MANUFACTURE AND INSTALLATION THERE ARE CERTAIN SERV ICES WHICH ARE INEXTRICABLE LINKED WITH SUCH MANUFACTURE, INSTALLA TION AND SUPPLY AND CANNOT BE SEPARATELY EVALUATED FOR TREATING THE M AS FEE FOR TECHNICAL SERVICES. WHILE DOING SO, HONBLE COURT R EFERRED TO THE DECISION OF AAR IN THE CASE OF ROTEM COMPANY, 279 ITR 165 . 103. LD. COUNSEL THUS CONCLUDED THE REBUTTAL IN RESP ECT OF LD. CIT.DR'S ARGUMENT RELATING TO TRAINING SERVICES, BY TRYING TO ESTABLISH THAT, WHERE TRAINING SERVICES WERE INCLUD ED IN THE OFFSHORE SUPPLY PORTION, THEY WERE CARRIED OUT IN CHINA AND WHERE THE TRAINING WAS TO BE DONE IN INDIA IT FORMED PART OF THE ONSHORE SERVICES PORTION OF THE CONTRACTS FOR WHICH REVENUE HAS ALREADY BROUGHT TO TAX. HE ALSO SUBMITTED THAT, BE THAT AS IT MAY, IN VIEW OF THE SETTLED PRINCIPLES OF LAW, SUCH TRAINING ACTIVI TIES WERE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 78 INEXTRICABLY LINKED TO THE SUPPLY PORTION AND WERE INCIDENTAL, NOT BEING REVENUE GENERATING ACTIVITY SEPARATELY. 104. HE SUBMITTED THAT LD. CIT. DR REFERRED TO BOTIBU RI PROJECT WHERE MECHANICAL COMPLETION TESTING HAS BEEN DISCUS SED AND HAS TRIED TO EMPHASISE THE POINT THAT THE SUPERVISION O F ERECTION AND COMMISSIONING BY ASSESSEE WOULD NOT INCLUDE THESE T ESTS. LD. COUNSEL REFERRED TO THE DISCUSSION IN POSCO'S (SUPR A) JUDGMENT IN PARA 4.7.2 (2.D), IN THE CONTEXT OF EXAMINATION OF TAXABILITY OF TRAINING CHARGES. THE COURT HAS GIVEN AN EXAMPLE AN D COME TO THE CONCLUSION THAT WHERE TRAINING COSTS, FORM PART OF THE OFFSHORE SUPPLIES, THE PRICE HAS TO BE SPLIT TO DETERMINE TH E REVENUE ATTRIBUTABLE TO TRAINING. IN PARA (2.H) THE TRIBUNA L DISCUSSED THE ELEMENT OF TESTING AND INSPECTION AT SITE AND HAS H ELD THAT IF THE CHARGES FOR THE SAME ARE NOT INCLUDED IN ANY OTHER COMPONENT IN PRICE, THEN THESE HAVE TO BE CONSIDERED AS PART AND PARCEL OF THE SAME PRICE WHICH WOULD REQUIRE ITS SPLITTING UP TO DETERMINE THE AMOUNT ATTRIBUTABLE TO SUCH TESTING CHARGES IN INDI A. SINCE THE INFORMATION WAS NOT AVAILABLE, THE TRIBUNAL FOUND I T FIT TO RESTORE THE MATTER TO THE A.O. TO MAKE SUCH DETERMINATION. 105. LD. COUNSEL REFERRED TO THE FACTS OF BUTIBORI PR OJECT, AND SUBMITTED THAT ARTICLE 10 ON PAGE 117 COVERS THE AC CEPTANCE PROCEDURES. ARTICLE 10.1.1 DEALS WITH THE CONTRACTO R PERFORMING SHOP TESTS AT THE PLACE OF MANUFACTURE. ARTICLE 10. 2 DEALS WITH MECHANICAL COMPLETION. LD. COUNSEL SUBMITTED THAT T HE LD. CIT DR TRIED TO EMPHASISE THE POINT THAT SINCE THE CONTRAC TOR WAS ASSISTING SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 79 IN MECHANICAL COMPLETION AND SUCH ACTIVITIES WERE N OT FORMING PART OF THE ONSHORE SERVICES, SOME PORTION OF THE REVENU ES WERE TO BE ATTRIBUTED TO INDIA. HE SUBMITTED THAT THE PROVISIO NS OF THE CONTRACT HAVE NOT BEEN CAREFULLY REFERRED TO AND AS SUCH WRO NG CONCLUSION HAVE BEEN DRAWN. HE SUBMITTED THAT ENDEAVOR OF LD.C IT.DR WAS TO SOMEHOW ESTABLISH THAT APART FROM THE PG TESTING, C ERTAIN OTHER TESTS WERE BEING CARRIED OUT BY ASSESSEE IN INDIA, FOR WHICH REVENUE NEEDED TO BE ATTRIBUTED. LD. COUNSEL SUBMITTED THAT CLOSE READING OF CLAUSE 10.2 ON PAGE 117 WHICH REFERS TO MECHANICAL COMPLETION REVEALS THAT THE CONTRACTOR I.E. ASSESSEE WAS ONLY REQUIRED TO ASSIST THE PURCHASER IN MECHANICAL COMPLETION ACTIVITIES O F THE BTG PACKAGE. CLAUSE 10.3.1 ON PAGE 118 PROVIDES THAT TH E CONTRACTOR SHALL ASSIST THE PURCHASER IN PREPARING (I) MECHANI CAL COMPLETION CHECK LISTS FOR THE BTG PACKAGE AND (II) A PLAN OF PRE-COMMISSIONING TESTS FOR THE SYSTEMATIC CHECKING. CLAUSE 10.3.2 PR OVIDES THAT THE CONTRACTOR SHALL ASSIST THE PURCHASER IN PERFORMING THE PRE- COMMISSIONING TESTS TO DEMONSTRATE THAT SUCH BTG PA CKAGE CONFIRMS TO THE REQUIREMENTS OF THE CONTRACT. CLAUS E 10.4 REFERS TO THE CONTRACTOR ASSISTING THE PURCHASER IN PREPARING A MECHANICAL COMPLETION REPORT. CLAUSE 30.5 REFERS TO INITIAL OP ERATION IT IS PROVIDED THAT THE CONTRACTOR SHALL SUPERVISE THE PU RCHASER'S TESTING THE UNIT FOR CONTINUOUS OPERATION FOR 14 DAYS. LD. COUNSEL SUBMITTED THAT IT IS CLEAR THAT ALL THAT THE CONTRA CTOR WAS DOING WAS ASSISTING THE PURCHASER IN CARRYING OUT THESE TESTS AND THIS ACTIVITY FORM PART OF THE OVERALL SUPERVISION ACTIVITY AND T HAT THERE IS NO SUBSTANCE IN THE ARGUMENT OF LD. CIT DR THAT THE AS SESSEE WAS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 80 CARRYING OUT ANY ACTIVITY IN INDIA FOR WHICH THE PR ICE WAS BUILT IN THE OVERALL PRICE OF OFFSHORE SUPPLIES. 106. HE SUBMITTED THAT CERTAIN CLAUSE IN BUTIBORI P ROJECT EMPHASISES THAT THERE ARE CERTAIN TESTS WHICH WERE BEING CARRIED OUT IN INDIA, FOR WHICH LD. CIT.DR SUBMITTED THAT P RICE WAS BUILT INTO THE OFFSHORE SUPPLIES. LD. COUNSEL REFERRED TO CLAUSE 10 ON PAGE 529 WHICH REFERS TO SITE TESTS. HE SUBMITTED T HAT BARE PERUSAL OF CLAUSE 10.01 STATES THAT ON COMPLETION OF INSTAL LATION AND COMMISSIONING OF EQUIPMENT, THE FOLLOWING CHECKS SH ALL BE CARRIED OUT WITH THE MAXIMUM AVAILABLE LOAD ........... THI S IN ITSELF IS EVIDENT OF THE FACT THAT THESE ACTIVITIES ARE POST THE INST ALLATION AND COMMISSIONING AND ARE FORMING PART OF THE PG TESTIN G WHICH LD. CIT. DR HAS FAIRLY ADMITTED THAT ALL REVENUES PERTA INING TO PG TESTING HAVE BEEN OFFERED TO TAX. LD. COUNSEL SUBMI TTED THAT THERE IS NO SUBSTANCE IN THE ARGUMENT OF THE DR THAT CERTAIN TESTS HAVE BEEN CARRIED OUT IN INDIA WHICH DO NOT FORM PART OF THE ONSHORE SERVICES CONTRACT. 107. LD. COUNSEL THEN ADDRESSED THE NEXT ISSUE RAISED BY LD. CIT. DR WHILE PLACING RELIANCE ON THE POSCO (SUPRA) JUDG MENT IS ON THE CLAUSE RELATING TO LIQUIDATED DAMAGES. LD. COUNSEL SUBMITTED THAT HAVING REFERRED TO ARTICLE 9, LD. CIT DR HAS STATED THAT BY DEFINITION, LIQUIDATED DAMAGES ARISE IN INDIA AND A S SUCH BY NECESSARY IMPLICATION THIS IS A REVENUE GENERATING ACTIVITY AS THE PRICE OF THE EQUIPMENT WOULD INCLUDE A PROVISION FO R SUCH DAMAGES. HE SUBMITTED THAT BARE PERUSAL OF ARTICLE 9 WOULD S HOW THAT THE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 81 LIQUIDATED DAMAGES ARE PROVIDED FOR IN RESPECT OF T HE DELAY IN THE DELIVERY OF EQUIPMENT AND LIQUIDATED DAMAGES FOR TH E STEAM TURBINE GENERATOR, STEAM TURBINE HEAT, STEAM TURBINE EFFICI ENCY AND AUXILIARY POWER CONSUMPTION. TO SOME UP LD. COUNSEL SUBMITTED THAT LIQUIDATED DAMAGES COULD BE LEVIED BY THE OWNE R IN THE EVENT THE ASSESSEE DELAYED THE DELIVERY OF THE EQUIPMENT AND SECONDLY IF THE EQUIPMENT DID NOT PERFORM IN TERMS OF SPECIFICA TIONS GIVEN BY THE OWNER. LD. COUNSEL SUBMITTED THAT ASSESSEE FAIL S TO UNDERSTAND THAT IF IT WAS REQUIRED TO SUFFER LIQUIDATED DAMAGE S, IT WOULD ACTUALLY BE A COST IN HIS HANDS AND NOT A REVENUE G ENERATING ACTIVITY. ALSO, IN EVERY BUSINESS TRANSACTION RELAT ING TO SUPPLIES, PERFORMANCE GUARANTEE ARE ALWAYS TENDERED WITHOUT R ECOURSE TO WHICH THE USER OF THE EQUIPMENT WOULD NEVER BE ABLE TO SECURE HIS RIGHTS IN THE EVENT THE EQUIPMENT WAS DEFECTIVE OR DID NOT PERFORM IN TERMS OF THE SPECIFICATION. LD. COUNSEL SUBMITTE D THAT QUESTION WHICH NEEDS BE CONSIDERED IS THAT THE LEVY OF LIQUI DATED DAMAGES IS A CONTINGENCY AND BEING A CONTINGENT EVENT CAN THE DEPARTMENT TAKE THE PLEA THAT THERE IS SOME PROFIT EMBEDDED IN THE SALE PRICE OF THE EQUIPMENT? SIMILAR IS THE CASE FOR WARRANTIES A ND LATENT DEFECT. 108. LD. COUNSEL SUBMITTED THAT THESE ARE AGAIN CONTI NGENT EVENTS, I.E. IT MAY OR MAY NOT HAPPEN. THE VERY FAC T THAT THERE IS AN UNCERTAINTY ATTACHED TO IT, THE SAME CANNOT BE A BA SIS FOR BRINGING ANY PROFITS TO TAX IN INDIA ON ACCOUNT OF OFFSHORE SUPPLIES. 109. LD. COUNSEL SUBMITTED THAT ALL THESE ISSUES DO NO T HAVE ANY BEARING ON THE MATTER SINCE WHAT IS TO BE CONSIDERE D TRANSFER OF TITLE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 82 IN GOODS WHICH HAS TAKEN PLACE OUTSIDE INDIA AND TH US NO TAXABLE EVENT TOOK PLACE IN INDIA. WHETHER THE ASSESSEE MAY HAVE TO INCUR SUBSEQUENT COSTS ON REPAIR, WARRANTIES ETC. DO NOT HAVE ANY BEARING ON THE SAID TAXABLE EVENT I.E. OFFSHORE SUPPLIES. B E THAT AS IT MAY, THESE PRODUCT WARRANTIES ETC. ARE NORMAL TRADE WARR ANTIES WHICH ARE ATTACHED TO ALL EQUIPMENT WHETHER IT IS FOR IND USTRIAL USE OR PERSONAL USE. LD. COUNSEL PLACED RELIANCE ON THE DE CISION OF THE DELHI HIGH COURT IN THE CASE OF L.G. CABLE LTD. (SU PRA). 110. LD. COUNSEL SUBMITTED THAT AS FAR AS THE DECISI ON OF THE TRIBUNAL IN POSCO'S CASE IS CONCERNED THE TRIBUNAL FAILED TO CONSIDERED THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF LG CABLE, AND AS SUCH TO THAT EXTENT, THE OBSERV ATION OF THE TRIBUNAL AND THE CONCLUSIONS ARE PER INCURIUM, AND CANNOT BE RELIED UPON. HE SUBMITTED THAT IT WOULD ALSO BE RELEVANT TO REFER TO PARA 9 OF THE SUBMISSION FILED ON 13.04.2017 BY LD,CIT. DR , WHERE IN HIS UNDERSTANDING, EVEN THE LIABILITY OF BEARING INSURA NCE DURING THE CONSTRUCTION, ERECTION, WARRANTY AND LATENT DEFECTS PERIODS SHALL BE A REVENUE GENERATING ACTIVITY REQUIRING ATTRIBUTION . HE THUS SUBMITTED THAT FOR THE REASONS STATED ABOVE, THIS A LSO HAS NO BEARING ON THE TRANSFER OF TITLE OF EQUIPMENT OUTSI DE INDIA AND HENCE THIS ARGUMENT HAS NO SUBSTANCE. 111. LD. COUNSEL CONTROVERTED THE ARGUMENT OF LD. CI T.DR, REGARDING INCOME FROM DESIGN AND ENGINEERING SERVIC E THAT COULD BE ATTRIBUTED. HE SUBMITTED THAT, WHAT IS OF IMPORT ANCE ON THE FACTS OF THE PRESENT CASE IS REGARDING TERMS OF THE SCOPE OF WORK. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 83 ASSESSEE WAS REQUIRED TO SUPPLY ONLY BTG EQUIPMENT AND THE DRAWING AND DESIGNS AND THE SCOPE OF WORK COVERED T HE DESIGNING AND ENGINEERING PART ONLY AS INCIDENTAL TO THE SUPP LY OF EQUIPMENT. HE SUBMITTED THAT LD. CIT DR RELIED ON BUTIBORI PRO JECT WHERE THE SCOPE OF WORK HAS BEEN GIVEN ON PAGE 2 AND THE INTE NTION OF THE PARTIES HAS BEEN EXPRESSED IN SO MANY TERMS AND WHE RE THE CONTRACTOR HAS EXPRESSED ITS WILLINGNESS AND THE PU RCHASER DESIRES THAT THE CONTRACTOR SHALL PROVIDE SUPPLY OF AND SER VICES FOR BTG EQUIPMENT. HE SUBMITTED THAT PREDOMINANT SCOPE OF W ORK COVERS THE DESIGN, ENGINEERING, MANUFACTURING ETC. THUS, T HE FACTS OF POSCO'S CASE ARE COMPLETELY DIFFERENT BECAUSE IN TH AT CASE DESIGNING AND ENGINEERING WAS OF THE COMPLETE PLANT AND FOR WHICH SEPARATE REVENUE WAS ATTRIBUTED. ON THE FACTS OF TH AT CASE, THE ASSESSEE PLEADED THAT SINCE THE DRAWING AND DESIGNS RELATED TO THE EQUIPMENT THUS REVENUE ATTRIBUTABLE TO THE SAID ACT IVITY COULD ALSO NOT BE BROUGHT TO TAX IN INDIA. THIS ARGUMENT WAS R EJECTED BY THE TRIBUNAL. TO SUPPORT THE ABOVE CONTENTIONS LD. COUN SEL DREW OUR ATTENTION ROSA 1 CONTRACT WHERE AT PAGE 1269 IN PAR A 6.9, MANUFACTURING DRAWINGS HAVE BEEN DEFINED. THE CLAUS E SPECIFICALLY PROVIDES FOR THE CONTRACTOR TO PROVIDE TO THE EMPLO YER OR THE ENGINEER IN-CHARGE OVER THE PROJECT, THE MANUFACTUR ING DRAWINGS, DESIGNS, CALCULATIONS AND PRACTICES ETC. THIS CLEAR LY EVIDENCES THAT THE DRAWING AND DESIGNING WAS ONLY RELATED TO BTG E QUIPMENT AND NOT FOR THE POWER PROJECT AS A WHOLE AND AS SUCH TH E OBSERVATIONS MADE IN THE POSCO CASE ARE OF NO CONSEQUENCE. HE SU BMITTED THAT FURTHER EVEN IN THE BUTIBORI PROJECT, THE DESIGNING AND ENGINEERING SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 84 IS DISCUSSED AT PAGE 99 AND CLAUSE 2.3.1 SPECIFICAL LY PROVIDES THAT THE CONTRACTOR SHALL BE RESPONSIBLE FOR THE DESIGNI NG AND ENGINEERING OF THE BTG PACKAGE WHICH CONFIRMS TO TH E DESIGN CRITERIA INCLUDING SAFETY AND ENVIRONMENTAL STANDAR D SET FORTH IN THE TECHNICAL SPECIFICATIONS FOR THIS CONTRACT. THE TER M TECHNICAL SPECIFICATIONS HAS BEEN DEFINED ON PAGE 94 AND MEAN S THE GENERAL SPECIFICATIONS, TECHNICAL DOCUMENTS AND SPECIFICATI ONS AND DESIGN CRITERIA SETTING OUT A DESCRIPTION AND SPECIFICATIO N FOR THE WORKS. 112. LD. COUNSEL FURTHER TO ILLUSTRATE THIS HE REFERR ED TO JSW CONTRACT ON PAGE 1082, WHERE THE TERM DRAWINGS HAS BEEN EXPLAINED IN CLAUSE 3.11 WHICH PROVIDES THAT THE DR AWINGS SHALL MEAN AUXILIARY AND INSTRUMENTAL SUPPLY UNDER THE CO NTRACT AND INCLUDES ANY DRAWINGS FURNISHED AND/OR PROVIDED BY THE OWNER OR THE ENGINEER AS A BASIS FOR PROPOSAL AND FORMING PA RT OF SPECIFICATION. HE SUBMITTED THAT SIMILARLY, IN BUTI BORI PROJECT THE TERM DRAWINGS HAVE BEEN DISCUSSED. HERE ALSO IT IS PRESCRIBED THAT THE DRAWINGS REFERS TO THE DRAWING FURNISHED BY THE PURCHASER TO THE CONTRACTOR AND ENGINEERING DATA AND DRAWINGS SU BMITTED BY THE CONTRACTOR DURING THE PROGRESS OF THE WORK. LD. COU NSEL SUBMITTED THAT ALL THESE WOULD ESTABLISH BEYOND DOUBT THAT TH E DESIGNING AND ENGINEERING WAS NOT A SEPARATE ACTIVITY, BUT WAS IN CIDENTAL TO THE SUPPLY OF EQUIPMENT AND WAS NOT A SEPARATE REVENUE GENERATING ACTIVITY, UNLIKE THE FACTS IN POSCO'S CASE. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 85 113. LD. COUNSEL RELIED ON THE DECISION OF THE HON'BL E DELHI HIGH COURT IN THE CASE OF LINDE AG VS. DDIT (SUPRA), WHE REIN IN PARA 94, SIMILAR ISSUE HAS BEEN CONSIDERED AND IT HAS BEEN H ELD AS UNDER: 'IT IS SUBMITTED THAT THE WORK RELATING TO DESIGN A ND ENGINEERING IS INEXTRICABLY LINKED WITH THE MANUFAC TURE ANA 1 FABRICATION OF THE MATERIAL AND EQUIPMENT TO BE SUP PLIED OVERSEAS AND THIS WORK WAS ALSO PERFORMED WHOLLY OU TSIDE INDIA. THESE SUBMISSIONS HAVE NOT BEEN EVALUATED. Q UESTION NO. (II) FRAMED FOR CONSIDERATION OF THE AUTHORITY INVITES A RULING ON THE BASIS THAT THE OFFSHORE SERVICES FALL ING WITHIN THE SCOPE OF SERVICES BY LINDE ARE INEXTRICABLY LIN KED WITH (HE OFFSHORE SUPPLY OF EQUIPMENT AND MATERIAL AND CANNO T BE CONSIDERED AS TECHNICAL SERVICES ON A STANDALONE BA SIS. THIS IS A QUESTION OF FACT WHICH WOULD HAVE TO BE CONSID ERED AT AN APPROPRIATE STAGE. HOWEVER, IF IT IS ACCEPTED THAT THE SERVICES PROVIDED BY LINDE RELATING TO DESIGN AND ENGINEERIN G ARE INEXTRICABLY LINKED WITH THE MANUFACTURE AND FABRIC ATION OF THE MATERIAL AND EQUIPMENT TO BE SUPPLIED OVERSEAS AND FORM AN INTEGRAL PART OF THE SAID SUPPLIES, THEN THE SER VICES RENDERED BY LINDE WOULD NOT BE AMENABLE TO TAX UNDE R SECTION 9(1)(VII) OF THE ACT. CONSIDERATION FOR SUC H SERVICES WOULD NOT BE CONSIDERED AS FEES FOR TECHNICAL SERV ICES FOR THE PURPOSES OF SECTION 9(1)(VII) OF THE ACT. 114. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF RECORDS AND THE JUDICIAL PREC EDENTS RELIED UPON BY THEM PLACED BEFORE US. ASSESSEE HAS FILED BEFORE US RESPONDENTS PAPER BOOK WHICH HAS BEEN VERIFIED AND EXAMINED CAR EFULLY. 115. DURING THE COURSE OF HEARING HELD ON 21.03.2017, 22.03.2017, 23.03.2017, 10.04.2017, 12.04.2017, 01. 05.2017 AND 02/05/2017, BOTH LD. COUNSEL AS WELL AS LD. CIT.DR ADVANCED SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 86 VARIOUS ARGUMENTS BOTH ORAL AS WELL AS WRITTEN, SUB MISSIONS, REJOINDER, A SUMMARY OF WHICH HAVE BEEN REPRODUCED HEREINABOVE. LD. COUNSEL AS PER HIS SUBMISSIONS ON THE LAST DATE OF HEARING, SUBMITTED ON 15.05.2017, DETAILED SUBMISSION INCORP ORATING THE ORAL ARGUMENTS ADVANCED BY LD. COUNSEL HIMSELF, ORA L ARGUMENTS ADVANCED BY LD. CIT. DR IN THE LIGHT OF WRITTEN SUB MISSIONS, AND THE REJOINDER OF LD. COUNSEL. IT WAS AGREED BY LD. CIT.DR THAT, ON RECEIPT OF THE SAME, BY HIM OR HIS OFFICE, IN THE E VENT ANY FURTHER SUBMISSION NEEDS TO BE ADVANCED BY DEPARTMENT, THE SAME WOULD BE COMPLETED ON OR BEFORE 30/05/17. IT HAS BEEN AGR EED UPON BY BOTH THE SIDES THAT, NOTHING WOULD BE SUBMITTED IN WRITING BY EITHER PARTIES BEYOND 30.05.2017. WE HAVE NOT RECEIVED ANY FURTHER SUBMISSIONS FROM LD. CIT.DR, AS ON 30.05.2017. HON BLE DELHI HIGH COURT WAS PLEASED TO GRANT EXTENSION VIDE ORDE R DATED 18.05.2017, TO PASS ORDER IN THESE APPEAL BY 30.06. 2017, WE PROCEED TO DECIDE THE ISSUES ON THE BASIS OF MATERI ALS PLACED ON RECORD AS WELL AS THE NOTING MADE BY US WHILE THE M ATTER WAS BEING HEARD IN THE COURT. 116. DETAILED SUBMISSIONS ADVANCED BY BOTH THE SIDES HAVE BEEN REPRODUCED HEREINABOVE HOWEVER; IN A NUTSHELL THE S AME IS SUMMARIZED AS UNDER: LD. COUNSEL EMPHASISED AS UNDER: TWO TRANSACTIONS AND ITS CONSIDERATIONS HAVE BEEN B IFURCATED CONTRACTUALLY INTO SUPPLIES EFFECTED AND SERVICES R ENDERED. IT HAS BEEN SUBMITTED THAT THE SUPPLY OF EQUIPMENTS HA VE BEEN DEALT WITH SEPARATELY AND SERVICES RENDERED FOR SUP ERVISION, INSTALLATION/COMMISSIONING OF THE PROJECT HAS BEEN DEALT WITH SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 87 SEPARATELY IN THE AGREEMENT. LD. COUNSEL FURTHER SU BMITTED THAT FOR THE PURPOSES OF SUPERVISION BEING THE SERV ICE AGREEMENT IN ALL THE CONTRACTS, THE REVENUE RECEIVE D BY ASSESSEE HAS BEEN OFFERED TO TAX. HOWEVER AS THE SU PPLY OF EQUIPMENTS HAVE TAKEN PLACE OUT OF INDIA ON CIF/F.O .B. INOTERMS 2000, THE SAME CANNOT BE HELD TO BE TAXABL E IN INDIA DIRECTLY OR INDIRECTLY. WHEREAS CONTENTIONS ADVANCED BY LD. CIT.DR, WERE: LD. CIT.DR OBJECTED TO THE INTERPRETATION OF CONTRA CTS AS CARRIED OUT BY THE LD. COUNSEL. ACCORDING TO LD. CI T.DR, ASSESSEE HAS CONDUCTED ITS BUSINESS OPERATIONS FROM SUPERVISORY/FIXED PE IN INDIA AND THUS HAS ESTABLIS HED BUSINESS CONNECTION WITHIN THE MEANING OF EXPLANATI ON 2 AND 3 TO CLAUSE (I) OF SUB SECTION 1 OF SECTION 9 OF IN COME TAX ACT. LD. CIT.DR CONTENDED THAT PERMANENT ESTABLISHMENT S TOOD ESTABLISHED, AS PER ARTICLE 5 OF INDO-CHINA TAX TRE ATY. LD. CIT.DR SUBMITTED THAT THE AGREEMENTS ENTERED IN TO BY ASSESSEE WITH VARIOUS PROJECT OWNERS FOR SETTING UP OF POWER PLANTS IN INDIA ARE COMPOSITE CONTRACT THOUGH ENTER ED INTO SEPARATELY. HE SUBMITTED THAT SEPARATE AGREEMENTS E NTERED INTO FOR SUPPLY OF EQUIPMENT AS WELL AS SERVICE CON TRACT, HOWEVER ON PERUSAL OF THESE CONTRACTS, IT CAN BE AS CERTAINED THAT THESE ARE MUTUALLY INCLUSIVE WITH EACH OTHER. HE FURTHER SUBMITTED THAT DELIVERY OF EQUIPMENTS WO ULD NOT BE COMPLETED TILL THE GOODS ARE SUPPLIED AND COMMISSIO NED ON SITE WHICH EVENTUALLY WAS THE RESPONSIBILITY OF ASS ESSEE. LD. CIT.DR SUBMITTED THAT, GOODS HAVING BEEN SOLD O FFSHORE HENCE NOT TAXABLE IN INDIA, CANNOT BE ACCEPTED, AS THESE GOODS HAS FINALLY ARRIVED AT THE PROJECT SITE IN INDIA AN D HAS BEEN UTILISED FOR THE PURPOSES OF SETTING UP OF POWER PR OJECT BY ASSESSEE ITSELF. LD. CIT.DR SUBMITTED THAT THERE IS NO DISPUTE REGAR DING SERVICE PE EXISTING IN INDIA, FOR THE RELEVANT TRAN SACTION. AND THEREFORE INCOME HAS DEEMED TO HAVE ARISEN IN INDIA THROUGH THIS BUSINESS CONNECTION DIRECTLY AND INDIRECTLY. H E SUBMITTED THAT FOR THE PURPOSES OF PARAGRAPH 1 OF ARTICLE 7 O F DTAA BETWEEN INDIA AND CHINA, THAT ARE DIRECTLY OR INDIR ECTLY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 88 ATTRIBUTABLE TO PERMANENT ESTABLISHMENT INCLUDES PR OFITS ARISING FROM TRANSACTIONS IN WHICH THE PERMANENT ESTABLISHMENT HAS BEEN INVOLVED AND SUCH PROFIT SHA LL BE REGARDED AS ATTRIBUTABLE TO THE PERMANENT ESTABLISH MENT TO THE EXTENT APPROPRIATE TO THE PART PLAYED BY THE PE RMANENT ESTABLISHMENT IN THOSE TRANSACTIONS EVEN IF THOSE T RANSACTIONS ARE MADE OR REPLACED DIRECTLY WITH OVERSEAS HEAD OF FICE OF THE ENTERPRISE RATHER THAN WITH THE PERMANENT ESTABLISH MENT. 117. OUR ENTIRE EXERCISE REVOLVES AROUND THE ISSUE, WHETHER THERE EXISTED A BUSINESS CONNECTION OF ASSESEE IN INDIA, AND IF SO WHETHER THE SUPPLY OF BTG EQUIPMENT BY ASSESSEE AND PAYMENT S RECEIVED BY ASSESSEE FOR SUPPLY COULD BE ATTRIBUTED TO THE SUPE RVISORY PE UNDER DEEMING PROVISION OF SECTION 9 OF THE ACT. BEARING IN MIND ALL THE PREPOSITIONS ADVANCED BY BOTH THE SIDES STATED ABOV E, WE WILL EXAMINE THE FACTS OF THE PRESENT CASE VIS A-VIS THE AGREEMENTS ENTERED INTO BETWEEN ASSESSEE AND PROJECT OWNERS AS PER THE DIRECTIONS OF HONBLE HIGH COURT. 118. BEFORE TAKING UP THE ISSUES IN HAND, IT IS IMPE RATIVE TO SET OUT IMPORTANT PORTIONS OF ALL CONTRACTS FOR 2 REASO NS; (A) THE ISSUE CAN BE CONSIDERED ONLY ON THE BASIS O F INTENTION OF PARTIES TO THE CONTRACTS THE TERMS AND CONDITIONS A GREED UPON ON THE BASIS OF SUBMISSIONS ADVANCE. (B) COATING ONE PORTION OF THE CLAUSE FROM HERE AND THERE ON SELECTIVE BASIS WOULD NOT BE THE APPROPRIATE WAY TO CONSIDER THE ISSUE INVOLVED. 119. IT IS MATTER OF RECORD THAT DURING THE ASSESSME NT YEARS UNDER CONSIDERATION, ASSESSEE ENTERED INTO 14 CONTR ACTS, FOR SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 89 PURPOSES OF SUPPLY OF BTG EQUIPMENTS AS WELL AS SUP ERVISION OF ERECTION/INSTALLATION, COMMISSIONING AND PERFORMANC E TESTING AT THE PROJECT SITE IN INDIA AS THE CASE MAY BE. ASSESSEE THROUGH THEIR PERSONNEL HAVE BEEN PRESENT IN INDIA SINCE DECEMBER 2004, WHICH IS EVIDENT FROM THE 1 ST CONTRACT ENTERED INTO BY ASSESSEE WITH RELIANCE ENERGY LTD. TERMS OF CONTRACTS AND ANALYSIS KINDA: 120. THIS IS A CONTRACT BETWEEN ASSESSEE AND JSW ENERG Y LTD., FOR PURPOSE OF SUPPLY, AS WELL AS SETTING UP OF A 2 X 3 00 MW POWER PLANT IN TORANAGALLU VILLAGE, BELLARY DISTRICT, KAR NATAKA. ASSESSEE HAS ENTERED INTO TWO CONTRACTS WITH T HE OWNER, BEING: 1. SUPPLY OF BOILERS AND STEAM TURBINE GENERATOR SET AND AUXILIARIES PLACED IN THE PAPER BOOK PART II FOR ASSESSMENT YEAR 2010-11;AND 2. SERVICES CONTRACT PLACED AT PAGES 1894 TO 1918 IN THE PAPER BOOK PART III FOR A.Y.2010-11. BOTH THESE AGREEMENTS HAVE BEEN EXECUTED BETWEEN TH E PARTIES ON 20/06/06. 121. IT HAS BEEN SUBMITTED BY THE LD. COUNSEL THAT A SSESSEE HAS RECEIVED PAYMENTS SEPARATELY FOR SUPPLY OF BTG EQUI PMENTS AS WELL AS FOR SERVICES RENDERED UNDER THE SERVICE CONTRACT . IT HAS BEEN ARGUED THAT SINCE THE BTG EQUIPMENTS HAS BEEN SUPPL IED OUTSIDE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 90 THE TERRITORIES OF INDIA AND THE PAYMENTS RECEIVED LEASE UNDER A SEPARATE CONTRACT, IT CANNOT BE DEEMED TO HAVE BEEN ARISEN IN INDIA. HE THUS SUBMITTED THAT THE PAYMENTS RECEIVED BY ASS ESSEE FOR SUPPLY OF BTG EQUIPMENTS CANNOT BE TAXED IN INDIA. 122. ON THE CONTRARY THE LD. CIT.DR SUBMITTED THAT TH E AGREEMENT ENTERED INTO BY ASSESSEE WITH JSW ENERGY IS ACTUALLY A COMPOSITE CONTRACT AND THEREFORE THE PAYMENTS ALLEG ED TO HAVE BEEN RECEIVED BY ASSESSEE CANNOT BE CONSIDERED TO BE NOT ARISING IN INDIA. 123. TO RESOLVE THIS CONTROVERSY WE THOUGHT IT PROPE R TO ANALYSE THE CLAUSES AGREED UPON BY BOTH THE PARTIES IN BOTH THE CONTRACTS ENTERED INTO BY ASSESSEE WITH JSW ENERGY LTD. FIRST, WE SHALL TAKE UP THE CONTRACT FOR SUPPLY OF BOILERS AND STEAM TURBINE GENERATOR SET AND AUXILIARIES. 124. CLAUSE 1 OF THE CONTRACT READS THE SCOPE OF CONTRACT IN A NUTSHELL. IT HAS BEEN AGREED UPON BETWEEN PARTIES I N SUB CLAUSE 1.1 THAT THE SCOPE OF SUPPLY OF BTG EQUIPMENTS AND AUXI LIARIES WOULD BE AS PER ANNEXURE-2 OF THE CONTRACT. READING OF CL AUSE 1.2, SUGGESTS THAT ALONG WITH SUPPLY, THE CONTRACT REQUI RES ASSESSEE FOR PERFORMING OR PROVIDING OR FURNISHING OR CAUSING TH E PROVISION, FURNISHING AND PERFORMANCE OF SUCH ADDITIONAL OR IN CIDENTAL ITEMS NECESSARY IN ORDER FOR THE SUPPLIER TO SATISFY THE PERFORMANCE GUARANTEE AND WARRANTIES SET FORTH IN THE CONTRACT AND TO SUPPLY THE EQUIPMENT AND MAKE THE EQUIPMENT OPERABLE AND C APABLE OF SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 91 PERFORMING AS SPECIFIED IN THE SPECIFICATIONS OR AS OTHERWISE NECESSARY IN ORDER TO COMPLY WITH THE REQUIREMENTS OF THIS CONTRACT, THEN THE SAME SHALL BE CONSIDERED AS A PART OF THE SCOPE OF SUPPLY. 125. CLAUSE 1.3 REQUIRES A SUPPLIER TO PERFORM ALL ITS OBLIGATIONS AND RESPONSIBILITIES UNDER THE SUPPLY CONTRACT AT I TS OWN RISK, COST AND EXPENSES. AND THAT THE SUPPLIER WOULD ALSO ENSU RE FUNCTIONING OF EQUIPMENTS FOR INTENDED PURPOSE AS PER THE CONTR ACT. 126. CLAUSE 3.25 DEFINES PORT OF DESTINATION WHICH MEANS CHENNAI, FOR CONSIGNMENT COMING BY SEA AND IS BANGA LORE FOR CONSIGNMENT BY AIR. 127. CLAUSE 3.27 DEFINES PROJECT SITE WHICH MEANS THE ACTUAL SITE WHERE THE PROJECT IS TO BE SET UP. 128. CLAUSE 10.4.1 THAT ANY ROYALTIES AND FEES FOR PATENTS COVERING MATERIALS, ARTICLES, CHARACTERS, DEVICES, EQUIPMENT OR PROCESSES USED IN THE EQUIPMENT SHALL BE DEEMED TO HAVE BEEN INCLUDED IN THE CONTRACT PRICE. IT HAS ALSO BEEN AG REED THAT THE SUPPLIER SHALL INDEMNIFY THE OWNER AGAINST ANY INFR INGEMENT OF ANY PATENTS INVOLVED IN AND IN CASE OF AN AWARD OF DAMA GES THE SUPPLIER SHALL PAY ALL SUMS AS MAY BE REQUIRED UNDER SUCH AW ARD IN RESPECT OF THE EQUIPMENTS. 129. CONTRACT PRICE HAS BEEN CONSIDERED IN CLAUSE 12.2 WHICH READS AS UNDER: 12.2 THE CONTRACT PRICE INCLUDES ALL COSTS NECESSA RY FOR THE SUPPLY OF EQUIPMENT AND COMPLIANCE WITH PERFORMANCE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 92 GUARANTEE AND WARRANTIES. THE CONTRACT PRICE INCLUD ES ANY AND ALL DIRECT INDIRECT AND ANCILLARY CHARGES COURS E AND EXPENSES OF WHATSOEVER NATURE, SUPPLIERS TAX (WHETH ER DIRECT, INDIRECT OR ANCILLARY) INCURRED BY OR IMPOSED ON TH E SUPPLIER IN ANY SUPPLYING THE EQUIPMENT, ALL PROFITS LICENCE, R OYALTY AND OTHER FEES THE COST OF ALL MANDATORY SPARE PARTS, A CCESSORIES, CONSUMABLE MATERIALS AND SPECIAL TOOLS TO BE PROVID ED UNDER THE CONTRACT AS PER DIVISION OF WORK IN ANNEXURE -2 , DESIGN AND DRAWINGS, ENGINEERING, MANUALS MANUFACTURING, INSPECTION, SHOP TESTING, SUPPLIER OF SPARES AND OT HER SUPPLIES, PACKING LOADING, FORWARDING, SHIPPING AND UNLOADING AT THE PORT OF DESTINATION. 12.3 THE CONTRACT PRICE FOR SUPPLIES CFR INCOTERMS 2000 12.4 THE CONTRACT PRICES INCLUSIVE OF RIGHT IN RESP ECT OF THE EQUIPMENT 12.5 THE CONTRACT PRICE EXCLUDES ANY DUTIES AND TAX ES IN INDIA AND WITHHOLDING TAXES. 14.2 TRANSPORTATION THE SUPPLIER SHALL BE RESPONSIBLE FOR PACKING, LOAD ING, TRANSPORTING, UNLOADING AT THE PORT OF DESTINATION ALL EQUIPMENT, WITHOUT LIMITATION THE SUPPLIER SHALL BE RESPONSIBLE FOR LOADING AND SHIPPING EQUIPMENT AND OR OTHER MATERIAL. IT IS ALSO ACKNOWLEDGED BY THE SUPPLIER T HAT THE RESPONSIBILITY SET OUT IN THIS CLAUSE ARE INCLUDED IN THE CONTRACT PRICES. IN RESPECT OF CLAUSE RELATING TO TRANSFER OF TITLE IT HAS BEEN AGREED BETWEEN THE PARTIES AS UNDER: 14.5 TRANSFER OF TITLE 14.5.1 TRANSFER OF TITLE IN RESPECT OF EQUIPMENT AND MATERIALS SUPPLIED BY SUPPLIER PURSUANT TO THE TERMS OF THE C ONTRACT SHALL PASS PASS ON TO THE OWNER AT THE PORT OF LOADING OF THE EQUIPMENT. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 93 14.5.2 THE TRANSFER OF TITLE SHALL NOT MEAN ACCEPTA NCE, AND THE CONSEQUENT TAKEOVER OF EQUIPMENT. THE SUPPLIER SHAL L CONTINUE TO BE RESPONSIBLE FOR THE RISK TO QUALITY AND PERFORMANCE OF SUCH EQUIPMENT AND/OR MATERIALS AND FOR THEIR COMPLIANCE WITH THE SPECIFICATIONS UNTIL TAKEOVER IN TERMS OF THE PERFORMANCE WARRANTI ES. 130. ON A JOINT READING OF CLAUSE 14.5.1 AND 14.5.2 I T IS VERY CLEAR THAT THE SUPPLIER/ASSESSEE CONTINUES TO HAVE CONTRO L OVER THE EQUIPMENTS WHILE IN TRANSIT AND THERE IS NO ACTUAL CUSTODY OF THE EQUIPMENTS BY THE BUYER FROM THE SUPPLIER OUTSIDE I NDIA. FROM THE CLAUSES REFERRED HEREIN ABOVE THE SUPPLIER IS SOLEL Y RESPONSIBLE FOR DELIVERY OF THE EQUIPMENTS TO THE TERRITORY OF INDI A EACH TIME THEY ARE LOADED ON THE SHIP. IT IS ALSO AGREED BETWEEN T HE PARTIES THAT THE ENTIRE COST INCURRED BY ASSESSEE ON BEHALF OF THE O WNERS. THE ASSESSING OFFICER HAS DONE WHAT HAS BEEN AGREED BET WEEN THE PARTIES. AS PER CLAUSE 26 THE CONTRACT IS COMPLETED ONLY WHEN THE WARRANTY PERIOD EXPIRES OR THE SUPPLIER HAS ISSUED A CERTIFICATE FOR COMMERCIAL USE OF THE EQUIPMENT AFTER THE COMPLETIO N OF PERFORMANCE GUARANTEE TEST. 131. CLAUSE 38.1 REFERS TO MODE OF PAYMENT WHICH IS AS UNDER: 38.1 MODE OF PAYMENT THE PAYMENT 75% OF THE CONTRA CT PRICE AMOUNTING TO USD 141, 300, 000 SHALL BE MADE THROUGH IRREVOCABLE AUTOMATIC REVOLVING LETTER OF C REDIT. THE VALUE OF THE REVOLVING LETTER OF CREDIT SHALL BE FO R 25% OF SUCH VALUE WHICH AMOUNTS TO USD 35,325,000. THE LETTER O F CREDIT SHALL BE OPENED BY THE OWNER AND ACCEPTED BY THE SU PPLIER WITHIN 3 MONTHS FROM THE EFFECTIVE DATE. THE FORMAT OF LETTER OF CREDIT SHALL BE AS PER SCHEDULE-V. THE LETTER OF CREDIT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 94 ISSUING BANK SHALL BE A LEADING REPEATED BANK SUCH AS THE STATE BANK OF INDIA, CANARA BANK, IDBI BANK WHICH S HALL BE ACCEPTABLE TO THE SUPPLIER. THE ADVANCE PAYMENT AMO UNTING TO USD 16, 956, 000 AND MILESTONE PAYMENT OF RULE U SD 30, 144, 000 SHALL BE MADE BY TELEGRAPHIC TRANSFERS/SWI FT. 132. 38.2 PAYMENT SCHEDULE (A) THE BREAKDOWN OF THE CONTRACT PRICE SHALL BE AS PER SCHEDULE VI (B) THE OWNER SHALL MAKE PAYMENTS AS PER SCHEDULE I V. SCHEDULE VI HAS NOT BEEN PLACED ON RECORD AS ON THE RELEVANT PAGE, IT HAS BEEN MENTIONED AS THE SUPPLIER SHALL S UBMIT IT WITHIN TWO WEEKS. SCHEDULE IV IS PLACED AT PAGE 972 SCHEDULE IV -PAYMENT SCHEDULE 1. CONTRACT PRICE AND TERMS OF PAYMENT 1.1. AS FULL AND COMPOSITE COMPENSATION FOR THE SUPPLIER S PERFORMANCE OF THE WORK AND OBLIGATIONS UNDER THIS CONTRACT, THE OWNER SHALL BE TO THE SUPPLIER A FIXED LUMP SUM REF ERRED TO AS THE CONTRACT PRICE INCLUDING OCEAN RIGHT UP TO THE PORT OF DESTINATION IN INDIA AS PER CLAUSE 12 OF GENERAL CO NDITIONS OF CONTRACT. THE CONTRACT PRICE FOR THIS CONTRACT ON C FR BASIS IS USD 188,400,000 (ONE HUNDRED AND EIGHTY EIGHT MILLION F OUR HUNDRED THOUSAND ONLY). THE BREAKUP OF TOTAL CONTRA CT PRICE SHALL BE AS PER SCHEDULE VI. 1.2. TERMS OF PAYMENT ON SUPPLY OF EQUIPMENT AND MANDATO RY SPARE 1.2.1. 9% OF THE CONTRACT PRICE AMOUNTING TO USD16,956,000 SHALL BE PAID AS ADVANCE PAYMENT (INTEREST-FREE) ON FULFILLM ENT OF THE FOLLOWING BY THE SUPPLIER: SIGNING OF THE CONTRACT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 95 SUBMISSION OF INVOICE FOR ADVANCE PAYMENTS SUBMISSION OF ADVANCE BANK GUARANTEE EQUIVALENT TO 9% OF THE TOTAL CONTRACT PRICE AS PER SCHEDULE I 1.2.2. 16% OF THE CONTRACT PRICE AMOUNTING TO USD30,144,00 0 SHALL BE PAID TOWARDS MILESTONE PAYMENT AS FOLLOWS: USD 5,400,000 IN JANUARY 2007 USD 5,400,000 IN FEBRUARY 2007 USD 5,400,000 IN MARCH 2007 USD 5,400,000 IN APRIL 2007 USD 5,400,000 IN NOVEMBER 2007 USD 3,144,000 IN DECEMBER 2007 1.2.3. 60% OF THE CONTRACT PRICE AMOUNTING TO USD113,040,0 00 PER INDIVIDUAL PACKAGE AS SHOWN IN THE BUILDING BREAKUP (SCHEDULE VI) SHALL BE PAID ON DISPATCH, AGAINST SATISFACTORY EVIDENCE OF SHIPMENT. 1.2.4. 5% OF THE CONTRACT PRICE PER INDIVIDUAL PACKAGE AS SHOWN IN THE BREAKUP OF CONTRACT PRICE (SCHEDULE VI) SHALL BE PA ID ON RECEIPT OF RELATED DOCUMENTATION FOR THE ERECTION OF THE EQUIP MENT SUPPLIED IN CASE THE DOCUMENTS ARE RECEIVED IN ADVANCE AT TH E SHIPMENT IS DELAYED THEN THE PAYMENT FOR THE SAME SHALL BE M ADE ALONG WITH THE DELIVERY OF EQUIPMENT; 1.2.5. 10% OF CONTRACT PRICE EACH UNIT AS SHOWN IN THE BRE AKUP OF CONTRACT PRICE (SCHEDULEVI) SHALL BE PAID ON ISSUAN CE OF TAKING OVER CERTIFICATE OR DEEMED TAKEOVER DATE OF EACH UN IT. 1.3. MODE OF PAYMENT: 1.3.1. THE PAYMENT TOWARDS ADVANCE AND MILESTONE PAYMENTS HAD BEEN MADE THROUGH TELEGRAPHIC TRANSFER/SWIFT. ALL O THER PAYMENT UNDER THIS CONTRACT SHALL BE PAID THROUGH AN IRRECO VERABLE LETTER OF CREDIT (L/C) PAYABLE AT SITE AS PER SCHEDULE V. THE L/C SHALL BE ESTABLISHED THROUGH A BAND ACCEPTABLE TO THE SUP PLIER. 1.3.2. THE REVOLVING L/C SHALL BE RECEIVED BY THE SUPPLIER WITHIN 3 MONTHS FROM THE EFFECTIVE DATE OF THE CONTRACT. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 96 1.3.3. L/C MAY BE CONFIRMED AT THE OPTION OF THE SUPPLIER. ALL COST CHARGES CONNECTED WITH THE L/C SHALL BE BORNE BY TH E OWNER EXCEPT FOLLOWING TO THE ACCOUNT OF THE SUPPLIER: CONFIRMATION CHARGES, IF ANY NEGOTIATING CHARGES DUE TO THE BANK OF THE SUPPLIER EXTENSION CHARGES IF DUE TO REASONS ONLY ATTRIBUTAB LE TO THE SUPPLIER 133. IT IS VERY PERTINENT TO OBSERVE THAT IN CLAUSE 1. 3 OF THE PAYMENT SCHEDULE BEING MODE OF PAYMENT IT IS ONLY T HE PAYMENT TOWARDS ADVANCE AND THE MILESTONE PAYMENT MENTIONED IN SUB CLAUSE 1.2.2 IN THE SCHEDULE THAT SHALL BE PAID THR OUGH TELEGRAPHIC TRANSFERS/SWIFT. AND IT HAS BEEN AGREED THAT ALL OT HER PAYMENTS UNDER THE CONTRACT SHALL BE MADE THROUGH IRREVOCABL E LETTER OF CREDIT PAYABLE AT SITE AS PER SCHEDULE V (FORMAT OF LETTER OF CREDIT AND EXITED PAGE 974 -978). 134. CLAUSE 47 OF THE AGREEMENT AT PAGE 956 DEALS WITH TRAINING OF OWNERS PERSONNEL. IT SAYS THAT THE SUPPLIER SHAL L PROVIDE THE TRAINING TO 40 MAN MONTHS AND THAT THE SUPPLIER SHA LL PROVIDE A REASONABLE OFFICE SPACE FOR THIS PURPOSE AT THE LOC ATIONS WHERE THESE SERVICES ARE BEING PERFORMED. IT IS ALSO BEEN AGREE D THAT EQUIPMENT SPECIFIC TRAINING IS INCLUDED IN THE CONTRACT PRICE . IT HAS BEEN AGREED BY THE SUPPLIER TO FURNISH A SEC URITY FOR THE PERFORMANCE OF THE EQUIPMENT SUPPLIED BY ASSESSEE I N LIEU OF WHICH THE SUPPLIER PROVIDES A BANK GUARANTEE TO THE OWNER WHICH SHALL BE VALID UNTIL THE EXPIRY OF WARRANTY PERIOD OF EACH U NIT UNDER THE CONTRACT. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 97 135. CLAUSE 53 (PERFORMANCE SECURITY) THE INTENTION OF THE PARTIES APPEARS TO BE VERY CLEAR THAT THE SUPPLIER IS RESPONSIBLE FOR THE PERFORMANCE OF THE EQUIPMENT SUPPLIED BY IT TO THE OWNER AND THAT THE SUPPLIER SHALL BE RESPONSIBLE FOR THE CARE OF EQUIPMENT, MATERIALS AND SUPPLIES AS PER CFR INCOTERMS 2000. SERVICE CONTRACT 136. BETWEEN THE SAME PARTIES PLACED AT PAGE 1894 EXECUT ED ON 28.06.2006.THE SCOPE OF SERVICES UNDER THIS CONTRAC T HAS BEEN AGREED UPON IN SCHEDULE 1 PLACED AT PAGE 1911 OF PAPER BOOK PART IV WHICH ARE AS UNDER: SCHEDULE 1: SCOPE OF SERVICES 1. SITE SERVICES THESE SERVICES SHALL BE RENDERED BY SEC AS PART OF THE OVERALL PROJECT MANAGEMENT SERVICE. THE SERVICES SHALL BROA DLY INCLUDE BUT NOT BE LIMITED TO THE FOLLOWING: ERECTION AND COMMISSIONING SUPERVISION STAFF HAS TO BE DEPLOYED BY SEC FROM START OF DIRECTION OF MA IN PLANT EQUIPMENTS TILL COMPLETION OF THE PROJECT. DEPLOYMENT SCHEDULE FOR SUPERVISORY STAFF SHALL BE MUTUALLY DISCUSSED AND AGREED BETWEEN JSWEL AND SEC BG TEST FOR BOILER, TURBINE AND GENERATOR SHALL BE CARRIED OUT BY SEC. ANY SPECIAL TOOLS, TACKLES AND INSTRUMENT SHALL BE ARRANGED BY SEC. PROVIDING SUPPORT SERVICES TO THE SECS SUPERVISORY STAFF EXAMPLE CONSTRUCTION OF SITE OFFICES, TEMPORARILY S TORES, TRANSPORT TO WORK SITE FOR SECS PERSONNEL, INSURAN CE COVER, WATCH AND WARD FOR SECURITY AND SAFETY OF THE MATER IALS UNDER SECS CUSTODY ETC AS REQUIRED. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 98 MAINTAINING PROPER DOCUMENTATION OF ALL THE SITE AC TIVITIES PERTAINING TO SEC AS SPECIFIED BY JSWEL. 137. CLAUSE 8 OF THIS AGREEMENT READS AS UNDER: 8. TRANSPORTATION, RECEIVING, HANDLING AND STORAGE 8.1. SEC SHALL PROVIDE ALL NECESSARY INFORMATION TO JS W EL FOR JSWELS PROPERTY HANDLING, STORING, UTILISING AND DISPOSING OF ANY PROJECT MATERIALS CONSIDERED HAS A DDED UNDER THE GOVERNMENTAL OR LOCAL LAW, REGULATION, ST ATUTE OR ORDINANCE IN EFFECT AT THE JOB SITES. 8.2. SEC SHAL L PROVIDE SUPERVISION SERVICES TO JSW IN UNLOADING, INSPECTIO N, STORAGE AND PRESERVATION OF MATERIALS AND EQUIPMENT IN THE SCOPE OF SUPPLY OF SEC. NECESSARY STORAGE HANDLING RESERVATION MANUAL SHALL BE PROVIDED BY SEC. 138. THIS CLAUSE MAKES IT FURTHER CLEAR THAT ASSESSEE I S INVOLVED EVEN IN UNLOADING, INSPECTION OF SITES FOR THE PURP OSES OF ERECTION OF PROJECT IN INDIA. THIS FURTHER ESTABLISHES CONTROL OF ASSESSEE OVER THE EQUIPMENTS SUPPLIED BY IT UNDER THE SUPPLY CONTRACT . KINDA SUPPLEMENT 139. THIS AGREEMENT HAS ALSO BEEN ENTERED INTO BETWEEN ASSESSEE AND JSW STEEL LTD. DATED 24/08/07, ON SIMILAR TERMS AND CONDITIONS AS STIPULATED HEREIN ABOVE IN IDENTICAL MANNER. THIS AGREEMENT HAS BEEN PLACED AT PAGE 1073 OF PAPER BOO K III, FILED FOR ASSESSMENT YEAR 2010-11 KINDA PAHSE IV 140. THIS AGREEMENT HAS ALSO BEEN ENTERED INTO BETWEE N ASSESSEE AND JSW STEEL LTD., DATED 14.03.08, ON SIMILAR TERM S AND SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 99 CONDITIONS AS STIPULATED HEREIN ABOVE IN IDENTICAL MANNER. THIS AGREEMENT HAS BEEN PLACED AT PAGE 1073 OF PAPER BOO K III, FILED FOR ASSESSMENT YEAR 2010-11. A PLAIN AND CUMULATIVE READING OF TERMS AND CONDITI ONS OF THESE CONTRACT ENTERED INTO BETWEEN ASSESSEE WITH OWNER F OR ALL THE ABOVE REFERRED CONTRACTS CLEARLY SHOWS THAT IT WAS ONE AN D THE SAME TRANSACTION. ONE CANNOT BE READ IN ISOLATION WITH T HE OTHER. THE SUPPLY OF EQUIPMENTS WAS SAME CONTRACT. IN FACT SUP PLY WAS PART AND PARCEL OF THE MAIN CONTRACT AND THE SAME CANNOT BE SEVERED AND TREATED DIFFERENTLY. THE SERVICE CONTRACT ENTER ED WAS IN FACT FOR THE PURPOSE OF MEETING OUT EXPENSES BY ASSESSEE IN TERMS OF ITS EMPLOYEES IN INDIA. HISAR: 141. ASSESSEE ENTERED INTO AGREEMENT WITH RELIANCE E NERGY LTD, CALLED AS EQUIPMENT AND MANDATORY SPARES SUPPLY & SERVICES CONTRACT AGREEMENT, ON 05.02.2007 FOR SETTING UP O F 2 X 600 MW THERMAL POWER PLANT AT HISSAR HARIYANA. THIS AGREEM ENT HAS BEEN PLACED AT PAGE 980-1072 OF PAPER BOOK PART II, FOR ASSESSMENT YEAR 2010-11. 142. ARTICLE 2 DEFINES THE SCOPE OF WORK TO CONSIST ALL THE WORK TO BE PERFORMED AS DETAILED IN DIVISION OF WORK DOCUME NT BETWEEN ASSESSEE AND RELIANCE WHICH HAS BEEN ENCLOSED AS AN NEXURE A. 143. CLAUSE 4.1 IT HAS BEEN AGREED BY THE CONTRACT/ASSESSEE THAT THE CONTRACT IS AWARDED TO THEM ON SINGLE SOUR CE RESPONSIBILITY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 100 BASIS AND THE CONTRACT/ASSESSEE IS BOUND TO PERFORM TOTAL CONTRACT IN ITS ENTIRETY. 144. CLAUSE 4.2 IT HAS BEEN AGREED THAT THE CONTRACT SHALL BE PERFORMED IN 2 PARTS; THE 1 ST PART SHALL BE WHERE THE CONTRACT SHALL SUPPLY ALL THE EQUIPMENTS AND MATERIALS INCLUDING A SSOCIATED ACCESSORIES AND MANDATORY SPARES RELATED PTG PACKAG E ON CFR KANDLA PORT. IT HAS ALSO BEEN AGREED THAT THE CONTR ACTOR SHALL BE RESPONSIBLE FOR THE ENTIRE SCOPE OF WORK CONSTITUTI NG THE 1 ST PART OF CONTRACT AND THE 2 ND PART OF CONTRACT AND THAT ANY BREACH UNDER OR WITH RESPECT TO EITHER OF THE PART OF CONTRACT SHAL L AUTOMATICALLY CONSTITUTE TO BE DEEMED BREACH. IN RESPECT OF DELIVERY OF GOODS THE TERMS THAT HAVE BEEN AGREED BETWEEN THE PARTIES HAVE BEEN NARRATED IN THE SCOPE OF WORK UNDER OCEAN TRANSPORTATION AT PAGE 991 WHICH READS AS UND ER: 8. OCEAN TRANSPORTATION 145. THE CONTRACTOR SHALL BE RESPONSIBLE FOR THE TRAN SPORT OF THE PLANT AND EQUIPMENT FROM THEIR PLACE OF ORIGIN TO T HE PORT OF DESTINATION IN ACCORDANCE WITH CFR INCOTERMS 2000. 146. THE CONTRACTOR SHALL CHECK THE CAPACITY AND AVAIL ABILITY OF THE LOADING FACILITY WHICH WILL BE UTILIZED IN CONNECTI ON WITH THE TRANSPORT OPERATION. THE SHIPMENT OF ALL THE CONSIGNMENT RELATING TO EQU IPMENT AND MATERIALS WILL BE ARRANGED BY THE CONTRACT OF. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 101 SUPPLIER WILL ALSO ENSURE THAT THE CONSIGNMENTS ARE SHIPPED BY VESSEL OF THE FOLLOWING CLASSIFICATION BUT NOT LIMI TED TO.. THE CONTRACTOR SHALL ARRANGE SHIPMENT OF ALL IMPORT ED MATERIALS AND EQUIPMENT FROM THE PORT OF EXPORT TO KANDLA, GU JARAT INDIAN PORT. HOWEVER IN CASE OF ANY EMERGENCY, THE MATERIALS AND EQUIPMENT CAN BE SHIPPED TO MUMBAI PORT SUBJECT TO PRIOR APPROVAL OF TAINT FROM PURCHASER. IN CASE OF AIR SHIPMENT THE DESTINATION AIRPORT SHALL BE NEW DELHI. FURTHER THE TERM CONTRACT PRICE, EQUIPMENT CONTRACT PRICE HAS BEEN DEFINED IN THE CONTRACT AT PAGE 1023 AS: CONTRACT PRICE SHALL MEAN THE LUMP SUM PRICE QUOTE D BY THE CONTRACT IN ITS OFFER WITH ADDITION AND DELETIO N AS MAY BE A CREED AND INCORPORATED IN THE CONTRACT AGREEME NT FOR THE SCOPE OF WORKS SHALL BE TREATED AS THE CONTRACT PRICE. EQUIPMENT CONTRACT PRICE SHALL MEAN THE CFR VALUE O F THE IMPORTED EQUIPMENT AND THE MATERIAL AND DELIVERY AT SITE (IN CLUSIVE OF PACKING, FORWARDING AND TRANSIT INSURANCE AND TRANSPORTATION UP TO SITE) PRIZE OF IN THE GENIUS EQUIPMENT AND MATERIAL 3.4 TAXES AND DUTIES 3.4.1 THE CONTRACT SHALL BEAR AND PAY ALL TAXES, DU TIES, LEVIES AND CHARGES ASSESSED ON THE CONTRACT, ITS SUBCONTRACTOR S OR THEIR EMPLOYEES BY ALL RELEVANT MUNICIPAL, STATE OR NATIO NAL GOVERNMENT AUTHORITIES IN CONNECTION WITH THE CONTRACT APPLICA BLE TO THE LOCAL PORTION. THE CONTRACT SHALL SUPPLY ALL EQUIPMENT/MATERIAL ON CFR INDIAN PORT BASIS. THE CONTRACT SHALL PAY ALL TAXES AND DUTIES IN THE COUNTRY OF ORIGIN OF GOODS. THE PURCHASER SHALL BEAR THE COST OF CUSTOMS DUTY AND CVD IN INDIA (IF APPLICABLE), MADURAI AND TRANS IT INSURANCE AND TRANSPORTATION FROM INDIAN PORT TO SITE. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 102 LAGUNA 147. THIS CONTRACT HAS BEEN ENTERED INTO BETWEEN ASSE SSEE AND RELIANCE ENERGY LTD, DATED 27.02.2008, ON SIMILAR A ND IDENTICAL TERMS. THIS AGREEMENT HAS BEEN PLACED AT PAGE 1552 OF PAPER BOOK- IV FILED FOR ASSESSMENT YEAR 2010-11. 148. FROM THE ABOVE UNDERSTANDING BETWEEN THE PARTIES UNDER BOTH THESE CONTRACTS ESTABLISHES THAT ASSESSEE WAS RESPONSIBLE FOR SUPPLY OF GOODS TILL THE PORT IN INDIA AND THEREAFT ER WAS IN TOTAL CONTROL OF THESE ACUTE MINTS DURING THE ELECTION/IN STALLATION OF THE POWER PROJECT. ROSA I 149. THIS CONTRACT HAS BEEN EXECUTED BETWEEN ASSESSEE AND ROSA POWER SUPPLY COMPANY, FOR SETTING UP 2 X 300 MW THE RMAL POWER PLANT ROSA AT UTTAR PRADESH. THIS CONTRACT HAS BEEN PLACED AT PAGE 1226-1352 OF PAPER BOOK, PART-III FOR ASSESSMENT YE AR 2010-11. THIS CONTRACT IS ENTERED INTO BETWEEN ASSESSEE ALON G WITH UTILITY ENERGYTECH AND ENGINEERS PVT.LTD., (UEEPL), (BEING CONSORTIUM MEMBERS) AND COLLECTIVELY CALLED AS CONTRACTOR WITH THE OWNER/EMPLOYER, BEING ROSA POWER SUPPLY COMPANY. THE RECITAL IN WHICH THE UNDERSTANDING BETWEEN THE PARTIES PERFORMING WORK ARE AS UNDER: AND WHEREAS SEC HAD SUBMITTED ITS OFFER AND EMPLOYE R AFTER EXAMINING THE OFFER SHORTLISTED SEC FOR AWARD OF EP C AND AFTER SUBSEQUENT DISCUSSIONS AND NEGOTIATIONS AGREED TO A WARD THE EPC TO SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 103 THE CONSORTIUM OF SEC AND UEEPL ON TERMS AND CONDIT IONS CONTAINED IN THIS CONTRACT FOR ENGINEERING, PROCUREMENT AND C ONSTRUCTION ACTIVITIES FOR THE PROJECT AND THE DOCUMENTS REFERR ED TO THEREIN, WHICH HAVE BEEN MUTUALLY ACCEPTED BY BOTH THE PARTIES AND REDUCED INTO WRITING BEING THESE PRESENTS. ARTICLE 2: CONTRACT DOCUMENTS 2.1 THE FOLLOWING DOCUMENTS TOGETHER WITH THE RESPE CTIVE ATTACHMENTS AND APPENDICES (HEREINAFTER REFERRED TO AS CONTRAC T DOCUMENTS) SHALL TOGETHER CONSTITUTE THIS CONTRACT BETWEEN THE EMPLOYER AND THE CONTRACT AND THE TERM CONTRACT IN ALL SUCH DOCUME NTS SHALL BE CONSTRUED ACCORDINGLY. A. THE CONTRACT AND THE APPEND ASSESSED TO ARE: APPENDIX I (A)& (B) BREAKDOWN OF THE CONTRACT P RICE AND MANDATORY SPARES APPENDIX II TERMS OF PAYMENT AND LETTER OF CREDIT B. DIVISION OF WORK (ANNEXURE-A) AND TERMINAL POINT ANNEXURE-B), OTHER DOCUMENTS (ANNEXURE C) AND DELIVERY SCHEDULE AND LIQUIDATED DAMAGES (ANNEXURE D) BETWEEN SEC AND ROSA FOR BTG P ACKAGE C. DIVISION OF WORK (ANNEXURE A) AND TERMINAL POINT ANNEXURE F) OTHER DOCUMENTS (ANNEXURE G) BETWEEN UEEPL AND ROSA FOR B ALANCE EPC WORKS D. CONDITIONS OF CONTRACT E. SPECIFICATIONS REFERRING TO THE TECHNICAL DOCUME NTS (SECTION 2- SECTION 12) SIGNED ON 22/02/04 F. CONSORTIUM AGREEMENT G. TENDER ISSUED BY THE EMPLOYER I. S ECS PROPOSAL ARTICLE 3 CONDITIONS AND COVENANTS 3.1 AS MUTUALLY AGREED BETWEEN THE CONSORTIUM MEMBE RS AND CONSENTED BY THE EMPLOYER, THE SCOPE OF WORK IS DIV IDED INTO 4 PARTS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 104 AND THIS CONTRACT SHALL ACCORDINGLY OPERATE AS A CO MBINATION OF FOLLOWING CONTRACTS; THE 1 ST PART (HEREINAFTER CALLED THE 1 ST CONTRACT) WHICH SHALL COVER SUPPLY OF ALL EQUIPMENT AND MATERIALS FOR 2 SETS OF BOILERS, TURBINES AND GENERATORS INCLUDING ASSOCIATED ACCESSORIES AND MANDATORY SPARES, SOURCED OUTSIDE INDIA ON CFR INDIAN PORT ( KANDLA) BASIS. THE 2 ND PART (HEREINAFTER CALLED THE 2 ND CONTRACT) WHICH SHALL COVER SUPERVISION OF REJECTION, SUPERVISION OF COMMISSION ING AND PERFORMANCE GUARANTEE TESTING OF THE EQUIPMENT AND MATERIAL COVERED UNDER 1 ST CONTRACT. THE DETAILS S ECS SCOPE OF WORK, THAT IS THE 1 ST CONTRACT AND THE 2 ND CONTRACT HAS BEEN STIPULATED AND DEFINED IN ANNEXUR E A AND ANNEXURE-B AND ANNEXURE C. THE SCOPE OF WORK UNDER THE 1 ST AND THE 2 ND CONTRACT SHALL HEREINAFTER ALSO BE REFERRED TO AS THE BTG PACKAGE WHICH SHAL L BE CONFINED TO ANNEXURE-A AND ANNEXURE-B AND ANNEXURE C AND THE SC OPE OF WORK UNDER THE 3 RD AND 4 TH CONTRACT SHALL HEREINAFTER ALSO BE REFERRED TO AS THE BALANCE EPC WORKS. THE SCOPE OF WORK APPLICABLE FOR S EC IS MORE SPECI FICALLY SET FORTH IN ANNEXURE A ATTACHED HERETO AND THE TERMINAL POINTS FOR SEC IS MORE SPECIFICALLY SET FORTH IN ANNEXURE-B ATTACHED HERET O AND OTHER DOCUMENTS AS PER ANNEXURE SEE ATTACHED HERETO . . 3.2. SEC SHALL BE FULLY RESPONSIBLE FOR THE BTG PAC KAGE; AND UEEPL SHALL BE FULLY RESPONSIBLE FOR THE ENTIRE SCOPE OF WORK CONSTITUTED OR FORMING PART OF THE 3 RD AND 4 TH CONTRACT. 3.3 IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT THIS CONTRACT IS AWARDED TO THE CONSORTIUM MEMBERS ON A NONINTEGRATE D BASIS. EACH CONSORTIUM MEMBERS SHALL BEAR THE SEVERAL RESPONSIB ILITIES AND LIABILITIES RESPECTIVELY IMPOSED BY THIS CONTRACT A ND FOR THE AVOIDANCE OF DOUBT, EACH CONSORTIUM MEMBERS SHALL BE SOLELY R ESPONSIBLE TO THE EMPLOYER FOR ITS OWN SCOPE OF WORK AND RESPONSIBILI TY AND LIABILITY AS DEFINED IN ANNEXURE A TO D FOR SEC AND ANNEXURE A TO G FOR UEEPL SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 105 UNDER THIS CONTRACT AND IT SATISFACTORY PERFORMANCE IN ACCORDANCE WITH THE SPECIFICATIONS AND PARAMETERS UNDER THE CO NTRACT. 3.4 EACH CONSORTIUM MEMBER SHALL BE RESPONSIBLE FOR THE EXECUTION OF ITS SCOPE OF WORK IN ACCORDANCE WITH THE PROVISIONS OF THE CONTRACT. IN EXECUTING ITS SCOPE OF WORK EACH CONSORTIUM MEMBER ON AN INDIVIDUAL BASIS SHALL OWE A DUTY TO THE EMPLOYER TO ENSURE TH AT ALL THE PLANT, MATERIAL AND EQUIPMENT USED BY 8 AND THE DESIGN (TO THE EXTENT NECESSARY) THEREOF IS FIT FOR THE PURPOSE OF FOR WH ICH IT IS REQUIRED AND THAT ALL THE WORK UNDERTAKEN BY SUCH CONCERTED MEMB ER IS EXECUTED IN A GOOD AND WORK MAN LIKE MANNER BY APPROPRIATELY SCALED, QUALIFIED AND EXPERIENCED PERSONNEL. IF ANY PART OF THE WORKS PERFORMED BY A CONSORTIUM MEMBER WITHIN ITS SCOPE OF WORK, (INCLUDING DRAWINGS AND INFORMATION PREPARED BY THE SAID CONSORTIUM MEMBER) SHALL BE OR BECOME DEFECTIV E AND REQUIRED TO BE DISPATCHED IT, DISPLACED, MODIFIED OR REPAIRED I N ANY WAY IN ORDER TO COMPLY WITH THE TERMS AND CONDITIONS OF THE CONT RACT, THEN SUCH CONSORTIUM MEMBER SHALL BE SOLELY RESPONSIBLE FOR A ND BEAR THE COST OF DISMANTLING, REPLACEMENT, MODIFICATION OR DESPAI R AS MAY BE REQUIRED AND SHALL COORDINATE ON AN INDIVIDUAL BASI S WITH THE EMPLOYER IN RESPECT OF SUCH REMEDY WILL WORK. 3.5 IS EXPRESSLY UNDERSTOOD AND AGREED UNDER THIS C ONTRACT THAT, LIABILITY OF S EC SHALL BE BASIC ON AND LIMITED TO THE SECTION PRIZE OF THE BTG PACKAGE ONLY AND NOT THE ENTIRE VALUE OF TH E CONTRACT. SECS CONTRACTUAL LIABILITY FOR THE TIME FOR COMPLETION A ND LIQUIDATED DAMAGES FOR THE 1 ST CONTRACT AND THE 2 ND CONTRACT AND MORE SPECIFICALLY DEFINED UNDER ANNEXURE D TO THIS CONTR ACT. 3.6 NOTWITHSTANDING ANYTHING TO THE CONTRARY STATED HEREIN ABOVE, EMPLOYER SHALL BE SOLELY RESPONSIBLE FOR THE PAYMEN T OF SEC FOR THE BTG PACKAGE AND UEEPL FOR THE BALANCE EPC WORK RESP ECTIVELY. THERE WOULD NOT BE ANY PAYMENT TRANSACTION BETWEEN S EC AND UEEPL. .. ARTICLE 4 (A) CONTRACT PRICE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 106 THE CONTRACTOR AGREES THAT IT SHALL PERFORM OR CAUS E TO BE PERFORMED THE ENTIRE SCOPE OF WORK OF THE CONTRACT FOR FIXED AND LUMP SUM CONSIDERATION OF USD 208, 500, 000 (US DOLLAR 208 M ILLION AND FIVE HUNDRED THOUSAND ONLY) WOULD AND INR 11, 267, 700, 000 (INDIAN RS.ELEVEN BILLION 267 MILLION AND SEVEN HUNDRED THO USAND ONLY) INCLUSIVE OF ALL APPLICABLE INDIAN TAXES AND DUTIES (CONTRACT PRICE) PAYABLE BY EMPLOYER TO THE CONTRACTOR. THE ABOVE CO NTRACT PRICE WOULD BE DIVIDED AMONG FOLLOWING CONTRACTS AS UNDER : 4.1 CONTRACT PRICE FOR AS PER 1 ST CONTRACT (1 ST CONTRACT PRICE) USD 159, HUNDRED, 000 (US DOLLAR ONE HUNDRED FIFTY NINE MILL ION ONE HUNDRED THOUSAND ONLY) ON CFR INDIAN PORT (KANDLA), (INCOTE RMS 2000). NET OF INDIAN TAXES (IMPORT TAX AND VAT AND OTHER APPLICAB LE TAXES). HOWEVER, S EC SHALL BE LIABLE FOR THE DUTIES AND TA XES APPLICABLE IN CHINA. 4.2 CONTRACT PRICE AS PER 2 ND CONTRACT (2 ND CONTRACT PRICE): USD 8, 400, 000 (US DOLLAR 8 MILLION AND 400,000 ONLY) NET OF I NDIAN TAXES (WITHHOLDING TAX, SERVICE TAX AND OTHER APPLICABLE TAXES). .. APPENDIX I HAS NOT BEEN PLACED IN THE PAPER BOOK FO R OUR REFERENCE. APPENDIX II IS THE TERMS OF THE PAYMENT SCHEDULE AC CORDING TO WHICH PAYMENT IN RESPECT OF THE CONTRACT STARTED AS ON THE DATE WHEN THE FOLLOWING EVENTS OCCURRED: 1.2 TERMS OF PAYMENT ON SUPPLY OF EQUIPMENT AND MANDATO RY SPARES: 1.2.1 5% OF 1 ST CONTRACT PRICE SHALL BE PAID AS 1 ST INITIAL ADVANCE (INTEREST-FREE) ON FULFILLMENT OF THE FOLLOWING BY THE CONTRACT: SIGNING OF THE CONTRACT SUBMISSION OF INVOICE FOR THE 1 ST INITIAL ADVANCE OF 5% OF THE 1 ST CONTRACT PRICE SUBMISSION OF AN UNCONDITIONAL BANK GUARANTEE EQUAL INTO 5% OF THE 1 ST CONTRACT PRICE AS PER THE ANNEXURE TOWARDS ADVANCE PAYMENT BOND SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 107 SUBMISSION OF AN UNCONDITIONAL BANK GUARANTEE EQUIVALENT TO 15% OF THE 1 ST CONTRACT PRICE AS PER ANNEXURE TOWARDS PERFORMANCE SECURITY THE ABOVE REFERRED TERMS READ WITH THE OTHER TERMS OF PAYMENT DOES NOT INDICATE ANY SEPARATE REFERENCE TO OFFSHORE SUP PLY AND ONSHORE SERVICES PROVIDED BY ASSESSEE. IN RESPECT OF THE CONTRACT PRICE AND TERMS OF PAYME NT FOR 2 ND CONTRACT WHICH HAS BEEN PRODUCED AT PAGE 1241 OF TH E PAPER BOOK READS AS UNDER: 2. CONTRACT PRICE AND TERMS OF PAYMENT FOR 2 ND CONTRACT 2.1 AS FULL AND COMPLETE COMPENSATION FOR THE CONTRACT S PERFORMANCE OF WORK AND OBLIGATIONS UNDER THIS CONT RACT, THE EMPLOYER SHALL PAY THE CONTRACT OF FIXED LUMP S UM FEE FOR SERVICES RENDERED TO AS THE 2 ND CONTRACT PRICE AS PER APPENDIX I. 2.2 TERMS OF PAYMENT SIGNING OF THE CONTRACT SUBMISSION OF INVOICE FOR THE 1 ST INITIAL ADVANCE OF 5% OF THE 1 ST CONTRACT PRICE SUBMISSION OF AN UNCONDITIONAL BANK GUARANTEE EQUAL INTO 5% OF THE 1 ST CONTRACT PRICE AS PER THE ANNEXURE TOWARDS ADVANCE PAYMENT BOND SUBMISSION OF AN UNCONDITIONAL BANK GUARANTEE EQUIV ALENT TO 15% OF THE 1 ST CONTRACT PRICE AS PER ANNEXURE TOWARDS PERFORMANCE SECURITY 150. IT IS OBSERVED THAT UNDER BOTH THESE PARTS THE AS SESSEE IS PROVIDING WITH UNCONDITIONAL BANK GUARANTEE TOWARDS PERFORMANCE AND SECURITY. HAD THE INTENTION OF THE PARTIES WAS TO CONSIDER THE SUPPLY INDEPENDENTLY WITHOUT HAVING ANY CONNECTION WITH THAT OF SERVICES RENDERED BY ASSESSEE IN INDIA, ASSESSEE WO ULD NOT HAVE AGREED FOR PROVIDING AN UNCONDITIONAL PERFORMANCE A ND SECURITY GUARANTEE TOWARDS THE SUPPLY OF EQUIPMENT ALSO. THI S IMPLIES THAT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 108 THE SUPPLY IS IN EXTREMELY LINKED/CONNECTED TO THE SERVICES RENDERED BY ASSESSEE IN TERMS OF DIRECTION OF THE P ROJECT. IN THE PAPER BOOK ASSESSEE HAS NOT PLACED THE DIVIS ION OF WORK (ANNEXURE 8) AND TERMINAL POINT (ANNEXURE-B), OTHER DOCUMENTS (ANNEXURE C). THE NEXT DOCUMENT PLACED AT PAGE 1254 IS THE CONDIT IONS OF THE CONTRACT WHEREIN SPECIFIC REFERENCES MADE TO THE FO LLOWING CLAUSES: CLAUSE 1.1: DEFINITIONS CONTRACT MEANS THE AGREEMENT BETWEEN THE EMPLOYER AND THE CONTRACTOR FOR THE EXECUTION OF THE WORKS INCORPORA TING THE CONDITIONS, SPECIFICATIONS, EMPLOYERS DRAWINGS AND CONTRACT IS DRAWINGS, PRICED AND COMPLETED SCHEDULES, TENDER AND SUCH FURTHER DO CUMENTS AS MAY BE EXPRESSLY INCORPORATED THEREIN. CONTRACT AGREEMENT MEANS A DOCUMENT RECORDING THE TERMS OF THE CONTRACT BETWEEN THE EMPLOYER AND THE CONTRACTOR. CONTRACT PRICE MEANS ARE SOME STATED IN THE CONTR ACT AGREEMENT AS PAYABLE TO THE CONTRACTOR FOR THE EXECUTION OF THE WORKS AS MAY BE ADJUSTED FROM TIME TO TIME PURSUANT TO THE CONTRACT . CONTRACTS RISK MEANS THE RISK DEFINED IN SUB CLA USE 37.3 FINAL CERTIFICATE OF PAYMENT MEANS A CERTIFICATE TO BE ISSUED BY THE ENGINEER TO THE EMPLOYER IN ACCORDANCE WITH SUB CLA USE 33.10 SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 109 PERFORMANCE SECURITY MEANS THE SECURITY IN THE FO RM SET OUT IN APPENDIX I TO BE PROVIDED BY THE CONTRACTOR IN ACCO RDANCE WITH SUB CLAUSE 10.1 SECURING THE DUE PERFORMANCE OF THE CON TRACT BY THE CONTRACTOR. PLANT MEANS MACHINERY, APPARATUS, MATERIALS AND A LL THINGS TO BE PROVIDED UNDER THE CONTRACT FOR INCORPORATION IN TH E WORK. PROVISIONAL TAKEOVER MEANS THE TAKEOVER OF A SECT ION OF THE WORKS PURSUANT TO SUB CLAUSE 28.5 AND PROVISIONALLY TAKEN OVER SHALL HAVE THE CORRESPONDING MEANING. RISK TRANSFER DATE MEANS THE DATE AS DETERMINED I N SUB CLAUSE 38.2 WHERE THE RISK OR LOSS OF OR DAMAGE TO THE WOR K PASSES FROM THE CONTRACTOR TO THE EMPLOYER IN ACCORDANCE WITH SUB C LAUSE 39.1 SITE MEANS A PLACE OR PLACES PROVIDED OR MADE AVA ILABLE BY THE EMPLOYER WHERE WORK IS TO BE DONE BY THE CONTRACT O R TO WHICH PLANT IS TO BE DELIVERED, TOGETHER WITH SO MUCH OF THE AR EA SURROUNDING THE SAME AS THE CONTRACT SHALL WITH THE CONSENT OF THE EMPLOYER USE IN CONNECTION WITH THE WORKS OTHERWISE THAN MERELY FOR THE PURPOSE OF ACCESS. 6.5 ERECTION INFORMATION THE CONTRACTOR SHALL PROVIDE WITH THE TIMES STATED IN THE CONTRACT OR IN THE PROGRAM DRAWINGS SHOWING HOW THE PLANT IS TO BE AFFIXED AND ANY OTHER INFORMATION REQUIRED FOR: SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 110 A. PREPARATION BY THE CONTRACT OF SUITABLE FOUNDATIONS OR OTHER MEANS OF SUPPORT; AND B. PROVIDING SUITABLE ACCESS ON THE SITE FOR THE PLANT AND ANY NECESSARY EQUIPMENT TO THE PLACE WHERE THE PLANT IS TO BE ERECTED; AND C. MAKING NECESSARY CAN CONNECTIONS TO THE PLANT. 6.6 OPERATION AND MAINTENANCE MANUAL THE CONTRACTOR SHALL SUPPLY OPERATION AND MAINTENAN CE MANUALS TOGETHER WITH DRAWINGS OF THE WORKS AS BUILT. THESE SHALL BE IN SUCH DETAIL AS WELL ENABLE THE EMPLOYER TO OPERATE, MAIN TAIN, ADJUST AND REPAIR ALL PARTS OF THE WORKS AND SHALL BE IN SUCH FORM AS STATED IN THE CONTRACT. 28.7 CONSEQUENCE OF FAILURE TO PASS TEST ON COMPLET ION IF A SECTION FAILS TO PASS THE TESTS ON THE REPUTAT ION THEREOF UNDER THE SUB CLAUSE 28.5.1 AND HAS NOT MADE TO EVEN THE MINI MUM ACCEPTABLE LIMIT, THE ENGINEER AFTER DUE CONSIDERATION WITH TH E EMPLOYER AND THE CONTRACTOR SHALL BE ENTITLED TO: A. ORDER FOR THE REPUTATION OF THE TEST UNDER THE COND ITION OF SUB CLAUSE 28.5; OR B. REJECT THE WORKS AND SUCH SECTION NOTWITHSTANDING T HAT EITHER SECTION OF THE WORKS MAY HAVE BEEN TAKEN OVER OR PR OVISIONALLY TAKEN OVER, IN WHICH EVEN THE EMPLOYER SHALL DO THE EX-ILLUSION OF ANY REMEDY UNDER CLAUSE 45 BE ENTITLED TO RECOVE R ALL SUMS PAID IN RESPECT OF THE WORKS, TOGETHER WITH THE COS T OF SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 111 DISMANTLING THE SETS, CLEARING THE SITE AND RETURNI NG THE PLANT TO THE CONTRACTOR, OTHERWISE DISPOSING OFF IN ACCORDAN CE WITH THE CONTRACTORS INSTRUCTIONS; OR C. ISSUE AT TAKING OVER CERTIFICATE IF THE EMPLOYER SO VICIOUS NOTWITHSTANDING THE WORKS ARE NOT COMPLETE OR THE SECTIONS/WORKS DO NOT MEET EVEN THE MINIMUM ACCEPTA BLE STANDARDS IN WHICH CASE THE CONTRACT OR SHALL PAY S UCH SUMS AS ARE DUE UNDER THE PROVISIONS OF CLAUSE 60 OR THE CO NTRACT PRICE SHALL BE REDUCED BY SUCH AMOUNT AS MAY BE AGREED BY THE EMPLOYER AND THE CONTRACTOR FAILING AGREEMENT AS MA Y BE DETERMINED BY ARBITRATION. 37.3 CONTRACTORS RISK THE CONTRACTORS RISK ARE ALL RISKS OTHER THAN THOS E IDENTIFIED AS EMPLOYERS RISK AND FORCE MAJOR RISK. CARE OF THE WORKS AND PASSING OF RISK 38.1 CONTRACTORS RESPONSIBILITY FOR THE CARE OF TH E WORKS THE CONTRACTOR SHALL BE RESPONSIBLE FOR THE CARE OF THE WORKS OF ANY SECTION THEREOF FROM THE COMMENCEMENT DATE UNTIL TH E RISK TRANSFER DATE APPLICABLE THERETO UNDER SUB CLAUSE 38.2 THE CONTRACTOR SHALL ALSO BE RESPONSIBLE FOR THE CA RE OF ANY PART OF THE WORKS UPON WHICH ANY OUTSTANDING WORK IS BEING PERFORMED BY THE CONTRACTOR PURSUANT TO CLAUSE 30 UNTIL COMPLETI ON OF SUCH OUTSTANDING WORK. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 112 RISK TRANSFER DATE THE RISK TRANSFER DATE IN RELATION TO THE WORK OR A SECTION THEREOF IS THE EARLIEST OF EITHER: A. THE DATE OF ISSUE OF TAKING OVER CERTIFICATE OR B. WITH RESPECT TO THE RELEVANT SECTION ONLY THE DATE OF PROVISIONAL TAKEOVER OR C. THE DATE WHEN THE ENGINEER IS DEEMED TO HAVE SURE T HE TAKING OVER CERTIFICATE OR THE WORKS ARE DEEMED TO HAVE BE EN TAKEN OVER IN ACCORDANCE WITH CLAUSE 29 OR D. THE DATE OF EXPIRY OF THE NOTICE OF TERMINATION WHE N THE CONTRACT IS TERMINATED BY THE EMPLOYER OR THE CONTRACTOR ARE IN ACCORDANCE WITH THESE CONDITIONS. ROSA II 151. THIS CONTRACT HAS BEEN EXECUTED BETWEEN ASSESSE E AND ROSA PARKS SUPPLY COMPANY LIMITED FOR SETTING UP OF 2 X 300 MW THERMAL POWER PLANTS AT UTTERPRADESH, BEING ROSA II. THE S AID AGREEMENT HAS BEEN ENTERED INTO BETWEEN THE PARTIES ON 23.03. 2008 ON SIMILAR TERMS AND CONDITIONS AS HAS BEEN REPRODUCED HEREINA BOVE. YAMUNA 152. THIS PROJECT IS ENTERED INTO BY ASSESSEE WITH R ELIANCE ENERGY LTD ON IDENTICAL TERMS OF PAYMENTS AND SCOPE OF WOR K. 153. THUS ON PERUSAL OF THE CONTRACTS BEING ROSA I AND ROSA II, IT IS BLATANTLY CLEAR THAT THERE IS ONLY ONE CONTRA CT TO BE EXECUTED BY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 113 ASSESSEE FOR THE ENTIRE ERECTION, COMMISSIONING AND SUCCESSFUL RUNNING OF THE ABOVE PROJECT. THE DESIGN, ENGINEERI NG, SUPPLY, ASSEMBLY, ERECTION AND INSTALLATION ARE INTERLINKED AND EVERYTHING CULMINATES INTO ONE PLANT. ASSESSEE HAS TO FORMULAT E ITS OWN DESIGN AND ENGINEERING AS PER THE REQUIREMENT PLACED BY TH E OWNER/EMPLOYER BASED ON WHICH THE PLANTS AND MATERI ALS ARE PROCURED. THERE ARE NO BIFURCATIONS BETWEEN SUPPLY AND ERECTION/INSTALLATION IN THE CONTRACT. AND LD. COUN SELS RELIANCE ON ONE PORTION CLAUSE 4 OF THE MAIN CONTRACT IS AN ART IFICIAL BIFURCATIONS WHICH IS FLAWED. THE ASSESSEE IS RESPO NSIBLE FOR SELECTION AND SUPPLY OF MATERIALS, SHIPPING TO THE SITE AND INSTALLATION AND ALL WORKS, COMMISSIONING AND PLACI NG THE PLANT INTO SERVICE. BUTIBURI PROJECT: 154. THIS CONTRACT HAS BEEN ENTERED INTO BY ASSESSEE W ITH VIDARBHA INDUSTRIES POWER LTD BEING THE OWNERS OF T HIS PROJECT TO BE SET UP AT BUTIBOORI, NAGPUR, MAHARASHTRA. 155. THE OWNER HAS APPOINTED RELIANCE INFRA PROJECTS ( UK) LTD., A COMPANY INCORPORATED UNDER THE LAWS OF UNITED KINGD OMS AS PURCHASER, BEING THE SUBSIDIARY OF RELIANCE INFRAST RUCTURE LTD.,. THE UNDERSTANDING BETWEEN THE PARTIES ARE THAT RELI ANCE INFRA PROJECTS UK SHALL PROCURE THE EQUIPMENTS AND PROVID E ALL NECESSARY SERVICES TO BE RENDERED OUTSIDE INDIA. WHEREAS RELI ANCE INFRASTRUCTURE LTD WOULD BE THE EPC CONTRACTOR TO U NDERTAKE TO SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 114 DESIGN, ENGINEER, PROCURE, CONSTRUCT, UTRECHT, TEST AND COMMISSION THE PROJECT AND PROVIDE THE PROJECT MANAGEMENT SERV ICES IN THE MANNER SPECIFIED IN CONTRACT. 156. IN THIS TRIPARTE AGREEMENT ASSESSEE HAS AGREED I TS WILLINGNESS TO PROVIDE THE PURCHASER THE BTG EQUIPM ENTS AND TO PROVIDE SUPPLY OF AND SERVICES FOR BOILERS TURBINES AND GENERATORS INCLUDING ASSOCIATED ACCESSORIES AND AUXILIARIES AN D COMMISSIONING SPARES, MAINTENANCE TOOLS AND TACKLES AND CONSUMABL ES OF ONE UNIT OF 300 MW CAPACITY. THE CONTRACT BEING THE ASSESSEE SHALL ALSO PROVIDE COVERING DESIGN, ENGINEERING, MANUFACTURING , PROCUREMENT, SUPPLY, TRANSPORTATION TO DESIGNATED INDIAN PORT, A DIRECTION OF TURBINE AND GENERATOR (MAIN BODY) SUPERVISION OF DI RECTION FOR BALANCE BTG PACKAGE, SUPERVISION OF TESTING AND COM MISSIONING, CONDUCTING OF PERFORMANCE TESTING, TRAINING OF PURC HASERS/OWNERS PERSONNEL AND FINAL COMPLETION OF THE BTG PACKAGE A S DETAILED IN APPENDIX 10 DIVISION OF WORK AND APPENDIX 11, TERMI NAL POINTS IN ACCORDANCE WITH THE TERMS AND CONDITIONS SPECIFIED IN THE CONTRACT. APPENDIX 10, DIVISION OF WORK IS PLACED AT PAGE 35- 48 OF PART -2 OF PAPER BOOK FILED FOR ASSESSMENT YEAR 2012-13 AND 20 13-14. IT HAS BEEN AGREED BETWEEN THE PARTIES THAT THE EFF ECTIVE DATE OF THE CONTRACT SHALL BE THE DATE ON WHICH THE FOLLOWING E VENTS OCCUR: THE CONTRACTOR (ASSESSEE) AND THE PURCHASER (RELIA NCE INFRA PROJECT UK) HAS SIGNED THE CONTRACT; SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 115 THE CONTRACTOR HAS SUBMITTED THE PERFORMANCE GUARAN TEE BEING 5% OF THE CONTRACT PRICE; CONTRACTOR HAS SUBMITTED ADVANCE PAYMENT GUARANTEE BEING 5% OF THE CONTRACT PRICE; AND AN ADVANCE PAYMENT OF 5% OF THE CONTRACT PRICE HAS BEEN RECEIVED BY THE CONTRACT. 157. IT IS OBSERVED THAT ASSESSEE HAS RECEIVED LUMP- SUM PAYMENT OF US $ 111,000,000 AS FULL CONSIDERATION FROM THE PURCHASER FOR EQUIPMENT SUPPLY PRICE ON CFR INDIAN PORT BASIS. A DETAILED BREAKUP OF PRICE FOR THIS PROJECT HAS BEEN LISTED A T APPENDIX 1 PLACED AT PAGE 8-10 OF PAPER BOOK. ON PERUSAL OF TH E SAME IT IS OBSERVED THAT PAYMENTS FOR THE PURPOSES OF SERVICES RENDERED BEING SUPERVISION SERVICE FOR INJECTION, A DIRECTION FOR TURBINE AND GENERATOR, SERVICES FOR PERFORMANCE GUARANTEE TESTS , COMMISSIONING, TRAINING HAS BEEN AGGREGATED AT USD4,000,000. THE P AYMENT SCHEDULE FOR THE PURPOSES OF EQUIPMENT SUPPLY PRICE HAS BEEN PLACED AS APPENDIX 5 AT PAGE 14-17 OF PAPER BOOK. I T IS VERY INTERESTING TO NOTE THAT THOUGH THERE IS A SEGREGAT ION OF PRISE FOR SUPPLY OF EQUIPMENT AND SERVICES RENDERED FOR ERECT ION; SUPERVISION ETC 5% OF THE FINAL PAYMENT OF SUPPLY OF EQUIPMENT, WOULD BE PAID ON ISSUANCE OF THE FINAL COMPLETION CERTIFICATE BY THE PURCHASER. 158. THE PARTIES HAVE ALSO ENTERED INTO A GENERA L CONDITION CONTRACT (GCC), PLACED AT PAGE 79-163 OF PAPER BOO K SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 116 160. ARTICLE 2 OF THE GCC SPECIFIES THE CONTRACTORS (AS SESSEE) WORK AND OBLIGATIONS. HERE IT HAS BEEN AGREED THAT ASSESSEE SHALL PROVIDE ALL WORK, SUPPLIES AND SERVICES NECESSARY F OR DESIGN, ENGINEERING, MANUFACTURING, PROCUREMENT, SUPPLY, TR ANSPORTATION TO DESIGNATED PLACED IN INDIA ON CFR BASIS ( INCO 200 0), ERECTION OF TURBINE AND GENERATOR, SUPERVISION OF ELECTION FOR BALANCE BTG PREP PACKAGE, SUPERVISION OF TESTING AND OF COMMISSIONIN G, CONDUCTING OF PERFORMANCE TESTING, TRAINING OF OWNERS/PURCHASERS PERSONNEL, ACHIEVEMENT OF PROVISIONAL RAKING OVER AND FINAL CO MPLETION OF BTG PACKAGE. 161. ON PERUSAL OF ARTICLE 2 AT PAGE 96- 99, IT IS DISC ERNIBLE THAT THE TRAINING OF OWNERS/ PURCHASERS PERSONNEL FOR OPERATION AND MAINTENANCE OF THE EQUIPMENT IS UPON ASSESSEE A ND THE ENTIRE COST OF WORKING CONDITIONS OF ITS SUPERVISORS IS UP ON ASSESSEE ITSELF. ARTICLE 4 PROVIDES FOR TRAINING OF OWNERS PERSONNEL AT PAGE 1 05- 106. 162. ON PERUSAL OF THESE CLAUSES IT IS CLEAR THAT ASSES SEE IS TO PROVIDE TRAINING TO THE PERSONNEL OF OWNERS ENGINEE RS AT SITE THROUGH CLASSROOM LECTURES ON THE EQUIPMENT AND THE PROJECT. ARTICLE 20 DEALS WITH THE TITLE IN GOODS AND PASSING OF RISK, 163. ARTICLE 22 DEALS WITH SHIPMENT ON PERUSAL OF THESE ARTICLES ASSESSEE IS TO PROVIDES VARIOUS DETAILS IN RESPECT OF THE GOODS REACHING THE PORT OF DESTINATION IN INDIA, THE DATE OF ARRIVAL APPROXIMATE WEIGHT AND VOLUME OF THE SHIPMENT, THE NAME, FLAG AND SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 117 THE OWNER OF THE VESSEL OF THE SHIPMENT IS BY SEA O R THE DESCRIPTION OF THE AIRCRAFT OF THE SHIPMENT IS BY AIR. 164. FURTHER THE CLAUSE REVEALS THAT THE CONTRACTOR WOU LD BE PAID UNDER THE LETTER OF CREDIT ONLY AFTER THE PACKING L IST AND INVOICES ARE RECEIVED BY THE OWNER. 165. UNDER THE CLAUSE OCEAN TRANSPORTATION IN ARTICLE 22.12, IT IS THE RESPONSIBILITY OF THE CONTRACTOR FOR THE TRANSP ORT OF EQUIPMENTS FROM THEIR PLACE OF ORIGIN TO THE PORT OF DESTINATI ON IN ACCORDANCE WITH CFR INCO TERMS 2000. 166. THE CONTRACTOR HAS TO PROVIDE VARIOUS GUARANTEES LIKE ADVANCE BANK GUARANTEES, AND PERFORMANCE GUARANTEE TO THE O WNER IN TERMS OF THE QUALITY OF THE EQUIPMENTS PROVIDED. 167. LD. COUNSEL VEHEMENTLY ARGUED THAT CONSIDERATIONS HAVE BEEN BIFURCATED INTO SUPPLIES AND SERVICE CONTRACT RENDE RED SEPARATELY. HOWEVER ON PERUSAL OF THE AGREEMENT NOWHERE IT SUGG ESTS THAT THE CONTRACT BIFURCATION IS AVAILABLE. THERE IS NO MENT ION OF 2 TRANSACTIONS. THE FACT IS THAT THE CONTRACT ASCRIBE S THE ENTIRE SCOPE OF WORK AND IT IS INCORRECT TO PICK UP ONE PARTICUL AR CLAUSE TO SHOW THAT IT REPRESENTS AN INDEPENDENT SCOPE OF WORK. 168. ON PERUSAL OF ALL CONTRACTS, COMMONLY IT HAS BEEN OBSERVED THAT IN THE PAYMENT SCHEDULE THE PAYMENTS ARE RECEI VED AT VARIOUS STAGES. FOR EXAMPLE IN KINDA PROJECT, (RELEVANT CLA USES WHICH HAVE BEEN REPRODUCED HEREIN ABOVE), IT IS OBSERVED THAT 15% OF THE TOTAL PAYMENTS RECEIVED BY ASSESSEE IN THE SUPPLY OF EQUI PMENT CONTRACT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 118 IS ON COMPLETION OF PERFORMANCE GUARANTEE TESTS. IT IS ALSO OBSERVED THAT ASSESSEE WITH SOME OF THE PROJECT OWNERS HAS S EPARATELY RECEIVED PAYMENT UNDER SERVICE CONTRACT, WHICH IT H AS BEEN SUBMITTED TO HAVE BEEN OFFERED TO TAX IN INDIA. ON A CO-JOINT READING OF BOTH THESE AGREEMENT, IT APPEARS TO US THAT PAYM ENTS ARE LINKED WITH EACH OTHER AT DIFFERENT STAGES OF DESIGN, DRAW ING, SUPPLY AND COMMISSIONING OF THE ENTIRE PROJECT. WE, THEREFORE UNDER SUCH FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US, DO NOT HES ITATE TO HOLD THAT, ACTIVITIES RENDERED BY ASSESSEE ARE INEXTRICA BLY LINKED WITH EACH OTHER, AND ALL THE RESPONSIBILITY FROM SUPPLY TILL SUCCESSFUL COMMISSIONING OF PROJECTS, RESTED ON ASSESSEE. WE O BSERVE A CONTINUOUS ACTIVITY IS BEING CARRIED ON BY THE ASS ESSEE FROM SUPPLY OF EQUIPMENTS TILL THE SETTING UP OF THE POWER PROJ ECTS. IT IS ALSO OBSERVED IN THE PAYMENT CLAUSE AGREED UPON BETWEEN THE PARTIES UNDER CONTRACT FOR SUPPLY OF EQUIPMENTS, THAT THE P RISE OF SERVICE CONTRACT HAS BEEN LOADED THEREON. 169. LD. COUNSEL HAS BEEN HARPING UPON THE ARGUMENT TH AT GOODS HAVE BEEN DELIVERED TO THE BUYER (OWNER OF THE PROJ ECT) OUTSIDE INDIAN TERRITORIES, IN HIGH SEA AS PER INCOTERMS 20 00. BEFORE VENTURING INTO THE ASPECT OF WHERE EXACTLY THE GOOD S HAVE BEEN DELIVERED BY ASSESSEE, IT IS IMPERATIVE TO UNDERSTA ND WHAT INCOTERMS 2000 ARE. INTERNATIONAL COMMERCIAL TERMS ARE A SERIES OF INTERNATIONAL TRADE TERMS THAT ARE BEING USED WO RLDWIDE TO DIVIDE THE TRANSACTION COSTS AND RESPONSIBILITIES BETWEEN THE SELLER AND THE BUYER AND REFLECT STATE-OF-THE-ART TRANSPORTATION P RACTICES. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 119 170. INCOTERMS DEAL WITH THE QUESTIONS RELATED TO THE D ELIVERY OF THE PRODUCTS FROM THE SELLER (EXPORTER) TO THE BUYE R (IMPORTER). THIS INCLUDES THE CARRIAGE OF PRODUCTS, EXPORT AND IMPOR T CLEARANCE RESPONSIBILITIES, WHO PAYS FOR WHAT, AND WHO HAS RI SK FOR THE CONDITION OF THE PRODUCTS AT DIFFERENT LOCATIONS WI THIN THE TRANSPORT PROCESS. INCOTERMS ARE ALWAYS LINKED TO A PHYSICAL LOCATION AND HAS NOTHING TO DO WITH THE TRANSFER OF OWNERSHIP. INCOTERMS 2000 ARE INTERNATIONALLY ACCEPTED COMMERCIAL TERMS DEFINING THE RESPECTIVE ROLES OF THE BUYER (IMPORTE R) AND SELLER (EXPORTER) IN THE ARRANGEMENT OF TRANSPORTATION AND OTHER RESPONSIBILITIES AND CLARIFY WHEN THE OWNERSHIP OF THE MERCHANDISE TAKES PLACE. THESE TERMS ARE INCORPORATED INTO EXPO RT-IMPORT SALES AGREEMENTS AND CONTRACTS WORLDWIDE AND ARE A NECESS ARY PART OF FOREIGN TRADE. 171. THE MAIN OBJECTIVE OF INCOTERMS2000 DEFINES THE RESPONSIBILITIES AND THE OBLIGATIONS OF A SELLER (E XPORTER) AND A BUYER (IMPORTER) WITHIN THE FRAMEWORK OF INTERNATIO NAL CONTRACTS OF TRADE CONCERNING LOADING, TRANSPORT, TYPE OF TRANSP ORT, INSURANCES AND DELIVERY. ITS FIRST FUNCTION IS ABOUT A DISTRIB UTION OF TRANSPORT CHARGES. THE SECOND ROLE OF THE INCOTERMS 2000 IS T O DEFINE THE PLACE OF TRANSFER AND THE TRANSPORT RISKS INVOLVED IN ORDER TO JUSTIFY THE OWNERSHIP FOR SUPPORT AND DAMAGE OF GOODS BY SH IPMENTS SENT BY THE SELLER (EXPORTER) OR THE BUYER (IMPORTER) IN AN EVENT OF EXECUTION OF TRANSPORT. INCOTERMS, SAFEGUARD THE FOLLOWING ISSUES IN THE FO REIGN TRADE CONTRACT OR INTERNATIONAL TRADE CONTRACT: SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 120 A) TO DETERMINE THE CRITICAL POINT OF THE TRANSFER OF THE RISKS OF THE SELLER TO THE BUYER IN THE PROCESS FORWARDING OF TH E GOODS (RISKS OF LOSS, DETERIORATION, ROBBERY OF THE GOODS) ALLOW TH E PERSON WHO SUPPORTS THESE RISKS TO MAKE ARRANGEMENTS IN PARTIC ULAR IN TERM OF INSURANCE. B) TO SPECIFY IS GOING TO SUBSCRIBE THE CONTRACT OF CARRIAGE THAT IS TO SAY THE SELLER OR THE BUYER. C) TO DISTRIBUTE BETWEEN THE SELLER AND THE BUYER T HE LOGISTIC AND ADMINISTRATIVE EXPENSES AT THE VARIOUS STAGES OF TH E PROCESS. D) TO DEFINE WHO IS RESPONSIBLE FOR PACKAGING, MARK ING, OPERATIONS OF HANDLING, LOADING AND UNLOADING OF THE GOODS OR THE POTTING AND THE DISCHARGE OF THE CONTAINERS AS WELL AS THE OPER ATIONS OF INSPECTION. E) TO FIX RESPECTIVE OBLIGATIONS FOR THE ACHIEVEMEN T OF THE FORMALITIES OF EXPORTATION AND /OR IMPORTATION, THE PAYMENT OF THE RIGHTS AND TAXES OF IMPORTATION AS WELL AS THE SUPPLY OF THE D OCUMENTS. INCOTERMS ARE MOST FREQUENTLY LISTED BY CATEGORIES LIKE, FOB , CIN, CFR, FCA, FAS ETC., 172. LD. COUNSEL HAS SUBMITTED BEFORE US THAT ENTIRE T RANSACTION HAS TAKEN PLACE AS PER CFR BASIS INCOTERMS 2000. EV EN AS PER AGREEMENTS, GOODS HAVE BEEN TRANSFERRED TO BUYER ON CFR BASIS INCOTERMS 2000 BY ASSESSEE. CFR - THE ABBREVIATION WOULD MEAN COST & FREIGHT (NAMED PORT OF DESTINATION). COST AN D FREIGHT MEANS THAT THE SELLER (EXPORTER) DELIVERS WHEN THE GOODS PASS THE SHIP'S RAIL IN THE PORT OF SHIPMENT. THE SELLER (EXPORTER) MUST PAY THE COSTS AND FREIGHT NECESSARY TO BRING THE GOODS TO THE NAMED P ORT OF SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 121 DESTINATION AND THE RISK OF LOSS OF OR DAMAGE TO TH E GOODS, AS WELL AS ANY ADDITIONAL COSTS DUE TO EVENTS OCCURRING AFTER THE TIME OF DELIVERY, ARE TRANSFERRED FROM THE SELLER (EXPORTER ) TO THE BUYER (IMPORTER). 173. UNDER SUCH CIRCUMSTANCES, IT IS IMPERATIVE TO EXAM INE IN EACH CONTRACT WHAT HAS BEEN THE DISCHARGE POINT OF THE BTG EQUIPMENTS AS AGREED BETWEEN THE PARTIES. WE HAVE R EFERRED TO RELEVANT CLAUSES OF THE AGREEMENTS AND THE DEFINITI ONS RELEVANT FOR THE PURPOSES OF ASCERTAINING DELIVERY POINT OF BTG EQUIPMENTS UNDER EACH CONTRACT AND IT HAS BEEN OBSERVED THAT T HE DELIVERY OF THE BTG EQUIPMENTS HAS TO BE EFFECTUATED BY ASSESSE E TO THE RESPECTIVE PORTS AS PER AGREEMENTS THOUGH THE TITLE IN THE GOODS AS PER THE BILL OF LADING HAS BEEN TRANSFERRED TO THE OWNER OF THE PROJECT OUTSIDE INDIA PRIOR TO THE SHIPMENT DATE. 174. IN THE PAPER BOOK FILED FOR ASSESSMENT YEAR 2010- 11, ASSESSEE HAS PLACED COPIES OF; CERTIFICATE OF ORIGIN AT PAGE 2026, BILL OF LADING AT PAGE 2027, BILL OF ENTRY FOR HOME CONSUMPTION AT PAGE 2028 PER TAINING TO INVOICE DATED 02/11/09 AT PAGE 2039, DELIVERY TERMS CFR CHENNAI SEAPORT/BANGALORE AIRPORT INDIA; CERTIFICATE OF ORIGIN AT PAGE 2030, BILL OF LADING AT PAGE 2031, BILL OF ENTRY FOR HOME CONSUMPTION AT PAGE 2032 PER TAINING TO INVOICE DATED 19/09/10 AT PAGE 2033, DELIVERY TERMS CFR CHENNAI SEAPORT/BANGALORE AIRPORT INDIA; AND SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 122 CERTIFICATE OF ORIGIN AT PAGE 2034, BILL OF LADING AT PAGE 2035, BILL OF ENTRY FOR HOME CONSUMPTION AT PAGE 2036 PER TAINING TO INVOICE DATED 19/08/09 AT PAGE 2037, DELIVERY TREMS - CFR VISAKHAPATNAM, INCOTERMS 2000 175. IN ALL THE ABOVE REFERRED INVOICES, THE SHIPPER/SUPPLIERS/BENEFICIARY CARRIES THE NAME OF A SSESSEE, ON THE CERTIFICATE OF ORIGIN EXPORTER IS THE ASSESSEE, CON SIGNEE IS - MADE OUT OF ORDER OF INDUSTRIAL DEVELOPMENT BANK OF INDI A LTD. IN THE CASE OF DOCUMENT RELATING TO INVOICE DATED 02.11.2009 AN D 19.09.2010 AND IN CASE OF THE CERTIFICATE OF ORIGIN ISSUED AGA INST INVOICE DATED 19.08.2009, SHOWS THE CONSIGNEE TO BE JINDAL STEEL AND POWER LTD. 176. BILL OF LADING SHOWS THE FRIGHT TO BE PREPAID, SHI PPER BEING THE ASSESSEE AND CONSIGNEE HAS BEEN REFERRED TO AS- MA DE OUT OF ORDER OF INDUSTRIAL DEVELOPMENT BANK OF INDIA LTD . IN A LL THE 3 CASES REFERRED HEREIN ABOVE; SIMILAR IS THE NOTING RECORD ED IN BILL OF ENTRY PLACED AT THE RESPECTIVE PAGES. 177. ON ANALYSIS OF THE ABOVE DOCUMENTS IT APPEARS THAT ASSESSEE WAS RESPONSIBLE FOR PAYMENT OF THE ENTIRE CUSTOMS D UTY IN RESPECT OF THE GOODS SHIPPED FROM CHINA TO THE RESPECTIVE P ORT OF DISCHARGE MENTIONED IN THE BILL OF LADING AND THE BILL OF ENT RY WHICH HAS BEEN ISSUED BY THE INDIAN CUSTOMS HOUSE. IN THE BILL OF LADING PLACED AT PAGE 2035 WHERE THE EQUIPMENTS HAVE BEEN SHIPPED TH ROUGH THE SHIPPING CORPORATION OF INDIA LTD BEING THE SHIPPIN G HOUSE. HOWEVER THE CUSTOMS DUTY HAS BEEN BORNE BY ASSESSEE , WHICH IS CLEAR FROM THE DOCUMENT. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 123 178. IF THE SALE OF EQUIPMENT HAS TAKEN PLACE ON HIGH S EA OUTSIDE INDIA AS SUBMITTED BY LD. COUNSEL, THEN HOW IS THAT ASSESSEE IS PAYING CUSTOM DUTY IN INDIA AND DELIVERING THE SAME TO ITS PROJECT SITE ? 179. IT IS FURTHER PERTINENT TO NOTE THAT IN THE AGREEM ENTS ENTERED INTO BY ASSESSEE WITH VARIOUS PROJECT OWNERS, PAYME NT IN THE CONTRACT SCHEDULE ARE NOT RELATED WITH SALE OF EQUI PMENTS. BUT PAYMENTS ARE LINKED WITH THE DIFFERENT STAGES LIKE SIGNING OF CONTRACT, RAISING OF INVOICE, SUBMISSION OF INVOICE FOR ADVANCE PAYMENTS, SUBMISSION OF ADVANCE BANK GUARANTEE, SUB MISSION OF PERFORMANCE BANK GUARANTEE, DESIGN, DRAWING, SUCCES SFUL COMMISSIONING OF POWER PLANT. IN ALL, THE PAYMENTS ARE RELATED TO ENTIRE WORK ENTRUSTED UPON ASSESSEE INCLUDES, SUPER VISORY SERVICES THAT ASSESSEE HAS TO RENDER IN INDIA. IT HAS BEEN CONSISTENTLY OBSERVED IN ALL CONTRACTS THAT, MAJOR MILESTONE IN PAYMENT SCHEDULE DOES NOT MENTION ABOUT SUPPLY/SALE OF BTG EQUIPMENT S, BUT RECOGNIZES INCIDENTS LIKE SIGNING OF CONTRACTS, RAI SING INVOICE, SUBMITTING OF PERFORMANCE BANK GUARANTEE BY ASSESSE E TO THE PROJECT OWNER, SUBMITTING OF ADVANCE BANK GUARANTEE BY ASSESSEE TO THE PROJECT OWNER, ENGINEERING/ARCHITECTURAL WO RKS, SUPPLY OF EQUIPMENTS, TESTING OF EQUIPMENTS AND COMMISSIONING OF THE POWER PLANT FOLLOWED BY ISSUANCE OF PERFORMANCE GUARANTEE TEST CERTIFICATES. THIS SHOWS THE NATURE OF CONTRACT BEI NG ONE AND INDIVISIBLE, AS NO SEPARATE VALUE FOR SUPPLY/SALE O F EQUIPMENTS HAS BEEN RECOGNIZED AS A MILESTONE. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 124 180. FOR THE SAKE OF CONVENIENCE WE ARE REPRODUCING PAY MENT SCHEDULE AGREED UPON BY ASSESSEE WITH THE PROJECT O WNER UNDER THE KINDA PROJECT AT PAGE 972 OF PAPER BOOK SCHEDULE IV -PAYMENT SCHEDULE 2. CONTRACT PRICE AND TERMS OF PAYMENT 2.1. AS FULL AND COMPOSITE COMPENSATION FOR THE SUPPLIER S PERFORMANCE OF THE WORK AND OBLIGATIONS UNDER THIS CONTRACT, THE OWNER SHALL BE TO THE SUPPLIER OF FIG LUMP SUM REFERRED TO AS THE CONTRACT PRICE INCLUDING OCEAN R IGHT UP TO THE PORT OF DESTINATION IN INDIA AS PER CLAUSE 12 O F GENERAL CONDITIONS OF CONTRACT. THE CONTRACT PRICE FOR THIS CONTRACT ON CFR BASIS IS USD 188,400,000 (ONE HUNDRED AND EIGHTY EIGHT MILLION FOUR HUNDRED THOUSAND ONLY). T HE BREAKUP OF TOTAL CONTRACT PRICE SHALL BE AS PER SCH EDULE VI. 2.2. TERMS OF PAYMENT ON SUPPLY OF EQUIPMENT AND MANDATORY SPARE 2.2.1. 9% OF THE CONTRACT PRICE AMOUNTING TO USD16,956,000 SHALL BE PAID AS ADVANCE PAYMENT (INTEREST-FREE) ON FULFILLMENT OF THE FOLLOWING BY THE SUPPLIER: SIGNING OF THE CONTRACT SUBMISSION OF INVOICE FOR ADVANCE PAYMENTS SUBMISSION OF ADVANCE BANK GUARANTEE EQUIVALENT TO 9% OF THE TOTAL CONTRACT PRICE AS PER SCHEDULE I 2.2.2. 16% OF THE CONTRACT PRICE AMOUNTING TO USD30,144,000 SHALL BE PAID TOWARDS MILESTONE PAYMENT AS FOLLOWS: USD 5,400,000 IN JANUARY 2007 USD 5,400,000 IN FEBRUARY 2007 USD 5,400,000 IN MARCH 2007 USD 5,400,000 IN APRIL 2007 SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 125 USD 5,400,000 IN NOVEMBER 2007 USD 3,144,000 IN DECEMBER 2007 2.2.3. 60% OF THE CONTRACT PRICE AMOUNTING TO USD113,040,000 PER INDIVIDUAL PACKAGE AS SHOWN IN THE BUILDING BREAKUP (SCHEDULE VI) SHALL BE PAID ON DISPATCH, AGAINST SATISFACTORY EVIDENCE OF SHIPMENT . 2.2.4. 5% OF THE CONTRACT PRICE PER INDIVIDUAL PACKAGE AS SHOWN IN THE BREAKUP OF CONTRACT PRICE (SCHEDULE VI ) SHALL BE PAID ON RECEIPT OF RELATED DOCUMENTATION F OR THE ERECTION OF THE EQUIPMENT SUPPLIED IN CASE THE DOCUMENTS ARE RECEIVED IN ADVANCE AT THE SHIPMENT IS DELAYED THEN THE PAYMENT FOR THE SAME SHALL BE MADE ALONG WITH THE DELIVERY OF EQUIPMENT; 2.2.5. 10% OF CONTRACT PRICE EACH UNIT AS SHOWN IN THE BREAKUP OF CONTRACT PRICE (SCHEDULE) SHALL BE PAID ON ISSUANCE OF TAKING OVER CERTIFICATE OR DEEMED TAKEOVER DATE OF EACH UNIT. 2.3. MODE OF PAYMENT: 2.3.1. THE PAYMENT TOWARDS ADVANCE AND MILESTONE PAYMENTS HAD BEEN MADE THROUGH TELEGRAPHIC TRANSFER/SWIFT. ALL OTHER PAYMENT UNDER THIS CONTRA CT SHALL BE PAID THROUGH AN IRRECOVERABLE LETTER OF CR EDIT (L/C) PAYABLE AT SITE AS PER SCHEDULE V. THE L/C SHALL BE ESTABLISHED THROUGH A BAND ACCEPTABLE TO T HE SUPPLIER. 2.3.2. THE REVOLVING L/C SHALL BE RECEIVED BY THE SUPPLIER WITHIN 3 MONTHS FROM THE EFFECTIVE DATE OF THE CONTRACT. 2.3.3. L/C MAY BE CONFIRMED AT THE OPTION OF THE SUPPLIER. ALL COST CHARGES CONNECTED WITH THE L/C SHALL BE BORNE BY THE OWNER EXCEPT FOLLOWING TO THE ACCOUNT OF THE SUPPLIER: CONFIRMATION CHARGES, IF ANY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 126 NEGOTIATING CHARGES DUE TO THE BANK OF THE SUPPLIER EXTENSION CHARGES IF DUE TO REASONS ONLY ATTRIBUTABLE TO THE SUPPLIER 181. THE ABOVE REFERRED FORMAT IS THE STANDARD FORMAT FOLLOWED IN ALL THE CONTRACTS, BE THAT IT BE THE BUTIBORI CONTR ACT, RATNAGARI CONTRACT, OR KINDA PHASE IV CONTRACT WHICH HAS BEEN SPECIFICALLY RELIED UPON BY LD. COUNSEL. LD. COUNSEL VEHEMENTLY ARGUED THAT THERE ARE TWO INDEPENDENT TRANSACTIONS AND THE CONS IDERATION HAS BEEN BIFURCATED CONTRACTUALLY INTO SUPPLY OF EQUIPM ENT AND RENDERING OF SUPERVISORY SERVICES, AND THAT THE TRA NSACTION OF SUPPLIES HAS BEEN COMPLETED UPON THE CONSIGNMENT LE AVING THE PORT OF ORIGIN. HE PLACED RELIANCE UPON BUTIBORI CONTRAC T, RATNAGIRI CONTRACT KINDA PHASE IV CONTRACT TO SUBSTANTIATE HI S ARGUMENT. BUT ON READING OF THE PAYMENT SCHEDULE, WE DO NOT AGREE WITH THIS ARGUMENT ADVANCED BY LD.COUNSEL. REASON BEING THAT, THERE IS NO SPECIFIC DEMARCATION OF VALUE OF EQUIPMENTS SUPPLIE D BY THE SUPPLIER/ASSESSEE. THE ENTIRE PAYMENT HAS BEEN BIFU RCATED ON PERCENTAGE BASIS OF THE TOTAL CONTRACT PRICE PAID FOR THE ENTIRE SCOPE OF WORK WHICH ENDS WITH ISSUANCE OF TAKING OV ER CERTIFICATE BY THE PROJECT OWNER. 182. THIS LEADS TO A MAJOR QUESTION, WHETHER ON THE BAS IS OF FACTS AND CIRCUMSTANCES IN THE PRESENT CASE, SALE AND SUP PLY OF BTG EQUIPMENT TO THE BUYER COULD BE CONSIDERED TO HAVE BEEN COMPLETED OUTSIDE INDIA. SECTION 19 OF SALE OF GOODS ACT, MAK ES IT CLEAR THAT PROPERTY IN GOOD PASSES WHEN THE PARTIES INTENDED T O PASS. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 127 IT WAS SUBMITTED BY LD. COUNSEL IN REJOINDER TO LD. DRS SUBMISSION AS UNDER; IT IS A SETTLED PRINCIPLE OF LAW THAT IN A SUPPLY CONTRACT THE REVENUE ARISES ONLY ONCE THE SUPPLIES HAS BEEN MADE AND DOES NOT ARISE AT ANY PRECEDING OR SUBSEQUENT STAGE . 183. THAT BEING THE CIRCUMSTANCES, IN EACH AND EVERY CO NTRACT ENTERED INTO BY ASSESSEE WITH PROJECT OWNERS, WHY W OULD TERMS IN PAYMENT SCHEDULE START WITH ASSESSEE PROVIDING PERF ORMANCE BANK GUARANTEE, ASSESSEE PROVIDING AN ADVANCE BANK GUARA NTEE (THE PERFORMER OF WHICH HAS BEEN ATTACHED AS AN ANNEXURE /APPENDIX TO EACH AND EVERY CONTRACT) AND THEN THE OWNER ISSUING A PERCENTAGE OF CONTRACT PRICE AS ADVANCE, WITHOUT THERE BEING A N IDENTIFIABLE PAYMENT EXCLUSIVELY MADE FOR SUPPLY OF EQUIPMENTS. TRANSFER OF TILE TRANSFER OF TITLE IN RESPECT OF EQUIPMENT AND MATER IALS SUPPLIED BY THE SUPPLIER PRESENT TO THE TERMS OF CONTRACT SHALL PASS ON TO THE OWNERS, ON CFR BASIS (INCOTERMS2000). TRANSFER OF TITLE SHALL NOT MEAN COMPLETION OF THE CONTRACT. THE SUPPLIER SHALL CONTINUE TO BE RESPONSIBLE FOR THE R ISK TO, QUALITY AND PERFORMANCE, OF SUCH EQUIPMENT AND/OR MATERIALS AND FOR THEIR COMPLAINT WITH THE CONTRACT SPECIFICATIONS UNTIL TA KE-OVER, IN TERMS OF THE PERFORMANCE WARRANTIES. THE ABOVE REFERRED CLAUSE IS COMMON TO ALL 14 ARGUM ENTS. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 128 WARORA AGREEMENT THIS AGREEMENT IS PLACED AT PAGE 1737 OF PAPER BOOK PART IV FOR A. Y. 2010-11. BETWEEN ASSESSEE AND EMCO ARTICLE 2.10 PACKING AND TRANSPORTATION ARTICLE 4 - CONTRACT PRICE & PAYMENTS. ASSESSEE OFFERS ADVANCE PAYMENT BONDS, PERFORMANCE BOND. ARTICLE 11 TITLE & RISK OF LACS ARTICLE 12 - INSURANCE. RATNAGARI PROJECT . THIS AGREEMENT IS PLACED AT PAPERBOOK PART-III FOR A.Y. 2010-11, ENTERED INTO BETWEEN ASSESSEE AND JSW ENERGY LTD. REFERENCE IS MADE TO CLAUSE 10- SHIPPING AND FORW ARDING CLAUSE 10.2 TRANSPORTATION WHICH IS TO BE CARRIED ON BY ASSESSEE ON CFR BASIS. 10.4. TRANSFER OF TITLE. WHEREIN THERE IS A RIDER IN SUB CLAUSE 10.4(B) THAT TRANSFER OF TITLE SHALL NOT MEAN ACCEPTANCE AND CONSEQUENT TAKEOVER O F EQUIPMENT. THE SUPPLIER SHALL CONTINUE TO BE RESPONSIBLE FOR T HE RISK TO QUALITY AND PERFORMANCE OF SUCH EQUIPMENT AND/OR MATERIALS AND FOR THEIR COMPLIANCE WITH SPECIFICATION UNTIL TAKE OVER IN TE RMS OF PERFORMANCE GUARANTEE. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 129 SIMILAR IS THE UNDERSTANDING BETWEEN ASSESSEE AND O WNER UNDER CHANDRAPUR PROJECT AND JINDAL 2 PROJECT PLACED AT PAGE 1343 OF PAPERBOOK PART- IV FOR A. Y. 2011-12 AND PAGE 1873 PAPERBOOK PART IV FOR A. Y. 2010-11. 184 . ON THE BASIS OF ABOVE ANALYSIS IN RESPECT OF EACH CONTRACT, WE REJECT THE ARGUMENT ADVANCED BY LD. COUNSEL THAT TH E AGREEMENTS ENTERED INTO BY ASSESSEE WITH THE PROJECT OWNERS WA S ESSENTIALLY A CONTRACT FOR SUPPLY OF GOODS, WHERE SOME WORK IS RE QUIRED TO BE DONE AS INCIDENTAL TO SALE. 185. LD. COUNSEL PLACED HEAVY RELIANCE UPON THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF MOTOR OLA INC. (SUPRA) TO EMPHASISE THAT TITLE IN THE GOODS WHEN PASSED ON TO THE BUYER OUTSIDE INDIA AND PAYMENTS HAVE ALSO BEEN RECEIVED BY THE SELLER OUTSIDE INDIA, SUCH INCOME RECEIVED WOULD BE OFFSHO RE SUPPLY AND COULD NOT BE DEEMED TO HAVE ACCRUED OR ARISEN IN IN DIA MERELY BECAUSE THERE IS AN EXISTENCE OF SUPERVISION PE IN INDIA. ON PERUSAL OF THE DECISION OF SPECIAL BENCH IN MOTOROLA INC. ( SUPRA), IT IS OBSERVED THAT THE TRIBUNAL AFTER PERUSING THE CONTR ACT ENTERED INTO BETWEEN THE PARTIES THEREIN, WAS OF THE OPINION THA T THE INTENTION OF THE PARTIES, INSOFAR AS THE TITLE IN THE GOODS WERE CONCERNED, PASSED ON TO THE BUYER OUTSIDE INDIA WAS VERY CLEAR. SIMIL AR WAS THE OBSERVATION OF THIS TRIBUNAL IN POSCO(SUPRA), AS AS SESSEE THEREIN ENTERED INTO THREE DIFFERENT CONTRACT AND THE SALE OF EQUIPMENT AND TRANSFER OF TITLE ON THE BUYER WAS EXPLICIT AND THE PAYMENT FOR SALE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 130 OF EQUIPMENT COULD BE IDENTIFIABLE AND THE ENTIRE PAYMENT OF VALUE OF GOODS SUPPLIED WAS RECEIVED OUTSIDE INDIA. 186. COMING TO THE FACTS OF THE PRESENT CASE, THE MOMEN T ASSESSEE/SELLER AGREED TO GIVE A PERFORMANCE BANK G UARANTEE, CLAUSE RELATING TO FAILURE TO PASS TEST ON COMPLETI ON MAKES ASSESSEE LIABLE FOR SUCCESSFUL FUNCTIONING OF THE BTG EQUIPM ENT IN INDIA UPON INSTALLATION ON SITE. NONE OF THE CONTRACTS SP ECIFIES CLEAR INTENTION OF PARTIES TO TRANSFER THE TITLE AND THE GOODS OUTSIDE INDIA. IN FACT THE SELLER/ ASSESSEE WAS HAVING COMPLETE CO NTROL OVER THE GOODS INCLUSIVE OF RISK WHILE IN TRANSIT AS WELL AS ONCE EQUIPMENTS REACHES THE RESPECTIVE SITE. ALL AGREEMENTS REQUIRE D ASSESSEE TO BRING THE BTG EQUIPMENTS TO DISCHARGE PORT LOCATED IN INDIA IN PROPER CONDITION AS ASSESSEE HAS ISSUED A PERFORMAN CE BANK GUARANTEE TO THE RESPECTIVE OWNERS. THIS FURTHER ST RENGTHENS THE INTENTION OF PARTIES THAT ASSESSEE COULD NOT HAVE T AKEN CHANCE OF ANY KIND OF DAMAGE BEING CAUSED TO THE EQUIPMENTS, WHILE IN TRANSIT. THE DELIVERY OF SHIPMENT HAS TAKEN PLACE O N CFR BASIS, WOULD IMPLY THAT ASSESSEE WAS RESPONSIBLE TO DELIVE R THE GOODS TO THE BUYER AT THE PORT IN INDIA AND THE RISK OF ANY DAMAGE/LOSS WOULD SHIFT TO THE BUYER ONLY ON THE GOODS REACHING THE PORT OF INDIA. THUS TITLE IN THE GOODS DID NOT GET TRANSFER RED TO THE BUYER OUTSIDE INDIA. ALL THE CONTRACTS PLACED IN THE PAPE R BOOK SPECIFIES A SCHEDULE, WHICH CLEARLY EMPHASISE, 60% AS ADVANCE O F THE TOTAL CONTRACT PRICE WHICH INCLUDES INCOME RECEIVED BY AS SESSEE TOWARDS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 131 SUPERVISION SERVICES RENDERED IN INDIA. THERE ARE N O CLEAR PAYMENTS MADE TO ASSESSEE IN TERMS OF VALUE OF GOODS. 187. ON THE BASIS OF ABOVE DISCUSSIONS, WE DO NOT AGREE WITH THE CONTENTION OF LD. COUNSEL THAT THE FACTS OF THE PRE SENT CASE ARE EVEN SEEMINGLY IDENTICAL WITH THE FACTS OF THE CASE THAT WAS BEFORE SPECIAL BENCH OF THIS TRIBUNAL IN MOTOROLA INC. (SU PRA). COMPOSITE CONTRACTS THE AGREEMENTS ENTERED INTO BY ASSESSEE WITH ITS C LIENTS IN INDIA IS IN THE NATURE OF A COMPOSITE CONTRACT. ON PERUSAL O F VARIOUS CLAUSES OF AGREEMENTS REFERRED TO HEREINABOVE, IT I S AMPLY CLEAR THAT THE DOMINANT INTENTION OF THE PARTIES WAS TO SET UP A POWER PLANT IN INDIA AT VARIOUS LOCATIONS UNDER THE SUPERVISION OF ASSESSEE. AND AS ASSESSEE WAS ALSO SPECIALIZED IN MANUFACTURING OF E QUIPMENTS REQUIRED FOR SETTING UP OF POWER PLANT, ASSESSEE WA S INVOLVED IN SUPPLY OF THE SAME. IT IS CLEAR FROM THE PLAIN READ ING OF AGREEMENTS THAT THE PARTIES HAD AGREED TO CONSTRUCT POWER PLAN TS OF CERTAIN CAPACITY. NONE OF THE AGREEMENTS ARE EXECUTED EXCLU SIVELY FOR SALE OF BTG EQUIPMENTS. FURTHER IT IS OBSERVED THAT UNDER ONE PROJECT ASSES SEE HAS ENTERED INTO TWO AGREEMENTS; ONE FOR SUPPLY AND ANOTHER FOR SUPERVISION. ON PERUSAL OF CLAUSES UNDER BOTH THE PARTS, IT IS C LEAR THAT BOTH THE AGREEMENTS ARE INEXTRICABLY LINKED WITH EACH OTHER. 215. HON'BLE SUPREME COURTS OBSERVATION IN THE CASE OF BHARAT SANCHAR NIGAM LTD. V. UNION OF INDIA [2006] 3 STT 245 ARE RELEVANT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 132 TO UNDERSTAND THE DOMINANT NATURE OF AN AGREEMENT . THE RELEVANT PORTIONS OF THE SAME HAS BEEN EXTRACTED HEREWITH: THE REASON WHY THESE SERVICES DO NOT INVOLVE A SAL E FOR THE PURPOSES OF ENTRY 54 OF LIST - II IS, AS WE SEE IT, FOR REASONS ULTIMATELY ATTRIBUTABLE TO THE PRINCIPLES ENUNCIATE D IN GANNON DUNKERLEY CASE, NAMELY, IF THERE IS AN INSTRUMENT O F CONTRACT WHICH MAY BE COMPOSITE IN FORM IN ANY CASE OTHER TH AN THE EXCEPTIONS IN ARTICLE 366(29-A), UNLESS THE TRANSAC TION IN TRUTH REPRESENTS TWO DISTINCT AND SEPARATE CONTRACTS AND IS DISCERNIBLE AS SUCH, THEN THE STATE WOULD NOT HAVE THE POWER TO SEPARATE THE AGREEMENT TO SELL FROM THE AGREEMENT TO RENDER SERV ICE, AND IMPOSE TAX ON THE SALE. THE TEST THEREFORE FOR COMP OSITE CONTRACTS OTHER THAN THOSE MENTIONED IN ARTICLE 366 (29-A) CO NTINUES TO BE: DID THE PARTIES HAVE IN MIND OR INTEND SEPARATE RIG HTS ARISING OUT OF THE SALE OF GOODS? IF THERE WAS NO SUCH INTENTIO N THERE IS NO SALE EVEN IF THE CONTRACT COULD BE DISINTEGRATED. T HE TEST FOR DECIDING WHETHER A CONTRACT FALLS INTO ONE CATEGORY OR THE OTHER IS TO AS WHAT IS 'THE SUBSTANCE OF THE CONTRACT'. WE W ILL, FOR THE WANT OF A BETTER PHRASE, CALL THIS THE DOMINANT NATURE T EST. (EMPHASIS SUPPLIED) 216. COMING TO THE FACTS OF THE PRESENT ASSESSEE, THE SU BSTANCE OF ALL CONTRACTS VERY CLEARLY INDICATES TO BE COMPOSIT E IN FORM, AS THERE IS NO DIVISION IN THE CONTRACT IN RESPECT OF SUPPLY AND SERVICES, AS ADVOCATED BY LD. COUNSEL, AND PAYMENTS ARE NOT SEPA RATELY LINKED WITH SERVICES AND SUPPLY, BUT IS TO BE MADE ON THE BASIS OF STAGES OF COMPLETION OF THE CONTRACT IRRESPECTIVE OF THE EQUI PMENTS BROUGHT AT THE PROJECT SITE. 217. WE DRAW OUR SUPPORT FROM THE DECISION OF AUTHORITY OF ADVANCE RULING IN CASE OF ROXAR MAXIMUM RESERVOIR PERFORMANCE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 133 WLL ( SUPRA ), HAD RELIED UPON THE JUDGMENT IN ISHIKAWAJMA HARI MA, AND HELD THAT: 'A CONTRACT HAS TO BE READ AS A WHOLE. THE PURPOSE FOR WHICH THE CONTRACT IS ENTERED INTO BY THE PARTIES IS TO BE AS CERTAINED FROM THE TERMS OF THE CONTRACT. IN THE CASE ON HAND, ONGC CL EARLY CALLED FOR A CONTRACT FOR 'SERVICES FOR SUPPLY, INSTALLATION A ND COMMISSIONING OF 36 MANOMETER GAUGES'. THE PURPOSE OF THE CONTRAC T IS THE INSTALLATION OF THE GAUGES AT SITE TO ENABLE ONGC T O CARRY OUT ITS OPERATIONS. I HAVE QUOTED EARLIER THE RELEVANT PORT ION OF THE CONTRACT. ON A READING OF THE SAME, THERE CANNOT BE ANY DOUBT THAT THAT THE CONTRACT IN QUESTION WAS FOR ERECTION AND COMMISSIONING OF 36 MANOMETER GAUGES FOR THE USE OF ONGC. THE CONTRACT IS CLEARLY NOT ONE FOR SALE OF EQUIPMENT. NOR IS IT ONE FOR MERE ERECTION OF THE EQUIPMENT. IT IS A COMPOSITE C ONTRACT FOR SUPPLY AND ERECTION AT SITES WITHIN THE TERRITORY O F INDIA. WHAT IS PAID FOR BY ONGC IS FOR THE SUPPLY AND ERECTION DON E IN INDIA. THE PAYMENT IS RECEIVED BY THE APPLICANT FOR THE PERFOR MANCE OF THE CONTRACT AS A WHOLE IN INDIA. IT IS, THEREFORE, CLE AR THAT THE INCOME TO THE APPLICANT ACCRUED IN INDIA.' 218. THUS LOOKING AT THE FACTS FROM ANY ANGLE, IN OUR C ONSIDERED OPINION ALREADY EXPRESSES THE INTENTION OF PARTIES TO THE AGREEMENT, REGARDING FINAL DELIVERY OF EQUIPMENTS WAS IN INDIA . THUS BY APPLYING DOMINANT NATURE TEST APPLIED BY HONBLE SUPREME COURT IN THE CASE OF BHARAT SANCHAR NIGAM LTD. V. UNION OF INDIA (SUPRA), AND THE RATIO OF SUBSTANCE OVER FORM THAT HAS BEEN CONSIDERED BY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 134 THE AUTHORITY OF ADVANCE RULING IN THE CASE OF ROXAR MAXIMUM RESERVOIR PERFORMANCE WLL ( SUPRA ) WE DO NOT HAVE ANY HESITATION IN HOLDING THAT THE TRANSFER OF TITLE TO THE EQUIPMENT S HAS TAKEN PLACE IN INDIA. 219. THE ISSUE NOW THAT ARISES IS, WHETHER THE SALE PRI CE INCLUDES ANY CONSIDERATION FOR SERVICES RENDERED OR TO BE RE NDERED IN INDIA. THE LD. CIT DR SUBMITTED THAT CERTAIN COSTS FOR CAR RYING ON WITH CERTAIN ACTIVITIES IN INDIA IN RESPECT OF ERECTION OF THE POWER PLANT IS INBUILT IN THE CONTRACT PRICE. 220. ON PERUSAL OF VARIOUS AGREEMENTS ENTERED INTO BETW EEN THE PARTIES BEFORE US WITH ASSESSEE, WE OBSERVE THAT AS SESSEE HAS TRAINED PERSONNEL REGARDING THE FUNCTIONING/HANDLIN G/MAINTENANCE OF BTG EQUIPMENTS WHICH IS AN ADMITTED POSITION. BY AND LARGE IT IS OBSERVED THAT ASSESSEE HAS NOT BEEN SEPARATELY COMP ENSATED FOR PROVIDING TRAINING HAVE EXPRESSLY AGREED THAT COST OF TRAINING WOULD BE INCLUDED IN THE TOTAL CONTRACT PRICE. IN OUR CON SIDERED OPINION, IT DOES NOT HELP THE ASSESSEE IN ANY CASE, AS TRAINING GIVEN TO OWNERS PERSONAL IS FINALLY CONSUMED IN INDIA. WHETHER THE PAYMENT IS PAID SEPARATELY OR NOT, AND WHETHER IT HAS BEEN GIVEN IN INDIA AND OR IN CHINA, DOES NOT CHANGE THE SITUS OF CONSUMPTION OF SUCH SERVICES RENDERED BY ASSESSEE. THIS LEADS TO THE CONCLUSION THAT THE TRAINING COST IS INCLUDED IN THE SALE PRICE CHARGED FOR THE SUPPLY OF BTG EQUIPMENTS. FURTHER CERTAIN CLAUSES INDICATE THAT A SSESSEE IS RESPONSIBLE TO INCUR EXPENSES TOWARDS TESTS AND INS PECTION AT PROJECT SITES IN INDIA, CONDUCT REPAIR DURING DEFEC T LIABILITY PERIOD SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 135 WHICH IS AGAIN IN INDIA ETC. THIS AGAIN INDICATES T HAT THE COST SO INCURRED IS SUBSUMED IN THE SUPPLY COST OF THE EQUI PMENTS, WHICH CANNOT BE RULED OUT. TO BE MORE SPECIFIC, WE REFER TO KINDA PROJECT, WHERE THE SUPPLY SCHEDULE OF EQUIPMENTS INCLUDES, T RAINING OF PERSONNEL, SELECTED BY PROJECT OWNER (MORE SPECIFIC ALLY DETAILED IN SCHEDULE III 966 TO 971 OF PAPER BOOK, THE SAME HAS BEEN REPRODUCED HEREIN ABOVE WHILE DISCUSSING THE TERMS OF AGREEMENT). THE TRAINING OF PERSONNEL ADMITTEDLY HAS TAKEN PLAC E IN AND OUTSIDE INDIA. LD COUNSEL PLACED RELIANCE UPON FOLLOWING DE CISION TO ADVOCATE THAT PROVIDING TRAINING DOES NOT HAVE ITS OWN EXISTENCE AND SUCH ACTIVITY HAS TO BE TREATED AS MERELY INCID ENTAL TO THE SUPPLY OF EQUIPMENT; DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF LIND AG VS. DDIT(SUPRA); DECISION OF THIS TRIBUNAL IN THE CASE OF PIRELLI CA VO E SISTENI VS. ACIT (SUPRA); AND ADVANCE RULING IN CASE OF ROTEM COMPANY (SUPRA). 221. WE HAVE HEREINABOVE REFERRED TO VARIOUS CLAUSES IN AGREEMENTS WHERE ASSESSEE PROVIDES TRAINING TO THE OWNERS PERSONNEL, THE COST OF WHICH IS AGREED TO HAVE BEEN INCLUDED IN THE CONTRACT PRISE. IN THE DECISIONS RELIED UPON BY LD. COUNSEL, THE FACTS ARE DIFFERENT. FURTHER, EACH AND EVERY AGREEM ENT HAS BEEN EXECUTED FOR SETTING UP OF POWER PLANT IN INDIA AT VARIOUS LOCATIONS AND SUPPLY OF EQUIPMENTS ARE INCIDENTAL TO THE EREC TION AND INSTILLATION ACTIVITY. THE MAJOR MILESTONE MENTIONE D IN THE PAYMENT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 136 SCHEDULE DOES NOT MENTION ABOUT SUPPLY/SALE OF BTG EQUIPMENTS, BUT IT RECOGNIZES ARCHITECTURAL WORKS, PROVIDING OF DESIGNS, TESTING OF EQUIPMENTS, FURNISHING OF COMPLETE OPERATING MAN UALS, INSTALLATION AND COMMISSIONING AND OBTAINING OF TAK E OVER CERTIFICATE. 222. HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD VERSUS DCIT (SUPRA) HAS OBSERVED THAT PRIMARY TESTS TO DETERMINE AS TO WHETHER THE CONTRA CT IN QUESTION WAS A COMPOSITE TO ONE FOR EXECUTION OF A TURNKEY P ROJECT BEING: A) WHETHER THE OFFSHORE AND ONSHORE ELEMENTS OF THE CO NTRACT ARE SO INEXTRICABLY LINKED, THAT THE BREACH OF THE OFFS HORE ELEMENT WOULD RESULT IN THE BREACH OF THE WHOLE CONTRACT ? B) WHETHER THE DOMINANT OBJECT OF THE CONTRACT IS THE EXECUTION OF A TURNKEY PROJECT AND THE QUESTION WHETHER THE TITL E TO THE GOODS SUPPLIED PASSES OFFSHORE OR WITHIN INDIA IS S ECONDARY TO THE EXECUTION OF THE CONTRACT ? 223. ANALYSING THE PRESENT FACTS OF THE CASE IN THE LIGHT OF THE ABOVE REFERRED TESTS, IT IS IN CONFORMITY WITH THE OBSERVATIONS THAT HAS BEEN UPHELD BY HONBLE SUPREME COURT IN THE CAS E OF ISHIKAWAJIMA HARIMA (SUPRA) WHICH WHEN APPLIED TO T HE FACTS OF THE PRESENT CASE WOULD BE THE SAME, AS UNDER: EACH COMPONENT OF THE CONTRACT WAS DIRECTLY RELATED TO THE PERFORMANCE OF THE INTEGRATED CONTRACT AS, VIOLATIO N AND/OR SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 137 BREACH ON THE PART OF THE PARTIES THERETO WOULD AFF ECT THE ENTIRE CONTRACT; THE CONTRACT ITSELF PROVIDING FOR MILESTONE DATES T HE BREACH OF ANY OF THE TERMS THEREOF WOULD RESULT IN THE BRE ACH OF THE ENTIRE CONTRACT AND NOT JUST A PARTICULAR OB LIGATI ON; DOES THE TURNKEY PROJECT CONTEMPLATED A PERMANENT ESTABLISHMENT ADMITTEDLY IN INDIA AND IN THAT VIEW OF THE MATTER EXPLANATION APPENDED TO SECTION 9 (1) (I) OF THE ACT IS DIRECTLY APPLICABLE; THE APPELLANT HAS BUSINESS CONNECTION IN INDIA AND IN THAT VIEW OF THE MATTER THE CASUAL CONNECTION BETWEEN OF FSHORE SUPPLY AND ONSHORE SERVICES BEING INTERLINKED WITH THE ENTIRE PROJECT IS EXPLICIT; BY REASON OF DTAA, THE PARTIES THERETO CAN ALWAYS L OCATE THE JURISDICTION TO TAX THE ENTIRE INCOME ATTRIBUTABLE SET TO SUCH PERMANENT ESTABLISHMENT TO THE COUNTRY IN WHICH IT IS ESTABLISHED; SUPPLY OF GOODS WHETHER OFFSHORE OR ONSHORE AS WELL AS RENDERING OF SERVICES WHETHER OFFSHORE OR ONSHORE A RE ATTRIBUTABLE TO THE TURNKEY PROJECT AND THUS IT WOU LD BE WRONG TO CONTEND THAT IN TERMS OF ARTICLE 7 OF DTAA , NO TAX COULD BE LEVIED UPON THE ASSESSEE. AS HAS BEEN OBSERVED BY HONBLE SUPREME COURT IN TH E CASE OF ISHIKAWAJIMA HARIMA (SUPRA); SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 138 THE CONCEPT OF TURNKEY EXECUTION OF THE PROJECT IN VOLVES TOTAL AND COMPLETE RESPONSIBILITIES OF THE PERSONS UNDERTAKING THE CONTRACTS FOR COMMISSIONING THE PRO JECT AND THEY ARE ACCORDINGLY REQUIRED TO FURNISH PERFORMANCE GUARANTEE IS FOR THE TIMELY COMPLETION. 224. TO BE CLEARER WE SHALL REFER TO SECTION 19 OF SAL ES OF GOODS ACT WHICH READS AS UNDER: SECTION 19 (1) WHERE THERE IS A CONTRACT FOR THE SALE OF SPECIFIC OR ASCERTAINED GOODS THE PROPERTY IN THEM IS TRANSFERRED TO THE BUYER AT SUCH TIME AS THE PARTIE S TO THE CONTRACT INTEND IT TO BE TRANSFERRED. (2) FOR THE PURPOSE OF ASCERTAINING THE INTENTION OF TH E PARTIES REGARD SHALL BE HAD TO THE TERMS OF THE CONTRACT, THE CONDUCT OF THE PARTIES AND THE CIRCUMSTANCES OF THE CASE. (3) UNLESS A DIFFERENT INTENTION APPEARS, THE RULES CONTAINED IN SECTIONS 20 TO 24 ARE RULES FOR ASCERTAINING THE INTENTION OF THE PARTIES AS TO THE TIME AT WHICH THE PROPERTY IN GOODS IS TO PASS TO THE BUYER. 225. CLAUSE (2) OF THESE SECTION STATES THAT FOR PURPOS E OF ASCERTAINING INTENTION OF PARTIES IN A CONTRACT, RE GARDS SHALL BE HAD TO THE TERMS OF THE CONTRACT, THE CONDUCT OF THE PA RTIES AND THE CIRCUMSTANCES OF THE CASE. IN ANY SALE TRANSACTION, RISK PASSES WITH PROPERTY. THUS, THE GOODS AGREED TO BE SOLD REMAIN AT THE SELLER'S RISK UNTIL THE PROPERTY IN GOODS ARE ACTUALLY PASSE D ON TO THE BUYER. THEREFORE, WHEN PROPERTY OR RISK IS TO PASS, IS A Q UESTION THAT DEPENDS ON THE INTENTION OF THE CONTRACTING PARTIES . IF A CONTRACT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 139 PROVIDES FOR A SPECIFIC METHOD, PLACE OR TIME OF PA SSING OF PROPERTY OR RISK OR BOTH, IT HAS TO BE CONCLUDED ACCORDINGLY . 226. IN THE FACTS OF PRESENT CASE, INTENTION OF PARTIES IS THAT THE PROPERTY IN BTG EQUIPMENTS WILL PASS ONLY WHEN IT R EACHED THE PROJECT SITE AND IS SUCCESSFULLY PUT TO FUNCTION WI THOUT ANY DEFECT. IT IS FOR THAT REASON THAT ASSESSEE GIVES PERFORMANCE BANK GUARANTEE AND ADVANCE BANK GUARANTEE TO OWNERS OF THE PROJECT , MUCH BEFORE ANY PAYMENT IS MADE TO ASSESSEE. IF THAT NOT BE THE CASE, THEN THERE WOULD HAVE BEEN NO QUESTION OF RETAINING EFFECTIVE CONTROL BY ASSESSEE OVER THE EQUIPMENTS TILL IT REA CHED THE PROJECT SITES, AND FURTHER WHILE ERECTION/INSTALLATION ACTI VITIES ARE CARRIED ON IRRESPECTIVE OF WHETHER THE ERECTION/INSTALLATIO N ACTIVITIES ARE CARRIED ON BY ASSESSEE OR BY ANY OTHER PARTY UNDER THE SUPERVISION OF ASSESSEE. ASSESSEE WOULD NOT HAVE BEEN RESPONSIB LE FOR BEARING SUCH HIGH RISK, AND PROTECTING OWNER BY PROVIDING T HE PERFORMANCE GUARANTEE ETC., TILL COMPLETION OF THE ENTIRE WORK OF ERECTION UNDER THE CONTRACT. JUDICIAL PRECEDENTS RELIED ON BY LD.COUNSEL 227. LD. COUNSEL HEAVILY RELIED ON THE DECISIONS IN TH E CASE OF ISHIKAWAJMA - HARIMA HEAVY INDUSTRIES LTD. ( SUPRA ), LG CABLE (SUPRA) NOKIA NETWORKS OY ( SUPRA ), ERICSON EB(SUPRA), LIND AG(SUPRA), NORTEL NETWORKS(SUPRA) AS REGARDS THE FACTS RELATING TO TRANSFER OF TITLE, THE CONTRACT, RESPONSIBILITIES O F SUPPLIER, AND ROLE OF PE. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 140 A. IN THE CASE OF ISHIKAWAJMA - HARIMA HEAVY INDUSTRIES LTD. ( SUPRA ) THE SUPPLY SEGMENT AND SERVICE SEGMENT WERE SPECIFIED IN DIFFERENT PARTS OF THE CONTRACT. THE E QUIPMENT SUPPLIED STOOD TRANSFERRED UPON DELIVERY THEREOF OU TSIDE INDIA ON HIGH SEA BASIS. ALL PARTS OF THE TRANSACTION IN QUESTION, I.E. THE TRANSFER OF PROPERTY IN GOODS AS WELL AS THE PAYMENTS, WERE CARRIED OUTSIDE INDIA. THE PERMANENT ESTABLISHMENT WAS NOT INVOLVED IN THE TRANSACTIONS. AS REGARDS OFFSHORE SUPPLY IT WAS HELD THAT SINCE ALL PARTS OF THE TRANSACTION IN QUESTION, I.E. , THE TRANSFER OF PROPERTY IN GOODS AS WELL AS THE PAYMENT, WAS CARRIED OUTSIDE THE INDIAN SOIL, THE TRANSACTION COULD NOT HAVE BEEN TAXED IN INDIA. IN THIS CASE THE HON'BLE COURT HAD REPRODUCED ALL RELEVANT CLAUSES O F THE CONTRACT TO SHOW THAT CLAUSE 14.8 SHOWED SEPARATE P AYMENT IN US DOLLARS AND INDIAN RUPEES DEPENDING ON THE NATUR E OF SUPPLY VIZ. OFFSHORE SUPPLY AND OFFSHORE SERVICES AND ONSHORE SUPPLY AND ONSHORE SERVICES. EXHIBIT D-2.1 MENTIONE D THAT OFFSHORE SUPPLY WAS THE PRICE OF EQUIPMENT & MATERI AL (INCLUDING COST OF ENGINEERING, IF ANY, INVOLVED IN THE MANUFACTURING OF SUCH EQUIPMENT & MATERIAL) SUPPLIE D FROM OUTSIDE INDIA ON CFR BASIS. EXHIBIT D-2.2 WAS FOR O FFSHORE SERVICES, EXHIBIT D-2.3 WAS FOR ONSHORE SUPPLY AND EXHIBIT D- 2.4 WAS FOR ONSHORE SERVICES. ARTICLE 13.3.2 SPECIF ICALLY REFERRED TO THE COST AND OFFSHORE SUPPLIES. THE INSURANCE WA S IN OWNER'S NAME. THEN THE COURT CONCLUDED 'OBLIGATIONS UNDER T HE CONTRACT ARE DISTINCT ONE. SUPPLY OBLIGATION IS DIS TINCT AND SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 141 SEPARATE FROM SERVICE OBLIGATION. PRICE FOR EACH OF THE COMPONENT OF THE CONTRACT IS SEPARATE. SIMILARLY, O FFSHORE SUPPLY AND OFFSHORE SERVICES HAVE SEPARATELY BEEN D EALT WITH. PRICES IN EACH OF THE SEGMENT ARE ALSO DIFFERENT. T HE VERY FACT THAT IN THE CONTRACT, THE SUPPLY SEGMENT AND THE SE RVICE SEGMENT HAVE BEEN SPECIFIED IN DIFFERENT PARTS OF T HE CONTRACT IS A POINTER TO SHOW THAT THE LIABILITY OF THE APPELLA NT THERE UNDER WOULD ALSO BE DIFFERENT.' THE COURT HAD IDENTIFIED TWO BASIC ISSUES FOR CONSIDERATION: (A) THE TAXATION OF PRICE OF GOODS SUPPLIED, BY WAY OF OFFSHORE SUPPLY PRICE OF WHICH IS SPECIFIED IN EX. D, CLAUSE 2.1; AND (B) THE TAXATION OF CONSIDER ATION PAID FOR RENDITION OF SERVICES IN THE CONTRACT AS OFFSHORE S ERVICES AT EX. D. THERE WAS CLEAR AND DISTINCT BIFURCATION IN THE CON TRACT BETWEEN OFFSHORE AND ONSHORE WORKS BASED ON WHICH ISSUES WE RE DECIDED. THE HON'BLE COURT HAD ALSO NOTICED IN CIT V. MITSUI ENGG. & SHIP. BUILDING CO. [2003] 259 ITR 248/[2002] 123 TAXMAN 182, IT WAS HELD THAT IT WAS NOT POSSIBLE T O APPORTION THE CONSIDERATION DESIGN ON ONE PART AND THE OTHER ACTIVITIES ON THE OTHER PART AS THE PRICES PAID TO THE ASSESSEE W AS NOT THE TOTAL PRICE WHICH COVERED ALL THE STAGES INVOLVED I N THE SUPPLY OF MACHINERY. THE HON'BLE COURT NOTED THAT THE CASE OF ISHIKAWAJMA HARIMA WAS CLEARLY DISTINGUISHABLE FROM THE FACTS OF MITSUI SINCE THE PAYMENTS FOR OFFSHORE AND ONSHO RE SUPPLY OF GOODS AND SERVICES WAS IN ITSELF CLEARLY DEMARCATED AND CANNOT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 142 BE HELD TO BE A COMPLETE CONTRACT THAT HAD TO BE RE AD AS A WHOLE AND NOT IN PARTS. B. IN THE CASE OF LG CABLES (SUPRA) THERE WERE TWO SEPARATE CONTRACTS, ONE FOR OFFSHORE SUPPLY AND OTHER FOR ON SHORE SERVICES. HONBLE COURT OBSERVED THAT AS PER THE A GREEMENTS BETWEEN THE PARTIES THEREIN, THE PROPERTY IN THE GO ODS WOULD PASS ON TO THE BUYER AS AND WHEN THE SELLER LOADS T HE EQUIPMENT ONTO THE MODE OF TRANSPORT FOR TRANSPORTA TION FROM THE COUNTRY OF ORIGIN. IT WAS FURTHER OBSERVED THAT THE PE HAD NO ROLE TO PLAY IN THE EXECUTION OF OFFSHORE SUPPLY CONTRACT AND AS A MATTER OF FACT WAS SET UP FOR SOLE PURPOSE OF ENABLING THE PURPOSE OF THE ONSHORE SERVICES CONTRACT, WHICH WAS A SEPARATE ONE. C. IN THE CASE OF NOKIA GSM (SUPRA) EQUIPMENT MANUFACTURED IN FINLAND WAS SOLD TO INDIAN TELECOM OPERATORS FROM O UTSIDE INDIA ON A PRINCIPLE TO PRINCIPLE BASIS, UNDER INDE PENDENT BUYER AND SELLER ARRANGEMENT. INSTALLATION ACTIVITIES WER E UNDERTAKEN BY INDIAN SUBSIDIARY UNDER ITS INDEPENDENT CONTRACT S WITH INDIAN TELECOM OPERATORS. PER CONTRA IN THE FACTS OF THE PRESENT CASE, SUPPLY AS WELL AS SUPERVISION ACTIVITY IS CARRIED ON BY ASSESSEE IN INDIA AND FUR THER ASSESSEE HAS TOTAL CONTROL AND DOMAIN OVER THE EQUIPMENTS SU PPLIED AS WELL AS THE SITE WHERE INSTILLATION AND ERECTION OF PLANTS AT SITE TAKE PLACE, UNTIL SUCCESSFUL COMMISSIONING OF THE P ROJECT. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 143 D) IN THE CASE OF DIT VS. ERICSON AB (SUPRA), FACTS BEFORE HONBLE DELHI HIGH COURT WERE AS UNDER: 228. THE ASSESSEE, A SWEDISH COMPANY, ENTERED INTO CONT RACTS WITH TEN CELLULAR OPERATORS FOR THE SUPPLY OF HARDWARE EQUIPMENT AND SOFTWARE . THE CONTRACTS WERE SIGNED IN INDIA. THE SUPPLY OF THE EQUIPMENT WAS ON CIF BASIS AND THE ASSESSEE TOOK RE SPONSIBILITY THEREOF TILL THE GOODS REACHED INDIA. THE EQUIPMENT WAS NOT TO BE ACCEPTED BY THE CUSTOMER TILL THE ACCEPTANCE TEST W AS COMPLETED (IN INDIA) . THE ASSESSEE CLAIMED THAT THE INCOME ARISING FROM THE SAID ACTIVITY WAS NOT CHARGEABLE TO TAX IN INDIA. THE AO & CIT (A) HELD THAT THE ASSESSEE HAD A BUSINESS CONNECTION IN IN DIA U/S 9(1)(I) & A PERMANENT ESTABLISHMENT UNDER ARTICLE 5 OF THE DTAA. IT WAS ALSO HELD THAT THE INCOME FROM SUPPLY OF SOFTWARE W AS ASSESSABLE AS ROYALTY U/S 9(1)(VI) & ARTICLE 13. ON APPEAL, THE SPECIAL BENCH OF THE TRIBUNAL (MOTOROLA INC 95 ITD 269 (DEL)) HELD T HAT AS THE EQUIPMENT HAD BEEN TRANSFERRED BY THE ASSESSEE OFFS HORE, THE PROFITS THERE FROM WERE NOT CHARGEABLE TO TAX. IT W AS ALSO HELD THAT THE PROFITS FROM THE SUPPLY OF SOFTWARE WAS NOT ASS ESSABLE TO TAX AS ROYALTY. 229. ON APPEAL TO THE HIGH COURT, HONBLE COURT DISMISS ED REVENUES APPEAL BY OBSERVING AS UNDER: (I) THE PROFITS FROM THE SUPPLY OF EQUIPMENT WERE N OT CHARGEABLE TO TAX IN INDIA BECAUSE THE PROPERTY AND RISK IN GOODS PASSED TO THE BUYER OUTSIDE INDIA. THE ASSESS EE HAD NOT PERFORMED INSTALLATION SERVICE IN INDIA. THE FA CT THAT THE CONTRACTS WERE SIGNED IN INDIA COULD NOT BY ITSELF CREATE A TAX LIABILITY. THE NOMENCLATURE OF A TURNKEY PROJECT OR WORKS CONTRACT WAS NOT RELEVANT. THE FACT THAT THE ASSES SEE TOOK OVERALL RESPONSIBILITY WAS ALSO NOT MATERIAL. THO UGH THE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 144 SUPPLY OF EQUIPMENT WAS SUBJECT TO THE ACCEPTANCE TEST PERFORMED IN INDIA, THIS WAS NOT MATERIAL BECAUSE T HE CONTRACT MADE IT CLEAR THAT THE ACCEPTANCE TEST W AS NOT A MATERIAL EVENT FOR PASSING OF THE TITLE AND RISK IN THE EQUIPMENT SUPPLIED. IF THE SYSTEM DID NOT CONFORM T O THE SPECIFICATIONS, THE ONLY CONSEQUENCE WAS THAT THE A SSESSEE HAD TO CURE THE DEFECT. THE POSITION MIGHT HAVE BEEN DIFFERENT IF THE BUYER HAD THE RIGHT TO REJECT THE EQUIPMENT ON THE FAILURE OF THE ACCEPTANCE TEST CARRIED OUT I N INDIA . CONSEQUENTLY, THE ASSESSEE DID NOT HAVE A BUSINESS CONNECTION IN INDIA. THE QUESTION WHETHER THE ASSE SSEE HAD A PERMANENT ESTABLISHMENT WAS NOT REQUIRED TO BE GONE INTO. HOWEVER THE FACTS OF THE ASSESSEE BEFORE US IS NOT THE SAME AS IN THE CASE OF DIT VS. ERICSON AB (SUPRA). PER CONTRA 230. THE ASSESSEE BEFORE US HAS EXECUTED CONTRACTS FOR ERECTION, COMMISSIONING AND SUCCESSFUL PERFORMANCE OF THE PRO JECT TO BE SET UP AT VARIOUS SITES IN INDIA. IT IS FOR THE PURPOSE OF THIS PROJECT THAT THE ASSESSEE SUPPLIED THE BTG EQUIPMENTS. FURTHER A DMITTEDLY THERE IS A BUSINESS CONNECTION IN INDIA BY WAY OF S UPERVISION PE, ESTABLISHED FOR SUPERVISING THE ERECTION AND COMMIS SIONING WORK CARRIED OUT BY ASSESSEE IN INDIA. ON THESE TWO GROU NDS, THIS DECISION RELIED UPON BY LD.COUNSEL CANNOT BE OF ANY HELP TO ASSESSEE, AS THEY ARE FACTUALLY DIFFERENT. E) IN THE CASE OF LIND AG VS.DDIT(SUPRA), FACTS BEFORE HONBLE DELHI HIGH COURT WERE AS UNDER: 231. IN THE INSTANT CASE LINDE AG, LINDE ENGINEERING DI VISION, PULLACH, GERMANY (LINDE) AND SAMSUNG ENGINEERING COMPANY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 145 LTD., SEOUL, KOREA (SAMSUNG) FORMED A CONSORTIUM TO BID FOR A PARTICULAR PROJECT THAT WAS BEING FLOATED BY ONGC P ETRO ADDITIONS LIMITED (PROJECT OWNER). LINDE AND SAMSUNG (COLL ECTIVELY REFERRED TO AS THE CONSORTIUM) HAD TECHNICAL EXPERTISE IN THEIR RESPECTIVE FIELDS AND HAD JOINTLY SUBMITTED THE BID IN ORDER T O FULFIL THE REQUISITE CRITERIA. 232. THEREAFTER, THE PROPOSAL SUBMITTED BY THE CONSORTI UM WAS ACCEPTED BY THE PROJECT OWNER AND THE NOTIFICATION OF AWARD WAS ISSUED TO THE CONSORTIUM FOR EXECUTION OF THE PROJE CT. THE PROJECT INVOLVED DESIGN, ENGINEERING, PROCUREMENT, CONSTRUC TION, INSTALLATION, COMMISSIONING AND HANDING OVER THE PL ANT LOCATED IN INDIA. 233. LINDE FILED AN APPLICATION FOR AN ADVANCE RULING PERTAINING TO THE TAXABILITY OF PAYMENTS MADE TO LINDE, BEFORE TH E AUTHORITY FOR ADVANCE RULINGS (AAR). 234. THE AAR PASSED ADVERSE RULING AGAINST LINDE STATIN G THAT THE LIABILITY OF THE CONSORTIUM FOR DUE PERFORMANCE OF THE CONTRACT TOWARDS THE PROJECT OWNER WAS JOINT AND SEVERAL. FU RTHER, IT WAS HELD THAT THE CONTRACT WAS AN INDIVISIBLE CONTRACT INCAPABLE OF BEING DIVIDED. ON THIS BASIS, THE AAR HELD THAT INCOME RE CEIVED BY LINDE FOR OFFSHORE SUPPLY OF EQUIPMENT AND DESIGNING WAS TAXABLE IN INDIA. 235. AGGRIEVED BY THE RULING OF AAR, LINDE FILED A WRIT PETITION BEFORE HONBLE HIGH COURT, WHERE FOLLOWING TWO ISSU ES WERE CONSIDERED: SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 146 WHETHER THE CONSORTIUM CONSTITUTES AN AOP UNDER SEC TION 2(31) OF THE INCOME-TAX ACT, 1961 (ITA), AND IS H ENCE LIABLE TO BE TAXED ACCORDINGLY? WHETHER INCOME OF LINDE ARISING OUT OF OFFSHORE SUP PLY OF EQUIPMENT AND PREPARATION OF RELATED DESIGNS IS TAX ABLE IN INDIA UNDER THE ITA OR UNDER THE DOUBLE TAXATION AV OIDANCE AGREEMENT ENTERED INTO BETWEEN INDIA AND GERMANY ( INDIA GERMANY DTAA)? 236. THIS HONBLE HIGH COURT AFTER EXAMINING THE AGREE MENT BETWEEN THE CONSORTIUM AND THE PROJECT OWNER (CONT RACT), THE MEMORANDUM OF UNDERSTANDING BETWEEN LINDE AND SAMSU NG (MOU) AS WELL AS INTERNAL AGREEMENT BETWEEN LINDE AND SAMSUNG (INTERNAL AGREEMENT). UNDER THE CONTRACT, LINDE PERFORMED THE FOLLOWING F UNCTIONS: A) DESIGN AND ENGINEERING OF EQUIPMENT FOR MANUFACT URE OUTSIDE INDIA, AND B) SUPPLY OF EQUIPMENT AND RELATED MATERIALS OUTSID E INDIA. 237. WHILE HONBLE HIGH COURT MADE KEY OBSERVATIONS ON THE TAXABILITY OF PAYMENTS MADE TO LINDE, THE MATTER WA S REMANDED BACK TO THE AAR FOR DETERMINATION OF WHETHER LINDE HAS A PERMANENT ESTABLISHMENT (PE) IN INDIA OR NOT. THE RELEVANT EXTRACT ARE AS UNDER: 82. THE FACTS OBTAINING IN THE PRESENT CASE ARE QUITE SIMILAR TO THE FACTS AS IN THE CASE OF ISHIKAWAJMA- HARIMA HEAVY INDUSTRIES LTD.(SUPRA). IT IS INDISPUTABLE TH AT AS FAR SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 147 AS OBLIGATIONS OF LINDE AND SAMSUNG ARE CONCERNED, THE CONTRACT IS AN INDIVISIBLE ONE. HOWEVER, FOR THE PU RPOSES OF TAX, THE CONTRACT DOES SPECIFY THE AMOUNTS THAT ARE PAYABLE WITH RESPECT TO THE VARIOUS ACTIVITIES CARR IED ON BY LINDE /SAMSUNG. INCOME MAY ACCRUE OR ARISE AT VA RIOUS STAGES AND ON ACCOUNT OF VARIED ACTIVITIES. IN CASE OF A NONRESIDENT TAX ENTITY ANY INCOME WHICH ACCRUES OR ARISES FROM AN ACTIVITY OUTSIDE INDIA, WOULD NOT BE TAXABL E UNLESS THE SAME FALLS WITHIN THE DEEMING PROVISION CONTAIN ED IN SECTION 9(1) OF THE ACT. IN THESE CIRCUMSTANCES, FO LLOWING THE DECISION OF THE SUPREME COURT IN ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD'S. CASE (SUPRA), IT WOULD NOT BE APPOSITE TO CONSIDER THE CONTRACT AS A COMPOSITE ON E FOR THE PURPOSES OF IMPOSITION OF TAX UNDER THE ACT. 83. THE AUTHORITY CONCLUDED THAT ALTHOUGH, PAYMENTS FO R EACH ITEM OR WORK WERE SPECIFIED OR THAT THE AMOUNT S PAYABLE FOR THE WORK TO BE PERFORMED BY INDIVIDUAL MEMBERS OF THE CONSORTIUM WAS RECOGNIZED UNDER THE CONTRACT, THE SAME WOULD NOT ALTER THE NATURE OF TH E CONTRACT IN ANY MANNER. THE AUTHORITY CONCLUDED THA T THE CONTRACT WOULD HAVE TO BE CONSIDERED AS ONE INDIVIS IBLE CONTRACT AND THE INCOME FROM THE SAME WOULD BE TAXA BLE IN INDIA AS THE OBJECT OF CONTRACT WAS TO SET UP A FAC ILITY IN INDIA. THE AUTHORITY FURTHER HELD THAT THE MOU ENTE RED INTO BETWEEN LINDE AND SAMSUNG COULD NOT BE UNDERSTOOD T O BE OVERWRITING THE CONTRACT OR THE OBJECT OF THE CONTR ACT. WITH RESPECT TO THE INTERNAL CONSORTIUM AGREEMENT, THE A UTHORITY HELD THAT THE SAME WAS AT BEST ONLY AN INTERNAL ARRANGEMENT BETWEEN LINDE AND SAMSUNG AND COULD NOT BE REFERRED TO FOR DETERMINING THE NATURE OF THE CO NTRACT. THE AUTHORITY WAS OF THE VIEW THAT THE CONTRACT BEI NG A COMPOSITE CONTRACT, A 'DISSECTING APPROACH' WAS NOT PERMISSIBLE. HAVING FOUND THAT THE CONTRACT WAS AN INDIVISIBLE ONE, THE AUTHORITY CONCLUDED THAT IT WA S NOT OPEN FOR LINDE TO PLEAD THAT THE SALE OF EQUIPMENT AND MACHINERY AND DESIGNING OF THE PROJECT AND EQUIPMEN T SHOULD BE TREATED AS AN OFFSHORE TRANSACTION. THE A UTHORITY REFERRED TO THE DECISION OF THE SUPREME COURT IN TH E CASE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 148 OF VODAFONE INTERNATIONAL HOLDINGS B.V. (SUPRA) IN SUPPORT OF ITS VIEW THAT SINCE IN LAW THE LIABILITY FOR PER FORMANCE OF THE CONTRACT BY LINDE AND SAMSUNG WAS JOINT AND SEVERABLE, THE CONTRACT MUST BE READ AS AN INDIVISI BLE ONE FOR THE PURPOSES OF TAX. ON THE ABOVE FACTS HONBLE HIGH COURT OBSERVED AND HELD AS UNDER: 84. IN OUR VIEW, THE APPROACH AS WELL AS THE CONCLUSIO N OF THE AUTHORITY IS FLAWED. FIRST OF ALL, THE AUTHORIT Y ERRED IN PROCEEDING ON THE BASIS THAT THE CONTRACT AS A WHOL E WAS THE SUBJECT OF TAXATION. THE SUBJECT MATTER OF TAXA TION WAS NOT THE CONTRACT BETWEEN THE PARTIES BUT THE INCOME THAT THE PETITIONER DERIVED FROM THE CONTRACT. THUS, THE SITUS OF THE OBJECT OF THE CONTRACT WOULD NOT BE AS RELEVANT AS DETERMINING THE SITUS WHERE THE INCOME OF LINDE HAD ACCRUED OR ARISEN. BY VIRTUE OF SECTION 4 OF THE AC T, INCOME TAX IS CHARGED IN RESPECT OF THE TOTAL INCOME OF A PERSON. BY VIRTUE OF SECTION 5 OF THE ACT, THE SCOPE OF TOTAL INCOME OF A NON-RESIDENT IS LIMITED TO INCOME WHICH IS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA AND INCOME WHICH ACC RUES OR IS DEEMED TO ACCRUE OR ARISE IN INDIA. IT, THERE FORE, FOLLOWS THAT THE OBJECT OF INQUIRY WOULD HAVE TO BE TO DETERMINE WHETHER ANY INCOME OF LINDE ACCRUED OR AR OSE IN INDIA OR WHETHER ANY INCOME COULD BE DEEMED TO ACCR UE OR ARISE IN INDIA. THE FACT THAT THE CONTRACTUAL OBLIG ATIONS OF LINDE WERE NOT LIMITED TO MERELY SUPPLYING EQUIP MENT, BUT WERE FOR DUE PERFORMANCE OF THE ENTIRE CONTRACT , WOULD NOT NECESSARILY IMPLY THAT THE ENTIRE INCOME WHICH WAS RELATABLE TO THE CONTRACT COULD BE DEEMED TO ACCRUE OR ARISE IN INDIA. 85. THE PRINCIPLE OF APPORTIONMENT OF INCOME ON THE BA SIS OF TERRITORIAL NEXUS IS NOW WELL ACCEPTED. EXPLANAT ION 1(A) TO SECTION 9(1)(I) OF THE ACT ALSO SPECIFIES THAT O NLY THAT PART OF INCOME WHICH IS ATTRIBUTABLE TO OPERATIONS IN IN DIA WOULD BE DEEMED TO ACCRUE OR ARISE IN INDIA. IT NECESSARI LY FOLLOWS THAT IN CASES WHERE A CONTRACT ENTAILS ONLY A PART OF THE OPERATIONS TO BE CARRIED ON IN INDIA, THE ASSESSEE WOULD NOT SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 149 BE LIABLE FOR THE PART OF INCOME THAT ARISES FROM O PERATIONS CONDUCTED OUTSIDE INDIA. IN SUCH A CASE, THE INCOME FROM THE VENTURE WOULD HAVE TO BE APPROPRIATELY APPORTIO NED. THE SUPREME COURT IN THE CASE OF ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD. (SUPRA) HAD CONSIDERED THIS A SPECT AND HELD THAT MERELY BECAUSE A PROJECT IS A TURNKEY PROJECT WOULD NOT NECESSARILY IMPLY THAT FOR THE PURPOSES O F TAXABILITY, THE ENTIRE CONTRACT BE CONSIDERED AS AN INTEGRATED ONE. THE TAXABLE INCOME IN EXECUTION OF A CONTRACT MAY ARISE AT SEVERAL STAGES AND THE SAME W OULD HAVE TO BE CONSIDERED ON THE ANVIL OF TERRITORIAL N EXUS. THE DECISION IN THE CASE OF ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD. (SUPRA) IS CLEARLY APPLICABLE TO TH E FACTS OF THE PRESENT CASE AS IN THAT CASE ALSO THE CONTRACT IN QUESTION WAS FOR A TURNKEY PROJECT WHERE THE OBJECT WAS TO SETUP A LIQUEFIED NATURAL GAS (LNG) RECEIVING, STOR AGE AND DEGASIFICATION FACILITY. INDISPUTABLY, INSOFAR AS O BLIGATIONS OF PARTIES ARE CONCERNED, THIS CONTRACT WAS ALSO AN INDIVISIBLE CONTRACT. THE SUPREME COURT HELD THAT F OR THE PURPOSES OF DETERMINING THE TAXABILITY, IT WAS NECE SSARY TO ENQUIRE AS TO WHERE THE INCOME SOUGHT TO BE TAXED H AD ACCRUED OR ARISEN. THE IMPUGNED RULING IS THUS CLEA RLY CONTRARY TO THE DECISION OF THE SUPREME COURT IN ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD'S. CASE (SUPRA). 86. THE REFERENCE OF THE AUTHORITY TO THE DECISION OF THE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B.V. (SUPRA) IS ALSO NOT APPOSITE. IN THAT CASE, THE SUPREME COURT WAS CONSIDERING A MATTER WHICH, INTER ALIA, INVOLVED A TRANSFER OF A CAPITAL ASSET OUTSIDE INDI A WHICH WAS SOUGHT TO BE TAXED BY THE INCOME TAX AUTHORITIE S UNDER SECTION 9(1)(I) OF THE ACT. THE SUBJECT MATTE R OF CONTROVERSY WAS A TRANSACTION OF SALE AND PURCHASE OF A SHARE OF AN OVERSEAS COMPANY (CAPITAL ASSET). THIS CAPITAL ASSET WAS SOLD BY A NON-RESIDENT COMPANY TO ANOTHER NON- RESIDENT COMPANY. THE REVENUE CONTENDED THAT THE CA PITAL GAINS ARISING FROM THIS TRANSACTION WAS EXIGIBLE TO TAX UNDER THE ACT BY VIRTUE OF SECTION 9(1)(I) OF THE A CT AS THE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 150 TRANSACTION ALSO IMPLIED TRANSFER OF CONTROL AND AS SETS OF THE INDIAN SUBSIDIARY OF THE OVERSEAS COMPANY, WHOS E SHARE HAD BEEN SOLD AND PURCHASED. THE SUPREME COUR T OBSERVED THAT THE LAST SUB-CLAUSE OF SECTION 9(1)(I ) OF THE ACT REFERRED TO INCOME ARISING FROM 'TRANSFER OF CAPITA L ASSET IN INDIA'. THE COURT FURTHER EXPLAINED THAT SECTION 9( 1) OF THE ACT CREATED A LEGAL FICTION WHICH HAD A LIMITED SCO PE AND COULD NOT BE EXPANDED. ACCORDINGLY, TRANSFER OF CAP ITAL ASSET SITUATED OUTSIDE INDIA COULD NOT BE TAXED BY VIRTUE OF SECTION 9(1)(I) OF THE ACT. THE EXPRESSION 'LOOK TH ROUGH' HAD BEEN USED BY THE SUPREME COURT IN THIS CONTEXT. THE RELEVANT EXTRACT OF THE JUDGMENT IS AS UNDER: '90. WE HAVE TO GIVE EFFECT TO THE LANGUAGE OF THE SECTION WHEN IT IS UNAMBIGUOUS AND ADMITS OF NO DOUBT REGAR DING ITS INTERPRETATION, PARTICULARLY WHEN A LEGAL FICTI ON IS EMBEDDED IN THAT SECTION. A LEGAL FICTION HAS A LIM ITED SCOPE. A LEGAL FICTION CANNOT BE EXPANDED BY GIVING PURPOSIVE INTERPRETATION PARTICULARLY IF THE RESULT OF SUCH INTERPRETATION IS TO TRANSFORM THE CONCEPT OF CHARG EABILITY WHICH IS ALSO THERE IN SECTION 9(1)(I), PARTICULARL Y WHEN ONE READS SECTION 9(1)(I) WITH SECTION 5(2)(B) OF THE A CT. WHAT IS CONTENDED ON BEHALF OF THE REVENUE IS THAT UNDER SE CTION 9(1)(I) IT CAN 'LOOK THROUGH' THE TRANSFER OF SHARE S OF A FOREIGN COMPANY HOLDING SHARES IN AN INDIAN COMPANY AND TREAT THE TRANSFER OF SHARES OF THE FOREIGN COMPANY AS EQUIVALENT TO THE TRANSFER OF THE SHARES OF THE IND IAN COMPANY ON THE PREMISE THAT SECTION 9(1)(I) COVERS DIRECT AND INDIRECT TRANSFERS OF CAPITAL ASSETS. 91. FOR THE ABOVE REASON, SECTION 9(1)(I) CANNOT BY A PROCESS OF INTERPRETATION BE EXTENDED TO COVER INDI RECT TRANSFERS OF CAPITAL ASSETS/PROPERTY SITUATE IN IND IA. TO DO SO, WOULD AMOUNT TO CHANGING THE CONTENT AND AMBIT OF SECTION 9(1)(I).' 87. IN THE PRESENT CASE ALSO, LINDE HAS CONTENDED THAT IT BEING A NONRESIDENT IS NOT LIABLE TO PAY TAX IN IND IA AND THE SWEEP OF SECTION 9(1) OF THE ACT CANNOT BE EXTENDED TO INCOME WHICH HAS NOT ACCRUED OR ARISEN IN INDIA. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 151 88. THE SUPREME COURT ALSO REITERATED THE 'LOOK AT' PRINCIPLE AS WAS ENUNCIATED IN W.T. RAMSAY LTD. V. IRC [1981] 1 ALL ER 865 (HL). THAT MATTER R ELATED TO A COMBINATION OF TRANSACTIONS WHERE GAINS IN ONE TRANSACTION WERE SOUGHT TO BE COUNTERACTED BY ANOTH ER, SO AS TO AVOID TAX. THE SET OF TRANSACTIONS WAS DESIGN ED TO CREATE AN ARTIFICIAL LOSS IN ONE TRANSACTION WHICH WAS COUNTERACTED BY A GAIN IN ANOTHER. THE HOUSE OF LOR DS' DISMISSED THE APPEAL OF THE TAX PAYER BY HOLDING TH AT THE COURTS WOULD 'LOOK AT' THE ENTIRE COMBINATION OF TRANSACTIONS. IT WAS HELD THAT THE REVENUE OR THE C OURTS WERE NOT LIMITED TO CONSIDER THE GENUINENESS OR OTH ERWISE OF EACH INDIVIDUAL TRANSACTION IN THE SCHEME BUT CO ULD CONSIDER THE SCHEME AS A WHOLE. THE CONTENTIONS BEI NG CONSIDERED BY THE SUPREME COURT IN THE VODAFONE INTERNATIONAL HOLDINGS B.V.'S CASE (SUPRA) AS WELL AS THE HOUSE OF LORDS' IN W.T. RAMSAY LTD. (SUPRA) WERE IN RESPECT OF SCHEMES WHICH WERE CONTENDED TO BE FOR T HE PURPOSES AVOIDING TAX. THE SUPREME COURT HELD THAT THE 'LOOK AT' PRINCIPLE MUST BE APPLIED TO SEE THE TRAN SACTION AS IT EXISTED AND PIERCING OF THE CORPORATE VEIL WAS N OT NECESSARY WHERE THE TRANSACTIONS WERE GENUINE AND H AD COMMERCIAL SUBSTANCE. IN THE PRESENT CASE, THERE IS NO CONTROVERSY WHICH INVOLVES LIFTING OF THE CORPORATE VEIL OR 'LOOKING AT' ANY SCHEME TO FIND WHETHER A TRANSACTI ON IS A SHAM OR HAS ANY SUBSTANCE. BOTH THE REVENUE AND LINDE ARE ACCEPTING THE CONTRACT AS IT STANDS A ND THE CONTROVERSY ONLY REVOLVES AROUND THE SITUS OF THE I NCOME ACCRUING OR ARISING FROM THE CONTRACT. TO OUR MINDS , THE AUTHORITY HAS READ THE PRINCIPLES APPLIED BY THE SU PREME COURT IN VODAFONE INTERNATIONAL HOLDINGS B.V'S. CAS E (SUPRA) COMPLETELY OUT OF CONTEXT. INCOME FROM OFFSHORE SUPPLIES 89. IN THE PRESENT CASE, THE CONTRACT INVOLVES SUPPLY OF EQUIPMENT, MATERIALS AND SPARES BY LINDE. THE CONTR ACT SPECIFICALLY PROVIDES THAT THE OWNERSHIP OF THE MAT ERIAL TO SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 152 BE SUPPLIED BY LINDE WOULD BE TRANSFERRED TO OPAL U PON FOB SHIPMENT. ARTICLE 7 OF THE CONTRACT IS QUOTED B ELOW: '7.1.1 OWNERSHIP OF MATERIALS SHALL BE TRANSFERRED TO THE COMPANY UPON FOB SHIPMENT FOR IMPORTED SUPPLY AND F OT FOR LOCAL SUPPLY SUBJECT TO CONTRACTOR TAKES FULL RESPONSIBILITY FOR ANY DAMAGE / LOSS DURING THE COU RSE OF TRANSPORTATION UNTIL ACCEPTANCE OF WORKS. 7.1.2 DELETED 7.1.3 OWNERSHIP OF THE CONSTRUCTION EQUIPMENT USED BY THE CONTRACTOR AND ITS SUBCONTRACTORS IN CONNECTION WIT H THE WORKS SHALL REMAIN WITH THE CONTRACTOR AND ITS SUB- CONTRACTORS.' 90. FOB IS AN ABBREVIATION OF 'FREE ON BOARD' AND CLEA RLY INDICATES THAT THE OWNERSHIP OF THE MATERIAL TO BE SUPPLIED BY LINDE WOULD TRANSFER TO OPAL, THE MOMENT, THE MATERIALS WERE PLACED FOR SHIPMENT. THE PETITIONER HAD POINTED OUT THAT SHIPPING DOCUMENTS/BILL OF LADING ALSO RECORDED THE NAME OF LINDE AS A CONSIGNOR AND OPAL AS A CONSIGNEE. IN TERMS OF THE CONTRACT, LINDE AND SAMS UNG WERE FULLY RESPONSIBLE FOR ANY DAMAGE/LOSS DURING T HE TRANSPORTATION OF THE EQUIPMENT AND MATERIAL. HOWEV ER, THE SAME WOULD NOT IN ANY MANNER CONTRADICT THE POSITIO N THAT THE OWNERSHIP OF THE MATERIAL IN QUESTION WAS TRANS FERRED TO OPAL OVERSEAS. THE PETITIONER HAS ALSO SUBMITTED THAT THE PAYMENT FOR DESIGN AND ENGINEERING, SUPPLY, INS URANCE AND SPARES AND CONSUMABLES WAS TO BE PAID TO LINDE IN EUROS AND FOR THE BALANCE ONSHORE WORK THE PAYMENTS WERE TO BE MADE IN INR. ACCORDING TO THE PETITIONER , THIS ALSO INDICATED THE PORTION OF WORK THAT WAS REQUIRE D TO BE DONE OVERSEAS. 94. IT HAS BEEN CONTENDED BY LINDE THAT THE ABOVE STEP S ARE ONLY FOR THE PURPOSES OF MANUFACTURING AND FABR ICATING THE EQUIPMENT THAT WAS TO BE SUPPLIED OVERSEAS. IT IS SUBMITTED THAT THE WORK RELATING TO DESIGN AND ENGI NEERING IS INEXTRICABLY LINKED WITH THE MANUFACTURE AND FAB RICATION OF THE MATERIAL AND EQUIPMENT TO BE SUPPLIED OVERSE AS AND SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 153 THIS WORK WAS ALSO PERFORMED WHOLLY OUTSIDE INDIA. THESE SUBMISSIONS HAVE NOT BEEN EVALUATED. QUESTION NO. ( II) FRAMED FOR CONSIDERATION OF THE AUTHORITY INVITES A RULING ON THE BASIS THAT THE OFFSHORE SERVICES FALLING WITHIN THE SCOPE OF SERVICES BY LINDE ARE INEXTRICABLY LINKED WITH T HE OFFSHORE SUPPLY OF EQUIPMENT AND MATERIAL AND CANNO T BE CONSIDERED AS TECHNICAL SERVICES ON A STANDALONE BA SIS. THIS IS A QUESTION OF FACT WHICH WOULD HAVE TO BE CONSIDERED AT AN APPROPRIATE STAGE. HOWEVER, IF IT IS ACCEPTED THAT THE SERVICES PROVIDED BY LINDE RELATI NG TO DESIGN AND ENGINEERING ARE INEXTRICABLY LINKED WITH THE MANUFACTURE AND FABRICATION OF THE MATERIAL AND EQU IPMENT TO BE SUPPLIED OVERSEAS AND FORM AN INTEGRAL PART O F THE SAID SUPPLIES, THEN THE SERVICES RENDERED BY LINDE WOULD NOT BE AMENABLE TO TAX UNDER SECTION 9(1)(VII) OF T HE ACT. CONSIDERATION FOR SUCH SERVICES WOULD NOT BE CONSID ERED AS 'FEES FOR TECHNICAL SERVICES' FOR THE PURPOSES OF S ECTION 9(1)(VII) OF THE ACT. THIS VIEW HAS ALSO BEEN EXPRE SSED BY THE AUTHORITY ROTEM CO., IN RE [2005] 279 ITR 165/1 48 TAXMAN 411 (AAR). THE RELEVANT EXTRACT OF THE SAID DECISION READS AS UNDER: '16. THE PRINCIPLE WHICH EMERGES FROM THE DECISIONS IN THE AFOREMENTIONED CASES IS THAT IN A CONTRACT FOR MANU FACTURE, INSTALLATION, SALE OR SUPPLY OF GOODS THE ELEMENT O F SERVICES WILL ALWAYS BE PRESENT. WHERE SERVICES ARE INEXTRIC ABLY LINKED WITH MANUFACTURE, INSTALLATION, SALE OR SUPP LY, THEY CANNOT BE EVALUATED FOR THE PURPOSE OF FTS; IT IS O NLY WHERE SERVICES ARE SEPARABLE AND INDEPENDENT THAT THE FTS WILL BE ASSESSABLE.' 95. IT IS CLARIFIED THAT IN ORDER TO FALL OUTSIDE THE SCOPE OF SECTION 9(1)(VII) OF THE ACT, THE LINK BETWEEN THE SUPPLY OF EQUIPMENT AND SERVICES MUST BE SO STRONG AND INTERL INKED THAT THE SERVICES IN QUESTION ARE NOT CAPABLE OF BE ING CONSIDERED AS SERVICES ON A STANDALONE BASIS AND AR E THEREFORE SUBSUMED AS A PART OF THE SUPPLIES. GIVEN THE FACT THAT ITS LINDES CASE THAT THE CONSIDERATION F OR THE SUPPLIES ARE SEPARATELY SPECIFIED, THIS ASPECT WOUL D REQUIRE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 154 A CLOSER SCRUTINY AND DETERMINATION OF FACTS, WHICH WE DO NOT PROPOSE TO DO IN THE PRESENT PROCEEDINGS. 96. IT IS CLARIFIED THAT IN THE EVENT, IT IS FOUND THA T THE OFFSHORE SERVICES RENDERED BY LINDE ARE NOT INEXTRI CABLY LINKED TO THE MANUFACTURE AND FABRICATION OF EQUIPM ENT OVERSEAS SO AS TO FORM AN INTEGRAL PART OF THE SUPP LY OF THE SAID EQUIPMENT, THE INCOME ARISING FROM THE SAID SE RVICES WOULD BE TAXABLE IN INDIA AS FEES FOR TECHNICAL SER VICES. BY VIRTUE OF SECTION 9(1)(VII) OF THE ACT, FEES FOR TE CHNICAL SERVICES PAID BY A RESIDENT ARE TAXABLE IN INDIA (E XCEPT WHERE SUCH FEES ARE PAYABLE IN RESPECT OF SERVICES UTILISED BY SUCH PERSON IN BUSINESS AND PROFESSION CARRIED O UTSIDE INDIA). IN VIEW OF THE EXPLANATION TO SECTION 9(2) AS SUBSTITUTED BY FINANCE ACT 2010 WITH RETROSPECTIVE EFFECT FROM 01.06.1976, THE DECISION OF THE SUPREME COURT IN ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD'S. CASE (SUPRA), IN SO FAR AS IT HOLDS THAT IN ORDER TO TAX FEES FOR TECHNICAL SERVICES UNDER THE ACT THE SERVICES MUST BE RENDERED IN INDIA, IS NO LONGER APPLICABLE. THEREFO RE, IN THE EVENT THE SERVICES IN QUESTION ARE NOT CONSIDERED A S AN INTEGRAL AND INEXTRICABLE PART OF EQUIPMENT AND MAT ERIAL SUPPLIED, IT WOULD BE NECESSARY TO EXAMINE WHETHER ANY RELIEF IN RESPECT OF SUCH INCOME WOULD BE AVAILABLE TO LINDE BY VIRTUE OF THE DTAA BETWEEN GERMANY AND INDIA. 238. IT IS VERY PERTINENT TO OBSERVE THAT, IN A TYPICAL CASE LIKE THAT OF ASSESSEE, VIEW HAS TO BE TAKEN ON THE BASIS OF A GREEMENTS AND TERMS OF THE CONTRACT ENTERED INTO BY ASSESSEE AS H AS BEEN OBSERVED IN ALL THE DECISIONS, OF HONBLE DELHI HIGH COURT I N ORDER TO COME TO A CONCLUSION OF TRANSFER OF TITLE AS WELL AS CONTIN UANCE OF ASSESSEES RESPONSIBILITY FROM SUPPLY TO ERECTION AND SUCCESSF UL FUNCTIONING OF THE PLANT AT VARIOUS SITES AGREED TO HAVE BEEN CONS TRUCTED UNDER ASSESSEES SUPERVISION IN INDIA. THERE CANNOT BE AN Y DECISION WHICH SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 155 WOULD BE FACTUALLY IDENTICAL TO FACTS OF ASSESSEE MUTATIS MUTANDIS, IN ORDER TO ADOPT THE RATIO LAID DOWN BY VARIOUS HIGH COURTS AS WELL AS HONBLE SUPREME COURT. IN FACT ALL DECISIONS OF HON BLE HIGH COURT RELIED BY LD. COUNSEL ARE BASED ON THE SPECIFIC FAC TS WHERE HONBLE COURT HAS LAID DOWN PROPOSITIONS AFTER ANALYSING TH E INTENTION OF THE PARTIES ON THE BASIS OF CONTRACT/AGREEMENTS ENTERED INTO BETWEEN THEM. F) LD. COUNSEL PLACED HIS RELIANCE ON THE DECISION OF NORTEL NETWORKS INDIA INTERNATIONAL INC.LTD VS.DIT REPORTE D IN 386 ITR 353. FACTS OF IN NORTEL NETWORKS ARE AS UNDER: 239. THE ASSESSEE-COMPANY WAS INCORPORATED IN THE USA A ND WAS A TAX RESIDENT OF USA. IT WAS A PART OFF NORTEL GRO UP WHICH WAS STATED TO BE A LEADING SUPPLIER OF HARDWARE AND SOF TWARE FOR GSM CELLULAR RADIO TELEPHONE SYSTEMS. THE ASSESSEE WAS A STEP-DOWN SUBSIDIARY OF 'NORTEL CANADA'. NORTEL CANADA ALSO HAD AN INDIRECT SUBSIDIARY IN IN DIA, NAMELY, 'NORTEL INDIA'. NORTEL CANADA ALSO HAD A LIAISON OF FICE IN INDIA CALLED 'NORTEL LO'. 240. NORTEL INDIA NEGOTIATED AND ENTERED INTO THREE CO NTRACTS WITH 'RELIANCE', NAMELY, OPTICAL EQUIPMENT CONTRACT ('TH E EQUIPMENT CONTRACT'), OPTICAL SERVICES CONTRACT ('THE SERVICE S CONTRACT') AND THE SOFTWARE CONTRACT ('THE SOFTWARE CONTRACT'). ON THE SAME DATE, NORTEL INDIA ENTERED INTO AN AGREEMENT ASSIGNING AL L RIGHTS AND SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 156 OBLIGATIONS TO SELL, SUPPLY AND DELIVER EQUIPMENT U NDER THE EQUIPMENT CONTRACT TO THE ASSESSEE. RELIANCE AND NO RTEL CANADA WERE ALSO PARTIES TO THE ASSIGNMENT CONTRACT AND IN TERMS THEREOF, NORTEL CANADA GUARANTEED THE PERFORMANCE OF THE EQU IPMENT CONTRACT BY THE ASSESSEE (ASSIGNEE). IN TERMS OF TH E ASSIGNMENT CONTRACT, RELIANCE PLACED PURCHASE ORDERS DIRECTLY ON THE ASSESSEE AND ALSO MADE ALL PAYMENTS FOR THE EQUIPMENTS SUPPL IED DIRECTLY TO THE ASSESSEE. 241. THE EQUIPMENTS SUPPLIED TO RELIANCE WERE MANUFACT URED BY NORTEL CANADA. THE SAME WAS INVOICED BY THE ASSESSE E DIRECTLY TO RELIANCE AND CONSIDERATION FOR THE SAME WAS ALSO RE CEIVED DIRECTLY BY THE ASSESSEE. IT WAS ASSERTED BY THE ASSESSING O FFICER THAT THE EQUIPMENT SUPPLIED TO RELIANCE WAS SOURCED FROM NOR TEL CANADA AT A MUCH HIGHER PRICE THAN THE PRICE CHARGED TO RELIA NCE AND THIS RESULTED IN THE ASSESSEE SUFFERING A LOSS DURING TH E RELEVANT PERIOD. 242. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASS ESSEE HAD BEEN INCORPORATED SOLELY WITH THE MOTIVE TO EVADE T HE TAXES ARISING OUT OF SUPPLY CONTRACT IN INDIA AND IN SUBSTANCE, T HE CONTRACTS WERE PERFORMED BY NORTEL CANADA ALONG WITH ITS LO AND NO RTEL INDIA, ACTED IN UNISON TO IDENTIFY, NEGOTIATE, APPRAISE, S ECURE, EXECUTE, MANUFACTURE, SUPPLY, INSTALL, COMMISSION AND PROVID E WARRANTY AND AFTER SALES SERVICE IN RESPECT OF THE CONTRACT ENTE RED INTO WITH RELIANCE. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 157 243. ON THE BASIS OF SUCH FINDINGS, ASSESSING OFFICER CONCLUDED THAT NORTEL INDIA AND NORTEL LO CONSTITUTED ASSESSE E'S PE IN INDIA (BOTH FIXED PLACE PE AS WELL AS DEPENDENT AGENT PE) . 244. THE COMMISSIONER (APPEALS) UPHELD THE ORDER OF ASS ESSING OFFICER THAT OFFICE OF NORTEL LO AND NORTEL INDIA W OULD CONSTITUTE A FIXED PE OF THE ASSESSEE IN INDIA AS THE ASSESSEE A ND NORTEL CANADA WERE ONE AND THE SAME ENTITY. THE COMMISSIONER (APP EALS) FURTHER HELD THAT KEEPING IN VIEW THE FACTS OF THE CASE, 50 % OF ASSESSEE'S ESTIMATED PROFITS COULD BE ATTRIBUTED TO THE PE IN INDIA. 245. ON THE GIVEN SET OF FACTS HONBLE HIGH COURT OBSER VED AS UNDER: THE CONTROVERSY WHETHER THE ASSESSEE HAS A PE IN I NDIA IS INTERLINKED TO THE FINDING THAT NORTEL INDIA HAD DI SCHARGED SOME OF THE OBLIGATIONS OF THE ASSESSEE UNDER THE EQUIPMENT CONTRACT. WHILST, THE REVENUE AUTHORITIES HAVE HELD THAT THE CONTRACT S ENTERED INTO WITH RELIANCE - THE EQUIPMENT CONTACT, SOFTWARE CONTRACT AND SERVICES CONTRACT - ARE ESSENTIALLY A PART OF THE SINGULAR T URNKEY CONTRACT, WHICH THE ASSESSEE CONTENDS TO THE CONTRARY. FURTHE R, THE REVENUE AUTHORITIES HAVE HELD THAT A PART OF THE EQUIPMENT CONTRACT ASSIGNED TO THE ASSESSEE WAS, IN FACT, PERFORMED BY NORTEL I NDIA. THIS TOO, IS STOUTLY DISPUTED BY THE ASSESSEE. THE QUESTION WHET HER THE ASSESSEE HAS A PE IN INDIA IS CLEARLY INTERLINKED WITH THE I SSUE WHETHER NORTEL INDIA OR NORTEL LO HAD PERFORMED ANY OF THE FUNCTIO NS OR DISCHARGED ANY OF THE OBLIGATIONS ASSUMED BY THE ASSESSEE. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 158 246. IT IS NOT DISPUTED, ON THE CONTRARY IT HAS BEEN EX PRESSLY ADMITTED THAT THE CONTRACTS ENTERED INTO WITH RELIA NCE WERE NEGOTIATED BY NORTEL INDIA AND NEITHER NORTEL LO NO R ASSESSEE WERE INVOLVED IN NEGOTIATIONS WITH RELIANCE. THERE IS AL SO NO MATERIAL ON RECORD WHICH WOULD INDICATE THAT NORTEL LO OR THE A SSESSEE HAD PARTICIPATED IN ANY NEGOTIATION WITH RELIANCE. THE FACTS ON RECORD INDICATE THAT NORTEL INDIA HAD NEGOTIATED THE CONTR ACTS WITH RELIANCE, AND NORTEL CANADA HAD EXECUTED A DEED OF GUARANTEE (REFERRED TO AS A 'PARENT GUARANTEE') GUARANTEEING THE PERFORMANCE OF ALL THE THREE CONTRACTS. 247. IT WAS UNDER THESE CIRCUMSTANCES THAT HONBLE HIGH COURT CAME TO THE CONCLUSION THAT ASSESSEE DID NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA AND THEREFORE NO PART OF SUP PLY COULD HAVE BEEN ATTRIBUTED TO EARNING OF INCOME IN INDIA. PER CONTRA 248. THE COMMON FACTS IN ALL ABOVE DECISIONS AS COMPAR ED TO THE FACTS IN THE PRESENT CASE ARE: IN THESE CASES THERE WERE SEPARATE CONTRACTS FOR OF FSHORE SUPPLY AND ONSHORE SERVICES OR SUCH DISTINCTION WAS SPECIFIC WITH SUPPLY OBLIGATION BEING DISTINCT FROM SERVICE OBLIGATION. THERE IS NO SUCH DISTINCTION IN THE PRESENT CASE. IN THESE CASES PRICE FOR EACH COMPONENT WAS SEPARAT ELY SPECIFIED. HOWEVER, COST VALUE CENTRE IN THE PRESEN T CASE MENTIONS THE PRICE OF ENTIRE CONTRACT. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 159 IN ALL THESE CASES ALL PARTS OF TRANSACTIONS WERE C OMPLETED OUTSIDE INDIA BUT IN THE PRESENT CASE THE SALE WAS NOT COMPLETED OUTSIDE INDIA. IN ISHIKAWAJMA HARIMA THE INSURANCE FOR GOODS SUPPL IED WAS IN OWNER'S NAME WHEREAS IN THIS CASE THE INSURANCE WAS IN ASSESSEES NAME, COVERING THE RISK TILL COMPLETION. IN ALL THESE CASES PE HAD NO ROLE TO PLAY IN OFFSHO RE SUPPLY AS OBSERVED BY HONBLE HIGH COURT WHEREAS IN THIS CASE , ADMITTEDLY THERE EXISTS A SUPERIORITY PE AND ASSESS EE WAS INVOLVED. IN DESIGN, SELECTION AND PROCUREMENTS OF MATERIALS TO BE USED IN THE FACADE RELATED WORK IN INDIA, CLEARA NCE OF GOODS THROUGH CUSTOMS IN INDIA AND PAYMENT OF CUSTOMS DUT Y IN INDIA. 249. THE AGREEMENTS PLACED BEFORE US ARE CLEARLY OF COM POSITE NATURE FOR PROVIDING SERVICES. THE SCOPE OF WORK LI STED IN EACH AGREEMENTS DESCRIBES THE NATURE OF WORK IN DETAIL( WHICH HAS BEEN REPRODUCED HEREIN ABOVE), AND A SIMPLE READING OF W ORK AND RESPONSIBILITIES OF ASSESSEE SHOWS THAT CONTRACT IS ONE. THE ASSESSEE BEFORE US HAS ADMITTED TO HAVE A SUPERVISORY PE IN INDIA AND THAT ASSESSEE WAS DIRECTLY INVOLVED IN THE ENTIRE SUPERV ISORY WORK CARRIED OUT IN INDIA. ASSESSEE WAS RESPONSIBLE FOR THE SUCC ESSFUL FUNCTIONING OF THE PROJECTS IN INDIA UNDER EACH AND EVERY CONTRACT, WHICH IS DISCERNABLE ON CAREFUL READING OF THE CONT RACTS. THEREFORE IN OUR CONSIDERED OPINION FACTUALLY THE CASE OF ASS ESSEE IS DIFFERENT FROM THE FACTS THAT HAS BEEN CONSIDERED BY HONBLE HIGH COURT IN SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 160 NORTEL NETWORKS (SUPRA) AND DOES COME FOR RESCUE IN ASSESSEES CASE. BUSINESS CONNECTION 250. THE NEXT ISSUE THAT ARISES IS REGARDING TAXABILIT Y OF PRISE FOR OFFSHORE SUPPLY OF EQUIPMENT IN INDIA. ASSESSEE BEI NG A NON- RESIDENT, SECTION 5 (2) WOULD BE APPLICABLE, AS IT DEALS WITH THE SCOPE OF TOTAL INCOME OF NON-RESIDENT AND PROVIDES THAT SUBJECT TO THE PROVISIONS THEREIN, THE TOTAL INCOME OF NON-RES IDENT FROM WHATEVER SOURCES IS RECEIVED OR EASED DEEMED TO HAV E BEEN RECEIVED IN INDIA OR ACCRUE OR ARISING IN INDIA DURING SUCH YEAR. IT IS THE CASE OF REVENUE THAT INCOME FROM OFFSHORE SUPPLY HAS BEE N DEEMED TO HAVE BEEN RECEIVED BY ASSESSEE IN INDIA. SECTION 9 ENLISTS CERTAIN INCOMES WHICH ARE DEEMED TO ACCRUE OR ARISE IN INDI A, WHICH HAS BEEN SPECIFICALLY DEALT TO IT IN CLAUSE (II) TO (VI I) OF SECTION 9 (1). SECTION 9 (1) (I) MANDATES THAT ALL INCOME ACCRUING OR ARISING WHETHER DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA OR THROUGH OR FROM ANY PROPERTY IN INDIA OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN IN DIA OR THROUGH THE TRANSFER OF A CAPITAL ASSET SITUATED IN INDIA S HALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. 252. THE RELEVANT PROVISIONS OF THE I.T. ACT HAVING A B EARING ON THE QUESTION ARE EXTRACTED HEREUNDER: SECTION 9(1)(I): SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 161 (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRU E OR ARISE IN INDIA (I) ALL INCOME ACCRUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, O R THROUGH OR FROM ANY PROPERTY IN INDIA, OR THROUGH O R FROM ANY ASSET OR SOURCE OF INCOME IN INDIA, OR THROUGH OR FROM ANY MONEY LENT AT INTEREST AND BROUGHT INTO INDIA I N CASH OR IN KIND OR THROUGH THE TRANSFER OF A CAPITAL ASSET SITUATE IN INDIA.' 253. IT IS SEEN THAT THE EXPRESSION 'BUSINESS CONNECTION' OCCURS IN S. 9(1)( I ) OF THE ACT. THE EXPRESSION 'BUSINESS CONNECTION' IS NOT DEFINED IN THE I.T. ACT, THOUGH THE WORD 'BUSINESS' IS DEFINED. THE EXPRESSION 'BUSINESS CONNECTION' HAS BEEN CONSIDERE D IN SEVERAL CASES. IN CIT V. REMINGTON TYPEWRITER CO. ( BOMBAY ) LTD., AIR 1931 PC 42, A QUESTION AROSE WHETHER THERE WAS A BUSINESS CONNE CTION BETWEEN THE ASSESSEE-COMPANY AND THE FOREIGN COMPANY. THE F ACTS WERE THAT THE ASSESSEE PURCHASED THE GOODWILL OF ITS BUSINESS IN CERTAIN TERRITORY IN INDIA AND TOWARDS CONSIDERATION OF THE SAME ALLOTTED 60,000 SHARES TO THE NON-RESIDENT COMPANY IN THE AS SESSEE- COMPANY. THE CAPITAL OF THE ASSESSEE WAS DIVIDED IN TO 60,000 SHARES ONLY AND BY ALLOTMENT OF 60,000 SHARES TO TH E NON-RESIDENT COMPANY, THE NON-RESIDENT COMPANY BECAME THE OWNER OF ALL THE SHARES. IT WAS HELD THAT THE ULTIMATE AND COMPLETE CONTROL OF THE ASSESSEE WAS VESTED IN THE FOREIGN COMPANY WHICH OW NED ALL ITS SHARES AND HENCE A BUSINESS CONNECTION EXISTED BETW EEN THE ASSESSEE AND THE NON-RESIDENT COMPANY. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 162 254. A FULL BENCH OF THE RANGOON HIGH COURT OBSERVED IN CIT V. VISALAKSHI ACHI [1937] 5 ITR 448 (RANG) [FB] THAT THE EXPRESSION 'BUSINESS CONNECTION' MUST DENOTE A CONN ECTION WHICH PRODUCES, BY ITSELF, ALL PROFITS OR GAINS AND NOT A MERE STATE OR CONDITION WHICH WAS FAVORABLE TO THE MAKING OF PROF ITS. IN BANGALORE WOOLLEN, COTTON AND SILK MILLS CO. LTD. V. CIT [1950] 18 ITR 423 (MAD), HONBLE MADRAS HIGH COURT, CONSTRUIN G THE WORD 'BUSINESS CONNECTION', OBSERVED AS FOLLOWS (P. 433) : 'IN ORDER TO CONSTITUTE A BUSINESS CONNECTION THERE MUST BE SOME CONTINUITY OF RELATIONSHIP BETWEEN A PERSON IN BRITISH INDIA WHO MAKES PROFITS AND THE NON-RESIDENT WHO RE CEIVES THEM...........A BUSINESS CONNECTION, THEREFORE, MA Y ARISE BY REASON OF THE EXISTENCE OF A BRANCH OF THE NON-RESI DENT COMPANY OR ORGANISATION IN BRITISH INDIA OR BY THE EXISTENCE OF A FACTORY OR EVEN BY THE EXISTENCE OF AN AGENT.. ......THE BUSINESS CONNECTION MAY BE EVEN A CONNECTION ARISIN G OUT OF FINANCIAL RELATIONS. THE NON-RESIDENT BUSINESS AND THE RESIDENT BUSINESS MAY BE TWO SEPARATE LEGAL ENTITIE S AND THEY MAY BE CLOSELY CONNECTED OR ASSOCIATED EITHER BY REASON OF SOME COMMON CONTROL OR BY REASON OF THE N ON- RESIDENT COMPANY OR FIRM FINANCING THE RESIDENT COM PANY OR FIRM. THE GOODS OF A NON-RESIDENT COMPANY MAY BE SO LD BY A BROKER OR COMMISSION AGENT RESIDING IN BRITISH IN DIA OR THE PERSON RESIDENT MAY RENDER VARIOUS SERVICES TO THE NON- RESIDENT OR CONDUCT BUSINESS ACTIVITIES. THESE ARE SOME OF SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 163 THE FACTORS WHICH RESULT IN A BUSINESS CONNECTION W ITHIN THE MEANING OF THE SECTION.' 255. HONBLE SUPREME COURT HAD OCCASION TO CONSIDER THE EXPRESSION 'BUSINESS CONNECTION' IN ANGLO-FRENCH TEXTILE COMPANY LTD. V. CIT (NO. 2) [1953] 23 ITR 101 (SC) AND IT WAS OBSERVED AS FOLLOWS : 'AN ISOLATED TRANSACTION BETWEEN A NON-RESIDENT AND A RESIDENT IN BRITISH INDIA WITHOUT ANY COURSE OF DEA LINGS SUCH AS MIGHT FAIRLY BE DESCRIBED AS A BUSINESS CON NECTION DOES NOT ATTRACT THE APPLICATION OF SECTION 42, BUT WHEN THERE IS A CONTINUITY OF BUSINESS RELATIONSHIP BETW EEN THE PERSON IN BRITISH INDIA WHO HELPS TO MAKE THE PROFI TS AND THE PERSON OUTSIDE BRITISH INDIA WHO RECEIVES OR RE ALISES THE PROFITS, SUCH RELATIONSHIP DOES CONSTITUTE A BUSINE SS CONNECTION.' 256. IN CIT V. R.D. AGGARWAL & CO. (1965) 56 ITR 20, HONBLE SUPREME COURT HAD CONSIDERED THE SCOPE OF THE EXPRE SSION 'BUSINESS CONNECTION', AND IT WAS OBSERVED AS FOLLO WS (PP. 24 & 28): 'THE EXPRESSION 'BUSINESS' IS DEFINED IN THE ACT AS ANY TRADE, COMMERCE, MANUFACTURE OR ANY ADVENTURE OR CO NCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE, BU T THE ACT CONTAINS NO DEFINITION OF THE EXPRESSION 'BUSINESS CONNECTION' AND ITS PRECISE CONNOTATION IS VAGUE AN D INDEFINITE. THE EXPRESSION 'BUSINESS CONNECTION' SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 164 UNDOUBTEDLY MEANS SOMETHING MORE THAN 'BUSINESS'. A BUSINESS CONNECTION IN SECTION 42 INVOLVES A RELATI ON BETWEEN A BUSINESS CARRIED ON BY A NON-RESIDENT WHI CH YIELDS PROFITS OR GAINS AND SOME ACTIVITY IN THE TA XABLE TERRITORIES WHICH CONTRIBUTES DIRECTLY OR INDIRECTL Y TO THE EARNING OF THOSE PROFITS OR GAINS. IT PREDICATES AN ELEMENT OF CONTINUITY BETWEEN THE BUSINESS OF THE NON-RESIDENT AND THE ACTIVITY IN THE TAXABLE TERRITORIES: A STRAY OR ISO LATED TRANSACTION IS NORMALLY NOT TO BE REGARDED AS A BUS INESS CONNECTION. BUSINESS CONNECTION MAY TAKE SEVERAL FO RMS: IT MAY INCLUDE CARRYING ON A PART OF THE MAIN BUSINESS OR ACTIVITY INCIDENTAL TO THE MAIN BUSINESS OF THE NON -RESIDENT THROUGH AN AGENT, OR IT MAY MERELY BE A RELATION BE TWEEN THE BUSINESS OF THE NON-RESIDENT AND THE ACTIVITY I N THE TAXABLE TERRITORIES, WHICH FACILITATES OR ASSISTS T HE CARRYING ON OF THAT BUSINESS. IN EACH CASE, THE QUESTION WHE THER THERE IS A BUSINESS CONNECTION FROM OR THROUGH WHIC H INCOME, PROFITS OR GAINS ARISE OR ACCRUE TO A NON-R ESIDENT MUST BE DETERMINED UPON THE FACTS AND CIRCUMSTANCES OF THE CASE. A RELATION TO BE A 'BUSINESS CONNECTION' MUST BE RE AL AND INTIMATE, AND THROUGH OR FROM WHICH INCOME MUST ACC RUE OR ARISE WHETHER DIRECTLY OR INDIRECTLY TO THE NON-RES IDENT. BUT IT MUST IN ALL CASES BE REMEMBERED THAT BY SECTION 42 INCOME, PROFIT OR GAIN WHICH ACCRUES OR ARISES TO A NON SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 165 RESIDENT OUTSIDE THE TAXABLE TERRITORIES IS SOUGHT TO BE BROUGHT WITHIN THE NET OF THE INCOME-TAX LAW, AND N OT INCOME, PROFIT OR GAIN WHICH ACCRUES OR ARISES OR I S DEEMED TO ACCRUE OR ARISE WITHIN THE TAXABLE TERRITORIES. INCOME RECEIVED OR DEEMED TO BE RECEIVED, OR ACCRUING OR A RISING OR DEEMED TO BE ACCRUING OR ARISING WITHIN THE TAXABLE TERRITORIES IN THE PREVIOUS YEAR IS TAXABLE BY SECT ION 4(1)(A) AND (C) OF THE ACT, WHETHER THE PERSON EARNING IS A RESIDENT OR NON-RESIDENT. IF THE AGENT OF A NON-RESIDENT REC EIVES THAT INCOME OR IS ENTITLED TO RECEIVE THAT INCOME, IT MA Y BE TAXED IN THE HANDS OF THE AGENT BY THE MACHINERY PROVISIO N ENACTED IN SECTION 40(2). INCOME NOT TAXABLE UNDER SECTION 4 OF THE ACT OF A NON-RESIDENT BECOMES TAXABLE UNDER SECTION 42(1) IF THERE SUBSISTS A CONNECTION BETWEEN THE AC TIVITY IN THE TAXABLE TERRITORIES AND THE BUSINESS OF THE NON -RESIDENT, AND IF THROUGH OR FROM THAT CONNECTION INCOME DIREC TLY OR INDIRECTLY ARISES.................. THE EXPRESSION 'BUSINESS CONNECTION' POSTULATES A R EAL AND INTIMATE RELATION BETWEEN TRADING ACTIVITY CARRIED ON OUTSIDE THE TAXABLE TERRITORIES AND TRADING ACTIVITY WITHIN THE TERRITORIES, THE RELATION BETWEEN THE TWO CONTRIBUT ING TO THE EARNING OF INCOME BY THE NON-RESIDENT IN HIS TRADIN G ACTIVITY'. 257. IN CIT V. HINDUSTAN SHIPYARD LTD. [1977] 109 ITR 158 (AP) A DIVISION BENCH OF THIS COURT HAD CONSTRUED THE WORD 'BUSINESS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 166 CONNECTION' . THE FACTS IN THIS CASE WERE THAT;- THE NON-RESIDE NT COMPANY SUPPLIED DIESEL ENGINES WITH ACCESSORIES. T HE TERMS OF THE SALE WERE THAT 90% OF THE VALUE MUST BE PAID AGAINS T ORIGINAL SET OF DOCUMENTS, TO BE SUBMITTED DULY TO THE STATE BANK O F INDIA WITHIN FIFTEEN DAYS AND THE BALANCE WITHIN SIX MONTHS. THE NET PRICE INCLUDED 5% COMMISSION PAYABLE TO THE NON-RESIDENT COMPANY AT BOMBAY. THE PROPERTY WAS TO PASS TO THE PURCHASER O N DELIVERY ON BOARD. THE ENGINE WAS AGREED TO BE ERECTED BY THE S TAFF OF THE PURCHASER UNDER THE SUPERVISION OF THE ERECTOR AND A SUPERVISING ENGINEER WAS PLACED AT THE DISPOSAL OF THE PURCHASE R BY THE NON- RESIDENT COMPANY. IT WAS HELD THAT; 'BUSINESS CONNECTION' CAN BE SAID TO BE ESTABLISHED WHEN 'THE THREAD OF MUTUAL INTEREST RUNS THROUGH TH E FABRIC OF THE TRADING ACTIVITIES CARRIED ON OUTSIDE AND INSIDE TH E TAXABLE TERRITORY AND THERE MUST BE REAL AND INTIMATE CONNECTION BETW EEN THE TWO. THE COMMONNESS OF INTEREST MAY BE BY WAY OF MANAGEMENT CONTROL OR FINANCIAL CONTROL OR BY WAY OF SHARING PROFITS'. 258. HAVING REGARD TO THE FACTS OF THE SAID CASE, THE H ONBLE COURT HELD THAT THERE WAS NO BUSINESS CONNECTION BETWEEN THE ASSESSEE AND NON-RESIDENT COMPANY, AS THE SERVICES RENDERED BY NON- RESIDENT COMPANY WERE CONNECTED WITH THE EFFECTIVE FULFILLMENT OF THE CONTRACT OF SALE AND WERE MERELY INCIDENTAL TO THE CONTRACT. 259. WE ARE OF THE OPINION THAT THE ACTIVITIES REFERRE D TO IN THE AGREEMENTS PLACED BEFORE US SATISFY/ESTABLISHES ' BUSINESS CONNECTION' OF ASSESSEE IN INDIA. THERE IS AN ELEMENT OF CONTI NUITY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 167 BETWEEN THE BUSINESSES BY ASSESSEE FROM SUPPLY TO S UCCESSFUL COMMISSIONING OF THE PLANTS. IT IS NOT A CASE OF A MERE STRAY OR ISOLATED TRANSACTION, AS CONTENDED BY LD. COUNSEL, WHEN ASSESSEE HAS AGREED TO RENDER TECHNICAL/SUPERVISORY CO-OPERA TION FOR CONSTRUCTION, ERECTION OF POWER PLANT AT VARIOUS LO CATIONS. 260. AT THIS JUNCTURE IT IS RELEVANT TO MENTION THAT T HE GENERAL PROVISION BRINGING INCOME FROM ANY BUSINESS CONNECT ION IN INDIA WITHIN THE SWEEP OF SECTION 9 (1) (I), HAS BEEN EXP LAINED BY WAY OF EXPLANATION 1 (A) OF THE ACT THAT, IN THE CASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, TH E INCOME OF BUSINESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARIS E IN INDIA. IT SHALL BE ONLY SUCH PART OF INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA. A CAREFUL READ ING OF SECTION 9, TOGETHER WITH THE EXPLANATIONS THERETO, MAKES IT CLEAR THAT THE STATUTORY TEST FOR DETERMINING THE PLACE OF ACCRUAL OF INCOME IS NOT THE PLACE WHERE THESE SERVICES ARE RENDERED BUT WHE RE THOSE SERVICES ARE UTILIZED'. THE CRUX OF THE ABOVE PROVI SION INSOFAR AS IS RELEVANT TO THE FACTS OF THE PRESENT CASE IS THAT A SSESSEE IS LIABLE TO TAX, IF IT EARNS BUSINESS INCOME FROM THE OPERATION S CARRIED OUT IN INDIA. 261 . IN A NUTSHELL WE OBSERVE THAT: ASSESSEE IS SUPPLYING BTG EQUIPMENTS TO CUSTOMERS I N INDIA AND IS WHOLLY RESPONSIBLE FOR ERECTION/INSTALLATION/SUCCESSFUL COMMISSIONING OF EQUIPMENTS. THE CONTRACTS ARE NEGOTIATED AND CONCLU DE IN INDIA BY A TEAM CONSISTING OF PERSONS FROM PE IN INDIA SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 168 AND ASSESSEE IN CHINA. THE EXPATRIATES FROM SHANGHA I CHINA COME TO INDIA TO PROVIDE TECHNICAL SUPPORT SE RVICES TO PE IN INDIA. ALL THESE ACTIVITIES GO ON TO ESTAB LISH THAT THE APPELLANT HAS BUSINESS CONNECTION IN INDIA WITH IN THE MEANING OF SECTION 9(1)(I) OF THE ACT. THE ASSESSEE IS DOING BUSINESS ACTIVITIES IN INDIA WHICH ARE NOT ISOLATED INSTANCES RATHER THESE REPRESENT REAL AND INTIMATE RELATIONSHIP BETWEEN ACTIVITIES OF ASSESSEE DONE OU TSIDE INDIA AND THESE DONE INSIDE INDIA. THE BUSINESS OPERATIONS BEING DONE IN INDIA BY THE APPELLANT ARE REVENUE GENERATING AS THESE OPERATIONS ARE REQUIRED TO EARN THE CONTRACT AND TO MEET WITH CONTRACTUAL OBLIGATIONS. THEREFORE, ALL THE PARAMETERS OF BUSIN ESS CONNECTION AS PRESCRIBED BY VARIOUS JUDICIAL AUTHOR ITIES AS MENTIONED SUPRA ARE SATISFIED. EVEN THE ASSESSEE HAS NOT TAKEN ANY CONTENTION BEFORE AO DURING ASSESSMEN T STAGE THAT IT DOES NOT HAVE BUSINESS CONNECTION IN INDIA. EXISTANCE OF SUPERVISORY PE IN INDIA 262. LD. COUNSEL RELIED UPON DECISION OF THIS TRIBUNAL IN THE CASE OF LINKLATERS LLP (SUPRA) IN REJOINDER, TO SUBMIT T HAT PROVISIONS OF ARTICLE 5 (2) WHERE SPECIFIC INSTANCES OF PE HAD BE EN INDICATED, WOULD HAVE TO ALSO MEET THE REQUIREMENTS OF ARTICLE 5 (1). LD COUNSEL BY PLACING RELIANCE UPON LINKLATERS LLP (SU PRA) SUBMITTED THAT, IN ORDER TO ESTABLISH PE IN INDIA IN TERMS OF ARTICLE 5 (2), CONDITIONS OF ARTICLE 5 (1) MUST ALSO BE SATISFIED. IN THE WRITTEN SUBMISSION LD. COUNSEL HAS EXTRACTED RELEVANT PARAG RAPHS THAT SUGGEST THIS PREPOSITION. TO OUR UNDERSTANDING PARA GRAPH 91 REFERRED BY LD. COUNSEL DOES NOT COME TO RESCUE ASS ESSEE AND SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 169 FURTHER DO NOT SUPPORT THE ARGUMENTS ADVANCED BY HI M, WHICH HAS BEEN REPRODUCED HEREIN BELOW: 91. IT IS THUS CLEAR THAT, EVEN AS PER THE OECD MO DEL CONVENTION, ONE OF THE ITEMS INCLUDED IN ARTICLE 5(2), I.E., 5(2)( J ), OF INDIA-UK TAX TREATY IS SUCH THAT IT WOULD NOT CONSTITUTE PERMANENT ESTABLISHMENT UNDER THE BA SIC RULE OF ARTICLE 5(1), AND IT IS ONLY ON ACCOUNT OF DEEMI NG FICTION PROVIDED BY THE PROVISION OF ARTICLE 5(2)( J ), IT CAN BE TREATED AS A PERMANENT ESTABLISHMENT. WE ARE IN CONSIDERED AGR EEMENT WITH THIS ANALYSIS IN OECD MODEL CONVENTION COMMENT ARY, AND, FOR THIS REASON, WE ARE UNABLE TO APPROVE LEAR NED COUNSELS ARGUMENT THAT ARTICLE 5(2) OF INDIA-UK TA X TREATY ONLY PROVIDES EXAMPLES OF SITUATIONS COVERED BY ART ICLE 5 (1). 92. UN MODEL CONVENTION COMMENTARY, DEALING WITH AR TICLE 5(3) WHICH IS IN PARI MATERIA WITH ARTICLE 5(2)( J ) AND ( K ) OF INDIA UK TAX TREATY, MAKES THE POSITION EVEN MORE C LEAR. 93. ACCORDING TO THIS ANALYSIS IN THE UN MODEL CONV ENTION COMMENTARY, ARTICLE 5(3)( B ) OF UN MODEL CONVENTION, WHICH IS MATERIALLY SIMILAR TO THE PROVISIONS OF ARTICLE 5(2 )( K ) OF INDIA- UK TAX TREATY, EXTENDS TO THE AREAS NOT COVERED BY THE OECD MODEL CONVENTION. OBVIOUSLY, A PERMANENT ESTABLISHM ENT UNDER BASIC RULE CANNOT BE SAID TO BE NOT COVERED B Y THE OECD MODEL CONVENTION. ACCORDING TO THE UN MODEL CONVENTION COMMENTARY, THE SCOPE OF THIS PROVISION EXTENDS BEYOND THE SCOPE OF PERMANENT ESTABLISHMENT UNDER T HE BASIC RULE. FOR THAT REASON ALSO, THE ASSESSEES SU GGESTION THAT ARTICLE 5(2) OF INDIA-UK TAX TREATY SHOULD ONL Y BE READ AS A BUNCH OF ILLUSTRATION OF PERMANENT ESTABLISHMENTS UNDER THE BASIC RULE SET OUT IN ARTICLE 5(1), COULD NOT B E ACCEPTED. 262. SIMILAR IS THE SITUATION IN THE FACTS OF THE PRESE NT CASE WHERE THE INDIA CHINA DTAA, IS CONCERNED. ARTICLE 5 OF I NDIA CHINA DTAA DISCUSSES ABOUT THE EXISTENCE OF PERMANENT ESTABLIS HMENT WHICH IS REPRODUCED HERE UNDER. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 170 ARTICLE 5(2) HEREIN ARE NOT TO BE READ ONLY AS A BUNCH OF ILLUSTRATIONS OF PE. ARTICLE 5 : PERMANENT ESTABLISHMENT (1) FOR THE PURPOSES OF THIS AGREEMENT, THE TERM PE RMANENT ESTABLISHMENT MEANS A FIXED PLACE OF BUSINESS THROU GH WHICH THE BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRI ED ON. (2 ) THE TERM PERMANENT ESTABLISHMENT INCLUDES ESPECIA LLY : (A) A PLACE OF MANAGEMENT; (B) A BRANCH; (C) AN OFFICE; (D) A FACTORY; (E) A WORKSHOP; (F) A MINE, AN OIL OR GAS WELL, A QUARRY OR ANY OT HER PLACE OF EXTRACTION OF NATURAL RESOURCES; (G) A WAREHOUSE, IN RELATION TO A PERSON PROVIDING STORAGE FACILITIES FOR OTHERS; (H) A FARM, PLANTATION OR OTHER PLACE WHERE AGRICU LTURE, FORESTRY, PLANTATION OR RELATED ACTIVITIES ARE CARRIED ON; (I) AN INSTALLATION OR STRUCTURE USED FOR THE EXPL ORATION OR EXPLOITATION OF NATURAL RESOURCES, BUT ONLY IF SO U SED FOR A PERIOD OF MORE THAN 183 DAYS; (J) A BUILDING SITE OR CONSTRUCTION, INSTALLATION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, WHERE SUCH SITE, PROJECT OR ACTIVITIES (TOGETHER WITH OTHER SUCH SIT ES, PROJECTS OR ACTIVITIES, IF ANY) CONTINUE FOR A PERIOD OF MORE T HAN 183 DAYS; (K) THE FURNISHING OF SERVICES OTHER THAN TECHNICA L SERVICES AS DEFINED IN ARTICLE 12 (ROYALTIES AND FEES FOR TECHN ICAL SERVICES), BY AN ENTERPRISE OF A CONTRACTING STATE THROUGH EMP LOYEES OR OTHER PERSONNEL IN THE OTHER CONTRACTING STATE, BUT ONLY IF ACTIVITIES OF THAT NATURE CONTINUE WITHIN THAT OTHE R CONTRACTING STATE FOR A PERIOD OR PERIODS AGGREGATING MORE THAN 183 DAYS. (3).. (4) NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS 1 AND 2, WHERE A PERSON - OTHER THAN AN AGENT OF AN INDEPENDENT STAT US TO WHOM THE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 171 PROVISIONS OF PARAGRAPH 5 APPLY - IS ACTING IN A CO NTRACTING STATE ON BEHALF OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE, HAS AND HABITUALLY EXERCISES AN AUTHORITY TO CONCLUDE CONTR ACTS IN THE NAME OF THE ENTERPRISE, THAT ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE FIRST-MENTIONED CONT RACTING STATE IN RESPECT OF ANY ACTIVITIES WHICH THAT PERSON UNDE RTAKES FOR THE ENTERPRISE, UNLESS THE ACTIVITIES OF SUCH PERSON AR E LIMITED TO THOSE MENTIONED IN PARAGRAPH 3 WHICH, IF EXERCISED THROUG H A FIXED PLACE OF BUSINESS, WOULD NOT MAKE THIS FIXED PLACE OF BUS INESS A PERMANENT ESTABLISHMENT UNDER THE PROVISIONS OF THA T PARAGRAPH. UN MODEL CONVENTION (HEREINAFTER REFERRED TO AS UN MC ) ARTICLE 5 - PERMANENT ESTABLISHMENT. (1) FOR THE PURPOSES OF THIS CONVENTION, THE TERM 'PERM ANENT ESTABLISHMENT' MEANS A FIXED PLACE OF BUSINESS THRO UGH WHICH THE BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRI ED ON. (2) THE TERM 'PERMANENT ESTABLISHMENT' INCLUDES ESPECIA LLY : (A )A PLACE OF MANAGEMENT; (B )A BRANCH; (C )AN OFFICE; (D )A FACTORY; (E )A WORKSHOP; AND (F )A MINE, AN OIL OR GAS WELL, A QUARRY OR ANY OTH ER PLACE OF EXTRACTION OF NATURAL RESOURCES. (3) THE TERM 'PERMANENT ESTABLISHMENT' ALSO ENCOMPASSES : (A )A BUILDING SITE, A CONSTRUCTION, ASSEMBLY OR IN STALLATION PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, BUT ONLY IF SUCH SITE, PROJECT OR ACTIVITIES LAST MORE THAN SIX MONTHS; (B )THE FURNISHING OF SERVICES, INCLUDING CONSULTAN CY SERVICES, BY AN ENTERPRISE THROUGH EMPLOYEES OR OTHER PERSONNEL ENGAGED BY THE ENTERPRISE FOR SUCH PURPOSE, BUT ONLY IF ACT IVITIES OF THAT NATURE CONTINUE (FOR THE SAME OR A CONNECTED PROJEC T) WITHIN A CONTRACTING STATE FOR A PERIOD OR PERIODS AGGREGATI NG MORE THAN SIX MONTHS WITHIN ANY TWELVE-MONTH PERIOD. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 172 263. ON A COMBINED READING OF ARTICLE 3 (A) (B) OF UN M C AND ARTICLE 5 (2) OF INDIA OR CHINA DTAA, PROVIDES EXPR ESSLY THAT A BUILDING SITE OR CONSTRUCTION OR INSTALLATION PROJE CT CONSTITUTES A PERMANENT ESTABLISHMENT ONLY IF IT LASTS MORE THAN TWELVE MONTHS. ANY OF THOSE ITEMS WHICH DOES NOT MEET THIS CONDITION DOES NOT BY ITSELF CONSTITUTE A PERMANENT ESTABLISHMENT, EVEN IF THERE IS WITHIN IT AN INSTALLATION, FOR INSTANCE AN OFFICE O R A WORKSHOP WITHIN THE MEANING OF PARAGRAPH 2, ASSOCIATED WITH THE CON STRUCTION ACTIVITY. WHERE, HOWEVER, SUCH AN OFFICE OR WORKSHO P IS USED FOR A NUMBER OF CONSTRUCTION PROJECTS AND THE ACTIVITIES PERFORMED THEREIN GO BEYOND THOSE MENTIONED IN PARAGRAPH, IT WILL BE CONSIDERED A PERMANENT ESTABLISHMENT IF THE CONDITI ONS OF THE ARTICLE ARE OTHERWISE MET EVEN IF ONE OF THE PROJEC TS INVOLVED, LASTS FOR MORE THAN 12 MONTHS. 264. THUS ON THE QUESTION OF EXISTENCE OF PE, TO THE FA CTS OF THE PRESENT CASE, THE CONTENTIONS OF LD. COUNSEL CANNOT BE ACCEPTED FOR THE FOLLOWING REASONS: PARA 2 OF ARTICLE 5 OF DTAA PROVIDES THE CIRCUMST ANCES UNDER WHICH PERMANENT ESTABLISHMENT ARISES IN A CONTRACTI NG STATE. PARA 2 PROVIDES FOR SPECIFIC INSTANCES OVER AND ABO VE THE GENERAL PROVISIONS CONTAINED IN PARA 1 OF ARTICLE 4 E.G., DURATION OF CONSTRUCTION CONTRACT, FURNISHING OF SERVICES OTHER THAN TECHNICAL SERVICES, ETC. IT IS A WELL ACCEPTED PRINCIPLE THAT SPECIFIC PROVISIONS PREVAIL OVER THE GENERAL PROVISIONS. THEREFORE, IF THE CONDITIONS PROVIDED IN PARA 2 OF ARTICLE 5 ARE SATISFIED, IT W ILL AMOUNT TO A SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 173 PERMANENT ESTABLISHMENT, IRRESPECTIVE OF THE FACT W HETHER THE GENERAL PROVISIONS OF ARTICLE 5(1) COVER SUCH A SIT UATION OR NOT. THE PERMANENT ESTABLISHMENT UNDER ARTICLE 5(2)(J) , ENCOMPASSES A BUILDING SITE, A CONSTRUCTION, ASSEMB LY OR INSTALLATION PROJECT OR SUPERVISORY ACTIVITIES IN C ONNECTION THEREWITH, ONLY IF SUCH SITE, PROJECT OR ACTIVITIES LAST MORE THAN SIX MONTHS(183 DAYS), WHICH IS AN ADMITTED POSITION IN ALL THE CONTRACTS ENTERED INTO BY ASSESSEE IN THE PREVIOUS YEARS, RELEVANT TO ASSESSMENT YEARS UNDER CONSIDERATION. THUS THE SUPERVISORY PE OF ASSESSEE EXISTED IN IND IA FROM THE TIME INDIAN CLIENTS CONTRACTED WITH ASSESSEE TO CARRY OU T THE WORK OF SUPPLY, SUPERVISION, ERECTION, INTELLATION AND SUCC ESSFUL COMMISSIONING OF PLANTS. THUS, SPLITTING OF THIS TR ANSACTION UNDER SUPPLY AND SERVICES WILL BE WHOLLY ARTIFICIAL AND N EITHER WILL IT HAVE A RATIONAL BASIS, NOR CAN IT BE RECOGNIZED FOR THE PU RPOSES OF COMMUTATION OF PROFITS ATTRIBUTABLE TO THE PE. ATTRIBUTION OF PROFITS. ARTICLE 7 DEALS WITH THE BUSINESS PROFITS, WHICH HA S BEEN REPRODUCED HEREUNDER: ARTICLE 7 BUSINESS PROFITS 1. THE PROFITS OF AN ENTERPRISE OF A CONTRACTING STAT E SHALL BE TAXABLE ONLY IN THAT CONTRACTING STATE UNLESS THE E NTERPRISE CARRIES BUSINESS IN THE OTHER CONTRACTING STATE THR OUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. IF THE EN TERPRISE CARRIES ON BUSINESS AS AFORESAID, THE PROFITS OF TH E ENTERPRISE MAY BE TAXED IN THE OTHER CONTRACTING STATE BUT ONL Y SO MUCH OF SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 174 THEM AS IS DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO T HAT PERMANENT ESTABLISHMENT. THE PROVISIONS OF THIS PARAGRAPH SHALL, HOWEVER, NO T APPLY IF THE ENTERPRISE PROVES THAT THE ABOVE ACTIVITIES COULD N OT HAVE BEEN UNDERTAKEN BY THE PERMANENT ESTABLISHMENT OR HAVE N O RELATION WITH THE PERMANENT ESTABLISHMENT. 2. SUBJECT TO THE PROVISIONS OF PARAGRAPH 3, WHER E AN ENTERPRISE OF A CONTRACTING STATE CARRIES ON BUSINESS IN THE OTHE R CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED TH EREIN, THERE SHALL IN EACH CONTRACTING STATE BE ATTRIBUTED TO TH AT PERMANENT ESTABLISHMENT THE PROFITS WHICH IT MIGHT BE EXPECTE D TO MAKE IF IT WERE A DISTINCT AND SEPARATE ENTERPRISE ENGAGED IN THE SAME OR SIMILAR ACTIVITIES UNDER THE SAME OR SIMILAR CONDIT IONS AND DEALING WHOLLY INDEPENDENTLY WITH THE ENTERPRISE OF WHICH IT IS A PERMANENT ESTABLISHMENT. 3. INSOFAR AS THE TAX LAW OF A CONTRACTING STATE P ROVIDES WITH RESPECT TO A SPECIFIC BUSINESS ACTIVITY THAT THE P ROFITS TO BE ATTRIBUTED TO A PERMANENT ESTABLISHMENT ARE TO BE D ETERMINED ON THE BASIS OF A DEEMED PROFIT, NOTHING IN PARAGRA PH 2 SHALL PRECLUDE THAT CONTRACTING STATE FROM APPLYING THOSE PROVISIONS OF ITS LAW, PROVIDED THAT THE RESULT IS IN ACCORDAN CE WITH THE PRINCIPLES CONTAINED IN THIS ARTICLE. 4. IN DETERMINING THE PROFITS OF A PERMANENT ESTA BLISHMENT, THERE SHALL BE ALLOWED AS DEDUCTION EXPENSES WHICH ARE IN CURRED FOR THE PURPOSES OF THE BUSINESS OF THE PERMANENT ESTAB LISHMENT, INCLUDING EXECUTIVE AND GENERAL ADMINISTRATIVE EXPE NSES SO INCURRED, WHETHER IN THE CONTRACTING STATE IN WHICH THE PERMANENT ESTABLISHMENT IS SITUATED OR ELSEWHERE IN ACCORDANCE WITH THE PROVISIONS OF TAX LAW OF THAT CONTRACTING STATE. 5. NO PROFITS SHALL BE ATTRIBUTED TO A PERMANENT ESTABLISHMENT BY REASON OF THE MERE PURCHASE BY THAT PERMANENT ESTAB LISHMENT OF GOODS OR MERCHANDISE FOR THE ENTERPRISE. 6. FOR THE PURPOSES OF PARAGRAPHS 1 TO 5, THE PRO FITS TO BE ATTRIBUTED TO THE PERMANENT ESTABLISHMENT SHALL BE DETERMINED BY THE SAME METHOD YEAR BY YEAR UNLESS THERE IS GOOD AND S UFFICIENT REASON TO THE CONTRARY. SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 175 7. WHERE PROFITS INCLUDE ITEMS OF INCOME WHICH AR E DEALT WITH SEPARATELY IN OTHER ARTICLES OF THIS AGREEMENT, THE N THE PROVISIONS OF THOSE ARTICLES SHALL NOT BE AFFECTED BY THE PROVISIONS OF THIS ARTICLE. 265. ARTICLE 7 (1) STATES THAT PROFITS CAN BE TAXED IN INDIA ONLY TO SUCH EXTENT THAT IS ATTRIBUTABLE TO THE PE IN INDIA . IN OTHER WORDS IF THERE IS NO PE THEN BUSINESS PROFITS OF ASSESSEE CA NNOT BE TAXED IN INDIA. ON THE FACTS OF THE PRESENT CASE, THE ASSESS EE HAS ALREADY ADMITTED OF EXISTENCE OF SERVICE PE IN INDIA, WHILE SUBMITTING FOR ASSESSMENT YEAR 2010-11, AS PER ARTICLE 5 OF INDIA - CHINA DTAA. THE WRITTEN SUBMISSIONS PLACED IN THE PAPER BOOK BE FORE US ALSO SUBSTANTIATE THE POSITION. THIS IN NO WAY RESTRICTS OUR FINDING THAT IN ANY OF THE EARLIER ASSESSMENT YEARS THE PAYMENTS MADE TOWARDS SUPPLY AND SERVICES RENDERED IN INDIA ARE SEPARATE. LD. CIT DR HAS PRESENTED A CHART BEFORE US WHICH SUGGESTS THAT ASS ESSEES REPRESENTATIVES WERE PRESENT IN INDIA SINCE 2007 ON WARDS AND THEREFORE ALL THE PAYMENTS MADE IN RESPECT OF EACH CONTRACTS ENTERED INTO BY ASSESSEE WITH VARIOUS PROJECT OWNER S DURING THE RESPECTIVE ASSESSMENT YEARS HAS TO BE CONSTRUED IN THE SIMILAR MANNER. 266. IT IS FURTHER OBSERVED THAT THE POSITION UNDER DTA A IS ANALOGUES TO THE POSITION AS EXPRESSED IN EXPLANATI ON (1) (A) TO SECTION 9 (1) (I) OF THE ACT. THE SUM AND SUBSTANCE OF BOTH THESE PROVISIONS UNDER DTAA AS WELL AS INDIAN INCOME TAX ACT IS THAT, ONLY THAT PART OF BUSINESS INCOME OF ASSESSEE CAN B E CHARGED TO TAX IN INDIA WHICH IS ATTRIBUTED TO THE OPERATIONS CARR IED OUT IN INDIA, DUE TO THE BUSINESS CONNECTION AS PER SECTION 9 (1) OF THE ACT OR IS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 176 ATTRIBUTABLE TO THE PE AS PER ARTICLE 7 OF DTAA. TO OUR MIND THE POSITION IS VERY CLEAR UNDER DTAA AS WELL AS THE IN DIAN INCOME TAX ACT, THAT THE PRINCIPLE OF APPORTIONMENT OF INCOME WITH REFERENCE TO TERRITORIAL NEXES IS NOT ONLY EXPLICIT BUT ALSO FOR MS AN INTEGRAL PART OF BOTH SECTION 9 (1) OF THE ACT READ WITH EXPLANAT ION (1) (A) AS WELL AS ARTICLE 7 OF DTAA. IF A PARTICULAR INCOME IS NOT ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA THEREBY NOT HAVING ANY TERRITORIAL NEXES WITH INDIA, THEN A NON-RESIDENT CANNOT BE CHA RGED TO TAX FOR THAT INCOME. PER CONTRA , IF A PARTICULAR INCOME IS ATTRIBUTABLE TO THE OPE RATIONS CARRIED OUT IN INDIA AND HAS TERRITORIAL NEXES WITH INDIA, THEN THERE CAN BE NO ESCAPE FROM CHARGE OF SUCH INCOME TO TAX. 267. IN THE PRESENT CASE BEFORE US ASSESSEE HAVING ENTE RED INTO A COMPOSITE CONTRACT WHICH IS RELATABLE TO THE OPERAT IONS CARRIED OUT IN INDIA AND PARTLY TO OUTSIDE INDIA A PROPORTIONAT E PART OF INCOME WHICH IS SO RELATABLE TO THE OPERATIONS CARRIED OUT IN INDIA HAS TO BE CHARGED TO TAX. 268. THE EXTENSION OF TAXABILITY OF PROFITS OF PE BY IN CLUDING PROFITS DIRECTLY OR INDIRECTLY ATTRIBUTABLE, IS AKIN TO THE PROVISIONS OF ARTICLE 7(1)(B ) AND 7(1)(C) OF THE UN MC WHICH PROVIDES TH AT IN ADDITION TO THE PROFITS ATTRIBUTABLE TO THE PERMANENT ESTABLIS HMENT THE TAXABILITY OF PE PROFITS WILL ALSO EXTEND TO (B) S ALES IN THAT OTHER STATE OF GOODS OR MERCHANDISE OF THE SAME OR SIMILA R KIND AS THOSE SOLD THROUGH THAT PERMANENT ESTABLISHMENT; OR (C) O THER BUSINESS SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 177 ACTIVITIES CARRIED ON IN THAT OTHER STATE OF THE SA ME OR SIMILAR KIND AS THOSE EFFECTED THROUGH THAT PERMANENT ESTABLISHM ENT. THE CONNOTATIONS OF PROFITS INDIRECTLY ATTRIBUTABLE TO PERMANENT ESTABLISHMENT WILL EXTEND TO THESE TWO CATEGORIES. THESE CATEGORIES CLEARLY INCORPORATE A FORCE OF ATTRACTION RULE. THE BASIC PHILOSOPHY UNDERLYING THE FORCE OF ATTRACTION RULE IS THAT WHE N AN ENTERPRISE SETS UP A PERMANENT ESTABLISHMENT IN ANOTHER COUNTR Y, IT BRINGS ITSELF WITHIN THE FISCAL JURISDICTION OF THAT ANOTH ER COUNTRY TO SUCH A DEGREE THAT SUCH ANOTHER COUNTRY CAN PROPERLY TAX A LL PROFITS THAT THE ENTERPRISE DERIVES FROM THAT COUNTRY WHETHER TH E TRANSACTIONS ARE ROUTED AND PERFORMED THROUGH THE PE OR NOT. 269. THE PROVISIONS OF ARTICLE 7(1) OF INDIA CHINA DTAA , INCLUDE SAME RESULTS AS SOUGHT TO BE ACHIEVED BY ARTICLE 7( 1)(C) OF UN MC. AS TO THE SCOPE OF THIS PROVISION, ONE MAY FIND GUI DANCE FROM THE UN MC COMMENTARY IN THIS REGARD. 270. THEREFORE, THE CONNOTATIONS OF PROFITS INDIRECTLY ATTRIBUTABLE TO PERMANENT ESTABLISHMENT DO INDEED EXTEND TO INC ORPORATION OF THE FORCE OF ATTRACTION RULE BEING EMBEDDED IN ARTI CLE 7(1). IN ADDITION TO TAXABILITY OF INCOME IN RESPECT OF SERV ICES RENDERED BY THE PE IN INDIA, ANY INCOME IN RESPECT OF THE SERVI CES RENDERED TO AN INDIAN PROJECT, WHICH IS SIMILAR TO THE SERVICES RE NDERED BY THE PERMANENT ESTABLISHMENT, IS ALSO TO BE TAXED IN IND IA IN THE HANDS OF THE ASSESSEE, IRRESPECTIVE OF THE FACT WHETHER, SUCH SERVICES ARE RENDERED THROUGH THE PERMANENT ESTABLISHMENT, OR DI RECTLY BY THE GENERAL ENTERPRISE. THERE CANNOT BE ANY PROFESSIONA L SERVICES SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 178 RENDERED IN INDIA WHICH ARE NOT, AT LEAST INDIRECTL Y, ATTRIBUTABLE TO CARRYING OUT PROFESSIONAL WORK IN INDIA. THIS INDIR ECT ATTRIBUTION, IN VIEW OF THE SPECIFIC PROVISIONS OF INDIA-CHINA TAX TREATY, IS ENOUGH TO BRING THE INCOME FROM SUCH SERVICES WITHIN AMBIT OF TAXABILITY IN INDIA. THE TWIN CONDITIONS TO BE, THUS, SATISFIED F OR TAXABILITY OF RELATED PROFITS ARE: (I) THE SERVICES SHOULD BE RELATABLE TO THE SERVICES RE NDERED BY THE PE IN INDIA; AND (II ) THE SERVICES SHOULD BE DIRECTLY OR INDIRECTL Y ATTRIBUTABLE TO THE INDIAN PE, I.E., RENDERED TO A PROJECT OR CLIE NT IN INDIA. TO THE FACTS OF THE PRESENT CASE, BOTH THESE CONDIT IONS STANDS SATISFIED. THE EXTENSION OF TAXABILITY OF PROFITS OF PE BY INC LUDING PROFITS DIRECTLY OR INDIRECTLY ATTRIBUTABLE, IS AKIN TO THE PROVISIONS OF ARTICLE 7(1)(B ) AND 7(1)(C) OF THE UN MC, WHICH PROVIDE TH AT IN ADDITION TO THE PROFITS ATTRIBUTABLE TO THE PERMANENT ESTABLIS HMENT THE TAXABILITY OF PE PROFITS WILL ALSO EXTEND TO (B) S ALES IN THAT OTHER STATE OF GOODS OR MERCHANDISE OF THE SAME OR SIMILA R KIND AS THOSE SOLD THROUGH THAT PERMANENT ESTABLISHMENT; OR (C) O THER BUSINESS ACTIVITIES CARRIED ON IN THAT OTHER STATE OF THE SA ME OR SIMILAR KIND AS THOSE EFFECTED THROUGH THAT PERMANENT ESTABLISHM ENT. THE CONNOTATIONS OF PROFITS INDIRECTLY ATTRIBUTABLE TO PERMANENT ESTABLISHMENT WILL EXTEND TO THESE TWO CATEGORIES. THESE CATEGORIES CLEARLY INCORPORATE A FORCE OF ATTRACTION RULE. THE BASIC PHILOSOPHY UNDERLYING THE FORCE OF ATTRACTION RULE IS THAT WHE N AN ENTERPRISE SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 179 SETS UP A PERMANENT ESTABLISHMENT IN ANOTHER COUNTR Y, IT BRINGS ITSELF WITHIN THE FISCAL JURISDICTION OF THAT ANOTH ER COUNTRY TO SUCH A DEGREE THAT SUCH ANOTHER COUNTRY CAN PROPERLY TAX A LL PROFITS THAT THE ENTERPRISE DERIVES FROM THAT COUNTRY WHETHER TH E TRANSACTIONS ARE ROUTED AND PERFORMED THROUGH THE PE OR NOT. IN EFFECT, PROFITS RELATING TO SERVICES RENDERED BY ASSESSEE, WHETHER RENDERED IN INDIA OR OUTSIDE INDIA, IN RESPECT OF I NDIAN PROJECTS ARE TAXABLE IN INDIA, AND ARE ATTRIBUTABLE TO THE SUPER VISORY PE OF ASSESSEE IN INDIA, AS THEY ARE EFFECTIVELY CONNECTE D WITH EACH OTHER. ATTRIBUTION OF INCOME COMPUTED BY LD.AO BASED ON FAR ANALYSIS, ACTIVITIES PERFORMED BY PE, WAS SUMMARIZED BY AO IS UNDER: DRAWING & DESIGNING; MANUFACTURING; SUPPLY OF EQUIPMENTS; MARKETING AND RELATED ACTIVITIES; SUPERVISION & RELATED ACTIVITIES. LD.AO COMPUTED ATTRIBUTED 25% FROM OFFSHORE SUPPLY TO BE ACCRUING FROM OFF SHORE SUPPLIES TO PE IN INDIA, BA SED ON GLOBAL PROFITABILITY STATEMENT SUBMITTED BY ASSESSEE, FOR ASSESSMENT YEAR UNDER CONSIDERATION, AS UNDER: ITA NO. 224/DEL/2015 SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 180 (A.Y.2007-08) PARTICULARS FY 2006-07(AY 2007-08) GROSS OFFSHORE SUPPLY REVENUES (USD(A) 4 , 36 , 79 , 200.00 EX CHANGE RATE @ 43.77 ON 30.03.2007 43.77 GROSS OFFSHORE SUPPLY REVENUES (INR)(A*B) RS. 1,91,18,38,584.00 PROFIT ON THE BASIS OF GLOBAL PROFIT AND LOSS ACCOUNT (8.1%) RS. 15,48,58,925.30 ATTRIBUTION IN INDIA (%) 25% TAXABLE INCOME RS. 3,87,14,731.33 TAX LIABILITY @ 42.23% RS. 1,63,49,231.04 ITA NO. 225/DEL/2015 (A.Y. 2008-09) PARTICULARS FY 2007 - 08 GROSS OFFSHORE SUPPLY REVENUES (USD) (A) 23,28,84,198.00 EXCHANGE RATE @ 39.52 ON 31.03,2008 (B) 39.52 GROSS OFFSHORE SUPPLY REVENUES (INR) (A*B) RS. 9,20,35,83,504.96 PROFIT ON THE BASIS OF GLOBAL PROFIT AND LOSS ACCOUNT (6.89%) RS. 63,41,26,903.49 ATTRIBUTION IN INDIA (%) 25% TAXABLE INCOME RS. 15,85,31,725.87 TAX LIABILITY @ 42.23% RS. 16 69 47 947.84 SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 181 ITA NO. 226/DEL/2015 (AY 2009-10) PARTICULARS FY 2008 - 09 AY 2009-10 GROSS OFFSHORE SUPPLY REVENUES (USD) (A) 44,97,99,756.00 GROSS OFFSHORE SUPPLY REVENUES (EURO) (A) 2,50,86,420.00 EXCHANGE RATE @ 50.53 ON 31.03,2009 (B) 50.53 EXCHANGE RATE @ 66.70 ON 31.03.2009 (B) 66.70 GROSS OFFSHORE SUPPLY REVENUES (INR) (A*B) RS. 24,40,16,45,884.68 PROFIT ON THE BASIS OF GLOBAL PROFIT AND LOSS ACCOUNT (5.53%) RS. 1,34,94,11,017.42 ATTRIBUTION IN INDIA (%) 25% TAXABLE INCOME RS. 33,73,52,754.36 ITA NO. 3552/DEL/2015 (A.Y.2010-11) INCOME AS PER REVISED COMPUTATION FILED ON 11.12.2012 - RS. 7,72,74,388/- (U/S 44BBB OF THE ACT) INCOME FROM OFFSHORE SUPPLY -RS. 625,063, 759.71/- PARTICULARS FY 2009-10 GROSS OFFSHORE SUPPLY REVENUES (USD)(A) 520,649,916.69 GROSS OFFSHORE SUPPLY REVENUES (EURO)(B) 115,602,104.74 SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 182 ITA NO. 227/DEL/2015 (AY 2011-12) PAR TICULARS FY 2010-11 GROSS OFFSHORE SUPPLY REVENUES (USD) (A) 25,72,57,618.00 GROSS OFFSHORE SUPPLY REVENUES (EURO) (A) 3,89,86,186.00 EXCHANGE RATE 44.23 ON 31.03,2011 (E) 44.23 EXCHANGE RATE @ 62.36 ON 31.03.2011 (B) 62.36 GROSS OFFSHORE SUPPLY REVENUES (INR) (A*B) RS. 13,80,96,83,003.10 PROFIT ON THE BASIS OF GLOBAL PROFIT AND LOSS ACCOUNT (5.78%) RS. 79,81,99,677.58 ATTRIBUTION IN INDIA (%) 25% TAXABLE INCOME RS. 19,95,49,919.39 TAX LIABILITY @ 42.23% RS.8,42,69,930.% GROSS OFFSHORE SUPPLY REVENUES (INR) = (A)*EXCHANGE RATE @ 50.53 + (B)*EXCHANGE RATE @ 66.70 30,150,785,284.23 PROFIT ON THE BASIS OF GLOBAL PROFIT AND LOSS ACCOUNT (@8.29%) 2,500,255,038.86 ATTRIBUTION IN INDIA (%) 25% TAXABLE INCOME 625,063,759.71 / - TAX LIABILITY @ 42.23% 263,964,425.73 SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 183 ITA NO. 58/DEL/2017 (AY 2012-13) ITA NO. 59/DEL/2017 (AY 2013-14) PARTICULARS FY 2012 - 13 GROSS OFFSHORE SUPPLY REVENUES (USD) (A) 11,74,67,337.00 GROSS OFFSHORE SUPPLY REVENUES (EURO) (B) 55,52,259.00 EXCHANGE RATE OF USD ON 31.03.2013 (AL) @ 53.98 EXCHANGE RATE OF EURO ON 31.03.2013 (BL) @ 68.69 GROSS OFFSHORE SUPPLY REVENUES (RS) (AXAL + BXBL) IN AGGREGATE RS. 6,72,22,71,551 PROFIT ON THE BASIS OF GLOBAL PROFIT AND LOSS ACCOUNT (8.57%) RS. 57,60,98,671.94 ATTRIBUTION IN INDIA (%) 25% PARTICULARS FY 2011 - 12 GROSS OFFSHORE SUPPLY REVENUES (USD) (A) 39,92,37,285.00 GROSS OFFSHORE SUPPLY REVENUES (EURO) (B) 1,86,57,376.00 EXCHANGE RATE OF USD ON 31.03.2012 (AL) @ 50.71 EXCHANGE RATE OF EURO ON 31.03.2012 (BL) @ 67.44 GROSS OFFSHORE SUPPLY REVENUES (RS) (AXAL + BXBL) IN AGGREGATE RS. 21,50,35,76,160 PROFIT ON THE BASIS OF GLOBAL PROFIT AND LOSS ACCOUNT (6%) RS. 1,29,02,14,569 ATTRIBUTION IN INDIA (%) 25% TAXABLE INCOME (X) RS. 32,25,53,642 SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 184 TAXABLE INCOME (X) RS. 14,40,24,667.98 271. ASSESSEE IN GROUND 6.9 OF APPEALS FOR ASSESSMENT YEARS UNDER CONSIDERATION, HAS CONTENDED THAT SEGMENTAL P ROFIT RATE SUBMITTED TO BE APPLIED, INSTEAD OF GLOBAL PROFIT R ATE. HOWEVER, LD.COUNSEL HAS NOT SUBMITTED ANY JUSTIFICATION TO A DOPT THE SEGMENTAL PROFITS. HE HAS ALSO NOT DEMONSTRATED ANY ILLEGALITY IN THE COMPUTATION ADOPTED BY LD.AO. IT IS OBSERVED THAT L D.AO HAS FOLLOWED THE GLOBAL PROFITABILITY BASED UPON THE RU LING OF ROLLS ROYS (SUPRA) AND ATTRIBUTED 25% OF GLOBAL PROFIT ACCRUIN G FROM THE OFFSHORE SUPPLIES TO PE IN INDIA ACCORDINGLY GROUND NO.6.9 RAISED BY ASSESSEE IN ALL THE APPEALS ARE DISMISSED. THE NEXT ISSUE RAISED BY ASSESSEE IS IN RESPECT OF LEVY OF INTEREST U/S234 B OF THE ACT. 272. THE CASE OF THE ASSESSEE IS THAT, IT IS A NON-RES IDENT COMPANY AND PAYMENTS RECEIVED BY ASSESSEE SHOULD HA VE SUFFERED TAX DEDUCTION AT SOURCE, BY THE PAYER, WHO WAS REQU IRED SO TO DO UNDER SECTION 195 OF THE ACT. THE OBLIGATION UPON T HE PAYER TO DEDUCT TAX AT SOURCE, BEFORE MAKING REMITTANCES TO THE NON-RESIDENT ASSESSEE, WAS ABSOLUTE. THE UNDISPUTED FACT IN THE PRESENT CASE REMAINED THAT THE TAX ON ENTIRE INCOME RECEIVED BY ASSESSEE WAS REQUIRED TO BE DEDUCTED, AT APPROPRIATE RATES BY TH E RESPECTIVE PAYERS UNDER SECTION 195. HAD THE PAYER MADE THE DE DUCTION OF TAX AT THE APPROPRIATE RATE, THE NET TAX PAYABLE BY SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 185 THE ASSESSEE WOULD HAVE BEEN NIL. THUS, THERE WAS N O LIABILITY TO PAY ADVANCE TAX BY THE ASSESSEE. HIGH COURT OF DELHI IN THE CASE OF JACABS CIVIL INCORPORATED/MITSUBISHI CORPORATION REPORTED IN [2011] 330 ITR 578 /[2010] 194 TAXMAN 495 (DELHI) ON IDENTICAL ISSUE, HELD AS UNDER: 'THIS CLAUSE CATEGORICALLY USES THE EXPRESSION 'DED UCTIBLE OR COLLECTIBLE AT SOURCE' AND IT IS THIS CLAUSE WHICH IS INCORPORATED BY THE UTTARANCHAL HIGH COURT IN THE SAID JUDGMENT (SU PRA) IN THE MANNER ALREADY POINTED ABOVE. THE SCHEME OF THE ACT IN RESPECT OF NON-RESIDENT IS CLEAR. SECTION 195 OF THE ACT PU TS AN OBLIGATION ON THE PAYER, I.E., ANY PERSON RESPONSIBLE FOR PAYI NG TO A NON- RESIDENT, TO DEDUCT INCOME-TAX AT SOURCE AT THE RAT ES IN FORCE FROM SUCH PAYMENTS EXCLUDING THOSE INCOMES WHICH ARE CHA RGEABLE UNDER THE HEAD 'SALARIES'. THEREFORE, THE ENTIRE TA X IS TO BE DEDUCTED AT SOURCE WHICH IS PAYABLE ON SUCH PAYMENT S MADE BY THE PAYEE TO THE NON-RESIDENT. SECTION 201 OF THE A CT LAYS DOWN THE CONSEQUENCES OF FAILURE TO DEDUCT OR PAY. THESE CONSEQUENCES INCLUDE NOT ONLY THE LIABILITY TO PAY THE AMOUNT WH ICH SUCH A PERSON WAS REQUIRED TO DEDUCT AT SOURCE FROM THE PA YMENTS MADE TO A NON RESIDENT BUT ALSO PENALTIES, ETC. ONCE IT IS FOUND THAT THE LIABILITY WAS THAT OF THE PAYER AND THE SAID PAYER HAS DEFAULTED IN DEDUCTING THE TAX AT SOURCE, THE DEPARTMENT IS NOT REMEDY-LESS AND, THEREFORE, CAN TAKE ACTION AGAINST THE PAYER U NDER THE PROVISIONS OF SECTION 201 OF THE INCOME- TAX ACT AN D COMPUTE THE AMOUNT ACCORDINGLY. NO DOUBT, IF THE PERSON (PAYER) WHO HAD TO MAKE PAYMENTS TO THE NON-RESIDENT HAD DEFAULTED IN DEDUCTING THE TAX AT SOURCE FROM SUCH PAYMENTS, THE NON-RESID ENT IS NOT ABSOLVED FROM PAYMENT OF TAXES THEREUPON. HOWEVER, IN SUCH A CASE, THE NON-RESIDENT IS LIABLE TO PAY TAX AND THE QUESTION OF PAYMENT OF ADVANCE TAX WOULD NOT ARISE. THIS WOULD BE CLEAR FROM THE READING OF SECTION 191 OF THE ACT ALONG WITH SE CTION 209 (1) (D) OF THE ACT. FOR THIS REASON, IT WOULD NOT BE PERMIS SIBLE FOR THE REVENUE TO CHARGE ANY INTEREST UNDER SECTION 234 B OF THE ACT.' SHANGHAI ELECTRIC GROUPS CO. LTD. VS. DCIT ITA NO. 224 TO 227/DEL/2015 ITA NO. 3552/DEL/2015 ITA NO. 58 & 59/DEL/2017 186 273. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF HON'B LE JURISDICTIONAL HIGH COURT IN THE CASE OF JACABS CIVIL INCORPORATED/MITSUBISHI CORPN. ( SUPRA ) THE INTEREST CHARGED U/S 234 B IN PRESENT FACTS OF THE CASE STANDS DELETED. HONBLE DELHI HIGH COURT HAS CONSIDERED THE ISSUE I N CASE OF DIT VS.G E ENERGY PARTS INC REPORTED IN (2015) 56 TAXMA NN.COM 190. HONBLE HIGH COURT HAS FOLLOWED THE VIEW IN CASE OF JACOBS CIVIL INCORPORATED/MITSUBISHI CORPN. ( SUPRA ). LD.AO IS DIRECTED TO RECOMPUTE INCOME CHARGEABLE TO TAX IN ACCORDANCE WI TH LAW FOLLOWING THE ABOVE DECISIONS. ACCORDINGLY GROUND RELATING TO SECTION 234B STANDS ALLOWED. IN RESPECT OF GROUND RAISED ON PENALTY UNDER SECTIO N 271(1) (C), AS THIS IS PREMATURE, THE GROUND STANDS DISMIS SED. IN THE RESULT APPEALS FILED BY ASSESSEE FOR ASSESSM ENT YEARS 2007-08 TO 2013-14 STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JULY, 2017. SD/- SD/- (R. K. PANDA) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 14.07.2017 @MIT.