DDIT (IT)-1(1), MUMBAI V. ATOMSTROYEXPORT, MUMBAI

ITA 2369/MUM/2009

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0165 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 04-09-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAROJ MANIAR
• Keywords: Business income; Double taxation relief; Deemed to accrue or arise in india
• Section: 5(2)

Judgement Text

INCOME-TAX APPELLATE TRIBUNAL LBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAVISH SOOD, JUDICIAL MEMBER ./ITA./2369/MUM/2009, /ASSESSMENT YEAR: 2005-06 DY. DIT(IT), ROOM NO.117, SCINDIA HOUSE, 1 ST FLOOR, BALLARD ESTATE, NM ROAD, MUMBAI-400 038. VS. M/S. ATOMSTROYEXPORT C/O. NUCLEAR POWER CORPORATION OF INDIA WORLD TRADE CENTRE, CENTRE NO.1, 16 TH FLOOR, CUFFE PARADE, COLABA MUMBAI-400 005. PAN:AAFCA 3658 M ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SAMUEL DARSE-CIT-DR ASSESSEE BY: MS. SAROJ MANIAR -AR / DATE OF HEARING: 04.09.2017 / DATE OF PRONOUNCEMENT: 04.09.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) / PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 13/1/2009 OF THE CIT(A) XXXI,MUMBAI,THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.THE ASSESSEE IS A JO INT STOCK COMPANY UNDER THE MINISTRY OF ATOMIC ENERGY, RUSSIAN FEDERATION, INCORPORATED UNDER THE PROVISIONS OF RUSSIAN LEGISLATION HAVING ITS REGISTERED OFFICE AT MOSCOW,RUSSIA.IT IS ENGAGED IN THE BUSINESS OF COMMISSIONING OF TURNKEY POWER PROJECT. RETURN OF INCOME WAS FILED ON 31/3/2 006 DECLARING A TOTAL INCOME OF RS.12.30 CRORES.THE AO COMPLETED THE ASSESSMENT ON 31/12/200 7 U/S. 143(3)OF THE ACT DETERMINING ITS INCOME AT RS.1,23,06,44,210/-. 2.EFFECTIVE GROUND OF APPEAL IS ABOUT APPLICABILITY OF PROVISIONS OF SECTION 44BBB OF THE ACT TO THE PAYMENTS RECEIVED BY THE ASSESSEE FROM NUCLEAR POWER CORPORATION OF INDIA LTD.(NPCIL). DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THA T THE ASSESSEE (ATOM) HAD ENTERED INTO AN AGREEMENT WITH NPCIL ON 20/07/1998 FOR PREPARATION OF A DRP FOR SETTING UP NUCLEAR POWER STATION (NPS )AT VARIOUS LOCATIONS IN INDIA, THAT N PCIL WAS IN THE PROCESS OF SETTING UP A NPS AT KUNNAMKULAM(KKMPP).THE GOVERNMENT OF INDIA AND RUSS IA IDENTIFIED NPCIL AND ATOM TO EXECUTE THE CONSTRUCTION OF THE NUCLEAR POWER PLANT .HE FURTHER OBSERVED THAT ATOM WAS RENDERING SERVICES TO NPCIL UNDER THREE CONTRACTS N AMELY: OFFSHORE SERVICE CONTRACT, DEPUTATION 2369/M/09 M/S.ATOMSTROYEXPORT 2 OF SPECIALIST AND OFFSHORE TRAINING CONTRACT, THAT THE ASSESSEE HAD BUSINESS CONNECTION IN INDIA, THAT ITS INCOME WAS SUBJECT TO TAX IN INDIA WITHIN THE MEANING OF SECTION 5(2) R.W.S. 9(1)(I) OF THE ACT,THAT IT WAS INVOLVED IN CONSTRUCTION OF NPS FRO M THE BEGINNING, THAT DURING THE YEAR UNDER APPEAL IT HAD DEPUTED 58 SPECIALISTS TO INDIA WHO H AD WORKED AT THE PROJECT SITE, THAT THE SPECIALISTS WERE PROVIDED EXCLUSIVE PLACES FOR WORK AND STAYED IN THE CAMPUS OF KKMPP, THAT MORE THAN 20 SPECIALISTS STAYED IN INDIA FOR MORE T HAN 6 MONTHS,THAT IT HAD PE IN INDIA WITHIN THE MEANING OF ARTICLE 5(1)OF INDIA RUSSIA DTAA,THA T IT HAD PROVIDED ONLY TECHNICAL SERVICES AND SUPERVISION AT VARIOUS STAGES, THAT IT WAS NOT INVOLVED IN THE BUSINESS COVERED BY SECTION 44 BBB OF THE ACT.FINALLY,HE HELD THAT IT WAS NOT ELIG IBLE TO BE ASSESSED UNDER THE PROVISIONS OF SAID SECTION. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA) AND MADE ELABORATE SUBMISSIONS. AFTER CONSIDE RING THE AVAILABLE MATERIAL,HE DECIDED THE ISSUE OF APPLICABILITY OF THE PROVISIONS OF SECTION 44 BBB I N FAVOUR OF THE ASSESSEE . 4. BEFORE US, THE DEPARTMENTAL REPRESENTATIVE (DR) FAI RLY CONCEDED THAT THE ISSUE STANDS DECIDED AGAINST THE AO AND IN FAVOUR OF THE ASSESSEE.THE AUTHORISE D REPRESENTATIVE (AR) BROUGHT TO OUR NOTICE THAT IN THE DRAFT ASSESSMENT ORDER FOR THE AY.2007-08 THE AO HAD DENIED THE ASSESSEES SIMILAR CLAIM, THAT TH E DRP IN ITS DIRECTIONS HAD INSTRUCTED THE AO TO ACCE PT THE CLAIM OF THE ASSESSEE,THAT THE AO HIMSELF HA D ACCEPTED THE POSITION FOR THE AY.S 2008-09 AND 2010 -11. HE FURTHER STATED THAT INCOME EARNED BY THE ASSESSEE FROM SERVICE CONTRACT HAD TO BE COMPUTED AS PER THE PROVISIONS OF SECTION 44 BBB .HE REFERR ED TO THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CAS E, FOR THE AY 2009-10 AND 2010-11 (ITA/6581/MUM/ 2012 AND ITA/6401/MUM/2013 DT.22.3.2017).HE ALSO RE LIED UPON THE CASE OF NPCIL (ITA/6394/MUM/ 2008 DT.12/2/2016 (APPEAL BY THE AO) AND ITA.S 733, 734, 735 AND 931/MUM/2011 ) WE ARE REPRODUCING PARA 7 AND 8 OF THE ORDER OF THE TRIBUNAL FOR THE AY 2009-10(SUPRA) AND IT READS AS UNDER :- 7.WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON RECORD AS WELL AS THE ORDER OF THE COMPANY-ORDINATE BENCH REFERRED TO ABOVE. THE ISSUE IN DISPUTE IN THESE GROUNDS IS IN RELATION TO TAXABILITY OF T HE AMOUNT RECEIVED TOWARDS SUPPLY OF MATERIALS AND EQUIPMENT UNDER THE OFF-SHORE SUPPLY CONTRACTS. UNDISPUTEDLY, THE OFF-SHORE SUPPLY CONTRACTS UNDER WHICH THE ASSESSEE HAS SUPPLIED MATERIALS AND EQUIPMENTS IN THE IMPUGNED ASSESSMENT YEAR IS/ARE CONTINUING FROM THE ASSESSMENT YEAR 200 6-07 ONWARDS. IT IS RELEVANT TO NOTE, THE TAXABILITY OF THE AMOUNT RECEIVED UNDER THE OFF-SHO RE CONTRACT IS A CONTENTIOUS ISSUE BETWEEN THE ASSESSEE AND THE DEPARTMENT RIGHT FROM THE ASSESSME NT YEAR 2006-07. IN FACT, IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSING OFFICER FOLLOWING TH E ORDER OF THE RP FOR ASSESSMENT YEAR 2006-07 AND 2007-08, HAS BROUGHT TO TAX THE AMOUNT RECEIVED UNDER OFF-SHORE SUPPLY CONTRACTS BY APPLYING THE PROVISIONS OF SECTION 44 BBB. IT IS WO RTH MENTIONING WHILE DECIDING IDENTICAL NATURE OF DISPUTE RAISED BY THE ASSESSEE FOR THE ASSESSMEN T YEAR 2007-08, 2008-09 AND 2011-12, THE TRIBUNAL IN ITS ORDER, AS REFERRED TO ABOVE, AFTER ANALYZING THE NATURE OF CONTRACT, PROVISIONS OF 2369/M/09 M/S.ATOMSTROYEXPORT 3 THE ACT, AND RELEVANT DTAA AS WELL AS THE PRINCIPLE S OF LAW LAID DOWN IN JUDICIAL PRECEDENTS, IN A DETAILED ORDER ULTIMATELY CONCLUDED, SINCE, SUPPLY OF MATERIALS AND EQUIPMENTS UNDER THE OFF- SHORE SUPPLY CONTRACTS WERE CARRIED OUT AND CONCLUD ED OUTSIDE INDIA, THE RECEIPTS FROM OFF-SHORE SUPPLY CONTRACTS CANNOT BE DEEMED TO ACCRUE OR ARIS E IN INDIA. THE OPERATIVE PORTION FROM THE ORDER OF THE TRIBUNAL IS EXTRACTED HEREIN BELOW: 15.THEREFORE, AFTER ANALYZING THE VARIOUS CASE LAW S, STATUTORY PROVISIONS, DTAA PROVISIONS AND CONTRACTUAL TERMS AND RESPECTFULLY F OLLOWING JUDGMENT OF HON'BLE SUPREME COURT IN ISHIKAWAJIMA HARIMA HEAVY INDUST RIES LIMITED V/S DCIT (288 ITR 408), WE ARE INCLINED TO HOLD THAT OFFSHORE SUPPLY CONTRACTS WERE CARRIED AND CONCLUDED OUTSIDE INDIA AND HENCE NO INCOME THEREF ROM DEEMED TO ACCRUE OR ARISE IN INDIA AS PER SECTION 991) AND DTAA PROVISIONS ACCOR DINGLY, NOT CHARGEABLE TO TAX. THE RECEIPTS THEREOF DO NOT FORM PART OF RECEIPTS FOR T HE PURPOSE OF COMPUTATIONAL PROVISIONS OF SECTION 44 BBB. EXPLANATION-4 COULD NOT OVERCOME THE LIMITATION IMPOSED BY EXPLANATION-1(A) TO SECTION 9(1)(I) AND HENCE, THE IMPUGNED INCOME DO NOT FORM PART OF BUSINESS RECEIPTS FOR COMPUTATION OF INCOME U/S. 44 BBB OF THE ACT. WE HELD SO. 4.1. IN THE CASE OF NPCIL (SUPRA) THE TRIBUNAL HAS HELD THAT PROVISIONS OF SECTION 44BBB WOULD BE APPLICABLE FOR THE PROJECT EXECUTED BY THE ASSES SEE .RESPECTFULLY FOLLOWING THE ABOVE WE HOLD THAT THE ASSESSEE CANNOT BE TAXED AS PER THE PROVI SIONS OF SECTION 9 OF THE ACT, THAT IT IS COVERED BY THE SECTION 44 BBB OF THE ACT. CONFIRMING THE OR DER OF THE FAA WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT APPEAL FILED BY THE AO STANDS DISMISSED . . PRONOUNCED IN OPEN COURT ON 4 TH SEPTEMBER, 2017 . 4 , 2017 SD/- SD/- /RAVISH SOOD) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED :04.09.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR L BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.