HITT Holland Institute of Traffic Technology B.V, V. DCIT, (IT)-1(1), KOLKATA, Kolkata

ITA 290/KOL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5862 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 25-04-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 26-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: SOURAV AGARWA L
• Keywords: Business income; Double taxation relief; Deemed to accrue or arise in india; Permanent establishment
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI S S GODARA, JM & SHRI M.BALA GANESH, AM ] I.T.A NOS. 290/KOL/2016 & 348/KOL/2017 ASSESSMENT YEAR : 2012-13 & 2013-14 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V -VS- DCIT, INTERNATIONAL TAXATION, (NOW KNOWN AS SAAB TECHNOLOGIES B.V.). C IRCLE-1(1), KOLKATA [PAN: AABCH 5694 R] (APPELLANT) ( RESPONDENT) FOR THE APPELLANT : SHRI SOURAV AGARWA L, AR FOR THE RESPONDENT : SHRI G. MALLIKARJUNA, CI T DR DATE OF HEARING : 23.05.2018 DATE OF PRONOUNCEMENT : 20.07.2018 ORDER PER M.BALAGANESH, AM 1. THESE APPEALS ARE DIRECTED AGAINST THE ORDER OF THE LEARNED DCIT, INTERNATIONAL TAXATION, CIRCLE 1(1), KOLKATA [ HEREINAFTER REFERR ED TO AS THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, [ HEREINAFTER R EFERRED TO AS THE ACT] DATED 30.12.2015 AND 21.12.2016, PURSUANT TO THE DIRECTIO NS OF THE LEARNED DISPUTE RESOLUTION PANEL [HEREINAFTER REFERRED TO AS LD DRP ] ISSUED U/S 144C(5) OF THE ACT DATED 16.11.2015 AND 26.10.2016 FOR THE ASST YEARS 2012-1 3 AND 2013-14 RESPECTIVELY. AS IDENTICAL ISSUES ARE INVOLVED IN BOTH THESE APPEALS , THEY ARE TAKEN UP TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF C ONVENIENCE. 2. THE BRIEF FACTS OF THESE APPEALS ARE THAT THE AS SESSEE IS A SUBSIDIARY OF HITT N.V.. IT IS A COMPANY INCORPORATED AS PER THE LAWS OF NETHER LANDS OPERATING IN THE INTERNATIONAL MARKET FOR SAFETY, SECURITY AND EFFICIENCY OF NAUTI CAL AND AIR TRAFFIC. IT OPERATES IN THE 2 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 2 SPECIALIZED MARKET FOR TRAFFIC CONTROL, NAVIGATION AND PORT MANAGEMENT SYSTEMS. THE ASSESSEE HAS ENTERED INTO CONTRACTS WITH OIL AND NA TURAL GAS CORPORATION OF INDIA (ONGC) . DIRECTOR GENERAL OF LIGHTHOUSE AND LIGHTSH IPS (DGLL) AND AIRPORTS AUTHORITY OF INDIA (AAI) FOR SUPPLY OF EQUIPMENT AN D SERVICES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED PAYMENTS IN RE SPECT OF PERFORMANCE OF SERVICES AND SUPPLY OF EQUIPMENT UNDER THE FOLLOWING CONTRACTS I N INDIA :- A) SUPPLY, INSTALLATION, TESTING AND COMMISSIONING OF ADVANCES SURFACES MOVEMENT GUIDANCE CONTROL SYSTEM (ASMGCS) AT CHENNAI, MUMBAI AND KOLKATA AIRPORTS BY AAI [ AAI (MUMBAI, CHENNAI AND KOLKATA) PROJECT ]. B) ESTABLISHMENT OF VESSEL TRAFFIC SERVICE (VTS) SY STEM IN THE GULF OF KUCHCHH (GOK PROJECT) C) CONTRACT TO PROVIDE ANNUAL MAINTENANCE OF THE VE SSEL AND AIR TRAFFIC MANAGEMENT SYSTEM (VATMS) SYSTEM FOR ONGC (ONGC VATMS AMC PR OJECT). THE TRANSACTIONS OF THE ASSESSEE ARE COVERED UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND NETHERLANDS. 3. GULF OF KUCHCH (GOK) PROJECT THE ASSESSEE HAD ENTERED INTO A CONSORTIUM AGREEMEN T WITH TELECOMMUNICATIONS CONSULTANTS INDIA LIMITED (IN SHORT TCIL) AND DALMI A & COMPANY LIMITED , WITH TCIL ACTING AS THE CONSORTIUM LEADER. THIS CONSORTIUM W AS AWARDED A CONTRACT FOR ESTABLISHMENT OF VESSEL TRAFFIC SERVICE (VTS) SYSTE M IN THE GULF OF KUCHCH (GOK) BY THE DIRECTOR GENERAL OF LIGHTHOUSE AND LIGHTSHIPS ( DGLL) IN 2005 (AGREEMENT BETWEEN DGLL AND CONSORTIUM ENCLOSED IN PAGES 224 TO 227 OF PAPER BOOK AND CONSORTIUM AGREEMENT ENCLOSED AT PAGES 228 TO 252 OF PAPER BOO K) FOR ASST YEAR 2012-13. SIMILAR 3 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 3 PAPERS WERE ALSO ENCLOSED IN THE PAPER BOOK FILED S EPARATELY FOR ASST YEAR 2013-14 ALSO EXCEPT WITH VARIANCE IN PAGE NUMBERS. THE RESPONSI BILITIES OF EACH OF THE MEMBERS OF THE CONSORTIUM ARE SET OUT IN THE ANNEXURE TO THE C ONSORTIUM AGREEMENT. SUPPLY, INSTALLATION, TESTING AND COMMISSIONING OF INTEGRAT ED AUTOMATIC IDENTIFICATION SYSTEM BASE STATIONS EQUIPMENTS WITH ASSOCIATED SOFTWARE I S THE PRIMARY RESPONSIBILITY OF THE ASSESSEE. AS PER THE CONSORTIUM AGREEMENT , THE AS SESSE HAD SET UP A PROJECT OFFICE (PO) IN INDIA FOR THE EXECUTION OF THIS PROJECT IN THE Y EAR 2005. HOWEVER, THE PO NEVER BECAME OPERATIONAL AND WAS NOT INVOLVED IN ANY ACTI VITY PERTAINING TO THIS PROJECT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE R ECEIVED PAYMENTS FOR THE FOLLOWING OFFSHORE SUPPLY OF EQUIPMENT / SERVICES / TRAINING AND ONSHORE SUPPLY OF EQUIPMENT / SERVICES:- SL. NO. NATURE RECEIPTS IN INR PROFITS ATTRIBUTED @ 10% 1 OFF-SHORE SUPPLY OF EQUIPMENT 93,78,524 9,37,852 2 ON-SHORE SUPPLY OF EQUIPMENT 38,01,364 3,80,136 3 ON-SHORE PROVISION OF SERVICES 3,09,00,383 30,90,039 TOTAL 4,40,80,270 44,08,027 3.1. THE GROUNDS OF ASST YEAR 2012-13 WITH REGARD T O THIS GOK PROJECT ARE TAKEN UP FOR ADJUDICATION AND THE DECISION RENDERED THEREON WOUL D APPLY WITH EQUAL FORCE FOR THE RELEVANT GROUNDS OF ASST YEAR 2013-14 ALSO. 4 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 4 3.2. THE GROUND 2.1. RAISED BY THE ASSESSEE IS WITH REGARD TO THE ACTION OF THE LD AO IN HOLDING THAT AN INSTALLATION PE OF THE ASSESSEE EXI STS IN INDIA. WITHOUT PREJUDICE TO EARLIER GROUND, THE ASSESSEE HAD RAISED GROUND 2.2. WITH REGARD TO THE ACTION OF THE LD AO IN ATTRIBUTING 10% GROSS CONSIDERATION AMOUNT OF SUPPLY OF EQUIPMENT AND PROVISION OF SERVICES FOR BOTH OFFSHORE AND ONSHORE TO THE AL LEGED PE. WITHOUT PREJUDICE TO EARLIER GROUNDS, THE ASSESSEE HAD RAISED GROUND 2.3. THAT N O PART OF THE INCOME FROM OFFSHORE ACTIVITIES CAN BE ATTRIBUTED TO THE ALLEGED PE. 3.3. WE FIND THAT THESE GROUNDS HAD BEEN ADJUDICATE D BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2011-12 IN ITA NO. 390/KOL/2 015 DATED 4.4.2018 WHEREIN IT WAS HELD THAT THE ASSESSEE HEREIN CONSTITUTED INSTALLAT ION PE IN INDIA. FURTHER IT WAS HELD THAT NO ATTRIBUTION CAN BE DONE ON RECEIPTS FROM OFFSHOR E SUPPLY OF EQUIPMENT AND OFFSHORE PROVISION OF SERVICES. ONLY THE PROFITS ATTRIBUTED TO THE ACTIVITIES CARRIED OUT IN INDIA SHALL BE TAXABLE AND ACCORDINGLY, ONLY THE ONSHORE SUPPLY OF EQUIPMENT AND ONSHORE SERVICES RENDERED BY THE ASSESSEE, WOULD HAVE TO BE CONSIDERED FOR TAXING THE ONSHORE RECEIPTS AT 10%. THE RELEVANT OPERATIVE PORTION OF THE SAID ORDER IS REPRODUCED HEREUNDER:- 3.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD A R BEFORE US FAIRLY STATED THAT THE ASSESSEE BE TREATED AS AN INSTALLATION PE BUT PLEADED FOR TREATING ONLY THE ONSHORE PROVISION OF SERVICES AND ONSHORE SUPPLY OF EQUIPMENTS AT 10% ON GROSS BASIS AS PROFITS ATTRIBUTABLE TO THE INSTALLATION P E IN INDIA AS AGAINST THE ACTION OF THE LD AO IN TAKING THE TOTAL RECEIPTS (I.E BOTH OFFSHORE AND ONSHORE ACTIVITIES). THIS IS BECAUSE OF THE LACK OF DETAILS WITH REGARD TO THE NUMBER OF DAYS OF STAY IN INDIA FOR EXECUTING THE INSTALLATION WORK BY THE AS SESSEE. THE SAME IS RECKONED AS A STATEMENT FROM THE BAR BY THE LD AR. THEREFORE , WE SHALL ADDRESS THE GROUND NO. 3.4. RAISED BY THE ASSESSEE BEFORE US AND DISMI SS THE GROUNDS 3.1. TO 3.3. RAISED BY THE ASSESSEE AS NOT PRESSED. BEFORE GOIN G INTO THIS QUESTION, WE FEEL THAT IT WOULD BE RELEVANT TO ADDRESS THE CONTENTS O F ARTICLE 5(3) OF THE INDIA- NETHERLANDS DTAA WHICH IS REPRODUCED AS UNDER:- 5 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 5 PERMANENT ESTABLISHMENT TO INCLUDE A BUILDING SITE OR CONSTRUCTION, INSTALLATION OR A SSEMBLY PROJECT CONSTITUTES A PERMANENT ESTABLISHMENT ONLY WHERE SU CH SITE OR PROJECT CONTINUES FOR A PERIOD OF MORE THAN SIX MON THS. 3.2.1. WE FIND THAT THE LD AO IN PARA 35 OF HIS FIN AL ASSESSMENT ORDER HAD HELD AS UNDER:- 35. A PERUSAL OF THE PURCHASE ORDERS SUBMITTED BY THE ASSESSEE ALONG WITH ANNEX-I TO THE COPY OF THE CONSORTIUM AGREEMEN T DT 02.09.2003 REVEALS THE FACT THAT THE CONTRACT FOR THE ESTABLIS HMENT OF VESSEL TRAFFIC SERVICES IN THE GULF OF KUCHCH INVOLVES THE INSTALLATION , TESTING AND COMMISSIONING OF VARIOUS COMPLEX EQUIPMENTS SUCH AS THE VTS MASTER CONTROL CENTER EQUIPMENTS AMONG OTHERS, WHEREIN TH E ASSESSEE HAS BEEN ASSIGNED THE PRIMARY RESPONSIBILITY . THEREFORE, IT IS CONCLUDED THAT THE CONTRACT FOR IMPLEMENTATION OF VESSEL TRAFFIC SERVI CES IS IN THE NATURE OF AN INSTALLATION PROJECT . THE INSTALLATION PROJECT, HAVING BEEN IN EXISTENCE / OPERATION FOR PERIOD OF MORE THAN SIX MONTHS , CONSTITUTES A PERMANENT ESTABLISHMENT (PE) AS PER THE DEFINITION OF ARTICLE 5(3) OF THE INDO-NETHERLANDS DTAA. ACCORDINGLY, THE PROVISION OF ARTICLE 7 OF THE DTAA ON BUSINESS PROFITS WILL BE APPLICABLE IN THE INSTANT CASE. 3.2.2. WE FIND THAT DURING THE YEAR UNDER CONSIDERA TION, THE EQUIPMENT WAS SUPPLIED ON HIGH SEA SALE BASIS AND THE PROPERTY IN THE EQUIPMENT HAS PASSED OUTSIDE INDIA AND FOR WHICH PAYMENT WAS RECEIVED OU TSIDE INDIA. FURTHER, THE OFF SHORE SERVICES CONSISTED OF LABOUR SERVICES OF SIZI NG OF EQUIPMENT, TUNING AND TESTING OF THE EQUIPMENT ETC WHICH WERE PERFORMED O N THE EQUIPMENT IN NETHERLANDS. THEREFORE, THE ALLEGED INSTALLATION P E COULD NOT HAVE BEEN INVOLVED IN SUCH OFFSHORE SUPPLY AND SERVICES SINCE THESE WE RE CARRIED ON BY THE ASSESSEE DIRECTLY FROM NETHERLANDS. HENCE THE PROFITS FROM SUCH OFFSHORE SUPPLY OF EQUIPMENT AND SERVICES CANNOT BE ATTRIBUTED TO THE INSTALLATION PE OF THE ASSESSEE IN INDIA. IN THIS REGARD, WE WOULD LIKE TO PLACE RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJIMA H ARIMA HEAVY INDUSTRIES LIMITED VS DIT REPORTED IN 288 ITR 408 (SC) WHEREIN IT WAS CLEARLY STATED THAT IN CASE THE PE OF A FOREIGN COMPANY IS NOT INVOLVED IN ANY TRANSACTION CARRIED OUT IN INDIA OR OUTSIDE INDIA, NO PART OF INCOME EARNED FROM SUCH TRANSACTIONS CAN BE ATTRIBUTED TO THE PE IN INDIA. THE HONBLE SUPREME COURT HELD THERE HAS TO BE SOME ACTIVITY THROUGH PE FOR ATTRACTING THE TAXING STATUTE AND , IF INCOME ARISES WITHOUT ANY ACTIVITY OF PE, EVEN UNDER DTAA, TAXATI ON LIABILITY IN RESPECT OF OVERSEAS SERVICES WOULD NOT ARISE IN INDIA. IN THE CASE BEFORE THE HONBLE SUPREME COURT, THE FOREIGN ENTERPRISE WAS TO DEVELO P, DESIGN , ENGINEER AND 6 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 6 PROCURE EQUIPMENT, MATERIALS AND SUPPLIES TO ERECT AND CONSTRUCT STORAGE TANKS IN INDIA. THE HONBLE SUPREME COURT HELD THAT THE OFF -SHORE SUPPLY AND OFF-SHORE SERVICES UNDER THE CONTRACT WERE NOT TAXABLE IN IND IA SINCE ALL ACTIVITIES IN CONNECTION WITH OFFSHORE ACTIVITES WERE CARRIED OUT OUTSIDE INDIA, AND HAD NOTHING TO DO WITH PE. 3.2.3. WE ALSO FIND THAT THE HONBLE AUTHORITY OF A DVANCE RULINGS , NEW DELHI HAD RECENTLY IN THE CASE OF MICHELIN TAMIL NADU TYR ES (P) LTD., IN RE REPORTED IN (2018) 89 TAXMANN.COM 217 (AAR-NEW DELHI) DATED 19. 12.2017 HELD THAT NO INCOME FROM THE OFFSHORE SUPPLY OF EQUIPMENT WOULD BE TAXABLE IN INDIA SINCE THE TRANSFER OF PROPERTY IN THE GOODS AS WELL AS THE PA YMENT, WERE CARRIED ON OUTSIDE THE INDIAN SOIL. IN THIS CASE, THE AAR PLACED RELI ANCE ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ISHAKIWAJIMA H ARIMA SUPRA. 3.2.4. WE FIND THAT THE CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF ATOMSTROY EXPORT VS DDIT REPORTED IN (2017) 80 TAXM ANN.COM 178 (MUMBAI ITAT) HELD AS UNDER:- 15. THEREFORE, AFTER ANALYZING THE VARIOUS CASE LAWS, STATUTORY PROVISIONS, DTAA PROVISIONS AND CONTRACTUAL TERMS AND RESPECTFULLY F OLLOWING JUDGMENT OF HON'BLE SUPREME COURT IN ISHIKAWAJMA-HARIMA HEAVY INDUSTRIE S LTD., (SUPRA) WE ARE INCLINED TO HOLD THAT OFFSHORE SUPPLY CONTRACTS WER E 'CARRIED AND CONCLUDED' OUTSIDE INDIA AND HENCE NO INCOME THEREFROM DEEMED TO ACCRUE OR ARISE IN INDIA AS PER SECTION 9(1) AND DTAA PROVISIONS AND ACCORDI NGLY, NOT CHARGEABLE TO TAX. THE RECEIPTS THEREOF DO NOT FORM PART OF RECEI PTS FOR THE PURPOSE OF COMPUTATIONAL PROVISIONS OF SECTION 44BBB. EXPLANAT ION 4 COULD NOT OVERCOME THE LIMITATION IMPOSED BY EXPLANATION 1(A) TO SECTI ON 9(1)(I) AND HENCE, THE IMPUGNED INCOME DO NOT FORM PART OF BUSINESS RECEIP TS FOR COMPUTATION OF INCOME U/S 44BBB OF THE ACT. . 3.2.5. RESPECTFULLY FOLLOWING THE AFORESAID JUDICIA L PRECEDENTS AND APPLYING THE SAME TO THE FACTS OF THE INSTANT CASE, WE HOLD THAT THE CONSIDERATION RECEIVED IN RESPECT OF OFFSHORE SUPPLY OF EQUIPMENTS AND SERVIC ES AND PROFITS ATTRIBUTION @ 10% ON THE SAME SHOULD NOT BE ADDED IN THE HANDS OF THE ASSESSEE CONSTRUING IT AS INSTALLATION PE IN INDIA. 3.4. THE FACTS OF ASST YEARS 2012-13 AND 2013-14 AR E EXACTLY SIMILAR TO THOSE OF ASST YEAR 2011-12 AND HENCE IN ORDER TO MAINTAIN JUDICIA L CONSISTENCY, WE WOULD LIKE TO FOLLOW THE SAME. HENCE THE GROUNDS 2.1., 2.2., 2.3. (FOR ASST YEAR 2 012-13) AND GROUNDS 5.1., 5.2. AND 5.3. (FOR ASST YEAR 2013-14) ARE DISPOSED OFF ACCORDINGLY. 7 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 7 4. ONGC AMC PROJECT THE BRIEF FACTS OF THIS PROJECT ARE THAT THE ASSESS EE WAS AWARDED A CONTRACT IN 2006 BY ONGC FOR SUPPLY, INSTALLATION, TESTING AND COMMISSI ONING OF VESSEL AND AIR TRAFFIC MANAGEMENT SYSTEM (VATMS) ALONG WITH THE PROVISION OF MAINTENANCE SERVICES. THIS CONTRACT ENVISAGED A WARRANTY PERIOD OF 1 YEAR AFTE R HANDING OVER OF THE PROJECT SITE AND PROVISION OF ANNUAL MAINTENANCE SERVICES (AMC SERVI CES) FOR 6 YEARS POST SUCH WARRANTY PERIOD. THE ASSESSEE STARTED PROVIDING AMC SERVICES IN RELATION TO THE VATMS SYSTEM FOR A TOTAL PERIOD OF 6 YEARS, COMMENC ING FROM 1 ST OCTOBER 2008, JUST AFTER THE COMPLETION OF MAIN CONTRACT FOR SUPPLY, I NSTALLATION , TESTING AND COMMISSIONING OF VATMS SYSTEM (PAGE 327 OF THE PAPE R BOOK FOR ASST YEAR 2012-13 CONTAINS THE AMC SCHEDULE ). ACCORDINGLY, THE ASSE SSEE PROVIDED ONLY AMC SERVICES FOR THE VATMS SYSTEM INSTALLED BY IT IN THE EARLIER YEARS. THE ACTIVITY WAS SUB- CONTRACTED TO A LOCAL INDEPENDENT CONTRACTOR VIZ EL COME MARINE SERVICES PRIVATE LIMITED (IN SHORT ELCOME) AND INCLUDED REGULAR MAIN TENANCE ACTIVITIES SUCH AS VISITING THE SITES FOR CLEANING, CHECKS, LOCAL FAULT REPAIR ETC. IN GENERAL, THERE WERE ALL ACTIVITIES OF A SERVICE NATURE. THE ASSESSEE SUBMITTED THAT IT DID NOT PERFORM ANY INSTALLATION ACTIVITY DURING THE YEAR UNDER CONSIDERATION AND ON LY MAINTENANCE SERVICES WERE UNDERTAKEN THROUGH A SUB-CONTRACTOR IN INDIA. THE COPY OF THE INVOICES ARE ENCLOSED IN PAGES 294 TO 295 OF THE PAPER BOOK FOR ASST YEAR 20 12-13 AND PAGES 287 TO 293 OF PAPER BOOK FOR ASST YEAR 2013-14. 4.1. THE LD AO BROUGHT TO TAX THE AMC FEE RECEIVED AS BUSINESS PROFITS ATTRIBUTABLE TO AN INSTALLATION PE IN TERMS OF ARTICLE 5(3) OF THE INDIA-NETHERLANDS DTAA. ACCORDING TO THE REVENUE, THE ONGC PROJECT WAS IN EXISTENCE F OR A PERIOD OF MORE THAN SIX MONTHS AND THEREFORE CONSTITUTED AN INSTALLATION PE OF T HE ASSESSEE IN INDIA. THE REVENUE FURTHER RELIED ON THE FACT THAT A SUBCONTRACTOR HAD CARRIED OUT AMC WORK IN INDIA ON 8 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 8 BEHALF OF THE ASSESSEE AND THEREFORE THE ASSESSEE H AD A VIRTUAL PRESENCE IN INDIA FOR EXECUTION OF THE PROJECT. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE GROUNDS OF ASST YEAR 2012-13 WITH REGARD TO THIS ONGC VATMS AMC PROJECT ARE TAKEN UP FOR ADJUDICATION AND THE D ECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE FOR THE RELEVANT GROUNDS OF ASST YEAR 2013-14 ALSO. 4.3. THE GROUND 3.1. RAISED BY THE ASSESSEE IS WITH REGARD TO THE ACTION OF THE LD AO IN HOLDING THAT THE ASSESSEE HAS AN INSTALLATION PE IN INDIA BY ALLEGING THAT THE SUB- CONTRACTOR WAS THE ASSESSEES VIRTUAL PRESENCE IN I NDIA. THE GROUND 3.2. RAISED BY THE ASSESSEE IS WITH REGARD TO FAILURE OF THE LD AO TO APPRECIATE THE FACT THAT SERVICES WERE PROVIDED AFTER THE CONCLUSION OF THE INSTALLATION A CTIVITY AND MAINTENANCE SERVICES POST INSTALLATION ACTIVITIES CANNOT FORM AN INSTALLATION PE. WITHOUT PREJUDICE TO EARLIER GROUNDS, THE ASSESSEE HAD RAISED GROUND 3.3. WITH R EGARD TO THE ACTION OF THE LD AO IN ATTRIBUTING 50% OF GROSS CONSIDERATION AMOUNT WHIC H IS WRONG AND EXCESSIVE. WITHOUT PREJUDICE TO EARLIER GROUNDS, THE ASSESSEE HAD RAIS ED GROUND 3.4. WITH REGARD TO THE ACTION OF THE LD AO IN HOLDING THAT AMC SERVICES AR E TAXABLE AS FEES FOR TECHNICAL SERVICES (FTS). 4.4. WE FIND THAT THESE GROUNDS HAD BEEN ADJUDICATE D BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2011-12 IN ITA NO. 390/KOL/2 015 DATED 4.4.2018 WHEREIN IT WAS HELD THAT THE MAINTENANCE ACTVITIES CARRIED OUT BY THE ASSESSEE DOES NOT CONSTITUTE ANY PE IN INDIA AND ACCORDINGLY, IN THE ABSENCE OF ANY PE, NO ATTRIBUTION OF PROFITS COULD BE DONE IN INDIA. THE RELEVANT OPERATIVE PORTION OF TH E SAID ORDER IS REPRODUCED HEREUNDER:- 4.9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT SIMILAR ARGUMENTS WERE ADV ANCED BY BOTH LD AR AND LD DR IN THE EARLIER YEAR IN ASSESSEES OWN CASE FOR T HE ASST YEAR 2010-11. THIS 9 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 9 TRIBUNAL FOR THE ASST YEAR 2010-11 WITH REGARD TO T HE IMPUGNED ISSUE HAD HELD AS UNDER:- 47. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. OUR CONCLUSIONS IN PARA-36 WITH REGARD TO EXISTENCE OF AN INSTALLATION PE IN RESPECT OF GOK PROJECT WILL EQUALLY APPLY TO THI S PROJECT ALSO. ADMITTEDLY, NO INSTALLATION ACTIVITY WAS CARRIED OU T DURING THE PREVIOUS YEAR AND THEREFORE THE QUESTION OF AN INSTALLATION PE OF THE ASSESSEE EXISTING DURING THE PREVIOUS YEAR DOES NOT ARISE FO R CONSIDERATION AT ALL. WE ARE IN COMPLETE AGREEMENT WITH THE CONTENTIONS P UT FORTH BY THE LEARNED COUNSEL FOR THE ASSESSEE ON THIS ASPECT. AC CORDINGLY, WE HOLD THAT SINCE THE VATMS EQUIPMENT WAS ALREADY ACCEPTED AND HANDEDOVER TO THE CUSTOMER IN THE YEAR 2007 AND NO INSTALLATION ACTIV ITY WAS CARRIED OUT IN INDIA DURING THE SUBJECT YEAR, IT CANNOT BE HELD TH AT THE ASSESSEE HAD AN 'INSTALLATION PE' IN INDIA IN THE SUBJECT YEAR. AS FAR AS THE CONCLUSION OF THE REVENUE THAT THE INDEPENDENT CONTRACTOR OF THE ASSESSEE IN INDIA CREATED A VIRTUAL PRESENCE OF THE ASSESSEE IN INDIA SO AS TO CREATE AN INSTALLATION PE, GIVEN THAT THE ENTIRE ONSHORE MAIN TENANCE CONTRACT HAS BEEN PERFORMED BY AN INDEPENDENT LOCAL CONTRACTOR I N INDIA, IT CANNOT BE SAID THAT THE BUSINESS OF THE ASSESSEE HAS BEEN CAR RIED OUT BY THE PRESENCE OF THE LOCAL CONTRACTOR IN INDIA, SO AS TO CREATE I TS PE IN INDIA. THE EXAMINATION OF WHETHER A PE EXISTS NEEDS TO BE DETE RMINED BASED ON THE ACTIVITIES OF THE FOREIGN ENTERPRISE IN INDIA. SINC E NO ACTIVITIES HAVE BEEN CARRIED OUT BY THE ASSESSEE IN INDIA WITH RESPECT O F SUCH MAINTENANCE ACTIVITY, IT IS UNREASONABLE TO CONCLUDE THAT THE B USINESS OF THE ASSESSEE WAS CARRIED OUT IN INDIA THROUGH SUCH SUBCONTRACTOR , TO CONSTITUTE ITS PE IN INDIA. WE THEREFORE HOLD THAT RECEIPTS IN THE FO RM OF AMC FEES FROM ONGC ON VATMS CANNOT BE BROUGHT TO TAX IN INDIA AS BUSINESS INCOME. IN VIEW OF THE ABOVE CONCLUSION, THE QUESTION OF WH AT QUANTUM OF INCOME HAS TO BE ATTRIBUTED TO THE PE IN INDIA THAT IS AGI TATED IN GR.NO.D-3 & 4 DO NOT REQUIRE ANY CONSIDERATION. 4.10. IN VIEW OF THE AFORESAID ARGUMENTS AND FINDIN GS IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWIN G THE AFORESAID JUDICIAL PRECEDENT , WE HOLD THAT AMC SERVICES PROVIDED POST COMPLETION OF INSTALLATION ACTIVITIES AT THE SITE OF CUSTOMER, CANNOT LEAD TO CARRYING OUT INSTALLATION ACTIVITIES FOR THE PURPOSE OF CONSTITUTION OF AN I NSTALLATION PE IN INDIA. FURTHER IT IS HELD THAT PRESENCE OF AN INDIAN CONTRACTOR TO WHICH THE ASSESSEE HAS SUB- CONTRACTED THE WHOLE AMC WORK ON PRINCIPAL-TO-PRINC IPAL BASIS, DOES NOT CREATE ANY VIRTUAL PRESENCE OF THE ASSESSEE IN INDIA. IN VIEW OF THE ABOVE DECISION, THE GROUND NO. 4..3. AND 4.4. RAISED BY THE ASSESSEE RE QUIRES NO ADJUDICATION. ACCORDINGLY, THE GROUNDS 4.1 TO 4.4. RAISED BY THE ASSESSEE ARE ALLOWED. 10 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 10 4.5. THE FACTS OF ASST YEARS 2012-13 AND 2013-14 AR E EXACTLY SIMILAR TO THOSE OF ASST YEAR 2011-12 AND HENCE IN ORDER TO MAINTAIN JUDICIA L CONSISTENCY, WE WOULD LIKE TO FOLLOW THE SAME. WITH REGARD TO THE ASPECT OF AMC SERVICES BEING CONSIDERED AS FTS, WE HOLD THAT THESE SERVICES DO NOT MAKE AVAILABLE A NY TECHNICAL KNOW HOW OR KNOWLEDGE TO THE PERSONNEL OF THE CUSTOMER AS PER A RTICLE 12(5) OF THE INDIA- NETHERLANDS DTAA. HENCE THE GROUNDS 3.1., 3.2., 3.3. AND 3.4. (FOR AS ST YEAR 2012- 13) AND GROUNDS 3.1. AND 3.2. (FOR ASST YEAR 2013-1 4) ARE DISPOSED OFF ACCORDINGLY. 5. AIRPORTS AUTHORITY OF INDIA (MUMBAI, CHENNAI AND KO LKATA PROJECT) THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE WAS AWARDED A CONTRACT FOR SUPPLY, INSTALLATION, TESTING AND COMMISSIONING OF ADVANCED SURFACE MOVEMENT GUIDANCE CONTROL SYSTEM (ASMGCS) AT CHENNAI, MUMBAI AND KOLK ATA AIRPORTS BY THE AIRPORTS AUTHORITY OF INDIA (AAI IN SHORT) IN THE YEAR 2008. WITH RESPECT TO THE SERVICES TO BE PROVIDED, AS PER THE CONTRACT , THE ASSESSEE WOULD PROVIDE TWO KINDS OF SERVICES I.E (I) SERVICES WHICH ARE IN THE NATURE OF INSTALLATION, C OMMISSIONING AND TESTING SERVICES FOR CHENNAI, KOLKATA AND MUMBAI AIRPORT AND (II) TRAINI NG TO THE PERSONNEL OF AAI . DURING THE YEAR UNDER CONSIDERATION RELEVANT TO ASS T YEAR 2012-13, THE ASSESSEE RECEIVED THE FOLLOWING PAYMENTS :- A) FOR OFF SHORE SUPPLY OF EQUIPMENT - RS 20, 91,920/- B) FOR ON SHORE PROVISION OF SERVICES - RS 10,53, 85,547/- C) TRAINING INCOME - RS 72,28,150/- 5.1. THE ASSESSEE IN ITS RETURN OF INCOME FOR THE A SST YEAR 2012-13 HAD OFFERED TO TAX THIS TRAINING INCOME OF RS 72,28,150/- AS FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12(5) OF THE INDIA-NETHERLANDS DTAA. BASED ON THE DIREC TIONS OF THE HONBLE DISPUTE RESOLUTION PANEL (DRP IN SHORT) WHEREIN THE HONBLE DRP ALLEGED THE CONSTITUTION OF AN INSTALLATION PE OF THE ASSESSEE IN INDIA, THE L D AO ATTRIBUTED RS 2,63,46,387/- BEING 11 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 11 25% OF PAYMENTS RECEIVED TOWARDS ON-SHORE PROVISION OF SERVICES AMOUNTING TO RS 10,53,85,547/- AS INCOME OF THE ALLEGED INSTALLATIO N PE FOR THE ASST YEAR 2012-13. 5.2. FOR THE ASST YEAR 2013-14, THE ASSESSEE RECEIV ED A PAYMENT OF RS 39,33,569/- IN RESPECT OF SUPPLY OF INDIGENOUS COMPONENTS. BASED ON THE DIRECTIONS OF THE HONBLE DRP, THE LD AO ALLEGED THAT THE ASSESSEE HAS AN INS TALLATION PE IN INDIA FOR THE ASST YEAR 2013-14 AND ACCORDINGLY ATTRIBUTED RS 9,83,392 /- BEING 25% OF THE AMOUNT RECEIVED BY THE ASSESSEE TOWARDS ONSHORE SUPPLY OF EQUIPMENT OF RS 39,33,569/- AS INCOME OF THE ALLEGED INSTALLATION PE. 5.3. THE LD AR ARGUED THAT THE LD AO HAD WRONGLY T REATED THE ASSESSEE AS AN INSTALLATION PE IN RESPECT OF THIS AAI PROJECT IN 3 INDEPENDENT SITES VIZ MUMBAI, CHENNAI AND KOLKATA AIRPORTS. HE STATED THAT ALL THESE THREE SITES ARE UNCONNECTED. HE ARGUED THAT THE TIME DURATION OF 6 MONTHS IS TO BE COMPUTED SEP ARATELY FOR EACH SITE WHICH THE LD AO HAD FAILED TO DO IN THE INSTANT CASE FOR TREATING T HE ASSESSEE AS AN INSTALLATION PE. ACCORDINGLY, HE PLEADED THAT ASSESSEE CANNOT BE TRE ATED AS INSTALLATION PE IN INDIA AND CONSEQUENTIALLY NO PROFITS COULD BE ATTRIBUTED THER EON FOR ONSHORE SUPPLY OF EQUIPMENT FOR THE ASST YEAR 2012-13. 5.3.1. FOR THE ASST YEAR 2013-14, THE LD AR STATED THAT THE INSTALLATION ACTIVITIES WERE CARRIED OUT AT THE MUMBAI, CHENNAI AND KOLKATA AIRP ORTS AND WERE COMPLETED DURING THE ASST YEAR 2012-13 AND PROJECT WAS HANDED OVER TO AA I. THIS IS EVIDENT FROM THE COPIES OF CERTIFICATE OF COMPLETION OF INSTALLATION, COMM ISSIONING AND TRAINING FOR THESE AIRPORTS ENCLOSED IN PAGES 283 TO 285 OF PAPER BOOK FOR ASST YEAR 2013-14. ACCORDINGLY, HE ARGUED THAT DURING THIS YEAR, NO IN STALLATION ACTIVITY WAS CARRIED OUT BY THE ASSESSEE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SUPPLIED LOCALLY SOURCED MATERIALS /TOOLS TO AAI AND RAISED AN INVOICE OF RS 39,33,569/- . HE PRAYED FOR DELETION OF THE PROFITS ATTRIBUTED TOWARDS THE ALLEGED INSTA LLATION PE. 12 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 12 5.4. THE LD DR VEHEMENTLY ARGUED THAT THE ASSESSEE CONSTITUTES INSTALLATION PE IN INDIA FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION I N AS MUCH AS THE ASSESSEE HAD ALSO NOT PROVIDED ANY DETAILS REGARDING THE TIME DURATIO N OF EACH SITE SO AS TO CONCLUDE WHETHER THE PROJECT WAS COMPLETED WITHIN 6 MONTHS O R NOT. 5.5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT FOR THE ASST YEAR 2012-13, THE ASSESSEE HAD EARNED RECEIPTS OUT OF ONSHORE PROVISI ON OF SERVICES. FOR THE ASST YEAR 2013-14, IT HAD EARNED RECEIPTS OUT OF ONSHORE SUPP LY OF EQUIPMENT/TOOLS. WE ARE INCLINED TO ACCEPT THE ARGUMENTS OF THE LD DR THAT THE NUMBER OF DAYS TAKEN BY THE ASSESSEE FOR EXECUTING THE INSTALLATION WORK IS NOT ON RECORDS AND EVEN BEFORE THIS TRIBUNAL, NO DETAILS WHATSOEVER IN THAT REGARD WERE FILED BY THE ASSESSEE. HENCE WE DISMISS THE PLEA OF THE LD AR THAT THE ASSESSEE CAN NOT BE TREATED AS AN INSTALLATION PE. WE HOLD THAT THE ASSESSEE IS TO BE TREATED AS AN I NSTALLATION PE IN AS MUCH AS THERE IS NO EVIDENCE PRODUCED BY THE ASSESSEE TO PROVE THE TIME DURATION TAKEN FOR EACH OF THE PROJECT SITES CARRIED OUT BY THE ASSESSEE FOR EXECU TING THE INSTALLATION WORK. HOWEVER, WE HOLD THAT ONLY THE ONSHORE PROVISION OF SERVICES AND ONSHORE SUPPLY OF EQUIPMENTS SHOULD BE CONSIDERED AT 10% ON GROSS BASIS AS PROFI TS ATTRIBUTABLE TO SUCH INSTALLATION PE IN INDIA . WE FIND THAT IN RESPECT OF GOK PROJEC T, THIS ISSUE HAD AROSE FOR THE ASST YEAR 2011-12 IN ASSESSEES OWN CASE IN ITA NO. 390/ KOL/2015 DATED 4.4.2018 AND THIS TRIBUNAL HAD HELD THEREON AS UNDER:- 3.2.6. HOWEVER, WE FIND THAT THE ASSESSEE HAD RECEI VED CONSIDERATION IN RESPECT OF ONSHORE SERVICES TO THE TUNE OF RS 3,53,42,381/- PU RSUANT TO 4 INVOICES RAISED ON 13.8.2010. THE ASSESSEE HAD ALSO RECEIVED A SUM O F RS 12,85,465/- (EURO 27842) TOWARDS ONSHORE SUPPLY OF EQUIPMENT DURING T HE YEAR UNDER CONSIDERATION. WE HOLD THAT THESE TWO SUMS SHOULD BE TAKEN INTO ACCOUNT AND PROFITS ATTRIBUTABLE THEREON AT 10% SHOULD BE ADDED IN THE HANDS OF THE ASSESSEE TREATING THE SAME AS INSTALLATION PE. IN THIS RE GARD, WE ALSO FIND THAT INDIA- NETHERLANDS DTAA CONTAINS PROTOCOL CLAUSE IN ITS TR EATY VIS A VIS VARIOUS ARTICLES IN THE TREATY AND THE RELEVANT ARTICLE 7 O F THE PROTOCOL IS REPRODUCED HEREUNDER :- 13 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 13 NETHERLANDS PROTOCOL AT THE MOMENT OF SIGNING THE CONVENTION FOR THE AVO IDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT T O TAXES ON INCOME AND ON CAPITAL, THIS DAY CONCLUDED BETWEEN THE KINGDOM OF THE NETHERLANDS AND THE REPUBLIC OF INDIA, THE UNDERSIGNED HAVE AGREED THAT THE FOLLOWING PROVISIONS SHALL FORM AN INTEGRAL PART OF THE CONVENTION. I. AD ARTICLE 7 1. IN RESPECT OF PARAGRAPHS 1 AND 2 OF ARTICLE 7, W HERE AN ENTERPRISE OF ONE OF THE STATES SELLS GOODS OR MERCHANDISE OR CARRIES ON BUSINESS IN THE OTHER STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, THE PROFITS OF THAT PERMANENT ESTABLISHMENT SHALL NOT BE DETERMINED ON THE BASIS OF THE TOTAL AMOUNT RECEIVED BY THE ENTERPRISE, BUT SHALL BE DET ERMINED ONLY ON THE BASIS OF THE REMUNERATION WHICH IS ATTRIBUTABLE TO THE ACTUA L ACTIVITY OF THE PERMANENT ESTABLISHMENT FOR SUCH SALES OR BUSINESS . ESPECIALLY, IN THE CASE OF CONTRACTS FOR THE SURVEY, SUPPLY, INSTALLATION OR CONSTRUCTION OF INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT OR PREMISES, OR OF PUBLIC WORK S, WHEN THE ENTERPRISE HAS A PERMANENT ESTABLISHMENT, THE PROFITS OF SUCH PERMAN ENT ESTABLISHMENT SHALL NOT BE DETERMINED ON THE BASIS OF THE TOTAL AMOUNT OF T HE CONTRACT, BUT SHALL BE DETERMINED ONLY ON THE BASIS OF THAT PART OF THE CO NTRACT WHICH IS EFFECTIVELY CARRIED OUT BY THE PERMANENT ESTABLISHMENT IN THE S TATE WHERE THE PERMANENT ESTABLISHMENT IS SITUATED. THE PROFITS RELATED TO T HAT PART OF THE CONTRACT WHICH IS CARRIED OUT BY THE HEAD OFFICE OF THE ENTERPRISE SH ALL BE TAXABLE ONLY IN THE STATE OF WHICH THE ENTERPRISE IS A RESIDENT . (UNDERLINING PROVIDED BY US) 2. 3.. WE HOLD THAT EVEN AS PER THE PROTOCOL CLAUSE IN THE INDO-NETHERLANDS TREATY, ONLY THE PROFITS ATTRIBUTABLE TO THE ACTIVITIES CAR RIED OUT IN INDIA SHALL BE TAXABLE AND ACCORDINGLY ONLY THE ONSHORE SERVICES RENDERED BY THE ASSESSEE WOULD HAVE TO BE CONSIDERED BY THE LD AO FOR TAXING THE ONSHOR E RECEIPTS AT 10% . ACCORDINGLY, THE GROUNDS 3.1 TO 3.3 RAISED BY THE A SSESSEE ARE DISMISSED AS NOT PRESSED AND GROUND NO. 3.4. IS ALLOWED. ACCORDINGLY, BY RESPECTFULLY FOLLOWING THE AFORESAI D DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2011-12, WE U PHOLD THE ACTION OF THE LD AO IN 14 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 14 TREATING THE ASSESSEE AS AN INSTALLATION PE IN RESP ECT OF AAI PROJECT BUT HOWEVER RESTRICT THE PROFIT ATTRIBUTION THEREON TO 10% OF GROSS RECE IPTS. HENCE THE GROUNDS 4.1. , 4.2. AND 4.3. (FOR ASST YEAR 2012-13) AND GROUNDS 2.1., 2.2. AND 2.3. (FOR ASST YEAR 2013-14) ARE DISPOSED OFF ACCORDINGLY. 6. ONGC- ADDITIONAL (SAGAR LAXMI) PROJECT GROUNDS 4.1 TO 4.3 OF ASST YEAR 2013-14 THE BRIEF FACTS OF THIS PROJECT ARE THAT THE ASSESS EE CONTRACTED WITH ONGC FOR DESIGN, ENGINEERING, PROJECT MANAGEMENT , SUPPLY, INSTALLAT ION AND COMMISSIONING OF A RADAR SYSTEM ON TURNKEY BASIS FOR ONE OF THEIR ADDITIONAL SITES SAGAR LAXMI IN THE YEAR 2011. DURING THE ASST YEAR 2013-14, THE ASSESSEE R ECEIVED PAYMENTS FOR THE FOLLOWING OFFSHORE SUPPLY OF EQUIPMENT / SERVICES AND ONSHORE SUPPLY OF EQUIPMENT / SERVICES :- SL.NO. AMOUNT RECEIVED FOR AMOUNT IN INR OFF-SHORE WORK 1 OFF-SHORE SUPPLY OF EQUIPMENT 1,51,95,005/- 2 OFF-SHORE PROVISION OF SERVICES 3,64,90 5/- ON-SHORE WORK 3 ON-SHORE SUPPLY OF EQUIPMENT 87,09,855/- 4 ON-SHORE PROVISION OF SERVICES 21,96,585/ - TOTAL 2,64,66,350/- THE ON-SHORE PROVISION OF SERVICES WHICH CONSISTED OF INSTALLATION, TESTING AND COMMISSIONING ETC WERE PERFORMED ON THE EQUIPMENT I N INDIA AND OFF-SHORE SERVICES WERE RENDERED REMOTELY FROM THE NETHERLANDS RELATED TO INTEGRATION OF THE RADAR SYSTEM WITH THE VATMS SYSTEM BY THE ASSESSEE. THE LD AO B Y FOLLOWING THE DIRECTIONS OF THE LD DRP ALLEGED THAT THE ASSESSEE CONSTITUTED AN INS TALLATION PE IN INDIA UNDER ARTICLE 15 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 15 5(3) OF THE INDIA-NETHERLANDS DTAA AND ATTRIBUTED T OTAL PROFITS OF RS 36,71,233/- IN THE FOLLOWING MANNER:- AMOUNT RECEIVED FOR GROSS RECEIPTS RATE OF ATTRIB UTED (RS.) ATTRIBUTION PROFITS (RS.) SUPPLY OF EQUIPMENT OFF-SHORE SUPPLY OF EQUIPMENT 1,51,95,005 10% 15, 19,501 ON-SHORE SUPPLY OF EQUIPMENT 87,09,855 10% 8 ,70,986 PROVISION OF SERVICES OFF-SHORE PROVISION OF SERVICES 3,64,905 50% 1,82,453 ON-SHORE PROVISION OF SERVICES 21,96,585 50% 1 0,98,293 TOTAL 2,64,66,350 36,71,231 6.1. THE LD AR ARGUED THAT THE LD AO HAD WRONGLY T REATED THE ASSESSEE AS AN INSTALLATION PE IN RESPECT OF THIS ONGC SAGAR LAXMI PROJECT. HE ARGUED THAT THE TIME DURATION OF 6 MONTHS IS TO BE COMPUTED SEPARATELY FOR THIS SITE W HICH THE LD AO HAD FAILED TO DO IN THE INSTANT CASE FOR TREATING THE ASSESSEE AS AN INSTAL LATION PE. ACCORDINGLY, HE PLEADED THAT ASSESSEE CANNOT BE TREATED AS INSTALLATION PE IN IN DIA AND CONSEQUENTIALLY NO PROFITS COULD BE ATTRIBUTED THEREON FOR OFFSHORE AND ONSHOR E SUPPLY OF EQUIPMENT AND SERVICES FOR THE ASST YEAR 2013-14. 6.1.1. FOR THE ASST YEAR 2013-14, THE LD AR ARGUED THAT THE LD AO ERRONEOUSLY CONCLUDED ON THE BASIS OF AGREEMENTS BETWEEN THE AS SESSEE AND ONGC, THAT THE DURATION TEST OF 6 MONTHS AS PER ARTICLE 5(3) OF INDIA-NETHE RLANDS DTAA IS FULLY SATISFIED, WITHOUT BRINGING ANY MATERIAL EVIDENCE ON RECORD TO HOLD THAT THE PROJECT OF THE ASSESSEE EXISTED IN INDIA FOR A PERIOD OF MORE THAN 6 MONTHS . HE PRAYED FOR DELETION OF THE PROFITS ATTRIBUTED TOWARDS THE ALLEGED INSTALLATION PE. 16 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 16 6.2. THE LD DR VEHEMENTLY ARGUED THAT THE ASSESSEE CONSTITUTES INSTALLATION PE IN INDIA FOR THE ASST YEAR 2013-14 IN AS MUCH AS THE ASSESSE E HAD ALSO NOT PROVIDED ANY DETAILS REGARDING THE TIME DURATION OF THIS PROJECT SO AS T O CONCLUDE WHETHER THE PROJECT WAS COMPLETED WITHIN 6 MONTHS OR NOT. 6.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT FOR THE ASST YEAR 2013-14, THE ASSESSEE HAD EARNED RECEIPTS OUT OF BOTH OFF SHORE AND ONSHORE SUPPLY OF EQUIPMENT AND PROVISION OF SERVICES. WE ARE INCLINED TO ACCEPT THE ARGUMENTS OF THE LD DR THAT THE NUMBER OF DAYS TAKEN BY THE ASSESSEE FOR EXECUTING THE INSTALLATION WORK IS NOT ON RECORDS AND EVEN BEFORE THIS TRIBUNAL, NO DETAILS W HATSOEVER IN THAT REGARD WERE FILED BY THE ASSESSEE. HENCE WE DISMISS THE PLEA OF THE LD A R THAT THE ASSESSEE CANNOT BE TREATED AS AN INSTALLATION PE. WE HOLD THAT THE ASSESSEE IS TO BE TREATED AS AN INSTALLATION PE IN AS MUCH AS THERE IS NO EVIDENCE PRODUCED BY THE ASSESSEE TO PROVE THE TIME DURATION TAKEN FOR THE PROJECT CARRIED OUT BY THE ASSESSEE F OR EXECUTING THE INSTALLATION WORK. HOWEVER, IN LINE WITH VARIOUS JUDICIAL DECISIONS ON THE ISSUE, WE HOLD THAT ONLY THE ONSHORE PROVISION OF SERVICES AND ONSHORE SUPPLY OF EQUIPMENTS SHOULD BE CONSIDERED AT 10% ON GROSS BASIS AS PROFITS ATTRIBUTABLE TO SUCH INSTALLATION PE IN INDIA . WE FIND THAT IN RESPECT OF GOK PROJECT, THIS ISSUE HAD AROSE FOR THE ASST YEAR 2011-12 IN ASSESSEES OWN CASE IN ITA NO. 390/KOL/2015 DATED 4.4.2018 AND THIS TRIBUNAL HAD HELD THEREON AS UNDER:- 3.2.6. HOWEVER, WE FIND THAT THE ASSESSEE HAD RECEI VED CONSIDERATION IN RESPECT OF ONSHORE SERVICES TO THE TUNE OF RS 3,53,42,381/- PU RSUANT TO 4 INVOICES RAISED ON 13.8.2010. THE ASSESSEE HAD ALSO RECEIVED A SUM O F RS 12,85,465/- (EURO 27842) TOWARDS ONSHORE SUPPLY OF EQUIPMENT DURING T HE YEAR UNDER CONSIDERATION. WE HOLD THAT THESE TWO SUMS SHOULD BE TAKEN INTO ACCOUNT AND PROFITS ATTRIBUTABLE THEREON AT 10% SHOULD BE ADDED IN THE HANDS OF THE ASSESSEE TREATING THE SAME AS INSTALLATION PE. IN THIS RE GARD, WE ALSO FIND THAT INDIA- NETHERLANDS DTAA CONTAINS PROTOCOL CLAUSE IN ITS TR EATY VIS A VIS VARIOUS ARTICLES IN THE TREATY AND THE RELEVANT ARTICLE 7 O F THE PROTOCOL IS REPRODUCED HEREUNDER :- 17 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 17 NETHERLANDS PROTOCOL AT THE MOMENT OF SIGNING THE CONVENTION FOR THE AVO IDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT T O TAXES ON INCOME AND ON CAPITAL, THIS DAY CONCLUDED BETWEEN THE KINGDOM OF THE NETHERLANDS AND THE REPUBLIC OF INDIA, THE UNDERSIGNED HAVE AGREED THAT THE FOLLOWING PROVISIONS SHALL FORM AN INTEGRAL PART OF THE CONVENTION. I. AD ARTICLE 7 1. IN RESPECT OF PARAGRAPHS 1 AND 2 OF ARTICLE 7, W HERE AN ENTERPRISE OF ONE OF THE STATES SELLS GOODS OR MERCHANDISE OR CARRIES ON BUSINESS IN THE OTHER STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, THE PROFITS OF THAT PERMANENT ESTABLISHMENT SHALL NOT BE DETERMINED ON THE BASIS OF THE TOTAL AMOUNT RECEIVED BY THE ENTERPRISE, BUT SHALL BE DET ERMINED ONLY ON THE BASIS OF THE REMUNERATION WHICH IS ATTRIBUTABLE TO THE ACTUA L ACTIVITY OF THE PERMANENT ESTABLISHMENT FOR SUCH SALES OR BUSINESS . ESPECIALLY, IN THE CASE OF CONTRACTS FOR THE SURVEY, SUPPLY, INSTALLATION OR CONSTRUCTION OF INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT OR PREMISES, OR OF PUBLIC WORK S, WHEN THE ENTERPRISE HAS A PERMANENT ESTABLISHMENT, THE PROFITS OF SUCH PERMAN ENT ESTABLISHMENT SHALL NOT BE DETERMINED ON THE BASIS OF THE TOTAL AMOUNT OF T HE CONTRACT, BUT SHALL BE DETERMINED ONLY ON THE BASIS OF THAT PART OF THE CO NTRACT WHICH IS EFFECTIVELY CARRIED OUT BY THE PERMANENT ESTABLISHMENT IN THE S TATE WHERE THE PERMANENT ESTABLISHMENT IS SITUATED. THE PROFITS RELATED TO T HAT PART OF THE CONTRACT WHICH IS CARRIED OUT BY THE HEAD OFFICE OF THE ENTERPRISE SH ALL BE TAXABLE ONLY IN THE STATE OF WHICH THE ENTERPRISE IS A RESIDENT . (UNDERLINING PROVIDED BY US) 2. 3.. WE HOLD THAT EVEN AS PER THE PROTOCOL CLAUSE IN THE INDO-NETHERLANDS TREATY, ONLY THE PROFITS ATTRIBUTABLE TO THE ACTIVITIES CAR RIED OUT IN INDIA SHALL BE TAXABLE AND ACCORDINGLY ONLY THE ONSHORE SERVICES RENDERED BY THE ASSESSEE WOULD HAVE TO BE CONSIDERED BY THE LD AO FOR TAXING THE ONSHOR E RECEIPTS AT 10% . ACCORDINGLY, THE GROUNDS 3.1 TO 3.3 RAISED BY THE A SSESSEE ARE DISMISSED AS NOT PRESSED AND GROUND NO. 3.4. IS ALLOWED. ACCORDINGLY, BY RESPECTFULLY FOLLOWING THE AFORESAI D DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2011-12, WE U PHOLD THE ACTION OF THE LD AO IN 18 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 18 TREATING THE ASSESSEE AS AN INSTALLATION PE IN RESP ECT OF ONGC (SAGAR LAXMI) PROJECT BUT HOWEVER RESTRICT THE PROFIT ATTRIBUTION THEREON TO 10% OF GROSS RECEIPTS. HENCE THE GROUNDS 4.1. , 4.2. AND 4.3. FOR ASST YEAR 2013-14 ARE DISPOSED OFF ACCORDINGLY. 7. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS W ITH REGARD TO CHARGING OF INTEREST U/S 234B OF THE ACT. THE INTER CONNECTED ISSUE IS WITH REGARD TO LEVY OF SURCHARGE AND CESS ON THE TAX RATES DETERMINED AS PER INDIA-NETHERLAND S DTAA AS ACCORDING TO THE ASSESSEE, THE DTAA PROVIDES FOR SPECIFIC RATE OF TAX AND NO F URTHER LEVY COULD BE DEMANDED IN THE FORM OF SURCHARGE AND CESS OVER AND ABOVE WHAT HAS BEEN SPECIFIED IN THE DTAA. THE LEVY OF SURCHARGE AND CESS HAD CONSEQUENTIALLY INCR EASED THE CHARGEABILITY OF INTEREST U/S 234B OF THE ACT. 7.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE PLEADED THAT INTEREST U/S 234B OF THE ACT ARE NOT APPLICABLE TO A FOREIGN ENTITY LIKE AN ASSESSEE WHERE ENTIRE RECEIPTS WERE COVERED UNDER THE PROVISIONS OF SECTION 195 OF THE ACT AND SUBJECTED TO WITHHOLDING TAX. THE LD AR ARGUED THAT AS PER SECTION 234B OF THE AC T, AN ASSESSEE IS LIABLE TO PAY INTEREST ONLY IN A CASE WHERE ADVANCE TAX IS PAYABL E BY THE ASSESSEE IN THE FIRST INSTANCE. UNDER SECTION 208 OF THE ACT, ADVANCE TAX IS PAYABL E ONLY IF THE TAX ON THE CURRENT INCOME AS COMPUTED U/S 209(1)(A) OF THE ACT, AS RED UCED BY THE AMOUNT OF INCOME TAX WHICH WOULD BE DEDUCTIBLE AT SOURCE, WERE TO EXCEED RS 10,000/-. HE STATED THAT THE LD DRP FOR THE ASST YEAR 2012-13 BY FOLLOWING THE DECI SION OF HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS GE PACKAGED POWER INC. REPORTED IN (2015) 56 TAXMANN.COM 190 (DEL HC) DATED 12.1.2015 OBSERVED THAT PAYMENTS TO NON-RESIDENT ARE SUBJECT TO WITHHOLDING TAX U/S 195 OF THE ACT AND THEREFORE IN TEREST U/S 234B OF THE ACT IS NOT LEVIABLE. THE LD DRP ALSO OBSERVED THAT THE PROVI SO HAS BEEN INTRODUCED IN SECTION 209(1) OF THE ACT BY THE FINANCE ACT 2012, W.E.F. 1 .4.2012 IS EFFECTIVE ONLY FROM ASST YEAR 2013-14 ONWARDS AND IS ONLY A PROSPECTIVE AMEN DMENT. ACCORDINGLY, THE LD DRP DIRECTED THE LD AO TO DELETE THE INTEREST CHARGED U /S 234B OF THE ACT. HOWEVER, THE LD 19 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 19 AO WHILE PASSING THE FINAL ASSESSMENT ORDER PURSUAN T TO DIRECTIONS OF THE HONBLE DRP IGNORED THE DIRECTIONS OF THE LD DRP AND PROCEEDED TO CHARGE INTEREST U/S 234B OF THE ACT FOR THE ASST YEAR 2012-13. 7.2. SIMILARLY THE LD DRP HAD ALSO DIRECTED THE LD AO THAT SURCHARGE AND EDUCATION CESS IS NOT LEVIABLE UNDER THE PROVISIONS OF INDIA-NETHE RLANDS DTAA AND HENCE THESE ARE NOT LEVIABLE UNDER BENEFICIAL PROVISIONS OF DTAA. THE LD AO HOWEVER , WHILE PASSING THE FINAL ASSESSMENT ORDER PURSUANT TO DIRECTIONS OF HO NBLE DRP IGNORED THE DIRECTIONS OF THE LD DRP AND PROCEEDED TO CHARGE SURCHARGE AND CE SS ALONG WITH THE TAX ON THE RELEVANT INCOME BROUGHT TO TAX FOR THE ASST YEAR 20 12-13. 7.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE INCOME OF THE FOREIGN ENTERPRISE IS TO BE GOVERNED BY THE PROVISIONS OF S ECTION 195 OF THE ACT WHEREIN ANY PAYMENT MADE TO FOREIGN ENTERPRISE WOULD BE SUBJECT ED TO FULL DEDUCTION OF TAX AT SOURCE. THE LD DRP BY PLACING RELIANCE ON THE DEC ISION OF HONBLE DELHI HIGH COURT IN THE CASE OF GE PACKAGED POWER SUPRA AND BY OBSERVIN G THAT THE PROVISO TO SECTION 209(1) OF THE ACT IS APPLICABLE ONLY FROM ASST YEAR 2013-14 ONWARDS, HAD DIRECTED THE LD AO NOT TO CHARGE INTEREST U/S 234B OF THE ACT. SIMILARLY THE LD DRP HAD ALSO DIRECTED THE LD AO NOT TO CHARGE SURCHARGE AND CESS IN VIEW OF SPECIFIC PROVISIONS CONTAINED IN INDIA-NETHERLANDS DTAA. WE FIND THAT T HE DIRECTIONS OF HONBLE DRP ARE BINDING ON THE LD AO AS PER PROVISIONS OF SECTION 1 44C(10) OF THE ACT WHICH READS AS UNDER:- 144C(10) EVERY DIRECTION ISSUED BY THE DISPUTE RE SOLUTION PANEL SHALL BE BINDING ON THE ASSESSING OFFICER. HENCE WE HEREBY DIRECT THE LD AO TO FOLLOW THE DIRE CTIONS OF THE LD DRP IN THIS REGARD. ACCORDINGLY, THE GROUNDS 5 TO 8 RAISED BY THE ASSES SEE FOR ASST YEAR 2012-13 ARE ALLOWED . 20 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 20 8. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL FOR THE ASST YEAR 2012-13 IS WITH REGARD TO GRANT OF SHORT CREDIT OF TDS TO THE ASSESSEE BY RS 72,801/-. WE FIND THAT THE ASSESSEE HAD CLAIMED CREDIT OF TAXES DEDUCTED AT SOURCE OF R S 1,52,12,219/- IN ITS INCOME TAX RETURN FOR THE ASST YEAR 2012-13. THE LD AO IN THE FINAL ASSESSMENT ORDER GRANTED CREDIT FOR THE SAME ONLY TO THE TUNE OF RS 1,51,39,418/- T HEREBY LEADING TO SHORT CREDIT OF TDS BY RS 72,801/-. THE ASSESSEE STATED THAT IT HAD PR ODUCED THE TDS CERTIFICATE FOR THE SAME BEFORE THE LD AO WHICH HAS BEEN IGNORED. HENC E WE DIRECT THE LD AO TO VERIFY THE VERACITY OF THE SAID TDS CERTIFICATE AND GRANT CRED IT FOR TDS AS PER LAW. ACCORDINGLY, THE GROUND NO. 9 RAISED FOR THE ASST YEAR 2012-13 I S ALLOWED FOR STATISTICAL PURPOSES . 9. THE GROUND NO.1 RAISED FOR THE ASST YEARS 2012-1 3 AND 2013-14 ARE GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATI ON. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 20.07.2018 SD/- SD/- [S.S. GODARA] [ M .BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 20.07.2018 SB, SR. PS 21 ITA NO.290/KOL/2016 I.T.A. NO. 348/KOL/2017 HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. A.YRS. 2012-13&2013-14 21 COPY OF THE ORDER FORWARDED TO: 1. HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V .(NOW KNOWN AS SAAB TECHNOLOGIES B.V.), LAAN VAN MALKENSCHOTEN 40, 7333 NP APELDOORN, THE NETHERLANDS. 2. DCIT(IT), CIRCLE-1(1), KOLKATA, AAYAKAR BHAWAN P OORVA, 110, SHANTIPALLY, KOLKATA- 700107. 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S