ITO, Intl. Taxation, Dehradun V. M/s Oil and Natural Gas Corporation Ltd., (Solar Turbines Int. CO.), Dehradun

ITA 3475/DEL/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6688 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 21-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 31-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KAVISH SYAL
• Keywords: Business income; Double taxation relief; Permanent establishment; Advance ruling

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E : NEW DELHI BEFORE SMT BEENA A . PILLAI , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI , ACCOUNTANT MEMBER I TA NO . 3475/DEL/2013 (ASSESSMENT YEAR: 2010 - 11 ) ITO, INTL. TAXATION, DEHRADUN VS. OIL AND NATURAL GAS CORPORATION LTD. (SOLAR TURBINES INT. CO.) CORPORATE DIVISION, TEL BHAWAN, DEHRADUN PAN:AAACO1598A (APPELLANT) (RESPONDENT) I TA NO .5925/DEL/2013 (ASSESSMENT YEAR: 2010 - 11 ) ADIT 13A, SUBHASH ROAD, AAYAKAR BHAWAN, DEHRADUN VS. OIL AND NATURAL GAS CORPORATION LTD. AS REPRESENTATIVE ASSESSEE OF M/S. BRUSH ELECTRICAL MACHINES LTD., UK, ONGC LTD, CORPORATE TAX DIVISION, ROOM NO.244, TEL BHYAWAN, DEHRADUN PAN:AAACO1598A (APPELLANT) (RESPONDENT) REVENUE BY : SH. RAJESH KUMAR, SR. DR ASSESSEE BY: SH. KAVISH SYAL, CA DATE OF HEARING 21/02/ 2017 DATE OF PRONOUNCEMENT 27 / 02 / 2017 O R D E R PER PRASHANT MAHARISHI , A . M . 1. BOTH THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT(A) - II FOR SAME AY I.E. ASSESSMENT YEAR 2010 - 11 WITH RESPECT TO PAYMENT TO SOLAR TURBINE INTERNATIONAL COMPANY, SINGAPORE IN TERMS OF A CONTRACT FOR OVERHAULING OF ENGINE WORK INCLUDING DISMANTLING, STRIPING AND INSPECTION OF COMPONENTS, FINALIZATION OF SCOPE OF WORK, REPLACEMENT OF SPARES AND ASSEMBLING AN D TESTING INCLUDING SHOP LEVEL CHARGES AS PER SCOPE OF WORK. FOR THIS THE ASSESSEE PREFERRED AN APPLICATION U/S 195(2) OF THE ACT. THE LD ASSESSING OFFICER VIDE ORDER DATED 09.09.2009 DIRECTED TO DEDUCT TAX @10% TO THIS PARTY. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER PREFERRED AN APPEAL PAGE 2 OF 4 BEFORE LD CIT(A) SUBMITTING THAT IN VIEW OF THE DTAA BETWEEN INDIA AND USA THE ABOVE SUM IS NOT CHARGEABLE TO TAX AT IT DOES NOT MAKE AVAILABLE THE TECHNICAL KNOWLEDGE AND SKILL TO THE APPELLANT. LD CIT(A) RELYING ON THE ORDER OF THE LD AAR IN CASE OF CGG VERITAS DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT. THEREFORE THE REVENUE HAS PREFERRED THESE APPEALS BEFORE US 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 3475/DEL/2013: - (I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN APPLYING THE AAR RULING WITH REFERENCE TO RATE CONTRACT NO. OGC / CIS/ IMPETUS/RC/SOLAR/ OVERHAULING/76/2008 - 09 DATED 14.09.2009, IN REFERENCE TO PAYMENTS MADE BY ONGC TO M/S SOLAR TURBINES IN RE SPECT OF PURCHASE ORDER NO. 5010048585 DATED 04.08.2009. THIS CONTRACT IS PERTAINING A PRIOR RATE CONTRACT FOR SERVICES WHEREAS ADVANCE RULING HAS BEEN GIVEN FOR A SUBSEQUENT RATE CONTRACT, AND CANNOT THUS HAVE A PERSUASIVE VALUE. (II) WHETHER ON THE FACT S AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN IGNORING THE FACT THAT GROSS RECEIPTS ARE TAXABLE IN RESPECT OF THE COMPOSITE CONTRACT IN INDIA SINCE THE 'SITUS' OF THE CONTRACT LAY IN INDIA AND NRC'S TECHNICAL ENGINEERS WERE IN INDIA AND PERFORME D TECHNICAL SERVICES UNDER THE CONTRACT. (III) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN ACCEPTING THE ASSESSEE ARGUMENT THAT M/S SOLAR TURBINES DOES NOT HAVE A PE IN INDIA WHICH IS CONTRARY TO AO'S SPECIFIC FINDINGS IN T HIS REGARD IN SUBSTANTIVE ASSESSMENT PROCEEDINGS FOR CURRENT AND EARLIER ASSESSMENT YEARS. (IV) WITHOUT PREJUDICE TO STAND REGARDING COMPOSITE NATURE OF CONTRACT AND NON APPLICABILITY OF AUTHORITY FOR ADVANCE RULING, WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN NOT ADJUDICATING THE TAXABILITY OF THE RECEIPTS ATTRIBUTABLE TO THE PE, IN TERMS - OF AAR RULING IN RESPECT OF BOROSCOPING AND INSPECTION ACTIVITIES CARRIED OUT AT THE SITE IN MUMBAI. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 5925 /DEL2013: - 1. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD CIT{A) HAS ERRED IN HOLDING THAT THE GROSS RECEIPTS OF THE ASSESSEE ON ACCOUNT OF SERVICES PROVIDED FOR OVERHAULING OF SOLAR MARS ENGINE ('OVER HAULING SERVICES') ARE NOT LIABLE TO TAX IN INDIA. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A) HAS ERRED IN REVERSING THE FINDINGS OF THE ASSESSING OFFICER THAT THE RECEIPTS OF THE ASSESSEE ON ACCOUNT OF OVERHAULING SERV ICES ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES (FTS) AS DEFINED IN SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961 (THE ACT) AS WELL AS ARTICLE 12(4) OF THE PAGE 3 OF 4 INDIA - USA DOUBLE TAXATION AVOIDANCE CONVENTION (DTAC) AND TAXABLE U/S 115A OF THE ACT. 3. WH ETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN IMPLICITLY HOLDING THAT M/S SOLAR TURBINES INTERNATIONAL CO. DOES NOT HAVE A PE IN INDIA, CONTRARY TO THE FINDINGS RECORDED BY THE AO THAT ITS TECHNICAL PERSONNEL PERFORMED A VARIETY OF SERVICES INCLUDED IN OVERHAULING SERVICES IN INDIA. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD CIT (A) HAS ERRED IN IGNORING THE FINDINGS OF THE ASSESSING OFFICER THAT GROSS RECEIPTS IN RESPECT OF THE WHOLE CONTRAC T FOR RENDERING OF OVERHAULING SERVICES ARE TAXABLE IN INDIA SINCE THE SITUS OF THE CONTRACT LAY IN INDIA AND THE ASSESSEE'S TECHNICAL ENGINEERS PERFORMED VARIOUS TECHNICAL SERVICES UNDER THE CONTRACT IN INDIA. 4.1 THE LD CIT(A) HAS ERRED IN NOT APPRECIAT ING THE FACT THAT THE CONTRACT FOR OVERHAULING SERVICES INCLUDED, INTER ALIA, DISMANTLING, STRIPPING & INSPECTION OF THE COMPONENTS., REPLACEMENT OF SPARES, MODIFICATION, TESTING, ASSEMBLY ETC. WAS A COMPOSITE ONE AND CONSIDERING THE SCOPE OF THE CONTRACT, THE SERVICES PERFORMED OUTSIDE INDIA WERE INEXTRICABLY CONNECTED WITH THE EXECUTION OF THE CONTRACT AS A WHOLE IN INDIA. 5. WITHOUT PREJUDICE TO THE ABOVE, WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN NOT ADJUDIC ATING THE TAXABILITY OF RECEIPTS ATTRIBUTABLE TO PERMANENT ESTABLISHMENT IN INDIA, IGNORING THE OBSERVATIONS OF THE HONBLE AAR THAT RECEIPTS ATTRIBUTABLE TO THE SERVICES RENDERED IN MODIFICATIONS AND REPLACEMENT OF PARTS COVERED BY ENGINEERING, DESIGNS, DATA AND SPECIFICATION DELIVERED TO ONGC ARE TAXABLE IN INDIA AS FTS PER SE, AND FURTHER THAT IF THE ASSESSEE IS FOUND TO HAVE A PE IN INDIA, RECEIPTS ATTRIBUTABLE TO INSPECTION AND BOROSCOPING ACTIVITY CARRIED OUT AT SITE IN INDIA WOULD BE TAXABLE IN INDI A AS BUSINESS INCOME. 4. THE LD DR RELIED UPON THE ORDERS OF THE LD ASSESSING OFFICER AND HAS STATED THAT INCOME IS CHARGEABLE TO TAX ACCORDING TO INCOME TAX ACT AND ALSO ACCORDING TO DTAA AS FEES FOR TECHNICAL SERVICES. 5. THE LD AR RELIED UPON THE ORDERS OF THE LD CIT(A) AND FURTHER SUBMITTED THAT WITH RESPECT TO THE SAME INCOME THE LD ASSESSING OFFICER HIMSELF HAS ACCEPTED IN THE ORDER ASSESSMENT YEAR 2011 - 12 AND 2012 - 13 THAT INCOME OF THE ASSESSEE IS NOT CHANGEABLE TO T AX IN INDIA. HE THEREFORE STATED THAT NOW THE REVENUE HAS ACCEPTED THE CLAIM OF THE ASSESSEE IN SUBSEQUENT YEARS THE APPEAL OF THE REVENUE DOES NOT LIE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE ASSESSEE HAS MADE PAYMENT TO M/S. SOLAT TURBIN E INTERNATIONAL COMPANY, SINGAPORE , BRANCH OF PAGE 4 OF 4 US COMPANY IN SINGAPORE, IN TERMS OF PURCHASE ORDER NO. 5010048585 DATED 29.07.2009 FOR OVERHAUL OF SOLAR MARS ENGINE SL NO. 0268M MODEL 1500. IT IS UNDISPUTED THAT US COMPANY DOES NOT HAVE A PERMANENT ESTABLIS HMENT IN INDIA AND FURTHER IT HAS TAX RESIDENCY CERTIFICATE OF USA. THOUGH UNDISPUTEDLY THE INCOME OF THE ASSESSEE IS CHARGEABLE TO TAX ACCORDING TO THE INCOME TAX ACT HOWEVER, ASSESSEE IS NON - RESIDENT ELIGIBLE FOR APPLICABILITY OF DOUBLE TAXATION AVOIDANC E AGREEMENT BETWEEN INDIA AND USA. ACCORDING TO ARTICLE 12 OF THE DTAA IT CANNOT BE CHARACTERIZED AS FEE FOR INCLUDED SERVICES UNLESS THE PAYMENT IS IN CONSIDERATION FOR RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES WHICH MAKES AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW OR PROCESSES TO THE SERVICE RECIPIENT. IN THE PRESENT CONTRACT THE SCOPE OF WORK IS DISMANTLING, STRIPPING, ASSEMBLING, AND TESTING OF GAS TURBINES AS PER STANDARDS OF THE OEM. THE LD D EPARTMENTAL REPRESENTATIVE OR LD ASSESSING OFFICER COULD NOT SHOW US THAT HOW THESE TESTS OF MAKE AVAILABLE IS SATISFIED. THEREFORE, WE CONFIRM THE FINDING OF THE LD CIT(A) IN HOLDING THAT IN VIEW OF THE DECISION OF THE AAR IN CGG VERITAS, THE INCOME OF THE US COMPANY IS NOT CHARGEABLE TO TAX IN INDIA. FURTHER WE GET SUPPORT FROM THE ORDER OF LD ASSESSING OFFICER FOR AY 2012 - 13 AND 2013 - 14 WHERE THE LD ASSESSING OFFICER HAS ALSO HELD THAT INCOME OF THE US COMPANY IS NOT CHARGEABLE TO TAX IN INDIA FOR THE SAME CONTRACT. IN VIEW OF THIS WE DISMISS BOTH THE APPEAL OF THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 2 7 / 02 / 2017 . - S D / - - S D / - ( BEENA A. PILLAI ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 7 / 02 / 2017 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI