Voith Siemens Hydro Kraftwerkstechnik Gmbh & Co. KG, New Delhi V. DDIT, New Delhi

ITA 5652/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65728 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 15-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUKHVEER CHOUDHARY
• Assessee Lawyers: ASHOK KHANNA
• Keywords: Double taxation relief; Permanent establishment; Initiation of penalty proceedings
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H NEW DELHI BEFORE SHRI A.N. PAHUJA, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.5652/DEL/2010 ASSESSMENT YEAR : 2007-08 VOITH SIEMENS HYDRO KRAFTWERKSTECHNIK VS DD IT, GMBH & CO. KG C/O MAHINDER PURI & CO., CIRC LE 2(2), CA, 1 A-D, VANDANA 11, TOLSTOY MARG, INTERN ATIONAL TAXATION, NEW DELHI-110001 NEW DELHI. (PAN: AABCV9155B) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ASHOK KHANNA, CA RESPONDENT BY : SHRI SUKHVEER CHOUDHARY, SR. DR O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST THE ORDER OF ASSESSING OFFICER, DISPUTE RESOLUTION PANEL-II, NEW DELHI, ON THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE ORDER OF THE LD. AO AS PER THE DIRECTIONS OF DRP IS BAD BOTH IN LAW AND ON FACTS O F THE CASE. 2. THAT THE LD. AO HAS ERRED IN MECHANICALLY FOLLOWING THE ORDERS OF EARLIER YEARS WHEREIN IT WA S HELD THAT THE ASSESSEE HAD A P.E. IN INDIA. 3. THAT THE LD. AO, MECHANICALLY RELYING UPON THE ORDERS OF EARLIER YEARS, HAS ERRED IN REJECTING THE ITA 5652/DEL/2010 A.Y. 2007-08 2 CONTENTION OF THE ASSESSEE THAT AMOUNT RECEIVABLE UNDER THE CONTRACT TOWARDS SUPERVISION OF ERECTION, AND COMMISSIONING IS CHARGEABLE TO TAX U/S 44BBB OF THE I.T. ACT, 1961. 4. THAT THE LD. AO HAS ERRED IN MECHANICALLY FOLLOWING THE ORDERS OF EARLIER YEARS WHEREIN IT WA S HELD THAT THE RELEVANT AMOUNTS WERE- (I) ATTRIBUTABLE TO THE ALLEGED P.E., (II) REPRESENTED INCOME OF THE NATURE OF FEES FOR TECHNICAL SERVICES (III) WERE CHARGEABLE TO TAX ON GROSS BASIS @20% U/S 115A OF THE INCOME TAX ACT. 5. THAT WITHOUT PREJUDICE, THE LD. AO, MECHANICALLY FOLLOWING THE ORDERS OF EARLIER YEARS, HAS ERRED IN ARBITRARILY ESTIMATING PROFIT ON CONSIDERATION FOR SUPERVISORY SERVICES @50% OF THE GROSS AMOUNT. 6. THAT WITHOUT PREJUDICE, THE LD. AO, MECHANICALLY FOLLOWING THE ORDER OF EARLIER YEARS, HAS ERRED IN SUBJECTING THE RECEIPTS OF THE ASSESSEE TO TAX @20% ON THE GROSS AMOUNT RECEIVED BY THE ASSESSEE. 7. THAT THE LD. AO HAS ERRED IN LEVYING INTEREST U/S 234B OF THE INCOME TAX ACT, THE PROVISIONS OF WHICH WERE NOT ATTRACTED ON THE FACTS OF THE CASE. 8. THAT COMPUTATION OF TAX, GRANT OF CREDIT FOR TAX DEDUCTED AT SOURCE HAS BEEN ERRONEOUSLY MADE. 9. THAT THE LD. AO HAS ERRED IN INITIATING PROCEEDING U/S 271(1)( C) OF THE I.T. ACT, WHICH IS NOT ATTRACTED ON THE FACTS OF THE CASE. ITA 5652/DEL/2010 A.Y. 2007-08 3 2. THE BRIEF FACTS OF THE CASE GIVING RISE TO THIS APPEAL ARE THAT THE ASSESSEE COMPANY IS AN ENTERPRISE OF GERMANY, HAVIN G ITS PRINCIPAL PLACE OF BUSINESS LOCATED AT GERMANY. THE ASSESSEE COMPANY ALONG WITH SIEMENS LTD. WAS AWARDED A CONTRACT BY M/S ORISSA HYDRO POW ER CORPORATION LIMITED (OHPC), A GOVERNMENT OF ORISSA UNDERTAKING FOR THE RENOVATION, MODERNIZATION, UPRATING OF UNITS 3 AND 4 OF HIRAKUD POWER HOUSE AT BURLA, ORISSA. A CONTRACT TO THE EFFECT WAS ENTERED INTO O N 4TH MARCH, 2002. THE SCOPE OF WORK OF ASSESSEE COMPANY INCLUDED SUPPLY O F IMPORTED EQUIPMENTS AND MATERIALS FROM GERMANY, SUPERVISION OF ERECTION , START-UP AND COMMISSIONING AND TRAINING OF OHPCS PERSONNEL. TH E SCOPE OF WORK OF SIEMENS LTD. UNDER THE AGREEMENT INCLUDED, SUPPLY O F INDIGENOUS EQUIPMENT, PLANNING, DISMANTLING, REPAIRING AND ERE CTION, TESTING AND COMMISSIONING. THE ASSESSEE COMPANY GUARANTEED TO O HPC ABOUT THE DUE PERFORMANCE OF CONTRACTUAL OBLIGATIONS BY SIEMENS L TD. IN TERMS OF THE PROVISIONS OF INCOME TAX ACT READ WITH DTAA BETWEEN INDIA AND GERMANY, THE ASSESSEE HAD OFFERED FOR TAXATION THE AMOUNT RE CEIVED FOR SUPERVISION OF ERECTION AND COMMISSIONING FOR TAXATION IN INDIA. IN TERMS OF PROVISIONS OF SECTION 44BBB OF THE ACT, THE SAID INCOME AS PER IT S NATURE, RECEIVED BY THE ASSESSEE WAS LIABLE TO TAX AT DEEMED PROFIT RATE OF 10%. THE ASSESSEE FILED A COMPUTATION OF INCOME BEFORE DDIT AND INFORMED THAT THE LIABILITY TOWARDS ITA 5652/DEL/2010 A.Y. 2007-08 4 INCOME TAX IN INDIA, ON INCOME ARISING TO THE ASSES SEE UNDER CONTRACT WITH OHPC IS TO BE DETERMINED ACCORDING TO THE PROVISION S OF THE AGREEMENT FOR THE AVOIDANCE OF DOUBLE TAXATION (DTAA) BETWEEN IND IA AND GERMANY NOTIFIED THROUGH NOTIFICATION NO. 10235 DATED 29.11 .1996 ALONG WITH PROVISIONS OF INDIAN INCOME TAX ACT, 1961 AND AS PE R TERMS OF DTAA, FEE FOR SUPERVISION DURING ERECTION, START UP AND COMMI SSIONING AND TRAINING IS LIABLE TO INCOME TAX IN INDIA. 3. THE ASSESSING OFFICER, DDIT ISSUED A QUESTIONNAI RE DATED 25 TH AUGUST, 2009 WHICH WAS REPLIED BY THE ASSESSEE COMP ANY THROUGH SUBMISSIONS DATED 15 TH OCTOBER, 2009 AND SUBMITTED THAT THE ASSESSEE HAD RECEIVED FINAL PAYMENT OF 10% OF CONTRACT VALUE REL ATED TO SUPERVISION AND TRAINING ACTIVITIES ON FINAL TAKEOVER AND COMPLETIO N OF THE WARRANTY PERIOD AS PER TERMS OF THE CONTRACT AND THIS AMOUNT HAS BEEN SHOWN IN THE RETURN OF RELEVANT ASSESSMENT YEAR. THE ASSESSEE OFFERED TAX ATION ON AMOUNT OF RS.35,58,155/- RECEIVED FOR THE ABOVE SERVICES AND ALSO OFFERED 10% TAX AS PER SECTION 44BBB OF THE ACT. 4. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE IN RESPECT OF APPLICABILITY OF SECTION 44BBB AND A DRA FT ASSESSMENT ORDER SENT TO THE ASSESSEE. THE ASSESSEE SUBMITTED OBJECTIONS TO THE DRAFT ASSESSMENT ORDER BEFORE DRP-II IN THE PRESCRIBED FORM AND THE DRP-II THROUGH ITS ORDER ITA 5652/DEL/2010 A.Y. 2007-08 5 DATED 08.09.2010 REJECTED THE OBJECTIONS AND DIRECT ED THE ASSESSING OFFICER TO COMPLETE THE ASSESSMENT AS PER DRAFT ORDER. 5. AS PER DIRECTIONS OF DRP-II, THE DDIT PASSED FIN AL ASSESSMENT ORDER DATED 4.10.2010 U/S 144C AND 143(3) OF THE ACT. TH E ASSESSING OFFICER COMPUTED THE TOTAL TAX PAYABLE AT RS.6,86,270 AND A LSO LEVIED SURCHARGE OF RS.35,58,155. AGGRIEVED, THE ASSESSEE COMPANY HAS FILED THIS APPEAL BEFORE US AGAINST THE ORDER OF ASSESSING OFFICER DATED 4.1 0.2010 PASSED IN PURSUANCE OF DIRECTIONS OF DRP-II AS STATED ABOVE. 6. DURING THE ARGUMENTS, THE ASSESSEES REPRESENTAT IVE SUBMITTED THAT HE DOES NOT WANT TO PRESS GROUND NO. 5 AND 6. HENCE, THESE ARE DISMISSED AS NOT PRESSED. THE LEARNED COUNSEL FOR THE ASSESSEE CONT ENDS THAT GROUND NOS. 1 AND 8 ARE GENERAL IN NATURE WHICH NEED NO ADJUDICAT ION. GROUND NOS. 2, 3 AND 6 RAISED BY THE ASSESSEE ARE ABOUT TAXABILITY O F THE ASSESSEE U/S 44BBB OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) AND GROUND NO.7 RAISES ANOTHER GROUND OF CHARGEABILITY OF INTEREST U/S 234B OF THE ACT AND GROUND NO. 9 IS RELATED TO INITIATION OF PENALTY PR OCEEDINGS U/S 271(1)(C) OF THE ACT. 7. BOTH THESE MAIN ISSUES CAME UP IN AY 2004-05 AND 2006-07 AND THE ITAT BENCH H, NEW DELHI IN ITA NO.2353/D/2008 ORD ER DATED ITA 5652/DEL/2010 A.Y. 2007-08 6 05.03.2010 AND IN ITA NO.1226/D/2011 ORDER DATED 09 .05.2011 HELD THAT THE ASSESSEE HAD A PE IN INDIA WITH THE FOLLOWING OBSER VATIONS:- 3. BOTH THESE ISSUES CAME UP BEFORE ITAT IN AY 200 4-05 BY ORDER DATED 5.3.2009. ITAT HELD THAT THE ASSESS EE HAD A PE IN INDIA BY FOLLOWING OBSERVATIONS:- IN SUCH CIRCUMSTANCES IT CAN ONLY BE SAID THAT THE ASSESSEE HAS DONE THE WORK OF SUPERVISION SIMPLICIT ER. EVEN THOUGH IN THE CONTRACT BETWEEN THE ASSESSEE AN D OHPC THE TERM SUPERVISION HAS BEEN GIVEN A SPECIFIC MEANING THE CONDUCT OF THE ASSESSEE IS NOT SUPPORTE D BY ANY EVIDENCE TO HINT AT MUCH LESS SHOW THAT THE ASS ESSEE HAS DONE ANY THING OTHER THAN SUPERVISION AS UNDERSTOOD IN ITS GENERAL MEANING. IN THESE CIRCUMSTANCES EVEN THOUGH AS PER THE TERMS OF THE CONTRACT WITH OHPC THE ASSESSEE COULD BE ASSUMED T O BE LIABLE TO DO THE ASSEMBLY, ERECTION, TESTING AND COMMISSIONING OF THE POWER PROJECT AS ALSO THE SUPERVISION THEREOF, IN THE ABSENCE OF THERE BEING ANY EVIDENCE OF THE ASSESSEE HAVING DONE ANY SUCH ACTIV ITIES OTHER THAN SUPERVISION SIMPLICITER OF THE ASSEMBLY, ERECTION AND TESTING AND COMMISSIONING THE ACTIVITI ES OF THE ASSESSEE CANNOT BE SAID TO FALL WITHIN THE MEAN ING OF THE TERM, BUSINESS OF ERECTION OF PLANT OR MACHINE RY OR TESTING OR COMMISSIONING AS PROVIDED IN THE PROVIS IONS OF SECTION44BBB, OR TO FALL WITH IN THE MEANING OF THE TERMS, CONSTRUCTION OR ASSEMBLY AS PROVIDED IN TH E EXCLUSIONS PROVIDED IN EXPLANATION 2 TO SECTION 9 ( 1) OF THE ACT. ONCE IT IS FOUND THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT THE ASSESSEE HAS INVOLVED ITSEL F IN THE PHYSICAL ACTIVITIES OF THE BUSINESS OF ASSEMBLY OR ERECTION OF THE PLANT OR MACHINERY OR TESTING OR COMMISSIONI NG OF THE POWER PROJECT BUT HAS ONLY DONE THE SUPERVISION SIMPLICITER OF THE SAME THE ASSESSEE WOULD NOT BE E LIGIBLE TO BE TAXED UNDER THE PROVISIONS OF SECTION 44BBB N OR WOULD THE RECEIPTS FALL WITHIN THE EXCLUSIONS PROVI DED IN EXPLANATION 2 TO SECTION 9 (1) OF THE ACT. FURTHER AS THE ASSESSEE HAS ALSO NOT CHALLENGED THE EXISTENCE OF T HE ITA 5652/DEL/2010 A.Y. 2007-08 7 PERMANENT ESTABLISHMENT IN INDIA, THE FINDINGS OF T HE AO AND THE LD. CIT(A) IN HOLDING THAT THE BUSINESS PRO FITS OF THE ASSESSEE IS FROM THE SUPERVISION CHARGES ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES FROM THE RENDERING OF SUPERVISION SERVICES IN CONNECTION WIT H THE ERECTION, TESTING AND COMMISSIONING OF THE POWER PR OJECT IS LIABLE TO BE UPHELD AND WE DO SO. IN THE CIRCUMS TANCES THE FINDING OF THE LD. CIT(A) THAT THE PROVISIONS O F ARTICLE 7 OF THE DTAA READ WITH SECTION 44D AND SECTION 115 A OF THE ACT APPLY TO THE BUSINESS PROFITS OF THE ASSESS EE IS UPHELD. CONSEQUENTLY GROUNDS 2 TO 5 OF THE ASSESSES GROUNDS OF APPEAL ARE DISMISSED. 13.2 AS THE ASSESSEE HAS NOT PRESSED THE GROUND NO. 6 IN REGARD TO THE LEVY OF INTEREST UNDER SECTION 234A A ND 234D, THE SAME ARE DISMISSED AS NOT PRESSED. IN REG ARD TO THE GROUND AGAINST THE LEVY OF INTEREST UNDER SE CTION 234 B IT IS NOTICED THAT THE RECEIPTS OF THE ASSESS EE ARE LIABLE FOR TAX DEDUCTION UNDER THE PROVISIONS OF SE CTION 195 OF THE ACT. IT IS ALSO NOTICED THAT M/S OHPC HA S DEDUCTED TAX AT SOURCE ON THE PAYMENTS MADE TO THE ASSESSEE. WHETHER THE TAX DEDUCTED A SOURCE HAS BEE N CORRECTLY DEDUCTED OR NOT IS NOT THE ISSUE BEFORE U S, BUT THE FACT REMAINS THAT THE RECEIPTS OF THE ASSESSEE ARE LIABLE TO TDS AND TDS HAS BEEN DONE. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT INTEREST UNDE R SECTION 234B IS NOT LEVIABLE ON THE ASSESSEE AS THE RECEIPTS OF THE ASSESSEE UNDER THE CONTRACT IS LIAB LE FOR TDS. IN THE CIRCUMSTANCES RESPECTFULLY FOLLOWING TH E DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN T HE CASE OF M/S. MOTOROLA REFERRED TO SUPRA THE INTEREST LEV IED UNDER SECTION 234B STAND DELETED. IN THE CIRCUMSTAN CES THE GROUND NO. 6 OF THE ASSESSEES APPEAL STAND PART LY ALLOWED. 8. WE HAVE HEARD ARGUMENTS OF BOTH THE PARTIES IN T HE LIGHT OF JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI AND O RDERS OF ITAT, DELHI, ITA 5652/DEL/2010 A.Y. 2007-08 8 H BENCH AS REFERRED HEREINABOVE AND ALSO PERUSED THE MATERIAL ON RECORD BEFORE US. AS PER FINDINGS OF THE ITAT DELHI H B ENCH FOR AY 2004-05 AND 2006-07, IT HAS BEEN HELD THAT THE ASSESSEE HAD A PERMANENT ESTABLISHMENT IN INDIA. WE FURTHER OBSERVE THAT TH E FINDINGS OF AUTHORITIES BELOW IN HOLDING THAT THE BUSINESS PROFITS OF THE A SSESSEE FROM THE SUPERVISION CHARGES ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES(FTS) FROM RENDERING OF SUPERVISION SERVICES IN CONNECTIO N WITH THE ERECTION, TESTING AND COMMISSIONING OF THE POWER PROJECT DESE RVES TO BE UPHELD AS THERE IS NEITHER ANY OTHER CONTRARY VIEW OR JUDGMEN T BEFORE US NOR THE ASSESSEE PLACED BEFORE US ANY MATERIAL CONTROVERTIN G THE FINDINGS OF THE ASSESSING OFFICER IN THIS REGARD. ACCORDINGLY, THE FINDINGS OF THE LD. AO THAT AMOUNT RECEIVED BY THE ASSESSEE HAS TO BE TAXE D AS BUSINESS PROFITS IN TERMS OF THE PROVISIONS OF ARTICLE 7 OF THE DTAA RE AD WITH SECTION 44D AND SECTION 115A OF THE ACT ARE CONFIRMED AND UPHELD. CONSEQUENTLY, GROUND NOS. 2, 3 AND 4 ARE DECIDED IN FAVOUR OF THE REVENU E AND AGAINST THE ASSESSEE, FOLLOWING THE ORDERS OF THE ITAT, DELHI B ENCH (SUPRA) FOR A.Y. 2004-05 AND 2006-07 IN ASSESSEES OWN CASE. 9. FURTHER RESPECTFULLY FOLLOWING THE JUDGEMENT OF HONBLE HIGH COURT OF DELHI IN ITA NO.1872/2010 DATED 1.12.2010 IN THE ASSESSEES OWN CASE ITA 5652/DEL/2010 A.Y. 2007-08 9 FOR AY 2004-05, GROUND NO. 7 ABOUT NON-CHARGEABILIT Y OF INTEREST U/S 234B OF THE ACT IS DECIDED IN FAVOUR OF THE ASSESSEE. 10. GROUND NO. 9 IS RELATED TO INITIATION OF PENALT Y PROCEEDINGS. SINCE THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT IS NOT APPEALABLE, THEREFORE, WE DISMISS THE SAME. 11. GROUND NOS. 1 AND 8 BEING GENERAL IN NATURE DO NOT NEED ANY ADJUDICATION AND THEREFORE THESE ARE DISMISSED. AS PER DISCUSSIONS MADE HEREINABOVE IN PARA 2 OF THIS ORDER, THE GROUND NOS . 5 AND 6 HAVE ALREADY BEEN DISMISSED AS NOT PRESSED BY THE ASSESSEE. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 19.10.2012. SD/- SD/- ( A.N. PAHUJA ) (CHANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 19 TH OCTOBER 2012 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR