Bombardier Transportation Sweden AB, New Delhi V. DCIT, Circle- 1(1)(2), International Taxation , New Delhi

ITA 6071/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2945 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Appeal Filed On: 15-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment; Set aside
• Section: 250; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘D’ : NEW DELHI) SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.6071/Del./2019 (ASSESSMENT YEAR : 2016-17) Bombardier Transportation Sweden AB, vs. DCIT, Circle 1(1)(2), C/o Shri Amit Gupta, Head of Taxation, New Delhi. At Bombardier Transportation India Ltd., Novotel – Pulman Commercial Tower, 3 rd Floor, Aerocity, New Delhi – 110 037. (PAN : AADCB4208M) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Anmol Anand, Advocate REVENUE BY : Shri Sanjay Kumar, Senior DR Date of Hearing : 21.09.2022 Date of Order : 26.09.2022 ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : This appeal by the assessee is directed against the order of the ld. CIT (Appeals)-42, New Delhi dated 31.05.2019 for the Assessment Year 2016-17. 2. The grounds of appeal raised by the assessee read as under :- “1. That on the facts and in the circumstances of the case and in law, the order passed by the Commissioner of Income-tax (Appeals) ["CIT(A)"] under section 250 of the Income-tax Act, 1961 ("Act"), to the extent prejudicial to the Appellant, is bad in law and void ab-initio. Existence of an Association of Persons ("AOP") ITA No.6071/Del./2019 2 2. That the Assessing Officer ("AO") grossly• erred m law in concluding the existence of an AOP between the Appellant and Bombardier Transportation India Ltd. ("BTIN"), in respect of their contract with Delhi Metro Rail Corporation ("DMRC"). Re : BTIN forms a "Fixed Place Permanent Establishment" of the Appellant in India. 3. That the CIT(A) erred in upholding the action of the AO in treating BTIN as a "Fixed Place Permanent Establishment" ("Fixed Place PE") of the Appellant company under Article 5(1) of the Indo-Sweden DTAA. 4. That the AO/CIT(A) erred in concluding the existence of Fixed Place PE solely by relying upon the DRP Directions for AY 2011-12 and without independently analyzing the facts for the year under consideration. 5. That the AO/CIT(A) erred in relying upon the DRP Directions passed for A Y 2011-12 without appreciating that there was a new contract, namely, CS-01, in operation during the year under consideration and DRP findings were based on analysis of only BS-02 contract. 6. That the AO/CIT(A) erred in applying the conclusions, drawn in earlier years, on the basis of analysis of BS-02 contract, to CS-0l contract for concluding that BTIN is PE of the Appellant in India in respect of contract CS-0l with the DMRC and attributing income of INR 1,11,57,158/- to BTIN PE. 7. That the AO/CIT(A) failed to appreciate that the Appellant Company supplied the goods to DMRC outside India during the year under consideration, Income whereof, as per the prevalent jurisprudence, was not taxable in India. 8. That AO/CIT(A) erred in examining the provisions of PE under the Indo-Sweden DTAA, without establishing taxability of the Appellant under the domestic law itself, in light of Explanation 1 to section 9(1), since there was no activity relating to sale of goods in India. 9. That the CIT(A) erred in observing that since DMRC had the right to reject goods sold by the Appellant, the title in such goods passed in India and hence income from such supply was taxable in India. 10. That the CIT(A) failed to appreciate that the basis on which it had arrived at the conclusion of existence of PE in India i.e. bidding for contract, signing of contract, preparation of drawings etc., were not activities relating to the period under consideration and hence the conclusion of existence of PE on such basis was bad in law. 11. That the CIT(A) erred in observing that BTIN was dependent upon the Appellant company for all the technical know and that the Appellant ITA No.6071/Del./2019 3 was controlling and monitoring the activities of BTIN in respect of "BS- 02" and "CS-1" contract. 12. That the CIT(A) erred in alleging that merely because the Appellant company was the leader of the consortium, it was responsible for the onshore activities, which it got executed through BTIN. 13. That the CIT(A) failed to appreciate that BTI was separately charging/billing DMRC for all the services rendered by it and all the receipt to BTIN from "BS-02" and "CS-l" Contract had been duly offered to tax in India by BTIN. 14. That the CIT(A) failed to appreciate that BTIN was not held as a PE of Bombardier Transportation GMBH by the Ld. CIT(A) while deciding the appeal for Bombardier Transportation GMBH and therefore, similar treatment should have been granted to the Appellant. 15. That the CIT(A)/ AO erred in attributing 10% of the net profits from the supply of goods to DMRC as attributable to the alleged BTIN PE of the Appellant company. 16. That the CIT(A) erred in concluding that basis the additional risk, there was a requirement to attribute additional income to the PE. 17. That the CIT(A) grossly erred in selectively relying on the decision of the Hon'ble High Court of Delhi in DIT v. Ericson AB [2011] 16 taxmann.com 371 (Delhi). 18. That without prejudice, the AO/ CIT(A) erred in holding that there existed a PE of the Appellant in India in the form of BTIN despite the conclusion of the AO that there also existed an AOP (consisting of the Appellant and BTIN) in India and as such there could not be parallel findings on AOP and PE consisting of same entities. Re: Consequential Grounds 19. That the AO has erred in initiating penalty proceedings under Section 271 (1)(c) of the Act. The above grounds of appeals are all independent and without prejudice to one and another.” 3. At the outset, ld. Counsel of the assessee stated that he shall not be pressing ground no.5 as referred above, hence the same is dismissed as not pressed. ITA No.6071/Del./2019 4 4. Brief facts of the case are that assessee in this case is a company registered and incorporated under the laws of Sweden. The company is a tax resident of Sweden as contemplated under Article 4 of the India- Sweden Double Taxation Avoidance Agreement. It is engaged in the business of manufacturing of train control and signaling systems for mass transit system. 5. During the current financial year, the assessee entered into a contract dated 16 th April 2013 with DMRC for design, manufacture, supply, installation, testing and commissioning of train control and signaling system ('Contract CS01). Under the terms of the contract, the assessee is responsible for offshore supply of train control and signaling equipments, offshore supply of spares and offshore training. During the year under consideration, assessee received revenue from DMRC for offshore supply of train control and signaling equipment. However, the same was not offered to tax by the assessee. The assessee claimed that the equipment supplied to DMRC has been manufactured at its overseas manufacturing facility. Further, the assessee submitted that the sale of equipment has also occurred outside India and payments have also been received by the assessee outside India. Hence, assessee contended that in view of the provisions of India-Sweden Tax Treaty, the income would not be taxable in India in absence of PE in respect of the offshore supply of train control and signaling equipment to DMRC under Contract CSOL ITA No.6071/Del./2019 5 The assessee placed reliance on the rulings of Ishikawajima Harima Heavy Industries Co Limited v DIT (271 ITR 193) and Hyundai Heavy Industries Co ltd (291 ITR 482), ITR 482),wherein the Courts have upheld that profits from the overseas operations arise outside India and hence, should not be taxable in India. Accordingly, assessee contended that the revenue received by it from DMRC towards offshore supply of train control and signaling equipment are not chargeable to tax in India in the absence of PE. However, AO was of the opinion that BTIN is to be treated as Permanent Establishment of assessee in India as it was held in earlier years. 6. Against the above order, the assessee filed appeal before the ld. CIT (A). Ld. CIT (A) referred to the finding of DRP in assessee’s case for AY 2011-12 and was of the opinion that he was in agreement with the finding of ld. DRP for AY 2011-12. He also found that the contract CS01 and BS2 are similar and the same findings held good for the current assessment year. He also referred to Hon’ble Delhi High Court decision in the case of Ericsson A.B. dated 23.12.2011 and several other decisions. He upheld the AO’s action that assessee has a PE in India in the form of BTIN. However, as regards 35% attribution of gross profits made by the AO, ld. CIT (A0 directed that attribution of 10% will be justified. 7. Against this order, assessee is in appeal before us. We have heard both the parties and perused the record. ITA No.6071/Del./2019 6 8. At the outset, ld. Counsel of the assessee contended that the issue is squarely covered in favour of the assessee by the decision of ITAT in assessee’s own case for earlier and subsequent assessment years as under:- (i) Copy of order dated 29.10.2020 passed by this Hon'ble Tribunal in ITA No. 859/Del/2016 in Appellant's own case for A Y 2011-12. (ii) Copy of order dated 27.11.2020 passed by this Hon'ble Tribunal in ITA No.4448/Del/2018 in Appellant's own case for AY 2012-13. (iii) Copy of order dated 27.09.2021 passed by this Hon’ble Tribunal in ITA No.8246/Del/2018 & 8247/Del/2018 in Appellant's own case for AY 2013-14 and 2015-16. (iv) Copy of order dated 15.02.2022 passed by this Hon'ble Tribunal in ITA No.6963/Del/2018 in Appellant's own case for AY 2014-15. 9. Per contra, ld. DR for the Revenue referred to grounds no.5 and objected that when assessee has himself is saying that contracts are not similar then how the earlier order will apply. Apart from this submission, ld. DR did not make any specific submission whatsoever as to whether what is the difference. Ld. Counsel of assessee has already withdrawn this ground. Therefore, the ld. DR’s objection does not hold water any more. 10. On careful consideration, we find that this issue is covered in favour of the assessee for earlier and subsequent years. It has not been ITA No.6071/Del./2019 7 brought to our notice that any of these decisions have been reversed by Hon’ble jurisdictional High Court. We may gainfully refer to the latest order of ITAT dated 15.02.2022 passed in assessee’s own case in ITA No.6963/Del/2018 for AY 2014-15 as under :- “ 38. We find that during the DRP proceedings, the DRP was misdirected in considering the contract RS 02. This contract is between BTIN Bombardier Transportation, Germany and DMRC and for this contract, Bombardier Transportation Germany has raised invoices on BTIN for offshore manufacture and supply of equipment whereas the contract under consideration is between DMRC and Consortium the appellant and BTIN towards offshore supply train control and signalling equipment. 39. We further find another error in the findings of the DRP wherein it has considered Conny Linusson a seconded employee of Bombardier Sweden. The error is that the said seconded employee was for Rs.02 contract and not BS 02 contract, which is under consideration. We have also gone through the agreement between BTIN and Conny Linusson which fortifies the fact that Conny Linusson for Rs. 02 contract with DMRC. 40. In our considered opinion, the entire findings of the DRP are based on erroneous appreciation of wrong facts and on such erroneous appreciation of wrong facts, the DRP held that BTIN is the PE of the appellant in India without appreciating the true facts that the appellant has no place of disposal in India in the office of BTIN from {here the appellant could have conducted its business in India. 12. On finding parity on facts, respectfully following the decision of the Coordinate Bench we direct the AO to delete the impugned additions. Ground No.3 with all its sub grounds are allowed. 13. Other grounds are consequential In nature and need no separate adjudication. ITA No.6071/Del./2019 8 14. In the result, the appeal filed by the assessee is allowed.” 11. We may also refer to the ITAT order for AY 2011-12 and concluding portion of the said order reads as under :- “38. We find that during the DRP proceedings, the DRP was misdirected in considering the contract RS 02. This contract is between BTIN Bombardier Transportation, Germany and DMRC and for this contract, Bombardier Transportation Germany has raised invoices on BTIN for offshore manufacture and supply of equipment whereas the 20 contract under consideration is between DMRC and Consortium the appellant and BTIN towards offshore supply train control and signalling equipment. 39. We further find another error in the findings of the DRP wherein it has considered Conny Linusson a seconded employee of Bombardier Sweden. The error is that the said seconded employee was for Rs. 02 contract and not BS 02 contract, which is under consideration. We have also gone through the agreement between BTIN and Conny Linusson which fortifies the fact that Conny Linusson for Rs. 02 contract with DMRC. 40. In our considered opinion, the entire findings of the DRP are based on erroneous appreciation of wrong facts and on such erroneous appreciation of wrong facts, the DRP held that BTIN is the PE of the appellant in India without appreciating the true facts that the appellant has no place of disposal in India in the office of BTIN from where the appellant could have conducted its business in India. 41. Before parting, it would not be out of place to consider and appreciate the statement showing computation of total Income tax. The relevant part of the computation of Income tax is as under: i) Fees for intermediary services - Rs. 1,16,81,407/- ii) Fees for product management program - Rs. 24,85,023/- iii) Fees for engineering work - Rs. 1,99,03,046/- ITA No.6071/Del./2019 9 Total - Rs. 21,31,96,890/- 42. The return of income of the assessee shows the net returned income at Rs. 20,15,15,483/- which has also been acknowledged by the Assessing Officer in the first para of his assessment order. This clearly shows that only fees for intermediary services amounting to Rs. 1,16,81,407/- has not been included in the total income and all other receipts have been shown by the appellant in its return of income as taxable. Therefore, it cannot be said that the appellant has not shown any income from the entire transactions in India. 43. Though the ld. DR has strongly objected to this computation of income stating that since the return was filed electronically, this computation was not before the Assessing Officer. In our view, this objection of the ld. DR is without any basis, in as much as, once the 22 return of income is selected for scrutiny assessment the Assessing Officer calls for hard copy of the return along with computation of income. In our view no Assessing Officer could proceed in another assessment proceeding without looking into the returned income qua its computation. 44. Considering the facts in totality, and also the fact that the TPO has examined the international transactions and has accepted the same to be at ALP, we do not find any merit the additions made by the DRP. We accordingly, direct the Assessing Officer to delete the addition of income attributable to PE amounting to Rs. 60,99,630/-. Grounds Nos. 7 to 14 taken together are allowed. 45. In the result the appeal filed by the assessee in ITA No. 859/DEL/2016 is allowed.” 12. Accordingly, in the background of aforesaid precedent, we find that the same issue has been decided by the ITAT consistently in assessee’s favour. The DRP order of AY 2011-12 which has been preferred and referred by AO as well as by ld. CIT (A) has not been upheld by the ITAT and the ITAT has reversed the decision and decided ITA No.6071/Del./2019 10 the issue in favour of the assessee. Since no distinguishing features on the facts of this year and earlier years were brought to our notice, nor it is the case that any of the orders have been reversed by Hon’ble jurisdictional High Court, we follow the order of the coordinate Benches of the ITAT and set aside the orders of the Revenue authorities. 13. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on this 26 th day of September, 2022. Sd/- sd/- (KUL BHARAT) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 26 th day of September, 2022 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT (A)-42, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.