ATOMSTROYEXPORT, RUSSIA, MUMBAI V. DCIT (IT) RG 1(1)(2), MUMBAI

ITA 6985/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2163 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2015-2016
• Appeal Filed On: 06-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V. SREEKAR
• Keywords: Business income; Double taxation relief; Deemed to accrue or arise in india
• Section: 143(3); 144C; 44BB; 9(1); 9(1); 9(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I, BENCH MUM BAI BEFORE SHRI C.N.PRASAD, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.6985/MUM/2018 ( ASSESSMENT YEAR: 2015-16 ) ATOMSTROY EXPORT, RUSSIA C/O NUCLEAR POWER CORPORATION OF INDIA LIMITED 8 TH FLOOR, SOUTH WING VIKRAM SARABHAI BHAVAN ANUSHAKTI NAGAR MUMBAI-400 094 VS. DCIT, (INTERNATIONAL TAXATION) RANGE-1(1)(2) 5 TH FLOOR ROOM NO.528 AIR INDIA BUILDING NARIMAN POINT MUMBAI-400 021 PAN/GIR NO. AA FCA3658N ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI. V.SREEKAR, DR ASSESSEE BY SHRI. K.GOPAL & NEHA PARANJPE, ARS DATE OF HEARING 26 /11 /2019 DATE OF PRONOUNCEME NT 26 /1 1 /2019 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST FINAL ASSESSMENT ORDER PASSED BY THE LD. AO U/S 143(3) R.W.S. 144C (13) OF THE I.T.ACT, 1961, DATED 03/10/2018, IN TUR N. WHICH IS ARISED OUT OF DIRECTIONS OF THE DISPUTE RESOLUTION PANEL ( DRP)- 1(WZ), MUMBAI, U/S 144C(5) OF THE I.T.ACT, 1961 AND IT PER TAINS TO ASSESSMENT YEAR (AY) 2015-16. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. TAXABILITY OF PAYMENT RECEIVED UNDER OFFSHORE SUPPL Y CONTRACTS. ITA NO.6985/MUM/2018 ATOMSTROYEXPORT, RUSSIA 2 1. THE LEARNED DCIT/DRP ERRED IN HOLDING THAT THE A MOUNT OF RS. 39,18,51,205 BY THE APPELLANT COMPANY FROM THE OFFSHORE SUPPLY CONTRACTS WAS TAXABLE IN INDIA. 2. THE L EARNED DCIT/DRP ERRED IN HOLDING THAT THE AMOUNTS R ECEIVED BY THE APPELLANT COMPANY FROM F HE OFFSHORE SUPPLY CON TRACTS ARE COVERED BY THE PROVISIONS OF SECTION 44BBB AND CONS EQUENTLY LIABLE TO TAX IN INDIA. 3) THE LEARNED DCIT/DRP FAILED TO APPRECIATE TH AT THE RECEIPTS FROM THE OFFSHORE SUPPLY CONTRACTS ARE NOT TAXABLE IN IN DIA RELIEF CLAIMED YOUR APPELLANT PRAYS THAT: 1. THE AMOUNT RECEIVED UNDER THE OFFSHORE SUPPLY CONTRACTS IS NOT TAXABLE IN INDIA, THE APPELLANT CRAVES LEAVE TO AMEND OR AFTER ANY OF THE ABOVE GROUNDS OR ADD A NEW GROUND, IF AND WHEN NECESSARY. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A JOINT STOCK COMPANY UNDER THE MINISTRY FOR ATOMIC ENERGY, RUSSI AN FEDERATION, INCORPORATED UNDER THE PROVISION OF RUSSIAN LEGISLA TURE, HAVING ITS REGISTERED OFFICE AT MASCOW, RUSSIA. THE ASSESSEE I S INVOLVED IN THE BUSINESS OF CIVIL CONSTRUCTION/ EREECTION, TESTING AND COMMISSIONING OF POWER PROJECTS IN INDIA. ACCORDINGLY, THE ASSESS EE HAS COMPUTED ITS INCOME UNDER SECTION 44BBB OF THE I.T.ACT 1961. HOWEVER, WHILE CALCULATING, THE PROFITS U/S 44BBB OF THE ACT, THE ASSESEE HAS NOT INCLUDED THE ENTIRE GROSS RECEIPTS RECEIVED FROM TH E INDIAN ENTITY, NPCIL. THE ASSESEE, DURING THE YEAR UNDER CONSIDERA TION HAD EARNED INCOME OF RS. 126,80,33,897/- FROM OFFSHORE SERVICE CONTRACTS, INCOME THERE FROM WERE OFFERED TO TAX AT 10% OF GROSS RECEIPTS, AS PER SECTION 44BBB OF THE ACT. THE ASSE SEE HAS NOT OFFERED TO TAX RECEIPTS FROM OFFSHORE SUPPLY CONTRA CTS, ON THE GROUND THAT SUPPLIES WERE MADE OUTSIDE INDIA AND THE PAYME NTS WERE ALSO MADE OUTSIDE INDIA IN U.S. DOLLARS, AS PER THE CONT RACTS. THE LD. AO DID NOT CONVINCED WITH THE ARGUMENT OF THE ASSESEE AND AFTER CONSIDERING RELEVANT FACTS, INCLUDING CERTAIN JUDIC IAL PRECEDENTS, ITA NO.6985/MUM/2018 ATOMSTROYEXPORT, RUSSIA 3 CAME TO THE CONCLUSION THAT THE ASSESSEE EARNS INCO ME OUT OF ITS RECEIPTS UNDER DIFFERENT SUPPLY CONTRACTS, DUE TO I TS BUSINESS CONNECTION IN INDIA. ACCORDINGLY, EXPLANATION (1)(A ) TO SECTION 9(1)(I) OF THE ACT, PROVIDES FOR REASONABLE ATTRIBUTION OF INCOME TO THE OPERATIONS CARRIED OUT BY THE NON RESIDENT OF INDI A AND ACCORDINGLY, INCLUDED AMOUNT RECEIVED TOWARDS OFFSHORE SUPPLY C ONTRACTS AND ESTIMATED INCOME @10%, U/S 44BBB OF THE I.T.ACT, 19 61. THE ASSESEE HAS FILED OBJECTIONS AGAINST THE DRAFT ASSE SSMENT ORDER BEFORE THE DISPUTE RESOLUTION PANEL (DRP)-1, MUMBAI . THE DRP-1, MUMBAI, VIDE ITS DIRECTIONS 144C (5) OF THE I.T.ACT , 1961, CONFIRMED THE FINDINGS OF THE LD. AO AND DISMISSED, APPEAL FI LED BY THE ASSESEE. CONSEQUENT TO DIRECTIONS OF THE DRP, THE L D. AO HAS PASSED FINAL ASSESSMENT ORDER U/S 143(3) R.W.S. 144 C(13) OF THE I.T.ACT, 1961 AND MADE ADDITIONS TOWARDS PROFIT FRO M OFFSHORE SUPPLY CONTRACTS U/S 44BBB OF THE I.T.ACT, 1961. AGGRIEVED BY THE DRP DIRECTIONS, THE ASSESEE IS IN APPEAL BEFORE US. 4. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEAR ING SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI IN ASSESSEES OWN CASE RIG HT FROM AY 2007-08 TO 2013-14, WHERE UNDER IDENTICAL FACTS AND CIRCUMSTANCES, THE TRIBUNAL HELD THAT AMOUNT RECEIVED TOWARDS OFFS HORE SUPPLY CONTRACTS ARE NOT LIABLE TO TAX IN INDIA, BECAUSE T HE GOODS WERE SUPPLIED IN OUTSIDE INDIA AND ALSO, PAYMENTS FOR SA ID SUPPLIES WERE RECEIVED IN U.S. DOLLARS IN OUTSIDE INDIA. 5. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED T HAT THE ISSUE IS SQUARELY COVERED IN FAVOR OF THE ASSESSEE BY THE DE CISION OF ITAT FOR ITA NO.6985/MUM/2018 ATOMSTROYEXPORT, RUSSIA 4 EARLIER YEARS. HOWEVER, HE STRONGLY SUPPORTED ORDER OF THE LD. AO, AS WELL AS THE DIRECTIONS OF THE DRP. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. THE ONLY ISSUE THAT CAME UP OF OUR CONSIDERATION IS WHETHER, ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AMOUNT RECEIVED TOWA RDS OFFSHORE SUPPLY CONTRACTS IS LIABLE TO TAX IN INDIA U/S 44BB B OF THE I.T.ACT, 1961, IS NO LONGER A RES-INTEGRA . THE COORDINATE BENCH OF ITAT IN ASSESSEES OWN CASE FOR AY 2007-08 TO 2011-12 HAD C ONSIDERED AN IDENTICAL ISSUE AND AFTER CONSIDERING RELEVANT FACT S HELD THAT OFFSHORE SUPPLY CONTRACTS WERE CARRIED OUT AND CONCLUDED OUT SIDE AND HENCE, NO INCOME THERE-FROM DEEMED TO ACCRUE OR ARISE IN I NDIA IN TERMS OF SECTION 9(1)(I) OF THE I.T.ACT, 1961 AND DTAA PROVI SIONS AND ACCORDINGLY, NOT CHARGEABLE TO TAX. THE RELEVANT FI NDINGS OF THE TRIBUNAL ARE AS UNDER:- 15. THEREFORE, AFTER ANALYZING THE VARIOUS CASE LA WS, STATUTORY PROVISIONS, DTAA PROVISIONS AND CONTRACTUAL TERMS A ND RESPECTFULLY FOLLOWING JUDGMENT OF HONBLE SUPREME COURT IN ISHI KAWAJIMA-HARIMA HEAVY INDUSTRIES LIMITED VS. DIT (288 ITR 408), WE ARE INCLINED TO HOLD THAT OFFSHORE SUPPLY CONTRACTS WERE CARRIED AND CON CLUDED OUTSIDE INDIA AND HENCE NO INCOME THERE FROM DEEMED TO ACCRUE OR ARISE IN INDIA AS PER SECTION 9(1) AND DTAA PROVISIONS AND ACCORDINGL Y, NOT CHARGEABLE TO TAX. THE RECEIPTS THEREOF DO NOT FOR PART OF RECEIP TS FOR THE PURPOSE OF COMPUTATIONAL PROVISIONS OF SECTION 43BBB. EXPLANAT ION 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 44BBB OF THE ACT. WE HELD SO. 7. WE, FURTHER NOTED THAT AN IDENTICAL ISSUE HAS BE EN CONSIDERED FOR AY 2014-15 IN ITA NO. 6945/MUM/2017, WHERE BY F OLLOWING THE EARLIER ORDER OF THE TRIBUNAL, THE COORDINATE BENCH HELD THAT AMOUNT RECEIVED TOWARDS SUPPLY OF MATERIAL AND EQUIPMENT U NDER OFFSHORE ITA NO.6985/MUM/2018 ATOMSTROYEXPORT, RUSSIA 5 SUPPLY CONTRACTS WOULD NOT FORM PART OF THE BUSINES S RECEIPTS FOR THE PURPOSE OF SECTION 44BBB OF THE I.T.ACT, 1961. 8. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE COORDINATE BENCH FOR EARLIER YEARS, WE ARE OF THE C ONSIDERED VIEW THAT AMOUNT RECEIVED TOWARDS OFFSHORE SUPPLY CONTRA CTS, IN RESPECT OF GOODS SUPPLIED OUTSIDE INDIA IS NOT LIABLE TO TA X IN INDIA IN TERMS OF SECTION 9(1) OF THE I.T.ACT, 1961 AND UNDER DTAA PR OVISIONS AND ACCORDINGLY, DIRECT THE AO TO DELETE ADDITIONS MADE TOWARDS ESTIMATION OF INCOME U/S 44BBB OF THE I.T.ACT, 1961 , IN RESPECT OF OFFSHORE SUPPLY CONTRACTS. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26 /11 /2019 SD/- ( C.N.PRASAD) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 26/11/2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//