Bombardier Transportation Sweden AB, New Delhi V. DCIT (International Taxation), New Delhi

ITA 859/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4167 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 18-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAN CHOPDA
• Keywords: Transfer pricing; Double taxation relief; International transaction; Assessment record
• Section: 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI D BEN CH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO. 859/DEL/2016 [A.Y 2011-12] BOMBARDIER TRANSPORTATION SWEDEN AB VS. THE D.C.I.T A-4, GREATER KAILASH, INTERNATIONAL TAXAT ION, PART-I, NEW DELHI. CIRCLE - 1(1)(2), NEW DELHI. PAN: AAACI 0233 Q [APPELLANT] [RESPONDENT] ASSESSEE BY : SHRI DEEPAK CHOPDA, ADV SHRI ANMOL ANAND, ADV MS. PRIYA TANDON, ADV REVENUE BY : SHRI RAMAN CHOPDA, CIT -DR DATE OF HEARING : 27.10.2020 DATE OF PRONOUNCEMENT : 29. 10.2020 2 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE C ORRECTNESS OF THE ORDER DATED 21.01.2016 FRAMED UNDER SECTION 143 (3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT, 1961 [HEREI NAFTER REFERRED TO AS 'THE ACT' FOR SHORT]. 2. GROUND NOS.1 AND 2 ARE GENERAL IN NATURE AND NEE D NO SEPARATE ADJUDICATION. 3. GROUND NO. 3 IS ON EXISTENCE OF ASSOCIATION OF P ERSONS. 4. IN HIS WRITTEN SUBMISSIONS, THE LD. COUNSEL FOR THE ASSESSEE HAS CATEGORICALLY MENTIONED THAT THIS GROUND IS ACADEMI C IN NATURE. ON SUCH CONCESSION, WE DO NOT FIND IT NECESSARY TO ADJ UDICATE UPON THIS GROUND FOR ACADEMIC INTEREST. GROUND NO. 3 STANDS DISMISSED. 5. GROUNDS NO. 4 TO 6 RELATE TO TAXATION OF INTERME DIARY SERVICES. 3 6. THE ASSESSEE IS AGGRIEVED BY THE TREATMENT OF RS .1,16,81,407/- RECEIVED ON ACCOUNT OF INTERMEDIARY SERVICES AS BEI NG A TAXABLE AS FEES FOR TECHNICAL SERVICES. 7. REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH. CASE RECORDS CAREFULLY PERUSED. 8. FACTS EMANATING FROM THE ASSESSMENT RECORD SHOW THAT DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAD REN DERED INTERMEDIARIES SERVICES LIKE MARKETING, SALES, BUSI NESS DEVELOPMENT, PROJECT MANAGEMENT, CUSTOMER SERVICES ETC. TO BOMBA RDIER TRANSPORTATION INDIA LTD [BTIN] AND RECEIVED FEES F OR INTERMEDIARY SERVICES AMOUNTING TO RS.1,16,81,407/. AT THIS STAG E, IT WOULD BE PERTINENT TO MENTION THAT THE APPELLANT COMPANY IS REGISTERED AND INCORPORATED UNDER THE LAWS OF SWEDEN AND IS A NON- RESIDENT AND TAX RESIDENT OF SWEDEN. 9. THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANU FACTURING OF TRAIN CONTROL AND SIGNALLING SYSTEMS FOR MASS TRANS IT SYSTEM. DURING THE YEAR, THE APPELLANT ENTERED INTO INTERNATIONAL TRAN SACTIONS WITH ITS ASSOCIATED ENTERPRISES [AE]. THE CASE WAS REFERRED TO THE TRANSFER 4 PRICING OFFICER [TPO] AND THE TPO, VIDE HIS ORDER D ATED 19.01.2015 HAS DRAWN NO ADVERSE INFERENCE WITH RESPECT TO INTERNAT IONAL TRANSACTIONS CARRIED OUT BY THE APPELLANT AND, THEREFORE, NO ADJ USTMENT WAS MADE TO THE TAXABLE INCOME. 10. AS MENTIONED ELSEWHERE, THE APPELLANT HAS RECEI VED FEES FOR INTERMEDIARY SERVICES AMOUNTING TO RS. 1,16,81,407/ -. THE ASSESSING OFFICER ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY REVENUES RECEIVED FROM INTERMEDIARY SERVICES MAY NOT BE TAXED IN INDI A AS FTS. 11. IN ITS REPLY, THE APPELLANT STATED THAT IT IS A HUB ENTITY FOR THE RAIL CONTROL SOLUTIONS [RCS] BUSINESSES OF BOMBARDI ER GROUP AND IT HOUSES FUNCTIONAL HEADS FOR VARIOUS FUNCTIONAL AREA S LIKE ADMINISTRATION, PROCUREMENT, ENGINEERING, QUALITY, PROGRAM MANAGEMENT AND MARKETING, EACH CATERING TO WORLDWID E RCS BUSINESS. IT WAS POINTED OUT THAT THE APPELLANT HAD RENDERED INTERMEDIARY SERVICES TO BTIN DURING THE YEAR. AGREEMENT WITH BT IN WAS FURNISHED AND IT WAS POINTED OUT THAT IT DOES NOT SATISFY ANY MARK UP TO BE RETAINED BY THE APPELLANT WITH RESPECT TO SERVICES RENDERED BY BTIN. 5 12. EXPLAINING AS TO WHY FTS IS NOT APPLICABLE, THE ASSESSEE STATED THAT IT HAS CLAIMED BENEFIT OF PROVISIONS OF ARTICL E 12 OF INDIA SWEDEN DOUBLE TAXATION AVOIDANCE AGREEMENT [DTAA] SINCE TH EY ARE MORE BENEFICIAL TO IT. 13. THE ASSESSEE ALSO PLACED RELIANCE ON PROTOCOL 7 OF THE TREATY ACCORDING TO WHICH, IF THE SCOPE OF TAXABILITY OF F TS IS RESTRICTED ON ACCOUNT OF AGREEMENT BETWEEN INDIA AND A THIRD STAT E, WHICH IS A MEMBER OF OECD, THEN SUCH LIMITED SCOPE WOULD APPLY TO SWEDISH TREATY IN THE SAME MANNER. IN THE LIGHT OF THIS, RE LIANCE WAS PLACED ON PORTUGUESE TREATY WHEREIN THE SCOPE OF FTS IS RESTR ICTED ON ACCOUNT OF REQUIREMENT OF MAKE AVAILABLE CLAUSE. 14. THE ENTIRE SUBMISSIONS OF THE ASSESSEE WERE RUB BISHED BY THE ASSESSING OFFICER WHO WAS OF THE FIRM BELIEF THAT T HE NATURE OF INTERMEDIARY SERVICES PROVIDED BY THE APPELLANT TO BTIN ARE NOT DISPUTED AND THUS ARE ADMITTEDLY IN THE NATURE OF F TS AS PER PROVISIONS OF THE ACT. THE ASSESSING OFFICER WAS OF THE OPINIO N THAT IT IS NOT ONLY TECHNICAL KNOWLEDGE OR SKILL THAT MUST BE MADE AVAI LABLE, BUT EVEN COMMON PLACE EXPERIENCE, KNOW-HOW OR PROCESSE S IF MADE AVAILABLE CAN RESULT IN TAXABILITY OF FTS. THE ASSE SSING OFFICER WAS OF 6 THE FIRM BELIEF THAT EVEN DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN OR TECHNICAL DESIGN MAY RESULT IN FTS BECOMING TAXABLE . 15. DRAWING SUPPORT FROM THE DECISION OF THE TRIBUN AL OF BANGALORE BENCH IN THE CASE OF BOVIS LAND LEASE [INDIA[ PRIVA TE LIMITED, THE ASSESSING OFFICER HELD THAT THE REVENUE EARNED BY T HE ASSESSEE FROM INTERMEDIARY SERVICES RENDERED TO BTIN ARE TAXABLE IN INDIA. 16. OBJECTIONS WERE RAISED BEFORE THE DRP BUT WERE OF NO AVAIL. 17. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN ARGUED BEFORE THE LOWER AUTHORITIES. 18. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESS EE THAT ON IDENTICAL SET OF FACTS, IN ASSESSEES OWN CASE FOR A.Y 20101 1, THE CIT(A) VIDE ORDER DATED 07.06.2016 AND FURTHER IN A.Y 201213, VIDE ORDER DATED 31.03.2018, HAS CATEGORICALLY OBSERVED THAT THE SAI D INTERMEDIARY SERVICES RENDERED BY THE APPELLANT TO BTIN DOES NO T SATISFY THE MAKE AVAILABLE CLAUSE AND DOES NOT AMOUNT TO FTS. THE L D. COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT THAT THE ORDER OF THE CIT(A) FOR A.Y. 2010 7 11 WAS NOT APPEALED BY THE REVENUE OR BY THE APPELL ANT BEFORE THE TRIBUNAL AND HENCE, HAS ATTAINED FINALITY. 19. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE ASSESSING OFFICER. IT IS THE SAY OF THE LD. DR THAT IMPORT OF FINDINGS GIVEN BY CIT(A) IN A.Y 201011 IS IMMATERIAL, AS MF N BENEFIT HAS BEEN ALLOWED BY THE ASSESSING OFFICER THIS YEAR. 20. THE LD. DR VEHEMENTLY STATED THAT MAKE AVAILAB LE CLAUSE ENABLES TO USE TECHNOLOGY AND AS THE APPELLANT IS I NVOLVED IN GUIDANCE OF THE PROJECTS, THE SAID SERVICES HAVE BEEN MADE A VAILABLE TO THE RECIPIENT SERVICES. REFERRING TO ARTICLE 12(3) OF I NDIA SWEDEN TAX TREATY, THE LD. DR STRONGLY SUBMITTED THAT THE SERV ICES RENDERED BY THE APPELLANT ARE COVERED UNDER THE TREATY AS FTS. THE MAIN CONTENTION OF THE LD DR IS THAT CERTAIN SERVICES LIKE GUIDANCE AN D ADVICE INSTALLATION AND MANAGEMENT OF EQUIPMENT SUPPLY CANNOT BE CONSID ERED AS MANAGERIAL SERVICES AND HENCE FTS. THE LD. DR CONCL UDED BY SAYING THAT CERTAIN SERVICES ARE MANAGERIAL SERVICES AND C ERTAIN SERVICES ARE TECHNICAL SERVICES. 8 21. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE R IVAL SUBMISSIONS AND HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHOR ITIES BELOW. THERE IS NO DISPUTE THAT DURING THE YEAR UNDER CONSIDERAT ION, THE APPELLANT HAS RENDERED SERVICES LIKE MARKETING, SALES, DESIGN DEVELOPMENT, PROJECT MANAGEMENT CUSTOMER SERVICES ETC. AND HAS R ECEIVED FEES AMOUNTING TO RS. 1.16 CRORES WHICH HAVE NOT BEEN OF FERED FOR TAX IN THE RETURN OF INCOME. IT IS EQUALLY TRUE THAT THE A PPELLANT IS HUB ENTITY FOR RCS BUSINESS OF BOMBARDIER GROUP AND ACCORDINGL Y, THE APPELLANT RENDERED INTERMEDIARY SERVICES TO BTIN. 22. SINCE THE APPELLANT IS A TAX RESIDENT OF SWEDEN , IT IS ENTITLED TO BENEFITS OF INDO SWEDEN DTAA AND PROTOCOLS THEREOF, AND PROTOCOL 7 OF THE TREATY PROVIDES SCOPE OF TAXABILITY OF FTS WHIC H IS RESTRICTED ON ACCOUNT OF AGREEMENT BETWEEN INDIA AND A THIRD STAT E. WE FIND THAT UNDER THE INDIA PORTUGUESE TREATY, SCOPE OF FTS IS RESTRICTED ON ACCOUNT OF REQUIREMENT OF MAKE AVAILABLE CLAUSE. 23. ON THIS BASIS, THE CITA IN A.Y 201011, HAS CAT EGORICALLY OBSERVED THAT THE SAID INTERMEDIARY SERVICES RENDERED BY THE APPELLANT TO BTIN DOES NOT SATISFY THE MAKE AVAILABLE CLAUSE AND DO ES NOT AMOUNT TO FTS. 9 24. IN OUR CONSIDERED OPINION, T HE TECHNICAL OR CONSULTANCY SERVICES RENDERED SHOULD BE AIMED AT AND RESULT IN TRANSMITT ING TECHNICAL KNOWLEDGE, ETC., SO THAT THE PAYER OF THE SERVICE C OULD DERIVE AN ENDURING BENEFIT AND UTILIZE THE KNOWLEDGE OR KNOW- HOW ON HIS OWN IN FUTURE WITHOUT THE AID OF THE SERVICE PROVIDER. THE TECHNICAL KNOWLEDGE OR SKILLS OF THE PROVIDER SHOULD BE IMPAR TED TO AND ABSORBED BY THE RECEIVER SO THAT THE RECEIVER CAN DEPLOY SIM ILAR TECHNOLOGY OR TECHNIQUES IN THE FUTURE WITHOUT DEPENDING UPON THE PROVIDER. TECHNOLOGY WILL BE CONSIDERED 'MADE AVAILABLE' WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHN OLOGY. 25. THE FACT THAT THE PROVISION OF THE SERVICE THAT MAY REQUIRE TECHNICAL KNOWLEDGE, SKILLS, ETC., DOES NOT MEAN TH AT TECHNOLOGY IS MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE . IN OUR CONSIDERED VIEW, PAYMENT OF CONSIDERATION WOULD BE REGARDED AS 'FEE FOR TECHNICAL/INCLUDED SERVICES' ONLY IF THE TWIN TEST OF RENDERING SERVICES AND MAKING TECHNICAL KNOWLEDGE AVAILABLE AT THE SAM E TIME IS SATISFIED. FOR THIS, WE DERIVE SUPPORT FROM THE DECISION OF T HE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF DE BEERS INDIA MINERALS PRIVATE LIMITED 346 ITR 467. 10 26. IN CONSIDERATION OF TOTALITY OF FACTS, WE ARE O F THE OPINION THAT THE INTERMEDIARY SERVICES RENDERED BY THE APPELLANT DO NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, SKILL ETC TO BTI N AND BTIN IS NOT A EQUIPPED TO APPLY TECHNOLOGY CONTAINED IN SERVICES RENDERED BY THE APPELLANT. THEREFORE, THE INTERMEDIARY SERVICES PRO VIDED BY THE APPELLANT TO BTIN DO NOT TANTAMOUNT TO FTS AND ACCO RDINGLY, SHALL NOT BE TAXABLE IN INDIA. ACCORDINGLY, GROUND NOS. IS 4 TO 6 TAKEN TOGETHER, ARE ALLOWED. 27. GROUND NOS. 7 TO 15 RELATE TO EXISTENCE OF PERM ANENT ESTABLISHMENT [PE]. 28. THIS GRIEVANCE RELATES TO THE FACT THAT THE DRP HAS ENHANCED THE INCOME OF THE APPELLANT ON ACCOUNT OF PE IN INDIA. 29. FACTS ON RECORD SHOW THAT DURING THE PROCEEDING S BEFORE THE DRP, THE DRP EXAMINED CLAUSES FROM THE AGREEMENT WI TH DMRC AS WELL AS CONSORTIUM AGREEMENT BETWEEN THE APPELLANT AND B TIN AND OBSERVED THAT THE APPELLANT HAS PE IN INDIA IN THE FORM OF BTIN. HAVING HELD THAT BTIN IS THE PE OF THE APPELLANT IN INDIA, THE DRP ATTRIBUTED 11 THE INCOME EARNED BY THE APPELLANT FROM OFFSHORE SU PPLY OF GOODS AND EQUIPMENT TO THE PE ON GROSS BASIS. 30. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY STATED THAT THE DRP HAS GROSSLY ERRED IN NOT APPRECIATING THE FACT THAT THE SUPPLIES MADE UNDER BS-02 AGREEMENT WERE OFFSHORE S UPPLIES AND THE SAME WERE NOT TAXABLE IN INDIA. IT IS THE SAY OF TH E LEARNED COUNSEL FOR THE ASSESSEE THAT THE DRP HAS FURTHER ERRED IN OBSE RVING THAT THE CONTRACT BETWEEN DMRC AND CONSORTIUM CONSISTING OF THE APPELLANT AND BTIN IS INTERLINKED, INTERVENED AND INDIVISIBLE . 31. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER PO INTED OUT THAT FOR HOLDING BTIN AS PE IN INDIA, THE DRP CONCLUDED THAT THE PE WAS INSTRUMENTAL SINCE THE STAGE OF BIDDING, NEGOTIATI ONS, SIGNING OF CONTRACT, PREPARATION OF DESIGNS AND PLANS, MANAGEM ENT, DELIVERY OF TRAIN SIGNALLING SYSTEMS AND FINAL DELIVERY TO DMRC AND THE WARRANTY OF EQUIPMENT ETC. 32. THE LEARNED COUNSEL VEHEMENTLY STATED THAT THE ENTIRE FINDINGS OF THE DRP ARE BASED UPON INCORRECT FACTS, IN AS MU CH AS, THE DRP HAS CONSIDERED RS.-02 CONTRACT WHEREAS THE CORRECT CON TRACT WAS BS-02 12 WHICH WAS DESIGN, MANUFACTURE, SUPPLY, INSTALLATION TESTING AND COMMISSION OF TRAIN CONTROL AND SIGNALLING SYSTEMS. THE LEARNED COUNSEL FOR THE ASSESSEE CONCLUDED BY STATING THAT THE DISP OSAL TEST HAS NOT BEEN SATISFIED AS NO PLACE OF DISPOSAL WAS AVAILABL E TO THE APPELLANT IN INDIA AND FOR THIS PROPOSITION, RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF FORMULA O NE WORLD CHAMPIONSHIP LTD 80 TAXMANN.COM 347. 33. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE DRP. IT IS THE SAY OF THE LD. DR THAT SINCE IT IS COMPOS ITE CONTRACT, THEREFORE, THERE HAS TO BE ATTRIBUTION. THE LD. DR POINTED OUT THAT AS PER THE CONTRACT, LIABILITY WAS FASTENED JOINTLY AND SEVERA LLY AND THE SAME PROFIT HAS TO BE ATTRIBUTED FOR SUPPLY MADE TO INDI A BY THE APPELLANT. 34. REFERRING TO THE FINDINGS OF THE DRP AT PAGES 1 8 & 19 OF ITS ORDER, THE LD. DR POINTED OUT THAT THE SECONDED EMPLOYEE O F BOMBARDIER TRANSPORTATION SWEDEN WHO HAS BEEN SECONDED TO BOMB ARDIER INDIA AND IS OVERALL RESPONSIBLE FOR ENTIRE DELIVERY INCL UDING MECHANICAL AND ELECTRICAL EQUIPMENT AND COMMISSIONING OF THE TRAIN AND ENSURING BT STANDARD IN ALL TESTING ACTIVITIES PRIOR DELIVERY O F TRAIN IN CONNECTION 13 WITH THE CONTRACT WITH DMRC. THE LD. DR RESTED HIS SUBMISSIONS ON THE FOLLOWING FINDINGS OF THE DRP: 1. THERE IS A EXPAT EMPLOYEE WHO IS BEING PAID A V ERY HIGH SALARY OF RS.7,35,26,751. THIS SHOWS THAT HIS JOB I S OF PARAMOUNT IMPORTANCE FOR THE CONTRACT WITH DMRC AND HIS JOB R ESPONSIBILITIES AS DEFINED IN THE APPOINTMENT LETTER INCLUDE COORDI NATION WITH DMRC ENGINEERS FOR COMPLETION OF CONTRACT. 2. HE HAS OVERALL TECHNICAL RESPONSIBILITY FOR THE ENTIRE SCOPE OF DELIVERY INCLUDING ELECTRICAL AND MECHANICAL EQ UIPMENTS. 3. HE IS ALSO REQUIRED TO PROVIDE TECHNICAL SUPPOR T DURING TRAIN COMMISSIONING IN NEW DELHI, ENSURE BT STANDARDS IN ALL TESTING ACTIVITIES PRIOR TO THE DELIVERY OF THE TRAINS TO T HE CUSTOMER. 4. THE CONTRACTOR IS RESPONSIBLE FOR SHIPMENT OF G OODS TO INDIA. 5. THE CONTRACTOR IS RESPONSIBLE FOR ALL LEGAL REQ UIREMENTS, DUTIES,- DUES, TAXES, AND OTHER SUCH REQUIREMENTS AND EXPEND ITURE REQUIRED FOR THE IMPORTATION OF THE WORKS, THE EQUIPMENT, SP ARE PARTS AND OTHER ITEMS TO BE SUPPLIED UNDER THE CONTRACT INTO DELHI. 6. THE CONTRACTOR SHALL CLEAR THE WORKS, THE EQUIPM ENT, THE SPARE PARTS AND OTHER ITEMS TO BE SUPPLIED UNDER TH E CONTRACT THROUGH DELHI CUSTOMS/INDIA SEA PORT IN ACCORDANCE WITH ALL GOVERNMENT OF INDIA ENACTMENTS. 14 7. FURTHER, AS PER THE TERMS AND CONDITIONS OF THE CONTRACT, THE CONTRACTOR IS RESPONSIBLE FOR INLAND TRANSPORTA TION IN INDIA, DELIVERY AND TESTING IN THE DEPOT OF ALL OFFSHORE E QUIPMENT 8. THUS, THE RESPONSIBILITY OF BT SWEDEN IS TO TRAN SPORT ALL OFF SHORE EQUIPMENT IN INDIA UP TO THE SITE OF DMRC IN DELHI AND THERE AFTER CARRY OUT THE ENTIRE TESTING OF THE EQUIPMENT IN THE DEPOT OF DMRC. 9. THE COST ENTERS SHOW THAT THE ENTIRE ACTIVITIES FROM PRELIMINARY PLANNING TILL TRANSFER, OF TECHNOLOGY I S AN INTEGRATED ACTIVITY. 10. THE ROLE OF BT1N IN OVERALL FUNCTIONING AND EXE CUTION OF THE CONTRACT FROM BIDDING TO SUPPLIES AND POST SUPPLY A CTIVITIES IS DEFINITELY SIGNIFICANT FOR THE BT SWEDEN. 11. THE ACTIVITIES RELATING TO DELIVERY OF OFFSHOR E MANUFACTURE EQUIPMENT AT THE NOMINATED SITES AND THERE AFTER TE STING AND COMMISSIONING ARE ACTIVITIES WHICH ARE COMPLETED WI TH ACTIVE AND COHERENT PARTICIPATION BY BT SWEDEN AND BTIN AND UT ILIZATION OF THE PREMISES OF BTIN BY BT SWEDEN 12. FOR THE SAME CONTRACT IN RESPECT OF RS2 PROJEC T THERE-IS A PROJECT OFFICE EXISTING IN INDIA. 15 13. THE CASES OF ISHIKAWAJIMA AND HYUNDAI HEAVY IND USTRIES ARE NOT APPLICABLE AS THE CONTRACT IN THE CASE OF THE A SSESSEE IS A COMPOSITE INDIVISIBLE CONTRACT. 14. AS PER THE TERMS AND CONDITIONS OF THE CONTRACT , IT IS CLEAR THAT THE ASSESSEE IS WORKING WITH DMRC ON A COMPOSITE CO NTRACT. 35. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE R IVAL CONTENTIONS AND HAVE CAREFULLY PERUSED THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD IN THE FORM OF PAPER BOOK IN LIGH T OF RULE 18(6) OF ITAT RULES. THE UND ISPUTED FACT IS THAT THE SUPPLIES MADE UNDER THE BS-02 AGREEMENT WERE OFF SHORE SUPPLIES. THE HON'BL E SUPREME COURT IN THE CASE OF ISHIKAWAJIMA HARIMAHEAVY INDUSTRIES LTD 158 TAXMAN 259 HAS CATEGORICALLY HELD THAT ONLY SUCH PART OF T HE INCOME AS IS ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA CAN BE TAXED IN INDIA. SAME VIEW WAS TAKEN BY THE HON'BLE HIGH COUR T OF DELHI IN THE CASE OF NORTEL NETWORKS INDIA INTERNATIONAL INC & O RS 386 ITR 0353. 36. WE HAVE ALSO CONSIDERED THE AGREEMENT BETWEEN T HE APPELLANT AND BTIN. WE FIND THAT AS PER THIS MOU, SCOPE OF W ORK BETWEEN EH APPELLANT AND BTIN ARE CLEARLY BIFURCATED. THE REL EVANT PART READS AS UNDER: 16 WHEREAS BT SWEDEN, BT INDIA AND THEIR SUBSIDIARIES/AFFILIATES AS A FULLY INTEGRATED GROUP ARE DESIROUS AND POSSESS FULL CAPABILITY TO EFFECTIVELY EXECUTE THE PROJECT. WHEREAS IN VIEW OF THE PRESCRIBED 'ELIGIBILITY CRIT ERIA AS DETAILED IN CLAUSE A 5.2 (B) OF INSTRUCTIONS TO TENDERERS('ITT) OF DMRC TENDER BS02 DOCUMENT, BTSWE DEN HAS BEEN SELECTED AS THE LEAD MEMBER FOR THE ABOVE PROJECT OFDMRC AND BT INDIA HAS BEEN DESIGNATED TO ACT AS T HE LOCAL INDIAH MEMBER OF THE CONSORTIUM - . - NOW MOU WILL COVER THE FOLLOWING: ' PURPOSE/ AREA OF THE MOU 1.1 THE PURPOSE, OF THE MOU (HEREINAFTER REFERRED TO A S THE 'PURPOSE') IS TO PROVIDE AS FOLLOWS: BT SWEDEN WILLGETAS THE LEAD MEMBER BT INDIA WILL PTIIS A LOCAL INDIAN MEMBER BROADLY IDENTIFY PARTS OF THE PROJECT TO BE UNDERTA KEN BY BT SWEDEN AS THE LEAD MEMBER UNDER THE ELIGIBILI TY CRITERIA AND THOSE TO BE UNDERTAKEN BY BT INDIA AS LOCAL INDIAN MEMBER. / 2. SCOPE OF WORK OF BT SWEDEN AND BT INDIA THE RESPECTIVE PARTS OF PROJECT TO BE UNDERTAKEN BY BT SWEDEN AND BT INDIA ARE AS FOLLOWS: 17 PARTS OF SCOPE TO BE UNDERTAKEN BY BT SWEDEN 2.1 BT SWEDEN WILL BE RESPONSIBLE FOR THE 'OFF-SHOR E' PORTION OF THE CONTRACT* 2.2 BT SWEDEN WILL SUPPLY; AUTOMATIC TRAIN PROTECTION (ATP')/(ATO) O COMPUTE R BASED INTERLOCKING PARTS OF CODED AUDIO FREQUENCY TRACK CIRCUITS PAR TS OF AUTOMATIC TRAIN SUPERVISION ('ATS') MAIN LINE POINT MACHINES ETC. 2.3 BT SWEDEN WILL UNDERTAKE OFFSHORE TRAINING. PARTS OF SCOPE TO BE UNDERTAKEN BY BT INDIA , 2.4 BT INDIA SHALL BE RESPONSIBLE FOR ALL'ON-SHORE ACT IVITIES . 2.5 BT INDIA WILL PROCURE AND SUPPLY OTHER EQUIPMENT AVAILABLE LOCALLY SUCH AS CABLES, ATS WORK STATIONS , SERVERS, MIMIC PANEL, LEO SIGNALS, DEPOT POINT MACHINES, AUD IO FREQUENCY TRACK CIRCUITS FOR DEPOT, PARTS OF CODED AUDIO FREQUENCY TRACK CIRCUITS, WAYSIDE HARDWARE DIRECTLY TO DMRC. 2.6 BT INDIA WILL PROVIDE MAJOR LOCAL SUPPORT FOR APPLICATION/ ADAPTATION FOR SIGNALING & TRAIN CONTR OL SYSTEM. 2.7 BT INDIA WILL BE RESPONSIBLE FOR INSTALLATION, TES TING AND COMMISSIONING UNDER THE GUIDANCE/ INSTRUCTION OF BT SWEDEN. 18 2.8 BT INDIA WILL ARRANGE FOR INCIDENTAL SERVICES LIKE INSURANCE, LOCAL & OVERSEAS TRANSPORTATION, CLEARAN CE AT PORT, UNLOADING AT PORT, UNLOADING AT DMRC, SALTING UP A LOCAL SITE OFFICE IN DELHI. 2.S BT INDIA WILL MANAGE PROJECT SITES, WARRANTY /MAINTENANCE SERVICE SITES IN DELHI. 2.10 BT INDIA WILL BE RESPONSIBLE FOR PROVIDING ONSHORE TRAINING TO THE OFFICIALS OF DMRC. 2.11 THE PERCENTAGE PARTICIPATION OF BT SWEDEN IS 50% A ND THE PERCENTAGE PARTICIPATION OF BT INDIA IS 50%. 2.12 IRRESPECTIVE OF THE JOINT AND SEVERAL LIABILITY TO WARDS DMRC FOR ANY DEFAULT BY ANY PARTY, THE PARTY NOT RE SPONSIBLE FOR THE RESPECTIVE DEFAULT WILL HAVE THE RIGHT TO B E INDEMNIFIED BY THE OTHER PARTY, 3. CO-OPERATION PRINCIPLES . - 3.1 IT IS CLARIFIED THAT THE PROPOSED ARRANGEMENTS BETW EEN ~_ SCOPE SHALL BE ON 'PRINCIPAL TO PRINCIPAL' BASIS. 3.2 THE CO-OPERATION DEFINED IN THIS MOU IS ON AN EXCL USIVE BASIS AND SHALL BE SUBJECT TO BT INTERNAL POLICIES AND GUIDELINES. 3.3 IN THE EVENT OF CONTRACT, THIS MOU WILL BE FURTHER ELABORATED FOR DETAILED CLARITY OF SCOPE SPLIT IN M EETING THE OVERALL PROJECT REQUIREMENT 3.4 19 3.5 THE DETAILED INTERFACES AND SCOPE OF SUPPLY & SERV ICES IS DEFINED AFTER TAKING INTO CONSIDERATION EACH ENT ITIES EXPERIENCE OND CAPABILITIES WHILE CONSIDERING THE R EQUIREMENT OF THE TENDER DOCUMENT OF DMRC AND IN PARTICULAR TH E NEED TO INVOLVE SUITABLE LOCAL PARTNERS. 14. THE DATE OF LETTER OF ACCEPTANCE IS 17-09-2007 WHILE THE MOU IS DATED 11-10-2007. THUS, THE MOU BETWEEN B T SWEDEN AND BUN HAS BEEN SIGNED AFTER THE CONTRACT H AS BEEN ACCEPTED 37. AS MENTIONED ELSEWHERE, THE APPELLANT DOES NOT HAVE ANY PLACE OF BUSINESS IN INDIA AND ALL BUSINESS ACTIVITIES WI TH RESPECT TO OFFSHORE SUPPLIES ARE CARRIED OUTSIDE INDIA. THE EQUIPMENT S UPPLY HAS BEEN MANUFACTURED AT OVERSEAS MANUFACTURING FACILITY OF THE APPELLANT AND SALE OF EQUIPMENT HAS OCCURRED OUTSIDE INDIA AND PA YMENT HAS ALSO BEEN RECEIVED BY THE APPELLANT AND OUTSIDE INDIA. 38. WE FIND THAT DURING THE DRP PROCEEDINGS, THE DR P WAS MISDIRECTED IN CONSIDERING THE CONTRACT RS 02. THIS CONTRACT IS BETWEEN BTIN BOMBARDIER TRANSPORTATION, GERMANY AND DMRC AN D FOR THIS CONTRACT, BOMBARDIER TRANSPORTATION GERMANY HAS RAI SED INVOICES ON BTIN FOR OFFSHORE MANUFACTURE AND SUPPLY OF EQUIPME NT WHEREAS THE 20 CONTRACT UNDER CONSIDERATION IS BETWEEN DMRC AND CO NSORTIUM THE APPELLANT AND BTIN TOWARDS OFFSHORE SUPPLY TRAIN CO NTROL AND SIGNALLING EQUIPMENT. 39. WE FURTHER FIND ANOTHER ERROR IN THE FINDINGS O F THE DRP WHEREIN IT HAS CONSIDERED CONNY LINUSSON A SECONDED EMPLOYE E OF BOMBARDIER SWEDEN. THE ERROR IS THAT THE SAID SECONDED EMPLOYE E WAS FOR RS. 02 CONTRACT AND NOT BS 02 CONTRACT, WHICH IS UNDER CON SIDERATION. WE HAVE ALSO GONE THROUGH THE AGREEMENT BETWEEN BTIN A ND CONNY LINUSSON WHICH FORTIFIES THE FACT THAT CONNY LINUSS ON 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 FA CTS THAT THE APPELLANT HAS NO PLACE OF DISPOSAL IN INDIA IN THE OFFICE OF BTIN FROM WHERE THE APPELLANT COULD HAVE CONDUCTED ITS BUSINE SS IN INDIA. 21 41. BEFORE PARTING, IT WOULD NOT BE OUT OF PLACE TO CONSIDER AND APPRECIATE THE STATEMENT SHOWING COMPUTATION OF TOT AL 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. 1,99,03,04 6/- 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 AC KNOWLEDGED BY THE ASSESSING OFFICER IN THE FIRST PARA OF HIS ASSESSME NT ORDER. THIS CLEARLY SHOWS THAT ONLY FEES FOR INTERMEDIARY SERVICES AMOU NTING TO RS. 1,16,81,407/- HAS NOT BEEN INCLUDED IN THE TOTAL IN COME AND ALL OTHER RECEIPTS HAVE BEEN SHOWN BY THE APPELLANT IN ITS RE TURN OF INCOME AS TAXABLE. THEREFORE, IT CANNOT BE SAID THAT THE APPE LLANT 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 ELEC TRONICALLY, THIS COMPUTATION WAS NOT BEFORE THE ASSESSING OFFICER. I N 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 ASSESSMEN T THE ASSESSING OFFICER CALLS FOR HARD COPY OF THE RETURN ALONG WIT H COMPUTATION OF INCOME. IN OUR VIEW NO ASSESSING OFFICER COULD PROC EED IN ANOTHER ASSESSMENT PROCEEDING WITHOUT LOOKING INTO THE RETU RNED 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 ADD ITIONS MADE BY THE DRP. WE ACCORDINGLY, DIRECT THE ASSESSING OFFICER T O 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. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 29.10. 2020. SD/- SD/- [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 TH OCTOBER, 2020 23 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS .10.2020 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT .10.2020 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .10.2020 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER