DCIT (International Taxation), New Delhi V. M/s Sojitz Corporation, Gurgaon

ITA 993/DEL/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4793 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 26-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH GOEL
• Keywords: Transfer pricing; Double taxation relief; International transaction; Permanent establishment
• Section: 143(3); 9(1); 9(1); 9(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI D BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & DR.B.R.R.KUMAR, ACCOUNTANT MEMBER ITA NO.993/DEL/2016 ASSESSMENT YEAR : 2012-13 DCIT(INTERNATIONAL TAXATION), CIRCLE-3(1)(2), NEW DELHI VS SOJITZ CORPORATION, C/O-BSR & CO. (LLP), BUILDING NO.10B, 8 TH FLOOR, DLF CYBER CITY, PHASE-II, GURGAON PAN-AANCS6096C APPELLANT RESPONDENT APPELLANT BY SH. VED JAIN, ADV. & SH. ASHISH GOEL, ADV. RESPONDENT BY SH. SUNIL KUMAR, CIT DR DATE OF HEARING 21.09.2021 DATE OF PRONOUNCEMENT 30 .09.2021 ORDER PER KUL BHARAT, JM : THE PRESENT APPEAL FILED BY THE REVENUE PERTAINING TO ASSESSMENT YEAR 2012-13 IS DIRECTED AGAINST THE DIRECTION OF LD. DI SPUTE RESOLUTION PANEL-2 [DRP], NEW DELHI DATED 05.11.2015. THE REVENUE H AS RAISED FOLLOWING GROUNDS OF APPEAL:- (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DRP ERRED IN HOLDING THAT THE ASSESSEE DID NOT HAVE A P ERMANENT ESTABLISHMENT IN INDIA DURING THE RELEVANT PERIOD A ND THEREFORE BUSINESS PROFITS FROM SUPPLY OF EQUIPMENTS AND CHEMICALS ARE NOT SUBJECT TO TAX IN INDIA. (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DRP ERRED IN NOT CONSIDERING THAT IN THE RETURN OF INCO ME, THE ASSESSEE ITSELF HAS DECLARED AN INCOME OF RS. 1,59,85,718/ CHARGEAB LE TO TAX AS BUSINESS ITA NO.993/DEL/2016 ASSESSMENT YEAR : 2012-13 2 | P A GE INCOME ARISING FROM THE PROJECT OFFICE THUS ITSELF ADMITTING THE EXISTENCE OF A PE IN INDIA IN THE FORM OF PROJECT OFFICE. (III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE DRP ERRED IN NOT CONSIDERING THAT IN FORM NO 3CEB FOR T HE RELEVANT PERIOD, INDIA PROJECT OFFICE HAS BEEN DECLARED AS CONSTITUT ING PERMANENT ESTABLISHMENT OF ASSESSEE IN INDIA FOR DETERMINATIO N OF ALP OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE WITH ITS AE IN INDIA, NAMELY, SOJIT INDIA PVT LTD, EVEN IN RESPECT OF TRANSACTIONS UNDERTAKEN PRIOR TO THE SETTING UP OF THE PROJECT O FFICE AND TRANSACTIONS UNDERTAKEN AFTER THE ESTABLISHMENT OF PROJECT OFFIC E. (IV) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DRP ERRED IN NOT CONSIDERING THAT THE CONTRACT ENTERED INTO BY THE ASSESSEE WITH TATA STEEL LTD WAS FOR 'UPGRADATION OF EXISTING PL - TCM AT CRM COMPLEX' AND WAS TO BE COMPLETED BY THE ASSESSEE BY PERFORMI NG ITS DUTIES FROM DESIGNING, SUPPLY OF EQUIPMENTS, INSTALLATION, EREC TION, TESTING AND COMMISSIONING. THE SUPPLY OF EQUIPMENT AND CHEMICAL S WAS NOT INDEPENDENT OF THE ACTIVITIES OF INSTALLATION, EREC TION, TESTING AND COMMISSIONING. (V) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DRP ERRED IN NOT CONSIDERING THAT THE CONTRACT ENTERED WITH TATA STEEL WAS NOT THROUGH A BIDDING PROCESS AND IN THE CIRCUMSTANCES, THE PLACE OF SIGNING OF AGREEMENT CLEARLY BECOMES DETERMINATIVE OF THE PLAC E OF ACCRUAL OF INCOME ARISING FROM THE EXECUTION OF CONTRACT. (VI) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DRP ERRED IN NOT CONSIDERING VARIOUS TERMS OF THE PURCH ASE AGREEMENT FOR SUPPLY OF EQUIPMENT GIVEN AS UNDER; (A) THE TERMS OF DELIVERY, WILL BE COMPLETED BY THE CONTRACTOR WITHIN 31 MONTHS FROM CONTRACT EFFECTIVENESS DATE. (B) TERMS OF PAYMENT : 2% OF THE CONTRACT PRICE AFT ER SATISFACTORY COMPLETION OF INTEGRATED COLD TEST FOR 2 ND SHUTDOWN. ITA NO.993/DEL/2016 ASSESSMENT YEAR : 2012-13 3 | P A GE (C) ARBITRATION GOVERNING LAWS AND JURISDICTION- JURISDICTION ARISING UNDER THE CONTRACT SHALL BE RESTED ONLY IN THE COURTS OF INDIA AND PARTIES SUBMIT TO THE JURISDICTION OF THE SAID COURTS IN JAMSHEDPUR, JHARKHAND. (D) WHICH CLEARLY ESTABLISHES THE PLACE OF ACCRUAL OF INCOME FROM SUPPLIES OF EQUIPMENTS AND CHEMICALS TO BE INDIA. (VII) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE DRP ERRED IN NOT CONSIDERING THAT WHEN THE CONTRACT WAS NOT AWARDED THROUGH ANY BIDDING PROCESS, A HIGHLY TECHNICAL CONTRACT CA NNOT BE ENTERED INTO WITHOUT PROLONGED DISCUSSIONS, MEETINGS AND TECHNIC AL CAPABILITY DEMONSTRATIONS THUS LEADING TO THE CONCLUSION THAT THE ACTIVITIES OF THE ASSESSEE IN INDIA STARTED MUCH BEFORE THE FORMAL ES TABLISHMENT OF THE PROJECT OFFICE AND CONTINUED THROUGH THE PROJECT OF FICE. (VIII) WHETHER ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, THE DRP ERRED IN NOT CONSIDERING THE FACT THAT THE SUBSTANT IAL SUPPLY OF EQUIPMENTS AND CHEMICALS STARTED ONLY AFTER ESTABLISHING THE P ROJECT OFFICE AND AFTER THE VISIT OF TECHNICIANS OF THE ASSESSEE TO THE PRO JECT OFFICE. THUS THE CONTRACT WAS ONE AND INDIVISIBLE AND ARTIFICIAL SEV ERING OF THE CONTRACT INTO SEVERAL PARTS WAS SIMPLY A FACADE, (IX) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DRP ERRED IN NOT CONSIDERING THAT THE ENTIRE ACTIVITIES OF SUPPLY OF EQUIPMENTS AND INSTALLATION, ERECTION, TESTING AND COMMISSIONI NG IN TERMS OF THE CONTRACT AGREEMENT WITH TATA STEEL LTD CONTINUED EV EN IN THE YEARS SUBSEQUENT TO THE ESTABLISHMENT OF THE PROJECT OFFI CE. (X) THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, M ODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OF OR BEFORE THE HEAR ING OF THE APPEAL. 2. ALL THE GROUNDS RAISED BY THE REVENUE ARE INTER- CONNECTED AND THE ONLY EFFECTIVE GROUND IS AGAINST THE FINDING OF LD.DRP T HAT THE ASSESSEE DID NOT HAVE ITA NO.993/DEL/2016 ASSESSMENT YEAR : 2012-13 4 | P A GE ANY FIX PLACE PE/SERVICE PE/ INSTALLATION PE IN IND IA DURING THE PERIOD UNDER CONSIDERATION. 3. FACTS GIVING RISE TO THE PRESENT APPEAL ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 DECLARING INCOME OF RS.1,79,92,710/- WHICH WAS THEREAFTER, REVISED ON 2 0.03.2014 DECLARING TOTAL INCOME AT RS.1,59,85,720/-. THE CASE WAS TAKEN UP FOR SCRUTINY ASSESSMENT. THE ASSESSING OFFICER ISSUED A DRAFT ASSESSMENT ORD ER U/S 144C(1) R.W.S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) ON 25.03.20 15. THEREBY, HE OBSERVED THAT THE EQUIPMENTS NEEDED FOR PROJECT WERE MANUFAC TURED BY ASSESSEE IN JAPAN BUT WERE UTILIZED FOR CREATION OF PROJECTS IN INDIA. THEREFORE, A PART OF PROFIT EARNED BY ASSESSEE ON OFFSHORE SALE/SUPPLY W AS DIRECTLY ATTRIBUTABLE TO PERMANENT ESTABLISHMENT (PE) OF ASSESSEE IN INDIA . DURING THE YEAR, THE ASSESSEE HAS MADE SUPPLY OF RS.2,16,50,35,318/-. A CCORDINGLY, THE ASSESSEES CONTENTION THAT SUPPLY OF EQUIPMENT AND OTHER ITEMS WAS NOT TAXABLE IN INDIA, WAS NOT ACCEPTABLE. THEREFORE, A PORTION OF REVENU E FROM SO CALLED OFFSHORE SUPPLY TO TATA STEEL LTD. WAS MADE ATTRIBUTABLE TO THE ACTIVITIES IN INDIA AND CHARGEABLE TO TAX U/S 9(1) OF THE ACT, READ WITH AR TICLE 7 OF DTAA. HENCE, OFFSHORE SUPPLY OF RS.2,16,50,35,318/- WAS TAXABLE IN INDIA AND REQUIRES ATTRIBUTION. FURTHER, THE ASSESSING OFFICER OBSERV ED THAT ON PERUSAL OF DETAILS FILED, IT WAS SEEN THAT THE ASSESSEE WAS RECOGNIZIN G OFFSHORE ACTIVITIES IN THE PROJECT OFFICE FOR WHICH PROFIT OF RS.1,59,85,718/- HAS BEEN DISCLOSED FOR THE YEAR BESIDES, ALSO DISCLOSED SUPPLY AMOUNTING TO RS .16,87,51,062/-. HENCE, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE A SSESSEE HAD FIXED PLACE PE IN INDIA. THE ASSESSEE OPTED TO FILE OBJECTIONS AGAIN ST THE PROPOSED ADJUSTMENT IN ITA NO.993/DEL/2016 ASSESSMENT YEAR : 2012-13 5 | P A GE DRAFT ASSESSMENT ORDER BEFORE THE HONBLE DRP-2, NE W DELHI. LD.DRP RULED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE HAD NO PE IN INDIA. THEREFORE, THIS AMOUNT WAS NOT TAXABLE IN INDIA. 4. AGGRIEVED BY THIS DIRECTION, THE REVENUE HAS FI LED THE PRESENT APPEAL. 5. LD.CIT DR SUPPORTED THE GROUNDS OF APPEAL AND SU BMITTED THAT LD.DRP WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS NO PE IN INDIA. HE SUBMITTED THAT THE ASSESSING OFFICER CORRECTLY NARRATED THE F ACTS AND JUSTICIABLE DEMONSTRATED THAT THE ASSESSEE HAD PE IN INDIA DURI NG THE PERIOD UNDER CONSIDERATION. 6. PER CONTRA, LD. COUNSEL FOR THE ASSESSEE REITERA TED THE SUBMISSIONS AS MADE BEFORE LD. DRP AND ALSO SUPPORTED THE ORDERS O F THE LD.DRP. HE CONTENDED THAT LD. DRP HAS RIGHTLY ALLOWED THE CLAI M OF THE ASSESSEE AS THE PRESCRIBED THRESHOLD PERIOD IS NOT SATISFIED. 7. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT WITH OUT PREJUDICE TO THE SUBMISSIONS MADE HEREIN ABOVE, EVEN IF IT IS PRESUM ED THAT THE ASSESSEE HAD ESTABLISHED A PERMANENT PROJECT OFFICE BUT THE THRE SHOLD PERIOD FOR ESTABLISHMENT OF SUCH OFFICE WAS NOT SATISFIED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. WE FIND THAT LD.DRP HAS GIVEN FINDING ON FACTS IN PARA 7 OF THE IMPUGNED DIRECTION BY OBSERVING AS UNDER:- ITA NO.993/DEL/2016 ASSESSMENT YEAR : 2012-13 6 | P A GE 7.0 FINDING: DRP HAS DULY EXAMINED THE ISSUE. IT IS UNDISPUTED THAT THE ASSESSEE HAS OPENED A PO ON 01.2.2011 ONLY. BEFORE THAT, THE ASS ESSEE DID NOT HAVE ANY BRANCH OFFICE/ SALE OFFICE/ FACTORY SITE ETC. I N INDIA. THE ASSESSEE HAS OFFERED TO TAX SUPERVISORY INCOME ATTRIBUTABLE TO P O IN INDIA. VARIOUS DOCUMENTARY EVIDENCES SUBMITTED BY THE ASSESSEE SHO W THAT SUPPLY OF EQUIPMENT AND CHEMICALS WAS ON FOB BASIS. EVEN ACCE PTANCE TEST OF EQUIPMENT WAS TO BE CARRIED OUT AT ASSESSEE'S PREMI SES OUTSIDE INDIA. EVEN IF SOME EMPLOYEES OF THE ASSESSEE CAME TO INDI A FOR THE PURPOSES OF CONTRACT NEGOTIATION / SIGNING / OR SITE VISITS, IT CAN NOT BE SAID THAT THE ASSESSEE HAD ANY FIXED PLACE OF BUSINESS IN INDIA. IN INDO-JAPAN DT AA, THERE IS NO SERVICE PE CLAUSE. ALSO, INSTALLATION P E IS NOT ESTABLISHED AS PRESCRIBED THRESHOLD PERIOD IS NOT SATISFIED. THERE FORE, DRP IS OF THE CONSIDERED VIEW THAT THE ASSESSEE DID NOT HAVE FIX ED PLACE PE /SERVICE PE'/INSTALLATION PE IN INDIA DURING THE PERIOD UNDE R CONSIDERATION. HENCE, OBJECTION IS ALLOWED. 9. THE REVENUE HAS NOT REBUTTED THE OBSERVATIONS MA DE IN THE IMPUGNED DIRECTION AND REACHING TO THE CONCLUSION THAT THE A SSESSEE HAD NO PE IN INDIA. WE, THEREFORE, DO NOT SEE ANY REASON TO INTERFERE I N THE FINDING OF DRP, THE SAME IS HEREBY AFFIRMED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ABOVE DECISION WAS PRONOUNCED ON CONCLUSION OF VIRT UAL HEARING IN THE PRESENCE OF BOTH THE PARTIES ON 30 TH SEPTEMBER, 2021. SD/- SD/- (DR. B.R.R.KUMAR) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIA L MEMBER ITA NO.993/DEL/2016 ASSESSMENT YEAR : 2012-13 7 | P A GE *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI