Aluminium Pechiney Vs DCIT (ITAT Delhi)
ITAT Delhi held that amount received towards service rendered by the assessee is in connection with installation/erection of plant and machinery involved in mining of natural resources fall within the exceptions provided under Article 12(5)(f) and 12(5)(g) of India – Portugal DTAA and hence not taxable.
Facts- The assessee is a non-resident corporate entity incorporated in France and a tax resident of that country. Assessee owns certain right, know-how, designs, and processes required to design, build and implement integrated aluminium production plants. The assessee is also a leader in primary metals and their by-products and also provides a variety of technical and related services that include quality control, the design of machines, equipment and production processes, supervision and advice on industrial installations, along with their commissioning and operations, mainly in the field of aluminium and associated installations.
Notably, the assessee claimed the income declared to be in the nature of Royalty/Fee for Technical Services (FTS) under Article 13 of India – France Double Taxation Avoidance Agreement (DTAA). In course of assessment proceeding, the assessee came up with fresh claim that the income declared in the return of income is not taxable in India. However, the AO completed the assessment u/s. 143(3) of the Act disallowing the claim of the assessee.
Commissioner (A) granted partial relief. Being aggrieved, the present appeal is filed.
Conclusion- Held that fees received towards services in connection with a mine, an oil or gas well, quarry or any other place of extraction of natural resources, including an installation or structure used for the exploration or exploitation of nature resources, a building site a construction, installation or assembly project, including supervisory activities in connection therewith would fall within the exceptions provided under Article 12(5)(f) & 12(5)(g).
Held that the service rendered by the assessee is in connection with installation/erection of plant and machinery involved in mining of natural resources. Moreover, scope of Article 5(2)(g) of India – Portugal DTAA is not merely limited to mining or extraction of natural resources but also covers installation or structure used for exploration and exploitation of nature resources. Therefore, the amounts received would fall within the exceptions provided under Article 12(5)(f) and 12(5)(g) of India – Portugal DTAA, hence, not taxable at the hands of the assessee.
FULL TEXT OF THE ORDER OF ITAT DELHI
Captioned appeals by the assessee arise out of separate orders of learned Commissioner of Income Tax (Appeals), New Delhi, for the assessment years 2010-11 and 2011-12.
2. At the outset, we must observe, appeals in ITA Nos. 9483/Del/2019 and 9484/Del/2019 are delayed by 45 days. After considering the submissions of the parties and perusing the materials on record, we are satisfied that the delay in filing the appeals was due to genuine cause. Accordingly, we condone the delay and admit the appeals for adjudication on merits.
ITA No.9483/Del/2019
AY: 2010-11
3. This appeal arises out of order dated 24.07.2019 passed by learned Commissioner (Appeals) under section 154 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
4. Briefly the facts are, the assessee is a non-resident corporate entity incorporated in France and a tax resident of that country. As stated, assessee owns certain right, know-how, designs, and processes required to design, build and implement integrated aluminium production plants. The assessee is also a leader in primary metals and their by-products and also provides a variety of technical and related services that include quality control, the design of machines, equipment and production processes, supervision and advice on industrial installations, along with their commissioning and operations, mainly in the field of aluminium and associated installations. For the assessment year under dispute, the assessee filed its return of income on 23.03.2012 declaring income of ₹ 113,44,74,298/-. The assessee claimed the income declared to be in the nature of Royalty/Fee for Technical Services (FTS) under Article 13 of India – France Double Taxation Avoidance Agreement (DTAA). In course of assessment proceeding, the assessee came up with fresh claim that the income declared in the return of income is not taxable in India. In this context, the assessee drew support from Clause 7 of the Protocol to India – France DTAA and submitted that the scope of FTS/royalty in treaties entered into by India with various other OECD Member countries is much restricted, hence, the restricted definition of FTS provided in India – Portugal DTAA has to be adopted. It was claimed by the assessee that while rendering services, it has not made available any technical know-how, knowledge, skill etc., hence, the receipts are not taxable as FTS. However, completely ignoring the fresh claim made by the assessee in course of assessment proceeding, the Assessing Officer completed the assessment under section 143(3) of the Act vide order dated 26.03.2013 assessing the income declared in the return of income.
5. Being aggrieved with the assessment order so passed, the assessee preferred an appeal before learned first appellate authority. While deciding the appeal of the assessee, learned Commissioner (Appeals) granted partial relief by reducing an amount of ₹ 1,08,22,488/-, being receipt towards supply of goods from the income determined. Thereafter, the assessee moved an application for rectification under section 154 of the Act. While considering assessee’s rectification application, learned Commissioner (Appeals) granted further relief by reducing an amount of ₹ 2,64,70,667/-, being supervision fee during the installation of equipment, from the income determined. Whereas, he upheld the addition of licence fee, engineering packaging fee and man-day fee for on-site. Being aggrieved with the aforesaid order of learned Commissioner (Appeals), assessee is before us.
6. Learned counsel appearing for the assessee submitted, the assessee had entered into Technology Licencing Agreement (TLA) with Hindalco Industries Ltd. (‘HIL’) on 19.09.2007. Whereunder, the assessee provided licence to HIL to use its technology. He submitted, similar agreement was also entered into with National Aluminium Company Ltd. (‘Nalco’). He submitted, the amount received by the assessee towards licence fee has been offered as royalty income, and there is no dispute between the parties with regard to that. He submitted, in addition, the assessee received and amount of ₹ 15,94,34,150/- towards engineering package fee. He submitted, in the return of income, the assessee by mistake had offered the amount as income by treating it as FTS. He submitted, the disputed amount was received from HIL in connection with certain services relating to their plant in Orissa. The break-up of such service is as under:
