DSD Noell GMBH Vs ACIT (ITAT Delhi)
ITAT Delhi held that offshore services that involve offshore supply of drawings and designs are inextricably linked with the offshore supply of Plant and equipment. Accordingly, the receipts from offshore services does not give rise to any income accruing or arising in India and therefore not taxable under the Act.
Facts-
The assessee is a company and a tax resident of Germany. The assessee is engaged in the business of engineering, designing, manufacturing and installing plants for the Hydro Electric Power Projects. The assessee entered into agreement(s) with M/s Hindustan Construction Company Ltd (HCC) for carrying out Hydro-Mechanical Works (‘HM Works’) in relation to set up of Kishanganga Hydro Electric Power Project. The assessee received consideration from HCC towards offshore supply of plant & equipment as well as for offshore services (involving supply of related drawings design). Such receipts were claimed as non-taxable in India under the provisions of the Act as well as under the relevant Articles of the Double Taxation Avoidance Agreement (DTAA). AO and CIT(A) didn’t accept the contentions of the assessee.
The appellant/assessee entered into a contract with HCC for rendering offshore services, which mainly consisted of ‘Planning, Designing, and Engineering’ of Hydro Mechanical Plants and Machinery and included the overall and detailed planning of the project. The plant and equipment supplied by the assessee from outside India are tailor-made to suit the specifications and requirements of the Kishanganga project undertaken by NHPC. It was contended that entire work related to the drawings and designs was undertaken outside India and that the property both in the designs and drawings as well as in the equipment had passed outside India. The consideration for such drawings and designs is also received outside India in foreign currency. Therefore, the consideration received for offshore services should be given the same treatment as offshore supplies, as both were carried out outside India and consideration received in foreign currency outside India, and accordingly, no part of it would become taxable as no income shall be deemed to accrue or arise in India. It would not be taxable as per the India-Germany Treaty. However, department contended that these services are purely technical in nature and hence had to be construed as ‘Fee for Technical Services’ (FTS) thereby making it taxable u/s. 9(1)(vii) of the Act.
Conclusion-
Held that there is no case to treat the receipt of such consideration for offshore supplies of equipment as income taxable in India. Hence we direct the Ld. AO to delete the addition made on account of consideration received for offshore supplies of Plant and Equipment outside India.
Held the offshore services that primarily involve offshore supply of drawings and designs are inextricably linked with the offshore supply of Plant and equipment and accordingly, the receipts from offshore services does not give rise to any income accruing or arising in India and therefore not taxable under the Act. Further, such consideration qualifies as business profits of the company in terms of the provisions of Article 7 of the DTAA, which cannot be attributed to India for computing taxable income in India. Hence, income arising therefrom should be treated as non-taxable in India.
FULL TEXT OF THE ORDER OF ITAT DELHI
All these appeals of the Assessee arises out of the orders of the Learned Commissioner of Income Tax (Appeals)-42, New Delhi [hereinafter referred to as ‘Ld. CIT(A)], against the order passed by Assistant Director/Assistant Commissioner of Income Tax, Circle-1(2), International Taxation, New Delhi for Assessment Years 2011-12, 2012-13, 2014-15, 2015-16, 2016-17, 2017-18 & 20 18-19.
3. The assessee has raised the following grounds of appeals:-
ITA No.3186/D/2016
“1. That the order of the Learned Commissioner of Income – tax (Appeals) [Ld. CIT(A)] is bad both in law and on facts of the case;
2. That the Ld. CIT(A) has erred in computing the taxable income of the Appellant at Rs. 1,89,12,640/- as against ‘Nil’ income as declared in the return of income;
3. That the Ld. CIT(A) has erred in holding that consideration received by the Appellant in relation to contract for off- shore services for planning and supply of drawings and designs, is essentially in the nature of “Fees for Technical Services” under the provisions of section 9(1)(vii) of the Income – tax Act, 1961 (the Act) and provisions of Article 12 of the Double Taxation Avoidance Agreement between India and Germany (DTAA);
4. That the learned CIT(A) has erred in rejecting the contention of the Appellant that the offshore services are inextricably linked to the supply of plant & equipment and thus consideration for such services partake the nature of business profits which should be taxed in terms of provisions of Article 7 of the DTAA, read with Protocol Para 1(a) and (b) thereof;
5. That the Ld. CIT(A), while arriving at the aforesaid conclusion, has erred in not relying upon the decisions of different courts in the following cases:
