Case Law Details
IN THE ITAT DELHI BENCH ‘H’
Voith Siemens Hydro Kraftwerkstechnik Gmbh & Co. KG
Versus
Deputy Director of Income-tax, Circle 2(2), International Taxation
IT APPEAL NO. 5652 (DELHI) OF 2010
[ASSESSMENT YEAR 2007-08]
OCTOBER 19, 2012
ORDER
Chandra Mohan Garg, Judicial Member
This appeal has been preferred by the assessee against the order of Assessing Officer, Dispute Resolution Panel-II, New Delhi, on the following grounds of appeal:-
“1. That the order of the ld. AO as per the directions of DRP is bad both in law and on facts of the case.
2. That the ld. AO has erred in mechanically following the orders of earlier years wherein it was held that the assessee had a P.E. in India.
3. That the ld. AO, mechanically relying upon the orders of earlier years, has erred in rejecting the contention of the assessee that amount receivable under the contract towards supervision of erection, and commissioning is chargeable to tax u/s 44BBB of the I.T. Act, 1961.
4. That the ld. AO has erred in mechanically following the orders of earlier years wherein it was held that the relevant amounts were-
(i) attributable to the alleged P.E.,
(ii) represented income of the nature of ‘fees for technical services’
(iii) were chargeable to tax on gross basis @20% u/s 115A of the Income Tax Act.
5. That without prejudice, the ld. AO, mechanically following the orders of earlier years, has erred in arbitrarily estimating profit on consideration for supervisory services @50% of the gross amount.
6. That without prejudice, the ld. AO, mechanically following the order of earlier years, has erred in subjecting the receipts of the assessee to tax @20% on the gross amount received by the assessee.
7. That the ld. AO has erred in levying interest u/s 234B of the Income Tax Act, the provisions of which were not attracted on the facts of the case.
8. That computation of tax, grant of credit for tax deducted at source has been erroneously made.
9. That the ld. AO has erred in initiating proceeding u/s 271(1)( c) of the I.T. Act, which is not attracted on the facts of the case.”
2. The brief facts of the case giving rise to this appeal are that the assessee company is an enterprise of Germany, having its principal place of business located at Germany. The assessee company along with Siemens Ltd. was awarded a contract by M/s Orissa Hydro Power Corporation Limited (OHPC), a Government of Orissa Undertaking for the renovation, modernization, uprating of units 3 and 4 of Hirakud Power House at Burla, Orissa. A contract to the effect was entered into on 4th March, 2002. The scope of work of assessee company included supply of imported equipments and materials from Germany, supervision of erection, start-up and commissioning and training of OHPC’s personnel. The scope of work of Siemens Ltd. under the agreement included, supply of indigenous equipment, planning, dismantling, repairing and erection, testing and commissioning. The assessee company guaranteed to OHPC about the due performance of contractual obligations by Siemens Ltd. In terms of the provisions of Income Tax Act read with DTAA between India and Germany, the assessee had offered for taxation the amount received for supervision of erection and commissioning for taxation in India. In terms of provisions of Section 44BBB of the Act, the said income as per its nature, received by the assessee was liable to tax at deemed profit rate of 10%. The assessee filed a computation of income before DDIT and informed that the liability towards income tax in India, on income arising to the assessee under contract with OHPC is to be determined according to the provisions of the agreement for the avoidance of double taxation (DTAA) between India and Germany notified through Notification No. 10235 dated 29.11.1996 along with provisions of Indian Income Tax Act, 1961 and as per terms of DTAA, fee for supervision during erection, start up and commissioning and training is liable to income tax in India.
3. The Assessing Officer, DDIT issued a questionnaire dated 25th August, 2009 which was replied by the assessee company through submissions dated 15th October, 2009 and submitted that the assessee had received final payment of 10% of contract value related to supervision and training activities on final takeover and completion of the warranty period as per terms of the contract and this amount has been shown in the return of relevant assessment year. The assessee offered taxation on amount of Rs. 35,58,155/- received for the above services and also offered 10% tax as per Section 44BBB of the Act.
4. The Assessing Officer rejected the contention of the assessee in respect of applicability of section 44BBB and a draft assessment order sent to the assessee. The assessee submitted objections to the draft assessment order before DRP-II in the prescribed form and the DRP-II through its order dated 08.09.2010 rejected the objections and directed the Assessing Officer to complete the assessment as per draft order.
5. As per directions of DRP-II, the DDIT passed final assessment order dated 4.10.2010 u/s 144C and 143(3) of the Act. The Assessing Officer computed the total tax payable at Rs.6,86,270 and also levied surcharge of Rs.35,58,155. Aggrieved, the assessee company has filed this appeal before us against the order of Assessing Officer dated 4.10.2010 passed in pursuance of directions of DRP-II as stated above.
6. During the arguments, the assessee’s representative submitted that he does not want to press ground no. 5 and 6. Hence, these are dismissed as not pressed. The learned counsel for the assessee contends that ground nos. 1 and 8 are general in nature which need no adjudication. Ground nos. 2, 3 and 6 raised by the assessee are about taxability of the assessee u/s 44BBB of the Income Tax Act (hereinafter referred to as ‘the Act’) and ground no.7 raises another ground of charge ability of interest u/s 234B of the Act and ground no. 9 is related to initiation of penalty proceedings u/s 271(1)(c) of the Act.
7. Both these main issues came up in AY 2004-05 and 2006-07 and the ITAT Bench ‘H’, New Delhi in ITA No.2353/D/2008 order dated 05.03.2010 and in ITA No.1226/D/2011 order dated 09.05.2011 held that the assessee had a PE in India with the following observations:-
“3. Both these issues came up before ITAT in AY 2004-05 by order dated 5.3.2009. ITAT held that the assessee had a PE in India by following observations:-
In such circumstances it can only be said that the assessee has done the work of supervision simpliciter. Even though in the contract between the assessee and OHPC the term supervision has been given a specific meaning the conduct of the assessee is not supported by any evidence to hint at much less show that the assessee has done any thing other than “supervision” as understood in its general meaning. In these circumstances even though as per the terms of the contract with OHPC the assessee could be assumed to be liable to do the assembly, erection, testing and commissioning of the power project as also the supervision thereof, in the absence of there being any evidence of the assessee having done any such activities other than supervision simpliciter of the assembly, erection and testing and commissioning the activities of the assessee cannot be said to fall within the meaning of the term, “business of erection of plant or machinery or testing or commissioning” as provided in the provisions of section44BBB, or to fall with in the meaning of the terms, “construction or assembly” as provided in the exclusions provided in Explanation 2 to section 9 (1) of the act. Once it is found that the assessee has not been able to prove that the assessee has involved itself in the physical activities of the business of assembly or erection of the plant or machinery or testing or commissioning of the power project but has only done the supervision simpliciter of the same the assessee would not be eligible to be taxed under the provisions of section 44BBB nor would the receipts fall within the exclusions provided in Explanation 2 to section 9 (1) of the act. Further as the assessee has also not challenged the existence of the permanent establishment in India, the findings of the AO and the Ld. CIT(A) in holding that the business profits of the assessee is from the supervision charges are in the nature of “fees for technical services” from the rendering of supervision services in connection with the erection, testing and commissioning of the power project is liable to be upheld and we do so. In the circumstances the finding of the Ld. CIT(A) that the provisions of Article 7 of the DTAA read with section 44D and section 115A of the act apply to the business profits of the assessee is upheld. Consequently grounds 2 to 5 of the assesses grounds of appeal are dismissed.
13.2 As the assessee has not pressed the ground no. 6 in regard to the levy of interest under section 234A and 234D, the same are dismissed as not pressed. In regard to the ground against the levy of interest under section 234 B it is noticed that the receipts of the assessee are liable for tax deduction under the provisions of section 195 of the act. It is also noticed that M/s OHPC has deducted tax at source on the payments made to the assessee. Whether the Tax Deducted a Source has been correctly deducted or not is not the issue before us, but the fact remains that the receipts of the assessee are liable to TDS and TDS has been done. In these circumstances we are of the view that interest under section 234B is not leviable on the assessee as the receipts of the assessee under the contract is liable for TDS. In the circumstances respectfully following the decision of the Special Bench of this tribunal in the case of M/s. Motorola referred to supra the interest levied under section 234B stand deleted. In the circumstances the ground No. 6 of the assessees appeal stand partly allowed.”
8. We have heard arguments of both the parties in the light of judgment of Hon’ble Jurisdictional High Court of Delhi and orders of ITAT, Delhi, ‘H’ Bench as referred hereinabove and also perused the material on record before us. As per findings of the ITAT Delhi ‘H’ Bench for AY 2004-05 and 2006-07, it has been held that the assessee had a permanent establishment in India. We further observe that the findings of authorities below in holding that the business profits of the assessee from the supervision charges are in the nature of “Fees for technical services” (FTS) from rendering of supervision services in connection with the erection, testing and commissioning of the power project deserves to be upheld as there is neither any other contrary view or judgment before us nor the assessee placed before us any material controverting the findings of the Assessing Officer in this regard. Accordingly, the findings of the ld. AO that amount received by the assessee has to be taxed as business profits in terms of the provisions of Article 7 of the DTAA read with Section 44D and Section 115A of the Act are confirmed and upheld. Consequently, ground nos. 2, 3 and 4 are decided in favour of the Revenue and against the assessee, following the orders of the ITAT, Delhi Bench (supra) for A.Y. 2004-05 and 2006-07 in assessee’s own case.
9. Further respectfully following the judgment of Hon’ble High Court of Delhi in ITA No.1872/2010 dated 1.12.2010 in the assessee’s own case for AY 2004-05, ground no. 7 about non-chargeability of interest u/s 234B of the Act is decided in favour of the assessee.
10. Ground no. 9 is related to initiation of penalty proceedings. Since the initiation of penalty proceedings u/s 271(1)(c) of the Act is not appeal able, therefore, we dismiss the same.
11. Ground nos. 1 and 8 being general in nature do not need any adjudication and therefore these are dismissed. As per discussions made herein above in para 2 of this order, the ground nos. 5 and 6 have already been dismissed as not pressed by the assessee.
12. In the result, appeal of the assessee is partly allowed as indicated above.
