DCIT Vs Aecom Asia Co. Ltd. (ITAT Delhi)
ITAT Delhi held that the assessee has rightly offered the Overseas Consultancy Income as fees for technical services under the provisions of section 115A of the Act and the addition made under section 44DA of the Act is liable to be deleted.
Facts-
The Appellant is a tax resident of Hong Kong having its registered office at Hong Kong. The Appellant, along with a consortium of members was awarded two projects namely, Chennai Metro Rail Project (‘CMRL’) and Kolkata East West Metro Rail Project (‘KMRL’). The Appellant provided both onshore and offshore services under the General Consultancy Agreement.
In the return of income filed by the Appellant offshore income was offered to tax @ 10% on gross basis as Fee for Technical Services (‘FTS’) in terms of section 115A of the Income Tax Act. Income earned from the activities carried out in India by the Project office was offered to tax as business income on a net income basis.
AO passed the assessment order making an addition of Rs. 65,571,253 to the returned income treating 50% of Overseas Consultancy Income as chargeable to tax at 40% on net income basis. The AO treated services rendered from overseas as effectively connected to the Permanent Establishment (‘PE’) or PO of the Appellant in India as per section 44DA of the Income Tax Act.
In the course of assessment proceedings, AO required the assessee to show cause as to why the Overseas Consultancy Income (OCI) of Rs.13.11 crores should not be treated as income as per the provisions of section 44DA of the Income Tax Act as profits and gains of business or profession.
AO treated OCI as business income of the assessee u/s 44DA of the Act. CIT(A) deleted the addition made u/s. 44DA of the Act.
Conclusion-
Held that the issue in appeal has been dealt with by the ld. CIT (Appeals) considering the evidences and submissions of the assessee and following the judgements of the Tribunal of the coordinate bench it has been held that the services rendered by the overseas employees of home office of the assessee from Hong Kong for the activities performed for the project CMRL/KMRL are not effectively connected to PO/PE in India and, therefore, addition made under section 44DA of the Act is liable to be deleted
On careful examination and consideration of the findings of the ld. CIT (Appeals), the evidences placed on record by the assessee, we do not see any infirmity in the order passed by the ld. CIT (Appeal) in holding that the assessee has rightly offered the OCI as fees for technical services under the provisions of section 115A of the Act and the addition made under section 44DA of the Act is liable to be deleted. Ground raised by the Revenue is rejected.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The present appeal and the cross objection are filed by the Revenue and the assessee respectively against the order of the ld. Commissioner of Income Tax (Appeals)-42, New Delhi [hereinafter referred to CIT (Appeals)] dated 10.11.2016 for the assessment year 2010-11.
2. The Revenue in its appeal has raised the following substantive ground of appeal:-
“ Whether, on the facts and in the circumstances of the case, the ld. CIT (A) erred in deleting the addition of Rs.6,55,71,253/- (50% of Rs.13,11,42,506/-) made under section 44DA of the Income Tax Act, 1961, thereby dismissing the AO’s stand that the income of Rs.13,11,42,506/- disclosed by the assessee as “Overseas Consultancy Income” and offered on gross basis as FTS Income, is normal business and professional income u/s 44DA being effectively connected to the PE/Business Connection of the assessee.”
3. Brief facts are that the Appellant is a tax resident of Hong Kong having its registered office at Hong Kong. The Appellant is a provider of technical and management services for engineering solutions throughout the world. It provides fully integrated engineering, design and program management services for a broad range of markets including infrastructure, buildings etc. The Appellant, along with a consortium of members was awarded two projects namely, Chennai Metro Rail Project (‘CMRL’) and Kolkata East West Metro Rail Project (‘KMRL’). Under the CMRL project, two corridors with a combined length of 45 Kms. (partly underground and partly elevated) was planned to be constructed. In the first phase itself, CMRL aimed at linking important passenger hubs and terminals like Chennai Central, Chennai Egmore, Central Moffussil Bus Terminal (CMBT), Chennai Air Port, St. Thomas Mount, Govt. Estate and High Court. Further, the KMRL project was to undertake the Kolkata East West Metro Rail Project (partly underground and partly elevated) extending from Howrah to Salt Lake, Sector V, Kolkata covering a total length of 13.7 kilometers, to provide additional transport infrastructure to Kolkata. The Appellant provided both onshore and offshore services under the General Consultancy Agreement. Therefore, the entire scope of services can be divided into two portions:
