ADIT (I.T) - 2(2), MUMBAI v. M/s. KRUPP UHDE GMBH, MUMBAI

ITA 4496/MUM/2005 | 2001-2002
Pronouncement Date: 28-01-2010 | Result: Dismissed

Appeal Details

RSA Number 449619914 RSA 2005
Assessee PAN AAACU0565H
Bench Mumbai
Appeal Number ITA 4496/MUM/2005
Duration Of Justice 4 year(s) 7 month(s) 12 day(s)
Appellant ADIT (I.T) - 2(2), MUMBAI
Respondent M/s. KRUPP UHDE GMBH, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-01-2010
Assessment Year 2001-2002
Appeal Filed On 16-06-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L: MUMBAI BEFORE SHRI J. SUDHAKAR REDDY (AM) AND SHRI R.S. PADVEKAR (JM) ITA NO. 4496/MUM/2005 (ASSTT. YEAR : 2001-02) ADIT (IT)-2(2) MUMBAI APPELLANT R.NO. 116 1 ST FLOOR SCINDIA HOUSE BALLARD ESTATE MUMBAI 400 038 V/S. M/S. KRUPP UHDE GMBH RESPONDENT C/O. UHDE INDIA LTD. UHDE HOUSE LBS MARG VIKHROLI (W) MUMBAI - 400083 PAN : AAACU0565H ITA NO. 4652/MUM/2005 (ASSTT. YEAR : 2001-02) M/S. KRUPP UHDE GMBH APPELLANT C/O. UHDE INDIA LTD. UHDE HOUSE LBS MARG VIKHROLI (W) MUMBAI - 400083 PAN : AAACU0565H V/S. ASSTT. DIRECTOR OF INCOME TAX RESPONDEN T INTERNATIONAL TAXATION -3(1) MUMBAI APPELLANT BY :S/SHRI S.S. RANA/ AARSI PRA SAD (DR) RESPONDENT BY :SHRI FIROZE B. A NDHYARUJINA : O R D E R : PER R.S. PADVEKAR J.M THESE CROSS APPEALS ONE BY THE REVENUE AND ANOTHER BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD CIT(A) MU MBAI DT. 21.3.2005 FOR THE A.Y. 2001-02. ITA NO.4496 & 4652/MUM/2005 2 2. WE FIRST TAKE UP THE REVENUES APPEAL FOR DISPOS AL IN WHICH THE REVENUE HAS TAKEN THE FOLLOWING GROUND : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT THE AMOUNT OF RS.7 1 11 594/- RECEIVED FOR SUPERVISION DURING START UP AND COMMISSIONING I S NOT CHARGEABLE TO TAX AS THERE IS NO PE OF THE ASSESSEE IN INDIA DURI NG THE YEAR UNDER CONSIDERATION. 3. THE FACTS WHICH REVEAL FROM THE RECORD ARE AS U NDER : THE ASSESSEE IS A FOREIGN COMPANY WHO FILED THE R ETURN OF INCOME DECLARING THE TOTAL INCOME AT RS. 67 52 000/-. TH E RETURN FILED BY THE ASSESSEE COMPANY WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS MADE U/S. 143(3) OF THE ACT. THE ASSESSEE COMPANY PROVI DES PLANT AND EQUIPMENT TECHNICAL KNOW-HOW ENGINEERING SERVICES AS WELL AS RENDERS SERVICES FOR ERECTION AND COMMISSIONING OF PLANTS. THE ASSESSEE HAS RENDERED FOLLOWING SERVICES : I) SUPPLY OF TECHNICAL KNOW-HOW II) SUPPLY OF ENGINEERING AND DOCUMENTATION AND III) SUPERVISION DURING START-UP AND COMMISSIONING THE A.O. HAS NOTED THAT THE ASSESSEE COMPANY UNDERT AKES A CONTRACT AND THEN IT IS BROKEN INTO THREE SEPARATE SUB-CONTRACTS . THE A.O HAS ALSO GIVEN THE EXAMPLE IN RESPECT OF THE MODUS OPERANDI OF THE ASSESSEE COMPANY AS TO HOW THE CONTRACT IS BROKEN INTO THREE DIFFERENT SU B-CONTRACTS. AS NOTED BY THE A.O TWO SERVICES NAMELY (I) TECHNICAL KNOW-HOW AND (II) ENGINEERING ARE MOSTLY PROVIDED BY THE ASSESSEE FROM ABROAD AND SER VICE IN RESPECT OF SUPERVISION DURING START UP AND COMMISSIONING IS PR OVIDED IN INDIA BY DEPUTING ITS PERSONNEL IN INDIA. IN THE PRECEDING YEARS T HE ASSESSEE HAS BEEN OFFERING THE ENTIRE INCOME AS A ROYALTY/FEES FOR TECHNICAL S ERVICES AND PAYING THE TAX AT THE RATE OF 10% AS PER ARTICLE 12 & 13 OF DTAA B ETWEEN INDIA AND ITA NO.4496 & 4652/MUM/2005 3 GERMANY. THE ASSESSEE HAS DECLARED THE SUM OF RS. 71 11 594/- AS A RECEIPTS TOWARDS SUPERVISION DURING START UP AND COMMISSIONI NG. THE A.O HAS ALSO ACCEPTED THE FACTUAL POSITION THAT STAY OF ASSESSE ES PERSONAL IN INDIA IS ONLY FOR 75 DAYS OR LESS IN ALL THE FIVE PROJECTS GOIN G ON DURING THE PREVIOUS YEAR AND THUS THERE IS NO PE IN TERMS OF ARTICLE 5(2)( I) OF THE DTAA BETWEEN INDIA AND GERMANY. THE A.O BROUGHT TO TAX THE SUM OF RS. 71 11 594/-. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD CIT(A) WH O DELETED THE ADDITION ACCEPTING THE CONTENTION OF THE ASSESSEE THAT AS PER THE NEW TREATY BETWEEN INDIA AND GERMANY THE ASSESSEES INCOME FROM SUPE RVISORY ACTIVITY IN CONNECTION WITH ANY CONSTRUCTION INSTALLATION OR A SSEMBLY OF PROJECT IS TO BE TREATED AS INCOME OF THE PERMANENT ESTABLISHMENT (P .E) IF SUCH SUPERVISORY ACTIVITY CONTINUE FOR A PERIOD EXCEEDING SIX MONTHS . THE OPERATIVE PART OF THE FINDINGS ARE AS UNDER : 4.2 AS REGARDS THE TAXABILITY OF SUPERVISION CHARG ES AMOUNTING TO RS.71 11 594/- I AGREE WITH THE CONTENTION OF THE APPELLANT THAT UNDER THE NEW TREATY WHICH WAS BROUGHT INTO FORCE ON 26/1 0/1996 WHICH IS APPLICABLE FROM THE F.Y. 1997-98 (A.Y. 1998-99) TH E APPELLANTS INCOME FROM SUPERVISORY ACTIVITY IN CONNECTION WITH ANY CO NSTRUCTION INSTALLATION ASSEMBLY PROJECTS ARE TO BE TREATED A S INCOME OF THE PERMANENT ESTABLISHMENT (PE) IF SUCH SUPERVISORY ACTIVITY CONTINUES FOR A PERIOD OF EXCEEDING 6 MONTHS (ARTICLE 5(2)(I) OF THE TREATY). SINCE THE PERIOD OF STAY OF THE ASSESSEES PERSONNEL IS L ESS THAN 6 MONTHS IN ALL THE FIVE PROJECTS GOING ON DURING THE YEAR NO INCOME ATTRIBUTABLE TO PE WOULD BE TAXABLE IN INDIA INSPITE OF THE FACT TH AT IN THE IMMEDIATE PRECEEDING YEAR IT WAS HELD AS TAXABLE UNDER ARTIC LE 12 OF THE DTAA BECAUSE IT WAS OFFERED FOR TAXATION UNDER THE SAID ARTICLE BY THE APPELLANT ITSELF. ACCORDINGLY I HOLD THAT THE CON SIDERATION RECEIVED FOR SUPPLY OF ENGINEERING AND DOCUMENTATION AND FOR SU PPLY OF TECHNICAL KNOW HOW ARE CHARGEABLE TO TAX @ 19% UNDER ARTICLE 12(2) OF THE DTAA AND THE AMOUNT RECEIVED FOR SUPERVISION DURING STAR T UP AND COMMISSIONING IS NOT CHARGEABLE TO TAX AS THERE IS NO PE OF THE ASSESSEE IN INDIA DURING THE YEAR UNDER CONSIDERATION. IN T HE RESULT THE APPEAL IS PARTLY ALLOWED. ITA NO.4496 & 4652/MUM/2005 4 4. WE HAVE HEARD THE PARTIES. THE A.O HIMSELF ADMI TTED THAT THE STAY OF THE PERSONNEL OF THE ASSESSEE COMPANY IN INDIA WAS LESS THAN 75 DAYS AND HENCE IT CANNOT BE SAID THAT THERE WAS A P.E. IN INDIA. AS PER THE NEW TREATY THE INCOME FROM SUPERVISORY ACTIVITY LIKE C ONSTRUCTION AND INSTALLATION OF THE PROJECT IS TO BE TREATED AS INCOME OF THE P .E. PROVIDED THAT THE SAID ACTIVITY CONTINUE FOR A PERIOD EXCEEDING SIX MONTH S AS PER ARTICLE 5(2)(I) OF THE DTAA AS IT IS THE ADMITTED FACTUAL POSITION TH AT THE SUPERVISORY ACTIVITY OF EACH PROJECT WAS FOR LESS THAN 75 DAYS AND HENCE THE INCOME FROM THE SUPERVISION AND INSTALLATION OF THE PLANT CANNOT BE TREATED AS INCOME OF THE P.E. . AS THE INCOME AS ADMITTED BY THE A.O. THA T THERE IS NO P.E. OF THE ASSESSEE THERE IS NO QUESTION FOR TREATING THE INC OME TOWARDS SUPERVISION ERECTION AND COMMISSIONING OF THE PLANT AS AN INCO ME OF THE ASSESSEE TAXABLE IN INDIA. THE VIEW TAKEN BY THE LD CIT(A) IS CORRE CT. WE THEREFORE CONFIRM THE SAME AND ACCORDINGLY DISMISS THE GROUND TAKEN BY THE REVENUE. 5. NOW WE TAKE UP THE ASSESSEES APPEAL BEING ITA N O. 4652/MUM/2005 IN WHICH THERE ARE FOLLOWING TWO EFFECTIVE GROUNDS : 2. THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THAT AMOUNT RECEIVED BY THE ASSESSEE FOR THE SUPPLY OF ENGINEE RING AND DOCUMENTATION TECHNICAL KNOW-HOW WAS LIABLE TO TAX AS FEE FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF THE AADT BET WEEN INDIA AND GERMANY. 3. THAT THE LEARNED CIT(A) HAS ERRED IN NOT ACCEPTI NG THE CONTENTION OF THE ASSESSEE THAT AMOUNTS RECEIVED FOR SUPPLY O F ENGINEERING AND DOCUMENTATION TECHNICAL KNOW-HOW REPRESENTS BUS INESS PROFITS AND IN THE ABSENCE OF PERMANENT ESTABLISHMENT THE SAID AMOUNTS ARE NOT LIABLE TO INCOME TAX IN INDIA. IN RESPECT OF THE INCOME FROM SUPPLY OF THE TECHNI CAL KNOW-HOW ENGINEERING AND DOCUMENTATION THE ASSESSEE WAS CONSISTENTLY OF FERING THE ENTIRE INCOME TREATING THE SAME AS ROYALTY/FEES FOR TECHNICAL SER VICES AND ALSO PAYING THE TAX AT THE RATE OF 10% AS PER THE ARTICLE 12 & 13 OF TH E DTAA BETWEEN INDIA AND GERMANY. IN THE A.Y. 2001-02 THE ASSESSEE TOOK TH E CONTENTION THAT THE INCOME RECEIVED FROM SUPPLY OF ENGINEERING AND DOCU MENTATION AND SUPPLY OF TECHNICAL KNOW ARE INCIDENTAL TO SUPPLY OF PLANT AN D EQUIPMENT WHICH FALL WITHIN THE AMBIT OF ARTICLE 7 OF THE DTAA BETWEEN I NDIA AND GERMANY AND THE ITA NO.4496 & 4652/MUM/2005 5 SAME IS TO BE TREATED AS BUSINESS PROFIT AND AS THE ASSESSEE HAS NO P.E. IN INDIA THE SAID AMOUNTS ARE NOT LIABLE TO INCOME-TA X. THE A.O DID NOT ACCEPT THE STAND OF THE ASSESSEE AND BROUGHT TO TAX THE IN COME ON ACCOUNT OF THE ABOVE SERVICES/SUPPLY. THE ASSESSEE CHALLENGED THE IMPUGNED ASSESSMENT ORDER BEFORE THE LD CIT(A) WITHOUT SUCCESS. THE LD COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT IT IS ONE COMPOSITE CONTRAC T AND SUPPLY OF TECHNICAL KNOW-HOW & SUPPLY OF ENGINEERING DOCUMENTATION ARE INCIDENTAL TO SUPPLY OF PLANT AND EQUIPMENT AND HAS TO BE TREATED AS BUSINE SS INCOME WITHIN THE MEANING OF ARTICLES 7 OF DTAA BETWEEN INDIA AND GER MANY. 6. THE LD D.R. SUPPORTED THE ORDER OF THE AUTHORITY BELOW. 7. ON THE RIVAL SUBMISSION WE FIND THAT IN RESPECT OF THE SUPPLY OF TECHNICAL KNOW AND SUPPLY OF ENGINEERING AND DOCUME NTATION THE ASSESSEE WAS CONSISTENTLY OFFERING THE SAID INCOME FOR TAXAT ION TREATING THE SAME AS ROYALTY/FEES FOR TECHNICAL SERVICES. THOUGH THE LD COUNSEL ARGUED THAT BOTH THE SERVICES ARE PART OF THE COMPOSITE CONTRACT AND INCIDENTAL TO THE SUPPLY OF THE PLANT AND EQUIPMENT BUT NOTHING HAS BEEN PLACED BEFORE US TO SUPPORT THE SAID CONTENTION LIKE AGREEMENT BETWEEN THE PARTIES. IN THE PRECEDING YEARS THE ASSESSEE HIMSELF WAS SHOWING THAT THESE ARE THE DISTINCT SERVICES AND CLAIMING THE BENEFIT OF THE DTAA BY PAYING THE TAX AT A LOW RATE OF 10%. ONLY IN THIS ASSESSMENT YEAR THE ASSESSEE HAS CHANGED H IS STAND AND NOW CLAIMING THAT IT SHOULD BE TREATED AS BUSINESS PROFIT AND AS THERE IS NO P.E. WITHIN THE MEANING OF ARTICLE 5 (2)(I) OF THE DTAA BETWEEN IN DIA AND GERMANY THE INCOME FROM THE SAID ACTIVITIES ALSO SHOULD BE EXEM PTED. WE ARE UNABLE TO ACCEPT THE PLEA OF THE ASSESSEE IN VIEW OF THE FACT THAT NO SUPPORTING EVIDENCE IS PLACED BEFORE US TO THE SAID CONTENTIONS WHEN DI FFERENT STAND IS TAKEN IN THIS YEAR. IN OUR OPINION NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT(A). WE THEREFORE CONFIRM THE SAME AND DISMISS THE GRO UNDS TAKEN BY THE ASSESSEE. 8. IN THE RESULT THE REVENUES APPEAL AS WELL AS THE ASSESSEES APPEAL BOTH ARE DISMISSED. ITA NO.4496 & 4652/MUM/2005 6 ORDER PRONOUNCED IN THE OPEN COURT ON 28TH DAY OF JANUARY 2010. SD/- SD/- (J. SUDHAKAR REDDY) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ON THIS 28TH DAY OF JANUARY 2010. :US COPY TO: 1. APPELLANT 2. RESPONDENT 3.THE CIT(A)- XXXIII MUMBAI 4.THE CIT -CONCERNED MUMBAI 5.THE DR L BENCH MUMBAI 6.GUARD FILE BY ORDER TRUE COPY ASSTT..REGISTRAR ITAT MUMBAI. ITA NO.4496 & 4652/MUM/2005 7 US DATE INITIALS 1. DRAFT DICTATED ON 27/1/10 --------------- SR.P.S . 2. DRAFT PLACED BEFORE AUTHORITY 28/1/10 -------- ------ SR.P.S. 3. DRAFT PROPOSED & PLACED ----------- ---------- --- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED ----------- ----------- -- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO ----------- ------------ - SR.P.S. THE SR. P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON --------- ----------- -- SR.P.S. 7. FILE SENT TO THE BENCH CLERK --------- --------- ---- SR.P.S. 8. DATE ON WHICH FILE GOES TO THE ------- --------- ---- 9. DATE OF DISPATCH OF ORDER --------- --------- ----