Income Tax Appellate Tribunal - Kolkata
Hitt Holland Institute Of Traffic ... vs Acit, International Taxation, Circle - ... on 1 August, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH : KOLKATA
[Before Hon'ble Shri Aby T Varkey, JM & Shri M.Balaganesh, AM ]
I.T.A No. 2112/Kol/2017
Assessment Year : 2014-15
HITT Holland Institute of Traffic Technology B.V -vs- ACIT, International Taxation,
(now known as "Saab Technologies B.V.). Circle-1(1), Kolkata
[PAN: AABCH 5694 R]
(Appellant) (Respondent)
For the Appellant : Shri Avisekh Kejriwal, AR
For the Respondent : Shri G. Mallikarjuna, CIT DR
Date of Hearing : 30.07.2018
Date of Pronouncement : 01.08.2018
ORDER
Per M.Balaganesh, AM
1. This appeal is directed against the order of the Learned ACIT, International Taxation, Circle 1(1), Kolkata [ hereinafter referred to as the ld AO] under section 143(3) of the Income Tax Act, 1961, [ hereinafter referred to as the 'Act'] dated 31.7.2017, pursuant to the directions of the Learned Dispute Resolution Panel [hereinafter referred to as ld DRP] issued u/s 144C(5) of the Act dated 6.6.2017 for the Asst Year 2014-15.
2. The brief facts of this appeal is that the assessee is a subsidiary of HITT N.V.. It is a company incorporated as per the laws of Netherlands operating in the international market for safety, security and efficiency of nautical and air traffic. It operates in the specialized market for traffic control, navigation and port management systems. The assessee has entered into contracts with Oil and Natural Gas Corporation of India 2 ITA No.2112/Kol/2017 HITT Holland Institute of Traffic Technology B.V. A.Yr. 2014-15 (ONGC) . Director General of Lighthouse and Lightships (DGLL) and Airports Authority of India (AAI) for supply of equipment and services. During the year under consideration, the assessee received payments in respect of performance of services and supply of equipment under the following contracts in India :-
a) Establishment of Vessel Traffic Service (VTS) system in the Gulf of Kuchchh (GOK Project)
b) Contract to provide Annual Maintenance of the Vessel and Air Traffic Management System (VATMS) system for ONGC (ONGC VATMS - AMC Project).
The transactions of the assessee are covered under the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands.
3. Gulf of Kuchch (GOK) Project The assessee had entered into a consortium agreement with Telecommunications Consultants India Limited (in short TCIL) and Dalmia & Company Limited , with TCIL acting as the consortium leader. This consortium was awarded a contract for establishment of Vessel Traffic Service (VTS) system in the Gulf of Kuchch (GOK) by the Director General of Lighthouse and Lightships (DGLL) in 2005 (agreement between DGLL and consortium enclosed in pages 224 to 227 of paper book and consortium agreement enclosed at pages 194 to 222 of paper book). The responsibilities of each of the members of the consortium are set out in the annexure to the consortium agreement. Supply, installation, testing and commissioning of integrated automatic identification system base stations equipments with associated software is the primary responsibility of the assessee. As per the consortium agreement , the assesse had set up a Project Office (PO) in India for the execution of this project in the year 2005. However, the PO never became operational and was not involved in any activity pertaining to this project.
2 3 ITA No.2112/Kol/2017HITT Holland Institute of Traffic Technology B.V. A.Yr. 2014-15 During the year under consideration, the assessee received payments for the following offshore supply of equipment / services / training and onshore supply of equipment / services:-
Sl. No. Nature Receipts in INR
1 Off-shore supply of 3,77,38,037
equipment
2 Off-shore provision of 92,47,567
services
3 On-shore supply of 40,75,095
equipment
4 On-shore provision of 60,80,986
services
TOTAL 5,71,41,685
3.1. The Ground 2.1. raised by the assessee is with regard to the action of the ld AO in holding that an Installation PE of the assessee exists in India. Without prejudice to earlier ground, the assessee had raised Ground 2.3. with regard to the action of the ld AO in attributing 10% gross consideration amount of supply of equipment and provision of services for both offshore and onshore to the alleged PE. Without prejudice to earlier grounds, the assessee had raised Ground 2.3. that no part of the income from offshore activities can be attributed to the alleged PE.
3.2. We find that these grounds had been adjudicated by this tribunal in assessee's own case for the Asst Years 2012-13 and 2013-14 in I.T.A Nos. 290/Kol/2016 & 348/Kol/2017 dated 20.7.2018 wherein it was held that the assessee herein constituted Installation PE in India. Further it was held that no attribution can be done on receipts from Offshore supply of 3 4 ITA No.2112/Kol/2017 HITT Holland Institute of Traffic Technology B.V. A.Yr. 2014-15 equipment and Offshore provision of services. Only the profits attributed to the activities carried out in India shall be taxable and accordingly, only the onshore supply of equipment and onshore services rendered by the assessee, would have to be considered for taxing the onshore receipts at 10%. This view has been consistently taken by this tribunal for the Asst Year 2011- 12 in ITA No. 390/Kol/2015 dated 4.4.2018 in assessee's own case. The relevant operative portion of the order passed by this tribunal for the Asst Years 2012-13 and 2014-15 is reproduced hereunder:-
3.3. We find that these grounds had been adjudicated by this tribunal in assessee's own case for the Asst Year 2011-12 in ITA No. 390/Kol/2015 dated 4.4.2018 wherein it was held that the assessee herein constituted Installation PE in India. Further it was held that no attribution can be done on receipts from Offshore supply of equipment and Offshore provision of services. Only the profits attributed to the activities carried out in India shall be taxable and accordingly, only the onshore supply of equipment and onshore services rendered by the assessee, would have to be considered for taxing the onshore receipts at 10%. The relevant operative portion of the said order is reproduced hereunder:-
3.2. We have heard the rival submissions. ............
'Permanent Establishment' to include -
"A Building site or construction, installation or assembly project constitutes a permanent establishment only where such site or project continues for a period of more than six months."
3.2.1. .............
3.2.2. We find that during the year under consideration, the equipment was supplied on high sea sale basis and the property in the equipment has passed outside India and for which payment was received outside India. Further, the off shore services consisted of labour services of sizing of equipment, tuning and testing of the equipment etc which were performed on the equipment in Netherlands. Therefore, the alleged Installation PE could not have been involved in such offshore supply and services since these were carried on by the assessee directly from Netherlands. Hence the profits from such offshore supply of equipment and services cannot be 4 5 ITA No.2112/Kol/2017 HITT Holland Institute of Traffic Technology B.V. A.Yr. 2014-15 attributed to the Installation PE of the assessee in India. In this regard, we would like to place reliance on the decision of the Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Limited vs DIT reported in 288 ITR 408 (SC) wherein it was clearly stated that in case the PE of a foreign company is not involved in any transaction carried out in India or outside India, no part of income earned from such transactions can be attributed to the PE in India. The Hon'ble Supreme Court held there has to be some activity through PE for attracting the taxing statute and , if income arises without any activity of PE, even under DTAA, taxation liability in respect of overseas services would not arise in India. In the case before the Hon'ble Supreme Court, the foreign enterprise was to develop, design , engineer and procure equipment, materials and supplies to erect and construct storage tanks in India. The Hon'ble Supreme Court held that the off-shore supply and off-shore services under the contract were not taxable in India since all activities in connection with offshore activites were carried out outside India, and had nothing to do with PE.
3.2.3. We also find that the Hon'ble Authority of Advance Rulings , New Delhi had recently in the case of Michelin Tamil Nadu Tyres (P) Ltd., In re reported in (2018) 89 taxmann.com 217 (AAR-New Delhi) dated 19.12.2017 held that no income from the offshore supply of equipment would be taxable in India since the transfer of property in the goods as well as the payment, were carried on outside the Indian soil. In this case, the AAR placed reliance on the judgement of the Hon'ble Supreme Court in the case of Ishakiwajima Harima supra.
3.2.4. We find that the Co-ordinate Bench of Mumbai Tribunal in the case of Atomstroy Export vs DDIT reported in (2017) 80 taxmann.com 178 (Mumbai ITAT) held as under:-
15. Therefore, after analyzing the various case laws, statutory provisions, DTAA provisions and contractual terms and respectfully following judgment of Hon'ble Supreme Court in Ishikawajma-Harima Heavy Industries Ltd., (supra) we are inclined to hold that Offshore Supply contracts were 'carried and concluded' outside India and hence no income therefrom deemed to accrue or arise in India as per Section 9(1) and DTAA provisions and accordingly, not chargeable to tax. The receipts thereof do not form part of receipts for the purpose of computational provisions of Section 44BBB. Explanation 4 could not overcome the limitation imposed by Explanation 1(a) to Section 9(1)(i) and hence, the impugned income do not form part of business receipts for computation of income u/s 44BBB of the Act. .5 6 ITA No.2112/Kol/2017
HITT Holland Institute of Traffic Technology B.V. A.Yr. 2014-15 3.2.5. Respectfully following the aforesaid judicial precedents and applying the same to the facts of the instant case, we hold that the consideration received in respect of offshore supply of equipments and services and profits attribution @ 10% on the same should not be added in the hands of the assessee construing it as 'Installation PE' in India.
3.3. The facts of Asst Year 2014-15 are exactly similar to those of Asst Years 2012-13 and 2013-14 and there is no change in facts and hence in order to maintain judicial consistency, we would like to follow the same. Hence the Grounds 2.1., 2.2. & 2.3. are disposed off accordingly.
4. ONGC VATMS - AMC Project The brief facts of this project are that the assessee was awarded a contract in 2006 by ONGC for supply, installation, testing and commissioning of Vessel and Air Traffic Management System (VATMS) along with the provision of maintenance services. This contract envisaged a warranty period of 1 year after handing over of the project site and provision of Annual Maintenance Services (AMC services) for 6 years post such warranty period. The assessee started providing AMC services in relation to the VATMS system for a total period of 6 years, commencing from 1st October 2008, just after the completion of main contract for supply, installation , testing and commissioning of VATMS system. Accordingly, the assessee provided only AMC services for the VATMS system installed by it in the earlier years. The activity was sub-contracted to a local independent contractor viz Elcome Marine Services Private Limited (in short Elcome) and included regular maintenance activities such as visiting the sites for cleaning, checks, local fault repair etc. In general, there were all activities of a service nature. The assessee submitted that it did not perform any installation activity during the year under consideration and only maintenance services were undertaken through a sub-contractor in India. The copy of the invoices are enclosed in pages 408 to 412 of the paper book.
6 7 ITA No.2112/Kol/2017HITT Holland Institute of Traffic Technology B.V. A.Yr. 2014-15 4.1. The ld AO brought to tax the AMC fee received as business profits attributable to an Installation PE in terms of Article 5(3) of the India-Netherlands DTAA. According to the revenue, the ONGC project was in existence for a period of more than six months and therefore constituted an 'Installation PE' of the assessee in India. The revenue further relied on the fact that a subcontractor had carried out AMC work in India on behalf of the assessee and therefore the assessee had a virtual presence in India for execution of the project. Aggrieved, the assessee is in appeal before us.
4.2. We have heard the rival submissions and perused the materials available on record. We find that this tribunal had considered the same issue in assessee's own case for the Asst Years 2010-11 , 2011-12 , 2012-13 and 2013-14 and had held that the AMC services provided post completion of installation actvities at the site of the customer, cannot lead to carrying out installation activities for the purpose of constitution of an Installation PE in India. Further, it was also held that the presence of an Indian Contractor to which the assessee has sub-contracted the whole AMC work on principal
- to- principal basis , does not create any virtual presence of the assessee in India. It was held that since no business activities were carried out by the assessee in India, it is unreasonable to conclude that the assessee has any PE in India. The relevant operative portion of the order passed by this tribunal in assessee's own case for the Asst Years 2012-13 and 2013-14 in ITA Nos. 290/Kol/2016 and 348/Kol/2017 dated 20.7.2018 is reproduced hereunder:-
4.3. The Ground 3.1. raised by the assessee is with regard to the action of the ld AO in holding that the assessee has an Installation PE in India by alleging that the sub-contractor was the assessee's virtual presence in India. The Ground 3.2.
raised by the assessee is with regard to failure of the ld AO to appreciate the fact that services were provided after the conclusion of the installation activity and maintenance services post installation activities cannot form an Installation PE. Without prejudice to earlier grounds, the assessee had raised Ground 3.3. with regard to the action of the ld AO in attributing 50% of gross consideration amount which is wrong and excessive. Without prejudice to earlier grounds, the 7 8 ITA No.2112/Kol/2017 HITT Holland Institute of Traffic Technology B.V. A.Yr. 2014-15 assessee had raised Ground 3.4. with regard to the action of the ld AO in holding that AMC services are taxable as 'Fees for Technical Services' (FTS).
4.4. We find that these grounds had been adjudicated by this tribunal in assessee's own case for the Asst Year 2011-12 in ITA No. 390/Kol/2015 dated 4.4.2018 wherein it was held that the maintenance actvities carried out by the assessee does not constitute any PE in India and accordingly, in the absence of any PE, no attribution of profits could be done in India. The relevant operative portion of the said order is reproduced hereunder:-
4.9. We have heard the rival submissions and perused the materials available on record. We find that similar arguments were advanced by both ld AR and ld DR in the earlier year in assessee's own case for the Asst Year 2010-11. This tribunal for the Asst Year 2010-11 with regard to the impugned issue had held as under:-
47. We have given a very careful consideration to the rival submissions. Our conclusions in para-36 with regard to existence of an installation PE in respect of GOK Project will equally apply to this project also. Admittedly, no installation activity was carried out during the previous year and therefore the question of an installation PE of the Assessee existing during the previous year does not arise for consideration at all. We are in complete agreement with the contentions put forth by the learned counsel for the Assessee on this aspect. Accordingly, we hold that since the VATMS equipment was already accepted and handedover to the customer in the year 2007 and no installation activity was carried out in India during the subject year, it cannot be held that the Assessee had an 'Installation PE' in India in the subject year. As far as the conclusion of the revenue that the independent contractor of the Assessee in India created a virtual presence of the Assessee in India so as to create an installation PE, given that the entire onshore maintenance contract has been performed by an independent local contractor in India, it cannot be said that the business of the Assessee has been carried out by the presence of the local contractor in India, so as to create its PE in India. The examination of whether a PE exists needs to be determined based on the activities of the foreign enterprise in India. Since no activities have been carried out by the Assessee in India with respect of such maintenance activity, it is unreasonable to conclude that the business of the Assessee was carried out in India through 8 9 ITA No.2112/Kol/2017 HITT Holland Institute of Traffic Technology B.V. A.Yr. 2014-15 such subcontractor, to constitute its PE in India. We therefore hold that receipts in the form of AMC fees from ONGC on VATMS cannot be brought to tax in India as business income. In view of the above conclusion, the question of what quantum of income has to be attributed to the PE in India that is agitated in Gr.No.D-3 & 4 do not require any consideration.
4.10. In view of the aforesaid arguments and findings in the facts and circumstances of the case and respectfully following the aforesaid judicial precedent , we hold that AMC services provided post completion of installation activities at the site of customer, cannot lead to carrying out installation activities for the purpose of constitution of an 'Installation PE' in india. Further it is held that presence of an Indian contractor to which the assessee has sub-contracted the whole AMC work on principal-
to-principal basis, does not create any virtual presence of the assessee in India. In view of the above decision, the Ground No. 4..3. and 4.4. raised by the assessee requires no adjudication. Accordingly, the Grounds 4.1 to 4.4. raised by the assessee are allowed.
4.5. The facts of Asst Years 2012-13 and 2013-14 are exactly similar to those of Asst Year 2011-12 and hence in order to maintain judicial consistency, we would like to follow the same. With regard to the aspect of AMC services being considered as FTS, we hold that these services do not make available any technical know how or knowledge to the personnel of the customer as per Article 12(5) of the India-Netherlands DTAA. Hence the Grounds 3.1., 3.2., 3.3. and 3.4. (for Asst Year 2012-13) and Grounds 3.1. and 3.2. (for Asst Year 2013-14) are disposed off accordingly.
4.3. During the year under consideration, there has been no change in the facts of the assessee compared to facts in Asst Years 2012-13 and 2013-14 supra and hence in order to maintain judicial consistency, we would like to follow the same. With regard to the aspect of AMC services being considered as FTS, we hold that these services do not make available any technical know how or knowledge to the personnel of the customer as per Article 12(5) of the India-Netherlands DTAA. Hence the Grounds 3.1 to 3.5. raised by the assessee are disposed off accordingly.
9 10 ITA No.2112/Kol/2017HITT Holland Institute of Traffic Technology B.V. A.Yr. 2014-15
5. The Ground No.1 raised by the assessee is general in nature and does not require any specific adjudication.
6. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the Court on 01.08.2018
Sd/- Sd/-
[A.T.Varkey] [ M.Balaganesh ]
Judicial Member Accountant Member
Dated : 01.08.2018
SB, Sr. PS
Copy of the order forwarded to:
1. HITT Holland Institute of Traffic Technology B.V.(now known as 'Saab Technologies B.V.), Laan Van Malkenschoten 40, 7333 NP Apeldoorn, The Netherlands.
2. ACIT(IT), Circle-1(1), Kolkata, Aayakar Bhawan Poorva, 110, Shantipally, Kolkata- 700107.
3..C.I.T(A).- 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
True copy By Order Senior Private Secretary Head of Office/D.D.O., ITAT, Kolkata Benches 10