Income Tax Appellate Tribunal - Mumbai
Toyo Engineering Corporation, Mumbai vs Assessee
आयकर अपील य अ धकरण,
धकरण मंुबई यायपीठ 'एल'
एल' मंुबई ।
IN THE INCOME
INCOME TAX APPELLATE TRIBUNAL "L" BENCH, MUMBAI
सव ी बी. रामकोटय
रामकोटय, लेखा सद य एवं ी वजयपाल राव,
राव या.स
या स ।
BEFORE SHRI B. RAMAKOTAIAH
RAMAKOTAIAH,
AMAKOTAIAH, AM & SHRI VIJAY PAL RAO,RAO, JM
आयकर अपील सं./I.T.A.
I.T.A. N o. 8192/Mum/2004 - A. Y - 1999-2000
आयकर अपील सं./I.T.A.
I.T.A. No. 565/Mum/2005 - A.Y-2000-2001
आयकर अपील सं./I.T.A.
I.T.A. No. 3310/Mum/2005 - A.Y-1996-1997
आयकर अपील सं./I.T.A.
I.T.A. No. 3311/Mum/2005 - A.Y-1997-1998
आयकर अपील सं./I.T.A.
I.T.A. No. 3312/Mum/2005 - A.Y-2001-2002
&
आयकर अपील सं./I.T.A.
I.T.A. No. 2552/Mum/2006 - A.Y-1998-1999
आयकर अपील सं./I.T.A.
I.T.A. No. 2553/Mum/2006 - A.Y-2002-2003
Toy o Engineering Corporation, बनाम/
बनाम The Deputy Di rector of
C/o- Bilimo ria Mehta & Co ., Income T ax, International
Vs.
Chartered Accountants, 216, Taxation, Range 2- (1),
Sethna Building, Shamaldas Scindia House, Bal lard Pier,
Gandhi Marg, Mumbai-400021
Mumbai-400002
(अपीलाथ /Appellant
Appellant)
Appellant .. ( यथ / Respondent)
Respondent
आयकर अपील सं./I.T.A.
I.T.A. No. 4035/Mum/2005 - A. Y - 1996-1997
आयकर अपील सं./I.T.A.
I.T.A. No. 3698/Mum/2005
3698/Mu m/2005 - A.Y-1997-1998
&
आयकर अपील सं./I.T.A.
I.T.A. No. 2139/Mum/2006 - A.Y-1998-1999
DDIT (IT)-2(1), बनाम Toyo Engineering Corpora tion,
बनाम/
Room No. 120, Sci ndia House, C/o- Bilimoria Mehta & Co.,
Ballard Es tate, N. M. R oad, Vs. Chartered A ccountants, 216,
Mumbai-400038 Sethna Building, Shamaldas
Gandhi Marg,
Mumbai-400002
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. :AAACT5370K
(अपीलाथ /Appellant
Appellant)
Appellant .. ( यथ / Respondent)
Respondent
अपीलाथ ओर से / Appellant by : Ms. Madhur Agarwal & Ms. Indra Anand
यथ क ओर से/Respondent by : Mr. Ajay Shrivastava
सनवाई
ु क तार ख / D at e o f H e a ri n g : 29th July 2013
घोषणा क तार ख/D
ख a te O f P ro n o u n c e m e n t: 23rd August 2013
2
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
आदे श / O R D E R
PER BENCH
For the assessment year 1996-97 to 1998-99 there are cross
appeals by the assessee as well as revenue against the respective orders
of the Commissioner of Income Tax(Appeals).
2. The assessee has also impugned the orders of the CIT(A) for the
assessment year 1999-2000 to 2002-03 by way of four appeals.
3. First we will take up the assessee's appeal in ITA No. 8921/2004 for
the assessment year 1999-2000.
4. The assessee has raised the following grounds:
"1. The learned Commissioner of Income Tax (Appeal) erred in
holding that the offshore design revenues earned by appellant's
head office in Japan are liable to tax in India.
2. The learned Commissioner of Income Tax (Appeal) erred in not
applying the provisions of Article 24 of the Agreement for
Avoidance of Double Taxation between India-Japan and thereby
erroneously confirming the tax rate applied by the assessing
officer @ 48 percent for computing the Appellant's tax liability,
instead of 35 percent as applicable to domestic companies.
3: The learned Commissioner of Income Tax (Appeal) erred in
denying exemption under section 1 0(6A) of the Act to the
appellant despite the fact that the contracts with MRPL are
approved by the Central Government."
5. Ground No. 1 regarding the taxability of offshore design revenues
earned by the assessee's head office. The assessee is a non-resident
company incorporated in Japan. The assessee specialises in various
activities including undertaking work related to design, engineering,
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& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
erection, equipment procurement, supervision and construction of
chemical, fertilizer, petroleum, petrochemical and other plants. The
assessee operates in India through project offices established in India
after obtaining relevant approvals from RBI. During the financial year
relevant to the assessment under consideration the assessee executed
the project management contracts awarded by Mangalore Refinery and
Petrochemicals Limited (MRPL). The assessee also executed the CCR-2
project management contract with MRPL and the offshore supply contract
awarded by HPL and CFCL. Apart from the above the assessee has also
executed offshore design contracts and with MRPL and CFCL. The
assessee has not offered to tax the income earned under the offshore
design contract and claimed that the said income is not chargeable to tax
in India. Alternatively the assessee argued before the AO that the income
earned under offshore design contracts was not attributable to the
assessee's PE in India and hence, the same was not taxable as per the
provisions of Indo-Japan DTAA. The AO concluded that the revenue under
project management contract and offshore design contract with MRPL,
HPL and CFCL constitute Fees for Technical Services (FTS) and accordingly
the revenue under offshore supply contract and offshore design contract
earned by the assessee was held to be taxable in India. On appeal before
CIT(A) the assessee contended that the revenue earned under offshore
design contract will not be taxable in India within Article 12 of the Indo-
Japan DTAA as it is not a royalty or Fees for Technical Services. In support
of its contention the assessee relied upon the ruling of advance authority
4
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
ruling in case of Pro-quick Corporation. The assessee has further
contended before the CIT(A) that the offshore design contract is in nature
of provision of extended basic engineering and the design transfer to
Indian customers by the assessee are only for the purpose of construction
purpose in India and specific to the contract executed by the assessee.
The revenue received by the assessee under offshore design contract is
not for use of or right to use industrial, commercial or scientific equipment
therefore, the said revenue cannot be considered as royalty or Fees for
Technical Services under Indo-Japan treaty. Alternatively the assessee
contended that even if the payment received by the assessee under
offshore design contract are classified as royalty or Fees for Technical
Services this would be covered under the exclusion clause contain in
Article 12(5) of Indo-Japan treaty. In support of its contention the assessee
relied upon ruling of authority of advance ruling AAR in case of Bechtel
228 ITR 487. The CIT(A) did not agree with the contention of the assessee
and confirm the action of the AO in treating the revenue received by the
assessee under the offshore design contract as royalty/ Fees for
Technical Services and taxable in India.
6. Before us the Ld. AR of the assessee has reiterated the contentions
as raised before the authorities below and further contended that the
issue is covered by the decision of Hon'ble Supreme Court in case of
Ishikawajima-harima Heavy Industries Ltd. v. DIT 288 ITR 408. The Ld. AR
has contended that the Hon'ble Supreme Court has dealt with an identical
issue in the said decision and held that though the contract was executed
5
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
in India but part thereof will have to be carried out outside India would not
make the entire income derived by the contractor to be taxable in India.
He has further submitted that the Hon'ble Supreme Court has observed
that the contract may be turnkey contract but the same by itself does not
mean even for the purpose of taxability that the entire contract must be
considered to be an integrated one so as to make the assessee to pay tax
in India. The Ld. AR as further submitted that subsequent to the decision
of Hon'ble Supreme Court in case of Ishikawajima-harima Heavy Industries
Ltd. this Tribunal for the assessment year 2009-10 has considered an
identical issue and decided the same in favour of the assessee in case of
IHI Corporation Vs ADIT reported 58 SOT 225. Therefore, this issue is
covered in favour of the assessee by the above decision of this Tribunal.
7. On the other hand the Ld. DR has submitted that the revenue
earned by the assessee under offshore design contract is nothing but Fees
for Technical Services. He has further contended that this issue is factual
and depend on the facts recorded in the contract itself. When the contract
is for designing then the income constitute Fees for Technical Services. He
has further contended that the observation of Hon'ble Supreme Court in
case of IHI Ltd. is only obiter-dicta and therefore binding only in the said
case. He has referred section 9(1)(vii) of the Income Tax Act and
submitted that after insertion of explanation vide Finance Act 2010, with
retrospective effect from 1976 for the purpose of clause v, vi and vii of
sub-section (1) it is immaterial whether the non-resident has a residence
or place of business or business connection in India or rendered services
6
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
in India for including the income by way of Fees for Technical Services in
the total income.
8. We have considered the rival submissions as well as relevant
material on record. There is no dispute so far as the contract has been
executed in India and the assessee is having Permanent Establishment in
India. The limited question before us is regarding the nature of revenue
earned by the assessee under the offshore design contract and taxability
of the same in India as per the provisions of the Income Tax Act as well as
under Indo-Japan DTAA. So far as the nature of the revenue earned under
offshore design contract is concerned, there is no dispute that the
assessee has rendered the services which are technical in nature and
nothing has been brought before us to contravent findings given by the
AO and CIT(A) and that the revenue earned by the assessee under the
said contract is not royalty/ Fees for Technical Services. Even otherwise
the assessee has not disputed that the revenue is earned for transfer of
design for the purpose of execution of the project under the contract.
Thus, the revenue earned by the assessee is for rendering the services
and not sale of design. The taxability of Fees for Technical Services has to
be examined as per the provisions of Act u/s 9(1)(vii) as well as the
provisions of DTAA. In order to determine the taxability of Fees for
Technical Services Section 9(1)(vii) contemplates the various condition as
under:
"(vii) income by way of fees for technical services payable by-
(a) the Government; or
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ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
(b) a person who is a resident, except where the fees are payable
in respect of services utilised in a business or profession carried
on by such person outside India or for the purposes of making or
earning any income from any source outside India; or
(c) a person who is a non-resident, where the fees are payable in
respect of services utilised in a business or profession carried on
by such person in India or for the purposes of making or earning
any income from any source in India:
[Provided that nothing contained in this clause shall apply in
relation to any income by way of fees for technical services
payable in pursuance of an agreement made before the 1st day of
April, 1976, and approved by the Central Government.]
[Explanation 1. - For the purposes of the foregoing proviso, an
agreement made on or after the 1st day of April, 1976, shall be
deemed to have been made before that date if the agreement is
made in accordance with proposals approved by the Central
Government before that date. ]
Explanation [2].- For the purposes of this clause, "fees for
technical services" means any consideration (including any lump
sum consideration) for the rendering of any managerial, technical
or consultancy services (including the provision of services of
technical or other personnel) but does not include consideration
for any construction assembly, mining or like project undertaken
by the recipient or consideration which would be income of the
recipient chargeable under the head "Salaries".]"
9. Further it is relevant to note that the Finance Act 2010 has
substituted explanation below to section 9(2) with retrospective effect
from 1976 which reads as under:
"[Explanation - For the removal of doubts, it is hereby declared
that for the purposes of this section, income of a non-resident
shall be deemed to accrue or arise in India under clause (v) or
clause (vi) or clause (vii) of sub-section (1) and shall be included
in the total income of the non-resident, whether or not,-
(i) the non-resident has a residence or place of business or
business connection in India; or
(ii) the non-resident has rendered services in India. ]"
8
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
10. As per clause (b) of section 9(1)(vii) if the Fees for Technical
Services is payable by persons who is resident then there is no
requirement that the services are rendered in India. Further after
substitution of the explanation below section 9(2) the income from Fees
for Technical Services shall be deemed to be accrued and arised in India
to a non-resident whether or not the non-resident has rendered services in
India, or has any residence or place of business or connection in India.
Therefore, rendering of service is not a pre condition for attracting section
9(1)(vii) when the Fees for Technical Services are payable by a person
who is resident. There is no dispute in the case in hand that the Fees for
Technical Services are payable by the persons who is resident in India
therefore, under the provisions of statute the income of Fees for Technical
Services in question is taxable in India.
11. Turning to the taxability of such income under Indo-Japan DTAA we
note that Article 12 deals with the income from royalty and Fees for
Technical Services. The assessee has taken an alternative plea that since
the assessee has a Permanent Establishment in India therefore, the Fees
for Technical Services does not attract Article 12 in view of the exclusion
clause as per para (5) of Article 12. At this stage we reproduce Article
12(5) as under:
"5. The provisions of paragraphs 1 and 2 shall not apply if the
beneficial owner of the royalties or fees for technical services,
being a resident of a Contracting State, carries on business in the
other Contracting State in which the royalties or fees for technical
services arise, through a permanent establishment situated
therein, or performs in that other Contracting State independent
personal services from a fixed base situated therein, and the
9
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
right, property or contract in respect of which the royalties or fees
for technical services are paid is effectively connected with such
permanent establishment or fixed base. In such case, the
provisions of article 7 or article 14, as the case may be, shall
apply."
12. There is no dispute that if a non-resident has a Permanent
Establishment and Fees for Technical Services arise through a Permanent
Establishment situated in the other contracting State then the provisions
of para 1 & 2 of Article 12 shall not apply and such income for Fees for
Technical Services/royalty will fall under the provisions of Article 7 or
Article 14 as case may be. In the case in hand the assessee has
categorically stated that the Permanent Establishment has no role in
earning the Fees for Technical Services/royalty in question. Having said so
that the Permanent Establishment of the assessee has no role in earning
of the income from Fees for Technical Services under offshore design
contract then the exclusion clause under Article 12(5) of Indo-Japan treaty
shall not be attracted and consequently the provisions of Article 12
relating to Fees for Technical Services will be applicable. The authorities
below have not considered the relevant provisions of DTAA and
particularly Article 12 of Indo-Japan treaty in the light of the terms and
conditions of the contract in question to arrive at the finding that the
income in question is taxable in India even under Indo-Japan DTAA.
Accordingly in the interest of justice we remit this issue to the record of
the Assessing Officer for limited purpose of examination of the contract in
question and taxability of the income under the said contract as per the
provisions of Article 12 of Indo-Japan DTAA.
10
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
13. Ground No. 2 regarding the rate of tax. We have heard the Ld. AR
as well as Ld. DR and considered the relevant material on record. At the
outset we note that this issue has been considered and decided by this
Tribunal in assessee's own case for the assessment year 1998-99 vide
order dated 24.12.2009 in ITA No. 3520/M/2005 in para 37 as under:
"37. Mr. Percy Pardiwalla was fair in submitting that this issue is
covered against the assessee and in favour of the Revenue by
the decision in the case of Chohung Bank Vs DCIT (Int. taxation)
102 ITD 45. Respectfully following the same, we hold that the AO
was right in applying tax rate of 48% as per the Act instead of
35% as claimed by the assessee invoking provisions of Article 24
of Indian Japan treaty."
14. Since the issue has already been decided against the assessee
therefore following the earlier order of this Tribunal we decide this issue
against the assessee.
15. Ground No. 3 regarding exemption u/s 10(6A). We have heard the
Ld. AR as well as Ld. DR and considered the relevant material on record.
At the outset we note that this issue has been considered and decided by
this Tribunal is assessee's own case in assessment year 1996-97 in ITA
No. 4054/M/1999 vide order dated 24.12.2009 in para 18 to 18.2 as
under:
"18. Coming to ground No. 5 the sole argument of Mr. Narender
Singh, learned DR, is that the assessee has filed loss return and
hence he was not liable to pay any income-tax in India and under
those circumstances the tax paid by MRPL could not be exempt
u/s 10(6A).
18.1 We find that section 1 0(6A) reads a follows:
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& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
"(6A) where in the case of a foreign company deriving
income by way of royalty or fees for technical services
received from Government or an Indian concern in
pursuance of an agreement made by the foreign company
with Government or the Indian concern after the 3l day of
March, 1976 [but before the 1st day of June, 2002] [and. -
(a) where the agreement relates to a matter included in
the industrial policy, for the time being in force, of the
Government of India such agreement is in accordance with
that policy; and
(b) in any other case, the agreement is approved by the
Central Government,
The tax on such income is payable, under the terms of the
agreement, by Government or the Indian concern to the
Central Government, the tax so paid].
Explanation -- For the purposes of this clause-
(a) "fees for technical services" shall have the same
meaning as in Explanation 2 to clause (vii) of sub-section
(1) of section 9;
(b)"foreign company" shall have the same meaning as in
section 80B.
(c) "royalty" shall have the same meaning as in
Explanation 2 to clause (vi) of sub-section (1) of section
9;]."
18.2 The undisputed fact is that the agreement in this case
relates to a matter included in the Industrial Policy for the time
being enforced by Government of India and that the agreement
in question is in accordance with the policy. As this condition is
satisfied, the tax on income derived by the foreign company, if it
is payable under the terms of the agreement by the Government
or the Indian concern, the tax so paid cannot form part of total
income. Section 10(6A) clearly lays down the tax paid or
payable, under such circumstances is exempt u/s 10(6A). We are
unable to appreciate the argument of the Revenue that as this is
a case of loss, the question of application of section 10(6A) does
not arise. Once an amount has been paid as tax to the Central
Government on behalf of a foreign company, by the Indian
concern in terms of an agreement covered in clause (a) and
clause (b) of section 10(6A), such payment cannot be treated as
income. Thus, we uphold this finding of the first appellate
authority and dismiss this ground of the Revenue."
12
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
16. Following the earlier order of this Tribunal in assessee's own case
we decide this issue in favour of the assessee and against the revenue.
ITA No. 565/M/2005
565/M/2005,
65/M/2005, A.Y-
A.Y- 2000-
2000-01
17. The assessee has raised the following grounds:
"1. The learned Commissioner of Income Tax (Appeal) has erred
in holding that offshore design revenues earned by the
Appellants Head office in Japan are liable to Tax in India.
2. The learned Commissioner of Income tax (Appeals) erred in
not applying the provisions of Article 24 of the agreement for
avoidance of double taxation between India- Japan and thereby
erroneously confirming the tax rate applied by the assessing
officer @ 48 percent for computing the Appellants tax liability,
instead of 35 percent as applicable to domestic companies.
3. The Learned Commissioner of Income tax (Appeals) erred in
denying exemption under section 1 0(6A) of the Act to the
appellant despite the fact the contract with MRPL are approved
by the Central Government."
18. Ground No. 1 is common to ground no. 1 for the assessment year
1999-2000 in view of our finding for the assessment year 1999-2000, this
issue set aside for limited propose to the record of the AO with similar
directions.
19. Ground No. 2 is common for the assessment year 1999-2000. In
view of our finding of ground No. 2 for the assessment year 1999-2000,
we decide this issue against the assessee.
20. Ground No. 3 is common to the Ground No. 3 for the assessment
year 1999-2000. In view out finding for the assessment year 1999-2000,
this issue is decided in favour of the assessee.
13
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
ITA No. 3312/M
3312/M/2005, A. Y.-
Y.- 2001-
2001-02
21. The assessee has raised the following grounds:
"Ground 1: The learned Commissioner of Income Tax (Appeals)-
XXXI has erred in concluding that that the offshore design
revenues earned by the Appellant are taxable in India.
Ground 2: The learned Commissioner of Income Tax (Appeals)-
XXXI has erred in concluding that assessees income from
offshore and onshore supply contract are taxable at 48 percent
Ground 3: The learned Commissioner of Income Tax (Appeals)-
XXXI has erred in concluding that relief under section 10(6A) is
not available to the assessee.
Ground 4: The learned Commissioner of Income Tax (Appeals)-
XXXI has erred in concluding that the interest under Section
234D are leviable on the assessee for matters relating to
A.Y.2001-02."
22. Ground No. 1 to 3 are common to the Ground No. 1 to 3 for the
assessment year 1999-2000. In view of our finding for the A.Y. 1999-2000
Ground No. 1 is set aside for limited purpose to the record of the AO,
Ground No. 2 is decided against the assessee and Ground No. 3 is decided
in favour of the assessee.
23. Ground No. 4 regarding levy of interest u/s 234D. We have heard
the Ld. AR as well as Ld. DR and considered the relevant material on
record. The Ld. AR of the assessee has fairly conceded that this issue is
now decided against the assessee by the Hon'ble Jurisdiction High Court in
case of CIT Vs Indian Oil Corporation 254 CTR 113 in para 24-27 as under:
"24) Mr. Murlidhar further submitted that even if section 234D is
applicable to all refunds paid prior to 1/06/2003 in respect of
assessments completed post 1/06/2003 interest payable on such
refund would commence only from 1/06/2003 onwards. He relied
14
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
upon the decision of Kerala High Court in CIT v. Kerala Chemicals
and Proteins Ltd. reported in 323 ITR 584.
25) The aforesaid decision was rendered prior to the introduction
of Explanation-2 to section 234D of the Act. The Kerala High
Court which had no occasion to consider Explanation 2 held that
as the provision of interest is not introduced with reference to
any assessment year, it must be taken to apply only with effect
from 1/06/2003. This submission of the respondent-assessee
would require limiting the clear words of a declaratory
amendment in an Explanation 2 to section 234D of the Act which
specifically provides that it shall also apply to an assessment
year commencing before 1/06/2003. The only qualifying criterion
is that proceedings in respect of such assessment is completed
after 1/06/2003. Once the Explanation is held to be retrospective
in relation to the assessment years commencing before 1/6/2003
it would not be open to restrict the operation of section 234D of
the Act only with effect from 1/6/2003.
26) A statute could be retrospective in operation being
expressly stated or by necessary implication. The case of the
revenue is that section 234D as introduced on 1st June, 2003
was retrospective in operation by necessary implication.
However, as doubts were raised about its retrospectivity, the
same was clarified by adding an explanation to section 234D by
Finance Act, 2012. Under the Act what is brought to tax is not
the income of the assessee in the assessment year but the
income of the assessee in the previous year. The liability to tax
arises on account of the Finance Act which fixes the rate at which
the tax is to be paid. The law to be applied is as existing on the
1st day of April of the previous year. In support the Counsel for
the respondent relied upon the decision of the Supreme Court in
Karimthuravi Tea Estate ltd. V. State of Kerala 60 ITF? 262,
Maharajah of Pithapurm v. CIT 13 ITR 221 (PC) and CIT v. Scindia
Steam Navigation Co. Ltd. 42 ITR 539. The aforesaid decisions
are not relevant for our purpose particularly, in view of the fact
that Explanation 2 to section 234D of the Act as introduced by
the Finance Act,2012 being declaratory in nature would be
retrospective. This amendment make it cleat that it shall apply
assessment years even prior to 1/06/2003.
27) In view of the above, we hold that the decision of the
Tribunal in ITO V. Ekta Promoters Pvt. Ltd. reported in 113 lTD
719 which has been followed in the impugned order by the
Tribunal is not correct. One more aspect of the matter which
must be borne in mind is that till such time as the assessment
proceedings are completed in respect of any assessment year,
the amendment made to the Act would be applicable even in
case of pending proceedings. It is not the case of the respondent
15
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& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
that the proceeding in regard to refund which has been granted
under section-143(1) of the Act are concluded and final. The
refund which has been granted under section 143(1) of the Act is
provisional, to be finally determined when final assessment order
is passed under section 143(3) of the Act. Explanation-2 to
section 234D of the Act makes it clear that it would be applicable
to pending proceedings i.e. where assessment in respect of such
assessment year is not completed on 1/6/2003."
24. Following the decision of Hon'ble Jurisdiction High Court we decide
this issue against the assessee in favour of the Revenue.
ITA No. 2553/M/
2553/M/2006,
M/2006, A. Y. - 2002-
2002-03
25. Ground No. 1 and 2 are common to the Ground No. 1 and 2 for the
assessment years 1999-2000 and 2001-02. In view of our finding for the
assessment year 1999-2000 Ground No. 1 is set aside for limited purpose
to the record of the AO and Ground No. 2 for the assessment year 2001-
02 is decided against the assessee.
ITA No. 4035/M/
4035/M/2005,
M/2005, 3698/M/
3698/M/2005
M/2005 and 2139/M/
2139/M/2006
M/2006
26. The Revenue has raised common grounds in these appeals. The
grounds raised for the assessment year 1996-97 are as under:
"1. "On the facts and in the circumstances of the case and in
law, the Ld. CIT(A) erred in holding that the revenues from
Project Management Contract are to be taxed on net income
basis without appreciating that:
i. The assessee is not at all in the business of construction and;
ii. While computing income in accordance with Article 7(3) of the
Tax Treaty between India and Japan, the limitation of the
domestic tax law has to be observed".
16
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
2. "On the facts and in the circumstances of the case and in law,
the Ld. CIT(A) erred in holding that no liability u/s 234B arise,
ignoring the fact:
(i) that since the tax deducted at source was not adequate
to meet the entire tax liability, it was obligation on the part
of the assessee to make the deficit good by making the
payments towards the advance tax;
(ii) that since the assessee failed to pay the advance tax, the
Assessing Officer was right in charging interest u/s 234B of
the I.T. Act, 1961."
27. Ground No. 1 is regarding Revenue from PMC to be taxed on net or
gross income basis. We have heard the Ld. DR as well as the Ld. AR and
considered the relevant material on record. At the outset we note that this
issue has been considered and decided by this Tribunal in assessee's own
case in the appeal filed by the Revenue in ITA No. 8193/2004 for the
assessment year 1999-2000 vide order dated 3.4.2012 and the summary
of the finding is given in para 13 as under:
"13. The summary of our conclusion on this ground is as
under:
A. Under the Act:
(i) The receipts from project management contracts are in the
nature of fees for technical services covered u/s 9(l)(vii).
(ii) Income from such fees for technical services is required to be
computed u/s 44D.
B. As per section 90(2), the assessee is entitled to be governed
by the provisions of the Act or DTAA whichever is more beneficial
to him. in the present case the provisions of the DTAA are more
beneficial and hence the assessee shall be entitled to the
computation of its income from PMCs as per the DTAA.
C. Under DTAA
(i) The amount received by the assessee on account of PMC is
chargeable as business profits under Article 7.
17
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
(ii) Business profits are to be computed in terms of para 3 of
Article 7 read with paras 7 and 8 of the Protocol."
28. In view of the order of this Tribunal in assessee's own case for the
assessment year 1999-2000 this issue is remanded to the record of the
Assessing Officer as per the terms of the said order.
29. Ground No. 2 is regarding interest u/s 234B. We have heard the Ld.
AR as well as Ld. DR and considered the relevant material on record. This
issue has also been considered and decided by this Tribunal in assessee's
own case for the assessment year 1999-2000 vide order dated 3.4.2012 in
para 14 & 15 as under:
"14. Last ground is against the direction of the learned CIT(A) for
not charging interest u/s 234B and 234C.
15. Having heard the rival submissions and perused the relevant
material on record we find that the issue of charging of interest
u/s 2348 in the present case is no more res integra in view of the
judgment of the Hon'ble jurisdictional High Court in the case of
Director of income--tax (International Taxation) v. NGC Network
Asia LLC [(2009) 313 ITR 187 (Bom.)J in which it has been held
that when the duty is cast on the payer to deduct tax at source,
on failure of the payer to do so, no interest can be charged from
the payee assessee u/s 234B. The same view has been reiterated
in DIT (IT) v. Krupp UDHE GmbH[(2010) 38 DTR (Bom.) 251]. As
the assessee before us is a non-resident, naturally any amount
payable to it which is chargeable to tax under the Act, is
otherwise liable for deduction of tax at source. In that view of the
matter and respectfully following the above precedents, we hold
that no interest can be charged u/s 234B and 234C of the Act.
This ground is not allowed."
30. Following the earlier order of the Tribunal we decide this issue
against the Revenue.
18
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
ITA No. 3310/M/
3310/M/2005,
M/2005, 3311/M/
3311/M/2005
M/2005 and 2552/M/
2552/M/2006
M/2006 for A.Ys.1996
A.Ys.1996-
s.1996-
97,1997-
97,1997-98,1998-
98,1998-99
31. The assessee has raised the following common grounds. The
Grounds raised in ITA No. 3310/M/2005 are as under:
"Ground 1: The learned Commissioner of Income Tax (Appeals)-
XXXI has erred in holding that re-assessment proceedings
initiated by the DDIT under Section 148 of the Act as valid.
Ground 2: The learned Commissioner of Income Tax (Appeals)-
XXXI has erred in concluding that the Appellant has earned an
amount of JPY 350,000,000 in respect of the offshore design
contract with MRPL and that the offshore design revenues earned
by the Appellant are taxable in India.
Ground3: The learned Commissioner of Income Tax (Appeals)-
XXXI has erred in concluding that the interest under Section
234D is chargeable to the assessee for matters relating to
A.Y.1996-97."
32. Ground No. 1 is regarding validity of reopening. At the time of
hearing the Ld. AR of the assessee has stated that the assessee does not
press Ground No. 1 in all three appeals for the assessment years 1996-97
to 1998-99 and the same may be dismissed as not pressed. The Ld. DR
has not raised any objection if the Ground No. 1 of assessee's appeals is
dismissed as not pressed. Accordingly the Ground No. 1 in the assessee's
appeals for the assessment years 1996-97 to 1998-99 is dismissed being
not pressed.
33. Ground No. 2 is regarding offshore design Revenue. This ground is
common in all the three appeal of the assessee for the assessment year
1996-97 to 1998-99. In view of our finding on this issue for assessment
19
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
year 1999-2000 this issue is remitted for limited purpose to the record of
the AO.
34. Ground No. 3 is regarding levy of interest u/s 234D. We have heard
the Ld. AR as well as the Ld. DR and considered the relevant material on
record. This ground is common to the Ground No. 4 of assessee's appeal
for the assessment year 2001-02. Accordingly, in view of our finding as
well as decision of Hon'ble Jurisdiction High Court in case of CIT Vs OIC
254 CTR 113 this issue is decided against the assessee and in favour of
the Revenue.
35. For the assessment year 1998-99 the assessee has also raised
Ground No. 3 and 4 as under:
"Ground 3: The Appellant respectfully submits that the learned
CIT(A) has erred in not giving exemption under section 10(6A) in
respect of its Foreign Currency Revenues earned under PMCs to the
Appellant.
Ground 4: The Appellant respectfully submits that the learned
CIT(A) has erred in upholding taxation of the revenues earned by
the Appellant at the tax rate of 48 percent as per the Act, instead
of 35 percent, thereby not applying the provisions of Article 24 of
the treaty."
36. Ground No. 3 is regarding exemption u/s 10(6A). This issue is
common to the Ground No. 3 in the assessee appeal for assessment year
1999-2000. In view of our finding on this issue for the assessment year
1999-2000, this ground is allowed.
37. Ground No. 4 is regarding rate of tax. This ground is common to the
Ground No. 2 of the assessment year 1999-2000 and in view of our finding
20
ITA No.8192/M/2004, 565, 3312, 3310, 4035
& 3698/M/2005 & 2553, 2139/M/2006
Toyo Engineering Corporation
for the assessment year 1999-2000. This issue is decided against the
assessee.
38. In the result, the appeals of the assessee as well as revenue are
partly allowed.
Order pronounced in the open Court on this 23rd day of August 2013
आदे श क घोषणा खले
ु यायालय म दनांकः 23rd अग त को क गई ।
Sd/- Sd/-
(बी. रामकोटय) ( वजयपाल राव )
लेखा सद य या यक सद य
(B. RAMAKOTAIAH) (VIJAY PAL RAO )
Accountant Member Judicial Member
Place: Mumbai : Dated: 23rd August 2013
Subodh
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai