Income Tax Appellate Tribunal - Delhi
Lahmeyer Holding Gmbh, Germany vs Ddit, New Delhi on 16 November, 2022
Author: G.S. Pannu
Bench: G.S. Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI BENCH: 'D' NEW DELHI
BEFORE SHRI G.S. PANNU, HON'BLE PRESIDENT
AND
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No.273/Del/2011
Assessment Year: 2006-07
WITH
ITA No.5800/Del/2010
Assessment Year: 2007-08
M/s. Lahmeyer Holding Vs. DDIT,
GmbH (earlier known as Circle-3(1),
Lahmeyer International International Taxation,
Gmbh), New Delhi
Friedberger Strasse 173,
61118 Bad Vilbel,
Deutschland-Germany
PAN :AAACL6802E
(Appellant) (Respondent)
Appellant by Sh. Satyan Sethi, Advocate
Sh. A. T. Panda, Advocate
Respondent by Ms. Sapna Bhatia, CIT (DR)
Date of hearing 18.08.2022
Date of pronouncement 16.11.2022
ORDER
PER SAKTIJIT DEY, JM:
Captioned appeals are by the same assessee. While appeal for assessment year 2006-07 arises out of order dated 08.11.2010 passed by learned Commissioner of Income Tax (Appeals)-VII, ITA No.273/Del/2011 & 5800/Del/2010 New Delhi, the appeal for assessment year 2007-08 is against the final assessment order passed under section 144C(13) read with section 143(3) of the Income-tax Act, 1961 (for short 'the Act'), in pursuance to the direction of learned Dispute Resolution Panel (DRP). However, issues arising in the appeals are more or less common, hence, both the appeals are clubbed together and disposed of in a common order, for the sake of convenience. ITA No. 273/Del/2011 Assessment Year: 2006-07
2. In ground nos. 1 & 2, the assessee has challenged the decision of the departmental authorities in holding that the assessee has a Permanent Establishment (PE) in India under Article 5 of India - Germany Double Taxation Avoidance Agreement (DTAA) and taxing the amount received from contract with Andhra Pradesh Transmission Corporation (AP Transco) by applying the rate of 20%.
2.1 Briefly the facts are, the assessee is a non-resident corporate entity incorporated in Germany and is a tax resident of that country. As stated by the Assessing Officer, the assessee is an engineering consulting company which offers planning, designing and consulting services in relation to complex infrastructure
2|Page ITA No.273/Del/2011 & 5800/Del/2010 projects. The assessee had entered into contracts with Government/Semi-Government organization for executing various projects. During the year under consideration, the assessee has earned revenue from executing following contracts and offered them to tax as under:
Project Name Date of Amount (Rs.) Rate of Tax Agreement Andhra Pradesh 15.05.1999 629,256 10% Transmission Corporation J & K Power 17.08.1999 112,144,163 20% Development Corp.
Baglihar Project Jai Prakash Ind. 18.08.2003 22,023,692 4.18% Ltd.
Total 134,797,111 2.2 Insofar as the revenue earned from J & K Power
Development Corp. Baglihar Project is concerned, there is no dispute between the parties, as, the assessee itself has admitted that it had a PE in India and offered the revenue earned to tax at the rate of 20%. However, insofar as the amount received from AP Transco, the assessee claimed that it has no PE in India and the amount, being in the nature of Fee for Technical Services (FTS), is taxable under Article 12 of India - Germany Tax Treaty. Thus, the assessee the assessee offered the income to tax on gross basis by applying the rate of 10%. The Assessing Officer, however, did not
3|Page ITA No.273/Del/2011 & 5800/Del/2010 accept assessee's claim. Relying upon assessment orders passed for assessment years 2003-04, 2004-05 and 2005-06, the Assessing Officer held that the assessee had a PE in India in terms of Article 5(2)(i) read with Article 5(1) of the Tax Treaty, hence, the FTS earned is taxable under section 44DA read with section 115A of the Act. Without prejudice, he observed, irrespective of the fact, whether the assessee has a PE in India or not, by applying the Force of Attraction Rule the income is taxable in India on gross basis by applying the rate of 20%. Accordingly, he proceeded to tax the revenue earned from AP Transco. While deciding the issue in appeal, learned Commissioner (Appeals) followed the orders passed by the first appellate authority in assessee's own case in assessment years 2004-05 and 2005-06 and upheld the addition.
2.3 Before us, learned counsel appearing for the assessee submitted, the issue is squarely covered in favour of the assessee by the decisions of the Tribunal in assessment years 2001-02 to 2005-06. In this context he drew our attention to the relevant observations of the Tribunal on the disputed issue.
4|Page ITA No.273/Del/2011 & 5800/Del/2010 2.4 Though, learned Departmental Representative agreed that the issue is covered in favour of the assessee, however, he relied upon the observations of the departmental authorities. 2.5 We have considered rival submissions and perused materials on record. Undisputedly, the projects from which the assessee has earned revenue in the year under consideration were continuing from preceding assessment year. We have noted, while considering identical nature of dispute arising between the parties, the Coordinate Bench in ITA No. 4960/Del/2004 and Ors. relating to assessment years 2001-02 to 2005-06, has not only held that there is no PE of the assessee in India, insofar as, the AP Transco project is concerned, but also held that Force of Attraction Rule will not apply. In this context, following observations of the Coordinate Bench would be relevant:
"7. We h ave h eard bo th th e p a r tie s an d pe ru se d the re le van t ma te r ia l on rec ord . T h e c on te n ti on o f the a sse sse e wa s th at th e f orc e of a ttr ac tio n ru l e i s n o t a p pl ic a bl e to the a sse ssee in v ie w of ar tic l e 7( 1 ) of the tre a ty be t we en In di a an d Ger man y DT AA. T he c on te n tion of th e as se sse e wa s th a t a s pe r pro toc ol of th e tr ea ty , the f orc e of a ttr ac tio n r ul e in th i s tre a ty re s tr ic ts th e a p pl ic a ti on of th e rul e to a c a se wh er e, th e PE i s in vol ve d in th e tr an sac ti on an d th e tr an sac ti on is re sto red to av o id tax a tio n in th e sou rc e s ta te an d bo th the se c on ten tio n s ne ed s to be sa ti sf ied so a s to a ttr ac t the ru le . T h e PE co ns ti tu ted in Ind i a b y th e a sse sse e u n de r th e co n t rac t wi th JK S P D C -Ph a se- 2 wa s n o t in vol ve d in an y o th e r pro jec t ex e c u ted in In d ia d u rin g the re l ev an t p reviou s ye ar. Fo r su p po r ti n g th is
5|Page ITA No.273/Del/2011 & 5800/Del/2010 sta te men t, th e a sse sse e su b m it te d v ar iou s c o n tr ac ts en tered in to b y t he as se s see wi th dif f ere nt in de pe nd en t u n rel a ted p ar ti e s. Mos t of the se c o n tr ac ti ng p ar tie s are go vern me n t or se m i gov ern men t or pr iv ate org an is ati on s. T h e as se s see co ns ti tu te s PE on ac cou n t of u n de rta k i n g su per v i sor y ac ti v i tie s a s pro v ide d in ar ti cl e 5 ( 2 ) ( i) o f the tre a ty in rel a ti on to con s tru c ti on o f H yd ro Po we r Pr ojec ts a t B agl ih ar in th e sta te of J am mu & Kash mir. In respe c t of th e b al an c e co n tr ac ts, ba sed o n spe c if ic co n tr ac t re quire men ts , th e a sse ssee ' s per s on n el ei th er pe rf ormed se rv ice a t th e c l ie n t' s lo c a ti o n or a t i ts h o me of f ic e in Ger m an y, wh ere i n th e a sse s see p rov id ed co n tr ac t- wi s e, the l oc ati on wh er e in th e ac ti v i ti e s we re u n de r ta k en . T he a bove f ac t a s per th e as se s see c le arl y de mon str a te s th a t o wi ng to geog r aph ic al reg ion , th e PE on acc ou n t of JK SPD C Ph a se- II p ro jec ts (e xec u ted in th e sta te of Ja mmu & K a sh mir) c ou l d n o t pl a y a p ar t or be in v o lv ed in an y pr o jec t in In d ia. T h ese co n tr ac ts h av e be en c arr ied o u t b y th e a sse sse e b y u s in g d if f eren t te a ms a t a g iven po in t of ti me. In th i s reg ard , th e d e tail s of the pro je c t m an age r s/ pro jec t e ng in ee r s wh o v i si ted In d ia i n c on n ec tion wi th th e e xec u ti on of d if f er en t c on tr ac ts c l earl y sh o ws th a t d i sti n c t PE of tec h n ic i an wer e in vol ve d in th e ex ec u tion of vari ou s pro je c ts in In di a. T h e te a ms of th e pr o jec t man ager s/ pro je c t en g ine e rs, in re la tio n to v ar io u s pr o jec ts, v i si t ed Ind i a in c on n e c tion wi th th e exe cu tio n of th e se pro jec t s at d if f eren t po i n ts of tim e. T h e sco pe of wo r k, l i ab il i ti e s a n d r i sk in volv e d i n eac h of th e c on tr ac ts are in de pen de n t of th o se sta ted in the o th er c on tr ac ts ex ec u ted wi th th e d if f ere n t p a r tie s. O wi n g to Re serve Ban k of Ind i a' s s ti p u l a ti on , a se p ar a te pro je c t of f ic e is to be se t u p f or each in de pe n den t pro je c t. F u r the r, th e f u n d s of the pro jec t of f ic e are to be u se d on l y to me e t th e ex p en se s of th e sp ec if ic pr ojec ts wh i c h h as been a p prov ed and c a n no t be u sed f o r an y o th er pu r po se in In d i a. T h eref ore, th e f un d s bel on g i ng to the pro jec t of f ic e c an be u se d to f u nd o r su p p or t on l y th a t pro jec t ( i. e. in r e spec t of wh i ch i t h a s bee n se t u p) an d c an no t be u se d to f u n d any o th er pro je c ts i n In d i a. T h e asse ssee u n de r var iou s in d e pen d en t c on tr ac ts en tered in to b y i t, wa s re qu ire d to u n de r ta k e spec if ic ac ti v i ti e s as pe r the ter ms of eac h con tr ac ts . T he ac ti v i ti e s u nd er ta ken b y th e a sse sse e we re in de pe n d en t of th e o th er s sin c e the ir perf orman ce was n o t in terl i n ked wi th e ach o th er. T he l oc ation wh e re th e ac ti v i ti e s wo u l d be perf orme d b y th e a sse ssee in respe c t of th e sp e cif ic pro je c ts wa s d ic ta ted b y th e cl ie n t' s pro je c t si te or as agre ed wi th the cl ien ts an d wa s u n de r ta k en ou tsi de
6|Page ITA No.273/Del/2011 & 5800/Del/2010 In d i a. F ur th er, re s tr ic ti on o n th e ac tiv iti e s wh ic h ma y be u n de r ta ken by pr ojec t of f ice is stip u l a ted in th e a p pr oval i ssue d b y th e Go vern men t. T h eref ore , i t c an n o t be sa id th a t th e PE c on sti tu ted in Ind i a b y th e a sse s see u n de r Ph a se- II of th e c on tr ac ts wi th JK S PD C wa s in vo lv ed in an y way in th e e arn ing of in co me f ro m tec h n ic al se rv ice s re nd ere d b y th e as se ssee and o th er c on tr ac ts in In d i a. W e f ind f orc e in th e co n ten ti on of th e a sse ssee , th a t the PE co n s ti tu te in In d i a b y th e a sse ssee u n d er Ph a se- II of the con tr ac t wi th JKS PD C d id n o t pl a y an y ro l e o r c on tr i bu te d in an y man n er to the exec u tion of th e o the r c on tr ac ts or e ar n in g of FT S u n de r o the r c on tr ac ts an d c ann o t th u s be sa id to be in v o lv ed wi th an y o the r pro je c ts in Ind i a. Ac co rd in gl y, FT S re ce iv ed b y th e a sse sse e f rom ren d erin g of tec hn i cal se rv ice s and o the r c on tr ac ts c ann o t be sa id to be in vo lv ed d irec tl y o r in d ire c tl y in an y m an n er to th e P E c on sti tu te d in In d i a u n de r th e co n tr ac t wi th JK S PD C- Ph a se- II a n d are f ormed f or th e p u rpo se of de li ber a te avo id an ce of tax. T h eref ore, we f ind mer i t in the ar gu me n t of th e L d . AR th a t su c h in co me b y wa y of FT S is to be su b je c ted to tax @ 10 % u n d er ar ti cl e 1 2 of th e tre a ty an d c a nn o t be su b jec t to ta x @ 2 0% as co n te mpl a te d b y th e A sse s sin g Of f ice r. As per th e Re ven u e's c on ten tion , i t is u n d is pu ted f ac t th at th e in c o me e ar ne d b y th e as se ssee was in the n a tu re of FT S , th ere i s bu sin e ss c on n ec tion an d in c ome ac cru e s an d aris es or d ee m to ac c r ue an d ar ise in In di a. T h e r egion al ex i sten c e of pl ace of PE and th e ar ti cl e 5 ( 1 ) in th e f orm of JKS PD C- BCS a s we l l a s th ere i s ex i sten ce of supe rv i sor y P E u nd er ar tic le 5 ( 2 )( i) in th e f orm of JK SPD C -BC S wa s n o t e sta b l i sh e d b y th e R ev en u e f rom an y d oc u men ta r y e v ide n ce on re cord . S i mil ar l y , th e n a tu re of bu sin e ss of th e a sse ssee re ma in s u n ch an ged an d the a sse sse e is e ng ag ed in th e bu s in e s s of provid in g c on su l ta n c y se rv ice s to v ar iou s pro jec ts in In d i a. T he a sse sse e i s an e ng in ee r ing co n s ul tanc y se rv ice s th a t of f er s wi de r an ge of plan n ing , d e sign in g an d c on su l ta n c y ser vic e s e tc. in r el ati on to c o mpl ex inf rastru c tu re pr ojec ts in . In d i a. T h e asse ssee ren de red en gin ee r in g c on su l tan c y se rv ice s m a in l y in rel a ti on to po we r pro jec ts.
7.1 Fr om th e per u sal of the re cor ds a n d co n tr ad ic to r y a spec t po in ted ou t by th e L d. D R, i t c a n be se en th a t th e PE in re s pec t of JKS PD C-B ag l ih ar Ph ase - II Pr o jec t h as righ tl y bee n of f ered to ta x a t 2 0% b y the as se ssee a s i t i s th e o nl y pro je c t wh i c h h a s PE. T h e F orc e of Attr ac ti on ru l e wil l n o t be a p pl ic a ble in o th er pro jec ts a s th e sa me d o n o t co n s ti tu te e i th er PE or do es n o t co me u nd er the
7|Page ITA No.273/Del/2011 & 5800/Del/2010 purvie w of the DTAA. The contradictions pointed out by th e Revenue do not demon str a te tha t the oth er pr ojec ts cons ti tu te PE. In f act, f or applying f orce of attraction, there should be some common link to each of the contracts /projects such as the common expats, the common nature of the contract/projects, the commonality of the location, the common c on tr ac ti n g par tie s e tc. wh ic h ar e a bse n t in th e pr esent case. T heref ore, the applicabili ty of rule of force of attraction does no t apply in the present assessee's case. Thus, the treatment given by the assessee f or offering tax @20% in one project and 10% in rest of the projects wa s rightly done. Hence, Gr o un d N o . 1 o f th e a s s e s se e ' s a p pe al in IT A N o . 4 96 0 /D EL / 20 04 f or A.Y . 2 0 01 -0 2 i s al lo we d .
2.6 In the facts of the present appeal, it has been brought to our notice by learned counsel appearing for the assessee that duration of services rendered for AP Transco project in terms with the agreement is for a period of less than 6 months. The aforesaid factual position has not been controverted by the Revenue. That being the case, there is no PE in terms with Article 5(1) read with Article 5(2)(i) of the Tax Treaty. Therefore, the decision of the Coordinate Bench (supra) will squarely apply to the facts of the present appeal. That being the case, respectfully following the decision of the Coordinate Bench, we direct the Assessing Officer to delete the addition. Ground nos. 1 and 2 are allowed.
8|Page ITA No.273/Del/2011 & 5800/Del/2010
3. Ground no. 3 relates to taxability of revenue earned from contract with Jaiprakash Industries Ltd. by applying the provisions of section 44DA of the Act.
3.1 Briefly the facts are, insofar as, the revenue earned from Jaiprakash Industries Ltd. contract, the assessee claimed that the amount received being in the nature of income derived from business of civil construction or the business of erection of plant and machinery or testing or commissioning thereof in connection with a turnkey power project approved by the Central Government, provisions of section 44BBB would be applicable and accordingly, the assessee offered 10% of the revenue earned to tax. Whereas, the Assessing Officer rejecting assessee's claim held that the assessee has a PE in India, hence, the income is taxable at 20%. While deciding assessee's objections on the issue, learned DRP upheld the decision of the Assessing Officer. 3.2 Before us, learned counsel appearing for the assessee submitted, though, assessee's claim that the revenue earned is covered under section 44BBB was not accepted by the Tribunal in preceding assessment year, however, the Tribunal did not accept Revenue's stand of taxing the income under section 44DA read with section 115A either. He submitted, the Tribunal held that
9|Page ITA No.273/Del/2011 & 5800/Del/2010 the income earned, being in the nature of FTS, in absence of a PE has to be taxed at the rate of 10%.
3.3 Learned Departmental Representative, though, agreed with the submissions of the assessee, however, he relied upon the observations of the departmental authorities. 3.4 We have considered rival submissions and perused the materials on record. While deciding ground nos. 1 and 2 in the earlier part of the order, we have referred to the decision of the Tribunal in assessee's own case in assessment years 2001-02 to 2005-06. Though, on going through the decision of the Tribunal in preceding assessment years, we find that the Tribunal did not accept assessee's claim that the revenue earned from the contract with the Jaipraksh Industries Ltd. is covered under section 44BBB of the Act, however, the Tribunal held that the assessee has no PE in India and in absence of PE, the revenue earned from Jaiprakash Industries Ltd., being in the nature of FTS will be taxable at the rate of 10%.
3.5 Facts being identical in the impugned assessment year, respectfully following the decision of the Coordinate Bench, as referred to above, we direct the Assessing Officer to tax the revenue earned from the Jaiprakash Industries Ltd by applying 10 | P a g e ITA No.273/Del/2011 & 5800/Del/2010 the rate of 10% as provided under Article 12 of India - Germany Tax Treaty. This ground is partly allowed.
4. In ground no. 4, the assessee has challenged the applicability of Force of Attraction Rules to the revenue earned from contracts with AP Transco and Jaiprakash Industries Ltd. 4.1 While deciding the earlier grounds, we have referred to the decision of the Tribunal in the preceding assessment years, wherein, it has been categorically held that Force of Attraction Rule is not applicable to the revenue earned from the AP Transco and Jaiprakash Industries Ltd. In view of the aforesaid, we decide the ground in favour of the assessee.
5. In ground no. 5, the assessee has challenged levy of interest under section 234B of the Act.
5.1 Having considered rival submissions, we find, the Coordinate Bench has decided identical issue in favour of the assessee in the preceding assessment years in the order referred to above. The relevant observations of the Tribunal in this regard are as under:
"13. We have heard both the parties and perused all the relevant materials available on record. Interest u/s 234B and 234C is not chargeable where tax is deductible at source. The reliance placed on GE Packages Power Inc. (supra) is apt. Hence, Ground No. 3 of the assessee's appeal in ITA No. 4960/Del/2004 for A.Y. 2001-02 is allowed."
11 | P a g e ITA No.273/Del/2011 & 5800/Del/2010 5.2 Respectfully following the decision of the Coordinate Bench, referred to above, we decide the ground in favour of the assessee.
6. In the result, the appeal is partly allowed. ITA No.5800/Del/2015 Assessment Year: 2007-08
7. In the previous year relevant to assessment year 2007-08, the assessee has earned revenue from executing following contracts and offered them to tax as under:
Project Name Amount (Rs.) Tax Rate
Jai Prakash Power Ventures Ltd. 779,799 10%
Vishnu Prayag Project
J & K Power Development Corp. 13,06,15,915 20.91%
Baglihar Project
Jai Prakash Industries Ltd. 2,08,99,878 4.182%
15,22,95,590
8. The issue raised in ground no. 1 concerns applicability or otherwise of section 44BBB of the Act. While deciding identical issue raised by assessee in ground no. 3 of ITA No. 273/Del/2011, we have held that, though, section 44BBB claimed by the assessee is not applicable, at the same time section 44DA as per Assessing Officer is not applicable. Following our decision therein we direct the Assessing Officer to treat the income as FTS under Article 12 of the India - Germany Tax Treaty 12 | P a g e ITA No.273/Del/2011 & 5800/Del/2010 and tax it by applying the rate of 10%. This ground is partly allowed.
8. In ground no. 2, the assessee has challenged the taxability of income earned from contracts with Jaiprakash Industries Ltd. and Jaiprakash Power Venture Ltd. under section 44DA read with section 115A by applying Force of Attraction Rule. Insofar as contracts with Jaiprakash Industries Ltd, the issue stands decided by us in earlier part of the order while deciding ITA No.273/Del/2011. It is relevant to observe, the contract with Jaiprakash Power Venture Ltd. was undertaken in the impugned assessment year. However, the nature of work performed by the assessee is identical to the contract with Jaiprakash Industries Ltd. It is patent and obvious, the Assessing Officer has brought to tax the amount received from both the contract under section 44DA read with section 115A of the Act assuming that the assessee had PE in India for both the contracts. Of course, the Assessing Officer also applied Force of Attraction rule. 8.1 Be that as it may, the Revenue has failed to bring any material on record to demonstrate that there was PE of the assessee in respect of the project with Jaiprakash Power Venture Ltd. The assessee's contention/claim that one of its employee was 13 | P a g e ITA No.273/Del/2011 & 5800/Del/2010 physically present in India for a limited period of 8 days has not been controverted by the Revenue with any contrary evidence. Thus, applying the ratio laid down by the Coordinate Bench in the preceding assessment years, it has to be held that the assessee did not have any PE in India in terms with Article 5(1) read with Article 5(2)(i) of the Tax Treaty. Therefore, we direct the Assessing Officer to tax the income earned from the Jaiprakash Venture Ltd. contract by applying the rate of 10% in terms of Article 12 of India
- Germany DTAA. This ground is partly allowed.
9. In ground no. 3, the assessee has challenged levy of interest under section 234B and 234C of the Act.
9.1 This ground is identical to the ground no. 5 of ITA No. 273/Del/2011 decided in the earlier part of the order. Therefore, our decision therein will apply mutatis mutandis. 9.2 In the result, the appeal is partly allowed.
10. To sum up, both the appeals are partly allowed.
Order pronounced in the open court on 16th November, 2022 Sd/- Sd/-
(G.S. PANNU) (SAKTIJIT DEY)
PRESIDENT JUDICIAL MEMBER
Dated: 16th November, 2022.
RK/-
Copy forwarded to:
1. Appellant
14 | P a g e
ITA No.273/Del/2011 &
5800/Del/2010
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
15 | P a g e