Income Tax Appellate Tribunal - Delhi
Bticino S.P.A, Italy vs Acit Intl. Taxation-1(1)(2), New Delhi on 24 July, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'D', NEW DELHI
Before Sh. Saktijit Dey, Vice President
Dr. B. R. R. Kumar, Accountant Member
ITA No. 2294/Del/2023 : Asstt. Year : 2020-21
Bticino S.P.A, Vs. ACIT,
231, Viale Borri, Varese, International Taxation
Italy-999999 Circle-1(1)(2),
New Delhi
(APPELLANT) (RESPONDENT)
PAN No. AAICB5197J
Assessee by : Sh. S. K. Aggarwal, CA
Revenue by : Sh. Vizay B. Vasanta, CIT-DR
Date of Hearing: 08.05.2024 Date of Pronouncement: 24.07.2024
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the as sessee against the order dated 19.06.2023 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
2. Following grounds have been raised by the assessee:
" 1 . On th e fa c t s a n d i n th e c i r cu m st a n c es o f th e c a s e a n d in law , t h e a s s e s s m en t o rd e r i s ba d in l a w a s w ell a s on fa ct s . Th e L ea rn ed A O ha s g r o ss ly e r r ed i n a s se s s in g t h e in c om e a t I NR 1 39 ,4 1 ,6 3 ,2 87 a s a g a in s t i n c o m e of I N R 1 3 0 , 1 4 ,9 8 ,74 0 a s p e r r etu rn of i n c om e fil ed b y t h e A pp el l a n t .
2 . Gr ou n d s r e l at in g to Ju r i sd ic t io n.
2 .1 On th e fa c t s a n d i n ci r cu ms ta n c es o f th e c a s e a n d i n l a w , th e L ea rn ed A O ha s e rr e d in pa ss in g a s se s s m en t o rd e r w it h out ta ki ng i nt o c on si d e ra t i on/ w it h out d i s p o si ng th e a p pl ic a ti on fil ed by th e A p p e l lan t f o r t ra n s f e r o f j u ri s di ct i o n o f th e Ap p el l an t f r om N ew D elh i t o Mu mb a i .2 ITA No. 2294/Del/2023
Bticino S.P.A. 2 .2 On th e fa c t s a n d i n ci r cu ms ta n c es o f th e c a s e a n d i n l a w , th e L ea rn e d A O h a s e r r ed i n p a s sin g t h e a s s es s m e n t o rd e r w it h o ut j ur i s di ct i on a n d t h e r e f o r e, t h e a ss e ss m en t o rd e r i s ba d in la w , v oid - a b- i n it i o a n d l i a b l e t o b e q ua s h e d 2 .3 Wi th ou t p r ej u dic e t o t h e a b o v e , on th e fa c t s a nd c i r cum sta n c e s of t h e c a s e a nd in la w , t he o rd e r pa s s ed b y th e L ea rn ed A O u nd e r S e c t i on 1 43 ( 3) r ea d w it h S e c ti on 1 4 4 C( 1 3) o f th e A ct dat e d i s b a r r ed by l im i t a ti on un d e r th e p r ov is io n s of Se ct i on 1 5 3 o f th e A ct a n d th e r ef o r e , ba d in l a w a n d b e s t ru c k do wn a n d ann u ll ed .
3 . Gr ou n d s r e l at in g to P e rm a n en t E s ta b l is h m e nt
3 .1 . On th e fa c t s a n d in ci r c um st a n c e s of t h e ca s e a nd i n l a w , th e L ea rn e d A O/ D R P h a s e r r ed i n tr ea ti ng th e N ov a t eu r El e ct ri ca l a nd D i git a l S y st em s P ri v a t e Li m it ed ( i. e . , th e I nd ia n gr oup ent it y t o w h om t h e A pp ell a nt h a s ma de of f sh o r e s u ppl y of g o od s) ( 'N o v a teu r I n di a ) as f ix ed place p e rm a n ent e s ta b li sh m en t ( ' P E') of th e App e l la n t in I n dia .
3 .2 . On th e fa c t s a n d in ci r c um st a n c e s of t h e ca s e a nd i n l a w , th e L e a rn ed A O/ D R P h a s e r re d in c onc l ud in g in c o m e ea rn e d b y Ap p el l an t f r o m o f f s h o r e sa l e o f g o od s (ra w m a t e ri a ls , fin i s h ed go od s , s amp l es a nd fi x ed a s s et s ) a m ou n ti n g to INR 9 2, 6 6 ,45 ,4 7 8 i s t a xa b l e in I nd i a a n d c on s e qu ent l y er r e d in det e r mi n in g 1 0 % o f s u ch g r oss r ec eip ts a m ou nt in g to IN R 9 ,2 6 , 6 4 ,5 4 7 a s n e t pr o fi t a tt ri b ut a b l e t o a ll eg ed f ix ed pl a c e P E o f th e A p p el l a n t i n I n di a .
3 .3 . On th e fa c t s a n d in ci r c um st a n c e s of t h e ca s e a nd i n l a w , th e L e arn e d A O/ D R P h a s er r e d in de c i d in g i n c o m e f ro m o ff sh o r e sal e o f g o od s o f I NR 9 2 ,6 6 ,4 5,4 7 8 i s ta xa b l e in In dia de s pi t e c onc lu d in g t h a t t h e t i tl e i n g o o d s s ol d b y th e A pp e ll a nt to N ov at eu r I n d i a w a s t ra n s f er r e d ou t sid e Ind i a a n d th e pay m en t s h a v e b e e n r ec e iv ed out si d e I n di a .
4 . Gr ou n d i n re lat i ng t o P e n alt y un d e r s ect i on 27 0 A Th e L ea rn ed AD / D R P ha s e r r ed o n t h e f a c ts a n d i n l a w in in it iat i ng th e p ena l t y p r o c ee di ng s u n d e r s e c ti on 2 70 A o f th e Act aga i n st th e Ap p e l la n t.
5 . G ro un d i n r e lat i ng to I nt er e st u n d e r s ect i on 23 4 A a nd 2 3 4 8 of t h e A c t .
Th e L ea rn ed A O/ D R P ha s e r r ed in l ev yin g in t e r e s t u nd e r s ec t i on 2 34 A a n d 2 3 48 Th e a b ov e g r ou nd s o f a p p e a l are in dep e nd ent a nd w i t h out pr ej u d i ce t o ea c h ot h e r ."
3 ITA No. 2294/Del/2023Bticino S.P.A.
3. Bticino SPA is a company incorporated in Italy a nd is engaged in manufacturing electrical products and production of electrical equipments including switches, plaques, inter coms, video -intercom, domo tics and residual current device. The assessee holds 30% of share holding in the group entity Novateur Ele ctrical and Digital Systems Pr ivate Limited ('Novateur India'). During the year under cons ideration, the Appe llant has made offshore sale of goods to its group company Novateur India and re ceived income fro m Novateur India . The title and the risk in the goo ds pass outside India and the payment is received by the Appellant outside India.
4. "Novateur India" purchases goods in its own name and these goods forms part of inventory of Novateur I ndia. Novateur India uses these goods in its manufactur ing/further selling to its own customer s in India and corresponding inco me from such sale is offered to tax for Novateur India as its bus iness income.
5. The Assessing Officer has held that "Novateur India" as a fixed place PE of the Appellant in India based on the following contentions:
There is no contract / agreement between the Appellant and " Novateur India" for sale of goods.
The Appellant holds 30 percent shareho lding in Novateur India .
There are two commo n directors between the Appellant and Novateur India and the Appellant has failed to provide proof that these directors have not visite d India.4 ITA No. 2294/Del/2023
Bticino S.P.A. The AO held that it is difficult to believe that common direc torship in both during the year under consideration would not have any significant influence in key decisions.
6. In Para 18 of the draft Assessment Order, the AO has held as under:
"18. ...in c ase of the assessee, o ffshore supply we re made to its Indian counte rpar t and all the risk s and re wards we re assumed by the India n counterpart at the port o f Italy itself. Hence, the title was transfe rre d to the Indian co unterpart at the port of I ta ly. Consequently, profits ar ising from the activities in India need to be attributed to the PE of the assessee..."
7. Aggrieve d, the assessee filed appeal before the ld. DRP.
8. The Ld. DRP upheld the draft assessment order. The Ld. DRP in Para 5 .9 of the Directions held as under:
" 5 .9 Th e assessee has b e en mo s t r el y in g on th e ca s e laws on th e H on o rab l e Su pr e m e C ou rt in th e ca s e of Ish ik a w a j i m a - Ha ri ma Hea v y In du st ri e s L td v s . D ir e ct o r o f I n c om e T a x [2 0 07 ] . H ow e v e r , th e H on o r a b l e Su p r em e C ou rt d e c i si on on th e a b ov e ca s e has b e en c ons i d e ra b ly ov e r t u rn ed w it h t h e a m end m en t o f F i n a n c e Ac t 2 01 0 w he r e su b st an tia l em p h a si s i s g iv en t o bu s in e s s c on n e c ti on of th e n on - r e si d en t s ra t h e r th an th e si tu s of b u s i n e s s a c t iv i ty o f th e n on - r e si d en t s r eg a r d in g ta x a b il it y o f in c om e a ris in g o r a c c ru i ng f r o m I nd i a . Th e Pa n el, t h er e fo r e , c on fi rm s th e sta n d t ak en b y t h e A s s es s in g O ffic e r a n d r ej e ct s th e obj e c t i on fi l ed b y th e as s e ss e e on t hi s c o u n t. "
9. Aggrieve d, the assessee filed appeal before the Tribunal.
10. Before us, the ld. AR argued that it is a fact that the assessee holds 30% shareholding in a group entity Novateur Electrical and Digita l Systems Private Limited ('Novateur 5 ITA No. 2294/Del/2023 Bticino S.P.A. India'). During the year under consideration, the assessee has made offshore sale of goods viz., raw materials, finished goods, fixed assets etc.) to its group company "Novateur India" and received inco me from that company. The title and the risk in the goods passed outside India and the payment is received by the assessee outside India. It was submitted that "Novateur India" purchases goods in its own name and thes e goods forms part of inventory of Novateur India. Novateur India uses these goods in its manufacturing/further selling to its own customers in India and corresponding income from such sale is offered to tax for Novateur India as its business income. It was argued that the assessee does not have any presence in India and does not undertake any business activity in India. It was submitted that the assessee is a tax resident of Italy, holds a valid TRC and is eligible to claim benefit under India - Italy Tax Treaty. The assessee submitted that a fixed place PE does no t get constituted merely by having shareholding in Indian Compa ny or by having common directors. It is a se ttled law that the fixed place PE can be constituted only if tests of a fixed place PE as provided under Article 5(1) of the Tax Treaty are met.
11. The ld. DR relied on the or ders of the authorities below.
12. Heard the arguments of both the parties and peruse d the material available on record.
13. Article 7 (1) of Tax Treaty states that if the enterprise carries on bus iness in other contracting state, the profits of the enter prise ma y be taxed in the other Contracting State but only so much of them as is attributable to permanent establis hment ('PE' ) of Appe llant in India. As per Article 5(1) of the India-Italy 6 ITA No. 2294/Del/2023 Bticino S.P.A. Tax Treaty, the Appellant does not constitute fixed place PE in India in the form of "Novateur India" since none of the tests of a fixed place PE are satisfied in case of Appellant:
Place of business - Disposal te st - The assessee does no t have any place of business in India. Novateur India is an independent e ntity. No vateur India's premises are not the disposal of the assessee. Novateur India undertakes its own business in India and does not undertake any busines s activity on be half of the assessee.
Fixed place of busine ss - Permanence test - Given that there is no place of business in India, this condition suo moto becomes infructuous.
Carrying business - Business activity test - The assessee does not carry any activity / business in India. The assessee sells goods to Novate ur India from outside the territorial jurisdiction o f India.
14. Further, Para 6 to Article 5 of the Tax Treaty specifically state s as under:
" th e f a ct t ha t a c om pa n y w hi ch i s a r e s id e nt of a C on t ra ct in g S t at e c ont r ol s o r i s c ont r oll e d by a c o mp a n y w h i ch is a r e si d e n t of t h e oth e r C o n t ra cti ng S ta t e, or w hi ch ca r ri e s on bu si n e ss in t ha t ot h e r S ta t e ( wh eth e r th r ou gh a p e r ma n ent es ta b l i sh m ent or ot h e rw i se) , sh a l l n ot o f it s el f con s ti tu t e e i th e r c o mp a n y a p e rm a nen t e sta b li s hm ent o f t h e oth e r ."
15. On reading of above, it can be held that a PE cannot be constituted merely because the assessee holds 30 % in Novateur India and has two common directors.
7 ITA No. 2294/Del/2023Bticino S.P.A.
16. The assessee submitted the documents before the AO and Ld. DRP which shows that the export of goods by the Appellant to No vateur I ndia was offshore sale as the title and risk in the goods was passed outside India and the Appellant had no prese nce or a ctivity in India.
i. Copy of invoices and bill of entry for offshore sale of
goods
ii. Sample copies of bill of lading
iii. Passport copy of two directors
17. From the invoice s, it is seen that offshore sale of goods were made on CFR (Cost and Freight), C PT - (Carriage paid to), EXW - (Ex-works Muscoline) Incoterms. From the bill of lo ading it can be seen that por t of loading is Italy and fro m bill of entry it is seen that the importer is Novateur Electrical and D igital Syste ms Priva te Limited.
18. Further, from the copies of passport of two directors, it can be seen that there is no visit of Directors in India and there was no presence of the assessee in India.
19. From the above, it can be established tha t the offshore sale of goods got concluded outside India as the title and the risk in the goo ds was transferred outside India and the assessee and its Directors doe s not have any presence or activity in India. "Novateur India" importe d the goods in their own name which formed part of their inventory and sale of the same constitutes business income in their hands , and hence, "Novateur India" cannot be held as co nstituting a PE o f the assessee.
8 ITA No. 2294/Del/2023Bticino S.P.A.
20. Reliance is placed on fo llowing judicial precedents in support of its above co ntentions:-
Ishikawajima-Harima Heavy Industries Ltd vs. D irector of Income Tax [2007] 158 TAXMAN 259 (SC ) " 79 . W e , t h e r efo r e , hol d a s un d e r:
R e: O ff sh o r e S up p ly :
( 1) ... ...... ... ... . .
( 2) Si n c e al l p a rt s o f t h e t ra n s a ct i on i n qu e st i on , i . e. , th e t ra n s f e r o f pr op e rt y in g o od s a s w ell a s t h e p a y m ent , w e r e ca r ri e d o n o u ts i d e th e I n di an so i l , the t r a n s a ct i on c ou ld n ot have b e en ta x e d in In dia . .. . "
Maha bir Commercial Co . Ltd. (1972) 86 ITR 417 (SC) DIT vs. Nokia Networks OY (2012) 25 Taxmann.com 225 (Delhi High Co urt) POSCO Engineering & Constr uction Co. Ltd. vs. ADIT [2014] 31 ITR (T) 255 (Delhi - Tribunal)
21. The contention of the AO that the assessee has 30% share holding in Nova teur India thereby it constitutes PE is against the express provisions of Article 5(6) to India - Italy Tax Treaty w hich specifically provides that, the fact that the company which is resident of the contr acting state controls a resident of other contr acting state shall not of itself cons titute PE.
22. In the present case, the assessee has no presence in India, it has no business activity in India and the offshore sale of goods cannot constitute PE merely on the allegation that it holds 30% shares in Novateur India. The action of the AO is 9 ITA No. 2294/Del/2023 Bticino S.P.A. contrary to the provisions of Ar ticle 5(6) of relevant Treaty and not s ustainable in law.
23. The Ld. DRP's comment in DRP with respect to amendment in Finance Act, 2010 and over turning of the Ho n'ble Supreme Cour t decision in the case of Ishikaw ajima Harima is also examined with reference to sub-clause (v), (vii) and (vii) to Section 9(1) w hich deals with Interest, Royalty and FTS income only and not w ith respect to offshore sale of goods. The same is as under:
" I nc om e d e e m e d to ac c ru e o r a r is e in I n d i a t o a no n- re s i d e nt Se c t io n 9 p r o v i de s fo r s it u at io n s w he r e i nco m e is d e em ed t o ac c r u e o r a r i s e i n I nd i a .
V id e F in a n c e Ac t , 1 9 7 6 , a s o ur c e ru l e w a s p ro v id e d in se c t io n 9 t h ro u g h i ns e rt io n o f c l au s es ( v) , (v i) an d (v i i) i n su b - s ec ti o n ( 1 ) f or inc o m e b y w a y of i nt er e st , ro y a lt y o r fe e s f o r t ec h n ic a l s er v ic e s re s p e c t i ve ly. It w as p r ov id e d , i nt er a l i a, t h at in c a s e of p ay m en t s a s m e nt io n ed u nd e r t h es e c l a u se s , i n c om e wo u ld b e d e e m e d t o ac c r ue o r a r ise in In d i a to t he n on -r e s id e nt under the c ir c um st a nc e s sp ec if ie d t he r e in .
Th e in te nt i on o f i nt ro d uc i ng t h e s o ur c e r u le w a s t o b r i ng t o t a x i nt er e st , ro y al t y an d f ee s f o r t e c h n ic a l s e rv ic e s, b y c r e at i ng a l e g al f ic t io n in s ec t i o n 9 , e v e n in c a s e s w he r e se r v ic es a r e p r ov id e d o ut s id e I nd ia a s lo ng a s t h e y ar e ut iliz e d in I n d i a . Th e s o ur c e r u le , th er e fo r e, m e a n s t h at t h e s i tu s of t h e r e nd e r in g o f se r v i c e s is n ot r e l ev a nt . It i s t h e s it u s o f th e p ay e r a n d t h e si t us of t h e ut i l iz at i on o f se r v ic es w h ic h w i ll de te r m in e t he t ax a b il it y of su ch se r v ic es in I n d ia .10 ITA No. 2294/Del/2023
Bticino S.P.A. Th is w a s t h e s ett le d p os i ti o n of la w t il l 2 00 7. H o w ev e r , t h e H o n' b l e S u p r e m e Co u rt , i n t he c a s e o f I s h ik a w a j im a - H a r im a H e av y I n d u st r ies L td ., Vs . D IT ( 20 0 7) [ 28 8 IT R 40 8 ] , h eld t h at d es p it e t h e d ee m in g fic t io n in s ec t io n 9, fo r a n y s uc h i n c o m e t o b e t ax ab l e in I nd ia , th e re m us t b e su f fi c ie nt te r r ito r i a l ne x u s b et w e en s uc h in c o m e a n d th e t e rr i to r y of I n d ia . It fu r t h e r he l d t h at fo r e st a b l is h in g su c h te r r ito r i a l n e x u s, t he s e r v ic es h a v e to be r en d er ed in I nd i a a s w e l l a s ut i liz e d in I nd i a.
Th is in te r pr et a ti on was n ot in a cc o r d a nc e w it h the le g is l at iv e int e nt t h at t h e s i tu s o f r en d er ing se r v i ce i n I nd i a i s no t re l ev a nt a s lo n g a s t h e s er v ic e s a re u t il i z ed in I nd i a. T he r ef o re , t o r em ov e d ou b t s r e g ar d in g th e s o ur c e ru l e, a n Ex p lan a t io n w as in s e rt ed b el o w s u b- se c t io n (2 ) o f se c t io n 9 w it h r e tr os p ec t iv e e ff ec t f r o m 1 st J u ne , 19 76 v i d e F in a nc e Ac t, 2 0 0 7 . Th e E x p la n at io n so u g h t t o c l a r if y t h at w he r e in c o m e i s d e em e d to a c c r u e o r a ris e in I nd i a un d er c l au s e s ( v ), (v i) an d (v i i) o f s ub - s ec ti o n ( 1) of se c t io n 9, s uc h i nc o m e s h a ll be inc lu d ed in the t ot a l i nco m e of the n o n - r e s id e nt, r e g a rd l e ss of w h et h e r th e no n- r e si d en t has a r es id e n c e or pl ac e of b us in e s s or b u s ine s s c o n n ec t i on i n I n di a .
H o we ve r , th e K a r n at a k a H ig h Co u rt , i n a re c e nt j ud g em e nt i n t he c a se o f J i n d a l T h er m a l P o we r Co m p a n y L t d . v s. DC IT (TD S) , h a s h e ld t h at t h e Ex p l a n at i on , in i ts p r es e nt fo r m , d o e s n ot d o a w a y w it h t h e re q u ir e m e nt o f re n d e r i ng of se r v ic es i n In d ia f or a n y i n co m e t o be d e e m e d t o ac c r ue o r a r is e to a no n- r e s id e nt u n de r s e c ti o n 9 . It h a s b ee n he l d t h at o n a p la in r e a d i n g of t h e E x p l a n at io n , t he c r it e r i a o f re n d e r ing s er v ic e s in In d i a and th e ut i l iz at i on of t he se r v ic e in In d i a l a id d o w n b y t he S u pr e m e Co u rt i n i t s j ud g m e nt in the case of Is h ik a w a j im a - H ar i m a H e av y I nd u st r ie s L t d. (s up r a ) r em a in s u nt ou c h e d a n d u n af f ec t e d b y t h e Ex p l a n at i o n.11 ITA No. 2294/Del/2023
Bticino S.P.A. I n o r d er t o r em o v e a n y d o u bt a b ou t t h e l eg is l at iv e i nt en t of th e a fo r e s aid s ou rc e r u le , it i s p r o p o s ed to s u b s t it ut e the ex i st in g E x p la n at io n w it h a ne w Ex p l a n at i o n to sp ec if ic a l ly st at e th at t h e inc o m e o f a no n- r es id e nt sh a l l b e d e em e d t o a c c ru e o r a r i se in In d ia un d er c l a u se ( v ) o r c la u se ( vi ) o r c l a us e (v i i) o f s ub - s ec t i o n ( 1) o f se c t io n 9 a nd s h all be i nc l u de d in h is t o t a l in c o m e , w h et he r o r no t , ( a) t he n on - re s id en t h as a r e si d en c e o r p l a c e o f b u s ine s s or b u s i ne s s c on n e c t io n in In d i a ; o r (b ) t he no n- r e s id e nt h as r en d er e d s er v ic e s i n In d i a.
Th is am e n d m e nt i s p r o p o se d t o t a k e e ff e c t re t r o sp ec ti v e l y fr o m 1 st J un e , 1 9 7 6 a n d w ill , ac c o r di n g ly , ap p ly i n r e l at io n t o t h e a s s es s m e n t y e a r 1 9 7 7 - 7 8 a nd su b se q ue nt y e ar s . Co m p ut a t i o n o f e x em pt ed p ro f it s i n t he c a se of u n i t s i n Sp ec ia l Ec o no mi c Zo n e s ( S E Z s) [C l a us e 4]
24. In this c ase, the assessee has exported goods from Italy, the Indian entity imported the goods and after importing the Indian entity sold the goods and offere d to tax in India. The goods were so ld offshore by the assessee and the risk in goods passed outside India and the payment was also received by the assessee outs ide India .
25. In view of the above factual and legal position and the provisions of the treaty, it is hereby held that the assessee does not have PE in India and hence, the offshore sale of goods cannot be taxed in India.
12 ITA No. 2294/Del/2023Bticino S.P.A.
26. In the re sult, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 24/07/202 4.
Sd/- Sd/-
(Saktijit Dey) (Dr. B. R. R. Kumar)
Vice President Accountant Member
Dated: 24/07/2024
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR