HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. VS DEPUTY COMMISSIONER OF INCOME TAX-(ITAT)

1. These appeals are directed against the order of the Learned DCIT, 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 30.12.2015 and 21.12.2016, 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 16.11.2015 and 26.10.2016 for the Asst Years 2012-13 and 2013-14 respectively. As identical issues are involved in both these appeals, they are taken up together and disposed off by this common order for the sake of convenience.

2. The brief facts of these appeals are 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 (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) Supply, Installation, testing and commissioning of Advances Surfaces Movement Guidance Control System (ASMGCS) at Chennai, Mumbai and Kolkata Airports by AAI [ AAI (Mumbai, Chennai and Kolkata) Project ].

b) Establishment of Vessel Traffic Service (VTS) system in the Gulf of Kuchchh (GOK Project)

c) 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 228 to 252 of paper book) for Asst Year 2012-13. Similar papers were also enclosed in the paper book filed separately for Asst Year 2013-14 also except with variance in page numbers. 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.

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 Profits attributed @ 10%

1. Off-shore supply of equipment 93,78,524 9,37,852

2. On-shore supply of equipment 38,01,364 3,80,136

3. On-shore provision of services 3,09,00,383 30,90,039

TOTAL 4,40,80,270 44,08,027

3.1. The Grounds of Asst Year 2012-13 with regard to this GOK project are taken up for adjudication and the decision rendered thereon would apply with equal force for the relevant grounds of Asst Year 2013-14 also.

3.2. 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 2.2. 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.

3.3. 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. The ld AR before us fairly stated that the assessee be treated as an ‘Installation PE’ but pleaded for treating only the onshore provision of services and onshore supply of equipments at 10% on gross basis as profits attributable to the Installation PE in India as against the action of the ld AO in taking the total receipts (i.e both offshore and onshore activities).

This is because of the lack of details with regard to the number of days of stay in India for executing the installation work by the assessee. The same is reckoned as a statement from the Bar by the ld AR.

Therefore, we shall address the Ground No. 3.4. raised by the assessee before us and dismiss the Grounds 3.1. to 3.3. raised by the assessee as not pressed. Before going into this question, we feel that it would be relevant to address the contents of Article 5(3) of the India- Netherlands DTAA which is reproduced as under:-

‘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. We find that the ld AO in para 35 of his final assessment order had held as under:-

35. A perusal of the ‘Purchase Orders’ submitted by the assessee along with Annex-I to the copy of the Consortium Agreement dt 02.09.2003 reveals the fact that the contract for the establishment of Vessel Traffic Services in the Gulf of Kuchch involves the installation, testing and commissioning of various complex equipments such as the ‘VTS Master Control Center Equipments’ among others, wherein the assessee has been assigned the ‘Primary Responsibility’. Therefore, it is concluded that the contract for implementation of Vessel Traffic Services is in the nature of an ‘installation project’. The installation project, having been in existence / operation for period of more than six months, constitutes a Permanent Establishment (PE) as per the definition of Article 5(3) of the Indo-Netherlands DTAA. Accordingly, the provision of Article 7 of the DTAA on Business Profits will be applicable in the instant case.

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 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. .

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.

3.4. 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. Hence the Grounds 2.1., 2.2., 2.3. (for Asst Year 2012-13) and Grounds 5.1., 5.2. and 5.3. (for Asst Year 2013-14) are disposed off accordingly.

4. ONGC 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 (Page 327 of the paper book for Asst Year 2012-13 contains the AMC schedule ).

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 294 to 295 of the paper book for Asst Year 2012-13 and pages 287 to 293 of paper book for Asst Year 2013-14.

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 the Grounds of Asst Year 2012-13 with regard to this ONGC VATMS AMC Project are taken up for adjudication and the decision rendered thereon would apply with equal force for the relevant grounds of Asst Year 2013-14 also.

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 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 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.

5. AIRPORTS AUTHORITY OF INDIA (Mumbai, Chennai and Kolkata Project) The brief facts of this issue is that the assessee was awarded a contract for supply,installation, testing and commissioning of Advanced Surface Movement Guidance Control System (ASMGCS) at Chennai, Mumbai and Kolkata Airports by the Airports Authority of India (AAI in short) in the year 2008. With respect to the services to be provided, as per the contract , the assessee would provide two kinds of services i.e (i) services which are in the nature of installation, commissioning and testing services for Chennai, Kolkata and Mumbai Airport and (ii) training to the personnel of AAI . During the year under consideration relevant to Asst Year 2012-13, the assessee received the following payments :-

a) For Off shore supply of equipment - Rs 20,91,920/-

b) For On shore provision of services - Rs 10,53,85,547/-

c) Training Income - Rs 72,28,150/-

5.1. The assessee in its return of income for the Asst Year 2012-13 had offered to tax this training income of Rs 72,28,150/- as fees for technical services under Article 12(5) of the India-Netherlands DTAA. Based on the directions of the Hon’ble Dispute Resolution Panel (DRP in short) wherein the Hon’ble DRP alleged the constitution of an Installation PE of the assessee in India, the ld AO attributed Rs 2,63,46,387/- being 25% of payments received towards on-shore provision of services amounting to Rs 10,53,85,547/- as income of the alleged Installation PE for the Asst Year 2012-13.

5.2. For the Asst Year 2013-14, the assessee received a payment of Rs 39,33,569/- in respect of supply of indigenous components. Based on the directions of the Hon’ble DRP, the ld AO alleged that the assessee has an Installation PE in India for the Asst Year 2013-14 and accordingly attributed Rs 9,83,392/- being 25% of the amount received by the assessee towards onshore supply of equipment of Rs 39,33,569/- as income of the alleged Installation PE.

5.3. The ld AR argued that the ld AO had wrongly treated the assessee as an Installation PE in respect of this AAI project in 3 independent sites viz Mumbai, Chennai and Kolkata Airports. He stated that all these three sites are unconnected. He argued that the time duration of 6 months is to be computed separately for each site which the ld AO had failed to do in the instant case for treating the assessee as an Installation PE. Accordingly, he pleaded that assessee cannot be treated as Installation PE in India and consequentially no profits could be attributed thereon for onshore supply of equipment for the Asst Year 2012-13.

5.3.1. For the Asst Year 2013-14, the ld AR stated that the installation activities were carried out at the Mumbai, Chennai and Kolkata Airports and were completed during the Asst Year 2012-13 and project was handed over to AAI. This is evident from the copies of ‘Certificate of Completion of Installation, Commissioning and Training’ for these airports enclosed in pages 283 to 285 of paper book for Asst Year 2013-14.

Accordingly, he argued that during this year, no installation activity was carried out by the assessee. During the year under consideration, the assessee supplied locally sourced materials /tools to AAI and raised an invoice of Rs 39,33,569/- . He prayed for deletion of the profits attributed towards the alleged Installation PE.

5.4. The ld DR vehemently argued that the assessee constitutes Installation PE in India for both the assessment years under consideration in as much as the assessee had also not provided any details regarding the time duration of each site so as to conclude whether the project was completed within 6 months or not.

5.5. We have heard the rival submissions. We find that for the Asst Year 2012-13, the assessee had earned receipts out of onshore provision of services. For the Asst Year 2013-14, it had earned receipts out of onshore supply of equipment/tools. We are inclined to accept the arguments of the ld DR that the number of days taken by the assessee for executing the installation work is not on records and even before this tribunal, no details whatsoever in that regard were filed by the assessee. Hence we dismiss the plea of the ld AR that the assessee cannot be treated as an Installation PE.

We hold that the assessee is to be treated as an ‘Installation PE’ in as much as there is no evidence produced by the assessee to prove the time duration taken for each of the project sites carried out by the assessee for executing the installation work. However,we hold that only the onshore provision of services and onshore supply of equipments should be considered at 10% on gross basis as profits attributable to such Installation PE in India . We find that in respect of GOK project, this issue had arose for the Asst Year 2011-12 in assessee’s own case in ITA No. 390/Kol/2015 dated 4.4.2018 and this tribunal had held thereon as under:-

3.2.6. However, we find that the assessee had received consideration in respect of onshore services to the tune of Rs 3,53,42,381/- pursuant to 4 invoices raised on 13.8.2010. The assessee had also received a sum of Rs 12,85,465/- (Euro 27842) towards onshore supply of equipment during the year under consideration. We hold that these two sums should be taken into account and profits attributable thereon at 10% should be added in the hands of the assessee treating the same as ‘Installation PE’. In this regard, we also find that India-Netherlands DTAA contains PROTOCOL clause in its treaty vis a vis various Articles in the Treaty and the relevant Article 7 of the Protocol is reproduced hereunder :-

NETHERLANDS PROTOCOL

At the moment of signing the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, this day concluded between the Kingdom of the Netherlands and the Republic of India, the undersigned have agreed that the following provisions shall form an integral part of the Convention.

I. Ad Article 7

1. In respect of paragraphs 1 and 2 of Article 7, where an enterprise of one of the States sells goods or merchandise or carries on business in the other State through a permanent establishment situated therein, the profits of that permanent establishment shall not be determined on the basis of the total amount received by the enterprise, but shall be determined only on the basis of the remuneration which is attributable to the actual activity of the permanent establishment for such sales or business. Especially, in the case of contracts for the survey, supply, installation or construction of industrial, commercial or scientific equipment or premises, or of public works, when the enterprise has a permanent establishment, the profits of such permanent establishment shall not be determined on the basis of the total amount of the contract, but shall be determined only on the basis of that part of the contract which is effectively carried out by the permanent establishment in the State where the permanent establishment is situated. The profits related to that part of the contract which is carried out by the head office of the enterprise shall be taxable only in the State of which the enterprise is a resident.

(underlining provided by us)

We hold that even as per the Protocol clause in the Indo-Netherlands Treaty,only the profits attributable to the activities carried out in India shall be taxableand accordingly only the onshore services rendered by the assessee would have to be considered by the ld AO for taxing the onshore receipts at 10% .

Accordingly, the Grounds 3.1 to 3.3 raised by the assessee are dismissed as not pressed and Ground No. 3.4. is allowed.

Accordingly, by respectfully following the aforesaid decision of this tribunal in assessee’s own case for the Asst Year 2011-12, we uphold the action of the ld AO in treating the assessee as an Installation PE in respect of AAI Project but however restrict the profit attribution thereon to 10% of gross receipts. Hence the Grounds 4.1. , 4.2. and 4.3. (for Asst Year 2012-13) and Grounds 2.1., 2.2. and 2.3. (for Asst Year 2013-14) are disposed off accordingly.

6. ONGC- ADDITIONAL (SAGAR LAXMI) PROJECT –GROUNDS 4.1 TO 4.3 OF ASST YEAR 2013-14

The brief facts of this project are that the assessee contracted with ONGC for design,engineering, project management , supply, installation and commissioning of a radar system on turnkey basis for one of their additional sites – ‘Sagar Laxmi’ in the year 2011. During the Asst Year 2013-14, the assessee received payments for the following offshore supply of equipment / services and onshore supply of equipment / services :-

Sl.No. Amount received for Amount in INR Off-Shore Work

1. Off-shore supply of equipment 1,51,95,005/-

2. Off-shore provision of services 3,64,905/- On-Shore Work

3. On-shore supply of equipment 87,09,855/-

4. On-shore provision of services 21,96,585/-

TOTAL 2,64,66,350/-

The on-shore provision of services which consisted of installation, testing and commissioning etc were performed on the equipment in India and off-shore services were rendered remotely from the Netherlands related to integration of the radar system with the VATMS system by the assessee. The ld AO by following the directions of the ld DRP alleged that the assessee constituted an Installation PE in India under Article 5(3) of the India-Netherlands DTAA and attributed total profits of Rs 36,71,233/- in the following manner:-

Amount received for Gross Receipts Rat

e of Attributed (Rs.) Attribution Profits (Rs.) Supply of equipment

Off-shore supply of equipment 1,51,95,005 10% 15,19,501

On-shore supply of equipment 87,09,855 10% 8,70,986

Provision of Services

Off-shore provision of services 3,64,905 50% 1,82,453

On-shore provision of services 21,96,585 50% 10,98,293

TOTAL 2,64,66,350 36,71,231

6.1. The ld AR argued that the ld AO had wrongly treated the assessee as an Installation PE in respect of this ONGC Sagar Laxmi Project. He argued that the time duration of 6 months is to be computed separately for this site which the ld AO had failed to do in the instant case for treating the assessee as an Installation PE. Accordingly, he pleaded that assessee cannot be treated as Installation PE in India and consequentially no profits could be attributed thereon for offshore and onshore supply of equipment and services for the Asst Year 2013-14.

6.1.1. For the Asst Year 2013-14, the ld AR argued that the ld AO erroneously concluded on the basis of agreements between the assessee and ONGC, that the duration test of 6 months as per Article 5(3) of India-Netherlands DTAA is fully satisfied,without bringing any material evidence on record to hold that the project of the assessee existed in India for a period of more than 6 months. He prayed for deletion of the profits attributed towards the alleged Installation PE.

6.2. The ld DR vehemently argued that the assessee constitutes Installation PE in India for the Asst Year 2013-14 in as much as the assessee had also not provided any details regarding the time duration of this project so as to conclude whether the project was completed within 6 months or not.

6.3. We have heard the rival submissions. We find that for the Asst Year 2013-14, the assessee had earned receipts out of both off shore and onshore supply of equipment and provision of services. We are inclined to accept the arguments of the ld DR that the number of days taken by the assessee for executing the installation work is not on records and even before this tribunal, no details whatsoever in that regard were filed by the assessee. Hence we dismiss the plea of the ld AR that the assessee cannot be treated as an Installation PE. We hold that the assessee is to be treated as an ‘Installation PE’ in as much as there is no evidence produced by the assessee to prove the time duration taken for the project carried out by the assessee for executing the installation work.

However, in line with various judicial decisions on the issue, we hold that only the onshore provision of services and onshore supply of equipments should be considered at 10% on gross basis as profits attributable to such Installation PE in India . We find that in respect of GOK project, this issue had arose for the Asst Year 2011-12 in assessee’s own case in ITA No. 390/Kol/2015 dated 4.4.2018 and this tribunal had held thereon as under:-

3.2.6. However, we find that the assessee had received consideration in respect of onshore services to the tune of Rs 3,53,42,381/- pursuant to 4 invoices raised on 13.8.2010. The assessee had also received a sum of Rs 12,85,465/- (Euro 27842) towards onshore supply of equipment during the year under consideration. We hold that these two sums should be taken into account and profits attributable thereon at 10% should be added in the hands of the assessee treating the same as ‘Installation PE’. In this regard, we also find that India-Netherlands DTAA contains PROTOCOL clause in its treaty vis a vis various Articles in the Treaty and the relevant Article 7 of the Protocol is reproduced hereunder :-

NETHERLANDS PROTOCOL

At the moment of signing the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, this day concluded between the Kingdom of the Netherlands and the Republic of India, the undersigned have agreed that the following provisions shall form an integral part of the Convention.

I. Ad Article 7

1. In respect of paragraphs 1 and 2 of Article 7, where an enterprise of one of the States sells goods or merchandise or carries on business in the other State through a permanent establishment situated therein, the profits of that permanent establishment shall not be determined on the basis of the total amount received by the enterprise, but shall be determined only on the basis of the remuneration which is attributable to the actual activity of the permanent establishment for such sales or business. Especially, in the case of contracts for the survey, supply, installation or construction of industrial, commercial or scientific equipment or premises, or of public works, when the enterprise has a permanent establishment, the profits of such permanent establishment shall not be determined on the basis of the total amount of the contract, but shall be determined only on the basis of that part of the contract which is effectively carried out by the permanent establishment in the State where the permanent establishment is situated. The profits related to that part of the contract which is carried out by the head office of the enterprise shall be taxable only in the State of which the enterprise is a resident.

(underlining provided by us)

We hold that even as per the Protocol clause in the Indo-Netherlands Treaty,only the profits attributable to the activities carried out in India shall be taxable and accordingly only the onshore services rendered by the assessee would have to be considered by the ld AO for taxing the onshore receipts at 10% .

Accordingly, the Grounds 3.1 to 3.3 raised by the assessee are dismissed as not pressed and Ground No. 3.4. is allowed.

Accordingly, by respectfully following the aforesaid decision of this tribunal in assessee’s own case for the Asst Year 2011-12, we uphold the action of the ld AO in treating the assessee as an Installation PE in respect of ONGC (Sagar Laxmi) Project but however restrict the profit attribution thereon to 10% of gross receipts. Hence the Grounds 4.1. , 4.2. and 4.3. for Asst Year 2013-14 are disposed off accordingly.

7. The next issue to be decided in this appeal is with regard to charging of interest u/s 234B of the Act. The inter connected issue is with regard to levy of surcharge and cess on the tax rates determined as per India-Netherlands DTAA as according to the assessee,the DTAA provides for specific rate of tax and no further levy could be demanded in the form of surcharge and cess over and above what has been specified in the DTAA. The levy of surcharge and cess had consequentially increased the chargeability of interest u/s 234B of the Act.

7.1. The brief facts of this issue is that the assessee pleaded that interest u/s 234B of the Act are not applicable to a foreign entity like an assessee where entire receipts were covered under the provisions of section 195 of the Act and subjected to withholding tax.

The ld AR argued that as per section 234B of the Act, an assessee is liable to pay interest only in a case where advance tax is payable by the assessee in the first instance. Under section 208 of the Act, advance tax is payable only if the tax on the current income as computed u/s 209(1)(a) of the Act, as reduced by the amount of income tax which would be deductible at source, were to exceed Rs 10,000/-. He stated that the ld DRP for the Asst Year 2012-13 by following the decision of Hon’ble Delhi High Court in the case of DIT vs GE Packaged Power Inc. reported in (2015) 56 taxmann.com 190 (Del HC) dated 12.1.2015 observed that payments to non-resident are subject to withholding tax u/s 195 of the Act and therefore interest u/s 234B of the Act is not leviable. The ld DRP also observed that the proviso has been introduced in section 209(1) of the Act by the Finance Act 2012, w.e.f. 1.4.2012 is effective only from Asst Year 2013-14 onwards and is only a prospective amendment. Accordingly, the ld DRP directed the ld AO to delete the interest charged u/s 234B of the Act. However, the ld AO while passing the final assessment order pursuant to directions of the Hon’ble DRP ignored the directions of the ld DRP and proceeded to charge interest u/s 234B of the Act for the Asst Year 2012-13.

7.2. Similarly the ld DRP had also directed the ld AO that surcharge and education cess is not leviable under the provisions of India-Netherlands DTAA and hence these are not leviable under beneficial provisions of DTAA. The ld AO however , while passing the final assessment order pursuant to directions of Hon’ble DRP ignored the directions of the ld DRP and proceeded to charge surcharge and cess along with the tax on the relevant income brought to tax for the Asst Year 2012-13.

7.3. We have heard the rival submissions. We find that the income of the foreign enterprise is to be governed by the provisions of section 195 of the Act wherein any payment made to foreign enterprise would be subjected to full deduction of tax at source. The ld DRP by placing reliance on the decision of Hon’ble Delhi High Court in the case of GE Packaged Power supra and by observing that the proviso to section 209(1) of the Act is applicable only from Asst Year 2013-14 onwards, had directed the ld AO not to charge interest u/s 234B of the Act. Similarly the ld DRP had also directed the ld AO not to charge surcharge and cess in view of specific provisions contained in India-Netherlands DTAA. We find that the directions of Hon’ble DRP are binding on the ld AO as per provisions of section 144C(10) of the Act which reads as under:-

144C(10) – Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer.

Hence we hereby direct the ld AO to follow the directions of the ld DRP in this regard.

Accordingly, the Grounds 5 to 8 raised by the assessee for Asst Year 2012-13 are allowed.

8. The last issue to be decided in this appeal for the Asst Year 2012-13 is with regard to grant of short credit of TDS to the assessee by Rs 72,801/-. We find that the assessee had claimed credit of taxes deducted at source of Rs 1,52,12,219/- in its income tax return for the Asst Year 2012-13. The ld AO in the final assessment order granted credit for the same only to the tune of Rs 1,51,39,418/- thereby leading to short credit of TDS by Rs 72,801/-. The assessee stated that it had produced the TDS certificate for the same before the ld AO which has been ignored. Hence we direct the ld AO to verify the veracity of the said TDS certificate and grant credit for TDS as per law. Accordingly, the Ground No. 9 raised for the Asst Year 2012-13 is allowed for statistical purposes.

9. The Ground No.1 raised for the Asst Years 2012-13 and 2013-14 are general in nature and does not require any specific adjudication.

10. In the result, both the appeals of the assessee are partly allowed for statistical purposes.

Order pronounced in the Court on 20.07.2018

Sd/- Sd/-

[S.S. Godara] [ M.Balaganesh ]

Judicial Member Accountant Member

Dated : 20.07.2018'

SB, Sr. PS