IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH `L' BENCH
BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND
SHRI J.SUDHAKAR REDDY (ACCOUNTANT MEMBER)
ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
JCIT, Spl. Range-12, M/s. Haldor Topsoe,A/s
R.No.607, Aayakar Bhavan, M.K. C/O. Vijay Deepak & Co., CAs, Jeevan Vihar
Road, Mumbai-20. Annexe, 3, Sansad Marg, New Dehi-01
Vs. PA No.AAACH 2767 A
(Appellant) (Respondent)
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
ADIT (IT) 3(1) M/s. Haldor Topsoe,A/s
Scindia House, R.Bo.136, C/O. Vijay Deepak & Co., CAs, Jeevan Vihar
1st floor, N.M.Road, Mumbai-38 Annexe, 3, Sansad Marg, New Dehi-01
Vs. PA No.AAACH 2767 A
(Appellant) (Respondent)
Appellant by : Shri Jitendra Yadav
Respondent by: Shri S.E.Dastur & Niraj Sheth
Date of hearing: 18.4.2012
Date of pronouncement: 8 .6.2012
ORDER
Per B.R.Mittal, JM:
The department has filed these four appeals against orders of ld CIT(A)
dt.15.5.2000 for A.Y. 1997-98, dt.23.8.2000 for A.Y. 1998-99 and two separate orders
both dated 22.3.2004 for A.Ys. 1999-2000 and 2000-2001, mostly on similar grounds.
Therefore, these appeals are heard together and were being disposed of by this
common order for the sake of convenience.
2 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
2. We consider to discuss the facts in respect of assessment year 1997-98.
3. Ground Nos.1 & 2 of appeals for A.Y. 1997-98 are as under:
"1. On the facts and in the circumstances of the case and in law, the ld
CIT(A) erred in holding the AO has erred in invoking provisions of section
9(1)(vii) of the I.T.Act, 1961, for taxing Rs.10,79,92,405 received by the
assessee for procurement services rendered by it.
2. On the facts and in the circumstances of the case and in law, the ld
CIT(A) has erred in deleting then addition made of DM 57675 paid by
M/s. Deepak Fertilizers & Chemicals Corporation Ltd."
4. The relevant facts are that assessee is a non-resident company incorporated in
Denmark. The assessee provided design engineering package, license, procurement
services, inspection & expediting services, supervision of various activities, etc. to its
various clients in India. The receipts have been accounted for on cash basis, a method
consistently followed by the assessee in earlier years. However, assessee gave detailed
break up of receipts in a statement appended to the return of income. For the
assessment year 1997-98, assessee filed its return of income on 26.11.1997 declaring a
net income of Rs.38,32,68,650. The AO has stated that according to the submissions
made before him during the course of assessment proceedings, it was stated that the
income from Royalty and Fee for Technical Services should be taxed in accordance with
Article 13(2) of the Agreement for Avoidance of Double Taxation (hereinafter to be
referred as `AADT') between Government of India and Denmark.
5. The AO has stated that statement filed by the assessee giving break-up of
receipts appended to the return of income relates to 23 different
agreements/contracts/purchase orders (hereinafter referred to as `agreements') entered
into by the assessee with its various Indian clients. The AO has stated that copies of
new agreements entered into were filed by the assessee alongwith return of income for
A.Y. 1997-98. He has stated that amounts received for the first time during the
previous year relevant to assessment year 1997-98 under new agreements are with
Bharat Petroleum Corporation Limited, Chemical Industries, Consulting Bureau, Deepak
Fertilizers & Petrochemicals Limited, Hindustan Petroleum Corporation Limited, Indian
3 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
Farmers Fertilizers Co.op. Limited (Mixed Fuel Firing for Aonla), Indian Oil Corporation
Limited (Mathura Refinery project), Indo-Gulf Fertilizers & Chemicals Corporation Limited
(Mixed Fuel Firing), Larsen & Toubro Limited (RCF Carbon Monoxide Plant), National
Fertiliser Limited(Gas Turbine Generator) and Tata Chemicals Limited (Babrala Fertilizer
Project). The AO has stated that in addition, amounts were received by the assessee
under its old agreements with various Indian clients. He has stated that the said
agreements were filed by the assessee in the relevant assessment year when fee was
received for the first time. He has further stated that the assessee was required to file
notes relating to new agreements and filed brief note in respect thereof. He has stated
that in the said notes, assessee has given brief description of the scope of work, fee
payable by the client and the taxability of the fee received. He has stated that
taxability of the amounts received in respect of the old agreements during the previous
year relevant to assessment year 1997-98 has been taken on the same basis as in
earlier years.
6. The AO has stated that regarding fee received in respect of procurement services
and inspection & expediting services, it was argued on behalf of assessee that these
receipts are not taxable in the light of decision of Mumbai ITAT in the case of Linde AG
vs ITO, 59 TTJ 169(62 ITD 330). The AO has stated that the contention of the assessee
that the procurement services and inspection and expediting services rendered outside
India are not taxable, was not accepted in his order for the immediately preceding
assessment year viz; A.Y. 1996-97, for the reasons stated in his order dated 30.9.1998
u/s.143(3) of the I.T.Act, for A.Y. 1996-97. These amounts are thus subjected to tax at
the rate specified under Article 13(2) of the AADT. Hence, AO added the said amount to
the income of the assessee.
7. In respect of Ground No.2 of appeal, AO has stated that in the return of income,
DM 57675 was claimed to be exempt. This amount was paid by Deepak Fertilisers &
Petrochemicals Limited (hereinafter referred as `DFPL') against invoice No.28239
towards supply of know-how, basis & detailed engineering, supervision of installation &
4 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
commissioning. It was contended that this amount received from Deepak Fertilisers
forms a part of the supplies of converter internals on C&F basis. It was also contended
that ld CIT(A) held in the case of assessee itself for A.Ys. 1992-93, 1993-94 and 1994-
95 that similar amount received by it from other parties such as Madras Fertilizers
Limited, Mangalore Chemicals and Fertilizers Limited and Zuari Agro Chemicals Ltd., are
not taxable. The AO has stated that the decision of ld CIT(A) for A.Ys. 1992-93, 1993-
94 was not accepted by the department and appeals have been filed by the department
with ITAT. In view of above, AO added the same DM 57676 to the income of the
assessee company.
8. It is relevant to state that AO vide paras 8 & 9 of the assessment order has
stated that keeping in view the decision taken by him in A.Y. 1996-97 and by his
predecessor in earlier assessment years, the assessee does not have permanent
establishment in India. Therefore, the receipts in the hands of assessee should be taxed
under Article 13 of AADT and not under Article 7 thereof.
9. Being aggrieved, assessee filed appeal before ld CIT(A) disputing the addition
made by the AO under Article 13(2) of AADT of above amounts.
10. On behalf of assessee, it was contended that the sum of Rs.10,79,92,405 being
rupee value of payments received from six Indian clients on account of procurement
service is not taxable in India, since the payment represents `business profits', and
assessee has no permanent establishment in India. Ld CIT(A) has stated that it was
contended that identical issue arose in assessee's own case for A.Y. 1996-97 wherein,
identical claim by the assessee on the basis of ITAT decision in the case of Linde AG
(supra) in A.Y. 1996-1997 was rejected by the AO, on the ground that ITAT decision is
being contested by the department by filing a reference application. Ld CIT(A) has
stated that he had, vide his order dated 30.9.99 in respect of A.Y. 1996-97, passed
decision on the following reasons:
5 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
i) That Section 9(1)(vii) cannot be invoked in supersession of provisions of
D.T.A. agreement in view of section 90(2) of the I.T.Act.
ii) In view of Jurisdictional Mumbai ITAT's decision in the case of Linde A.G.
vs ITO, the payment for procurement services cannot be treated as "fees
for technical services" within the meaning of Article 13(4) of the D.T.A.
Agreement between India and Denmark.
iii) Since the payment represented "Business Profits", these cannot be taxed
in India, the assessee having no permanent establishment in India.
10.1 Ld CIT(A) has stated that AO has followed his earlier order for A.Y. 1996-97. Ld
CIT(A) has stated that his decision in respect of assessment year 1996-97 in appeal
order referred to ante will apply mutatis-mutandis for the year under consideration and,
accordingly, directed the AO to exclude the payment for procurement services from
taxable income of the assessee.
10.2 In respect of assessee's claim that rupee value of DM 56657 paid by DFPL
formed part of integral part of the price of converter internals supplied on outright and
principal to principal basis from outside India and was accordingly not taxable in India.
Ld CIT(A) has stated that same issue arose in assessee's own case for A.Ys. 1992-93,
1993-94, 1994-95 and 1996-97 and he in his appellate orders including the order for
A.Y. 1996-97 referred to ante, held that the amount is not taxable in India. He has
stated that the same direction will apply in respect of this year i.e. A.Y 1997-98 and
allowed the claim of the assessee.
11. Being aggrieved, department is in appeal before the Tribunal.
12. On behalf of revenue, it was contended by ld D.R. that ld CIT(A) has decided the
issue in favour of assessee by relying on the decision in the case of Linde AG (supra).
Prior to that there was a decision in assessee's own case against the assessee for A.Y.
1984-85 and the same was not considered by ld CIT(A). He further submitted that the
6 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
decision in the case of Linde AG (supra) pertains to treaty between India and West
Germany. Ld D.R. submitted that treaty between West Germany and India was on the
same line as between India and Denmark but the said case was decided under the old
treaty. He submitted that a new treaty has been entered into between India and
Kingdom of Denmark in September, 1989 and as per amended treaty, there is no need
to have permanent establishment to tax business profits. He further submitted that at
the time of deciding the case for A.Y., 1984-85 of the assessee, assessee stated that the
management charges received by it were not chargeable as the said amount was
received by the assessee on account of services rendered which was purely technical in
nature and not covering management services, because under the old treaty between
India and Denmark, technical and consultancy services were not chargeable as they
were not considered fee for technical services. He submitted that as per new treaty
entered into amounts received for technical services are chargeable to tax under Article
13 as fee for technical services; therefore, AO is justified to charge the fee received by
it as taxable as per new treaty. Ld D.R. submitted that there are 25 types of services
which are being rendered by the assessee under the agreement and referred para 7 of
the earlier order of the assessee for A.Y. 1984-85 (reported at 59 ITD 76) and out of
which 3 services are categorized as management services and remaining under technical
and consultancy services. Ld D.R. submitted that from A.Y. 1991-92, the new treaty will
apply and the Tribunal while deciding the appeals for A.Ys. 1991-92 to 1994-95 and
1996-97 by its common order dt.27.4.2011 in I.T.A. Nos.4420/M/95, 3618/M/97,
5007/M/97, 5008/M/97 and 5830/M/99 has followed the order for A.Y. 1988-89 to 1990-
91 dt.25.5.06 and decided the issue in favour of the assessee. He submitted that the
earlier order dt.25.5.2006 was decided by the Tribunal by following the old treaty and
hence, the Tribunal has not rightly decided the appeals for A.Ys. 1991-92 to 1994-95
and 1996-97 by its order dt. 27.4.2011. Ld D.R. submitted that the earlier order of ITAT
is not correct in assessee's own case so the Tribunal should not follow the said order
and decide the issue afresh in the light of the provisions of new treaty entered into in
September, 1989 and to hold that the procurement fees received by the assessee from
various parties of India is taxable in India under Article 13 of the treaty as fee for
7 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
technical services. Ld D.R. submitted that if the earlier order passed by the Tribunal is
not based on correct provision, the rule of consistency is also not applicable and to
substantiate his submission, he referred to decision dated 17.2.2012 of Hon'ble apex
court in the case of Catholic Syrian Bank Ltd vs. CIT, (Civil appeal No.1143/2011 and
others) and submitted that Their Lordships have also observed in para 13 thereof that
even if the department has not assailed the earlier order of ITAT, this would not take
away the right of the department to question the correctness of the orders of
subsequent assessment years, particularly when a question of law is involved. Ld D.R.
submitted that Their Lordships in above case while considering the issue in A.Y. 2002-
03 specifically stated that the findings recorded in earlier years i.e. 1991-92 to 1993-94
would not be binding on department for subsequent years as well. Ld D.R. also referred
the decision of Hon'ble A.P. High Court in the case of Commissioner of Income-
tax v. B.R. Constructions, 202 ITR 222 (AP) to substantiate his above submission
and contended that a Division Bench can differ from another Division Bench where rule
of precedents results in manifest injustice. He further submitted that the Tribunal while
passing the order dt.27.4.2011 has not considered the assessee's own case and
provisions of new treaty, it results in manifest injustice and, therefore, this Bench is not
bound to follow the decision of earlier co-ordinate bench for A.Y. 1996-97. He
submitted that the impugned order of ld CIT(A) be set aside and the action of AO be
confirmed in respect of both the grounds.
13. On the other hand, ld A.R. submitted that the order passed by the Tribunal in
assessee's own case for A.Y. 1984-85 is dated 30.5.96 and the said decision was
recalled by ITAT and, therefore, it was not considered and the decision in the case of
Linde AG (supra) which is dated 24.1.1997 was considered while deciding the appeal for
subsequent years.. Ld A.R. further submitted that the case of the assessee is squarely
covered by the decision of ITAT in the case of Linde A.G(supra) as in that case the
Tribunal has held that fee for procurement services is nothing but a service for making
purchases by the assessee and this was purely a commercial service. Therefore, fees
received for arranging or procuring the equipments would be commercial profit within
8 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
the meaning of Article III of the Double Taxation Agreement between India and West
Germany. Ld A.R. submitted that under the old treaty between India and Denmark, the
provisions were similar to the DTA between India and West Germany. He submitted
that out of the total amount received, the assessee itself offered to tax 20% as fee for
technical services. He further submitted that the facts and the issue in assessee's own
case for assessment year 1997-98 are identical to A.Y. 1996-97. ld A.R. submitted that
the receipt on account of procurement service (including inspection and expediting
services) of equipment material was considered in assessee's own case by ITAT for A.Y.
1985-86 to 1987-88 and ld CIT(A) following the said order of ITAT decided the issue in
favour of the assessee in A.Y. 1996-97 to 2001-02 and 2003-04. He submitted that the
department itself accepted the order of ld CIT(A) on similar facts for A.Y. 2001-02 and
A.Y. 2003-04 and no further appeal was filed by the department on the said issue. Ld
A.R. further submitted that from A.Y. 2005-06 onwards, the AO himself has not made
any addition on account of fee received for procurement services. He submitted that
the fee for procurement service received by the assessee is in the nature of commercial
profits and not imparting information concerning industrial and scientific experience and,
therefore, it is neither in the nature of Royalty nor in the nature of fee for technical
services. In regard to the contention of ld D.R. for not to apply rule of consistency, he
submitted that the decision cited by ld D.R. of Hon'ble apex Court in the case of Catholic
Syrian Bank Ltd (supra) is not relevant as in that case, Their Lordships itself stated that
rule of consistency need not be followed when particularly a question of law is involved.
He submitted that it is only a question of fact as to whether the procurement fee
received by the assessee under various agreements entered into is a commercial profits
or not and is not a question of law. He submitted that since no question of law is
involved while deciding the issue, the rule of consistency must be followed when factrs
are identical. He submitted that the order of ld CIT(A) be confirmed.
14. We have carefully considered the submissions of ld representatives of parties,
orders of authorities below as also the provisions of old treaty as well as new treaty
9 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
entered into on which ld D.R. made his submissions at length to justify the action of
Assessing Officer.
15. At the outset, we observe that in the assessment year 1984-85, in assessee's
own case, the question involved was as to whether the management charges received
by the assessee to render construction management services were in the nature of
management service or in the nature of technical service and consultancy service. In
that context, the Tribunal vide para 35 of the said order dt.30.5.1996 held that as per
Article 4 of the agreement deals with the fees, assessee was to receive gross lump sum
fee and the work was classified for the purpose of payment of fees as follows:
i) Licence and know-how;
ii) Basic Design & Engineering package to be done and delivered in
Denmark;
iii) Procurement services including expediting and inspection;
iv) Supervision of detailed engineering;
v) Supervision of erection and construction;
vi) Supervision of pre-commissioning and commissioning operations;
vii) Arranging practical experience to owner's personnel'
viii) Optional services.
It was held that fees paid for the item Nos.(v), (vi) and (vii) was found to be exigible to
tax being for rendering managerial services and other items were found not liable to tax
in India as per treaty between India and Denmark. However, in the assessment year
under consideration, the question is as to whether fee for procurement services received
by the assessee from its clients in India could be categorized as management, technical
knowhow and consultancy or is in the nature of fee for commercial services and to be
considered as commercial profit. The assessee has filed a brief note stating the nature
of procurement services rendered by the assessee on account of which the amount was
received. It is stated that various services which are rendered by the assessee can be
categorized in the following broad heading:
10 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
Procurement services This service will include selection of material and
selection of suppliers.
Testing and inspection of the equipment and material.
Expediting the supply of the equipment and material.
i) The assessee has stated that the procurement services are directly in connection with
purchase of equipment. It forms part and parcel of supplies made from outside India. It
is stated that such services are ancillary and incidental to the purchase of equipment
and material; it forms a part of the cost of the equipment and material. Relying on the
decision of Hon'ble A.P.High Court in the case of CIT vs. Hindustan Shipyard Limited,
109 ITR 158(AP), it is contended that services connected with effective fulfillment of
contract were merely incidental to the contract and cannot alter the taxability of the
main contract. Therefore, where the supplies of equipment and material are not
taxable, the services incidental to such supply will also be not taxable. It is stated that it
cannot be regarded as the technical services because no technical advice is advised by
the assessee to the Indian parties.
ii) In respect of testing and inspection of the equipment and material services, it is
stated that the assessee is not providing technical services as such. The testing of the
equipment is only a part of the composite agreement for supply of the equipment.
While carrying out testing, what is being given by the assessee to Indian parties is the
equipment duly tested and no testing technique as such is being passed on.
iii). In respect of expediting supply of the equipment and material, it is stated that
this service is to ensure that the equipment and material reaches the Indian party in
time and it is purely a commercial activity and not a technical service.
16. During the course of hearing, ld D.R. submitted that the provisions of new treaty
entered in September, 1989 between India and Denmark in assessee's own case for A.Y.
1984-85 were not considered and was decided on the basis of old treaty. Therefore,
11 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
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I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
order of Tribunal dated 27.4.2011 for A.Ys. 1991-92 to 1994-95 and 1996-97 is not
correctly passed as it is based on a decision passed under old treaty and should not be
accepted. We observe that the AO, while making the assessment and adding the
amount of Rs.10,79,97,405 received by the assessee for procurement services rendered
by it, has stated that the issue involved is similar to A.Y.1996-97 and following his earlier
order, has considered that fee received for procurement, inspection and expediting
services is chargeable to tax under Rule 13(2) of AADT. He has merely stated that the
amounts received on account of procurement services and inspection and expediting
services is subjected to tax at the rate specified in Article 13(2) of the AADT. We
observe that in respect of A.Y. 1996-97, ld CIT(A) after considering the decision of ITAT
in the case of Linde AG (supra) has held that payment for procurement services received
represented business profits and not fee for technical services. It is stated that the said
fee is received by the assessee from Indian clients on account of procurement services
for assisting Indian parties in procuring equipment and that services were rendered by
the assessee outside India. It is stated that the procurement services were in the
nature of normal commercial activities and, therefore, the income received on account
of such service represent business profits. It is stated that since such services are
rendered outside India, the profit attributable to this service was not taxable in India in
terms of Article 7 of DTA agreement between India and Denmark as Article 7 provides
that business profits of Denmark, the enterprise can only be taxed in Denmark unless it
has a Permanent Establishment in India, in which case, the profits as are attributable to
such PE and only be taxed in India. Therefore, there was a categorical finding that the
procurement services do not represent services of managerial, technical or consultancy
in nature but are commercial profits. We are of the considered view that the Tribunal
while deciding the appeals for A.Y. 1991-92 to 1994-95 and 1996-97 vide its order
dt.27.4.2011 (supra) has rightly followed the case of Linde AG (supra) wherein, it was
held that procurement service will not be managerial, technical or consultancy in
nature. We observe from the order of ld CIT(A) for A.Y. 1996-97 dt.30.9.1999, copy
placed, that he has stated that AO has not disputed the claim of the assessee that the
decision of ITAT in the case of Linde AG (supra) is fully applicable to the assessee's case
12 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
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and only ground he has taken was that the decision had not been accepted by the
department and a reference had been made. Therefore, the AO included the amount in
the total income of the assessee to keep the matter alive. As mentioned hereinabove,
that in assessee's own case for A.Y. 1984-85, the issue was as to whether the fee
received by the assessee as per agreement could be categorized as management service
and in that context, it is observed that there was a contention of the assessee that
management charges received by the assessee were also in the nature of technical
charges. However, in the assessment year under consideration, the fee received is in
respect of procurement services and inspection & expediting services, which was specific
issue considered and adjudicated in the case of Linde AG (supra) and the Tribunal held
that such fee was for remuneration to the assessee for its efforts and time spent in
making purchases on behalf of Indian concern and had nothing to do with rendering any
technical, managerial or consultancy services to the Indian concern, therefore, fee could
not be treated as fee for technical services or Royalty. Not only this, on perusal of the
brief note placed on record, in respect of services provided by the assessee, we are of
the considered view that the said fee received by the assessee is in the nature of
business profit and could not be considered as fee relating to technical services or fee
for Royalty in nature. Therefore, we are of considered view that Article 13 of the treaty
is not applicable and the said fee is in the nature of business profits as per Article 7 of
AADT with India and Denmark. Since, there is no dispute that the assessee has no
permanent establishment in India, as the AO himself has stated, the receipts in the
hands of assessee could not be taxed under Article 7 thereof. In view of above, we are
of the considered view that the decision of the Tribunal dt.27.4.2011 does not suffer
from any infirmity as contended by ld D.R. even if specific provisions of new treaty had
not been discussed therein for the reason that the said procurement fee for inspection
and expediting the supply of the purchase of equipment does not involve technical
services or Royalty. Not only this, we also observe from the earlier order of the Tribunal
in assessee's own case that the work was classified for the purpose of payment into 8
categories as mentioned in para 15 hereinabove and it is observed in Sl.No.3 thereof
that Procurement services including expediting and inspection is separately categories
13 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
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for which assessee has received the payment. We also observe that ld D.R. has not
disputed the fact that the department has not disputed the order of ld CIT(A) on similar
issue for A.Y. 2001-02 and 2003-04 when ld CIT(A) decided the issue in favour of
assessee by considering that fee received for procurement services is in the nature of
commercial profits of the assessee. Ld D.R. has also not disputed the contention of ld
A.R. that from A.Y. 2005-06 onwards, AO himself has not made any additions on this
account and accepted that fee received by the assessee under this head, as commercial
profit in nature. Considering the above facts and the earlier orders of the Tribunal
(supra), we uphold the order of ld CIT(A) in respect of Ground No.1 of appeal.
17. In respect of Ground No.2 of appeal also, ld CIT(A) has categorically stated that
the payment received from Deepak Fertilisers & Chemicals Corporation Ltd., formed an
integral part of the price of Converter internals supplied on outright and principal to
principal basis from outside India. Further, similar nature of payment received by the
assessee in the preceding assessment year from other clients has been held not taxable
in India. For the reasons given hereinabove in respect of Ground No.1, we hold that
there is no infirmity in the order of ld CIT(A) in deleting the addition of DM 57,675 made
by the AO.
18. Therefore, Ground No.1 & 2 of department is rejected.
19. Ground No.3 is as under:
`On the facts and in the circumstances of the case and in law, the ld
CIT(A) has erred in holding that AO's action adopting rupee equivalent
amount mentioned in the TDS certificate issued by Indian parties is not
correct and further erred in directing AO to adopt the figure as prescribed
under Rule 115 is applicable for conversion into rupees of income
expressed in foreign currency and not for income expressed in Indian
rupee as in the instant case."
20. We have heard ld representatives of parties and perused the orders of
authorities below. We observe that AO has stated that in the cases where Rupees
amounts remitted have been mentioned in the TDS certificates filed, the figures as per
14 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
TDS certificate should be adopted. Ld CIT(A) had directed the AO for adoption of rate of
conversion of foreign currency as on the date of receipts of payments by the assessee
as per Rule 115 of the Income tax Rules, 1962 by following his order for A.Y. 1996-97.
We observe that department accepted the said order of ld CIT(A) and the AO has also
given effect to it and in the appeal for A.Y. 1996-97, the department had not agitated
the issue before the Tribunal. Ld A.R. also submitted that the department has also
accepted this issue in A.Y. 2001-02, 2002-03 and 2003-04 and, thereafter, the AO has
accepted the same that the telegraphic transfer buying rate is to be adopted and not the
buying rate of payer. We are of the considered view that ld CIT(A) has rightly given
the direction that amount of foreign exchange should be converted into Indian rupees at
the SBI TT Buying Rte on the relevant dates as per rule 115 of I.T.Rules read with Rule
26 of Income tax Rules. Hence, we do not find any infirmity with the order of ld CIT(A).
Hence, Ground No.3 of appeal taken by the department is rejected.
21. Now we take up appeal for A.Y. 1998-99 being I.T.A. No.4906/M/2000.
22. Grounds of appeal are as under:
"1. On the facts and in the circumstances of the case and in law, the ld
CIT(A) erred in holding the AO has erred in invoking provisions of section
9(1)(vii) of the I.T.Act, 1961, for taxing Rs.2,71,65,106 received by the
assessee for procurement services rendered by it.
2. On the facts and in the circumstances of the case and in law, the ld
CIT(A) has erred in deleting then addition of Rs.83,65,339 for supply of
technical documentation, know how etc. forming integral part of supply of
converter internals/Baskets and associated equipment as fees for
technical services."
3. `On the facts and in the circumstances of the case and in law, the ld
CIT(A) has erred in holding that AO's action adopting rupee equivalent
amount mentioned in the TDS certificate issued by Indian parties is not
correct and further erred in directing AO to adopt the figure as prescribed
under Rule 115 read with proviso thereto without appreciating that Rule
115 is applicable for conversion into rupees of income expressed in
foreign currency and not for income expressed in Indian rupee as in the
instant case."
15 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
23. Since all the three grounds of appeal are identical to the appeal for A.Y. 1997-98
and following the reasons as mentioned hereinabove, we uphold the order of ld CIT(A)
and reject all the three grounds of appeal taken by the department.
24. Now we take up appeal for assessment year 1999-2000 being I.T.A.
No.5151/M/2004.
25. Grounds of apepal 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 receipts amounting to rs.2,49,33,367 in
respect of procurement services is not taxable in India.
2. On the facts and in the circumstances of the case and in law, the ld
CIT(A) has erred in holding that the payment of DM 357500 paid by DIL
for technical documentation/know-how etc was not taxable in India.
3. On the facts and in the circumstances of the case and in law, the ld
CIT(A) erred in directing that the AO should have disregarded the
amounts mentioned in TDS certificates (though these are in Indian
rupees)."
26. Since all the three grounds of appeal are identical to the appeal for A.Y. 1997-98
and following the reasons as mentioned hereinabove, we uphold the order of ld CIT(A)
and reject all the three grounds of appeal taken by the department.
27. Now we take up appeal for assessment year 2000-2001 being I.T.A.
No.5152/M/2004.
28. Grounds raised by the department 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 amount received by the assessee for
procurement services rendered to Indian clients is not taxable in India.
2. On the facts and in the circumstances of the case and in law, the ld
CIT(A) has erred in deleting the additions made on DM 550000 paid by
DIL for technical documentation."
16 ITA Nos.3877/Mum/2000: Assessment Year: 1997-98
I.T.A. No.4906/Mum/2000: Assessment year: 1998-99
I.T.A. No.5151/Mum/2004: Assessment year: 1999-00
I.T.A. No.5152/Mum/2004: Assessment year: 2000-01
29. Since both the grounds are similar to Ground No,.1 & 2 of appeal for A.Y. 1997-
98 and following the reasons mentioned hereinabove in pras 4 to 17, in respect thereof,
we uphold the order of ld CIT(A) and reject both the grounds of appeal taken by the
department.
31. In the result, all the fours appeals filed by department for AYs 1997-98 to 2000-
2001 are dismissed.
Pronounced in the open court on 8th June, 2012
Sd/- Sd/-
(J.SUDHAKAR REDDY) (B.R. MITTAL)
Accountant Member Judicial Member
Mumbai, Dated 8th June , 2012
Parida
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),XVII, Mumbai
4. Commissioner of Income Tax, City-II , Mumbai
5. Departmental Representative, Bench `L' Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI
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