IN THE INCOME TAX APPELLATE TRIBUNAL
`B' : NEW DELHI
DELHI BENCH `B
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND
SIDHU, JUDICIAL MEMBER
SHRI H.S. SIDHU,
No.344/Del/2014
ITA No.
2010-11
Assessment Year : 2010-
M/s Shanghai Electric Group Vs. Deputy Director of Income Tax,
Co., Ltd., Circle-2(2),
Circle-
Associates
C/o M/s SRBC & Associates International Taxation,
th
LLP, 5 Floor, Plot No.2B, New Delhi.
Tower 2, Sector 126,
Noida 201 304.
PAN : AAPCS1357N.
(Appellant) (Respondent)
Appellant by : Shri Deepak Chopra, Shri Piyush
Singh, Ms. Manaswini Bajpai,
Advocates and Shri Niten Narang,
CA.
Respondent by : Shri Sanjeev Sharma, CIT-DR and
Shri Vivek Kumar, Sr.DR.
ORDER
PER G.D. AGRAWAL, VP :
This appeal by the assessee is directed against the order of
learned Dispute Resolution Panel-II, New Delhi dated 30th October,
2013 for the AY 2010-11.
2. We have heard the arguments of both the sides and perused
relevant material placed before us. The facts of the case are that the
assessee is a company incorporated under the laws of People's
Republic of China and is engaged in the business of supply of Boiler,
Turbine & Generator (BTG) equipments to various companies setting
up power plants in India. The assessee also provided supervisory
services for erection/commissioning of such equipment at project
2 ITA-344/Del/2014
owners' sites. The assessee offered income from supervisory service
fee under Section 44BBB of the Income-tax Act, 1961. Regarding
supply of BTG equipment, the assessee's contention is that these are
off-shore supplies, hence, not taxable in India. The Assessing Officer,
after detailed discussion on factual as well as legal aspects, arrived at
the conclusion that the supply of the BTG equipment and supervisory
services in respect of erection and commissioning of such equipment
was a composite work contract and the same cannot be divided and
held one as contract for sale of equipment and another as contract for
rendering of supervisory services. He further held that the assessee is
having permanent establishment in India and arrived at the conclusion
that 25% of the profit accruing from the supply of BTG equipment is
attributable to PE in India. Accordingly, the Assessing Officer
determined the assessee's income at `62,50,63,759/- as against the
income of `7,72,74,388/- offered by the assessee. That against the
proposed order of the Assessing Officer, the assessee had filed
objection before the DRP and the DRP, vide its order dated 30th
October, 2013, overruled all the objections filed by the assessee and
held as under:-
"On careful consideration of the matter, the panel is of the
opinion that the AO has taken the above stand regarding
turn-key/composite nature of contract after detailed
analysis of the terms of the contract entered into by the
assessee. As regards the adoption of the global profit ratio
of 8.29% by the AO, we find that the same is based on the
global P & L account of the assessee and the assessee's
contention regarding segmental profit of 1.69% is not fully
verifiable. The attribution by the AO of 25% of profit to the
PE in India is also based on the analysis of functions
performed by the assessee's PE in India. Therefore, we
find no reason to interfere with the above propositions
made by the AO in the draft assessment order. The
grounds of objection nos.1 to 5 are, accordingly, rejected."
3 ITA-344/Del/2014
3. After carefully considering the arguments of both the sides and
the facts of the case, we are of the opinion that the order of the DRP is
cryptic and non-speaking without considering any submissions and
arguments of the assessee. We find that the assessment order is
running into 44 pages. The assessee's objection to the DRP is of more
than 60 pages in which the assessee has not only dealt with the factual
aspect but has also referred to the various decisions of the ITAT,
Hon'ble Jurisdictional High Court and Hon'ble Apex Court which
included :-
(i) Ishikawajima-Harima Heavy Industries Co.Ltd. 288 ITR
408 (SC).
(ii) CIT Vs. Hyundai Heavy Industries Co.Ltd. [2007] 291 ITR
482 (SC).
(iii) LG Cable Ltd. Vs. DIT 113 ITD 113 (Delhi ITAT).
(iv) DIT Vs. Ericsson A.B. 343 ITR 370 (Delhi High Court).
(v) DIT Vs. Nokia Networks OY ITA No.512/2007, 1138/2006,
503/2007 & 505/2007 Delhi High Court.
(vi) JSC Technopromexport Vs. DIT A.A.R. No.827 of 2009.
(vii) CIT Vs. R.D. Aggarwal and Co. [1965] 56 ITR 20 (SC).
(viii) Mewar Textile Mills Ltd. 91 ITR 542 (SC).
(ix) ITO Vs. Shri Ram Bearings Ltd. 224 ITR 724 (SC).
(x) ACIT Vs. Andhra Pradesh Power Generation Corpn.Ltd.
2009-TIOL-346-ITAT-HYD.
(xi) Xelo Pty Limited Vs. DDIT [(A.A.R.) ITA
NOs.4107,4108,4380,4381/Mum/2002].
(xii) Deepak Cables (India) Limited [A.A.R. No.940 of 2009].
(xiii) Hyosung Corporation [A.A.R. No.773 of 2008] further
affirmed by Hon'ble Delhi High Court [WP (C)No.2765/2010
and C.M. No.5515/2010].
4 ITA-344/Del/2014
(xiv) SEPCOIII Electric Power Construction Corporation
[Application No.1 of 2011 in AAR No.1008 of 2010].
(xv) LS Cable Ltd. [AAR No.858-861 of 2009].
(xvi) Joint Stock Company Foreign Economic Association
`Technopromexport" [AAR No.827 of 2009].
(xvii) Technip Italy SPA Vs. Addl.CIT [ITA No.434(Del) 2010].
(xviii) Nanjing Electric (Group) Co.Ltd. [ITA No.6175/Del/2012].
4. The assessee also dealt with the provisions of DTAA between
India and China. However, we find that the DRP has not considered
either the assessee's contention or the decisions relied upon by the
assessee or the provisions of DTAA and simply sustained the addition
holding that the Assessing Officer has taken the stand after detailed
analysis of terms and contract entered into by the assessee. That if
the DRP has to simply endorse the order of the Assessing Officer, the
purpose of creating the high-powered panel i.e., DRP, which is
consisting of three Commissioners of Income-tax, would be totally
frustrated. We are, therefore, of the opinion that the order of the DRP
needs to be set aside being cryptic and non-speaking.
5. However, during the course of assessment proceedings, it was
pointed out by the learned DR that the assessee had taken the
contradictory stand before the Assessing Officer. He stated that on
one side the assessee contended that there are two separate and
independent contracts, one for supply of equipment and another for
rendering of supervisory services but the assessee has offered the
income from supervisory services under Section 44BBB which is
applicable in respect of turnkey projects. He further submitted that the
assessee has entered into an agreement for supply of equipment with
twelve parties but has produced only copy of three agreements, all
with Jindal group of companies. In the absence of agreement with nine
5 ITA-344/Del/2014
parties, the Revenue is unable to determine the nature of contract
between the parties. He, therefore, submitted that either the order of
the Assessing Officer should be sustained or if at all the matter is being
set aside, it should be set aside to the file of the Assessing Officer so
that he may examine all the aspects in detail.
6. Learned counsel for the assessee, on the other hand, objected to
the setting aside of the matter to the file of the Assessing Officer and
stated that the setting aside of the issue to the file of the Assessing
Officer will only result in multiplicity of proceedings and, therefore, he
contended that the ideal situation would be the adjudication of all the
issues by the ITAT. He also stated that he is ready to produce the
agreement of supplying of equipment and the supervisory services
with all parties before the ITAT and the ITAT may examine the same.
He also submitted that the issue of determination of income from
supervisory services is not in appeal before the ITAT and, therefore, it
is not relevant how the income is offered by the assessee in respect of
supervisory contract. He further submitted that if at all the matter is
required to be sent back, then it should be sent to the file of the DRP
and not the Assessing Officer.
7. After considering the above submissions of the parties, we are of
the opinion that it would meet the ends of justice if the matter is set
aside and restored to the file of the Assessing Officer. It is the
assessee's contention that the assessee entered into two agreements,
one for supply of equipment and another agreement for supervision of
erection of those equipment. He contended that both the contracts
are separate and independent contracts and equipments have been
supplied off-shore. The title in the equipment has passed outside the
territory of India and payment is also made outside India. However,
6 ITA-344/Del/2014
income from supervisory contract has been offered by the assessee
under Section 44BBB which reads as under:-
"[Special provision for computing profits and gains of
foreign companies engaged in the business of civil
construction, etc., in certain turnkey power projects.
44BBB. [(1)] Notwithstanding anything to the contrary
contained in section 28 to 44AA, in the case of an
assessee, being a foreign company, engaged in the
business of civil construction or the business of erection of
plant or machinery or testing or commissioning thereof, in
connection with a turnkey power project approved by the
Central Government in this behalf, a sum equal to ten per
cent of the amount paid or payable (whether in or out of
India) to the said assessee or to any person on his behalf
on account of such civil construction, erection, testing or
commissioning shall be deemed to be the profits and gains
of such business chargeable to tax under the head "Profits
and gains of business or profession".]
[(2)] Notwithstanding anything contained in sub-section
(1), an assessee may claim lower profits and gains than the
profits and gains specified in that sub-section, if he keeps
and maintains such books of account and other documents
as required under sub-section (2) of section 44AA and gets
his accounts audited and furnishes a report of such audit
as required under section 44AB, and thereupon the
Assessing Officer shall proceed to make an assessment of
the total income or loss of the assessee under sub-section
(3) of section 143 and determine the sum payable by, or
refundable to, the assessee.]."
8. Section 44BBB is applicable for computing the profits and gains
of foreign companies engaged in the business of civil construction or in
certain turnkey power projects. Thus, the assessee is taking a
contradictory stand while offering income in respect of supervisory
service agreement and in respect of equipment supply agreement.
Moreover, the contention of the learned DR that all the agreements
7 ITA-344/Del/2014
relating to equipment supply and supervisory contract were not
furnished before the Assessing Officer has not been denied by the
learned counsel. He offered to furnish those agreements before us but
when certain crucial agreements were not before the Assessing Officer,
it would be appropriate that first those agreements are examined by
the Assessing Officer and thereafter, he may take a view in accordance
with law. If assessee is not satisfied with the view taken by the
Assessing Officer, he may avail appropriate remedy as may be
permissible in law. In view of the above, we set aside the orders of
authorities below and restore the matter to the file of the Assessing
Officer. We direct him to allow adequate opportunity to the assessee
to produce all the agreements in respect of equipments supply as well
as supervision of erection of those equipments. We also direct the
assessee to produce all these agreements and any other document,
evidence or explanation which may be relevant for determination of
taxable income of the assessee. Thereafter, the Assessing Officer is
directed to pass the order in accordance with law. We also observe
that if the assessee is not satisfied with the order of the Assessing
Officer and files objection before the DRP, then the DRP will pass a
speaking order considering the assessee's objection in accordance with
law.
9. In the result, the appeal of the assessee is deemed to be allowed
for statistical purposes.
Decision pronounced in the open Court on 5th September, 2014.
Sd/- Sd/-
SIDHU)
(H.S. SIDHU) AGRAWAL)
(G.D. AGRAWAL)
JUDICIAL MEMBER VICE PRESIDENT
Dated : 05.09.2014
VK.
8 ITA-344/Del/2014
Copy forwarded to: -
1. Appellant : M/s Shanghai Electric Group Co., Ltd.,
C/o M/s SRBC & Associates LLP, 5th Floor, Plot No.2B,
No.2B,
Tower 2, Sector 126, Noida 201 304.
2. Respondent : Deputy Director of Income Tax,
Circle-
Circle-2(2), International Taxation,
New Delhi.
3. CIT
4. CIT(A)
5. DR, ITAT
Assistant Registrar
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