Commissioner Of Income Tax(International Taxation)-1, New Delhi v. Fujitsu Limited

Signature Not Verified $~54 *IN THE HIGH COURT OF DELHI AT NEW DELHI %Date of Decision : 08.07.2025 +ITA 207/2025 COMMISSIONER OF INCOME TAX(INTERNATIONAL TAXATION)-1, NEW DELHI.....AppellantThrough:Mr Puneet Rai, SSC, Mr AshviniKumar,MrRishabhNangia,MrGibran, JSCs and Mr Nikhil Jain, MsSrishtiSharmaandMrPrathamAggarwal, Advocates(INTERNATIONAL TAXATION)-1, NEW DELHI.....AppellantThrough:Mr Puneet Rai, SSC, Mr AshviniKumar,MrRishabhNangia,MrGibran, JSCs and Mr Nikhil Jain, MsSrishtiSharmaandMrPrathamAggarwal, Advocates versus FUJITSU LIMITED.....Respondent Through:Mr Prakash Kumar and Ms RashmiSingh, Advocates. CORAM:HON'BLE MR. JUSTICE VIBHU BAKHRUHON'BLE MR. JUSTICE TEJAS KARIA VIBHU BAKHRU, J. (ORAL) CM APPL. 39441/2025(condonation of delay) 1.For the reasons stated in the application, the delay of 19 days in filingthe captioned appeal is condoned. 2.The application stands disposed of. ITA 207/2025 & CM APPL. 39440/2025 3.The Revenue has filed the present appeal under Section 260A of theIncome Tax Act, 1961 [the Act], inter alia, impugning an order dated 14.11.2024 [impugned order] passed by the learned Income Tax AppellateTribunal in ITA No.2607/Del/2022 in respect of Assessment Year 2019-20. 4.The respondent [Assessee] is engaged in providing informationtechnology support, maintenance support and software licensing services tovarious group entities including its Indian Associated Enterprises (AEs). 5.The Assessee – a tax resident of Japan – had preferred the aforesaidappeal [ITA no.2607/Del/2022] before the learned ITAT against the finalassessment order dated 31.08.2022 passed under Section 143(3) of the Act.The controversy before the ITAT was confined to the taxability of anamount of ₹32,97,07,175/-, which was received by the Assessee in terms of an arbitral award. The Assessee had classified the same as ‘income frombusiness’ and, therefore, the same was not taxable by virtue of the article 7of the India-Japan Double Taxation Avoidance Agreement. 6.The Assessee had filed its return of income for the AY 2019-20declaring total income of ₹27,96,72,140/- which was offered to tax at the rate of ten percent. The Assessee’s return was selected for scrutiny. Duringthe course of assessment, the Assessing Officer found that theAssessee had received a sum of ₹1,83,68,283/- from its Indian affiliate [Fujitsu India Private Limited]; ₹23,33,00,374/- from another Indian affiliate [Fujitsu Consulting India Private Limited]; and ₹35,77,10,665/- from Mizuho Bank Limited. 7.On 30.09.2021, the AO passed the draft assessment order assessingthe income at ₹60,93,79,312/-, which included the aforesaid receipts, as the business income of the Assessee for the AY 2019-20. 8.The Assessee filed its objection against the draft assessment orderbefore the Dispute Resolution Panel .The Assessee filed theevidence along with the detailed submission. Since the same had not beenplaced before the AO, the DRP remanded the matter to the AO forverification and for passing the speaking order. Pursuant to the aforesaiddirection, the AO passed the final assessment order dated 31.08.2022. TheAO confirmed the quantum of the assessment of the income, but altered thehead of income in which the said income was assessed. 9.The AO held that the amount in question received by the Assesseewas chargeable to tax under the head ‘income from other sources’. The AOreasoned that the amount received by the Assessee in terms of the arbitralaward could not be considered as business income. 10.The plain reading of the assessment order indicates that the AO hasmerely reproduced some of the submissions as articulated in the remandreport filed before the DRP. A plain reading of the remand report indicatesthat the AO had reasoned that the Assessee did not qualify the attributes of“regularity, continuity, frequency, and volume”, which are essential forbusiness activities.He concluded that the Assessee’s case was one of the“business with India” and not the case of “business in India”. 9.The AO held that the amount in question received by the Assesseewas chargeable to tax under the head ‘income from other sources’. The AOreasoned that the amount received by the Assessee in terms of the arbitralaward could not be considered as business income. 10.The plain reading of the assessment order indicates that the AO hasmerely reproduced some of the submissions as articulated in the remandreport filed before the DRP. A plain reading of the remand report indicatesthat the AO had reasoned that the Assessee did not qualify the attributes of“regularity, continuity, frequency, and volume”, which are essential forbusiness activities.He concluded that the Assessee’s case was one of the“business with India” and not the case of “business in India”. 11.As noted above, the Assessee filed an appeal against the saidassessment order, which was allowed by way of the impugned order. 12.The ITAT found that the arbitral tribunal had rendered the arbitral award in favour of the Assessee regarding its claim in respect of non-payment of dues for offshore supplies. Accordingly, the learned ITAT heldthat the said amount was required to be considered in the hands of theAssessee as income from business. The relevant extract of the impugnedorder is set out below:- “17. It is pertinent to note that the aforesaid ArbitralAward is liable for payment of stamp duty. The detailsof the same are enclosed in Page 183 of the PaperBook. We find that what assessee had got by way ofArbitral Award is for non-payment of dues foroffshore supplies made. Hence it had to be construedonly as business income of the assessee. It is furtherpertinent to note that the Learned Joint Commissionerof Income Tax, Range 1(3), International Taxation,Delhi while forwarding the Remand Report of theLearned Assessing Officer had also placed reliance onthe decision of Mumbai Tribunal in the case of ACITvs Ramona Pinto in ITA No. 582/Mum/2018. TheLearned AR before us placed on record the decision ofHon’bleBombayHighCourtreportedin156taxmann.com 282 dated 8-11-2023 which reversed thedecision of Mumbai Tribunal referred supra. Hence thedecisionrelieduponbytheLearnedJointCommissioner of Income Tax and by the Learned DRbefore us does not advance the case of the revenue.Accordingly, we hold that the principal portion of thecompensation received pursuant to an Arbitral Awardin the sum of Rs.32,97,07,175/- would have to beconstrued only as business income of the assessee as itarises out of contractual obligation of the business.Undisputably there is no PE for the assessee in India.Hence in view of Article 7 of India Japan Tax Treaty,the same would not be chargeable to tax in India. 18. Now coming to the taxability of interest receivedon the compensation arising out of an Arbitral Awardin the sum of Rs.2,80,03,480/-, though the assessee 18. Now coming to the taxability of interest receivedon the compensation arising out of an Arbitral Awardin the sum of Rs.2,80,03,480/-, though the assessee had voluntarily offered the same to tax in the return ofincome, the same, in our considered opinion, wouldnot be chargeable to tax at all, in view of the decisionof Hon’ble Supreme Court in the case of CIT vsGovinda Choudhary & Sons reported in 203 ITR 881(SC) wherein it was held that such interest is only anaccretion to the asesssee’s receipts from the contracts.It is obviously attributable and incidental to thebusiness carried on by it. The Hon’ble Supreme Courtspecifically made an observation in Para 6 of its orderthat interest can be assessed under the head “incomefrom other sources” only if it cannot be brought withinone or the other of the specific heads of charge. Wefind it difficult to comprehend how the interest receiptsby the assessee can be treated as receipts which flow toit de hors the business which is carried on by it. In ourview, the interest payable to it certainly partakes of thesame character as the receipts for the payment ofwhich it was otherwise entitled under the contract andwhich payment has been delayed as a result of certaindisputes between the parties. It cannot be separatedfrom the other amounts granted to the assessee underthe award and treated as “income from other sources”.Respectfully following the same, the interest portion ofRs.2,80,03,480/- also had to be treated as businessincome of the assessee and in the absence of PE inIndia, the same would not be chargeable to tax in Indiaas per Article 7 of India Japan Tax Treaty. 19. Hence we have no hesitation to hold that thecompensation received by the assessee pursuant to anArbitral Award in the total sum of Rs.35,77,10,655/-would have to be construed only as business income ofthe assessee and in the absence of any PE of theassessee in India, as per Article 7 of the India JapanTax Treaty, the same would not be chargeable to tax inIndia. Accordingly, the Ground Nos.3 to 4.1. raised bythe assessee are allowed.” 13.There is no dispute that the amount awarded to the Assessee wasagainst it claims for payment of supplies, which was accepted by the Arbitral Tribunal. Thus, undisputedly, the receipts in the hands of theAssessee were inextricably linked to its business and were on account of itsbusiness activities. The Assessee had, essentially, raised a claim for non-payment of amounts due for supplies. And, the said claim was accepted. 14.In the aforesaid view, we find no infirmity with the decision of theITAT in finding that the receipts in the hands of the Assessee were in thenature of income from business in its hands. And, the question whether thesame were taxable had to be considered bearing in mind Article 7 of theIndia-Japan DTAA. 15.In view of the above, no substantial question of law arises forconsideration of this Court. The appeal is, accordingly, dismissed. Thepending application is also disposed of. VIBHU BAKHRU, J JULY 08, 2025M TEJAS KARIA, J Click here to check corrigendum, if any