Question Of Law v. Purti Parab

IN THE HIGH COURT OF JUDICATURE AT BOMBAYPURTIPRASADORDINARY ORIGINAL CIVIL JURISDICTIONPARABDigitally signed byPURTI PRASADPARABDate: 2023.10.0718:02:44 +0530INCOME TAX APPEAL NO. 739 OF 2018 Commissioner of Income Tax(IT) – 2 ….Appellant V/s.Iljin Electric Co. Ltd. …Respondent ---- Mr. Suresh Kumar for Appellant.Mr. Madhur Agrawal i/b Mr. Atul K. Jasani for Respondent. ---- CORAM : K.R. SHRIRAM & NEELA GOKHALE, JJ. DATED : 4[th] OCTOBER 2023 P.C. : 1.The following four substantial questions of law are proposed in the appeal : QUESTION OF LAW A.“Whether on the facts and in the circumstances of the case and inlaw, the Hon’ble ITAT erred in holding that payment in relation toOffshore supply is not taxable in India, wrongly relying on the decisionof Supreme Court in the case Ishikawajma Harima, ignoring the factsthat in the case of Ishikawajma Harima the contract was divisibleseparately in Off-shore and On-shore component, whereas, in the fact ofpresent case, it is a indivisible contract and decision of AAR in theMERO Asia Pacific Pte Ltd. (AAR/981/2010) will directly apply in thiscase?” B.“Whether on the facts and in the circumstances of the case and inlaw, the Hon’ble ITAT erred in holding that Off-shore supply is nottaxable in India, ignoring the role played by PE in execution of supply,procurement of goods and materials from abroad into India?” C.“Whether on the facts and the circumstances of the case and inlaw, the tribunal has erred in holding that the interest u/s 234B is notleviable following the decision of the jurisdictional High Court in thecase of DIT(IT) vs. NGC Network Asia LLC ignoring the fact that sincethe assessee had a Permanent Establishment in India and was liable topay the advance tax, its case was distinguishable from the NGC NetworkAsia LLC case supra and therefore levy of interest u/s 234B of theIncome Tax Act, 1961 was correctly made in assessee’s case?” D.“Whether on the facts and in the circumstances of the case and inlaw, the Hon’ble ITAT erred in holding that estimation of profit by theAO on presumptive basis @10% is not proper and set-aside the case tothe AO to compute after verifying the account of the assessee, ignoringthe facts that the assessee has not show the whole contract receipt of(on-shore supply & service and off shore supply), whereas, expensesrelated to off-shore supply are debited to Profit & Loss Account?” 2.Respondent/assessee is a South Korean company engaged inthe business of manufacturing and installation of electric cables. It has setup project offices in India for installation of electric cables in India inconnection with the Indian projects that were awarded to it. 3.During the year under consideration, i.e., Assessment Year2012-13, assessee was executing a contract that it had entered into withMumbai Rail Vikas Corporation Ltd. (MRVC) through its Mumbai projectoffice, Delhi Metro Rail Corporation Ltd. (DMRC) through its Delhi projectoffice and Transmission Corporation of Andhra Pradesh Limited (TCAPL)through its Hyderabad project office and offered the business income/loss totax. 4.The Assessing Officer (A.O.) held that income from the Off-shore supply is also taxable in India. It is assessee’s case that the contractthat it had entered into with MRVC, though a composite contract, the scopeof work envisaged that the price for plant and equipment to be suppliedfrom abroad is a separate contract and the price for plant and machinery tobe supplied within India quoted in the currency of India in rupee terms will be a separate contract. In other words, though only one contract wasexecuted between the parties, the scope of work to be undertaken weredistinct and separately ear marked and provided for. Assessee submittedthat the intention of the parties to the contract is to treat Off-shore supply asa distinct and separate component of the contract. 4.The Assessing Officer (A.O.) held that income from the Off-shore supply is also taxable in India. It is assessee’s case that the contractthat it had entered into with MRVC, though a composite contract, the scopeof work envisaged that the price for plant and equipment to be suppliedfrom abroad is a separate contract and the price for plant and machinery tobe supplied within India quoted in the currency of India in rupee terms will be a separate contract. In other words, though only one contract wasexecuted between the parties, the scope of work to be undertaken weredistinct and separately ear marked and provided for. Assessee submittedthat the intention of the parties to the contract is to treat Off-shore supply asa distinct and separate component of the contract. 5.During the assessment, the entire amount earned by assesseewas held to be taxable in India, i.e., for both components, as per the Act aswell as the Double Taxation Avoidance Agreement (DTAA). The A.O. heldthat the income from the Off-shore supply was also taxable in India. TheA.O. further went on to hold that assessee should be taxed on estimation ofprofit on presumptive basis at 10% because assessee had not shown thewhole contract/receipt of On-shore supply and services of Off-shore supply. 6.Aggrieved by this stand taken by the A.O. following the reportreceived from the Transfer Pricing Officer (TPO), assessee preferred anappeal before the Dispute Resolution Panel (DRP). The DRP rejected theobjection filed by assessee relying upon the order of DRP in assessee’s owncase for Assessment Year 2012-13 and upheld the order of the A.O. holdingthat 10% of the receipt on account of Off-shore supply is income of assesseetaxable in India. Against the order of DRP, assessee filed an appeal beforethe Income Tax Appellate Tribunal (ITAT) which allowed the appeal videorder dated 14[th] October 2016. It is this order which is impugned in this appeal and the four substantial questions of law as quoted earlier areproposed. Question “D” is directly connected to Question “A” and “B” whichare also inter linked. 7.As regards Questions “A” and “B” which relates to taxability ofthe amounts received by assessee on account of Off-shore supply, the ITAThas come to a factual finding that though assessee had entered into acontract with MRVC for supply of equipments and services, Off-shore as wellas On-shore, the terms of the contract distinctly set out the quantum of Off-shore supplies to be made by assessee to MRVC and also the quantum ofpayment to be received by assessee from MRVC outside India. The ITATafter considering the contract between assessee and MRVC, came to theconclusion that the composite contract specifically records the quantum ofgoods to be supplied outside India, the property in the plant and machinerygot transferred to MRVC once they were loaded on the mode of transportfrom the country of origin to India and even the payment is made outsideIndia. We cannot find fault with these factual findings and the decision ofITAT in holding that the income arising from Off-shore supplies are nottaxable in India. Therefore, question “A” and “B” raised by the Revenuecannot be entertained. 8.Consequently, Question “D” will not arise because when there isno liability to pay tax, the question of demanding 10% on presumptive basis will not arise. Question “D” is accordingly rejected. We find support for thisview of ours in Director of Income-tax (International Taxation) vs. Xelo Pty.Ltd.[1]. 9.As regards Question “C” proposed, in Xelo Pty. Ltd. (supra), thecourt has reproduced the second question proposed therein which isidentical to the question proposed in this matter at hand. As regards thesaid Question, in Xelo Pty. Ltd. (supra), the court has recorded “………counsel for the parties state that the said question stands answered againstthe Revenue by the decision of this court in the case of DIT vs. NGC NetworkAsia LLC [2009] 313 ITR 187……….”. Therefore, this question also cannot be entertained. will not arise. Question “D” is accordingly rejected. We find support for thisview of ours in Director of Income-tax (International Taxation) vs. Xelo Pty.Ltd.[1]. 9.As regards Question “C” proposed, in Xelo Pty. Ltd. (supra), thecourt has reproduced the second question proposed therein which isidentical to the question proposed in this matter at hand. As regards thesaid Question, in Xelo Pty. Ltd. (supra), the court has recorded “………counsel for the parties state that the said question stands answered againstthe Revenue by the decision of this court in the case of DIT vs. NGC NetworkAsia LLC [2009] 313 ITR 187……….”. Therefore, this question also cannot be entertained. 10.Accordingly, Appeal dismissed. (NEELA GOKHALE, J.) (K.R. SHRIRAM, J.) 1 [2011] 16 taxmann.com 173 (Bombay)