ILJIN Electric Co. Ltd. v. Dy. Commissioner of Income-tax (I.T), Circle–2(2)(1), Mumbai
[Citation -2016-LL-1014-82]

Citation 2016-LL-1014-82
Appellant Name ILJIN Electric Co. Ltd.
Respondent Name Dy. Commissioner of Income-tax (I.T), Circle–2(2)(1), Mumbai
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 14/10/2016
Assessment Year 2011-12
Judgment View Judgment
Keyword Tags deemed to accrue or arise in india • transfer of capital asset • business of exploration • permanent establishment • income tax authorities • non-resident company • estimation of income • indian subsidiary • source of income • draft assessment • foreign currency • turnkey project • capital gain • advance tax • tax treaty
Bot Summary: The only liability which remained with the contractor was warranty in relation to the off shore supplies and general responsibility for care and custody of off shore supplies and risk of loss or damage thereof basis and in case of DMRC, the payments were on delivered duty unpaid 6 Iljin Electric Co. Ltd. It was further submitted employers were named as co insurance with respect to the insurance in relation to off shore supplies; In case of termination of contract, the contract, inter alia, is entitled to receive consideration for the supplies made ; The application in relation to off shore supplies emanated from the contracts entered into by the company. The income from off shore supply which is attributable to assessee s P.E. is required to be brought to tax in India under section 9(1)(i) of the Act r/w Article 7 of DTAA. Refuting the contention of the learned Authorised Representative that the contract has been distinctly demarcated into off shore supply and on shore installation income from off shore supply is not connected with on shore installation, the learned Departmental Representative submitted that such demarcation has been artificially made does not change the character of composite contract. As could be seen from clause 12.1 of the IFB, it requires the bidder to separately mention the bid currency in respect of plant and equipment to be supplied from abroad. On reading of clause 12.1, it is evident, as per the IFB, price for plant and equipment to be supplied from abroad is to be quoted entirely in foreign currency, whereas, price for plant and machinery to be supplied within the employer s country should be quoted in the currency of the employer s country,i. The issue before us is whether the price received towards supply of plant and 35 Iljin Electric Co. Ltd. equipments from abroad is taxable in India by virtue of a business connection through its P.E. It is the case of the Department that as the assessee is executing a turnkey project and the contract is a composite one and since the work of laying, testing and commissioning is executed through the P.E. in India, the assessee has a territorial and economic nexus with India profit arising out of off shore supply of plant and equipment should be deemed to accrue or arise in India in terms of section 9(1)(i) of the Act. In case of Xelo Pvt. Ltd., the Hon'ble Jurisdictional High Court while examining similar nature of contract with Metro Rail involving off shore supplies and on shore supplies in relation to a turnkey project, observing that the terms of contract distinctly set out the quantum of off shore supplies and the quantum of the payments for the same, observed, if the composite contract specifically records the quantum of goods to be supplied from outside India and even the payment is made outside India, income arising from off shore supplies cannot be held to be taxable in India. Factual analysis of the order indicate that 51 Iljin Electric Co. Ltd. separate bills raised by the assessee in dollar terms for supply of equipments and in rupee terms for the work relating to installation was to suit its convenience and was not contemplated by the HPCL. However, in the present case, it is very much evident from the IFB that it is the employer which wanted the bidders to quote their price for off shore supply and on shore supply separately in foreign currency and rupee terms respectively. While completing the assessment, the Assessing Officer has not only included the revenue earned from off shore supplies as taxable in India, but he taxed the entire income derived by the assessee both from on shore 59 Iljin Electric Co. Ltd. supply and service as well as off shore supplies on presumptive basis by applying rate of 10 in terms of section 44BB and 44BBB. Though, the assessee had challenged the estimation of profit at 10 of the total contract receipt the DRP upheld the order of the Assessing Officer.


IN INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA no.1023/Mum./2015 (Assessment Year : 2011 12) ITA no.5642/Mum./2015 (Assessment Year : 2012 13) ILJIN Electric Co. Ltd. C/o Deloitte Haskins And Sells LLP Indiabulls Finance Centre Tower 3, 27th 32nd Floor . Appellant Senapati Bapat Marg Elphinstone (W), Mumbai 400 013 PAN AABCI5883M v/s Dy. Commissioner of Income Tax (I.T) . Respondent Circle 2(2)(1), Mumbai Assessee by : Shri Madhur Agarwal Revenue by : Shri Jasbir Chauhan Date of Hearing 27.06.2016 Date of Order 14.10.2016 ORDER PER SAKTIJIT DEY, J.M. Captioned appeals at instance of assessee are directed against assessment orders passed under section 143(3) r/w section 144C(13) of Income Tax Act, 1961 (for short "the Act") in pursuance to direction of Dispute Resolution Penal (DRP), for assessment years 2011 12 and 2012 13. 2 Iljin Electric Co. Ltd. 2. Since both these appeals pertain to same assessee involving common issues and arising out of identical set of facts and circumstances, therefore, as matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. ITA no.1023/Mum./2015 A.Y. 2011 12 3. grounds of appeal, are more or less common in both assessment years, except variation in figures, read as under: appellant objects to order dated 14 January 2015 passed by Deputy Commissioner of Income Tax (International Taxation)-(2)(2)(1), Mumbai ('the AO') for assessment year 201112, pursuant to directions dated 22 December 2014 issued by Dispute Resolution Panel ('DRP') under section 144C(5) of Income-tax Act, 1961 ('the Act') on following among other grounds. Ground No. 1: Income in relation to offshore supply is not taxable in India. 1.1 learned AO / DRP erred in law and in facts in seeking to tax in India, sum of Rs. 300,65,923 as against income of Rs. 57,41,665 offered to tax for year under consideration. 2. learned AO / DRP erred in law and in facts in considering revenue from Offshore Supplies for purpose of computing appellant's income taxable in India, without appreciating that same is not taxable in India both as per Act as well as Double Taxation Avoidance Agreement between India and Korea. Ground No. 2: Income, if any, should be taxable only to extent it can be attributed to operations in India 2.1 Without prejudice, learned AO / DRP erred in treating entire profit (arrived at on presumed basis of 10% of revenues, including revenue from Offshore Supplies) as taxable in India without undertaking attribution thereof to Permanent 3 Iljin Electric Co. Ltd. Establishment / alleged business connection in India. 2.2 learned AO I DRP erred in disregarding submissions made and grounds of objections raised by appellant. Ground No. 3: Levy of interest under section 234B of Act: 3.1 learned AO has erred in law and in fact, in levying interest under section 234B of Act disregarding fact that appellant is non-resident whose income is subject to tax deduction at source (which is supported by lower withholding tax certificates issued by tax authorities in its case). Ground No. 4: Levy of interest under section 234D of Act: 4.1 learned AO has erred in law and in fact, in levying interest under section 234D of Act. Ground No. 5: General: 5.1 Each of foregoing grounds of appeal is without prejudice to other. 5.2 appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of foregoing grounds of appeal at or before hearing of appeal. 4. major contentious issue raised in these appeals relate to grounds no.1 and ground No. 2, is offshoot of ground no.1. 5. Brief facts are, assessee company tax resident of South Korea, has its registered office at Iljin Building, 50 1, Dohwa Dong, Mapo Ku Seoul, Korea. assessee after participating in bids invited by Mumbai Railway Vikas Corp. Ltd.(MRVC) and Delhi Metro Rail Corp. Ltd.,(DMRC) being successful entered into following contracts: 4 Iljin Electric Co. Ltd. 1. Contract dated 12th November 2008, for supply, laying, testing and commissioning of 60KV (E) Grade Single Core 400 sq.mm Copper Conductor XLPE Insulated feeder Cables and Associated Switch Gear. 2. Contract with Mumbai Railway Vikas Corp. on 12 th January 2010, in relation to 110 KV XLPE Insulated Power (these contracts hereafter will be referred to as MRVC Contract ). 3. Contract with Delhi Metro Rail Corp. Ltd. (DMRC) on 21st June 2007, for supply, laying, testing and commissioning of extra High Voltage for Delhi MPTS Phase II Project (this contract hereafter will be referred as DMRC Contract ). scope of contract involved off shore supply of equipment, on shore supply of equipment and on shore services relating to laying, testing and commissioning. As far as amount received by assessee towards on shore supply and services are concerned, in return of income filed for impugned assessment year assessee offered it as income after claiming statutory deductions. However, as far as off shore supplies are concerned, assessee did not offer it to tax on ground that title over goods involved in off shore supplies was transferred outside India to contractee / employer upon loading onto transportation medium outside India. Assessing Officer in course of assessment proceedings noticing that assessee has not offered amount received on account of off shore supplies to tax, called upon assessee to justify its claim. In response to 5 Iljin Electric Co. Ltd. show cause notice issued by Assessing Officer it was submitted by assessee as under: Off shore supplies were manufacturing in Korea by Head Office. Other functions including finance general management, marketing, business development, etc., were handled from within Korea; project office in India had no role to pla in relation to off shore supplies; None of employees of project office was involved in off shore supplies. goods involved in off shore supplies were sold outside India on principal to principal basis by Head Office in Korea directly to employers / contractee; title to off shore supplies was transferred outside India to employers upon loading onto transportation medium outside India. off shore supplies were clear in India on employer s account; Off shore supplies could not be loaded onto transportation medium outside India without inspection by employers and acceptance to their satisfaction. only liability which remained with contractor was warranty in relation to off shore supplies (during defect liability period) and general responsibility for care and custody of off shore supplies and risk of loss or damage thereof (since laying, testing and commissioning involved handling of off shore supplies owned by employer; consideration for off shore supplies was denominated in U.S. $ given that it formed consideration for supplies made by head office from outside India, whereas consideration for on shore supplies and on shore services was denominated in Indian rupees since same related to efforts of project office; payment in relation to off shore supplies was received outside India by head office; risk in relation to off shore supplies was transferred outside India to employers. In this context, it was further submitted, in case of MRV, off shore supplies were made on carriage and insurance paid (CIP) basis and in case of DMRC, payments were on delivered duty unpaid 6 Iljin Electric Co. Ltd. (DDU). It was further submitted employers were named as co insurance with respect to insurance in relation to off shore supplies; In case of termination of contract, contract, inter alia, is entitled to receive consideration for supplies made (notwithstanding they may not have been installed); application in relation to off shore supplies emanated from contracts entered into by company. contracts were awarded to company on basis of its credentials and expertise in relation to manufacturing cables and accessories. said credentials and expertise were possessed by Head Office because of which contracts were secured and in pursuance thereto off shores were made by Head Office; project office had no role to play in making off shore supplies. In fact, project office had no role to play in securing contract which lead to obligation to make off-shore supplies; installing of cables and commissioning thereof was awarded to company owning to employer s judgment that it would be preferable that said activities were carried out by suppliers. Hence, distinct activities of installation and commissioning were awarded to company. In connection with distinct activities, company established project office since activities could only be undertaken in India which required physical presence in India. Therefore, project office has no role to play either in securing or in executing activities of off shore supplies. It was submitted by assessee from very beginning, contracts for supply and installation activities were envisaged as distinct activities. Only for purpose of conveyance, distinct contracts were documented as single contract for both activities, however, activities retained their distinct character and consideration in contract. 7. assessee submitted, since project office is involved in making on shore supplies and rendering on shore services return of income was filed in India offering to tax income pertaining to these activities. In support of its contention assessee not only relied upon 7 Iljin Electric Co. Ltd. bid document and contract but also number of judicial precedent including decision of Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries v/s DIT, 288 ITR 408 (SC). Relying upon judicial precedents, it was submitted by assessee, contract entered into by assessee are for distinct and separate activities and well defined obligations provided therein relating to off shore supplies, on shore supplies and on shore services. It was submitted, though, contracts are umbrella contracts same are in nature of divisible contracts since consideration for various activities has been stated separately along with distinct scope of work. It was submitted, even in case of composite contract supply has to be segregated from installation activities have determine tax liability thereof in India. It was submitted by assessee, as per provisions contained under section 5(2) and 9(1)(i) only that portion of income which accrues or arise or deemed to have accrued or arisen in India can be brought to tax. It was submitted, as per Double Taxation Avoidance Agreement (DTAA) between India and Korea, amount of income which is attributable to operations / P.E. in India is taxable in India. Thus, it was submitted, on basis of provisions of Act and DTAA, only that much of off shore supplies can be made taxable which is attributable to operations in India. It was 8 Iljin Electric Co. Ltd. submitted, as project office is in no manner involved in activities of off shore supplies, payments received towards off shore supplies cannot be made taxable in India. Assessing Officer after considering submissions of assessee and perusing relevant contracts observed that entire revenues were generated from single composite contract and for this purpose, assessee has set up project office for execution of contract in India. He observed, all supplies or service, whether on shore or 0ff shore, are finally utilised in India for purpose of executing main contract with employers viz. MRVC and DMRC. He observed, there is profit element in off shore supplies and it has business connection in India as these off shore supplies were finally utilised in India. He observed, assessee by applying dissecting approach has bifurcated composite contract into on shore and off shore supplies. He was of view that Look At Approach should be taken rather than Look Through Approach . Assessing Officer observed, assessee set up its project office in India for executing contract. Assessing Officer observed, as project office is executing contract in India, on turnkey basis entire amount received in pursuance to contract comes within purview of scope of income as envisaged under section 5(2). Therefore, as assessee is having direct business connection in India within meaning of section 9(1) and it 9 Iljin Electric Co. Ltd. has fixed place of business in India by virtue of its project office exclusively for purpose of executing contracts and goods relates to off shore supplies are inextricably linked to P.E., entire amount received in connection with contract has to be taxed as business receipt of P.E. in India. As far as judicial precedents relied upon by assessee, Assessing Officer observed that ratio laid down in case of Ishikawajima Harima Heavy Industries (supra) would not be applicable due to difference in facts. He observed, in case decided by Hon'ble Supreme Court, tax treaty under consideration was with Japan which is different from tax treaty with Korea. He further observed, in case of Ishikawajima Harima Heavy Industries (supra), goods were delivered in high sea and transfer of title also took place in high sea. Whereas, in assessee s case, no such facts are involved. He also observed, assessee did not furnish any specific evidence to prove this fact. Thus, on basis of aforesaid analysis of facts Assessing Officer finally concluded that entire amount received by assessee in pursuance to execution of contract is taxable in India as per Act as well as DTAA. Since assessee had offered income relating to on shore supply and services, Assessing Officer brought amount of ` 21,97,62,373 relating to off shore supplies to tax. Further, Assessing Officer observed, assessee having not offered 10 Iljin Electric Co. Ltd. profitability on entire contract, it has to be estimated @ 10% on entire receipt from contract in terms of section 44BB / 44BBB. Accordingly, he passed draft assessment order. Being aggrieved, assessee filed objections before DRP. 8. DRP, after considering submissions of assessee and analysing different clauses of contract found that though price schedule includes price in foreign denomination for supply of cables and accessories from abroad, however, it is integral part of composite contract. DRP observed, supply from abroad is not separable from rest of contract. DRP observed, if supply from abroad is held as separable then supplies of goods within country also has to be held as separable. DRP observed, contract is not complete until and unless all works including commissioning is completed. DRP observed, schedule of contract contained values for each component of contract, however, these values are only indicative and cannot form basis to make contract separable. As far as assessee s claim that transfer of ownership over off shore supplies were outside country, DRP observed, since assessee is responsible for supply of material purchased overseas, transportation of material to site, delivery, storage, security and also insurance till cables are installed, tested, commissioned and completed facility is 11 Iljin Electric Co. Ltd. handed over to employer, transfer of ownership of cable procured from overseas on loading to mode of transport for delivery at Indian Ports is only notional and for limited purpose of making insurance claim due to damage / loss in transit. Even custom duty on such material is payable by assessee. Delivery at ports is to be taken by assessee and transported to site and assessee is responsible for quality, security, storage, testing, performance of such cable till completion of contract and transfer of facility on completion. DRP observed, contract awarded to assessee has not been split into separate parts for supply of off shore equipments and supply of on shore equipments and on shore services. overall price of contracts remains fixed. DRP observed, assessee has received money from contract on account of supplying, laying, testing and commissioning of extra high voltage cables. Thus, all revenue generated from composite contracts with Indian entities. All supplies or service, whether on shore or off shore, were finally utilised in India for purpose of main contract of employers. Though, assessee is applying dissecting approach by bifurcating composite indivisible and single contract into on shore and off shore purpose, but undoubtedly, there is profit element in off shore supply and has business connection in India since all supplies and services are finally utilised in India. Splitting up of 12 Iljin Electric Co. Ltd. single indivisible and composite contract is not permissible for limited purpose of taxation of income from off shore supplies. DRP observed, there is no dispute that assessee has P.E. in India and all works related to contracts including off shore supplies are done through such P.E. and P.E. is responsible for completion, quality and subsequent warranty of project. Relying upon decision of Tribunal, Chennai Bench, in Ansaldo Energia Spa, 115 TTJ 942, which was upheld by Hon'ble Madras High Court in Ansaldo Energia SPA v/s ITO, 310 ITR 237 (Mad.), DRP repelled assessee s argument that income received from off shore supply of equipments and material is not taxable in India as it is sale on principal to principal basis. DRP observed, passing of property outside India is only indicative and responsibility of assessee continues till equipment is installed, erected, commissioned and project is completed. That being case, argument of passing of property outside India in equipment is notional. It also observed, payment outside India in foreign currency for supply of equipment is irrelevant to determine taxability. DRP also observed, as assessee has project office in India for purpose of executing contract, entire amount received in terms of contract comes within scope of income as provided under section 5(2) and assessee has direct business connection in India 13 Iljin Electric Co. Ltd. within meaning of provisions of section 9(1) by virtue of its project office exclusively set up to execute contracts and supply goods. Ultimately, DRP observed, off shore supply being inextricably linked to P.E., entire amount received under contract including off shore supplies should be taxed as business receipt of P.E. Thus, DRP upheld draft assessment order. In terms of directions of DRP, Assessing Officer finalized assessment. Aggrieved, assessee is in further appeal before Tribunal. 9. Learned Authorised Representative taking us through various clauses of contract submitted that both contracts are turnkey composite contract having three distinct and separate components off shore supply, on shore supply and on shore services. He submitted, total contract value has been segregated to three different parts i.e., for off shore supplies, on shore supplies and on shore services. Referring to clause 31.1, learned Authorized Representative submitted that ownership in respect of plant and equipment including spare parts from off shore supplies shall be transferred to employer upon loading onto mode of transport to be utilised to convey plant and equipments from country of origin to that country. He submitted, however, clause 31(5) of contract provided that even after transfer of ownership of plant and equipment contractor will be responsible for care and custody. Referring to 14 Iljin Electric Co. Ltd. invoice raised for off shore supplies, learned Authorised Representative submitted, invoice raised clearly indicates that sale was effected by Head Office in Korea to employer directly in foreign currency. Referring to bid documents, learned Authorised Representative submitted employer while inviting bid has made it clear that bidders must give break-up of prices in manner indicated in price schedule. He submitted that, as per price schedule bidder has to separately mention bid price for supply of plant and equipment from abroad, supply of plant and equipment from within employer s country, local transportation and services. It also provided that bidder shall make grand summary of each schedule. Clause 11.4 of bid document also provides that plant and equipment to be supplied from abroad shall be collected on CIF Port of entry, CIP border point basis or CIP named place. Referring to clause 12.1, he submitted bid document also provided that for plant and equipment to be supplied from abroad bidder has to quote price in foreign currency and as far as plant and equipment to be supplied from within employers country price should be collected in currency of employer s country. He submitted, as per clause 12.1(a), bidder cannot bid for off shore supplies otherwise than by way of foreign currency. Learned Authorised Representative submitted, in terms with bid documents, assessee made off shore 15 Iljin Electric Co. Ltd. supplies from head office at Korea itself and transfer of title over goods took place outside India to employers upon loading of plant and equipment onto transportation medium outside India. He submitted, even payment for off shore supplies was received outside India by head office. He submitted, project office was not in existence either at time of bidding or execution of contract. Only after entering into contract project office was established for limited purpose of undertaking on shore supplies and on shore services, however, project office had no role to play in relation to off shore supplies. He submitted, none of aforesaid facts have been controverted by Departmental Authorities. Learned Authorised Representative submitted, as off shore supply is distinct component of turnkey contract and title to goods passed outside India, no income is received or deemed to be received or accrues or arise or is deemed to accrue or arise in India. He submitted, Explanation 1(a) to section 9(1)(i) specifies that only so much of income is taxable in India as can reasonably be attributable to operations carried out in India. He submitted, as only operations in India relate to on shore supplies and on shore services, income from these activities having already been offered to tax by assessee, no further tax liability can arise. Therefore, income from off shore supplies is not chargeable in India as 16 Iljin Electric Co. Ltd. per provisions of section 5 r/w section 9. Learned Authorised Representative submitted, as project office had no role to play in relation to off shore supply, income from off shore supply is not attributable to P.E. in India. Therefore, as per article 7 of treaty between India and Korea, it is not taxable in India. In support of such contention, learned Authorised Representative heavily relied upon decision of Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries (supra) and took us through relevant portions of judgment. Further, referring to decision of Hon'ble Jurisdictional High Court in DIT v/s Xelo Pty. Ltd., (203 Taxman 475), learned Authorised Representative submitted, in said case Hon'ble Jurisdictional High Court while examining identical nature of contract with Metro Railway for supply of equipment and services off shore as well as on shore in turnkey project has held that as terms of contract distinctly set out quantum of off shore supplies and also quantum of payment for same, it cannot be brought to tax in India. In this context, learned Authorised Representative also relied upon following decisions also: i) DIT v/s Toyo Engineering Corp. ITA no.663/2011, dtd 23.1.2013 ii) DIT v/s Siemens Akliongesellschaft, ITA no.1033/2011; 20.11.2012 iii) DIT v/s L.G. Cable Ltd., 237 CTR 438; and iv) National Petroleum Construction v/s DIT, 383 ITR 648. 17 Iljin Electric Co. Ltd. 10. learned Departmental Representative submitted, contract entered into by assessee with MVRC and DMRC are in nature of turnkey project. He submitted, it is also not disputed by assessee that it has P.E. in India through its project office. He submitted, as per section 5 of Act, principle on which tax can be levied is source rule. In other words, provisions of section 5(1) prescribes residence as primary basis for imposition of tax and makes global income of resident liable to tax. Section 5(2) contains source based rule in relation to non resident and is confined to income that has been received in India and income that has been accrued or arisen in India or income that is deemed to accrue or arise in India. He submitted, as per section 9 of Act, income which are deemed to accrue or arise in India are taxable. He submitted, contract undertaken by assessee is turnkey project for supplying, laying, testing, and commissioning of extra high voltage cables and is not contract for sale and purchase of cables simplicitor. sale of cables is inextricably linked with turnkey contract which is composite contract. He submitted, once contract is held to be composite contract, all receipts including those attributable to off shore supply are to be brought to tax in India. In this context, learned Departmental Representative relied upon decision of Tribunal, Mumbai Bench, in Orpak Systems Ltd., ITA 18 Iljin Electric Co. Ltd. no.8862/Mum./2011, dated 6th January 2016. He submitted, in said decision, Tribunal, while relying upon decision of Hon'ble Madras High Court in Ansaldo Energia Spa (supra), had also observed that decision in case of Ishikawajima Harima Heavy Industries (supra). He submitted, as per these decisions, even if title in respect of off shore supply of goods passed outside India it alone cannot decide issue of taxability. He submitted, AAR in case of Roxar Maximum Reservoir Performance WLL, 349 ITR 189, also observed that contract has to be read as whole and purpose for which contract is entered into by party is to be ascertained from terms of contract. Relying upon said decision, learned Departmental Representative submitted, when contract is composite contract, off shore supply of goods being inextricably linked to its utilisation in execution of contract in India is taxable in India. He submitted, when there is no doubt that contract is for turnkey project, from survey stage to successful commissioning stage, and it is not contract for supply of goods, it is to be assumed that assessee has undertaken complete responsibility of entire turnkey project of which off shore supply of goods is part. He submitted, off shore supply of goods being inextricably connected with turnkey project, it cannot be divorced from off shore installing and commissioning. Therefore, he submitted, off shore supply of 19 Iljin Electric Co. Ltd. goods being part of turnkey project has strong economic and territorial nexus with India. Hence, income from off shore supply which is attributable to assessee s P.E. is required to be brought to tax in India under section 9(1)(i) of Act r/w Article 7 of DTAA. Refuting contention of learned Authorised Representative that contract has been distinctly demarcated into off shore supply and on shore installation, therefore, income from off shore supply is not connected with on shore installation, learned Departmental Representative submitted that such demarcation has been artificially made, hence, does not change character of composite contract. He submitted, as far as contractee is concerned, it does not matter to it as it is concerned with completion of complete turnkey project. Therefore, such demarcation is only chosen method of execution of turnkey project. 11. He submitted, in this regard, look at approach has to be followed instead of look through approach . For such proposition, he relied upon decision of Hon'ble Supreme Court in Vodafone International Holdings B.B. v/s Union of India, [2012] 17 Taxmann.com 202 (SC). He submitted, dissecting of contract has now been disapproved by various Courts. In this context, he relied upon following decisions: i) Roxar Maximum Reservoir Performance WLL, 349 ITR 189; 20 Iljin Electric Co. Ltd. ii) Ansaldo Energia SpA, 310 ITR 237; iii) Sedco Forex International Inc. v/s CIT, [2008] 299 ITR 238 (Uttrakhand) iv) Verizon Communication Singapore Pvt. Ltd. v/s ITO, 361 ITR 575 (Mad.); and v) Dongfang Electric Corporation v/s DCIT, 52 SOT 496; 12. He submitted, CBDT Instruction no.1829/1989, heavily relied upon by assessee was issued for power projects (Hydel Power Project) undertaken by pre existing consortium making income from off shore supply of goods by specific member of consortium exempt from tax in India. However, due to misuse of said instruction, subsequently, it was withdrawn by CBDT Instruction 9 of 2009. He submitted, in any case of matter, as assessee has neither executed Hydel Power Project nor it is consortium instruction no.1829 of 1989 will not apply. He submitted, Explanation 4 to section 9(1)(i) retrospectively inserted by Finance Act, 2012, defines meaning of through which is used in section 9(1)(i) of Act and in Article 27 of DTAA. 13. He submitted, as per definition of word through under explanation-4,it is not imperative to establish fact that P.E. played active role in off shore supply contract as held by Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries 21 Iljin Electric Co. Ltd. (supra). He submitted, as no definition of word through has been provided under India Korea DTAA by virtue of Article 3(2), meaning of through provided in Explanation 4 to section 9(1)(i) is applicable to DTAA also. He submitted, even Courts have held that Explanation inserted by Finance Act retrospectively can be read into DTAAs. He submitted, expression directly or indirectly used in section 9(1)(i) and Article 7 of India Korea DTAA are wide enough to take into its ambit off shore supply contract. learned Departmental Representative submitted, even otherwise also, by virtue of force of attraction rule, off shore supply of goods is attributable to assessee s P.E. in India, therefore, income attributable to off shore supply of goods has to be taxed in India. learned Departmental Representative submitted, fact that out of total consideration, Rs. 22 crores has been ascribed to off-shore supply of goods and only Rs.8.00 crores had been ascribed to on shore installation raises strong suspicion as to attempt on part of assessee to keep bulk of consideration out of tax net in India by claiming off shore supply of goods not attributable to P.E. in India and thus, not taxable in India. Learned Departmental Representative submitted, decision of Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries (supra), will not be applicable to assessee s case in view of number of developments having taken place thereafter 22 Iljin Electric Co. Ltd. and said decisions no longer make decision of Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries (supra) good precedent to follow. He submitted, even decision of Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries (supra), is factually distinguishable as in that case, it was consortium of 5 parties which undertook contract for which price and role of each member of consortium have separately been fixed and it was on these facts Hon'ble Supreme Court found that by implication, contract was divisible one and off shore supply made by it had no territorial nexus to India. On other hand, assessee s contract is composite one, hence, not severable. He submitted, while in assessee s case, contractee invited bids from single parties, in case of Ishikawajima Harima Heavy Industries (supra), bid was invited from consortium of five parties. He submitted, in case of Ishikawajima Harima Heavy Industries (supra), treaty under consideration was India Japan DTAA and as per Para 6 of protocol to said DTAA extent of income that can be taxed has to be determined on basis of part played by P.E. in transaction and Court had given finding that P.E. had not played any part in respect of off shore supply of goods. He submitted, decision in DIT v/s Xelo Pty. Ltd. (supra), would also not apply for reason for which Ishikawajima Harima Heavy Industries (supra) is not applicable. 23 Iljin Electric Co. Ltd. He submitted, decision of Hon'ble Delhi High Court in L.G. Cables Ltd. (supra), is not applicable as non resident company was awarded two separate contracts one for off shore supply of goods and services and another for on shore erection, installation, etc. He further submitted that in case of L.G. Cables Ltd. (supra), Hon ble High Court did not discuss decision of Roxar Maximum Reservoir Performance WLL (supra) and Ansaldo Energia SPA (supra). He submitted, Hon ble High Court also did not have benefit of Hon'ble Supreme Court s decision in case of Vodafone International Holdings B.B. (supra). Thus, it was submitted by learned Departmental Representative consideration received towards off shore supply of goods was rightly taxed in India. 14. In rejoinder, learned Authorised Representative submitted, even in turnkey contract taxability has to be examined independently for each component stated distinctly in contract. He submitted, in decisions relied upon, though, contracts which were subject matter of consideration were turnkey in nature, however, it has been held that contract contained distinct obligation and separate consideration for off shore and on shore component, hence, off shore supply is not taxable. Learned Authorised Representative submitted, off shore supply cannot be taxed in India on reason that it has no economic nexus with India. Relying 24 Iljin Electric Co. Ltd. upon decision of Hyundai Heavy Industries Co. Ltd., 291 ITR 482 (SC), it was submitted, all profits of non resident company from its business connection in India would be taxable in India but only so much of profit having economic nexus with P.E. in India would be taxable in India. As far as contention of Department that decision rendered in case of Ishikawajima Harima Heavy Industries (supra) is no more good law in view of subsequent development on issue, learned Authorised Representative submitted, decisions relied upon by learned Departmental Representative, while advancing such proposition, have either been over ruled or has been held as inapplicable, therefore, those decisions cannot be made applicable to assessee s case. Thereafter, learned Authorised Representative proceeded to distinguish each of decisions relied upon by learned Departmental Representative. 15. 15. As far as applicability of CBDT instruction no.1829 of 1989, dated 21st September 2989 is concerned, learned Authorised Representative submitted that such instruction did not form basis of decision rendered in Ishikawajima Harima Heavy Industries (supra), therefore, withdrawal of said instruction will not alter precedentiary value of said decision. He submitted, even otherwise also, in case of Linde A.G., Linde Engineering Division v/s DDIT, 365 25 Iljin Electric Co. Ltd. ITR 001, Hon ble High Court held that though instruction no.1829 (supra), was withdrawn subsequently, however, reason for withdrawal is something else and it has nothing to do with any change in understanding of law. He submitted, instruction no.1829 (supra) does not lay down principle of divisibility of contract, whereas, it primarily deals with status of consortium for tax purposes and related issues arising and, that too, specifically for power projects. He submitted, in many of decisions wherein it has been held that off shore supply is not taxable, instruction no.1829 (supra) is not at all being referred to. As far as contention of learned Departmental Representative regarding applicability of Explanation 4 to section 9(1)(i), learned Authorised Representative submitted, though, Explanation 4 of section 9(1)(i) was inserted by Finance Act, 2012, much before draft assessment order, as well as final assessment order, however, none of Departmental Authorities including DRP have referred to said Explanation. He submitted, even otherwise also, Explanation 1(a) to section 9(1)(i), would apply and not Explanation 4. He submitted, in Explanation 1(a), word through does not appear. Therefore, by virtue of Explanation 1(a) to section 9(1)(i) territorial nexus is required for taxing income in India as held by Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries (supra). He submitted, even assuming Explanation 4 is to 26 Iljin Electric Co. Ltd. be considered for purpose of section 9(1)(i), however by virtue of said Explanation 4, off shore supply is not taxable since off shore supply is by means of, in consequence of order by reason of contract, entered into with employer and not by means of or in consequence of or by reason of P.E. / business connection. He submitted, in assessee s case, reverse is true, as project office came into existence as consequence of contract entered into by assessee with employer. He submitted, word through cannot be regarded as term not defined in DTAA, but defined in Act. He submitted, Explanation 4 is specific to deeming provisions of section 9(1)(i) and cannot apply even to other provisions of Act, since it is not definition contained in section 2 of Act, hence, cannot be read into DTAA by relying upon Article 3(2) of DTAA. He submitted, decisions relied upon by learned Departmental Representative are not in context of Explanation to Section 9(1)(vi) and Explanation below section 9(2), therefore, do not have relevance to present case. He submitted, even otherwise also, in case of DIT v/s New Skies Satellite B.V., (382 ITR 114), Hon ble Delhi High Court after considering number of decisions referred to by learned Departmental Representative, including Verizon Communication Singapore Pte. Ltd. v/s ITO, 361 ITR 575 (Mad.) and Siemens Alkiongesellschaft (supra), held that Explanation 27 Iljin Electric Co. Ltd. to section 9(1)(vi) inserted by Finance Act, 2012, will not affect corresponding article of DTAA and interpretation thereunder unless such change is incorporated into DTAA itself. learned Authorised Representative referring to Article 7(1) of DTAA submitted that word through appears only in first sentence and not in second sentence which specifies portion of profit that can be taxed under Article 7. Learned Authorised Representative submitted, when Courts decided that off shore supplies are not taxable in India, Explanation 4 to section 9(1)(i) was already in statute book. learned Authorised Representative submitted, argument of Departmental Authorities that word directly or indirectly as well as force of attraction rules provided in Article 7 of India-Korea DTAA, are factually incorrect as word indirectly is not appearing in Article 7(1) of DTAA and India Korea DTAA does not contain force of attraction rule. As far as allegation of Department that consideration is heavily skewed in favour of off shore supply of goods, learned Authorised Representative submitted, such allegation is without any basis and it is neither case of Assessing Officer nor DRP. He submitted, even otherwise also, contention of learned Departmental Representative is factually incorrect which is very much evident from contract value. learned Authorised Representative finally submitted, though, 28 Iljin Electric Co. Ltd. learned Departmental Representative has tried to distinguish decision of Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries (supra) as well as other decisions relied upon by assessee, however, assessee s case is fully covered by these decisions. 16. Learned Authorised Representative submitted, though, in case of L.G. Cables Ltd. (supra), two separate contracts were executed even then Hon ble High Court held, assuming that both contract needed to be read together as composite contract, still then, issue is covered by decision of Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries (supra). learned Authorised Representative finally summing up submitted, as consideration received towards off shore supply of goods has no territorial or economic nexus with India, it cannot be taxed in India. 17. We have patiently and carefully heard submissions made by learned Counsels appearing for both parties, perused material available on record including bid document, contract copies, sale invoices, etc. We have also applied our mind to decisions relied upon by parties. Before deciding issue, it is necessary to dwell upon certain factual aspects which in our considered opinion will have crucial bearing on issue to be 29 Iljin Electric Co. Ltd. decided. MRVC on 15th July 2008, invited international competitive bid for supply, laying, testing and commissioning of 66 KV (E) Grade Single Core 400 sq.mm. Copper Conductor XLPL Insulated Feeder Cables for Borivili, Vile Parle section of Mumbai Suburban of Western Railway as per clause 10 of Bid. scope of work as per bid, is supply, laying, testing and commissioning of 66 KV (E) Grade Single Core 400 sq.mm. Copper Conductor XLPL Insulated Feeder Cables in certain sections of Western Railway. completion period of contract is six months from date of award of contract. At this stage we think it appropriate to deal with certain clauses of Invitation For Bid (IFB). Clause 10 of IFB provides price schedule. Clause 11.3 of IFB, reads as under: 11.3 Bidder s shall give breakdown of prices in manner and detail called for in price schedule. Where no price schedules are included in bidding documents, bidders shall present their prices in following manner: Separate numbered schedules shall be used for each of following elements. total amount from each schedule (1 to 4) shall be summarized in grand summary (schedule 5) giving total bid price (s) to be entered in bid form. Plant and equipment (including mandatory Schedule no.1 spare parts) supplied from abroad Plant and equipment (including Mandatory spare Schedule no.2 parts) supplied from within employer s country. Schedule no.3 Local Transportation Schedule no.4 Installation Services Schedule no.5 Grand Summary (Schedule no.1 to 4) Schedule no.6 Recommended Spare Parts 30 Iljin Electric Co. Ltd. Bidders shall note that plant and equipment included in schedule numbers 1 and 2 above exclude materials used for civil, building and other construction works. All such materials shall be included and priced under schedule no.4, Installation Services. 18. As per clause 11.4, bidder is required to furnish details and break down of their prices as under: 11.4 In schedules, bidders shall give required details and breakdown of their prices as follows: (a) Plant and equipment to be supplied from abroad (Schedule no.1) shall be / quoted on CIF port-of-entry, CIP border point basis or CIP-named place. In addition FOB price (or FCA price, as case may be) shall also be indicated. (b) Plant and equipment manufactured or fabricated within Employer's country (Schedule No.2) shall be quoted on EXW (ex-factory, ex-works, ex-warehouse or off-the-shelf as applicable) basis, and shall be inclusive of all costs as well as duties and taxes paid or payable on components and raw materials incorporated or to be incorporated in facilities. (c) Local transportation, insurance and other services incidental to delivery of plant and equipment (Schedule No. 3). (d) Installation Services shall be quoted separately (Schedule No. 4) and shall include rates or prices for all labor, contractor's equipment, temporary works, materials, consumables and all matters and things of whatsoever nature, including operations and maintenance services, provision of operations and maintenance n1.nua1s, training etc., where identified in bidding documents as necessary for proper execution of installation services, including all taxes, duties, levies and charges payable in Employer's country as of twenty eight (28) days prior to deadline for submission of bids. (e) Recommended spare parts shall be quoted separately (Schedule 6) as specified. 31 Iljin Electric Co. Ltd. 19. Clause 12.1 which provides for currency in which price to be quoted reads as under: 12.1 Prices shall be quoted in following circumstances: (a) Plant and equipment cove red under ITB sub clause 11.4(a) to be supplied from abroad shall be quoted entirely in currency of any bank member country. If Bidder wishes to be paid in combination of amounts in different currencies, it may quote its price accordingly but use no more than three foreign currencies. (b) Plant and equipment covered under ITB sub clause 11.4(b) to be supplied within Employer s country, shall be quoted in currency of Employer s country unless otherwise specified in Bid Data Sheet. (c) Unless otherwise specified in Bid Data Sheet, local transportation, insurance and other services incidental to delivery of plant and equipment covered under ITB sub clause 11.4(c) and installation services covered under ITB sub clause 11.4(d) shall be quoted in either foreign and / or local currency, depending upon currency in which costs are to be incurred and in accordance with provisions of ITB sub clause 11.4(a) and (b) above. 20. As is evident, assessee submitted its bid in pursuance to IFB floated by MRVC and being successful in bid was awarded contract. contract was executed between MRVC and assessee on 12th Nov 2008, laying down certain terms and conditions. total contract value was for U.S. dollar 12,59,445 and Rs.5,68,12,549/-. price break up as per clause 4 of contract is as under: 1. CIF Indian port basis (Schedule 1A) USD 12,59,445 2. Schedule 1B, 1C & 1D INR 5,57,01,467 3. Agent commission on CIF INR 11,11,082 32 Iljin Electric Co. Ltd. 4. Total of (ii) & (iii) INR 5,68,12,549 USD 12,59,445 & INR ` 5,68,12,549 USD one million two hundred fifty nine thousand four hundred 5. Total payable forty five only And Rupees five crore sixty eight lakh twelve thousand five hundred forty nine only 21. Schedule 1(A) specified goods / equipment to be supplied from abroad; Schedule 1(B) specified goods / equipments to be supplied from employer s country (India); Schedule 1(C) lays down structure of taxes; Schedule 1(D) provides for inland transportation, insurance and other incidental charges. grand summary of price schedule incorporated in contract is as under: Item Description Total Cost (`) $ 1,259,445 = INR 1A Supply from abroad 55,554,119 Supply from within 1B INR 29,984,210 employer s country 1C Structure of taxes INR 19,845,316 Inland transportation, insurance 1D INR 5,871,941 and other incidental charges Agent Commission on CIF INR 1,111,082 INR 112,366,668 (Rupees Eleven Crore Twenty Total: Three Lakh Sixty Six Thousand Six Hundred Sixty Eight only) 22. Thus, on going through clauses of bid documents as well as contract, it is very much clear that though only one contract was executed between parties, however, scope of work to be 33 Iljin Electric Co. Ltd. undertaken by contractor have been distinctly and separately earmarked and provided. As could be seen from clause 12.1 of IFB, it requires bidder to separately mention bid currency in respect of plant and equipment to be supplied from abroad. On reading of clause 12.1 (a & b), it is evident, as per IFB, price for plant and equipment to be supplied from abroad is to be quoted entirely in foreign currency, whereas, price for plant and machinery to be supplied within employer s country should be quoted in currency of employer s country,i.e., in rupee terms. Thus, reading of bid document itself indicates that employer / contractee wanted contract to be knocked down to different compartments / parts. Further, Schedule 1(A) and 1(B) of contract clearly identifies nature and scope of off shore supplies and on shore supplies and service and price to be paid. Thus, reading of IFB as well as contract as whole makes it clear that, though, contract document is one but scope of work envisaged therein are distinct and separate which is evident from price schedules under contract. Further, as far as off shore suppliers are concerned, Clause 31 of Contract speaks of transfer of ownership of plant and equipment. As per clause 31.1 ownership of plant and equipment including spare parts to be imported into country where site is located shall be transferred to employer upon loading onto 34 Iljin Electric Co. Ltd. mode of transport to be used to convey plant and equipment from country of origin to India. Clause 31.5 provides, notwithstanding transfer of ownership of plant and equipment contractor shall be responsible for care and custody together with risk or loss or damage thereto until completion of facilities or part thereof in which such plant and equipments are incorporated. On perusal of invoice raised towards off shore supplies, copies of which are submitted in paper book, we find that sales were effected directly by company from Seol, Korea, or some other foreign destinations to employer MRVC and goods were transported to India. It is also evident that price charged in invoice is in dollar. Thus, as could be seen, in terms of clause 31.1 of contract, ownership over plant and equipments got transferred to name of MRVC once plant and equipments were loaded on mode of transport from country of origin to India. It is also not disputed that payment for off- shore supplies were made outside India. On reading of IFB and contract as whole it appears that from very beginning, intention of parties to contract is to treat off shore supplies as distinct and separate component of contract. It is not disputed that in pursuance to contract, assessee has supplied goods not only from Korea but other countries to India. issue before us is whether price received towards supply of plant and 35 Iljin Electric Co. Ltd. equipments from abroad is taxable in India by virtue of business connection through its P.E. It is case of Department that as assessee is executing turnkey project and contract is composite one and since work of laying, testing and commissioning is executed through P.E. in India, assessee has territorial and economic nexus with India, therefore, profit arising out of off shore supply of plant and equipment should be deemed to accrue or arise in India in terms of section 9(1)(i) of Act. aforesaid argument of Department has to be examined in light of relevant statutory provisions, provisions of India-Korea DTAA as well as judicial precedents cited before us. 23. At this stage, we may analyse certain provisions of Income Tax Act, 1961. Section 5 speaks of scope of total income. As per sub section (2) of section 5, in case of non resident, any income received or deemed to be received in India on behalf of such person or any income which accrues or arise or is deemed to accrue or arise to him in India during such year shall be included in total income of relevant previous year. However, Explanation 1 to said section clarifies that income accruing or arising outside India shall not be included within scope of total income only for reason that it is taken into account in Balance Sheet prepared in India. Thus, sub 36 Iljin Electric Co. Ltd. section (2) of section 5 r/w Explanation 1 makes it clear that income accruing or arising outside India will not come within purview of total income as per section 5. 24. Section 9(1) speaks of income deemed to accrue or arise in India. As per sub clause (i) of section 9(1), income is deemed to accrue or arise whether directly or indirectly, through or from any business connection in India or through or from any property in India or through or from any aspect or source of income in India or through transfer of capital asset situated in India. However, Explanation 1(a) to section 9(1)(i) carves out exception to effect that in case of business of which all operations are not carried out in India, income of business deemed to accrue or arise in India shall be only such part of income as is reasonably attributable to operations carried out in India. Explanation 2 to section 9(1)(i) defines business connection . As per said provision, business connection shall include any business activities carried out through person who acted on behalf of non resident performing following acts: (a) has and habitually exercises in India, authority to conclude contracts on behalf of non-resident, unless his activities are limited to purchase of goods or merchandise for non- resident; or (b) has no such authority, but habitually maintains in India stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of non-resident; or 37 Iljin Electric Co. Ltd. (c) habitually secures orders in India, mainly or wholly for non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to same common control, as that non-resident: 25. Thus, legal position which can be deduced from reading of aforesaid statutory provisions are, in case of non-resident, firstly any income accruing or arising outside India will not come within purview of total income in terms of section 5(2) and secondly, as per section 9(1)(i) r/w Explanation 1, income shall be deemed to accrue or arise in India through or from any business connection in India and in case where all operations are not carried out in India, only such part of income as is reasonably attributable to operations carried out in India can be deemed to accrue or arise in India. Keeping in view aforesaid statutory provisions, if we examine facts of assessee s case, it would be seen that though contract entered with MRVC by assessee is single contract, however, scope of work to be undertaken by assessee have been well defined and demarcated to specific components, such as, supply of plant and equipment from abroad, supply of plant/ equipments within India and service to be rendered in India with regard to laying, testing, commissioning, etc. It is further evident, price schedule for each work has also been separately provided in contract. In fact, IFB itself has made it clear that bidder not 38 Iljin Electric Co. Ltd. only should give break down of price while bidding for work, but, clause 11.3 of IFB specifies mode and manner of providing price for different components of work. As per IFB, in Schedule 1, bidder has to provide price for plant and equipment including mandatory spare parts supplied from abroad, in Schedule 2 should contain price for plant and equipment including mandatory spare parts supplied from within employer s country (India). Schedule 3 should contain price for local transportation. Schedule 4 is for price for installation, service and in Schedule 5, bidder has to provide grand summary of price quoted in Schedule 1 to 4. In addition, clause 12.1 of IFB also requires bidder to quote price for supplies to be made from abroad in foreign currency, whereas, price to be quoted for goods to be supplied within India is to be quoted in Indian currency. It is relevant to mention that breakdown of price as per schedules provided in IFB were also incorporated in contract executed between parties and as far as off shore supplies are concerned, payment is to be made in U.S. dollar. Further, clause 31.1 provides that transfer of ownership of goods to be supplied from abroad would take place as soon as goods are loaded onto mode of transportation. sale invoices raised also demonstrate that sale was effected in country of origin where goods were manufactured i.e., in Korea or some other countries like Switzerland, 39 Iljin Electric Co. Ltd. etc. Thus, reading of IFB as well as contract as whole clearly demonstrate that work entrusted under contract is divisible and is divided into several components and intention of parties to contract always has been to segregated off shore supplies of plant and equipments from on shore supplies and services. In other words, intention of parties to contract was to treat off shore supplies of plant and equipment as distinct and separate component of work having no connection with on shore supply and services. Thus, if we examine these facts vis- -vis provisions contained under section 5(2) and 9(1)(i), firstly, it cannot come within scope of total income under section 51(2) of Act as sale relating to off shore supply were not only completed outside India with transfer of ownership over goods but payments were also received outside India. Secondly, income cannot be deemed to accrue or arise in India through or from any business connection in India in terms of section 9(1)((i) because income relating to off shore supplies cannot be attributable to operations carried out in India. Admittedly, off shore supplies were made outside territorial jurisdiction of India and also transfer of ownership over goods was also outside territorial jurisdiction of India. Moreover, income relating to off shore supply cannot be considered to be through any business connection in India because 40 Iljin Electric Co. Ltd. none of conditions of Explanation 2 to section 9(1)(i) are fulfilled. Undisputedly, project office (P.E) of assessee came into existence only after formalization of contract between assessee and MRVC. Therefore, P.E. had no role to play either in obtaining contract or off shore supply of goods made by assessee. Insertion of explanation 4 to section 9(1)(i) by Finance Act, 2012, in our view, will not improve situation for department, for following reasons. Explanation 1(a) of section 9(1)(i) makes it clear, only that part of income which can reasonably be attributable to operations carried out in India will be deemed to accrue or arise in India. As per explanation 4 of section 9(1)(i) word through shall mean by means of , in consequence of or by reason of . Thus, if explanation 4 is read alongwith section 9(1)(i) it would mean, income would deem to accrue or arise in India if it is by means of or by reason of or in consequence of business connection in India. If facts of assessee s case is examined in terms of explanation 2 to section 9(1)(i), income derived from off-shore supply cannot be held to be through any business connection in India, hence, cannot be deemed to accrue or arise in India as per section 9(1)(i) of Act. Moreover, though, explanation 4 to section 9(1)(i) existed in statute when Assessing Officer and DRP passed their orders, none of them referred to said provision. Therefore, at this stage Ld. 41 Iljin Electric Co. Ltd. Departmental Representative cannot build up new case. Since we have held that income derived from off-shore supplies is not taxable under provisions of Act, there is no need to examine applicability of Double Taxation Avoidance Agreement. However, for sake of completeness we also intend to examine aspect of taxability of off-shore supply under provisions of India-Korea Double Taxation Avoidance Agreement. Article-7 of treaty which provides for taxability of business profits reads as under:- ARTICLE-7 BUSINESS PROFITS 1.The profits of enterprise of Contracting State shall be taxable only in that State unless enterprise carries on business in other Contracting state through permanent establishment situated therein. If enterprise carries on business as aforesaid profits of enterprise may be taxed in other State but only so much of them as is attributable to that permanent establishment. 2. Subject to provisions of paragraph (3), where enterprise of Contracting State carries on business in other Contracting State through permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment profits which it might be expected to make if it were distinct and separate enterprise engaged in same or similar activities under same or similar conditions and dealing wholly independently with enterprise of which it is permanent establishment. 3. In determination of profits of permanent establishment, there shall be allowed as deductions expenses which are incurred for purposes of permanent establishment including executive and general administrative expenses so incurred 'whether in State in which permanent establishment is situated or elsewhere, which are allowed under provisions of domestic law of Contracting State in which permanent establishment is situated. 4. No profits shall be attributed to permanent establishment by reason of mere purchase by that permanent establishment of goods or merchandise for enterprise; 42 Iljin Electric Co. Ltd. 5. For purposes of preceding paragraphs, profits to be attributed to permanent establishment shall be determined by same method year by year unless there is good and sufficient reason to contrary. 6. Where income or profits include items of income which are dealt with separately in other articles of this Convention, then provisions of those articles shall not be affected by provisions of this article. On plain reading of Article 7(1) of treaty it is clear, only that part of profit which is attributable to PE is taxable in India. In facts of present case, we have held that assessee s PE in India has no connection with off-shore supplies made by head office. Therefore, profits derived from off-shore supply cannot be attributed to PE. It is also pertinent to mention, expression directly or indirectly has not been used in Article -7 of treaty, as Ld. Departmental Representative would want us to believe. As far as contention of Ld. Departmental Representative that by virture of force of attraction rule income attributable to off-shore supply is taxable in India, we need to observe, Ld. Departmental Representative has not demonstrated how it is applicable to facts of present case. Suffice to say, off-shore supply being direct sale transaction between head office and employer on principal to principal basis and PE having no role to play, force of attraction rule, even assuming that it exists in treaty, cannot extend to activities carried out outside India and having no economic nexus with PE in India. Therefore, in our considered opinion, income derived from off- 43 Iljin Electric Co. Ltd. shore supply will not be taxable in India even under treaty. Having held so, we consider it appropriate now to analyse ratio laid down in certain judicial precedents which have direct bearing on issue. 26. In Ishikawajima Harima Heavy Industries (supra), Hon'ble Supreme Court was seized with identical facts and situation relating to off shore supply of goods in pursuance to contract for execution of turnkey project in India. 27. In case before Hon'ble Supreme Court, Japanese company by forming consortium entered into agreement with Petronet NLG Ltd., for setting up liquefied natural gas receiving storage and degasification at Dahej, Gujarat. scope of contract involved off shore supply, off shore service, on shore supply and on- shore service. As far as off-shore supply and off-shore service are concerned, payments are to be made in U.S. dollar, whereas ,for on shore supply and on shore service and construction and erection, payment is to be made partly in U.S. dollar and partly in Indian rupee. As far as on shore supply and on shore service, construction and erection are concerned, assessee accepted its liability under income tax Act, however, as far as payment received towards off shore supply and off shore service, dispute arose between 44 Iljin Electric Co. Ltd. assessee and Department in relation to its taxability under Income Tax Act. While assessee claimed that amount received towards 0ff shore supply and off shore service being outside territorial jurisdiction of India is not taxable under Income Tax Act, however, Department was of view that as assessee was having P.E. in India, it has business connection and, therefore, amount received towards off shore supplies and off shore services will also be taxable under Act. While doing so, Department held that contract executed between parties is composite contract and off shore supply and 0ff shore services are inextricably linked to other activities since it is turnkey project and contract is not divisible. Hon'ble Supreme Court observed, even if particular contact is fashioned as turnkey contract or turnkey project, they are not of much significance. Merely, for reason that it is turnkey contract, it would not mean that for purpose of taxability, entire contract must be considered to be integrated one so as to make assessee pay tax in India. Court observed, taxable event in execution of contract may arise at several stages in several years. liability of parties may also arise at several stages. obligations under contracts are distinct one. supply obligation is distinct and separate from service obligation. price for each of components of contract is separately being 45 Iljin Electric Co. Ltd. dealt with. price in each of scheme is also different. Court observed, very fact that in contract, supply segments and service segment have been specified in different parts is pointer to show that liability of assessee would also be different. Court after analyzing scope of work as contained in contract, observed, imposition of tax on income arising from business connection, have to be considered keeping in view scope and intent of contract. Hon'ble Supreme Court observed territorial nexus doctrine plays important part in assessment of tax, therefore, issue to be decided is, as to whether income arising out of particular transaction would be required to be apportioned to each of territories wherein operations were carried out. Court observed, income arising of operations in more than one jurisdiction would have territorial nexus with each of jurisdiction on actual basis. In that case, it will not be correct to contend that entire income accrues or arise in each of jurisdiction. Hon'ble Supreme Court, after analysing terms of contract vis-a-vis provisions contained under section 9 of Act, as well as relevant articles of DTAA observed, where payments for off shore and on shore supply of goods and services is clearly demarcated, it cannot be held to be composite contract. Hon'ble Supreme Court held, contract must be construed keeping in view 46 Iljin Electric Co. Ltd. intention of parties. Though, applicability of tax would depend upon nature of contract but same should not be construed keeping in view taxing provisions. Hon'ble Supreme Court referring to Klaus Vogel on double taxation conventions observed that distinction between existence of business connection and income accruing or arising out of such business connection is clear and explicit. Where P.E. is not involved in disputed transaction, in any way, P.E. would be excluded from being part of cause of income itself, hence, there would be no business connection. Court observed, when off shore supply and services were rendered outside India and P.E. has no role to play in respect of earning of income thereto, income arising therefrom cannot be attributable to P.E. so as to bring it within charge of tax. For attracting taxing statute, there has to be some activities of P.E. Even under DTAA, tax liability in respect of overseas transaction would not arise in India, in view of specific provisions of section 9, as said provision has direct territorial nexus. Hon ble Court observed, relief under DTAA having regard to provisions contained under section 90(2) of Act, would arise only in event taxable income of assessee arises in one contracting State on basis of accrual of income in another contracting State on basis of residence. However, insofar as 47 Iljin Electric Co. Ltd. accrual of income in India is concerned, taxability must be read in terms of section 4(2) r/w section 9 whereupon question of seeking assessment of such income in India on basis of DTAA would arise. Court held where different severable parts of composite contract are performed in different places, principle of apportionment can be applied to determine which fiscal jurisdiction can tax that particular part of transaction. Court observed, this principle helps to determine where territorial jurisdiction of particular state lies to determine its capacity to tax event. Applying it to composite transaction which has some operation in one territory and some in others is essential to determine taxability of various operations. Therefore, concept s of profit of business connection and P.E. cannot be mixed up. Whereas, business connection is relevant for purpose of application of provisions of section 9, concept of P.E. is relevant for assessing income of non resident under DTAA. Court observed, when entire transaction was completed on high seas, profit on sale will not arise in India, therefore, transaction itself having been excluded from scope of taxation of Act, application of DTAA would not arise. Finally Court as far as taxability of off shore supply under Act is concerned, summed up its conclusion as under: 79. We, therefore, hold as under: Re : Offshore Supply : 48 Iljin Electric Co. Ltd. (1) That only such part of income, as is attributable to operations carried out in India can be taxed in India. (2) Since all parts of transaction in question, i.e. transfer of property in goods as well as payment, were carried on outside Indian soil, transaction could not have been taxed in India. (3) principle of apportionment, wherein territorial jurisdiction of particular state determines its capacity to tax event, has to be followed. (4) fact that contract was signed in India is of no material consequence, since all activities in connection with offshore supply were outside India, and therefore cannot be deemed to accrue or arise in country. (5) There exists distinction between business connection and permanent establishment. As permanent establishment cannot be said to be involved in transaction, aforementioned provision will have no application. permanent establishment cannot be equated to business connection, since former is for purpose of assessment of income of non-resident under Double Taxation Avoidance Agreement, and latter is for application of section 9 of Income-tax Act. (6) Clause (a ) of Explanation 1 to section 9(1)(i) states that only such part of income as is attributable to operations carried out in India, are taxable in India. (7) existence of permanent establishment would not constitute sufficient 'business connection', and permanent establishment would be taxable entity. fiscal jurisdiction of country would not extend to taxing entire income attributable to permanent establishment. (8) There exists difference between existence of business connection and income accruing or arising out of such business connection. (9) Paragraph 6 of Protocol to DTAA is not applicable, because, for profits to be 'attributable directly or indirectly', permanent establishment must be involved in activity giving rise to profits. 28. If we apply principle laid down in aforesaid decision to facts of present case, it is observed that sales are effected 49 Iljin Electric Co. Ltd. outside India i.e., in Korea and transfer of title over goods was effected to employer outside territorial jurisdiction of India. This fact is not only proved from actual sale event but also clauses of contract. Further, P.E. has no role to play either in obtaining contract or in relation to off shore supplies. That being case, profits arising from off shore supplies is not taxable under provisions of Act if considered vis vis section 5(2) r/w Explanation 1(a) and section 9(1)(i) of Act. Therefore, question of applicability of DTAA does not arise. 29. In case of Xelo Pvt. Ltd. (supra), Hon'ble Jurisdictional High Court while examining similar nature of contract with Metro Rail involving off shore supplies and on shore supplies in relation to turnkey project, observing that terms of contract distinctly set out quantum of off shore supplies and quantum of payments for same, observed, if composite contract specifically records quantum of goods to be supplied from outside India and even payment is made outside India, income arising from off shore supplies cannot be held to be taxable in India. Court held, once it is held that amount is not taxable in India, question of applying DTAA would not arise. In this context, jurisdictional High Court followed decision rendered in case of Ishikawajima Harima Heavy Industries 50 Iljin Electric Co. Ltd. (supra). same view has also been expressed in following decisions: i) DIT v/s Toyo Engineering Corporation; ITA no.663/2011, 23.1.2013 ii) DIT v/s L.G. Global Ltd., 237 CTR 438; iii) National Petroleum Construction v/s DIT, 383 ITR 648; and iv) DIT v/s Siemens Akliongesellschaft, 310 ITR 320 (Bom.) 30. At this stage, it is necessary to deal with some of propositions advanced by learned Departmental Representative. 31. Learned Departmental Representative observed, in terms of provisions of section 5(2) r/w section 9 of Act, source rule applies as per which if there is economic or territorial nexus with income received by non resident outside India, it is deemed to accrue or arise in India as per provisions of section 9 as well as DTAA. In this context, learned Departmental Representative has relied upon certain decisions. Hereinafter, we will briefly deal with decisions relied upon by learned Departmental Representative and their applicability to facts of case. 32. One of decision relied upon by Ld. Departmental Representative is in case of Orpak System Ltd. vs. ADIT (176 TTJ 655) On careful reading of said decision we find that it is factually distinguishable. Factual analysis of order indicate that 51 Iljin Electric Co. Ltd. separate bills raised by assessee in dollar terms for supply of equipments and in rupee terms for work relating to installation was to suit its convenience and was not contemplated by HPCL (contractee / employer). However, in present case, it is very much evident from IFB that it is employer which wanted bidders to quote their price for off shore supply and on shore supply separately in foreign currency and rupee terms respectively. Further, Tribunal in Orpak Systems Ltd. (supra) has followed decision of Ansaldo Energia SPA (supra) while coming to its conclusion. On reading of aforesaid decision of Hon ble Madras High Court, we find it was decided on peculiar facts arising in that case. In case of Ansaldo Energia SPA (supra), it was single bidder and employer never intended to segregate bid price, however, at instance of contractor, bid amount was broken up which is not case with assessee. On contrary, facts in assessee s case are more or less identical to facts arising in case of Ishikawajima Harima Heavy Industries (supra) Hon'ble Delhi High Court in L.G. Global Ltd. (supra), Tribunal, Delhi Bench in Techchnip Italy SPA v/s ACIT, 136 TTJ 403 (Del.) and AAR in case of L.G. Global Ltd., 337 ITR 35, have held that decision in Ansaldo Energia SPA (supra) is peculiar to its facts and cannot be applied in all cases. On reading of decision rendered in case of Roxar 52 Iljin Electric Co. Ltd. Maximum Reservoir Performance WLL (supra) it is noticed that heavy reliance has been placed on proposition laid down in case of Vodafone International Holdings B.V vs. UOI (2012) 341 ITR 1, that look at approach instead up look through approach has to be taken. However, in facts of present case there is no need to adopt such approach as IFB as well as contract document make intention of parties clear that offshore supplies were to be kept as distinct and separate transaction and not to be included with on source supply and services. When terms of contract are specific there is no need to adopt look at or look through approach. Moreover, in case of Linde AG, Linde Engineering Division vs. DDIT(2014) 44 taxmann.com,244, Hon ble Delhi High Court relying upon decision of Ishikawajima Harima Heavy Industries (supra) held as under:- 84.In our view, approach as well as conclusion of Authority is flawed. First of all, Authority erred in proceeding on basis that contract as whole was subject of taxation. subject matter of taxation was not Contract between parties but income that petitioner derived from Contract. Thus, situs of object of Contract would not be as relevant as determining situs where income of Linde had accrued or arisen. By virtue of Section 4 of Act, income tax is charged in respect of total income of person. By virtue of Section 5 of Act, scope of total income of non-resident is limited to income which is received or deemed to be received in India and income which accrues or is deemed to accrue or arise in India. It, therefore, follows that object of inquiry would have to be to determine whether any income of Linde accrued or arose in India or whether any income could be deemed to accrue or arise in India. fact that 53 Iljin Electric Co. Ltd. contractual obligations of Linda were not limited to merely supplying equipment, but were for due performance of entire Contract, would not necessarily imply that entire income which was relatable to Contract could be deemed to accrue or arise in India. 85. principle of apportionment of income on basis of territorial nexus is now well accepted. Explanation 1(a) to section 9(1)(i) of Act also specifies that only part of income which is attributable to operations in India would be deemed to accrue or arise in India. It necessarily follows that in cases where contract entails only part of operations to be carried on in India, assessee would not be liable for part of income that arises from operations conducted outside India. In such case, income from venture would have to be appropriately apportioned. Supreme Court in case of Ishikawajima Harima Heavy Industries (supra) had considered this aspect and held that merely because project is turnkey project would not necessarily imply that for purposes of taxability, entire contract be considered as integrated one. taxable income in execution of contract may arise at several stages and same would have to be considered on anvil of territorial nexus. decision in case of Ishikawajima Harima Heavy Industries (supra) is clearly applicable to facts of present case as in that case also contract in question was for turnkey project where object was to setup Liquefied Natural Gas(LNG) receiving, storage and degasification facility. Indisputably, insofar as obligations of parties are concerned, this contract was also indivisible contract. Supreme Court held that for purposes of determining taxability, it was necessary to enquire as to where income sought to be taxed had accrued or arisen. impugned ruling is thus clearly contrary to decision of Supreme Court in Ishikawajima Harima Heavy Industries (supra). Hon ble Court while considering plea of look at vs. look through approach referred to decision of Hon ble Supreme Court in case of Vodafone International Holdings B.V.(supra) and observed as under:- 54 Iljin Electric Co. Ltd. 86. reference of Authority to decision of Supreme Court in case of Vodafone International Holdings B. V.(supra) is also not apposite. In that case, Supreme Court was considering matter which, inter alia, involved transfer of capital asset outside India which was sought to be taxed by Income Tax Authorities under Section 9(1)(1) of Act. subject matter of controversy was transaction of sale and purchase of share of overseas company (capital asset). This capital asset was sold by non-resident non-resident company to another non-resident company. Revenue contended that capital gain arising from this transaction was exigible to tax under Act by virtue of Section 9(1)(i) of Act as transaction also implied transfer of control and assets of Indian subsidiary of overseas company, whose share had been sold and purchased. Supreme Court observed that last sub-clause of Section 9(1)(i) of Act referred to income arising from "transfer of capital asset in India". Court further explained that Section 9(1) of Act created legal fiction which had limited scope and could not be expanded. Accordingly, transfer of capital asset situated outside India could n t be taxed by virtue of Section 9(1)(i) of Act, expression "look through had been used by Supreme Court in this context. relevant extract of judgment is as under:- "90. We have to give effect to language of section when it is unambiguous and admits of no doubt regarding its interpretation, particularly when legal fiction is embedded in that section. legal fiction has limited scope. legal fiction cannot be expanded by giving purposive interpretation particularly if result of such interpretation is to transform concept of chargeability which is also there in Section 9(1)(i), particularly when one reads Section 9(1)(i) with Section 5(2)(b) of Act. What is contended on behalf of Revenue is that under Section 9(1)(i) it can "look through" transfer of shares in Indian company holding shares in Indian company and treat transfer of shares of foreign company as equivalent to transfer of shares of Indian company on premise that Section 9(1)(i) covers direct and indirect transfers of capital assets. 55 Iljin Electric Co. Ltd. 91.For above reason, Section 9(1)(i) cannot by process of interpretation be extended to cover indirect transfers of capital assets/property situate in India. To do so, would amount to changing content and ambit of Section 9(1)(i). 87. In present case also, Linde has contended that it being nonresident is not liable to pay tax in India and sweep of Section 9(1) of Act cannot be extended to income whch has not accrued or arisen in India. 88. Supreme Court also reiterated "look at principle as was enunciated in W.T.Ramsay Ltd. V. IRC[1981] 1All ER 865 (HL). That matter related to combination of transactions where gains in one transaction were sought to be counteracted by another, so as to avoid tax. set of transactions was designed to create artificial loss in one transaction which was counteracted by gain in another. House of Lords' dismissed appeal of tax payer by holding that Courts would "look at" entire combination of transactions. It was held that Revenue or Courts were not limited to consider genuineness or otherwise of each individual transaction in scheme but could consider scheme as whole. contentions being considered by Supreme Court in Vodafone International Holdings B. V.'s case (supra) as well as House of Lords' in W. T. Ramsay Ltd. (supra) were in respect of schemes which were contended to be or purposes avoiding tax. Supreme Court held that "look at" principle must be applied to see transaction as it existed and piercing Corporate Veil was not necessary where transaction were genuine and had commercial substance. In present case, there is no controversy which involves lifting of corporate veil or "looking at" any scheme to find whether transaction is sham or has any substance. Both Revenue and Linde are accepting Contract as it stands and controversy only revolves around situs of income accruing or arising from contract. To our minds Authority as read principles applied by Supreme Court in Vodafone International Holdings B.V'S. case (supra) completely out of context. Thus, as could be seen from aforesaid decision of Hon ble Delhi High Court, principle laid down in case of Ishikawajima Harima Heavy 56 Iljin Electric Co. Ltd. Industries (supra) has not been diluted by decision of Vodafone International Holdings & BV (supra) and still continues to be good law. same view was again expressed by Hon ble Delhi High Court in case of DIT vs. Nokia NetworksOY( 358 ITR 259). decision of Sedco Forex International (supra) relied upon by learned Departmental Representative is also not applicable due to difference in facts. As far as decision in case of Verizon Communications Singapore Pte. Ltd., v/s ITO, (361 ITR 575) (Mad.) is concerned in that case decision of Ishikawajima Harima Heavy Industries (supra) was referred to in context of taxability of offshore services and explanation to section 9(2). Moreover it pertains to taxability of royalty in terms of section 9(1)(vi) hence factually different from assessee s case. Further in case of DDIT v/s New Skies Satellite, B.V., 382 ITR 114, Hon ble Delhi High Court while considering law propounded in case of Verizon Communications Singapore Pte. Ltd. (supra) observed it did not cite reason for extension of amendments to double taxation avoidance agreement. Hon ble Delhi High Court went on to observe no amendment to act, whether retrospective are prospective, can be read in manner so as to extend its operation to terms of international treaty. Hon ble Court observed declaratory amendment, much less one, which may seek to overcome unwelcome judicial interpretation of 57 Iljin Electric Co. Ltd. law cannot be allowed to have same retroactive effect on international instrument effected between two sovereign states prior to such amendment. Hon ble Court observed employing interpretive amendments in domestic law as means to imply contoured effects in enforcement of treaties falls just short of breach but is never less indefensible. In view of aforesaid observations of Hon ble Delhi High Court we are of opinion that this decision will not be applicable. other decisions cited by learned Departmental Representative for same reason are not applicable, hence, we did not felt need to discuss them individually. 33. contention of learned Departmental Representative that CBDT instruction no. 1829 has been withdrawn will not have much relevance on issue. 34. As far as allegation of departmental representative that contract is heavily skewed in favour of offshore supply, same is found to be factually incorrect. On perusal of contract document we have found that out of total contract price of ` 11,23,66,668, quantum of offshore supplies is ` 5,55,54,119. Therefore it cannot be said that offshore supplies are skewed. Having analysed facts of case in context of decisions relied upon we are of considered view that assessee s case is more or less similar to 58 Iljin Electric Co. Ltd. facts involved in case of Ishikawa Jima Harima Heavy Industries Ltd.(supra) hence, principles laid down therein would squarely apply to assessee s case. Therefore applying ratio laid down therein we hold that amount received towards offshore supply is not taxable in India. As far as contract with DMRC is concerned it is evident from observations of departmental authorities that nature of contract is similar to MRVC. Therefore our aforesaid observations will equally apply to offshore supplies made by assessee in relation to this contract also. In aforesaid view of matter we hold that amount received by assessee in respect of offshore supplies would not be taxable in India. Ground no.1, is allowed. 35. In ground no.2, assessee has challenged estimation of income on presumptive basis on total revenue earned including off shore supplies. 36. As is evident on record, assessee had filed its return of income for impugned assessment year offering income received towards on shore supplies and services. However, while completing assessment, Assessing Officer has not only included revenue earned from off shore supplies as taxable in India, but he taxed entire income derived by assessee both from on shore 59 Iljin Electric Co. Ltd. supply and service as well as off shore supplies on presumptive basis by applying rate of 10% in terms of section 44BB and 44BBB. Though, assessee had challenged estimation of profit at 10% of total contract receipt, however, DRP upheld order of Assessing Officer. 37. Learned Authorised Representative has submitted before us that firstly; off shore supplies cannot be included for estimating profit and secondly; estimation of income on presumptive basis @ 10% is not applicable as provisions of section 44BB and 44BBB are industry specific and cannot be applied to nature of contract executed by assessee. learned Authorised Representative further submitted, rates prescribed under sections 44B, 44BB, 44BBB, vary from 5% to 10%. Therefore, computing profit at 10% is not justified. 38. learned Departmental Representative, however, supporting order of Assessing Officer and DRP submitted, estimation of profit @ 10% is reasonable. 39. We have considered submissions of parties and perused material available on record. As far as quantum of income is concerned, while deciding ground no.1, we have held that off shore supplies are not taxable in India. That being case, it has to be 60 Iljin Electric Co. Ltd. excluded from contract receipt for computing income of assessee. As far as applicability of section 44BB/44BBB are concerned, on careful reading of these provisions, we have found that while section 44BB is applicable to business of exploration of mineral oil, section 44BBB is applicable to foreign companies engaged in business of civil construction, erection, testing, or commissioning in connection with turnkey power project approved by Central Government. Thus, estimation of income @ 10% on presumptive basis by applying aforesaid provisions is not proper. Moreover, Assessing Officer has not pointed out any specific defect in accounts of assessee. That being case, we direct Assessing Officer to compute income of assessee from revenue earned on account of on shore supply and on shore services after verifying accounts of assessee and examining genuineness of expenditure claimed. ground no.2, is allowed for statistical purposes. 40. In ground no.3, assessee has challenged levy of interest under section 234B. 41. While objecting to levy of interest under section 234B of Act before DRP, assessee had submitted that such interest cannot be levied against non resident as obligation to deduct tax is on 61 Iljin Electric Co. Ltd. payer. However, DRP did not accept contention of assessee and sustained levy of interest. 42. Learned Authorised Representative reiterating stand taken before Departmental Authorities submitted, interest under section 234B cannot be levied on non resident company as obligation to deduct tax on payer at time of making payment to non resident entity is absolute. For such proposition, learned Authorised Representative relied upon following decisions: i) NGC Network Asia LLC, 222 CTR 85; ii) G.E. Package Power Inc., 373 ITR 65; iii) DIT v/s Xelo Pty Ltd., 203 taxmann.com 475; and iv) Satellite TV Asia Region Ltd. v/s DDIT, 117 TTJ 249 (Mum.). 43. learned Departmental Representative on other hand justified levy of interest by relying upon decision of Hon'ble Delhi High Court in DIT v/s Alcatel Lucent USA Inc., 264 CTR 240 (Del.). 44. We have considered submissions of parties and perused material available on record. Hon'ble Jurisdictional High Court in NGC Network Asia LLC (supra), have clearly held that in case of non resident company, no interest can be levied for non payment of advance tax because duty is cast on payer to deduct tax at source. Following aforesaid decision, Hon'ble Jurisdictional High 62 Iljin Electric Co. Ltd. Court in Xelo Pty Ltd. (supra) expressed similar view. Tribunal, Mumbai Bench, in Satellite TV Asia Region Ltd. (supra) after taking into account decision of Hon'ble Delhi High Court in Alcatel Lucent USA Inc. (supra) observed, primary liability of deducting tax was that of payer. Hence, no interest is leviable on assessee under section 234B for failure to pay advance tax. Therefore, in principle, we agree with assessee that levy of interest under section 234B is not proper. This ground is allowed. 45. Ground no.4 was not pressed by assessee, hence, this ground is dismissed. 46. Ground no.5, is general in nature, hence, no specific adjudication is required. 47. In result, appeal for A.Y. 2011 12 is partly allowed. ITA no.5642/Mum./2015 A.Y. 2012 13 48. In this appeal, assessee has raised following grounds: appellant objects to order dated 26 November 2015 passed by Deputy Commissioner of Income Tax (International Taxation)-(2)(2)(1), Mumbai ('the AO') for assessment year 201213, pursuant to directions dated 30 September 2015 issued by Dispute Resolution Panel ('DRP') under section 144C(5) of Income-tax Act, 1961 ('the Act') on following among other grounds. Ground No. 1: Income in relation to offshore supply is not taxable in India. 63 Iljin Electric Co. Ltd. 1.1 learned AO / DRP erred in law and in facts in seeking to tax in India, sum of Rs. 3,23,18,384 for year under consideration, as against loss of Rs. 1,25,79.964 declared by appellant in its return of income. 1.2 learned AO I DRP erred in law and in facts in considering revenue from Offshore Supplies for purpose of computing appellant's income taxable in India, without appreciating that income therefrom is not taxable in India both as per Act as well as Double Taxation Avoidance Agreement between India and Korea. Ground No. 2: Income, if any, should be taxable only to extent it can be attributed to operations in India. 2.1 Without prejudice, learned AO I DRP erred in treating profit from Offshore Supplies (arrived at on presumed basis of 10% of revenue from Offshore Supplies) as taxable in India without undertaking attribution thereof to Permanent Establishment / alleged business connection in India. 2.2 learned AO I DRP erred in disregarding submissions made and grounds of( objections raised by appellant. Ground No. 3: Disallowance of expenditure in relation to contract with Transmission Corporation in India. 3.1 learned AO 8 DRP erred in law and facts in disallowing in year under consideration, expenses of Rs.2,20,05,206 incurred by Project Office in relation to Onshore Supplies and Onshore Services for Contract entered into with Transmission Corporation of Andhra Pradesh Limited. Ground no.4: Levy of interest under section 234B of Act: 4.1 learned A.O. has erred in law and in fact, in levying interest under section 234B of Act disregarding fact that appellant is non resident whose income is subject to tax deduction at source (which is supported by lower withholding tax certificates issued by tax authorities in its case. 49. Ground no.1, relates to taxability of receipt from off shore supplies. 64 Iljin Electric Co. Ltd. 50. issue arising out of above ground is identical to issue raised by assessee in its appeal being ITA no.1023/Mum./2015, vide ground no.1, decided in Para no.18 to 35 of this order. Consistent with view taken therein, we allow ground no.1. 51. Ground no.2 relates to estimation of profit @ 10% on total contract receipt. 52. issue arising out of above ground is also identical to issue raised by assessee in its appeal being ITA no.1023/Mum/ 2015, vide ground no.2, decided in Para no.40 of this order. Consistent with view taken therein, we set aside impugned order on this issue and restore matter back to file of Assessing Officer with similar direction. Thus, ground no.2 is allowed for statistical purposes. 53. Learned Counsel for assessee does not want to press ground no.3. Hence, this ground is dismissed as not pressed . 54. Ground no.4, relates to levy of interest under section 234B. 55. issue arising out of above ground is also identical to issue raised by assessee in its appeal being ITA no.1023/Mum/ 2015, vide ground no.3, decided in Para no.45 of this order. Consistent with view taken therein, we allow ground no.4. 65 Iljin Electric Co. Ltd. 56. Ground no.5, is general in nature, hence, no separate adjudication is required. 57. In result, appeal for A.Y. 2012 13 is partly allowed. 58. To sum up, both appeals are partly allowed. Order pronounced in open Court on 14.10.2016 Sd/- Sd/- JASON P. BOAZ SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 14.10.2016 Copy of order forwarded to: (1) Assessee; (2) Revenue; (3) CIT(A); (4) CIT, Mumbai City concerned; (5) DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary (Dy./Asstt. Registrar) ITAT, Mumbai ILJIN Electric Co. Ltd. v. Dy. Commissioner of Income-tax (I.T), Circle2(2)(1), Mumbai
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