TII Instant Update - 2017-TII-INSTANT-ALL-472

2017-TII-39-HC-DEL-INTL

CIT Vs LS CABLE AND SYSTEMS LTD: DELHI HIGH COURT (Dated: July 26, 2017)

Income tax - overseas supplies - composite contract

The Revenue preferred the present petition challenging the order, whereby the Authority for Advance Ruling had held that income from overseas supplies under the contract would not be income taxable in India.

On appeal, the HC held that,

Whether income from offshore supply contract could be brought to tax in India - NO: HC

+ this Court finds that the question posed by the Assessee before the AAR was confined even in the present cases to off-shore supplies. The question posed for an answer by the AAR reads as: "....whether the amounts received/ receivable by LSCSL from lndu Project Limited for Offshore supply of Equipments & Materials etc. under offshore supply contract for design, manufacture, supply of 220, 132 kV XLPE insulated UG Cable and accessories against Hyderabad project was liable to tax in India under the provisions of Income-tax Act, and/ or the DTAA between India and Korea?....";

+ it is seen that the same question, viz., whether the amount received by the Assessee pursuant to an offshore supply contract should be brought to tax in India arose in the earlier cases as well. Since clearly the Assessee was seeking an answer only to the issue concerning its offshore supplies, the mere fact that the contract in the present cases is a composite one will not make it different from the earlier cases decided by the AAR. Consequently, the Court finds no error having been committed by the AAR in following its earlier decisions which have been confirmed by this Court.

Revenue's petition dismissed

2017-TII-55-HC-DEL-TP

BECHTEL INDIA PVT LTD Vs DCIT: DELHI HIGH COURT (Dated: July 25, 2017)

Income tax - ALP - captive service provider - engineering design support services - overseas turnkey project execution - selection of comparables

The Assessee is a wholly owned subsidiary of Bechtel Corporation, USA and its services include construction and construction management; development and financing of projects and customers internationally; engineering and technology; procurement; project management; safety; and sustainability development. During the AY under consideration, the Assessee, as a captive service provider, was engaged in the business of providing Engineering Design Support Services in the nature of export of customised electronic data in the form of designs, drawings, calculations and other relevant datasheet relating to Project Engineering and Commercial Solutions for power plants, refineries, petrochemical plants etc. In addition, the Assessee also provided Informational Technology Infrastructure Support Services and Financial Accounting Support Services to its AEs to support the overseas offices' turnkey project execution. The Assessee filed its return after adjusting a book profit u/s 115JB and subsequently filed a revised return declaring an income of Rs.21,99,19,228/-. The Assessee submitted a TP study as well as Form 3CEB listing out the nature of the international transactions undertaken by it, the value thereof, the most appropriate method, PLI and the ALP results. The TPO however discarded the approach followed in the TP study and proposed an adjustment of an amount of Rs. 25,22,91,427 attributable to the difference in the ALP of the international transactions entered by the Assessee with its AEs. Thereafter, the TPO suo moto rectified the adjustment made in the EDS segment and enhanced it to Rs. 29,64,46,099/-. An upward revision of the ALP in the EDS, FAS and IT Infra segments, as well as interest on outstanding receivables, was also made by the TPO. The AO thereafter passed a draft assessment order proposing to add the aforementioned amounts as recommended by the TPO to the total income of the Assessee.

On appeal, the DRP re-characterized the functional profile of Assessee as being engaged in providing Engineering Procurement Construction and directed to exclude four companies from comparable set and include Arvind Accel Limited. The DRP re-characterized the functional profile of Assessee as a high end KPO and upheld the approach and the comparable set considered by TPO. Further, the DRP directed the TPO to be consistent in the allocation of overhead costs across segments and to follow revenue based allocation as done for EDS segment. On further appeal, as far as the EDS segment was concerned, the ITAT remanded the issue to the TPO for de novo consideration by observing that there were multiple changes in the comparable set from the TP study to different levels of assessment casting doubt on process of selection and retention of comparable relied upon by both the Assessee as well as the Revenue.

On appeal, the HC held that,

Whether it is more appropriate for the ITAT itself to re-determine the ALP upon fresh benchmarking of new comparables, rather than remanding the matter to TPO - YES: HC

+ according to the Assessee, the ITAT failed to adjudicate the claim of the Assessee by denying it the benefit of economic adjustment on account of difference in risk profile of the assessee in arriving at ALP. At the hearing of the present case, the Assessee was asked to file a chart explaining the approach of the TPO, DRP and the ITAT in respect of determination of ALP for each of the segments. The counsel for the Assessee has placed on record a detailed chart showing the approach of the TPO, the DRP and the ITAT. This chart prima facie shows that in the EDS Segment the ITAT had failed to give any finding with regard to the exclusion of five comparables-Global Procurement Consultant Ltd.; Mitcom Consultancy & Engineering Ltd.; Usha Hydrodynamics Ltd.; TCE Consulting Engineers Ltd. and IBI Chematur (Engineering and Consultancy) Ltd. Although, Revenue's counsel submitted that the facts relating to these comparables were not available on record which prompted the ITAT to remand the matter to the TPO, the Assessee's counsel denied this by pointing out the specific page numbers of the record where the said details were available;

+ the chart produced by the Assessee also indicates with regard to each of the segments as to the manner in which the ITAT failed to render a finding, even though, the facts were available on record before it. The Court does not propose to examine each of these issues since it is of the view that it would be more appropriate for the ITAT itself to decide the said issues without remanding the matter to the TPO. Consequently, the question framed by this Court is answered in the affirmative by holding that the ITAT ought not have remanded the matter to the TPO for the de novo determination of the ALP of the international transactions in the various segments. This exercise should be performed by the ITAT itself.

Case disposed of