Profits from Offshore Supply of Equipment and Services cannot be attributed to the Installation PE of the Assessee in India: ITAT [Read Order]

Recently, Kolkata Bench of Income Tax Appellate Tribunal (ITAT) in HITT Holland Institute of Traffic Technology B.V vs. DCIT, International Taxation, held that the consideration received from the offshore supply of equipment and services should not be added in the hands of assessee terming it as “Installation PE” in India.

The assessee, Holland Institute of Traffic Technology B.V, had entered into a consortium agreement which was awarded for the establishment of Vessel Traffic Station (VTS) System in the Gulf of Kuchch (GOK). Supply, installation, testing and commissioning of integrated automatic identification system base stations equipment with associated software is the primary responsibility of the assessee. The assessee had to set up a Project Office (P.O.) in India, as a part of the agreement. However, the P.O never became operational and was not involved in any activity pertaining to this project.

During the assessment year, the Assessing Officer (A.O) treated the P.O of the assessee as a Fixed Place PE in India and that the assessee also had an “installation PE” in India as per the India-Netherlands Double Taxation Avoidance Agreement. However, the Dispute Resolution Panel only upheld the stand of the A.O regarding the Installation PE. AO accordingly following the directions DRP stated that the assessee constitutes an ‘Installation PE’ in India under Article 5(3) of the India-Netherlands DTAA and attributed Rs 77,92,867/- being 10% of total receipts of Rs 7,79,28,669/- as profits attributable to the Installation PE. Aggrieved, the assessee appealed before the ITAT.

Before the Tribunal, the counsel for the assessee contended that only the onshore provision of services and onshore supply of the equipment at 10% on the gross basis as profits is attributable to the Installation PE in India. The Counsel for the revenue argued that the installation project, having been in existence for the period of more than six months constitutes a Permanent Establishment (PE) and therefore Article 7 of the DTAA on business Profits would be applicable.

The bench comprising of Judicial Member A.T Varkey & Accountant Member M. Balaganesh relying on the decision of the Supreme Court in shikawajima Harima Heavy Industries Limited vs DIT observed “The offshore services consisted of labour services of sizing of equipment, tuning and testing of the equipment etc. which were performed on the equipment in the Netherlands. Therefore, the alleged Installation PE could not have been involved in such offshore supply and services since these were carried on by the assessee directly from the Netherlands. Hence the profits from such offshore supply of equipment and services cannot be attributed to the Installation PE of the assessee in India.”