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Judgment
PER NAVEEN CHANDRA [ACCOUNTANT MEMBER]:
The above captioned appeals are preferred by the assessee against the assessment order dated 30.01.2017, passed by DCIT, Circle Gurgaon, International Taxation – Gurgaon (hereinafter referred to as ‘ld. AO), passed u/s 144C(5) r.w.s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’) in pursuance of directions of the ld. Dispute Resolution Panel-1, New Delhi (in short ‘ld. DRP') dated 14.12.2016 under section 144C(5) of the Act pertaining to Assessment Year 2013-14 and assessment order dated 17.11.2017, passed by DCIT, Circle Gurgaon, International Taxation – Gurgaon (hereinafter referred to as ‘ld. AO), passed u/s 144C(13) r.w.s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’) in pursuance of directions of the ld. Dispute Resolution Panel-1, New Delhi (in short ‘ld. DRP') dated 22.09.2017 under section 144C(5) of the Act pertaining to Assessment Year 2014-15.
Since the above captioned appeals were heard together and the facts in issues are identical except for difference in amounts, both the appeals are being disposed of by this common order for the sake of convenience and brevity.
The grounds of appeal raised by the assessee in ITA No.2534/Del/2017 are as under:
“The Assessee respectfully submits that on the facts and circumstances of the case and in law, while passing the assessment order under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 ('the Act'), the Deputy Commissioner of Income Tax (International Taxation), Circle Gurgaon (hereinafter referred to as 'the learned Assessing Officer') has erred as follows:
1.The learned Assessing Officer has erred in facts and in law in alleging that the Assessee constitutes a Permanent Establishment ('PE') in India in respect of its contracts with Uttrakhand Jal Vidyut Nigam Limited ('UJVNL'), Himachal Pradesh Power Corporation Limited ('HPPCL') and Lahmeyer International India Private Limited ('LII') as per the provisions of Article 5 of the Double Taxation Avoidance Agreement between India and Germany ('India-Germany Tax Treaty').
2.Without prejudice, the learned Assessing Officer has erred in facts and in law in considering the entire revenue from services rendered in pursuance of the contracts with UJVNL, HPPCL and LII as effectively connected to the alleged PE constituted under the respective contracts with UJVNL, HPPCL and LII.
3.Without prejudice, the learned Assessing Officer has erred in treating the revenue earned by the Assessee under its contracts with UJVNL, HPPCL and LII as 'effectively connected' to the PE constituted by the Assessee under the contract with Jammu and Kashmir State Power Development Corporation ('JKSPDC').
4.Without prejudice, the learned Assessing Officer has erred in facts and in law in applying the principle of 'force of attraction' in erroneous disregard to the provisions of Article 7 read with protocol to the India-Germany Tax Treaty.
5.Without prejudice to the above, the learned Assessing Officer has erred in facts and in law in applying Rule 10 of the Income-tax Rules, 1962 ('Rules') and taxing the entire revenue earned by the Assessee from UJVNL, HPPCL and LII projects at the rate of 20 percent (plus applicable surcharge and cess) on gross basis.
6.The learned Assessing Officer has erred in initiating penalty proceedings under section 271(1)(c) of the Act.
The Assessee submits that each of the above grounds are independent and without prejudice to one other.
That the Assessee reserves its right to add, alter, amend, substitute or withdraw any ground of appeal either before or at the time of hearing of this appeal.
The Assessee prays that appropriate relief be granted on the said grounds of appeal and the facts and circumstances of the Assessee's case.”
The grounds of appeal raised by the assessee in ITA No.515/Del/2018 are as under:
The Assessee respectfully submits that on the facts and circumstances of the case and in law, while passing the assessment order under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 (the Act'), the Deputy Commissioner of Income Tax (International Taxation), Circle Gurgaon (hereinafter referred to as the learned Assessing Officer') has erred as follows:
1.The learned Assessing Officer has erred in facts and in law in alleging that the Assessee constitutes a Permanent Establishment ('PE) in India in respect of its contracts with Jaiprakash Power Ventures Limited ('JPVL'), Himachal Pradesh Power Corporation Limited ('HPPCL') and Lahmeyer International India Private Limited ('LII') as per the provisions of Article 5 of the Double Taxation Avoidance Agreement between India and Germany ('India-Germany Tax Treaty').
2.Without prejudice, the learned Assessing Officer has erred in facts and in law in considering the entire revenue from services rendered in pursuance of the contracts with JPVL, HPPCL and LII as effectively connected to the alleged PE constituted under the respective contracts with JPVL, HPPCL and LII.
3.Without prejudice, the learned Assessing Officer has erred in treating the revenue earned by the Assessee under its contracts with JPVL, HPPCL and LII as 'effectively connected to the PE constituted by the Assessee under the contract with Jammu and Kashmir State Power Development Corporation ('JKSPDC').
4.Without prejudice, the learned Assessing Officer has erred in facts and in law in applying the principle of 'force of attraction' in erroneous disregard to the provisions of Article 7 read with the protocol to the India-Germany Tax Treaty.
5.Without prejudice to the above, the learned Assessing Officer has erred in facts and in law in invoking Rule 10 of the Income-tax Rules, 1962 ('Rules') and taxing the entire revenue earned by the Assessee from JPVL, HPPCL and LII projects at the rate of 25 percent (plus applicable surcharge and cess) on gross basis.
6.The learned Assessing Officer has erred in initiating penalty proceedings under section 271(1)(c) of the Act.
The Assessee submits that each of the above grounds are independent and without prejudice to one other.”
Brief facts of the case are that the Assessee, M/s Lahmeyer International GmbH ('LIG'), is a Company incorporated in Germany and constitute as non-resident under the provisions of the Act. LIG, a company, is engaged in the business of providing technical consultancy services in respect of infrastructure projects. During the previous year relevant to the AY 2013-14, Lahmeyer International GmbH (LIG) derived revenue from following contracts:
J&K State Power Development Corp -Baglihar contract is at page 37 -92 of paper book.
ii) Lahmeyer International (India) Pvt. Ltd. - LII contract is at page 117-131 of paper book.
iii) Himachal Pradesh Power Corp. Ltd - HPPCL contract is at page 132-195 of paper book.
iv) Uttarakhand Jal Vidyut Nigam Ltd - UJVN is at page 49-147 of case law paper book.
The Assessee filed return of income declaring an income of Rs. 12,86,21,780/- on 30.03.2015. Case was selected for scrutiny and a notice under section 143(2) was issued on 31.08.2015 & duly served on the assessee. The assessee has declared revenues as follows:
In respect of Baglihar project, the Assessee has PE in India. From this project, revenue of Rs.10,63,59,370/- was earned and the same was offered to tax @20% of gross revenue. There is no dispute in respect of Baglihar project (page 30 r/w 34 - Note 4 of paper book).
ii) In respect of remaining contracts, aggregate revenue of Rs.2,22,62,413/- (23,86,384 from LII + 79,83,872 from HPPCL + 1,18,92,157 from UJVNL) was earned and the same has been offered to tax @10% (page 30-33 r/w Note 2 of paper book).
The AO has held that as the assessee is providing its services of its technical personnel and the engineering services are of consultancy in nature, therefore, the payment is covered by the definition of fee for technical services provided under India-Germany Tax Treaty. It was further held that as the assessee has a P.E. in India under Article 5 of the India-Germany in the form of its project office of JKSPDC, in accordance with the Force of attraction rule, the office for the project of JKSPDC, constitute PE in India for all the other three projects with the reasoning that they are all power projects and are related to hydro power except for the contracts with LII and even the nature of services of other projects was same i.e. technical and consultancy services (para 7- internal page 17 of the assessment order). The AO further drew support from the earlier assessment orders (including for A.Y. 2010-11) and directions of DRP which followed its order for AY 2010-11(wherein order for AY 2009-10 was followed), for the reason that the Assessee provided similar services in the earlier years. Ultimately, the AO held, like in earlier years, that considering the principle of force of attraction, the receipts of the assessee from all the projects, notwithstanding the fact that it has a PE in respect of that project or not, shall be subject to tax as business income under Article 7 of the India-Germany DTAA and taxed the entire income of Rs. 12,86,21,780/- at the rate of 20%.
The AO followed the directions of DRP which had held that Baglihar project PE was involved in all the contracts because supervision activity is functional to earning of the entire revenue. Referring to the concept of 'commercial coherence' and the period of six months in Article 5(2)(i) of DTAA between India & Germany (activities continue for a period exceeding six months), it was held that period of six months is required to be calculated from the commencement of project (Baglihar project) because the contracts are indivisible. Merely because the Assessee has taken part of each of the contract makes no difference, for Baglihar project was not complete (page 15 & 17 of DRP order).
The stand of the Assessee in respect of contracts with LII & UJVNL has been that Assessee's personnels (expatriates) did not visit India and in respect of contract with HPPCL, Assessee's personnels were in India only for 44 days. Since the services rendered in India in respect of each contract -UJVNL, HPPCL and LII was for a period less than 183 days, therefore, revenue from these contracts was rightly offered as FTS under Article 12 of DTAA, chargeable to tax @10% (page 216 r/w 219 and 222 & 223 of PB).
Aggrieved, the assessee is before us. At the outset, the ld counsel of the assessee submitted that the issue whether Baglihar project PE was involved in other contracts, has already been decided in AYs 2001-02 to 2005-06 vide ITAT order dated 09.10.2019. It was held that Baglihar project PE did not play any role and was not involved in any other contract /project in India. The said order has been followed in subsequent years as under:
ITA-273/D/2011 & 5800/D/2010 dated 16.11.2022 for AY 2006-07 & 2007-08 (@page 23-27 of case law paper book);
ITA-5614 & 5615/D/2011 dt 31.3.2023 for AY 2008-09 (page 42-46 of case law paper book).
ITA-5634/D/2012 & 784/D/2014 dt 22.05.2025 for AY 2009-10 & 2010-11 (page 6-15 of case law paper book).
That since complete contracts with LII & UJVNL were not filed, therefore, in AY 2009-10 & 2010-11, taxability of revenue from these contracts was remitted to the Assessing Officer for fresh examination (page 15 of order in ITA Nos. 5634/Del/2012 & 784/Del/2014 dated 22.8.2025).
The ld AR explained the activities of the assessee, contract wise, as under:
Contract with LII: LIIPL sub-contracted specified work in respect of three contracts to the Assessee, as under:
By agreement dated 07.11.2012, due diligence study of 20+5 MW solar PV project using first solar make thin film modules in Rajasthan was sub-contracted to LII. For execution of work, LII raised invoice No.240772/3 for Euro 10286.23 equivalent to Rs.7,33,036/-Payment under the contract (clause 2.2) was net of taxes (pages 117-119 r/w 120 & 31 of PB).
By agreement dated 30.07.2012, LIIPL sub-contracted preparation of due diligence study in respect of 75MW Wind Farm Project in Satara District. The contracts specifically provided that the amount of work does not exceed 4 to 5 man days (pages 129-131 of the PB). For execution of the work, LII raised invoice No.25.1038/1 for Euro 6,428.89 equivalent to Rs.4,61,664/-excluding service tax (pages 209 r/w 31 of the PB).
NTPC appointed LIIPL as Engineer for consultancy services for preparing feasibility study report. LIIPL in turn, by agreement dated 02.03.2012, sub-contracted the work in terms of Annexure - 1 to the agreement (pages 121-125 of paper book). The scope of work was verification of Solar Data, Technical Alternative to Solar Field, Environment and Social Aspects, General Assessment of Technical Alternatives. Primarily, the Assessee was to assess the adoptability of Solar Thin Film considering the hot weather conditions in India (pages 126-128 of paper book).
During the relevant year, revenue from LII was Rs.23,86,384/- (page 31 of paper book).
ii) Contract with HPPCL was entered into on 13.09.2010 (pages 132-195 of PB). In terms of the contract, Lahmeyer International India Pvt Ltd. (LIIPL) was lead consultant and the Assessee was associate consultant to provide consultancy to HPPCL the implementing agency in respect of power projects namely Sawra Kuddu HEP, Integrated Kushang HEP, Sainj HEP and Shongtong Karcham HEP. The scope of services is set-out in "Appendix A -Description of Service" (pages 143-195 of the PB), which included project implementation, design retainership, construction supervision & training, contract administration/claim avoidance, quality control etc. The work plan for each activity (consultancy) is set out at pages 168-173 of paper book. In respect of HPPCL contract, services in relation to projects located at different locations in Himachal Pradesh were provided in India for 44 days. To render services, the Assessee did not set-up any office in India (letter dated 24.2.2016 at pages 222, 223, 234 & 237 of paper book). During the relevant year, revenue from HPPCL was Rs.79,83,872/-(page 33 of paper book).
iii) Contract with UJVNL: Contract with UJVNL was entered into on 5.3.2008 (pages 49-147 of case law paper book). The Assessee was to provide consultancy services (feasibility study, project reports, technical specifications) for modernization & upgradation of six power projects namely, Chibro, Khodri, Dhakrani, Dhalipur, Kulhal, Tiloth (page 49). Services were to be rendered in three phases set-out by Article 3 under the head 'scope of services' (page 55).
Annexures, which form part of the contract include 'final contract negotiation' (pages 79-82), "minutes of contract negotiations" (pages 83-93), 'summary of revised cost for all the phases" (pages 95-113) that included Phase-wise details of expatriates (page 97, 102 & 110) and survey wise costing (page 106).
During the relevant previous year, neither any office was set up nor any personnels of the Assessee visited to India (pages 222 r/w 2338 247 of the PB). The aggregate payment to the Assessee in AY 2013-14 was Rs.1,18,92,157/--
The ld AR further stated that, unlike for AY 2009-10 and AY 2010-11, the contracts were filed under the cover of letter dated 9.2.2016 (pages 215-218 @ 215-216 of paper book) for AY 2013-14 and AY 2014-15, however, the AO & DRP without referring to the submissions simply decided the matter against the Assessee, by following the order for AY 2010-11.
The ld AR further submitted that since services under the contracts were purely consultancy in nature and in respect of UJVNL and LII contracts, personnels of the Assessee did not visit India and qua HPPCL contract, Assessee's personnels were in India for 44 days, therefore, revenue from these contracts is taxable as FTS under Article 12 of DTAA between India and Germany. Certificates from LIIPL & UJVNL were filed that they did not make available its area, facility, premises, site to the Assessee for execution of any project in India (page 247-248 of paper book). The ld AR further stated that in AY 2006-07 & 2007-08, revenue from similar contract was directed to be taxed @10% [ITA -273/D/2011 & 5800/D/2010 dated 16.11.2022 (@ page 27, 29 & 30 of case law paper book)].
On the issue of Force of Attraction Rule (FoA), the ld AR submitted that the ITAT in ITA No.273/D/2011 & 5800/D/2010: AY 2006-07 & 2007-08, ITAT following order for AY 2001-02 to 2005-06 has held that (page 24-27 of the order) Force of Attraction Rule will not apply. In assessment year 2008-09, order for AY 2006-07 & 2007-08 was followed to hold that FoA is not applicable (para 11 of the order dated 31.3.2023). In AY 2009-10 & 2010-11, order for AY 2006-07 to 2008-09 has been followed to hold that FoA would not apply (para 14 to 16 of the order dated 22.08.2025).
Per contra, the ld Dr relied on the orders of AO/DRP.
We have heard the rival submissions and have perused the materials on record. Considering the discussion noted as above, the issue for our adjudication is limited to the fact that in AY 2013-14, the services of assessee’s technical personnel and the engineering services provided to LII, HPPCL and ULVN projects would fall as FTS taxable @ 20% under Article 7 r.w. Article 5 of the India-Germany and whether the assessee’s project offices of JKSPDC, be considered as P.E. in India applying the force of attraction rule.
We find that the AO has followed the earlier assessment orders (including for A.Y. 2010-11) and directions of DRP, which in turn had followed its own directions for AY 2010-11(wherein order for AY 2009-10 was followed), considering the facts in AY 2013-14 as identical to the earlier years.
In such facts and circumstances, we find that the Coordinate Bench of ITAT has already held in ITA-273/D/2011 & 5800/D/2010 dated 16.11.2022 for AY 2006-07 & 2007-08; ITA-5614 & 5615/D/2011 dt 31.3.2023 for AY 2008-09); and ITA-5634/D/2012 & 784/D/2014 dt 22.05.2025 for AY 2009-10 & 2010-11, that Baglihar project PE did not play any role and was not involved in any other contract/project in India and that the force of attraction rule will not apply to the LII, HPPCL and ULVN projects.
We also find that the Revenue has failed to controvert the assessee assertion that in respect of contracts with LII & UJVNL, the Assessee's personnels (expatriates) did not visit India and in respect of contract with HPPCL, Assessee's personnels were in India only for 44 days. We therefore, hold that the technical and consultancy services rendered in India in respect of each contract - UJVNL, HPPCL and LII, was for a period less than 183 days. In such facts, the provisions of Article 5(2) and Article 15(2) of India-Germany DTAA does not apply and therefore, revenue from these contracts was rightly offered as FTS under Article 12 of DTAA chargeable to tax @10%. The grounds are allowed.
[ITA No.515/Del/2018]
The facts of Assessment Year 2014-15 shows that during the assessment year 2014-15, LIG derived revenue from following contracts:
J&K State Power Development Corp-Baglihar project;
Himachal Pradesh Power Corporation Ltd - HPPCL:
Jaiparkash Power Venture Ltd - IPVI:
Lahmeyer International (India) Pvt. Ltd. - LII
The aggregate revenue of contracts (ii), (iii) & (iv) was Rs.1,09,71,450/- (Rs.95,74,813 from HPPCL + Rs.793713/- from JPVL + Rs.602924/- from LII) was earned and the same has been offered to tax 10% (page 158 read with pages 166 to 168 of the paper book).
The ld AR submitted that the submissions made in respect of assessment year 2013-14 are squarely applicable, except for number of days personnels of the Assessee visited India to render the services.
The ld AR stated that the duration of presence of assessee's personnels in India, during the financial year 2013-14, were in India for 35 days only (page 175 r/w 208 of the paper book). The ld AR had furnished, before the AO, the Certificate from HPPCL that employees / personnels of the Assessee made only intermittent visits to its facilities/ sites in connection with meeting / discussion in relation to the contract and that no employees / personnels were permanently based on HPPCL's office /site (page 209 of the paper book). Certificate from LIIPL was also filed that it did not make available its area, facility, premises, site to the Assessee or its consultants for execution of any project in India (page 210 of the PB).
With respect to Contract with LII, the ld AR stated that LIIPL sub-contracted specified work in respect of three contracts to the Assessee, as under (page 167-168 of the paper book):
5MW Solar Power Project of Astonfield / T-Solar at Osiyan District Jodhpur, Rajasthan
Input form LIG for Grid connected rooftop solar power project in the premises of DMRC, New Delhi and
Consultancy services for review of due diligence report - JWEPL (NSL)/IFC-40 MW Wind Power Project at Vaspet in Maharashtra.
As the facts and circumstances are identical/similar to the facts of AY 2013-14, therefore, the decision rendered herein above for AY 2013-14, applies mutatis mutandis to the facts of the instant case also. The grounds are accordingly allowed.
In the result, the appeals of the assessee in ITA No. 2534/Del/2017 and ITA 515/Del/2018 are allowed.