Case Number: ITA 636/DEL/2021
Appellant: Jiangsu Zhongtian Technology Company, New Delhi
Respondent: ACIT Circle-2(1)(2) International Taxation, New Delhi
Assessment Year: 2017-18
Case Filed On: 2021-06-01
Order Type: Final Tribunal Order
Date of Order: 2022-12-26
Pronounced On: 2022-12-26
In this comprehensive review, we explore the intricacies of ITA No. 636/DEL/2021, where Jiangsu Zhongtian Technology Company (JZTC) challenged the tax assessment and the determination of a permanent establishment (PE) in India by the ACIT for the assessment year 2017-18. The case highlights significant issues related to the application of the Double Taxation Avoidance Agreement (DTAA) between India and China and the interpretation of CBDT circulars.
Jiangsu Zhongtian Technology Company, a non-resident corporate entity incorporated in China, entered into a joint venture with an Indian entity, M/s. Steel Products Limited (SPL), to participate in a bid by Power Grid Corporation of India Ltd. (PGCIL) for the supply and installation of fiber optic cables in Northern India, Andhra Pradesh, and Telangana. The joint venture was successful in securing the bid, leading to three contracts: one for offshore supply of equipment, one for onshore services, and one for maintenance services.
JZTC asserted that it was solely responsible for the offshore supply of equipment, while SPL handled the onshore services and maintenance contracts. The offshore equipment was manufactured in Israel, Germany, and China and shipped directly to Indian ports. JZTC argued that the offshore supply was not taxable in India as the title of the goods transferred outside Indian territory.
The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) contended that the three contracts were artificially split and constituted a composite contract. They argued that the total consideration received under these contracts should be treated as a composite sum, including fees for technical services (FTS).
The AO held that JZTC had a PE in India under Article 5 of the DTAA between India and China. This determination was based on the involvement of JZTC in the execution of onshore services and the presence of its wholly-owned subsidiary, ZTT India Private Ltd., which acted on behalf of JZTC for tender-related activities.
The DRP directed the AO to attribute 25% of the global profits from offshore supplies to the PE in India. Additionally, the DRP apportioned 50% of the onshore services revenue to JZTC, despite the onshore services being executed solely by SPL.
The tribunal, comprising Shri G.S. Pannu (President) and Shri Saktijit Dey (Judicial Member), scrutinized the facts and legal arguments presented by both parties. They noted several factual inconsistencies and improper application of the law by the DRP and AO.
The tribunal concluded that the DRP and AO had failed to correctly apply the legal principles and consider the factual evidence. Consequently, they set aside the assessment order and remanded the matter back to the AO for a fresh adjudication. The AO was directed to:
Final Judgment:
In the Income Tax Appellate Tribunal, Delhi Bench ‘D’ New Delhi
Before: Shri G.S. Pannu, Hon’ble President & Shri Saktijit Dey, Judicial Member
Order:
The appeal filed by Jiangsu Zhongtian Technology Company is allowed for statistical purposes. The assessment order is set aside, and the matter is remanded back to the AO for fresh adjudication.
Order Pronounced in the Open Court on 26th December 2022.
Signed:
G.S. Pannu, President
Saktijit Dey, Judicial Member
Date: 26th December 2022
Jiangsu Zhongtian Technology Company vs. ACIT: Dispute Over Taxation and Permanent Establishment
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