Decided on December 27,2013

Samsung Heavy Industries Co. Ltd. Appellant
Director of Income Tax (International Taxation) and Anr. Respondents


- (1.) For the asst. yr. 2007-08 and in relation to previous year 2006-07, appellant, a foreign company, filed its return of income on 21st Aug., 2007 showing nil income and claiming to have sustained loss. It was disclosed by the appellant that it has entered into a contract between ONGC on the one hand and Larsen & Toubro Ltd. and the appellant on the other hand as consortium partners executed on 28th Feb., 2006. It was indicated that under the contract, appellant received certain amount of money. It was held out that a part thereof was received in relation to inside India activities and, in respect thereof, it has incurred certain expenses and after deducting such expenses, it has earned a loss and, accordingly, earned no income taxable in India. The AO, by its order dt. 25th Oct., 2010 refused to accept some of the deductions as was claimed by the appellant and found on the disclosure made by the appellant that in addition to the sum of money shown to have been received, appellant has received other sums of monies under the contract and claimed that the same were in respect of outside India activities. The AO held that 25 per cent of the revenues, thus received allegedly for outside India activities, should be brought within the taxing network of this country and passed an order accordingly. This order of the AO has been confirmed by the Tribunal. Hence the present appeal. Before filing the present appeal, appellant, on the garb of seeking rectification of mistake, made an attempt to have the order of the Tribunal reviewed by it, which the Tribunal has refused to do. In the present appeal, we are not concerned with the deductions as were claimed by the appellant and disallowed by the AO. We are only concerned with bringing in of 25 per cent of the money received by the appellant under the contract, but in connection with allegedly outside India activities within the tax network of this country.
(2.) A short summarization of the facts, as above, would indicate two things, namely, that (i) the appellant has a tax identity in India and a tax identity outside India and, accordingly, (ii) its tax liability in India is required to be apportioned. What mechanism will be adopted to apportion the same has, however, not been provided in the agreement for avoidance of double taxation of income and the prevention of fiscal evasion entered by the Union of India with the Republic of Korea.
(3.) In para 1 of art. 7 of the said agreement, it has been provided that profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a PE situated therein. It, therefore, recognizes two tax identities of an enterprise. The said para makes it clear that the profit of the enterprise may be taxed in the other State only so much of the same which is attributable to that PE.;

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