Tribunal directs reassessment of income computation for turnkey project

The Tribunal allowed the assessee's appeal partly, directing the Assessing Officer to compute the income under Section 44BBB for a turnkey project and reevaluate the nature of payment for Design Engineering and Supervisory Services under Sections 115A and 44D. The Tribunal emphasized the approval from the Ministry of Power as equivalent to Central Government approval for the project and instructed a thorough examination of the payment's nature. The decision was issued on 10th November 2016 in Chennai.

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Issues Involved:
1. Claim under Section 44BBB of the Income-tax Act, 1961.
2. Taxation of Design Engineering & Technical and Supervisory services under Section 115A read with Section 44D of the Act.

Issue-wise Detailed Analysis:

1. Claim under Section 44BBB of the Income-tax Act, 1961:

The assessee-company filed its return of income for the assessment year 2011-12, declaring a total income of Rs. 1,30,10,008 and computed 10% of the gross total turnover as income under Section 44BBB of the Act. The assessee claimed to be a foreign company engaged in the business of erection, testing, and commissioning of generators as part of a turnkey project. The Assessing Officer (AO) rejected this claim, stating that the project was not a turnkey power project approved by the Central Government at the time of signing the contract and was not financed by an international agency as required by the then-prevailing conditions of Section 44BBB.

The assessee provided a letter from the Chief Engineer certifying the project as a turnkey project, but the AO did not accept it, as it did not constitute an approval from the Central Government. The CIT(A) upheld the AO's decision.

Upon appeal, the Tribunal examined the certificate from the Central Electricity Authority, Ministry of Power, which clarified that the project was a turnkey project to be treated at par with power projects approved by the Government of India for the purposes of Section 44BBB. The Tribunal noted that the Ministry of Power's approval should be deemed as the Central Government's approval based on CBDT Circular No. 552 dated 9.12.1990. The Tribunal found no reason to reject the assessee's claim, as the approval was submitted during the assessment proceedings, and the AO did not disprove its authenticity. Furthermore, the condition requiring international financing was omitted from the Act effective 1.4.2004. Therefore, the Tribunal directed the AO to compute the income as per Section 44BBB, allowing this ground of appeal.

2. Taxation of Design Engineering & Technical and Supervisory services under Section 115A read with Section 44D of the Act:

The AO treated Rs. 21,38,263 incurred for Design Engineering and Supervisory Services as fees for technical services under Section 44D read with Section 115A of the Act. The AO found that this amount was part of the consideration received from TNEB and repatriated by the non-resident company to its head office. The AO concluded that the amount was not for construction, assembly, mining, or similar projects and did not constitute salary income.

The CIT(A) confirmed the AO's decision. During the appeal, the assessee argued that the entire payment was contract receipts and should be assessed under Section 44BBB, with no separate consideration for technical and supervisory services. The Tribunal noted that neither the AO nor the CIT(A) examined whether the payment was part of the contract work or a separate receipt for technical services.

The Tribunal referred to the case of Deputy Commissioner of Income-tax v. Schlumberger Seaco, which explained that fees for technical services do not include consideration for construction, assembly, mining, or similar projects. The Tribunal observed that if the payment was part of the contract work, Section 44D would not apply. However, if it was a separate payment for technical services, Section 44D would be applicable.

Therefore, the Tribunal set aside the orders of the lower authorities and remanded the issue to the AO to examine the nature of the payment and decide on merits after giving the assessee an opportunity to present its case. This ground was allowed for statistical purposes.

Conclusion:

The appeal of the assessee was partly allowed for statistical purposes, with directions to the AO to recompute the income under Section 44BBB and re-examine the nature of the payment for Design Engineering and Supervisory Services. The order was pronounced in the open court on 10th November 2016, at Chennai.

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