TaxTMI 
TaxTMI 
2010 (10) TMI 597
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....nt orders has been passed. Sl. No. ITA No. Asst. Years Appellant Date of CIT(A)'s Order Date of A.O's Order 1. 1410/D/071 1998-99 Assessee 29-12-2006 19-9-2005 passed under section 143(3) r/w section 147 2. 1411/D/07 1999-2000 -do- -do- -do- 3. 1412/D/07 2000-01 -do- -do- -do- 4. 1413/D/07 2001-02 -do- -do- -do- 5. 1682/D/08 2002-03 -do- 27-2-2008 20-3-2006 passed under section 143(3) r/w section 147 6. 1683/D/08 2003-04 -do- -do- 20-3-2006 under section 143(3) 7. 1297/D/08 2004-05 -do- 11-1-2008 12-12-2006 under section 143(3) 2. The first issue which is common in assessment years 1998-99 to 2001-02 is that Learned CIT (Appeals) has erred in upholding reopening of the assessment proceedings. 3. The brief facts of the case are that the assessee is a company incorporated in United Kingdom and is a tax resident of that country. The assessee is a non-resident foreign company for the purpose of tax assessment in India under the Income-tax Act, 1961. The assessee, in India was engaged, inter alia, in the business erection, commissioning, s....
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....hnical services in India and the receipts arising there from were in the nature of fee for technical services. He was of the opinion that the fee for technical services were taxable on gross receipts, i.e., without deducting any expenses from the gross receipts whereas, the assessee had been declaring and was assessed in respect of its income from all the activities, including the activity of rendering of technical services on net basis, i.e., after allowing deduction for expenses from the gross receipts. Assessing Officer also formed an opinion that the facts relating to the nature of income being fees for technical services were not brought to the notice of the then Assessing Officer by the assessee. Thus, according to him, the assessee failed to disclose fully and truly all material facts necessary for its assessment. The new incumbent is also of the opinion that the earlier Assessing Officer had not formed any opinion with regard to taxation of fee for technical services. On the basis of the above opinion, he observed that the omission to assess the income by way of fee for technical services on gross basis had resulted into escapement of income within the meaning of section 14....
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....The learned counsel for the assessee took us through this order available on pages 20 to 22 of the Paper Book-II. He, thereafter, took us through the reasons recorded by the Assessing Officer and available on page 19 of the Paper Book-II. These reasons are for assessment year 2002-03. He pointed out that on similar analogy assessments have been reopened in other years also. 9. The learned counsel for the assessee thereafter took us through the assessment orders right from assessment years 1991-92 up to 1999-2000 which are placed in Paper Book-III. He also took us through the questionnaire issued by the Assessing Officer in some of the years and how assessee has replied. He pointed out that assessee has duly disclosed fully and truly all material facts in respect of nature and various objects carried on by it. Assessing Officer had made a detailed inquiry on all projects. Assessing Officer has consistently held that the receipts received by the assessee are to be assessed as business income. He specifically invited our attention to page No. 104 of the Paper Book-III where the assessee has explained the nature of its activities and the nature of receipts. This explanation was subm....
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....e opinion to reopen the assessment was formed by the Assessing Officer while rejecting assessee's application moved under section 195 in financial year 2004-05. In this order, Assessing Officer has observed that a proposal to reopen the earlier assessment year is being made. This order has been set aside by the learned Director of Income-tax (Exemption) while exercising his revisional powers under section 264 of the Act, meaning thereby, that the proposal conceived by the Assessing Officer has no legs to stand. Once a higher authority did not agree with the stand taken by a lower authority then on the basis of that very material it is not advisable for the Assessing Officer to again form an opinion that income has escaped assessment. In support of this contention, he relied upon the following decisions : 1. Hon'ble Supreme Court in Asstt. CIT v. Surat City Gymkhana [2008] 300 ITR 214; 2. CIT v. Aslam Ulla Khan [2010] 321 ITR 150 (Kar.); and 3. CIT v. Siemens Aktiongesellschaft [2009] 177 Taxman 81 (Bom.). 13. In his next fold of contention, he pointed out that how an authority can take contradictory stand. Learned Director of Income-tax while exercisin....
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....seas Ltd. v. Addl. CIT [2010] 188 Taxman 172. 15. On the other hand, Learned DR relied upon the order of Learned CIT (Appeals). He pointed out that Assessing Officer while harbouring a belief that income has escaped assessment, considered peculiar facts and circumstances of the case. According to the Learned DR, assessee has not been furnishing the individual accounts and other details of its various project offices with the return. It files a consolidated statement of accounts of its activities in India which consists of the gross income from all the projects and gross expenses supposedly pertaining to the gross receipts, so shown in that statement. In the opinion of the Assessing Officer, income from various projects shall contain the item of income which may be subjected to taxation at different rates and as such tax treatment of them shall vary according to the facts of the business carried out by the assessee in each project. The assessee though maintaining the accounts of each project individually and getting them tax audited as required statutorily each year but it is not understandable why the same has not been submitted along with the return of income by the assessee. T....
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....nder section 148 has been issued after four years. As far as assessment years 2000-01 and 2001-02 are concerned, in these assessment years, notice has been issued within four years. In assessment year 2001-02, original assessment was made under section 143(3). Therefore, these two years are to be decided without extending the benefit of proviso to the assessee. Before reverting back to the facts in all these years, let us take a note of the reasons recorded by the Assessing Officer which read as under : "Rolls Royce Industrial Power (India) Ltd. Assessment year 2002-03 Reasons for issue of notice under section 148 of the Income-tax Act, 1961. The assessee is a company incorporated under the laws of United Kingdom. The assessee has filed its return of income with Circle 15(1), New Delhi. During the previous year relevant to the assessment year 2002-03, the assessee has rendered technical services to Spectrum Power Generation Ltd. under the Operation & Maintenance agreement entered into on 14-3-1995 and under Erection Testing and Commissioning Agreement entered into on 12-12-1994 and thereby earned Fees for Technical Services (FTS)-in India. These FTS were clearly taxable....
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....son in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax. (b) Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return : (c) where an assessment has been made, but- (i) income chargeable to tax has been under-assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. In view of the above, I have reasons to believe that income chargeable to tax exceeding Rs. 1,00,000 has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. The income has escaped assessment by reasons of the failure on the part of the assessee to disclose fully and truly all material facts, necessary for its assessment for this assessment year. Issued N....
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....nts on a mere change of opinion. It is, therefore, evident that even according to the Central Board of Direct Taxes a mere change of opinion cannot form the basis for reopening a completed assessment. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act, 1872, judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. Hence, it is clear that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon a mere c....
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.... order all equipment, materials, spare parts, consumables available at the site and the facility and any drawings and other documents which are necessary to operate, maintain and manage the facility. Assessee was asked to provide full details of operating expenses. Purchase of spares accounted for 54 per cent of the total cost. Similarly other expenses like rent, rate and taxes, depreciation, auditor's remuneration accounted for another 16 per cent. This together constitute 70 per cent which cannot form part of the fee for technical services. This cost is an integral part of the maintenance cost of the plant. The balance 30 per cent constitutes hiring charges of technical personnel and purchase of services. In an operation of this magnitude, the total receipt paid for this work includes the cost of consumables. Therefore, 70 per cent of the receipt cannot be paid to be the remuneration for rendering technical services. The balance 30 per cent receipts have to be examined in the light of Article 13(4) of the DTAA. The assessee here is neither making available technical knowledge, experience nor is it developing and transferring the technical plan or design. Therefore, sub-p....
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....e basis of change of opinion. We also find that in assessment years 1998-99 and 1999-2000, Assessing Officer is unable to point out which material fact was made disclosed by the assessee fully and truly. Therefore, in view of the proviso appended to section 147, these assessments cannot be reopened. 22. As far as assessment year 2000-01 is concerned, in that assessment year, no section 143(3) order was passed. There is no expression of opinion on the issue by the Assessing Officer. Thus, the arguments advanced by the assessee which are applicable for assessment years 1998-99, 1999-2000 and 2001-02 are not relevant for this assessment year. Relying upon the decision of Hon'ble Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Broker (P.) Ltd. [2007] 291 ITR 500. We do not find any merit in this ground raised by the assessee in assessment year 2000-01. 23. In view of the above discussion, we allow the ground of appeal raised by the assessee in assessment years 1998-99, 1999-2000 and 2001-02 and quash the reassessment order whereas in assessment year 2000-01, the ground raised by the assessee is rejected. 24. The assessee RRIPIL has raised various issues in thes....
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....d. It would be unpragmatic to suggest that this close association was not aimed at enabling the foreign State to collect and acquire such technical knowledge and know-how from the assessee as could be reasonably acquired in the process of execution of the project. In our view, there is force in the assessee's contention that it would not be possible to execute the contract without imparting to the foreign State and enterprise information of the category specified in the section." 26. It is also held that the services in question are technical services within the meaning of provisions of the Income-tax Act, 1961 and that the allowability of expenses is governed by provisions of section 44D of the Income-tax Act, 1961. 27. In the appeal filed before the CIT(A) he held that there is no dispute as to the taxability of the above income arising to the appellant from rendering of operation and maintenance services in respect of the power station. The dispute relates to mode of computation of income and consequent rate of tax to be applied on such income. The appellant had declared the income under article 7 of the DTAA as business profits on net basis and consequently, applied norma....
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.... 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 a. Taxing business receipts u/s 44BBB on gross basis 15 & 16 not pressed N.A. N.A. N.A. N.A. N.A. N.A. b. Taxing interest under Article 12 of DTAA @ 15 % on gross basis N.A. 14 & 15 15(a), 15(b) &16 14(a) &14(b) 6 3(a), 3(b) & 3(c) 3(a) & 3(b) c. Profit on sale of assets under Article14 of DTAA as per local laws in India. N.A. N.A. 15 & 16 N.A. N.A. N.A. N.A. d. Taxing other income on gross basis as foreign company income in India. N.A. N.A. N.A. N.A. 6 3(a)& 3(b) 3(a)& 3(b) e. Taxing insurance claim as normal income under the I.T. Act N.A. N.A. N.A. 14(c) N.A. N.A. N.A. 4 Budge Budge Project a. Taxing supervision of management activity as FTS & taxing u/s 44D of the I.T. Act 17 to 20 16 to 19 17 to 20 N.A. N.A. N.A. N.A. b. Taxing interest inc....
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....; Income-taxed twice in AY 2002-03 & again in AY 2003-04 N.A. N.A. N.A. N.A. N.A. 7 N.A. 31. Shri Pradeep Dinodia, CA appeared on behalf of the assessee and contended that award of contract in respect of Godavari project by M/s. Spectrum was a work contract and not a contract for rendering technical services, therefore the income received from M/s. Spectrum was not in the nature of fee for technical services but was business receipts. It was argued by Shri Dinodia that O&M contract entered into with M/s. Spectrum was a work contract both within the meaning of section 9(1)(vii), Explanation 2 of IT Act as well as under article 13(4)(c) of DTAA between India and UK and that assessee has not made available to M/s. Spectrum any skill, technology, expertise, technical design or plant, therefore running of power plant by the assessee would not fall within the definition of FTS under Article 13 of DTAA between India and UK. Our attention was invited to the various terms and conditions of the contract dated 14-3-1995 entered into with M/s. Spectrum. Learned AR highlighted various clauses in the agreement which indicated that it was a works contract of operating t....
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.... its obligations under this Agreement as an independent contractor to the Owner, and not as an agent of the Owner. However, on specific authorization by the Owner, accepted by the Operator, the Operator may represent the Owner for any matters specified in such authorization on terms to be agreed." With respect to facility work force at page 450, following were the respective clauses:- "(a) The Operator shall make its own arrangements for the engagement of all labour, local or otherwise, and, save insofar as the Agreement otherwise, provides, for the transport, housing, feeding and payment thereof; (b) The Operator shall not, otherwise than in accordance with the statutes, ordinances and Government regulations or orders for the time being in force, import, sell, give, barter or otherwise dispose of any goods, alcoholic liquor, or drugs, or permit or suffer any such importation, sale, gift, barter or disposal by its sub-contractors, agents or employees." At page 452 personal training has been defined as: "Personal Training: The Operator shall make appropriate personnel available at the Facility for the initial and facility specific training and shall establis....
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....ility and reasons for any unavailability. Within five (5) days after the end of each calendar month of operations, the Operator shall deliver a report summarizing the Facility megawatt output, steam output, internal power consumption, fuel consumption, treated water consumption, plant load factor and availability for such previous month. Within fifteen (15) days after the end of each calendar month of operations, the Operator shall deliver a report in the form provided in Exhibit G, summarizing in detail the Work performed during such month. The Operator shall verbally advise the Owner of any unscheduled outage as soon as possible, but in any event, no later than two hours after its commencement. Any unscheduled Services required as a consequence of an unscheduled outage shall be reported to the Owner. The Operator shall provide such additional information and prepare such additional reports, notices and other communications with respect to the Operator's performance of Unscheduled Services as the Owner may reasonably request." At page 456 clause regarding owner's excess reads as under:- "Owner's Access: The Operator shall provide the Owner and the Owner's designees unrestric....
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.... to and use of the entire Site, its buildings, the facility and the facility Equipment except to the Owner's officers and residences subject however to the Operator not violating other party's rights. (b) providing adequate storage areas, workshops, warehouses, cranes and machine tools that have been provided by the supply contractor and the erection contractor and which are in a condition suitable for the performance of the work, (c) obtaining and maintaining all consents, licences, easements, rights of way and approvals required for the performance of the work, (d) providing and maintaining all things necessary to meet and comply with Government Requirements including adequate drainage and sewerage systems provided under the Supply and Erection Contracts, (e) providing access to and use of suitable clinic and medical facilities located at the Site for the Facility Work Force as well as any other employees or representatives of the Operator or the Operator's agents and subcontractors, (f) providing a trained security service including guards for the Site and the Facility, (g) painting and maintenance of all buildings and structures on the Site....
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....e date, and shall expire on the tenth (10th) anniversary of the taking over date Extension: The Owner shall have the option to extend/the duration of this Agreement for an additional five (5) years term, provided Owner gives written notice to the Operator of such intent no later than one hundred and eighty (180) days prior to the expiration of the Agreement under Clause 8.1 and provided also that the Operator agrees in writing to the extension prior to the expiration of the Agreement. Expiry: On expiry or termination (by the Owner in the event of the Operator's default) or cessation of this Agreement: (i) the Operator shall hand over to the Owner in good order all equipment, materials, spare parts, consummables available at the Site and the Facility and any drawings and other documents which are necessary to operate, maintain and manage the Facility. (ii) the Operator shall assist the Owner in retaining such of the Facility Work Force as the Operator shall decide. (iii) the Operator shall provide on site training to the Owner's personnel who shall operate the Facility after the term of this Agreement in the operation and maintenance of the Facility ....
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.... assessment years, the assessee had, accordingly computed the income from above business on net basis after deducting the expenses from the gross receipts of the business. The Assessing Officer was of the view that though the income from the said activity was liable to tax as business profits under article 7 of the DTAA but the computation of the income has to be made in accordance with paragraph 5 of the said article which provides that in determining the profits of the permanent establishment, the deduction for expenses shall be allowed under the provisions of and subject to the limitations of the domestic law of the Contracting State in which the permanent establishment is situated. In other words, the deduction for expenses incurred by the assessee in respect of the activity of operation and maintenance of power station shall be allowed in accordance with the provisions of the Indian Income-tax Act, 1961 and subject to the limitations provided therein. In view of this, the Assessing Officer held that since the profits derived from the operation and maintenance of the power station were in the nature of fees for technical services, the same were to be computed in accordance with....
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....vices" - section 9(1)(vii). - 16.1 As in the case of royalty, the Finance Act, 1976, has amended the Income-tax Act clearly specifying the circumstances in which income by way of "fees for technical services " will be deemed to accrue or arise in India and also defining the expression "fees for technical services". For this purpose, a new clause (vii) has been inserted in section 9(1) of the Income-tax Act. 16.2 Under the new provision, income by way of "fees for technical services" of the following types will be deemed to accrue or arise in India: (a) Fees for technical services payable by the Central Government or any State Government; (b) Fees for technical services payable by a resident, except where the payment is relatable to a business or profession carried on by him outside India or to any other source of his income outside India; and (c) Fees for technical services payable by a non-resident if the payment is relatable to a business or profession carried on by him in India or to any other source of his income in India. 16.3 The expression "fees for technical services" has been defined to mean any consideration (including any lump sum conside....
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....clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. Explanation.-For the removal of doubts, it is hereby declared that for the purposes of this section, where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) o....
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....dings, the assessee was asked to provide full details of operating expenses which the assessee had duly furnished before the lower authorities. We found that purchase of spares accounted for 54 per cent of the total cost. Similarly other expenses like rent, rate and taxes, depreciation, auditor's remuneration accounted for another 16 per cent. This together constitute 70 per cent which cannot form part of the fee for technical services. This cost is an integral part of the maintenance cost of the plant. The balance 30 per cent constitutes hiring charges of technical personnel and purchase of services. 37. In an operation of this magnitude, the total receipt paid for this work includes the cost of consumables. Therefore 70 per cent of the receipt cannot be held to be the remuneration for rendering technical services. The balance 30 per cent receipts have to be examined in the light of Article 13(4) of the DTAA. The assessee here is neither making available technical knowledge, experience nor is it developing and transferring the technical plan or design. Therefore, sub-para 4(c) is ruled out. Similarly this operation and maintenance activity of the assessee is neither ancillary n....
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....rprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is directly or indirectly attributable to that permanent establishment. 2. Where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, the profits which that permanent establishment might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment shall be treated for the purposes of paragraph 1 of this Article as being the profits directly attributable to that permanent establishment. 3. Where a permanent establishment takes an active part in negotiating, concluding or fulfilling contracts entered into by the enterprise, then notwithstanding that other parts of the enterprise have also participated in those transactions, that proportion of profits of the enterprise arising out of those contracts which the contribution of the permanent establishment to those transactions bears to that of....
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.... permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on monies lent to the permanent establishment; nor shall account be taken in the determination of the profits of a permanent establishment of amounts charged (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on monies lent to the head office of the enterprise or any of its other offices. 8. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise. 9. Where profits include items of income which ar....
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.... As per section 90(2) of the Income-tax Act, the provisions of DTAA are to be read overriding the provisions of Income-tax Act and this issue is not open for debate as the Apex Court has decided this in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706. The CIT DR in response to this proposition of the assessee submitted that this restriction contained in section 44D(b) is valid as in a normal net profit case the tax rate is higher whereas where section 44D(b) is applied, then the gross receipt is taxed at 30 per cent as against perhaps 40 per cent rate on net profit. Therefore, there is no prejudice being caused to the assessee by following the restriction contained in section 44D(b) in the interpretation of Article 7.5. 41. Applicability of tax on gross receipt versus net profit basis is on the proposition that Article 13.4(c) of the DTAA would prevail over the definition under section 9(1)(vii) Explanation 2 and as the income of the assessee is not fees for technical services, then in that case the limitation contained in Article 7.5 will not in any case apply as section 44D(b) only applies to FTS. In the course of hearing before us, the learned CIT-DR has....
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....is contained in the DTAA between India and UK, this has to be given effect to and for this proposition the assessee has submitted before us a large number of decisions which are as under:- 44. The Special Bench of ITAT in Mumbai in the case of Mahindra & Mahindra v. Dy. CIT [2009] 30 SOT 374, has also given its opinion with regard to the explanation of " Make Available" in the Indo-UK Treaty. It has followed the judgments in the cases of Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.) and of AAR in the case of Intertex Testing Services India (P.) Ltd., In re [2008] 307 ITR 418 (New Delhi). The Special Bench held as under :- "Make available means to provide some thing, which is capable of use by the other. "......." If the non-resident uses all the technical services at his own end, albeit the benefit of that directly and solely flows to the payer of the services, that cannot be characterized as the making available of the technical services to the recipient." Other judgments cited before us are - 24. Raymond Ltd.'s case (supra). The Tribunal gave its interpretation of the expression 'make available' in the following clear-cut words (paragraphs 92 and 93): "92. We....
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....now-how.' 'Make available' means to provide something to one, which is capable of use by the other. Such use may be for once only or on a continuous basis. If the first party uses all the technical services at its own end abroad, albeit the benefit of that directly and solely flows to the payer of the services in India, that cannot be characterized as the making available of the technical services to the recipient. Therefore, making available the technical services to the recipient is of paramount importance for including consideration paid for it as Fees for Included Services (FIS) under Art. 12 of the DTAA. In the instant case, the assessee put up a categorical claim before the Assessing Officer that these services were provided overseas to facilitate the timely execution of the project and no part of the services was made available to TVCL. This specific contention raised before the Assessing Officer had not been controverted by him. On the contrary, the Assessing Officer that had made out a case that since the assessee was instructing TVCL and imparting education about the expertise in India, hence, if the instructions through managerial services or technical input was provi....
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....R - New Delhi) (India-Canada Treaty). "In other words, the payment of consideration would be regarded as 'fee for technical/included services' only if the twin tests of rendering services and making technical knowledge available at the same time was satisfied." 29. Dy. CIT v. Parasram Puria Synthetic Ltd. [2008] 20 SOT 248 (Delhi). "The term 'fees for technical services' as per Explanation (b) to section 194J means as defined in Explanation 2 below clause (vii) of sub-section (1) of section 9. As per said Explanation 'fees for technical services' means any consideration (including any lump-sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel), but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient chargeable under the head 'Salaries'. The Madras High Court in the case of Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53 has held that the installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment d....
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....es. 32. Bharat Petroleum Corp. Ltd. v. Jt. DIT (International Taxation) [2007] 111 TTJ (Mum.) 375. Singapore Article 12(4) fee for technical services, Report "Make Available". No skill, expertise etc. has been made available by the Singapore company to the Indian company such that shall the Indian company can do the same service in the future by itself. 33. NQA Quality Systems Registrar Ltd. v. Dy. CIT [2005] 92 TTJ (Delhi) 946. [India - UK Treaty] Assessment surveillance rendered by the company are not made available to the recipient of the services and thus does not fall within the definition of "Fees for technical services" under the treaty. 34. Asstt. CIT v. Paradigm Geophysical Pty. Ltd. [2008] 117 TTJ (Delhi) 812 "Fees for technical services" - Not Made Available to receipt therefore not FTS. 35. Meakens Phillips v. Asstt. CIT (International Taxation) [2006] 287 ITR 227 (Mumbai) (AT) [sic-McKinsey & Co. Inc.(Philippines) v. Asstt. Director of IT [2006] 199 TTJ (Mum.) 857 : [2006] 284 ITR 227 (Mum.)(AT). It was held that when there was no material to suggest that the payment was for any services which enable the recipients of those services to apply ....
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....as no judicial precedent binding value whereas the authorities cited by learned AR are of Income-tax Tribunal or judicial authorities like Bombay High Court etc. 46. Now we deal with the judgments cited by CIT-DR Shri Ashwani Kumar in support of his case that the monies received by the assessee are FTS and should be taxed under section 44D on gross basis as per rates given under section 115A of the Income-tax Act. First case cited by him is CBDT v. Oberoi Hotels (India) (P.) Ltd. [1998] 231 ITR 148 (SC). He submitted that in this case the Oberoi Hotels was not only maintaining but also operating a hotel. Technical expertise was required for the same and the Hotel claimed deduction under section 80-O of the Income-tax Act. The second case cited by CIT DR is of the Supreme Court in Continental Construction Ltd.'s case (supra). Therein again it was held by Supreme Court that the professional services were technical services in nature and the assessee was entitled to deduction under Chapter VI-A of the Income-tax Act. The CIT-DR relied upon judgment of the Income-tax Appellate Tribunal in Dy. CIT v. Tristar Consultants [2004] 91 ITD 15 (Mum.) and stated that professional services we....
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.... tax on gross basis at the rate of 30 per cent by artificially invoking section 44D read with section 115A of the Income-tax Act, whereas a domestic company doing exactly the same works contract would be taxed at the rate of 2 per cent under section 194C of the Act and also would be subject to tax on its net profits without the application of section 44D. 49. We have given a careful consideration to the facts of the instant case and the arguments filed on this issue. The orders of Assessing Officer, the CIT(A), the arguments addressed by CIT DR, the written synopsis and the rejoinder filed by the assessee, copies of which have been given to CIT DR as well. In our opinion, a distinction between rendering of service and carrying out of a work is very important. Carrying out of work also may require technical expertise but it does not convert a works contract into a service contract. The Delhi High Court decision in the case of SRF Finance Ltd. v. CBDT [1995] 211 ITR 861 has very nicely brought out the distinction between the rendering of service and carrying out of work. Once this distinction is kept in mind, then if we look at the facts of the case, it will be clear that when the....
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....erating a power plant necessarily requires the operator to satisfy the owner that such expensive equipment and facility would be well taken care of. The operator would go about his business and would take all and every precaution to maintain the safety of the facility and would maintain the very expensive plant and equipment, follow proper procedures and also have trained staff at site so that there is no mishandling of this expensive facility while operating the plant. For this the operator, i.e., the assessee had to give detailed programme, plans as to how he would go about operating and maintaining the power plant. This is purely in line with normal prudent practice of carrying out of a works contract. It does not make available any skills or knowledge etc. to the owner. It does not convert a works contract into a service contract. Training of personnel of the owner under clause 8.3(iii) of the contract would take place three months before termination or cessation of the contract, i.e., in February 2007. During the currency of the contract when the assessee is carrying on its work of operating and maintaining the power plant, there is no training taking place whatsoever. It is f....
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....onstruction Ltd. (supra), the job in the case of Continental Construction Ltd. (supra) involved survey, soil investigation, design, detailed drawings and construction of all civil works and pipe lines and the designs and drawings were to be passed on to the client. The contract also envisaged necessarily that the assessee had to make available technical information to the client so that the client was able to use it for its own projects outside India. Thirdly, the training of employer's personnel was an important part of the contract. Fourthly, the contract was to be executed in close co-ordination with the client's personnel. All these factors were wholly absent in the case of the assessee. The assessee was operating and maintaining a power plant and was not developing and designing any plants which would enable Spectrum to operate the power plant itself. It was a contract with men and materials where all employees, equipments, service tools were that of the operator, i.e., assessee. There was no training of any work force of the client. The assessee was an independent contractor. There was no close co-ordination between the personnel of Spectrum and the assessee. Thus, the judgme....
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....considered the other aspects of the case that the agreement did not envisage any training of personnel or making available any skill, know-how, development and transfer of any design etc. as envisaged under section 9(1)(vii) Explanation 2 or Article 13.4(c) of the DTAA between India and UK by the assessee to Spectrum. The training in the pre-operational stage was of the assessee own work force. That was done prior to February 1997 which does not fall within this period. The training as cited by the CIT DR on plant of Spectrum personnel at the second stage was only at the time the contract was go come to an end after 10 years, i.e., February 2007. We do not know whether any such training was actually conducted by the assessee for Spectrum. For the years under our review, i.e., assessment years 1998-99 to 2004-05, there is no provision and the CIT DR has not been able to point out any provision in the contract wherein the assessee was to train Spectrum personnel. In the absence of any such training to be provided, it cannot be said that anything was made available by the assessee to Spectrum. What to talk of training, we have also seen from the contract that there was no personnel en....
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....mination: 1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected. 2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on the enterprises of that other State on the same activities in the same circumstances or under the same conditions. This provision shall not be construed as preventing a Contracting State from charging the profits of a permanent establishment which an enterprise of the other Contracting State has in the first mentioned State at a rate of tax which is higher than that imposed on the profits of a similar enterprise of the first mentioned Contracting State, nor as being in conflict with the provisions of paragraph 4 of Article 7 of the Convention." 54. In view of the above provision taxing of a non-resident U.K. company in a manner which is more b....
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....igned to it under Article 13(4)(c) of the DTAA to FTS under the treaty. Accordingly, assessee cannot be taxed on gross basis and section 44AD has no application to the facts of the instant case. Furthermore, Article 13(4)(c) read with Article 26 of DTAA does not permit the revenue authorities to discriminate against the assessee, a UK registered company and accord it less favourable treatment than a domestic company and therefore, section 44AD cannot be invoked in assessee's case. Thus, looking from any angle, the income received by the assessee from M/s. Spectrum was not a fee for technical services, we therefore direct the Assessing Officer to compute assessee's income and profit and gains of business from operation and maintenance of power plant of net profit and loss basis. We direct accordingly. 57. In the assessment years 1998-99, 1999-2000 and 2001-02, we have already allowed legal ground with respect to reopening of assessment under section 147 in favour of the assessee resulting in quashing the reassessment proceedings as a whole. However, the assessee has also raised issue with respect to merit of the income received from M/s. Spectrum which was brought to tax in the n....
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....sets would get reduced and that would not be subjected to tax separately. In case it exceeds the WDV of the Block of assets, then it would be brought to tax under section 50 of the Income-tax Act. We direct accordingly. 60. Ground taken by the assessee for Budge Budge project arises only in the assessment year 2000-01. Both the Assessing Officer and CIT(A) have in their orders stated that reason for treating these on gross basis is the same as in the O&M project. In fact, the Assessing Officer states "Therefore, the scheme of taxation of such receipts as discussed while considering the O&M Godavari project equally applies to the instant project as well. Since the agreement was signed before 31-5-1997, as per the provisions of section 115A, the gross receipt under the said agreement is taxable at the rate of 30 per cent". The CIT(A) has also repeated the arguments used by Assessing Officer for taxing it on gross basis as done in the O&M Godavari project. We have already held that on an interpretation of DTAA between India and U.K., Article 7, especially 7.5 and Article 13(4)(c), the nature of services is such that it would not fall within the definition of 'fees for technical ser....
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.... of assets, then it would become short-term capital gain of the taxpayer under section 50 of the Income-tax Act. The Assessing Officer is directed to follow our direction accordingly. 63. With regard to the ground taken for taxation of Foreign Exchange Fluctuation in assessment year 2002-03, there is no dispute to the well-settled legal proposition that if profit or loss on account of foreign exchange fluctuation arises out of capital assets, then it will be capital receipt and in case it arises out of trading business, then it should be treated as trading income. The Assessing Officer is directed to verify the same and act accordingly. 64. Ground with regard to taxing of same income both in assessment year 2002-03 and in assessment year 2003-04 arises in assessment year 2003-04. The Assessing Officer is directed to verify the same and in case it has been taxed twice, he is directed to tax it only in the year in which this income has arisen. We direct accordingly. 65. In respect to ground taken with regard to Margins on Liaison Offices, both the Assessing Officer and the CIT(A) have held that the assessee should have charged 15 per cent in addition to cost from its Head of....
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....oss to the assessee and has discussed this issue at page 22 of his order in which he has invoked the judgment of Calcutta High Court in the case of Universal Cargo Carriers Inc. v. CIT [1987] 165 ITR 209. The parts reproduced by him from the judgment are- "In view of the clear language of section 44D, it appears to us that while it is open to the assessee to claim adjustment of business loss of past years which have been carried forward against business income computed under the said section, it is not open to the assessee to put unabsorbed depreciation carried forward in the same bracket as carried over business loss and also seek such adjustment of the same qua loss." Again he has cited- "Incidentally, we note that in the scheme of the section 44D, the concept of business loss will be irrelevant inasmuch as in the computation of income under the said section, the income of the assessee cannot go below 'nil'." 68. CIT(A) confirmed the action of Assessing Officer and held that section 72 read with section 44D of the Act would not permit the set off of unabsorbed loss of earlier years against fees for technical services computed under section 44D of the Act. He similarly....
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....sions of law and continued to have eligibility for deduction of depreciation under section 32 of the Act which was also allowed to the assessee as per directions of the CIT(A). Therefore, even under section 32(2) there was depreciation element being allowed to the assessee. Similarly, for other business of the assessee, i.e., HBPL Augmentation Project, IOCL Project etc., depreciation was being allowed by the Assessing Officer himself. Therefore, even following the logic of the Calcutta High Court, carry forward of unabsorbed depreciation under section 32(2) had to be allowed to the assessee. On the other hand, ld. DR relied on the orders of lower authorities. 69. We have considered the rival contentions and given our careful consideration to the materials placed on record and are of the opinion that carry forward business loss is a statutory right allowable to the assessee by section 72 of the Act. This statutory right cannot be withheld from the assessee as this loss has been properly computed and allowed to be carried forward in the previous assessment years which have become final. Copies of the same have been filed before us. The manner of computation of profits and gains of....
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.... tax that a corporate entity whether Indian or foreign is liable for tax as a single entity by clubbing all income that arises to it from various sources against same head of income or under various heads of income. There is no provision in the Income-tax Act which requires a taxpayer to file tax audit reports for each separate business that it does. We, therefore, hold that the assessee was correct in filing a single tax audit report in respect of the sources of income of all businesses that it had in India under section 44AB of the Income-tax Act. 71. Grounds have also been taken against charging of interest under sections 234B and 234D in the assessment years 2001-02, 2002-03, 2003-04 and 2004-05. As far as charging of interest under section 234B is concerned, admittedly the entire income of the assessee, i.e., a foreign company is liable for deduction of tax at source under section 195 of the Income-tax Act. Therefore, in view of the decisions of the Delhi Special Bench in Motorola Inc. v. Dy. CIT [2005] 95 ITD 269, Sumit Bhattacharyya v. Asstt. CIT [2008] 113 TTJ 633 (Mum.) (SB), CIT v. Sedco Forest International Drilling Co. Ltd. [2003] 264 ITR 320 (Uttaranchal), DIT (Inte....