TaxTMI 
TaxTMI 
2011 (12) TMI 324
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....he grounds raised by the assessee in both the years give rise to the following two issues. (a) Validity of notice issued under section 148 of the Act. (b) Nature/taxability of the amount received by the assessee for supplying technical materials to M/s HSL. 3. The facts relating to the issues are stated in brief. The assessee herein viz., M/s. FSUE Rosoboronexport, Moscow is having required expertise to carry out repair works of submarines. M/s. Hindustan Shipyard Ltd. (hereinafter referred as 'HSL') is a Public Sector Undertaking engaged in ship building, ship repairs, etc. The Indian Navy wanted to get its submarine named "Sindhukirti" repaired by M/s HSL. The required approval was given by Govt. of India to undertake repairs by M/s HSL through their proceedings dated 25.06.2002. In the approval letter itself, it was stipulated that technical assistance and collaboration agreements are to be entered with ROE, Russia and the same shall be included in the contract that will be executed between HSL and Indian Army. Accordingly, M/s. HSL entered into a service contract on 03.10.2005 for medium repair and upgradation of naval submarine INS Sindhukriti with Admir....
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....ocessed under section 143(1) of the Act by accepting the return of income. The details of processing of return relating to the assessment year 2007-08 are not clearly emanating from the record. However, the undisputed fact remains that the Assessing Officer initially did not carry out any assessment under section 143(3) of the Act in these two years. Subsequently, the assessment of both the years under consideration was reopened by issuing notice under section 148 as the assessing officer was of the view that the above said considerations received by the assessee herein from M/s. HSL are in the nature of fee for technical services, which are liable to tax under the Act. For the assessment year 2006-07 the notice was issued on 25.03.2010 and for the assessment year 2007-08, it was issued on 26.04.2010. The assessing officer forwarded a draft of the proposed assessment order to the assessee as per provisions of Section 144C (1) of the Act for both the assessment years, wherein he had treated the entire amounts received by the assessee for supplying the technical documents as "fee for technical services" and accordingly determined the total income. The assessee filed its objections wi....
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....at there is a change of opinion cannot be taken in the impugned case. 7.3 The AR also relied on the case of CIT v. Kelvinator of India Ltd., (320 ITR 561) to state that tangible material must be available for reopening an assessment. In this case it is held by the Supreme Court that concept that change of opinion on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the amendment in section 147 w.e.f. 01.04.1989. In the present case, since there was no scrutiny assessment and no opinion expressed earlier, the Assessing Officer has validly reopened the proceedings. In so far as originally the return was merely processed under summary scheme there cannot be any debate whether there was any change of opinion in the case. Hence, the argument of the assessee that reopening is not tenable in law is incorrect." 4.1 We have heard the rival submissions on this issue and carefully perused the observations of Dispute Resolution Panel. Before us, the assessee did not file any material to counter the observations made by Dispute Resolution Panel. Further, the assessee did not make out a case to show that the Explanation 2 to section 147 is not applicabl....
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....L and Indian navy, which fact, reinforces the contention of the assessee that these documents can only be categorized as "Goods". However, he fairly conceded that there is no such agreement for transfer of "Detailed Report Project", referred supra. 5.1 In support of various submissions made above, Ld A.R relied upon the following case law: (a) Nisho Iwai Corporation Re. by RINL v. ACIT - Order dated 22.06.2010 passed by ITAT, Visakhapatnam. (b) Scientific Engineering House (P.) Ltd. v. CIT [1986] 157 ITR 86/[1985] 23 Taxman 66 (SC) (c) Jt. Stock Company Foreign Economic Association "Technopromexport", In re [2010] 322 ITR 409/189 Taxman 337 (AAR - New Delhi) (d) Parsons Brinckerhoff India (P.) Ltd. v. Asstt. DIT [2008] 24 SOT 341 (Delhi) (e) CIT v. Maggronic Devices (P.) Ltd. [2010] 190 Taxman 382 (HP) (f) Tata Consultancy Services v. State of AP [2004] 141 Taxman 132 (SC) (g) DIT v. LG Cable Ltd. [2011] 197 Taxman 100/9 taxmann.com 51 (Delhi) (h) Grasim Industries Ltd. v. S.M. Mishra, CIT [2011] 199 Taxman 184/10 taxmann.com 355 (Bom.). 6. The Ld D.R submitted that the "Repair Technical Documents" and the "Detailed Project ....
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....t certain types of income, which might have accrued or arose outside India, are deemed to accrue or arise in India. The clause (vii) of sub-section (1) of sec. 9 is relevant to the issue under consideration and for the sake of convenience, we extract the same below:- (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India; [Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government] [Explanation 1 - For the purposes of the foregoing proviso, an agreement ma....
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....) of the Act. The department's stand is that the impugned amounts are "Fee for technical services" only. It is pertinent to note that the territorial jurisdiction to be seen in respect of "non-resident" shall not be applicable in respect of "fee for technical services" as per the Explanation to sec. 9(2) of the Act, which reads as under. This Explanation was substituted by Finance Act 2010 w.r.e.f 01-06-1976 in the place of old Explanation. "[Explanation - For the removal of doubts, it is hereby declared that for the purposes of this section, income of a nonresident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,- (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India.]" 10. The Learned A.R took support of the decision rendered by Hon'ble Supreme Court in the case of Tata Consultancy Services (supra) in support of his contention that the technical documents supplied by the assessee to M/s HSL in the form bound book....
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....he courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgement, divorced from the context of the questions under consideration by this court, to support their reasonings. In Madhav Rao Jivaji Rao Schindia Bahadur v. Union of India (1971) 3 SCR 9; AIR 1971 SC 530, this court cautioned (at page 578 of AIR 1971 SC): "It is not proper to regard a word, a clause or a sentence occurring in a judgement of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgement." 5.7 Hence, the reliance placed by the Lr. AR on the judgement of the Supreme Court in the case of M/s. Tata Consultancy Services Ltd., does not preclude the department from bringing to tax the consideration paid simultaneously as a payment towards fee for technical services." We have also carefully gone through the above said decision of Hon'ble Supreme Court. We feel that the following observations made by Hon'ble Supreme Court are pertinent here. "The expression "goods" is not a term of art. Its meaning varie....
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....articularly when it is tailor made for the specific requirements of a person. The Ld A.R drew our attention to the insurance documents, Customs Act documents in support of his contentions that the impugned technical materials are "Goods". However, on these documents, we are inclined to agree with the view of the DRP that they are not decisive factors. Since these technical documents involve payment of huge amount, it is quiet natural for a person (here M/s HSL) to insure the same against any possible damages. Similarly no material could enter the Indian territories without clearance from the customs authorities. 13. Now we shall examine the various case law relied upon by the Ld A.R. In the case of Scientific Engineering house (P) Ltd. (supra), the Hon'ble Supreme Court has rendered its decision in the context of allowability of depreciation on technical documents. In the case of Nisho Iwai Corporation Rep. by RINL, (supra), the said company had supplied machinery also along with designs and engineering drawings and hence the Tribunal had held that the said Design and Engineering drawings are also in the nature of plant. Similar was the case in the case of Jt. Stock Company Fo....
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...., the agreement entered between the assessee, M/s ROE and M/s HSL describes the assignment as "Technical assignment on development of repair technical documentation for medium repair and modernization of Order 877EKM...". The Ld A.R submitted that the impugned technical documents are transferable, which is one of the characteristics attached to "Goods". In this regard, he also invited our attention to clause no.2.3.1 entered between M/s HSL and Indian Navy, according to which the impugned "Repair Technical Documents" are considered to be the property of Indian Navy. However, as observed earlier, we are required to examine about the taxability of the impugned receipts from the point of view of M/s ROE, who has supplied these documents. Accordingly, in our view, the contract entered between M/s HSL and the Indian Navy may not be relevant for determining the issue under consideration. For a moment, if we assume that the impugned "Repair Technical Documents" are procured by Indian Navy directly from M/s ROE, will it change the scenario about the tax implications in the hands of M/s ROE. In our view, the nature and substance of the transaction shall remain the same in the instant case w....