TaxTMI 
TaxTMI 
2014 (9) TMI 312
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....see is a tax resident of Thailand. It is engaged in the execution of DKOL damn hydroelectric power project of NTPC as a sub-contractor of Italian Thailand development company ltd, Thailand(hereinafter referred to as ITDL). It has filed its returns of income regularly. 3. The first issues that arise for our considerations for the AY 2005-06 is allowability of expenses incurred by the HO, which is located in Thailand, for the Indian project. The AO disallowed the amount on the ground that they are initial startup expenses and hence are in the capital field. The Ld. CIT(A) confirmed the disallowance, by observing that the AO has recorded that no supporting documents were submitted and that the assessee has not filed any details before him. Aggrieved the assessee is in appeal before us. 4. The Ld. Counsel for the assessee Mr. Subodh Gupta filed a paper book consisting of 144 pages and drew the attention of the bench to pages 25 and 26 and also to the written submissions made before the Ld. CIT(A), which is at pages 1 to 9 of the paper book and argued that vide letter dated 10.12.2007, complete name-wise and month-wise list of salary of expatriate staff was furnished. He disputed ....
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....otocopy of all the vouchers have been furnished before the bench in the form of a paper book, and as it has been brought to our notice the letter addressed by the assessee, wherein the required details were filed with the Assessing Office, under the circumstances, in the interest of justice, we set aside the matter to the file of the AO for verification of the details. As regards the issue as to whether the expenditure is in the revenue filed or in the capital field, we are of the view that the expenditure, is project expenditure, and hence these are revenue in nature. The expenditure was claimed as incurred in connection with a contract. In the result this ground of the assessee is allowed for statistical purposes. 7. Ground number 2 is a common ground for all the four AY`s and pertain to disallowance u/s. 40(a)(i)(a) for non compliance of section 195. The assessee has claimed expenditure on account of machinery hire charges for all the years. It had hired the said machinery and paid hire charges, to Italian Thailand Development Co.Ltd. (ITDL for short). Tax was not deducted at source as per the provisions of the Act. The Assessing Officer invoked the provisions of S.40(a)(i) o....
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.... 4.9 The Main Contractor agrees to provide all construction and consumable materials for the contractor and the expenses thereof shall be deducted in stages on a monthly basis from the Contractor's monthly payments at original cost 4 From the reading of above clauses as part of the contract conditions, the provision of drilling WOLF machines were to be provided by the Main Contractor on such terms and conditions as it may consider appropriate in -his discretion. Taking the failure of the conditions of the contract, the ITO (main contractor) provided its own machine to continue the work on chargeable basis and which were adjusted against the monthly payments dues to the contractor by calling it as 'Hire Charges'. 5 The aforesaid hire charges for the machines obtained from ITO, were never intended to be paid nor paid as same were to be adjusted against the contract dues of the assessee and were only a VARIATION in contract which the value has been determined as Hire Charges. Therefore, assessee took the view that it is a person 'person responsible for paying' for tax deduction u/s 195.....
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.... has provided certain machinery on "hire" to the assessee company on chargeable basis. ILD has charged hire for the machinery provided to the assessee and raised bills on the assessee towards "Hire charges". Copies of invoices raised have been placed in the paper book. At page 32 of the paper book, for the Assessment Year 2006-07, the invoice raised by ITDL on the assessee company bears the following description "equipment rental (October,2005)". From this description, it is clear that the bill was for equipment hire. The assessee relies on Clauses 1.2, 3.1, 3.3, 4.3, 4.7 and 4.9 of the contract entered by it with ITDL. A perusal of these Clauses does not in any way support the arguments of the assessee that these payments were not, in substance, rental payments made by the assessee to ITDL. Just because certain obligations, terms & conditions etc. have been agreed to between the parties, it does not lead to a conclusion that there is no hirer and hiree relationship. The fact remains that the assessee bills ITDL for the total contract work done and ITDL also bills the assessee for hire charges payable. Method of settlements of accounts is of no consequence. Even a credit entry attr....
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....that time. 6.2 In the present case the appellant was to receive its contract dues for the work done from the main contractor (lTD) on the basis of a monthly statement giving details of all work done during the month (Article 6 of the contract -Payment Statement). Thus every month the appellant was submitting a monthly statement to ITD for the contract dues and getting payments for the same after adjustment of hire charges. Thus every month the appellant was crediting hire charges to the payee's account. Admittedly such credits to the payee's account have made on account of hire charges which forms the basis of the appellant's claim of such expenses in the P&L account and in the return of income. In terms of "payment thereof' also the adjustment of the appellant's dues with hire charges by the payee at regular intervals amounts to "constructive payment". However, the appellant has failed to deduct tax from these payments at the time of credit to the payee's account or at the time of constructive payment in terms of provisions of section 195. 6.3 The appellant has contended that the true nature of the tra....
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....ave filed detailed and reasoned replies during the course of assessment proceedings itself. On a perusal of the appellant's replies filed during the course of assessment proceedings it is seen that the appellant was specifically asked about tax deducted at source from the payments made to the non-resident company. The appellant furnished its replies vide letter dated 29.11.2007 and 14.12.2007 to these specific queries and therefore the appellant plea about violation of principles of natural justice, is without any basis. An extract of the appellant's replies in this regard from the above mentioned letters is reproduced below- Letter dated 29.11.2007, page 3- "The assessee has not received/ nor obtained any order u/s 195(2) for the afore said assessment year. " Letter dated 14.12.2007, page 2 - "No tax has been deducted from these charges as the machines were taken on hire without operator and all the running cost has been borne by the assessee company. In view of above, no TDS is required to be deducted on the above. It is also submitted that ;as per provisions of the Act prevalent during the relevant year, no tax ;was....