TaxTMI 
TaxTMI 
2016 (2) TMI 892
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....arties for the work done by them which falls under the provisions of section 194-J of the LT. Act. (ii) On the facts and in the circumstances of the case the ld.CIT(A) has erred in law and facts in holding that the amount paid to sub-contractors cannot be termed as technical services as per the definition in Explanation 2 to section 9(i)(vii) of the LT. Act, ignoring the facts that as per the terms and specification of BHEL the work can be done by the qualified Engineers and technical staff only, which comes within the purview of Technical Services u/s 194-J of the I.T. Act. (iii) On the facts and in the circumstances of the case the ld. CIT(A) has erred in the law and facts in applying the ratio of case law of provision to section 201(1) of the Act, as the same is incorporated in the Act from 1.07.2012 and not from the retrospective effect. (iv) That the appellant craves for the permission to add, delete or amend the ground of appeal before or at the time of hearing of appeal." 4. The aforesaid grounds are inter-connected, therefore, the same are disposed off collectively as under. Brief facts of the case are that M/s. Bharat Heavy Electricals Ltd. (BHEL), a Govt. Ente....
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....terial Handling work of 1 X 17.5 MW STG & 2X75 TPH HRSG at MSIL, Gurgaon, Haryana 1,43,33,585/- 2,78,257/- 3. M/s. Bhavani Erectors Pvt. Ltd., Kollam, Kerala Erection, testing, Commissioning and handing over of Electrostatic Precipitators Package of 3 X 500 MW units 1 - 3 at APCPL, Jhajjar, Distt. Jhajjar, Haryana. 6,58,28,175/- 12,02,612/- 4(i). M/s. Indwell Construction Pvt. Ltd., Vijayawada Erection, testing, Commissioning and trial operation of main boiler of unit no.2 of 3 X 500 MW units at APCPL, Jhajjar, Distt. Jhajjar, Haryana. 4(ii). M/s. Indwell Construction Pvt. Ltd., Vijayawada Erection, testing, Commissioning and trial operation of TG & auxiliaries of 3 X 500 MW units 1 - 3 at APCPL, Jhajjar, Distt. Jhajjar, Haryana. 13,29,13,484/- 22,31,867/- Total 44,13,90,207/- 77,64,321/- 4.2 From the perusal of details given by the assessee, the AO noted that the aforesaid four contractors had provided such services which fell under the purview of "Professional & Technical Services" and therefore, tax was liable to be deducted u/s 194J of the Act and not u/s 194C. In response to the show cause n....
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....mandates deduction of tax at 10% in respect of payments made towards "fee for technical services". Technical services has been defined in Explanation 2 to clause (vii) of sub-section (1) of section 9 as under:- Explanation 2 - for the purpose of the clause, fees for technical services means any consideration (including any lumpsum consideration] for the rendering of any managerial, technical or consultancy services (including the provision of service 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". This shows that construction activity has been kept out of the purview of section 194J. 6.1 The reading of clauses 6, 7 & 11 of the contract with M/s PCP International show that it is in the nature of contract for work and labour and the same is to be carried out under the supervision of BHEL engineers. Further, the contractor has to obtain materials including equipments and has to bare taxes on such materials. As per section 194C of the Act, any person responsible for paying any sum....
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....ors also come in the purview of IT Act and (he appellant has deducted the tax is u/s 194C from the payments made to it. The amounts paid to subcontractors is either for erection, installation, fabrication, commissioning, testing & trial operation of some parts of the Power Plant and therefore cannot be termed as technical services as per the definition in Explanation 2 to section 9 (1) (vii). 6.3 The basis of the AO to conclude that the scope of the contract comes under the provisions of section 194J since the testing, trial operations etc. cannot be handed by labourers but only be done by qualified engineers etc. is misplaced and misconceived as what is executed by the sub-contractors is erection/ installation, commissioning, testing & trial operation etc. which involves procurement of materials including equipments by the sub-contractors, fabrication etc. and thereafter installation, testing & trial operation which clearly in the scope of "work" as defined in section 194C of the Act. Any work of erection, testing, commissioning and trial operation etc. involves utilization of material and manpower. Manpower includes skilled professionals like engineers, technicians etc. and....
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....f the I.T. Act, ignoring the facts that as per the terms and specification of BHEL the work can be only done by the qualified Engineers and technical staff only, which comes within the purview of Technical Services u/s 194-J of the I.T. Act. He submitted that the ld. CIT(A) has also erred in the law and facts in applying the ratio of case law of provision to section 201(1) of the Act, as the same is incorporated in the Act from 1.07.2012 and not from the retrospective effect. Therefore, he pleaded to set aside the order of the ld. CIT (A) and restore that of the Assessing Officer. 7. Ld. AR for the assessee, reiterating the submissions made before the ld. CIT (A), submitted that the contract between BHEL and M/s PCP International Ltd., Chandigarh pertains to work to be carried out by the contractor as mentioned in scope of work. In this regard, he referred to various clauses of the contract as under :- (i) As per clause 1 of the contract, the contractor shall execute the work of "Erection, testing, commissioning and trial operation of Power Cycle Piping, Boiler and LP Piping packages for unit nos.1, 2 and 3 of 3 X 500 MW units at APCPL, Jhajjar Distt, Jhajjar , Haryana, and more....
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....d on the decision of the Hon'ble Supreme Court in the case of State of Himachal Pradesh vs. Associated Hotels of India Ltd. - (1972) 29 STC 474. Therefore, he pleaded that the sub-contracts by BHEL are in the nature of contracts for work and labour and not in the nature of Technical fee and the payments are in the nature of contracts covered u/s 194C and not in the nature of "Technical Fee" covered by u/s 194J. He further relied on the decision of ITAT, Pune Bench in Glaxosmithkline Pharmaceuticals Limited vs. ITO and Hon'ble Karnataka High Court in CIT vs. Nova Nordisk Pharma India Ltd. order dated 05.01.2012 in Appeal No.1262/2006. 7.1 He submitted that as per section 194J of the Ac, any person, not being individual or a HUF, who is responsible for paying to a resident any sum by way of fees for professional services or fess for technical services or remuneration to directors not chargeable u/s 192 or royalty or non-compete fees referred in section 28(va) shall deduct TDS @ 10%. He submitted that for this purpose, fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9. He submitted that in the light of CIT v. B....
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....vices" and the definition of technical services has been adopted as defined in Explanation 2 to clause (vii) of sub-section (1) of section 9 as under:- "Explanation 2 - for the purpose of the clause, fees for technical services means any consideration (including any lumpsum consideration] for the rendering of any managerial, technical or consultancy services (including the provision of service 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". A bare reading of the above definition of technical services it is vivid that construction activity has been kept out of the purview of section 194J of the Act. Now, when we go through the contract clauses 6, 7 & 11 with M/s PCP International shows that it is in the nature of contract for work and labour and the same is to be carried out as per the drawing and specification given by the assessee and under the supervision and satisfaction of BHEL engineers and the contractor has to obtain materials including equipments and has to bare taxes on such ....