TaxTMI 
TaxTMI 
2010 (3) TMI 1112
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....ouse at Burla, Orissa. It was the submission that one of the associated concerns of the assessee being M/s. Siemens Ltd. was also awarded part of the contract. As per the agreement the assessee was required to supply material and equipments and to run the supervision in respect of renovation, modernization and upgradation of units 3 & 4 of Hirakund Power House. It was the submission that the assessee in its appeal has challenged the issue of the action of Ld. CIT(A) in holding that the assessee had permanent establishment in India in ground No.5 of grounds of appeal. It was the submission that the said ground was not being pressed and consequently it was accepted that the issue of existence of permanent establishment of the assessee in India is not being disputed. It was also the submission that the issue of taxability as held by the Ld. CIT(A) in respect of the income of the assessee for the training charges was also not in dispute. It was the submission that the dispute was only in relation to the supervision charges received by the assessee on account of erection, supervision, commissioning etc. It was the submission that the assessee had entered into contract with OHPC by which....
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.... to clause 1.20 which defines the "Performance Guarantee Test/ Performance Test" to mean such tests as are prescribed in the specification to be done by the Contractor being the assessee herein, before the Plant is finally taken over under guarantee by the Purchaser being OHPC. He also drew our attention to clause 1.27 which defines "supervision" to mean successive control and directions given by the Contractor in relation to Contract work during execution of the Contractor's and/or his subcontractor's work. The further drew our attention to clause 1.37 which defines the term "works" shall mean and include all works specified or set forth and required in any of the specifications, drawings and schedules hereto annexed or referred to or to be implied therefrom or incidental thereto or to be hereafter specified or required in such explanatory instructions and drawings as shall from time to time during the progress of the work hereby contracted for, be supplied by the Purchaser and to be supplied, modified/repaired/renewed and executed by the Contractor under the Contract. 3. It was the submission that the words as defined in the contract were to be given specific meaning as provid....
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....ng work. k) Supervision of dismantling, supervision of repair, supervision of civil engineering work & erection, including supervision of specialized erection services and other supervision services for complementation of the RM & U work. l) Supervision of Startup trail runs and commissioning services. m) Demonstration and establishment of performance guarantee parameters. n) Quality control and adherence to time schedule, control of site work and other Indian works." 5. It was the submission that in the said clause, the services mentioned in sub-clause (b) to (i) were outside India services and the work specified in sub-clause (a), (j) to (n) were the work in India. It was the submission that as per the said clause 2.2.1(j), the assessee was to coordinate the site work and other engineering works and as per clause (k) supervise the dismantling, repair, civil engineering work and erection as also specialized erection services for the completion of the work. It was the submission that as per clause 2.1 extracted above, the scope of the work showed that the possession of site till the successful commissioning and the establishment of performance....
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....as per the contract the assessee was duty bound to complete the turnkey project lock stock and barrel within the time specified and the assessee had the responsibility to see to it that the sub-contractor and other contractors who were functioning in the completion of the contract, complete their allotted work within the time frame itself. Otherwise the assessee has to do such work to see to it that the project is completed on time. It was the submission that as per clause 4.9 the assessee was liable for liquidated damages in the event of any failure other than the reason of force majeure and those attributable to OHPC. It was thus the submission that as per the terms of contract entered into by the assessee with OHPC, it was the sole and exclusive responsibility of the assessee to handover the turnkey plant fully functional to OHPC within the time frame specified. He also drew our attention to the provisions of Section 9(vii) of the I. T. Act, 1961, which for the better understanding, is extracted as follows: "9. (1) The following incomes shall be deemed to accrue or arise in India:- (vii) income by way of fees for technical services payable by - (b) a p....
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....es" during erection, startup and commissioning etc did not fall within the mischief of the provisions of Section 9(1)(vii) of the Act. 8. He further drew our attention to Section 44BBB of the Act which is extracted as below: "Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects. 44BBB - (1) Notwithstanding anything to the contrary contained in sections 28 to 44AA, in the case of an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf, a sum equal to ten per cent of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". 9. It was the submission that as per the provisions of Section 44BBB the condit....
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....n that the business of erection of plant & machinery and testing and commissioning thereof was to be read together in connection with the turnkey power project approved by the Central Government and the testing and the commissioning was not to be read disjunct of the business of erection of plant & machinery. He further drew our attention to the contract entered into by the assessee with OHPC in Article 1.1 and 1.2 which reads as follows: Article 1: 1.1 "In consideration of the price of EURO 12 817 348 (twelve million eight hundred seventeen thousand three hundred forty eight EURO) to be paid by the PURCHASER to the CONTRCTOR, the CONTRACTOR hereby covenants with the PURCHASER to undertake design including design modification, engineering, manufacture, shop testing and inspection for and supply of imported equipment and materials including commissioning spares, mandatory spares, spars for two years normal operation and maintenance, drawings and documents on CIF basis (Incoterms 2000), training of Purchaser's personnel in Germany and supervision of erection, testing, commissioning and demonstration, and establishment of Performance Guarantee Parameters and handing over r....
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....sessee and the OHPC and the agreement with Siemens Ltd. was with OHPC and there was no tripartite agreement. It was the further submission that the performance guarantee test was basically to test whether the erections as done by Siemens under the supervision of the assessee was properly done. It was the further submission that the supervision responsibility of the assessee extended to the last stage to see to it that the erection and commissioning had been done properly prior to the handing over of the project. It was the further submission that in the provisions of Section 44BBB the words used were business of erection of plant & machinery and the term supervision was absent. It was the submission that it was not as if the legislature did not understand the meaning of the concept of supervision regarding providing the services as in the provisions of Section 44BB the words business of providing services or facilities is used. It was the further submission that Explanation (2) to Section 9(1)(vii) provided for the exclusion of receipts for construction, assembly, mining or like projects undertaken by the recipient. In the assessee's case, the assessee did not receive any considera....
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.... 1st October 2003. This agreement was found at pages 12 and 13 of the paper book. This agreement it is found has been produced before both the lower authorities but neither has referred from the same. Even in the course of the arguments, other than referring to this agreement as the agreement in regard to the sub-contracting of the contract work entered into by the assessee with OHPC, no detailed reference has been made to it. But this agreement, it is noticed does give a clear picture of the nature of the work and the scope of work of the assessee in the main contract with OHPC. For better appreciation the said contract is extracted here:- "AGREEMENT This agreement is made on 1st day of October, Two Thousand and Three. BETWEEN Voith Siemens Hydro Kraftworkstechnik GmbH & Co. KG having its registered office at Alexanderstr. 11, D- 89522 Heidenheim, Germany, hereinafter referred to as "VSHK" and shall include its successors and permitted assigns on one part. AND Voith Siemens Hydro Private Limited, having its registered office at PO Industrial Estate, Nacharam, Hyderabad - 500076(A.P.), India, and hereinafter referred to as "VSID....
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....bsp; VOITH SIEMENS KRAFTWERKSTECHNIK HYDRO P. LTD. GMBH & Co.KG Sd./-  ....
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....he assessee has agreed to pay the sub-contractor Euro 11,000/- per calendar month per main supervisor and Euro 8,000/- per calendar month per assistant supervisor. What is noticed here is that as per the sub-contract the payment is not for any construction work or any assembly work or any dismantling or repair or erection work that is to be done by the sub-contractor. The sub-contract is for the supply of supervisors for the supervision of the project contract entered into by the assessee with OHPC. Here it is also noticed that the assessee has not produced before any of the lower authorities or before us any evidence to show how the assessee or the assessee thru its sub-contractor has indulged in any activities, which can be termed construction, assembly or erection. The assessee if has indulged in any of the said activities would have incurred substantial expenses in the form of wages, tools, etc. No such expenses having been incurred have been shown. Just because the employees of the assessee or its sub-contractor have given directions to the personal working at the site but employed with another contractor it cannot be said that the assessee has done the business of erection or....