TaxTMI 
TaxTMI 
2016 (6) TMI 728
X X X X Extracts X X X X
X X X X Extracts X X X X
.... file the appeal against the order of Section 195(2) of IT Act. 3. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in not appreciating the fact mentioned in para 4 of order u/s 195(2) that the income is accruing or arising in India. 4. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in not appreciating the fact that DTAA (between India and UAE) benefit is not available to the consortium. 5. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in not appreciating the fact that consortium is working through 'dependent agent' namely M/s Abu Dhabi Ship Building PJSC and the dependent agent is a form of Permanent Establishment of Abu Dhabi Ship Building PJSC in India." 3. Brief facts are, Oil and Natural Gas Commission (ONGC) entered into a contract with Abu Dhabi Ship Building PJSC and Rodman Polyship, Vigo, Spain, a consortium of two companies for construction of nine number of Immediate Support Vessels (ISV). After completion of trials, the vessels in sea worthy state are to be delivered to ONGC at Mumbai. ONGC filed application on 4th October 2012, before t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ven partly. However perusal of the article 6.4 (page no.9) of the contract describes assignment. The above clause is read as under; "The contractor shall not, save with the previous consent in writing of the ONGC, sublet/subcontract, transfer or assign the contract or any part thereof in any manner whatsoever. However such consent shall not relieve the contractor from any obligation, duty or responsibility under the contract." Further as per the article 25 (page no.26) of the contract which speaks about preference to local companies it is stated; "The contractor agrees to give priority and preference to locally owned companies when hiring subcontractor, subject to price, quality & delivery being equivalent." "25.1 Contractor shall source the fuels like petrol, diesel etc if required for carrying out the works/services covered under this contract from M/s Mangalore Petrochemicals Limited, Mangalore (a subsidiary of ONGC) wherever feasible." As per article 30 (page no.98 of the agreement) the following conditions should apply as regards subcontracting of any portion of work pertaining to design, engineering, procurement, fabrication, transportation, installation, lop side....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtium) and 2% as per the copy of contract between the Indian agent & Consortium (para 3.1 of the agency agreement) as furnished by the agent. However audit report of the Indian agent for the year ended 31st march 2102 states commission receivable to be 0.5% of the contract value. The consortium is dependent upon the agent for its activities in India. The activities of the agent are not limited to purchase of goods or merchandise for the consortium. Verification of the P&L account of the agent shows that the agent has no commission income or to say any other source of income which can show that the agent has acted in his normal course of business. As per the audited P&L account of year ending 31st march 2012, shows only income from crane hire charges of Rs. 1,66,10,493/- & crane mobilization charges of Rs. 2,70,000/-. The other income (Rs.42,84,165/-) shown is dividend, interest, foreign exchange fluctuation, prior period income From the copy of agency agreement it is found that the Indian agent is engaged for following activities; The agent would provide consultancy to the consortium on exclusive basis. The consortium would not appoint any other agent for the project. *....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the course of hearing of appeal before the first appellate authority, making elaborate submissions, it was stated that as per the contract with the ONGC, the consortium is to construct nine ISVs on turnkey basis. It was submitted, these lightly armed surface vessels are to be deployed in open seas as well as in coastal waters and primarily meant for deployment in ONGC's off-shore development area under the command of Indian Navy for day and night surveillance, high speed interception of small intruder vessels and anti terrorist operations and also for carrying out rapid insertions / extractions of marine commandos for ship / off-shore intervention. Referring to the contract entered with the ONGC it was submitted that as per the terms of the contract and inter-se arrangement between the partners of the consortium Abu Dhabi Ship Building PJSC is to build four ISVs at its Abu Dhabi Shipyard, UAE and Rodman Polyships is to build five ISVs at its Shipyard in Spain. It was submitted by the assessee as per the terms of section 195(1), any income chargeable under the provisions of the Act is subject to deduction of tax at source. It was submitted, as per the delivery schedule under the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nstruction of vessels at Abu Dhabi till it is fully seaworthy. Thus, transactions of sale between the assessee and ONGC being on principal-to-principal basis and no part of such transaction having taken place in India, it cannot be said that any business connection is there to attract the provisions of section 9(1)(i). The assessee submitted, even transportation cost of vessels from Abu Dhabi to Mumbai though paid by the assessee was also included in the contract value. It was submitted, as per the scope of work, delivery of nine ISVs along with spares / accessories, etc., are to be completed in 20 months from the date of contract. Thus, the assessee has to deliver the vessels complete in all respect to ONGC at its shipyard at Abu Dhabi after raising invoice for the last and final installment of 10%. Only after such payments, vessels are to be shipped to India. Of-course, the assessee has to comply with formalities as per the applicable rules of Director General (Shipping) of India. Thus, the entire work of construction of vessels having taken place outside India at Abu Dhabi Shipyard and Spain, there is no business connection in India. It was also submitted, there is no service co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....GC from the bills raised and after TDS. Referring to certain clauses of the contract between the assessee and ONGC, the learned Commissioner (Appeals) observed, TEIL is supposed to provide information and assistance to assessee in pre and post tendering activities and to provide counsel, guiding facilities after contract is awarded, for carrying out related study and analysis for the consortium, provide legal, financial and procedural aspects. He was of the view that these services do not in any manner constitute the services of an agent to be treated as agency P.E. as per the treaty. He observed that though TEIL has been termed as agent in the agreement, but it cannot be regarded as agent for the purpose of Article-5 of the treaty since TEIL has no authority to conclude contract or for delivery of vessels or maintenance of vessels, etc. Further, the commission is payable directly by ONGC after TDS by adjusting from the bills raised by the assessee. Further, on examination of copy of annual book of TEIL, for the year 2011-12, he found that the total revenue of TEIL for that financial year is ` 211.64 lakh and for financial year 2010-11 is ` 288.68 lakh, whereas, the total commissio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....including attainment of full dead weight and completion of the vessels is to be done by the assessee as per specification of manufacturers of various equipments and machinery and specified operational parameters in the presence and to the satisfaction of the class. societies, representatives after minimum four weeks' notice to the ONGC to remain present during the trial. Any defects noticed in the trial shall be rectified at the earliest by the builders and further trials shall be carried out to the satisfaction of class societies for ONGC representatives. Though, final acceptance trial is to be done at Mumbai before delivery of the vessels, however, it is only for the purpose that the vessels are constructed in accordance with the plan and specifications and it is seaworthy in actual sea condition at Mumbai where it is to be used. Thus, the learned Commissioner (Appeals) concluded though, the final acceptance and trials were to be conducted at Mumbai and vessels were delivered to ONGC at Mumbai at the cost of the assessee, but actually the assessee has handed over the vessels to the representatives of the ONGC in its shipyard outside India after conducting trials and removal of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 246A, learned Departmental Representative submitted, nowhere in the said provision order passed under section 195(2) has been referred to. He submitted, the appeal filed by the respondent before learned Commissioner (Appeals) being not maintainable under section 246(1), should have been dismissed at the threshold. Learned Departmental Representative submitted, the learned Commissioner (Appeals) while deciding the issue in favour of the assessee has relied upon the clauses of Indo-UAE DTAA, however, the said DTAA is not applicable to consortium. He submitted, though, the assessee had claimed that ONGC has made payment to it directly, hence, it is an affected party but the said submissions of the assessee is misleading and incorrect as ONGC had made payments to the assessee as a leader of the consortium and for and on behalf of the consortium. In this context, he referred to clause (3) of the MOU. Thus, it was submitted by the learned Departmental Representative, payment made by the ONGC was to consortium and the assessee had only received it on behalf of the consortium as its leader. That being the case, the benefit as per DTAA is not available to the consortium as it is not a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arned Authorised Representative submitted, all invoices pertaining to the contract for construction of the ISVs were raised by the assessee only and payments were also received part of which the assessee in turn pays to the other member of the consortium on the basis of the cash flow it gets from the ONGC. Thus, the assessee being a person aggrieved by order passed under section 195(2), is entitled to file an appeal under section 246A. For such proposition, he relied upon the following case laws. i) Kikabhai Abdulali v/s ITAT, 32 ITR 762 (Bom.); ii) CIT v/s N.Ch. Row & Co., 144 ITR 557 (Cal.); iii) CIT v/s Hindustan Steel Ltd., 45 Taxmann 273 (Cal.); iv) Shankarrao Sathwane v/s ITO, 89 ITD 611 (Hyd. Trib.); v) Chittaluri Peda Venkaa Subhaiah v/s ITO, 6 ITD 507 (Hyd. Trib.); and vi) Jyoti Tin & Allied Industries v/s ITO, 44 ITD 743 (Hyd. Trib.) 10. As far as the contention of the learned Departmental Representative that an order passed under section 195(2), is not appealable under section 246(A), as it is not specifically mentioned in section 246A, the learned Authorised Representative referring to the language employed under section 246A submitted that an order against the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....India, the learned Authorised Representative submitted as per the terms of contract, operations pertaining to construction of vessels were carried out outside India. Learned Authorised Representative submitted, only because vessels were delivered in Mumbai, it does not establish business connection in India. Referring to the payment schedule as per the terms of agreement the learned Authorised Representative submitted that payment of last 10% of the contract value has to be made at the time of delivery of the vessels complete in all respect including certification, documentation, ready to commence voyage to destination port at Mumbai. Therefore, entire payment has to be made by the ONGC to assessee at the time of delivery before commencement of voyage to India. He submitted, as per the terms of agreement, construction of vessels is to take place at contractor's designated shipyard at Abu Dhabi and Spain. Learned Authorised Representative submitted, as per the terms of contract, the delivery of the vessels is done when it is complete in all respect and ready to commence voyage to its destination port in Mumbai. Countering the argument of the Department that delivery of the vessels w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the MOU reached between the parties. Learned Authorised Representative submitted, the plea of the Department that treaty benefit would not be available to the assessee or the consortium is unacceptable. He submitted, the consortium is not a partnership since each member has its own responsibility inter-se and they bear their own costs. He submitted, as the assessee is a company established in UAE treaty benefit would be applicable to the assessee. Referring to the decisions relied upon by the Assessing Officer, learned Authorised Representative submitted the ruling of the AAR in the case of Schellenberg Wittmer, 253 CTR 178 is not applicable to the facts of the present case as in that case, as per Indo Spain DTAA partnership firm is not a person. Whereas, there is no such provisions in Indo UAE DTAA. As far as the AAR ruling in the case of Linde A.G. 249 ITR 172 by the AAR, the learned Authorised Representative submitted the said decision has been overruled by the Hon'ble Delhi High Court in S.A. Builders v/s CIT(A), [2007] 365 ITR 001 (Del.). Further, the learned Authorised Representative submitted, the benefit of DTAA would be available to the consortium members as ADSB is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n make an application to the Assessing Officer to determine by an order the appropriate portion of such sum chargeable to tax so that tax shall be deducted on such proportion of the sum determined as chargeable to tax. Sub-section (3) of section 195 also provides an option to the recipient of income to make an application in the prescribed manner to the Assessing Officer for grant of a certificate authorising him to receive such interest or other sum without deduction of tax at source subject to fulfillment of conditions laid down as per rules made under sub-section (5) of section 195. Section 246A lays down the provision for filing of appeal before the first appellate authority by an assessee or deductor or collector of tax aggrieved by an order passed under certain provisions of the Act as enumerated under different clauses of section 246A. On a careful reading of section 246A, we find there is no mention of an order passed under section 195(2) as an appealable order. The only provision we could locate in the Act under which an appeal is provided before the learned Commissioner (Appeals) against an order passed under section 195 is section 248. However, an appeal under section 24....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o. If we read the provisions of section 246A as a whole, it would emerge that the order appealed against must be an order against the assessee determining its liability to be assessed under the Act. In the present case, the order passed u/s 195(2) admittedly is not against the assessee but against ONGC. Moreover, the liability of the assessee to be assessed under the Act can only be determined in an assessment proceeding and not under section 195(2). Therefore, the party which could have challenged the order passed under section 195(2) before the learned CIT(A) u/s 248 is ONGC subject to fulfillment of conditions mentioned therein. Right to appeal under the Income-tax Act is a statutory right. Therefore, right to appeal does not exist unless it is specifically conferred by the statute. On a careful reading of the provisions of the Act, it is found, a specific provision has been engrafted into the Act by way of section 248 under which an appeal against an order under section 195 can be filed that too, by the payer / deductor of tax. Therefore, when there is a specific provision for filing appeal against an order u/s 195(2) by a specified person, the appeal before the first appellate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y holding that the appeal is in respect of an order against the assessee where the assessee denies his liability to assessee under the Act. In the present case, the order passed under section 195(2) is not against the assessee. Therefore, this decision is not applicable to the facts of the present case. 17. In the case of M. Anandan (supra), the facts are almost similar. In this case, assessee challenged the order passed under section 143(1), claiming that the pension earned by him was not taxable in India in terms of DTAA. The appeal filed by the assessee under section 246(1) was held maintainable before the learned Commissioner (Appeals). Thus, as could be seen, the order challenged before the first appellate authority was passed against the assessee. 18. In the case of Shri Bhogavati Sah. Sakhar Karkhana Ltd. (supra), the issue was an order raising demand under section 206C of the Act was passed against the assessee on his failure to collect tax at source. Though, order passed under section 206C was not specifically mentioned under section 246, however, the Tribunal took a view that the expression "assessee denies his liability under the Act" would make the order appealable un....