TaxTMI 
TaxTMI 
2022 (1) TMI 1314
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....he order of Commissioner of Income Tax (Appeals)-19, Chennai in ITA No.70/17-18, vide order dated 31.07.2018. The assessment was framed by the DCIT, Company Circle V(2), Chennai for the assessment year 2010-11 vide order dated 30.03.2014 u/s.143(3) ITA No.3015/Chny/2018 2. The only issue in this appeal of Revenue is as regard to the order of CIT(A) deleting the addition made by the AO on account of disallowance of expenses by invoking provisions of section 40(a)(i) of the Act, on account of refurbishment charges paid to M/s. Marubeni Corporation, Japan. For this, Revenue has raised following grounds:- 2. The learned CIT(A) erred in directing the AO to delete the addition made on account of disallowance u/s 40(a)(i) amounting to Rs. 7,12,21,627/- in the assessment order passed u/s 143(3) r.w.s 92CA(3) of the Income Tax Act, 1961 on 30.03.2014 2.1 The learned CIT(A) ought to have appreciated the fact that the refurbishment charges paid to Marubeni Corporation, Japan cannot be segregated from the Technical Advisory charges paid to Marubeni Corporation because the technical experts from Maruben Corporation come to India and it is only the experts from Marubeni C....
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.... the said provision is in the nature of ascertaining liability. The assessee explained the working by stating the fact of the matter is that the assessee company runs thermal power plant and the key components (Rotors/turbines) are periodically sent to Marubeni Corporation, Japan for refurbishment. In view of the above vide order sheet noting dated 18.02.2014 the assessee was required to show-cause why refurbishment charges payable to Japan's parties should not be treated as fee for technical service and hence, why the said provision of Rs.7,12,21,627/- should not be disallowed for non-deduction of TDS u/s 195 r.w.s.9(1)(vii). The assessee replied to the same by stating that the amount paid towards refurbishment / reconstruction charges are not in the nature of fee for technical services covered u/s.9(1)(vii) of the Act, as the refurbishment activity is in the nature of reconstruction / repair and accordingly, no TDS is deductible on this expenditure / payment relating to reconstruction. It was explained that expenditure towards refurbishment is work done outside India by a non-resident having no permanent establishment in India. The refurbishment activity is carried out in the nor....
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....ssembly to verify work. • Re-assembled all Hot Gas Path Spares components with new seals and lock plates. • Complete final Quality Assurance inspection (OEM Engineering). • Ship parts to customer with a copy of the test results. • Provide repair report. • Ship parts to the customer with a copy of the flow test results. The AO noted that the above activities are highly technical in nature and involves sophisticated machinery and done by qualified and trained technical personnel. The AO was of the view that refurbishment of HGPS are done by technically qualified people and the equipment used for flow test of HGPS, non-destructive evaluation of HGPS, boroscope inspection on end cover gas passage etc., are highly technologically advanced. He noted that Indian companies do not have the technology to manufacture or repair the turbine and it is merely because of this fact that the above components are purchased and serviced from Japan. According to him, the refurbishment of HGPS falls squarely within the meaning of technical services as envisaged u/s.9(1)(vii) of the Act and hence, the assessee has to deduct TDS on such p....
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....refurbishment. The refurbishing is done by qualified and trained personnel. He argued that the technical experts from Marubeni Corporation visited India and in their presence, the parts are dismantled and inspected for the extent of damage and repair and then the technical experts of Marubeni Corporation recommends for refurbishment of parts. He narrated the various stages of refurbishment which are as follows:- (i) Visit of Technical experts from Marubeni Corporation to India. (ii) Inspection of the Turbines by the Technical experts from Marubeni Corporation. (iii) Identification of parts to be refurbished based on the technical inputs from Marubeni (iv) Shipment of the parts to Marubeni Corporation Japan. (v) Refurbishment (vi) Re-export of refurbished parts back to India. In view of the above, he argued that all these stages are interrelated and constitutes a chain of events. Each stage is a natural consequence of the preceding stage and hence all the stages described above form part of a single process. The assessee itself has qualified the charges towards the first three stages as towards Technically Advisory Services an....
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.... • Perform boroscope inspection on end cover gas passage. • Individually flow test Hot Gas Path Spares components according to OEM approved factory standard. • Complete evaluation of components and test results (OEM Engineering). • Utilize piece part flow data to best match Heat Gas Path Spares tips and oil/water cartridges to the end covers. • Re-assemble all Hot Gas Path Spares components smith new seals and lock plates. • Perform final flow check and leak Check of assembly to verify work. • Re-assembled all Hot Gas Path Spares components with new seals and lock plates. • Complete final Quality Assurance inspection (OEM Engineering). • Ship parts to customer with a copy of the test results. • Provide repair report. • Ship parts to the customer with a copy of the flow test results. 6.1 In view of the above, he explained that the amount paid towards refurbishment / reconstruction is not in the nature of fee for technical services covered u/s.9(1)(vii) of the Act as refurbishment activity is in the nature of reconstruction / repair and according....
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....t with we shall examine the nature of services enlisted in the extended Service Agreement. The extraction of the said list from impugned order, vide para 3, is inserted and the same read as follows,- ― 3. ..........During the extended term of the agreement, the following services shall be provided to customer. Services : First Line Telephone Technical support via Sycamore's Technical Assistance Center (TAC) as described below. Technical Support - 7x24x365 access to Technical Assistance Center. Tata Power Company Ltd [Tata] shall be entitled telephone access to Sycamore's Technical Assistance (TAC) which provides technical assistance related to problem diagnosis and trouble shooting of Sycamore's hardware and software products. Tata shall have telephone access to the TAC twenty-four hours a day, seven days a week, including Sycamore holidays with no restriction on the number of qualification of Tata's personnel who are eligible to place telephone calls to ask products related questions report or report problems with Sycamore's products. The TAC shall be the single point of contract for diagnosing and resolving technical issues related to ope....
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....ect matter of dispute in AY 2005-06 which dealt with the services rendered from October, 2004 till March, 2005. 7. On 16th November, 2004, Tata Power Broadband Ltd and Sycamore, USA amended the terms of the service agreement. Under the amended agreement, Sycamore, USA apart from the services that are mentioned in the revised Exhibit B-1 also agreed that the Tata Power Broadband Ltd can send the defective part of the machine to Sycamore, USA in USA on repaid and return basis. Sycamore will charge separately for the repaid services provided in USA. 8. Thus, the disallowance for the two years is an under. a. AY 2005-06: AMC Payment for October, 2004 to March, 2005 as per agreement Rs.23,73,621/- (i.e., USD 48,025).. b. AY 2006-07: AMC payment as per agreement Rs. 42,84,949/- Plus Repair and replacement Rs 8,96,147/- ..Total= Rs. 51,81,096/- 10. From the above, it is evident that the assessee purchased an equipment (ie Dense Wave Division Multiplexing Equipment from M/s. Sycamore Networks Inc., USA) and there must exist some Warranty provided by the supplied. Of course, there are no details mentioned in the orders. There is some reference to....
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....T(A) examined every activity enlisted above and came to the conclusion that none of the above works involve services of technical nature. The discussion given by the CIT(A) in para 5.4.2 is relevant. We agree with the same considering the settled legal position that routine maintenance repairs are not FTS as held by the Delhi Bench of the Tribunal in the case of Lufthansa Cargo India (P.) Ltd. (supra). For the purpose of completeness of this order, we reproduce below the relevant paragraph of the said decision in the context of the questions raised in the said decision- "In conclusion. Technik carried out the repair work in the normal course of its business in Germany, without an involvement or participation of the assessee's personnel. The overhaul repairs involved ere routine maintenance repairs. It cannot therefore be said that Technik rendered any managerial. technical or consultancy service to the assessee. In this view of the matter, we hold that the payments made by the assessee to non-residents workshops outside India do not constitute payment of fees for managerial, consultancy or Technical services as defined in Explanation 2 to section 9(1)(vii). The assesse....
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....) and its Explanation 2. Further, it is also a settled issue at the level of the Tribunal that every consideration made for rendering of services do not constitute income within the meaning of S.9(1)(viii) of the Act and for considering the same, first of all the said consideration is for the FTS. Therefore, considering the above, decision of Delhi Bench of the Tribunal, which explained the scope of the provisions, we are of the view that the impugned orders of the CIT(A), for the years under consideration, on this aspect of the matter, do not call for interference. Accordingly, the grounds raised in these appeals of the revenue are dismisses 7. We have heard rival contentions and gone through facts and circumstances of the case. From the above, it is evident that the assessee company is in the business of generation and sale of electricity. The assessee owns and operates a 330.5MW combined cycle power plant. To run this cycle power plant, the necessary machinery like gas turbine including spare parts viz., HGPS consisting of Combustor Baskets, Transition pieces, Fuel Nozzles, Turbine Static Blades and Turbine Moving Blades with each component having a pre- defined standard life....