TaxTMI 
TaxTMI 
TaxTMI 
2022 (1) TMI 1314
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Corporation which conducts the inspection and it is only ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee 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 normal course of business and none of the employee of assessee is direct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith 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 payments u/s.195 of the Act. As the assessee failed to deduct TDS, the AO disallowed the payment of Rs.7,12,21,627/- by invoking the provision of section 40(a)(i)of the Act. Aggrieved assessee preferred appeal before CIT(A). 4. The CIT(A) deleted the disall....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rubeni 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 and has deducted TDS on these payments but on refurbishment of parts, no TDS was deducted despite the fact that the nature of activity remains the same. In view of all these, the ld. Senior DR stated that the CIT(A) has deleted disallowance without going into the TDS. Hence, the order of CIT(A) be reversed. 6. On the other h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 accordingly no TDS is deductible on this expenditure. Furthermore, he explained that expenditure towards refurbishment is for work done outside India by a non-resident not having a permanent establishment in India and this refurbishment activity is carried out in normal course of business. He also explained that a separate agreement was entered with Marubeni Corporation covers for charges towards Technical Advisory Services where tax has to be deducted but payment towards refurbishment charges are outside the scope of Technical Ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 operations, performance, reliability and support of Sycamore products covered within the Service Description. Sycamore may at its sole discretion, dispatch a field service engineer (or its authorized representative) to Tata site in order to facilitate Sycamore's diagnosis and resolution. Web-based Services via Sycamore's Online Assistant Resources (SOLAR): Tata shall be entitled to access Sycamore's problem reporting database (SOLAR) twenty four hours per day, seven days a week. Depending on the product, information available to Tata may include but not be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der. 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 ―Service Agreement􀛅, which is claimed to have been amended and revised time to time. Revision was done to accommodate the undertaking of the repairs by the supplier of the equipment on repayment basis. No such repairs reported in the AY 2005-06. Whereas in the AY 2006-07, assessee paid to the M/s Sycamore, USA amounting to Rs 8,96,147/- towards such repairs. To start, we shall take up the issue relating to repairs payments made by the assessee to Sycamore, USA and if they need to be subjected to TDS. 11. Allowability of the payments of Rs 8,96,147/- towards such repairs: As discussed in the paragraphs of this order....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usiness 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 assessee succeeds on this ground." Regarding the decision of the Hyderabad in the case of Mannesmann Demag Lauchhammer (supra) which involves deputing of technicians to India for supervision of repairs to be carried out at the plant and machinery purchased by the NMDC, we find that the said decision is distinguishable on facts. Such deputation, whether deputation or supervision, is absent in both instant cases as well as the case before it, as observed by the Delhi Bench of the Tribunal in the cited case. The relevant para of the order of the Tribunal in that case reads as follows- "We find that in Demag's case, the foreign company rendered 'technical ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns 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 based on Equivalent Operating Hours (EOH) is purchased. The process as explained above including the details of machinery, there is service agreement for refurbishment / repair of these machines entered with Marubeni Corporation, Japan. This refurbishment from the above facts is clear that is only repairs and services of machinery. As discussed in the paragraph above of this order, where discussion of AR as well as ld.senior DR, we are of the belief that payments for repairs are outside the scope of FTS and such payment do not constitute FTS u/s.9(1)(vii) of the Act. These are simple refurbishment or repairs and payment made for these do not attract TDS provision u/s.195 of th....