TaxTMI 
TaxTMI 
2026 (1) TMI 917
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....08-09) 2. This appeal by the assessee is directed against the assessment order dated 05.10.2011, passed u/s. 143(3) r.w.s 144C(13) of the Income Tax Act,1961(hereinafter referred to as 'the Act'), for Assessment Year 2008-09. 3. The assessee in appeal has assailed the assessment order on following grounds: "1. The Ld AO grossly erred in holding that the events represented by Milestones Al-Project Management Plan, A3-Works Programme, A5-Quality Assurance Plan and A10-Preliminary Design, which are inextricably linked to supply of Rolling Stock (RS2) to Delhi Metro Rail Corporation Limited (DMRC), are severable and thus chargeable to tax as FTS per Article 12 of the DTAA. 2. The Ld AO erred in not appreciating that the events represented by Milestones A1-Project Management Plan, A3-Works Programme, A5-Quality Assurance Plan and A10-Preliminary Design did not involve rendering of services and thus taxability per article 12(4) of the DTAA does not arise. 3. The Ld AO erred in not allowing credit of tax withheld, amounting to Rs 34,70,606, from payments made per Milestones Al-Project Management Plan, A3-Works Programme, A5-Quality Assurance Plan and A10-P....
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....es. The apportioned lumpsum price was to be disbursed to the assessee on raising an invoice at different stages on achieving milestone activities. The work description i.e. milestone activity, milestone number, amount apportioned and the timeline for achieving each milestone is tabulated at page 444 of the paper book. During the impugned assessment year, the assessee had achieved milestone A1, A3, A5 and A10. 6. Against the invoices raised by the assessee, following amounts were received by the assessee from DMRC during the Financial Year ended on 31.03.2008:- Currency amount INR Equivalent Amount Taxes deducted at source Net Amount EURO 17,432,172 1,0165,600,575 12,478,249 1,004,122,326 SEK 89,179,401 551,710,793 9,317,485 542,393,308 INR 1,045,638,662 1,045,638,662 13,070,484 1,032,568,178 7. In Draft Assessment proceedings, the AO held that the payment received by the assessee against the milestone activities specified by the assessee falls within the purview of Article 12(4) of India-Germany DTAA and treated the payments as income of the assessee in the nature of Fee for Technical Services (FTS) and accordingly made addition....
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....he milestones are as per the requirement of the Tender issued by DMRC. 8.1 The ld. Counsel contended that the DRP has erred in ignoring the vital terms and conditions the contract RS2 describing the nature and object of the plans. The observations of DRP/AO are merely on surmises and conjectures without any basis. He contended that provision of plans does not amount to rendering of any managerial, technical or consultancy services. The fact that no supplies were made in the impugned assessment year does not mean that the plans are not incidental to execution of the contract for manufacture and sale of 340 trains. The DRP has ignored the fact the RS2 is a complex contract involving separate parts to be executed over a period of five years. The RS2 contract was signed on 19.07.2007 and the first lot of 9 trains were envisaged to be delivered after a lapse of 84 weeks from the deemed commencement date 08.06.2007 on 16.01.2009. The delivery of rest of the train and the integrated testing commissioning and service trails would commence on 13.03.2009 and would continue till the whole of project is completed in January 2011. 8.2 Sh. Chopra submitted that the payments received by the....
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....rendered by the Hon'ble Jurisdictional High Court in the case of Rio Tinto Technical Services (supra), the decision rendered by AAR in Rotem & Company cannot be held to be a good law. 10.1. On the submissions of the assessee that provisions of plan/design furnished by the assessee does not amount to rendering of service, the ld. DR submits that plans, designs, drawing is a result of services. Rendering of technical and managerial service led to development of plans, designs and drawings. In the case of Rio Tinto Technical Services (supra) the payment received for furnishing of evaluation report was held to be taxable. Controverting the submissions of assessee that plans and design were required to be submitted by the proposed contractor along with tender documents, the ld. DR submits that the assessee provide all the deliverables after the contract was awarded to it. These deliverables were checked by the engineers of DMRC and it was only when NOC was issued after checking of the deliverables that the assessee raised invoices. Even, the documents which were furnished at the preliminary stage with the bids were further developed. The assessee received payment for providing detail....
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....ted on 19.07.2007 between DMRC on the one side and the assessee and BTIL as consortium on the other side. To understand the nature of work and documentation required for execution of work, it would be imperative to refer to Clause 1 to the said Contract. The same is extracted herein below:- "Clause 1 DMRC agrees to hire and the Contractor agrees to be hired to implement the Design, Manufacture. Supply, Testing, Commissioning, Training and Transfer of Technology Of 340 Electrical Multiple Units (Passenger Rolling Stock) of Contract RS2 of the Mass Rapid Transport System - Phase I/ Project under the terms and conditions specified in this Contract Agreement and the other Contract Documents attached hereto as follows: a. This Contract Agreement b. The Letter of Acceptance and its unconditional acceptance c. The Tender i.e. 'Annexure ITT-2A' and Annexure ITT-2B Pricing Document' (duly priced) to "Instructions to Tenderers' d. Employer's Requirements- Technical Specification duly amended by incorporating Addenda e. Employer's Requirements - General Specification duly amended by incorporating A....
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....m of Tender. For the sake of ready reference, the Schedule including cost center descriptions is reproduced herein below:- INSTRUCTION TO TENDERERS PRICING DOCUMENT Annexure ITT-2B-1 SCHEDULE OF AMOUNTS APPORTIONEU TO COST CENTRES COST CENTRE DESCRIPTIONS (To be Completed and Submitted as part of Appendix FT-2 to the Form of Tender) COST CENTRE No. A - PRELIMINARIES & GENERAL REQUIREMENTS AND DESIGN OF ROLLING STOCK AND PROVISION OF MOCKUPS. This Cost Centre comprises all those obligations and ongoing activities throughout the Contract not associated directly with any other Cost Centre. This includes but is riot limited to: * Submission of Project Management Plan; * submission of interface Management Plan and Detailed Interface Documents; * submission of Works Programme' * submission of Design Submission Programme; * submission of Quality Assurance Plan; * submission of Safety Assurance Plan and Site Safety Plan; * Submission of Environmental Plan; * submission of Software Quality Assurance Plan; * submission of Inspection, Testing & Commissioning (including....
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.... 565,922 2,655,424 - 32 A13 Final Design Document Delivery. 848.882 3,983,136 - 36 A14 r"As-Built Drawings" delivery. 424,441 1,991,568 - 160 A15 Mock Up at Contractor's Offshore Factory. 6,253,433 29,342,438 - 28 A16 Any other item considered necessary by the contractor to comply with the Scope of Work. - COST CENTRE TOTAL 15,874,102 74,484,649 - Note: The maximum amount that can be apportioned in this Cost Centre shall not exceed 6% of the amount apportioned in Cost Centres A, B, C, D, E and F." 15. Here it would also be relevant to refer to some of the important dates. The relevant dates and the events are tabulated as under:- EVENT DATE i. Date of issue of tender for Rs-2 by DMRC 23.11.2006 ii. Date of opening of bids 27.02.2007 iii. Deemed date of "Commencement" Acceptance letter 08.06.2007 iv. Date of acceptance of LOA by the assessee 12.06.2007 v. Date of furnishing bank guarantee 18.07.2007 vi. Date of contract RS-2 19.07.2007 Th....
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.... works, separately for principals and sub-contractors. (iii) A narrative describing the sequence, nature and interrelationship of the main Contract activities including timing for exchange of information. (iv) Procedure for documentation control. (v) The Tenderer shall nominate a suitably qualified and experienced English speaking engineer from his staff to be Project Manager. The nominee shall be subject to acceptance of the Employer's Representative, who shall have the right to demand his replacement at any time after the work commences, should the Employer's Representative consider this to be in the best interest of the Project. (vi) The Tenderer shall also nominate a senior engineer to co-ordinate activities of the design offices and manufacturing works. The engineer shall be responsible to the Project Manager for all works executed outside India and in India for ensuring that effective co-ordination is maintained with the various manufacturing units of the Contractor, sub-Contractors and Suppliers and that contract delivery schedules are met. (vii) The Project Manager shall be continuously on site in New Delhi and devote him....
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....n acceptable international standards. The Quality Assurance Plan shall embrace all activities of contractors, sub-contractors of any tiers including its suppliers and design consultants, if any. The Quality Assurance Plan shall indicate the approach and structure that the detailed plan will take and shall include the following: (i) a summary of the Project requirements including all proposed quality activities; (ii) all quality assurance and quality control procedures proposed by the Contractor for his use in the execution of the Works: (iii) a list of all the Codes of Practice, Standards and Specifications that the Contractor proposes to apply to his work; (iv) the Contractor's proposals for internal and sub-contractor quality assurance audits; (v) a statement detailing the records that the Contractor proposes to keep, the time during which they will be prepared and the subsequent period and manner in which they will be stored; (vi) inspection and test plans for every activity requiring inspection. The plans shall identify the level of inspection required, Quality Control Points and Quality Hold Points. (vii) proce....
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....awings as mentioned above does not amount to rendering of services in the nature of managerial, technical and consultancy within the meaning of Article 12(4) of the DTAA. In any case, the plans, drawings and designs furnished by the assessee in compliance of Cost Center A1, A3, A5 and A10 is not an independent activity in itself. The said activity is only a stepping stone for achieving the ultimate object of supply, installation and maintenance of rolling stock. The activities underlined under Cost Center A are inextricably associated with design, execution and installation of rolling stock. In so far as the argument of the Department that since the payments for each Cost Center are allocated, therefore, the activity for each Cost Center is severable, we are not in agreement with the said argument with respect to "Cost Centre A". The apportionment of the Cost for each milestone under each Cost Center is a pre-requisite of the Tender conditions. The activities/milestones detailed under Cost Centre A do not give rise to separate independent activity that can be severed from the main object. Furnishing of plans, drawings and designs as required in Cost Center A is primarily to ensure ....
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.... Specification", it is evident and needs no elaboration to conclude that these milestone activities have direct nexus to the design submission programme for manufacture, sale and supply of metro trains. The services postulated by the milestone activities are also inextricably connected with the designing, sale and supply of metro trains and, therefore, the payment for these activities do not fall within the meaning of FTS. 29. Having examined the description and the nature of milestone activities of A1 to A8 and B1 to B5, we are of the considered view that they do not satisfy the requirements of definition of FTS. However, we hasten to add that the same cannot be said about cost centre Nos. 'G' and 'J'. Cost Centre 'G' and milestones thereunder are concerned with training of Employer's driving instructors and drivers. Cost centre 'J' and milestone J1 speak of 'Supervision of maintenance'. The milestones activities of these cost centres are services which are separate and independent of design, manufacture sale and supply of metro trains. They may be because of but are not intrinsic part of the sale/supply of metro trains. It is w....
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.... 234B of the Act. Thus, the assessee succeeds on ground no. 4 of appeal as well. 24. The assessee by way of application for admission of additional ground of appeal has raised an additional ground challenging validity of assessment sans mandatory notice u/s. 143(2) of the Act. The ld. Counsel for the assessee made statement at Bar that he is not pressing said application for admission of additional ground. 25. In the result, appeal of the assessee is allowed. ITA No. 4547/Del/2017 (AY 2009-10) Assessee ITA No. 4511/Del/2017 (AY 2009-10) Revenue 26. These cross appeals by the assessee and the Revenue are directed against the order of Commissioner of Income Tax (Appeals)-42, (hereinafter referred to as 'the CIT(A)') New Delhi dated 17.04.2017, for AY 2009-10. 27. During the period relevant to assessment year under appeal, the assessee had received payments from the DMRC for achieving following milestones: Milestone Date of payment/credit Amount credited EURO SEK INR A7 12.08.208 424,427 26,446,019 12.08.2008 1,991,568 13,204,096 A4+A15 09.09.2028 5,851,628 365,551,20....