Income Tax Appellate Tribunal - Ahmedabad
Joint Stock Company Zangas, Ahmedabad vs Department Of Income Tax on 15 October, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH AHMADABAD
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद Ûयायपीठ 'बी'
Before Shri D.K.Tyagi, Judicial Member and
ौी डȣ.के.×यागी, Ûयाियक सदःय एवं
Shri T.R. Meena, Accountant Member
ौी टȣ.आर.मीणा, लेखा सदःय के सम¢ ।
ITA No. 15/Ahd/2013
Assessm ent Year :2009-10
The Assistant Director of V/s. Joint Stock com pany
Income-tax (International Zangas,
Taxation), A/4-1, Sector -25, G.I.D.C.
207, 2 n d Floor, Navjeevan Trust Estate, Gandhinagar
Building, B/h Gujarat Vidyapith, Pin 382016
Ashram Road, Ahm edabad
PAN No. AABCJ60 38K
(Appellant) .. (Respondent)
अपीलाथȸ कȧ ओर से / By Appellant Shri P. L. Kureel, Sr. D.R.
ू×यथȸ कȧ ओर से/By Respondent Shri Milin Mehta, A.R.
सुनवाई कȧ तारȣख/Date of Hearing 09.01.2014
घोषणा कȧ तारȣख/Date of Pronouncement 14.02.2014
ORDER
PER : Shri T.R.Meena, Accountant Member
This is an appeal at the behest of Revenue which has emanated from the order of CIT(A), Gandhinagar, dated 15.10.2011 for assessment year 2009-10. The effective grounds of Revenue's appeal are as under:
"I). The Ld. CIT(A) has erred in law and on facts in not appreciating the fact that the primary responsibility of the execution of the contract was of the assessee. Further the I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 2 assessee company's responsibility ws for the execution of the project right from the review of drawings, project management till the final commissioning of the project. Thus it is evident that the assessee company's role is much more than simply providing technical services thereby the receipts were treated as business income.
II). The Ld. CIT(A) has erred in law and on facts in directing to treat the income as Fees for Technical Services and tax the same as such."
2. The assessee is a foreign company non resident and is dealing in construction of pipelines project. The company having its registered office at Moscow and duly registered under Companies Law of Russia. The company has expertise and experience of many years in laying and installation of gas and liquid pipelines. It is recognized as the Major Contractor onshore by the International Pipeline & Offshore Contractors Association for a wide range of activities in the pipeline construction sector. In India, it is engaged in construction of pipeline projects for Bharat Petroleum Corporation Limited (hereinafter referred to as "BPCL") and Gas Authority of India Limited (hereinafter referred to as "GAIL"). As per the statement of total income filed by the assessee, the gross total income of the assessee has been shown at Rs.1,38,99,114/-. Out of the said income, income amounting to Rs.4,90,224/- has been shown as business income and offered to tax at normal rates of tax i.e. @ 40%. However, income amounting to Rs.1,34,08,890/- has been shown as Technical fees and offered to tax @ 10%, as per the provisions of Article I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 3 12 of Indo-Russia DTAA (hereinafter referred to as "DTAA"). The assessee company entered into an agreement with BPCL for the construction of Mumbai-Mangalya-Manmad Pipeline (hereinafter referred to as "MMPL") on 10.11.2005 and established a project office for that purpose at a/4-1, Sector 25, GIDC Estate, Gandhinagar, 382028, with prior permission of RBI. The said contract commenced on 06.10.2005 and was completed on 20.04.2007. Further, the assessee company entered into a consortium agreement with Kalpataru power transmission Limited (hereinafter referred to as "KPTL") on 11.05.2006 for the purposes of making a bid and entering into a contract for the work of Panvel Dabhol pipeline project (hereinafter referred to as "PDPL") of GAIL (India) Ltd. Also during the relevant previous year assessee has entered into another consortium agreement with KPTL for executing Vijaipur-Dadri-Bawana pipeline project ( hereinafter referred to as "VDPL") on 08.05.2008. As per the "consortium agreement", the assessee-company has been designated as the "lead partner" and KPTL" as the second partner. As per para 2 of the consortium agreement, the entire execution of the contract including receiving and making payment shall be done exclusively by the Ieading partner (i.e. the assessee company). Further, as per para-9 of the Consortium agreement the said agreement is irrevocable and forms an integral part of the contract entered into by the consortium with GAIL India Ltd. The consortium made a bid for the said project and was finally awarded the contract by GAIL India Ltd. and the same was conveyed to I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 4 the Consortium vide letter of acceptance dated 05.09.2006 and 07.11.2008, respectively for the two projects as above. 2(i). The assessee-company further entered in a Co-operation agreement with KPTL on 12.09.2006 and 08.10.2008, respectively for the two projects, after the award of the contract by GAIL India Ltd. The co- operation agreement was entered into with the object to put in writing the oral understanding between the assessee-company and KPTL. As per the said agreement, substantial work for executing the contract is to be undertaken by KPTL by deploying all the required input resources while the assessee-company will provide its technical guidance and consultancy for project management. Moreover, the supply of specialized manpower is to be supplied by the assessee-company, and for the same personnel were deputed by the assessee-company from time to time. As per the co- operation agreement, the assessee-company will get 3% of the contract receipts as full consideration for its contribution in the project and KPTL shall be entitled to 96% of the contract value. The remaining 1% will be used to meet the expenses of Consortium. The contract commenced on .05.09.2006 and 07.11.2008, respectively for the two projects as per the letter of acceptance issued by GAIL India Ltd. and the same was completed on 23.11.2008 and 05.09.2010, as per the Completion certificate supplied by GAIL India Ltd. Thus, the overall duration of the projects is 26 months and 18 days and 22 months respectively. The assessee-company has offered income arising out of the PDPL and VDPL I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 5 projects, i.e. 3% of the project consideration received during the year amounting to Rs. 80,98,507/-, and Rs. 53,10,385/- @ 10%, claiming it to be "fees for technical services", as per the provisions of para 2 of Article 12 of Indo-Russia DTAA. On examination of the scope, management and organization of work of the consortium as a whole and that of the two partners separately as per the various agreements entered into by the assessee viz. the consortium agreement, co-operation agreement, and agreement with GAIL India Ltd. the following facts emerge:
A. The responsibilities and obligations of each of the partner of the consortium have been clearly designated in the consortium agreement and placed as appendix -1 to the agreement; the copy of the same is appended as Annexure-l. As per the "responsibility matrix between JSC Zangas & Kalpatru Power Transmission Ltd." the project activities highlighted herein-under have to be carried out solely by Zangas or by KPTL under guidance of JSC Zangas or by them jointly.
1. Project Management is the sole responsibility of Zangas.
2. Construction Management has to be carried out by KPTL under guidance from JSC Zangas.
3. Under the head "construction and installation":
a. Residual engineering is the sole responsibility of Zangas. b. ROU, Grading, Stinging, Trenching, back filling restoration and other mainline activities are to be carried out by KPTL under guidance of Zangas.
I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 6
c. Other activities under this are joint responsibilities of JSC
Zangas and KPTL and have to be carried by way of sub- contract through specialized agencies.
4. Resource mobilization is joint responsibility of JSC Zangas and KPTL.
5. All specialized manpower required for the project management, technical matters and specialized works of pipeline laying is the sole responsibility of JSC Zangas.
6. Hydrostatic Testing is the sole responsibility of JSC Zangas.
7. Commissioning of the project is the joint responsibility of JSC Zangas and KPTL.
From the above it clearly emerges that overall project management of the project is the sole responsibility of the assessee-company and all the mainline activities required to be performed for the construction of the said pipeline are to be carried out solely by the assessee-company or jointly by it with KPTL or by KPTL under guidance of the assessee- company. It is pertinent to note here that, as per clause 9 of the said consortium agreements forms an integral part of the contract and shall continue to be enforceable till GAIL India Ltd. discharges the same. In light of these facts it is evidently clear that the project is being executed by the Consortium with the prime responsibility for the project management and overall completion lying with the assessee-company.
I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 7 2(ii). The A.O. further observed that the assessee company shall perform the various activities for the execution of the contract awarded to the consortium. The A.O. gave reasonable opportunity of being heard on this issue, which was afforded by the assessee company vide letter dated 07.12.2011. After considering the assessee's reply, the ld. A.O. held that MMPL contract has been awarded to the assessee company and the PDPL & VDPL projects have been awarded to the consortium formed by the assessee company with KPTL. Thus, the taxation of income derived from the two contracts has been seen differently. In case of MMPL project, the project was sub-contracted to KPTL on back to back basis whereas in case of PDPL and VDPL project the contract was awarded to the consortium. The distribution of work was carried on between the assessee-company was carried on between the assessee company after being awarded the contract through a cooperation agreement entered into between the assessee company and KPTL. As per the distribution of work, KPTL was responsible to carry out the entire work and the role of the assessee-company was only to provide supervisory services in terms of technical support and guidance. Thus, the consideration received by the assessee-company is for the technical services rendered by the assessee company for the project and same are taxable as fees for technical services as per the provisions of the Act read with the provisions of Indo-Russia DTAA. The income derived by the assessee in India shall be taxable as per Section 9 r.w.s. 90(2) of the IT Act and income derived I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 8 on account of technical services rendered by the assessee to the consortium and shall be taxable as "fees for technical services" as per provisions of Section 9(1)(vii) of the IT Act,1961. As per the provisions of Article 12(2) of Indo-Russian DTAA, the rate of tax on the income derived by the assessee in India from PDPL project shall not exceed 10% of the gross receipts.
2(iii). Ld. A.O. has considered the assessee's reply in detail on page nos. 15 to 32 and held that assessee company was continues for a period of more than 12 months and constitutes a permanent establishment. In India, Article 12 of DTTA is not applicable in case of assessee. The income/profit arising out of construction, installation and assembly project/site rendered in connection with such projects or site of a non- resident are to be taxed as business profits as per the provisions of Domestic Tax Laws if such project/site or supervisory activities performed in relation to such project or site continue for a period of more than 12 months. From the perusal of the Article, it is clear that the project or the site should continue for a period of 12 months or more so as to constitute a permanent establishment as per the provisions of 5(2)(i) of the DTAA. The Completion Certificate issued by the GAIL India Ltd. shows that assessee company was continued its project and supervisory activities for a period of 26 months and 18 days and 22 months established beyond doubt that the assessee company has a permanent establishment in India as per Article 5(2)(i) of the Indo-Russia DTAA. Thus, the income received I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 9 by the assessee from the said PDPL contract is taxable as per the provisions of Article 7 of the DTAA as "business profits" and not as per Article 12 of the DTAA as "fees for technical services".
3. Being aggrieved by the order of the A.O., the assessee carried the matter before the CIT(A) who has allowed the appeal by observing as under:
"6. I have gone through the facts of the case, the decision of the Hon'ble ITAT, Ahmadabad for A.Y. 2007-08 and the assessment order.
I agree with the appellant that between PDPL project and VDPL project there is no change in the facts. The VDPL project was also executed for GAIL (India) Ltd. and on the same lines as doen for the PDPL project. Similar agreements (consortium and co-operation were entered into. Even the AO has discussed the two projects together.
In the case, all the objections of the A.O. are based on the consortium agreements and agreements of the consortium with GAIL and it has been contended that since the assessee is the leader of consortium and as per the terms of contract with GAIL, the assessee was the leading partner of the consortium, the entire construction work, of the project in the hands was done by the assessee and the assessee's activities are not confined to mere providing of FTS.
The same issue has been decided hon'ble ITAT Ahd for AY 2007-08 in the case of the assessee on essentially same facts. Following Voith Siemens Hydro Kraftwerkstechnik GMBH & Co. Vs ADIT in ITA No. 2353/Del/2008 dated 05.03.2010 and also on the tribunal decision rendered in the case of Aditya Birla Nuvo Ltd. Vs ADIT as reported in 44 SOT 601 (Mumbai), it has decided that the activities undertaken by the assessee does not fall within the exclusion I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 10 category of Explanation (2) to Section 9(1)(vii) of the Income tax Act, 1961.
The Hon'ble Tribunal has observed that, even if extra responsibility of the assessee is there as per the consortium agreement and as per the terms of contract awarded by GAIL to the, consortium, the assessee has not done those extra activities and the consideration received by the assessee is as per the co operation agreement for the activities provided in the co operation agreement and having accepted by the A. O. the amount of consideration received by the assessee at 3% of gross receipts of the consortium, it has to be accepted that the same is for providing FTS as per the cooperation agreement.
It has been held that no case has been made out by the A.O. to show that Section 115A and Section 9(1)(vii) are not applicable in the present case as per which the income of the assessee with regard to PDPL project is liable to tax @ 10% as has been claimed by the assessee. The tribunal has therefore, directed the A.O. to apply the provisions of Sub clause BB of clause (b) of sub-section (1) of Section 115A along with Section 9(1)(vii) of the Act.
Submitting to the judicial discipline, the same decisions are followed and upheld for the current year also for both PDPL project and VDPL projects undertaken for GAIL and the AO is directed to apply the provisions of Sub clause BB of clause (b) of sub-section (1) of Section 115A along with Section 9(1)(vii) of the Act.
The first five grounds are decided as above.
7. The other aspect i.e. existence of PE etc.(ground No 6)is not required to be decided because the same is of academic interest only once it is held that the income of the assessee is liable to be taxed as per the provisions of Section 115A and section 9 (1) (vii)".
4. Now the Revenue is before us. Ld. Sr. D.R. vehemently relied upon the order of the A.O. and written submission filed by the A.O. I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 11 He has explained the difference between the PDPL & VDPL agreement and argued that assessee was indulged in the construction activity and fall within the exclusion category of Explanation (2) to Section 9(1)(vii) of the Act. On the basis, the various contracts, it has emerged that over all projects, management of the project is the sole responsibility of the assessee company. All the main line activities required to be performed for the construction of the said pipelines are to be carried out solely by the assessee company or jointly by it with KPTL. The assessee company, later on, entered into agreement with KPTL for completing the PDPL & VDPL contracts and final agreement entered into between the consortium and GAIL India Ltd. Thus, specification of contract is only for providing the working arrangement and the manner in which revenue arising out the said contract are to be distributed among the partners of the consortium. The assessee company lead partner in the consortium which is only inter se arrangement between the assessee company and KPTL. He further argued that Hon'ble ITAT order in case of assessee for A.Y. 07-08 has not been accepted by the department, an appeal pending before the Hon'ble Gujarat High Court. Thus, he requested to confirm the order of the A.O. 4(i). At the outset, ld. A.R. for the assessee gave the bifurcation of the receipts of all the projects for A.Y. 07-08, 08-09, 09-10 & 0-11 and has drawn our attention that KPTL had received 96% of total receipts as per agreement which has been shown by it in income in respective years and paid tax on it. There is no change in any condition prescribed in the I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 12 agreement during the year as compare to A.Y. 07-08. He also submitted that Hon'ble 'B' Bench, ITAT, Ahmedabad in case of assessee in ITA No. 3399/Ahd/2010 for A.Y. 07-08 held these receipts partly as business income and partly fees for technical services and had not found any permanent establishment for all projects executed through KPTL. Thus, he requested to confirm the order of the CIT(A).
5. We have heard the rival contentions and perused the material on record. The Co-ordinate Bench has considered identical issue in A.Y. 07- 08 and held as under:
8. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. It is by now a settled position of law that if the provisions of Income tax Act, 1961 are more favourable as compared to the provisions of DTAA then the assessee can always opt for assessment as per the provisions of Income tax Act, 1961. The provisions of Income tax Act, 1961 with regard to the issue in dispute before us are contained in Section 9(1)(vii) and also in Section 115A and the provisions of Section 44DA are also relevant. We, therefore, reproduce the provisions of Section 9(1)(vii), Section 44DA and section 115A of the Act:
"Section 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 - (a) the Government ; or
(b) a person who is a resident except where the fees are payable in respect of services utilized in a business or profession carried on by I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 13 such person outside India or for the purposes of making or earning any income from any source outside India; or
(c) a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income form any source in India:
[Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.] [Explanation 1. - For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before 9 that date if the agreement is made in accordance with proposals approved by the Central Government before that date.] Explanation [2] - For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of nay managerial, technical or consultancy services (including the provision of services of technical or other personnel) but doe not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".]"
"44DA. (1) The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Government or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on business in India through a permanent I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 14 establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head "Profits and gains of business or profession" in accordance with the provisions of this Act: Provided that no deduction shall be allowed,--
(i) in respect of any expenditure or allowance which is not wholly and exclusively incurred for the business of such permanent establishment or fixed place of profession in India; or (if) in respect of amounts, if any, paid (otherwise than towards reim-
bursement of actual expenses) by the permanent, establishment to its head office or to any of its other offices:"
"115. [Omitted by She Finance Act, 1987, w.e.f. 1-4-1988.] [Tax on dividends, royalty and technical service fees In the case of foreign companies.41
115A. 4?[( 1) Where the total income of--
(b) K[a non-resident (not being a company) or a foreign company, includes any income by way of royalty or fees for technical services •other than 10 income referred to in sub-section (I) of section 44DA] received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 15 the provisions of sub-sections (1 A) and (2), the income-tax payable shall be the aggregate of,--
[(BB) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of ten per cent if such fees for technical services are received in pursuance of an agreement made on or after the 1st day of June, 2005; and]"
9. From the above provisions we find that as per Explanation (2) to section 9(1)(vii) of the Income tax Act, 1961, FTS will not include consideration for any construction, assembly, mining or like project undertaken by the recipient for consideration of the income chargeable under the head 'salary'. Hence, there are two exclusions where the consideration received by the assessee will not be considered as FTS. First exclusion is where receipt is chargeable to tax under the head 'salary'. This is not applicable in the present case because this is not the case of the A.O. that the receipt in question is chargeable to tax under the head 'salary'. The second exclusion is regarding those considerations, which are for any construction, assembly, mining or like project undertaken by the recipient i.e. the assessee in the present case. The case of the A.O. in the present case is that the amount received by the assessee is for construction project and hence, it is outside the definition of FTS and the claim of the assessee is that this objection of the A.O. is not valid. When we examine the factual matrix of the present case, we find that admittedly, the contract in question was awarded by GAIL to the consortium of the assessee and KPTL but after awarding this contract by GAIL to the consortium, both the parties of the consortium entered into a cooperation agreement between themselves as per which they determined the responsibilities of each party and the manner of share of consideration also. The manner of sharing the consideration has been prescribed in the ratio of 3% for the assessee, 96% for KPTL and the balance 1% was I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 16 reserved for common expenses of the consortium. Regarding the 1% also, it was agreed afterwards that if there is any surplus, it will go to KPTL and ifs there is any deficit, it will be made good by KPTL. Hence it was agreed that 3% of gross receipt of consortium will go to the assessee company and the balance 97% will go to KPTL. KPTL will be responsible for all the arrangements of resources as well as expenses including common expenses of the consortium. The responsibility of the assessee as described in Annexure 1 to the cooperation agreement is available on page 218-219 of the paper book and hence, it is very relevant to reproduce the same here in below:
"ACTIVITIES UNDER THE SCOPE OF WORK OF ZANGASUNDER I'ANVEL-DABHOL GAS PIPE LINE PROJECT OF GAIL (INDIA) LIMITED The activities included in the scope of work of Zangas are as follows -
1. Design & Engineering: ,-
Civil & Structural Zangas Shall provide (he following design & engineering services under civil & structural head, based on the topographical and soil investigation data collected by KPTL (through an experienced & competent agency)-
i) Review of Layout plan to enable finalization of Plot plan for -
> Sectionalizing Valve Station - 9 Nos.
> Intermediate Pigging Station - 1 Nos.
ii) Review of Structural & Architectural design of Control Room for
a typical
> Sectionalizing Valve Station
I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 17
> Sectionalizing Valve Station with CP
> Terminals
iii) Review of Detailed Engineering of Building Construction of
Control Rooms giving Foundation & reinforcement details etc
iv) Review of Structural Design of Foundations it supports for Equipment to be installed in SV and Terminal stations. > Scraper Traps > Piping > Valves > All other equipments
v) Review of Road and drainage design & detailed engineering
vi) Review of fencing and Gate design & detailed engineering b. Electrical Review of Design & Engineering of Electrical system for each SV and Terminal station covering & including the following:
> Single Line Diagram > Cable Layout > Earthing Grid Layout > Electrical Distribution Plan within the Building > incoming Power Pane) Design & Engineering > Design & Engineering of Distribution Panels & Boards I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 18 > Switchgear and Safety Engineering > Light Engineering for Control Room, Guard Cabin, Operating Area > Review of Specification for all material > Material Take-oft" for various items to be procured for installation c. Cathodic Protection of design & engineering included in the Packages of following-
> Temporary Cathodic Protection based on Sacrificial Anodes > Permanent Cathodic Protection based on Impressed Current d. Equipment Design & Engineering Design & Engineering to enable procurement of valves, scraper Traps, Flow nsulating joints, TEGs, AC Package, Fire Extinguishing System based on CO2 flooding and clean agent system, including the fallowing:-
> Data sheets of equipment > Review of vendor data > Review of constructional details given by vendor e. Pipeline Crossings > Review of Design & Engineering of HDD crossings > Design &.Engineering of Bored crossings f. Instrumentation I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 19 Review off Design of field Instrumentation System as per Specifications including following:-
> Material Take Off > Instrument Cable Layout > Detailed Engineering of instrument Installation
2. Preparation of Welding Procedure and Welder qualification Procedure
3. Review of Work procedures for Pipeline Laying.
4. Deputation of Experts for Site review of implementation by KPTL of technical services provided by ZANGAS."
10. From the above details regarding scope of work of Zangas i.e. the assessee in respect of PDPL project of GAIL, it is seen that the activities included in the scope of work of the assessee is regarding design and engineering for various aspects i.e. (a) Civil, & structural
(b) Electrical, (c) Cathodic protection, (d) equipment Design & Engineering, (e) Pipeline Crossing and (f) Instrumentation. The 2nd item of activities included in the scope of work of the assessee company was preparation of welding procedure and welder qualification procedure, 3rd item is review of work procedure for pipeline laying and 4th responsibility is for deputation of experts for site review of implementation by KPTL and technical services provided by Zangas. Some objections raised by DRP, A.O. and the Ld. D.R. that when the assessee company was required to depute expert for site review of implementation by KPTL and technical services provided by Zangas, the assessee company was very much engaged in the entire construction project. These objections of the authorities below and the Ld. D.R. of the revenue are not valid in the light of these two Tribunal decisions cited by the Ld. A.R. of the assessee.
I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 20
11. In the case of Voith Siemens Hydro Kraftwerkstechnik GMBH & Co. (supra), it was held by the Tribunal that although as per the terms of contract with OHPC, the assessee could be assumed be liable to do assembly erection, testing and commissioning of power project as also the supervision thereof, in the absence of being any evidence that assessee having done any such activity other than supervision simplicitor, erection and testing and commissioning, the activities of the assessee cannot be said to fall within the meaning of term "business of erection of plant & machinery and testing and commissioning" as provided in the provisions of Section 44BBB and to fall within the meaning of term "construction and assembly" as provided in the exclusion provided in Explanation (2) to Section 9(1)(vii) of the Act. Hence in that case, it was noticed by the tribunal that although as per the terms of contract with OHPC, it can be assumed that the assessee was liable to do the assembly, erection, testing and commissioning of power project as also the supervision thereof but the actual activities undertaken by the assessee company in that case was supervision simplicitor and assembly, erection, testing and commissioning and hence such activities of the assessee do not fall within the meaning of term "construction and assembly" as provided in the exclusion provided in Explanation (2) to section 9(1)(vii) of the Income tax Act, 1961. Hence, as per this Tribunal decision, the term contract alone is not the deciding factor and it is very important to see as to what was the actual activity is undertaken by the assessee. In the present case, all the objections of the A.O., DRP and the Ld. D.R. of the revenue are based on the consortium agreement and agreement of the consortium with GAIL and it has been contended that since the assessee is the leader of consortium and as per the terms of contract with GAIL, the assessee was the leading partner of the consortium, the entire construction work of the project in the hands was done by the assessee and the assessee's activities are not confined to mere providing of FTS. But the assessee has brought on record the corporation agreement along with its I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 21 Annexure 1 which outlines the scope of the activities of the assessee. As per the scope of activities as has been reproduced above, the assessee is required to provide design and engineering of various aspects and is also required for preparing the welding procedure and is also required to review the work procedure for pipeline laying and in addition to this, the assessee is required to depute experts for site review and implementation by KPTL and technical supervision provided by the assessee. As per the scope of work, the assessee is required to provide technical services and is also required to depute expert for site review of implementation by KPTL and technical services provided by Zangas. Hence, it is seen that deputing expert was for a limited purpose for site review of implementation by KPTL and technical services provided by the assessee and the entire construction work was to be undertaken by the KPTL. As per these activities included in the scope of work of the assessee company, we are of the considered opinion that on the basis of these facts, it cannot be said that the assessee is doing the construction work and the consideration received by the assessee is from doing the construction work. Nothing has been brought on record by the A. O. to show that anything extra was done by the assessee in addition to the responsibility specified in the co operation agreement. In fact, this is not even an allegation of the A. O.
12. Hence, the Tribunal decision rendered in the case of Voith Siemens Hydro (supra) is squarely applicable in the present case and as per this decision of the tribunal in the light of the facts of the present case, the activities undertaken by the assessee does not fall within the exclusion category of Explanation (2) to Section 9(1)(vii) of the Income tax Act, 1961.
13. The other Tribunal decision rendered in the case of Aditya Birla Nuvo Ltd. (supra), is also supporting the case of the assessee and as per this Tribunal decision also, the scope of work actually undertaken I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 22 by the assessee company does not fall within the exclusion category of Explanation (2) to Section 9(1)(vii) of the act.
14. One aspect of cooperation agreement has also been accepted by the authorities below in so far as the amount of income of the assessee is concerned. The amount of income of the assessee was declared by the assessee to the extent of 3% of gross receipt of the consortium which is on the basis of cooperation agreement and the same has been accepted by the A.O. and he has not disputed the amount of income of the assessee as has been declared by the assessee. If the A.O. says that the construction work was undertaken by the assessee company then he should have assessed the income of the assessee by disregarding this cooperation agreement and the income should have been quantified by him after considering the gross receipt of the consortium and after deducting al the expenses incurred for the purpose and the remaining income should have been distributed between the two partners of the consortium i.e. the assessee and KPTL on the basis of consortium agreement or on some reasonable basis. This has not been done by the A.O. and he has accepted the income declared by the assessee which is to the extent of 3% of gross receipt of the consortium on the basis of this cooperation agreement. Having accepted the cooperation agreement on this aspect, it was not justified on the part of the A.O. and DRP to say that with regard to the scope of activities of the assessee company, cooperation agreement is not valid and they have to go by consortium agreement. They have also not brought on record any evidence to show that the assessee has undertaken any extra activity in addition to the activities falling within its scope of work as per the co operation agreement. Hence, even if extra responsibility of the assessee is there as per the consortium agreement and as per the terms of contract awarded by GAIL to the consortium, the assessee has not done those extra activities and the consideration received by the assessee is as per the co operation agreement for the activities I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 23 provided in the co operation agreement and having accepted by the A. O. the amount of consideration received by the assessee at 3% of gross receipts of the consortium, it has to be accepted that the same is for providing FTS as per the co operation agreement.
15. Regarding the applicability of Section 115A of ht Income tax Act, 1961, we find that only exception is regarding of an income which are referred to in sub-section (1) of Section 44DA. Section 44DA is applicable where the contract in respect of which FTS had been paid to the assessee is effectively connected with a permanent establishment (PE) where such foreign company is carrying on its business in India. In the present case, this is not the case of the A.O. that Section 44DA is applicable with regard to the receipt in dispute. Moreover, we also find that the receipt in question was in relation to PDPL project cannot be said to be effectively connected with PE in relation to the other project i.e. MMTL project where the assessee is carrying on business activities. In addition to MMTL project, the assessee is not carrying on any business activities and no effective connection with MMTL project has been established by the A.O. for this receipt in question relating to PDPL project. Both are independent projects. MMTL project was awarded by BPCL whereas PDPL was awarded by GAIL and hence, there is no relationship between the two and hence, we find that no case has been made out by the A.O. to show that Section 115A and Section 9(1)(vii) are not applicable in the present case as per which the income of the assessee with regard to PDPL project is liable to tax @ 10% as has been claimed by the assessee. We, therefore, direct the A.O. to apply the provisions of Sub clause BB of clause (b) of sub-section (1) of Section 115A along with Section 9(1)(vii) of the Act."
By respectfully following the co-ordinate 'B' Bench decision on identical issue, we confirm the order of the CIT(A), but the A.O. is directed to verify I TA No . 1 5/ A hd / 13 A . Y . 09- 1 0 Page 24 from the A.O. that 96% receipts of contract has been disclosed by it in case of KPTL and tax has been paid on it.
6. In the result, Revenue's appeal is allowed.
This Order pronounced in open Court on 14.02.2014 Sd/- Sd/-
(D.K.Tyagi) (T.R. Meena)
Judicial Member Accountant Member
True Copy
S.K.Sinha
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद ।