Income Tax Appellate Tribunal - Mumbai
Aditya Birla Nuvo Ltd ( Formerly Indian ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH 'L', MUMBAI
Before Shri N.V.Vasudevan, Judicial Member and
Shri Pramod Kumar, Accountant Member
I.T.A.No. 7674 & 7675/Mum/2007
Assessment Year : 2006-07
M/s. Aditya Birla Nuvo Limited,
(Formerly know as Indian Rayon and Industries Limited, A-4,Aditya Birla Center, S.K. Ahire Marg, Worli,Mumbai 400 030.
PAN : AAACI 1747 H
Vs.
The Asst. Director of Income-tax,
(International Taxation)-3(1),
Mumbai.
(Appellant)
(Respondent)
I.T.A.No. 7527 /Mum/2007
Assessment Year : 2006-07
The Asst. Director of Income-tax,
(International Taxation)-1(1),
Mumbai.
,
Vs.
M/s. Indian Rayon & Industries Ltd., (Now Aditya Birla Nuvo Limited), A-4,Aditya Birla Center, S.K. Ahire Marg, Worli,
Mumbai 400 030.
PAN : AAACI 1747 H
(Appellant)
(Respondent)
I.T.A.No. 7526/Mum/2007
Assessment Year : 2006-07
The Asst. Director of Income-tax,
(International Taxation)-1(1),
Room No. 117, Scindia House,
1st Fl., Ballard Estate, N.M.Road,
Mumbai. 400 038
Vs.
M/s. Aditya Birla Nuvo Limited,
(Formerly known as Indian Rayon and Industries Limited, A-4,Aditya Birla Center, S.K. Ahire Marg, Worli,Mumbai 400 030.
PAN : AAACI 1747 H
(Appellant)
(Respondent)
Assessee by : Shri Yogesh A.Thar
Respondent by : Shri Sanjay Agarwal
O R D E R
PER N.V. VASUDEVAN, JM:
Appeal in ITA No. 7674/Mum/2007 is an appeal by M/s. Aditya Birla Nuvo Ltd., (formerly known as M/s. Indian Rayon and Industries ltd.,) hereinafter called the 'appellant', while ITA no. 7527/Mum/07 is an appeal by the Revenue. Both the appeals are directed against the order dated 14.09.2007 of the Commissioner of Income-tax (Appeals)-XXXIII, Mumbai, relating to the assessment year 2006-07.
2. The appellant is a company engaged in the business of viscose filament yarn(VFY), carbon Black, branded garments, fertilizers, textiles and insulators. It had Textile Unit called Jaya Shree Textiles. M/s. Gualchierani Textiles Automation SpA, Italy ("GTA"), a company registered under the laws of Italy, carries on business as manufacturer and a intervention service provider for Textile Automation and Baling Presses. GTA had supplied and installed a machinery baling press Model No.FTCS/600, at Stucken in South Africa. These machineries were uninstalled by GTA with the help of their technicians at South Africa. Such machineries had to be re-installed at the Appellant's factory premises. In this regard, the appellant approached GTA, who had greed to deploy its technicians i.e. skilled engineers (mechanic, hydraulic and electronic software) for the reassembling and commissioning of the said machinery. An Agreement was entered on July 26, 2004 for re-installing and re-commissioning at the appellants premises the machinery. The appellant was liable to pay the consideration for reinstalling and re-commissioning in India. This consideration included Software/Electronic Equipments Cost, Mechanic Engineer's Cost, per day travel cost of these technicians and reimbursement of out of pocket expenses as per receipt. The Agreement dated 26.7.2006 which is in the form of a letter addressed by GTA to the Assessee, is as follows:
"CONFIRMATION OF GULCHIERANI TECHNICIAN INTERVENTION FOR RE-ASSEMBLY ON SITE Dear Sirs, With reference to the agreements reached we confirm the intervention of our technicians (mechanic-hydraulic and electronic software) for assisting the erection and commissioning of following machinery at your site in India :
No. 2 PVSI 400/800 bump presses complete with palletizer No.2 platforms for gills handling No.1 FTCS/600 bale press.
The conditions we have agreed upon are the following For each day spent Euro 400,00 for each InIndia Mechanic-Technician Euro 450,00 for each Electronic/software technician For each day of travel: Euro 250,00 (the same for both Technicians) Restaurant (meals) at your charge Hotel at your charge International and domestic Travels Local transportation at your charge
Pocket money of Euro 40,00 per day to be paid directly to the technician for each day spent on site.
Payment: Euro 10,000,00 as down payment at the moment of the order; balance against receipt of your invoice to be issued upon completion of the works.
All the lifting facilities, the equipment and tools necessary for dismantling as well as the local workers for dismantling are at your complete charge.
The date of Gualchierani technician intervention will be agreed together but we need a 30 days advance notice."
3. It is not in dispute that pursuant to the aforesaid agreement GTA had deputed its technicians and those technicians had worked for the assessee in India for the following periods:
Mr. Burat from 13/6 to 7/7/2005 Erection cards no.10726-7-8-9 Mr. Rini from 13/6 to 1/7/2006 Erection cards no, 31841-2-3
4. The appellant had to make payment to GTA for the above services rendered. The appellant had by letter dated 26.3.2005 applied to the ADIT (International Taxation)3(1), Mumbai, (in short 'A.O.") for a no-objection certificate for remitting the money to GTA without deduction of tax at source. The application was made under the provisions of section 195(2) of the Income-tax Act. The stand taken by the appellant was that the payments that it made to GTA are not taxable in India and therefore a certificate not to deduct any tax at source before making payment to GTA should be issued by the AO. The following were the reasons given by the Appellant:
1. The Appellant pointed out that the payment in question is not a payment of "Fees for technical services rendered" because, the payment in question was specifically excluded from the definition of fees for technical services u/s.9(1)(vii) by explanation (2) of the said section, which is as follows:
"Explanation [2] - for the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does 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".
The Appellant pointed out that the consideration that it was to pay to GTA was a payment for re-assembly and commissioning which would fall under the exclusion category of "consideration for any construction, assembly, mining or like project undertaken by the recipient". The Assessee relied on the decision of the Hyderabad Branch of I.T.A.T in the case of ITO v. National Mineral Development Corporation (42 ITD 570).
The said payment is also not taxable as per Article 15 of DTAA between India and Italy (DTAA). As per Article 15 (i.e. "Independent Personnel Services") of the DTAA, income derives by a "resident of a contracting state" in respect of professional services or any other activities of an independent character would be covered within the scope of Article 15. According to the Assessee, since the said technicians/skilled engineers would not be present in India for a period exceeding an aggregate 183 days in the relevant previous year, in view of Article-15 of DTAA, GTA would not be liable to be taxed in India.
5. The A.O. however, rejected the plea of the assessee and held the services provided by GTA is in the nature of providing services of technical or other personnel and that it was not "construction, assembly, mining or like project" undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries". The AO thus held that the payment in question was taxable in India in the hands of GTA under Article 13(2) of the DTAA. The AO also held that Article 15 of the DTAA between India and Italy does not apply where the recipient is a company.
6. On appeal by the assessee, the learned CIT(A) confirmed the order of the A.O. The CIT(A) held that the project like construction, assembly, mining were taken away from the purview of technical services because the nature of the activities is more like activities of a business establishment which requires presence in India. According to him GTA did not undertake any erection of plant. It has agreed only to supply technical personnel to provide technical services for the payment of fees. Hence he held that the services provided by the personnel of the GTA will not be exempt from the definition of the technical services. On applicability of Article 15(2) of the DTAA, the CIT(A) held that in Article 15(2), the word 'Independent' is to be noted. The professional services referred are the scientific, literary, artistic, educational or teaching activities. The professionals mentioned are physicians, surgeons and lawyers, engineers, architects, dentists and Accountants. According to CIT(A), Article 15(2) emphasis that the professionals individually or jointly has to carry out the activities on their own and not on behalf of the organization in which they are working and hence the services in question were not covered under Article 15.
7. Before the CIT(A) the assessee had raised objection that part of the payment made to the non-resident included reimbursement of expenses and to this extent there was no obligation on the part of the assessee to deduct tax at source. On this issue the CIT(A) was of the view that the reimbursement of expenses was not taxable and he, therefore, directed the AO not to include reimbursement of expenses from the fees for technical services and re-compute the tax.
8. Another issue raised by the assessee was with regard to the action of the A.O. in imposing education cess on the payments made to the non-resident. On this aspect, the learned CIT(A) held that education cess cannot be levied.
9. Aggrieved by the relief granted by the CIT(A), the revenue is in appeal before the Tribunal. Aggrieved by the order of the CIT(A) holding that the payment in question in part is payment for technical services rendered, the assessee has preferred the present appeal before the Tribunal.
ITA Nos. 7675/M/07 and 7526/M/0710. ITA No. 7675 is an appeal by the appellant while ITA No. 7526 is the appeal by the revenue. Both the appeals are directed against the order dated 14.9.2007 of CIT(A)-XXXIII, Mumbai relating to the assessment year 2006-07. The facts in these appeals are identical to the facts as in the earlier years. The only difference is with regard to the machine on which the work was performed. In these appeals, the agreement for rendering services is dated 11.7.2005. The same reads as follows:
"CONFIRMATION OF GULCHIERANI TECHNICIAN INTERVENTION FOR RE-ASSEMBLY ON SITE Dear Sirs, With reference to the agreement reached we confirm the intervention of our technicians (mechanic-hydraulic and electronic software) for assisting the erection and commissioning of following machinery at your site in India for the bale press Model FTC S/600:
The conditions agreed upon are the following:
For each day spent : Euro 400,00 for each mechanic
In India Technician
Euro 450,00 for each
Electronic/software technician
For each day of travel:Euro 250,00 (the same for both
Technicians)
Restaurant (meals) at your charge
Hotel at your charge
International and domestic
Travel, Local transportation at your charge
Pocket money of Euro 40,00 per day to be paid directly to
the technician for each day spent on site.
Payment: Euro 10,000,00 as down payment at the moment of the order; balance against receipt of your invoice to be issued upon completion of the works.
All the lifting facilities, the equipment and tools necessary for dismantling as well as the local workers for dismantling are at your complete charge.
The date of Gualchierani technician intervention will be agreed together but we need a 30 days advance notice."
11. The services were rendered by two technicians of GTA. The details of which were as follows:
Mr. Magnolfi from 7 to 29/9/2005 Erection cards No. 10628-9-30 Mr. Pecchioli from 7/9 to 7/10/05 Erection cards no. 10546-7-8-9.
12. In respect of this agreement, the appellant had made an application dated 19.11.2005 to the A.O. for making remittance to the non-resident without deducting tax at source. The application was made under section 195(2) of the Act. The reasons given were identical as in the earlier case. The reasons for rejecting the application of the appellant given by the A.O. are identical. The plea of the appellant before CIT(A) and his conclusions were also similar as in the earlier case, except that in respect of these applications, the assessee had taken a specific ground before the CIT(A) that in terms of section 115A(b) of the Act, the rate of tax was only 10%. This issue was not decided by the CIT(A). The appellant has projected its grievance in this regard in the grounds of appeal apart from challenging the order of the CIT(A) holding that the payment in question in part is a payment for technical services rendered. The revenue for its part has filed its appeal against the decision of the CIT(A) holding that reimbursement expenses are not chargeable to tax.
13. We have heard the rival submissions. The learned counsel for the assessee reiterated the submissions as were made before the lower authorities. On the applicability of Article 15 of the DTAA even artificial persons like a company, the learned counsel for the assessee relied on the decision of the Mumbai Bench of the Tribunal in the case of Maharashtra State Electricity Board v. DCIT 90ITD 793.
14. His further submission was that under Article 5(2)(j) of the DTAA supervisory activities constitutes business income and since the assessee did not carry on the supervisory activity in India for the required number of days, it cannot be said that the assessee had P.E. in India and therefore, the amount in question cannot be brought to tax. In this regard, the learned counsel for the assessee relied on the following decisions of the Authority for Advance Rulings, New Delhi(AAR):
Horizontal Drilling International v. CIT (1999) 103 Taxman 447 Application No.P-11of1995 In Re: 94 Taxman 142 AAR New Delhi
15. Our attention was further drawn to the decision of the Andhra Pradesh High Court in the case of CIT v Sundwiger EMFG & Co. (2003) 129 Taxman 776 (AP). In this decision there is a reference to the exclusion clause in Explanation 2 to Section 9(1)(vii) of the Act. On the issue whether reimbursement of expenses can be brought to tax, the learned counsel for the assessee relied on the decision of the Hon'ble Bombay High Court in the case of DIT(International Taxation) vs. KRUPP UDHE GmbH (38 DTR (Bom)251., wherein the Hon'ble Bombay High Court has held that reimbursement expenses are not chargeable to tax.
16. The learned Departmental Representative, submitted that as far as the exclusion clause in section 9(1)(vii) of the Act is concerned, it cannot be said that the assessee carried out any project. According to him to constitute a "project", the assessee should undertake a series of activities which by itself should complete a desired task. According to him in the present case, the assessee was merely supervising the activities and therefore, it cannot be said that there was any project. His further submission was that the decisions of AAR are not binding. Alternatively, he submitted that on the facts of the case before the AAR, it was clear that the activity carried on was a project. It was also submitted that once a payment is considered FTS, it is not possible to consider the same under Article 5(2)(j) or as a business profit.
17. On the applicability of Article 15, it was submitted that the same applies only to individuals. It was pointed out that the technicians who came to India were individuals but they came to India on behalf of GTA which was a company. He also relied on the decision of the CIT(A) wherein the CIT(A) has referred to the observation of Mr.Philip Baker. It was submitted that Article 15 uses the expression "he" which also goes to suggest that such article will apply only to individuals and not to companies.
18. On the issue of reimbursement expenses, the learned Departmental Representative relied on the order of the A.O. On the issue of proper rate of tax, the learned D.R. submitted that the said issue has not been decided by the leanred CIT(A) and the same is to be sent back to the CIT(A) for adjudication.
19. We have considered the rival submissions. First we shall take up for consideration the argument that the payment in question falls within the exclusion clause of Expln.-2 to Sec.9(1)(vii) of the Act.
"Explanation [2] - for the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does 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".
The question whether the amount payable under the contract would be exempt on the ground that it is consideration for "construction, assembling mining or like projects" undertaken by GTA in India has to be answered by taking a look at the agreement between GTA and the appellant. The first aspect which we notice is that the technicians of GTA did not come to India to render service to the appellant in connection with a contract by which they also supplied the machinery which was to be erected in India. In other words there was no agreement to supply machinery and also erect them and those contracts were inextricably linked or a composite contract. We are in this case concerned with a simple case of erection and commissioning of the machineries. The Agreement clearly mentions that the technicians (Machnic-Hydraulic and electronic-software) were to come to India to erect and commission machineries at the site of the appellant. Such process would certainly involve assembling of parts of the machinery. But that by itself will not make the service one for an "Assembly project" so as to fall within the excluded category in Expln-2 to Sec.9(1)(vii) of the Act. A reading of the agreements clearly shows that the appellant was to supply equipments and tools for dismantling as well as local workers for dismantling at their cost. In the case of ITO Vs. NMDC 42 ITD 570 (Hyd.) a case which was cited by the appellant before the revenue authorities, a somewhat similar issue had come for consideration. The Tribunal on the facts of the case before it for the relevant assessment year found that there was a composite contract for supply of machinery and erection and in those circumstances held that the payment in question was not in the nature of "FTS". It is significant to mention that in that case, there was a reference to an earlier year's decision in the case of the Assessee in that case, where the issue arose in the context of independent contracts for supply of machinery and for erection. The question was whether the consideration paid for erection of machinery was to be treated as "Fees for Technical services rendered". The Hon'ble Bench observed as follows:
"We found that the expression "in connection with" is not found in Explanation to section 9(1)(vii). We hold that the Explanation under section 9(1)(vii) merely grants exemption for consideration received for any construction, assembling mining or like product undertaken by the recipient. In other words, in order to come under the exemption, the NR should have entered into a contract for the construction, assembly or mining. We are concerned with the technical services pure and simple and not receipts for construction, assembly and mining etc. The technical services must be for providing managerial, technical or consultancy services and these managerial, technical or consultancy services should not be for construction, assembly etc. According to the contract it is clear that the technicians are here only for supervising the erection of the conveyor belts. Two persons by themselves certainly cannot erect the conveyor belt. It is to be the work of many others. These two technicians are there only to supervise the erection and giving technical advice in connection with the erection. We agreed with the learned DR in that case that technical fee is for technical advice in connection with erection and the actual erection was done by others. Having thus found that the payment of technical fee was agreed upon on a separate, distinct and different contract from the original contract and the payment of technical fee is only for giving technical advice in connection with the erection and not for undertaking the erection by the NR, we disagreed with the CIT(A) that when she held that the amount payable was in connection with construction, assembly etc."
20. The above observations of the Tribunal are applicable to the facts of the present case. The facts in the case of the appellant in this appeal, as already observed is that it was a simple case of rendering service by person possessing technical knowledge. Two technicians had come from Germany to supervise the re assembly, erection and commissioning of machineries. We do not know whether GTA were also suppliers of the machineries. But the fact remains that the agreement for rendering services is independent by itself. It is difficult to accept the plea of the appellant that the two technicians were paid consideration for assembling machineries all by themselves. On a reading of the agreement it is clear that the technicians came to India to supervise and give advice on re-assembly, erection and commissioning of machineries and they rendered services by using their technical skills for which the payment in question had to be made by the appellant. Expln.-2 to Sec.9(1)(vii) does not use the expression "in connection with". Had such an expression been found in Expln.-2 to Sec.9(1)(vii) of the Act, then the plea of the appellant that the exclusion clause therein would apply would have some force. For applicability of Expln.-2 to Sec.9(1)(vii) of the Act, the technical services must be for providing managerial, technical or consultancy services and these managerial, technical or consultancy services should not be for construction, assembly etc. According to the contract it is clear that the technicians were in India only for supervising the erection of machines. As already stated two technicians who came to India by themselves did not erect the machines. As we have already seen the appellant had to depute local workers for dismantling machines. The erection of machines was thus work of many local workers. The two technicians only supervised the erection and giving technical advice in connection with the erection. We agree with the learned DR in that case that technical fee is for technical advice in connection with erection and the actual erection was done by others. The payment of fee is only for giving technical advice in connection with the erection and not for undertaking the erection. We therefore hold that the payment in question cannot be said to be a payment for assembly of machines. Thus the payment in question cannot be said to fall within the exclusion clause of Expln-2 to Sec.9(1)(vii) of the Act.
21. The next issue is as to whether the payment by the appellant to GTA can be said to be covered by Article 5(2)(j) of the DTAA. If yes, then the payment in question cannot be taxed in the hands of GTA since GTA did not have a permanent establishment in India. Article 5(2)(j) provides that the term "permanent establishment" includes especially, " a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities (together with other such sites projects or activities, if any) continue for a period of more than six months, or where such project or supervisory activity, being incidental to the sale of machinery or equipment, continues for a period not exceeding six months and the charges payable for the poject or supervisory activity exceed 10% of the sale price of the machinery and equipment."
Article 13(1) to (5) of the DTAA is as follows:
"Article 13 Royalties and fees for technical services
1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, or fees for technical services, the tax so charged shall not exceed 20 per cent. of the gross amount of the royalties or fees for technical services.
3. The term "royalties" as used in this Article means payments of any kind received as a consideration for use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.
4. The term "fees for technical services" as used in this Article means payments of any amount to any person other than payments to an employee of the person making payments, in consideration for the services of a managerial, technical or consultancy nature, including the provisions of services of technical or other personnel.
5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base 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 base. In such a case the royalties or fees for technical services shall be taxable in that other Contracting State according to its own law."
22. A perusal of the definition of "Fees for Technical Services" according to Article 15(4) of the DTAA shows that it includes a payment in consideration for the services of a managerial, technical or consultancy nature. We have already seen that the nature of services rendered by GTA was technical being supervisory in nature. Article 15(5) excludes from its purview application of Article 15(1) and (2), if the person rendering service has a permanent establishment or a fixed base in India. Article 5(j) considers supervisory activities as constituting a permanent establishment in India only when the project in connection with which the supervisory services are rendered continues for a period of more than six months in India. The question is when the services rendered in India were supervisory in nature and when the period of the project is less than six months whether the payment should be considered as Fees for Technical Services or under Article 5(j) of the DTAA.
23. Similar issue had come up for consideration before the AAR in the case of Horizontal Drilling International (supra). The facts in the aforesaid case were that the applicant before the AAR was a company incorporated in France which was awarded a contract on 25.10.1996 by the Gas Authority of India Ltd. (GAIL) for installation of gas pipelines crossing under Yamuna River with optic fibre cable using horizontal drilling technique near Agra for a lum sum consideration of US $9,60,000. The work commenced with the import of the drilling rig on 20.1.1997 and its installation was completed on 14.2.1997. On the installation of the rig 10% of the contract amount had to be paid to the applicant. The work under the contract was completed on 4.3.1997. GAIL moved an application before the ITO under Sec.195 seeking a "No objection Certificate" for remittance without any TDS to the application on the first payment of $ 96,000 due to it under the contract, as according to the applicant, the payment was in the nature of business profits of the recipient and that since the recipient was not maintaining any permanent establishment in India, the payment was not chargeable to tax in India in view of Article 7(1) of the read with Article 5 of the DTAA between India and France. The ITO however took the view that the payment made to the applicant was in the nature of "Fees for Technical Services" within the meaning of Article 13 of the DTAA and directed GAIL to deduct tax at source from the remittances. The applicant contended that it was not liable for tax on the contract proceeds receivable from GAIL under the contract in the absence of any permanent establish in India, in view of Article 5 and 7 of DTAA, and that the consideration paid for a project involving installation assembly or the like would be the price paid for such project and could not be termed a "fee for technical services". On an application before the AAR by the French company, the AAR held as follows:
"That article 13(4) of the DTAA between India and France defines "fees for technical services" as meaning "payments of any kind to any person"-other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in article 15-in consideration for services of a managerial, technical or consultancy nature. Considered in isolation, this definition is very comprehensive and covers all cases where such services are rendered by one of the parties to a contract and payments in consideration therefor made by the other. A limitation of some kind or the other has to be read into the terms of what otherwise would be a very wide definition. Paragraph 6 of article 13 excludes the application of the rule of taxability outlined in paragraphs 1 and 2 of the article to cases that would be normally and more appropriately be assessable under other specific articles such as article 7 or article 15. Article 7 brings to charge in India the business profits arising to a non-resident but only where he has a permanent establishment in India. The expression permanent establishment has been defined in article 5 and it includes "a building site or construction, installation or assembly project" but only where such site or project continues for a period of more than six months. It would not be correct to charge profits where there is no establishment of the nature envisaged in article 5. In the above situation, a more apposite construction would appear to be to read the two articles harmoniously and include within the definition in paragraph 4 of article 13, only payments made in consideration for services qua services and correlated thereto and excluding from its purview payments made in consideration of the execution of a construction or installation project or the like referred to in paragraph 3 of article 5. That the concept of a "fee for technical services" has to be read subject to such an inherent limitation built into it can also be seen from the definition of the expression contained in the Explanation to section 9(1)(vii) of the Income-tax Act, 1961. This is a special statutory definition and cannot be straightaway imported into the DTAA. But even so, there must be a rationale for the exclusion, which can only be, that consideration for projects of the nature mentioned, cannot be equated to consideration for services rendered in the course of their execution. Hence the applicant was not liable for tax under the Income-tax Act for the assessment year 1997-98 on the contract proceeds receivable from GAIL under the contract agreement dated October 25, 1996 in the absence of any permanent establishment in India, in view of articles 5 and 7 of the DTAA between India and France."
24. In our view the aforesaid ruling of the AAR will apply to the facts of the present case. The facts of the case of the appellant in this appeal would show that the payment in question is in consideration of supervisory services rendered and admittedly the period of the project in connection with which the services were rendered were less than six months. In such circumstances as laid down by the AAR, the payment in question cannot be brought to tax under Article 13 of the DTAA. Respectfully following the decision of the AAR, we hold that the payment in question would not be chargeable to tax in India because admittedly, the person who rendered services were not present in India for the required number of days as envisaged by Article 5(j) of the DTAA. Therefore the amount in question will not be chargeable to tax in the hands of GTA. Thus there was no obligation on the part of the appellant to deduct tax at source before making payment to GTA. Consequently, the appeals of the Assessee on this issue are allowed. Since we have come to the conclusion that the amounts in question are not chargeable to tax, the question whether part of the sum was paid towards reimbursement of expenses and therefore there was no obligation to deduct tax at source to the extent of such payment and the further question regarding rate of tax which is applicable do not need any adjudication.
25. For the reasons stated above, we allow the appeals of the Assessee and dismiss the appeals by the revenue.
Order pronounced in open Court on the 30th day of November, 2010.
Sd/- Sd/-
(PRAMOD KUMAR) (N.V. VASUDEVAN)
Accountant Member Judicial Member
Mumbai dated the 30th November, 2010.
vm
Copy to:
The Assessee The Revenue
The CIT, Mumbai City -XXV, Mumbai
The CIT(A)-XXV, Mumbai
The DR 'H' Bench, Mumbai By order
/True copy/
Asst. Registrar, ITAT, Mumbai
Sr.No.
Details
Date
Initials
Designation
1
Draft dictated on
Sr.PS/PS
2
Draft Placed before author
Sr.PS/PS
3
Draft proposed & placed before the Second Member
JM/AM
4
Draft discussed/approved by Second Member
JM/AM
5.
Approved Draft comes to the Sr.PS/PS
Sr.PS/PS
6.
Kept for pronouncement on
Sr.PS/PS
7.
File sent to the Bench Clerk
Sr.PS/PS
8
Date on which the file goes to the Head clerk
9
Date of Dispatch of order
PAGE 18
ITA Nos.7674, 7527,7675 & 7526/M/07