Income Tax Appellate Tribunal - Chennai
Litostroj E.I., Chennai vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'D' CHENNAI
Before Dr. O.K. Narayanan, Vice President and
Shri George Mathan, Judicial Member
.....
I.T.A. No. 1522/Mds/2008
Assessment Year : 2003-04
The Asst. Director of Income-tax, M/s. Litostroj E.I.
International Taxation-I, Chennai. v. 4/1, Karunanidhi Street,
Mettupalayam, Chennai-33.
(PAN : AAACL9726D)
(Appellant) (Respondent)
Appellant by : Shri Anirudh Rai, CIT-DR
Respondent by : None
ORDER
PER GEORGE MATHAN, JUDICIAL MEMBER :
This is an appeal filed by the Revenue against the order of the CIT(Appeals)-XI, Chennai in appeal No. CIT(A)-IV/CHE/115/07-08 dated 18-4- 2008 for the assessment year 2003-04.
2. Shri Anirudh Rai, CIT-DR represented on behalf of the Revenue and none represented on behalf of the assessee.
3. Here we may specifically mention that the appeal was filed by the Revenue on 11.7.2008 and the appeal was posted for hearing on various dates being 1-5-2009, 22-6-2009,17-8-2009, 5-10-2009, 10-12-2009, 18-2-2010, 20- 2 I.T.A. No.1522/Mds/2008 4-2010 and further today on 2-12-2010 when continuously adjournments have been sought for. The notice of hearing was sent by Registered Post and the acknowledgement has also been received which is available on record.
4. In the Revenue's appeal, the Revenue has raised the following grounds :
"1. The order of the learned CIT(A) is contrary to law and facts of the case.
2. The learned CIT(A) erred in deleting the entire income of ` 4,35,64,000/- brought to tax as 'fees for Technical Services' u/s 9(1)(vii) r.w.s. 115A of the i.T.Act.
3. The ld CIT(A) ought to have appreciated the fact that the charges for model and model testing has been separately mentioned even though the contract is a composite one.
4. The ld CIT(A) erred in giving an adverse decision relying on a favourable decision of Advance Authority Ruling in the case of Rotam Company (279 ITR 165), wherein it has been held that model test charges is taxable as "Fees for Technical Services" even if it is only a part of composite contract where the charges are specifically mentioned.
5. The ld CIT(A) ought to have appreciated the fact that the approval of TNEB is based on test results of the model is very crucial and it cannot be merely treated as a procedure adopted for 3 I.T.A. No.1522/Mds/2008 confirming beforehand that the equipment would give the desired results.
6. The ld CIT(A) failed to consider the fact that in view of the retrospective amendment made by the Finance Act, 2007, existence of permanent establishment is not required for taxation of 'Fees for Technical Service".
7. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored."
4. It was the submission by the learned DR that the assessee is a foreign company engaged in the setting up of power projects. The assessee along with M/s. Koncar, Croatia had entered into a contract with TNEB, Chennai for design, engineering supply, erection (excluding civil works) including insurance, testing and commissioning of 2x15 MW Hydro Electric Power plants at Bhavani Kattalai Barrage-I. The assessee had filed its return of income on 22-10-2007 declaring nil income. The Assessing Officer had treated the income received by the assessee towards model and model testing charges which was received outside India in connection with the offshore supply of machinery as fee for technical services. It was the submission that the learned CIT(A) had considered various materials placed before him without giving the Assessing Officer adequate opportunity to verify the same and had held that the nature of the income of the 4 I.T.A. No.1522/Mds/2008 assessee was not merely testing activity but it encompassed a series of activities commencing from designing the model constructing the same and finally testing the same by an independent globally accredited agency. It was the submission that TNEB had utilized the technical information for its decision to manufacture or otherwise of the turbine to be put to use in India. It was the submission that the test report had been treated by the Assessing Officer as a technical information to TNEB for deciding and granting approval for the manufacture of the turbine whereas the learned CIT(A) had held that the test results could not be equated to technical information. It was the submission that the learned CIT(A) therefore held that the cost of the model and the testing charges as fees for technical services did not fall within the meaning of sec. 9(1)(vii) of the Act and consequently the same could not be taxed under section 115A of the Act. It was the submission that the learned CIT(A) further went on to hold that the assessee did not have any permanent establishment in India and that there was no finding as such by the Assessing Officer. It was the submission that these findings of the learned CIT(A) were erroneous insofar as the assessee did have a permanent establishment in India and it was only on account of the existence of the permanent establishment that the assessee itself had filed its return originally on 22-10-2007. It was the submission that the order of the learned CIT(A) is liable to be reversed.
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I.T.A. No.1522/Mds/2008
5. We have considered the rival submissions. A perusal of the order of the learned CIT(A) shows that the learned CIT(A) has categorically given a finding that on a perusal of the materials placed and the arguments made by the assessee it was clear that the nature of the income is not merely from testing activity but it encompassed a series of activities commencing from designing the model constructing the same and finally testing the same by an independent globally accreted agency. Further the learned CIT(A) has categorically held that the test report was not technical information to TNEB. The learned CIT(A) has further held that the charges for the model and model testing or activities data inextricably connected with the offshore supply of machinery/equipment by the assessee company from Slovenia . Here we may specifically mention that none of the agreements nor the so-called test report or the materials which have been considered by the learned CIT(A) is before us. The learned DR has specifically mentioned that the information was not available with the Assessing Officer. A perusal of the assessment order shows that only a purchase order seems to have been discussed. A perusal of the assessment order also clearly shows that the question of PE has been considered by the Assessing Officer in para 12 of his order and has categorically rejected the assessee's contention of the non- existence of business connection or PE in India. In such circumstances, as all the evidences are not available before us, we are of the view that the issues in this appeal would have to be restored to the file of the Assessing Officer for 6 I.T.A. No.1522/Mds/2008 readjudication after examining all such documents which have been produced by the assessee before the learned CIT(A) and we do so. In the circumstances the appeal of the Revenue is allowed for statistical purposes.
6. The order was pronounced in the court on 02-12-2010.
Sd/- sd/-
(Dr. O.K. Narayanan) (George Mathan)
Vice President Judicial Member
Chennai,
Dated the 2nd December, 2010.
H.
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file