Bombay High Court
Haldor Topsoe vs Deputy Commissioner Of Income Tax. (Dy. ... on 30 May, 1996
Equivalent citations: (1997)57TTJ(MUMBAI)53
ORDER
M. K. CHATURVEDI, J. M. :
These cross-appeals are directed against the order of the CIT(A), XVIII, Mumbai, and pertain to the asst. yr. 1984-85.
2. The assessee is a company existing under the laws of Denmark. It has its principal place of office at Nymollevej 55, DK-2800 Lungby, Denmark. By an agreement dt. 15th Feb., 1981 (paper book pages 20 to 180), it entered into a contract with Rashtriya Chemicals and Fertilisers Ltd. (hereinafter referred to as "RCF") a company registered in India under the Companies Act, 1956. It has its registered office at Administrative Building, Chembur, Mumbai-400 074, India. The agreement was for rendering consultancy services in relation to the design engineering, erection and commission of a chemical fertiliser complex. The Assessing Officer (AO) found that the following three payments received for rendering the services by the assessee, were in the nature of the management charges :
(1) Supervision of construction including erection and installation of the plant Rs. 99,97,462 (2), Services rendered for supervision of pre-commissioning and commissioning including test run and guarantee tests Rs. 14,24,167 (3), Arranging for practical experience of Indian technicians Rs. 5,22,839 Management charges are beyond the ken of exemption available under the Double Taxation Treaty. These are not to be governed by the factum of the permanent establishment. As such these were found to be exigible to tax in India. Accordingly assessed to tax.
3. Apropos the amount of Rs. 99,97,462 being the charges of supervision of construction including erection and installation of the plant, the CIT(A) confirmed the order of the AO. Therefore, the assessee is in appeal.
4. In relation to the amount of Rs. 14,24,167 being the charges for services rendered for supervision of pre-commissioning and commissioning including-test run and guarantee tests and Rs. 5,22,839 being the charges for arranging for practical experience of Indian technicians, CIT(A) held that these are not in the nature of management charges. He, therefore, reversed the order of the AO. Therefore, the Department is in appeal.
5. We regard the single point, persuasively presented by Sri Dastur, the deserving of a speaking order although in dissent.
6. The short question neatly identified by the learned counsel is - Whether the payments listed in para 2 can be construed to be the payments for rendering managerial services or for technical services ? Admittedly, if the payment is made for the managerial services, it is exigible to tax in India.
The relevant portion of the treaty of the Double Taxation Agreements - Denmark notified in GSR 316, dt. 9th March, 1960, is reproduced herewith :
"Article III(1). Subject to the provisions of paragraph (3) below, tax shall not be levied in one of the territories on the industrial or commercial profits of an enterprise of the other territory unless profits are derived in the first mentioned territory through a permanent establishment of the said enterprise situated in the first mentioned territory. If profits are so derived tax may be levied in the first mentioned territory, on the profits attributable to the said permanent establishment.
(2).....................
(3) For the purposes of this Agreement the term "industrial or commercial profits" shall not include income in the form of rents, royalties, interest, dividends, management charges, remuneration for labour or personal services or income from the operation of ships or air-craft but shall include rents or royalties in respect of cinematographic films."
7. The assessee in the agreement dt. 15th Feb., 1981, is termed as consultant. His obligations are listed in Art. 2 of the said agreement. The general responsibility of the consultants are classified under Art. 2.01 (paper book page 27). It is reproduced here as under :
General responsibility :
Consultant shall make available to owner pursuant to the term of addendum non-exclusive, non-transferable rights and licences to practise the following process in amonia plant.
(i) Primary reforming;
(ii) Secondary reforming;
(iii) Ammonia synthesis.
Consultant shall furnish services of engineers, designers, draftsmen, buyers, inspections and expeditors and other persons required for the performance of work pursuant to Agreement.
Consultant shall, provide and/or be responsible for :
(i) Licensing of the process
(ii) Process design and engineering to be done and delivered outside India
(iii) Drawings and documents including detailed engineering documentation
(iv) Procurement services including inspection and expediting for equipment
(v) Services to enable owner to obtain import licences and other permits
(vi) Obtaining of network schedules of vendors and sub-contractors
(vii) Services for procurement of spares, special construction and maintenance tools
(viii) Association of owners representative during design, engineering, procurement, etc.
(ix) Services for transporting and shipping of equipment
(x) Construction management services
(xi) Pre-commissioning services
(xii) Guaranteed completion point of ammonia plant
(xiii) Commissioning services
(xiv) Proving of performance guarantees
(xv) Post commissioning services of ammonia plant (xvi) Arranging practical experience for owners personnel (xvii) Observing safety and security regulations (xviii) Complying with statutory laws and regulations (xix) Progress monitoring and reporting (xx) Technical information (xxi) Transfer of Technology to FPDIL (xxii) Work of sub-contractors (xxiii) Providing assistance to owner for achieving co-ordination of the project (xxiv) Arrange to prove the related guarantees of CO - 2 removal process licensed by Benefield Corporation (xxv) Plant availability guarantee In the event that there is any equipment or work of the type provided for in the agreement not specifically mentioned in the specifications or drawings set out in consultants final proposal but which is mutually agreed to be necessary, even though not mentioned in the agreement, for normal, safe and continuous operation of the ammonia plant, consultant shall include such equipment in design, scope and perform such work also free of cost to owner as if the same had been originally included in the consultants final proposal. In other words, any work not specifically mentioned and which is not required for consultant to meet his obligations for normal, safe and continuous operation of ammonia plant is excluded. Consultant shall make use of the services of FPDIL personnel for design and engineering in accordance with agreement between consultant and FPDIL. Consultant shall also fulfil the obligation regarding transfer of technology to FPDIL in accordance with the TOT Agreement. The obligations and responsibilities listed in Art. 2.01 are indicated in detail hereinafter without prejudice to the generality of the foregoing the enumeration hereafter shall not in any manner limit the general scope of obligations and responsibilities of designing, engineering, procurement including expediting inspection services, construction supervision, commissioning and providing the performance guarantees of ammonia plant within the scope of this agreement.
8. Shri Dastur along with Sri P. J. Pardiwalla, learned counsel for the assessee, appeared before us. It was stated that the assessee did not have any permanent establishment in India, as such industrial or commercial profits of the assessee-company cannot be put within the ken of IT Act, 1961. According to the learned counsel, the assessee rendered only technical services. The payments made to the assessee was not towards management charges. The agreement no doubt uses the words "construction management services" at some places in relation to construction, i.e., in Art. 1.01(xiii), 2.01(x) and 2.11. But from this it cannot be inferred that the assessee made payments for management charges. In the agreement at many places reference is made specifically to services for supervision of construction/erection. Our attention was riveted on Arts. 2.13, 2.2, 4.00(v), 4.06 and 5.06. Art. 4.07 r/w Arts. 2.12 and 2.14 refer to supervision of pre-commissioning and commissioning.
9. Sri Dastur submitted that it is an accepted rule of interpretation of documents, that the mere use of a particular word or words is not conclusive on the issue and the real nature of the transaction has to be determined by reading and construing the agreement as a whole. If the agreement is read as a whole, the only conclusion that is possible that that assessee was not rendering "management services" but were acting as consultants only. In the area of construction of RCFs plant, the role of the assessee was that of assisting RCF in the preparation of necessary technical documents (such as the list of qualified contractors and bid documents for tendering by various contractors; bid evaluation, selection of contractors who were to perform the actual construction/erection work and preparation of work order; and the proper putting up of the plant through supervision and co-ordination of the actual construction/erection, pre-commissioning and commissioning work which was to be done departmentally by RCF or by other contractors appointed directly by RCF.
10. All monetary aspects were settled directly between RCF and the contractors in question. The assessee acted throughout as "Consultants" only and not as managers. The management of the project remained with RCF. The role of the assessee was limited to supplying the technology and know-how and assisting RCF in the putting up of the plant by rendering technical, engineering and allied technological services by way of supervision of the work of other contractors. The assessee was not responsible for the management or the day-to-day running of any plant or business of RCF. The assessee did not have any powers which a manager can exercise. The involvement of the assessee was only till the completion of plant and commencement of production. The question that the assessee was running the plant or managing it, could not, therefore, arise at all. All the managerial activities were carried out by RCF. Thus, it is obvious that the services covered by Arts. 4.06 and 4.07 of the agreement are not management services but are technical services.
11. The mode of payment of the fees for such services to the assessee and the liability to pay liquidated damages if the performance of the plant based on the technology supplied by the assessee and erected with the help of the engineering services rendered by the assessee did not come upto certain standards, according to the learned counsel, confirms the same conclusion.
Sri Dastur further made distinction between technical services and management services with reference to the precedents available on the point.
Out attention was invited on the decisions of J. K. (Bombay) Ltd. vs. CBDT (1979) 118 ITR 312 (Del), Indian Hume Pipe Co. Ltd. vs. CBDT (1987) 165 ITR 537 (Bom) and Oberoi Hotels (India) P. Ltd. vs. CBDT (1982) 135 ITR 257 (Del).
12. Adverting to the provision of Explanation below s. 9(1)(vii) of the IT Act, 1961, it was stated that the term technical service is different from the term management charges. Reference was made to the DTA with Finland, Singapore and Tanzania and also new treaty with the Denmark, with a view to demonstrate that the term fee for technical services and management charges are used in contradistinction with each other in those detailed agreements.
13. The learned counsel (sic-has) also given extracts from the Law Lexicon (paper book page 7) to explain the meaning of the management. It is reproduced below :
"I. Extracts from Blacks Law Dictionary (5th Edn.), p. 865.
Manage : To control and direct - to carry on the concerns of a business or establishment.
Management : Government, control, superintendence.
Manager : One who has charge of corporation and control of its business, or of branch establishments. A person chosen or appointed to manage, direct or administer the affairs of another person or of a corporation or company. The designation of manager implies general power and permits reasonable inferences that the employee so designated is invested with the general conduct and control of his employers business."
II. Extracts from P. Ramanatha Aiyars "Law Lexicon" (1987).
P. 780 Manage : To control, to direct, govern.... to direct the concern or to have under control and direction. Management. Management is defined as government control, superintendence.... the act of managing by direction or regulation or administration. Management means administration, control, etc., and one of the synonyms of "management" is "Government" which means control....
Manager : The manager is the person who really has the most general control over the affairs of a corporation... and who can act, in emergencies, on his own responsibility. The very term implies a general supervision of the affairs of the corporation in all its departments. "Manager" as applied to an officer of a corporation implies the idea that the management of the affairs of the company have been committed to him....
III. S. D."Mitras Legal and Commercial Dictionary" (1973 Edn.).
Page 397 Management : "Management" means administration, control, etc. one of the synonyms of "management" is Government which means control. Ghanshyamdas Badrilal vs. State AIR 1969 MP 186." 14. Reliance was also placed on the following two Tribunal decisions :
(i) Swedish Telecoms International AB, Bombay vs. Asstt. CIT(A), ITA No. 7586/Bom/91; and
(ii) ITO vs. Rheinbraun Consulting GmbH, ITA No. 1145/Bom/85.
15. It was also contended that in the asst. yrs. 1982-83 and 1983-84 these services were considered as of the nature of technical services as such, exemption in view of the DTA, was given by the Department. It was argued that AO was not correct in taking a different view from the earlier years. There should be finality and certainty in all litigations. Earlier decision on the same question cannot be reopened. Tribunal should be extremely slow to depart from a finding given earlier. For this proposition the learned counsel relied on the decision of the jurisdictional High Court in the case of H. A. Shah & Co. vs. CIT (1956) 30 ITR 618 (Bom), page 625.
16. Shri Tilakchand, the learned senior Departmental Representative, appeared before us. It was vehemently contended that the amounts received in question by the assessee were of the nature of the management charges. These cannot be construed to be the charges for technical services. The assessee-company rendered to RCF project management services. Our attention was invited on the various clauses of the agreement to demonstrate that the amounts in question were actually paid for the managerial services and not for the technical services. According to the learned Departmental Representative, the totality of fact is to be taken into consideration. The responsibility of the Danish company as listed in the agreement proves beyond the shadow of doubt that these amounts were received for managing the installation work in India. The assessee-company had the managerial expertise.
17. The term management services got a very wide connotation. The meaning of the word management is to get the work done. Our attention was invited on the meaning of the word with reference to the dictionary.
18. It was pointed out that the task of the assessee was not only to provide technical services, but it was responsible for the other things also. The RCF made the payment for a package managerial deal. Installation work was the responsibility of the assessee. In the matter of the installation ultimate decision to prevail was that of the assessee. Our attention was invited to para 2.11 (on page 42 of the paper book) of the agreement.
It is reproduced hereunder :
Construction management services Consultant shall provide services for the management of all activities relating to civil works, erection, site fabrication, piping, instrumentation, electrical installation, interpretation of drawings and other miscellaneous construction jobs of ammonia plant leading to the guaranteed completion point. Consultant shall organise these activities in appropriate sequence and proper methods giving due regard to the requirements of safety, quality, sound engineering practice, compliance of relevant codes and regulations and for achievement of guaranteed completion point. The construction management services performed by consultant shall also include the following :
(i) Preparation of the list of qualified contractors for the various construction activities in association with the owners representative;
(ii) Preparation of bid documents for tendering in association with owners representative;
(iii) Inviting and receiving sealed quotations to be opened in presence of owners representative;
(iv) Bid evaluation in association with owners representative including negotiations with prospective contractor where necessary;
(v) Preparation of work order stipulating all terms, conditions, quality, time schedule and penalties for award of work by owner.
19. The learned Departmental Representative also invited our attention on the owners obligations as listed in para 3.01 (on page 51 of the paper book). These are reproduced here as under :
"Owner shall be responsible for :
(i) Overall coordination of the project and monitoring the progress of consultants work;
(ii) Furnishing information relating to basic design conditions to consultant;
(iii) Obtaining import licences and other permits;
(iv) Reviewing and approving of consultants work;
(v) Appointing shipping agents, port clearing agents and transportation agents on recommendations of consultant;
(vi) Agreement with Benefield Corporation;
(vii) Reviewing and approving the pre-qualification and selection of vendors recommended by consultant and with assistance from consultant;
(viii) Deputing personnel for practical experience if required;
(ix) Providing facilities to consultants personnel;
(x) Providing operating and maintenance personnel;
(xi) Arranging for feed stock and utilities at Battery Limit;
(xii) Providing site facilities;
(xiii) Furnishing IT certificates/separate declarations evidencing payment of income-tax on behalf of consultant;
(xiv) Providing insurance coverage;
(xv) Making payments directly to FPDIL, consultants sub-contractor;
(xvi) Reviewing and certifying consultants invoices.
20. Assessee was also responsible for the work done by the sub-contractors. Our attention was invited on para 2.23 (on page 48 of the paper book). It is reproduced as under :
"Work of sub-contractors Consultant shall remain responsible for proper execution of the work carried out by sub-contractors appointed by consultant with the prior approval of owner and any failure of sub-contractor including FPDIL shall not relieve consultant of its obligations under this Agreement. Furthermore, in the event of any default by FPDIL/sub-contractor, consultant may either take over the work of FPDIL/sub-contractor mutually agreed or take remedial action as may be necessary in order to achieve completion of ammonia plant and other activities leading to acceptance of ammonia plant by owner."
21. The learned Departmental Representative also invited our attention on cl. 2.24 of the agreement concerning the co-ordination (paper book page 49). It is reproduced here as under :
"Co-ordination Consultant shall assist owner in achieving overall co-ordination of all work connected with the project as described in Art. 3.02. Towards this end consultant shall agree for a meeting as soon as practicable after the Effective Date of Agreement with owner, FPDIL and such other parties as are necessary to settle the following :
(i) Review the basic design conditions set forth in final proposal and where appropriate, review possibilities for standardisation.
(ii) Review the overall steam and power network of ammonia and urea plant and off-sites.
(iii) Assess the priorities and key dates required to be included in the consultants schedules.
(iv) Make an assessment of all items requiring co-ordination.
(v) Fix up a date and agenda of any subsequent meeting as may be required in association with owner/FPDIL/sub-contractors.
(vi) Discuss and (sic) pollution consultant appointed by owner and supply technical information to owner about various pollution emission/discharge points from different sources indicating the quality, quantity of gaseous/liquid emission of pollutants from the ammonia plant. Consultant shall also supply to owner any additional information required on the above matter during the performance of process design and basic engineering stage. In the event that owner shall pursuant to its responsibilities of overall co-ordination described in Art. 3.02 request consultant to make any alterations to the programme, scope or responsibility under the Agreement, consultant shall do the same subject to the provision of Art. 6."
22. In regard to the fact that in the preceding years the Department had not charged tax from the assessee-company, learned Departmental Representative submitted that there is no res judicata in taxation. Coming to the decisions of the Tribunal referred before us the learned Departmental Representative submitted that these were rendered on the different set of facts, therefore, these are not applicable in the facts and circumstances of the present case.
23. We have heard the rival submissions in the light of the material placed before us and the precedents relied upon. The assessee was rendering consultancy services. The area and scope of such services is defined in the agreement dt. 15th Feb., 1981. It offered the services for erection and commissioning of a chemical fertiliser complex. The task before us is to ascertain with exactitude, the real nature of the services. These services were projected before us as "managerial services" by the Department. The assessee explained that these services are of technical nature. There was a long debate on the concept of management. To demonstrate that the services offered by the assessee fell outside the ken of "management services", recourse was made to the etymological and legal meaning of the word "management". Similarly, to explain that such services comes within the ambit of managerial services, Department also categorised the concept with reference to the services rendered by the assessee.
24. The question persuasively presented and vehemently argued by both the sides centres round the point, - What is management services ? To find out the meaning of the word "management", first we go to the root of the word. The word is derived from the Latin root "Manus". It means "hand". The word "manual" is also derived from this root. The meaning of the words "manual labour" is easy to understand. A "manual" is a small hand book. Manuscripts used to be "handwritten" (Manus, hand, and scribe, write). In this background, the great lexiographer Wilfred Funk, etymologically defined the term as under :
"Management is the handling of people and affairs".
25. The concept of management is as old as the human race itself. The concept of "family" itself required that life be organised and resources of food be apportioned in a manner so as to maximise their usefulness. Taking proper steps to safeguard the family from attacks by wild animals, planning on where to go hunting and whom to go with etc., are of subtle ingredients of management. Even the recorded history reflects the application of some management techniques. The Egyptian pyramids built as early as 3000 B. C. required the organised efforts of over one lakh people.
The President of the United States, John F. Kennedy said."The role of management in our society is critical in human progress. It serves to identify a great need of our time, to improve standards of living for all people through effective utilisation of human and material sources".
26. As per Peter Drucker : "Management is a crucial factor in economic and social development. It was obvious that the economists traditional view of development as a function of savings and capital investment was not adequate. Indeed, savings and capital investment do not produce management and economic development. On the contrary, management produces economic and social development and with its savings and capital investment".
[Management, Tasks, Responsibilities and Practices, Heinman (London) 1974, pp. 12-14 by Frucker, Peter F.]
27. According to Kreitner : Management is a problem -solving process of effectively achieving organisational objectives through the efficient use of scarce resources in a changing environment". [Kreitner R., Management : A Problem-Solving Process - Houghton Mifflin Co. 1980, p. 6]
28. One of the most important functions of a manager is to take decisions and solve the problems. These problems may be paused in the shape of technical requirements, or administrative requirement, etc. The project management is a concept of modern world. It is used primarily for achieving new and sophisticated expertise. The project is assigned to the expert who is assisted by a team of the specialists from different discipline. He coordinates the various activities, the performance of which is required for completion of the job. The consultant undertakes the responsibility for overall directions and integration of activities and resources related to the project. The rapid growth in technology, made the world smaller. The telecommunication facilities and ease in travel turned the world into one global community. Flow of technology, goods and services, information, managerial talent is rampant in this era of development. The international business transactions may be conducted in the form of licensing agreements, management contracts, turnkey projects, joint ventures, foreign subsidiaries, etc., etc.
29. Managing in international arena poses special problems for international managers apropos the planning, organising, controlling, etc., but due to the advent and application of fast computers, communication satellite, transportation, and mobility, developing nations are frequently availing the services of management consultants and experts of international repute. The management concept is emerging towards cross - cultural unity of nations, with reduce impact of geographical distances and greater internal consciousness.
30. In the present case, we find that the assessee is equipped with expertise in design engineering architect, and other related things required for commissioning a chemical fertiliser complex. The agreement was for installation of two ammonia production units for the production of 1350 metric tons of anhydrous ammonia per stream day on each unit and three urea plants for the aggregate production of 4500 metric tons of fertiliser grade urea per day and the required off-site facilities at Thal in Kulaba District of Maharashtra State. The assessee is using its manpower, its technology and expertise for completing the project.
31. The relevant terms are defined in the agreement. Some are reproduced here as under :
Manmonth : means an employee of consultant, deployed for the work for a month during which he shall have normally worked not less than 8 hours on each working day aggregating to 48 hours a week. The word Consultant is referred to the assessee.
Similarly, sub-contractor is defined to mean any person, firm or company commissioned by consultant for any part of work with the written approval of owner (RCF).
Work is defined to mean all duties, services, responsibilities and obligations to be discharged by consultant pursuant to the agreement as defined in Art. 1.01 through 2.26.
32. Art. 1 defines the scope of work. It includes, inter alia, construction, management services. The other things listed includes licensing of the process, preparation, designing and engineering, documentation, procurement services for equipment, services for obtaining import licences, inspection and expediting services for equipment, obtaining and supply of network schedules for all activities including those of vendors and sub-contractors, services for arranging transportation and shipping of equipment, providing pre-commissioning services, achieve the guaranteed completion point, provide post commissioning services, arranging for practical experience of owners personnel, performance guarantees, monitor and report progress and furnishing technical information and know-how as may be required for the operation of ammonia plant, transfer of consultants ammonia technology.
33. It is stipulated in Art. 2 that the consultant shall furnish services of engineers, designers, draftsmen, buyers, inspectors and expeditors and other persons required for the performance of work pursuant to agreement.
34. As per the agreement, it was incumbent on the assessee vide Art. 2.11 to provide services for the management of all activities connected with civil works, erection, site fabrication, piping, instrumentation, electrical installation, interpretation of drawings and other miscellaneous construction jobs of ammonia plant leading to the guaranteed completion point. The assessee was required to organise the activities in appropriate sequence by applying proper methods by giving due regard to the requirements of safety, quality, sound engineering practice, compliance of relevant codes and regulations, etc. To achieve this task it was required to prepare the list of qualified contractors. It was also required to prepare bid documents for inviting tenders. It was also responsible for evaluating the bids, preparation of work order stipulating terms and conditions for the award of work, etc.
35. Art. 4 of the agreement deals with the fees. Assessee was to receive gross lump sum fee. The work was classified as follows for the purpose of payment of fees only :
(i) Licence and know-how;
(ii) Basic Design & Engineering package to be done and delivered in Denmark;
(iii) Procurement services including expediting and inspection;
(iv) Supervision of detailed engineering;
(v) Supervision of erection and construction;
(vi) Supervision of pre-commissioning and commissioning operations;
(vii) Arranging practical experience to owners personnel;
(viii) Optional services.
Fees paid for the item Nos. (v), (vi) and (vii) was found to be exigible to tax being for rendering managerial services. Other items were found not liable to tax in India.
36. Art. 4.06, 4.07 and 4.08 are reproduced here as under :
4.06 Supervision of construction and erection :
US $5,359,091 (US Dollars Five million, three hundred fifty nine thousand ninety one only) being the gross lump sum fees corresponding to 315 manmonths for supervision of construction including civil works, erection and installation of ammonia plant. The fees are subject to adjustment as provided under Art. 4.09 hereof.
4.07 Pre-commissioning and commissioning services US $681,818 (US Dollars six hundred eighty one thousand, eight hundred eighteen only) being the gross lump sum fees corresponding to 10 manmonths for services of pre-commissioning and commissioning services including the sustained loan test and successful guarantee test run of ammonia plant. The fees are subject to adjustment as provided under Art. 4.09 thereof.
4.08 Arranging for practical experience to owners personnel US $150,000 (US Dollars one hundred fifty thousand only) being the gross lump sum fee corresponding to 7-1/2 manmonths of consultants personnel for arranging for practical experience for owners personnel in similar capacity plants and vendors works for a maximum period of 100 manmonths. The fees are subject to adjustment as provided under Art. 4.09 thereof."
37. In our opinion, the signification of the word management depend on the pressure of the context or other indicia. De hors such compelling mutation of sense, the speech of the lay, is also the language of the law. We find no reason to depart from the meaning of the word as is understood in the common parlance. Contextually, the ordinary meaning of it is handling the man and their affairs.
38. The crux of the whole issue lies in the fact : Whether the assessee was engaged in managerial services or not in relation to the specified work done. It, therefore, behoves us to concentrate in the nature and character of the agreement. It has to be seen whether the agreement affords an indication as to the nature of job undertaken by the assessee. We have referred to some of the clauses in the preceding paras. We have gone through the complete agreement to have a total view of the situation. On the conspectus of such total effect of reading and understanding the agreement, we are of the view that the amount of the fees received by the assessee for rendering the specified services can be construed to be of the nature of management charges.
39. Since the AO is not a Court, the doctrine of res judicata does not apply to his decision. The apex Court in the case of New Jahangir Vakil Mills Co. Ltd. vs. CIT (1963) 49 ITR 137 (SC) has held that a finding or decision of the IT authority in one year may be departed from in subsequent year. In I. R. vs. Sneath 17 Tax Cases 149, 163 (CA) Henworth M. R. said : "the assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made. No doubt, a decision reached in one year would be cogent factor in determination of a similar point in a following year but I cannot think that it is to be treated as estoppel binding upon the same party for all the years."
40. Coming now to the reference to the decisions of the Tribunal in the case of Swadeshi Telecoms International AB, dt. 10th Feb., 1994, in ITA No. 7586/Bom/91 and Rheinbraun Consulting GmbH dt. 30th Aug., 1992, in ITA No. 1145/Bom/85, we are reminded of the great philosopher Haraclitus who said : "You never go down the same river twice". What the great philosopher said about time and flux can apply to law as well. Similar principle is enunciated by the apex Court in the case of Mumbai Kamgar Sabha vs. Abdulbhai Faizullabhai AIR 1976 SC 1455 (at pages 1467-68) as under :
"It is trite, going by anglophonic principles, that a ruling of a superior Court is binding law. It is not of scriptural sanctity but is of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decision, exalting the doctrine of precedents into a prison-house of bigotry, regardless of varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting those matters which may lurk in the record. Whatever be the position of a subordinate Courts casual observations, generalisations and sub silentio determinations must be judiciously read by Courts of co-ordinate jurisdiction."
41. Since the matter is decided in the light of the agreement dt. 15th Feb., 1981, discussed in aforesaid paras, facts of the present case cannot be equated with the facts of the other cases relied upon by the assessee.
42. In view of this, there is no question of departure from the earlier findings. This finding is rendered within the edifice of facts.
In the result, the appeal of the Revenue stands allowed and the appeal of the assessee stands dismissed.
A. KALYANASUNDHARAM, A.M. :
The assessee in the instant case was required to design, engineer, erect and commission a chemical fertiliser complex consisting of two contiguously placed ammonia production units for the production of 1350 metric tons of anhydrous ammonia per stream day on each unit and three urea plants for the aggregate production of 4500 metric tons of fertiliser grade urea per day and the required off-site facilities at Thal in Kulaba District of Maharashtra State in India. In the agreement signed on the 15th Feb., 1981, in addition to the above, the assessee vide cl. No. 2(ii) had undertaken to provide construction management services. The contents of the construction management services have been reproduced at page 11 of the order.
2. The construction management services cover areas relating to civil works which include preparation of list of contractors, including civil contractors, preparation of bid documents for inviting tenders, evaluation of bids, preparation of work order stipulating various terms and conditions, quality, time schedule, penalties, etc. The civil work, i.e., the works building in which the ammonia plant and the urea plant have to be installed, no doubt are not part of the agreement of supply of ammonia and other urea plants. The assessee had, in fact laid down certain norms and prerequisites for using the ammonia plant and the urea plant so as to meet the requirements as had been visualised by the assessee. It was with this intention that it had come forward to provide construction management services including civil construction. The other aspect of construction involve various other factors which are necessary for the operation and functioning of the ammonia plant and the urea plants. These are also supervised or managed only to make sure that they need the requirement of the ammonia plant and the urea plants.
In view of the above, the assessee had undertaken to provide specific management services relating to construction which have been made part of the contract and which activity has been made inseparable from its contract of designing, engineering, erection and commissioning of chemical fertiliser complex consisting of ammonia plant and urea plants. Therefore, it could not be concluded that the services rendered by the assessee is purely technical in nature not covering management services but a technical service which includes management services also which has, in fact, been rendered by him as observed earlier. For the above reasons I concur with the conclusion of my learned Brother.