ITO, Rohtak V. Akon Electronics India Pvt. Ltd., Jhajjar

ITA 1281/DEL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4231 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 08-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: NAVEEN GUPTA
• Keywords: Wholly owned subsidiary
• Section: 133A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SH. R.S. SYAL, VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO. 1281/DEL/2016 : ASSTT. YE AR : 2010-11 ITO TDS, AAYAKAR BHAWAN, ROHTAK VS AKON ELECTRONICS INDIA PVT. LTD. 36, MILE STONE, JAKHODA TEHSIL BAHADURGARH JHAJJAR PAN : RTKAO2929D (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. NAVEEN GUPTA, ADV. REVENUE BY : SH. RAVI KANT GUPTA, SR . DR DATE OF HEARING : 0 9 /08/2018 DATE OF PRONOUNCEMENT : 14 /08/2018 ORDER PER BEENA A. PILLAI, JUDICAL MEMBER PRESENT APPEAL DATED 30/12.2015 PASSED BY LD.CIT(A) ROHTAK, FOR ASSESSMENT HAS BEEN FILED BY REVENUE AGAINST ORDER YEAR 2012-13 ON FOLLOWING GROUNDS OF APPEAL: 1. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS ERRED IN LAW IN ALLOWING THE APPE AL OF THE ASSESSEE AS THE AO HAS RIGHTLY APPLIED THE PROVISIONS OF SEC TIONS 194J OF THE ITA NO.1281/DEL/2016 (ALKON ELECTRONICS INDIA PVT. LTD.) 2 ACT AND RAISED A DEMAND OF RS. 27,43,918/- BY TREAT ING THE PAYMENTS MADE BY THE ASSESSEE COMPANY AS PROFESSION AL FEES. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE IS WHOLLY OWNED SUBSIDIARY OF AKON INC., USA . LD.AO DURING THE INSPECTION CONDUCTED UNDER SECTION 133A ON ASSESSEE OBSERVED THAT ASSESSEE HAS MADE PAYMENT OF RS.2,57, 88,692/- AS JOB WORK CHARGES TO BEL, BANGALORE AND DEDUCTED TAX OF RS.5,15,77/-, AT 2% UNDER THE PROVISIONS OF SECTION 194C OF THE ACT. DURING THE COURSE OF SURVEY, ASSESSEE WAS ASKED TO F URNISH THE COPY OF CONTRACT AGREEMENT WITH BEL, BANGALORE. LD.A O OBSERVED THAT ASSESSEE ENTERED INTO A TEAMING AGREEMENT WITH BHARAT ELECTRONICS LTD, A GOVERNMENT OF INDIA DEFENCE UNDE RTAKING, OR SUPPLY AND COPRODUCTION OF MICROWAVE ASSEMBLY (RFUS ) VIDE AGREEMENT DATED 18/05/05. IN THE INSTANT CASE THE P AYMENT IN DISPUTE WAS MADE FOR ASSEMBLING ACTIVITY, UNDERTAKE N BY BEL ON SUB CONTRACT BASIS, ON WHICH ASSESSEE WHILE MAKING PA YMENTS TO BEL, DEDUCTED TDS UNDER SECTION 194C OF THE ACT AT 2%, AS ACCORDING TO ASSESSEE THE SAME FELL WITHIN THE DEFIN ITION OF THE TERM WORK AS DEFINED UNDER SECTION 194C OF THE ACT. 2. A SHOW CAUSE WAS ARRANGED ACCORDINGLY ISSUED TO ASS ESSEE SEEKING EXPLANATION REGARDING APPLICABILITY OF SECT ION 194J OF THE ACT, AS ACCORDING TO LD.AO, BEL HAS PROVIDED TECHNI CAL SERVICES TO ASSESSEE. ASSESSEE VIDE LETTER DATED 13/02/15 SUBMI TTED THAT AS PER AGREEMENT, BUSINESS ACTIVITY BETWEEN ASSESSEE A ND BEL WERE ITA NO.1281/DEL/2016 (ALKON ELECTRONICS INDIA PVT. LTD.) 3 CARRIED OUT IN 3 PHASES. IT WAS SUBMITTED THAT PAYME NTS MADE BY ASSESSEE TO BEL AND TDS UNDER SECTION 194C WAS DEDUC TED, WHEREIN, BEL HAD CARRIED OUT ASSEMBLING ACTIVITY ON SUB CONTRACT BASIS. 4. LD.AO WAS HOWEVER OF THE OPINION THAT THE ACTIVITIE S CARRIED OUT BY BEL INVOLVED TECHNICAL STAFF AND QUALIFIED ENGIN EERS WHO WERE TRAINED BY ASSESSEE AND THEREFORE CANNOT BE CONSIDE RED UNDER THE PROVISIONS OF SECTION 194C, INSTEAD WOULD BE TREATE D AS PAYMENTS MADE FOR PROVIDING TECHNICAL ASSISTANCE AND THEREBY PROVISIONS OF SECTION 194J WOULD BE APPLICABLE. LD. AO ACCORDINGLY HELD ASSESSEE TO BE IN DEFAULT U NDER SECTION 201 (1) AND (1A) OF THE ACT IN ACCORDANCE WITH PROVISION S OF SUB SECTION (1) TO SECTION 200 OF THE ACT, FOR ITS FAILURE TO D EDUCT TAX AS PER PROVISIONS OF SECTION 194J IN RESPECT OF PAYMENTS M ADE TO BEL. 5. AGGRIEVED BY THE ORDER OF LD. AO, ASSESSEE PREFERR ED APPEAL BEFORE LD. CIT (A) WHO ALLOWED THE CLAIM OF ASSESSEE BY HOLDING THAT THE PAYMENTS MADE BY ASSESSEE DO NOT FALL UNDER THE DEFINITION OF THE TERM PROFESSIONAL SERVICES AS NO TECHNICAL CO NSULTANCY HAS BEEN OFFERED. LD.CIT (A) IS DELETED THE ADDITION MA DE BY LD.AO. 6. AGGRIEVED BY THE ORDER OF LD.CIT (A) THE REVENUE I S IN APPEAL BEFORE US NOW. 7. THE ONLY GROUND RAISED BY REVENUE IS REGARDING APP LICATION OF PROVISIONS OF SECTION 194C OF THE ACT, BY LD.CIT (A ) IN RESPECT OF THE PAYMENTS MADE BY ASSESSEE TO BEL. LD. SR. DR SUBMI TTED THAT THE ITA NO.1281/DEL/2016 (ALKON ELECTRONICS INDIA PVT. LTD.) 4 CONTRACT ENTERED INTO BY ASSESSEE WITH BEL CANNOT BE EXECUTED WITHOUT INVOLVEMENT OF QUALIFIED PROFESSIONAL ENGINE ERS AND HIGHLY TECHNICAL STAFF AND CONSULTANTS HAVING EXPERTISE IN THE FIELDS OF ENGINEERING. HE SUBMITTED THAT ASSESSEE HAS PROVIDE D TRAINING TO THE EMPLOYEES OF BEL FOR THE WORK TO BE DONE BY BEL AS PER THE CONTRACT. LD.SR.DR THE SUPPORTING THE ORDER PASSED BY LD.AO SUBMITTED THAT AS PER THE TERMS AND CONDITIONS OF T HE AGREEMENT ASSESSEE NOT ONLY SUPPLY THE REQUIRED RFUS BUT ALS O GIVES TECHNICAL KNOWHOW AND IMPART EDUCATION TO THE ENGINEERS OF BEL SO THAT THESE EQUIPMENTS, IN FUTURE, BE MADE AT THE BUSINES S PREMISES OF BEL. HE THUS SUBMITTED THAT THE SERVICES RECEIVED B Y ASSESSEE FROM BEL FALLS WITHIN THE AMBIT OF PROFESSIONAL AND TECH NICAL SERVICES AS PER SECTION 194J OF THE ACT. 8. ON THE CONTRARY LD.AR SUBMITTED THAT AS PER AGREEM ENT ENTERED INTO BY ASSESSEE WITH BEL PRODUCTION OF RFUS IS DIV IDED INTO 3 PHASES BEING; PHASE I: SUPPLY OF FULLY FINISHED 750 NUMBERS OF RF US BY ASSESSEE TO BEL; PHASE II: COPRODUCTION FACE OF 750 NUMBERS OF RFUS AS PER WORKSHARE PLANT ENCLOSED AT APPENDIX B OF THE AGREEM ENT; PHASE III: PRODUCTION OF RFUS BEYOND 1500 NUMBERS. 9. HE SUBMITTED THAT IN THE INSTANT CASE THE PAYMENT I N DISPUTE MADE BY ASSESSEE TO BEL FALLS WITHIN THE AMBIT OF PH ASE II. REFERRING TO PARA 2.2 AND APPENDIX B OF THE AGREEME NT, LD.AR ITA NO.1281/DEL/2016 (ALKON ELECTRONICS INDIA PVT. LTD.) 5 SUBMITTED THAT IN THE INSTANT CASE BEL HAS ONLY DON E ASSEMBLING ACTIVITY AS PER THE SPECIFICATIONS PROVIDED BY ASSE SSEE ON THE MATERIAL SUPPLIED BY ASSESSEE. HE SUBMITTED THAT OB SERVATIONS OF LD. AO REGARDING PROVISION OF TECHNICAL TRAINING AS SISTANCE TO THE STAFF OF BEL BY ASSESSEE IS MISCONCEIVED AS THE TRA INING WAS PROVIDED, TO MAKE THEM UNDERSTAND REQUIREMENT OF AS SESSEE, FOR ASSEMBLING M1 AND M2 MODULE, FOR WHICH ASSESSEE SEPA RATELY CHARGED BEL ITS FEES. IN SUPPORT OF HIS ARGUMENT HE REFERRED TO ANNEXURE G OF THE AGREEMENT, WHICH PROVIDES PRICING FOR CO- PRODUCTION PHASE. HE THUS SUBMITTED THAT THE PRESEN T CASE SERVICES RENDERED BY BTL TO ASSESSEE DO NOT FALL UNDER THE D EFINITION OF PROFESSIONAL SERVICES AS NO TECHNICAL CONSULTANCY HAS BEEN RENDERED BY BEL TO ASSESSEE. 10. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH T HE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. WE HA VE PERUSED THE AGREEMENT DATED 18/05/05 ENTERED INTO BY ASSESSEE WI TH BHARAT ELECTRONICS LTD, INDIA GOVERNMENT OF INDIA UNDERTAK ING, FOR SUPPLY AND COPRODUCTION OF MICROWAVE ASSEMBLY (RFU). ON A D ETAILED PERUSAL OF THE RELEVANT CLAUSES OF THE AGREEMENT IT IS OBSERVED THAT IN THE PHASE II, ASSESSEE WILL BE SUPPLYING MECHANIC AL PARTS TO BEL AS PER THE PRICES AGREED UPON IN APPENDIX G. FURTHE R ASSESSEE WILL BE PROVIDING FULL MANUFACTURING DOCUMENT AND MATERI ALS FOR MODULES M1 AND M2 TO BEL. AS PER CLAUSE 3.2.4, MODU LE M1 AND M2 WILL BE ASSEMBLED BY BEL, AND SHIPPED BACK TO ASS ESSEE. ASSESSEE AFTER INSPECTION OF ASSEMBLED MODULE M1 AN D M2 AT BEL ITA NO.1281/DEL/2016 (ALKON ELECTRONICS INDIA PVT. LTD.) 6 GHAZIABAD UNIT, WOULD EXPORT THEM TO ITS PARENT COMP ANY IN US FOR INTEGRATION. THE FINAL ALIGNMENT OF RFU WOULD TAKE P LACE IN US. IT IS OBSERVED THAT BEL IS ONLY PROVIDING ASSEMBLY OF THE RAW MATERIALS PROVIDED BY ASSESSEE IN RESPECT OF A SMALL COMPONEN T CALLED AS RFU WHICH IS AS PER THE SPECIFICATIONS OF ASSESSEE. 11. LD.AO HAS ALLEGED THE ACTIVITIES RENDERED BY BEL T O ASSESSEE WITHIN THE AMBIT OF SECTION 194J OF THE ACT VIS-A-VIS SECTION 194C AS PER ASSESSEE. EXPLANATION 2 SECTION 194J CARVES OUT EXEMPTION, WHEREIN ANY CONSIDERATION MADE TOWARDS ANY CONSTRUCTION, ASSEMBL Y, MINING OR LIKE UNDERTAKEN PROJECT BY A RECIPIENT, WOULD NOT BE INCLUDED WITHIN THE PURVIEW OF SECTION 194J OF THE ACT. SECTION 194J REFERS TO DEFINITION OF FEES FOR TECHNICAL SERVICES, AS HAV ING SAME MEANING AS PER EXPLANATION 2 TO SUB CLAUSE (VII) OF SUBSECTION (1) OF SECTION 9. IN OUR CONSIDERED OPINION THE AGREEMENT VERY CLEARL Y SPELLS OUT THAT BEL UNDERTOOK ASSEMBLING OF RAW MATERIALS PROVIDED BY ASSESSEE IN RESPECT OF MODULE M1 AND M2, AS PER SPECIFICATIONS PROVIDED BY ASSESSEE. NO DOUBT CERTAIN TRAINING HAS BEEN PROVID ED BY ASSESSEE TO THE ENGINEERS OF BEL, HOWEVER THESE RENDERING OF TRAINING HAS BEEN SEPARATELY REMUNERATED BY BEL TO ASSESSEE. THU S IN OUR CONSIDERED OPINION PAYMENT RECEIVED BY BET L TOWARDS THE WORK CARRIED ON UNDER PHASE II OF THE AGREEMENT, WILL NOT FALL UNDER THE DEFINITION OF THE TERM PROFESSIONAL SERVICES AS NO NEW TECHNICAL CONSULTANCY HAS BEEN OFFERED BY BEL TO ASSESSEE. WE THEREFORE DO NOT FIND ANY FAULT IN THE OBSERVATIONS OF LD.CIT (A ) IN HOLDING THAT ITA NO.1281/DEL/2016 (ALKON ELECTRONICS INDIA PVT. LTD.) 7 THE WORK UNDERTAKEN BY BEL IS COVERED UNDER THE PROV ISIONS OF SECTION 194C. ACCORDINGLY WE DISMISS THE GROUND RAI SED BY THE REVENUE. 11. IN THE RESULT APPEAL FILED BY REVENUE STANDS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST, 2018. SD/- SD/- (R.S.SYAL) (BEENA A. PILLAI) VICE PRESIDENT JUDICIAL MEM BER DATED: 14 / 08/2018 *BINITA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO.1281/DEL/2016 (ALKON ELECTRONICS INDIA PVT. LTD.) 8