The ADIT(Intl.tax.), Ahmedabad V. M/s. Joint Stock Company Zangas, Gandhinagar

ITA 15/AHD/2013

• Counselvise Citation: 1520514 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL SRDR
• Keywords: Business income; Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMADABAD , , , , BEFORE SHRI D.K.TYAGI , JUDICIAL MEMBER AND .., SHRI T.R. MEENA, ACCOUNTANT MEMBER !.. , ' # $ # $ # $ # $ ITA NO. 15/AHD/2013 ASSESSMENT YEAR :2009-10 THE ASSISTANT DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION), 207, 2 ND FLOOR, NAVJEEVAN TRUST BUILDING, B/H GUJARAT VIDYAPITH, ASHRAM ROAD, AHMEDABAD V/S . JOINT STOCK COMPANY ZANGAS, A/4-1, SECTOR -25, G.I.D.C. ESTATE, GANDHINAGAR PIN 382016 PAN NO. A ABC J6038K (APPELLANT) .. (RESPONDENT) %& ' ( / BY APPELLANT SHRI P. L. KUREEL, SR. D.R. )%& ' ( /BY RESPONDENT SHRI MILIN MEHTA, A.R. *+, ' -' /DATE OF HEARING 09.01.2014 ./0 ' -' /DATE OF PRONOUNCEMENT 14.02.2014 O R D E R PER : SHRI T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF REVENUE WHICH HA S EMANATED FROM THE ORDER OF CIT(A), GANDHINAGAR, DATED 15.10. 2011 FOR ASSESSMENT YEAR 2009-10. THE EFFECTIVE GROUNDS OF REVENUES A PPEAL ARE AS UNDER: I). THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE PRIMARY RESPONSIBILI TY OF THE EXECUTION OF THE CONTRACT WAS OF THE ASSESSEE. FUR THER THE ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 2 ASSESSEE COMPANYS RESPONSIBILITY WS FOR THE EXECUT ION 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 COMPANYS ROLE IS MUCH MORE THAN SIMPL Y PROVIDING TECHNICAL SERVICES THEREBY THE RECEIPTS W ERE TREATED AS BUSINESS INCOME. II). THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DIRECTING TO TREAT THE INCOME AS FEES FOR TECHNICAL SERVICES AND TAX T HE SAME AS SUCH. 2. THE ASSESSEE IS A FOREIGN COMPANY NON RESIDENT A ND IS DEALING IN CONSTRUCTION OF PIPELINES PROJECT. THE COMPANY HAV ING ITS REGISTERED OFFICE AT MOSCOW AND DULY REGISTERED UNDER COMPANIES LAW O F RUSSIA. THE COMPANY HAS EXPERTISE AND EXPERIENCE OF MANY YEARS IN LAYING AND INSTALLATION OF GAS AND LIQUID PIPELINES. IT IS RE COGNIZED AS THE MAJOR CONTRACTOR ONSHORE BY THE INTERNATIONAL PIPELINE & OFFSHORE CONTRACTORS ASSOCIATION FOR A WIDE RANGE OF ACTIVITIES IN THE P IPELINE CONSTRUCTION SECTOR. IN INDIA, IT IS ENGAGED IN CONSTRUCTION OF PIPELINE PROJECTS FOR BHARAT PETROLEUM CORPORATION LIMITED (HEREINAFTER R EFERRED TO AS BPCL) AND GAS AUTHORITY OF INDIA LIMITED (HEREINAFTER REF ERRED TO AS GAIL). AS PER THE STATEMENT OF TOTAL INCOME FILED BY THE ASSE SSEE, 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 B EEN SHOWN AS TECHNICAL FEES AND OFFERED TO TAX @ 10%, AS PER THE PROVISIONS OF ARTICLE ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 3 12 OF INDO-RUSSIA DTAA (HEREINAFTER REFERRED TO AS DTAA). THE ASSESSEE COMPANY ENTERED INTO AN AGREEMENT WITH BPC L FOR THE CONSTRUCTION OF MUMBAI-MANGALYA-MANMAD PIPELINE (HE REINAFTER REFERRED TO AS MMPL) ON 10.11.2005 AND ESTABLISHED A PROJE CT OFFICE FOR THAT PURPOSE AT A/4-1, SECTOR 25, GIDC ESTATE, GANDHINAG AR, 382028, WITH PRIOR PERMISSION OF RBI. THE SAID CONTRACT COMMENC ED ON 06.10.2005 AND WAS COMPLETED ON 20.04.2007. FURTHER, THE ASSESSEE COMPANY ENTERED INTO A CONSORTIUM AGREEMENT WITH KALPATARU POWER TR ANSMISSION LIMITED (HEREINAFTER REFERRED TO AS 'KPTL) ON 11.05.2006 F OR 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 HA S BEEN DESIGNATED AS THE 'LEAD PARTNER' AND KPTL' AS THE SECOND PARTN ER. AS PER PARA 2 OF THE CONSORTIUM AGREEMENT, THE ENTIRE EXECUTION OF T HE CONTRACT INCLUDING RECEIVING AND MAKING PAYMENT SHALL BE DONE EXCLUSIV ELY BY THE IEADING PARTNER (I.E. THE ASSESSEE COMPANY). FURTHER, AS P ER PARA-9 OF THE CONSORTIUM AGREEMENT THE SAID AGREEMENT IS IRREVOCA BLE AND FORMS AN INTEGRAL PART OF THE CONTRACT ENTERED INTO BY THE C ONSORTIUM WITH GAIL INDIA LTD. THE CONSORTIUM MADE A BID FOR THE SAID PROJEC T AND WAS FINALLY AWARDED THE CONTRACT BY GAIL INDIA LTD. AND THE SAM E WAS CONVEYED TO ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 4 THE CONSORTIUM VIDE LETTER OF ACCEPTANCE DATED 05.0 9.2006 AND 07.11.2008, RESPECTIVELY FOR THE TWO PROJECTS AS AB OVE. 2(I). THE ASSESSEE-COMPANY FURTHER ENTERED IN A CO- OPERATION AGREEMENT WITH KPTL ON 12.09.2006 AND 08.10.2008, R ESPECTIVELY FOR THE TWO PROJECTS, AFTER THE AWARD OF THE CONTRACT BY GA IL INDIA LTD. THE CO- OPERATION AGREEMENT WAS ENTERED INTO WITH THE OBJEC T 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 IN PUT RESOURCES WHILE THE ASSESSEE-COMPANY WILL PROVIDE ITS TECHNICAL GUI DANCE AND CONSULTANCY FOR PROJECT MANAGEMENT. MOREOVER, THE SUPPLY OF SP ECIALIZED MANPOWER IS TO BE SUPPLIED BY THE ASSESSEE-COMPANY, AND FOR THE SAME PERSONNEL WERE DEPUTED BY THE ASSESSEE-COMPANY FROM TIME TO T IME. 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. TH E 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 TW O 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 RES PECTIVELY. THE ASSESSEE-COMPANY HAS OFFERED INCOME ARISING OUT OF THE PDPL AND VDPL ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 5 PROJECTS, I.E. 3% OF THE PROJECT CONSIDERATION RECE IVED 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 PROVIS IONS 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 A ND THAT OF THE TWO PARTNERS SEPARATELY AS PER THE VARIOUS AGREEMENTS E NTERED INTO BY THE ASSESSEE VIZ. THE CONSORTIUM AGREEMENT, CO-OPERATIO N 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 CONS ORTIUM AGREEMENT AND PLACED AS APPENDIX -1 TO THE AGREEMENT; THE COP Y OF THE SAME IS APPENDED AS ANNEXURE-L. AS PER THE 'RESPONSIBILITY MATRIX BETWEEN JSC ZANGAS & KALPATRU POWER TRANSMISSION LTD.' THE PROJ ECT ACTIVITIES HIGHLIGHTED HEREIN-UNDER HAVE TO BE CARRIED OUT SOL ELY BY ZANGAS OR BY KPTL UNDER GUIDANCE OF JSC ZANGAS OR BY THEM JOINTL Y. 1. PROJECT MANAGEMENT IS THE SOLE RESPONSIBI LITY 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. ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 6 C. OTHER ACTIVITIES UNDER THIS ARE JOINT RESPONSI BILITIES OF JSC ZANGAS AND KPTL AND HAVE TO BE CARRIED BY WAY OF SU B- CONTRACT THROUGH SPECIALIZED AGENCIES. 4. RESOURCE MOBILIZATION IS JOINT RESPONSIBILITY OF JSC ZANGAS AND KPTL. 5. ALL SPECIALIZED MANPOWER REQUIRED FOR THE PROJEC T MANAGEMENT, TECHNICAL MATTERS AND SPECIALIZED WORKS OF PIPELINE LAYING IS THE SOLE RESPONSIBILITY OF JSC ZANGAS. 6. HYDROSTATIC TESTING IS THE SOLE RESPONSIBILITY O F JSC ZANGAS. 7. COMMISSIONING OF THE PROJECT IS THE JOINT RESPON SIBILITY OF JSC ZANGAS AND KPTL. FROM THE ABOVE IT CLEARLY EMERGES THAT OVERALL PROJ ECT MANAGEMENT OF THE PROJECT IS THE SOLE RESPONSIBILITY OF THE AS SESSEE-COMPANY AND ALL THE MAINLINE ACTIVITIES REQUIRED TO BE PERFORMED FO R THE CONSTRUCTION OF THE SAID PIPELINE ARE TO BE CARRIED OUT SOLELY BY THE A SSESSEE-COMPANY OR JOINTLY BY IT WITH KPTL OR BY KPTL UNDER GUIDANCE O F 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. DIS CHARGES 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 TH E PROJECT MANAGEMENT AND OVERALL COMPLETION LYING WITH THE ASSESSEE-COMP ANY. ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 7 2(II). THE A.O. FURTHER OBSERVED THAT THE ASSESSEE COMPANY SHALL PERFORM THE VARIOUS ACTIVITIES FOR THE EXECUTION OF THE CON TRACT AWARDED TO THE CONSORTIUM. THE A.O. GAVE REASONABLE OPPORTUNITY O F BEING HEARD ON THIS ISSUE, WHICH WAS AFFORDED BY THE ASSESSEE COMPANY V IDE LETTER DATED 07.12.2011. AFTER CONSIDERING THE ASSESSEES REPLY , THE LD. A.O. HELD THAT MMPL CONTRACT HAS BEEN AWARDED TO THE ASSESSEE COMP ANY AND THE PDPL & VDPL PROJECTS HAVE BEEN AWARDED TO THE CONSO RTIUM 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 CONTRA CT WAS AWARDED TO THE CONSORTIUM. THE DISTRIBUTION OF WORK WAS CARRI ED ON BETWEEN THE ASSESSEE-COMPANY WAS CARRIED ON BETWEEN THE ASSESSE E COMPANY AFTER BEING AWARDED THE CONTRACT THROUGH A COOPERATION AG REEMENT 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 SUPERVISOR Y SERVICES IN TERMS OF TECHNICAL SUPPORT AND GUIDANCE. THUS, THE CONSI DERATION RECEIVED BY THE ASSESSEE-COMPANY IS FOR THE TECHNICAL SERVICES RENDERED BY THE ASSESSEE COMPANY FOR THE PROJECT AND SAME ARE TAXAB LE 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 ASS ESSEE IN INDIA SHALL BE TAXABLE AS PER SECTION 9 R.W.S. 90(2) OF THE IT ACT AND INCOME DERIVED ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 8 ON ACCOUNT OF TECHNICAL SERVICES RENDERED BY THE AS SESSEE 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) O F INDO-RUSSIAN DTAA, THE RATE OF TAX ON THE INCOME DERIVED BY THE ASSESS EE IN INDIA FROM PDPL PROJECT SHALL NOT EXCEED 10% OF THE GROSS RECEIPTS. 2(III). LD. A.O. HAS CONSIDERED THE ASSESSEES REPL Y IN DETAIL ON PAGE NOS. 15 TO 32 AND HELD THAT ASSESSEE COMPANY WAS CONTINU ES FOR A PERIOD OF MORE THAN 12 MONTHS AND CONSTITUTES A PERMANENT EST ABLISHMENT. IN INDIA, ARTICLE 12 OF DTTA IS NOT APPLICABLE IN CASE OF ASSESSEE. THE INCOME/PROFIT ARISING OUT OF CONSTRUCTION, INSTALLA TION AND ASSEMBLY PROJECT/SITE RENDERED IN CONNECTION WITH SUCH PROJE CTS 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 SUPERVISO RY 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 CLE AR THAT THE PROJECT OR THE SITE SHOULD CONTINUE FOR A PERIOD OF 12 MONTHS OR M ORE 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 SUPE RVISORY ACTIVITIES FOR A PERIOD OF 26 MONTHS AND 18 DAYS AND 22 MONTHS EST ABLISHED BEYOND DOUBT THAT THE ASSESSEE COMPANY HAS A PERMANENT EST ABLISHMENT IN INDIA AS PER ARTICLE 5(2)(I) OF THE INDO-RUSSIA DTAA. TH US, THE INCOME RECEIVED ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 9 BY THE ASSESSEE FROM THE SAID PDPL CONTRACT IS TAXA BLE AS PER THE PROVISIONS OF ARTICLE 7 OF THE DTAA AS BUSINESS PR OFITS AND NOT AS PER ARTICLE 12 OF THE DTAA AS FEES FOR TECHNICAL SERVI CES. 3. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE A SSESSEE 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 HONBLE ITAT, AHMADABAD FOR A.Y. 2007-08 AND THE AS SESSMENT ORDER. I AGREE WITH THE APPELLANT THAT BETWEEN PDPL PROJE CT AND VDPL PROJECT THERE IS NO CHANGE IN THE FACTS. THE VDPL PROJECT WAS ALSO EXECUTED FOR GAIL (INDIA) LTD. AND ON THE SAME LINE S AS DOEN FOR THE PDPL PROJECT. SIMILAR AGREEMENTS (CONSORTIUM AND C O-OPERATION WERE ENTERED INTO. EVEN THE AO HAS DISCUSSED THE TWO PR OJECTS TOGETHER. IN THE CASE, ALL THE OBJECTIONS OF THE A.O. ARE BAS ED ON THE CONSORTIUM AGREEMENTS AND AGREEMENTS OF THE CONSORT IUM WITH GAIL AND IT HAS BEEN CONTENDED THAT SINCE THE ASSESSEE I S THE LEADER OF CONSORTIUM AND AS PER THE TERMS OF CONTRACT WITH GA IL, THE ASSESSEE WAS THE LEADING PARTNER OF THE CONSORTIUM, THE ENTI RE CONSTRUCTION WORK, OF THE PROJECT IN THE HANDS WAS DONE BY THE A SSESSEE AND THE ASSESSEE'S ACTIVITIES ARE NOT CONFINED TO MERE PROV IDING OF FTS. THE SAME ISSUE HAS BEEN DECIDED HON'BLE ITAT AHD FO R AY 2007-08 IN THE CASE OF THE ASSESSEE ON ESSENTIALLY SAME FACTS. FOLLOWING VOITH SIEMENS HYDRO KRAFTWERKSTECHNIK GMB H & 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 BI RLA NUVO LTD. VS ADIT AS REPORTED IN 44 SOT 601 (MUMBAI), IT HAS DEC IDED THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE DOES NOT FALL WITHIN THE EXCLUSION ITA NO. 15/AHD/13 A.Y. 09-10 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 PE R THE CONSORTIUM AGREEMENT AND AS PER THE TERMS OF CONTRACT AWARDED BY GAIL TO THE, CONSORTIUM, THE ASSESSEE HAS NOT DONE THOSE EXTRA A CTIVITIES AND THE CONSIDERATION RECEIVED BY THE ASSESSEE IS AS PER THE CO OPERATION AGREEMENT FOR THE ACTIVITIES PROVIDED IN THE CO OPE RATION AGREEMENT AND HAVING ACCEPTED BY THE A. O. THE AMOUNT OF CONS IDERATION RECEIVED BY THE ASSESSEE AT 3% OF GROSS RECEIPTS OF THE CONSORTIUM, IT HAS TO BE ACCEPTED THAT THE SAME IS FOR PROVIDING F TS 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 NO T APPLICABLE IN THE PRESENT CASE AS PER WHICH THE INCOME OF THE ASSESSEE WITH REGARD TO PDPL PROJECT IS LIABLE TO TAX @ 10% AS HA S 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 SU B-SECTION (1) OF SECTION 115A ALONG WITH SECTION 9(1)(VII) OF THE AC T. SUBMITTING TO THE JUDICIAL DISCIPLINE, THE SAME DEC ISIONS ARE FOLLOWED AND UPHELD FOR THE CURRENT YEAR ALSO FOR B OTH 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.(GROUN D NO 6)IS NOT REQUIRED TO BE DECIDED BECAUSE THE SAME IS OF ACADE MIC 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. VEH EMENTLY RELIED UPON THE ORDER OF THE A.O. AND WRITTEN SUBMI SSION FILED BY THE A.O. ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 11 HE HAS EXPLAINED THE DIFFERENCE BETWEEN THE PDPL & VDPL AGREEMENT AND ARGUED THAT ASSESSEE WAS INDULGED IN THE CONSTR UCTION 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 E MERGED THAT OVER ALL PROJECTS, MANAGEMENT OF THE PROJECT IS THE SOLE RES PONSIBILITY OF THE ASSESSEE COMPANY. ALL THE MAIN LINE ACTIVITIES REQ UIRED TO BE PERFORMED FOR THE CONSTRUCTION OF THE SAID PIPELINES ARE TO B E CARRIED OUT SOLELY BY THE ASSESSEE COMPANY OR JOINTLY BY IT WITH KPTL. THE A SSESSEE COMPANY, LATER ON, ENTERED INTO AGREEMENT WITH KPTL FOR COMP LETING THE PDPL & VDPL CONTRACTS AND FINAL AGREEMENT ENTERED INTO BET WEEN THE CONSORTIUM AND GAIL INDIA LTD. THUS, SPECIFICATION OF CONTRAC T IS ONLY FOR PROVIDING THE WORKING ARRANGEMENT AND THE MANNER IN WHICH REVENUE ARISING OUT THE SAID CONTRACT ARE TO BE DISTRIBUTED AMONG THE PARTN ERS OF THE CONSORTIUM. THE ASSESSEE COMPANY LEAD PARTNER IN THE CONSORTIUM WHICH IS ONLY INTER SE ARRANGEMENT BETWEEN THE ASSESSEE COMPANY AND KPT L. HE FURTHER ARGUED THAT HONBLE ITAT ORDER IN CASE OF ASSESSEE FOR A.Y. 07-08 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT, AN APPEAL PENDING BEFORE THE HONBLE 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 T OTAL RECEIPTS AS PER AGREEMENT WHICH HAS BEEN SHOWN BY IT IN INCOME IN R ESPECTIVE YEARS AND PAID TAX ON IT. THERE IS NO CHANGE IN ANY CONDITIO N PRESCRIBED IN THE ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 12 AGREEMENT DURING THE YEAR AS COMPARE TO A.Y. 07-08. HE ALSO SUBMITTED THAT HONBLE B BENCH, ITAT, AHMEDABAD IN CASE OF ASSESSEE IN ITA NO. 3399/AHD/2010 FOR A.Y. 07-08 HELD THESE RECEIPTS PA RTLY AS BUSINESS INCOME AND PARTLY FEES FOR TECHNICAL SERVICES AND H AD NOT FOUND ANY PERMANENT ESTABLISHMENT FOR ALL PROJECTS EXECUTED T HROUGH 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 IDENT ICAL ISSUE IN A.Y. 07- 08 AND HELD AS UNDER: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. IT IS BY NOW A SETTLED POSITION OF LAW THAT IF THE PROVISION S OF INCOME TAX ACT, 1961 ARE MORE FAVOURABLE AS COMPARED TO THE PROVISI ONS 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, REPR ODUCE THE PROVISIONS OF SECTION 9(1)(VII), SECTION 44DA AND S ECTION 115A OF THE ACT: 'SECTION 9(1) : THE FOLLOWING INCOMES SHALL BE DEEM ED 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 FEE S ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFE SSION CARRIED ON BY ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 13 SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MA KING 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 PROFE SSION 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 SHA LL APPLY IN RELATION TO ANY INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PA YABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE THE 1ST DAY OF APRIL, 1 976, 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, 19 76, SHALL BE DEEMED TO HAVE BEEN MADE BEFORE 9 THAT DATE IF THE AGREEMENT IS MADE IN ACCORDANCE WITH PROPOSALS APPROVED BY THE C ENTRAL GOVERNMENT BEFORE THAT DATE.] EXPLANATION [2] - FOR THE PURPOSES OF THIS CLAUSE, 'FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LU MP SUM CONSIDERATION) FOR THE RENDERING OF NAY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SE RVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOE NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDE RTAKEN 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 PU RSUANCE OF AN AGREEMENT MADE BY A NON-RESIDENT (NOT BEING A COMPA NY) OR A FOREIGN COMPANY WITH GOVERNMENT OR THE INDIAN CONCERN AFTER THE 31ST DAY OF MARCH, 2003, WHERE SUCH NON-RESIDENT (NOT BEING A C OMPANY) OR A FOREIGN COMPANY CARRIES ON BUSINESS IN INDIA THROUG H A PERMANENT ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 14 ESTABLISHMENT SITUATED THEREIN, OR PERFORMS PROFESS IONAL SERVICES FROM A FIXED PLACE OF PROFESSION SITUATED THEREIN, AND T HE RIGHT, PROPERTY OR CONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANE NT ESTABLISHMENT OR FIXED PLACE OF PROFESSION, AS THE CASE MAY BE, S HALL BE COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT: PROVIDE D THAT NO DEDUCTION SHALL BE ALLOWED,-- (I) IN RESPECT OF ANY EXPENDITURE OR ALLOWANCE WHIC H IS NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE BUSINESS OF SUCH PERMA NENT 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, EST ABLISHMENT 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 FE ES 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 T ECHNICAL SERVICES OTHER THAN 10 INCOME REFERRED TO IN SUB-SECTION (I ) OF SECTION 44DA] RECEIVED FROM GOVERNMENT OR AN INDIAN CONCERN IN PU RSUANCE OF AN AGREEMENT MADE BY THE FOREIGN COMPANY WITH GOVERNME NT OR THE INDIAN CONCERN AFTER THE 31ST DAY OF MARCH, 1976, A ND WHERE SUCH AGREEMENT IS WITH AN INDIAN CONCERN, THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERNMENT OR WHERE IT RELATES TO A MAT TER INCLUDED IN THE INDUSTRIAL POLICY, FOR THE TIME BEING IN FORCE, OF THE GOVERNMENT OF INDIA, THE AGREEMENT IS IN ACCORDANCE WITH THAT POL ICY, THEN, SUBJECT TO ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 15 THE PROVISIONS OF SUB-SECTIONS (1 A) AND (2), THE I NCOME-TAX PAYABLE SHALL BE THE AGGREGATE OF,-- [(BB) THE AMOUNT OF INCOME-TAX CALCULATED ON THE IN COME BY WAY OF FEES FOR TECHNICAL SERVICES, IF ANY, INCLUDED IN TH E TOTAL INCOME, AT THE RATE OF TEN PER CENT IF SUCH FEES FOR TECHNICAL SER VICES 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 EX PLANATION (2) TO SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961, FTS WILL NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT FOR CONSIDERATION OF TH E INCOME CHARGEABLE UNDER THE HEAD 'SALARY'. HENCE, THERE ARE TWO EXCLU SIONS WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE WILL NOT BE CONSIDERED AS FTS. FIRST EXCLUSION IS WHERE RECEIPT IS CHARGEABLE TO T AX UNDER THE HEAD 'SALARY'. THIS IS NOT APPLICABLE IN THE PRESENT CAS E BECAUSE THIS IS NOT THE CASE OF THE A.O. THAT THE RECEIPT IN QUESTION I S CHARGEABLE TO TAX UNDER THE HEAD 'SALARY'. THE SECOND EXCLUSION IS RE GARDING THOSE CONSIDERATIONS, WHICH ARE FOR ANY CONSTRUCTION, ASS EMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT I.E. THE A SSESSEE IN THE PRESENT CASE. THE CASE OF THE A.O. IN THE PRESENT CASE IS T HAT THE AMOUNT RECEIVED BY THE ASSESSEE IS FOR CONSTRUCTION PROJEC T 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 C ONTRACT IN QUESTION WAS AWARDED BY GAIL TO THE CONSORTIUM OF THE ASSESS EE AND KPTL BUT AFTER AWARDING THIS CONTRACT BY GAIL TO THE CON SORTIUM, BOTH THE PARTIES OF THE CONSORTIUM ENTERED INTO A COOPERATIO N AGREEMENT BETWEEN THEMSELVES AS PER WHICH THEY DETERMINED THE RESPONSIBILITIES OF EACH PARTY AND THE MANNER OF SHARE OF CONSIDERAT ION ALSO. THE MANNER OF SHARING THE CONSIDERATION HAS BEEN PRESCR IBED IN THE RATIO OF 3% FOR THE ASSESSEE, 96% FOR KPTL AND THE BALANC E 1% WAS ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 16 RESERVED FOR COMMON EXPENSES OF THE CONSORTIUM. REG ARDING 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 CONSORTIU M WILL GO TO THE ASSESSEE COMPANY AND THE BALANCE 97% WILL GO TO KPT L. KPTL WILL BE RESPONSIBLE FOR ALL THE ARRANGEMENTS OF RESOURCES A S WELL AS EXPENSES INCLUDING COMMON EXPENSES OF THE CONSORTIUM. THE RE SPONSIBILITY OF THE ASSESSEE AS DESCRIBED IN ANNEXURE 1 TO THE COOP ERATION AGREEMENT IS AVAILABLE ON PAGE 218-219 OF THE PAPER BOOK AND HENCE, IT IS VERY RELEVANT TO REPRODUCE THE SAME HERE IN B ELOW: '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 ZAN GAS ARE AS FOLLOWS - 1. DESIGN & ENGINEERING: ,- CIVIL & STRUCTURAL ZANGAS SHALL PROVIDE (HE FOLLOWING DESIGN & ENGINEE RING SERVICES UNDER CIVIL & STRUCTURAL HEAD, BASED ON TH E 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 ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 17 > SECTIONALIZING VALVE STATION WITH CP > TERMINALS III) REVIEW OF DETAILED ENGINEERING OF BUILDING CO NSTRUCTION OF CONTROL ROOMS GIVING FOUNDATION & REINFORCEMENT DET AILS ETC IV) REVIEW OF STRUCTURAL DESIGN OF FOUNDATIONS IT SUPPORTS FOR EQUIPMENT TO BE INSTALLED IN SV AND TERMINAL STATIO NS. > SCRAPER TRAPS > PIPING > VALVES > ALL OTHER EQUIPMENTS V) REVIEW OF ROAD AND DRAINAGE DESIGN & DETAILED E NGINEERING VI) REVIEW OF FENCING AND GATE DESIGN & DETAILED E NGINEERING B. ELECTRICAL REVIEW OF DESIGN & ENGINEERING OF ELECTRICAL SYSTEM FOR EACH SV AND TERMINAL STATION COVERING & INCLUDING THE FO LLOWING: > SINGLE LINE DIAGRAM > CABLE LAYOUT > EARTHING GRID LAYOUT > ELECTRICAL DISTRIBUTION PLAN WITHIN THE BUILDING > INCOMING POWER PANE) DESIGN & ENGINEERING > DESIGN & ENGINEERING OF DISTRIBUTION PANELS & BOA RDS ITA NO. 15/AHD/13 A.Y. 09-10 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 PROCUR ED FOR INSTALLATION C. CATHODIC PROTECTION OF DESIGN & ENGINEERING INC LUDED IN THE PACKAGES OF FOLLOWING- > TEMPORARY CATHODIC PROTECTION BASED ON SACRIFICIA L ANODES > PERMANENT CATHODIC PROTECTION BASED ON IMPRESSED CURRENT D. EQUIPMENT DESIGN & ENGINEERING DESIGN & ENGINEERING TO ENABLE PROCUREMENT OF VALVE S, SCRAPER TRAPS, FLOW NSULATING JOINTS, TEGS, AC PACKAGE, FIR E EXTINGUISHING SYSTEM BASED ON CO2 FLOODING AND CLEA N 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 ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 19 REVIEW OFF DESIGN OF FIELD INSTRUMENTATION SYSTEM A S PER SPECIFICATIONS INCLUDING FOLLOWING:- > MATERIAL TAKE OFF > INSTRUMENT CABLE LAYOUT > DETAILED ENGINEERING OF INSTRUMENT INSTALLATION 2. PREPARATION OF WELDING PROCEDURE AND WELDER QUA LIFICATION PROCEDURE 3. REVIEW OF WORK PROCEDURES FOR PIPELINE LAYING. 4. DEPUTATION OF EXPERTS FOR SITE REVIEW OF IMPLEM ENTATION 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 ASS ESSEE IS REGARDING DESIGN AND ENGINEERING FOR VARIOUS ASPECTS I.E. (A) CIVIL, & STRUCTURAL (B) ELECTRICAL, (C) CATHODIC PROTECTION, (D) EQUIPM ENT DESIGN & ENGINEERING, (E) PIPELINE CROSSING AND (F) INSTRUME NTATION. THE 2ND ITEM OF ACTIVITIES INCLUDED IN THE SCOPE OF WORK OF THE ASSESSEE COMPANY WAS PREPARATION OF WELDING PROCEDURE AND WE LDER QUALIFICATION PROCEDURE, 3RD ITEM IS REVIEW OF WORK PROCEDURE FOR PIPELINE LAYING AND 4TH RESPONSIBILITY IS FOR DEPUT ATION 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 DEPU TE EXPERT FOR SITE REVIEW OF IMPLEMENTATION BY KPTL AND TECHNICAL SERVICES PROVIDED BY ZANGAS, THE ASSESSEE COMPANY WAS VERY MUCH ENGAG ED IN THE ENTIRE CONSTRUCTION PROJECT. THESE OBJECTIONS OF TH E AUTHORITIES BELOW AND THE LD. D.R. OF THE REVENUE ARE NOT VALID IN TH E LIGHT OF THESE TWO TRIBUNAL DECISIONS CITED BY THE LD. A.R. OF THE ASS ESSEE. ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 20 11. IN THE CASE OF VOITH SIEMENS HYDRO KRAFTWERKSTE CHNIK GMBH & CO. (SUPRA), IT WAS HELD BY THE TRIBUNAL THAT ALTHO UGH AS PER THE TERMS OF CONTRACT WITH OHPC, THE ASSESSEE COULD BE ASSUME D BE LIABLE TO DO ASSEMBLY ERECTION, TESTING AND COMMISSIONING OF POW ER PROJECT AS ALSO THE SUPERVISION THEREOF, IN THE ABSENCE OF BEING AN Y EVIDENCE THAT ASSESSEE HAVING DONE ANY SUCH ACTIVITY OTHER THAN S UPERVISION SIMPLICITOR, ERECTION AND TESTING AND COMMISSIONING , THE ACTIVITIES OF THE ASSESSEE CANNOT BE SAID TO FALL WITHIN THE MEAN ING OF TERM 'BUSINESS OF ERECTION OF PLANT & MACHINERY AND TEST ING AND COMMISSIONING' AS PROVIDED IN THE PROVISIONS OF SEC TION 44BBB AND TO FALL WITHIN THE MEANING OF TERM 'CONSTRUCTION AND A SSEMBLY' AS PROVIDED IN THE EXCLUSION PROVIDED IN EXPLANATION ( 2) TO SECTION 9(1)(VII) OF THE ACT. HENCE IN THAT CASE, IT WAS NO TICED BY THE TRIBUNAL THAT ALTHOUGH AS PER THE TERMS OF CONTRACT WITH OHP C, IT CAN BE ASSUMED THAT THE ASSESSEE WAS LIABLE TO DO THE ASSE MBLY, 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 ASSEMB LY, ERECTION, TESTING AND COMMISSIONING AND HENCE SUCH ACTIVITIES OF THE ASSESSEE DO NOT FALL WITHIN THE MEANING OF TERM 'CONSTRUCTION AND A SSEMBLY' AS PROVIDED IN THE EXCLUSION PROVIDED IN EXPLANATION ( 2) TO SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961. HENCE, AS PE R THIS TRIBUNAL DECISION, THE TERM CONTRACT ALONE IS NOT THE DECIDI NG FACTOR AND IT IS VERY IMPORTANT TO SEE AS TO WHAT WAS THE ACTUAL ACT IVITY IS UNDERTAKEN BY THE ASSESSEE. IN THE PRESENT CASE, ALL THE OBJEC TIONS OF THE A.O., DRP AND THE LD. D.R. OF THE REVENUE ARE BASED ON TH E CONSORTIUM AGREEMENT AND AGREEMENT OF THE CONSORTIUM WITH GAIL AND IT HAS BEEN CONTENDED THAT SINCE THE ASSESSEE IS THE LEADE R OF CONSORTIUM AND AS PER THE TERMS OF CONTRACT WITH GAIL, THE ASS ESSEE WAS THE LEADING PARTNER OF THE CONSORTIUM, THE ENTIRE CONST RUCTION WORK OF THE PROJECT IN THE HANDS WAS DONE BY THE ASSESSEE AND T HE ASSESSEE'S ACTIVITIES ARE NOT CONFINED TO MERE PROVIDING OF FT S. BUT THE ASSESSEE HAS BROUGHT ON RECORD THE CORPORATION AGREEMENT ALO NG WITH ITS ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 21 ANNEXURE 1 WHICH OUTLINES THE SCOPE OF THE ACTIVITI ES OF THE ASSESSEE. AS PER THE SCOPE OF ACTIVITIES AS HAS BEEN REPRODUC ED ABOVE, THE ASSESSEE IS REQUIRED TO PROVIDE DESIGN AND ENGINEER ING OF VARIOUS ASPECTS AND IS ALSO REQUIRED FOR PREPARING THE WELD ING PROCEDURE AND IS ALSO REQUIRED TO REVIEW THE WORK PROCEDURE FOR P IPELINE LAYING AND IN ADDITION TO THIS, THE ASSESSEE IS REQUIRED TO DEPUT E EXPERTS FOR SITE REVIEW AND IMPLEMENTATION BY KPTL AND TECHNICAL SUP ERVISION 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 AN D TECHNICAL SERVICES PROVIDED BY ZANGAS. HENCE, IT IS SEEN THAT DEPUTING EXPERT WAS FOR A LIMITED PURPOSE FOR SITE REVIEW OF IMPLEM ENTATION 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 ASS ESSEE 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 DOIN G 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 AGREEM ENT. IN FACT, THIS IS NOT EVEN AN ALLEGATION OF THE A. O. 12. HENCE, THE TRIBUNAL DECISION RENDERED IN THE CA SE OF VOITH SIEMENS HYDRO (SUPRA) IS SQUARELY APPLICABLE IN THE PRESENT CASE AND AS PER THIS DECISION OF THE TRIBUNAL IN THE LIGHT O F THE FACTS OF THE PRESENT CASE, THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE DOE S 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 CAS E OF ADITYA BIRLA NUVO LTD. (SUPRA), IS ALSO SUPPORTING THE CASE OF T HE ASSESSEE AND AS PER THIS TRIBUNAL DECISION ALSO, THE SCOPE OF WORK ACTUALLY UNDERTAKEN ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 22 BY THE ASSESSEE COMPANY DOES NOT FALL WITHIN THE EX CLUSION CATEGORY OF EXPLANATION (2) TO SECTION 9(1)(VII) OF THE ACT. 14. ONE ASPECT OF COOPERATION AGREEMENT HAS ALSO BE EN ACCEPTED BY THE AUTHORITIES BELOW IN SO FAR AS THE AMOUNT OF IN COME OF THE ASSESSEE IS CONCERNED. THE AMOUNT OF INCOME OF THE ASSESSEE WAS DECLARED BY THE ASSESSEE TO THE EXTENT OF 3% OF GRO SS RECEIPT OF THE CONSORTIUM WHICH IS ON THE BASIS OF COOPERATION AGR EEMENT AND THE SAME HAS BEEN ACCEPTED BY THE A.O. AND HE HAS NOT D ISPUTED THE AMOUNT OF INCOME OF THE ASSESSEE AS HAS BEEN DECLAR ED BY THE ASSESSEE. IF THE A.O. SAYS THAT THE CONSTRUCTION WO RK WAS UNDERTAKEN BY THE ASSESSEE COMPANY THEN HE SHOULD HAVE ASSESSE D THE INCOME OF THE ASSESSEE BY DISREGARDING THIS COOPERATION AG REEMENT AND THE INCOME SHOULD HAVE BEEN QUANTIFIED BY HIM AFTER CON SIDERING THE GROSS RECEIPT OF THE CONSORTIUM AND AFTER DEDUCTING AL TH E EXPENSES INCURRED FOR THE PURPOSE AND THE REMAINING INCOME SHOULD HAV E BEEN DISTRIBUTED BETWEEN THE TWO PARTNERS OF THE CONSORT IUM I.E. THE ASSESSEE AND KPTL ON THE BASIS OF CONSORTIUM AGREEM ENT 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 BAS IS OF THIS COOPERATION AGREEMENT. HAVING ACCEPTED THE COOPERAT ION 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 THE Y HAVE TO GO BY CONSORTIUM AGREEMENT. THEY HAVE ALSO NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE ASSESSEE HAS UNDERTAKEN A NY EXTRA ACTIVITY IN ADDITION TO THE ACTIVITIES FALLING WITHIN ITS SC OPE OF WORK AS PER THE CO OPERATION AGREEMENT. HENCE, EVEN IF EXTRA RESPONSIB ILITY OF THE ASSESSEE IS THERE AS PER THE CONSORTIUM AGREEMENT A ND AS PER THE TERMS OF CONTRACT AWARDED BY GAIL TO THE CONSORTIUM , THE ASSESSEE HAS NOT DONE THOSE EXTRA ACTIVITIES AND THE CONSIDE RATION RECEIVED BY THE ASSESSEE IS AS PER THE CO OPERATION AGREEMENT F OR THE ACTIVITIES ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 23 PROVIDED IN THE CO OPERATION AGREEMENT AND HAVING A CCEPTED BY THE A. O. THE AMOUNT OF CONSIDERATION RECEIVED BY THE ASSE SSEE AT 3% OF GROSS RECEIPTS OF THE CONSORTIUM, IT HAS TO BE ACCE PTED 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 A N INCOME WHICH ARE REFERRED TO IN SUB-SECTION (1) OF SECTION 44DA. SEC TION 44DA IS APPLICABLE WHERE THE CONTRACT IN RESPECT OF WHICH F TS HAD BEEN PAID TO THE ASSESSEE IS EFFECTIVELY CONNECTED WITH A PER MANENT ESTABLISHMENT (PE) WHERE SUCH FOREIGN COMPANY IS CA RRYING 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 CONNE CTED WITH PE IN RELATION TO THE OTHER PROJECT I.E. MMTL PROJECT WHE RE THE ASSESSEE IS CARRYING ON BUSINESS ACTIVITIES. IN ADDITION TO MMT L PROJECT, THE ASSESSEE IS NOT CARRYING ON ANY BUSINESS ACTIVITIES AND NO EFFECTIVE CONNECTION WITH MMTL PROJECT HAS BEEN ESTABLISHED B Y 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 B Y THE A.O. TO SHOW THAT SECTION 115A AND SECTION 9(1)(VII) ARE NO T APPLICABLE IN THE PRESENT CASE AS PER WHICH THE INCOME OF THE ASSESSE E WITH REGARD TO PDPL PROJECT IS LIABLE TO TAX @ 10% AS HAS BEEN CLA IMED BY THE ASSESSEE. WE, THEREFORE, DIRECT THE A.O. TO APPLY T HE PROVISIONS OF SUB CLAUSE BB OF CLAUSE (B) OF SUB-SECTION (1) OF SECTI ON 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 ITA NO. 15/AHD/13 A.Y. 09-10 PAGE 24 FROM THE A.O. THAT 96% RECEIPTS OF CONTRACT HAS BEE N DISCLOSED BY IT IN CASE OF KPTL AND TAX HAS BEEN PAID ON IT. 6. IN THE RESULT, REVENUES 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 1 1 1 1 ' '' ' )-2 )-2 )-2 )-2 320- 320- 320- 320- / COPY OF ORDER FORWARDED TO:- 1. %& / APPELLANT 2. )%& / RESPONDENT 3. - *7 / CONCERNED CIT 4. *7- / CIT (A) 5. 2; )-+ , , / DR, ITAT, AHMEDABAD 6. = >? / GUARD FILE. BY ORDER/ 1 , @/ B , $