ITO, Pondicherry V. The Director, M/s.Jawaharlal Institute of Post Gratuate Medical Education and Research (JIPMER), Pondicherry

ITA 1869/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64294 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 18-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Non-deduction of tax; Valuation report
• Section: 194C; 201(1); 6; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NOS. 1868 & 1869/MDS/2011 (ASSESSMENT YEARS : 2007-08 & 2008-09) THE INCOME TAX OFFICER, TDS WARD, INCOME TAX OFFICE, DEIVANAYAGAM PILLAI THOTTAM, PUDUCHERRY. (APPELLANT) V. THE DIRECTOR, M/S JAWAHARLAL INSTITUTE OF POST GRADUATE MEDUCAL EDUCATION & RESEARCH (JIPMER), ADMINISTRATIVE BLOCK, JIPMER COMPLEX, PUDUCHERRY. PAN : AAAJJ0846M (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY : SHRI PHILIP GEORGE, AD VOCATE DATE OF HEARING : 05.09.2012 DATE OF PRONOUNCEMENT : 18.09.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE REVENUE AGAINST AN ORDER DATED 11.8.2011 OF COMMISSIONER OF INCOME TAX (APPEALS)-I V, CHENNAI, FOR THE IMPUGNED ASSESSMENT YEARS. GROUNDS TAKEN ARE S IMILAR FOR BOTH THE YEARS. I.T.A. NOS. 1868 & 1869/MDS/11 2 2. MAIN GRIEVANCE OF THE REVENUE IS THAT CIT(APPEAL S) CONSIDERED RELATIONSHIP BETWEEN THE ASSESSEE AND M/S HINDUSTAN LATEX LIMITED [LATER KNOWN AS HLL LIFECARE LTD.(M/S HLL)] ONLY AS THAT OF A PRINCIPAL TO CONSULTANT AND THUS HELD THE ASSESSEE TO BE NOT BOUND TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE BY IT TO M/S HLL , INSOFAR AS IT RELATED TO ENGINEERING, PROCUREMENT & CONSTRUCTION WORK DONE BY M/S L&T LIMITED. REVENUE IS ALSO AGGRIEVED THAT CIT(AP PEALS) HELD INTEREST UNDER SECTION 201(1A) OF INCOME-TAX ACT, 1 961 (IN SHORT 'THE ACT') TO BE NOT CHARGEABLE RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF HINDUSTAN COCO-COLA BEVERAGES (P) LTD. V. CIT (293 ITR 226). 3. FACTS APROPOS ARE THAT ASSESSEE, BETTER KNOWN AS JIPMER, IS AN ORGANIZATION WHICH WAS DECLARED AS AUTONOMOUS ON 14 TH JULY, 2007 AND PRIOR TO THAT FUNCTIONING UNDER THE MINIST RY OF HEALTH AND FAMILY WELFARE, GOVERNMENT OF INDIA. ASSESSEE HAD TWO AREAS OF ACTIVITIES, NAMELY, RUNNING OF HOSPITAL AND RUNNING OF MEDICAL COLLEGE. FOR THESE PURPOSES, IT WAS NECESSARY FOR THE ASSESS EE TO DEVELOP INFRASTRUCTURE INCLUDING VARIOUS BUILDINGS. IN ORD ER TO CARRY OUT THE I.T.A. NOS. 1868 & 1869/MDS/11 3 CONSTRUCTION WORK AND TO ENSURE COMPLETION OF ITS V ARIOUS PROJECTS, ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH M/S HLL . 4. DURING THE COURSE OF AN INSPECTION DONE BY THE R EVENUE, IT WAS NOTED THAT ASSESSEE WAS EFFECTING VARIOUS PAYMENTS TO M/S HLL PURSUANT TO ITS AGREEMENT WITH IT. AS PER THE A.O. , ASSESSEE WAS NOT DEDUCTING TAX AT SOURCE ON SUCH PAYMENTS DESPITE TH E SERVICES IN THE NATURE OF ENGINEERING, PROCUREMENT AND CONSTRUCTION (EPC) BEING RENDERED BY M/S HLL. ASSESSEE WAS REQUIRED TO EXPL AIN WHY TAX WAS NOT DEDUCTED AT SOURCE WHEN SUCH PAYMENTS WERE EFFE CTED TO M/S HLL. 5. REPLY OF THE ASSESSEE WAS THAT WHAT WAS BEING PA ID TO M/S HLL WAS ONLY CONSULTANCY CHARGES AT THE RATE OF 2% TO 3 % OF THE PROJECT COST AND THE SAID M/S HLL WAS NOT THE CONTRACTOR FO R THE WORK. FOR CONSULTANCY PAYMENT MADE TO M/S HLL, ASSESSEE SUBMI TTED THAT IT HAD DEDUCTED TAX AT SOURCE IN ACCORDANCE WITH SECTI ON 194J OF THE ACT. AS PER THE ASSESSEE, AN OBLIGATION FOR DEDUCT ING TAX UNDER SECTION 194C, WAS ONLY WHERE PAYMENTS WERE MADE TO A CONTRACTOR AND WHERE THERE WAS AN ELEMENT OF INCOME IN SUCH PA YMENTS FOR THE PAYEES. ASSESSEE SUBMITTED THAT WHATEVER WAS PAID TO M/S HLL WAS I.T.A. NOS. 1868 & 1869/MDS/11 4 PASSED ON BY THEM TO THE ULTIMATE CONTRACTOR OF THE WORK WHICH WAS M/S L&T, AND THE PAYMENTS WERE ONLY ROUTED THROUGH M/S HLL. ASSESSEE ARGUED THAT CONSULTANCY CHARGES TO M/S HLL WERE FOR VARIOUS FUNCTIONAL ROLES ASSIGNED TO IT, SUCH AS PR EPARATION OF DESIGNS FOR HOSPITAL BUILDINGS, RECEIVING BIDS, SCRUTINIZIN G AND PROCESSING THE BIDS FOR FINAL SELECTION OF CONTRACTOR, PROVIDING C ONTRACTUAL FRAMEWORK, EXECUTION OF NECESSARY LEGAL DOCUMENTATION WITH SEL ECTED PARTY AND SUPERVISION OF THE CIVIL WORKS CARRIED OUT BY CIVIL CONTRACTOR. AS PER THE ASSESSEE, M/S HLL HAD NOT PARTICIPATED IN THE T ENDER FOR CONSTRUCTION WORK AS A BIDDER AT ALL. THE ONLY INC OME ARISING TO M/S HLL WAS CONSULTANCY FEE PAID BY THE ASSESSEE. 6. HOWEVER, THE A.O. WAS NOT IMPRESSED BY THE ABOVE CONTENTIONS OF THE ASSESSEE. ACCORDING TO HIM, THE WORK AND RE SPONSIBILITY OF M/S HLL WERE SO WIDE AND EXTENDED UPTO HANDING OVER OF CONSTRUCTED BUILDING TO THE ASSESSEE AFTER COMPLETION. A.O. NO TED THAT THERE WERE TWO AGREEMENTS ONE BETWEEN ASSESSEE AND M/S HLL A ND OTHER BETWEEN M/S HLL AND M/S L&T FOR CONSTRUCTION. THER E WAS NO DIRECT AGREEMENT BETWEEN ASSESSEE AND M/S L&T. THE PAYMEN T FOR EPC WAS NOT DIRECTLY MADE BY THE ASSESSEE TO M/S L&T BU T WAS MADE TO M/S HLL WHO HAD, IN TURN, EFFECTED PAYMENT TO L&T. ACCORDING TO HIM, I.T.A. NOS. 1868 & 1869/MDS/11 5 AGREEMENT ENTERED BETWEEN ASSESSEE AND M/S HLL FELL WITHIN THE MEANING OF A CONTRACT AS DEFINED UNDER SECTION 10 OF THE INDIAN CONTRACT ACT, 1872. HENCE, M/S HLL WAS ONLY A CONT RACTOR OF ASSESSEE AND FOR THE PAYMENTS MADE TO M/S HLL FOR E PC, IT WAS REQUIRED TO DEDUCT OF TAX AT SOURCE AS SPECIFIED UN DER SECTION 194C OF THE ACT. A.O. ALSO NOTED THAT FUNDS PLACED AT D ISPOSAL OF HLL WAS NOT MERELY AS A CUSTODIAN OF FUNDS, BUT, ON THE OTH ER HAND, M/S HLL HAD ALSO DERIVED INCOME ON SUCH FUNDS, IN THE NATUR E OF INTEREST. IN SOME CASES, ACCORDING TO THE A.O., SURPLUS FUNDS WE RE RECEIVED BY M/S HLL WHEN COMPARED TO PAYMENTS EFFECTED BY IT TO M/S L&T. HE NOTED THAT THERE WERE TWO PHASES FOR THE PROJECTS, OF WHICH IN PHASE- I, M/S HLL HAD EARNED PROFIT OF ` 3,26,72,238/-. THUS, HIS CONCLUSION WAS THAT M/S HLL WAS EXECUTING THE CONTRACTS AS A L UMP SUM CONTRACTOR FOR THE ASSESSEE AND M/S L&T WAS ONLY A SUB-CONTRACTOR. 7. THOUGH THE ASSESSEE RELIED ON THE DECISION OF HO NBLE APEX COURT IN THE CASE OF HINDUSTAN COCO-COLA BEVERAGES (P) LTD. (SUPRA), A.O. DID NOT ACCEPT IT FOR A REASON THAT NO DOCUME NTARY EVIDENCE WAS PRODUCED BY M/S HLL TO SHOW THAT TAX DUE ON AMO UNTS RECEIVED BY IT FROM ASSESSEE STOOD PAID. THUS A.O. CONSIDER ED THE ASSESSEE TO BE AT DEFAULT FOR ITS FAILURE TO DEDUCT TAX AND RAISED DEMAND UNDER I.T.A. NOS. 1868 & 1869/MDS/11 6 SECTION 201(1) AND FOR INTEREST UNDER SECTION 201(1 A) OF THE ACT, AS UNDER FOR ASSESSMENT YEAR 2007-08:- PARTICULARS TOT AL DISBURSE- MENT ( ` ) TDS PAYABLE ( ` ) LESS TDS PAID ( ` ) BALANCE TDS PAYABLE U/S 201(1)( ` ) ADD INTEREST U/S 201(1A) ( ` ) NET DEMAND CONSULTANCY FEES PAID TO M/S HINDUSTAN LATEX LTD. 7017953 393707 393707 0 17717 17717 AMOUNTS PAID TO M/S HINDUSTAN LATEX LTD., TOWARDS EPC CONTRACT FOR PHASE-I PROJECT. 135877844 3043664 0 3043664 2191438 5235102 TOTAL 142895797 3437371 393707 3043664 2209155 5252819 DEMAND RAISED FOR ASSESSMENT YEAR 2008-09 WAS AS UN DER:- PARTICULARS TOTAL DISBURSE- MENT ( ` ) TDS PAYABLE ( ` ) LESS TDS PAID ( ` ) BALANCE TDS PAYABLE U/S 201(1) ( ` ) ADD INTEREST U/S 201(1A) ( ` ) NET DEMAND CONSULTANCY FEES PAID TO M/S HINDUSTAN LATEX LTD. 9528128 981397 536624 444773 272268 717041 AMOUNTS PAID TO M/S HINDUSTAN I.T.A. NOS. 1868 & 1869/MDS/11 7 LATEX LTD., TOWARDS EPC CONTRACT FOR PHASE-I PROJECT. 774215057 17342417 0 17342417 9657441 26999858 LEGAL FEES PAID TO SH. ARUNAN 112276 11585 5725 5860 3164 9024 LEGAL FEES PAID TO SH. MOHAN PARASARAN 55000 5665 2805 2860 1544 4404 TOTAL 783910461 18341064 499228 17795919 9934417 27730327 8. AGAINST THE ABOVE DEMANDS, ASSESSEE MOVED IN APP EAL BEFORE CIT(APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT FO R ASSESSMENT YEAR 2007-08, THERE WERE NO PAYMENTS WHATSOEVER EFF ECTED BY IT TO M/S HLL. RELIANCE WAS ONCE AGAIN PLACED ON THE DEC ISION OF HONBLE APEX COURT IN THE CASE OF HINDUSTAN COCO-COLA BEVER AGES (P) LTD. (SUPRA). FURTHER, AS PER ASSESSEE, THE AGREEMENT B ETWEEN ASSESSEE AND M/S HLL WAS TITLED AS CONTRACT FOR CONSULTANCY SERVICES AND IT WAS NOTHING BUT A SIMPLE CONSULTANCY AGREEMENT. M/ S HLL WAS NOT RESPONSIBLE FOR EFFECTING THE CONSTRUCTION, BUT, MA INLY RESPONSIBLE FOR SUPERVISION OF WORK AFTER ELECTING THE BIDDER. M/S HLL WAS ENTITLED ONLY TO 2% OF TOTAL PROJECT COST AS CONSULTANCY FEE S. JUST FOR THE REASON THAT PAYMENTS TO M/S L&T WERE ROUTED THROUGH M/S HLL WOULD NOT MEAN THAT M/S HLL WAS THE CONTRACTOR. M/S HLL S DUTY WAS ONLY I.T.A. NOS. 1868 & 1869/MDS/11 8 TO SCRUTINIZE THE BILLS SUBMITTED BY M/S L&T AND WH ATEVER PAYMENTS THEY WERE EFFECTING WERE ON BEHALF OF ASSESSEE AND AFTER RECEIVING THE FUNDS FROM THE ASSESSEE. ASSESSEE ALSO BROUGHT TO THE NOTICE OF CIT(APPEALS) A LETTER RECEIVED BY IT FROM MINISTRY OF HEALTH & FAMILY WELFARE, GOVERNMENT OF INDIA, IN WHICH IT WAS MENTI ONED THAT TAX WAS REQUIRED TO BE DEDUCTED ONLY ON CONSULTANCY CHARGES . IT WAS ALSO SUBMITTED THAT M/S HLL HAD DULY DEDUCTED TAX AS STI PULATED UNDER SECTION 194C OF THE ACT, ON THE PAYMENTS EFFECTED T O M/S L&T, ON THE BILLS RAISED BY IT. HENCE, IF THE ASSESSEE ALSO DE DUCTED TAX AT SOURCE, IT WOULD HAVE RESULTED IN DOUBLE DEDUCTION. ASSESS EE ALSO POINTED OUT THAT BOTH THE ASSESSEE AS WELL AS M/S HLL WERE WHOLLY OWNED BY GOVERNMENT OF INDIA AND BOOKS OF BOTH OF THEY WERE SUBJECT TO C&AG AUDIT. 9. CIT(APPEALS), AFTER CONSIDERING THE ABOVE ARGUME NTS, HELD THAT FOR ASSESSMENT YEAR 2007-08, THERE WERE NO PAYMENTS WHATEVER EFFECTED BY THE ASSESSEE TO M/S HLL AND THEREFORE, THERE WAS NO QUESTION OF INVOKING SECTION 194C/201(1)/201(1A) OF THE ACT. AS FOR ASSESSMENT YEAR 2008-09, CIT(APPEALS) WAS OF THE O PINION THAT THERE WAS NO CONTRACT BETWEEN ASSESSEE AND M/S HLL FOR ANY CONSTRUCTION WORK. AS PER THE CIT(APPEALS), THE AG REEMENT CLEARLY I.T.A. NOS. 1868 & 1869/MDS/11 9 MENTIONED M/S HLL ONLY AS A CONSULTANT. HAD THE AG REEMENT BEEN ONE FOR CONTRACT, IT WOULD HAVE CLEARLY SHOWED VARI OUS SPECIFICATIONS OF CONSTRUCTION AND STAGES OF CONSTRUCTION FOR EFFE CTING PAYMENTS AND RAISING BILLS. ACCORDING TO HIM, THE AGREEMENT BET WEEN ASSESSEE AND M/S HLL WAS NOT A CONSTRUCTION CONTRACT. IN ANY CA SE, AS PER LD. CIT(APPEALS), M/S HLL HAD DEDUCTED TAX AS SPECIFIED UNDER SECTION 194C OF THE ACT WHILE EFFECTING PAYMENTS TO M/S L&T . CIT(APPEALS) ALSO RELIED ON THE DECISION OF LUCKNOW BENCH OF THI S TRIBUNAL IN THE CASE OF UPSIDC V. ITO (81 ITD 173). HE THUS FELT THAT ASSESSEE WAS NOT LIABLE TO DEDUCT ANY TAX AT SOURCE ON THE PAYME NT EFFECTED BY IT TO M/S HLL, BUT, FOR THE CONSULTANCY PART AND THEREFOR E, THERE WAS NO DEFAULT ON THE PART OF THE ASSESSEE FOR FASTENING O N IT A LIABILITY UNDER SECTION 201(1) OF THE ACT OR FOR INTEREST UNDER SEC TION 201(1A) OF THE ACT, EXCEPT FOR THE SHORTFALL OF TDS ON CONSULTANCY CHARGES PAID TO M/S HLL. 10. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT IN THE FIRST PLACE, FO R ASSESSMENT YEAR 2007-08, CIT(APPEALS)S FINDING REGARDING ASSESSEE HAVING NOT EFFECTED ANY PAYMENTS TO M/S HLL, WAS NOT CORRECT. ACCORDING TO HIM, ASSESSEE HAD CREDITED A SUM OF ` 13,58,77,844/- AND ` I.T.A. NOS. 1868 & 1869/MDS/11 10 70,17,953/- IN THE MONTH OF MARCH, 2007 IN THE ACCO UNT OF M/S HLL AGAINST BILL NO.P-1014 & P-1015. IN SUPPORT, RELEV ANT LEDGER COPIES OF THE ASSESSEE FOR THE RELEVANT PREVIOUS YEAR WERE ALSO PRODUCED. FURTHER, ACCORDING TO HIM, IT WAS CLEAR THAT ASSESS EE HAD EFFECTED THESE PAYMENTS FOR MOBILIZATION AND CONSULTANCY WOR K OF M/S HLL. SUM OF ` 13,58,77,844/- WAS MOBILIZATION ADVANCE PAID TO M/ S HLL, WHEREAS, ` 70,17,953/- WAS CONSULTANCY ADVANCE MADE TO M/S HL L. ACCORDING TO LEARNED D.R., ASSESSEE WAS LIABLE TO D EDUCT TAX AT SOURCE AT THE POINT OF TIME WHEN THE SUM WAS CREDIT ED IN ITS BOOKS IN THE CONTRACTORS ACCOUNT. THIS HAVING BEEN DONE IN MARCH, 2007, THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DE DUCT TAX AT SOURCE AND THEREFORE, IT WAS NOT ONLY LIABLE UNDER SECTION 201(1), BUT ALSO FOR INTEREST UNDER SECTION 201(1A) OF THE ACT. 11. AS FOR ASSESSMENT YEAR 2008-09, LEARNED D.R. PO INTED OUT THAT THERE WAS NO CONTRACT BETWEEN ASSESSEE AND M/S L&T ULTIMATE PARTY WHICH WAS DOING THE CONSTRUCTION WORK. ASSESSEE HA D A CONTRACT ONLY WITH M/S HLL AND M/S HLL WAS BOUND TO SUPERVIS E THE WORK AND HAND OVER THE BUILDING AND PLANT IN WORKING CONDITI ON TO THE ASSESSEE IN ACCORDANCE WITH EPC. ALL THE PAYMENTS MADE BY A SSESSEE WERE ONLY TO M/S HLL AND IT WAS M/S HLL WHO EFFECTED PAY MENTS TO M/S I.T.A. NOS. 1868 & 1869/MDS/11 11 L&T. M/S L&T WAS ONLY A SUB-CONTRACTOR AND M/S HLL WAS THE MAIN CONTRACTOR. ASSESSEE HAD FAILED TO DEDUCT TAX AT S OURCE ON PAYMENTS EFFECTED TO M/S HLL, BUT FOR CONSULTANCY CHARGES. MAY BE, ONLY 2% OF THE TOTAL PROJECT COST WAS THE FEE PAYABLE TO M/S H LL, BUT, NEVERTHELESS, M/S HLL BEING THE MAIN CONTRACTOR AND ALL THE PAYMENTS HAVING BEEN MADE BY THE ASSESSEE TO M/S HL L, M/S HLL ALONE COULD BE CONSIDERED AS THE CONTRACTOR. FOR T HE ASSESSEE, IT WAS NOTHING BUT A TURNKEY CONTRACT UNDERTAKEN BY M/ S HLL AND THE LATTER WAS ULTIMATELY RESPONSIBLE FOR THE WORK. AS SESSEE HAVING NOT DEDUCTED TAX AT SOURCE, IT WAS LIABLE FOR ALL THE C ONSEQUENCE THAT WOULD FOLLOW AS A DEFAULTER. ASSESSEE WAS RIGHTLY CONSIDERED ONE IN DEFAULT UNDER SECTION 201(1) OF THE ACT AND LEVY OF INTEREST UNDER SECTION 201(1A) WAS ALSO JUSTIFIED. 12. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF CIT(APPEALS). 13. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE MAIN ISSUE IS WHETHER M/S HLL WAS ONLY A CONSUL TANT OR WAS A CONTRACTOR. IT IS REQUIRED TO REPRODUCE THE RELEVA NT PARTS OF THE CONTRACT ENTERED BETWEEN ASSESSEE AND M/S HLL PLACE D AT PAPER- I.T.A. NOS. 1868 & 1869/MDS/11 12 BOOK PAGE 17. RELATIONSHIP BETWEEN THE PARTIES HAS BEEN DEFINED IN CLAUSE 1.4, WHICH IS REPRODUCED HEREUNDER:- RELATIONSHIP BETWEEN PARTIES NOTHING CONTAINED HEREIN SHALL BE CONSTRUED AS ESTA BLISHING A RELATION OF MASTER AND SERVANT OR OF AGENT AND PRINCIPAL AS BET WEEN THE CLIENT AND THE CONSULTANT. THE CONSULTANTS SUBJECT TO THIS CONTRA CT SHALL HAVE COMPETE CHARGE OF PERSONNEL PERFORMING THE SERVICES AND SHA LL BE FULLY RESPONSIBLE FOR THE SERVICES PERFORMED BY THEM OR ON THEIR BEHA LF HEREUNDER. OBLIGATION OF M/S HLL, ITS DUTIES AND RESPONSIBILIT IES ARE SPECIFIED AS UNDER:- 3. OBLIGATION OF CONSULTANT 3.1 PERFORMANCE 3.1.1 THE CONSULTANT SHALL PERFORM THE TASKS/SERVIC ES AS PER ANNEXURE A WITH ALL DILIGENCE, EFFICIENCY AND SUB MIT REPORT TO THE COMMITTEES BY THE CLIENT AS PER ANNEXURE B. 3.1.2 THE CONSULTANT SHALL ALWAYS ACT IN RESPECT OF ANY MATTER RELATING TO THIS CONTRACT OR TO THE SERVICES AS FAI THFUL ADVISERS TO THE CLIENT AND SHALL AT ALL TIMES SUPPORT AND SA FE GUARD THE CLIENTS LEGITIMATE INTEREST IN ANY DEALINGS WITH TH IRD PARTIES. 3.1.3 THE CONSULTANT SHALL NOT ASSIGN THIS CONTRACT OR SUB CONTRACT OR ANY PORTION OF IT WITHOUT THE PRIOR WRITTEN CONSENT OF CLIENT. 3.1.4 THE CONSULTANT SHALL PAY THE TAXES, DUTIES, F EES, LEVIES AND OTHER IMPOSITIONS LEVIED UNDER THE APPLICABLE LAW A ND CLIENT SHALL PERFORM SUCH DUTIES IN THIS REGARD TO THE REIMBURSE MENT / DEDUCTION OF SUCH TAX AS MAY BE LAWFULLY IMPOSED. 3.2 DUTIES AND RESPONSIBILITIES I.T.A. NOS. 1868 & 1869/MDS/11 13 THE CONSULTANT UNDERTAKES TO CARRY OUT THE ASSIGNME NT AS PER ANNEXURE A IN ACCORDANCE WITH HIGHEST STANDARD OF PROFESSIONAL AND ETHICAL COMPETENCE AND INTEGRITY, HAVING DUE REGARD TO THE NATURE AND PURPOSE OF THE ASSIGNMENT AND ENSURE THAT THE STAFF ASSIGNED TO PERFORM THE SERVICES UND ER THIS CONTRACT WILL CONDUCT THEMSELVES IN MANNER CONSISTE NT HEREWITH. 3.3 INDEMNIFYING THE CLIENT BY THE CONSULTANT CONSULTANT SHALL INDEMNIFY AND HOLD HARMLESS THE CL IENT AGAINST ALL AND ANY DEMANDS AND / OR JUDGEMENT OF ANY NATUR E BROUGHT AGAINST THE CLIENT ARISING OUT OF THE SERVICE BY TH E CONSULTANT AND ITS STAFF UNDER THIS CONTRACT. THIS OBLIGATION WILL SURVIVE THE TERMINATION OF THE CONTRACT. 3.4 LIABILITY OF THE CONSULTANT THE CONSULTANT SHALL BE LIABLE TO THE CLIENT FOR TH E PERFORMANCE OF THE SERVICES IN ACCORDANCE WITH PROVISIONS OF TH IS CONTRACT AND FOR ANY LOSS SUFFERED BY THE CLIENT AS A RESULT OF A DEFAULT OF THE CONSULTANT IN SUCH PERFORMANCE SUBJECT TO TH E FOLLOWING. (A) THE CONSULTANTS SHALL NOT BE LIABLE FOR ANY DAMAGE OR INJURY CAUSED BY OR ARISING OUT OF THE ACT, NEGLECT, DEFAU LT OR OMISSION OF ANY PERSONS OTHER THAN THE CONSULTANTS. HOWEVER IF CONSULTANT ENGAGE SOME SUB AGENTS TO PERFORM THE CO NTRACT, THEN CONSULTANT WILL BE LIABLE FOR THEIR ACT OR OMI SSION OR NEGLECT. THE CONSULTANT SHALL NOT BE LIABLE FOR ANY LOSS OR DAMAGE CAUSED BY OR ARISING OUT OF CIRCUMSTANCES OVER WHICH HE HAD NO CONTRACT. PAYMENT TERMS AS SPECIFIED IN CLAUSE 4.4 IS REPRODU CED AS UNDER:- 4.4 PAYMENT: CLIENT SHALL PAY THE CONSULTANT A. CONSULTANCY FEE : I.T.A. NOS. 1868 & 1869/MDS/11 14 (I) 3% OF THE TOTAL PROJECT COST WHICH SHALL INCLUDE SERVICE TAX. B. REIMBURSABLE: THE CLIENT SHALL REIMBURSE FOLLOWING ACTUAL EXPENSES . (I) ADVERTISEMENT CHARGES AS PER CONCESSIONAL RATE CHARGED BY DAVP FROM GOVERNMENT DEPARTMENT. (II) TESTING CHARGES IF ANY. (III) LEGAL EXPENSES AS PER GOVT. RULES INCLUDING THE INSTRUCTIONS ISSUED BY MINISTRY OF LAW AND JUSTICE. MODE OF PAYMENT AS FOUND IN CLAUSE 4.6.1 IS REPRODU CED AS UNDER:- 4.6 MODE OF PAYMENT & SUBMISSION OF BILLS: 4.6.1 FEE FOR CONSULTANCY (A) 15% AFTER APPROVAL OF RFP DOCUMENT. (B) 10% ON SELECTION OF EPC AGENCY AND AWARD OF WORK (C) 5% ON COMPLETION OF FOUNDATION. (D) 5% ON COMPLETION OF CIVIL STRUCTURE. (E) 30% ON SUPPLY OF EQUIPMENTS ON PRORATA BASIS. (F) 15% ON INSTALLATION, TESTING & COMMISSIONING OF EQUIPMENTS ON PRO RATA BASIS. (G) 15% AFTER COMPLETION OF THE PROJECT. (H) 5% AFTER THE COMPLETION OF DEFECT LIABILITY PERIOD. 4.6.2 PROJECT PAYMENT TO EPC DEVELOPER BASED ON T HE AGREEMENT TO BE EXECUTED BETWEEN THE EPC DEVELOPER AND HLL LIFE CAR E LTD. THE CLIENT SHALL I.T.A. NOS. 1868 & 1869/MDS/11 15 MAKE INITIAL DEPOSIT WITH THE CONSULTANT A SUM EQUA L TO 10% OF THE APPROVED PROJECT COST IMMEDIATELY AFTER AWARD OF WORK TO THE CONTRACTOR. 4.6.3 THE CONSULTANT SHALL MAKE PAYMENTS TO THE E PC DEVELOPER FROM THE SAID DEPOSIT AND ADJUSTMENT BILLS WILL BE SUBMITTED TO JIPMER ON 30 DAYS CYCLE BASIS, WHICH SHALL BE REIMBURSED WITHIN 30 DA YS OF SUBMISSION OF SAME. 4.6.4 HLL WILL BE SUBMITTING QUARTERLY STATEMENT OF ACCOUNTS WITHIN ONE MONTH OF INCURRING THE EXPENDITURE FOR MAKING PAYME NT TO THE CONTRACTOR. 4.6.5 IF ANY INTEREST IS EARNED ON ADVANCE DRAWN FROM THE JIPMER BY HLL THEN THAT WILL BE ADDED TOWARDS THE ADVANCE DRAWN F ROM JIPMER. DESCRIPTION OF SERVICES TO BE RENDERED BY M/S HLL G IVEN AT PAPER- BOOK PAGE 29, 30 AND 31, FORMING A PART OF THE AGRE EMENT IS REPRODUCED HEREUNDER:- DESCRIPTION OF SERVICES TO BE PROVIDED BY CONSULTAN TS HLL AS AN IN HOUSE CONSULTANT WILL UNDERTAKE THE FO LLOWING ACTIVITIES:- (A) TO PROVIDE CONSULTANCY FOR EQUIPPING THE REGIONAL C ANCER CENTRE AT JIPMER, PUDUCHERRY, ON TURNKEY BASIS AT JIPMER, PUD UCHERRY. (B) PREPARATION OF ELIGIBILITY CRITERIA FOR BIDDERS. (C) PREPARATION OF BID DOCUMENTS. (D) FINALIZING BID PROCEDURES. (E) FLOATING TENDERS. (F) INTERACTING WITH PROSPECTIVE BIDDERS AND FURNISHING ALL THE REQUISITE INFORMATION, INCLUDING THE SITE VISIT. (G) RECEIVING THE BIDS, SCRUTINIZING AND PROCESSING THE BID FOR FINAL SELECTION AS PER THE PROCEDURE FINALIZED BY THE CLI ENT. I.T.A. NOS. 1868 & 1869/MDS/11 16 (H) PROVIDING THE CONTRACTUAL FRAMEWORK ALONG WITH DRAF TING AND EXECUTION OF NECESSARY LEGAL DOCUMENTATION INCLUDIN G THE CONTRACT BETWEEN HLL AND THE SELECTED PARTY. (I) HLL WILL ALSO FINALIZE, IN CONSULTATION WITH THE CL IENT, THE SCHEDULED FOR THE ENTIRE PROJECT GIVING ALL SPECIFIC ACTIVITI ES AND TIME FRAMES FOR COMPLETION OF THE PROJECT IN THE SHORTEST PERIO D. (J) HLL SHALL MONITOR ALL THE ACTIVITIES OF THE EPC/SEL ECTED BIDDER AND SHALL BE INVOLVED THROUGH THE ENTIRE DURATION OF TH E PROJECT. HLL WILL ALSO BE RESPONSIBLE FOR PROPER COMPLETION, COM MISSIONING (INCLUDING THOSE OF EQUIPMENT WHICH SHOULD HAVE PRO PERLY BEEN TESTED AND INSPECTED AS PER SPECIFICATION APPROVED BY THE CLIENT AND CONCERNED STAFF PROVIDED PROPER TRAINING.) AND HANDLING OVER OF THESE PROJECTS BY EPC/TO THE ENTIRE SATISFACTION OF THE CLIENT AT THE END OF THE DEFECT LIABILITY PERIOD INCLUDING SE TTLEMENT OF ALL ACCOUNTS, OBTAINING NECESSARY APPROVALS/PERMISSIONS FROM ALL STATUTORY AUTHORITIES/BODIES FOR AND ON BEHALF OF T HE CLIENT THROUGH THE EPC DEVELOPER. (K) HLL WILL ALSO CERTIFY THAT THE PROJECT IS COMPLETED IN CONFORMITY WITH THE PROVISIONS OF CONTRACT DOCUMENTS. (L) HLL SHALL ENSURE THAT THE WORKS ARE COMPLETED IN AL L MANNERS AS PER THE QUALITY, STANDARDS AND WITHIN THE BUDGETED COST AND TIME. PENALTY AT THE RATE OF 0.5% OF THE CONSULTANCY FEE S PER WEEK SUBJECTED TO 10% CEILING OF THE TOTAL CONSULTANCY F EES SHALL BE IMPOSED ON M/S HLL ON ACCOUNT OF FAILURE ON PART OF M/S HLL DIRECTLY ATTRIBUTED TO THEM ON FOLLOWING GROUNDS:- (A) FAILURE ON THE PART OF M/S HLL TO FURNISH TO DIRECT OR, JIPMER, PUDUCHERY, THE FOLLOWING DOCUMENTS/ INFORMATION (I) EVALUATION REPORTS OF BIDS RECEIVED. (II) COST ANALYSIS REPORT. (III) PROJECT SCHEDULE FINALIZED WITH THE SELECTED BIDDER. (IV) MONTHLY AND QUARTERLY PROJECT PROGRESS REPORT INDICATING THE PLANNED ACTIVITIES, ONGOING ACTIVITIES AND COMPLETED ACTIVI TIES DURING THE PERIOD WITHIN 15 DAYS OF COMPLETION OF THE SPECIFIED PERIO D. (V) STATEMENT OF FUNDS RECEIVED FROM JIPMER AND PAY MENT RELEASED TO THE CONTRACTORS. I.T.A. NOS. 1868 & 1869/MDS/11 17 (VI) SUBMISSION OF DETAILED DESIGN WITHIN 45 DAYS O F SIGNING OF AGREEMENT WITH THE CONTRACTOR. (VII) A DECLARATION TO THE EFFECT THAT ALL STATUTOR Y REQUIREMENTS NEEDED TO EXECUTE THE PROJECT WILL BE OBTAINED BY M/S HLL THR OUGH EPC DEVELOPER FROM THE CONCERNED AUTHORITIES. (B) FAILURE IN TIMELY PAYMENT TO EPC DEVELOPER WITHIN STIPULATED TIME. (C) FAILURE ON THE PART OF CONSULTANT TO SHOW DILIGENCE IN TIMELY REPORTING/MIS. (D) FAILURE ON THE PART OF CONSULTANT TO FURNISH QUALIT Y ASSURANCE DOCUMENTS, TEST RESULTS AND CERTIFICATES OF MATERIALS WITHIN 15 (FIFTEEN) DAYS OF THE AGREED UP ON TIME/DEADLINE. (M) HLL SHALL BE FULLY RESPONSIBLE FOR THE TECHNICA L INSPECTION, SUPERVISION AND MONITORING OF ALL THE STRUCTURAL AND CIVIL ENGINEERING WORKS OF THESE PRO JECTS. (N) HLL SHALL ALSO SETTLE ALL CONTRACTUAL DISPUTES WITH THE SELECTED BIDDER INCLUDING ARBITRATION, IF ANY AS WE LL AS ATTEND MEETINGS IN CONNECTION WITH ANY DISPUTE OR ARBITRATION. (O) HLL SHALL ALSO CARRY OUT SUCH OTHER DUTIES AS M AY BE REQUIRED OF IT IN THE POST-CONTACT STAGE ON THESE P ROJECTS IN TERMS OF THE AGREEMENT, SIGNED WITH THE EPC AGEN CY. 14. A READING OF ABOVE CLAUSES CLEARLY SHOW THAT M/ S HLL WAS GETTING FEE FOR CONSULTANCY ONLY. PROJECT PAYMENTS FOR EPC DEVELOPMENT WERE GIVEN TO M/S L&T BASED ON THE AGRE EMENT EXECUTED BY EPC DEVELOPER, VIZ. L&T AND M/S HLL. M /S HLL WAS TO EFFECT THE PAYMENTS TO EPC DEVELOPER FROM THE DEPOS ITS GIVEN BY THE ASSESSEE AND ADJUSTMENT BILLS WERE SUBMITTED TO THE ASSESSEE ON A 30 DAY CYCLE BASIS. IT WAS CLEARLY A REIMBURSEMENT THAT WAS IN THE I.T.A. NOS. 1868 & 1869/MDS/11 18 CONTEMPLATION. THE AGREEMENT CLEARLY SHOWS THAT WH AT WAS DUE TO M/S HLL WAS ONLY FEE FOR CONSULTANCY. FOR THE CONS TRUCTION RENDERED BY THE ULTIMATE CONTRACTOR, THE PAYMENTS THOUGH EFF ECTED BY M/S HLL WAS ONLY ON BEHALF OF ASSESSEE, ON A REIMBURSEMENT BASIS OUT OF DEPOSITS GIVEN BY THE ASSESSEE TO IT AND M/S HLL CO ULD NOT HAVE MADE ANY PROFITS ON SUCH PAYMENTS TO M/S HLL. IF A T ALL M/S HLL HAD MADE SOME PROFITS, IT WAS AGAINST THE TERMS OF THE AGREEMENT BETWEEN ASSESSEE AND M/S HLL BUT THAT BY ITSELF WIL L NOT PLACE IT IN THE POSITION OF THE MAIN CONTRACTOR FOR THE EPC WOR K. UNDERSTANDING BETWEEN THE PARTIES WAS THAT M/S HLL WAS ONLY TO AC T AS CONSULTANT. DESCRIPTION OF SERVICES TO BE PROVIDED BY M/S HLL A LSO SHOW THAT IT WAS ONLY A CONSULTANT AND ITS MAIN WORK WAS TO PROC ESS THE BILLS, SELECT SUCCESSFUL BIDDER AND SUPERVISE THE WORK. O N THE CONSULTANCY CHARGES PAID BY THE ASSESSEE TO M/S HLL, IT HAD DED UCTED TAX ALBEIT AT LOWER RATE. IN OUR OPINION, IN THE FACE OF THE ABOVE CLAUSES IN THE AGREEMENT, WHICH HAVE BEEN REPRODUCED ABOVE, WE CAN NOT SAY THAT M/S HLL WAS A CONTRACTOR FOR THE ASSESSEE. M/S HLL WAS ONLY A CONSULTANT. FINDING OF CIT(APPEALS) THAT THERE WAS NO CONTRACTOR AND CONTRACTEE RELATIONSHIP AS IN A WORKS CONTRACT, IS CORRECT, IN OUR OPINION. CONSIDERATION RECEIVABLE BY M/S HLL FOR T HE CONSULTANCY I.T.A. NOS. 1868 & 1869/MDS/11 19 WORK WAS A PERCENTAGE OF PROJECT COST AND NOTHING M ORE. WE ARE, THEREFORE, OF THE OPINION THAT ASSESSEE COULD NOT H AVE BEEN FASTENED WITH A DEFAULT OF THE NATURE SPECIFIED IN SECTION 2 01(1) OF THE ACT FOR NON-DEDUCTION OF TAX, ON THE PAYMENT EFFECTED BY IT TO M/S HLL, INSOFAR AS IT RELATED TO WORK DONE BY M/S L&T. NEV ERTHELESS, FOR ASSESSMENT YEAR 2007-08, ON ONE OF THE PAYMENTS DUE TO M/S HLL, NAMELY, CONSULTANCY CHARGES OF ` 70,17,953/-, TAX WAS DEDUCTIBLE AT SOURCE ON THE DATE OF CREDIT TO THE SAID PARTY WHIC H WAS IN THE MONTH OF MARCH, 2007. THEREFORE, ON THIS AMOUNT, ASSESSE E WAS LIABLE TO PAY INTEREST UNDER SECTION 201(1A) OF THE ACT. BUT FOR THIS, WE ARE OF THE OPINION THAT SINCE ASSESSEE WAS NOT LIABLE TO D EDUCT TAX AT ALL, THERE WAS NO QUESTION OF FASTENING ON IT A LIABILIT Y TO PAY INTEREST UNDER SECTION 201(1A) OF THE ACT. IN THIS VIEW OF THE MATTER, WE ARE OF THE OPINION THAT THE ORDER OF CIT(APPEALS) COULD NO T BE FAULTED. 15. IN THE RESULT, REVENUES APPEALS ARE DISMISSED SUBJECT TO OUR OBSERVATION RELATING TO INTEREST UNDER SECTION 201( 1A) ON NON- DEDUCTION OF TAX AT SOURCE WITH REGARD TO CONSULTAN CY CHARGES FOR ASSESSMENT YEAR 2007-08. I.T.A. NOS. 1868 & 1869/MDS/11 20 THE ORDER WAS PRONOUNCED IN THE COURT ON TUESDAY, T HE 18 TH OF SEPTEMBER, 2012, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 18 TH SEPTEMBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-IV, CHENNAI-34 (4) CIT, TDS, CHENNAI (5) D.R. (6) GUARD FILE