BSES Kerala Power Ltd, Cochin V. ACIT, Ernakulam

ITA 242/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69071 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 04-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 02-05-2013
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Keywords: Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 242/COCH/2013 ASSESSMENT YEAR : 2007-08 BSES KERALA POWER LTD., UDYOGAMANDAL P.O., KOCHI-683 501. [PAN: AABCB 3724C] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI AMIT KHATIWALA, CA REVENUE BY SMT. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 04/09/2013 DATE OF PRONOUNCEMENT 13/11/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 28-02-2013 PASSED BY THE LD. CIT(A)-II, KOCHI AND IT RELATES T O THE ASSESSMENT YEAR 2007-08. 2. THE SOLITARY ISSUE URGED IN THIS APPEAL IS WHETH ER THE LD. CIT(A) IS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS.7,01,000/- MADE B Y THE AO BY APPLYING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. 3. THE FACTS RELATING TO THE SAID ISSUE ARE STATED IN BRIEF. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF GENERATION OF POWER. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID A SUM OF RS.7,01,000/- TO A USA COMPANY NAMED M/S. GE PACKAGE D POWER INCORPORATION FOR TECHNICAL SERVICES RENDERED IN CONNECTION WITH INSP ECTION OF BORE SCOPE AND HIGH VIBRATION TROUBLE SHOOTING SYSTEM IN THE GAS TURB INE LOCATED AT ITS PLANT IN INDIA. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE IS REQUIRED TO DEDUCT TAX AT SOURCE ON I.T.A. NO. 242/COCH/2013 2 ABOVE PAYMENTS AS PER THE PROVISIONS OF SEC. 195 OF THE INCOME TAX ACT OR ALTERNATIVELY, THE ASSESSEE SHOULD GET A NO-DEDUCTI ON CERTIFICATE FROM THE INCOME TAX DEPARTMENT. SINCE THE ASSESSEE NEITHER DEDUCTED T AX AT SOURCE NOR SUBMITTED ANY CERTIFICATE, THE ASSESSING OFFICER DISALLOWED THE A BOVE SAID PAYMENT OF RS.7,01,000/- IN TERMS OF SEC. 40(A)(IA) OF THE ACT. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BEFORE THE FIRST APPELLATE AUTHORI TY, THE ASSESSEE SUBMITTED THAT THE IMPUGNED PAYMENT CANNOT BE CONSIDERED AS FEE FOR TE CHNICAL SERVICES, SINCE IT DOES NOT FALL UNDER THE CATEGORY OF FEES FOR INCLUDED SERVI CES AS DEFINED IN CLAUSE 4(B) OF ARTICLE 12 OF AVOIDANCE OF DOUBLE TAXATION (TREATY) ENTERED BETWEEN INDIA AND USA (HEREINAFTER DTAA). IT WAS FURTHER SUBMITTED THAT AS PER THE DEFINITION GIVEN IN THE TREATY, THE TECHNICAL KNOWLEDGE SHOULD BE MADE AVA ILABLE TO THE ASSESSEE HEREIN SO THAT THE ASSESSEE WOULD BE IN A POSITION TO APPLY I T INDEPENDENTLY. IT WAS SUBMITTED THAT M/S. GE PACKAGED POWER INCORPORATION HAS MERELY RENDERED TECHNICAL SERVICES AND DID NOT MAKE AVAILABLE THE TECHNOLOGY TO THE ASSESS EE. ACCORDINGLY, IT WAS CONTENDED THAT THE IMPUGNED PAYMENT WOULD NOT FALL IN THE CAT EGORY OF FEE FOR TECHNICAL SERVICES, AS HELD BY THE ASSESSING OFFICER. 4. THE LD. CIT(A) WAS NOT CONVINCED WITH THE SAID E XPLANATION. THE LD CIT(A) HELD THAT THE BORE SCOPE INSPECTION IS A PERIODICAL INSP ECTION AND SUCH PROCESS SHALL COME WITHIN THE MEANING OF TECHNICAL SERVICES. ACCORDIN GLY, HE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. AGGRIEVED, THE ASSE SSEE HAS FILED THIS APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT GAS TURBINE REQUIRES PERIODICAL INSPECTION OF ITS CORE PARTS VIZ., BORE SCOPE AND ALSO THE ONLINE VIBRATION MONITORING SYSTEM. THE INSPECTION OF THE FUNCTIONING OF BORE SCOPE AND HIGH VIBRATION TROUBLE SHOOTING IN THE GAS TURBINE REQUIRES TECHNICAL EXPE RTISE AND CANNOT BE PERFORMED BY AN OPERATOR WHO DID NOT HAVE THE REQUISITE TECHNICAL K NOWLEDGE. HENCE, M/S. GE PACKAGED POWER INCORPORATION, THE AMERICAN COMPANY HAS CARRI ED OUT THESE WORKS WHICH ARE HIGHLY TECHNICAL IN NATURE. HE SUBMITTED THAT THE SAID COMPANY HAS NOT MADE AVAILABLE THE TECHNICAL KNOWLEDGE WHICH IS A NECESSARY CONDIT ION IN ORDER TO BRING THE PAYMENT I.T.A. NO. 242/COCH/2013 3 WITHIN THE MEANING OF FEES FOR INCLUDED SERVICES AS DEFINED IN CLAUSE 4(B) OF ARTICLE 12 OF DTAA. ACCORDINGLY, HE SUBMITTED THAT THE LD CIT (A) WAS NOT RIGHT IN LAW IN HOLDING THAT THESE SERVICES WILL FALL IN THE CATEGORY OF TE CHNICAL SERVICES. 6. THE LD. COUNSEL FURTHER SUBMITTED THAT THE PA YMENT RECEIVED BY M/S. GE PACKAGED POWER INCORPORATION WOULD FALL IN THE CATEGORY OF BUSINESS PROFITS AND AS PER ARTICLE 7 OF THE DTAA TREATY ENTERED WITH USA, THE EXISTENCE OF PERMANENT ESTABLISHMENT IS A CONDITION TO BRING THE SAME IN THE NET OF INDIAN TA XATION. HE SUBMITTED THAT M/S GE PACKAGED POWER INCORPORATION DOES NOT HAVE PERMANEN T ESTABLISHMENT IN INDIA AND HENCE THE IMPUGNED PAYMENT IS NOT TAXABLE IN INDIA. ACCORDINGLY HE CONTENDED THAT THE PROVISIONS OF SEC. 195 WILL NOT APPLY TO THE IM PUGNED PAYMENT, SINCE NO PART OF RECEIPT IS TAXABLE IN INDIA. 7. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE PAYMENT HAS BEEN MADE IN ACCORDANCE WITH THE TECHNICAL SERVICES RENDERED BY M/S. GE PACKAGED POWER INCORPORATION AND HENCE, TAX IS REQUIRED TO BE DEDU CTED FROM THE SAID PAYMENT. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. ADMITTEDLY, THE PAYMENT HAS BEEN MADE FOR PERIODICA L INSPECTION OF BORE SCOPE AND HIGH VIBRATION TROUBLE SHOOTING SYSTEM IN THE GAS T URBINE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID INSPECTION REQUIRE S TO BE CARRIED OUT PERIODICALLY IN ORDER TO ENSURE PROPER FUNCTIONING OF THE GAS TURBI NE. THE ASSESSEE SUBMITTED THAT IT HAS ISSUED WORK ORDERS WHENEVER IT ENGAGED THE FORE IGN COMPANY TO UNDERTAKE INSPECTION OF THE PLANT. ADMITTEDLY, THE GAS TUR BINE IS IMPORTANT MACHINERY FOR THE ASSESSEE AND IT REQUIRES PERIODICAL CHECKING OF VIT AL PARTS. ACCORDING TO THE ASSESSEE, THE TECHNOLOGY INVOLVED IN CARRYING OUT THE INSPECT ION WAS NOT MADE AVAILABLE TO THE ASSESSEE. ACCORDINGLY, IT WAS CONTENDED THAT IT WO ULD NOT FALL IN THE CATEGORY OF FEE FOR INCLUDED SERVICES AS DEFINED IN CLAUSE 4(B) OF ARTICLE 12 OF DATT TREATY. 9. ACCORDING TO LD. AR, THE IMPUGNED PAYMENT WILL FALL IN THE CATEGORY OF BUSINESS PROFITS AND FURTHER, AS PER ARTICLE 7 OF THE DTAA TREATY, THE SAME WOULD BE TAXABLE IN I.T.A. NO. 242/COCH/2013 4 INDIA ONLY IF M/S. GE PACKAGED POWER INCORPORATION H AS GOT PERMANENT ESTABLISHMENT IN INDIA. ACCORDING TO LD A.R M/S. GE PACKAGED POWER I NCORPORATION DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA AND HENCE THE AMOU NT OF RS.7,01,000/- RECEIVED BY IT IS NOT TAXABLE IN INDIA. ACCORDINGLY HE CONTENDED THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT ON RS.7,01, 000/-, SINCE NO PART OF THE SAME IS TAXABLE IN INDIA. 10. FROM THE ORDERS OF TAX AUTHORITIES, WE NOTI CE THAT THEY HAVE NOT EXAMINED THE IMPUGNED ISSUE IN ACCORDANCE WITH DTAA ENTERED WITH USA. AS PER THE PROVISIONS OF SEC. 90, THE CENTRAL GOVERNMENT MAY ENTER INTO AN A GREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA OR SPECIFIED TERRITORY OU TSIDE INDIA FOR GRANTING RELIEF, FOR THE AVOIDANCE OF DOUBLE TAXATION OF INCOME ETC. AND WHE RE SUCH AN AGREEMENT IS ENTERED, THE PROVISIONS OF THE INCOME TAX ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THE ASSESSEE WHO IS COVERED BY THE ABOVE SAID AG REEMENT. ADMITTEDLY, THE TAX AUTHORITIES HAVE NOT EXAMINED THE APPLICABILITY OF DTAA PROVISIONS TO THE IMPUGNED ISSUE. ACCORDINGLY, IN OUR VIEW, THE IMPUGNED REQU IRES EXAMINATION AT THE END OF THE ASSESSING OFFICER, WHO IS REQUIRED TO EXAMINE ABOUT THE APPLICABILITY OF DTAA PROVISIONS TO THE IMPUGNED PAYMENT, AS CLAIMED BY THE ASSESSEE . ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE T HE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ISSUE AFRES H AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 13-11-20 13. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 13TH NOVEMBER, 2013 GJ I.T.A. NO. 242/COCH/2013 5 COPY TO: 1. BSES KERALA POWER LTD., UDYOGAMANDAL P.O., KOCHI- 683 501. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(2), ERNAKULAM. 3 THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCHI . 4.THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN