Appeal details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 76184 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 2 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-02-2014
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2008-2009
Appeal Filed On
27-12-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NOS.2563, 2564 & 2565/PN/2012 A.Y. 2008-09 MAHINDRA FORGINGS LTD. GAT NO.856 TO 860, CHAKAN AMBETHAN ROAD, TAL. KHED, PUNE - 410501 PAN: AABCM6632J APPELLANT VS. ADIT, (INTR. TAX.)-1, PUNE RESPONDENT ITA NO.1985/PN/2012 A.Y. 2008-09 ADIT, (INTR. TAX.)-1, PUNE APPELLANT VS. MAHINDRA FORGINGS LTD. GAT NO.856 TO 860, CHAKAN AMBETHAN ROAD, TAL. KHED, PUNE - 410501 PAN: AABCM6632J RESPONDENT ASSESSEE BY : SHRI KISHORE PHADKE DEPARTMENT BY : SHRI P.L . PATHADE DATE OF HEARING: 20.02.2014 DATE OF ORDER : 27.02.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THREE APPEALS FILED BY THE ASSESSEE AND ONE BY REV ENUE PERTAIN TO THE SAME ASSESSEE ARISING FROM THE CONSO LIDATED ORDER OF CIT(A)- IT/-TP. SO THESE WERE HEARD TOGETHER AN D ARE BEING 2 DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAK E OF CONVENIENCE. 2. IN ITA NO.2563/PN/2012, THE ASSESSEE HAS FILED T HE APPEAL ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT (A) - IT/TP, PUNE ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE IS AN 'ASSESSE E IN DEFAULT' DUE TO NON DEDUCTION OF ALLEGED TDS AM OUNTING TO RS. 51,598/- ON PAYMENT MADE TO M/S. PRATO SPOL S.R.O., CZECH REPUBLIC FOR SERVICES IN CONNECTION W ITH PURCHASE OF 4000 TONS FORGING PRESS. 2. THE LEARNED CIT (A) - IT/TP, PUNE FURTHER ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT SERVICE WORK ON 4 000 TONS FORGING PRESS WAS WHOLLY CONNECTED TO THE TRANSACTI ON OF PURCHASE OF 4000 TONS FORGING PRESS BY THE ASSESSEE . 3. THE ASSESSEE CRAVES LEAVE TO ADD / MODIFY / DELETE ALL OR ANY OF THE GROUNDS OF APPEAL. 2.1 IN ITA NO.2564/PN/2012, THE ASSESSEE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT (A) - IT/TP, PUNE ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE IS AN 'ASSESSEE IN DEFAULT' DUE TO NON DEDUCTION OF ALLEGED TDS AMOUNTING TO RS.382,539/- ON PAYMENT MADE TO M/S.PRESSTRADE PRESSENHANDEL GMBH, GERMANY FOR INSTALLATION, ASSEM BLY WORK, ERECTION AND COMMISSIONING SERVICES IN CONNEC TION WITH OF PURCHASE OF 4000 TONS FORGING PRESS. 2. THE LEARNED CIT (A) - IT/TP, PUNE FURTHER ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT INSTALLATION, ASS EMBLY, ERECTION AND COMMISSIONING SERVICES OF 4000 TONS FO RGING PRESS WAS WHOLLY CONNECTED TO THE PRINCIPAL TRANSACTION OF PURCHASE OF 4000 TONS FORGING PRESS BY THE ASSESSEE FROM M/S. PRESSTRADE PRESSENHANDEL GMBH, GERMANY. 3. THE ASSESSEE CRAVES LEAVE TO ADD / MODIFY / DELETE ALL OR ANY OF THE GROUNDS OF APPEAL. 2.2 IN ITA NO.2565/PN/2012, THE ASSESSEE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 3 1. THE LEARNED CIT (A) - IT/TP, PUNE ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE IS AN 'ASSESSEE IN DEFAULT' DUE TO NON DEDUCTION OF ALLEGED TDS AMOUNTING TO RS . 1,538,347/- ON PAYMENT MADE TO M/S. FIRMA RALEKC, RUSSIA FOR SUPERVISION SERVICES IN CONNECTION WITH OF PURCHASE OF 4000 TONS & 6300 TONS FORGING PRESS. 2. THE LEARNED CIT (A) - IT/TP, PUNE FURTHER ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT SERVICES OF SUPER VISION OF ERECTION AND INSTALLATION OF 4000 & 6300 TONS FORGI NG PRESS WAS WHOLLY CONNECTED TO THE PRINCIPAL TRANSACTION O F PURCHASE OF 4000 & 6300 TONS FORGING PRESS BY THE A SSESSEE FROM M/S. FIRMA RALEKC, RUSSIA. 3. THE ASSESSEE CRAVES LEAVE TO ADD / MODIFY / DELETE ALL OR ANY OF THE GROUNDS OF APPEAL. 2.3 IN ITA NO.1985/PN/2012, THE REVENUE HAS FILED T HE APPEAL ON THE FOLLOWING GROUNDS: 1. IN THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE CI T(A) WAS NOT CORRECT IN HOLDING THAT THE PAYMENTS MAD E BY THE ASSESSEE FOR SUPPLY OF DESIGNS AND DRAWINGS T O THE MANYO CO. LTD, RESIDENT OF JAPAN, IS NOT TAXABLE IN INDIA. 2. IN THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE CI T(A) WAS NOT FACTUALLY CORRECT IN HOLDING THAT THE PAYME NTS WERE MADE BY THE ASSESSEE FOR MERE SUPPLY OF DRAWINGS TO THE MANYO CO. LTD, RESIDENT OF JAPAN AS THE PAYMENTS WE RE MADE FOR SUPPLY OF DESIGNS AND DRAWINGS. 3. THE CIT(A) WAS NOT CORRECT IN APPLYING THE DECISION S OF HON'BLE ITAT IN THE CASE OF MANGALORE REFINERY AND PETROCHEMICALS LTD V DDIT(2008) 113 ITD 85 (MUM ) IGNORING THE FACTUAL DIFFERENCE IN THE CASES AND SP ECIFICALLY THAT IN THIS CASE OF THE ASSESSEE PAYMENTS MADE WER E NOT FOR CERTAIN BASIC MATERIAL ALONG WITH THE GOODS BUT FOR SPECIAL DESIGNS & DRAWINGS. 4. THE CIT(A) WAS NOT CORRECT IN APPLYING THE DECISION S OF HON'BLE ITAT IN THE CASE OF SKODA EXPORTS CO LTD. V S. DCIT(2003) 81 TTJ (VISHAKA) 633 IGNORING THE FACTUA L DIFFERENCE IN THE CASES AND SPECIFICALLY THAT IN TH IS CASE OF THE ASSESSEE HAD NOT PAID IMPORT/CUSTOM DUTY FOR DE SIGNS & DRAWINGS CHARGES, IF THE SAME WERE TREATED AS 'PL ANT & MACHINERY'. 4 3. AT THE OUTSET OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE HAS STATED THAT THERE IS A DELAY IN FILING OF THE APPEAL AND REQUESTED TO CONDONE THE SAME, INTER ALI A STATED THAT ORDER U/S 201 & 201(1A) IN RESPECT OF APPEALS CIT ( A) - IT/TP, PUNE ON 27-07-2012 WERE PERSONALLY COLLECTED BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ON 02-08-2012 AND HA NDED OVER TO ASSESSEE COMPANY ON 12-08-2012. THE LAST DATE FOR F ILING OF APPEAL BEFORE ITAT WAS 01-10-2012 I.E. 60 DAYS FROM THE DATE OF RECEIPT OF ORDER WHICH IS 02-08-2012. THE COMPANY OFFICIALS WERE REQUIRED TO DELIBERATE ON THE SAME AND TAKE THE DIR ECTIONS / APPROVALS FROM THE MANAGEMENT IN THIS REGARD. CONSI DERING THE HIGHLY TECHNICAL MATTER, EXPERT OPINION WAS ALSO SO UGHT FOR. THE ASSESSEE COMPANY IS MAHINDRA GROUP WHICH HAS A TEAM OF COUNSELS ACTING IN VARIOUS CAPACITIES. THEIR VIEW W AS SOUGHT AS CRUCIAL BEFORE FINALLY FILING THE APPEAL. IN THE SA ID PROCESS, DELAY OF ABOUT 86 DAYS WAS OCCURRED. IN VIEW OF ABOVE, T HE ASSESSEE REQUESTED TO CONDONE THE DELAY OF ABOUT 86 DAYS IN FILING THE APPEAL ATTRIBUTABLE TO ABOVE MENTIONED REASONS. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE HAS POINTED O UT THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF BHARAT AUTO CENTER VS. CIT (2006) 282 ITR 366 (ALH) HAD CONDONED THE D ELAY SINCE AN IMPORTANT LEGAL POINT RELATING TO THE JURISDICTI ON OF ASSESSING AUTHORITY WAS INVOLVED. THE ASSESSEE SOUGHT LEGAL OPINION OF SEVERAL COUNSELS WHICH TOOK LONG TIME AND EARLY WRI T PETITION WAS FILED AND SUBSEQUENTLY APPEAL WAS ALSO FILED, THE A FORESAID REASON WAS FOUND TO BE SUFFICIENT, ACCORDINGLY, DELAY WAS CONDONED. FINDING FORCE IN THE ARGUMENT OF LEARNED AUTHORIZED REPRESENTATIVE THAT THE DECISION OF BHARAT AUTO CEN TER (SUPRA) IS APPLICABLE TO THE FACTS OF THE PRESENT CASE AS FAR AS CONDONATION OF DELAY FOR FILING THE APPEAL IS CONCERNED, WE CON DONE THE DELAY AND APPEAL IS BEING DECIDED ON MERIT. 4. THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF FORGINGS FOR THE AUTOMOTIVE INDUSTRY. COMMON FACTS IN THESE 5 APPEALS ARE THAT THE ASSESSEE COMPANY PURCHASED THE FOLLOWING MACHINERY DURING THE FINANCIAL YEAR 2007-08. 1. FORGNING PRESSES OF 4000 T AND 6000 T FROM FIRMA RALEKC, RUSSIA 2. BOLSTER AND CASSETTE FOR 4000 T FORGING PRESS FR OM MANYO CO LTD., JAPAN AND 3. 4000 TONS FROM PRESSDTRADE PRESSENHANDEL GMBH, GERMANY 5. THE ASSESSEE COMPANY MADE PAYMENTS IN RELATION T O THESE PURCHASES WITHOUT DEDUCTING TAX AT SOURCE. THESE PA YMENTS WERE MADE FOR THE PURCHASE OF MACHINERY, FOR 'ERECTION A ND COMMISSIONING' (PRESSDTRADE PRESSENHANDEL GMBH), FO R 'SUPERVISION OF ERECTION' (FIRMA RALEKC) AND FOR DR AWING AND DESIGNS OF THE MACHINERY (MANYO CO LTD). ONE APPEAL STANDS ON A SEPARATE GROUND. IN THIS APPEAL, THE ASSESSEE HAD P AID 'SERVICE CHARGES' TO PRATO SPLO SRO OF CZECH REPUBLIC FOR TH E MACHINE PURCHASED FROM PRESSDTRADE PRESSENHANDEL GMBH, GERM ANY. 6. FOLLOWING ARE THE DETAILS OF THE PAYMENTS MADE B Y THE ASSESSEE AND DEMAND RAISED BY THE ASSESSING OFFICER ON ACCOUNT OF THE ORDERS U/S.201 AND U/S.201(1A): S.NO PAYEE NAME COUNTRY FACTS DEMAND BY THE AO (RS) 1 FIRMA RALEKC RUSSIA PURCHASE OF FORGING PRESSES AND SUPERVISION OF ERECTION THEREOF FROM THE SAME PARTY, THROUGH SEPARATE PO 18,04,745 2 MANYO CO. LTD. JAPAN PURCHASE OF 'BOLSTER & CASSETTES' OF FORGING PRESS AND SUPPLY OF DESIGNS & DRAWINGS BY THE SAME PARTY, THROUGH SAME PO 6,91,560 6 3 PRESSDTRADE PRESSENHANDEL GMBH GERMANY PURCHASE OF FORGING PRESS AND ERECTION AND COMMISSIONING THEREOF FROM THE SAME PARTY, THROUGH SEPARATE PO 4,36,211 4 PRATOSPOL S.R.O. CZECH REPUBLIC PURCHASE OF FORGING PRESS AND SERVICE WORK THEREOF FROM THE TWO DIFFERENT PARTIES, THROUGH SEPARATE PO 57,274 7. THE ASSESSING OFFICER IN HIS ORDERS PASSED U/S 2 01 AND U/S 201(1 A) HELD THAT THE PAYMENTS (OTHER THAN FOR PUR CHASE) MADE TO RUSSIAN COMPANY FIRMA RALEKC, RUSSIA, TO GERMAN COMPANY PRESSDTRADE PRESSENHANDEL GMBH AND TO PRATO SPOL SR O OF CZECH REPUBLIC ARE TAXABLE UNDER SECTION 9(L)(VIII) AS 'FEES FOR TECHNICAL SERVICES'. THESE PAYMENTS WERE TAXABLE U NDER ARTICLE 12 OF THE INDIA'S TAX TREATIES WITH THE RESPECTIVE COUNTRIES AS 'FEES FOR TECHNICAL SERVICES'. 8. THE ASSESSING OFFICER ALSO TREATED PAYMENT MADE FOR ACQUIRING DESIGNS AND DRAWINGS FROM MANYO CO. LTD. JAPAN LIABLE FOR TAX DEDUCTION AT SOURCE. ACCORDING TO THE ASSES SING OFFICER, PAYMENT MADE FOR ACQUIRING DESIGNS AND DRAWINGS IS 'FEES FOR TECHNICAL SERVICE' UNDER SEC.9(L)(VII) AND ALSO TAX ABLE UNDER ARTICLE 12 INDIA-JAPAN TAX TREATY AS 'FEES FOR TECHNICAL SE RVICES'. 9. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLAT E AUTHORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED AND HAV ING CONSIDERED THE SAME, CIT(A) OBSERVED THAT THE MAIN ARGUMENT OF ASSESSEE IS THAT PURCHASE AND INSTALLATION IS A COM POSITE ACTIVITY. THE PURCHASE ORDER PLACED FOR THE MACHINERY AND THE ORDER PLACED FOR THE INSTALLATION IS INDIVISIBLE COMPOSIT E CONTRACT. THE CONTRACT FOR THE INSTALLATION IS A PART OF THE PURC HASE ORDER AND HENCE, NOT LIABLE FOR THE TAX DEDUCTION AT SOURCE. THE ASSESSEE DID NOT ENTERED INTO ANY CONTRACT WITH SELLER. IN THIS REGARD, IT WAS CLARIFIED THAT HOWEVER PURCHASE ORDER RAISED FO R 7 REQUISITIONING THE SERVICES LIST HAS CERTAIN TERMS AND CONDITIONS. THEREFORE, THIS PURCHASE ORDER FOR SERVICES MAY BE TREATED AS CONTRACT BETWEEN THE ASSESSEE AND SELLER. IT WAS S TAND OF ASSESSEE THAT IN THE CASE OF PAYMENT TO FIRMA RALEK C, RUSSIA AND PRESSDTRADE PRESSENHANDEL BMBH, GERMANY THE ASSESSE E HAS PURCHASED MACHINERY FROM SAID PARTIES AND ERECTION, COMMISSIONING AND SUPERVISION SERVICES WERE REQUISI TIONED VIDE SEPARATE ORDERS. IN THE CASE OF PAYMENT MADE TO PR ATO SPOL SRO OF CZECH REPUBLIC, THE MACHINE WAS PURCHASED FROM P RESSDTRADE PRESSENHANDEL GMBH, GERMANY AND CZECH COMPANY WAS P AID THE SERVICES CHARGES. 10 FOLLOWING ARE THE TERMS AND CONDITIONS MENTIONED IN THE PURCHASE ORDER DT: 23 JULY 2007 ISSUED FOR THE EREC TION CHARGES PAID BY THE ASSESSEE: FIRMA RA.LE.KC, MOSCOW P.O.NO.1200001244 SERVICE CHARGES: YOU WILL DEPUTE 3 ENGINEERS FOR ERECTION SUPERVISIO N. THE SERVICE CHARGES MENTIONED ABOVE ARE CONSIDERING ERECTION AND COMMISSIONING TO BE COMPLETED WITHIN 3 MONTHS FROM THE DATE OF START. HOWEVER YOU HAVE AGR EED TO TRY YOUR LEVEL BEST TO COMMISSION THE PRESS READY F OR COMMERCIAL PRODUCTION WITHIN 2 MONTHS, IT IS AGREED THAT IF MACHINE IS COMMISSIONED IN LESS THAN 3 MONTHS YOU S HALL STILL BE PAID SERVICE CHARGES OF EURO 45000. FOR AN Y EVENTUALITY IF YOUR ENGINEERS HAVE TO STAY BACK DUE TO REASONS ATTRIBUTABLE TO US THEN WE SHALL PAY YOU EU RO 55000 FOR THE TOTAL PERIOD OF 4 MONTHS AND ABOVE. IN ADDITION TO THE ABOVE SERVICE CHARGES WE SHALL P AY YOU ECONOMY CLASS AIR FARE (ONLY ONE TIME) TO AND FRO F ROM RUSSIA TO INDIA FOR 3 ENGINEERS. LOCAL CONVEYANCE I N INDIA SHALL ARRANGED BY US AT OUR COST. WE SHALL PROVIDE LODGING (IN OUR GUEST HOUSE) AND BOARDING AS AVAILABLE TO E QUAL LEVEL OF OUR ENGINEERS. ANY OTHER CHARGES/EXPENSES/INSURA NCE ETC. SHALL BE ARRANGED BY YOU AT YOUR COST AND WE S HALL NOT BE HELD RESPONSIBLE FOR THE SAME IN ANY MANNER WHAT SOEVER. 8 ERECTION LABOUR AND LIFTING TACKLES SHALL BE ARRANG ED BY US FOR THE ERECTION AND COMMISSIONING PURPOSE AT OUR C OST. WE SHALL ARRANGE THE TOOLS AND TACKLES AND MAKE PRELIMINARY PREPARATION FOR ERECTION AND COMMISSION ING OF PRESS AS PER ANNEXURE (1 PAGE ) ENCLOSED HEREWITH W HICH IS ADVISED BY YOU ENCLOSED PLEASE LET US KNOW WITHIN 7 DAYS OF RECEIPT OF ORDER, FAILING WHICH IT IS YOUR RESPONSI BILITY TO ARRANGE THE SAME IN ORDER TO AVOID IDLING OF YOUR E NGINEERS. PAYMENT TERMS AS AGREED WE SHALL PAY YOU EURO 22500 ON TIE ROAD ASSEMBLY OF FORGING PRESS BY TELEGRAPHIC TRANSFER. BALANCE PAYMENT SHALL BE MADE AFTER SUCCESSFUL TRIA LS AS SOON AS IT IS READY COMMERCIAL PRODUCTION BY TELEGR APHIC TRANSFER. WARRANTY: YOU SHALL GUARANTEE TROUBLE FREE PERFORMANCE OF THE PRESS FOR A PERIOD OF ONE YEAR FROM THE DATE OF COMMISSIO NING ON ACCOUNT OF WORKMANSHIP OF ERECTION. SHOULD THERE BE ANY DEFECTS DUE TO FAULTY ERECTION IN THE PRESS THE SAM E SHALL BE RECTIFIED BY YOU AT YOUR COST. WORKING HOURS: OUR FACTORY WORKS 6 DAYS A WEEK THURSDAY BEING HOLI DAY. OUR NORMAL WORKING HOURS ARE 9.00 A.M. TO 5.30 P.M. WITH HOUR LUNCH BREAK, HOWEVER IN VIEW OF URGENCY FOR AVAILABILITY OF PRESS FOR COMMERCIAL PRODUCTION WE SHALL BE WORKING UP TO 12-14 HOURS A DAY FOR ERECTION AND COMMISSIONING OF THE PRESS. TIMING PLAN: WE WOULD REQUEST YOU TO FURNISH THE ERECTION SEQUEN CE AND TIMING PLAN WITHIN 7 DAYS OF RECEIPT OF ORDER AT YO UR END WITH THE TARGET DATE OF 2 MONTHS FOR COMMISSIONING OF THE MACHINE RUSSIAN TRANSLATOR THOUGH WE ARE TRYING TO ARRANGE A RUSSIAN TO ENGLIS H TRANSLATOR WE WOULD REQUEST YOU TO LOCATE A TRANSLA TOR FROM YOUR END AND SEND US YOUR OFFER FOR THE SERVICES OF TRANSLATOR SINCE WE ARE FACING DIFFICULTY FOR GETTI NG PROPER TRANSLATOR. YOU SHALL, DEPUTE YOUR ENGINEERS ON 15 DAYS CLEAR INTIMATION FROM US.' 9 11. FOLLOWING ARE THE TERMS AND CONDITIONS MENTIONE D IN THE PURCHASE ORDER DT: 28 TH AUGUST 2007 ISSUED TO FOR THE SERVICE CHARGES PAID BY THE ASSESSEE: PURCHASE ORDER NUMBER 1200001677 PRESSDTRAD E PRESSENHANDEL GMBH PAYMENT TERMS EURO 23000 SHALL BE PAID TO YOU AS ADVANCE BY TELEG RAPHIC TRANSFER. BALANCE PAYMENT SHALL BE MADE AFTER SUCCE SSFUL TRIALS AS SOON AS FORGING PRESS IS READY FOR COMMER CIAL PRODUCTION BY TELEGRAPHIC TRANSFER. 14/09/07 23000 EUROS - ADVANCE FOR ERECTION CH ARGES PRESS 4000 TONS 08/02/08 36480 EUROS - ASSEMBLY WORK FOR H 4000 TONS 59480 EUROS NOTE YOU WILL DEPUTE 4 ASSEMBLERS AND 2 ENGINEERS FOR ER ECTION PURPOSE. THE SERVICE CHARGES MENTIONED ABOVE ARE CONSIDERING ERECTION AND COMMISSIONING TO BE COMPLETED WITHIN 6 WEEKS FROM THE DATE OF START. IN ADDITION TO THE ABOVE SE RVICE CHARGES WE SHALL PAY YOU ECONOMY CLASS AIR FARE ONL Y (ONLY ONE TIME ) TO AND FRO PRAGUE TO MUMBAI FOR 6 PERSON S. LOCAL CONVEYANCE IN INDIA SHALL BE ARRANGED BY US A T OUR COST. WE SHALL PROVIDE LODGING AND BOARDING (IN OUR GUEST HOUSE) AS AVAILABLE TO EQUAL LEVEL OF OUR ENGINEERS. ANY O THER CHARGES/EXPENSES/INSURANCE ETC. SHALL BE ARRANGED B Y YOU AT YOUR COST ARID WE SHALL NOT BE HELD RESPONSIBLE FOR THE SAME IN ANY MANNER WHATSOEVER. ERECTION LABOUR AND LIFTING TACKLES SHALL BE ARRANG ED BY US FOR THE ERECTION AND COMMISSIONING PURPOSE AT OUR C OST. WE SHALL ARRANGE THE TOOLS AND TACKLES AND MAKE PRELIMINARY PREPARATION FOR ERECTION AND COMMISSION ING OF PRESS AS PER ANNEXURE (1 PAGE) ENCLOSED HEREWITH WH ICH IS ADVISED BY YOU SHOULD YOU REQUIRE ANY OTHER ADDITIO NAL TOOLS AND TACKLES PREPARATION IN ADDITION TO THE LI ST ENCLOSED PLEASE LET US KNOW WITHIN 7 DAYS OF RECEIPT OF ORDE R, FAILING 10 WHICH IT IS YOUR RESPONSIBILITY TO ARRANGE THE SAME IN ORDER TO AVOID IDLING OF YOUR ENGINEERS. WARRANTY: YOU SHALL GUARANTEE TROUBLE FREE PERFORMANCE OF THE PRESS FOR A PERIOD OF ONE YEAR FROM, THE DATE OF COMMISSI ONING ON ACCOUNT OF WORKMANSHIP OF ERECTION. SHOULD THERE BE ANY DEFECTS DUE TO FAULTY ERECTION IN THE PRESS THE SAME SHALL BE RECTIFIED BY YOU AT YOUR CO ST. WORKING HOURS OUR FACTORY WORKS 6 DAYS A WEEK THURSDAY BEING HOLI DAY. OUR NORMAL WORKING HOURS ARE 9.00 A.M. TO 5.30 P.M. WITH VI HOUR LUNCH BREAK, HOWEVER IN VIEW OF URGENCY FOR AVAILABILITY OJ PRESS FOR COMMERCIAL PRODUCTION WE SHALL BE WORKING UP TO 12-14 HOURS A DAY FOR ERECTION AND COMMISSIONING OF THE PRESS. TIMING PLAN WE WOULD REQUEST YOU TO FURNISH THE ERECTION SEQUEN CE AND TIMING PLAN WITHIN 7 DAYS OF RECEIPT OF ORDER AT YO UR END WITH THE TARGET DATE OF 8 WEEKS FOR COMMISSIONING O F THE MACHINE.' 12. ON PERUSAL OF THE ABOVE PURCHASE ORDERS, REVENU E AUTHORITIES OBSERVED THAT IT COULD NOT BE TERMED AS AN 'AGREEMENT' OR 'CONTRACT' IN A CONVENTIONAL SENSE A S IT IS NOT SIGNED BY BOTH THE PARTIES. HOWEVER, RENDERING OF T HE SERVICES BASED ON THIS TERMS AND CONDITIONS OF THE PURCHASE ORDER WOULD AMOUNT TO IMPLICIT ACCEPTANCE OF THE TERMS BY THE P ERSON RENDERING SERVICES AND WOULD BE TAKEN AS A CONTRACT . THUS, THE CIT(A) IN PARA 4.5. OF ITS ORDER HAS ACCEPTED THE I MPLICIT CONTRACT FOR RENDERING SERVICES BASED ON TERMS AND CONDITION S OF PURCHASE ORDER DISCUSSED ABOVE. 13. HAVING SAID SO, THE CIT(A) EXAMINED THE ISSUE W HETHER THE ABOVE CONTRACT IS A COMPOSITE CONTRACT OF PURCHASE AND INSTALLATION DEPENDS ON INTENTION OF PARTIES FROM T HE TERMS OF 11 CONTRACT. IN THIS REGARD RELIANCE WAS PLACED ON TH E DECISION OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD. VS. DIT (2007) 288 ITR 408 (SC), WHEREIN, IT WAS HELD THAT IN CONSTRUI NG A CONTRACT, THE TERMS AND CONDITIONS THEREOF ARE TO READ AS A W HOLE. A CONTRACT MUST BE CONSTRUED KEEPING IN VIEW OF THE I NTENTION OF THE PARTIES. NO DOUBT, THAT APPLICABILITY OF TAX L AW WOULD DEPEND ON THE NATURE OF CONTRACT, BUT SAME SHOULD NOT BE C ONSTRUED KEEPING IN VIEW THE TAXING PROVISIONS. 14. THE CIT(A) FURTHER OBSERVED THAT IN MOST OF THE CASES SELLER OF THE GOODS UNDERTAKES THE RESPONSIBILITY OF INSTA LLING AND COMMISSIONING OF THE MACHINERY AS A PART OF SALE OF GOODS. SUCH A CONTRACT'S PERFORMANCE IS CONCLUDED ON SUCCESSFUL INSTALLATION AND COMMISSIONING OF THE EQUIPMENT. IN SUCH CIRCUM STANCES, INSTALLATION AND COMMISSIONING CHARGES ARE EMBEDDED IN THE PURCHASE PRICE. EVEN IF THEY ARE NOT EMBEDDED IN T HE PURCHASE PRICE AND ARE CHARGED SEPARATELY, THE BASIC FACT TH AT INSTALLATION AS A PART OF PURCHASE WOULD NOT CHANGE IF THE SELLE R HAS UNDERTAKEN RESPONSIBILITY OF INSTALLATION AS PART O F THE COMPOSITE CONTRACT. CIT(A) ALSO OBSERVED THAT ERECTION AND C OMMISSIONING CONTRACTS EVEN TREATED AS SEPARATELY FROM PURCHASES BY HAVING SPECIFIC TERMS AND CONDITIONS RELATABLE TO THE EREC TION AND COMMISSIONING. SO, THE CIT(A) HELD THAT THERE IS N O COMPOSITE CONTRACT FOR PURCHASE AND ERECTION AND COMMISSIONIN G. 15. THE ASSESSEE HAS TAKEN AN ALTERNATIVE PLEA, INT ER ALIA SUBMITTED THAT EVEN IF BOTH THE ACTIVITIES ARE TREA TED SEPARATELY, INSTALLATION ACTIVITY IS BEING INCIDENTAL TO THE MA IN ACTIVITY OF PURCHASE, IT WILL DRAW COLOUR FROM THE MAIN ACTIVIT Y OF PURCHASE AND HENCE WILL NOT BE LIABLE FOR THE TAX DEDUCTION AT SOURCE. THIS PLEA OF ASSESSEE WAS REJECTED BY CIT(A) OBSERVING T HAT TDS PROVISIONS WOULD BE ATTRACTED ON PAYMENT MADE FOR I NSTALLATION, COMMISSIONING AND SERVICE CHARGES IF THE TRANSACTIO NS OF 12 ERECTION, COMMISSIONING AND PURCHASE ARE NOT COMPOS ITE AND ARE SEPARATE. IN VIEW OF ABOVE, CIT(A) HELD THAT THE T RANSACTIONS OF PURCHASE AND TRANSACTION OF ERECTION, COMMISSION ING AND SUPERVISION SHALL BE TREATED SEPARATELY FOR THE PAY MENTS MADE TO FIRMA RALEKC, RUSSIA AND TO PRESSETRADE PRESSENHAND EL GMBH, GERMANY. THE SERVICE CHARGE PAID TO PRATO SPOL SRO , CZECH REPUBLIC IS CLEARLY 'FEES FOR TECHNICAL SERVICES'. ALL THESE PAYMENTS WERE LIABLE FOR THE DEDUCTION OF TAX AT SO URCE. 16. THE CIT(A) FURTHER OBSERVED THAT THE PROVISIONS OF THE EXPLANATION 2 TO SEC.9(L)(VII) DEALS WITH THE SERVI CES PROVIDED BY THE NON-RESIDENT COMPANY SHOULD BE TAKEN AS AN EX ECUTOR SERVICE, AND, HENCE SHOULD BE EXEMPTED FROM PAYMEN T OF TAXES. THE EXPLANATION 2 TO SEC.9 (1) (VII) IS REPRODUCED UNDER: EXPLANATION [2] - FOR THE PURPOSE OF THIS CLAUSE, 'FEES FOR TECHNICAL SERVICES ' MEANS ANY CONSIDERATION (INCLU DING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MA NAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATIO N WHICH WOULD HE INCOME OF THE RECIPIENT CHARGEABLE UNDER T HE HEAD 'SALARIES '. 17. FOR THE PURPOSE OF THIS CLAUSE FEE FOR TECHNICA L SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CON SIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR C ONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TE CHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR A NY 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'. 18. FROM THE ABOVE, CIT(A) OBSERVED THAT 'CONSIDER ATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDE RTAKEN BY THE RECIPIENT' ARE NOT CONSIDERED AS 'FEES FOR TECHNICA L SERVICES'. 13 CIRCULAR 202 DATED 5 TH JULY 1976 SHEDS LIGHT ON THE INTENTION BEHIND THIS PROVISION. THE RELEVANT PARA FORM THE C IRCULAR IS REPRODUCED UNDER: CIRCULAR NO. 202 DATED 5 TH JULY 1976 EXPLANATORY NOTES ON THE PROVISIONS OF THE FINANCE ACT, 1976 16.3. THE EXPRESSION ' FEES FOR TECHNICAL SERVICES ' HAS BEEN DEFINED TO MEAN ANY CONSIDERATION (INCLUDING ANY LU MP SUM CONSIDERATION) FOR THE RENDERING THE MANAGERIAL, TE CHNICAL OR CONSULTANCY SERVICES, INCLUDING THE PROVISION OF SE RVICE OF TECHNICAL OR OTHER PERSONNEL). IT, HOWEVER, DOES NO T INCLUDE FEES OF THE FOLLOWING TYPES, NAMELY: ANY CONSIDERATION RECEIVED FOR ANY CONSTRUCTION, AS SEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT. SUCH CONSIDERATION HAS BEEN EXCLUDED FROM THE DEFINITION ON THE GROUND THAT SUCH ACTIVITIES VIRTUALLY AMOUNT TO CAR RYING ON BUSINESS IN INDIA FOR WHICH CONSIDERABLE EXPENDITUR E WILL HAVE TO BE INCURRED BY A NON-RESIDENT AND ACCORDING LY IT WILL NOT BE FAIR TO TAX .SUCH CONSIDERATION IN THE HANDS OF A FOREIGN COMPANY ON GROSS BASIS OR TO RESTRICT THE EXPENDITURE INCURRED FOR EARNING THE SAME TO 20 PER CENT OF THE GROSS AMOUNT AS PROVIDED IN NEW S. 44D OF THE A CT. CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT WILL, THEREFORE, BE CHARGEABLE TO TAX ON NET BASIS, I.E., AFTER ALLOWING DEDUCTION IN RESPECT OF COSTS AND EXPENDITURE INCURRED FOR EARNING THE SAME AND CHARG ED TO TAX AT THE RATES APPLICABLE TO THE ORDINARY INCOME OF THE NON-RESIDENT AS SPECIFIED IN THE RELEVANT FINANCE A CT. 19. FROM THIS, CIT(A) OBSERVED THAT INTENTION BEHIN D EXEMPTING CERTAIN 'PROJECTS' FROM 'FEES FOR TECHNICAL SERVICE S' WAS TO TAX NON- RESIDENT ON NET BASIS OR U/S 44D AS THESE ACTIVITIE S AMOUNT TO CARRYING ON BUSINESS IN INDIA AND CONSIDERABLE EXPE NDITURE WOULD HAVE BEEN INCURRED BY NON-RESIDENT FOR THESE ACTIVITIES. THEREFORE THE STATUTE USES THE WORD 'PROJECT' IN TH E EXPLANATION 2 AND THE EXCLUSION IN THE TAXATION FOR 'FEES FOR TEC HNICAL SERVICES' IS LIMITED TO ONLY PROJECTS AND NOT TO ALL THE ACTIVIT IES. 14 20. CONSIDERING THE MAGNITUDE OF ERECTION AND COMMI SSIONING ACTIVITY UNDERTAKEN IN THE PRESENT APPEAL, IT COULD NOT BE CONSIDERED AS A 'PROJECT'. THEREFORE, IT DOES NOT F ALL WITHIN THE EXCLUSION CLAUSE OF THE EXPLANATION 2. THE CIT(A) FURTHER OBSERVED THAT THE CHARGES ARE PAID FOR ERECTION' AN D COMMISSIONING ARE NOT EXCLUDED FROM THE DEFINITION OF 'FEES FOR TECHNICAL SERVICES'. WHEREAS PAYMENTS MADE FOR 'SUP ERVISION OF ERECTION' AND FOR 'SERVICE WORK' WERE CLEARLY OUT O F THE EXCLUSION OF EXPLANATION 2 AND ARE TAXED AS 'FEES FOR TECHNICAL SERVICES'. THEREFORE, THE CIT(A) HELD THAT PAYMENTS MADE BY TH E ASSESSEE ARE COVERED AND ARE TAXABLE UNDER 'FEES FOR TECHNIC AL SERVICES' U/S 9(L)(VII). 21. SECOND LIMB OF THE ASSESSEES ARGUMENT WAS THAT THAT THE PE OF THE NON RESIDENT COMPANY DID NOT EXIST IN IND IA DURING THE YEAR. NON- RESIDENT TECHNICIANS RESPONSIBLE FOR ERE CTION, COMMISSIONING AND SUPERVISION ALSO DID NOT STAY IN INDIA FOR MORE THAN THREE MONTHS. ACCORDINGLY, THE PAYMENT M ADE TO THE NON RESIDENT COMPANY COULD NOT BE TAXED IN INDIA. REJECTING THE ARGUMENT OF ASSESSEE, THE CIT(A) OBSERVED THAT THE ABOVE PAYMENTS ARE NOT BEING TAXED AS A 'BUSINESS INCOME' ON THE BASIS OF THE EXISTENCE OF PE OF THE NON- RESIDENT COMPANY IN INDIA. THESE PAYMENTS ARE TAXED AS 'FEES FOR TECHNICAL SER VICES' UNDER SECTION 9(L)(VII) AND ARTICLE 12 OF THE RELEVANT T AX TREATY AND THIS PAYMENTS ARE LIABLE FOR THE TDS UNDER SECTION L95 O F THE ACT. FINALLY, CIT(A) HELD THAT THE ASSESSING OFFICER WAS CORRECT IN HOLDING THAT THE ASSESSEE IN DEFAULT FOR NON-DEDUCT ION OF TDS. THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX OF 5,15,980 MADE TO PRATO SPOL SRO CZECH REPUBLIC ON PAYMENT OF 38,25,394 MADE TO PRESTRADE PRESENTRADE GMBH, GERMANY AND ON PAYME NT OF 1,53,83,470/- MADE TO FIRMA RALEKC, RUSSIA. 22. REGARDING THE PAYMENT OF 61,20,000/- TO MANYO COMPANY JAPAN FOR ACQUIRING THE DESIGN AND DRAWINGS OF BOLS TER & 15 CASSETTE. THE STAND OF THE ASSESSEE HAS BEEN THAT THESE DESIGNS AND DRAWINGS WERE ACQUIRED BY IT FOR ENSURING SMOOT H PERFORMANCE OF THE PURCHASED PLANT AND MACHINERY. T HE ASSESSEE DID NOT USE THESE DRAWINGS IN MANUFACTURIN G OF THE MACHINERY OR DID NOT EXPLOIT IT FOR ANY OTHER COMME RCIAL PURPOSE. IN THESE CIRCUMSTANCES, THE ACQUISITION OF THESE DR AWINGS ALONG WITH THE PURCHASE OF MACHINERY WAS NECESSARY FOR IT S MAINTENANCE. SO, THE CIT(A) HELD IT AS PURCHASE TR ANSACTIONS AS NO TECHNOLOGY KNOW HOW RELATING TO THIS MACHINERY I S MADE AVAILABLE TO THE ASSESSEE. ACCORDINGLY, THE CIT(A) HELD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX ON PAYMENT MA DE BY IT TO MANYO CORPORATION LTD., JAPAN BECAUSE PAYMENT MADE ON MERE SUPPLY OF DRAWINGS IS NOT TAXABLE IN INDIA. 23. BEFORE US, THE ASSESSEE HAS MADE DETAILED ARGUM ENTS WITH REGARD TO ITS THREE APPEALS. THE LEARNED AUTHORIZE D REPRESENTATIVE MAINLY REITERATED THE SUBMISSIONS BE FORE AUTHORITIES MADE AND IN ADDITION TO THAT MADE LEGAL AND FACTUAL SUBMISSIONS BEFORE US TO SUPPORT HIS STAND. IN SUM AND SUBSTANCE, THE STAND OF ASSESSEE WAS THAT THERE IS COMPOSITE CONTRACT OF PURCHASE AND INSTALLATION. SO, THE ORD ER OF AUTHORITIES BELOW IS NOT JUSTIFIED, SAME SHOULD BE SET ASIDE. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF AUTHORITIES BELOW VIS--VIS ASSESSEES APPEAL WHILE HE SUPPORTED THE ORDER OF ASSESSING OF FICER WITH REGARD TO REVENUES APPEAL AND LEARNED AUTHORIZED R EPRESENTATIVE SUPPORTED THE ORDER OF CIT(A) WHEREIN, THE CIT(A) H AS HELD THAT ASSESSEE WAS NOT LIABLE TO DEDUCT TAX ON PAYMENT MA DE TO MANYO COMPANY LTD., JAPAN FOR ACQUIRING DESIGNS AND DRAWI NGS OF BOLSTER AND CASSETTE. 24. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE COMPANY WANTED TO SET UP A 16 FORGING INDUSTRY AT PUNE. THE ASSESSEE BOUGHT FORG E AND SIMILAR MACHINES FROM VARIOUS PARTIES. THE ASSESSEE INTEND ED THAT THESE HEAVY MACHINERY NEEDS TO BE PROPERLY ERECTED, CONSI DERING TECHNICAL ASPECTS OF INSTALLATION. THE ASSESSEE AG REED FOR SEPARATE CONSIDERATION FOR TRANSPORT / TRAVEL OF TH E MACHINES. THE ASSESSEE ALSO ORDERED THE PARTIES TO SUPERVISE EREC TION / INSTALLATION OF THE HEAVY MACHINES. THE ASSESSEE A LSO AGREED TO SEPARATE CONSIDERATION FOR AIR-FARE (ECONOMY CLASS) FOR THE TECHNICIANS ASSIGNED BY SUPPLIER FOR THE PUPRPOSE. THE ASSESSING OFFICER HELD THAT THE ASSESSEE OUGHT TO H AVE MADE TDS U/S 9(L)(VII) OF THE ITA, 1961 ON THE PAYMENTS OTHE R THAN MACHINERY COST. THE ASSESSEE PREFERRED AN APPEAL B EFORE THE CIT(A), WHO DISMISSED THE APPEAL FOR THE REASONS DI SCUSSED ABOVE. THE FIRST ISSUE IS WITH REGARDS TO THE PAYM ENTS FOR C & F CHARGES (I.E. MOVEMENT OF MACHINERY FROM OVERSEAS F ACTORY TO RAILWAY STATION, THEN TO PORT IN THE FOREIGN TERRIT ORY AND THEN FOR HIGH SEAS TRAVEL) RELATES TO FUNCTIONS AND ACTIVITI ES PERFORMED IN FOREIGN COUNTRY. THE PAYMENTS FOR SUCH TRANSPORTATI ON DO NOT ACCRUE IN INDIA SINCE THERE IS NO ASPECT INVOLVED W HICH CREATES A CHARGE FOR INCOME-TAX IN INDIA. THE PAYMENT TERMS FOR THESE C & F CHARGES INDICATE THE NEXUS TO THE TRANSACTION OF SALE OF MACHINERY (I.E. 40% ON LOADING IN PLATFORMS + 50% O N LOADING INTO OCEAN VESSEL + 10% ON ARRIVAL IN MUMBAI). SUC H PAYMENT CANNOT BE SAID TO BE ACCRUED IN INDIA SINCE THERE I S NO ASPECT INVOLVED WHICH CREATED CHARGE FOR UNDER THE PROVISI ONS OF I.T. ACT, BECAUSE THIS TOOK PLACE ONLY OUTSIDE INDIAN TERRITO RY. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 25. THE SECOND ISSUE IS REGARDING TRAVELLING EXPENS ES OF TECHNICIANS. THE TECHNICIANS TRAVEL EXPENSES WERE NEGOTIATED AND PAID SEPARATELY ON ECONOMY AIRFARE BASIS. SUCH EXPENSES WERE FOR CROSS BORDER TRAVEL AND HENCE, DO NOT ARIS E IN INDIA AND DOES NOT ATTRACT PROVISIONS OF INDIAN INCOME TAX AC T. 17 26. THIRD ISSUE IN GENERAL IS WITH REGARD TO SUPER VISION OF INSTALLATION / ERECTION. THE SUPERVISION OF INSTALL ATION / ERECTION OF MACHINERY IS AN ACTIVITY WHICH RELATES TO SALE O F MACHINERY AND IS OF SPECIFIC NATURE I.E. HYPER TECHNICAL AND ITS SUPERVISION OF INSTALLATION / ERECTION OF MACHINERY WAS ALSO HYPER TECHNICAL. EVEN IN PARA 4.7 OF ORDER OF CIT(A) HE OBSERVED THA T IN LARGE CONTRACTS, INSTALLATION CHARGES FORM INTEGRAL PART OF THE PURCHASE PRICE OF THE MACHINERY. SUCH SITUATION REMAINS UNAF FECTED, WHETHER THESE INSTALLATION CHARGES ARE EMBEDDED IN THE COST OF PURCHASE PRICE OR, ARE CHARGED SEPARATELY. IN CONT RADICTION TO THIS, THE CIT(A) FURTHER OBSERVED IN PARA 4.8 OF IT S ORDER THAT WHEN THE TRANSACTION OF INSTALLATION CHARGES ARE IN DEPENDENT OF PURCHASE SALE TRANSACTION, THE SAME DOES NOT FORM P ART OF THE PURCHASE PRICE. IN THIS REGARD, CIT(A) HAS GIVEN A N EXAMPLE OF MODULAR FURNITURE, ETC. TO SUPPORT HIS VIEW THAT, I N ALL SUCH CASES, INSTALLATION CHARGES DO NOT FORM PART OF PUR CHASE PRICE. THE KEY CONTENTION OF THE ASSESSEE REMAINS UNADDRES SED BY CIT(A). THE MACHINES PURCHASED ARE COMPLEX EQUIPMEN TS AND HENCE, COULD NOT BE INSTALLED BY ANY ORDINARY TECHN ICAL PERSON. THIS IS THE REASON THE ONLY MACHINERY SELLER WAS GI VEN THE CONTRACT OF ERECTION & INSTALLATION SUPERVISION IN THESE TRANSACTIONS. SUCH ERECTION / INSTALLATION OF HIGHL Y COMPLEX MACHINES IS NOT COMPARABLE TO ORDINARY TRANSACTIONS OF SALE OF MODULAR FURNITURE JUST BECAUSE TWO SEPARATE AGREEME NTS ARE REACHED, ONE FOR PURCHASE-SALE TRANSACTION AND ANOT HER FOR INSTALLATION / ERECTION & OTHER RELATED SERVICES. THE PRINCIPLE OF 'INEXTRICABLE NEXUS' DOES NOT CHANGE. IN THE PRESE NT CASE, PART PAYMENT FOR PURCHASE-SALE OF MACHINERY TRANSACTION WAS LINKED TO SUCCESSFUL ERECTION OF THE MACHINERY AT CHAKAN P LANT, PUNE. WE FIND THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF ANDREW YULE & CO. LTD V. CIT - (1994) 207 ITR 999 ( CAL.), HAD DECIDED AN ISSUE WITH REGARD TO DOUBLE TAXATION AGR EEMENT 18 ENTERED INTO BETWEEN INDIA AND GERMANY. THE CONTRAC T FOR SUPPLY OF MACHINERY BY GERMANY FIRM WAS ENTERED INTO. SUPP LIER HAS PERMANENT ESTABLISHMENT IN GERMANY WHEREIN MACHINER Y (PRESS) WAS MANUFACTURED. CERTAIN SERVICES WERE ALSO RENDER ED IN CONNECTION WITH SETTING UP OF PRESS IN INDIA. IT WA S HELD THAT THESE SERVICES COULD NOT BE TREATED AS PERSONNEL SE RVICES EVEN IF RENDERING SERVICES WAS EMBODIED IN SEPARATE AGREEME NT. REGARDING TDS ON PAYMENT TO NON-RESIDENT I.E. GERMA NY COMPANY RENDERING SERVICES IN CONNECTION WITH SETTI NG UP CERTAIN MACHINERY IN INDIA AND IT HAD PERMANENT ESTABLISHME NT IN INDIA. IN VIEW OF AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATI ON BETWEEN INDIA AND REPUBLIC GERMANY, NO INCOME ACCRUED IN IN DIA. SO IT WAS HELD THAT THERE WAS NO LIABILITY TO DEDUCT TDS AT SOURCE. WE ALSO FIND THAT THE HONBLE HIGH COURT OF ANDHRA PRA DESH IN THE CASE OF CIT V. SUNDWIGER EMFG & CO. (2003) 262 ITR 110 (AP) HAS DECIDED AN IDENTICAL ISSUE, WHEREIN THE RESIDEN T COMPANY ENTERED INTO CONTRACT WITH A NON-RESIDENT COMPANY F OR SUPPLY OF DIFFERENT TYPES OF CAPITAL EQUIPMENTS IN CONNECTION WITH SETTING UP OF SPECIAL METAL AND ALLOY PROJECTS. SEPARATE AG REEMENT WAS ALSO ENTERED FOR PROVIDING TECHNICAL SERVICES COVER ING SUPERVISION OF ERECTION, START UP, ETC. FOR SAME NON-RESIDENT H AD TO SEND ON DEPUTATION SPECIALIST EMPLOYEES TO INDIA APART FROM PAYMENT ON DAILY BASIS AND ASSESSEE HAD TO MEET THE EXPENSES O F TRAVEL, LIVING AND POCKET EXPENSES OF SAID SPECIALISTS. THE ASSESS ING OFFICERS CHARGE THAT THE PAYMENTS MADE TO NON-RESIDENTS AS T ECHNICAL FEE U/S.9(L)(VII), WAS HELD NOT JUSTIFIED. IT WAS HELD THAT TWO AGREEMENTS CONSTITUTED ONE AND THE SAME TRANSACTION . SERVICES RENDERED BY THE EXPERTS AND PAYMENTS MADE TOWARDS T HE SAME WERE PART AND PARCEL OF SALE CONSIDERATION. THE PAY MENT WAS EXEMPT UNDER EXPLANATION 2 TO SEC.9(1) OF DTTA. WE ALSO FOUND THAT HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJ MA HARIMA HEAVY INDUSTRIES LTD. VS.DIT (2007) 288 ITR 408 (SC ) HELD THAT TAX IS LEVIED ON ONE TRANSACTION WHERE THE OPERATIO NS WHICH MAY 19 GIVE RISE TO INCOME MAY TAKE PLACE PARTLY IN ONE TE RRITORY AND PARTLY IN ANOTHER. THE QUESTION WHICH WOULD FALL F OR CONSIDERATION IS AS TO WHETHER THE INCOME THAT ARIS ES OUT OF THE SAID TRANSACTION WOULD BE REQUIRED TO BE PROPORTION ED TO EACH OF THE TERRITORIES OR NOT. INCOME ARISING OUT OF OPER ATION IN MORE THAN ONE JURISDICTION WOULD HAVE TERRITORIAL NEXUS WITH EACH OF THE JURISDICTION ON ACTUAL BASIS. IF THAT BE SO, I T MAY NOT BE CORRECT TO CONTEND THAT THE ENTIRE INCOME ACCRUES O R ARISES IN EACH OF THE JURISDICTION. THE AUTHORITY HAS PROCEE DED ON THE BASIS THAT SUPPLIES IN QUESTION HAD TAKEN PLACE OFF SHORE. IT, HOWEVER, HAS RENDERED ITS OPINION ON THE PREMISE TH AT OFFSHORE SUPPLIES OR OFFSHORE SERVICES WERE INTIMATELY CONNE CTED WITH THE TURNKEY PROJECT. THE PRINCIPLE OF APPORTIONMENT IS ALSO RECOGNIZED BY CLAUSE (A) 01 EXPLANATION TO SEC.9. T HUS, IF SUBMISSION OF THE ADDL. SOLICITOR GENERAL IS ACCEPT ED THAT THE CONTRACT IS A COMPOSITE ONE, THEN OFFSHORE SUPPLY W OULD BE OF EQUIPMENT DESIGNED AND MANUFACTURED IN ONE TERRITOR Y (JAPAN), AND THEN SOLD IN ANOTHER TAX TERRITORY, LEADING TO DIVISION OF PROFITS ARISING IN TWO TAX TERRITORIES, WHICH IS NO T ENVISAGED UNDER OUR TAXATION LAW. IN CONSTRUING A CONTRACT, THE TER MS AND CONDITIONS THEREOF ARE TO BE READ AS A WHOLE. A CON TRACT MUST BE CONSTRUED KEEPING IN VIEW THE INTENTION OF THE PART IES. NO DOUBT, THE APPLICABILITY OF THE TAX LAWS WOULD DEPEND UPON THE NATURE OF THE CONTRACT, BUT THE SAME SHOULD NOT BE CONSTRUED KEEPING IN VIEW THE TAXING PROVISIONS. WE ALSO FIND THAT ITAT , CHENNAI SPECIAL BENCH (2010) 125 ITD 263 (CHENNAI) (SB) WHE REIN THE ISSUE OF APPLICABILITY OF SECTION 195 OF THE INCOME -TAX ACT, 1961 I.E. DEDUCTION OF TAX AT SOURCE HAS ARISEN. PAYMENT S WERE MADE TO NON-RESIDENT - ASSESSMENT YEAR 2002-03 WHETHER W HERE PAYER HAS A BONA FIDE BELIEF THAT NO PART OF PAYMENT HAS INCOME CHARACTER, THEN SECTION 195(1) WOULD NOT APPLY BECA USE SECTION 195(1) APPLIES ONLY IF PAYMENT IS CHARGEABLE TO TAX , EITHER WHOLLY OR PARTLY. THE ASSESSEE COMPANY WAS AWARDED A CONT RACT BY THE 20 TOURISM DEPARTMENT OF THE STATE GOVERNMENT TO ESTAB LISH IMAX THEATRE. THEREFORE, THE ASSESSEE ENTERED INTO AN AG REEMENT WITH IMAX LTD., CANADA FOR PURCHASE OF EQUIPMENT, MAINTE NANCE AND INSTALLATION. AS PER THE AGREEMENT, THE ASSESSEE WA S TO MAKE PAYMENT TO IMAX LTD. ON ACCOUNT OF PURCHASE OF SYST EM AND ALSO AS TECHNOLOGY TRANSFER FEE WITHOUT DEDUCTING TAX AT SOURCE (TDS). DURING THE RELEVANT ASSESSMENT YEARS, THE ASSESSEE MADE CERTAIN PAYMENTS TO IMAX LTD. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PAYMENT MADE BY THE ASSESSEE WAS FOR PROVI SION OF A TECHNICAL SERVICES BY IMAX LTD. WHICH WOULD FALL U/ S.9(1)(VII). HE FURTHER CONCLUDED THAT SINCE THE ASSESSEE HAD NOT O BTAINED ANY ORDER UNDER SECTION 195(2), 195(3) OR UNDER SECTION 197, THE GROSS SUM REMITTED BY THE ASSESSEE WAS LIABLE TO TA X UNDER SECTION 195. ON APPEAL, THE COMMISSIONER (APPEALS) SET ASIDE THE ORDER OF ASSESSMENT ORDER BY OBSERVING THAT AS PER TERMS AND CONDITIONS OF AGREEMENT, IMAX WAS TO INSTALL EQUIPM ENT TESTED AND ALSO PROVIDE TRAINING FOR FOUR PURCHASERS. THE QUESTION AROSE WHETHER IN VIEW OF THE FACTS THAT THE ASSESSI NG OFFICER HAD EXAMINED THE AFORESAID SERVICES OF TRANSFER OF TECH NOLOGY, WHEREAS, THEY WERE AUXILIARY TO SELL THE EQUIPMENT, BUT AMOUNT REMITTED BY THE ASSESSEE WAS NOT CHARGEABLE TO TAX IN INDIA AND THUS, THE ORDER OF COMMISSIONER (APPEALS) WAS JUSTI FIED IN SETTING ASIDE THE IMPUGNED ASSESSMENT ORDER. WE FIND THAT MUMBAI BENCH L IN THE CASE OF DCIT, MUMBAI VS.DODSAL (P. ) LTD. (2013) 29 TAXMANN.COM 65 (MUM), WHEREIN, THE ASSESSEE WAS ENGAGED IN BUSINESS OF ENGINEERING AND GENERAL CONTRACTING. IT ENTERED INTO CONTRACTS WITH A CANADA BASED COMPANY, NAMELY, 'S' LTD., FOR SUPPLY OF EQUIPMENTS AND FOR INSTALLATION AND C OMMISSIONING WORK. ASSESSEE CLAIMED THAT AMOUNT PAID BY IT TO S LTD. TOWARDS INSTALLATION AND COMMISSIONING CHARGES WAS NOT CHAR GEABLE TO TAX IN INDIA AS THE SAME WAS COVERED BY THE EXCEPTI ON GIVEN IN EXPLANATION 2 TO SECTION 9(1)(VII) AND, THUS, ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMEN T. THE 21 ASSESSING OFFICER DISALLOWED ASSESSEE'S CLAIM MAINL Y ON THE GROUND THAT THERE WERE TWO SEPARATE AGREEMENTS ENTE RED INTO BY THE ASSESSEE WITH 'S LTD., ONE FOR SUPPLY AND OTHE R FOR INSTALLATION AND COMMISSIONING. HE WAS OF VIEW THAT THE CONTRACT FOR INSTALLATION AND COMMISSIONING WAS A SEPARATE C ONTRACT AND 'S LTD. WAS NOT BOUND TO PROVIDE THE SERVICES OF C OMMISSIONING AND INSTALLATION IN RELATION TO EQUIPMENT SUPPLIED BY THEM TO THE ASSESSEE. THUS, ASSESSING OFFICER HELD THAT THE AM OUNT PAID TO S LTD. TOWARDS INSTALLATION AND COMMISSIONING CHA RGES WAS NOT COVERED IN THE EXCEPTION PROVIDED IN EXPLANATION 2 TO SECTION9(1)(VII). IN FIRST APPEAL, THE COMMISSIONE R (APPEALS), ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT THE SAID AMOUNT WAS COVERED IN THE EXCEPTION PROVIDED IN EXPLANATIO N 2 TO SECTION 9(1)(VII) AS WELL AS IN THE ARTICLE 12(5)(A) OF THE TREATY BETWEEN INDIA AND CANADA. IN REVENUES APPEAL, THE TRIBUNA L HAVING GONE BY THE SCOPE OF WORK TO BE DONE BY 'S' LTD. BROADLY UNDER THE AGREEMENT OBSERVED THAT IT WAS DIFFICULT TO ACCEPT THE STAND OF THE ASSESSEE THAT THE CONSIDERATION PAID TO 'S' LTD. FO R THE SAID WORK COULD BE REGARDED AS CONSIDERATION FOR ANY CONSTRUC TION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY 'S' LTD. AS CONTEMPLATED IN EXCEPTION TO EXPLANATION 2 TO SECTI ON 9(L)(VII). IT WAS OBSERVED THAT THE EQUIPMENT WAS TO BE SUPPLIED BY 'S' LTD. AS PER THE SEPARATE AGREEMENT ENTERED INTO BY THE A SSESSEE SIMULTANEOUSLY ON THE SAME DATE AND BOTH THE ORDERS FOR SUPPLY OF EQUIPMENT SYSTEM AND FOR INSTALLATION AND COMMIS SIONING OF IT WERE PLACED WITH REFERENCE TO THE SAME LETTER OF IN TENT. HAVING REGARD TO ALL THESE FACTS OF THE CASE AND THE TERMS AND CONDITIONS OF BOTH THE AGREEMENTS ENTERED INTO BETWEEN THE ASS ESSEE AND 'S' LTD., IT WAS OBSERVED THAT THE SERVICES RENDERED BY 'S' LTD. OF INSTALLATION AND COMMISSIONING WERE ANCILLARY AND S UBSIDIARY, AS WELL AS INEXTRICABLY AND ESSENTIALLY LINKED TO THE SUPPLY/SALE OF EQUIPMENT AND, THUS, AMOUNT PAID FOR THE SAID SERVI CES BY THE ASSESSEE WAS NOT CHARGEABLE TO TAX IN INDIA IN THE HANDS OF 'S' 22 LTD. AS FEES FOR INCLUDED SERVICES BY VIRTUE OF ART ICLE 12(5)(A) OF THE DTAA BETWEEN INDIA AND CANADA. IN VIEW OF ABOVE, IT WAS HELD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT S OURCE FROM THE PAYMENT MADE TO 'S' LTD. AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC TION 40(A)(I) WAS NOT SUSTAINABLE. IN VIEW OF ABOVE DISCUSSION, WE ARE OF THE VIEW THAT SUPERVISION OF INSTALLATION / ERECTION OF MACHINERY ACTIVITY CARRIED BY NON RESIDENT RELATES TO SALE OF MACHINERY IN SUCH LARGE CONTRACT. THE INSTALLATION CHARGES FORM S INTEGRAL PART OF PURCHASE PRICE OF MACHINERY. IN SUCH A SITUATIO N, REMAINS UNAFFECTED, WHETHER THESE INSTALLATION CHARGES ARE EMBEDDED IN THE COST OF PURCHASE PRICE OR, ARE CHARGED SEPARATE LY. 27. IT IS UNDISPUTED THAT THE MACHINERY IS COMPLEX EQUIPMENT, HENCE COULD NOT BE INSTALLED BY ANY ORDINARY PERSON THAT IS WHY ONLY MACHINERY SELLER NON RESIDENT WAS GIVEN CONTRA CT OF ERECTION AND INSTALLATION AND SERVICES THEREOF. SUCH ERECTI ON / INSTALLATION OF HIGHLY COMPLEX MACHINERY WAS NOT CO MPARABLE TO ORDINARY INSTALLATION JUST BECAUSE TWO SEPARATE AGR EEMENTS WERE REACHED, ONE FOR SALE TRANSACTION AND OTHER FOR INS TALLATION / ERECTION AND OTHER RELATED SERVICES. THE PRINCIPLE OF 'INEXTRICABLE NEXUS' DOES NOT CHANGE. IN THE FACTS BEFORE US, TH E PART PAYMENT FOR PURCHASE OF SALE OF MACHINERY TRANSACTION WAS L INKED TO SUCCESSFUL ERECTION OF MACHINERY AT CHAKAN, PUNE IN ALL THESE CONTRACTS. SO, IT WAS NOT OBLIGATORY ON THE PART O F ASSESSEE TO DEDUCT THE TAX AT SOURCE ON ENTIRE PAYMENT EVEN IF IT DOES NOT OFFER U/S.195(2) FOR DEDUCTION AT A LOWER OR NIL RA TE. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 28. REGARDING REVENUES APPEAL, WHEREIN PAYMENT OF 61,20,000/- WAS MADE TO MANYO COMPANY, JAPAN FOR AC QUIRING THE DESIGNS AND DRAWINGS OF BOLSTER & CASSETTE. TH ESE DESIGNS AND DRAWINGS WERE ACQUIRED BY ASSESSEE FOR ENSURING SMOOTH 23 PERFORMANCE OF PURCHASED PLANT AND MACHINERY. THE ASSESSEE NEITHER USED THESE DRAWINGS IN MANUFACTURING OF THE MACHINERY NOR DID EXPLOIT IT FOR ANY OTHER COMMERCIAL PURPOSE . UNDER THE FACTS AND CIRCUMSTANCES, THE ACQUISITION OF THESE D RAWINGS ALONG WITH PURCHASE OF MACHINERY WAS NECESSARY FOR ITS MA INTENANCE. SO, CIT(A) WAS JUSTIFIED IN HOLDING THAT IT WAS PUR CHASE TRANSACTION AS NO TECHNOLOGY KNOW HOW RELATING TO M ACHINERY WAS MADE AVAILABLE TO ASSESSEE. SO, THE ASSESSEE W AS NOT LIABLE TO DEDUCT TAX ON PAYMENT MADE TO MANYO COMPANY LTD. , JAPAN. WE UPHOLD THE SAME. 29. IN THE RESULT, THREE APPEALS FILED BY THE ASSES SEE ARE ALLOWED AND THAT OF REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 27 TH OF FEBRUARY, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 27 TH FEBRUARY, 2014 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT(A)-IT/TP, PUNE 4) THE CIT-IT/TP, PUNE 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE FIT FOR PUBLICATION
