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

ITA 3399/AHD/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50543 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 23-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Permanent establishment
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI T. K. SHARMA, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.3399 / AHD/2010 (ASSESSMENT YEAR 2007-08) M/S. JOINT STOCK COMPANY ZANGAS A, 4/1, SECTOR 25, GIDC ESTATE, GANDHINAGAR - 382016 VS. ADIT, (INTERNATIONAL TAXATION, AHMEDABAD PAN/GIR NO. : AABCJ6038K (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI MILIN MEHTA, AR RESPONDENT BY: SHRI SAMIR TEKRIWAL, SR. DR DATE OF HEARING : 27.06.2011 DATE OF PRONOUNCEMENT : .08.2011 O R D E R PER SHRI A. K. GARODIA, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER DATED 28.10.2010 PASSED BY THE A.O. U/S 143(3) READ WITH SECTION 144C(1) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2007-08 AS PER TH E DIRECTION OF DRT, AHMEDABAD. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: ALL THE GROUNDS OF APPEAL IN THIS APPEAL ARE MUTUA LLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. 1. THE LEARNED ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), AHMEDABAD ('THE AO') IN PURSUANCE OF DIRECTIONS ISS UED BY THE DISPUTE RESOLUTION PANEL, AHMEDABAD ('THE DRP') ERRED IN FA CT AND IN LAW IN HOLDING THAT INCOME OF RS.L,71,97,548 IS TO BE TAXED @ 40 % INSTEAD OF 10 % CLAIMED BY THE APPELLANT. 1.1 THE LEARNED AO AS WELL AS THE DRP ERRED IN FACT AND IN LAW IN NOT APPLYING THE PROVISIONS OF SECTION 115A (L)(B)(BB) OF THE INCOME TAX ACT, 1961 I.T.A.NO. 3399 /AHD/2010 2 ('THE ACT') FOR DETERMINING THE RATE OF TAX APPLICA BLE ON FEES FOR TECHNICAL SERVICES. FEES FOR TECHNICAL SERVICES V. BUSINESS INCOME: 1.2 THE LEARNED AO AS WELL AS THE DRP ERRED IN FAC T AND IN LAW IN HOLDING THAT THE INCOME RECEIVED BY THE APPELLANT FROM THE PANVE L DABHOL PIPELINE ('PDPL') PROJECT WAS IN THE NATURE OF BUSINESS INCO ME AND NOT FEES FOR TECHNICAL SERVICES. 1.3 THE LEARNED AO AS WELL AS THE DRP ERRED IN FACT AND IN LAW IN HOLDING THAT THE APPELLANT HAD UNDERTAKEN CONSTRUCTION OF P IPELINE PROJECT AND THEREFORE AS PER EXPLANATION - 2 TO SECTION 9(1)(VII) OF THE ACT THE INCOME IS NOT TO BE CONSIDERED AS FEES FOR TECHNICAL SERVICES DESPITE T HE FACT THAT THE ROLE OF THE APPELLANT WAS LIMITED ONLY TO PROVIDING TECHNICAL S ERVICES. 1.4 THE AO AS WELL AS THE DRP FAILED TO APPRECIATE THE FACT THAT THE APPELLANT HAD NOT UNDERTAKEN ANY CONSTRUCTION, BUT HAD PROVIDED O NLY TECHNICAL KNOW-HOW AND THEREFORE THE NATURE OF SERVICES RENDERED BY THE AP PELLANT WERE IN THE NATURE OF TECHNICAL SERVICES AND NOT CONSTRUCTION ACTIVITY. 1.5 THE LEARNED AO AS WELL AS THE DRP ERRED IN FACT AN D IN LAW IN HOLDING THAT THE APPELLANT CONSTITUTES A PE IN INDIA IN RESPECT OF THE PDPL PROJECT IN VIEW OF PROVISIONS OF ARTICLE 5 [PARTICULARLY PARA (J ) AND PARA (C) OF THE SAID ARTICLE] OF THE DOUBLE TAX AVOIDANCE AGREEMENT BETW EEN INDIA AND RUSSIA ('THE DTAA'). 1.6 THE LEARNED AO AS WELL AS THE DRP ERRED IN FACT AND IN LAW IN NOT ADJUDICATING THE CONTENTION OF THE APPELLANT THAT T HERE IS NO FIXED PLACE OF BUSINESS IN INDIA AS PER SECTION 92F(IIIA) WHICH CONSTITUTE S A PE AND THEREFORE SECTION 44DA IS NOT APPLICABLE TO THE APPELLANT. WITHOUT PREJUDICE TO ABOVE: 1.7 THE LEARNED AO AS WELL AS THE DRP ERRED IN FACT AND IN LAW IN TREATING THE ENTIRE RECEIPTS FROM THE PDPL PROJECT AS BUSINESS PROFITS WITHOUT ALLOWING ANY DEDUCTION OF EXPENDITURE INCURRED. 1.8 THE LEARNED AO AS WELL AS THE DRP ERRED IN FACT AND IN LAW IN CONSIDERING THE ENTIRE INCOME IN RELATION TO THE PD PL PROJECT AS THE PROFIT ATTRIBUTABLE TO THE ACTIVITIES TO THE PE OF DIE APP ELLANT IN INDIA, DESPITE THE FACT THAT MAJORITY OF THE ACTIVITIES WERE UNDERTAKEN FRO M OUTSIDE INDIA. I.T.A.NO. 3399 /AHD/2010 3 1.9 THE LEARNED AO AS WELL AS THE DRP ERRED IN FACT AND IN LAW IN DETERMINING THE PROFIT IN COMPLETE DISREGARD TO PARA 3 OF ARTIC LE 7 OF THE DTAA. 2. THE LEARNED AO ERRED IN FACT AND IN LAW I N CHARGING INTEREST U/S. 234A OF THE INCOME TAX ACT, 1961. 3. THE LEARNED AO ERRED IN FACT AND IN LAW IN CHARGING INTEREST U/S. 234B OF THE INCOME TAX ACT, 1961. 4. THE LEARNED AO ERRED IN FACT AND IN LAW IN CHARGING INTEREST U/S. 234C OF THE INCOME TAX ACT, 1961. 5. THE LEARNED AO ERRED IN FACT AND IN LAW IN INITIATING PENALTY PROCEEDING U/S 271(L)(C ) OF THE INCOME TAX ACT, 1961. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS A FOREIGN COMPANY INCORPORATED UNDER THE LAW OF RUSSIA HAVING ITS REG ISTERED OFFICE AT MOSCOW. IT WAS NOTED BY THE A.O. IN PARA 3 OF THE ASSESSMENT ORDER THAT THIS COMPANY HAS EXPERTISE AND EXPERIENCE OF MANY YEARS IN LAYING AND INSTALLA TION OF GAS AND LIQUID PIPELINES. IT IS FURTHER NOTED BY THE A.O. IN PARA 4 OF THE ASSES SMENT ORDER THAT AS PER THE REVISED STATEMENT OF TOTAL INCOME FILED BY THE ASSESSEE, TH E GROSS TOTAL INCOME OF THE ASSESSEE HAS BEEN SHOWN AT RS.2,01,78,094/-. IT IS ALSO NOT ED BY THE A.O. THAT OUT OF THE SAID INCOME, INCOME AMOUNTING TO RS.29,80,546/- HAS BEEN SHOWN AS BUSINESS INCOME AND OFFERED TO TAX AT NORMAL RATE OF TAX I.E. @ 40% BUT THE BALANCE INCOME OF RS.1,71,97,548/- HAS BEEN SHOWN AS TECHNICAL FEE AN D OFFERED TO TAX @ 10% AS PER THE PROVISIONS OF ARTICLE 12 OF THE INDO-RUSSIA DTAA (H EREINAFTER TO BE REFERRED AS DTAA). AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. FRAMED A DRAFT ASSESSMENT ORD ER AS PER THE PROVISIONS OF SECTION 144C OF THE INCOME TAX ACT, 1961 AND THE SAME WAS P ASSED ON 29.12.2009 AND DULY SERVED UPON THE ASSESSEE. AS PER THE SAID ORDER, T HE INCOME OF THE ASSESSEE COMPANY DERIVED FROM THE PDPL PROJECT AMOUNTING TO RS.1,71, 97,548/- WAS PROPOSED TO BE HELD AS BUSINESS INCOME AND SUBJECT TO TAX AS PER THE PR OVISIONS OF INCOME TAX ACT, 1961 READ WITH THE PROVISIONS OF ARTICLE 7 OF THE INDO R USSIAN DTAA WHEREAS THERE IS NO DISPUTE REGARDING THE BALANCE INCOME AMOUNTING TO R S.29,80,546/-. THEREAFTER, THE I.T.A.NO. 3399 /AHD/2010 4 ASSESSEE RAISED VARIOUS OBJECTIONS BEFORE DRT AHMED ABAD BUT AS PER ITS DIRECTIONS DATED 03.09.2010, IT WAS HELD BY THE DRT THAT THIS INCOME OF RS.1,71,97,548/- IS ASSESSABLE AS PER THE PROVISIONS OF ARTICLE 7 OF DT AA AS BUSINESS PROFIT AND NOT AS PER ARTICLE 12 OF DTAA AS FEE FOR TECHNICAL SERVICES. AS PER THE IMPUGNED ASSESSMENT ORDER DATED 28.10.2010, THE A.O. HAS HELD THAT INCO ME DERIVED BY THE ASSESSEE FROM PDPL PROJECT AMOUNTING TO RS.1,71,97,548/- IS ASSES SABLE AS BUSINESS INCOME AND IS SUBJECT TO TAX AS PER THE PROVISIONS OF INCOME TAX ACT, 1961 READ WITH THE PROVISIONS OF ARTICLE 7 OF INDO-RUSSIA DTAA. ON THIS BASIS, THE A.O. SUBJECTED THIS INCOME TO TAX @ 40% AS AGAINST 10% OFFERED BY THE ASSESSEE. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 4. IT WAS SUBMITTED BY THE LD. A.R. BEFORE US THAT AS PER THE PROVISIONS OF SECTION 115A, FEE FOR TECHNICAL SERVICES (FTS) IS TAXABLE @ 10% AND THERE IS ONLY ONE EXCEPTION. REGARDING THE EXCEPTION, IT WAS SUBMITT ED THAT INCOME REFERRED TO IN SUB- SECTION (1) OF SECTION 44DA IS EXCLUDED FOR THE OPE RATION OF CLAUSE (B) OF SUB-SECTION (1) OF SECTION 115A. IT WAS ALSO SUBMITTED THAT SU B-CLAUSE BB OF CLAUSE (B) OF SUB- SECTION (1) OF SECTION 115A IS APPLICABLE IN THE PR ESENT CASE BECAUSE SUB-SECTION (1) OF SECTION 44DA IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE CONTRACT IN RESPECT OF WHICH FTS WAS PAID TO THE ASSESSEE COMPANY IS NOT E FFECTIVELY CONNECTED WITH ANY PERMANENT ESTABLISHMENT OF THE ASSESSEE COMPANY. I T IS ALSO SUBMITTED THAT IT IS NOT THE CASE OF THE A.O. THAT THE PROVISIONS OF SUB-SEC TION (1) OF SECTION 44DA ARE APPLICABLE IN THE PRESENT CASE AND THE ONLY OBJECTI ON OF THE A.O. IS THAT THE INCOME OF THE ASSESSEE IN QUESTION IS NOT FTS AS PER THE PROV ISIONS OF EXPLANATION (2) OF SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961 AND TO BRING HOME THIS POINT, OUR ATTENTION WAS DRAWN TO PARA 10.3 ON PAGE 20 OF THE ASSESSMENT ORD ER. IT IS SUBMITTED THAT EXPLANATION (2) TO SECTION 9(1)(VII) IS APPLICABLE WHEN THE CONSIDERATION PAID TO THE ASSESSEE IS FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE ASSESSEE OR CONSIDERATION WHICH COULD BE INCOME OF THE ASSESSEE CHARGEABLE UNDER THE HEAD SERVICE. IT IS SUBMITTED THAT IT IS NOT THE CASE OF THE A.O. THAT THE INCOME IN QUESTION IS CHARGEABLE TO TAX UNDER THE HEAD INCOM E FROM SALARY. THE OBJECTION OF I.T.A.NO. 3399 /AHD/2010 5 THE A.O. IS THAT CONSIDERATION RECEIVED BY THE ASSE SSEE IS FOR CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT, WHICH HAS BEEN SPECIFICALLY EXCLUDED FROM THE DEFINITION OF FTS BECAUSE THE INCOME IN QUESTION OF THE ASSESSEE HAS BEEN DERIVED FROM THE CONSTRUCTION PROJECT BUT THIS IS NOT TRUE. IT IS S UBMITTED THAT FOR THE PURPOSE OF DECIDING THIS ASPECT OF THE MATTER, IT IS NECESSARY TO GO TH ROUGH THE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND M/S. KALPATARU POWER TRANSMISS ION LIMITED (KPTL), WHICH IS AVAILABLE ON PAGES 205 214 OF THE PAPER BOOK. IT IS SUBMITTED THAT THIS COOPERATION AGREEMENT DATED 12.09.2006 HAS BEEN ENTERED INTO BE TWEEN THE ASSESSEE & KPTL AFTER THE CONSORTIUM DATED 11.05.2006 AND ON 24.05. 2006, THE WORK HAD BEEN AWARDED BY GAIL AS PER LETTER OF ACCEPTANCE DATED 05.09.200 6 OF GAIL INDIA LTD. IT IS SUBMITTED THAT AS PER THE COOPERATION AGREEMENT, IT WAS AGREED BY THESE TWO PARTIES I.E. THE ASSESSEE AND THE KPTL THAT THE ASSESSEE WILL PR OVIDE ITS TECHNICAL GUIDANCE AND CONSULTANCY FOR THE PROJECT MANAGEMENT WHEREAS ENTI RE WORK TO BE EXECUTED ON CONTACT IS TO BE UNDERTAKEN BY KPTL BY DEPLOYING AL L THE REQUIRED INPUT RESOURCES. IT IS SUBMITTED THAT IT WAS ALSO AGREED BETWEEN THE PA RTIES THAT THE ASSESSEE WILL GIVE 3% OF THE CONTRACT VALUE IN FULL CONSIDERATION OF ITS CONTRIBUTION IN THE PROJECT. THE KTPL WILL BE ENTITLED OF 96% VALUE OF THE CONTRACT AND T HE BALANCE 1% WILL REMAIN IN THE CONSORTIUM TO MEET COMMON EXPENSES OF THE CONSORTIU M. IT WAS SUBMITTED THAT EVEN OUT OF THIS 1% USED WHICH IS RESERVED FOR COMMON EX PENSES, IT WAS AGREED THAT ANY SURPLUS/DEBT OUT OF 1% IF ANY, AFTER MEETING SUCH E XPENSES OF THE CONSORTIUM, SHALL BE TO THE ACCOUNT OF KPTL. IT IS ALSO SUBMITTED THAT KPTL IS REQUIRED TO ARRANGE ALL THE BANK GUARANTEE, INSURANCE FOR THE PROJECT FINANCIAL CONDITION, DEBT AND EQUITY, MACHINERY, MANPOWER, MATERIAL AND ALL SUCH RESOURCE S AS MAY BE REQUIRED, AS PER THE CONTRACT FOR EXECUTING THE PROJECT IN QUESTION AND SHALL BEAR ALL THE COST FOR ORGANIZING THE SAME. I IS ALSO SUBMITTED THAT LIQUIDATED DAMA GES DUE TO DELAY IN THE PROJECT SHALL ALSO BE BORNE BY KPTL. IT IS SUBMITTED THAT THE DE TAILS OF ACTIVITIES UNDER THE SCOPE OF WORK OF ZANGAS I.E. THE ASSESSEE ARE AVAILABLE IN A NNEXURE 1 OF THE SAID COOPERATION AGREEMENT WHICH IS AVAILABLE ON PAGES 218-219 OF TH E PAPER BOOK. I.T.A.NO. 3399 /AHD/2010 6 5. IT IS FURTHER SUBMITTED THAT SECTION 44DA IS APP LICABLE IN THE PRESENT CASE AND THE PE ASPECT IS NOT REQUIRED TO BE DECIDED BECAUSE THE ASSESSEES CLAIM IS BASED AS PER THE PROVISIONS OF SECTION 9(1)(VII) AND SECTION 115 A OF THE INCOME TAX ACT, 1961 AND FTS IS LIABLE TO BE TAXED IN INDIA EVEN IF THE ASSE SSEE DOES NOT HAVE A PE IN INDIA. THEREFORE, THE PE ASPECT IS NOT RELEVANT IF IT IS F OUND THAT THE RECEIPT OF THE ASSESSEE IS FTS. IT IS SUBMITTED THAT THE RECEIPT OF THE ASSES SEE EQUAL TO 3% OF THE GROSS RECEIPTS OF CONSORTIUM IS AS PER THE COOPERATION AGREEMENT A ND THE A.O. HAS ALSO ASSESSED THE SAME AMOUNT AS INCOME OF THE ASSESSEE WHICH MEANS T HAT THE A.O. HAS ACCEPTED THAT PART OF THE COOPERATION AGREEMENT THAT THE ASSESSEE S INCOME IS TO THE EXTENT OF 3% OF GROSS RECEIPT OF THE CONSORTIUM. IT IS SUBMITTED T HAT WHEN ONE PAR OF THE COOPERATION AGREEMENT IS ACCEPTED BY THE A.O., IT IS NOT CORREC T ON THE PART OF THE A.O. THAT THE DRP TO SAY THAT THE OTHER ASPECT OF THE COOPERATION AGREEMENT IS NOT ACCEPTABLE AS PER WHICH THE ROLL OF THE ASSESSEE IS ONLY TO PROVIDE T ECHNICAL SERVICES AND GET 3% OF GROSS RECEIPT OF THE CONSORTIUM AS ITS CONSIDERATION FOR FTS. 6. REGARDING THE RESPONSIBILITY OF THE ASSESSEE AS PER THIS COOPERATION AGREEMENT, IT WAS SUBMITTED THAT ANNEXURE 1 TO THE COOPERATION AG REEMENT, WHICH IS AVAILABLE AT PAGES 218-219 OF THE PAPER BOOK, DEFINES THE SCOPE OF WORK OF THE ASSESSEE. IT IS SUBMITTED THAT FROM SUCH SCOPE OF WORK OF THE ASSES SEE AS PER THIS CO OPERATION AGREEMENT, IT IS CLEAR THAT THE ASSESSEE IS ONLY RE NDERING TECHNICAL SERVICES REGARDING DESIGNS AND ENGINEERING FOR CIVIL AND STRUCTURAL, E LECTRICAL, CATHODIC PROTECTION, EQUIPMENT DESIGN AND ENGINEERING, PIPELINE CROSSING S, AND INSTRUMENTATION AND HENCE, THE RECEIPT OF THE ASSESSEE IS NOTHING BUT FTS. RE GARDING THE OBJECTION OF THE A.O. THAT SUCH RECEIPT OF THE ASSESSEE COMPANY IS FROM C ONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECTS, IT WAS SUBMITTED THAT IT MAY BE THAT S THE RECEIPT OF THE ASSESSEE COMPANY IS IN CONNECTION WITH CONSTRUCTION PROJECT BUT IT D EFINITELY NOT FROM THE CONSTRUCTION PROJECT AND HENCE THIS OBJECTION OF THE A.O. IS NOT VALID AND, THEREFORE, THE CLAIM OF THE ASSESSES HOLD BE ACCEPTED. RELIANCE WAS PLACED ON THE TRIBUNAL DECISION RENDERED IN THE CASE OF VOITH SIEMENS HYDRO KRAFTWERKSTECHNIK G MBH & CO. VS ADIT IN I.T.A. NO. 2353/DEL/2008 DATED 05.03.2010 AND ALSO ON THE TRIBUNAL DECISION RENDERED IN THE I.T.A.NO. 3399 /AHD/2010 7 CASE OF ADITYA BIRLA NUVO LTD. VS ADIT AS REPORTED IN 44 SOT 601 (MUMBAI). HE SUBMITTED COPIES OF BOTH THESE TRIBUNAL DECISIONS. RELIANCE ON THESE TRIBUNAL DECISIONS WAS PLACED IN SUPPORT OF THIS CONTENTION THAT UNLESS THE ASSESSEE IS INVOLVED IN PHYSICAL ACTIVITY OF BUSINESS OF ASSEMBLY AND ER ECTION OF PLANT AND MACHINERY AND TESTING AND COMMISSIONING OF POWER PROJECTS, BUT HA S ONLY DONE THE SUPERVISION SIMPLICITOR OF THE SAME, IT CANNOT BE SAID THAT SUC H RECEIPT FALL WITHIN THE EXCLUSION PROVIDED IN EXPLANATION (2) TO SECTION 9(1)(VII) AS WAS HELD BY THE TRIBUNAL IN THE CASE OF VOITH SIEMENS HYDRO KRAFTWERKSTECHNIK GMBH & CO. (SUPRA). IT WAS SUBMITTED IN THE 2 ND CASE I.E. IN THE CASE OF ADITYA BIRLA NUVO LTD. (S UPRA) ALSO, IT WAS HELD BY THE TRIBUNAL THAT AS PER THE AGREEMENT, THE TECHNICIANS WERE TO COME TO INDIA TO ERECT AND COMMISSION MACHINERY AT THE SITE OF THE ASSESSEE AN D SUCH PROCESS WOULD CERTAINLY INVOLVE ASSEMBLY OF THE PARTS OF THE MACHINERY BUT THIS BY ITSELF WOULD NOT MAKE A SERVICE ONE BUT ASSEMBLY PROJECT SO AS TO FALL WITH IN THE EXCLUDED CATEGORY IN EXPLANATION (2) TO SECTION 9(1)(VII) OF THE ACT. I T WAS SUBMITTED THAT THESE TWO TRIBUNAL DECISIONS ARE IN FAVOUR OF THE ASSESSEE AN D IN THE LIGHT OF THESE TWO TRIBUNAL DECISIONS, IT CANNOT BE SAID THAT THE SERVICES REND ERED BY THE ASSESSEE COMPANY AS PER THE COOPERATION AGREEMENT IS FALLING WITHIN THE EXC LUDED CATEGORY OF EXPLANATION (2) TO SECTION 9(1)(VII) AS HAS BEEN HELD BY THE A.O. I N THE PRESENT CASE. 7. AS AGAINST THIS, THE LD. D.R. OF THE REVENUE SUP PORTED THE ASSESSMENT ORDER AS WELL AS THE DIRECTION OF THE DRP. HIS MAJOR ARGUME NTS WERE WITH REGARD TO PE ISSUE WHICH WE FEEL THAT IS NOT REQUIRED TO BE DECIDED AT THIS STAGE BUT WE FIND THAT THE CLAIM OF THE ASSESSEE IS ACCEPTABLE THAT THE RECEIPT OF T HE ASSESSEE IN THE PRESENT CASE IS FOR FTS AND IT DOES NOT FALL WITHIN THE EXCLUSION CATEG ORY OF EXPLANATION (2) TO SECTION 9(1)(VII) OF THE ACT. THE SECOND CONTENTION OF THE LD. D.R. OF THE REVENUE W THAT 3% RECEIPT BY THE ASSESSEE IS NOT FOR SAME TECHNICAL S ERVICES BUT FOR THE RESPONSIBILITY ON THE SAID PROJECT AS PER THE CONSORTIUM AGREEMENT AS PER WHICH, THE CONTRACT WAS AWARDED BY GAIL. IT WAS ALSO SUBMITTED THAT THE RE CEIPT OF THE ASSESSEE COMPANY IS NOTHING BUT CONSIDERATION FOR CONSTRUCTION OF PIPEL INE PROJECT AND HENCE FALLS WITHIN I.T.A.NO. 3399 /AHD/2010 8 THE EXCLUSION CATEGORY OF EXPLANATION (2) TO SECTIO N 9(1)(VII) AS HAS BEEN HELD BY THE A.O. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS BY NOW A SETTLED POSITION OF LAW THAT IF THE PROVISIONS OF INCOME TAX ACT, 1961 ARE MORE FAVOURABLE AS COMPARED TO THE PROVISIONS 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 CONTAI NED IN SECTION 9(1)(VII) AND ALSO IN SECTION 115A AND THE PROVISIONS OF SECTION 44DA ARE ALSO RELEVANT. WE, THEREFORE, REPRODUCE THE PROVISIONS OF SECTION 9(1)(VII), SECT ION 44DA AND SECTION 115A OF THE ACT: SECTION 9(1) : THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA: - (VII): INCOME BY WAY OF FEES FOR TECHNICAL SERVICE S PAYABLE BY (A) THE GOVERNMENT ; OR (B) A PERSON WHO IS A RESIDENT EXCEPT WHERE THE FEES AR E PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRI ED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARN ING 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 PROFESSION CARRI ED 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 SHALL APPLY IN RELATION TO ANY INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABL E IN PURSUANCE OF AN AGREEMENT MADE BEFORE THE 1 ST DAY OF APRIL, 1976, AND APPROVED BY THE CENTRAL GOVERNMENT.] [ EXPLANATION 1. FOR THE PURPOSES OF THE FOREGOING PROVISO, AN AGREEMENT MADE ON OR AFTER THE 1 ST DAY OF APRIL, 1976, SHALL BE DEEMED TO HAVE BEEN M ADE BEFORE I.T.A.NO. 3399 /AHD/2010 9 THAT DATE IF THE AGREEMENT IS MADE IN ACCORDANCE WI TH PROPOSALS APPROVED BY THE CENTRAL GOVERNMENT BEFORE THAT DATE.] EXPLANATION [2] FOR THE PURPOSES OF THIS CLAUSE, FEES FOR T ECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CON SIDERATION) FOR THE RENDERING OF NAY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONN EL) BUT DOE NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE IN COME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES.] 44DA. (1) THE INCOME BY WAY OF ROYALTY OR FEES FOR TECHNI CAL 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 31 ST DAY OF MARCH, 2003, WHERE SUCH NON-RESIDENT (NOT BEING A COMPANY) OR A FOREIGN COMPANY CARRIES ON BUSINESS IN INDIA THROUGH A PERMANENT ES TABLISHMENT SITUATED THEREIN, OR PERFORMS PROFESSIONAL SERVICES FROM A F IXED PLACE OF PROFESSION SITUATED THEREIN, AND THE RIGHT, PROPERTY OR CONTRA CT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE PAID I S EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED PLACE OF PROF ESSION, AS THE CASE MAY BE, SHALL BE COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT: PROVIDED 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 FEES 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 TECHNICAL SE RVICES OTHER THAN I.T.A.NO. 3399 /AHD/2010 10 INCOME REFERRED TO IN SUB-SECTION (I) OF SECTION 44DA] RE CEIVED FROM GOVERNMENT OR AN INDIAN CONCERN IN PURSUANCE OF AN A GREEMENT MADE BY THE FOREIGN COMPANY WITH GOVERNMENT OR THE INDIAN CONCERN AF TER THE 31ST DAY OF MARCH, 1976, AND WHERE SUCH AGREEMENT IS WITH AN INDIAN CONCERN, THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERNMENT OR W HERE IT RELATES TO A MATTER INCLUDED IN THE INDUSTRIAL POLICY, FOR THE TIME BEING IN FORCE, OF THE GOVERNMENT OF INDIA, THE AGREEMENT IS IN ACCORDANCE WI TH THAT POLICY, THEN, SUBJECT TO THE PROVISIONS OF SUB-SECTIONS (1 A) AND (2), THE INCOME-TAX PAYABLE SHALL BE THE AGGREGATE OF, [(BB) THE AMOUNT OF INCOME-TAX CALCULATED ON THE INCOME BY WAY OF FEES FOR TECHNICAL SERVICES, IF ANY, INCLUDED IN THE TOTAL IN COME, AT THE RATE OF TEN PER CENT IF SUCH FEES FOR TECHNICAL SERVICES 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, MINING OR LIKE PROJECT UNDE RTAKEN BY THE RECIPIENT FOR CONSIDERATION OF THE INCOME CHARGEABLE UNDER THE HE AD SALARY. HENCE, THERE ARE TWO EXCLUSIONS WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE WILL NOT BE CONSIDERED AS FTS. FIRST EXCLUSION IS WHERE RECEIPT IS CHARGEABL E TO TAX UNDER THE HEAD SALARY. THIS IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THIS IS NOT THE CASE OF THE A.O. THAT THE RECEIPT IN QUESTION IS CHARGEABLE TO TAX UNDER THE HEAD SALARY. THE SECOND EXCLUSION IS REGARDING THOSE CONSIDERATIONS, WHICH ARE FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT I.E. THE ASSESSEE IN THE PRESENT CASE. THE CASE OF THE A.O. IN THE PRESENT CASE IS THAT TH E AMOUNT RECEIVED BY THE ASSESSEE IS FOR CONSTRUCTION PROJECT AND HENCE, IT IS OUTSIDE T HE 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 AD MITTEDLY, THE CONTRACT IN QUESTION WAS AWARDED BY GAIL TO THE CONSORTIUM OF THE ASSESSEE A ND KPTL BUT AFTER AWARDING THIS CONTRACT BY GAIL TO THE CONSORTIUM, BOTH THE PARTIE S OF THE CONSORTIUM ENTERED INTO A COOPERATION AGREEMENT BETWEEN THEMSELVES AS PER WHI CH THEY DETERMINED THE RESPONSIBILITIES OF EACH PARTY AND THE MANNER OF SH ARE OF CONSIDERATION ALSO. THE I.T.A.NO. 3399 /AHD/2010 11 MANNER OF SHARING THE CONSIDERATION HAS BEEN PRESCR IBED IN THE RATIO OF 3% FOR THE ASSESSEE, 96% FOR KPTL AND THE BALANCE 1% WAS RESER VED FOR COMMON EXPENSES OF THE CONSORTIUM. REGARDING THE 1% ALSO, IT WAS AGRE ED AFTERWARDS THAT IF THERE IS ANY SURPLUS, IT WILL GO TO KPTL AND IFS THERE IS ANY DE FICIT, IT WILL BE MADE GOOD BY KPTL. HENCE IT WAS AGREED THAT 3% OF GROSS RECEIPT OF CON SORTIUM WILL GO TO THE ASSESSEE COMPANY AND THE BALANCE 97% WILL GO TO KPTL. KPTL WILL BE RESPONSIBLE FOR ALL THE ARRANGEMENTS OF RESOURCES AS WELL AS EXPENSES INCLU DING COMMON EXPENSES OF THE CONSORTIUM. THE RESPONSIBILITY OF THE ASSESSEE AS DESCRIBED IN ANNEXURE 1 TO THE COOPERATION AGREEMENT IS AVAILABLE ON PAGE 218-219 OF THE PAPER BOOK AND HENCE, IT IS VERY RELEVANT TO REPRODUCE THE SAME HERE IN BELOW: 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: ,- A) CIVIL & STRUCTURAL ZANGAS SHALL PROVIDE (HE FOLLOWING DESIGN & ENGINEE RING SERVICES UNDER CIVIL & STRUCTURAL HEAD, BASED ON THE 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 > SECTIONALIZING VALVE STATION WITH CP > TERMINALS III) REVIEW OF DETAILED ENGINEERING OF BUILDING CON STRUCTION OF CONTROL ROOMS GIVING FOUNDATION & REINFORCEMENT DETAILS ETC IV) REVIEW OF STRUCTURAL DESIGN OF FOUNDATIONS IT SUPPORTS FOR EQUIPMENT TO BE INSTALLED IN SV AND TERMINAL STATIONS. > SCRAPER TRAPS > PIPING I.T.A.NO. 3399 /AHD/2010 12 > VALVES > ALL OTHER EQUIPMENTS V) REVIEW OF ROAD AND DRAINAGE DESIGN & DETAILED ENGIN EERING VI) REVIEW OF FENCING AND GATE DESIGN & DETAILED ENGINE ERING B. ELECTRICAL REVIEW OF DESIGN & ENGINEERING OF ELECTRICAL SYSTEM FOR EACH SV AND TERMINAL STATION COVERING & INCLUDING THE FOLLOWING: > 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 > SWITCHGEAR AND SAFETY ENGINEERING > LIGHT ENGINEERING FOR CONTROL ROOM, GUARD CABIN, OPERA TING AREA > REVIEW OF SPECIFICATION FOR ALL MATERIAL > MATERIAL TAKE-OFT' FOR VARIOUS ITEMS TO BE PROCURED FOR INSTALLATION C. CATHODIC PROTECTION OF DESIGN & ENGINEERING INCLUDED IN THE PACKAGES O F FOLLOWING- > TEMPORARY CATHODIC PROTECTION BASED ON SACRIFI CIAL ANODES > PERMANENT CATHODIC PROTECTION BASED ON IMPRESS ED CURRENT D. EQUIPMENT DESIGN & ENGINEERING DESIGN & ENGINEERING TO ENABLE PROCUREMENT OF VALVE S, SCRAPER TRAPS, FLOW INSULATING JOINTS, TEGS, AC PACKAGE, FIRE EXTING UISHING SYSTEM BASED ON CO2 FLOODING AND CLEAN AGENT SYSTEM, INCLUDING THE FALLOWING:- > DATA SHEETS OF EQUIPMENT > REVIEW OF VENDOR DATA > REVIEW OF CONSTRUCTIONAL DETAILS GIVEN BY VEND OR E. PIPELINE CROSSINGS > REVIEW OF DESIGN & ENGINEERING OF HDD CROSSINGS > DESIGN &. ENGINEERING OF BORED CROSSINGS F. INSTRUMENTATION I.T.A.NO. 3399 /AHD/2010 13 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 QUAL IFICATION PROCEDURE 3. REVIEW OF WORK PROCEDURES FOR PIPELINE LAYING. 4. DEPUTATION OF EXPERTS FOR SITE REVIEW OF IMPLEMENTA TION 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 TH E ACTIVITIES INCLUDED IN THE SCOPE OF WORK OF THE ASSESSEE IS REGARDING DESIGN AND ENGINE ERING FOR VARIOUS ASPECTS I.E. (A) CIVIL, & STRUCTURAL (B) ELECTRICAL, (C) CATHODIC PR OTECTION, (D) EQUIPMENT DESIGN & ENGINEERING, (E) PIPELINE CROSSING AND (F) INSTRUME NTATION. THE 2 ND ITEM OF ACTIVITIES INCLUDED IN THE SCOPE OF WORK OF THE ASSESSEE COMPA NY WAS PREPARATION OF WELDING PROCEDURE AND WELDER QUALIFICATION PROCEDURE, 3 RD ITEM IS REVIEW OF WORK PROCEDURE FOR PIPELINE LAYING AND 4 TH RESPONSIBILITY IS FOR DEPUTATION OF EXPERTS FOR SI TE REVIEW OF IMPLEMENTATION BY KPTL AND TECHNICAL SERVICES PROVI DED BY ZANGAS. SOME OBJECTIONS RAISED BY DRP, A.O. AND THE LD. D.R. THAT WHEN THE ASSESSEE COMPANY WAS REQUIRED TO DEPUTE EXPERT FOR SITE REVIEW OF IMPLEMENTATION BY KPTL AND TECHNICAL SERVICES PROVIDED BY ZANGAS, THE ASSESSEE COMPANY WAS VERY M UCH ENGAGED IN THE ENTIRE CONSTRUCTION PROJECT. THESE OBJECTIONS OF THE AUTH ORITIES BELOW AND THE LD. D.R. OF THE REVENUE ARE NOT VALID IN THE LIGHT OF THESE TWO TRI BUNAL DECISIONS CITED BY THE LD. A.R. OF THE ASSESSEE. 11. IN THE CASE OF VOITH SIEMENS HYDRO KRAFTWERKSTE CHNIK GMBH & CO. (SUPRA), IT WAS HELD BY THE TRIBUNAL THAT ALTHOUGH AS PER THE T ERMS OF CONTRACT WITH OHPC, THE ASSESSEE COULD BE ASSUMED BE LIABLE TO DO ASSEMBLY ERECTION, TESTING AND COMMISSIONING OF POWER PROJECT AS ALSO THE SUPERVIS ION THEREOF, IN THE ABSENCE OF BEING ANY EVIDENCE THAT ASSESSEE HAVING DONE ANY SU CH ACTIVITY OTHER THAN SUPERVISION SIMPLICITOR, ERECTION AND TESTING AND COMMISSIONING , THE ACTIVITIES OF THE ASSESSEE I.T.A.NO. 3399 /AHD/2010 14 CANNOT BE SAID TO FALL WITHIN THE MEANING OF TERM BUSINESS OF ERECTION OF PLANT & MACHINERY AND TESTING AND COMMISSIONING AS PROVIDE D IN THE PROVISIONS OF SECTION 44BBB AND TO FALL WITHIN THE MEANING OF TERM CONST RUCTION AND ASSEMBLY AS PROVIDED IN THE EXCLUSION PROVIDED IN EXPLANATION ( 2) TO SECTION 9(1)(VII) OF THE ACT. HENCE IN THAT CASE, IT WAS NOTICED BY THE TRIBUNAL THAT ALTHOUGH AS PER THE TERMS OF CONTRACT WITH OHPC, IT CAN BE ASSUMED THAT THE ASSE SSEE WAS LIABLE TO DO THE ASSEMBLY, ERECTION, TESTING AND COMMISSIONING OF POWER PROJEC T AS ALSO THE SUPERVISION THEREOF BUT THE ACTUAL ACTIVITIES UNDERTAKEN BY THE ASSESSE E COMPANY IN THAT CASE WAS SUPERVISION SIMPLICITOR AND ASSEMBLY, ERECTION, TES TING AND COMMISSIONING AND HENCE SUCH ACTIVITIES OF THE ASSESSEE DO NOT FALL WITHIN THE MEANING OF TERM CONSTRUCTION AND ASSEMBLY AS PROVIDED IN THE EXCLUSION PROVIDED IN EXPLANATION (2) TO SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961. HENCE, AS PER THIS TR IBUNAL DECISION, THE TERM CONTRACT ALONE IS NOT THE DECIDING FACTOR AND IT IS VERY IMP ORTANT TO SEE AS TO WHAT WAS THE ACTUAL ACTIVITY IS UNDERTAKEN BY THE ASSESSEE. IN THE PRE SENT CASE, ALL THE OBJECTIONS OF THE A.O., DRP AND THE LD. D.R. OF THE REVENUE ARE BASED ON THE CONSORTIUM AGREEMENT AND AGREEMENT OF THE CONSORTIUM WITH GAIL AND IT HA S BEEN CONTENDED THAT SINCE THE ASSESSEE IS THE LEADER OF CONSORTIUM AND AS PER THE TERMS OF CONTRACT WITH GAIL, THE ASSESSEE WAS THE LEADING PARTNER OF THE CONSORTIUM, THE ENTIRE CONSTRUCTION WORK OF THE PROJECT IN THE HANDS WAS DONE BY THE ASSESSEE AND T HE ASSESSEES ACTIVITIES ARE NOT CONFINED TO MERE PROVIDING OF FTS. BUT THE ASSESSE E HAS BROUGHT ON RECORD THE CORPORATION AGREEMENT ALONG WITH ITS ANNEXURE 1 WHI CH OUTLINES THE SCOPE OF THE ACTIVITIES OF THE ASSESSEE. AS PER THE SCOPE OF AC TIVITIES AS HAS BEEN REPRODUCED ABOVE, THE ASSESSEE IS REQUIRED TO PROVIDE DESIGN AND ENGI NEERING OF VARIOUS ASPECTS AND IS ALSO REQUIRED FOR PREPARING THE WELDING PROCEDURE A ND IS ALSO REQUIRED TO REVIEW THE WORK PROCEDURE FOR PIPELINE LAYING AND IN ADDITION TO THIS, THE ASSESSEE IS REQUIRED TO DEPUTE EXPERTS FOR SITE REVIEW AND IMPLEMENTATION B Y KPTL AND TECHNICAL SUPERVISION PROVIDED BY THE ASSESSEE. AS PER THE SCOPE OF WORK , THE ASSESSEE IS REQUIRED TO PROVIDE TECHNICAL SERVICES AND IS ALSO REQUIRED TO DEPUTE E XPERT FOR SITE REVIEW OF IMPLEMENTATION BY KPTL AND TECHNICAL SERVICES PROVI DED BY ZANGAS. HENCE, IT IS SEEN I.T.A.NO. 3399 /AHD/2010 15 THAT DEPUTING EXPERT WAS FOR A LIMITED PURPOSE FOR SITE REVIEW OF IMPLEMENTATION BY KPTL AND TECHNICAL SERVICES PROVIDED BY THE ASSESSE E AND THE ENTIRE CONSTRUCTION WORK WAS TO BE UNDERTAKEN BY THE KPTL. AS PER THESE ACTIVITIES INCLUDED IN THE SCOPE OF WORK OF THE ASSESSEE COMPANY, WE ARE OF THE CONS IDERED 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 THA T ANYTHING EXTRA WAS DONE BY THE ASSESSEE IN ADDITION TO THE RESPONSIBILITY SPECIFIE D IN THE CO OPERATION AGREEMENT. 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 OF THE FACTS OF THE PRESENT C ASE, THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE DOES NOT FALL WITHIN THE EXCLUSION CATEGOR Y 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 THE ASSESS EE AND AS PER THIS TRIBUNAL DECISION ALSO, THE SCOPE OF WORK ACTUALLY UNDERTAKEN BY THE ASSESSEE COMPANY DOES NOT FALL WITHIN THE EXCLUSION CATEGORY OF EXPLANATION (2) TO SECTION 9(1)(VII) OF THE ACT. 14. ONE ASPECT OF COOPERATION AGREEMENT HAS ALSO B EEN ACCEPTED BY THE AUTHORITIES BELOW IN SO FAR AS THE AMOUNT OF INCOME OF THE ASSE SSEE IS CONCERNED. THE AMOUNT OF INCOME OF THE ASSESSEE WAS DECLARED BY THE ASSESSEE TO THE EXTENT OF 3% OF GROSS RECEIPT OF THE CONSORTIUM WHICH IS ON THE BASIS OF COOPERATION AGREEMENT AND THE SAME HAS BEEN ACCEPTED BY THE A.O. AND HE HAS NOT DISPUT ED THE AMOUNT OF INCOME OF THE ASSESSEE AS HAS BEEN DECLARED BY THE ASSESSEE. IF THE A.O. SAYS THAT THE CONSTRUCTION WORK WAS UNDERTAKEN BY THE ASSESSEE COMPANY THEN HE SHOULD HAVE ASSESSED THE INCOME OF THE ASSESSEE BY DISREGARDING THIS COOPERA TION AGREEMENT AND THE INCOME SHOULD HAVE BEEN QUANTIFIED BY HIM AFTER CONSIDERIN G THE GROSS RECEIPT OF THE CONSORTIUM AND AFTER DEDUCTING AL THE EXPENSES INCU RRED FOR THE PURPOSE AND THE REMAINING INCOME SHOULD HAVE BEEN DISTRIBUTED BETWE EN THE TWO PARTNERS OF THE I.T.A.NO. 3399 /AHD/2010 16 CONSORTIUM I.E. THE ASSESSEE AND KPTL ON THE BASIS OF CONSORTIUM AGREEMENT 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 EXT ENT OF 3% OF GROSS RECEIPT OF THE CONSORTIUM ON THE BASIS OF THIS COOPERATION AGREEME NT. HAVING ACCEPTED THE COOPERATION AGREEMENT ON THIS ASPECT, IT WAS NOT JU STIFIED ON THE PART OF THE A.O. AND DRP TO SAY THAT WITH REGARD TO THE SCOPE OF ACTIVIT IES OF THE ASSESSEE COMPANY, COOPERATION AGREEMENT IS NOT VALID AND THEY HAVE TO GO BY CONSORTIUM AGREEMENT. THEY HAVE ALSO NOT BROUGHT ON RECORD ANY EVIDENCE T O SHOW THAT THE ASSESSEE HAS UNDERTAKEN ANY EXTRA ACTIVITY IN ADDITION TO THE AC TIVITIES FALLING WITHIN ITS SCOPE OF WORK AS PER THE CO OPERATION AGREEMENT. HENCE, EVEN IF EXTRA RESPONSIBILITY 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 CONSIDERATION RECEIVED BY THE ASSESSEE IS A S PER THE CO OPERATION AGREEMENT FOR THE ACTIVITIES PROVIDED IN THE CO OPERATION AGREEME NT AND HAVING ACCEPTED BY THE A. O. THE AMOUNT OF CONSIDERATION RECEIVED BY THE ASSESSE E AT 3% OF GROSS RECEIPTS OF THE CONSORTIUM, IT HAS TO BE ACCEPTED 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 AN INCOME WHICH ARE REFERRED TO IN SUB-SECTION (1) OF SECTION 44DA. SECTION 44DA IS APPLICABLE WHER E THE CONTRACT IN RESPECT OF WHICH FTS HAD BEEN PAID TO THE ASSESSEE IS EFFECTIVELY CO NNECTED WITH A PERMANENT 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, W E ALSO FIND THAT THE RECEIPT IN QUESTION WAS IN RELATION TO PDPL PROJECT CANNOT BE SAID TO BE EFFECTIVELY CONNECTED WITH PE IN RELATION TO THE OTHER PROJECT I.E. MMTL PROJECT WHERE THE ASSESSEE IS CARRYING ON BUSINESS ACTIVITIES. IN ADDITION TO MMTL PROJECT, THE ASSESSEE IS NOT CARRYING ON ANY BUSINESS ACTIVITIES AND NO EFFECTIV E CONNECTION WITH MMTL PROJECT I.T.A.NO. 3399 /AHD/2010 17 HAS BEEN ESTABLISHED BY THE A.O. FOR THIS RECEIPT I N QUESTION RELATING TO PDPL PROJECT. BOTH ARE INDEPENDENT PROJECTS. MMTL PROJECT WAS AW ARDED BY BPCL WHEREAS PDPL WAS AWARDED BY GAIL AND HENCE, THERE IS NO RELATION SHIP BETWEEN THE TWO AND HENCE, WE FIND THAT NO CASE HAS BEEN MADE OUT BY THE A.O. TO SHOW THAT SECTION 115A AND SECTION 9(1)(VII) ARE NOT APPLICABLE IN THE PRESENT CASE AS PER WHICH THE INCOME OF THE ASSESSEE WITH REGARD TO PDPL PROJECT IS LIABLE TO T AX @ 10% AS HAS BEEN CLAIMED BY THE ASSESSEE. WE, THEREFORE, DIRECT THE A.O. TO AP PLY THE PROVISIONS OF SUB CLAUSE BB OF CLAUSE (B) OF SUB-SECTION (1) OF SECTION 115A AL ONG WITH SECTION 9(1)(VII) OF THE ACT. 16. THE OTHER ASPECT I.E. EXISTENCE OF PE ETC. ARE NOT REQUIRED TO BE DECIDED BECAUSE THE SAME ARE OF ACADEMIC INTEREST ONLY ONCE IT IS H ELD THAT THE INCOME OF THE ASSESSEE IS LIABLE TO BE TAXED AS PER THE PROVISIONS OF SECTION 115A AND SECTION 9 (1) (VII). SEVERAL OTHER ALTERNATE CONTENTIONS ARE ALSO RAISED BY THE ASSESSEE, WHICH ALSO DO NOT REQUIRE ANY ADJUDICATION. 17. GROUNDS NO. 2, 3 AND 4 REGARDING CHARGEABILITY OF INTEREST ALSO DO NOT NEED TO BE DECIDED SEPARATELY BECAUSE THE INTEREST ISSUE IS CO NSEQUENTIAL AND THE GROUND NO.5 IS REGARDING PENALTY WHICH IS ALSO PREMATURE. THE GRO UND NO.6 IS GENERAL. 18. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS AL LOWED IN THE TERMS INDICATED ABOVE. 19. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH AUGUST 2011. SD/- SD/- (T. K. SHARMA) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 19 TH AUGUST 2011. SP /TRUE COPY/ I.T.A.NO. 3399 /AHD/2010 18 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE 1. DATE OF DICTATION. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER A.K.GARODIAOTHER MEMBER T.K.SHARMA 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 18.8.11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 18.8.11 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 18.8.11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 19.8 .11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DISPATCH OF THE ORDER.