The Dy.DIT ( Intl. Taxn. ) - I, Ahmedabad V. Joint Stock Company Zangas, Gandhinagar

ITA 474/AHD/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1067 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 15-06-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 29-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALBINUS TIRKEY
• Assessee Lawyers: J P SHAH
• Keywords: Business income; Double taxation relief; Permanent establishment
• Section: 143(3)

Judgement Text

ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ITA NO. 474 / AHD /201 6 ASSESSMENT YEAR : 2012 - 13 DY. COMMISSIONER OF INCOME TAX, VS. JOINT STOCK COMPAN Y ZANGAS , (INTERNATIONAL TAXATION) - I, A 4 - 1, SECTOR - 25, GIDC ESTATE, AHMEDABAD. GANDHINAGAR 382 016. [PAN A ABCJ 6038 K ] (APPELLANT ) (RESPONDENT) A PPELLANT BY : S HRI ALBINUS TIRKEY, SR. D.R. RE SPONDENT BY : S HRI J.P. SHAH, A .R. DATE OF HEARING : 15 .0 6 . 20 16 DATE OF PRONOUNCEMENT : 26 . 0 7 .2016 O R D E R PER S.S. GODARA , J.M. TH IS REVENUE S APPEAL FOR A SSESSMENT Y EAR 2012 - 13 , ARISE S FROM ORDER OF THE CIT(A) - 13 , AHMEDABAD DATED 11.12.2015, PASSED IN CASE NO.CIT(A) - 13/AHD/159/2014 - 15 , IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 144(C) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE RAISES FOLLOWING SUBSTANTIVE GROUNDS IN THE INSTANT APPEAL. ( I ) THE LD . CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE FOREIGN COMPANY DID NOT HAVE ANY BU S INESS CONNECTION IN INDIA. (II) THE LD. CIT ( A ) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE PRIMARY RESPONSIBILITY OF THE EXECUTION OF THE CONTRACT WAS OF THE ASSESSEE. FURTHER T HE ASSESSEE COMPANY S RESPONSIBILITY WAS FOR THE EXECUTION OF THE PROJECT RIGHT FROM THE REVIEW OF DRAWING, PROJECT MANAGEMENT TILL THE FINAL COMMISSIONING OF THE PROJECT. THUS IT IS EVIDENT THAT THE ASSESSEE COMPANY S R OLE IS MUCH MORE THAN SIMPLY PROVID ING TECHNICAL SERVICES THEREBY THE RECEIPTS WERE TREATED AS BUSINESS INCOME. (III) THE LD. CIT ( A ) HAS ERRED IN LAW A ND ON FACTS IN DIRECTING TO T R EAT THE INCOME AS FEES FOR TECHNICAL SERVICES AND TAX THE SAME AS SUCH. ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 2 OF 12 3. T HIS ASSESSEE IS A RUSSIAN COMPANY . IT CONSTRUCTS OIL PIPELINE PROJECTS OF IOC, BPCL & GAIL. IT DECLARED LOSS OF RS.7,36,071/ - . THE ASSESSEE FURTHER OFFERED TAX @ 10% ON THE SUM IN QUESTION OF RS.94,14,297/ - OVER AND ABOVE THE ABOVE STATED BUSINESS LOSS. THE ASSESSING OFFICER IN COURSE OF SCRUTINY NOTICED THE ASSESSEE S GROSS INCOME FIGURE AS RS.94,14,297/ - . IT HAD OFFERED THE SAME FOR BEING TAXED @10% UNDER ARTICLE 12 OF THE INDO - RUSSIA DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) ALONG WITH THE ABOVE STATED BUSINESS LOSS TA X A BLE @ 14% AMO UNTING TO RS.7,36,071/ - . THERE IS NO DISPUTE THAT ASSESSEE S RECEIPTS IN THE IMPUGNED ASSESSMENT YEAR HAVE BEEN DERIVED FROM IOCL DADRI - PANIPAT P IPELINE P ROJECT (DPPL) AND GAIL S VIJAIPUR - DADRI - BAWANA PIPELINE PROJECT (VDPL) . IT DECLARED THE ABOVE STATED R ECEIPTS AS FEE FOR TECHNICAL SERVICES. THE ASSESSING OFFICER SOUGHT TO TAX THE SAME AS BUSINESS INCOME. HE FOLLOWED HIS REASONING AS IN ASSESSMENT YEAR MUTATIS MUTANDIS IN THE IMPUGNED ASSESSMENT YEAR AS WELL INTER ALIA IN HOLDING THAT IT IS THE SOLE ENT ITY RESPONSIBLE FOR OVERALL PROJECT MANAGEMENT AS PER VARIOUS CLAUSES INCORPORATED IN CONSORTIUM AGREEMENT OF THE TWO PIPELINE PROJECT, ITS CO - OPERATIVE AGREEMENT REVEALED THAT NOT ONLY IT HAD PROVED EACH EXPERIENCE BUT ALSO COMMITTED SITE REVIEWS THROUGH EXPERTS AND ALSO THAT THE ASSESSEE ITSELF HAD TO PERFORM THE RELEVANT CONTRACTS SOLELY. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE OVERALL SUPERVISED THE ABOVE TWO PIPELINE PROJECTS THEREBY UNDERTAKING VARIOUS RESPONSIBILITIES AS PER THE CORRESPONDI NG LETTERS OF ACCEPTANCE ISSUED BY THE TWO OIL COMPANIES. HE ACCORDINGLY OPINED TH AT ALL THIS AMOUNTED TO BUSINESS ACTIVITIES OF CONSTRUCTION OF PIPELINE PROJECT OF INDIA AND FOR THIS PURPOSE ONLY ASSESSEE HAD OPENED THE BRANCH OFFICE IN INDIA WITH PRIOR APPROVAL. 4. THE ASSESSEE FILED REPLY TO ASSESSING OFFICER S PROPOSAL. IT REITERATED ITS STAND TREATING THE ABOVE RECEIPTS FROM THE TWO PIPELINE PROJECTS AS FEE FOR TECHNICAL SERVICES AND NOT BUSINESS INCOME IN VIEW OF ITS PROJECTS IN QUESTION THEREBY D RAWING STRENGTH FROM ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 3 OF 12 CONSORTIUM AND OTHER AGREEMENTS/DOCUMENTS FORMING PART OF THE RECORD. IT FURTHER CITED TRIBUNAL S AND CIT (A) S DECISION IN ITS OWN CASES TREATING IDENTICAL RECEIPTS AS FEE FOR TECHNICAL SERVICES AND NOT BUSINESS INCOME. THE ASSESSING OFF ICER IN ASSESSMENT ORDER DATED 28.01.2015 WENT BY THE SHOW CAUSE REASONING. HE DEALT WITH INDO RUSSIAN DTA CLAUSES AS WELL TO OPINE THAT ARTICLE 12 (2 & 5) THEREOF PROVIDED FOR 10% RATE OF TAXATION IN CASE OF FEE FOR TECHNICAL SERVICES ONLY IN ABSENCE OF A PERMANENT ESTABLISHMENT IN THE STATE OF RENDERING THE SERVICES IN QUESTION. HE ACCORDINGLY APPLIED ARTICLE 7 OF THE DTA APPLICABLE IN CASE OF BUSINESS PROFIT TO BE TAXED IN A CASE OF AN ENTERPRISE CARRYING OUT ITS ACTIVITIES ATTRIBUTABLE TO THE STATE OF PERMANENT ESTABLISHMENT AS IT EXISTED IN THE INSTANT CASE. THE ASSESSING AUTHORITY REFERRED TO TRIBUNAL S ORDER. IT OBSERVED THAT THE DEPARTMENT HAD NOT ACCEPTED THE SAME. ALL THIS RESULTED IN TREATMENT OF ASSESSEE S INCOME FROM THE TWO ABOVE STATED PI PELINE PROJECT AMOUNTING TO RS.94,14,297/ - AS BUSINESS INCOME. 5. THE ASSESSEE PREFERRED APPEAL. THE CIT(A) REVERSES ASSESSING OFFICER S ACTION AS FOLLOWS : - 4. I HAVE GONE THROUGH THE FACTS OF THE CASE, ASSESSMENT ORDER, CIT(A)'S ORDER FOR A.Y. 2009 - 10 A ND THE DECISION OF H ON'BLE ITAT, AHMEDABAD FOR A.Y. 2007 - 08. 4.1 I AGREE WITH THE APPELLANT THAT BETWEEN VDPL PROJECT AND MMPL PROJECT THERE IS NO CHANGE IN THE FACTS. THE MMPL PROJECT WAS ALSO EXECUTED FOR BPCL AND ON THE SAME LINES AS DONE FOR THE VDPL PROJECT. 4.2 IN THE CASE, ALL THE OBJECTIONS OF THE A.O. ARE BASED ON THE CONSORTIUM AGREEMENTS AND AGREEMENTS OF THE CONSORTIUM WITH GAIL AND IT HAS BEEN CONTENDED THAT SINCE THE APPELLANT IS THE LEADER OF CONSORTIUM AND AS PER THE TERMS OF CONTRACT WI TH GAIL, THE APPELLANT WAS THE LEADING PARTNER OF THE CONSORTIUM, THE ENTIRE CONSTRUCTION WORK OF THE PROJECT IN THE HANDS WAS DONE BY THE APPELLANT AND THE APPELLANT'S ACTIVITIES ARE NOT CONFINED TO MERE PROVIDING OF FTS. 4.3 THE SAME ISSUE HAS BEEN DEC IDED BY HON BLE ITAT, AHMEDABAD FOR A.Y. 2007 - 08 IN THE CASE OF THE APPELLANT ON ESSENTIALLY SAME FACTS. FOLLOWING VOITH SIEMENS HYDRO KRAFTWERKSTECHNIK GMBH & CO. VS. ADIT IN ITA NO.2353/DEL/2008 DATED 05/03/2010 AND ALSO ON THE TRIBUNAL DECISION RENDERED IN THE CASE OF ADITYA BIRLA NUVO LTD. VS. ADIT AS REPORTED IN 44 SOT 601 (MUMBAI), IT HAS DECIDED THAT ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 4 OF 12 THE ACTIVITIES UNDERTAKEN BY THE APPELLANT DOES NOT FALL WITHIN THE EXCLUSION CATEGORY OF EXPLANATION (2) TO SECTION 9(1)(VII)OF THE INCOME TAX ACT, 196 1. 4 .4 THE HO N BLE TRIBUNAL HAS OBSERVED THAT EVEN IF EXTRA RESPONSIBILITY OF THE APPELLANT IS THERE AS PER THE CONSORTIUM AGREEMENT AND AS PER THE TERMS OF CONTRACT AWARDED BY GAIL TO THE CONSORTIUM, THE APPELLANT HAS NOT DONE THOSE EXTRA ACTIVITIES AN D THE CONSIDERATION RECEIVED BY THE APPELLANT IS AS PER THE CO - OPERATION AGREEMENT FOR THE ACTIVITIES PROVIDED IN THE CO - OPERATION AGREEMENT AND HAVING ACCEPTED BY THE A.O. THE AMOUNT OF CONSIDERATION RECEIVED BY THE APPELLANT AT 3% OF GROSS RECEIPTS OF THE CONSORTIUM, IT HAS TO BE ACCEPTED THAT THE SAME IS FOR PROVIDING FTS AS PER THE COOPERATION AGREEMENT. 4.5 IT HAS BEEN HELD THAT NO CASE HAS BEEN MADE OUT BY THE A.O. TO SHOW THAT SECTION 115A (1) (B) (BB) AND SECTION 9(1)(VII) ARE NOT APPLICABLE IN THE PRESENT CASE AS PER WHICH THE INCOME OF THE APPELLANT WITH REGARD TO PDPL PROJECT IS LIABLE TO TAX @ 10% AS HAS BEEN CLAIMED BY THE APPELLANT. THE TRIBUNAL HAS THEREFORE, DIRECTED THE A.O. TO APPLY THE PROVISIONS OF SUB CLAUSE BB OF CLAUSE ( B) OF SUB - S ECTION (1) OF SECTION 115A ALONGWITH SECTION 9(1)(VII) OF THE ACT. 4.6 AS FACTS OF THE PRESENT ASSESSMENT YEAR IS SIMILAR TO FACTS BEFORE THE HON'BLE ITAT AND MY PREDECESSOR CIT(A), THE A.O. IS DIRECTED TO APPLY THE PROVISIONS OF SUB CLAUSE BB OF CLAUSE (B) OF SUB - SECTION (1) OF SECTION 115A (1) (B) (BB) ALONGWITH SECTION 9(1) (VII) OF THE ACT. FURTHER, IN A.Y. 2009 - 10, THE HON'BLE ITAT HAS DIRECTED THE A.O. TO VERIFY THAT 96% OF RECEIPT OF CONTRACTS HAS BEEN DISCLOSED BY THE APPELLANT IN CASE OF KPTL AND TAX HAS BEEN PAID ON IT. THE A.O. IS DIRECTED TO VERIFY THIS FACT IN THE CURRENT YEAR ALSO. 6. WE HAVE HEARD BOTH THE PARTIES. CASE FILE PERUSED. THE REVENUE S SOLE SUBSTANTIVE ARGUMENT SEEKS TO ASSESS ASSESSEE S INCOME DERIVED FROM THE ABOVE STATED T WO PIPELINE PROJECTS AS ITS BUSINESS INCOME INSTEAD OF FEE FOR TECHNICAL SERVICE AS ALREADY DECLARED AT THE LATTER S BEHEST. WE NOTICE FROM A SSESSMENT ORDER THAT EVEN THE ASSESSING OFFICER IS FAIR ENOUGH IN OBSERVING THAT THERE IS NO DISTINCTION ON FACTS IN THE IMPUGNED ASSESSMENT YEAR VIZ - A - VIZ ASSESSMENT YEAR 2007 - 08. THIS CASE FILE REVEALS THAT A CO - ORDINATE BENCH IN ASSESSEE S APPEAL ITA NO.3399/AHD/2010 FOR ASSESSMENT YEAR 2007 - 08 DECIDED ON 19.08.2011 ADJUDICATED THE VERY ISSUE AGAINST THE REVENUE B Y OBSERVING AS UNDER : - 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED 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 FAVO URABLE ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 5 OF 12 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 CONTAINED IN SECTION 9(1)(V II) AND ALSO IN SECTION 115A AND THE PROVISIONS OF SECTION 44DA ARE ALSO RELEVANT. WE, THEREFORE, REPRODUCE THE PROVISIONS OF SECTION 9(1)(VII), SECTION 44DA AND SECTION 115A OF THE ACT: SECTION 9(1) : THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR A RISE IN INDIA: - (VII): INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY (A) THE GOVERNMENT ; OR (B) A PERSON WHO IS A RESIDENT EXCEPT WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERS ON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR (C) A PERSON WHO IS A NON - RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FORM ANY SOURCE IN INDIA: [ PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY IN RELATION TO ANY INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFOR E THE 1ST 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 1ST DAY OF APRIL, 1976, SHALL BE DEEMED TO HAVE BEEN MADE BEFORE THAT DATE IF THE AGREEME NT IS MADE IN ACCORDANCE WITH PROPOSALS APPROVED BY THE CENTRAL GOVERNMENT BEFORE THAT DATE.] EXPLANATION [2] FOR THE PURPOSES OF THIS CLAUSE, FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF NAY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATI ON WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES .] 44DA. (1) THE INCOME BY WAY OF ROYALTY OR FEES FOR TECHNICAL SERVICES RECEIVED FROM GOVERNMENT OR AN INDIAN CONCERN IN PURSUANCE OF AN AGREEMENT MADE BY A NON - RESIDENT (NOT BEING A COMPANY) OR A FOREIGN COMPANY WITH GOVERNMENT OR THE INDIAN CONCERN AFTER THE 31ST DAY OF MARCH, 2003, WHERE SUCH NON - RESIDENT (NOT BEING A COMPANY) OR A FOREIGN COMPANY CARRIES ON BUSINESS IN INDIA THROUGH A PERMANENT ESTABLISHMENT SITUATED THERE IN, OR PERFORMS PROFESSIONAL SERVICES FROM A FIXED PLACE OF PROFESSION SITUATED THEREIN, AND THE RIGHT, PROPERTY OR CONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMEN T OR FIXED PLACE OF PROFESSION, 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, ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 6 OF 12 (I) IN RESPECT OF ANY EXPENDIT URE OR ALLOWANCE WHICH IS NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE BUSINESS OF SUCH PERMANENT ESTABLISHMENT OR FIXED PLACE OF PROFESSION IN INDIA; OR (IF) IN RESPECT OF AMOUNTS, IF ANY, PAID (OTHERWISE THAN TOWARDS REIMBURSEMENT OF ACTUAL EXPENSES) BY THE PERMANENT, ESTABLISHMENT 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. 115A. [( 1) WHERE THE T OTAL INCOME OF (B) [A NON - RESIDENT (NOT BEING A COMPANY) OR A FOREIGN COMPANY, INCLUDES ANY INCOME BY WAY OF ROYALTY OR FEES FOR TECHNICAL SERVICES OTHER THAN INCOME REFERRED TO IN SUB - SECTION (I) OF SECTION 44DA] RECEIVED FROM GOVERNMENT OR AN INDIAN CONCERN IN PURSUANCE OF AN AGREEMENT MADE BY THE FOREIGN COMPANY WITH GOVERNMENT OR THE INDIAN CONCERN AFTER THE 31ST DAY OF MARCH, 1976, AND WHERE SUCH AGREEMENT IS WITH AN INDIAN CONCERN, THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERNMENT OR WHERE IT R ELATES TO A MATTER INCLUDED IN THE INDUSTRIAL POLICY, FOR THE TIME BEING IN FORCE, OF THE GOVERNMENT OF INDIA, THE AGREEMENT IS IN ACCORDANCE WITH THAT POLICY, THEN, SUBJECT TO THE PROVISIONS OF SUB - SECTIONS (1 A) AND (2), THE INCOME - TAX PAYABLE SHALL BE T HE 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 INCOME, AT THE RATE OF TEN PER CENT IF SUCH FEES FOR TECHNICAL SERVICES ARE RECEIVED IN PURSUANCE OF AN AGREEMEN T MADE ON OR AFTER THE 1ST DAY OF JUNE, 2005; AND] 9. FROM THE ABOVE PROVISIONS WE FIND THAT AS PER EXPLANATION (2) TO SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961, FTS WILL NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJ ECT UNDERTAKEN BY THE RECIPIENT FOR CONSIDERATION OF THE INCOME CHARGEABLE UNDER THE HEAD 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 CHARGEAB LE 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 THE AMOUNT RECEIVED BY THE ASSESSEE IS FOR CONSTRUCTION PROJECT AND HENCE, IT IS OUTSIDE THE DEFINITION OF FTS AND THE CLAIM OF THE ASSESSEE IS THAT THIS OBJECTION OF THE A.O. IS NOT VALID. WHEN WE EXAMINE THE FACTUAL MATRIX OF THE PRESENT CASE, WE FIND THAT ADMITTEDLY, THE CONTRACT IN QUESTION WAS AWARDED BY GAIL TO THE CONSORTIUM OF THE ASSESSEE AND KPTL BUT AFTER AWARDING THIS CONTRACT BY GAIL TO THE CONSORTIUM, BOTH THE PARTIES OF THE CONSORTIUM ENTERED INTO A COOPERATION AGREEMENT BETWEEN THEMSELVES AS PER WHICH THEY DETERMINED THE RESPONSIBILITIES OF EACH PARTY AND THE MANNER OF S HARE OF CONSIDERATION ALSO. THE MANNER OF SHARING THE CONSIDERATION HAS BEEN PRESCRIBED IN THE RATIO OF 3% FOR THE ASSESSEE, ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 7 OF 12 96% FOR KPTL AND THE BALANCE 1% WAS RESERVED FOR COMMON EXPENSES OF THE CONSORTIUM. REGARDING THE 1% ALSO, IT WAS AGREED AFTERWARDS THAT IF THERE IS ANY SURPLUS, IT WILL GO TO KPTL AND IFS THERE IS ANY DEFICIT, IT WILL BE MADE GOOD BY KPTL. HENCE IT WAS AGREED THAT 3% OF GROSS RECEIPT OF CONSORTIUM WILL GO TO THE ASSESSEE COMPANY AND THE BALANCE 97% WILL GO TO KPTL. KPTL WILL BE RESPO NSIBLE FOR ALL THE ARRANGEMENTS OF RESOURCES AS WELL AS EXPENSES INCLUDING 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 HENC E, 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 ZANGAS ARE AS FOLLOWS 1. DESIG N & ENGINEERING: A) CIVIL & STRUCTURAL ZANGAS SHALL PROVIDE (HE FOLLOWING DESIGN & ENGINEERING 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 S TATION > SECTIONALIZING VALVE STATION WITH CP > TERMINALS III) REVIEW OF DETAILED ENGINEERING OF BUILDING CONSTRUCTION OF CONTROL ROOMS GIVING FOUNDATION & REINFORCEMENT DETAILS ETC IV) REVIEW OF STRUCTURAL DESIGN OF FOUNDATIONS IT SUPPORTS FOR EQUIPM ENT TO BE INSTALLED IN SV AND TERMINAL STATIONS. > SCRAPER TRAPS > PIPING > VALVES > ALL OTHER EQUIPMENTS V) REVIEW OF ROAD AND DRAINAGE DESIGN & DETAILED ENGINEERING VI) REVIEW OF FENCING AND GATE DESIGN & DETAILED ENGINEERING B. ELECTRICAL ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 8 OF 12 RE VIEW 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 & BOARDS > SWITCHGEAR AND SAFETY ENGINEERING > LIGHT ENGINEERING FOR CONTROL ROOM, GUARD CABIN, OPERATING AREA > REVIEW OF SPECIFICATION FOR ALL MATERIAL > MATERIAL TAKE - OF F ' FOR V ARIOUS ITEMS TO BE PROCURED FOR INSTALLATION C. CATHODIC PROTECTION OF DESIGN & ENGINEERING INCLUDED IN THE PACKAGES OF FOLLOWING - > TEMPORARY CATHODIC PROTECTION BASED ON SACRIFICIAL ANODES > PERMANENT CATHODIC PROTECTION BASED ON IMPRESSED CURRENT D. EQUIPMENT DESIGN & ENGINEERING DESIGN & ENGINEERING TO ENABLE PROCUREMENT OF VALVES, SCRAPER TRAPS, FLOW INSULATING JOINTS, TEGS, AC PACKAGE, FIRE EXTINGUISHING SYSTEM BASED ON CO2 FLOODING AND CLEAN AGENT SYSTEM, INCLUDING THE FOLLOWING : - > DATA SHEETS OF EQUIPMENT > REVIEW OF VENDOR DATA > REVIEW OF CONSTRUCTIONAL DETAILS GIVEN BY VENDOR E. PIPELINE CROSSINGS > REVIEW OF DESIGN & ENGINEERING OF HDD CROSSINGS > DESIGN &.ENGINEERING OF BORED CROSSINGS F. INSTRUMENTATION REVIEW OFF DESIGN OF FIELD I NSTRUMENTATION SYSTEM AS PER SPECIFICATIONS INCLUDING FOLLOWING : - > MATERIAL TAKE OFF > INSTRUMENT CABLE LAYOUT > DETAILED ENGINEERING OF INSTRUMENT INSTALLATION ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 9 OF 12 2. PREPARATION OF WELDING PROCEDURE AND WELDER QUALIFICATION PROCEDURE 3. REVIEW OF WOR K PROCEDURES FOR PIPELINE LAYING. 4. DEPUTATION OF EXPERTS FOR SITE REVIEW OF IMPLEMENTATION 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 O F GAIL, IT IS SEEN THAT THE ACTIVITIES INCLUDED IN THE SCOPE OF WORK OF THE ASSESSEE IS REGARDING DESIGN AND ENGINEERING FOR VARIOUS ASPECTS I.E. (A) CIVIL, & STRUCTURAL (B) ELECTRICAL, (C) CATHODIC PROTECTION, (D) EQUIPMENT DESIGN & ENGINEERING, (E) PIPEL INE CROSSING AND (F) INSTRUMENTATION. THE 2ND ITEM OF ACTIVITIES INCLUDED IN THE SCOPE OF WORK OF THE ASSESSEE COMPANY WAS PREPARATION OF WELDING PROCEDURE AND WELDER QUALIFICATION PROCEDURE, 3RD ITEM IS REVIEW OF WORK PROCEDURE FOR PIPELINE LAYING AND 4TH RESPONSIBILITY IS FOR DEPUTATION OF EXPERTS FOR SITE REVIEW OF IMPLEMENTATION BY KPTL AND TECHNICAL SERVICES PROVIDED BY ZANGAS. SOME OBJECTIONS RAISED BY DRP, A.O. AND THE LD. D.R. THAT WHEN THE ASSESSEE COMPANY WAS REQUIRED TO DEPUTE EXPERT FOR SITE REV IEW OF IMPLEMENTATION BY KPTL AND TECHNICAL SERVICES PROVIDED BY ZANGAS, THE ASSESSEE COMPANY WAS VERY MUCH ENGAGED IN THE ENTIRE CONSTRUCTION PROJECT. THESE OBJECTIONS OF THE AUTHORITIES BELOW AND THE LD. D.R. OF THE REVENUE ARE NOT VALID IN THE LIGHT OF THESE TWO TRIBUNAL DECISIONS CITED BY THE LD. A.R. OF THE ASSESSEE. 11. IN THE CASE OF VOITH SIEMENS HYDRO KRAFTWERKSTECHNIK GMBH & CO. (SUPRA), IT WAS HELD BY THE TRIBUNAL THAT ALTHOUGH AS PER THE TERMS OF CONTRACT WITH OHPC, THE ASSESSEE COULD BE ASSU MED BE LIABLE TO DO ASSEMBLY ERECTION, TESTING AND COMMISSIONING OF POWER PROJECT AS ALSO THE SUPERVISION THEREOF, IN THE ABSENCE OF BEING ANY EVIDENCE THAT ASSESSEE HAVING DONE ANY SUCH ACTIVITY OTHER THAN SUPERVISION SIMPLICITOR, ERECTION AND TESTING AND COMMISSIONING, THE ACTIVITIES OF THE ASSESSEE CANNOT BE SAID TO FALL WITHIN THE MEANING OF TERM BUSINESS OF ERECTION OF PLANT & MACHINERY AND TESTING AND COMMISSIONING AS PROVIDED IN THE PROVISIONS OF SECTION 44BBB AND TO 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 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 ASSES SEE WAS LIABLE TO DO THE ASSEMBLY, ERECTION, TESTING AND COMMISSIONING OF POWER PROJECT AS ALSO THE SUPERVISION THEREOF BUT THE ACTUAL ACTIVITIES UNDERTAKEN BY THE ASSESSEE COMPANY IN THAT CASE WAS SUPERVISION SIMPLICITOR AND ASSEMBLY, ERECTION, TESTING AN D 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 TRIBU NAL DECISION, THE TERM CONTRACT ALONE IS NOT THE DECIDING FACTOR AND IT IS VERY IMPORTANT TO SEE AS TO WHAT WAS THE ACTUAL ACTIVITY IS UNDERTAKEN BY THE ASSESSEE. IN THE PRESENT 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 ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 10 OF 12 CONSORTIUM WITH GAIL AND IT HAS 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, TH E ENTIRE CONSTRUCTION WORK OF THE PROJECT IN THE HANDS WAS DONE BY THE ASSESSEE AND THE ASSESSEE S ACTIVITIES ARE NOT CONFINED TO MERE PROVIDING OF FTS. BUT THE ASSESSEE HAS BROUGHT ON RECORD THE CORPORATION AGREEMENT ALONG WITH ITS ANNEXURE 1 WHICH OUTLIN ES THE SCOPE OF THE ACTIVITIES OF THE ASSESSEE. AS PER THE SCOPE OF ACTIVITIES AS HAS BEEN REPRODUCED ABOVE, THE ASSESSEE IS REQUIRED TO PROVIDE DESIGN AND ENGINEERING OF VARIOUS ASPECTS AND IS ALSO REQUIRED FOR PREPARING THE WELDING PROCEDURE AND 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 BY KPTL AND TECHNICAL SUPERVISION PROVIDED BY THE ASSESSEE. AS PER THE SCOPE OF WORK, THE ASSES SEE IS REQUIRED TO PROVIDE TECHNICAL SERVICES AND IS ALSO REQUIRED TO DEPUTE EXPERT FOR SITE REVIEW OF IMPLEMENTATION BY KPTL AND TECHNICAL SERVICES PROVIDED BY ZANGAS. HENCE, IT IS SEEN THAT DEPUTING EXPERT WAS FOR A LIMITED PURPOSE FOR SITE REVIEW OF IMP LEMENTATION BY KPTL AND TECHNICAL SERVICES PROVIDED BY THE ASSESSEE AND THE ENTIRE CONSTRUCTION WORK WAS TO BE UNDERTAKEN BY THE KPTL. AS PER THESE ACTIVITIES INCLUDED IN THE SCOPE OF WORK OF THE ASSESSEE COMPANY, WE ARE OF THE CONSIDERED OPINION THAT ON T HE 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 DOING THE CONSTRUCTION WORK. NOTHING HAS BEEN BROUGHT ON RECORD BY THE A. O. TO SHOW THAT ANYTHING EXTRA WAS DONE BY THE ASSESSEE IN ADDITION TO THE RESPONSIBILITY SPECIFIED IN THE CO OPERATION AGREEMENT. IN FACT, THIS IS NOT EVEN AN ALLEGATION OF THE A. O. 12. HENCE, THE TRIBUNAL DECISION RENDERED IN THE CASE OF VOITH SIEMENS HYDRO (SUPRA) IS SQUARELY APPLICA BLE IN THE PRESENT CASE AND AS PER THIS DECISION OF THE TRIBUNAL IN THE LIGHT OF THE FACTS OF THE PRESENT CASE, THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE DOES NOT FALL WITHIN THE EXCLUSION CATEGORY OF EXPLANATION (2) TO SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961. 13. THE OTHER TRIBUNAL DECISION RENDERED IN THE CASE OF ADITYA BIRLA NUVO LTD. (SUPRA), IS ALSO SUPPORTING THE CASE OF THE ASSESSEE 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 BEEN ACCEPTED BY THE AUTHORITIES BELOW IN SO FAR AS THE AMOUNT OF INCOME OF THE ASSESSEE 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 DISPUTED THE AMOUNT OF INCOME OF THE ASSESS EE 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 COOPERATION AGREEMENT AND THE INCOME SHOULD HAVE BEEN ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 11 OF 12 Q UANTIFIED BY HIM AFTER CONSIDERING THE GROSS RECEIPT OF THE CONSORTIUM AND AFTER DEDUCTING AL THE EXPENSES INCURRED FOR THE PURPOSE AND THE REMAINING INCOME SHOULD HAVE BEEN DISTRIBUTED BETWEEN THE TWO PARTNERS OF THE 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 EXTENT OF 3% OF GROSS RECEIPT OF THE CONSORTIUM ON THE BASIS OF THIS COOPERATION AG REEMENT. HAVING ACCEPTED THE COOPERATION AGREEMENT ON THIS ASPECT, IT WAS NOT JUSTIFIED ON THE PART OF THE A.O. AND DRP TO SAY THAT WITH REGARD TO THE SCOPE OF ACTIVITIES OF THE ASSESSEE COMPANY, COOPERATION AGREEMENT IS NOT VALID AND THEY HAVE TO GO BY CO NSORTIUM AGREEMENT. THEY HAVE ALSO NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE ASSESSEE HAS UNDERTAKEN ANY EXTRA ACTIVITY IN ADDITION TO THE ACTIVITIES FALLING WITHIN ITS SCOPE OF WORK AS PER THE CO OPERATION AGREEMENT. HENCE, EVEN IF EXTRA RESPONS IBILITY OF THE ASSESSEE IS THERE AS PER THE CONSORTIUM AGREEMENT AND 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 AS PER THE CO OPERATION AGREEMENT FOR THE ACTIVITIES PROVIDED IN THE CO OPERATION AGREEMENT AND HAVING ACCEPTED BY THE A. O. THE AMOUNT OF CONSIDERATION RECEIVED BY THE ASSESSEE 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 WHERE TH E CONTRACT IN RESPECT OF WHICH FTS HAD BEEN PAID TO THE ASSESSEE IS EFFECTIVELY CONNECTED WITH A PERMANENT ESTABLISHMENT (PE) WHERE SUCH FOREIGN COMPANY IS CARRYING ON ITS BUSINESS IN INDIA. IN THE PRESENT CASE, THIS IS NOT THE CASE OF THE A.O. THAT SECTIO N 44DA IS APPLICABLE WITH REGARD TO THE RECEIPT IN DISPUTE. MOREOVER, WE ALSO FIND THAT THE RECEIPT IN QUESTION WAS IN RELATION TO PDPL PROJECT CANNOT BE SAID TO BE EFFECTIVELY 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 EFFECTIVE CONNECTION WITH MMTL PROJECT HAS BEEN ESTABLISHED BY THE A.O. FOR THIS RECEIPT IN QUESTION RELATING TO PDPL P ROJECT. BOTH ARE INDEPENDENT PROJECTS. MMTL PROJECT WAS AWARDED BY BPCL WHEREAS PDPL WAS AWARDED BY GAIL AND HENCE, THERE IS NO RELATIONSHIP BETWEEN THE TWO AND HENCE, WE FIND THAT NO CASE HAS BEEN MADE OUT 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 TAX @ 10% AS HAS BEEN CLAIMED BY THE ASSESSEE. WE, THEREFORE, DIRECT THE A.O. TO APPLY THE PROVISIONS OF SUB CLAUSE BB OF CLA USE (B) OF SUB - SECTION (1) OF SECTION 115A ALONG WITH SECTION 9(1)(VII) OF THE ACT. 7. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO POINT OUT ANY DISTINCTION ON FACTS OR LAW. WE FIND NO REASON TO INTERFERE IN THE CIT(A) S ORDER UNDER CHALLENGE REVERSING ASSESSING OFFICER S FINDING TREATING ASSESSEE S INCOME FROM THE TWO PIPELINE PROJECTS AS ITA NO . 474 / AHD/20 1 6 A.Y. 2012 - 13 PAGE 12 OF 12 BUSINESS INCOME INSTEAD OF THAT DECLARED UNDER THE HEAD FEE FOR TECHNICAL SERVICES. THE REVENUE S SOLE SUBSTANTIVE GROUND IS DECLINED. 8. IN THE RESULT, THIS REVENU E S APPEAL IS DISMISSED. P RONOUNCED IN THE OPEN COURT TODAY ON THE 26 TH DAY OF JULY 2016. SD/ - SD/ - PRAMOD KUMR S.S. GODARA (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, THE 26 TH DAY OF JULY , 2016 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD