GUJARAT PIPAVAV PORT LTD, MUMBAI V. ITO TDS 3, MUMBAI

ITA 7877/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100964 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 16-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 15-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Double taxation relief
• Section: 6

Judgement Text

L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI SANJAY GARG, JUDICIAL MEMBER ./ I.T.A. NO. 7877 /MUM/2010 ( / ASSESSMENT YEAR : 2007-08 GUJARAT PIPAVAV PORT LIMITED, 301, TRADE CENTRE, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. / VS. INCOME TAX OFFICER (INTERNATIONAL TAXATION) TDS-3, SCINDIA HOUSE, BALLARD PIER, MUMBAI 400 038. ./ PAN :AAACG 6975B ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI SUNIL MOTILALA R E SPONDENT BY : SHRI PANKAJ KUMAR / DATE OF HEARING : 18-08-2015 / DATE OF PRONOUNCEMENT : 31-08-2015 [ !' / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THIS IS ASSESSEES APPEAL FOR A.Y. 2007-08, CHALLEN GING THE ACTION OF THE LD. CIT(A) IN TREATING THE PAYMENT MADE TO M/S LIFT ECH CONSULTANTS INC., USA AS TAXABLE IN INDIA AND THEREBY HOLDING THE ASSESSE E AS ASSESSEE IN DEFAULT U/S 201 OF THE INCOME TAX ACT, 1961WITHHOLDING THE TAX DUE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A RESIDENT INDIAN COMPANY IN TERMS OF SECTION 6 OF THE ACT AND IS IN THE BUSINESS OF DEVELOPING, CONSTRUCTING, OPERATING AND MAINTAINING THE PORT IN GUJARAT. THE ASSESSEE HAD ENTERED INTO A CONTRACT FOR PURCHASE OF CRANES FROM M/S ZPMC, CHINA. ITA 7877/M/10 2 THESE CRANES WERE SUPPOSED TO BE MANUFACTURED IN CH INA ITSELF AND ON COMPLETION, OUGHT TO BE IMPORTED IN INDIA. THE ASSE SSEE ENGAGED M/S LIFTECH CONSULTANTS INC., A COMPANY REGISTERED IN USA, USA TAX RESIDENT FOR REVIEW OF DESIGN OF THE CRANES WHICH WERE TO BE SUPPLIED BY T HE CHINESE CONCERN M/S ZPMC. THE ASSESSEE HAD ALLOWED CREDIT TO BOTH THE P ARTIES DURING FINANCIAL YEAR 2006-07 RELEVANT TO A.Y. 2007-08 AND FINANCIAL YEAR 2007-08 RELEVANT TO A.Y. 2008-09 AND HAS MADE PAYMENTS TO THE SAID M/S ZPMC FOR SUPPLY OF GOODS AND SERVICES AS PER PURCHASE CONTRACT FOR INS TALLATION AND COMMISSION. IT ALSO PAID FOR TECHNICAL CONSULTANCY AND ENGINEER ING SERVICES AVAILED FROM M/S LIFTECH CONSULTANTS INC., USA WITH REGARD TO QU ALITY CONTROL OF THE CRANES. THE A.O. IN HIS ASSESSMENT ORDER HAS COME T O THE CONCLUSION THAT THE AMOUNT PAYABLE TO M/S LIFTECH CONSULTANTS INC., USA WAS TAXABLE FOR THE FOLLOWING REASONS:- I) SERVICES CONSTITUTE FEES FOR INCLUDED SERVICE UNDER ARTICLE 12 OF THE INDIA-US DTAA TREATY AS THE SAID SERVICES WERE ALLEGEDLY FOR DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN OR DESIG N UNDER ARTICLE 12(4) OF THE TREATY ALTERNATIVELY, II) THE SAID SERVICES ARE MANAGERIAL, TECHNICAL OR CONS ULTANCY SERVICES WHICH MAKE AVAILABLE TECHNICAL KNOWLEDGE , EXPERIENCE, SKILL, KNOW-HOW UNDER ARTICLE 12(4) OF THE TREATY, III) THE SAID SERVICES AMOUNTS TO ROYALTY BRING CONSIDER ATION FOR IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR S KILL UNDER ARTICLE 12(3)(A) OF THE TREATY. 3. THE ASSESSEE SUBMITTED THAT M/S LIFTECH CONSULTA NTS INC. USA WAS APPOINTED ESSENTIALLY TO REVIEW THE PRE-EXISTING DE SIGN AND CONSTRUCTION AUDIT IN RELATION TO THE CRANES WHICH WAS TO BE PURCHASED BY THE ASSESSEE FROM ZPMC, CHINA. THE ASSESSEE FURTHER STATED VIDE ITS L ETTER DTD. 14-2-2008 THAT LIFTECH CONSULTANTS INC., USA WAS APPOINTED BY THE ASSESSEE PURELY TO REVIEW THE PRE-EXISTING DESIGN AND CONSTRUCTION AUDIT CRAN ES AND MONITOR THAT THE CRANES MEET THE PRE-DETERMINED SET STANDARDS, WHICH WERE ALREADY AGREED TO BETWEEN THE ASSESSEE AND ZPMC. SINCE THE ASSESSEE D ID NOT POSSESS REQUISITE ITA 7877/M/10 3 TECHNICAL EXPERTISE TO CLOSELY MONITOR THE ADHERENC E OF SET STANDARDS BY ZPMC DURING MANUFACTURING OF THE CRANES, THE ASSESSEE AP POINTED LIFTECH CONSULTANTS INC., USA TO CARRY OUT THE SAID TASK SO THAT IT CAN ENSURE THE ADHERENCE TO THE AGREED STANDARDS EVEN BEFORE THE C RANES ARE INSTALLED IN INDIA. THE ASSESSEE SUBMITTED THAT THE REPORTS AS G IVEN BY LIFTECH CONSULTANTS INC., USA SUGGESTS THAT IT IS PURELY TO REVIEW THE PRE-EXISTING DESIGN, THEREFORE THERE IS NO DEVELOPMENT AND TRANS FER OF ANY TECHNICAL PLAN OR DESIGN SO AS TO ATTRACT ARTICLE 12, CLAUSE (4) OF THE INDIA US DTAA TREATY. THESE SUBMISSIONS OF THE ASSESSEE WERE NOT ACCEPTED BY THE A.O. AND BEING AGGRIEVED, THE ASSESSEE WENT ON APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) UPHELD THE FINDINGS OF THE A.O. AND STATED IN HIS O RDER THAT THE PAYMENT MADE BY THE ASSESSEE WERE THE NATURE OF FEES FOR INCLUDE D SERVICES AND THE SAME WERE COVERED UNDER ARTICLE 12(4)(B) OF INDIA-US DTA A AS THESE SERVICES CONSISTED OF THE DEVELOPMENT AND TRANSFER OF A TECH NICAL PLAN OF A TECHNICAL DESIGN. AGGRIEVED, THE ASSESSEE IS NOW FURTHER APP EAL BEFORE US AGAINST THE ORDER OF THE LD. CIT(A). 4. THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY SU BMITTED THAT AS EVIDENT FROM THE ENGINEERING SERVICE AGREEMENT AND THE REPO RTS SUBMITTED BY M/S LIFTECH CONSULTANTS INC., USA, WHICH ARE ALL IN REC ORD, THE SERVICES RENDERED BY LIFTECH CONSULTANTS INC., USA NEITHER RESULTED I NTO DEVELOPMENT NOR BY TRANSFER OF ANY TECHNICAL PLAN OR DESIGN. HE HAS AL SO RELIED ON THE FOLLOWING JUDICIAL DECISIONS:- I) WORLEY PARSONS PTY LTD. IN RE (2009) 313 ITR 74 ( AAR) II) ACIT VS. VICEROY HOTELS LTD. (2012) 143 TTJ 627 ( HYD) THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER SUBMIT TED THAT THE PROFESSIONAL SERVICE FEE WHICH IS FOR CONSULTANCY AND NOT FOR SU PPLY OF SCIENTIFIC, TECHNICAL, INDUSTRIAL OR COMMERCIAL KNOWLEDGE OR INFORMATION C ANNOT BE CONSIDERED AS ROYALTY. ON THIS POINT, HE HAS PLACED RELIANCE ON T HE DECISION IN THE CASE OF ITA 7877/M/10 4 DIAMOND SERVICES INTERNATIONAL (P) LTD. VS. UNION O F INDIA, (2008) 304 ITR 201 (BOM), DDIT VS. PREROY A.G. (2010) 39 SOT 187 (MUM) AND VARIOUS OTHER RELATED JUDGMENTS. 5. THE LD. D.R., ON THE OTHER HAND, HAS STRONGLY SU PPORTED THE ORDERS OF AUTHORITIES BELOW. 6. AFTER CONSIDERING THE RIVAL CONTENTIONS AND SUBM ISSIONS, AND GOING THROUGH THE AGREEMENT FOR ENGINEERING SERVICES FOR PROCUREMENT AND OTHER ASPECTS AS APPEARING IN THE ASSESSMENT ORDER, WE FI ND THAT THE SERVICE TO BE PERFORMED BY M/S LIFTECH CONSULTANT INC., USA WAS M ORE OF A REVIEWING THE DESIGN. THE POWER OF REVIEW IS SOMETHING MORE THAN THE POWER OF SUPERVISION. HOWEVER, IT IS SOMETHING LESS THAN THE DEVELOPMENT AND TRANSFER OF SERVICES AND DESIGN. WHEN WE SAY THAT THERE IS A POWER TO R EVIEW, ESSENTIALLY IT IMPLIES ALSO THE POWER TO MAKE SUGGESTIONS, ADVICE ON THE CONCERNED TOPIC AND AREA BUT IF THERE IS SOMETHING MORE THAN THE SU GGESTION GIVEN I.E. IF THERE IS A TRANSFER OF SOME DEVELOPMENT OR DESIGN AND THE PERSON REVIEWING IT MONITOR SUCH TRANSFER OF DESIGN AND DEVELOPMENT, TH EN IT CANNOT BE A SIMPLE POWER OF REVIEWING. THE FACT ON RECORD, THE A.O. HA D FOUND COPIES OF REPORT FORWARDED BY M/S LIFTECH CONSULTANT INC., USA, LETT ERS DATED 15.12.2006, 12.1.2007, 9.2.2007, 9.3.2007, 13.4.2007, 11.5.2005 , 8.6.2007, 6.6.2007, 3.8.2007, 5.10.2007 AND 10.01.2007 SHOWED THAT M/S LIFTECH CONSULTANT INC., USA HAS SUGGESTED DEVELOPMENT OR IMPROVED TEC HNICAL PLAN. THESE INCLUDED DYNAMIC BREAK TORQUE OF THE MAIN HOIST AND BOOM HOIST TO BE CHECKED. HERE, A LETTER SUGGESTS THAT CERTAIN ADVI CE HAS BEEN GIVEN BY M/S LIFTECH CONSULTANT INC., USA ON THE DEVELOPMENT OF THE PRODUCT WHICH WAS MANUFACTURED BY ZPMC. WE FIND THAT THE LOWER AUTHOR ITIES HAVE NOT EXAMINED AS TO WHETHER THE SUGGESTIONS GIVEN BY M/S LIFTECH CONSULTANT INC., USA WOULD AMOUNT TO MAJOR CHANGE OR IMPROVISATION OF TH E DESIGN OR WERE LIMITED TO JUST POINTING OUT THE SHORTCOMINGS OR DEFECTS, W HATEVER IT MAY BE, IN THE ITA 7877/M/10 5 ALREADY SETTLED AND AGREED DESIGN OF THE PRODUCT. F URTHER, WE DO NOT FIND ANY RECORD TO SUGGEST THAT WHETHER M/S LIFTECH CONSULTA NT INC., USA NOT ONLY GIVEN THESE SUGGESTIONS BUT WERE ALSO PHYSICALLY AC TIVE AND PRESENT TO IMPLEMENT THESE SUGGESTIONS. WE, THEREFORE, ON THI S LIMITED ISSUE, SET ASIDE THE MATTER TO THE FILE OF A.O. TO FIND OUT IF M/S L IFTECH CONSULTANT INC., USA HAS JUST SUGGESTED THE DEVELOPMENT OR HAS PHYSICALL Y MADE AVAILABLE ITS PRESENCE THROUGH ITS OFFICIALS TO SEE WHETHER THOSE DEVELOPMENT AND SUGGESTIONS WERE ACTUALLY IMPLEMENTED. IF IT IS ON LY SUGGESTIONS GIVEN, THEN IT WILL BE REVIEW BUT IF THE M/S LIFTECH CONSULTANT IN C., USA HAS FORWARDED TO IMPLEMENT THOSE SUGGESTIONS ON BEHALF OF THE ASSESS EE AND HAVE IMPROVISED THE DESIGN OR BROUGHT ANY MAJOR CHANGE IN THE DESIG N, THEN SUCH SUGGESTIONS WOULD AMOUNT TO TRANSFER OF TECHNICAL SERVICES AND DESIGN, WHICH WOULD BE MORE THAN THE POWER OF REVIEW AND WOULD ATTRACT ART ICLE 12 OF THE INDIA-US DTAA TREATY. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2015. !' # $% &! ' 31-08-2015 ( ) SD/- SD/- (D. KARUNAKARA RAO) (SANJA Y GARG) ACCOUNTANT MEMBER JUDICIAL ME MBER $ * MUMBAI ; &! DATED 31-08-2015 [ .2../ R.K. R.K. R.K. R.K. , SR. PS ITA 7877/M/10 6 ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 3 () / THE CIT(A)- 10, MUMBAI 4. 3 / DIT- (INTERNATIONAL TAXATION) MUMBAI 5. 67( 2289 , 89 , $ * / DR, ITAT, MUMBAI ,L: BENCH 6. (;< = / GUARD FILE. ' / BY ORDER, 6 2 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , $ * / ITAT, MUMBAI