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

ITA 7878/MUM/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3396 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 28-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 15-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Business income; Residential status; Double taxation relief; Deemed to accrue or arise in india; Permanent establishment
• Section: 5(2); 6

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI L BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAM LAL NEGI,JUDICIAL MEMBER /.ITA NO.7878/MUM/2010, /ASSESSMENT YEAR-2008-09 GUJARAT PIPAVAV PORT LIMITED 301,TRADE CENTRE,BANDRA KURLA COMPLEX,BANDRA(E),MUMBAI-51. PAN:AAACG 6975 B VS. INCOME TAX OFFICER(INTL. TAXATION) TDS-3, 1 ST FLOOR, SCINDIA HOUSE, BALLARD PIER, N.M. ROAD MUMBAI-400 038. ( / ASSESSEE) ( / RESPONDENT) /ASSESSEE BY : SHRI SUNIL MOTI LALA / REVENUE BY : SHRI PANKAJ KUMAR-SR.A.R / DATE OF HEARING : 03.02.2016 / DATE OF PRONOUNCEMENT : 23.03.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 31.08.2010 OF THE CIT( A)-10,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL RAISING FOLLOWING GROUNDS OF APPEAL: THE GROUNDS STATED HERE UNDER ARE INDEPENDENT OF, A ND WITHOUT PREJUDICE TO ONE ANOTHER, PAYMENT MADE TO M/S LIFTECH CONSULTANTS INC, UNITE D STATES OF AMERICA ('LIFTECH') TREATED AS TAXABLE IN INDIA AND THEREBY LIABLE TO WITHHOLDING TAX. 1, THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W IN UPHOLDING THE ORDER OF THE AO, TREATING THE APPELLANT AS AN 'ASSESSEE IN DEFAULT' UNDER SE CTION 201 OF THE INCOME-TAX ACT, 1961 ('THE ACT') BY TREATING THE PAYMENTS MADE TO LIFTECH AS ROYALTY / FEES FOR TECHNICAL SERVICES UNDER ARTICLE12(3)(A) /12(4), RESPECTIVELY OF THE INDIA-U SA DOUBLE TAX AVOIDANCE AGREEMENT ('DTAA'), PAYMENT MADE TO SHANGHAI ZHENHUA PORT MACHINERY CO LTD, CHINA ('ZPMC') FOR PURCHASE OF CRANES TREATED AS TAXABLE IN INDIA AND THEREBY LIAB LE TO WITHHOLDING TAX. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO IN TREATING THE APPE LLANT AS AN 'ASSSESSEE IN DEFAULT' UNDER SECTION 201 OF THE ACT BY TREATING 10 PERCENT OF TH E CONSIDERATION PAID FOR THE PURCHASE OF THE CRANES FROM ZPMC . CHINA TO BE TAXABLE IN INDIA, WI THOUT APPRECIATING THAT THE APPELLANT DID NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA AND ALSO TH AT THE SAID SUM COULD NOT BE TREATED AS FEES FOR TECHNICAL SERVICES BOTH UNDER SECTION 9(1 )(VII ) OF THE ACT AND UNDER ARTICLE 12 OF THE INDIA - CHINA DTAA. PAYMENTS MADE BY ZPMC TO APM TERMINALS BV, NETHERLA NDS (APMT) TREATED AS INDIRECT PAYMENT MADE BY THE APPELLANT ON WHICH WAS IS REQUI RED TO BE WITHHELD. 3. ON FACT AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW. THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO IN TREATING THE APPE LLANT TO BE AN 'ASSESSEE IN DEFAULT' UNDER SECTION 201 OF THE ACT IN RESPECT OF PAYMENTS MADE BY ZPMC TO APMT AS FEES FOR TECHNICAL SERVICES / ROYALTY UNDER THE INDIA - CHINA / INDIA - NETHERLANDS DTAA. ITA/7878/MUM/10,GUJRAT PIPAVAV 2 ASSESSEE IS A RESIDENT INDIAN COMPANY IN TERMS OF S ECTION 6 OF THE ACT AND IS IN THE BUSINESS OF DEVELOPING,CONSTRUCTING,OPERATING AND MAINTAINING T HE PORT ON A BUILD OWN OPERATE TRANSFER (BOOT)BASIS.IT HAD MADE CERTAIN PAYMENTS TO NON-RES IDENT ENTITIES.THE ASSESSING OFFICER (AO), WHILE PASSING THE ORDER U/S.201R.W.S. 195 OF THE AC T ON 24.7.2008,HELD THAT IT HAD FAILED TO DEDUCT TAX FROM INCOME CHARGEABLE TO TAX IN INDIA FROM PAY MENTS MADE TO NON-RESIDENTS. BRIEF FACTS: 2. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE IS AN AFFILIATE TO M.S A.P. MOLLER MAERSK A/S(APMM),A GLOBAL GROUP,THAT THE APM M HAD ENTERED IN TO A MAIN PURCHASE AGREEMENT(MPA),DATED 17-2-2004 WITH SHANGHAI ZHENHU A PORT MACHINERY CO.LTD.,CHINA (ZPMC)FOR SUPPLY OF CRANES TO ITS AFFILIATES FOR A TOTAL CONSIDERATION OF USD 3,83,00,000,THAT CONSEQUENT TO MPA THE ASSESSEE HAD ENTERED IN TO SP ECIFIC PURCHASE CONTRACT(SPC)WITH ZPMC FOR SUPPLY OF CRANES,THAT IT ALSO ENTERED IN TO A S EPARATE SERVICE CONTRACTS WITH ZPMC FOR RENDERING THE INSTALLATION AND COMMISSIONING SERVIC ES IN RELATION TO SUCH CRANES,THAT IT ENGAGED M/S LIFTECH CONSULTANT INC USA(LIFTECH),VIDE LOI, D ATED 3.7.2006,FOR RENDERING OF ENGINEERING SERVICES TO REVIEW OF PRE-DETERMINED DESIGN AND CON STRUCTION AUDIT,THAT IT HAD PURCHASED EIGHT RUBBER TIRED GANTRY CRANES(USD$94,00,000),THREE RAI L MOUNTED QUAY CRANES(USD$1,68,00, 000)AND ONE Q-EEO RUBBER TIRED GANTRY CRANE(USD $1, 21,00,000),THAT IN ADDITION TO THE ABOVE CONTRACTS,THE ASSESSEE HAD ALSO ENTERED INTO TWO SE RVICE CONTRACTS AMOUNTING TO USD 11,00,000 WITH ZPMC FOR INSTALLATION AND COMMISSIONING SERVIC ES CERTAIN CRANES,THAT THE ASSESSEE HAD CLAIMED THAT ALL THE ABOVE AGREEMENTS FOR PURCHASE OF CRANES WERE BASED ON THE MPA ENTERED IN BETWEEN THE GROUP COMPANY OF APMM AND ZPMC,THAT ALL THE ABOVE CRANES WERE TO BE MANUFACTURED/FABRICATED IN CHINA.THE ASSESSEE WAS O F THE VIEW THAT THE ABOVE MENTIONED PURCHASE CONSIDERATION WAS NOT TAXABLE IN THE HANDS OF ZPMC IN INDIA AND HENCE,IT WAS NOT DUTY BOUND TO DEDUCT ANY TAX FROM PAYMENTS MADE TO ZPMC FOR THE PURCHASE OF ABOVE CRANES, WHEREAS IT WITHHELD TAX @10% FOR REMITTING USD11,00 ,000.AS PER THE ASSESSEE DECISION OF NOT DEDUCTING TAX AT SOURCE,FOR PURCHASE OF CRANES,WAS TAKEN ON THE BASIS OF THE CHARTERED ACCOUNTANT'S CERTIFICATES. THE AO QUOTED ANNEXURE-I OF SERVICE-AGREEMENT,DTD.3 -7-2006 AND HELD THAT THE SERVICES PERFORMED BY LIFTECH WERE TECHNICAL/CONSULTANCY AND MANAGERIAL,THAT SAME WERE UTILISED IN ASSESSEE'S BUSINESS BEING CARRIED ON IN INDIA,THAT THE PAYMENT WAS CHARGEABLE AS FEES FOR TECHNICAL SERVICES(FTS)AS PER EXPLANATION TO SECTIO N 9(2)OF THE ACT AND AS EXPLAINED IN CBDT CIRCULAR,DATED 12-3-2008,THAT THE SOURCE OF INCOME WAS BUSINESS OF ASSESSEE IN INDIA,THAT SERVICES WERE UTILISED BY ASSESSEE IN INDIA,THAT TH E SERVICES OF LIFTECH WERE NOT RELATED TO ASSESSEE'S BUSINESS OUTSIDE INDIA,THAT THE PAYEE WA S RESIDENT OF INDIA,THAT THE CONSULTANCY SERVICES OF LIFTECH FELL UNDER FTS AS PER PROVISION S OF THE ACT,THAT THE AMOUNT PAID BY THE ASSESSEE WAS FOR THE DEVELOPMENT AND TRANSFER OF T ECHNICAL PLAN OR TECHNICAL DESIGN AND THEREFORE WAS COVERED AS FEES FOR INCLUDED SERVICES(FIS) UNDE R THE SECOND LIMB OF ARTICLE 12(4) (B) OF THE INDIA-USA DTAA,THAT SUCH SERVICES MIGHT ALSO FALL U NDER 'ROYALTY' UNDER THE INDIA-USA DTAA AS THOSE INVOLVED IMPARTING OF INFORMATION CONCERNI NG THEIR INDUSTRIAL COMMERCIAL OR SCIENTIFIC EXPERIENCE IN THE FIELD OF QUALITY CHECKING OF CRAN ES,THAT THE ACTIVITY WOULD FALL UNDER ROYALTY UNDER ARTICLE 12(3)(A)OF DTAA,THAT ZPMC HAD PE IN I NDIA UNDER ARTICLE 5(2)(J) OF INDIA-CHINA TAX TREATY,THAT FOR THE PURPOSE OF THE SAID ARTICLE THE PERIOD OF PROJECT SHOULD INCLUDE THE PERIOD OF INSTALLATION AND COMMISSIONING AS WELL AS THE PE RIOD FOR PROVIDING AFTER SALES SERVICES WHICH WAS SIX MONTHS FROM THE DATE OF COMMISSIONING OF TH E PROJECT,THAT AS PER ARTICLE 5(2) OF THE TAX TREATY INSTALLATION AND ASSEMBLY PROJECT WHICH CONT INUED FOR A PERIOD OF MORE THAN 183 DAYS WOULD CONSTITUTE A PE IN INDIA,THAT THE COMMISSIONI NG OF THE PROJECT STARTED ON 30.10.2007,THAT IT ITA/7878/MUM/10,GUJRAT PIPAVAV 3 WAS FINALLY COMPLETED ON 15.01.2008,THAT THE AMOUN T ATTRIBUTABLE TO SERVICES PERFORMED IN INDIA WAS INCOME DERIVED FROM INDIA AND CHARGEABLE AS FTS .HE TREATED THE ASSESSEE AS AN 'ASSESSEE- IN-DEFAULT'(A-I-D) FOR NOT DEDUCTING TAX FROM SUCH PAYMENTS.AS A RESULT, A DEMAND OF RS.4,53, 751/-INCLUDING INTEREST UNDER SECTION 201(1A),WAS R AISED.THE AO,WHILE CALCULATING AMOUNT ATTRIBUTABLE FOR SERVICES PERFORMED IN INDIA,RELIE D ON THE INSTRUCTION NO. 1767,DTD.01.07.1987, ISSUED BY THE CBDT. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND SUBMITTED THAT LIFTECH WAS APPOIN TED PURELY TO REVIEW THE DESIGNS AND CONSTRUCTION AUDIT OF CRANES AND TO MONITOR THAT TH E CRANES MEET THE PRE-DETERMINED SET STANDARDS WHICH WERE ALREADY AGREED BETWEEN APPELLANT AND ZPM C,THAT THE ASSESSEE DID NOT POSSESS THE REQUISITE TECHNICAL EXPERTISE TO CLOSELY MONITOR TH E ADHERENCE OF SET STANDARD BY ZPMC DURING THE MANUFACTURING OF THE CRANES,THAT DURING THE YEA R UNDER CONSIDERATION IT HAD PAID LIFTECH RS.92,19,240/-FOR THE SERVICES RENDERED,THAT THE SE RVICES RENDERED BY LIFTECH NEITHER INVOLVED DEVELOPMENT OF ANY TECHNICAL PLAN/TECHNICAL DESIGN NOR WAS THERE ANY TRANSFER OF TECHNICAL PLAN/TECHNICAL DESIGN DEVELOPED BY LIFTECH TO ASSES SEE,THAT THE SERVICES RENDERED BY LIFTECH DID NOT FALL UNDER THE AMBIT OF DEVELOPMENT AND TRANSFE R OF A TECHNICAL PLAN/TECHNICAL DESIGN,THAT SUCH SERVICES DID NOT ALSO FALL WITHIN THE DEFINITI ON OF FIS UNDER INDIA-US DTAA,THAT ALL THESE SERVICES WERE RENDERED IN USA AND IN CHINA I.E. OUT OF INDIA,THAT NO EMPLOYEES OF LIFTECH VISITED IN INDIA TO RENDER THESE SERVICES TO ASSESSEE,THAT IT HAD MADE AN ARM'S LENGTH AGREEMENT ONLY WITH LIFTECH AND WAS NOT PRIVY TO PARTIES TO ANY CO NTRACT WHICH LIFTECH HAD ENTERED INTO,THAT THE AO HAD NOT DISTINGUISHED THE DECISIONS RELIED ON BY THE ASSESSEE,THAT HE HAD NOT REBUTTED THE CONTENTION OF THE ASSESSEE THAT THE PAYMENT MADE BY IT TO LIFTECH WAS NOT COVERED BY THE 'MAKE AVAILABLE' CLAUSE AS PER ARTICLE 12(4)(B)OF THE IND IA-USA DTAA.IT RELIED UPON THE CASES OF CESC LTD.(87ITD653)AND DIAMOND SERVICES INTERNATION AL P. LTD.(304 ITR 201),WORLEY PARSONS SERVICES PTE LTD.(301 ITR 54),DE BEERS INDIA MINERA LS P.LTD (297 ITR 76-AT) ANAPHARMA INC.(305 ITR 394)AND ICICI BANK LTD.(20SOT453)AND A RGUED THAT SUCH PAYMENT WAS IN THE NATURE OF BUSINESS INCOME AND IN ABSENCE OF PE OF L IFTECH SUCH PAYMENT COULD NOT BE TAXED IN INDIA,THAT THE ASSESSEE'S CONTRACT WAS NOT FOR THE PURPOSE OF OBTAINING ANY KNOW-HOW BUT TO AVAIL A COMMERCIAL SERVICE PERTAINING TO REVIEW OF PRE- D ETERMINED DESIGNS AND CONSTRUCTION AUDIT OF CRANES WHILE THEY WERE BEING MANUFACTURED. THE ASSESSEE FURTHER CONTENDED THAT UBC BALAJI(UBCB )WAS SUB-CONTRACTED BY ZPMC IN THE WORK RELATING TO THE INSTALLATION AND COMMISSIONING OF CRANES,THAT UBCB DID NOT RENDER SERVICES EXCLUSIVELY TO ZPMC,THAT IT PROVIDED SIMILAR SERVIC ES TO OTHER PARTIES AS WELL,THAT UBCB WAS NOT HAVING AN AUTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF A ZPMC,THAT THE QUESTION OF ZPMC CONSTITUTING AGENCY-PE IN INDIA UNDER ARTICLE 5(4) OF INDIA-CHINA DTAA DID NOT ARISE,THAT BY MERELY SELLING THE CRANES TO APPELLANT IN INDIA UND ER SUPPLY CONTRACTS ZPMC DID NOT AUTOMATICALLY CREATED ITS PE IN INDIA,THAT THE CRAN ES WERE FABRICATED OUTSIDE INDIA AND THEY WERE BOUGHT AND PROCURED FROM OUTSIDE INDIA,THAT THE INS TALLATION AND COMMISSIONING OF CRANES WAS CARRIED OUT IN INDIA,THAT SEPARATE SERVICE CONTRACT S WERE ENTERED IN TO IN THAT REGARD,THAT TAX HAD BEEN DEDUCTED ON SUCH SERVICE CONTRACTS,THAT THE TO TAL PERIOD OF STAY OF EMPLOYEES AND OTHER PERSONNEL OF ZPMC IN INDIA IN CONNECTION WITH INSTA LLATION AND COMMISSIONING OF CRANES SUPPLIED TO THE ASSESSEE WAS LESS THAN 183 DAYS,THA T THE EMPLOYEES OF ZPMC VISITED INDIA FROM 30.10.2007 AND COMPLETED INSTALLATION AND COMMISSIO NING ON 15.01.2008,THAT THE CRANES WERE ACCEPTED BY THE ASSESSEE ON 15.01.2008,THAT IT HAD ISSUED AN ACCEPTANCE CERTIFICATE TO ZPMC,THAT THE EMPLOYEES OF ZPMC WERE NOT PRESENT IN INDIA DUR ING THE PERIOD 24. 03.2008 TO 15.06. ITA/7878/MUM/10,GUJRAT PIPAVAV 4 2008,THAT THE AGGREGATE PERIOD OF STAY OF EMPLOYEES IN INDIA FROM 16.01.2008 TO 15.01.2008 (AFTER EXCLUDING THE PERIOD OF 24.03.2008 TO 15.06. 2008 WHEN NONE OF THESE EMPLOYEES WERE PRESENT IN INDIA) FOR THE PURPOSE OF CARRYING OUT ' AFTER SALES SERVICE'WAS ACTUALLY ONLY 99 DAYS,THAT THE STAY WAS LESS THAN THE THE THRESHOLD LIMIT OF 1 83 DAYS,THAT ZPMC WOULD NOT CONSTITUTE A PE IN INDIA UNDER ARTICLE 5 OF INDIA-CHINA TAX TREATY,THA T THE AO HAD ERRED IN CALCULATING THE PERIOD OF STAY OF EMPLOYEES OF ZPMC IN INDIA, THAT THE AO HAD INADVERTENTLY CALCULATED THE NUMBER OF DAYS FROM 30.10.2007 TO 15.01 2008 AS 93 DAYS,THAT THE TOTAL NUMBER OF DAYS OF STAY OF EMPLOYEES OF ZPMC IN INDIA WAS 78 DAYS (2+30+31+15) ,THAT THE AO,FOR PURPOSE OF COMPUTING THRESHOLD NUMBER OF DAYS I.E. 183 FOR CONSTITUTING PE,HAD CONSIDERED THE STAY PERIOD RELATED TO AFTER SALES SERVICES (UNDER THE SUPPLY AGREEMENT)AL ONG WITH THE PERIOD OF TIME SPENT IN INSTALLA - TION AND COMMISSIONING,THAT PERIOD OF CONTRACT COVE RING AFTER SALES SERVICE IS COVERED BY THE EXCEPTION PROVIDED UNDER ARTICLE 5(3)(E) I.E. MAINT ENANCE OF FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF CARRYING ON, FOR THE ENTERPRISE, ANY OTHER ACTIVITY OF A PREPARATORY OR AUXILIARY CHARACTER,THAT THE MAIN BUSINESS ACTIVITY OF THE Z PMC WITH REGARD TO THE PURCHASE CONTRACTS WITH THE ASSESSEE WAS SUPPLY OF MACHINERY,THAT AFTER SAL ES SERVICE IS JUST AN ADDITIONAL SUPPORT TO IT TO RECTIFY ANY PROBLEMS IF ANY THAT COULD ARISE AFTER COMMISSIONING THE CRANES. WITHOUT PREJUDICE TO THE ABOVE CONTENTION,THE ASSES SEE MADE AN ALTERNATE SUBMISSION AND STATED THAT THE AGGREGATE STAY OF THE EMPLOYEES OF ZPMC DU RING THE CONTRACT PERIOD WAS NOT MORE THAN 177 DAYS(78+ 99 DAYS),THAT 78 DAYS WERE SPENT DURIN G INSTALLATION PERIOD I.E. FROM 30.10. 2007 TO 15. 01.2008 AND 99 DAYS WERE SPENT FOR THE PURPOSE OF CARRYING OUT 'AFTER SALES SERVICE' (I.E. FROM 16.01.2008TO 15.07.2008), THAT FOR THE PERIOD OF 24 .03.2008 TO 15.06.2008 NONE OF THE EMPLOYEES OF ZPMC WERE PRESENT IN INDIA,THAT THE PERIOD OF ST AY OF EMPLOYEES OF ZPMC IN INDIA UNDER THE CONTRACTUAL OBLIGATION HAD NOT EXCEEDED THE THRESHO LD LIMIT OF 183 DAYS AS PER THE ARTICLE 5(2)(J) OF THE INDIA-CHINA DTAA.IT WAS FURTHER ARGUED THAT THE CBDT INSTRUCTION WAS APPLICABLE FOR AY.1987-88 AND THAT THE INSTRUCTION WAS NOT APPLIC ABLE IN CASE OF DTAA.IT PLACED RELIANCE ON THE CASES OF ANDHRA PRADESH POWER GENERATION CORPOR ATION LTD.(2009-TIOL-346-ITAT-HYD), SUNDWIGER EMFG AND CO AND OTHERS (2003-TIOL-273-HC- AP-IT),LG CABLE LTD.(314 ITR 301)AND XELO PTY LTD.OF MUMBAI TRIBUNAL(ITA/4107 AN D 4108).THE ASSESSEE ALSO REFERRED THE PROTOCOL TO THE INDIA-US DTAA,WHICH CONTAINED EXAMP LE AS SIMILAR TO VERY FACTS OF THE ASSESSEE,THE FACTS THAT TECHNICAL SKILLS WERE REQUI RED BY THE PERFORMER OF THE SERVICES-IN ORDER TO PERFORM THE COMMERCIAL INFORMATION-DID NOT MAKE THE SERVICE TECHNICAL SERVICES WITHIN THE MEANING OF PARAGRAPH 4(B). 3.1. THE FAA,AFTER PERUSING THE CONTENTIONS OF THE ASSES SEE AND THE ASSESSMENT ORDER,HELD THAT APMM HAD ENTERED IN TO MPA CONTRACTS ON 17-2-2004 A ND 17-6-2004 TO BUY CRANES FROM ZPMC,THAT ZPMC HAD TO CONSTRUCT,DELIVER AND COMMISS ION THE CRANES IN ACCORDANCE OF TERMS AND CONDITIONS SET OUT IN MPA,THAT THE CRANES WERE TO BE FABRICATED,DELIVERED AND COMMISSIONED BY ZPMC FOR THE ASSESSEE BEING ONE OF THE AFFILIAT E OF APMM,THAT THE ASSESSEE ENTERED INTO MPA FOR BUYING OTHER CRANES THAT THE TERMS AND CON DITIONS OF SUBSEQUENT MPA(DTD.17-06-04) WERE SIMILAR TO THE MPA DATED 17-2-2004,THAT THE AS SESSEE HAD ENTERED IN TO CRANE ADVISORY SERVICES AGREEMENT (CASA)WITH LIFTECH,THAT IN COMMO N PARLANCE THOSE SERVICES COULD BE TECHNICAL CONSULTANCY AND MANAGERIAL,THAT SERVICES RENDERED UNDER CASA FELL UNDER FIS,THAT TECHNICAL PERSONNEL WERE DEPLOYED TO RENDER TECHNIC AL SERVICES,THAT THE LIFTECH WOULD DO INDEPENDENT STRUCTURAL ANALYSIS AND CHECK STRESS LE VEL AND WHEEL LOADS,THAT THE MEMBERS OF ITS TEAM WOULD VISIT PIPAVAV PORT FOR TESTING THE CRANE S FOR WHICH SEPARATE FEE HAD BEEN LAID OUT,THAT LIFTECH WAS TO MAKE INDEPENDENT STRUCTURAL ANALYSIS OF THE CRANE USING A PARTICULAR PROGRAM,THAT ITA/7878/MUM/10,GUJRAT PIPAVAV 5 IT WAS PROVIDING SERVICES OF DEVELOPMENT OF PLAN AN D DESIGN, MODEL WHICH AMOUNTS TO FEES FOR TECHNICAL SERVICES AND ALSO COVERED AS FEES FOR INC LUDED SERVICES DEFINED UNDER ARTICLE 12(4)(B) OF DTAA.REFFERING TO THE FEE ESTIMATE CLAUSE,HE OBS ERVED THAT IT ALSO INCLUDED FEES FOR COMMISSIONING AT PIPAVAV AND DOCUMENTATION,THAT THE SERVICES WERE ALSO RENDERED IN INDIA,THAT THE LIFTECH HAD AWARDED SUB-CONTRACT TO LEADER BUT WHAT KIND OF SERVICES WERE RENDERED BY LEADER TO THE ASSESSEE WAS NOT MADE AVAILABLE,THAT SERVICES PROVIDED BY LEADER TO ASSESSEE WERE IN THE NATURE OF FIS ,THAT THE COPY OF REPORT FORWA RDED BY LIFTECH THROUGH THE LETTERS DATED 15.12. 2006,12.01.07,09.02.07,09.03.07, 13. 04.07,11.05.07 , 08.06.07,06.06.07,03-08-07,05-10-07 AND 10.01.07 SHOWED THAT IT HAD SUGGESTED DEVELOPMENT O R IMPROVED TECHNICAL PLAN,THAT THE PAYMENTS WERE IN THE NATURE OF FIS AND WERE COVERED BY ARTIC LE 12(4) (B)OF INDIA-US DTAA,THAT LIFETECH HAD MADE AVAILABLE TO THE ASSESSEE THE KNOWLEDGE OF ALL ASPECTS IN THE CONSTRUCTION ACTIVITY OF CRANES AND THE ASSESSEE HAD GOT THOSE INFORMATION S O THAT IT COULD APPLY THE SAME WITHOUT ANY PERMISSION FROM LIFTECH,THAT LIFTECH GOT THEIR PART OF CONTRACT EXECUTED THROUGH SUB-CONTRACTOR LEADER WHICH WAS RESIDENT OF CHINA,THAT THE REPORTS OF THE CHINESE SUB-CONTRACTOR WERE COLLECTED BY LIFTECH THROUGH INTERNET AND WERE FORW ARDED TO ASSESSEE AS WELL AS TO ZMPC,THAT THE IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL/ INDUSTRIAL/ COMMERCIAL/ SCIENTIFIC EXPERIENCE WOULD FALL UNDER AS ROYALTY UNDER ARTICLE 12(3)(C) OF INDIA-USA DTAA. 3.2. THE FAA REFERRED TO THE ACCEPTANCE CERTIFICATE AND HELD THAT MPA WAS A COMPOSITE CONTRACT,THAT IT DETERMINED THE PURCHASE PRICE AND ENVISAGED THAT IT WAS THE SELLERS RESPONSIBILITY TO FABRICATE CRANES,THAT THE ARTIFICIALLY BIFURCATE D CONTRACTS(I.E. SPECIFIC PURCHASE CONTRACT AND SERVICES CONTRACT AFTER SALES AND SERVICE)WERE NOTH ING BUT PART OF MPA DATED 17-2-2004 AND 17- 6-2004,THAT PURCHASE CONSIDERATION PASSED ON TO ZPM C WAS FOR TURNKEY CONTRACT AS PER THE CLAUSE 21 OF MPA,THAT THE ACTIVITIES RENDERED BY ZP MC IN INDIA WERE IN THE NATURE OF MANAGERIAL, TECHNICAL AND CONSULTANCY SERVICES IN R ESPECT OF LABOUR,EQUIPMENT AND MATERIAL COST ASSOCIATED WITH SUPPLY OF CRANES IN INDIA,THAT TECH NICAL SERVICES IN RESPECT OF EQUIPMENT AND COMMISSIONING OF SPARE PARTY IN INDIA WERE ALSO IN NATURE OF TECHNICAL AND CONSULTANCY,THAT THE ACTIVITIES INCLUDED CONSTRUCTION OF CRANES IN CHINA INVOLVING MATERIAL AND OTHER COSTS,THAT IT ALSO INVOLVED ASSEMBLING OF CRANES IN CHINA,THAT TRANSPO RATION OF CRANES TO THE PORT IN CHINA AND PORT ACTIVITIES OF LOADING,CLEARANCE IN CHINA WERE PART OF THE ACTIVITIES UNDERTAKEN BY THE SUPPLIER,THAT SHIPPING COST,LABOUR,EQUIPMENT AND MATERIAL COSTS A SSOCIATED WITH SUPPLY OF CRANES IN INDIA,THAT MATERIAL COSTS ASSOCIATED WITH CRANES WERE ASSOCIAT ED WITH THE ACTIVITIES CARRIED OUT BY ZMPC, THAT THE COST OF THE ACTIVITIES PERFORMED IN INDIA WAS ALSO INCLUDED THE LUMP SUM CONSIDERATION ON ACCOUNT OF TECHNICAL SERVICES AND BUSINESS CONSIDE RATION,THAT INCOME FROM SUCH ACTIVITIES WAS LIABLE TO CHARGE IN INDIA UNDER SECTION 5(2) OF THE ACT,THAT CONTRACT OF SALES CONSIDERATION ALSO INCLUDED COST OF LABOUR,EQUIPMENT AND MATERIAL COST WITH SUPPLY OF CRANES,THAT THE AO HAD RIGHTLY HELD THAT A PART OF INCOME WAS LIABLE TO BE TAXED IN INDIA ON ACCOUNT OF SERVICE PART OF SUPPLY CONTRACT IN ADDITION TO SERVICES CONTRACT. 3.3. HE FURTHER HELD THAT FOR THE PURPOSE OF CONSTITUTIN G THE PE IN INDIA THE AGGREGATE DURATION OF ENTIRE CONTRACT HAD TO BE COUNTED,THAT THE PERIOD O F PRESENCE OF EMPLOYEES FOR COMMISSIONING OF CRANES AND UP TO THE DATE OF CONTRACTUAL OBLIGATIO N PROVIDED UNDER THE MPA HAS TO BE CONSIDERED FOR DECIDING THE ISSUE OF PE,THAT TOTAL STAY OF T HE EMPLOYEES OF ZPMC WORKED OUT AT 260 DAYS(78+91 +91 ASSESSEE260) WHICH FAR EXCEEDED THE THRESHOLD LIMIT OF 183 DAYS,THAT THE ACTIVITY OF SUPPLY OF CRANES WAS RIGHTLY HELD FTS BY THE AO, THAT TECHNICAL SERVICES WERE TAXABLE IN INDIA,THAT SOME OF THE ACTIVITY PROVIDED IN PURCHAS E CONTRACT WERE DONE IN INDIA,THAT THE NATURE OF SERVICES CLEARLY POINTED OUT THAT THEY WERE MANAGER IAL,TECHNICAL AND CONSULTANCY SERVICES IN ITA/7878/MUM/10,GUJRAT PIPAVAV 6 RESPECT OF LABOUR, EQUIPMENT AND MATERIAL COST,THAT THERE WAS AN ELEMENT OF FTS IN THE PURCHASE CONTRACT OF CRANES,THAT SAME WERE INTRINSICALLY WOV EN IN THE AFTER SALES AND SERVICE AND SPARE PARTS/UTILITIES,THAT ZPMC HAD BEEN PAID FEES FOR FT S FOR THE PROVISIONS OF SERVICES OTHER THAN SALE OF CRANES COVERED IN THE CONTRACT,THAT THE ASSESSEE HAD SUBMITTED THAT ZPMC HAD ONLY CONSIDERED THE ESTIMATION OF COST OF USD 44,100 AFTER MARK UP OF 5%,THAT THE SUBMISSION OF THE ASSESSEE CLEARLY CONFIRMED THAT THE VALUE OF AFTER SALES AND SUPPORT SERVICES WAS INCLUDED IN SALE CONSIDERATION OF THE CONTRACT,THAT ZPMC HAD ONLY CO NSIDERED COST OF ITS EMPLOYEES AND HAD NOT CONSIDERED ANY OTHER SERVICES, THAT UBCB HAD PERFOR MED ACTIVITY ON BEHALF OF THE APPELLANT,THAT UBCB CONSTITUTED AGENCY PE UNDER ARTICLE 5(4) OF DT AA,THAT THE ELEMENT OF FTS WAS TAXABLE IN INDIA EVEN WITHOUT THERE BEING NO PE OF THE ZPMC IN INDIA,THAT THE PAYER WAS INDIAN RESIDENT,THAT THE PAYMENT MADE ON ACCOUNT OF TECHNI CAL,MANAGERIAL SERVICES WAS TAXABLE U/S.9(1 ) (VII)(B) READ WITH EXPLANATION 2 OF THE ACT.THE FAA REFERRED TO THE PARA2(6) OF ATTACHMENT I-A OF DESIGN AND STRUCTURAL AGREEMENT.HE ANALYSED THE PRO VISIONS OF ARTICLE12(4)(B) OF THE DTAA AND HELD THAT THE PAYMENT FOR RENDERING ANY TECHNICAL O R CONSULTANCY SERVICE WAS FIS,THAT THE PAYMENT MADE BY THE ASSESSEE WAS FOR DEVELOPMENT AN D TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN,THAT THE WORDS 'MAKE AVAILABLEMEANT TECHNIC AL KNOW-HOW, EXPERIENCE,SKILL,KNOW-HOW OR PROCESS ETC.,THAT IT DID NOT GO WITHCONSTRAINTS OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR A TECHNICAL DESIGN,THAT THE SECOND LIMB IN CLA USE(B)OF SUB ARTICLE(4)OF ARTICLE12OF DTAA COULD BE INVOKED WHEN THE AMOUNT WAS PAID IN CONSID ERATION FOR RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES AND IF SUCH SERVICES CONSISTED OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OF A TECHNICAL DESIGN ALSO,THAT THE CONDITION OF MAKING AVAILABLE TECHNICAL KNOWLEDGE WAS NOT SIN QUA NON FOR CONSIDERING THE Q UESTION AS TO WHETHER THE AMOUNT IF FIS OR NOT,THAT IT WAS RIGHTLY CONSIDERED AS FIS WITHIN T HE MEANING OF ARTICLE 12(4)OF THE DTAA.HE RELIED UPON THE CASES OF ZENTEX MERCHANTS(P)LTD.(94 ITD 211),SNC-LAVALIN INTERNATIONAL INC. (13DTR449),TATA IRON AND STEEL CO.LTD(34SOT83)AND S WEDSHI TELECOM INTERNATIONAL AB(24 DTR 233)AND HELD THAT PAYMENT HAD BEEN MADE ON ACCO UNT OF IMPARTING OF INFORMATION CONCERNING INDUSTRIAL,COMMERCIAL OR SCIENTIFIC EXPE RIENCE IN THE FIELD OF QUALITY CHECKING OF CRANES,STRUCTURAL ANALYSIS,THAT LIFTECH HAD PROVIDE D VARIOUS REPORTS, CONTAINING COPY OF CD.S,SOFT COPY AS WELL AS HARD COPY,THAT IT WAS ROYALTY AS D EFINED IN THE ARTICLE12(3)OF DTAA,THAT THE LIFTECH HAD RENDERED SERVICES AS DEVELOPMENT OF TEC HNICAL DESIGN AND PLAN WHICH ITSELF AMOUNTED AS MAKE AVAILABLE SERVICES.FINALLY,HE HELD THAT THE PAYMENT MADE TO LIFTECH BY THE ASSESSEE WAS IN THE NATURE OF FIS CHARGEABLE TO TAX IN INDIA UNDER SECTION 9(1)(VII)(B) AND UNDER 12(4)(B) READ WITH ARTICLE 12(7) OF THE DTAA. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)CONTENDE D THAT ASSESSEE HAD PURCHASED CRANES FROM ZMPC,THAT THE NON-RESIDENT COMPANY HAD NO PE I N INDIA INCLUDING AGENCY PE, THAT THE EMPLOYEES OF THE CHINESE COMPANY HAD NOT STAYED IN INDIA FOR MORE THAN 182 DAYS, THAT FOR COMPUTING THE PERIOD OF STAY ONLY ACTUAL DAYS SHOUL D BE CONSIDERED AND NOT THE ENTIRE PERIOD MENTIONED IN THE AGREEMENT,THAT DURING THE AFTER SA LES SERVICE PERIOD EMPLOYEES OF THE NON- RESIDENT COMPANY WERE NOT IN INDIA FOR A VERY LONG TIME,THAT SERVICES RENDERED BY THE CHINESE COMPANY WERE NOT FTS/FIS,THAT THE CRANES WERE CONST RUCTED AS PER THE DESIGNS GIVEN BY THE NETHERLAND COMPANY,THAT LIFETECH WAS NOT HIRED BY T HE ASSESSEE TO SUPERVISE THE MANUFACTURING OF CRANES, THAT SERVICES WERE RENDERED OUTSIDE INDI A, THAT THE AO AND THE FAA WERE NOT JUSTIFIED IN HOLDING THAT IT WAS DEVELOPMENT OF DESIGN,THAT N O SERVICES WERE MADE AVAILABLE TO THE ASSESSEE .HE RELIED UPON THE CASES OF J.RAY MCDERMOTT EASTE RN HEMISPHERE LTD.(130 TTJ121), BIRLA CORPORATION LTD.(53TAXMANN. COM1) AND FURTHER ARGUE D THAT THE ASSESSEE HAD ENTERED INTO TWO SEPARATE SERVICE CONTRACTS IN THE MONTHS OF MAY AND DECEMBER 2006 IN RESPECT OF UNLOADING, ITA/7878/MUM/10,GUJRAT PIPAVAV 7 INSTALLING, COMMISSIONING AND TESTING IN CONNECTION WITH THE PURCHASE OF CRANES IN PURSUANCE OF SPECIFIC PURCHASE AGREEMENTS, THAT NOTHING WAS ATTR IBUTABLE FROM THE PURCHASE CONTRACTS TOWARDS SERVICES, THAT IN RESPECT OF SERVICES THE ASSESSEE HAD DEDUCTED TAX @10%, THAT THE SERVICES ALLEGED BY THE AO TO BE PART OF PURCHASE CONTRACT W ERE IN FACT SEPARATELY COVERED BY THE SERVICE CONTRACTS, THAT IF SERVICES WERE INEXTRICABLY LINKE D TO SUPPLY OF GOODS SAME COULD NOT BE TREATED AS FIS/FTS, THAT THE SERVICES WOULD BE PART OF BUSI NESS INCOME.HE REFERRED TO ARTICLE-5(2)(J) OF INDIA-CHINA DTAA,THAT WHERE THERE WAS A SPECIFIC PE CLAUSE THE PROVISIONS OF ARTICLE 12 WERE NOT APPLICABLE,THAT ACTIVITY OF SUPPLY, INSTALLATIO N AND COMMISSIONING AND AFTER SALES SERVICES INDEPENDENTLY DID NOT AMOUNT TO FTS.THE DEPARTMENTA L REPRESENTATIVE (DR)SUPPORTED THE ORDER OF THE FAA AND ARGUED THAT EMPLOYEES OF THE CHINESE COMPANY STAYED FOR MORE THAN THE STIPULATED PERIOD IN INDIA,THAT THE ASSESSEE HAD IN STALLATION PE IN INDIA, THAT THE SERVICES AVAILED BY THE ASSESSEE WERE IN THE NATURE OF FTS. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THAT THE ASSESSEE IS AN AFFILIATE TO APMM WHO HAD ENTERED IN TO A MPA,DATED 17-2-2004,WITH ZPMC FOR SUPPLY OF CRANES TO ITS AFFILIATES,THAT CONSEQUENT TO MPA THE ASSESSEE HAD ENTERED IN TO SPC WITH CHINESE COMPANY FOR SUPPLY OF CRANES,THAT IT ALSO E NTERED IN TO A SEPARATE SERVICE CONTRACTS WITH ZPMC FOR RENDERING THE INSTALLATION AND COMMISSIONI NG SERVICES IN RELATION TO SUCH CRANES,THAT IT ENGAGED LIFTECH A USA BASED ENTITY FOR RENDERING OF ENGINEERING SERVICES TO REVIEW OF PRE- DETERMINED DESIGN AND CONSTRUCTION AUDIT,THAT LIFTE CH GOT THEIR PART OF CONTRACT EXECUTED THROUGH A SUB-CONTRACTOR NAMELY LEADER WHICH WAS A RESIDENT OF CHINA,THAT THE ASSESSEE PAID RS.92.19 LAKHS TO LIFTECH FOR THE SERVICES AVAILED,THAT ZPMC HAD ARRANGED FOR TRANSPORT OF CRANES TO THE DESIGNATED SITE,THAT IT HAD PROVIDED INSTALLATION A ND COMMISSIONING SERVICES OF THE CRANES THAT IT ALSO PROVIDED AFTER SALES SERVICES AND SPARE PARTS, THAT THE ASSESSEE HAD PAID ZPMC $11,00,000 FOR INSTALLATION AND COMMISSIONING OF CRANE,THAT TH E AO HELD THAT A PART OF THE SERVICES RENDERED BY LIFTECH UNDER THE PURCHASE CONTRACT WAS TO BE CO NSIDERED FIS AS PER THE PROVISIONS OF ARTICLE 12 OF THE INDIA-USA TAX TREATY.ALTERNATIVELY,THE AO HELD THAT THE PAYMENT COULD BE TAXED AS ROYALTY ALSO.IN SHORT HE HELD THAT BESIDES THE SPEC IFIC SERVICE AGREEMENT A PART OF THE PURCHASE AND INSTALLATION CONTRACT WERE ASSESSABLE AS FIS/RO YALTY AS PER THE INDIA AMERICAN TAX TREATY OR AS PER THE PROVISIONS OF SECTION 9 OF THE ACT. WE FIND THAT ALL THE SERVICES RELATED WITH AUDIT AN D CONSTRUCTION OF CRANES WERE AVAILED OUT OF INDIA,THAT LIFTECH HAD APPOINTED LEADER ITS SUB-CON TRACTOR,THAT THE ASSESSEE WAS NOT PARTY TO THA T CONTRACT.THEREFORE,IN OUR OPINION,THERE WAS NOT ANY TRANSFER OF TECHNICAL PLAN/DESIGN BY LIFTECH TO ASSESSEE AND THAT NOTHING WAS MADE AVAILABLE T O THE ASSESSEE IN INDIA.ONCE IT IS HELD THAT PROVISIONS OF ARTICLE 12 OF THE DTAA ARE NOT APPLIC ABLE THE N EXT STEP IS TO DETERMINE AS TO WHETHER THE DISPUTED AMOUNT CAN BE TAXED AS BUSINES S INCOME OF LIFTECH.WE FIND THAT THE AO OR THE FAA HAS NOT PROVED THAT LIFTECH HAD ANY PE INCL UDING FUNCTIONAL PE IN INDIA.SO,IN ABSENCE OF PE,THERE WOULD NOT BE BUSINESS INCOME TO LIFTECH AND THE ASSESSEE WOULD NOT BE REQUIRED TO DEDUCT TAX FOR THE PAYMENTS MADE TO LIFTECH.HERE,ON E MORE THING HAS TO BE CONSIDERED- THE ASSESSEE HAD AVAILED A COMMERCIAL SERVICE PERTAINING TO REVI EW OF PRE-DETERMINED DESIGNS AND CONSTRUCTION AUDI T OF CRANES WHILE THEY WERE BEING MANUFACTURED.IN O THER WORDS,LIFETECH HAD PROVIDED ANY KNOW -HOW TO THE ASSESSEE FOR MANUFACTURING OF CRANES.A PLAIN READING OF THE PROTOCOL TO THE INDO-US DTAA AND THE EXAMPLE CITED IN IT LEAVE NO DOUBT THAT THE SERVICES RE NDERED BY LIFTECH WERE NOT TECHNICAL SERVICES WITHI N THE MEANING OF ARTICLE 12(4)(B)/12(7)OF THE TREATY.AS FAR AS CBDT INSTRUCTION IS CONCERNED IT IS FOUND THAT IT DEALS WITH CARRYING ON BUSINESS OF OIL EXPLORATION AND PRODUCTION IN INDIA .IN OUR OPINION,TH E INSTRUCTION IS OF USE TO ITA/7878/MUM/10,GUJRAT PIPAVAV 8 DECIDE THE ISSUE BEFORE US.HERE,WE WOULD LIKE TO RE FER TO THE CASE OF DIAMOND SERVICES INTERNATIONAL (P)LTD.(304ITR 201).FACTS THE CASE WERE THAT GEMOLOGICAL INSTITUTE OF AMERICA (GIA) WAS ENGAGED IN THE ACTIVITY OF GRADING AND C ERTIFICATION OF DIAMONDS WHICH WERE SHIPPED TO ITS LABORATORY THROUGH AN INTERNATIONAL NETWORK OF PARTICIPANTS,THAT GRADING REPORT ISSUED BY GIA WAS A STATEMENT OF FACT AS TO THE CHARACTERISTI CS OF THE DIAMOND,THAT IT INCLUDED AN ANALYSIS OF THE DIAMONDS DIMENSIONS, CLARITY, COLOUR, POLISH, SYMMETRY AND O THER CHARACTERISTICS,THAT GIA DID NOT ASSIGN OR TRANSFER ANY INDUSTRIAL OR COMMER CIAL EXPERIENCE TO ITS CUSTOMERS,THAT THE AO HAD HELD THAT SERVICES RENDERED BY GIA WERE IN THE NATURE OF ROYALTY AND THAT TAX HAD TO BE DEDUCTED BY THE ASSESSES BEFORE MAKING PAYMENT TO G IA.THE HONBLE BOMBAY HIGH COURT , DECIDING THE MATTER IN FAVOUR OF THE ASSESSEE, HELD THAT THERE WAS NO TRANSFER OF ANY SKILL OR KNOWLEDGE OF GIA TO THE CUSTOMERS IN THE ISSUANCE O F GRADING RE PORTS,THAT PAYMENT RECEIVED WAS NOT FOR THE USE OR THE RIGHT TO USE THE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE BUT FOR THE APPLICATION OF EXPERIENCE TO A CERTAIN FACTUAL SITU ATION,THAT GIA APPLIED ITS EXPERTISE TO DETERMINE THE TRUE FEATURES OF TH E DIAMONDS OF ITS CLIENTS WHICH WERE OFFERED FOR CE RTIFICATION OR GRADING,THAT THE NATURE OF THE TRANSACTION BETWEEN GIA AND ITS C LIENT DID NOT INVEST THE PARTY MAKING PAYMENT WITH ANY RIGHT AS REGARDS THE USE OF THE CUMULATED EXPERIENCE OF GIA,THAT THE PA YMENT IN QUESTION DID NOT INVOLVE A PAYMENT FOR THE USE OR THE RIGHT TO U SE THE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE OF GIA,THAT THE ACTIVITY OF G RADING OR CERTIFICATION WAS MERELY THE APPLICATION OF THE KNOWLEDGE/ EXPERIENCE IN A PROFE SSIONAL STREAM,THAT T HE DEFINITION OF ROYALTY UNDER THE DTAA UNDER ART. 12(3) USEED THE EXPRESSION 'OR FOR INFORMATION CONCERNING INDUS TRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE',THAT THERE WA S NO PARTING OF INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE BY GIA WHEN IT ISSUED THE GRADING CERTIFICATE ,THAT UNDER SUB- CL. (4) THE PAYMENTS RECEIVED MUST BE IN CONSIDERAT ION FOR SERVICES OF MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE,THAT IT WOULD INCLU DE THE APPLICATION OR ENJOYMENT OF THE RIGHT, P ROPERTY OR INFORMATION,THAT IT WAS NOT MAKING AVAIL ABLE TECHNICAL KNOW LEDGE, EXPERIENCE, SKILL, ETC.TO ENABLE THE PERSON ACQUIRING THE SERVICE TO A PPLY THE TECHNOLOGY CONTAINED THEREIN ,THAT GIA WAS NOT IMPARTING ITS TECHNICAL KNOWLEDGE, EXPERIEN CE, SKILL, ETC. TO ITS CUSTOMERS,THAT WHEN THERE WAS NO TRANSFER OF RIGHT TO USE, PAYMENT CANNOT BE TREATED AS ROYALTY WITHIN THE MEANING OF ART. 12 OF THE DTAA,THAT PAYMENT RECEIVED BY THE PETITIONER A SINGAPOREAN COMPANY, AS A SUB - PARTICIPANT OF GIAS NETWORK FROM INDIAN CLIENTS FOR COLLECTING AND SHIPPING DIAMONDS AND CERTIFICATION THEREOF BY GIA DID NOT FALL WITHIN TH E EXPRESSION ROYALTY. IN LIGHT OF ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE JUDGMENT OF DIAMOND SERVICES INTERNATIONAL (P)LTD . (SUPRA),WE REVERS E THE ORDER OF THE FAA.WE HOLD THAT THE PAYMENT MAD E TO LIFTECH WAS NOT ROYALTY OR FIS OR FTS AND THE ASSESSEE WAS NOT SUPPOSED TO DEDUCT TAX AT SOURCE FOR MAKING THE PAYMENT TO LIFETECH AND THEREFORE CANNOT BE TREATED AS ASSESSEE IN DEF AULT.GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE. 5.1. NOW,WE WOULD LIKE TO DISCUSS THE ISSUES RAISED IN G ROUNDS NO.2&3.THE FAA HAD UPHELD THE DECISION OF THE AO THAT PART OF THE BASIC INSTALLME NT AND PURCHASE AGREEMENT INCLUDED ELEMENT OF SERVICE CONTRACT ALSO,THAT THE JOB DONE UNDER THE B ASIC AGREEMENT COULD BE TERMED FIS.THE FAA HAD ALSO HELD THAT THE ASSESSEE HAD PE/INSTALLATION PE IN INDIA,AS THE THE EMPLOYEES OF THE NON - RESIDENT COMPANY STAYED IN INDIA FOR MORE THAN 180 DAYS.IN OUR OPINION,THERE WAS NO JUSTIFICATION IN HOLDING THAT THE SERVICES PROVIDED UNDER THE BASIC AGREEMENT WERE AKIN TO SERVICES RENDERED BY SPECIFIC SERVICES AGREEMENT-RATHER THEY WERE PART AND PARCEL OF THE SERVICE CONTRACTS DT.26.5.06 AND 9.12.2006.WE ALSO FIND THAT THE PROJ ECT STARTED ON 30.10.2007 AND WAS COMMISSIONED ON 15.1.2008.THUS,THE INSTALLATION JOB TOOK 78 DAYS AND THE EMPLOYEES OF ZMPC STAYED IN INDIA FOR 21 DAYS COMMISSIONING TOOK PLAC E.IN THESE CIRCUMSTANCES,THE EFFECTIVE STAY OF ITA/7878/MUM/10,GUJRAT PIPAVAV 9 THE EMPLOYEES IN INDIA WAS 99 DAYS ONLY.WHEREAS,THE FAA HAS TAKEN INTO CONSIDERATION THE ENTIRE PERIOD OF AFTER SALES SERVICE FOR COMPUTING THE THRESHOLD LIMIT OF THE STAY.IF THE ACTUAL PERIOD OF AFTER SALES SERVICE IS EXCLUDED FROM THE TOTAL PERIOD THEN THE STAY OF THE EMPLOYEES OF ZMPC WOULD BE LESS THAN 183 DAYS,THERE WOULD NOT BE ANY PE OF ZPMC IN INDIA AS PER ARTICLE- 5(2)(J) OF THE DTAA.HERE,WE WOULD LIKE TO REFER TO THE CASE OF J.A.MCDERMOTT EASTERN HEMISPHERE LTD.(130 TTJ 121) AND KREUZ SUBSEA PTE.L TD.(58TAXMANN.COM371).IN THE SECOND MATTER THE ONE OF THE ISSUES BEFORE THE TRIBUNAL WA S TO DETERMINE THE METHOD OF CALCULATING THE PERIOD OF STAY FOR PE PURPOSES.IT WAS HELD THAT THR ESHOLD LIMIT OF 183 DAYS UNDER ARTICLE 5(3)WOULD BE CALCULATED FROM DATE OF ACTUAL ACTIVIT Y FOR INSTALLATION PURPOSE AND NOT FROM THE DATE OF SINGING OF CONTRACT.WE HAVE PERUSED THE LET TER OF ZMPC(PG.523 OF THE PB)WHEREIN ZMPC HAS CONFIRMED THAT NONE OF ITS EMPLOYEES WERE PRESENT IN INDIA AFTER 24.03.2008.DETAILS OF EMPLOYEES VISITING FOR AFTER SALES SERVICES ARE AVAILABLE ON PGS.522 AND 526-28.THESE DOCUMENT CLEARLY PROVE THAT ACTUAL NUMBER OF DAYS O F THE EMPLOYEES OF ZMPC WERE LESS THAN 183 DAYS. 5.2. WE WILL ALSO LIKE TO DISCUSS THE ISSUE OF INSTALLAT ION PE FROM ANOTHER ANGLE.THE BASIC PRINCIPLE,IN THIS REGARD,LAYS DOWN THE RULE THAT WH EN THERE IS A SPECIFIC PE CLAUSE IN RELATION TO A PARTICULAR TYPE OF SERVICE(CONSTRUCTION/INSTALLATIO N/ASSEMBLY)AND WHERE SUCH SERVICES ARE ALSO COVERED WITHIN THE SCOPE OF ARTICLE 12,THE PROVISIO NS OF THAT ARTICLE WILL NOT BE APPLICABLE.IN THE CASE OF BIRLA CORPORATION LTD.(53 TAXMANN.COM 1)THE ISSUE HAS BEEN DEALT EXTENSIVELY. THE TRIBUNAL HAS RECORDED THE FACTS OF THE CASE AS UNDE R: .......TO ADJUDICATE ON THESE GRIEVANCES, A FEW MA TERIAL FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE BEFORE US IS A UNIT OF BIRLA CORPORATION L IMITED, AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING CEMENT. DURING THE SCRUTI NY OF TAX DEDUCTION AT SOURCE RETURNS FILED BY THE ASSESSEE, FOR THE RELEVANT FINANCIAL PERIOD, TH E ASSISTANT COMMISSIONER OF INCOME TAX-TDS, JABALPUR(AO-TDS IN SHORT)NOTICED THAT THE ASSESSEE HAS MADE CERTAIN FOREIGN REMITTANCES WITHOUT DEDUCTING TAX AT SOURCE.WHEN ASSESSEE WAS A SKED THE REASONS OF DOING SO, IT WAS EXPLAINED TO THE AO-TDS THAT THE INCOME EMBEDDED IN THESE PAYMENTS WAS NOT CHARGEABLE TO TAX IN INDIA AS THESE PAYMENTS WERE FOR IMPORTS OF PLAN T, EQUIPMENT AND MACHINERY. IT WAS ALSO CONTENDED THAT AS THE PAYMENTS WERE MADE FOR PURCHA SES, WHICH DID NOT GIVE RISE TO TAXABILITY OF RELATED INCOME IN INDIA, THERE WAS NO REQUIREMENT O F TAX WITHHOLDING REQUIREMENT FROM THESE PAYMENTS. THE AO-TDS, HOWEVER, DID NOT SHARE THIS P ERCEPTION OF FACTS. HE WAS OF THE VIEW THAT THE PAYMENT WAS NOT ONLY FOR PURCHASES BUT ALSO FOR INCIDENTAL SERVICES IN CONNECTION WITH INSTALLATION AND COMMISSIONING OF THESE MACHINES, A ND, ACCORDINGLY, THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE FROM THESE PAYMENTS. HE WAS AL SO OF THE VIEW THAT EVEN IF A PART OF INCOME INCLUDED IN THESE PAYMENTS WAS LIABLE TO BE TAXED I N INDIA, IT WAS INCUMBENT UPON THE ASSESSEE TO APPROACH THE ASSESSING OFFICER, UNDER SECTION 195(2 ), FOR DETERMINATION OF INCOME IN RESPECT OF WHICH TAX IS TO BE DEDUCTED AT SOURCE. THE AO-TDS N OTED THAT THESE PAYMENTS WERE ADMITTEDLY FOR COMPOSITE CONTRACTS WHICH INCLUDES ALL THE SERVICES AND OTHER CHARGES AND THAT CONTRACTS ENTERED INTO BY THE .... (ASSESSEE) FOR DESIGN, MA NUFACTURE, SUPPLY, INSTALLATION, TESTING AND COMMISSIONING OF PLANT WOULD FALL UNDER THE CATEGOR Y OF WORKS CONTRACTS AND LEVIABILITY OF TDS THEREON WOULD BE EFFECTIVE. THE AO-TDS ALSO WAS OF THE VIEW, AFTER GOING THROUGH THE AGREEMENTS AND PURCHASE ORDERS SUBMITTED Y THE ASSE SSEE, THAT ALL THE ORDERS WERE NOT IN NATURE OF MERE SUPPLY OF MACHINERY, BUT IN ADDITION TO THE SUPPLY PART, THE ORDERS/ AGREEMENTS OBVIOUSLY HAD SUPERVISION, INSPECTION AND COMMISSIO NING CHARGES ELEMENT ETC, FOR WHICH, IN THE AGREEMENT/ORDER ITSELF, IT WAS ADMITTED THAT SUCH P AYMENTS SHALL BE LIABLE TO INCOME TAX. THE AO-TDS FURTHER OBSERVED THAT CERTAINLY THERE WERE PAYMENTS INHERENT IN THE NATURE OF SERVICES ALONG WITH EACH SUPPLY TYPE OF PAYMENTS. HE WAS OF THE VIEW THAT IT WAS DUTY OF THE ASSESSEE TO APPROACH THE INCOME TAX AUTHORITIES FOR APPORTIONME NT OF TAXABLE/NON-TAXABLE PART OF ANY ITA/7878/MUM/10,GUJRAT PIPAVAV 10 REMITTANCE MADE TO THE FOREIGN PARTIES BUT IT (THE ASSESSEE) FAILED TO DO SO. THE AO-TDS ONCE AGAIN NOTED THAT THE ORDERS OF SUPPLY ARE NOT MERE SUPPLY ORDERS AND THAT THERE ARE ALSO SOME TRAITS/ INHERENT CLAUSES WHICH CONNOTE THAT THE ORD ER IS OF COMPOSITE NATURE AS SERVICES PARTS ARE ALSO (PRESENT) THEREIN. THE AO-TDS ALSO REFERRED TO THE ORDER DATED 14.10 .2009 PLACED BY THE ASSESSEE WITH SHENYUNG HEAVY MACHINERY CO. LTD, CHINA, WHICH WAS SAID TO HAVE A SPECIFIC CLAUSE WITH RESPECT TO ERECTION AND COMMISSIONING OF THE SYSTEM, AND NO TED THAT NO TAXES HAVE BEEN DEDUCTED AT SOURCE FROM PAYMENTS MADE TO THIS SUPPLIER EITHER. .. THE AO-TDS, ON THE BASIS OF THE ABOVE DISCUSSIO NS, CONCLUDED THAT THE CONTRACT IS A COMPOSITE CONTRACT FOR SUPPLY OF PLANT AND MACHINER Y AND ALSO FOR ANCILLARY SERVICES OF INSTALLATION, COMMISSION ASSESSMENT YEARS 2010-11 A ND 2011-12 PAGE 6 OF 51 AND ERECTION OF SUCH PLANT AND MACHINERY. .....LEARNED CIT(A) THEN ANALYZED EACH OF THE PURC HASE CONTRACT AND NOTED THAT EVEN THOUGH THERE IS A MENTION ABOUT REIMBURSEMENT OF CERTAIN E XPENSES AND RELATED PER DIEM PAYMENTS IN THE CONTRACTS, FOR VISITS IN CONNECTION WITH THE INSTAL LATION AND COMMISSIONING, EACH OF THESE CONTRACTS PUTS THE VENDORS UNDER CERTAIN OBLIGATION S WITH RESPECT TO INSTALLATION AND COMMISSIONING. ON THIS BASIS, HE CONCLUDED THAT ALL THE CONTRACTS ARE COMPOSITE CONTRACTS FOR PURCHASE OF GOODS AS ALSO THE RELATED SERVICES FOR INSTALLATION AND COMMISSIONING ETC. ........ IT WAS SUBMITTED THAT WHENEVER ANY SERVICES RENDERE D BY THE VENDORS FOR THE PURPOSES OF INSTALLATION, COMMISSION AND SUPERVISION SERVICES, TAXES ARE DULY DEDUCTED FROM THE SAME, AND THAT SO FAR AS THESE PAYMENTS BEFORE US ARE CONCERN ED, THESE PAYMENTS ARE SIMPLY FOR PURCHASE OF MACHINES, AND PLANT AND MACHINERY. IT WAS ALSO POINTED OUT THAT THE REVENUES CASE BE FORE US IS NOT THAT TAXES HAVE NOT BEEN DEDUCTED FROM THE PAYMENTS FOR INSTALLATION, COMMISSIONING A ND SUPERVISION CHARGES, BUT THAT A PART OF THE PAYMENT FOR MACHINES, PLANT AND MACHINERY REPRESENT S PAYMENT OF CONSIDERATION FOR SERVICES RENDERED IN INDIA AS THERE IS NO SEPARATE CONSIDERA TION, SAVE AND EXCEPT FOR NOMINAL REIMBURSEMENT OF ACTUAL COSTS AND ALLOWANCES OF TEC HNICAL PERSONNEL VISITING THE INSTALLATION SITE, FOR SERVICES RENDERED IN INDIA. ACCORDING TO LEARNED DEPARTMENTAL REPRESENTATIVE, A S LONG AS VENDOR IS ASSOCIATED WITH ANY WORK, OR ITS SUPERVISION, TO BE CARRIED OUT IN INDI A AND NO SEPARATE CONSIDERATION IS PAID FOR THE SAME, THE SALE CONSIDERATION FOR SUCH MACHINE, PLAN T AND MACHINERY MUST BE HELD TO HAVE AN EMBEDDED PAYMENT FOR THESE SERVICES WHICH IS TAXABL E IN INDIA. AFTER CONSIDERING THE ABOVE FACTS,THE TRIBUNAL DECI DED THE MATTER IN FOLLOWING MANNER: WE HAVE NOTED THAT THE BASIC PLEA OF THE ASSESSING OFFICER, BASED ON WHICH THE IMPUGNED DEMANDS HAVE BEEN RAISED, IS THAT SINCE A PART OF C ONSIDERATION PAID FOR THE EQUIPMENT AND MACHINERY IS TOWARDS INSTALLATION, COMMISSIONING OR ASSEMBLY OF PLANT AND EQUIPMENT, SUCH A CONSIDERATION IS LIABLE TO TAX IN INDIA UNDER SECTI ON 4 AND 5 OF THE INCOME TAX ACT, 1961. XXXXXXXXXXXX WE HAVE NOTED THAT SO FAR AS THE TRANSACTIONS IMPUG NED IN THESE APPEALS ARE CONCERNED, THESE TRANSACTIONS PERTAIN TO THE VENDORS FISCALLY DOMICI LED IN (1) AUSTRIA, (2) BELGIUM, (3) CHINA, (4) GERMANY, (5) SWITZERLAND, (6) UNITED KINGDOM, AND ( 7) UNITED STATES OF AMERICA. .....THE RECIPIENTS OF THESE PAYMENTS, AS IS THE UN DISPUTED FACTUAL POSITION, ARE ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING RELATED EQUIP MENT, PLANT OR MACHINERY. AS TO WHAT SHOULD BE THE SCOPE OF TAXATION OF SUCH BUSINESS INCOME, A S ALL THE RELATED DTAAS PROVIDE, THAT THE PROFITS NON-RESIDENT VENDOR SHALL NOT BE TAXABLE IN INDIA, UNLESS THE NON-RESIDENT VENDOR CARRIES ON BUSINESS IN INDIA THROUGH A PERMANENT ESTABLISHM ENT IN INDIA, AND WHERE THE NON-RESIDENT VENDOR CARRIED ON BUSINESS THROUGH THE PERMANENT ES TABLISHMENT, TAXABILITY OF INCOME SHALL BE CONFINED, EXCEPT IN THE CASES IN WHICH LIMITED FORC E OF ATTRACTION PRINCIPLE IS SPECIFICALLY EXTENDED IN ARTICLE 7(1) I.E. BELGIUM, GERMANY AND US, TO TH E INCOME AS IS ATTRIBUTABLE TO THAT PERMANENT ESTABLISHMENT. ITA/7878/MUM/10,GUJRAT PIPAVAV 11 . THE CASE OF EXISTENCE OF THE PE THUS HINGES ON W HETHER BY THE VIRTUE OF, WHAT IS NORMALLY TERMED AS, INSTALLATION PE AS COULD COME UP BY THE NATURE OF THE ACTIVITIES LEADING TO THE INCOME IMPUGNED BEFORE US . THE RELATED PROVISIONS IN RESP ECT OF ALL THESE JURISDICTIONS ABOVE ARE AS FOLLOWS: .. . (J) A BUILDING SITE OR CONSTRUCTION, INSTALLATION O R ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, WHE RE SUCH SITE, PROJECT OR ACTIVITIES (TOGETHER WITH OTHER SUCH SITES, PROJECTS OR ACTIVITIES, IF ANY) C ONTINUE FOR A PERIOD OF MORE THAN 188 DAYS; .......THE UNDERLYING PRINCIPLE IN ALL THE ABOVE DE FINITION, EVEN AS THERE IS A VARIANCE ON THE THRESHOLD TIME LIMITS, IS THAT UNLESS THE INSTALLAT ION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH CROSS THE SPECIFIED THRESHO LD TIME LIMIT,..... THERE IS NOTHING ON RECORD TO ESTABLISH, OR EVEN SUGGEST, THAT THIS CONDITION IS SATISFIED IN THE CASES BEFORE US. ....IN OUR CONSIDERED VIEW,THEREFORE, IT IS PLAIN O N PRINCIPLE THAT AS LONG AS THRESHOLD TIME LIMIT FO R PE IS NOT SATISFIED,THE CONSIDERATION FOR SUCH INST ALLATION OR ASSEMBLY ACTIVITIES, OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, CANNOT BE BROUG HT TO TAX IN THE SOURCE COUNTRY. DURING THE COURSE OF HEARING AND AT THE INSTANCE OF THE BENCH, LEARNED COUNSEL FOR THE ASSESSEE HAS FILED DETAILS OF THE WORK CARRIED ON AT THE INSTALLATION AND ASSEMBLY SITE IN RESPECT OF ALL THE TRANSACTIONS, AS IT DID TAKE PLACE IN THE RELEVANT FINANCIAL PERIOD, AND, AS EVIDENT FROM EVEN A CURSORY LOOK AT THESE DETAILS, IN NONE OF THESE CAS ES THE CONDITIONS FOR CREATION OF PE ARE SATISFIED. ....IN VIEW OF THE ABOVE DISCUSSIONS, EVEN IF A PAR T OF THE INCOME, EMBEDDED IN THE IMPUGNED PAYMENTS MADE TO NON-RESIDENT VENDORS, CAN INDEED B E ATTRIBUTED TO THE INSTALLATION, ASSEMBLY OR COMMISSIONING ACTIVITIES OF THE PLANT, MACHINERY OR EQUIPMENT PURCHASED, SUCH AN INCOME, ON THE FACTS OF THIS CASE, CANNOT BE BROUGHT TO TAX AS BUS INESS INCOME UNDER ARTICLE 7 READ WITH ARTICLE 5 OF THE RESPECTIVE DTAAS. 44. ONE COMMON FACTOR IN ALL THE ABOVE TREATY PROVI SIONS IS THAT THE EXPRESSION FEES FOR TECHNICAL SERVICES, WHICH IS ALSO REFERRED TO AS FEES FOR I NCLUDED SERVICES IN SOME THE TREATIES I.E. INDO SWISS AND INDO US TAX TREATIES, DESCRIBES THESE SER VICES IN A RATHER GENERAL MANNER WHEREAS THE EXPRESSION CONSTRUCTION, INSTALLATION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH FIND A SPECIFIC MENTION IN THE PE CLAUSE S IN ALL THE RELATED TREATIES. GENERALLY SPEAKING, AND DE HORS THE RESTRICTED MEANINGS ASSIG NED BY MAKE AVAILABLE CLAUSE OR EXCLUSION CLAUSES, INSTALLATION OR COMMISSION ACTIVITIES ARE A PARTICULAR TYPE OF TECHNICAL SERVICES. THERE IS THUS A GENERAL PROVISION FOR RENDERING OF TECHNICAL SERVICES AND A SPECIFIC PROVISION FOR RENDERING OF TECHNICAL SERVICES IN THE NATURE OF CONSTRUCTION , INSTALLATION OR PROJECT OR SUPERVISORY SERVICES IN CONNECTION THEREWITH. 47. THE SAME PRINCIPLE MUS T APPLY IN THE TREATY SITUATIONS AS WELL. WHAT IS THE POINT OF HAVING A PE THRESHOLD TIME LIMIT FO R CONSTRUCTION, INSTALLATION AND ASSEMBLY PROJECTS IF SUCH ACTIVITIES, WHETHER CROSS THE THRE SHOLD TIME LIMIT OR NOT, ARE TAXABLE IN THE SOURCE STATE ANYWAY. IF WE ARE TO PROCEED ON THE BASIS THA T THE PROVISIONS OF PE CLAUSE AS ALSO FTS CLAUSE MUST APPLY ON THE SAME ACTIVITY, AND EVEN WH EN THE PROJECT FAILS PE TEST, THE TAXABILITY MUST BE HELD AS FTS AT LEAST, XXXXXXXXXXXXXX IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CONSIDERED VIEW, IN A SITUATION IN WHICH THERE ARE SPECIFIC PE CLAUSES IN RELATION TO A PARTICULAR TYPE OF SERV ICES, WHICH ARE COVERED IN THE SCOPE OF SERVI CES COVERED BY THE SCOPE OF THE FEES FOR TECHNICAL SER VICES OR FEES FOR INCLUDED SERVICES, THE TAXABILITY OF CONSIDERATION FOR SUCH SERVICES MUST REMAIN CONFINED TO TAXABILITY OF PROFITS UNDER THE RELEVANT SPECIFIC PE CLAUSE. IN OUR HUMBLE UNDE RSTANDING, THE PROVISIONS FOR TAXABILITY AS FTS OR FIS WILL NOT COME INTO PLAY IN SUCH CASES. ........VIEWED THUS, THE FTS OR FIS PROVISIONS CANN OT BE INVOKED FOR TAXING A NONRESIDENT ON THE BASIS OF ACCRUAL OF LIABILITY, WHETHER CREDITED OR NOT, OR ON THE NOTIONS OF FICTION OF AN ELEMENT OF FTS OR FIS BEING EMBEDDED IN THE BUSINESS RECEIPTS FOR SALE OF PLANT, EQUIPMENT OR MACHINERY. THE RECEIPTS IN THE HANDS OF THE VENDORS ARE IN THE NATURE OF BUSINESS INCOME, AND THE DEEMING FICTION, AS SOUGHT TO BE CANVASSED BY THE REVENUE, HAS NO APPLICATION IN THE MATTER. THE BUSINESS ITA/7878/MUM/10,GUJRAT PIPAVAV 12 INCOME CAN BE TAXED UNDER ARTICLE 7 READ WITH ARTIC LE 5, AND, AS WE HAVE SEEN EARLIER IN THIS ORDER, THE CONDITIONS PRECEDENT FOR TAXABILITY UNDE R ARTICLE 7 R.W.A. 5 ARE NOT FULFILLED ON THE FACTS OF THIS CASE. IN MANY OF THE CASES, AS NOTED IN THE ORDERS OF THE AUTHORITIES BELOW, THE RELATED INSTALLATION AND COMMISSIONING SERVICES, AND SUPERV ISION SERVICES IN CONNECTION THEREWITH, HAVE BEEN RENDERED BY THE DOMESTIC ENTITIES AND PAYMENTS MADE TO THOSE ENTITIES HAVE ALREADY BEEN SUBJECTED TO TAX WITHHOLDING UNDER OTHER PROVISIONS OF CHAPTER XVII D BUT, DISREGARDING THIS REALITY, THE CIT(A) HAS PROCEEDED ON THE BASIS THAT COST OF SERVICES IS ALSO VESTED IN THE COST OF MATERIAL WHETHER SUCH SERVICES ARE PERFORMED OR NO T. WHEN ADMITTEDLY NO SUCH SERVICES WERE RENDERED, THERE NOT HAVE BEEN ANY OCCASION TO BRING FICTIONAL CONSIDERATION FOR THOSE SERVICES TO TAX. 58. IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CONSID ERED VIEW, UNDER THE SCHEME OF ALLOCATION OF TAXING RIGHTS UNDER THE RELATED TAX TREATIES,INDIA DOES NOT HAVE THE RIGHT TO TAX INCOME, EVEN IF ANY, IN RESPECT OF RENDITION OF INSTALLATION, COMMI SSIONING OR ASSEMBLY SERVICES, EMBEDDED IN THE INVOICE VALUE OF THE RELATED EQUIPMENT, PLANT OR MA CHINERY. CONSIDERING THE ABOVE DECISION,WE ARE ALSO OF THE O PINION THAT FAA WAS NOT JUSTIFIED IN HOLDING THAT A PART OF INCOME WAS LIABLE TO BE TAXED IN IND IA ON ACCOUNT OF SERVICE PART OF SUPPLY CONTRACT IN ADDITION TO SERVICES CONTRACT,THAT SERVICES REND ERED IN RESPECT OF INSTALLATION/COMMISSIONING OR ASSEMBLY SERVICES WERE NOT TAXABLE IN INDIA-EVEN TH OUGH SUCH SERVICES WERE EMBEDDED IN THE INVOICE VALUE OF THE INSTALLED CRANES. WE WOULD ALSO LIKE TO DISCUSS THE DECISION OF UPS SCS (ASIA)LTD.(50SOT268).THE FACTS OF THE CASE WERE THAT THE ASSESSEE-COMPANY INCORPORATED UN DER THE LAWS OF HONG KONG,WAS ENGAGED IN THE BUSINESS OF PROVISION OF SUPPLY CHAIN MANAGEMEN T, THAT IT ENTERED INTO A REGIONAL TRANSPORTATION SERVICES AGREEMENT WITH MENLO WORLDW IDE FORWARDING (INDIA) PRIVATE LIMITED FOR PROVIDING FREIGHT AND LOGISTICS SERVICES TO EAC H OTHER,THAT EACH PARTY AGREED TO RENDER SERVICES TO THE OTHER IN RESPECT OF IMPORT AND EXPORT OF CON SIGNMENTS,THAT INCOME ARISING UNDER THE AGREEMENT WAS CLAIMED BY THE ASSESSEE TO BE NOT CHA RGEABLE TO TAX IN INDIA AS PER THE PROVISIONS OF SECTION 5 READ WITH SECTION 9 OF THE ACT,THAT TH E AO HELD THAT SERVICES WERE COVERED UNDER THE PROVISIONS OF SECTION 9(1)(VII), BEING FTS,THAT THE FAA UPHELD THE ORDER OF THE AO STATING THAT THE TRANSPORTATION FEES RECEIVED BY THE ASSESSEE WA S TAXABLE IN INDIA AS FTS AS IT WAS IN THE NATURE OF MANAGERIAL/TECHNICAL OR CONSULTANCY SERVI CES.DECIDING THE APPEAL,THE TRIBUNAL HELD AS UNDER: 5.A BARE PERUSAL OF EXPLANATION 2 TO SECTION 9(1)(V II) INDICATES THAT THE 'FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION FOR RENDERING OF ANY 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES' BUT DOES NOT INCLUDE THE CONSIDERATION FO R ANY CONSTRUCTION, ASSEMBLY ETC. THE LEARNED CIT(A) HAS HELD THE SERVICES RENDERED BY THE ASSESS EE AS 'FEES FOR TECHNICAL SERVICES' COMING WITH IN THE SWEEP OF 'MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES'. ON THE CONTRARY, THE CONTENTION OF THE ASSESSEE HAS REMAINED BEFORE THE AUTHORITIES BELOW AS WELL AS US THAT THE SUCH SERVICES DO NOT FALL WITHIN THE AMBIT OF ANY OF THE CATEGORIES TAKEN NOTE OF BY THE AUTHORITIES BELOW. TRIBUNAL WILL EXAMINE AS TO WHETHER THE SERVICES SO PROVIDED BY THE ASSESSEE FALL WITHIN THE SCOPE OF 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES' AS PER EXPLANATION 2 TO SECTION 9(1)(VII). 8.IT IS OBSERVED THAT THE ASSESSEE PERFORMED FREIGH T AND LOGISTICS SERVICES OUTSIDE INDIA IN RESPECT OF CONSIGNMENTS ORIGINATING FROM INDIA UNDERTAKEN T O BE DELIVERED BY MENLO INDIA. THE ROLE OF THE ASSESSEE IN THE ENTIRE TRANSACTION WAS TO PERFO RM ONLY THE DESTINATION SERVICES OUTSIDE INDIA BY UNLOADING AND LOADING OF CONSIGNMENT, CUSTOM CLE ARANCE AND TRANSPORTATION TO THE ULTIMATE CUSTOMER. IT IS TOO MUCH TO CATEGORIZE SUCH RESTRIC TED SERVICES AS MANAGERIAL SERVICES. THE BENCH, THEREFORE, JETTISONS THIS CONTENTION RAISED ON BEHA LF OF THE REVENUE. 9.THE NATURE OF SERVICES, BEING FREIGHT AND LOGISTI CS SERVICES PROVIDED BY THE ASSESSEE TO MENLO INDIA HAS NOT BEEN DISPUTED BY THE AUTHORITIES BELO W. THERE IS NOTHING LIKE GIVING ANY CONSULTATION WORTH THE NAME. RATHER SUCH PAYMENT IS WHOLLY AND EXCLUSIVELY FOR THE EXECUTION IN ITA/7878/MUM/10,GUJRAT PIPAVAV 13 THE SHAPE OF TRANSPORT, PROCUREMENT, CUSTOMS CLEARA NCE, DELIVERY, WAREHOUSING AND PICKING UP SERVICES. THAT BEING THE POSITION, PAYMENT IN LIEU OF FREIGHT AND LOGISTICS SERVICES CANNOT BE RANKED AS CONSULTANCY SERVICES. 11.ON GOING THROUGH CLAUSE 2 OF THE AGREEMENT, IT I S OBVIOUS THAT MENLO INDIA SHALL 'SEPARATELY EXECUTE A TECHNOLOGY AND SOFTWARE LICENSE AGREEMENT ' FOR THE PROVISION OF COMPUTER EQUIPMENT AND SOFTWARE SUPPLIED BY THE ASSESSEE. IT IS NOBODY 'S CASE THAT THE CONSIDERATION IN QUESTION RELATES TO THE SUPPLY OF ANY COMPUTER EQUIPMENT AND SOFTWARE BY THE ASSESSEE TO MENLO INDIA. TRIBUNAL FAILS TO APPRECIATE AS TO HOW THIS CLAUSE 2 MAKES THE SERVICES PROVIDED BY THE ASSESSEE AS 'TECHNICAL'. RATHER CLAUSE 2 MANDATES TO EXECUTE A SEPARATE TECHNOLOGY AND SOFTWARE LICENSE AGREEMENT FOR THE PROVISION OF COMPUTER EQUIPMENT A ND SOFTWARE. HOW IS IT THAT THE CONSIDERATION FOR THE SERVICES CAN BE ATTRIBUTED TO A PROPOSED AG REEMENT, WHICH HAS YET TO SEE THE LIGHT OF THE DAY. 17.THUS IT CAN BE NOTICED THAT THE PAYMENT MADE TO THE ASSESSEE IN QUESTION IS NOT A CONSIDERATION FOR MANAGERIAL OR TECHNICAL OR CONSULTANCY SERVICES . THAT BEING THE POSITION, IT CANNOT FALL WITHIN THE AMBIT OF SECTION 9(1)(VII). 18.UNLESS A NONRESIDENT EARNS INCOME FROM BUSINESS OPERATIONS CARRIED OUT IN INDIA, SUCH INCOME CANNOT BE DEEMED AS ACCRUING OR ARISING IN I NDIA. REVERTING TO THE FACTS OF THE INSTANT CASE, IT IS CRYSTAL CLEAR THAT THE ASSESSEE RENDERE D 'INTERNATIONAL SERVICES' OUTSIDE INDIA WHICH REQUIRED THE PAYMENT IN QUESTION. IF THIS IS THE PO SITION, WHICH HAS NOT EVEN BEEN DISPUTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THEN THERE CAN BE NO QUESTION OF ROPING SUCH INCOME WITHIN THE KEN OF SECTION 9(1)(I). 19.IT IS, THEREFORE, PATENT THAT THE PAYMENT RECEIV ED BY THE ASSESSEE NEITHER FALLS U/S 9(1)(I) NOR U/ S 9(1)(VII). SINCE THE INCOME CANNOT BE DESCRIBED AS DEEMED TO ACCRUE OR ARISE IN INDIA AND THERE IS NO DOUBT ABOUT SUCH INCOME HAVING NOT BEEN RECEIVED OR DEEMED TO BE RECEIVED OR ACCRUING OR ARISING IN INDIA, THE TAXABILITY OF SUCH INCOME FAI LS. THE AMOUNT IN QUESTION CANNOT BE CHARGED TO TAX. 5.3. WE FURTHER FIND THAT THE ASSESSEE HAD ENTERED IN TO TWO SPECIFIC SERVICE CONTRACTS ON 26.05.2006 AND 09.12.2006 IN RESPECT OF UNLOADING,I NSTALLATION AND COMMISSIONING,TESTING AND TRAINING SERVICES IN CONNECTION WITH PURCHASE OF CR ANES,THAT THE FAA HAD HELD THAT SPECIFIC PURCHASE CONTRACT AND SERVICE CONTRACT WERE PART OF ENTIRE CONTRACT AS DEFINED IN THE MPA,THAT ALL THE THREE CONTRACTS WERE PART OF A COMPOSITE AG REEMENT,THAT HE HELD THAT SERVICES WERE EMBEDDED IN THE PURCHASE AGREEMENT,THAT THE ASSESSE E HAD DEDUCTED TAX @10% IN RESPECT OF THE SERVICES ENUMERATED IN THE SERVICE CONTRACT,THAT TH E AO AND THE FAA HAVE HELD CERTAIN SERVICES RENDERED IN PURSUANCE OF SERVICE CONTRACT WERE PART OF THE PURCHASE CONTRACT AND HENCE THE ASSESSEE WAS LIABLE TO DEDUCT TAX WITH REGARD TO SU CH SERVICES.IN OUR OPINION,IT WOULD BE USEFUL TO REFER TO THE PAGES 488-92,505-06 OF THE PAPER BOOK( PB)IN THAT REGARD.SCOPE OF SERVICES HAS BEEN DEFINED AS UNDER: THE SERVICES MEANS THE FOLLOWING A. REMOVAL OF SEA FASTENING, REINSTALLATION OF THE DIS K ASSEMBLED PARTS OF THE CRANES REMOVED FOR SEA TRANSPORTATION (IF ANY); B. UNLOADING THE CRANES FROM THE SHIP TO TERMINALS WH ARF C. PLACEMENT OF THE CRANES ON THEIR PERMANENT RAIL D. POKING UP THE CLAIM TO THE ELECTRIC POWER E. TESTING ALL FUNCTIONALITIES OF THE CRANES ON THEIR PROPER OPERATIONS F. PREPARING THE CRANE FOUR, SHALL OPERATIONS ACCORDIN G TO THE OPERATING CRITERIA OF THE TERMINAL G. REMOVING ALL DEFECTS THAT MAY BE OBSERVED OCCUR TO DURING OR THROUGH THE ABOVE H. TRAINING THE TERMINAL OPERATIONS AND MECHANICAL ST AFF IN OPERATING AND MAINTENANCE AND FAULT FINDING ITA/7878/MUM/10,GUJRAT PIPAVAV 14 I. HANDING OVER THE CRANE IN THE REQUIRED STATE TO THE TERMINAL TO PROCEED WITH, SHALL OPERATIONS J. BANK GUARANTEE, CUSTOM DUTIES AND CUSTOM CLEARANCE CHARGES ON TEMPORARY IMPORT OF TOOLS AND TACKLES REQUIRED FOR ELECTION AND INSTALLATION OF C RANES K. ALL THIS ELECTION INSURANCE POLICY AND INSURANCE FO R ZP MCS PERSONAL FOR THE ENTIRE PERIOD OF THE CONTRACT. CLAUSE 3 OF THE AGREEMENT DESCRIBES THE SERVICES TH AT WERE NOT PART OF SERVICES.WE FIND THAT PAGES 505-06 ALSO DEALS WITH SIMILAR KIND OF SERVICES AND TALK ABOUT PAYMENTS ALSO.WE WOULD LIKE TO REPRODUCE THE CLAUSES DEALING WITH RECITALS,TOTAL C ONTRACT PRICE AND SERVICES TO BE RENDERED AND SAME READS AS UNDER: THE TERMINAL PROCURED 10(TEN) RUBBER TIRED GANTRY C RANES-(AS DESCRIBED IN SCHEDULEI)-(THE CRANES) FOR DEVELOPMENT OF PIPAVAV PORT INDIA (THE SITE) AND THE TERMINAL WILL BE THE OWNER OF THE CRANES. ZPMC HAS OFFERED TO THE TERMINAL THE PROVIS ION OF SERVICES OF UNLOADING, INSTALLATION, COMMISSIONING TRIAL TESTS OF THE CRANES AND TRAININ G OF TERMINALS PERSONNEL AS SET OUT IN CLAUSE (THE SERVICES) AT THE SITE. THE TERMINAL HAS AGREED TO PLACE AN ORDER AND PAY F OR THE SERVICES FROM ZPMC. NOW,THEREFORE,THE TERMINAL HAS AGREED TO HIRE THE A FORESAID SERVICES FROM ZPMC AND SAID ZP MC HAS AGREED TO PROVIDE THE SERVICES TO THE TERMIN AL IN RELATION TO THE CRANES WHICH SHALL BE OWNED BY THE TERMINAL SUBJECT TO THE TERMS AND COND ITIONS SET FORTH BELOW 1. TOTAL CONTRACT PRICE FOR AND IN CONSIDERING OF THE AMOUNT OF USD 500,000 (US DOLLARS 500,000 ONLY) FOR ALL RTG (WHICH MEANS 50,000 USD FOR EACH SINGLE RTG) ZP MC AGREES TO PROVIDE THE TERMINAL SERVICES AT THE SITE. THE AMOUNT IS MENTIONED IN THE BILLING SCHEDULE IN SCHEDULE III. THE OTHER CLAUSES GIVES DETAILS OF SERVICES AND WHA T WOULD NOT BE PART OF SERVICES.CONSIDERING THE ABOVE TERMS,WE ARE OF THE OPINION THAT SERVICES TO BE AVAILED BY THE ASSESSEE UNDER THE ABOVE MENTIONED TWO AGREEMENTS WERE IN NATURE OF TAXABLE- SERVICE AND THE ASSESSEE HAD DEDUCTED TAX AT SOURCE FOR SUCH SERVICES.THE ASSESSEE HAD ENTERED I N TO SEPARATE SPECIFIC PURCHASE AGREEMENT. ARTICLE 7 OF THE SAID AGREEMENT (PG.467OF THE PB.)D EALS WITH AFTER SALES SERVICE AND SPARE PARTS AND THE NEXT CLAUSE IS ABOUT PROJECT SCHEDULE.IN OU R OPINION,BOTH THE AGREEMENT DEAL WITH SEPARATE THINGS AND SERVICES RENDERED AS PER THE PU RCHASE AGREEMENT CANNOT BE CONSIDERED PART OF THE ABOVE MENTIONED TWO SERVICE CONTRACTS,AS HELD E ARLIER. 5.4. NOW,WE WOULD LIKE TO TAKE UP THE ISSUE OF SPC DATED 29.10.2005(PG.464-471 OF THE PB).IF THE SERVICES RENDERED BY THE SUPPLIER ARE EXAMINED IT BECOMES CLEAR THAT SUCH SERVICES ARE INEXTRICABLY CONNECTED TO THE SALES OF CRANES.WE WA NT TO CLARIFY THAT IT IS TRUE FOR OTHER SPC.S. ALSO.SETTLED LAW,GOVERNING SUCH CONTRACTS,STIPULATE THAT IF SERVICES ARE INTRINSICALLY CONNECTED TO THE SALE OF GOODS SAME CANNOT BE TREATED AS FIS OR FTS AND THEY WOULD CONSTITUTE PART OF BUSINESS INCOME.THE HONBLE APEX COURT IN THE CASE OF ISHIKAWAJMA HARIMA HEAVY INDUSTRIES LTD.(288ITR408)HAS UPHELD THE ABOVE PRINCIPLE.THE H ONBLE CALCUTTA HIGH COURT IN THE MATTER OF ANDREW YULE & CO.(207ITR899)HAS ALSO DEALT WITH THE IDENTICAL ISSUE.IN THAT MATTER A GERMAN COMPANY HAD SUPPLIED CERTAIN MACHINERY TO TH E INDIAN ASSESEE AND HAD RENDERED CERTAIN SERVICES IN SETTING UP OF THE MACHINERY.CONSIDERING THOSE FACTS,THE HONBLE COURT HELD THAT SERVICES RENDERED IN SETTING UP OF MACHINE COULD NO T BE TREATED AS PERSONAL SERVICE EVEN IF THE AGREEMENT FOR RENDERING THE SERVICES WAS EMBODIED I N A SEPARATE AGREEMENT,THAT THE GERMAN COMPANY HAD NO PE IN INDIA,THAT IN VIEW OF THE INDO -GERMAN DTAA NO INCOME HAD ACCRUED IN INDIA,THAT THERE WAS NO LIABILITY TO DEDUCT TAX SOU RCE.FINALLY,WE WOULD LIKE TO REFER TO THE ORDER OF ITA/7878/MUM/10,GUJRAT PIPAVAV 15 THE SPECIAL BENCH OF THE CHENNAI TRIBUANL,DELIVERED IN THE CASE PRASAD PRODUCTION LIMITED(125 ITD 263).IN THAT MATTER THE ASSESSEE HAD PURCHASED CONSIDERING THE ABOVE,WE HOLD THAT THE FAA WAS NOT JUSTIFIED IN HOLDING THAT SERVICES RENDERED IN PURSUANCE OF THE PURCHASE AGREEMENT CAN BE TAXED AS FIS/FTS. 5.5. FINALLY,WE WOULD LIKE TO DEAL WITH THE ISSUE OF UBC B.WE FIND THAT THE FAA HAD HELD THAT UBCB HAD PERFORMED ACTIVITIES ON BEHALF OF ZPMC, TH AT IT WAS AN AGENT OF CHINESE CO. IN INDIA, THAT UBCB CONSTITUTED AGENCY PE OF ZPMC IN INDIA.IT IS FOUND THAT UBCB WAS SUB CONTRACTOR OF ZPMC,BUT IT HAD NO AUTHORITY TO CONCLUDE ANY CONTRA CT ON BEHALF OF ZPMC,THAT IT HAD RENDERED SERVICES RELATING TO THE INSTALLATION AND COMMISSIO NING OF CRANE NOT ONLY TO ASSESSEE BUT TO OTHER PARTIES ALSO.THEREFORE, IN OUR OPINION THERE WAS NO AGENCY PE IN INDIA UNDER ARTICLE-5(4) OF THE INDIA CHINA DTAA OF THE NON-RESIDENT ENTITY-I.E. ZP MC.CONSIDERING THE ABOVE DISCUSSION, GROUND NO.2 AND 3 ARE DECIDED IN FAVOUR OF THE ASSE SSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALL OWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH,2016. 23 , 2016 SD/- SD/- ( /RAM LAL NEGI) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 23.03.2016 . . . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR L BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.