2013 (11) TMI 1683 - AT - Income Tax

Whether the receipt treated as FTS by the AO should be included as part of total consideration of sub-contract receipt and deserves to be assessed as per provisions of Sec. 44BB of the Act and the balance receipt is also to be assessed u/s. 44BB of the Act? - Held that - The assessee is engaged in the business of providing services or facilities in connection with its business, therefore, provisions of Sec. 44BB clearly apply on the facts of the case. The AO has grossly erred in considering part of the income of the assessee as fee for technical services without pointing out which part relates to FTS. The Ld. CIT(A) has rightly considered the entire income to be taxed u/s. 44BB of the Act. The work/services done by the assessee do not come within the purview of Sec. 9(1)(vii) of the Act Assessee would be liable for paying interest u/s. 234B of the Act.

Issues Involved:

1. Applicability of Section 44BB of the IT Act, 1961.
2. Classification of receipts as "Fees for Technical Services" (FTS) or as part of total consideration under Section 44BB.
3. Liability for advance tax and interest under Section 234B of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of Section 44BB of the IT Act, 1961:

The primary issue was whether the total receipts from the composite contract should be assessed under Section 44BB. The assessee, a non-resident company, provided technical/engineering services for laying/installation of pipelines. The Assessing Officer (AO) argued that part of the income should be classified as FTS, while the remaining should be assessed under Section 44BB. The CIT(A) directed the AO to assess the total receipts under Section 44BB, stating that the contract was indivisible and the consideration was for a turnkey project. The Tribunal upheld this view, emphasizing that the contract should be read as a whole and the income should be taxed under Section 44BB, as the services provided were integral to the main job.

2. Classification of Receipts as "Fees for Technical Services" (FTS) or as Part of Total Consideration under Section 44BB:

The AO bifurcated the payments into deemed income under Section 44BB and FTS. The assessee contended that the entire consideration was a lump sum for a turnkey project, with no separate amount identified for technical services. The CIT(A) agreed with the assessee, concluding that the entire receipt should be assessed under Section 44BB. The Tribunal supported this conclusion, noting that the AO failed to specify which part of the income related to FTS. The Tribunal referenced judicial decisions, including the Hon'ble Delhi High Court's ruling in Jindal Drilling and Industries Ltd., which supported the application of presumptive tax under Section 44BB rather than Section 9(1)(vii).

3. Liability for Advance Tax and Interest under Section 234B of the IT Act, 1961:

The AO charged interest under Section 234B, arguing the assessee was liable for advance tax. The CIT(A) held that since the income was subject to tax deduction at source under Section 195, no advance tax was payable, and consequently, interest under Section 234B could not be charged. The Tribunal upheld this view, citing the jurisdictional High Court's decision in 313 ITR 187, which supported the non-levy of interest under Section 234B when tax was deductible at source.

Separate Judgments:

The issues and findings in ITA No. 700/Mum/2009 were identical to those in ITA No. 701/M/09. The Tribunal applied the same reasoning and conclusions to both cases, resulting in the dismissal of the appeals filed by the Revenue.

Conclusion:

The Tribunal confirmed the CIT(A)'s order, holding that the entire receipts from the composite contract should be assessed under Section 44BB, rejecting the bifurcation into FTS. Additionally, it upheld that no advance tax was payable, and interest under Section 234B could not be charged due to the applicability of tax deduction at source under Section 195. The appeals filed by the Revenue were dismissed.

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