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2011 (8) TMI 370 - AT - Income TaxApplicability of section 115A(1)(b)(BB) and Section 9(1)(vii) - Business income or fee for technical services - services in relation to construction of pipeline project - PE in India - composite contract - Held that - even if extra responsibility 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 Assessing Officer the amount of consideration received by the assessee at 3 per cent of gross receipts of the consortium it has to be accepted that the same is for providing FTS as per the co operation agreement. No case has been made out by the Assessing Officer 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 per cent as has been claimed by the assessee. - AO directed to apply the provisions of sub-clause BB of clause (b) of sub-section (1) of section 115A along with section 9(1)(vii) of the Act.
Issues Involved:
1. Tax Rate on Income 2. Classification of Income (Fees for Technical Services vs. Business Income) 3. Permanent Establishment (PE) in India 4. Deduction of Expenditure 5. Attribution of Income to PE 6. Charging of Interest under Sections 234A, 234B, and 234C 7. Initiation of Penalty Proceedings under Section 271(1)(c) Detailed Analysis: 1. Tax Rate on Income: The primary issue was whether the income of Rs. 1,71,97,548 should be taxed at 40% as business income or at 10% as fees for technical services (FTS) under section 115A(1)(b)(BB) of the Income-tax Act, 1961. The Tribunal held that the income should be taxed at 10% as FTS, as the provisions of section 115A were applicable, and section 44DA was not relevant in this context. The Tribunal directed the Assessing Officer to apply the provisions of sub-clause BB of clause (b) of sub-section (1) of section 115A along with section 9(1)(vii) of the Act. 2. Classification of Income (Fees for Technical Services vs. Business Income): The Assessing Officer and the Dispute Resolution Panel (DRP) classified the income from the Panvel Dabhol Pipeline (PDPL) project as business income, not FTS. The Tribunal found that the appellant's role was limited to providing technical services as per the cooperation agreement with Kalpataru Power Transmission Limited (KPTL). The Tribunal noted that the activities included design and engineering services and site review, which fall under FTS. The Tribunal cited previous decisions to support that the appellant's services did not constitute construction activities excluded from FTS under Explanation 2 to section 9(1)(vii). 3. Permanent Establishment (PE) in India: The Tribunal found that the issue of PE was not relevant for deciding the tax rate on FTS. The Tribunal noted that the appellant's claim was based on sections 9(1)(vii) and 115A, which apply even if there is no PE in India. The Tribunal directed that the income from the PDPL project should be taxed as FTS at 10%, making the PE issue academic. 4. Deduction of Expenditure: The appellant argued that the entire receipts from the PDPL project were treated as business profits without allowing any deduction for expenditure incurred. The Tribunal did not address this issue separately, as it concluded that the income should be taxed as FTS at 10%. 5. Attribution of Income to PE: The appellant contended that the entire income related to the PDPL project was attributed to the PE in India, despite most activities being conducted outside India. The Tribunal did not find it necessary to address this issue separately, as it determined that the income should be taxed as FTS at 10%. 6. Charging of Interest under Sections 234A, 234B, and 234C: The appellant challenged the charging of interest under sections 234A, 234B, and 234C. The Tribunal held that the interest issue is consequential and did not need separate adjudication. 7. Initiation of Penalty Proceedings under Section 271(1)(c): The appellant contested the initiation of penalty proceedings under section 271(1)(c). The Tribunal found this issue to be premature and did not adjudicate on it. Conclusion: The Tribunal allowed the appeal, holding that the income from the PDPL project should be taxed as FTS at 10% under section 115A, and not as business income at 40%. The Tribunal directed the Assessing Officer to apply the relevant provisions accordingly. Other issues, including PE, expenditure deduction, and interest, were deemed either academic or consequential and were not separately adjudicated.
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