2016 (12) TMI 443 - AT - Income Tax

Claim u/s 44BBB - whether assessee is a foreign company engaged in the business of erection of generator and testing and commissioning and it is a turnkey project ? - Held that - The assessee has signed the agreement for the execution of turnkey project with Tamilnadu Electricity Board on 27.12.2006. From the certificate issued by the Central Electricity Authority, Ministry of Power, it was clarified that it is a turnkey project to be treated at par with Power Projects approved by the Government of India for the purpose of section 44BBB of the Act. The letter was issued by the Central Electricity Authority, Government of India, Ministry of Power on 24.11.2008 which was placed before the Assessing Officer also. By Circular No. 552 dated 9.12.1990, it was clarified by the CBDT that an approval issued by the Department of Power in the Ministry of Energy shall be deemed to be approval of the Central Government for the purposes of sec. 44BBB of the Act. Now Ministry of Energy Sources was dispensed with and the Ministry of Power started functioning independently therefore the letter issued by the Ministry of Power is a valid communication on the subject of Electricity and power. No reason to reject the claim of the assessee in the absence of any evidence disproving the genuiness and authenticity of the furnished by the revenue. Secondly, the Assessing Officer rejected the claim stating that the Central Government approval is not available at the time of signing of the contract. Now it is well settled issue that additional claims and supporting documents such as approvals etc may be furnished at the time of assessment before the Assessing Officer or before the appellate authorities which will be treated as sufficient compliance. Since the approval was submitted before the Assessing Officer during the pendency of assessment proceedings, furnishing complete details of the power project and certificate that the contract work of the assessee may be treated as turnkey project for the purposes of sec. 44BBB of the Act and the assessing officer has not dispoved the same we do not find any reason for rejecting the claim of the assessee. Thus it is clear that the assessee has satisfied all the conditions for the purposes of computing the income u/s 44BBB as a turnkey project. Therefore we set aside the orders of the lower authorities and direct the Assessing Officer to compute the income as per sec. 44 BBB - Decided in favour of assessee Design Engineering & Technical and Supervisory services treated as technical services and taxed u/s 115 A r.w. sec. 44D - Held that - In the case of the assessee, the expenditure was debited the Profit and Loss account and the assessee explained that this was part of the receipt of contract works and no separate receipt was received by the assessee for any stand alone works. This fact was not examined by the A.O. If the payment was part of the contract works the section 44D does not apply and if the receipt was separately made for technical fees then the provisions of section 44D are applicable. Therefore, we set aside the orders of the lower authorities and restore this issue to the file of the Assessing Officer with a direction to examine whether the receipt in question is a part of the contract work or a separate payment and decide on merits after giving opportunity to the assessee. This ground is allowed for statistical purposes.

Summary

Issues Involved:
1. Claim under Section 44BBB of the Income-tax Act, 1961.
2. Taxation of Design Engineering & Technical and Supervisory services under Section 115A read with Section 44D of the Act.

Issue-wise Detailed Analysis:

1. Claim under Section 44BBB of the Income-tax Act, 1961:

The assessee-company filed its return of income for the assessment year 2011-12, declaring a total income of ?1,30,10,008 and computed 10% of the gross total turnover as income under Section 44BBB of the Act. The assessee claimed to be a foreign company engaged in the business of erection, testing, and commissioning of generators as part of a turnkey project. The Assessing Officer (AO) rejected this claim, stating that the project was not a turnkey power project approved by the Central Government at the time of signing the contract and was not financed by an international agency as required by the then-prevailing conditions of Section 44BBB.

The assessee provided a letter from the Chief Engineer certifying the project as a turnkey project, but the AO did not accept it, as it did not constitute an approval from the Central Government. The CIT(A) upheld the AO's decision.

Upon appeal, the Tribunal examined the certificate from the Central Electricity Authority, Ministry of Power, which clarified that the project was a turnkey project to be treated at par with power projects approved by the Government of India for the purposes of Section 44BBB. The Tribunal noted that the Ministry of Power's approval should be deemed as the Central Government's approval based on CBDT Circular No. 552 dated 9.12.1990. The Tribunal found no reason to reject the assessee's claim, as the approval was submitted during the assessment proceedings, and the AO did not disprove its authenticity. Furthermore, the condition requiring international financing was omitted from the Act effective 1.4.2004. Therefore, the Tribunal directed the AO to compute the income as per Section 44BBB, allowing this ground of appeal.

2. Taxation of Design Engineering & Technical and Supervisory services under Section 115A read with Section 44D of the Act:

The AO treated ?21,38,263 incurred for Design Engineering and Supervisory Services as fees for technical services under Section 44D read with Section 115A of the Act. The AO found that this amount was part of the consideration received from TNEB and repatriated by the non-resident company to its head office. The AO concluded that the amount was not for construction, assembly, mining, or similar projects and did not constitute salary income.

The CIT(A) confirmed the AO's decision. During the appeal, the assessee argued that the entire payment was contract receipts and should be assessed under Section 44BBB, with no separate consideration for technical and supervisory services. The Tribunal noted that neither the AO nor the CIT(A) examined whether the payment was part of the contract work or a separate receipt for technical services.

The Tribunal referred to the case of Deputy Commissioner of Income-tax v. Schlumberger Seaco, which explained that fees for technical services do not include consideration for construction, assembly, mining, or similar projects. The Tribunal observed that if the payment was part of the contract work, Section 44D would not apply. However, if it was a separate payment for technical services, Section 44D would be applicable.

Therefore, the Tribunal set aside the orders of the lower authorities and remanded the issue to the AO to examine the nature of the payment and decide on merits after giving the assessee an opportunity to present its case. This ground was allowed for statistical purposes.

Conclusion:

The appeal of the assessee was partly allowed for statistical purposes, with directions to the AO to recompute the income under Section 44BBB and re-examine the nature of the payment for Design Engineering and Supervisory Services. The order was pronounced in the open court on 10th November 2016, at Chennai.