9911796707
|
Home
Issues Involved:
1. Taxability of design and engineering fees. 2. Taxability of fees for training services. Issue-wise Detailed Analysis: 1. Taxability of Design and Engineering Fees: The primary dispute in the appeals filed by the Revenue concerns the taxability of amounts received by the assessee, SMS, for design and engineering services under two separate agreements with Visakhapatnam Steel Project (VSP). The agreements pertain to the Wire Rod Mill (WRM) and the Light and Medium Merchant Mill (LMMM). The assessee argued that these receipts were not taxable as they formed part of the commercial profits for services rendered abroad. The contracts were considered composite for the supply of equipment, with documentation forming an integral part of the plant and equipment. The Assessing Officer, however, disagreed, treating the receipts as "royalty" under section 9(1)(vi) and "fees for technical services" under section 9(1)(vii) of the Income-tax Act. The CIT(Appeals) held that the technical drawings/data were linked with the erection of the plant and its test operation, not for commercial exploitation, and thus did not constitute royalty. He further concluded that the payments were fees for technical services but not taxable under the Income-tax Act due to the exclusionary clause in Explanation 2 to section 9(1)(vii), which excludes consideration for construction, assembly, mining, or like projects. The Tribunal found that the design and engineering services provided by the assessee indeed constituted "fees for technical services" under Explanation 2 to section 9(1)(vii). However, the Tribunal disagreed with the CIT(Appeals) that these services fell under the exclusionary clause. The Tribunal emphasized that the agreements explicitly excluded the erection of the plant from the scope of the assessee's work, and thus, the consideration for supervisory services did not qualify for exclusion under the clause "consideration for any construction, assembly, mining, or like project undertaken by the recipient." The Tribunal further clarified that the term "like project" must be understood in the context of construction, assembly, and mining, and the consideration for supervision alone could not be classified as a "like project." Therefore, the receipts for design and engineering services were taxable as fees for technical services under section 9(1)(vii). 2. Taxability of Fees for Training Services: The CIT(Appeals) upheld the taxability of fees for training services provided by the assessee to VSP, considering them as fees for technical services under section 9(1)(vii). The training services were aimed at equipping VSP personnel with the necessary skills to operate and maintain the plants. The Tribunal agreed with this view, noting that the training services were not connected with the construction of the steel plant but were intended for its operation and running after setup. Consequently, the fees for training services were deemed taxable as fees for technical services. Conclusion: The Tribunal concluded that the design and engineering fees received by the assessee were taxable as fees for technical services under section 9(1)(vii) of the Income-tax Act. The exclusionary clause did not apply as the services were not for construction, assembly, or a like project undertaken by the recipient. Similarly, the fees for training services were also taxable as fees for technical services. The appeals by the Revenue were allowed, and the appeals by the assessee were dismissed.
|
