2018 (5) TMI 947 - AT - Income Tax

Disallowance of business loss - AO/CIT(A) subjecting business income arising from Project Office of the assessee under the O & M contract as fees for technical services - Held that - We set aside the findings of the CIT(A) and direct the AO to treat the amount received under the O & M agreement as business income under article 7(3) of DTAA between India and Japan. Treatment of payment made to Express Transport Private Limited ETPL as contingent liability - Held that - There is no evidence brought on record to suggest that ETPL has repaid this amount to the assessee. Clause referred by the ld. DR is from agreement made on 18.9.1992 and we are in the month of May 2018 more than 25 years have since elapsed but nothing to the contrary has been proved by the Revenue. Revenue authorities have not made any verification from ETPL to disprove the payments made by the assessee. There are specific provisions in the Act by which any amount recovered by the assessee can be taxed as income in the year of receipt. Therefore, in our understanding of law and the facts, the liability to pay has definitely crystallised during the year under consideration and being ascertained liability incurred in the ordinary course of business, the same has to be allowed. We accordingly set aside the findings of the CIT(A) and direct the AO to delete the addition Taxability of sum received on account of supervision, erection and maintenance of a gas turbine plant for Basin Bridge Power House TNEB Project @ 10% u/s 44BBB - Held that - As in assessee s own case for A.Y 1996-97 and 1993-94 and in A.Y 1997-98 and 1998-99 decided issue in favour of assessee as held that in order to determine the total cost of project, each activity has to be evaluated separately and to ensure that all the costs are recouped y the contractor, at times, major ancillary activities are billed separately. But that does not mean that these activities are independent of constructing or erecting the plant. With regard to repairs and maintenance also, the submission of the learned counsel can be accepted that they might have been carried out during construction or trial runs before handing over the project completely in proper shape. Therefore, the CIT(Appeals) was justified in directing the Assessing Officer to determine the income at 10% of the total receipts. Taxability of supervision fees received from M/s Maruti Udyog Ltd. - Held that - As considered by the Hon ble Delhi High Court in assessee s own case for assessment years 1992-93 to 1996-97 2014 (3) TMI 291 - ITAT DELHI wherein the Hon ble High Court has held that supervision fee is taxable under Article 12(2) of the DTAA and concur with the view of the Tribunal that FTs was liable to be taxed at 20% under Article 12(2) of the DTAA. The question was accordingly answered in the negative i.e. in favour of the assessee

Summary

Issues Involved
1. Disallowance of business loss claimed by the Project Office under the O&M contract.
2. Treatment of payment to Express Transport Private Limited (ETPL) as contingent liability.
3. Taxability of sum received on account of supervision, erection, and maintenance of a gas turbine plant under section 44BBB.
4. Taxability of supervision fees received from M/s Maruti Udyog Ltd.
5. Levy of interest under section 234B of the Income Tax Act.

Issue-wise Detailed Analysis

1. Disallowance of Business Loss Claimed by the Project Office under the O&M Contract

The assessee contested the disallowance of business loss claimed under the Operation and Maintenance (O&M) contract with Andhra Pradesh Gas Power Corporation Ltd. The primary grievance was the treatment of business income from the Project Office as fees for technical services. The Tribunal noted that this issue had been previously addressed in the assessee's favor for A.Y 1999-2000. The Tribunal reiterated that the income from the O&M project should be characterized as business income under Article 7(3) of the DTAA between India and Japan, rather than fees for technical services. Consequently, the Tribunal set aside the CIT(A)'s findings and directed the AO to treat the amount received under the O&M agreement as business income.

2. Treatment of Payment to Express Transport Private Limited (ETPL) as Contingent Liability

The assessee challenged the disallowance of ?93.64 lakhs paid to ETPL, which the AO and CIT(A) treated as a contingent liability. The Tribunal examined the contractual obligations between the assessee and ETPL, noting that the payment was a contractual liability incurred during the ordinary course of business. The Tribunal found no evidence suggesting that ETPL had repaid the amount to the assessee. The Tribunal concluded that the liability had crystallized during the year under consideration and should be allowed as business expenditure. Therefore, the Tribunal directed the AO to delete the addition of ?93.64 lakhs.

3. Taxability of Sum Received on Account of Supervision, Erection, and Maintenance of a Gas Turbine Plant under Section 44BBB

The Revenue's appeal addressed the taxability of sums received for supervision, erection, and maintenance of a gas turbine plant for the Basin Bridge Power House TNEB Project. The Tribunal referred to its previous decisions in the assessee's own case, where it was held that section 44BBB applies to foreign companies engaged in providing turnkey power projects. The Tribunal upheld the CIT(A)'s direction to determine the income at 10% of the total receipts, dismissing the Revenue's grievance.

4. Taxability of Supervision Fees Received from M/s Maruti Udyog Ltd.

The Revenue contested the taxability of supervision fees received from M/s Maruti Udyog Ltd. The Tribunal referred to the Hon'ble Delhi High Court's decision in the assessee's own case for earlier assessment years, which held that supervision fees are taxable under Article 12(2) of the DTAA at 20%. The Tribunal followed the High Court's findings and dismissed the Revenue's ground.

5. Levy of Interest under Section 234B

The Tribunal addressed the issue of interest levied under section 234B. Referring to its earlier decisions in the assessee's own case, the Tribunal noted that the assessee, being a non-resident, was not liable for advance tax. Consequently, the Tribunal deleted the interest levied under section 234B, dismissing the Revenue's ground.

Conclusion

In conclusion, the Tribunal allowed the assessee's appeal, directing the AO to treat the amount received under the O&M agreement as business income and to delete the addition of ?93.64 lakhs. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s directions on the taxability of sums received for supervision, erection, and maintenance under section 44BBB, and the taxability of supervision fees under Article 12(2) of the DTAA. The Tribunal also deleted the interest levied under section 234B.