9911796707
TMI Blog2008 (7) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... and blocked for sometime to await the COD approval. He submitted that SAIL is a pubic sector undertaking and COD approval is to be taken before pursuing the appeals, in terms of the judgment of the Supreme Court in the case of Oil & Natural Gas Commission vs. CCE (1994) 116 CTR (SC) 643 : (1995) Supp 4 SCC 541. The learned CIT-Departmental Representative however drew our attention to the recent judgment of the Madras High Court in CIT vs. Combustion Engineering Company Inc. (USA) (2008) 218 CTR (Mad) 71 : (2007) 295 ITR 70 (Mad) and submitted that the clearance from the COD is necessary only where there is a dispute between a public sector undertaking and the Ministries of the Government of India and if the assessee is a non-resident, represented for IT assessments by representative assessee or an agent, the requirement of COD approval cannot be extended to such a case. In the case before the Madras High Court, the appeal was filed by the Revenue against the assessee who was a non-resident but represented by an agent which was a PSU. It was held by the Madras High Court that in such a case, the COD approval is not necessary to be taken. In our view, this judgment applies to the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecialized knowledge and expertise for designing, engineering, providing training and supervision of erection and commissioning of the slab casting shop. According to cl. (g) of preamble, MDS has agreed to "undertake the basic and detail design and engineering as per Sch. 8, layout engineering, co-ordination, training services, supervision of manufacture of Indian equipment and supervision of erection, testing and successful commissioning of the package and demonstrate the performance guarantees under the terms and conditions mentioned hereinafter". In the various articles of the contract, the responsibilities of MDS have been described in detail. They need not detain us. Suffice to note that arts. 1.4 and 1.5 are as under: "1.4 The scope of services to be performed by the principal contractor shall include (i) design and engineering for all plant and equipment on a fully integrated and co-ordinated basis and supervision of civil work, of erection, of commissioning and of performance guarantee tests and demonstration of performance guarantees (ii) providing training to purchaser's personnel, and (iii) other technical services as per terms and conditions of the contract and detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta airport. 5. The assessee (MDS) filed a return of income declaring receipts of Rs. 11,88,17,159 on account of "fees for technical services". The aforesaid receipts were offered for taxation @ 10 per cent in accordance with art. 12 of the DTAA between India and Germany. The return was first processed under s. 143(1)(a) but was later on taken up for scrutiny. In the course of the assessment proceedings under s. 143(3), the AO referred to art. 12(5) of the double tax treaty and held that sub-arts. 1 and 2 will not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or FTS arise, through a permanent establishment (PE) situated therein, and the contract in respect of which the FTS are paid is effectively connected with such PE. In such a case, according to the AO, art. 7 of the double tax agreement would apply which deals with business profits and makes MDS liable for tax in India to the extent to which the profits are attributable to the PE in India. The AO also held that the assessee had a supervisory PE in India within the meaning of art. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative on the other hand pointed out that there was no finding of fact by the Departmental authorities that the drawings and designs constitute plant and, therefore, it cannot be said that the additional ground does not require investigation into facts. On a careful consideration of the argument, we are of the view that the additional ground requires to be admitted. Even in the cl. 3.6.1 of Sch. 3 to the contract (contract price), it has been clearly provided that the services of the assessee to SAIL "shall include supply of drawings and documents to the purchaser and consultant suitably and securely packed on free delivery basis at Calcutta airport". It is, therefore, clear that the only question is whether the drawings and designs can be considered as plant, which is a question to be decided on application of the legal principles. Secondly, if these drawings and designs were to be received at Calcutta airport in a packed condition, it means that whatever services and inputs which have gone into their preparation had been carried out or executed in Germany itself. It does not require any investigation of facts to find out whether the PE in India had any role to play in the preparat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the learned counsel for the assessee based on Chapter 98 of the Customs Duty Rules. It was submitted by him that Heading No. 98.01 applied to all goods imported in accordance with the regulations made under s. 157 of the Customs Act, 1962. It was submitted that it was under this entry that the customs duty was charged and the relevant entry described such articles as under: "All items of machinery including prime movers, instruments, apparatus and appliances, control gear and transmission equipment, auxiliary equipment (including those required for research and development purposes, testing and quality control) as well as all components (whether finished or not) or raw materials for the manufacture of the aforesaid items and their components, required for the initial setting up of a unit, or the substantial expansion of an exiting unit, of a specified." The contention was that the design and engineering sent to Calcutta airport in a packed condition was described as machinery in the aforesaid entry and duty was also charged accordingly. We are however unable to accept the contention. It may be that for purposes of levying customs duty the design and engineering received i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k on an integrated basis and such services have been described in detail in the schedule. Clause 2.8 of this schedule further provides for the training of SAIL's personnel for operation and maintenance of the plant and equipment supplied by the assessee. Thus, in our opinion, these are technical services rendered by the assessee and as rightly pointed out by the learned CIT-Departmental Representative, these services fall under Expln. 2 below s. 9(1)(vii)(b) of the IT Act. 10. We now turn to the second main contention that even if the receipt is considered as FTS, according to art. 7(1) of the treaty they cannot be assessed in India unless it is shown that one can attribute some profits to the PE of the assessee in India. It was contended that since the design and engineering details were prepared in Germany, the PE in India had no role to play and, therefore, no profits are attributable to the same. We see force in this submission. The PE in India is admittedly a supervisory PE and it is difficult to postulate that it had any role to play in the preparation of the design and engineering services. It is, therefore, not possible to hold that some profits are attributable to the PE ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
