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TMI Blog2007 (9) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... this purpose, the assessee had entered into an agreement dated 14-2-2003 with PSIL under which the latter was required to render project management services in relation to construction of the said hotel. The various services to be provided by the PSIL were listed at exhibit A of the agreement and which included the following : A1.1 Pre-design services: Assist in preparation of project brief, Prepare consultants' Agreement. Develop preliminary programme for design and construction. A1.2 Design management and pre-construction planning: Develop the design management strategy. Review Consultants designs for compliance with the budget, the brief and construction strategy. Review and analyze contractors' work programme. A1.3 Management and quality control of construction: Establish procedures for the management of the construction process, information flow, documentation, etc. Establish and review testing procedures, shop drawing submission and review, etc. A1.4 Cost control: Establish and maintain a budget/contract/payment tracking systems. Continue review of drawings and specifications to reduce costs. Analyze programme and develop cash flows. A1.5 Programme control: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h would be income of the recipient chargeable under the head "Salaries". 2.2 The assessee submitted before the Assessing Officer that the services rendered by PSIL were step in aid to the process of construction as ultimate aim of the services rendered was the construction of hotel building. Such services were therefore to be excluded from the definition of fees for technical services in view of exception provided in Explanation (2) of section 9(1)(vii). The assessee placed reliance on the decision of Delhi Bench of the Tribunal in case of Agland Investment Services Inc. v. ITO [1985] 22 Taxman 9 in which it was held that construction included services/activities which were step in aid to the construction. The Assessing Officer however, did not accept the plea of the assessee and observed that the Agland Investment Services Inc.'s case (supra) was different. It was held by him that payment made by the assessee was for the various management services and not for construction of hotel and the case was therefore, not covered by the exception provided in Explanation (2) of section 9(1)( vii). Accordingly, he directed the assessee to deduct tax at source at the rate of 20 per cent of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction, assembly, mining or like project will therefore be chargeable to tax on net basis, i.e., after allowing deduction in respect of costs and expenditure incurred for earning the same and charge to tax at the rates applicable to the ordinary income of non-resident as specified in the relevant Finance Act." 2.5 CIT(A) noted that the CBDT circular mentioned above had clarified the legislative intent behind the insertion of clause (vii) in section 9(1) by the Finance Act, 1976. The circular made it clear that payment for construction etc. were excluded as such activity virtually amounted to carrying on business in India. Thus, he concluded that only the payment for actual construction, assembly, mining etc. undertaken by the recipient had to be excluded and not the fees for various management services which do not amount to carrying on business in India. CIT(A) accordingly upheld the decision of the Assessing Officer to deduct tax at source. Aggrieved by the said decision, the present appeals have been filed by the assessee before the Tribunal. 3. Before us, the ld. A.R. for the assessee reiterated the submissions made before the lower authorities. It was pointed out that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for taxability of fees for technical services and the definition of 'fees for technical services' for the purpose of the said section was the same as in case of section 9(1)(vii). In other words, this meant that fees for technical services as defined for the purposes of section 9(1)(vii) were not covered within the meaning of the provisions contained in section 44BB. The ld. A.R. referred to the following decisions of the Tribunal in which the services similar to those undertaken by the recipient in the case of the assessee had been held to be taxable under section 44BB, which meant that such services are not to be considered as 'fee for technical services' : (i)In case of ONGC as representative of Petro Chemicals, Switzerland. [IT Appeal No. 3085/99-00 assessment year 1997-98]. (ii)In case of Dy. CIT v. ONGC as agent of Foramer Firms [1999] 70 ITD 468 (Delhi). (iii) ONGC v. Asstt. CIT [2007] 12 SOT 584 (Delhi). (iv)In case of ONGC v. Asstt. CIT [IT Appeal No. 3086 (Delhi) of 2000 assessment year 1997-98]. 3.2 In view of the above decisions as well as the decision of the Tribunal in case of Agland Investment Services Inc. (supra), it was submitted that all services which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various technical and management services provided by the latter as per agreement dated 14-2-2003. Details of these services have been mentioned in para 2 of this order. Under the provisions of section 195(1), any person responsible for paying interest or any other sum chargeable under the provisions of this act to a non-resident or a foreign company, is required to deduct Income-tax at the rates in force at the time of payment or credit of such income to the account of the payee. The issue to be determined first, therefore, is whether the payments made by the assessee to PSIL for various technical and management services is chargeable under the provisions of the Act because in case the sum is chargeable to tax in the hands of foreign company, the tax is required to be deducted. Any fees for technical services is deemed to accrue or arise in India and is thus taxable in the hands of the non-resident payee under the provisions of section 9(1)(vii). The phrase "fees for technical services" has been defined in the Explanation 2 to section 9(1)(vii) which has been reproduced in para 2.1 of this order and which, means "any consideration (including any lump sum consideration) for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position to arrive at any definite conclusion whether the case of the assessee could be covered by the Agland Investment Services Inc.'s case (supra). It is also pertinent to mention here that the Tribunal in Agland Investment Services Inc.'s case (supra), had not considered the circular of CBDT clarifying the legislative intention behind the exclusion provided in Explanation 2 to section 9(1)(vii). We, therefore, proceed to decide the issue independently. 4.3 The ld. AR has pointed out that the Assessing Officer in the earlier two years based on the same facts and following the same decision of the Tribunal in case of Agland Investment Services Inc. ( supra) had exempted the assessee from deduction of tax at source and therefore, principle of consistency demanded that the decision should be followed in the subsequent year also. We have examined this aspect also. We have gone through the orders dated 9-10-2002 and 6-5-2004 of the Assessing Officer for the assessment years 2004-05 and 2005-06 in which exemption had been granted from deduction of tax on source. We find from the perusal of the said orders that the Assessing Officer had allowed the exemption without examining the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the hotel. 4.5 The ld. A.R. for the assessee has referred to certain decisions of the Tribunal as mentioned in para 3.1 of this order earlier which relate to provisions of section 44BB but we find that the provisions contained in section 44BB which relate to computation of profit and gain in connection with business of exploration etc. of mineral oil have been differently worded. As per these provisions, services and facilities provided in connection with prospecting for or extraction or production of mineral oils are covered for separate computation of income under section 44BB. It was because of the words used "services or facilities provided in connection with" that in the decisions of the Tribunal cited, various services provided in connection with exploration of mineral oil such as comprehensive geological and geophysical studies, supply of supervisory staff and personnel having expertise in operation and management of drilling rigs, imparting training etc. were held to be covered under the provisions of section 44BB and not separately considered as fees for technical services. But the words used in Explanation 2 of section 9(1)(vii) are different. The Explanation 2 do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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