9911796707
TMI Blog2011 (8) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee with regard to PDPL project is liable to tax @ 10 per cent as has been claimed by the assessee. - AO directed to apply the provisions of sub-clause BB of clause (b) of sub-section (1) of section 115A along with section 9(1)(vii) of the Act. X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer as well as the DRP erred in fact and in law in determining the profit in complete disregard to para 3 of Article 7 of the DTAA. 2. The learned Assessing Officer erred in fact and in law in charging interest under section 234A of the Income-tax Act, 1961. 3. The learned Assessing Officer erred in fact and in law in charging interest under section 234B of the Income-tax Act, 1961. 4. The learned Assessing Officer erred in fact and in law in charging interest under section 234C of the Income-tax Act, 1961. 5. The learned Assessing Officer erred in fact and in law in initiating penalty proceeding u/s 271(1)(c) of the Income-tax Act, 1961." 3. The brief facts of the case are that the assessee company is a foreign company incorporated under the law of Russia having its registered office at Moscow. It was noted by the Assessing Officer in para 3 of the assessment order that this company has expertise and experience of many years in laying and installation of gas and liquid pipelines. It is further noted by the Assessing Officer in para 4 of the assessment order that as per the revised statement of total income filed by the assessee, the gross total income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because sub-section (1) of section 44DA is not applicable in the present case because the contract in respect of which FTS was paid to the assessee company is not effectively connected with any permanent establishment of the assessee company. It is also submitted that it is not the case of the Assessing Officer that the provisions of sub-section (1) of section 44DA are applicable in the present case and the only objection of the Assessing Officer is that the income of the assessee in question is not FTS as per the provisions of Explanation (2) of section 9(1)(vii) of the Income-tax Act, 1961 and to bring home this point, our attention was drawn to para 10.3 on page 20 of the assessment order. It is submitted that Explanation (2) to section 9(1)(vii) is applicable when the consideration paid to the assessee is for any construction, assembly, mining or like project undertaken by the assessee or consideration which could be income of the assessee chargeable under the head 'service'. It is submitted that it is not the case of the Assessing Officer that the income in question is chargeable to tax under the head 'income from salary'. The objection of the Assessing Officer is that consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s applicable in the present case and the PE aspect is not required to be decided because the assessee's claim is based as per the provisions of section 9(1)(vii) and section 115A of the Income-tax Act, 1961 and FTS is liable to be taxed in India even if the assessee does not have a PE in India. Therefore, the PE aspect is not relevant if it is found that the receipt of the assessee is FTS. It is submitted that the receipt of the assessee equal to 3 per cent of the gross receipts of consortium is as per the cooperation agreement and the Assessing Officer has also assessed the same amount as income of the assessee which means that the Assessing Officer has accepted that part of the cooperation agreement that the assessee's income is to the extent of 3 per cent of gross receipt of the consortium. It is submitted that when one par of the cooperation agreement is accepted by the Assessing Officer, it is not correct on the part of the Assessing Officer that the DRP to say that the other aspect of the cooperation agreement is not acceptable as per which the roll of the assessee is only to provide technical services and get 3 per cent of gross receipt of the consortium as its consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all within the excluded category in Explanation (2) to section 9(1)(vii) of the Act. It was submitted that these two Tribunal decisions are in favour of the assessee and in the light of these two Tribunal decisions, it cannot be said that the services rendered by the assessee company as per the cooperation agreement is falling within the excluded category of Explanation (2) to section 9(1)(vii) as has been held by the Assessing Officer in the present case. 7. As against this, the Ld. D.R. of the revenue supported the assessment order as well as the direction of the DRP. His major arguments were with regard to PE issue which we feel that is not required to be decided at this stage but we find that the claim of the assessee is acceptable that the receipt of the assessee in the present case is for FTS and it does not fall within the exclusion category of Explanation (2) to section 9(1)(vii) of the Act. The second contention of the Ld. D.R. of the revenue w that 3 per cent receipt by the assessee is not for same technical services but for the responsibility on the said project as per the consortium agreement as per which, the contract was awarded by GAIL. It was also submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".]" "44DA. (1) The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Government or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head "Profits and gains of business or profession" in accordance with the provisions of this Act: Provided that no deduction shall be allowed,-- (i) in respect of any expenditure or allowance which is not wholly and exclusively incurred for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case is that the amount received by the assessee is for construction project and hence, it is outside the definition of FTS and the claim of the assessee is that this objection of the Assessing Officer is not valid. When we examine the factual matrix of the present case, we find that admittedly, the contract in question was awarded by GAIL to the consortium of the assessee and KPTL but after awarding this contract by GAIL to the consortium, both the parties of the consortium entered into a cooperation agreement between themselves as per which they determined the responsibilities of each party and the manner of share of consideration also. The manner of sharing the consideration has been prescribed in the ratio of 3 per cent for the assessee, 96 per cent for KPTL and the balance 1 per cent was reserved for common expenses of the consortium. Regarding the 1 per cent also, it was agreed afterwards that if there is any surplus, it will go to KPTL and ifs there is any deficit, it will be made good by KPTL. Hence it was agreed that 3 per cent of gross receipt of consortium will go to the assessee company and the balance 97 per cent will go to KPTL. KPTL will be responsible fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f valves, scraper Traps, Flow Insulating joints, TEGs, AC Package, Fire Extinguishing System based on CO2 flooding and clean agent system, including the following:- > Data sheets of equipment > Review of vendor data > Review of constructional details given by vendor (e) Pipeline Crossings > Review of Design & Engineering of HDD crossings > Design & Engineering of Bored crossings (f) Instrumentation Review off Design of field Instrumentation System as per Specifications including following:- > Material Take Off > Instrument Cable Layout > Detailed Engineering of instrument Installation 2. Preparation of Welding Procedure and Welder qualification Procedure 3. Review of Work procedures for Pipeline Laying. 4. Deputation of Experts for Site review of implementation by KPTL of technical services provided by ZANGAS." 10. From the above details regarding scope of work of Zangas i.e. the assessee in respect of PDPL project of GAIL, it is seen that the activities included in the scope of work of the assessee is regarding design and engineering for various aspects i.e. (a) Civil, & structural (b) Electrical, (c) Cathodic protection, (d) equipment Design & Engineering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very important to see as to what was the actual activity is undertaken by the assessee. In the present case, all the objections of the Assessing Officer, DRP and the Ld. D.R. of the revenue are based on the consortium agreement and agreement of the consortium with GAIL and it has been contended that since the assessee is the leader of consortium and as per the terms of contract with GAIL, the assessee was the leading partner of the consortium, the entire construction work of the project in the hands was done by the assessee and the assessee's activities are not confined to mere providing of FTS. But the assessee has brought on record the corporation agreement along with its Annexure 1 which outlines the scope of the activities of the assessee. As per the scope of activities as has been reproduced above, the assessee is required to provide design and engineering of various aspects and is also required for preparing the welding procedure and is also required to review the work procedure for pipeline laying and in addition to this, the assessee is required to depute experts for site review and implementation by KPTL and technical supervision provided by the assessee. As per the scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een quantified by him after considering the gross receipt of the consortium and after deducting al the expenses incurred for the purpose and the remaining income should have been distributed between the two partners of the consortium i.e. the assessee and KPTL on the basis of consortium agreement or on some reasonable basis. This has not been done by the Assessing Officer and he has accepted the income declared by the assessee which is to the extent of 3 per cent of gross receipt of the consortium on the basis of this cooperation agreement. Having accepted the cooperation agreement on this aspect, it was not justified on the part of the Assessing Officer and DRP to say that with regard to the scope of activities of the assessee company, cooperation agreement is not valid and they have to go by consortium agreement. They have also not brought on record any evidence to show that the assessee has undertaken any extra activity in addition to the activities falling within its scope of work as per the co operation agreement. Hence, even if extra responsibility of the assessee is there as per the consortium agreement and as per the terms of contract awarded by GAIL to the consortium, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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