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TMI Blog2011 (12) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. - IT Appeal Nos. 204 & 205 (Vizag.) of 2011 - - - Dated:- 17-12-2011 - D. Manmohan, B.R. Baskaran, JJ. G.V.N. Hari for the Appellant. T. Lucas Peter for the Respondent. ORDER B. R. Baskaran, Accountant Member M/s FSUE Rosoboronexport, Moscow is a Russian Company and is the assessee herein (hereinafter ROE ). The said assessee does not have any office or place of business in India. It is represented by M/s Hindustan Shipyard Ltd., Visakhapatnam (hereinafter HSL ) in the income tax proceedings as representative assessee . These two appeals have been filed by the assessee against the orders passed by the assessing officer in accordance with the directions issued by the Dispute Resolution Panel, Hyderabad under section 144C(5) r.w.s. 144C(8) of the Income-tax Act and they pertain to the assessment years 2006-07 and 2007-08. Since the issues urged in these two appeals are identical in nature, they were heard together and are being disposed of by this common order, for the sake of convenience. 2. The grounds raised by the assessee in both the years give rise to the following two issues. ( a ) Validity of notice issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 ( supra ), during the year relevant to the assessment year 2006-07. For supplying the Repair Technical Documents, referred in para 3.0 ( supra ), the assessee herein received a sum of ₹ 51.58 crores from HSL during the year relevant to the assessment year 2007-08. It is pertinent to note that M/s. HSL deducted tax at source under section 195 of the Act while making these payments to the assessee herein, since the Dy. Commissioner of Income tax (TDS) gave directions to make the TDS at the applicable rates. 3.3 Subsequently, M/s. HSL filed return of income for both the assessment years under consideration in its capacity as the representative assessee of M/s ROE. In the said return, though the amount received from M/s HSL was shown as business income, yet the entire amounts were claimed as exempt on the ground that ( a ) the technical documents fall in the category of goods and ( b ) the transaction of sale was completed outside India and hence there is no income tax liability on such sales effected by M/s ROE. The return of income filed for the assessment year 2006-07 was processed under section 143(1) of the Act by accepting the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recording proper reasons, the Assessing Officer issued notice under section 148. It is not the case of the assessee that reasons were not recorded. The Courts cannot go into the sufficiency of the reasons but can look into the link between the material on record and formation of belief for reopening of the assessment. CIT v. Janardan Dwarakadas 290 ITR 1 (Mumbai). Since no original assessment was completed there is ample scope to reopen the case. Adequacy of reasons cannot be questioned. 7.1 After 01.04.1989 it is held by Courts that reopening can be done without much difficulty in cases wherein returns were merely processed. Reliance is placed on the following case-laws: ( a ) Rakesh Agarwal v. ACIT (87 Taxmann 306) (Delhi) ( b ) Ram Prasad v. ITO (82 Taxmann 199) (Allahabad) ( c ) ACIT v. VXL India Ltd. (247 ITR 820) (SC) ( d ) Praful Chunnilal Patil v. CIT (236 ITR 832) (Gujarat) ( e ) Bharat V. Patel v. Union of India (268 ITR 116) (Gujarat) 7.2 Moreover, this is not a case wherein a scrutiny assessment was completed and the same was sought to be reopened. Hence, the plea that there is a change of opinion ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these goods have taken place outside the territories of India and accordingly it was contended that the income tax liability cannot be fastened on a transaction which has taken place outside the Indian territories. In this regard, reliance was placed on the following documents. ( a ) Copies of Insurance documents showing that the insurance was taken at Russia, wherein the beneficiary is shown as M/s HSL . ( b ) Clause 2.6 of the agreement which states that the transfer of documents to M/s HSL will be exercised on the terms CIP-Airport Visakhapatnam in accordance with INCOTERMS-2000 . As per the INCOTERMS-2000 (International commercial Terms), CIP means Carriage and Insurance Paid To- Title and risk pass to buyer when delivered to carried by seller who pays transportation and insurance cost to destination which is used for any mode of transportation. He further submitted that Goods are tangible commodities which is transferable to other, where as Service is an intangible one which is not capable of such transfer to others. Ld. A.R further submitted that the Repair Technical documents are required to be handed over to Indian Navy as per the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( a ) Dy. C.I.T v. All Russia Scientific Research Institute of Cable Industry, Moscow [2006] 98 ITD 69/[2005] 145 Taxman 1 (Mum.)(Mag.). ( b ) SKODA Export Foreign Trade Corporation Rep by RINL in ITA No. 1263/Hyd/89 and 22/Hyd/92 extracted by the AO in the assessment order. ( c ) South West Mining Ltd., In re [2005] 278 ITR 233/148 Taxman 366 (AAR - New Delhi) ( d ) Elkem Technology v. Dy. C.I.T [2001] 250 ITR 164/117 Taxman 382 (AP) 7. We have heard the rival contentions and carefully perused the record. Since M/s ROE is the recipient of the impugned amounts, there cannot be any dispute that the taxability of the same should be verified from the angle of M/s ROE. There is no dispute with regard to the fact that the Residential status of M/s ROE is Non Resident . Under sec. 5(2) of the Income tax Act, the income of a non-resident shall include income from whatever source derived which:- ( a ) is received or is deemed to be received in India in such year by or on behalf of Non-resident; or ( b ) accrues or arises or is deemed to accrue or arise to him in India during such year. Thus in the case of a non-resident, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or profession carried on by it in India. In the instant case, M/s HSL has paid considerations to M/s ROE towards supply of Repair Technical documents and Detailed project report , which were utilized for the business carried on by M/s HSL in India. 9. In the back ground of the legal position discussed above, now the question underlying the issue under consideration is whether the amounts received by M/s ROE, being the assessee herein, is in the nature of income that accrues or arises in India or not (for the sake of convenience Indian Income ). If the technical documents that were supplied by the assessee to M/s HSL are treated as Goods , then the income from the amounts received from M/s HSL in that regard cannot be treated as Indian income, as the transactions of purchase and sale have taken place outside the Indian territories. The stand of the assessee is that it has only supplied Goods and hence no income from the said transactions is taxable under Indian Income tax. In support of this contention only, the Learned A.R has drawn our attention to various documents that are placed in the paper book. On the contrary, if the said receipts are taken as fee rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case Tata Consultancy Services v. State of A.P. [2005] 1 SCC 308, the Supreme Court held that whenever intellectual property is put on a medium such as, in the form of book or canvass, it would become 'goods' and accordingly liable to sales tax. Supreme Court held that once technical knowledge is converted into a medium, it assumes the nature of a 'good' and hence, sale of such goods will be liable to sales tax. However, this judgement was with reference to Sales Tax Act. It is nowhere held in this case that the sale of such technical information cannot be regarded as consideration paid as fee for technical services under the Income-tax Act, 1961. A judgement is to be read with reference to the context and the facts obtained in that case. In the case of M/s. Sun Engineering Works Pvt. Ltd., (198 ITR 320) (Supreme Court) held as follows: It is neither desirable nor permissible to pick out a word or a sentence from the judgement of this court, divorced from the context of the question under consideration and treat it to be the complete law declared by this court. The judgement must be read as a whole and the observations from the judgement have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me goods is its marketability. Thus, it is very much clear that the meaning of Goods varies from statute to statute. The above said decision was rendered under A.P. General Sales tax Act for the purpose of determining whether the intellectual property reduced into a medium would fall in the category of Goods . Hence we are in agreement with the view of DRP that the said decision, which was rendered in a different context, can not be taken support of by the assessee on the issue under consideration. 12. Now let us examine whether a technical service would lose the characteristics of technical service if the same is reduced in writing in the form of bound manuals. Let us consider certain illustrations. If an architect prepares a building plan along with structural designs and other technical details and furnishes the same in the form of bound manual, will his services lose the character of technical services?. If an advocate gives a legal opinion along with the case laws from which he took support in the form of bound manual, will his services lose the character of Professional service?. The answer should obviously be No only. In both the above cited illustrations, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally for the purposes of M/s HSL. 15. As stated earlier, the Detailed Project Report involved the study of existing infrastructural facilities available with M/s HSL and making of appropriate suggestion for augmentation and improvement of the infrastructural facilities in order to enable M/s HSL to undertake the repair works of a specific type of submarines. For the purpose of preparing the said report, the assessee, M/s ROE, has obtained necessary data from M/s HSL. There cannot be any doubt that the preparation of the Detailed Project Report requires domain expertise. In the instant case, M/s HSL has submitted all the details on available infrastructural facilities to M/s ROE in order to enable it to identify the short fall/inadequacies/gap in the said facilities. Accordingly M/s ROE has prepared the Detailed Project Report elaborating the requirements for augmentation and improvement of facilities in order to enable M/s HSL to conduct medium repair cum modernization of orders of 877 EKM type of submarines. There is no dispute that the said assignment undertaken by M/s ROE from M/s HSL is a technical assignment and hence the amount received in that regard would not, in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial persons, except authorised personnel of citizens of the customer's country in Government service of the customer's country. The customer could re-export or formally or physically transfer the documentation delivered under the present Contract or information on it to the third Party, or any physical or judicial person only after receiving of appropriate official request of the customer after receiving of consent of the Russian Federation which is made by the supplier in compliance with the Law of the Russian Federation. 5.3 The customer will not copy or reproduce the documentation delivered under the present Contract as well as utilize Russian inventions, know-how , and other scientific-technical achievements, used during elaboration of the documentation without previous written consent of the supplier only upto receipt of appropriate official request from the customer. 17. The following findings given by DRP in para 5.2 and 5.3 of its order are also relevant here: 5.2. As per the terms of this contract, HSL has to complete the project in collaboration with ROE with whom it has to enter into separate contract. Pursuant to this, HSL (now rep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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