9911796707
TMI Blog2012 (9) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaring total income of Rs. 14,87,60,610/-. Thereafter the revised return was filed by the assessee on 28-11-2003 declaring total income of Rs. 4,65,68,474/-. In the original return, the assessee had disallowed an amount of Rs. 2,69,42,412/- paid to M/s Mesto Automation SCADA Solutions Ltd. u/s 40(a)(i) of the Act on the basis that no tax at source had been deducted from the said amount. In the revised return, no such disallowance, however, was made by the assessee on the ground that the said amount was related to installation charges in relation to plant and machinery supplied by M/s Mesto Automation SCADA Solutions Ltd. and the said amount not being chargeable to tax in India in the hands of the said party as per Explanation 2 to section 9(1)(vii), it was not liable to deduct tax at source from the said amount. This claim made by the assessee in the revised return was not found acceptable by the AO. According to him, there were two separate contracts for the supply of equipments and for the installation and commissioning work which by itself made it clear that the installation and commissioning work was different from the supply of plant. He held that installation and commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econsideration of Work Order between the assessee company and M/s Mesto Automation SCADA Solutions Ltd., the assessee company had filed a revised return of income claiming the aforesaid amount as allowable as the same is covered u/s 9(1)(vii) of the I.T. Act and no withholding tax at source u/s 195(1) of the I.T. Act was required to be deducted. 5. After explaining the above facts, a reference was made on behalf of the assessee company to the provisions of Explanation 2 to section 9(1)(vii) and detailed submission was made on behalf of the assessee in support of its case that the payment made on account of installation and commissioning charges to M/s Mesto Automation SCADA Solutions Ltd. was covered in the exception provided in Explanation 2. It was submitted in this regard that the income of recipient (M/s Mesto Automation SCADA Solutions Ltd.) was by way of two contracts which had arisen out of common letter of intent and letter of offer. The first contract was by way of sale of SCADA System and the second one was by way of installation, application and commissioning of SCADA system. It was contended that the second agreement for installation, application and commissioning of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment. It was contended that the disallowance made by the AO by invoking the provisions of section 40(a)(i) thus was not sustainable and the same be directed to be deleted. 7. The learned CIT(Appeals) found merit in the submissions made on behalf of the assessee on this issue for the following reasons given in paragraph No. 2.3, 2.4 and 2.5 of his impugned order : "2.3 I have considered the reasoning of the AO as well as submission of the appellant as made before me. The appellant placed purchase order for supply of SCADA system for petronet at CCKPL Project. Also placed second order for installation, application and commissioning of SCADA system of Petronet at CCKPL project. Appellant further submitted that both contracts arise out of one letter of intent no. DOD-341/CCKPL-81/99-2000 dated 15.3.2000 issued by appellant and one letter of offer no. 495-990720- F-0 dated 20.7.1999 issued by M/s Mesto Automation SCADA Solutions Ltd. Therefore the appellant contends that the sums received/receivable by the recipients M/s Mesto Automation SCADA Solutions Ltd. is not chargeable to tax under provision of section 9(1)(vii) of I.T. Act as the income of recipient through two contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n etc of equipment forms part of one transaction relating to purchase of SCADA System, which in fact is part and parcel of one common intent and offer between parties and is in respect of sale-purchase of SCADA system. This sale-purchase transaction is not subject to provision of section 195 of I.T. Act and also not coming within the ambit of section 9(1)(vii) of I.T. Act. The AO on the facts and circumstances in appellant's case is not justified to hold that the supply of equipment and its installation are primarily not inextricably linked. Under the provision of DTAA between India and Canada, as discussed above, the appellant's case on facts is clearly covered under the exclusion provided therein as pointed out by appellant in its submission. Therefore after considering the case laws as relied upon and the provision of DTAA as referred to by appellant in its submission, I am of the considered view that the provisions of section 40(a) of I.T. Act are not applicable and AO is not justified ins its action." For the reasons given above, the learned CIT(Appeals) deleted the disallowance made by the AO u/s 40(a)(i) on account of installation and commissioning charges of Rs. 2,69,42,41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the exception provided in Explanation 2 to section 9(1)(vii) as well as is article 12(5)(a) of the DTAA between India and Canada. In support of this contention, she relied on the decision of Hon'ble Andhra Pradesh High Court in the case of CIT vs. Sundwiger Emfg & Co. 262 ITR 110. As regards the case laws cited by the learned DR, she contended that the same are distinguishable. For instance, she submitted that in the case of Jindal Tractebal Power Co. Ltd. (supra), the entire plant was not supplied by the party who rendered the services of installation and taking note of this fact, the case of the assessee was found to be beyond the scope of article 12(5)(a) of the Treaty by the Bangalore Bench of the Tribunal. She submitted that in the case of Airport Authority of India (supra), the applicability of article 12(5)(a) of the Treaty was not under consieration whereas the same has been held to be applicable in the case of the present assessee by the learned CIT(Appeals) 10. We have considered the rival submissions and also perused the relevant material on record. In the revised return, a claim was made by the assessee company that the amount paid by it to M/s Mesto Automation SCAD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tallation, application and commissioning of SCADA system, a copy of which is placed at page No. 27 to 47 of the assessee's paper book. The scope of work of M/s Mesto Automation SCADA Solutions Ltd. is given in annexure 2 to the said agreement which broadly includes software development, project management, system design, system engineering and integration, pre-FAT, FAT & SAT training, supervision of installation and assistance in commissioning of SCADA system at the end user site as per the technical specification. This scope has been further elaborated in detail in annexure 2. However, going by the scope of work to be done by M/s Mesto Automation SCADA Solutions Ltd. broadly under the agreement, we find it difficult to accept the stand of the assessee that the consideration paid to M/s Mesto Automation SCADA Solutions Ltd. for the said work can be regarded as consideration for any construction, assembly, mining or like project undertaken by M/s Mesto Automation SCADA Solutions Ltd. as contemplated in explanation 2 to section 9(1)(vii). For this conclusion, we derive support from the decision of coordinate Bench of this Tribunal in the case of Hotel Scopevista Ltd. (supra) wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Automation SCADA Solutions Ltd. of installation and commissioning were ancillary and subsidiary, as well as inextricably and essentially linked, to the supply/sale of SCADA system and the amount paid for the said services by the assessee company was not chargeable to tax in India in the hands of M/s Mesto Automation SCADA Solutions Ltd. as fees for included services by virtue of article 12(5)(a) of the DTAA between India and Canada. 13. At the time of hearing before us, the learned DR has relied on the decision of Bangalore Bench of this Tribunal in the case of Jindal Tractebal Power Co. Ltd. (supra) to contend that in the similar facts and circumstances involved in the said case, article 12(5)(a) of the Treaty was held to be not applicable by the Tribunal. It is, however, observed that in the said case technical services and start-up/turnkey responsibility services rendered by one REOL were not only in respect of equipment supplied by REOL but were also in respect of equipment supplied by other contractors. In these facts and circumstances, it was held by the Tribunal that the services rendered by REOL could not be considered as ancillary and subsidiary as well as inextricably an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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