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TMI Blog2014 (2) TMI 1065X X X X Extracts X X X X X X X X Extracts X X X X ..... tion agreement. 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 - 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. No case has been made out by the Assessing Officer to show that section 115A and section 9(1)(vii) are not applicable in the present case as per which the income 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 - the order of the CIT(A) confirmed but the AO is directed to verify that 96% receipts of contract has been disclosed by it in case of KPTL and tax has been paid on it – Decided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai-Mangalya-Manmad Pipeline (hereinafter referred to as MMPL ) on 10.11.2005 and established a project office for that purpose at a/4-1, Sector 25, GIDC Estate, Gandhinagar, 382028, with prior permission of RBI. The said contract commenced on 06.10.2005 and was completed on 20.04.2007. Further, the assessee company entered into a consortium agreement with Kalpataru power transmission Limited (hereinafter referred to as "KPTL ) on 11.05.2006 for the purposes of making a bid and entering into a contract for the work of Panvel Dabhol pipeline project (hereinafter referred to as "PDPL") of GAIL (India) Ltd. Also during the relevant previous year assessee has entered into another consortium agreement with KPTL for executing Vijaipur-Dadri-Bawana pipeline project ( hereinafter referred to as "VDPL") on 08.05.2008. As per the "consortium agreement", the assessee-company has been designated as the "lead partner" and KPTL" as the second partner. As per para 2 of the consortium agreement, the entire execution of the contract including receiving and making payment shall be done exclusively by the Ieading partner (i.e. the assessee company). Further, as per para-9 of the Consortium agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e: A. The responsibilities and obligations of each of the partner of the consortium have been clearly designated in the consortium agreement and placed as appendix -1 to the agreement; the copy of the same is appended as Annexure-l. As per the "responsibility matrix between JSC Zangas Kalpatru Power Transmission Ltd." the project activities highlighted herein-under have to be carried out solely by Zangas or by KPTL under guidance of JSC Zangas or by them jointly. 1. Project Management is the sole responsibility of Zangas. 2. Construction Management has to be carried out by KPTL under guidance from JSC Zangas. 3. Under the head "construction and installation": a. Residual engineering is the sole responsibility of Zangas. b. ROU, Grading, Stinging, Trenching, back filling restoration and other mainline activities are to be carried out by KPTL under guidance of Zangas. c. Other activities under this are joint responsibilities of JSC Zangas and KPTL and have to be carried by way of subcontract through specialized agencies. 4. Resource mobilization is joint responsibility of JSC Zangas and KPTL. 5. All specialized manpower required for the project management, technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fees for technical services as per the provisions of the Act read with the provisions of Indo-Russia DTAA. The income derived by the assessee in India shall be taxable as per Section 9 r.w.s. 90(2) of the IT Act and income derived on account of technical services rendered by the assessee to the consortium and shall be taxable as fees for technical services as per provisions of Section 9(1)(vii) of the IT Act,1961. As per the provisions of Article 12(2) of Indo-Russian DTAA, the rate of tax on the income derived by the assessee in India from PDPL project shall not exceed 10% of the gross receipts. 2(iii). Ld. A.O. has considered the assessee s reply in detail on page nos. 15 to 32 and held that assessee company was continues for a period of more than 12 months and constitutes a permanent establishment. In India, Article 12 of DTTA is not applicable in case of assessee. The income/profit arising out of construction, installation and assembly project/site rendered in connection with such projects or site of a nonresident are to be taxed as business profits as per the provisions of Domestic Tax Laws if such project/site or supervisory activities performed in relation to such proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income tax Act, 1961. The Hon'ble Tribunal has observed that, 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 assessee has not done those extra activities and the consideration received by the assessee is as per the co operation agreement for the activities provided in the co operation agreement and having accepted by the A. O. the amount of consideration received by the assessee at 3% of gross receipts of the consortium, it has to be accepted that the same is for providing FTS as per the cooperation agreement. It has been held that no case has been made out by the A.O. to show that Section 115A and Section 9(1)(vii) are not applicable in the present case as per which the income of the assessee with regard to PDPL project is liable to tax @ 10% as has been claimed by the assessee. The tribunal has therefore, directed the A.O. 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. Submitting to the judicial discipline, the same decisions are followed and upheld for the current year also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B Bench, ITAT, Ahmedabad in case of assessee in ITA No. 3399/Ahd/2010 for A.Y. 07-08 held these receipts partly as business income and partly fees for technical services and had not found any permanent establishment for all projects executed through KPTL. Thus, he requested to confirm the order of the CIT(A). 5. We have heard the rival contentions and perused the material on record. The Co-ordinate Bench has considered identical issue in A.Y. 07- 08 and held as under: 8. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. It is by now a settled position of law that if the provisions of Income tax Act, 1961 are more favourable as compared to the provisions of DTAA then the assessee can always opt for assessment as per the provisions of Income tax Act, 1961. The provisions of Income tax Act, 1961 with regard to the issue in dispute before us are contained in Section 9(1)(vii) and also in Section 115A and the provisions of Section 44DA are also relevant. We, therefore, reproduce the provisions of Section 9(1)(vii), Section 44DA and section 115A of the Act: "Section 9(1) : The following incomes shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted 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 the business of such permanent establishment or fixed place of profession in India; or (if) in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent, establishment to its head office or to any of its other offices:" "115. [Omitted by She Finance Act, 1987, w.e.f. 1-4-1988.] [Tax on dividends, royalty and technical service fees In the case of foreign companies. 41 115A. 4?[( 1) Where the total income of-- (b) K[a non-resident (not being a company) or a foreign company, includes any income by way of royalty or fees for technical services other than 10 income referred to in sub-section (I) of section 44DA] received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deficit, it will be made good by KPTL. Hence it was agreed that 3% of gross receipt of consortium will go to the assessee company and the balance 97% will go to KPTL. KPTL will be responsible for all the arrangements of resources as well as expenses including common expenses of the consortium. The responsibility of the assessee as described in Annexure 1 to the cooperation agreement is available on page 218-219 of the paper book and hence, it is very relevant to reproduce the same here in below: "ACTIVITIES UNDER THE SCOPE OF WORK OF ZANGASUNDER I'ANVEL-DABHOL GAS PIPE LINE PROJECT OF GAIL (INDIA) LIMITED The activities included in the scope of work of Zangas are as follows - 1. Design Engineering: ,- Civil Structural Zangas Shall provide (he following design engineering services under civil structural head, based on the topographical and soil investigation data collected by KPTL (through an experienced competent agency)- i) Review of Layout plan to enable finalization of Plot plan for Sectionalizing Valve Station - 9 Nos. Intermediate Pigging Station - 1 Nos. ii) Review of Structural Architectural design of Control Room for a typical Sectional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, (e) Pipeline Crossing and (f) Instrumentation. The 2nd item of activities included in the scope of work of the assessee company was preparation of welding procedure and welder qualification procedure, 3rd item is review of work procedure for pipeline laying and 4th responsibility is for deputation of experts for site review of implementation by KPTL and technical services provided by Zangas. Some objections raised by DRP, A.O. and the Ld. D.R. that when the assessee company was required to depute expert for site review of implementation by KPTL and technical services provided by Zangas, the assessee company was very much engaged in the entire construction project. These objections of the authorities below and the Ld. D.R. of the revenue are not valid in the light of these two Tribunal decisions cited by the Ld. A.R. of the assessee. 11. In the case of Voith Siemens Hydro Kraftwerkstechnik GMBH Co. (supra), it was held by the Tribunal that although as per the terms of contract with OHPC, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 of work, the assessee is required to provide technical services and is also required to depute expert for site review of implementation by KPTL and technical services provided by Zangas. Hence, it is seen that deputing expert was for a limited purpose for site review of implementation by KPTL and technical services provided by the assessee and the entire construction work was to be undertaken by the KPTL. As per these activities included in the scope of work of the assessee company, we are of the considered opinion that on the basis of these facts, it cannot be said that the assessee is doing the construction work and the consideration received by the assessee is from doing the construction work. Nothing has been brought on record by the A. O. to show that anything extra was done by the assessee in addition to the responsibility specified in the co operation agreement. In fact, this is not even an allegation of the A. O. 12. Hence, the Tribunal decision rendered in the case of Voith Siemens Hydro (supra) is squarely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract awarded by GAIL to the consortium, the assessee has not done those extra activities and the consideration received by the assessee is as per the co operation agreement for the activities provided in the co operation agreement and having accepted by the A. O. the amount of consideration received by the assessee at 3% of gross receipts of the consortium, it has to be accepted that the same is for providing FTS as per the co operation agreement. 15. Regarding the applicability of Section 115A of ht Income tax Act, 1961, we find that only exception is regarding of an income which are referred to in sub-section (1) of Section 44DA. Section 44DA is applicable where the contract in respect of which FTS had been paid to the assessee is effectively connected with a permanent establishment (PE) where such foreign company is carrying on its business in India. In the present case, this is not the case of the A.O. that Section 44DA is applicable with regard to the receipt in dispute. Moreover, we also find that the receipt in question was in relation to PDPL project cannot be said to be effectively connected with PE in relation to the other project i.e. MMTL project where the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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