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TMI Blog2014 (9) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... see agreed for separate consideration for transport/travel of the machines - assessee also ordered the parties to supervise erection/installation of the heavy machines - The assessee also agreed to separate consideration for Air-fare (economy class) for the technicians assigned by supplier for the purpose - the payments for C & F charges relates to functions and activities performed in foreign country - The payments for such transportation do not accrue in India since there is no aspect involved which creates a charge for Income-tax in India - The payment terms for these C & F charges indicate the nexus to the transaction of sale of machinery - payment cannot be said to be accrued in India since there is no aspect involved which created charge for under the provisions of I.T. Act, because this took place only outside Indian Territory. Travelling expenses of technicians – Supervision of installation/erection - Held that:- The technicians' travel expenses were negotiated and paid separately on economy airfare basis. Such expenses were for cross border travel and hence, do not arise in India and does not attract provisions of Indian Income-tax Act - the machinery is complex equipme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 4000 tons forging press. 2. The learned CIT (A) - IT/TP, Pune further erred in law and on facts in not appreciating that service work on 4000 tons forging press was wholly connected to the transaction of purchase of 4000 tons forging press by the assessee. 3. The assessee craves leave to add/modify/delete all or any of the grounds of appeal. 2.1 In ITA No.2564/PN/2012, the assessee has filed the appeal on the following grounds: 1. The learned CIT (A) - IT/TP, Pune erred in law and on facts in holding that the assessee is an 'assessee in default' due to non deduction of alleged TDS amounting to ₹ 382,539/- on payment made to M/s. Presstrade Pressenhandel GmbH, Germany for installation, assembly work, erection and commissioning services in connection with of purchase of 4000 tons forging press. 2. The learned CIT (A) - IT/TP, Pune further erred in law and on facts in not appreciating that installation, assembly, erection and commissioning services of 4000 tons forging press was wholly connected to the principal transaction of purchase of 4000 tons forging press by the assessee from M/s. Presstrade Pressenhandel GmbH, Germany. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is a delay in filing of the appeal and requested to condone the same, inter alia stated that Order u/s 201 201(1A) in respect of appeals CIT (A) - IT/TP, Pune on 27-07-2012 were personally collected by the authorized representative of the assessee on 02-08-2012 and handed over to assessee company on 12-08-2012. The last date for filing of appeal before ITAT was 01-10-2012 i.e. 60 days from the date of receipt of order which is 02-08-2012. The company officials were required to deliberate on the same and take the directions/approvals from the Management in this regard. Considering the highly technical matter, expert opinion was also sought for. The assessee company is MAHINDRA Group which has a team of counsels acting in various capacities. Their view was sought as crucial before finally filing the appeal. In the said process, delay of about 86 days was occurred. In view of above, the assessee requested to condone the delay of about 86 days in filing the appeal attributable to above mentioned reasons. In this regard, the learned Authorized Representative has pointed out the Hon'ble Allahabad High Court in the case of Bharat Auto Center v. CIT [2006] 282 ITR 366 had condo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 3 Pressdtrade Pressenhandel GmbH Germany Purchase of forging press and erection and commissioning thereof from the same party, through separate PO 4,36,211 4 PratoSpol S.R.O. Czech Republic Purchase of forging press and service work thereof from the two different parties, through separate PO 57,274 7. The Assessing Officer in his Orders passed u/s 201 and u/s 201(1 A) held that the payments (other than for purchase) made to Russian Company Firma Ralekc, Russia, to German company Pressdtrade Pressenhandel GmbH and to Prato Spol SRO of Czech Republic are taxable under Section 9(l)(viii) as 'fees for technical services'. These payments were taxable under Article 12 of the India's Tax Treaties with the respective countries as 'fees for technical services'. 8. The Assessing Officer also treated payment made for acquiring designs and drawings from Manyo Co. Ltd. Japan liable for tax deduction at source. According to the Assessing Officer, payment made for acquiring designs and drawi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d fro from Russia to India for 3 Engineers. Local conveyance in India shall arranged by us at our cost. We shall provide lodging (in our Guest house) and boarding as available to equal level of our engineers. Any other charges/expenses/insurance etc. shall be arranged by you at your cost and we shall not be held responsible for the same in any manner whatsoever. Erection labour and lifting tackles shall be arranged by us for the erection and commissioning purpose at our cost. We shall arrange the tools and tackles and make preliminary preparation for erection and commissioning of Press as per annexure (1 page ) enclosed herewith which is advised by you enclosed please let us know within 7 days of receipt of order, failing which it is your responsibility to arrange the same in order to avoid idling of your engineers. Payment terms As agreed we shall pay you Euro 22500 on Tie road assembly of Forging Press by Telegraphic transfer. Balance payment shall be made after successful trials as soon as it is ready commercial production by telegraphic transfer. Warranty: You shall guarantee trouble free performance of the press for a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be arranged by you at your cost arid we shall not be held responsible for the same in any manner whatsoever. Erection labour and lifting tackles shall be arranged by us for the erection and commissioning purpose at our cost. We shall arrange the tools and tackles and make preliminary preparation for erection and commissioning of Press as per annexure (1 page) enclosed herewith which is advised by you should you require any other additional tools and tackles preparation in addition to the list enclosed please let us know within 7 days of receipt of order, failing which it is your responsibility to arrange the same in order to avoid idling of your engineers. Warranty: You shall guarantee trouble free performance of the press for a period of one year from, the date of commissioning on account of workmanship of erection. Should there be any defects due to faulty erection in the press the same shall be rectified by you at your cost. Working Hours Our factory works 6 days a week Thursday being holiday. Our normal working hours are 9.00 a.m. to 5.30 p.m. with Vi hour lunch break, however in view of urgency for availability oj Pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioning. So, the CIT(A) held that there is no composite contract for purchase and erection and commissioning. 15. The assessee has taken an alternative plea, inter alia submitted that even if both the activities are treated separately, installation activity is being incidental to the main activity of purchase, it will draw colour from the main activity of purchase and hence will not be liable for the tax deduction at source. This plea of assessee was rejected by CIT(A) observing that TDS provisions would be attracted on payment made for installation, commissioning and service charges if the transactions of erection, commissioning and purchase are not composite and are separate. In view of above, CIT(A) held that the transactions of purchase and transaction of erection, commissioning and supervision shall be treated separately for the payments made to Firma Ralekc, Russia and to Pressetrade Pressenhandel GmbH, Germany. The Service charge paid to Prato Spol SRO, Czech Republic is clearly 'Fees for Technical Services'. All these payments were liable for the deduction of tax at source. 16. The CIT(A) further observed that the provisions of the Explanation 2 to sec.9(l)(vii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such consideration in the hands of a foreign company on gross basis or to restrict the expenditure incurred for earning the same to 20 per cent of the gross amount as provided in new s. 44D of the Act. Consideration for any construction, 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 charged to tax at the rates applicable to the ordinary income of the non-resident as specified in the relevant Finance Act.' 19. From this, CIT(A) observed that intention behind exempting certain 'projects' from 'fees for technical services' was to tax non-resident on net basis or u/s 44D as these activities amount to carrying on business in India and considerable expenditure would have been incurred by non-resident for these activities. Therefore the Statute uses the word 'project' in the explanation 2 and the exclusion in the taxation for 'fees for technical services' is limited to only projects and not to all the activities. 20. Considering the magnitude of erection and commissioning activity undertaken in the present app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y know how relating to this machinery is made available to the assessee. Accordingly, the CIT(A) held that the assessee was not liable to deduct tax on payment made by it to Manyo Corporation Ltd., Japan because payment made on mere supply of drawings is not taxable in India. 23. Before us, the assessee has made detailed arguments with regard to its three appeals. The learned Authorized Representative mainly reiterated the submissions before authorities made and in addition to that made legal and factual submissions before us to support his stand. In sum and substance, the stand of assessee was that there is composite contract of purchase and installation. So, the order of authorities below is not justified, same should be set aside. On the other hand, learned Departmental Representative has supported the order of authorities below vis- -vis assessee's appeal while he supported the order of Assessing Officer with regard to revenue's appeal and learned Authorized Representative supported the order of CIT(A) wherein, the CIT(A) has held that assessee was not liable to deduct tax on payment made to Manyo Company Ltd., Japan for acquiring designs and drawings of Bolster and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er technical. Even in para 4.7 of order of CIT(A) he observed that in large contracts, installation charges form integral part of the purchase price of the machinery. Such situation remains unaffected, whether these installation charges are embedded in the cost of purchase price or, are charged separately. In contradiction to this, the CIT(A) further observed in para 4.8 of its order that when the transaction of installation charges are independent of purchase sale transaction, the same does not form part of the purchase price. In this regard, CIT(A) has given an example of modular furniture, etc. to support his view that, in all such cases, installation charges do not form part of purchase price. The key contention of the assessee remains unaddressed by CIT(A). The machines purchased are complex equipments and hence, could not be installed by any ordinary technical person. This is the reason the only machinery seller was given the contract of erection installation supervision in these transactions. Such erection/installation of highly complex machines is not comparable to ordinary transactions of sale of modular furniture just because two separate agreements are reached, one for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ma - Harima Heavy Industries Ltd. (supra) held that tax is levied on one transaction where the operations which may give rise to income may take place partly in one territory and partly in another. The question which would fall for consideration is as to whether the income that arises out of the said transaction would be required to be proportioned to each of the territories or not. Income arising out of operation in more than one jurisdiction would have territorial nexus with each of the jurisdiction on actual basis. If that be so, it may not be correct to contend that the entire income accrues or arises in each of the jurisdiction. The authority has proceeded on the basis that supplies in question had taken place offshore. It, however, has rendered its opinion on the premise that offshore supplies or offshore services were intimately connected with the turnkey project. The principle of apportionment is also recognized by clause (a) 01 Explanation to sec.9. Thus, if submission of the Addl. Solicitor General is accepted that the contract is a composite one, then offshore supply would be of equipment designed and manufactured in one territory (Japan), and then sold in another tax te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order. We find that Mumbai Bench L in the case of Dy. CIT v. Dodsal (P.) Ltd. [2013] 29 taxmann.com 65 (Mum), wherein, the assessee was engaged in business of engineering and general contracting. It entered into contracts with a Canada based company, namely, 'S' Ltd., for supply of equipments and for installation and commissioning work. Assessee claimed that amount paid by it to 'S' Ltd. towards installation and commissioning charges was not chargeable to tax in India as the same was covered by the exception given in Explanation 2 to section 9(1)(vii) and, thus, assessee was not liable to deduct tax at source from the said payment. The Assessing Officer disallowed assessee's claim mainly on the ground that there were two separate agreements entered into by the assessee with 'S' Ltd., one for supply and other for installation and commissioning. He was of view that the contract for installation and commissioning was a separate contract and 'S' Ltd. was not bound to provide the services of commissioning and installation in relation to equipment supplied by them to the assessee. Thus, Assessing Officer held that the amount paid to 'S' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparately. 27. It is undisputed that the machinery is complex equipment, hence could not be installed by any ordinary person that is why only machinery seller non resident was given contract of erection and installation and services thereof. Such erection/installation of highly complex machinery was not comparable to ordinary installation just because two separate agreements were reached, one for sale transaction and other for installation/erection and other related services. The principle of inextricable nexus does not change. In the facts before us, the part payment for purchase of sale of machinery transaction was linked to successful erection of machinery at Chakan, Pune in all these contracts. So, it was not obligatory on the part of assessee to deduct the tax at source on entire payment even if it does not offer u/s. 195(2) for deduction at a lower or nil rate. The Assessing Officer is directed accordingly. 28. Regarding revenue's appeal, wherein payment of ₹ 61,20,000/- was made to Manyo Company, Japan for acquiring the designs and drawings of Bolster Cassette. These designs and drawings were acquired by assessee for ensuring smooth performance of purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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