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TMI Blog2016 (2) TMI 892X X X X Extracts X X X X X X X X Extracts X X X X ..... te that for commission of power plant, qualified engineers and skilled manpower along with unskilled labour need to use by the sub-contractors for execution of the contract including testing/trial operations. The nature and scope of the subcontract as rightly held by the ld. CIT (A) was actual execution of work involving the services of technical personnel as well as non-technical personnel. In a turn-key project like commissioning of power plant etc. what the assessee intended to get from its sub-contractor was a physical output, a tangible structure and not merely the services of its qualified engineers/ staff. CIT (A) has rightly observed that any payment for technical services in order to be covered u/s 194J, should be a consideration for acquiring or using technical know-how provided or made available by human element. The work entrusted for the sub-contractors is part of the contract offered to the assessee by its client and hence the sub-contractors also come in the purview of the Act and the assessee has deducted the tax is u/s 194C from the payments made to it. The amounts paid to sub-contractors is either for erection, installation, fabrication, commissioning, testing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .07.2012 and not from the retrospective effect. (iv) That the appellant craves for the permission to add, delete or amend the ground of appeal before or at the time of hearing of appeal. 4. The aforesaid grounds are inter-connected, therefore, the same are disposed off collectively as under. Brief facts of the case are that M/s. Bharat Heavy Electricals Ltd. (BHEL), a Govt. Enterprise, entered into two contracts with M/s Arravali Power Co. Ltd. (APCL) for Indra Gandhi Super Thermal Power Project, Jhajjar, i.e., (i) supply contract for the work of design, engineering, manufacturing, shop fabrication, assembly, inspection and testing at suppliers works, type testing, packing, forwarding to site of all equipments / materials/ special tools and mandatory spares etc.; and (ii) contract for work of transportation from manufacturers works/place of dispatch, port clearance and port charges, inland insurance, delivery at site, receipt, unloading, handling, storage, insurance in-plant transportation at site, complete installation; supervision, pre-commissioning, commissioning, completion of facilities, conducting performance and guarantee tests and handing over to APCL of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(i). M/s. Indwell Construction Pvt. Ltd., Vijayawada Erection, testing, Commissioning and trial operation of main boiler of unit no.2 of 3 X 500 MW units at APCPL, Jhajjar, Distt. Jhajjar, Haryana. 4(ii). M/s. Indwell Construction Pvt. Ltd., Vijayawada Erection, testing, Commissioning and trial operation of TG auxiliaries of 3 X 500 MW units 1 - 3 at APCPL, Jhajjar, Distt. Jhajjar, Haryana. 13,29,13,484/- 22,31,867/- Total 44,13,90,207/- 77,64,321/- 4.2 From the perusal of details given by the assessee, the AO noted that the aforesaid four contractors had provided such services which fell under the purview of Professional Technical Services and therefore, tax was liable to be deducted u/s 194J of the Act and not u/s 194C. In response to the show cause notice, the assessee filed its reply dated 15.02.2012. The AO, after considering the reply of the assessee, had not accepted the same for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been defined in Explanation 2 to clause (vii) of sub-section (1) of section 9 as under:- Explanation 2 - for the purpose of the clause, fees for technical services means any consideration (including any lumpsum consideration] for the rendering of any managerial, technical or consultancy services (including the provision of service of technical or other personnel) but does not include consideration 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 . This shows that construction activity has been kept out of the purview of section 194J. 6.1 The reading of clauses 6, 7 11 of the contract with M/s PCP International show that it is in the nature of contract for work and labour and the same is to be carried out under the supervision of BHEL engineers. Further, the contractor has to obtain materials including equipments and has to bare taxes on such materials. As per section 194C of the Act, any person responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments made to it. The amounts paid to subcontractors is either for erection, installation, fabrication, commissioning, testing trial operation of some parts of the Power Plant and therefore cannot be termed as technical services as per the definition in Explanation 2 to section 9 (1) (vii). 6.3 The basis of the AO to conclude that the scope of the contract comes under the provisions of section 194J since the testing, trial operations etc. cannot be handed by labourers but only be done by qualified engineers etc. is misplaced and misconceived as what is executed by the sub-contractors is erection/ installation, commissioning, testing trial operation etc. which involves procurement of materials including equipments by the sub-contractors, fabrication etc. and thereafter installation, testing trial operation which clearly in the scope of work as defined in section 194C of the Act. Any work of erection, testing, commissioning and trial operation etc. involves utilization of material and manpower. Manpower includes skilled professionals like engineers, technicians etc. and unskilled labour etc. because professionals skilled personnel were employed in the exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of BHEL the work can be only done by the qualified Engineers and technical staff only, which comes within the purview of Technical Services u/s 194-J of the I.T. Act. He submitted that the ld. CIT(A) has also erred in the law and facts in applying the ratio of case law of provision to section 201(1) of the Act, as the same is incorporated in the Act from 1.07.2012 and not from the retrospective effect. Therefore, he pleaded to set aside the order of the ld. CIT (A) and restore that of the Assessing Officer. 7. Ld. AR for the assessee, reiterating the submissions made before the ld. CIT (A), submitted that the contract between BHEL and M/s PCP International Ltd., Chandigarh pertains to work to be carried out by the contractor as mentioned in scope of work. In this regard, he referred to various clauses of the contract as under :- (i) As per clause 1 of the contract, the contractor shall execute the work of Erection, testing, commissioning and trial operation of Power Cycle Piping, Boiler and LP Piping packages for unit nos.1, 2 and 3 of 3 X 500 MW units at APCPL, Jhajjar Distt, Jhajjar , Haryana, and more particularly described in the tender specifications including drawing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of Himachal Pradesh vs. Associated Hotels of India Ltd. (1972) 29 STC 474. Therefore, he pleaded that the sub-contracts by BHEL are in the nature of contracts for work and labour and not in the nature of Technical fee and the payments are in the nature of contracts covered u/s 194C and not in the nature of Technical Fee covered by u/s 194J. He further relied on the decision of ITAT, Pune Bench in Glaxosmithkline Pharmaceuticals Limited vs. ITO and Hon ble Karnataka High Court in CIT vs. Nova Nordisk Pharma India Ltd. order dated 05.01.2012 in Appeal No.1262/2006. 7.1 He submitted that as per section 194J of the Ac, any person, not being individual or a HUF, who is responsible for paying to a resident any sum by way of fees for professional services or fess for technical services or remuneration to directors not chargeable u/s 192 or royalty or non-compete fees referred in section 28(va) shall deduct TDS @ 10%. He submitted that for this purpose, fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9. He submitted that in the light of CIT v. Bharti Cellular Ltd. [2008] 175 Taxman 573 (Delhi), expression & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted as defined in Explanation 2 to clause (vii) of sub-section (1) of section 9 as under:- Explanation 2 - for the purpose of the clause, fees for technical services means any consideration (including any lumpsum consideration] for the rendering of any managerial, technical or consultancy services (including the provision of service of technical or other personnel) but does not include consideration 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 . A bare reading of the above definition of technical services it is vivid that construction activity has been kept out of the purview of section 194J of the Act. Now, when we go through the contract clauses 6, 7 11 with M/s PCP International shows that it is in the nature of contract for work and labour and the same is to be carried out as per the drawing and specification given by the assessee and under the supervision and satisfaction of BHEL engineers and the contractor has to obtain materials including equipments and has to bare taxes on such materials. 8.1 As per section 194C of the Act, any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d u/s 194J, should be a consideration for acquiring or using technical know-how provided or made available by human element. The work entrusted for the sub-contractors is part of the contract offered to the assessee by its client and hence the sub-contractors also come in the purview of the Act and the assessee has deducted the tax is u/s 194C from the payments made to it. The amounts paid to sub-contractors is either for erection, installation, fabrication, commissioning, testing trial operation of some parts of the Power Plant and therefore cannot be termed as technical services as per the definition in Explanation 2 to section 9 (1) (vii). 8.3 We also take note that in any case, the sub-contractors have already offered the payments received from the assessee to tax and so the short deduction of tax cannot be demanded from the assessee as per the case law of Hon'ble Supreme Court in Hindustan Coca Cola Beverage (P) Ltd. V. CIT (2007) 163 taxman 355. 8.4 In view of the above, we do not find any infirmity in the order of the ld. CIT (A) and the same is upheld. The grounds of revenue s appeal are rejected. 9. As the facts of the other two appeals of the revenue being ..... X X X X Extracts X X X X X X X X Extracts X X X X
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