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TMI Blog2010 (3) TMI 1112X X X X Extracts X X X X X X X X Extracts X X X X ..... e arguments, other than referring to this agreement as the agreement in regard to the sub-contracting of the contract work entered into by the assessee with OHPC, no detailed reference has been made to it. But this agreement, it is noticed does give a clear picture of the nature of the work and the scope of work of the assessee in the main contract with OHPC. A perusal of the above mentioned agreement clearly shows that the assessee has sub-contractor the supervision services that the assessee was to do under the main contract between he assessee and OHPC. Thus accepting the arguments of the assessee that the terms of the contract are to be given the meaning as specified in the agreement and not the ordinary or general meaning, if the sub contract agreement is seen, the sub contractor is to perform the supervision services meeting the requirements and terms of the main contract being the one between the assessee and OHPC. It is noticed that the assessee has not produced before any of the lower authorities or before us any evidence to show how the assessee or the assessee thru its sub-contractor has indulged in any activities, which can be termed construction, assembly or erection. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest levied u/s 234B stand deleted. In the circumstances the ground No. 6 of the assessees appeal stand partly allowed. In the result the appeal of the assessee is partly allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... contract as a whole. It was the submission that this was wrong in view of the decision of Hon'ble High Court of Kerala in the case of Asian Development Services reported in 239 ITR 713. The Ld. A.R. further drew our attention to the contract entered into by the assessee with M/s. OHPC, which was shown at pages 33-74 of the Paper Book. He drew our attention to the clause (d) of the preamble to the contract wherein it was mentioned that M/s. OHPC had appointed a consortium of consultants for the implementation of renovation, modernization and upgrading work of units 3 & 4 of Hirakund Power House. It was thus the submission that the assessee was not a consultant. Further, he drew our attention to page 43 of the Paper Book containing the definition clauses of the words used in the agreement. He specifically drew our attention to clause 1.13 for defining "erection" to mean that the installation of any equipment by and under the supervision of contractor and will include any service which the contractor is required to perform at the site with his own and/or other staff and/or labour for the fulfillment of contract. He further drew our attention to clause 1.20 which defines the "Perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as under: "2.2.1 Technical Services to be provided by the Contractor shall generally include the following amongst others: a) Material testing, if necessary. b) Basic design/drawings and layout engineering c) Detail design/drawings and engineering d) Drawings/data for carrying out Plant Engineering and detail design including design modification drawings of civil, work and services, wherever necessary. e) Technical services relating to planning, procurement, manufacturing, inspection, expediting, packing, shipping etc. All procurement will be as per KfW guidelines. f) Project management services and complete feed back data and information to Purchaser/Consultant for the same for the Contractor's scope of supply and services. g) Training of purchaser's personnel. h) Consultancy services, if any, obtained by the Contractor from elsewhere. i) Technical consultation/liaison/guidance relating to detail design and plant engineering by his Subcontractors. j) Supplier's coordination relating to site work and other engineering work. k) Supervision of dismantling, supervision of repair, supervision of civil engineering work & erection, including supervisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 10. He further drew our attention to clause 4.8, which specified the time schedule of the activities which reads as under: "The 'bar chart' annexed to the schedule shows that commencement and completion of all activities like development of enabling works, basic engineering and approval, de4tial design including design modification and engineering, placement of orders for auxiliaries, issue of drawings, civil work, manufacturing, inspection, delivery and erection of Material & Equipment and testing, trial runs and commissioning including Performance Guarantee Tests of all Material & Equipment under the scope of Contractor. These milestones shall be binding on the Contractor and form an integral part of the Contract." 6. It was the submission that as per the time schedule, the assessee was solely responsible for the erection of material and equipment and testing, trial run and even the civil work and commissioning including the performance guarantee test of all material and equipment. It was the submission that as per the contract the assessee was duty bound to complete the turnkey project lock stock and barrel within the time specified and the assessee had the responsibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion that as per the contract itself, the assessee was not a consultant. The work of the assessee as per the contract was not managerial in India and neither could the work of the assessee as specified in the contract be termed as a plain and simple technical services. It was the submission that the scope of work as specified in the contract and as extracted above in clause 2.1 of the contract clearly showed that the work of the assessee included the design, modification, engineering as also the work of erection and also such work which were required for the successful commissioning of the material and equipment up to its handing over to OHPC an operating plant. It was the submission that this was more in the nature of construction and assembly of a turnkey power plant. It was thus a submission that in view of the exclusion as provided in Explanation (2) to Section 9(1)(vii) the income derived by the assessee from the contract more specifically the portion relating to the "supervision charges" during erection, startup and commissioning etc did not fall within the mischief of the provisions of Section 9(1)(vii) of the Act. 8. He further drew our attention to Section 44BBB of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r TDS under the provisions of Section 195, no interest u/s 234B was leviable in view of the decision of Special Bench of this Tribunal in the case of Motorola reported in 95 ITD 269 (Del.) (S.B.). 10. In reply, the Ld. D.R. submitted that in view of the fact that the assessee had not pressed ground No.5 of the assessee's appeal the existence of PE of the assessee in India stood affirmed. It was the submission that it is admitted, that under the provisions of Section 44BBB, the requirement that the project is a turnkey power project, is admitted that the power project is approved by the Central Government, is admitted, that the assessee is a foreign company is also admitted. It is also admitted that the business of the assessee is not civil construction, however it was disputed that the business of the assessee is erection of plant & machinery. Nor is the assessee in the business of testing or the business of commissioning any such turnkey power project. It was also the submission that the business of erection of plant & machinery and testing and commissioning thereof was to be read together in connection with the turnkey power project approved by the Central Government and the tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aranteed to OHPC the duty performance and contractual obligation by Siemens Ltd. and this was the submission of the assessee before the Ld. CIT(A). It was the submission that the Siemens Ltd. was capable of erection and commissioning and had done it. It was the further submission that it was not the assessee who had done the completion of the contract in India but the assessee had been contracted the work to a subcontractor who had done the work on behalf of the assessee and the employees of the assessee had only visited India in connection with the supervision work and for the final testing and establishment of performance guarantee parameters. It was the submission that the assessee was only supervising the erection, testing and commissioning work done by Siemens Ltd. and it did not make the work of Siemens Ltd. the work of the assessee in so far as the assessee did not have any contractual agreement with Siemens Ltd. The contractual agreement was between the assessee and the OHPC and the agreement with Siemens Ltd. was with OHPC and there was no tripartite agreement. It was the further submission that the performance guarantee test was basically to test whether the erections as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e plant and machinery and the definition of supervisory activities as specified in the contract clearly showed that it was not a simple clause of supervision per se but an in depth involvement of the assessee in the erection, testing and commissioning of the plant and machinery which have been imported form Germany as also locally sourced. It was the further submisison that the assessee was in the possession and control of total plant till the successful commissioning, completion and performance guarantee test and handing over of the functional turnkey power plant to OHPC. This was the submission that the assessee was liable to be assessed only by applying the provisions of Section 44BBB of the Act. 13. We have considered the rival submissions and perused the orders of the lower authorities and the paper book filed by the assessee. Here we would like to refer to the agreement entered into by the assessee with M/s Voith Siemens Hydro Private Limited (VSHPL) on 1st October 2003. This agreement was found at pages 12 and 13 of the paper book. This agreement it is found has been produced before both the lower authorities but neither has referred from the same. Even in the course of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also reimburse associated travel costs incurred by VSID. IN WITNESS WHEREOF the Parties hereto have signed this agreement at New Delhi by their duly authorized representatives on the date, month & year first mentioned hereinabove. For & on behalf of For & on behalf of VOITH SIEMENS HYDRO VOITH SIEMENS KRAFTWERKSTECHNIK HYDRO P. LTD. GMBH & Co.KG Sd./- Sd./- Place: New Delhi New Delhi Date: 01.10.2003 01.10.2003 In presence of witnesses: 1. 2. 13.1 A perusal of the above mentioned agreement clearly shows that the assessee has sub-contractor the "supervision services" that the assessee was to do under the main contract between he assessee and OHPC. Thus accepting the arguments of the assessee that the terms of the contract are to be given the meaning as specified in the agreement and not the ordinary or general meaning, if the sub contract agreement is seen, the sub contractor is to perform the supervision services meeting the requirements and terms of the main contract being the one between the assessee and OHPC. For this purpose the assessee has agreed to pay the sub-contractor Euro 11,000/- per calendar month per main supervisor and Euro 8,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved itself in the physical activities of the business of assembly or erection of the plant or machinery or testing or commissioning of the power project but has only done the supervision simpliciter of the same the assessee would not be eligible to be taxed under the provisions of section 44BBB nor would the receipts fall within the exclusions provided in explanation 2 to section 9 (1) of the act. Further as the assessee has also not challenged the existence of the permanent establishment in India, the findings of the AO and the Ld. CIT(A) in holding that the business profits of the assessee is from the supervision charges are in the nature of "fees for technical services" from the rendering of supervision services in connection with the erection, testing and commissioning of the power project is liable to be upheld and we do so. In the circumstances the finding of the Ld. CIT(A) that the provisions of Article 7 of the DTAA read with section 44D and section 115A of the act apply to the business profits of the assessee is upheld. Consequently grounds 2 to 5 of the assesses grounds of appeal are dismissed. 13.2 As the assessee has not pressed the ground no. 6 in regard to the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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