9911796707
TMI Blog2016 (9) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... above project, FWGB has set up a project office in India i.e. Foster Wheeler (G.B) Limited Project Office ('PO') along with Site Offices ('SO') at Paradip, Orissa, Gurgaon and Haryana. The PO has been set up under the automatic route as per the Reserve Bank of India's regulations in this regard. The PO has commenced raising invoices (both for services rendered and advance receipts) beginning the month of March 2009, which is in terms of the contract subsequently executed on April 24, 2009. 2. The applicant has raised the following questions:- 1. On the facts and in the circumstances of the case, would the proposal costs incurred by Foster Wheeler Energy Limited, UK ('FWEL') a Group Company, primarily including time charge of UK staff working on the bid, travel expenses, miscellaneous expenses like printing - charges to FWGB, be available as a deduction in computing the taxable income of the PO? 2. On the facts and in the circumstances of the case, whether the claim of deduction in relation to Head Office('HO') expenses by FWGB can be subject to the limitation prescribed under section 44C of the Incometax Act, 1961 ('the Act') in light of the non-discrimination clause under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession." 5. According to the applicant the proposal costs, charged by FWEL to FWGB, are incurred wholly and exclusively for the purpose of the applicant's projects in India and shall be allowable in the hands of the PO for the purposes of Income-tax Act. 6. The Department of Revenue has stated that the project works in India are undertaken by the Permanent Establishment of FWGB, U.K. Essentially, FWGB, U.K. (Head Office) should incur some expenditure, on account of certain works carried out in U.K., for the benefit of the project works in India, in order to qualify the expenditure as "Head Office expenditure". However in this case the Head Office had not incurred any expenditure but some expenditure was incurred by one of the group concerns i.e. FWEL and as such, expenditure incurred by a third party cannot be allowed as a deduction, in computing the income of the project. The Revenue was asked by us to verify the genuineness of the expenditure. The Revenue in its report dated 20 November 2015 has after verification conceded that FWGB's share of proposal costs [i.e. Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly payments towards the same cannot be considered as fees for technical services and is not taxable in India. As regards payments made to FWGB, UK also for services provided by FWEL, UK the applicant has mentioned that FWEL, UK acts as the cost centre for the Group as a whole and therefore it is involved in providing the aforesaid services like administration, finance, human resources etc and the services rendered by FWEL do not fall under Article 13 of the India -UK DTAA, i.e. technical or consultancy services, as the same would be managerial in nature and, accordingly, taxability of such income is subject to provisions of Article 7 of the India-UK DTAA as business income. The applicant has further mentioned that as per Article 7 of the India- UK DTAA, business income shall be taxable in India only if there is a PE in India and since FWEL does not have a PE India in relation to this service; payments made by FWGB are not taxable in the hands of FWEL. The description of services provided by FWEL under the support services agreement dated 29th April 2009 was for:- (i) Account Receivable /Payable Management (ii) Financial Reporting, Banking and Treasury Management (iii) Human ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er book which is "Category of Taxable Services: Consulting Engineering services". According to the Department this description of the services is for the purpose of Service Tax Law wherein taxable services are categorized under section 65(105) of the Service Tax Act. Consulting engineering service is described in clause (g) of that provision of the Service Tax Act. The said clause (g) describes such service as "any service provided by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering". The Department has submitted that the description in the invoice of the Applicant is in the light of this definition of taxable services in the Service Tax Act and indicates "Category of Taxable Service" as "Consulting engineering services". (c) The Department has further pointed out that it is admitted by the Applicant that the persons whose names appear in the timesheets are in fact engineers which further buttresses the Department's stand that the services rendered are in the nature of engineering services which are technical in nature satisfying the "make available" clause of the India-UK DTAA. In view of abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. We cannot go on presumption of the Department and therefore we rely on the affidavit and rule that services provided by FWEL and other third parties are not in the nature of Fees for Technical Services. Question No.6 13. Q.No.6 is in respect of allowing the provisions made in the books of accounts of the applicant on year to year basis starting from Assessment Year 2010-11 (Financial year 2009-10) with respect to its obligation to pay a delay penalty (price reduction) as a result of not meeting the project schedule. As per clause 8.9 of the agreement between FWGB and IOCL, FWGB would be liable to a price reduction to IOCL for non satisfaction in terms of contract with respect to the time for completion. 14. The Department of Revenue in its comments had earlier taken a stand that the nature of this expenditure is penal in nature and the same was not allowable to the applicant. However, during the course of hearing the representative of the Department agreed that this was not a penalty and may be allowed subject to the condition that it should be allowed in the year in which such invoices had been raised actually. The applicant filed a statement containing year wise details of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
