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TMI Blog2017 (2) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... t clearly explains that it is contract of work to dismantle the machinery, therefore, it is not a contract of service hence payment by the assessee is not for technical services, therefore, the assessee company is not liable to deduct TDS. Thus we are of the view that dismantling of machinery does not require any technical services, therefore, the present case does not fall in the ambit of fees for technical services and the assessee company does not require to deduct TDS. - Decided in favour of assessee - ITA No.642/Kol /2016 - - - Dated:- 4-1-2017 - SHRI A.T.VARKEY, JM AND DR. A.L.SAINI, AM For The Revenue : Shri N.B.Som, JCIT Sr. DR For The Assessee : Shri Ramesh Kumar Patodia, FCA ORDER Per Dr. Arjun Lal Saini, AM: The captioned appeal filed by the Revenue, pertaining to Assessment Year 2012-2013, is directed against the order passed by ld. Commissioner of Income Tax (Appeals)-22, Kolkata, in Appeal No.111/CIT(A)-22/KOL/14-13, dated 20.01.2016, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section 201(1)/1A of the Income Tax Act 1961, (in short the Act ), dated 28.03.2013. 2. Brief facts of the case qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts on records and the submissions furnished by the appellant. The facts and circumstances of the case shows that the appellant has procured an used machinery from a Swedish company which is to be dismantled, packed and loaded in the trucks for transportation outside India. The appellant has hired a Polish company POl- INOWEX S.A. to undertake a) dismantling and sea-worthy packing of the said paper mill machinery; (b) stuffing of all items into containers and (c) loading the containers on trucks. For the services rendered by the Polish company, the appellant has paid a total amount of ₹ 1,17,19,820/- POL without deduction of TDS. The AO held that the work of dismantling and sea worthy packing of paper mill machinery is a technical job as it required highly technical skilled technicians. The AO analysed the contract between the appellant and the POL-INOWEX S.A. and came to the conclusion that the payment by the appellant are for fees for technical services as defined in section 9(1)(vii)(c) of the Income Tax Act as well as provisions of Article 13-4 of the DTAA between India and Poland. The AO, therefore determined the tax liability u/s 201(lA) of the Act. 4.1 The iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Transport SA, In re, 349 ITR 292 that the basic principle in interpretation of a contract is to read it as a whole and to construe all its terms in the context of the object sought to be achieved and the purpose sought to be attained by the implementation of the contract. Reading parts of the contract as imposing distinct obligations may not be the proper way to understand a composite contract especially for installation and commissioning and delivery of a project or a system , applies to the facts of the case. The AO has to consider the contract in entirety which is nothing but an agreement for dismantling and is a composite works contract. I am also inclined to agree with the appellant that Dismantling would be considered as like projects as provided in Explanation (2) of section 9(1)(vii) of the income tax Act and the payment made by the appellant is excluded from fees for technical services . 4.3 In view of the above discussion, it is held that the payment made by the appellant to POL is for a works contract for dismantling of plant and is excluded for fees for technical services u/s 9(1)(vii)(c) and is also not covered under article 13-4 of the DTAA between Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt SA, to come to the conclusion that a contract has be read as a whole, despite the fact that the Assessing Officer has held that dismantling and sea-worthy packing of paper mill machinery is not a project but part of a project and he has read the impugned contract as a whole and thus dissecting approach has not been adopted by the AO. 6. The Department craves leave to add or alter, amend and modify, substantiate, delete and/or revise all or any of the grounds of appeal on or before the final hearing. , 5. Although in this appeal, the Revenue has raised six grounds of appeal, but at the time of hearing, the solitary grievance of the Revenue has been confined to the main issue that the Assessee Company had hired a foreign company POl- INOWEX S.A. (Non-Resident Co.) to undertake a) dismantling and sea-worthy packing of the paper mill machinery; (b) stuffing of all items into containers and (c) loading the containers on trucks. For the services rendered by the POl- INOWEX S.A. (Non-Resident Co.), the Assessee Company had paid a total amount of ₹ 1,17,19,820/- without deduction of TDS. Since, in para No.5 cited above, we have summarized all six grounds raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of paper mill machinery is not a project but part of a project and he has read the impugned contract as a whole and thus dissecting approach has not been adopted by the AO. This way, the ld. DR submitted that the appeal of the Revenue should be allowed. 5.2. On the other hand, Ld. AR for the assessee has submitted that the assessee under consideration had an agreement with M/s POL-INOWEX SA of Poland (POL) for dismantling of the plant and machinery. As per this agreement, the work executed by M/s POL-INOWEX do not require and technical and skill. The ld DR also highlighted the important terms and conditions of the agreement, which are reproduced below :- WHEREAS EMAMI, a leading player in the Indian Paper Industry, owns and operates a paper mill Unit #1 at Balasore, Orissa and Unit#2 at Kolkata, West Bengal. AND WHEREAS EMAMI, has procured a used Paper Machine (PM#2) from Holmens Bruk AB, Hallstavik, Sweden, and EMAMI requires the work for dismantling, match marking, packing and containerization of assets of the second hand paper machine. Scope of Work-Dismantling of paper mill machinery, from Holmens bruk AB, Sweden,Seaworthy packing and stuffing all items of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words convey different ideas. In the former (i.e., 'work') the activity is predominantly physical; it is tangible. In the activity referred as 'services', the dominant feature of the activity is intellectual, or at least, mental. Certainly, 'work' also involves intellectual exercise to some extent. Even a gardener has to bestow sufficient care in doing his job; so is the case with a mason, carpenter or a builder. But the physical (tangible) aspect is more dominant than the intellectual aspect. In contrast, in the case of rendering any kind of 'service', intellectual aspect plays the dominant role. The vocation of a lawyer, doctor, architect or a Chartered Accountant (there are other similar vocations also) involves deep intellectual exercise and physical skill involved in their vocational activities is minimal. A dancer's performance no doubt involves physical movement; but all the movements are projections of the talent which is natural, or acquired by training. A surgery certainly involves physically visible and tangible work; but, inherently, it is the mental skill developed by the intellectual exercise that permeates the operation. i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prayed for in terms of prayers (a) and (b) of the petition. The refund must be given within a period of 3 (three) months from the date of communication of this order. ii) Gujarat Pipavav Port Ltd., 67 taxmann.com 370 (Mumbai Trib) : 5.4 Now, we would like to take up the issue of SPC dated 29.10.2005(Pg.464-471 of the PB).If the services rendered by the supplier are examined it becomes clear that such services are inextricably connected to the sales of cranes. We want to clarify that it is true for other SPC.s. also. Settled law,governing such contracts, stipulate that if services are intrinsically connected to the sale of goods same cannot be treated as FIS or FTS and they would constitute part of business income. The Hon'ble Apex Court in the case of Ishikawajma-Harima Heavy Industries Ltd. v. DIT [2007] 288 ITR 408/158 Taxman 259 has upheld the above principle. The Hon'ble Calcutta High Court in the matter of Andrew Yule Co. Ltd. v. CIT [1994] 207 ITR 899 (Cal.) has also dealt with the identical issue. In that matter a German Company had supplied certain machinery to the Indian assessee and had rendered certain services in setting up of the machinery. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the NMDC, we find that the said decision is distinguishable on facts. Such deputation, whether deputation or supervision, is absent in both instant cases as well as the case before it, as observed by the Delhi Bench of the Tribunal in the cited case. The relevant para of the order of the Tribunal in that case reads as follows- We find that in Demag's case, the foreign company rendered 'technical consultancy' by way deputing a technician to India for supervising repairs to be carried out on the plant and machinery purchased by National Mineral Development Corporation. It is not the repair work per se which has been held to be technical services but it is the provision of the consultant technician deputed to India for supervising the repairs which has been treated as consultancy services. The foreign technician stayed on in India for 44 days to advise and supervise repair work which was obviously carried out by the engineers and workers of the Indian Company. Thus, the nature of services rendered by the foreign company was consultancy of technical nature through the provision of its technician deputed to India. Our conclusion is supported by the decision of Andh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld Counsel holding the adjudication of this issue becomes an academic exercise. Therefore, the same are dismissed as academic. 5.3. Having heard the rival submissions, perused the material available on record, we are of the view that there is merit in the submissions of the assessee, as the proposition canvassed by ld. AR for the assessee are supported by various judgments of Hon ble High Courts and Tribunals. The Ld. AR for the assessee, has pointed out that there is a difference between Contract of work and Contract of service . The two words convey different ideas. In the 'Contract of work' the activity is predominantly physical; it is tangible. In the activity referred as 'Contract of service', the dominant feature of the activity is intellectual, or at least, mental. Certainly, 'Contract of work' also involves intellectual exercise to some extent. Even a gardener has to bestow sufficient care in doing his job; so is the case with a mason, carpenter or a builder. But the physical (tangible) aspect is more dominant than the intellectual aspect. In contrast, in the case of rendering any kind of 'service', intellectual aspect plays the domina ..... X X X X Extracts X X X X X X X X Extracts X X X X
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