9911796707
TMI Blog2021 (7) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, and was to be assessed as its business income, and that too only to the extent of its reference to the business connection in India. At the same time, not finding favour with the view taken by the CIT(A) that the entire turnover (receipts from the Indian parties) of Standby Maintenance Charges was liable to be treated as turnover for the purpose of taxation in India, we vacate the same. - Decided in favour of assessee. - ITA Nos.2304 & 2305/MUM/2019 ITA No.2335/MUM/2019 - - - Dated:- 28-6-2021 - SHRI PRAMOD KUMAR (VICE PRESIDENT) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) Assessee by : Shri Jitendra Sanghavi Shri Amit Khatiwala, A.Rs Revenue by : Shri Vijay Kumar G. Subramanyam, D.R ORDER PER RAVISH SOOD, J.M: The captioned cross-appeals/appeal are directed against the respective orders passed by the CIT(A)-58, Mumbai, dated 25.01.2019 and 28.01.2019 for A.Y 2014-15 and A.Y 2015-16, which in turn arises from the respective orders passed by the A.O u/s 143(3) r.w.s 144C(3) of the Income Tax Act, 1961 (for short Act ). As common issues are involved in the captioned appeals, therefore, the same are being taken up and disposed off by way of a consolidate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rained staff on standby and maintenance and operation of Network Operation Centre under the Construction and Maintenance Agreement dated 14.12.1995, is itself in the nature of rendering managerial and technical services under section 9(1)(vii) of the Act as the assessee is rendering services by way of constantly monitoring the under-sea cable systems? 2. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the amount received by assessee from Tata Communications Ltd (erstwhile VSNL) as standby maintenance charges was not in nature of Tee for technical services' under section 9(1)(vii) of the Income tax Act, 1961 without appreciating that as per the provisions of said section, any payment made or payable by entities identified in section 9(1)(vii)(a), (b) and (c) for the purpose of rendering managerial, consultancy and technical services is taxable in India? 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the amount received by assessee as standby maintenance charges was not in nature of Tee for technical services' under section 9(1)(vii) of the Income ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the records, it is the claim of the revenue that the CIT(A) had erred in concluding that the amount received by the assessee from Tata Communications Ltd. (for short TCL ) as Standby Maintenance Charges was not in the nature of fees for technical services (FTS) u/s 9(1)(vii) of the Income Tax Act, 1961. On the other hand, the assessee is aggrieved with the rejection by the CIT(A) of its claim that the Standby Maintenance Charges received from TCL only qua the portion thereof which was relatable to the length of cable in Indian territorial waters vis-a-vis the length of cable worldwide was to be taken as the total revenue deemed to accrue or arise in India from which relatable expenses were to be reduced for computing its income accruing or arising in India u/s 9(1)(i) of the Act. 3. Before us, the ld. Authorized Representative (for short A.R ) for the assessee at the threshold submitted that the issues involved in the present appeal were squarely covered by the orders passed by the Tribunal in the assessee s own case for the preceding years. In order to drive home his aforesaid claim the ld. A.R took us through a Chart (accompanied with the orders of the Tribunal), w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. A.R to drive home his aforesaid contention. Admittedly, the issue involved in the cross appeals lies in a narrow compass, viz. (i) that as to whether the CIT(A) had rightly observed that the Standby Maintenance Charges received by the assessee from TCL was not liable to be taxed as FTS and was to be brought to tax as its business income ; and (ii) that as to whether the CIT(A) had rightly concluded that the entire amount of turnover (receipts) of Standby Maintenance Charges received by the assessee from TCL was to be treated as its turnover for the purpose of taxation in India. As stated by the ld. A.R, and rightly so, we find that both the aforementioned issues involved in the present appeals are squarely covered by the orders passed by the Tribunal in the case of the assessee for the preceding years, viz. ITA Nos. 2804 2805/Mum/2016 for A.Y 2010-11 A.Y. 2011-12; C.O. Nos. 28 29/Mum/2018 for A.Y 2009-10 A.Y 2012-13; and ITA Nos. 5881 5806/Mum/2017 for A.Y. 2013-14. On a perusal of the latest order passed by the Tribunal while disposing off the cross-appeals in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be operated and maintained by founding signatory in co-ordination with relevant landing party signatory. Flag Network Operation Centre (FNOC) has to provide overall network service surveillance and over all co-ordination of maintenance and repair operations of Flag cable system. The Flag has to co-ordinate the deployment of the vessels for repairs and maintenance operation in accordance with the procedure defined. Para 11 along with various sub clauses provides the responsibility for operation and maintenance cost. Clause 11.11 gives the details of activities, expenses and cost incurred. The relevant clause reads as under:- 11.1 The cost of standby maintenance of Segments S.X-1 and X-2, including, but not limited to, the maintenance of Segments S X-1 and X-2, the FNOC, the procurement of cable ship services covering, inter alia, ship depreciation, ship retrofit, crew, insurance (except insurance at sea), in-port expenses, the storage of submersible plant, remotely operated vehicles and other devices when included in the wet maintenance zone agreement standby charges, shall be recovered by the Founding Signatory through fixed charges payable by the Signatories and other holder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following manner:- Explanation (2)- For the purpose of this clause, fees for technical services means any consideration (including any lump sum 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 . From the above definition it is evident that if the income is to be characterized as FTS, then it has to be necessarily from the services provided for the following types, viz; managerial , technical or consultancy . Another very important phrase preceding the word managerial, technical and consultancy services is rendering . The word rendering qualifies the other terms used for the FTS. The word rendering connotes to provide or deliver or to do something . Thus, rendering services mean some kind of actual services is being provided or delivered which are in the nature of managerial technical or consultancy. The word managerial has to be understood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 512,955 1,226,860 2,072,453 Total costs incurred (as per auditor s certificate) (857,093) (2,0,77,219) (2,800,495) Profit(Loss)from standby Maintenance activities (344,138) (850,359) (728,042) It has been contended that there is a loss in this account. 71. Thus, on the facts and circumstances of the case as well as looking to the nature of standby maintenance cost, we hold that the receipts from standby maintenance charges from VSNL cannot be taxed as FTS, within the definition and meaning of section 9(1)(vii) as there is no rendering of services. However, whenever payment is received on account of actual repair or maintenance carried out, then same would definitely fall within the ambit of FTS chargeable to tax u/s 9(1)(vii). Accordingly the order of the CIT(A) is set aside and assessee s ground on this score is allowed. 9. Therefore, following the decision of the Tribunal in assessee s own case for the earlier years, so far as the Grounds raised by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained by the assessee. Therefore, according to him, it is only such part of the total revenue received from TCL which is proportionate to the length of cable in the territorial waters of India which can be considered to compute assessee s income taxable in India and the same has been correctly done by the assessee in its return of income. 13. At this stage, we may also refer to the Additional Ground of appeal no. 2 which has been raised before us and which reads as under :- 2. On the facts and circumstances of the case and in law, the Learned CIT(A) erred in holding that the receipts from Indian parties is to be treated s turnover for the purpose of taxation in India ignoring the fact that no operations are carried out in India. The Appellant submits that considering clause (a) of Explanation 1 to section 9(1)(i) the receipts from Indian parties is not liable to tax in India. 14. By way of the said Additional Ground of appeal, assessee has sought to canvass that no part of the receipt from Indian landing party, i.e. TCL, is liable to be treated for the purpose of deducing assessee s income attributable to business connection in India because no such opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand of the CIT(A) is that the entire amount of revenue received on this score from TCL should be considered. 18. As the aforesaid discussion shows, the dispute revolves around computation of the income from standby maintenance activities attributable in India. On this aspect, before proceeding further, we notice that in Assessment Years 2001-02 to 2008-09, the Tribunal vide order dated 15.06.2015 (supra) has dealt with similar issue, of course qua the revenues earned from Restoration Services . On this aspect, the Tribunal held such receipts to be in the nature of business income , and after holding so, the Tribunal went on to deduce the method in terms of which the revenue could be apportioned to India operations in order to determine the income taxable in India. On this aspect, the Tribunal deemed it fit to apportion the revenue on the basis of length of cable in the territorial waters of India. Though the decision has been rendered with respect to the restoration activity, so however, the methodology which has been found to be reasonable by the Tribunal is based on the fraction of length of entire cable system connected to India in its territorial waters. Drawing an anal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business connection in India. At the same time, not finding favour with the view taken by the CIT(A) that the entire turnover (receipts from the Indian parties) of Standby Maintenance Charges was liable to be treated as turnover for the purpose of taxation in India, we vacate the same. 7. Resultantly, the appeal filed by the assessee is allowed while for that filed by the revenue is dismissed. ITA No.2305/MUM/2019 (Assessment Year: 2015-16) 8. We shall now take up the appeal filed by the assessee for A.Y 2015-16, wherein the impugned order has been assailed on the following grounds of appeal before us: A. TAXABILITY OF RECEIPTS OF STANDBY MAINTENANCE CHARGES IN INDIA: 1. On the facts and circumstances of the case and in law, the learned Commissioner of Income tax (Appeals) - 58, Mumbai ( the CIT(A) ) erred in holding that the entire turnover (receipts) from the Indian Parties) is liable to be treated as turnover for the purpose of taxation in India. The Appellant submits that the said receipt of Standby Maintenance Charges from TCL cannot be treated as turnover for taxation purpose in India. 2. On the fact and circumstances of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
