TMI Blog2009 (3) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... ia - Held that person responsible for deducting tax at source on payment to non-resident has a right to appeal against order holding remuneration of non-resident taxable – Assessee-Jindal has not produced the customs duty documents to show that the amounts paid to REOL in respect of “technical services, start-up services and overall responsibility” form part of the cost price of the equipment. Therefore, the Income-tax Appellate Tribunal has rightly held that Jindal is not entitled to benefit under article 12(2) of the Double Taxation Avoidance Agreement. Accordingly, the appeals are partly allowed - 3021 of 2005 - - - Dated:- 16-3-2009 - K. SREEDHAR RAO and C. R. KUMARASWAMY JJ. Suhail Dutt with T. S. Venkatesh for the appellant. Mohan Parasaran, Additional Solicitor General for M. V. Seshachtzla for the respondent. JUDGMENT K. SREEDHAR RAO J.- All the appeals pertain to the same subject- matter involving similar questions of law and fact. Hence, all the appeals are heard together for common disposal. The material facts are as under: 2. M/s. Jindal Thermal Power Company Limited (Jindal) (appellant in all the appeals) entered into contract with Raytheon-Eb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an entity different from REOL. The start-up services provided by REOL under the contract includes the following: (i) development of scoping packages whereby the various instrumentation, electrical, mechanical and equipment, listings were drawn up and were further broken down into sub-systems for the purpose of commissioning by the start-up contract; (ii) laying out of test procedures for the various sub-systems, systems, equipment and components, contained in detailed instructions in the form of manuals are made available to start up contractor who is required to follow the given instructions (the start-up contractor has no authority whatsoever to deviate from the instructions given by REOL and should any change be required the same has to be approved and duly authenticated by REOL only); and (iii) the presence of the vendor or their representatives in India during the start-up process should the equipment supplied by the vendor be not in a position to be commissioned. (3) Overall responsibility: As is generally the case in most large projects, the overall responsibility and management of the project has been agreed to be undertaken by REOL. These services include the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax (Appeals) and the Income-tax Appellate Tribunal had canvassed the following grounds to challenge the order of assessment: (1) Jindal is not liable to effect TDS in the payments made to REOL because the services rendered by REOL would not come within the purview of section 9(1)(vii)(c). In order to attract tax liability, it is essential that the services by the non-resident company (NRC) should have been rendered in India and utilised in India. In the instant case, the technical services are not rendered in India, although the services are utilised in India. In this regard the decision of the Supreme Court in Ishikawajima Harima Heavy Industries Ltd. v. Director of Income-tax [2007] 288 ITR 408; [2007] 3 SCC 481 is relied on. (2) In the alternative it was contended that the technical services rendered are ancillary and subsidiary "as well as inextricably and essentially linked to the supply of property". Therefore, under article 12(3) of the Double Taxation Avoidance Agreement the payments made of REOL are fully exempt. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal had decided the appeals on plain interpretation of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India." 11. Sri Mohan Parasaran referred to the Memorandum explaining the provisions in the Finance Bill, 2007 relating to the Explanation incorporated to section 9(2) of the Act. The relevant material in the Memorandum is extracted hereunder (see [2007] 289 ITR (St.) 122, 302): "RATIONALISATION AND SIMPLIFICATION MEASURES Income deemed to accrue or arise in India Section 9 provides for situations where income is deemed to accrue or arise in India. Vide Finance Act, 1976, a source rule was provided in the said section through insertion of clauses (v), (vi) and (vii) for income from interest, royalty or fees for technical services. It was provided inter alia, that in case of payments of interest, royalty or fees for technical services received from a resident payer income would be deemed to accrue or arise in India, except where the interest or royalty or fees for technical services are relatable to a business or profession carried on by the resident payer outside India or for making or earning any income from any source outside India. . . irrespective of the situs of the services, the situs of the payer and the situs of the utilisation of services will determine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal have unequivocally held that Jindal has suppressed the documents relating to payment of customs duty for the material import. The contention that technical services rendered by REOL inextricably form part of the cost price of the equipment is rightly rejected, because the customs duly receipts are produced to prove the contention. In that view, it is rightly held that Jindal is not entitled to benefit under article 12(2) of the Double Taxation Avoidance Agreement. That apart, it is submitted that article 12(2) does not envisage total exemption. Hence, even according to the Double Taxation Avoidance Agreement Jindal cannot escape the liability to pay tax in respect of the payments made to REOL. 16. The decisions of the Supreme Court in Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal reported in online Manupathra MANU/SC/0054/1957; [1958] 33 ITR 245 (SC) and the decision in Transmission Corporation of A. P. Ltd. v. CIT reported in online Manupathra MANU/SC/0483/1999; [1999] 239 ITR 587 (SC) to contend that Jindal has no right of appeal. The primary liability to pay tax is on REOL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion of locus standi, the ratio laid down in the decision of the Supreme Court in Aggarwal Chamber of Commerce's case 11958] 33 ITR 245 has no application to the facts on hand. The facts in the cited case disclose that the firm went into liquidation. While accounting the amounts to the liquidator the appellant had effected TDS. The official liquidator insisted on payment without effecting TDS. In the context of the said facts it is held that deducting TDS from the payment is justified. The question of tax liability is essentially an issue between the assessee on whose account TDS effected and the Revenue. 20. On the question of locus standi, the ratio laid down in the decision of the Supreme Court in Aggarwal Chamber of Commerce's case [1958] 33 ITR 245 has no application to the facts on hand. The facts in the cited case disclose that the firm went into liquidation. While accounting the amounts to the liquidator the appellant had effected TDS. The official liquidator insisted on payment without effecting TDS. In the context of the said facts it is held that deducting TDS from the payment is justified. The question of tax liability is essentially an issue between the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m explaining the Finance Bill, 2007. Therefore, it is explicit from the reading of section 9(1)(vii)(c) and the Explanation to section 9(2) that the ratio laid down by the Supreme Court in Ishikawajima's case [2007] 288 ITR 408; [2007] 3 SCC 481 still holds the field. 25. On the facts we find that in respect of "start-up services and overall responsibility" the part of the technical services although rendered partly off -shore but the execution of the work even though done by BEI and EOI, however the same is carried out under the direct supervision of REOL. BEI and EOI although hold independent contracts with Jindal, as per the terms of the contract they execute the work under the direct control and supervision of REOL. Hence, BEI and EOI virtually constitute the executive agents of REOL. In that view, REOL under the contract, takes the overall responsibility for the successful erection and operation of the plant. 26. The contract has three aspects: The first aspect deals with the technical services. The rendering of technical services basically involves overall conceptualization of the plant, the technical logistics and designs etc., which is more in the nature of a theore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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