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2008 (12) TMI 234 - AT - Income TaxTDS u/s 195 - Disallowance u/s 40 - payment made to the Malaysian company for supply of the personnel - head office expenses - cost of external services - payment to Dumul Technology Services B.V. in connection with the engineering services for the project at Haldia. TDS u/s 195 - Disallowance u/s 40(a)(i) - payment made to the Malaysian company for supply of the personnel - taxable in the hands of the assessee in India or not under Article 7 of the Treaty by holding that the assessee has a PE in India within the meaning of Article 5(4) - Whether the non-resident Malaysian company has a PE in India or not? HELD THAT:- It is clear that the supervisory work was assigned to the assessee and the Malaysian company had no role in supervision of the work at Haldia. Admittedly, the entire responsibility to execute the contract was that of assessee. Even the AO has accepted this fact. Further, the personnel supplied by the Malaysian company worked under the control and direction of the assessee company. This finding of the CIT(A) remains uncontroverted. The role of the Malaysian company came to an end on the supply of the personnel to the assessee. Thus, in our opinion, it cannot be said that the Malaysian company had any obligation to supervise the work at Haldia. Therefore, the reasons given by the AO do not survive. At this stage, it may be mentioned that such issue came up before the Authority for Advance Ruling in the case of Tekniskil (Sendirian) Berhard [1996 (4) TMI 491 - AUTHORITY FOR ADVANCE RULINGS] held that "if all that the applicant has done is to recruit foreign labour abroad and made them available to HHI in India, both of the applicants can be said to have no relation to a PE in India". It would be appropriate to mention that the AAR had given its opinion considering the DTAA between India and Malaysia with which we are concerned. Therefore, the view taken by us is fortified by the aforesaid decision. In view of the above discussion we do not find any infirmity in the findings given by the CIT(A) that the assessee has no PE in India. We have held that there was no PE of the non-resident Malaysian company in India in terms of art. 5 of DTAA between India and Malaysia. Hence, the payment received by the non-resident Malaysian company was not taxable in India. Consequently, the provisions of s. 195 and s. 40(a)(i) of the Act could not be invoked by the AO. The order of the CIT(A) is, therefore, upheld on this issue. Disallowance u/s 44C - head office expenses - Whether sum representing the payment of salary to the engineers at head office in respect of the work done by them vis-a-vis the Halida project in India can be considered as head office expenses for the purpose of s. 44C - HELD THAT:- As already noted, head office expenses are restricted to executive and general administration expenses. It is admitted by the ld DR that such expenses cannot be said to general administration expenses. However, it is pleaded that such expenditure can be said to be in the nature of executive expenses. We are unable to accept such contention. 'Executive'-A person or body with managerial or administrative responsibility in a business organization - The technical job done by the engineers, in our opinion, cannot be said to be in the nature of executive job since no managerial act is involved in such work. Accordingly, we uphold the finding of the CIT(A) that the salary paid to the engineers would not fall within the ambit of the expression 'head office expenses' as defined in Expln. (iv) to s. 44C. The order of the CIT(A) is, therefore, upheld on this issue though for different reason. Disallowance u/s 40(a)(i) - cost of external services - Not deducted tax at source against such payment - employees were deputed in India for a total number of 135 days - HELD THAT:- It is the settled legal position that if the two provisions are applicable to a fact situation then the one which is beneficial to the assessee would be applicable. Reliance can be placed on the decision of the AAR in the case of Brown & Root Inc.,[1997 (10) TMI 398 - AUTHORITY FOR ADVANCE RULINGS]. Therefore, in our opinion, the CIT(A) was justified in holding that cl. (j) being more beneficial to the assessee would be applicable inasmuch as the period of stay is six months or more. Since the period of stay is only for 135 days, art. 5 would have no application to the present case. As far as the proviso is concerned, it is applicable only when the services are rendered in connection with the prospecting for or extracting or production of mineral oil in the Contracting State. The learned counsel for the assessee has specifically asserted that no supervisory activity related to prospecting for or extracting or production of mineral oils was carried out. Even the ld DR has not brought any material on record to justify the applicability of the proviso. Merely because the supervisory activities related to the construction of a part of the refinery, it cannot be said that such supervisory activity was rendered in connection with the prospecting for or extracting or production of mineral oil. Therefore, we do not find any infirmity in the order of the CIT(A). The order of the CIT(A) is, therefore, upheld on this issue. Disallowance u/s. 40(a)(i) - payment to Dumul Technology Services B.V. in connection with the engineering services for the project at Haldia - contention of the ld DR is that the CIT(A) has wrongly applied the amended provisions of art. 12 of the DTAA between India and Netherlands since the amendment was made by Notification No. S.O. 693(E), dt. 30th Aug., 1999 - HELD THAT:- It has been specifically stated in the notification that existing art. 12 relating to royalty, fees for technical services and payment for use of equipment shall be modified with effect from April, 1997. In view of this clear intent of the agreement, the contention raised by the ld DR cannot be accepted. The order of the CIT(A) is, therefore, upheld on this issue. Hence, the appeal of the Revenue is dismissed.
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