9911796707
TMI Blog2012 (7) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to the additional evidence but failed to appreciate that the comments of the Assessing Officer in the remand report given were limited only to additional evidence produced, and came to a erroneous conclusion that the correctness of the claim of the assessee was accepted in such remand report. In any case, as per the Revenue, the amount paid was disallowable under Section 40(a)(i) of Income-tax Act, 1961 (in short 'the Act') and this was also pointed out by the Assessing Officer in the remand report. Further, as per the Revenue, services rendered by the party were in the nature of technical services and irrespective of the fact whether such foreign party had a business connection in India, the same was taxable in India. 2. Short facts apropos are that assessee, engaged in the business of drilling, had leased out four rigs numbered as 101, 192, 201 and 202 to one M/s Saipem, SPA, Italy. Such rigs were being used by the said Sapem, SPA, in Saudi Arabia for drilling. Assessee had in its accounts for the relevant previous year charged a sum of Rs. 5,47,33,911/- as repairs and maintenance. Assessing Officer called for the agreement entered by the assessee with M/s Saipem, S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/-. The latter payment was for services other than rig maintenance and A.O. had erroneously considered this also as a part of the rig maintenance amount. Insofar as the payment to M/s Saipem, SPA, Italy, was considered, argument of the assessee was that only ordinary maintenance expenses were to be borne by the lessee whereas, the extraordinary and planned maintenance, which was over and above the ordinary maintenance, was the responsibility of the lessor, i.e. assessee. As per the assessee, the rigs were aged 23-years and there was a need for complete overhauling every three years, which included re-certification of instruments and control equipments. These activities had to be carried out in accordance with international standards, and it was necessary that this was done by the assessee itself, who was the owner of the rigs. Assessee also produced copy of an agreement entered by it with M/s Saipem, SPA, Italy for rig maintenance, before the CIT(Appeals). It was also brought to the notice of CIT(Appeals) that the payments were subject to transfer pricing rules and TPO had accepted such payments to be at arm's length. 4. Since fresh evidence was produced, CIT(Appeals) sought a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement placed by the assessee before the A.O. was one dated 5.2.2004 and as per this agreement, it was clear that the lessee being M/s Saipem, SPA, Italy was obliged to maintain the rigs. CIT(Appeals) had admitted as evidence, the agreement dated 17.11.2004 for the alleged planned and extraordinary maintenance which, as per the learned D.R., was entered by the assessee with M/s Saipem, SPA, Italy, as an afterthought. As per the learned D.R., the subsequent agreement dated 17.11.2004, ought not have been considered by the CIT(Appeals) since assessee had not adduced any reason why it could produce before the A.O. In any case, as per the learned D.R., the payment effected by the assessee fell within the ambit of technical services and by virtue of Section 9(1)(vii) of the Act, income on account of technical services had to be deemed as accruing or arising in India for the non-resident assessee, irrespective of the fact that whether such non-resident was having permanent establishment in India or not. As per learned D.R., CIT(Appeals) did not consider the amendment and additions of explanation to Section 9(1) of the Act, with retrospective effect. In any case, learned D.R. submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no other years, such a disallowance was ever made. Even for subsequent year, no such disallowance was made by the A.O. and reliance was placed on the assessment order for assessment year 2007-08 placed at paper-book pages 95 to 98. A.R. also brought to our notice that the TPO for the impugned assessment year in his report dated 29th October, 2008, placed at paper-book pages 20-21, had held that no adjustment was necessary to the value of international transaction entered by the assessee during the relevant previous year. As per the A.R., in Form No.3CEB filed by the assessee for the impugned assessment year, placed at paper-book pages 47 to 54, the impugned amount was included and considered. Since M/s Saipem, SPA, Italy was doing the periodical maintenance, assessee had entrusted the overhauling work also to M/s Saipem, SPA, Italy, who was having custody of rigs. In any case, according to him, since same amount has been allowed in subsequent years, though the rule of res judicata did not apply, consistency had to be maintained. 9. Ad libitum, learned D.R. stated that in the remand report, Assessing Officer had not given any comments regarding genuineness of the expenditure and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee for the maintenance, to M/s Saipem, SPA, Italy, were not considered excessive. The only issue is whether such payments were for the business purpose of the assessee. It is not disputed that assessee was owning the four rigs. There is also no dispute that the payments were made to M/s Saipem, SPA, Italy, towards planned and extraordinary maintenance activities of those rigs. The fact that such rigs were old has also not been disputed by the Revenue. That old rigs require periodical overhauling for keeping them in working condition, is a fact which cannot be overlooked. Such extraordinary maintenance done periodically cannot be treated on par with regular daily maintenance. Assessee's concern that unless such extraordinary maintenance or planned maintenance or overhauling was done, life of the rigs and life of the workmen rendering services in such rigs, would be jeopardized, appears to be well justified. Assessee, being the owner of the asset, it was in its own interest, that the assets were maintained properly. Therefore, irrespective of the agreements and irrespective of whether it was produced before the A.O. or not, claim of the assessee could not have been rejected. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol Equipment and accessories * Inspect, replace when required, test and re-certify instrumentation and safety devices * Inspect, repair when required, test and re-certify main generators and electrical motors * Inspect, repair when required, test and re-certify drilling machines such as Top Drive, Rotary Table, Mud Pumps, Drawworks, etc. * Prepare and file the relevant documentation. Testing and re-certification work mentioned in the above list could fall under "technical services". A.O. had relied on Section 9(1)(vii) of the Act in the remand report, for concluding that assessee was obliged to deduct tax at source. We are reproducing this Section hereunder:- (vii) income by way of fees for technical services payable by - (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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