TMI Blog2012 (9) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... s respectively following the same judgment revenue appeal is dismissed - in favour of assessee. - I.T.A. No. 2624/Mum/2006. - - - Dated:- 29-8-2012 - P. M. Jagtap And Amit Shukla, JJ. Appellant by : Kusum Ingle Respondent by : Aarti Vissangi, Arvind Dodal ORDER Per P.M. Jagtap, A.M. : This appeal is preferred by the Revenue against the order of learned CIT(Appeals), Central-I, Mumbai dated 13-02-2006. 2. In ground No.1 raised in this appeal as well as the additional ground filed during the course of appellate proceedings, the Revenue has challenged the action of the learned CIT(Appeals) in deleting the disallowance of ₹ 2,69,42,412/- made by the AO u/s 40(a)(i) holding that the installation charges paid by the assessee to M/s Mesto Automation SCADA Solutions Ltd. was not chargeable to tax in India and the assessee, therefore, was not liable to deduct tax at source from the said payment. 3. The assessee in the present case is a company which is engaged in the business of engineering and general contracting. The return of income for the year under consideration was originally filed by the assessee on 31st Oct., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Automation SCADA Solutions Ltd. was explained on behalf of the assessee. It was submitted that the assessee company had entered into contract for purchase, installation and commissioning of SCADA system and application computer programs in object code / binary format for CCKPL Project. It was submitted that both the contracts/agreements had arisen out of only one letter of intent no. DOD-341/CCKPL-81/99-2000 dated 15-03- 2000 issued by the appellant company and one letter of offer no. 495-990720-F-O dated 20-07-1999 issued by M/s Mesto Automation SCADA Solutions Ltd. It was submitted that pursuant to above contracts, the assessee company had paid an amount of ₹ 2,69,42,412/- (equivalent to US$ 558,050) on account of invoices raised by the supplier M/s Mesto Automation SCADA Solutions Ltd. towards work order for installation and commissioning of SCADA systems for CCKPL Project. It was submitted that the aforesaid amount was disallowed by the assessee company in the original return of income filed with the department, under an assumption that the payment made to M/s Mesto Automation SCADA Solutions Ltd., Canada was covered by the provisions of section 40(a)(i). It was also su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as income of the non-resident company (M/s Mesto Automation SCADA Solutions Ltd. Canada) for the services rendered. It was contended that there was hus no income that had deemed to accrue or arisen in India and no withholding tax was required to be deducted u/s 195(1). 6. In addition to the above submissions made in support of its case that the amount of installation and commissioning charges paid to M/s Mesto Automation SCADA Solutions Ltd. was not chargeable to tax in India as per Explanation 2 to section 9(1)(vii), reliance was also placed by the assessee on Article 12(5)(a) of the relevant DTAA between India and Canada wherein it was provided that notwithstanding article 12(a), fees for included services does not include amount paid for services that are ancillary and subsidiary, as well as inextricably and essentially linked to the property. It was contended that the amount paid by the assessee company to M/s Mesto Automation SCADA Solutions Ltd. towards installation and commissioning of SCADA system at CCKPL project, which was supplementary to purchase of SCADA system, that had not accrued or arisen in India in the hands of recipient and the assessee was not liable to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o purchased would not attract within the ambit of definition of fee for technical services or fees for included services. 2.4 The appellant in its support has relied on the judgement of two High Court cases namely, (i) Orissa Sysnthetic Ltd vs. ITO 203 ITR 34 (Orisa) (ii) CIT vs. Sundwiger EMFG Co. 262 ITR 110 (AP). The appellant had cited example (8) in MOU attached to DTAA, which clearly mentions that the installation assistance and initial training are ancillary and subsidiary to the sale of computer and they are inextricably and essentially linked to the sale and without these facilities the computer would be of little help to the purchaser, hence the payments made for installation etc are not fees for included services. Similarly example 9 for which attention drawn by appellant in its submission is of similar nature where the initial installation, inspection, training services during warranty period are ancillary and subsidiary as well as inextricably linked to sale of X-Ray machines. 2.5 Considering the explanation as submitted by appellant, I am of considered view that appellant had made out its case that the two contracts entered upon by appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndal Tractebal Power Co. Ltd. vs. DCIT 106 ITD 227, Delhi Bench of ITAT in the case of Hotel Scopevista Ltd. vs. ACIT 18 SOT 183 and the decision of Authority for Advance Rulings in the case of Airports Authority of India 323 ITR 211. 9. The learned counsel for the assessee, on the other hand, submitted that although there were two separate agreements for purchase of SCADA system and for installation, commissioning etc. of the said system, the same were entered into simultaneously on the same date i.e. 29-04-2000. She took us through the agreement for installation, commissioning etc. of SCADA system placed in the paper book to point out the cross reference made in the said agreement to the purchase of SCADA system by the assessee from M/s Mesto Automation SCADA Solutions Ltd. by a separate agreement. She contended that going by this reference, it becomes clear that the agreement for installation and commissioning of SCADA system was inseparable and supplementary to the agreement for purchase of SCADA system and the same was inextricably linked to the purchase of SCADA system. She contended that the payment made by the assessee to M/s Mesto Automation SCADA Solutions Ltd. for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the amount paid by the assessee to M/s Mesto Automation SCADA Solutions Ltd. towards installation and commissioning charges thus was not covered in the exception provided in Explanation 2 to section 9(1)(vii). The learned CIT(Appeals), however, allowed the claim of the assessee on this issue holding that the said amount was covered in the exception provided in Explanation 2 to section 9(1)(vii) as well as in the article 12(5)(a) of the Treaty between India and Canada. The issue before us, therefore, is whether the consideration paid by the assessee company to M/s Mesto Automation SCADA Solutions Ltd. on account of installation and commissioning charges is covered by the exception provided in Explanation 2 to section 9(1)(vii) and/or under article 12(5)(a) of the relevant Treaty between India and Canada. 11. In order to ascertain whether the consideration paid by the assessee to M/s Mesto Automation SCADA Solutions Ltd. for installation and commissioning can be regarded as consideration for any construction, assembly, mining or like project undertaken by the recipient as envisaged in Explanation 2 to section 9(1)(vii), it is relevant to refer to the agreement entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the various terms and as per the definition given therein, deliverables are referred to as the items required for application and commissioning of SCADA system. Annexure F of the said agreement stipulates terms and conditions of letter of credit for work order for engineering, installation and commissioning of SCADA system. Further the scope of work description given in annexure 2 clearly makes out that the entire work to be done by M/s Mesto Automation SCADA Solutions Ltd. was for installation, commissioning etc. of SCADA system. It is worthwhile to note here that the said SCADA system was to be supplied by M/s Mesto Automation SCADA Solutions Ltd. as per the separate agreement entered into by the assessee simultaneously on the same date i.e. 29th April, 2000 and both the orders for supply of SCADA system and for installation and commissioning of said system were placed with reference to the same letter of intent dated 15th March, 2000. Having regard to all these facts of the case and the terms and conditions of both the agreements entered into between the assessee and M/s Mesto Automation SCADA Solutions Ltd. for supply of SCADA system and for installation and commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not liable to deduct tax at source from the said payment made to M/s Mesto Automation SCADA Solutions Ltd. and the disallowance made by the AO by invoking the provisions of section 40(a)(i) was not sustainable as rightly held by the learned CIT(Appeals). In that view of the matter, we uphold the impugned order of the learned CIT(Appeals) deleting the disallowance made by the AO u/s 40(a)(i) and dismiss ground No. 1 of the Revenue s appeal. 15. In ground No.2, the Revenue has challenged the action of the learned CIT(Appeals) in restricting the disallowance of ₹ 7,25,000/- and ₹ 29,600/- made by the AO out of incidental expenses to the extent of 25%. 16. During the course of assessment proceedings, it was noticed by the AO that the incidental expenses of ₹ 7,25,000/- and ₹ 29,600/- claimed by the assessee as relating to Bangalore site were not fully vouched and verifiable. He, therefore, disallowed the said expenses. On appeal, the learned CIT(Appeals) restricted the disallowance made by the AO on this issue to the extent of 25% following the appellate order of his learned predecessor in assessee s own case for assessment year 2001-02. 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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