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TMI Blog2014 (2) TMI 1065X X X X Extracts X X X X X X X X Extracts X X X X ..... recting to treat the income as Fees for Technical Services and tax the same as such." 2. The assessee is a foreign company non resident and is dealing in construction of pipelines project. The company having its registered office at Moscow and duly registered under Companies Law of Russia. The company has expertise and experience of many years in laying and installation of gas and liquid pipelines. It is recognized as the Major Contractor onshore by the International Pipeline & Offshore Contractors Association for a wide range of activities in the pipeline construction sector. In India, it is engaged in construction of pipeline projects for Bharat Petroleum Corporation Limited (hereinafter referred to as "BPCL") and Gas Authority of India Limited (hereinafter referred to as "GAIL"). As per the statement of total income filed by the assessee, the gross total income of the assessee has been shown at Rs.1,38,99,114/-. Out of the said income, income amounting to Rs.4,90,224/- has been shown as business income and offered to tax at normal rates of tax i.e. @ 40%. However, income amounting to Rs.1,34,08,890/- has been shown as Technical fees and offered to tax @ 10%, as per the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-company, and for the same personnel were deputed by the assessee-company from time to time. As per the cooperation agreement, the assessee-company will get 3% of the contract receipts as full consideration for its contribution in the project and KPTL shall be entitled to 96% of the contract value. The remaining 1% will be used to meet the expenses of Consortium. The contract commenced on .05.09.2006 and 07.11.2008, respectively for the two projects as per the letter of acceptance issued by GAIL India Ltd. and the same was completed on 23.11.2008 and 05.09.2010, as per the Completion certificate supplied by GAIL India Ltd. Thus, the overall duration of the projects is 26 months and 18 days and 22 months respectively. The assessee-company has offered income arising out of the PDPL and VDPL projects, i.e. 3% of the project consideration received during the year amounting to Rs. 80,98,507/-, and Rs. 53,10,385/- @ 10%, claiming it to be "fees for technical services", as per the provisions of para 2 of Article 12 of Indo-Russia DTAA. On examination of the scope, management and organization of work of the consortium as a whole and that of the two partners separately as per the various a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee company shall perform the various activities for the execution of the contract awarded to the consortium. The A.O. gave reasonable opportunity of being heard on this issue, which was afforded by the assessee company vide letter dated 07.12.2011. After considering the assessee's reply, the ld. A.O. held that MMPL contract has been awarded to the assessee company and the PDPL & VDPL projects have been awarded to the consortium formed by the assessee company with KPTL. Thus, the taxation of income derived from the two contracts has been seen differently. In case of MMPL project, the project was sub-contracted to KPTL on back to back basis whereas in case of PDPL and VDPL project the contract was awarded to the consortium. The distribution of work was carried on between the assessee-company was carried on between the assessee company after being awarded the contract through a cooperation agreement entered into between the assessee company and KPTL. As per the distribution of work, KPTL was responsible to carry out the entire work and the role of the assessee-company was only to provide supervisory services in terms of technical support and guidance. Thus, the conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for A.Y. 2007-08 and the assessment order. I agree with the appellant that between PDPL project and VDPL project there is no change in the facts. The VDPL project was also executed for GAIL (India) Ltd. and on the same lines as doen for the PDPL project. Similar agreements (consortium and co-operation were entered into. Even the AO has discussed the two projects together. In the case, all the objections of the A.O. are based on the consortium agreements and agreements of the consortium with GAIL and it has been contended that since the assessee is the leader of consortium and as per the terms of contract with GAIL, the assessee was the leading partner of the consortium, the entire construction work, of the project in the hands was done by the assessee and the assessee's activities are not confined to mere providing of FTS. The same issue has been decided hon'ble ITAT Ahd for AY 2007-08 in the case of the assessee on essentially same facts. Following Voith Siemens Hydro Kraftwerkstechnik GMBH & Co. Vs ADIT in ITA No. 2353/Del/2008 dated 05.03.2010 and also on the tribunal decision rendered in the case of Aditya Birla Nuvo Ltd. Vs ADIT as reported in 44 SOT 601 (Mumbai), it has de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies required to be performed for the construction of the said pipelines are to be carried out solely by the assessee company or jointly by it with KPTL. The assessee company, later on, entered into agreement with KPTL for completing the PDPL & VDPL contracts and final agreement entered into between the consortium and GAIL India Ltd. Thus, specification of contract is only for providing the working arrangement and the manner in which revenue arising out the said contract are to be distributed among the partners of the consortium. The assessee company lead partner in the consortium which is only inter se arrangement between the assessee company and KPTL. He further argued that Hon'ble ITAT order in case of assessee for A.Y. 07-08 has not been accepted by the department, an appeal pending before the Hon'ble Gujarat High Court. Thus, he requested to confirm the order of the A.O. 4(i). At the outset, ld. A.R. for the assessee gave the bifurcation of the receipts of all the projects for A.Y. 07-08, 08-09, 09-10 & 0-11 and has drawn our attention that KPTL had received 96% of total receipts as per agreement which has been shown by it in income in respective years and paid tax on it. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with proposals approved by the Central Government before that date.] Explanation [2] - For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of nay managerial, technical or consultancy services (including the provision of services of technical or other personnel) but doe 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".]" "44DA. (1) The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Government or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is not applicable in the present case because this is not the case of the A.O. that the receipt in question is chargeable to tax under the head 'salary'. The second exclusion is regarding those considerations, which are for any construction, assembly, mining or like project undertaken by the recipient i.e. the assessee in the present case. The case of the A.O. in the present case is that the amount received by the assessee is for construction project and hence, it is outside the definition of FTS and the claim of the assessee is that this objection of the A.O. is not valid. When we examine the factual matrix of the present case, we find that admittedly, the contract in question was awarded by GAIL to the consortium of the assessee and KPTL but after awarding this contract by GAIL to the consortium, both the parties of the consortium entered into a cooperation agreement between themselves as per which they determined the responsibilities of each party and the manner of share of consideration also. The manner of sharing the consideration has been prescribed in the ratio of 3% for the assessee, 96% for KPTL and the balance 1% was reserved for common expenses of the consortium. Rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of design & engineering included in the Packages of following- > Temporary Cathodic Protection based on Sacrificial Anodes > Permanent Cathodic Protection based on Impressed Current d. Equipment Design & Engineering Design & Engineering to enable procurement of valves, scraper Traps, Flow nsulating joints, TEGs, AC Package, Fire Extinguishing System based on CO2 flooding and clean agent system, including the fallowing:- > Data sheets of equipment > Review of vendor data > Review of constructional details given by vendor e. Pipeline Crossings > Review of Design & Engineering of HDD crossings > Design &.Engineering of Bored crossings f. Instrumentation Review off Design of field Instrumentation System as per Specifications including following:- > Material Take Off > Instrument Cable Layout > Detailed Engineering of instrument Installation 2. Preparation of Welding Procedure and Welder qualification Procedure 3. Review of Work procedures for Pipeline Laying. 4. Deputation of Experts for Site review of implementation by KPTL of technical services provided by ZANGAS." 10. From the above details regarding scope of work of Zangas i.e. the assessee in respect of PDPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of term "construction and assembly" as provided in the exclusion provided in Explanation (2) to section 9(1)(vii) of the Income tax Act, 1961. Hence, as per this Tribunal decision, the term contract alone is not the deciding factor and it is very important to see as to what was the actual activity is undertaken by the assessee. In the present case, all the objections of the A.O., DRP and the Ld. D.R. of the revenue are based on the consortium agreement and agreement of the consortium with GAIL and it has been contended that since the assessee is the leader of consortium and as per the terms of contract with GAIL, the assessee was the leading partner of the consortium, the entire construction work of the project in the hands was done by the assessee and the assessee's activities are not confined to mere providing of FTS. But the assessee has brought on record the corporation agreement along with its Annexure 1 which outlines the scope of the activities of the assessee. As per the scope of activities as has been reproduced above, the assessee is required to provide design and engineering of various aspects and is also required for preparing the welding procedure and is also required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company then he should have assessed the income of the assessee by disregarding this cooperation agreement and the income should have been quantified by him after considering the gross receipt of the consortium and after deducting al the expenses incurred for the purpose and the remaining income should have been distributed between the two partners of the consortium i.e. the assessee and KPTL on the basis of consortium agreement or on some reasonable basis. This has not been done by the A.O. and he has accepted the income declared by the assessee which is to the extent of 3% of gross receipt of the consortium on the basis of this cooperation agreement. Having accepted the cooperation agreement on this aspect, it was not justified on the part of the A.O. and DRP to say that with regard to the scope of activities of the assessee company, cooperation agreement is not valid and they have to go by consortium agreement. They have also not brought on record any evidence to show that the assessee has undertaken any extra activity in addition to the activities falling within its scope of work as per the co operation agreement. Hence, even if extra responsibility of the assessee is ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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