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Income Tax Officer (International Taxation) , Ward, Kolkata Versus M/s Emami Paper Mills Ltd.

2017 (2) TMI 638 - ITAT KOLKATA

TDS u/s 195 - payments made to the non-residents for dismantling and sea worthy packing of paper mill machinery are payments made for “fees for technical services” - DTAA between India and Poland - assessee in default - Held that:- There is a difference between ‘Contract of work and ‘Contract of service’. The two words convey different ideas. In the 'Contract of work' the activity is predominantly physical; it is tangible. In the activity referred as 'Contract of service', the dominant feature o .....

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in the agreement clearly explains that it is ‘contract of work’ to dismantle the machinery, therefore, it is not a ‘contract of service’ hence payment by the assessee is not for technical services, therefore, the assessee company is not liable to deduct TDS. - Thus we are of the view that dismantling of machinery does not require any technical services, therefore, the present case does not fall in the ambit of fees for technical services and the assessee company does not require to deduct T .....

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rises out of an order passed by the Assessing Officer (AO) Under Section 201(1)/1A of the Income Tax Act 1961, (in short the Act ), dated 28.03.2013. 2. Brief facts of the case qua the assessee are that the assessee company, M/s.Emami Paper Mills Limited, hereafter called as deductor has remitted some amount to a non-resident company of Poland without deducting taxes. Show cause notice u/s 201 of the Income Tax Act, 1961 was issued to the deductor. In response, the deductor company submitted wri .....

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OWEX SA of Poland, without deducting any withholding taxes. The details of payments are as under: Sl. No. Name of the Recipient Remittance amount (Rs.) TDS amount (Rs.) Date of remittance Nature of payment as mentioned in Form No.15CA 1. POL-INOWEX SA 76,13,180/- 0 02/11/2011 Charges for dismantling of second hand machine 2. POL-INOWEX SA 41,06,640/- 0 18/01/2012 Charges for dismantling of second hand machine The Assessing officer held that the payments made to the non-residents for dismantling .....

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Aggrieved from the order of ld. Assessing Officer (International Taxation), the assessee filed an appeal before the ld. CIT(A), who has deleted the addition made by the Assessing Officer, by observing the followings :- 4. I have carefully considered the facts on records and the submissions furnished by the appellant. The facts and circumstances of the case shows that the appellant has procured an used machinery from a Swedish company which is to be dismantled, packed and loaded in the trucks fo .....

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cal job as it required highly technical skilled technicians. The AO analysed the contract between the appellant and the POL-INOWEX S.A. and came to the conclusion that the payment by the appellant are for "fees for technical services" as defined in section 9(1)(vii)(c) of the Income Tax Act as well as provisions of Article 13-4 of the DTAA between India and Poland. The AO, therefore determined the tax liability u/s 201(lA) of the Act. 4.1 The issue that has to decided is that whether t .....

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of achieving such a task that the contractor utilises his expertise." From the facts emerging out of the records as above, the job of the polish company as per the contract was to dismantle, match marking, packing and loading work of the used machinery in 4 months. For this purposes, POL had to arrange competent and adequate number of personnel (workers, supervisors, engineers etc.) including such skilled manpower. POL was made responsible for any damage caused in the course of the prepara .....

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in the instant case was of that of disassembly of the plant machinery, and did not involve services of technical nature. 4.2 I am also inclined to agree with the appellant that the AO should have considered the contract in totality and it is not proper to read a single sentence in a contract in isolation to reach a different inference. The Hon'ble Apex Court in the case of Vodafone International Holdings B.V. vs UOI and Anr. 341 ITR 1, had held that an agreement has to be "looked at&qu .....

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on of a contract is to read it as a whole and to construe all its terms in the context of the object sought to be achieved and the purpose sought to be attained by the implementation of the contract. Reading parts of the contract as imposing distinct obligations may not be the proper way to understand a composite contract especially for installation and commissioning and delivery of a project or a system", applies to the facts of the case. The AO has to consider the contract in entirety whi .....

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ismantling of plant and is excluded for "fees for technical services" u/s 9(1)(vii)(c) and is also not covered under article 13-4 of the DTAA between India and Poland. The remittances made to POL are business income of POL and the same is arising outside India. As POL has no permanent establishment in India, the same cannot be taxed in India and therefore it is held that there is no requirement to deduct tax u/s 195 of the income tax Act from the remittances made to POL. Accordingly th .....

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excluded from 'fees for technical services'. 2. In the facts and circumstances of the case and in law, the Ld.CIT(A) erred in holding that the payments to M/s. POL-INOWEX S.A. of Poland is not taxable in India as " fees for technical services" despite the fact that the job performed by POL is highly technical and skill oriented and included "provision of services of technical and other personnel" . 3. In the facts and circumstances of the case and in law, the Ld,CIT( .....

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on'ble Hyderabad Tribunal in the case of M/s. Bhel GE -Gas Turbine Service (P) Ltd. to come to the conclusion that the work was not technical in nature, as the facts are different. In the case of Bhel GE -Gas Turbine Service (P) Ltd. the work involved was held as routine repair not constituting FTS ,however, in this case the work is not in the nature of routine repair. 5. In the facts and circumstances of the case the Ld.CIT(A) erred by relying on the decision in the case of Vodafone Interna .....

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tantiate, delete and/or revise all or any of the grounds of appeal on or before the final hearing. , 5. Although in this appeal, the Revenue has raised six grounds of appeal, but at the time of hearing, the solitary grievance of the Revenue has been confined to the main issue that the Assessee Company had hired a foreign company POl- INOWEX S.A. (Non-Resident Co.) to undertake a) dismantling and sea-worthy packing of the paper mill machinery; (b) stuffing of all items into containers and (c) loa .....

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m for their technical services. The fee has been paid by the assessee without deducting the TDS. Dismantling requires technical knowledge and it was a contract for service therefore it does fall in the definition of fees for technical services hence TDS is required to be deducted. The assessee had used technical services, as the work executed by the NRI was Dismantling of Mchineries which requires skill and technical knowledge a layman can not dismantle a sophisticated machinery. Therefore, TDS .....

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chnical and skill oriented and included provision of service of technical and other personnel . The Ld. DR also pointed out that contract between M/s POL-INOWEX SA and assessee is a contract for technical services because the nature of the work as per the Machinery Dismantling and Packaging agreement was within the scope of fees for technical services as per the I.T.Act and also as per the India-Poland DTAA. The Ld. DR also pointed out that ld. CIT(A) wrongly relied on the decision of Hyderabad .....

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to come to the conclusion that a contract has be read as a whole, despite the fact that the Assessing Officer has held that "dismantling and sea-worthy packing of paper mill machinery" is not a project but part of a project and he has read the impugned contract as a whole and thus dissecting approach has not been adopted by the AO. This way, the ld. DR submitted that the appeal of the Revenue should be allowed. 5.2. On the other hand, Ld. AR for the assessee has submitted that the ass .....

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EAS EMAMI, has procured a used Paper Machine (PM#2) from Holmens Bruk AB, Hallstavik, Sweden, and EMAMI requires the work for dismantling, match marking, packing and containerization of assets of the second hand paper machine. Scope of Work-Dismantling of paper mill machinery, from Holmens bruk AB, Sweden,Seaworthy packing and stuffing all items of the equipment into containers and loading the containers on trucks. This agreement is part and parcel of purchase of plant and machinery and it is pr .....

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ans any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does 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". The above explanation clearly says that "fees for technical services&qu .....

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nd contract of service . In the case of assessee under consideration the agreement is for contract of work which does not require any technical knowledge and specific skill. If the assessee hires a person outside India does not mean that he is paying fee for technical services. The assessee has hired the persons from outside India just to dismantle the machinery, which does not require any technical expertise and special skill. In order to support his plea, the Ld. AR, has also relied on the fol .....

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inly, 'work' also involves intellectual exercise to some extent. Even a gardener has to bestow sufficient care in doing his job; so is the case with a mason, carpenter or a builder. But the physical (tangible) aspect is more dominant than the intellectual aspect. In contrast, in the case of rendering any kind of 'service', intellectual aspect plays the dominant role. The vocation of a lawyer, doctor, architect or a Chartered Accountant (there are other similar vocations also) inv .....

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ra Sen, J.-The petitioner has challenged an order passed by the Commissioner of Income-tax under section 264 of the Income-tax Act, 1961. In the order passed, the Commissioner of Income-tax has held in substance that the contract for supply of a belt vulcanizing press to the petitioner resulted in accrual of income in India to the foreign supplier on which proper tax had not been paid. The facts of the case as recorded by the Commissioner in his order are as under: "Messrs. G. Siempelkamp G .....

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demand". On behalf of the petitioner, Dr. Pal has contended that there is no question of invoking section 9 in this case as the issue is concluded by the Agreement for Avoidance of Double Taxation between India and the Federal German Republic which was notified on September 13, 1960 (see [1960] 40 ITR (St.) 21). Moreover, it has been contended that the approach of the Commissioner is erroneous. The entire responsibility for the construction of a machine was upon the German firm. The German .....

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s manufactured. Certain services were rendered in connection with the setting up of that press in India. This cannot be treated as personal service in any way even if the agreement for rendering service was embodied in a separate agreement. The writ petition, therefore, succeeds. Rule is made absolute. There will be an order as prayed for in terms of prayers (a) and (b) of the petition. The refund must be given within a period of 3 (three) months from the date of communication of this order. ii) .....

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TS and they would constitute part of business income. The Hon'ble Apex Court in the case of Ishikawajma-Harima Heavy Industries Ltd. v. DIT [2007] 288 ITR 408/158 Taxman 259 has upheld the above principle. The Hon'ble Calcutta High Court in the matter of Andrew Yule & Co. Ltd. v. CIT [1994] 207 ITR 899 (Cal.) has also dealt with the identical issue. In that matter a German Company had supplied certain machinery to the Indian assessee and had rendered certain services in setting up of .....

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, delivered in the case of ITO v. Prasad Production Ltd. [2010] 125 ITD 263. In that matter the assessee had purchased Considering the above, we hold that the FAA was not justified in holding that services rendered in pursuance of the purchase agreement can be taxed as FIS/FTS. iii) Bhel-GE-Gas Turbine Servicing (P) Ltd., 24 taxmann.com 25(Hyd): 16. The above activities involve assembly, disassembly, inspection, reporting and evaluation. CIT(A) examined every activity enlisted above and came to .....

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in the said decision- "In conclusion, Technik carried out the repair work in the normal course of its business in Germany, without any involvement or participation of the assessee's personnel. The overhaul repairs involved were routine maintenance repairs. It cannot therefore be said that Technik rendered any managerial, technical or consultancy service to the assessee. In this view of the matter, we hold that the payments made by the assessee to non-residents workshops outside India do .....

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tation or supervision, is absent in both instant cases as well as the case before it, as observed by the Delhi Bench of the Tribunal in the cited case. The relevant para of the order of the Tribunal in that case reads as follows- "We find that in Demag's case, the foreign company rendered 'technical consultancy' by way deputing a technician to India for supervising repairs to be carried out on the plant and machinery purchased by National Mineral Development Corporation. It is n .....

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provision of its technician deputed to India. Our conclusion is supported by the decision of Andhra Pradesh high court in the same case reported in 238 ITR 861, wherein Hon'ble High Court affirming the aforesaid decision of the Tribunal held that the Explanation 2 has expanded the scope of Section 9(1)(vii)(b) by providing that the services of technical or other personnel would be taxable. It has been repeatedly stated by the assessee that no foreign Technician was ever deputed of India. The .....

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ttract the provisions of S.9(1)(vii) and its Explanation 2. Further, it is also a settled issue at the level of the Tribunal that every consideration made for rendering of services do not constitute income within the meaning of S.9(1)(viii) of the Act and for considering the same, first of all the said consideration is for the FTS. Therefore, considering the above, decision of Delhi Bench of the Tribunal, which explained the scope of the provisions, we are of the view that the impugned orders of .....

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provisions of S.201 by the Finance Act, 2008 with retrospective effect from 1.4.2003, to be fair, the Revenue normally deserves fresh opportunity to be heard on this issue. Instead of setting aside this issue to the files of the lower authorities, considering the alternative nature of the argument, and also considering the fact, we have already granted relief to the assessee as per discussion in the preceding paragraphs of this order on merits, we dismiss the alternate argument of Ld Counsel hol .....

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