TMI Blog2018 (7) TMI 2259X X X X Extracts X X X X X X X X Extracts X X X X ..... manshu Sharma For the Assessee : Shri Jitendra Sanghavi ORDER PER G.S. PANNU, AM : The captioned two appeals by the Revenue for Assessment Years 2009-10 and 2012-13 and the respective Cross objections have been raised by the assessee for the two assessment years. 2. Since common Grounds, except for the figures, have been raised by the Revenue in its appeals, appeal for Assessment Year 2009-10 is taken as the lead case. In this appeal, the Grounds raised by the Revenue read as follows :- 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the amount of Rs.8,38,69,451/- received by assessee as standby maintenance / charges was not in nature of 'Fee for technical services' under section 9(1)(vii) of the Income tax Act, 1961 on the ground that no services were rendered during the year, ignoring the invoice available on record indicating charges paid towards such services and without appreciating that by incurring cost on maintaining infrastructures for co-ordination and setting up conditions for efficient rendering of services in relation to maintenance and repairs of cable system the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue are concerned, the primary dispute arises from the action of Assessing Officer in treating the standby maintenance charges received by the assessee to be in the nature of fee for technical services as per Sec. 9(1)(vii) of the Act as against assessee s stand of it being liable to be taxed as business income . The CIT(A) has since upheld the stand of the assessee, against which the Revenue is in appeal before us. 5. Similar dispute came-up before the Tribunal in assessee s own case for Assessment Year 2010-11 and vide order dated 04.05.2018, the order of the CIT(A) was affirmed and the following discussion is relevant :- 7. After treating the amounts to be in the nature of business income , the CIT(A) held that the same are liable to be taxed in India vis-a-vis the turnover arising to the assessee with reference to the Indian business connection. The CIT(A) noticed that in the computation made by the assessee, it had not included the total receipts from TCL as its turnover while computing the gain/loss. Ostensibly, the assessee had offered the revenues from this activity by holding that only a portion of the total receipts from TCL computed in the ratio of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tre (FNOC) has to provide overall network service surveillance and over all co-ordination of maintenance and repair operations of Flag cable system. The Flag has to co-ordinate the deployment of the vessels for repairs and maintenance operation in accordance with the procedure defined. Para 11 along with various sub clauses provides the responsibility for operation and maintenance cost. Clause 11.11 gives the details of activities, expenses and cost incurred. The relevant clause reads as under:- 11.1 The cost of standby maintenance of Segments S.X-1 and X-2, including, but not limited to, the maintenance of Segments S X-1 and X-2, the FNOC, the procurement of cable ship services covering, inter alia, ship depreciation, ship retrofit, crew, insurance (except insurance at sea), in-port expenses, the storage of submersible plant, remotely operated vehicles and other devices when included in the wet maintenance zone agreement standby charges, shall be recovered by the Founding Signatory through fixed charges payable by the Signatories and other holders of Assignable Capacity, in accordance with Schedules H-1 through H-55 and J. adjusted to reflect inflation. 11.2 The cost of runn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of service 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 . From the above definition it is evident that if the income is to be characterized as FTS, then it has to be necessarily from the services provided for the following types, viz; managerial , technical or consultancy . Another very important phrase preceding the word managerial, technical and consultancy services is, rendering . The word rendering qualifies the other terms used for the FTS. The word rendering connotes to provide or deliver or to do something . Thus, rendering services mean some kind of actual services is being provided or delivered which are in the nature of managerial technical or consultancy. The word managerial has to be understood in the context of running and managing the business of the client or one who is in charge for management and control of its business. Here t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total costs incurred (as per auditor s certificate) (857,093) (2,0,77,219) (2,800,495) Profit/(Loss) from standby maintenance activities (344,138) (850,359) (728,042) It has been contended that there is a loss in this account. 71. Thus, on the facts and circumstances of the case as well as looking to the nature of standby maintenance cost, we hold that the receipts from standby maintenance charges from VSNL cannot be taxed as FTS, within the definition and meaning of section 9(1)(vii) as there is no rendering of services. However, whenever payment is received on account of actual repair or maintenance carried out, then same would definitely fall within the ambit of FTS chargeable to tax u/s 9(1)(vii). Accordingly the order of the CIT(A) is set aside and assessee s ground on this score is allowed. 9. Therefore, following the decision of the Tribunal in assessee s own case for the earlier years, so far as the Grounds raised by the Revenue are concerned, we find no reasons to interfere with the decision of the CIT(A), which is in line with the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of taxation in India without giving notice for enhancement or opportunity to the Appellant. The Appellant submits that the CIT(A) ought not to have held that the entire turnover (receipt from the Indian parties) is liable to be treated as turnover for the purpose of taxation in India. Cross Objection No. 4 : 4. On the facts and circumstances of the case and in law, the Learned CIT(A) erred in holding that the entire turnover (receipts from Indian Parties) of Standby Maintenance Charges from TCL is liable to be treated as turnover for the purpose of taxation in India. The Appellant submits that the turnover (receipts) of Standby Maintenance Charges from TCL that is attributable to India has to be calculated on the basis of the proportion of cable length in India via-a-vis worldwide cable length. 8. Insofar as Cross objection nos. 1, 3 4 are concerned, the same relate to the aspect of determination of business income that is liable to be taxed in India on account of standby maintenance charges received by the assessee from the Indian landing party, i.e. Tata Communication Ltd. (formerly Videsh Sanchar Nigam Limited). Insofar as Cross objection no. 2 is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the profits or income accruing to the assessee u/s 9(1)(i) of the Act. The reasoning advanced by the Revenue to the effect that the standby maintenance charges are linked to the cable capacity is of no consequence for the present inasmuch as what is required to be decided is the income attributable to the business connection in India, which possibly is the length of the cable in the territorial waters of India. Therefore, in our view, it is only the revenue from TCL which is on account of standby maintenance charges proportionate to the cable length in India that deserves to be considered for computing the profit or loss from standby maintenance activity attributable to India in terms of Sec. 9(1)(i) of the Act. Therefore, on this aspect, we uphold the plea of the assessee and direct the Assessing Officer to verify the calculation made by the assessee in this regard in its computation of income and recompute the income accordingly. Thus, on this aspect, assessee succeeds as above. 10. As the dispute raised in the instant year is identical to that considered in the earlier order, we direct the Assessing Officer to compute the income of the assessee in view of the our direct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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