TMI Blog1996 (5) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... n of construction including erection and installation of the plant Rs. 99,97,462 (2), Services rendered for supervision of pre-commissioning and commissioning including test run and guarantee tests Rs. 14,24,167 (3), Arranging for practical experience of Indian technicians Rs. 5,22,839 Management charges are beyond the ken of exemption available under the Double Taxation Treaty. These are not to be governed by the factum of the permanent establishment. As such these were found to be exigible to tax in India. Accordingly assessed to tax. 3. Apropos the amount of Rs. 99,97,462 being the charges of supervision of construction including erection and installation of the plant, the CIT(A) confirmed the order of the AO. Therefore, the assessee is in appeal. 4. In relation to the amount of Rs. 14,24,167 being the charges for services rendered for supervision of pre-commissioning and commissioning including-test run and guarantee tests and Rs. 5,22,839 being the charges for arranging for practical experience of Indian technicians, CIT(A) held that these are not in the nature of management charges. He, therefore, reversed the order of the AO. Therefore, the Department is in appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Drawings and documents including detailed engineering documentation (iv) Procurement services including inspection and expediting for equipment (v) Services to enable owner to obtain import licences and other permits (vi) Obtaining of network schedules of vendors and sub-contractors (vii) Services for procurement of spares, special construction and maintenance tools (viii) Association of owner's representative during design, engineering, procurement, etc. (ix) Services for transporting and shipping of equipment (x) Construction management services (xi) Pre-commissioning services (xii) Guaranteed completion point of ammonia plant (xiii) Commissioning services (xiv) Proving of performance guarantees (xv) Post commissioning services of ammonia plant (xvi) Arranging practical experience for owner's personnel (xvii) Observing safety and security regulations (xviii) Complying with statutory laws and regulations (xix) Progress monitoring and reporting (xx) Technical information (xxi) Transfer of Technology to FPDIL (xxii) Work of sub-contractors (xxiii) Providing assistance to owner for achieving co-ordination of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices for supervision of construction/erection. Our attention was riveted on Arts. 2.13, 2.2, 4.00(v), 4.06 and 5.06. Art. 4.07 r/w Arts. 2.12 and 2.14 refer to supervision of pre-commissioning and commissioning. 9. Sri Dastur submitted that it is an accepted rule of interpretation of documents, that the mere use of a particular word or words is not conclusive on the issue and the real nature of the transaction has to be determined by reading and construing the agreement as a whole. If the agreement is read as a whole, the only conclusion that is possible that that assessee was not rendering management services but were acting as consultants only. In the area of construction of RCF's plant, the role of the assessee was that of assisting RCF in the preparation of necessary technical documents (such as the list of qualified contractors and bid documents for tendering by various contractors; bid evaluation, selection of contractors who were to perform the actual construction/erection work and preparation of work order; and the proper putting up of the plant through supervision and co-ordination of the actual construction/erection, pre-commissioning and commissioning work whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned counsel (sic-has) also given extracts from the Law Lexicon (paper book page 7) to explain the meaning of the management. It is reproduced below : I. Extracts from Black's 'Law Dictionary' (5th Edn.), p. 865. Manage : To control and direct to carry on the concerns of a business or establishment. Management : Government, control, superintendence. Manager : One who has charge of corporation and control of its business, or of branch establishments. A person chosen or appointed to manage, direct or administer the affairs of another person or of a corporation or company. The designation of 'manager' implies general power and permits reasonable inferences that the employee so designated is invested with the general conduct and control of his employer's business. II. Extracts from P. Ramanatha Aiyar's Law Lexicon (1987). P. 780 Manage : To control, to direct, govern.... to direct the concern or to have under control and direction. Management. Management is defined as government control, superintendence.... the act of managing by direction or regulation or administration. Management means administration, control, etc., and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roves beyond the shadow of doubt that these amounts were received for managing the installation work in India. The assessee-company had the managerial expertise. 17. The term management services got a very wide connotation. The meaning of the word management is to get the work done. Our attention was invited on the meaning of the word with reference to the dictionary. 18. It was pointed out that the task of the assessee was not only to provide technical services, but it was responsible for the other things also. The RCF made the payment for a package managerial deal. Installation work was the responsibility of the assessee. In the matter of the installation ultimate decision to prevail was that of the assessee. Our attention was invited to para 2.11 (on page 42 of the paper book) of the agreement. It is reproduced hereunder : Construction management services Consultant shall provide services for the management of all activities relating to civil works, erection, site fabrication, piping, instrumentation, electrical installation, interpretation of drawings and other miscellaneous construction jobs of ammonia plant leading to the guaranteed completion point. Consultant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also responsible for the work done by the sub-contractors. Our attention was invited on para 2.23 (on page 48 of the paper book). It is reproduced as under : Work of sub-contractors Consultant shall remain responsible for proper execution of the work carried out by sub-contractors appointed by consultant with the prior approval of owner and any failure of sub-contractor including FPDIL shall not relieve consultant of its obligations under this Agreement. Furthermore, in the event of any default by FPDIL/sub-contractor, consultant may either take over the work of FPDIL/sub-contractor mutually agreed or take remedial action as may be necessary in order to achieve completion of ammonia plant and other activities leading to acceptance of ammonia plant by owner. 21. The learned Departmental Representative also invited our attention on cl. 2.24 of the agreement concerning the co-ordination (paper book page 49). It is reproduced here as under : Co-ordination Consultant shall assist owner in achieving overall co-ordination of all work connected with the project as described in Art. 3.02. Towards this end consultant shall agree for a meeting as soon as practicable afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature. There was a long debate on the concept of management. To demonstrate that the services offered by the assessee fell outside the ken of management services , recourse was made to the etymological and legal meaning of the word management . Similarly, to explain that such services comes within the ambit of managerial services, Department also categorised the concept with reference to the services rendered by the assessee. 24. The question persuasively presented and vehemently argued by both the sides centres round the point, - What is management services ? To find out the meaning of the word management , first we go to the root of the word. The word is derived from the Latin root Manus . It means hand . The word manual is also derived from this root. The meaning of the words manual labour is easy to understand. A manual is a small hand book. Manuscripts used to be handwritten (Manus, 'hand', and scribe, 'write'). In this background, the great lexiographer Wilfred Funk, etymologically defined the term as under : Management is the handling of people and affairs . 25. The concept of management is as old as the human race itself. The concept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ease in travel turned the world into one global community. Flow of technology, goods and services, information, managerial talent is rampant in this era of development. The international business transactions may be conducted in the form of licensing agreements, management contracts, turnkey projects, joint ventures, foreign subsidiaries, etc., etc. 29. Managing in international arena poses special problems for international managers apropos the planning, organising, controlling, etc., but due to the advent and application of fast computers, communication satellite, transportation, and mobility, developing nations are frequently availing the services of management consultants and experts of international repute. The management concept is emerging towards cross - cultural unity of nations, with reduce impact of geographical distances and greater internal consciousness. 30. In the present case, we find that the assessee is equipped with expertise in design engineering architect, and other related things required for commissioning a chemical fertiliser complex. The agreement was for installation of two ammonia production units for the production of 1350 metric tons of anhydrou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er miscellaneous construction jobs of ammonia plant leading to the guaranteed completion point. The assessee was required to organise the activities in appropriate sequence by applying proper methods by giving due regard to the requirements of safety, quality, sound engineering practice, compliance of relevant codes and regulations, etc. To achieve this task it was required to prepare the list of qualified contractors. It was also required to prepare bid documents for inviting tenders. It was also responsible for evaluating the bids, preparation of work order stipulating terms and conditions for the award of work, etc. 35. Art. 4 of the agreement deals with the fees. Assessee was to receive gross lump sum fee. The work was classified as follows for the purpose of payment of fees only : (i) Licence and know-how; (ii) Basic Design Engineering package to be done and delivered in Denmark; (iii) Procurement services including expediting and inspection; (iv) Supervision of detailed engineering; (v) Supervision of erection and construction; (vi) Supervision of pre-commissioning and commissioning operations; (vii) Arranging practical experience to owner's pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a total view of the situation. On the conspectus of such total effect of reading and understanding the agreement, we are of the view that the amount of the fees received by the assessee for rendering the specified services can be construed to be of the nature of management charges. 39. Since the AO is not a Court, the doctrine of res judicata does not apply to his decision. The apex Court in the case of New Jahangir Vakil Mills Co. Ltd. vs. CIT (1963) 49 ITR 137 (SC) has held that a finding or decision of the IT authority in one year may be departed from in subsequent year. In I. R. vs. Sneath 17 Tax Cases 149, 163 (CA) Henworth M. R. said : the assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made. No doubt, a decision reached in one year would be cogent factor in determination of a similar point in a following year but I cannot think that it is to be treated as estoppel binding upon the same party for all the years. 40. Coming now to the reference to the decisions of the Tribunal in the case of Swadeshi Telecoms International AB, dt. 10th Feb., 1994, in ITA No. 7586/Bom/91 and Rheinbraun Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement services have been reproduced at page 11 of the order. 2. The construction management services cover areas relating to civil works which include preparation of list of contractors, including civil contractors, preparation of bid documents for inviting tenders, evaluation of bids, preparation of work order stipulating various terms and conditions, quality, time schedule, penalties, etc. The civil work, i.e., the works building in which the ammonia plant and the urea plant have to be installed, no doubt are not part of the agreement of supply of ammonia and other urea plants. The assessee had, in fact laid down certain norms and prerequisites for using the ammonia plant and the urea plant so as to meet the requirements as had been visualised by the assessee. It was with this intention that it had come forward to provide construction management services including civil construction. The other aspect of construction involve various other factors which are necessary for the operation and functioning of the ammonia plant and the urea plants. These are also supervised or managed only to make sure that they need the requirement of the ammonia plant and the urea plants. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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