TMI Blog2023 (4) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... instrument is sine qua non. In our view, the services which can independently or on stand alone basis, be provided, coupled with the fulfillment of the other requirement of Para 4(b) of the DTAA would only attract the Fee for included services'. In the present case, testing and on-site training in India cannot be provided on its own, unless it is coupled with purchase of equipment and therefore, these services did not fall within the purview of Fee for incidental services . In the present case, the services, which are the subject matter of the dispute, do not fall under Fee for incidental services , hence, would not fall under Royalty and as such, not chargeable in India as per Clause 12 of DTAA, read with sections of Income Tax Act and therefore, the charges paid by the assessee to BAE Systems would not be subject to deduction of TDS. Thus, the action of lower authorities that the assessee was liable to deduct TDS while making the payment to BAE Systems is unsustainable and therefore, the same is dismissed. With respect to payment made to Syscom Instruments, Switzerland, the disallowance had been upheld being not pressed and thirdly with respect to payment made to Gri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing disallowance of Rs.5AOA04/- out of the provision made for security expenses solely on the base of actual expenditure subsequently incurred. 3. The brief facts of the case are that assessee is a Central Public Sector undertaking under the control of Department of Atomic Energy (DAE) and is in the business of manufacture and sale of electronic goods and components. For A.Y. 2010-11, the assessee company filed the return of income declaring a total income of Rs.62,07,56,570/- and the assessment was completed u/s 143(3) of the Act determining the total income at Rs.68,88,29,370/- by making various additions / disallowances. 4. Feeling aggrieved by the order of AO, assessee carried the matter before ld.CIT(A), who has partly allowed the appeal of assessee. 5. Feeling aggrieved with the order of ld.CIT(A), assessee is now in appeal before us. 6. Ground Nos. 1, 2, 6 are not pressed by the ld.AR for the assessee. Hence, the same are dismissed as not pressed. GROUND NOS. 3 AND 4 7. Before us, the ld.AR submitted that the lower authorities had disallowed the payments made by the assessee to various entities during the year under consideration, without deducting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,75,000/-. 12. With respect to the payments made by the assessee to BAE Systems, USA for an amount of Rs.2,31,34,988/- for site testing charges, our attention was drawn to page 18 of the paper book, which is the purchase order issued by the assessee to BAE Systems and at Sl.No.1, it was mentioned as T082059001 Long Range Position and Velocity Tracking Doppler Radar System Model No.DRX41320 and at Sl.No.7, it was mentioned as T082059108 Training (1Lot) (Two weeks on site). On the basis of the above, it was submitted that the supply of equipment and the installation thereof were forming part and parcel of the single purchase order placed by the assessee. It was submitted that the assessee was required to pay 10% on the purchase order on successful completion of site and submission of the invoices, this 10% had come to the amount of Rs.2,31,24,988/- which was denied by the revenue authorities treating the said installation charges paid by the assessee as Fee for technical services . He had drawn our attention to para III on page 3 of the assessment order wherein the Assessing Officer had clearly mentioned, therefore, there is technical service in India which clearly attract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof ; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8. 4. For purposes of this Article, fees for included services means payments of any kind to any person in consideration for the rendering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame was part of the cost price. The installation, site acceptance testing and training may be treated as fees for technical services. 15. The ld.AR has submitted that however, Paragraph 5(a) of Article 12 of the DTAA between India and USA states that 'Fees for included services' does not include amounts paid for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a). Paragraph 3(a) of Article 12 of the DTAA relates to payments for Royalties. In this case there was no such royalty. The above services are rendered by payee in connection with the purchase of equipment. The services were absolutely necessary so that the equipment could be used. And, the services were to be performed while supplying the equipment. Hence, these services were covered under the exception in 5(a) of Article 12 of the DTAA. Therefore, the entire contract needs to be categorized as business and the profits were to be considered under Article 7 of the DTAA as business profits. The payee, being resident of USA does not have any permanent establishment in India as per Article 4 of the DTAA. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even for a composite contract. It was submitted that the installation of equipment was intrinsically connected with the Completion of the site Acceptance Test and Completion of On-site Training in India. 19. We have heard the rival contentions of the parties and perused the material available on record. From the bare perusal of the DTAA, it is abundantly clear that DTAA agreement has not used the term Fee for technical services , as has been used in Section 9 of the Income Tax Act, 1961. Para 4 of the agreement defined Fee for included services, however, Para 5(a) has provides the services which will not fall within the provision of fee For included services . Para 5(a) provides that the services which are ancillary and subsidiary and are inextricably and essentially linked to the sale of property would not fall within the purview of the Fee for included services . In the present case, as clear from the sale invoice that the total sale value of equipment including the charges paid for completion of the site acceptance test and completion of on-site training in India was USD 46,24,949. Whereas, the sale value component of online services and completion of onsite acceptance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred in the current year and accordingly disallowed the same. The learned Assessing Officer disallowed the amount of Rs.59,23,000/- disclosed as prior period expenses in the audited financials. Ld.AR further submitted that such practice of prior period expenses was common and was in accordance with the accepted principles of accountancy. It was also submitted that besides the prior period expenses, the assessee had also accounted for prior period income, which crystalized during the year under consideration. He relied upon the decision of Hyderabad bench of the Tribunal in the case of M/s Deccan Cements Limited vs. DCIT. Special Range-5, Hyderabad in ITA No.283/Hyd/1997 dated 31st May, 2002 for the A.Y.2003-2004. In Paragraph 8 of the order, the Hon'ble Tribunal dealt with this issue and rendered a decision in favour of assessee, holding that prior period expenditure should be allowed. 22. Per contra, the ld.DR had submitted that the assessee is a Government PSU, and is subjected to audit by the CAG and therefore, should act as a model PSU and such kind of argument is not permitted to be raised by the assessee. 23. We have heard the rival contentions of the parties and ..... 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