TMI Blog2023 (9) TMI 1036X X X X Extracts X X X X X X X X Extracts X X X X ..... was no evidence to suggest that the Italian company had established a permanent establishment in India under the DTAA. Consequently, no business income was taxable in India under the DTAA. In conclusion, as no income accrued to the non-resident either under the Act or the DTAA, the assessee was not obligated to comply with Section 195(1) of the Act - Decided in favour of assessee. - Shri Om Prakash Kant, Accountant Member And Shri Pavan Kumar Gadale, Judicial Member For the Revenue : Shri Shravan Kumar Gotru, CIT DR For the Assessee : S/Shri Gautam Jain, Adv., Abhijeet Shrivastava, Akkal Dudhwewala, FCA, Rakesh Jhunjhunwala, FCA ORDER PER OM PRAKASH KANT, A.M.: These two appeals by the Revenue are directed against a common order dated 31/10/2013 passed by the Learned commissioner of Income-tax(Appeals)-Raipur, Camp Jabalpur [in short the Ld. CIT(A) ] for assessment years 2008-09 and 2009-10 respectively, in relation to order passed by the Ld. Assessing Officer under section 201(1) and 201(1A) of the Income-tax Act, 1961 ( in short the Act ) for non-deduction of tax at source on payment made to Italian company for supply of manufacturing plant of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 30/07/2007 for supply of tissue paper manufacturing plant inclusive of freight and providing of incidental engineering and supervision services. The Assessing Officer, while verification of quarterly TDS returns, observed that the assessee did not deduct tax deducted at source (TDS) under section 195 of the Act for payments to non-residents. After analysing terms of contract, the Assessing Officer was of the view that contract was a composite contract of supply and works and therefore, the assessee was liable to deduct tax at source on the payments made to non-resident. Accordingly, invoking the provisions of section 201(1), he held that the assessee as the assessee-in-default and raise the liability under section 201(1) of the Act for assessment years 2008-09 and 2009-10 respectively. The Assessing Officer also raised demand for corresponding interest liability invoking section 201(1A) of the Act for both the assessment years. The Assessing Officer held that the assessee company had paid an amount of Euros 69.50 lakh (Equivalent Indian Rupees Rs.47 crores) to non-resident company against the composite contract of supply and works relating to designs, manufacture, supply, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed copy of the Contract Agreement and submitted that the Agreement only provides for supervision services for installations of plant and machinery in India by the Italian company, that too, free of cost. The machinery was supplied in Italy and title in the machinery passed from the Italian company to assessee company in Italy. The custom authorities have treated the transaction as import of plant and machinery. It was further submitted that entire work of installation and commissioning of the plant and machinery in India was done by the assessee with the help of two Indian companies, for which separate payments were made and therefore, the contract was in the nature of a supply agreement only. It was further submitted that non-resident company was not having any permanent establishment in India and no business was carried out by said company in India and no services rendered by the non-resident in India except incidental supervisory services. The Ld. CIT(A) after considering the submission of the assessee rejected the finding of the Assessing Officer observing as under: 4.5. I have gone through the observations of the A.O. and submissions of the appellant and also minut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pervision of erection, start-up and commissioning of complete plant and equipment for a tissue paper manufacturing plant, to be erected at Amlai, India. Thus, the contract has two parts; the first relates engineering, manufacture, and supply of the plant and the second relates to supervision of erection, start up, commissioning of the plant. As per the interpretation of the A.O., the first part i.e., engineering, manufacturing and supply of the plant is a works contract and since it was executed out of India, there accrued no income to the said non-resident company in India. However, since the second part of the contract i.e., providing services of supervision of erection, start up and commissioning of the plant was rendered in India, the profit embedded in that part of the transaction is chargeable to tax. Therefore, according to the A.O. it is a composite contract. I have carefully gone through the various terms of the contract. There is no dispute regarding that part of the contract which related to engineering, manufacture and supply of the plant. The dispute relates only to the subsequent services offered in India. The learned AR has contended that the primary objective of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partial packages. In the case of GE India Technology Centre Pvt.Ltd. (supra) referred to by the A.O., the erection and commissioning of the plant was not made by Indian contractors and it was admitted that the erection and commission of plant and machinery in India gave rise to income-taxable in India. The facts of present case are distinguishable. The amendments made to section 9 of the Act post Vodafone case with retrospective effect will also not be attracted, as the plant and machinery was supplied outside India and business income accrued in Italy. 4.7. The next important question that needs to be addressed is the applicability of DTAA to this case. The A.O. has kept open several questions like availability of permanent establishment, nature of services, covered by DTAA etc. The A.R drew my attention to Article 7- Business Profit Clause 1 which reads as under : 1) The profits of an enterprise of a contracting State shall be taxable only in that State unless the enterprise carries on business in the contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, profits of the enterprise may be taxed in other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the installation work was carried out by the assessee using Indian contractors. It was emphasized that the non-resident's role was limited to supplying spares and supervising of installation, which was part of the performance guarantee under the plant supply agreement. It was further argued that no income accrued to the non-resident in India, and as such, there was no tax liability under the Act or the Double Taxation Avoidance Agreement (DTAA) between India and Italy. 9. After considering the submissions of both parties and perusing the relevant material on record, we find that the key issue in dispute is whether the contract for the supply of the manufacturing plant should be classified as a composite contract, including an element of installation or commissioning of the plant. The AO had reproduced relevant clauses from the Contract Agreement in the assessment order. Upon examination of those clauses, it was noted that the scope of work encompassed the supply of adequate spares during commissioning and included the responsibility of supervision for erection, installation, and commissioning. It is imperative to emphasize that the entire service related to the supply was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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