Essential to prove involvement in physical activities of erection and commissioning of power project to be taxed under special provisions

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH ‘H’ : NEW DELHI
ITA No.1226/Del/2011

Assessment Year :2006-07

Voith Siemens Hydro Kraftwerkstechnik GMBH & Co KG Vs. DDIT

ORDER

R.P.TOLANI, JMPER            :

This is assessee’s appeal.  Following grounds are raised:-

“1. That the order of learned Commissioner of Incom Tax (Appeals)[CIT(A), is bad both in law and on facts of th case.

4. That without prejudice, the learned CIT(A), mechanically following the orders of earlier years, has erred in arbitrarily estimating profit on consideration for supervisory services © 50% of the gross amount.

5. That without prejudice, the learned CIT(A), mechanically following the order of earlier years, has erred in upholding the subjecting of the receipts of the assessee to tax © 20% on the gross amount without allowing any deductions for expenditure or allowance.

6. That the learned CIT(A) has erred in upholding levy of interest u/s 234B of the Income Tax Act, the provisions of which are not attracted on the facts of the case.

7. That the assessee may be allowed to add, supplement, revise and amend any of the grounds as raised herein above.”

In such circumstances it can only be said that the assessee has done the work of supervision simpliciter. Even though in the contract between the assessee and OHPC the term supervision has been given a specific meaning the conduct of the assessee is not supported by any evidence to hint at much less show that the assessee has done any thing other than “supervision” as understood in its general meaning. In these circumstances even though as per the terms of the contract with OHPC the assessee could be assumed to be liable to do the assembly, erection, testing and commissioning of the power project as also the supervision thereof, in the absence of there being any evidence of the assessee having done any such activities other than supervision simpliciter of the assembly, erection and testing and commissioning the activities of the assessee cannot be said to fall within the meaning of the term, “business of erection of plant or machinery or testing or commissioning” as provided   in the provisions of section44BBB, or to fall with in the meaning of the terms, “construction or assembly” as provided in the exclusions provided in explanation 2 to section 9 (1) of the act. Once it is found that the assessee has not been able to prove that the assessee has involved itself in the physical activities of the business of assembly or erection of the plant or machinery or testing or commissioning of the power project but has only done the supervision simpliciter of the same the assessee would not be eligible to be taxed under the provisions of section 44BBB nor would the receipts fall within the exclusions provided in explanation 2 to section 9 (1) of the act. Further as the assessee has also not challenged the existence of the permanent establishment in India, the findings of the AO and the Ld. CIT(A) in holding that the business profits of the assessee is from the supervision charges are in the nature of “fees for technical services” from the rendering of supervision services in connection with the erection, testing and commissioning of the power project is liable to be upheld and we do so. In the circumstances the finding of the Ld. CIT(A) that the provisions of Article 7 of the DTAA read with section 44D and section 115A of the act apply to the business profits of the assessee is upheld. Consequently grounds 2 to 5 of the assesses grounds of appeal are dismissed.

13.2 As the assessee has not pressed the ground no. 6 in regard to the levy of interest under section 234A and 234D, the same are dismissed as not pressed. In regard to the ground against the levy of interest under section 234 B it is noticed that the receipts of the assessee are liable for tax deduction under the provisions of section 195 of the act. It is also noticed that M/s OHPC has deducted tax at source on the payments made to the assessee. Whether the Tax Deducted a Source has been correctly deducted or not is not the issue before us, but the fact remains that the receipts of the assessee are liable to TDS and TDS has been done. In these circumstances we are of the view that interest under section 234B is not leviable on the assessee as the receipts of the assessee under the contract is liable for TDS. In the circumstances respectfully following the decision of the Special Bench of this tribunal in the case of M/s. Motorola referred to supra the interest levied under section 234B stand deleted. In the circumstances the ground No. 6 of the assessees appeal stand partly allowed.”