Conclusion: Since the title in goods passed from foreign suppliers to assessee outside India at the port of shipment and AO failed to show as to how income of foreign parties was chargeable to tax in India, therefore, no income had accrued to foreign parties in India in terms of section 5 and section 9, therefore, section 195 did not apply to payments.
Held: Assessee – society was registered for the purpose of organising the winter games. During the course of assessment proceedings, AO noted that payments were being made to certain foreign companies for EPC contract (Engineering Procurement and Construction) and technical consultancy contract and no TDS was deducted by assessee, against such payment. A.O. observed there were 3 companies in consortium i.e. M/s P SA, M/s S SPA and M/s S Pvt. Ltd. with M/s P as the lead member and under the contract with M/s S SPA, various equipment was also supplied along with a various services, support services engineering details, project management, supply of software and hardware of snow tern, control panels, project drawings and project management to complete the now making system along with manpower assistance for erection work supervision commissioning, training and maintenance. A.O. therefore, observed that from the above scope of work it was clear that what these companies had executed for assessee was covered under the term technical services as defined in section 9(1) (vii), as fees for technical services and therefore, he held that it was a contract in which the provisions of section 195 was applicable and TDS @ 10% should have been made in this case. It was held assessee had furnished bills raised by foreign parties and had also been paid by assessee. The bills had also been raised by those parties on assessee itself, and payments were also made as advances through letter of credits. On perusal of various bills, it was apparent that goods had been shipped by those parties from outside India and title in goods had passed from suppliers to assessee outside India at the port of shipment. AO failed to show as to how income of foreign parties who supplied equipments was chargeable to tax in India. It was apparent that no income had accrued to foreign parties in India in terms of section 5 and section 9, therefore, section 195 did not apply to payments.
FULL TEXT OF THE ITAT JUDGEMENT
Challenging the order dated 25.2.2015 in Appeal No.166/2013-14, passed by the Learned Commissioner of Income Tax (Appeals)-Dehradun (Ld. CIT(A)), assessee preferred this appeal.
2. Brief facts of the case are that the assessee is a society registered under the Societies Registration Act, 1860 by the Registrar of Societies, Uttarakhand for the purpose of organizing the winter games. The Government of Uttarakhand has formed a body namely “Organizing Committee for Winger Games, 2009) under the chairmanship of Hon’ble Chief Minister of Uttarakhand. The Organizing Committee for Winter Games is an autonomous society of the Department of Sports, Government of Uttarakhand. The affairs of the assessee are controlled by the State Government.
3. A survey/verification proceeding was carried out u/s 133A of the I T. Act, 1961(“the Act”) on 31.01.2011. During the course of assessment proceedings, the assessee was asked to provide details of total payments made to various parties/organizations for various jobs undertaken in connection with organizing the Winter Games and to furnish details of deduction of tax at source and payment into Central Government account of the same. It was observed during the course of assessment proceedings, that payments were also being made to certain foreign companies for EPC contract (Engineering Procurement and Construction) and technical consultancy contract. During the course of assessment proceedings, the Assessing Officer observed that no TDS was deducted by the assessee, against such payment. He, therefore, asked the assessee to show cause as to why it should not be held as an assessee in default u/s 201 and why short deduction should not be charged alongwith interest u/s 201(1 A). In response it was submitted by the assessee, that gross contractual payments had been made to the following companies as under –
|(i) M/s Pomagalski S.A. France||– Rs. 8,54,550/-|
|(ii) M/s Snow Star SPA –||Rs.85,88,220/-|
|(iii) M/s Space Age Pvt. Ltd.||– Rs.75,12,309/-|
4. It was submitted that SI. No. 1 & 2 were non-resident companies and payments to these non-resident companies were made out of release of LC for purchase of equipment only. TDS was not applicable on the purchase price of equipment. The A.O. observed that the assessee’s contentions that the payment was made for purchase of equipment only does not hold ground as the perusal of contract with the company indicated that the contract was for work being defined in the contract title as “EPC/improvement of slope, arrangement of artificial snow making system alongwith provisioning of required water storage (lake) and installation of ski-lifts for ski-resorts at Auli, (Distt. Chamoli) and required water storage and carrying out comprehensive maintenance for three years including one year of warranty period”. The A.O. observed that there were 3 companies in consortium i.e. M/s Pomagalski SA, M/s Snow Star SPA and M/s Space Age Power Pvt. Ltd. with M/s Pomagalski as the lead member. He observed that under the contract with M/s Snow Star SPA as mentioned in the appendix-A, various equipment was also supplied along with a various services, support services engineering details, project management, supply of software and hardware of snow tern, control panels, project drawings and project management to complete the now making system along with manpower assistance for erection work supervision commissioning, training and maintenance. The contract with M/s Polmagalski is also of similar nature and is in respect of electro mechanical and control equipments and towers installed for executing the scope of contract of the consortium, as mentioned above and more widely and specifically mentioned in Para-2 of Appendix-A of the main contract dated 31.07.2008. The A.O. therefore, observed that from the above scope of work it was clear that what these companies had executed for the assessee was covered under the term technical services as defined in section 9(1) (vii) of the I.T. Act, 1961, as fees for technical services, defined under the act as rendering of any managerial, technical, or consultancy services (including provision of services of technical or other personnal) being provided in India at the sites of the games at Auli. He held that these companies had executed composite contract which included jobs/services covered under the definition of technical services as mentioned above and that such a contract could not by any stretch of imagination be considered a contract for sale of goods only. He, therefore, held that it was a contract in which the provisions of section 195 was applicable and TDS @ 10% should have been made in this case. He placed reliance on the decision of Hon’ble Supreme Court in the case of Transmission Corporation of A.P. Ltd. and another Vs. CIT (1999) 239 ITR 587 (SC). Thus, he calculated short deduction of tax of Rs.17,90,031/- and interest thereon u/s 201(1A) at Rs. 7,80,099/- creating a demand of Rs.25,70,130/- in this regard in respect of consortium head by M/s Polmagalski SA.
5. During the course of assessment proceedings Ld. A.O. also observed that the assessee deductor had engaged the services of various organizations such as M/s Garhwal Mandal Vikas Nigam and M/s Uttaranchal Jal Sansthan for development of sports faculties but had not deducted tax at source in respect of payments made to them. The assessee was requested to file copies of agreements/contracts with these companies along with details of payments made to them during the relevant F.Y. and explain why no TDS had been deducted in respect of payments made to these organizations/companies when they had been engaged in construction work which was liable for TDS u/s 194C of the I.T. Act, 1961. The assessee responded by submitting that these were Govt. Departments which were not covered under the provisions of TDS. Subsequently, it submitted that the payments were made in the form of grant to the above mentioned agencies to get the work executed from various contractors and these agencies are deducting TDS wherever applicable.
6. Ld. A.O. observed that these organizations/companies has carried out the work of development of stadiums, infrastructure within the stadiums/sports facilities, construction of roads, buildings, hostels for sportsmen etc. according to the requirements and specifications of the Organizing Committee and it cannot be assumed that only grant has been transferred without any control directions, construction, conforming to the facilitates of the organizing committee. No evidence to the contrary had been filed before the AO. From the above it became clear that construction activities had been done as per requirements of the assessee (deductor) and payments had also been made to these organizations for the work done out of the bank accounts of the assessee. Thus as per the definition of “works as mentioned in section 194C of I.T. Act, work had been executed and as per provisions of chapter XVII-B, liability of TDS had been attracted, which does not exonerate from its liability to deduct TDS as per relevant section of I.T. Act, 1961. Therefore, on account of the above, he computed the short deduction in respect of M/s Garhwali Mandal Vikas Nigam of Rs.2,05,684/-and interest u/s 201(1 A) of Rs.86,918/-; in respect of Winter Game Federation of India, short deduction was computed at Rs.3,15,718/- and interest u/s 201 (1A) at Rs.1,24,105/- and in respect of M/s Uttaranchal Pay Jal Nigam short deduction was compute at Rs.46,460/- while interest on the above was calculated at Rs.20,210/-. Thus the total short deduction and interest thereon in respect of these parties was computed at Rs.7,99,095/-. Accordingly, the total short deduction of tax in respect of the F.Y. was computed at Rs.23,57,893/- and the interest thereon at Rs. 10,11,332/- creating a total demand of Rs.33,69,225/-.
7. Challenging the demand to the tune of Rs.33,69,225/-, assessee preferred an appeal before the CIT(A). In so far as the applicability of Section 195 of the Act, and the short deduction of tax of Rs.17,90,031/- and interest thereon to the tune of Rs.7,80,099/- is concerned, learned CIT(A) while following the decision of his predecessor in assessee’s own case for the Asstt. year 2010-11 held that since the assessee entered into contract with the consortium of one Indian party and two foreign companies formed under an agreement dated 22.7.2008 constituting AOP, the income has to be computed in the hands of the AOP and that since one of the members of AOP was an Indian company, it cannot be said that the control and management of the affairs of the consortium was constituted wholly outside India. On this premise, learned CIT(A) held that the payments made to the consortiums was situated wholly outside India. On this premise, learned CIT(A) held that the payments made to the consortium require deduction of tax u/s 194C of the Act and not u/s 195 of the Act.
8. So far as the payments to the public sector undertaking for work towards construction of sports facilities etc. are concerned, learned CIT(A) again, while following the orders in the earlier year 2010-11 held that the assessee was liable to deduct tax u/s 194C of the Act on payments made to the Government organizations to whom the work of preparing sport facilities were allotted but in view of the plea by the assessee that the concerned agencies have already included the said amount in their income and paid taxes thereon, if the tax was recovered from the assessee, it would be an exercise in futility as on the one hand required to pay the tax, on the other hand payee shall be required to claim the refund. He, therefore, while following the decision of the Hon’ble Apex Court in the case of Hindustan Coca Cola Beverages P. Ltd. Vs CIT (2007) 211 CTR (SC) 545 and CIT vs Dewan Chand (2009) 17 DTR (Del) 337 directed the assessee to present the evidence to show that the recipient of the amount have duly accounted the amount in their returns of income and if they did so, the AO to grant relief to the assessee to the extent of such tax and interest thereon. In respect of the Winter Games Federation of India is concerned, learned CIT(A) held that the payments to them cannot be brought within the provisions of Section 194C as the WGFI is not a contractor or project manager of the assessee but an associate for organizing the winter games.
9. Aggrieved by the finding of the learned CIT(A) in the impugned order, the assessee preferred this appeal.
10. At the outset, it is brought to our notice that the facts of this Asstt. year involved in this appeal are similar to the facts in Asstt. year 2010-11 and a coordinate bench of this Tribunal by order dated 15.10.2018 disposed them off. We have gone through the record in respect of the payments made to the consortiums, the Tribunal observed as follows:
“16. On payment made to foreign companies, who are members of the consortium AOP who won the bid, the ld AO held that tax is required to be deducted u/s 195 of the Act and the ld CIT (A) held that these are the payment made to an AOP and therefore, tax is required to be deducted u/s 194C of the Act. The assessee has entered into a consortium agreement with two foreign companies and one Indian company for rendering services with respect to construction of water storage and installation of ski lift and comprehensive maintenance for three years. The assessee has stated that the consortium has demarcated duties with respect to each of the parties. The foreign parties were only to supply various equipments and Indian party was to install those equipments. The assessee submitted the agreement of the consortium, which is placed at page No. 48 of the Paper book. According to the agreement, scope of the services by the various parties is described in Appendix A. On reading of the scope of services, it is apparent that Snow star SPA was to supply various equipments and the scope of services of Pomagamsky SA was to supply various equipments and warranty for equipments. The Indian party Spaceage Power Ltd was to install and perform the civil work. The payment was also specified separately as per clause 7 of the agreement. Each of the party was also responsible for the work carried out by them. The services are also specified in clause 1 of the agreement. The responsibility is also mentioned at page No 78 to 80 of their agreement. In such a contract, it was an issue whether the consortium constitutes and association of person i.e. a separate entity for charging of the tax or whether each of the members is liable on their individual share of the contract. This aspect has been clarified by the CBDT by issuing Circular No. 7/ 2016 dated 07.03.2016 wherein, para NO. 3 it has laid down certain conditions and on fulfilling such conditions the consortium will not be treated as an AOP. In the present case all the members are independently responsible for executing their work. The foreign parties are required to supply the equipments only along with the warranty. Further, the payments have been made directly to those parties and naturally, each of them individually charged to tax on their profits or losses. It is apparent that the common management is only for administrative convenience. Assessee has also made payment directly to the foreign equipment suppliers. It is not shown to us that any of the conditions stated in that circular are not fulfilled. In view of this, we hold that assessee has made payment to the foreign parties independent ly, directly and it shall be chargeable to tax in their own hands. Now the issue arises is that whether payment made to them is subject to deduction of tax u/s 195 in the hands of those parties or not. The assessee has shown bills raised by those parties placed at page No. 99 to 100 of paper book. The custom duty has also been paid by the assessee. The bills have also been raised by those parties on the assessee itself. The payments are also made as advances through letter off credits. On looking at the various bills, it is found that goods have been shipped by those parties from outside India. It is not shown by the revenue that title of the goods has passed in India. Contrary to that, it is consistently claimed by the assessee that title in the goods has passed outside India. Further though ld AO has held that tax is required to be deducted t sources on such payments but it is not shown that how the income of foreign parties who supplied equipments are chargeable to tax in India. In view of this, it is apparent that title in the goods have passed from the suppliers to the assessee outside India at the port of shipment. In view of this, it is not controverted that no income has accrued to those parties in India in terms of provisions of section 5 and section 9 of the Act, therefore, provisions of section 195 does not apply to these payments. In view of this, we hold that assessee was not required to deduct Tax at source either u/s 194C or section 195 of the Act on payments made to Snowstar SPA Italy and Pomagalsky SA. In view of this ground No. 1 to 3 of the appeal of the assessee are allowed.”
11. In so far as the payments made to various parties which are public sector undertakings, the Tribunal dealt with such an issue at length and reached a conclusion that the matter needs to be set aside to the file of the learned AO with a direction to assessee to produce the bills etc. before the learned AO , who will examine them. It is necessary to extract the relevant portion of the judgment which reads as follows:
“17. Coming to the issue of various payments made by the assessee to various parties which are public sector undertaking such as
i. Uttranchal Jal Sansthan,
ii. Uttranchal Power Corporation Ltd,
iii. Uttar Pradesh Nirman Nigam Ltd,
iv. Winter Gems Federation of India,
v. Gharwal Mandal Vikash Nigam Ltd.
The assessee has made these payments as an advance to the parties for carrying out various works with respect to the Winter games 2009. These payments are required to be tested u/s 194C of the Act and whether tax is required to be deducted at source on such payments. According to the provisions of section 194C of the Act, tax is required to be deducted under following circumstances:-
i. Tax is required to be deducted by the person who is responsible for payment to any resident.
ii. Such payment has to be for the sum for carrying out any work as defined under explanation (iv) of the Act.
iii. The payment has to be in pursuance with the contract between the contractor and specified person. Specified person has been defined under explanation (i) of the section.
iv. The tax is required to be deducted at the earliest point of time of credit to the account of contractor or the payment.
v. The provisions specify the prescribed percentage of tax deduction.
vi. It is deduction of tax on gross sums paid unless otherwise specified u/s 194C (3) of the act.
18. On plain reading of the above section it is clear that assessee is a specified person covered under explanation (i)(g) being a society registered under the Societies Registration Act 1860. Therefore, the liability for deduction of tax rests on the assessee.
19. Further, all the parties to whom payment have been made are residents and therefore, they are the recipients and receipts by them is subject to deduction of tax at source.
20. The assessee has made payment to all the parties, to some of them as advance and to some of them on various letters issued by the assessee. Therefore, the fact of the payment is also proved.
21. The payment to the various parties has been made on account of carrying on of certain work by them. The assessee is also specifically form for the object of preparation for and holding the South Asian Federation Winter Games in February 2009 allotted to Indian Olympic
Association. The functions of the assessee are to collect funds through grants for furtherance of the aims and objectives of the society. Assessee has stated that grants are received by the assessee and in turn, it are disbursed to the various recipients who were appointed as executing agencies to get the work done through contractors. Further, those agencies have also submitted their utilization certificate for the amount utilized by them. Based on the above fact it is apparent that assessee is an implementing agency on behalf of Indian Olympic Association for preparation of these games. No doubt, the assessee has received the funds as sponsorship and grants but the responsibility is on the assessee to execute the entire infrastructure for the games. Though the contractor may be identified and engaged by the other organization, however, the implementation and utilization is the sole responsibility of the assessee. Otherwise, there is no other reason for the formation of the above society. The society itself was registered on 06.02.2008. Further, the payments to above companies/ PSu have been made by the assessee. Therefore, it is clear that assessee is the person responsible for payments of sums to those PSUs. In view of this it is apparent that the contract is between the recipient of the income and the assessee. Hence, according to us the assessee is responsible for TDS u/s 194C of the act on payment made to these parties.
22. Merely because the assessee is provided grant for onward distribution to these parties does not exclude the assessee from the liability for deduction of tax at source u/s 194 C of the act, as the assessee is responsible for making payments to these parties and in fact, undeniably assessee has made the payments and obtained utilization certificates.
23. Furthermore, it cannot be a reason for non-deduction of tax at source that recipient of the income have onward distributed the work to the sub contractors and recipient of the income have in turn deducted the tax at source on payment made by them to those sub-contractors. According to the provision of 194C of the Act even, the contractor is also required to deduct tax at source on payment made to their sub contractors.
24. In view of this we hold that payment made to the above parties are subject to tax deduction at source u/s 194C of the Act and assessee is liable to deduct tax at source u/s 194C of the Act. Therefore, to this extent we uphold the order of lower authorities.
25. Next clinching, alternative argument made by the assessee is that all the recipient of the income has already confirmed that they have received the grant. Such certificates are placed in the paper book from page No. 126 to 179 of the paper book. We have perused the same. The argument of the assessee is that if tax is recovered from the assessee it becomes refundable in the hands of the recipient. To mitigate such an impact the proviso has been added u/s 201 of the Act w.e.f. 01.07.2012 which provides that any person who fails to deduct tax in accordance with chapter XVII of the Act, shall not be deemed to be an ‘assessee in default’ on fulfillment of certain condition. The above amendment is on similar line as argued by the appellant. Though the above amendment has come in to effect from 7/2012 but Honourable Delhi high court has held in Ansal Landmark Townships Limited in 161 /2015 held that
“11. The first proviso to Section 210 (1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfillment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner.”
Therefore respectfully following the decision of Honourable Delhi High court we set aside the order u/s 201 of the Act with a direction that assessee may submit the requisite prescribed detail in specified manner before the ld Assessing Officer and then ld AO may decide the issue and, if found in accordance with the law, shall not treat the assessee in default u/s 201 of the Act. With respect to the interest u/s 201(1A) of the Act similar proviso is also added and AO may work out, based on the details furnished by the assessee, appropriate interest in accordance with law. In view of this ground No. 4 and 5 of the appeal is allowed accordingly.
26. With respect to the payment of the State Trading corporation (STC), it is apparent that the equipment have been purchased by the assessee as identified by it through STC. The STC has incurred certain expenditure with respect to import of those goods. The assessee has placed correspondence at page No. 122 and 123 of the paper book. According to that correspondence, the state trading corporation has facilitated import of certain equipment for the assessee and for clearance of the equipment has incurred certain expenditure. The ld CIT (A) has held that no tax is required to be deducted on the above sum. On careful consideration of the orders of the lower authorities, the STC had undertaken to import and supply the equipment as per the requirement of the assessee. For the purpose of import of these goods, the STC incurred certain expenditure such as installation commissioning charges, handling charges, insurance, and other payments. In this case, it is not the claim of the assessee that STC has supplied the goods. In fact, STC has arranged for the import of the goods as per requirement of the assessee. In view of this, it is apparent that assessee has given work to the STC for import of the material. Hence, according to us it is apparent that such payment falls under the provisions of section 194C(3) of the Act and tax is required to be deducted on the basis of the invoice value stated therein. The invoices are not place before us. Hence, we set aside this matter back to the file of the ld Assessing Officer with a direction to assessee to produce the bills of STC etc before ld AO who will examine them. If the invoice value shows the value of the material separately then assessee is required to deduct tax at source only on the invoice value excluding the value of material. Findings given by us with respect to the payment to the PSU with respect to Proviso to section 201 shall also apply mutatis mutandis to this payment also. Accordingly, the ground no. 2 of the appeal of the revenue is set aside to the file of the ld AO.”
12. There is no dispute as to the similarity of the facts or the applicability of the ratio of the decision of the coordinate bench of this Tribunal for the Asstt. Year 2010-11 in ITA Nos 626, 627, 798 & 799/Del/2013 and ITA No. 1576/Del/2015. While respectfully following the same, we direct the learned AO to delete the addition made u/s 195 of the Act in respect of the payments made to Snow Star SPA and M/s Pomagalski SA France. We also set aside the issue relating to the payments made by the assessee to various parties to follow the directions given in such order in ITA Nos 626, 627, 798 & 799/Del/2013 and ITA No.1576/Del/2015.
13. In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the Open Court on 10th December, 2018.