ELECTRONICS CORPORATION OF INDIA LIMITED, HYDERABAD,HYDERABAD vs. ADDL.CIT, RANGE-2, HYDERABAD, HYDERABAD

The grounds raised by the assessee reads as under :

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.

Feeling aggrieved by the order of AO, assessee carried the matter before ld.CIT(A), who has partly allowed the appeal of assessee.

Feeling aggrieved with the order of ld.CIT(A), assessee is now in appeal before us.

Ground Nos. 1, 2, 6 are not pressed by the ld.AR for the assessee. Hence, the same are dismissed as not pressed.

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 the TDS and therefore, the disallowances were made u/s 195 of the Act.

The ld.AR for the assessee had submitted that though the assessee has not provided the details of the taxes that were deducted by the assessee and paid to the department pertaining to M/s. Gintek Eswation, South Africa with respect to payments of Rs. Rs.14,77,500/- and Rs.27,75,000/- before the Assessing Officer, however, the details were provided by the assessee before the ld.CIT(A). In the light of the above, he submitted that the matter might be remitted back to the file of Assessing Officer with the liberty to the assessee to cross-verify that the taxes were deducted and paid in accordance with the law.

On the other hand, the ld.DR had relied upon the orders passed by the lower authorities.

We have heard the rival contentions of the parties and perused the material available on record. Undoubtedly, the ld.CIT(A) in para 5.2 of his order had recorded that the assessee has deducted the tax at source and the same was credited to the Government account. However, despite noticing the above, he had disallowed the payment made by the assessee on the pretext that the assessee had not deducted the tax at source. In our view, the submission of the assessee that the assessee had deducted the tax at source and paid the same to the credit of the Central Government are required to be verified in respect of the two payments made to M/s. Gintek Eswation, South Africa, of Rs.14,77,500/- and Rs.27,75,000/-.

In the light of the above, the matter is remanded back to the file of Assessing Officer for verification and grant relief if the assessee has deducted the tax at source and deposited the same with the Central Government with respect to M/s. Gintek Eswation, South Africa of Rs.14,77,500/- and Rs.27,75,000/-.

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 attracts TDS provisions.” As TDS is not done, the payment of USD 462499.75 is disallowed.”

It was submitted by the ld.AR that the fee for technical services does not form the part of INDO USA DTAA and our attention was drawn to Clause 5 of Article 12 of the said Treaty which is to the following effect :

The ld.AR for the assessee has submitted that the payee was a resident of America and was, therefore, entitled to take beneficial provisions of the Double Taxation Avoidance Agreement by India with USA by virtue of section 90 of the Income Tax Act 1961. The nature of payment of (USD 4,624,999) was towards purchase of various equipment, installation, testing and training and shipping charges relating to such equipment. The purchase price of the equipment needs to be considered as the business profits of the payee. Similarly, the shipping charges are for the transportation of the equipment which needs to be considered business profits since the same was part of the cost price. The installation, site acceptance testing and training may be treated as fees for technical services.

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

In respect to the payment made to Syscom Instruments, Switzerland, the assessee had submitted before us during the course of argument, that the assessee was wrongly advised to take MFN clause, however, the same was not applicable, as no date was provided for applicability of MFN. Therefore, the assessee is not pressing the deletion of the disallowances made by the authorities with respect to the payment made by the assessee without deducting the TDS. In view of the submission made by the ld.AR for the assessee, we uphold the order passed by the Assessing Officer/ Ld.CIT(A)’s appeal with respect to the payment made by the assessee to M/s. Syscom Instruments, Switzerland, for an amount of Rs.26,09,609/-.

The ld.DR for the Revenue, had made elaborate suggestions with respect to payments made by the assessee to BAE Systems, USA for an amount of Rs.2,31,34,988/-. He has drawn our attention to the invoice dt.30.06.2019 on Page 20 of the

In rebuttal, the ld.AR for the assessee had submitted that as there is a specific provision available in INDO USA DTAA there was no occasion for the assessee to deduct the TDS at the source of the payments made by the assessee to BAE Systems, 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.

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 test” was only meager amount of USD 46,24,949. From the nature of charges paid by the assessee to the BAE Systems, USA, it is clear that charges were essentially in the nature of the ancillary and subsidiary services as the main focus of agreement was only purchase and installation of Long Range Position and Velocity Tracking Doppler Radar System. In our view, the incidental services which were referred to in invoice cannot be independently or stand alone basis be provided to the assessee by BAE Systems, as the purchase and installation of such 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

Secondly, 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 Grintek Eswation, South Africa, the issue is remitted back to the file of Assessing Officer for verification whether taxes were deducted at source or not ? In the light of the above, ground nos. 3 and 4 are partly allowed for statistical purposes.

Ground No.5.

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.

We have heard the rival contentions of the parties and perused the material available on record. Undoubtedly, during the year under consideration, the assessee has claimed prior period expenses and had also shown the prior period income during the year under consideration. Therefore, we rely upon the decision of the co-ordinate bench of the Tribunal in the case of Deccan Cement Vs. DCIT in ITA No.283/Hyd/1997 and allow the claim of the assessee. Undoubtedly, the assessee is a large organization and this kind of inadvertent pitfall, is bound to occur on account of the size and spread of the assessee. Since the assessee has shown not only the prior period expenses but also shown the prior period income, therefore, both are required to be

In the result, the appeal of the assessee is partly allowed for statistical purposes.