ITO, ROHTAK vs. AKON ELECTRONICS INDIA PVT. LTD.,, JHAJJAR

Brief Facts of the case are as under: Assessee is wholly owned subsidiary of Akon Inc., USA. Ld.AO during the inspection conducted under section 133A on assessee observed that assessee has made payment of Rs.2,57,88,692/- as job work charges to BEL, Bangalore and deducted tax of Rs.5,15,77/-, at 2% under the provisions of section 194C of the act. During the course of survey, assessee was asked to furnish the copy of contract agreement with BEL, Bangalore. Ld.AO observed that assessee entered into a teaming agreement with Bharat Electronics Ltd, a Government of India Defence undertaking, or supply and coproduction of microwave assembly (RFU’s) vide agreement dated 18/05/05. In the instant case the payment in dispute was made for assembling activity, undertaken by BEL on sub contract basis, on which assessee while making payments to BEL, deducted TDS under section 194C of the Act at 2%, as according to assessee the same fell within the definition of the term “work” as defined under section 194C of the Act.

Aggrieved by the order of Ld.CIT (A) the revenue is in appeal before us now.

The only ground raised

On the contrary Ld.AR submitted that as per agreement entered into by assessee with BEL production of RFU’s is divided into 3 phases being; • Phase I: Supply of fully finished 750 numbers of RFU’s by assessee to BEL; • Phase II: Coproduction face of 750 numbers of RFU’s as per workshare plant enclosed at appendix B of the agreement; • Phase III: Production of RFU’s beyond 1500 numbers.

He submitted that in the instant case the payment in dispute made by assessee to BEL falls within the ambit of Phase II. Referring to para 2.2 and Appendix B of the agreement, Ld.AR 5 (Alkon Electronics India Pvt. Ltd.) submitted that in the instant case BEL has only done assembling activity as per the specifications provided by assessee on the material supplied by assessee. He submitted that observations of Ld. AO regarding provision of technical training assistance to the staff of BEL by assessee is misconceived as the training was provided, to make them understand requirement of assessee, for assembling M1 and M2 module, for which assessee separately charged BEL its fees. In support of his argument he referred to Annexure G of the agreement, which provides pricing for Co- production Phase. He thus submitted that the present case services rendered by BTL to assessee do not fall under the definition of “professional services” as no technical consultancy has been rendered by BEL to assessee.

We have perused the submissions advanced by both the sides in the light of the records placed before us. We have perused the agreement dated 18/05/05 entered into by assessee with Bharat Electronics Ltd, India Government of India undertaking, for supply and coproduction of microwave assembly (RFU). On a detailed perusal of the relevant clauses of the agreement it is observed that in the Phase II, assessee will be supplying mechanical parts to BEL as per the prices agreed upon in Appendix G. Further assessee will be providing full manufacturing document and materials for modules M1 and M2 to BEL. As per Clause 3.2.4, module M1 and M2 will be assembled by BEL, and shipped back to assessee. Assessee after inspection of assembled module M1 and M2 at BEL 6 (Alkon Electronics India Pvt. Ltd.) Ghaziabad unit, would export them to its parent company in US for integration. The final alignment of RFU would take place in US. It is observed that BEL is only providing assembly of the raw materials provided by assessee in respect of a small component called as RFU which is as per the specifications of assessee.

Ld.AO has alleged the activities rendered by BEL to assessee within the ambit of section 194J of the act vis-a-vis section 194C as per assessee. Explanation 2 Section 194J carves out exemption, wherein any consideration made towards any construction, assembly, mining or like undertaken project by A recipient, would not be included within the purview of section 194J of the Act. Section 194J refers to definition of ‘fees for technical services’, as having same meaning as per Explanation 2 to sub clause (vii) of subsection (1) of section 9. In our considered opinion the agreement very clearly spells out that BEL undertook assembling of raw materials provided by assessee in respect of module M1 and M2, as per specifications provided by assessee. No doubt certain training has been provided by assessee to the engineers of BEL, however these rendering of training has been separately remunerated by BEL to assessee. Thus in our considered opinion payment received by BET L towards the work carried on under Phase II of the agreement, will not fall under the definition of the term professional services as no new technical consultancy has been offered by BEL to assessee. We therefore do not find any fault in the observations of Ld.CIT (A) in holding that 7 (Alkon Electronics India Pvt. Ltd.) the work undertaken by BEL is covered under the provisions of section 194C. Accordingly we dismiss the ground raised