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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: SH. R.S. SYAL & SMT. BEENA A. PILLAI
ORDER Per Beena A. Pillai, Judical Member Present appeal dated 30/12.2015 passed by Ld.CIT(A) Rohtak, for assessment has been filed by Revenue against order year 2012-13 on following grounds of appeal:
“1. Keeping in view the facts and circumstances of the case the Ld. CIT(A) is erred in law in allowing the appeal of the assessee as the AO has rightly applied the provisions of sections 194J of the 2 (Alkon Electronics India Pvt. Ltd.) Act and raised a demand of Rs. 27,43,918/- by treating the payments made by the assessee company as professional fees.”
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.
2. A show cause was arranged accordingly issued to assessee seeking explanation regarding applicability of section 194J of the Act, as according to Ld.AO, BEL has provided technical services to assessee. Assessee vide letter dated 13/02/15 submitted that as per agreement, business activity between assessee and BEL were 3 (Alkon Electronics India Pvt. Ltd.) carried out in 3 phases. It was submitted that payments made by assessee to BEL and TDS under section 194C was deducted, wherein, BEL had carried out assembling activity on sub contract basis. 4. Ld.AO was however of the opinion that the activities carried out by BEL involved technical staff and qualified engineers who were trained by assessee and therefore cannot be considered under the provisions of section 194C, instead would be treated as payments made for providing technical assistance and thereby provisions of section 194J would be applicable. Ld. AO accordingly held assessee to be in default under section 201 (1) and (1A) of the act in accordance with provisions of sub section (1) to section 200 of the Act, for its failure to deduct tax as per provisions of section 194J in respect of payments made to BEL. 5. Aggrieved by the order of Ld. AO, assessee preferred appeal before Ld. CIT (A) who allowed the claim of assessee by holding that the payments made by assessee do not fall under the definition of the term “professional services” as no technical consultancy has been offered. Ld.CIT (A) is deleted the addition made by Ld.AO.
Aggrieved by the order of Ld.CIT (A) the revenue is in appeal before us now.
The only ground raised
by revenue is regarding application of provisions of section 194C of the Act, by Ld.CIT (A) in respect of the payments made by assessee to BEL. Ld. Sr. DR submitted that the 4. (Alkon Electronics India Pvt. Ltd.) contract entered into by assessee with BEL cannot be executed without involvement of qualified professional engineers and highly technical staff and consultants having expertise in the fields of engineering. He submitted that assessee has provided training to the employees of BEL for the work to be done by BEL as per the contract. Ld.Sr.DR the supporting the order passed by Ld.AO submitted that as per the terms and conditions of the agreement assessee not only supply the required RFU’s but also gives technical knowhow and impart education to the engineers of BEL so that these equipments, in future, be made at the business premises of BEL. He thus submitted that the services received by assessee from BEL falls within the ambit of “professional and technical services” as per section 194J of the Act.
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
by the revenue. 11. In the result appeal filed by revenue stands dismissed. Order pronounced in the open court on 14th August, 2018.