DY. DIRECTOR OF I-TAX (INT. TAX)-4(2), MUMBAI vs. M/S. NUCLEAR POWER CORPN. OF INDIA LTD., MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) खंडपीठ केकेकेके अनुसार अनुसार PER Bench: खंडपीठ खंडपीठ खंडपीठ अनुसार अनुसार Challening the order dt.25.7.2008 of CIT(A)-XXXIII,Mumbai the AO has filed the first appeal . The remaining four appeals have been filed by the assessee,challenging the orders dt.26.10.2010 of CIT(A)-11,Mumbai.As the issue involved in all these appeals is common,so for the sake of convenience we are passing a single order. ITA/6394/Mum/2008: Brief Facts: 2.The appellant-company and was incorporated on September 3, 1987 and is a wholly owned Government of India enterprise.It is engaged in the business of generation of power from nuclear energy and was also in the process of setting up nuclear power stations in India in various locations. The Republic of India and the then Union of Soviet Socialist Republic (USSR) had entered into an agreement dated November 20, 1988 for co- operation in the construction of a Nuclear Power Station in India.A supplementary agreement dated June 20, 1988 was entered into between the Republic of India and the Russian Federation. It was agreed that the Russian Federation would assist India in setting up a Nuclear Power Station at Kudankulam,Tamil Nadu. The Government of India had identified the appellant as an entity in India and the Russian Government has identified ASE as an entity of Russia, which would be parties to the commercial contract for the construction of Nuclear Power-Station in India.In order to set up Nuclear Power Station and in terms of the co-operation to be provided by the Russian Organisation, the appellant has entered into following Contract: 1 ITA/733/11,6394/08;931/11;734/11;735/11 , NPCIL (a) Off shore Service Contract ( OSC dated December 17,2001) (b) Contract dated August 23, 2002 'For Deputation of the Contractor's Specialist at Site'. In the orders passed,under section 195(2)of the Act,on 12-07-2006 the AO held that the provisions of section 44 BBB of the Act did not apply to the remittance made by the appellant to Atomstroyexport(ASE),that all the payments were in the nature of 'fees for technical services' that same were liable to tax in India.He also held the ASE was only providing designs and drawings and was not providing services relating to construction,erection and commissioning of the Power project.He directed the appellant to pay tax at the rate of 10%. 3.Aggrieved by the order of the AO,the assessee filed an appeal before the First Appellate Authority (FAA).Before him it was argued that the above Contracts / agreements that had been entered by the appellant and ASE were to be read in the backdrop of the Intergovernmental- Agreement and not in isolation,that consolidating reading would bring out the true character of the transaction, that Article 11 of the Intergovernmental agreement read with the supplementary agreement indicated that ASE was to provide necessary assistance to the assessee for setting up a Nuclear Power Station in India, that the provision of section 44BBB has to be applied in respect of the first contract i.e. Offshore Service Contract (OSC) dated 17-12-2001, that the role of ASE was not restricted to mainly supplying documents, designs and drawings. It was in fact to be actively involved in the process of setting up of Nuclear Power Station in India, that said fact was evident from the subsequent contract of 23.08,that ASE was required to provide necessary assistance in setting up a Nuclear Power Station and it had been involved in conducting survey for selecting materials for construction of the nuclear power station,that ASE had prepared detailed project report (DPR) prepared and had submitted to the Government of Republic of India for its review and final decision with regard to the implementation of the project.After considering the submissions of the assessee and the order of the AO,passed u/s. 195(2)of the Act,the FAA took notice of the fact that identical issue had been decided by his predecessor on four occasions in favour of the assessee.Following the same,he allowed the appeal filed by the assessee. Before us,the DR relied upon the order of the AO.As stated earlier,no one was present on behalf of the assessee. 4.We have perused the material before us.We find that the identical issue was adjudicated in favour of the assessee by the then FAA.s on 02.09.2003, 28.11.2003,21.03.2005,28.06.2007, 14.08.2007,05/09.2007,25.07.200 and 23.09.2009.On a query by the Bench,the DR could not throw any light on the issue as to whether any appeal against the above mentioned earlier orders were filed or not before the Tribunal.In these circumstances,it has to be reasonably presumed that the issue had attained finality as the AO had not challenged the orders of the FAA.s.We find that the FAA had analysed the agreements entered into by the assessee with its Russian Counterpart and had taken a holistic view.Both the organizations are governed by the Inter governmental Agreement. ASE had not only provided necessary assistance to the assessee for setting up a Nuclear Power Station but was actively involved in the process of setting up of Nuclear Power Station.It had submitted DPR to the Government of India.In short,ASE was providing end to end service i.e.providing designs,drawings,documentation,deputing personnel for purpose of carrying on the construction.Considering the above facts,we are of the opinion that the order of the FAA does not suffer from any legal infirmity.Therefore, confirming his order we decide the effective ground of appeal against the AO. 2 ITA/733/11,6394/08;931/11;734/11;735/11 , NPCIL ITA/733-35 & 931/Mum/2011: 5.In the appeals filed by the assessee the FAA had endorsed the order of the AO.s.who had held that the provisions of section 44BBB were not applicable with regard to the job undertaken by ASE, that the assessee payment made by the assessee was in nature of royalty.The AO directed the assessee to deduct tax @10% for the payments made to ASE.The FAA,during the appellate proceedings,observed that the nuclear power station at Kundakulam, Tamil Nadu is being set up by M/s. Nuclear Power Corporation of India Ltd. and not by ASE on turnkey project basis,that ASE vide its contract dated 23-08-2002 for the deputation of its specialist at the project site for supervision had provided only technical services to the assessee which fell within the provisions of Section 115A of the Act,that contracts signed by ASE were for providing services by the foreign company for designing work,technical supervision and training of employees and do not cover the whole power project,that reliance placed by the appellant company on the inter governmental agreement between- India and USR dated 20-11-1988 was not fully acceptable, that section 44BBB was introduced in the Act by Finance Act, 1989 w.e.f 01-04-1990 and at the time of signing of intergovernment agreements,Section 44BBB was not even in existence.He further observed that the principle of res-judicata as codified in the section 11 of Code of civil Processor did not apply in the income tax proceedings,that he did not agree with the reasoning given by his predecessors,that the AO had rightly held that the provisions of section 44BBB were not applicable in the case under consideration. 6.Before us,the DR supported the order of the FAA and as stated no one appeared on behalf of the assessee.We have perused the material.We find that the FAA had reversed the decision of his predecessors,that he had held that principles of res judicata were not applicable to the Income tax proceedings,that the facts and circumstances were identical to the facts of earlier orders passed by his predecessors,as mentioned at paragraph 4 of our order.As there were no new facts on record,he should not have taken a contrary view. We are of the opinion that where a fundamental aspect continuing during the different assessment years is found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in the subsequent years.In other words,it can safely be said that notwithstanding the complexity of adjudication,provided for under the Act,Parliament certainly intended,consistency to be the hallmark of adjudication process.In the case of Aroni Commercials Ltd.(362 ITR 403)the Hon’ble Bombay High Court has held that though the principle of res judicata is not applicable to tax matters as each year is separate and distinct,nevertheless where facts are identical from year to year,there has to be uniformity and in treatment.On an earlier occasion in the case of Gopal Purohit(336ITR287),the Hon’ble Court has held that that there should be uniformity in treatment and when facts and circumstances for different years were identical particularly in the case of the same assessee.The Hon’ble Delhi High Court has in the case of Galileo Nederland BV,(367ITR319),observed as under: “Decision on an issue or question taken in earlier years though not binding should be followed and not ignored unless there are good and sufficient reasons to take a different view. Said principle is based upon rules of certainty and that a decision taken after due application of mind should be followed consistently as this lead to certainty, unless there are valid and good reasons for deviating and not accepting earlier decision.” Hon’ble Gauhati High Court in the case of Dhansiram Agarwalla(217ITR4)has laid the following principle with regard to consistency of approach in judicial matters: 3 ITA/733/11,6394/08;931/11;734/11;735/11 , NPCIL “The totality of the circumstances and their combined effect are to be taken into consideration while deciding the question as to whether or not a particular fact is proved. Neither the principle of res judicata nor the rule of estoppel is applicable to the assessment proceedings, yet the rule of consistency does apply to such proceedings.” We would like to discuss the matter Neo Poly Pack (P.)Ltd.(245ITR492)of the Hon’ble Delhi High Court.Facts of the case are that the rental income from the factory building owned by the company which was assessed under the head ''Business" for all the earlier years starting from the assessment year 1984-85 onwards was sought to be assessed as income from house property for the assessment year 1989-90 . The Tribunal dismissed the application under section 256(1) of the Act.Dismissing the application filed under section 256(2) to refer the case,the Hon’ble Court held as under: ……the doctrine of res judicata does not apply to income-tax proceedings since each assessment year is independent of the other but where an issue had been decided consistently in a particular manner for earlier assessment years, for the sake of the same view should continue to prevail for subsequent years unless there is material change in the facts. Since in the instant case there was no single distinguishing feature prompting a different view the income was liable to be assessed as business income. No question of law arose from the order of the Tribunal.” On the basis of above discussion,it can safely presumed that in income-tax proceedings the doctrine of res judicata is not applicable but consistency and definiteness has to be maintained unless there is a manifest distinguishable feature.We find that the FAA,while passing orders in subsequent proceedings,brought any distinguishable feature on record.We are unable to endorse the view of the FAA that Intergovernmental Agreement should not be considered for deciding the issue.The Intergovermental Agreement was source of all subsequent agreements and it was entered in to by two Sovereign Countries.It cannot be brushed aside.If all the agreements are considered jointly it becomes clear that the orders of his predecessors were in accordance with the provisions of law.Similarly,the argument of the FAA with regard to introduction of section 44BB is not at all convincing.International transactions are governed by the DTAA.s.and Inter- govermental Agreements.Considering the above discussion,we are of the opinion that the appeals filed by the assessee have to be allowed.Therefore,revising the orders of the FAA,we decide the effective grounds of appeal in favour of the assessee.