M/s Rosoboronexport, Rep.by Hindustan Shipyard Ltd., Visakhapatnam v. The ITO (International Taxation), Visakhapatnam

ITA 204/VIZ/2011 | 2006-2007
Pronouncement Date: 17-12-2011 | Result: Dismissed

Appeal Details

RSA Number 20425314 RSA 2011
Assessee PAN AADCR3298P
Bench Visakhapatnam
Appeal Number ITA 204/VIZ/2011
Duration Of Justice 6 month(s) 25 day(s)
Appellant M/s Rosoboronexport, Rep.by Hindustan Shipyard Ltd., Visakhapatnam
Respondent The ITO (International Taxation), Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 17-12-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 17-12-2011
Date Of Final Hearing 12-12-2011
Next Hearing Date 12-12-2011
Assessment Year 2006-2007
Appeal Filed On 23-05-2011
Judgment Text
ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 1 OF 18 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI D MANMOHAN VICE PRESIDENT AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NOS.204&205/VIZAG/2011 ASSESSMENT YEARS: 2006-07 & 2007-08 HINDUSTAN SHIPYARD LTD. VISAKHAPATNAM REP. ASSESSEE OF M/S. FSUE ROSOBORONEXPORT MOSCOW ITO (INTERNATIONAL TAXATION) VISAKHAPATNAM (APPELLANT) PAN NO: AADCR 3298P VS. (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI T. LUCAS PETER CIT(DR) DATE OF HEARING: 12.12.2011 DATE OF PRONOUNCEMENT: 17.12.2011 ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: M/S FSUE ROSOBORONEXPORT MASCOW IS A RUSSIAN COMPA NY AND IS THE ASSESSEE HEREIN (HEREINAFTER ROE). THE SAID ASSESSEE DOES NOT HAVE ANY OFFICE OR PLACE OF BUSINESS IN INDIA. IT IS REP RESENTED BY M/S HINDUSTAN SHIPYARD LTD. VISAKHAPATNAM (HEREINAFTER HSL) IN THE INCOME TAX PROCEEDINGS AS REPRESENTATIVE ASSESSEE. THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDERS PASSED BY THE ASSESSING OFFICER IN ACCORDANCE WITH THE DIRECTIONS ISSUED BY THE DISPUT E RESOLUTION PANEL HYDERABAD UNDER SECTION 144C(5) R.W.S. 144C(8) OF T HE INCOME-TAX ACT AND THEY PERTAIN TO THE ASSESSMENT YEARS 2006-07 AND 20 07-08. SINCE THE ISSUES URGED IN THESE TWO APPEALS ARE IDENTICAL IN NATURE THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 2 OF 18 2. THE GROUNDS RAISED BY THE ASSESSEE IN BOTH THE Y EARS GIVE RISE TO THE FOLLOWING TWO ISSUES. (A) VALIDITY OF NOTICE ISSUED UNDER SECTION 148 O F THE ACT. (B) NATURE/TAXABILITY OF THE AMOUNT RECEIVED BY THE ASSESSEE FOR SUPPLYING TECHNICAL MATERIALS TO M/S HSL. 3.0 THE FACTS RELATING TO THE ISSUES ARE STATED IN BRIEF. THE ASSESSEE HEREIN VIZ. M/S. FSUE ROSOBORONEXPORT MOSCOW IS H AVING REQUIRED EXPERTISE TO CARRY OUT REPAIR WORKS OF SUBMARINES. M/S. HINDUSTAN SHIPYARD LTD. (HEREINAFTER REFERRED AS `HSL) IS A PUBLIC SE CTOR UNDERTAKING ENGAGED IN SHIP BUILDING SHIP REPAIRS ETC. THE INDIAN NA VY WANTED TO GET ITS SUBMARINE NAMED SINDHUKIRTI REPAIRED BY M/S HSL. THE REQUIRED APPROVAL WAS GIVEN BY GOVT. OF INDIA TO UNDERTAKE REPAIRS BY M/S HSL THROUGH THEIR PROCEEDINGS DATED 25.06.2002. IN THE APPROVAL LETT ER ITSELF IT WAS STIPULATED THAT TECHNICAL ASSISTANCE AND COLLABORAT ION AGREEMENTS ARE TO BE ENTERED WITH ROE RUSSIA AND THE SAME SHALL BE INCL UDED IN THE CONTRACT THAT WILL BE EXECUTED BETWEEN HSL AND INDIAN ARMY. ACCORDINGLY M/S. HSL ENTERED INTO A SERVICE CONTRACT ON 03.10.2005 FOR M EDIUM REPAIR AND UPGRADATION OF NAVAL SUBMARINE INS SINDHUKRITI WITH ADMIRAL SUPERINTENDENT OF NAVAL DOCKYARD VISAKHAPATNAM. I N PURSUANCE THERETO M/S. HSL IN TURN ENTERED INTO A CONTRACT WITH ASS ESSEE HEREIN ON 06.10.2005 (CONTRACT NO.P/435612223404) FOR ELABORA TION AND TRANSFER OF REPAIR TECHNICAL DOCUMENTATION WHICH IS REFERRED T O AS TECHNICAL ASSIGNMENT ON DEVELOPMENT OF REPAIR TECHNICAL DOCUM ENTATION FOR MEDIUM REPAIR AND MODERNIZATION OF ORDER 877EKM (YARD NO.0 1315) ON PREMISES OF HINDUSTAN SHIPYARD LTD. IN THE SAID AGREEMENT. 3.1 IT APPEARS THAT INFRASTRUCTURAL FACILITIES T HAT WERE AVAILABLE WITH M/S. HSL WERE NOT SUFFICIENT FOR CARRYING OUT THE SUBMAR INE REPAIR WORKS CITED ABOVE. HENCE M/S HSL ENTERED INTO ANOTHER CONTRACT WITH THE ROE THE ASSESSEE HEREIN ON 24.09.2004 FOR SUPPLYING DETAIL ED PROJECT REPORT (DPR) FOR AUGMENTATION OF INFRASTRUCTURAL FACILITIES OF H SL IN ORDER TO ENABLE IT TO ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 3 OF 18 CONDUCT MEDIUM REPAIRS CUM MODERNIZATION OF ORDERS OF 877 EKM PROJECT WHICH IS REFERRED AS TECHNICAL ASSIGNMENT FOR ELAB ORATION OF DETAILED PROJECT REPORT FOR AUGMENTATION OF HSL TO CONDUCT M EDIUM REPAIR CUM MODERNIZATION OF ORDERS OF 877EKM PROJECT IN THE S AID AGREEMENT. 3.2 M/S ROE THE ASSESSEE HEREIN RECEIVED A CONSIDE RATION OF RS.3.03 CRORES FROM HSL FOR SUPPLYING TECHNICAL DOCUMENTS O N DETAILED PROJECT REPORT (DPR) REFERRED IN PARA 3.1 (SUPRA) DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07. FOR SUPPLYING THE REPAIR TECHNICAL DOCUMENTS REFERRED IN PARA 3.0 (SUPRA) THE ASSESSEE HEREIN R ECEIVED A SUM OF RS.51.58 CRORES FROM HSL DURING THE YEAR RELEVANT T O THE ASSESSMENT YEAR 2007-08. IT IS PERTINENT TO NOTE THAT M/S. HSL DE DUCTED TAX AT SOURCE UNDER SECTION 195 OF THE ACT WHILE MAKING THESE PAY MENTS TO THE ASSESSEE HEREIN SINCE THE DY. COMMISSIONER OF INCOME TAX (T DS) GAVE DIRECTIONS TO MAKE THE TDS AT THE APPLICABLE RATES. 3.3 SUBSEQUENTLY M/S. HSL FILED RETURN OF INCOME FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION IN ITS CAPACITY AS THE RE PRESENTATIVE ASSESSEE OF M/S ROE. IN THE SAID RETURN THOUGH THE AMOUNT REC EIVED FROM M/S HSL WAS SHOWN AS BUSINESS INCOME YET THE ENTIRE AMOUNT S WERE CLAIMED AS EXEMPT ON THE GROUND THAT (A) THE TECHNICAL DOCUMENTS FALL IN THE CATEGORY OF GOODS AND (B) THE TRANSACTION OF SALE WAS COMPLETED OUTSIDE I NDIA AND HENCE THERE IS NO INCOME TAX LIABILITY ON SUCH SALES EFFE CTED BY M/S ROE. THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2006-07 WAS PROCESSED UNDER SECTION 143(1) OF THE ACT BY ACCEPTING THE RE TURN OF INCOME. THE DETAILS OF PROCESSING OF RETURN RELATING TO THE ASS ESSMENT YEAR 2007-08 ARE NOT CLEARLY EMANATING FROM THE RECORD. HOWEVER TH E UNDISPUTED FACT REMAINS THAT THE ASSESSING OFFICER INITIALLY DID NO T CARRY OUT ANY ASSESSMENT UNDER SECTION 143(3) OF THE ACT IN THESE TWO YEARS. SUBSEQUENTLY THE ASSESSMENT OF BOTH THE YEARS UNDER CONSIDERATION WA S REOPENED BY ISSUING ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 4 OF 18 NOTICE UNDER SECTION 148 AS THE ASSESSING OFFICER W AS OF THE VIEW THAT THE ABOVE SAID CONSIDERATIONS RECEIVED BY THE ASSESSEE HEREIN FROM M/S. HSL ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES WH ICH ARE LIABLE TO TAX UNDER THE ACT. FOR THE ASSESSMENT YEAR 2006-07 THE NOTIC E WAS ISSUED ON 25.03.2010 AND FOR THE ASSESSMENT YEAR 2007-08 IT WAS ISSUED ON 26.04.2010. THE ASSESSING OFFICER FORWARDED A DRAFT OF THE PROPOSED ASSESSMENT ORDER TO THE ASSESSEE AS PER PROVISIONS OF SECTION 144C (1) OF THE ACT FOR BOTH THE ASSESSMENT YEARS WHEREIN HE H AD TREATED THE ENTIRE AMOUNTS RECEIVED BY THE ASSESSEE FOR SUPPLYING THE TECHNICAL DOCUMENTS AS FEE FOR TECHNICAL SERVICES AND ACCORDINGLY DETERM INED THE TOTAL INCOME. THE ASSESSEE FILED ITS OBJECTIONS WITH THE DISPUTE RESOLUTION PANEL (HEREIN AFTER DRP) IN TERMS OF SECTION 144C (2) OF THE AC T IN BOTH THE YEARS. BEFORE DRP THE ASSESSEE ALSO CHALLENGED RE-OPENING OF ASSESSMENT OF BOTH THE YEARS. 3.4 THE DISPUTE RESOLUTION PANEL UPHELD THE REOPENI NG OF ASSESSMENT AND ALSO CONCURRED WITH THE VIEW OF THE ASSESSING O FFICER THAT THE AMOUNTS RECEIVED BY THE ASSESSEE HEREIN ARE IN THE NATURE O F FEE FOR TECHNICAL SERVICES LIABLE TO TAX UNDER THE INDIAN INCOME-TAX ACT. ACCORDINGLY DRP GAVE NECESSARY DIRECTIONS TO THE ASSESSING OFFICER UNDER SECTION 144C(5) OF THE ACT. THEREAFTER THE ASSESSING OFFICER PASSED T HE ASSESSMENT ORDERS FOR BOTH THE YEARS UNDER CONSIDERATION AS PER THE SAID DIRECTIONS. AGGRIEVED BY THE SAID ASSESSMENT ORDERS THE ASSESSEE IS IN APPE AL BEFORE US IN BOTH THE YEARS. 4. THE FIRST ISSUE RELATES TO VALIDITY OF REOPENING OF ASSESSMENT BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT IN BOTH THE YEARS. THE SAID OBJECTION OF THE ASSESSEE WAS DISMISSED BY THE DISP UTE RESOLUTION PANEL WITH THE FOLLOWING OBSERVATIONS. THE SECOND OBJECTION RAISED BY THE ASSESSEE WAS AGAINST THE REOPENING OF THE CASE UNDER SECTION 147 . IT IS CLEARLY SEEN FROM THE RECORDS THAT THE RETURN WAS M ERELY ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 5 OF 18 PROCESSED AND ACCEPTED INITIALLY. AFTER RECORDING PROPER REASONS THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 148. IT IS NOT THE CASE OF THE ASSESSEE THAT REASONS WER E NOT RECORDED. THE COURTS CANNOT GO INTO THE SUFFICIENC Y OF THE REASONS BUT CAN LOOK INTO THE LINK BETWEEN THE MATE RIAL ON RECORD AND FORMATION OF BELIEF FOR REOPENING OF THE ASSESSMENT. CIT VS. JANARDAN DWARAKADAS 290 ITR 1 (MUMBAI). SI NCE NO ORIGINAL ASSESSMENT WAS COMPLETED THERE IS AMPLE SC OPE TO REOPEN THE CASE. ADEQUACY OF REASONS CANNOT BE QUE STIONED. 7.1 AFTER 01.04.1989 IT IS HELD BY COURTS THAT REOP ENING CAN BE DONE WITHOUT MUCH DIFFICULTY IN CASES WHEREIN RE TURNS WERE MERELY PROCESSED. RELIANCE IS PLACED ON THE FOLLOW ING CASE- LAWS: (A) RAKESH AGARWAL VS. ACIT (87 TAXMANN 306) (DELHI) (B) RAM PRASAD VS. ITO (82 TAXMANN 199) (ALLAHABAD) (C) ACIT VS. VXL INDIA LTD. (247 ITR 820) (SC) (D) PRAFUL CHUNNILAL PATIL VS. CIT (236 ITR 832) (GUJAR AT) (E) BHARAT V. PATEL VS. UNION OF INDIA (268 ITR 116) (G UJARAT) 7.2 MOREOVER THIS IS NOT A CASE WHEREIN A SCRUTINY ASSESSMENT WAS COMPLETED AND THE SAME WAS SOUGHT TO BE REOPENED. HENCE THE PLEA THAT THERE IS A CHANGE O F OPINION CANNOT BE TAKEN IN THE IMPUGNED CASE. 7.3 THE AR ALSO RELIED ON THE CASE OF CIT VS. KELVI NATOR OF INDIA LTD. (320 ITR 561) TO STATE THAT TANGIBLE MA TERIAL MUST BE AVAILABLE FOR REOPENING AN ASSESSMENT. IN THIS CAS E IT IS HELD BY THE SUPREME COURT THAT CONCEPT THAT CHANGE OF OPINI ON ON THE PART OF THE ASSESSING OFFICER TO REOPEN AN ASSESSME NT DOES NOT STAND OBLITERATED AFTER THE AMENDMENT IN SECTION 14 7 W.E.F. 01.04.1989. IN THE PRESENT CASE SINCE THERE WAS N O SCRUTINY ASSESSMENT AND NO OPINION EXPRESSED EARLIER THE AS SESSING OFFICER HAS VALIDLY REOPENED THE PROCEEDINGS. IN S O FAR AS ORIGINALLY THE RETURN WAS MERELY PROCESSED UNDER SU MMARY SCHEME THERE CANNOT BE ANY DEBATE WHETHER THERE WAS ANY CHANGE OF OPINION IN THE CASE. HENCE THE ARGUMENT OF THE ASSESSEE THAT REOPENING IS NOT TENABLE IN LAW IS IN CORRECT. 4.1 WE HAVE HEARD THE RIVAL SUBMISSIONS ON THIS ISS UE AND CAREFULLY PERUSED THE OBSERVATIONS OF DISPUTE RESOLUTION PANE L. BEFORE US THE ASSESSEE DID NOT FILE ANY MATERIAL TO COUNTER THE O BSERVATIONS MADE BY DISPUTE RESOLUTION PANEL. FURTHER THE ASSESSEE DI D NOT MAKE OUT A CASE TO ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 6 OF 18 SHOW THAT THE EXPLANATION 2 TO SECTION 147 IS NOT A PPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. IN VIEW OF THE FOREGOING DISCUSSIONS WE DO NOT FIND ANY INFIRMITY IN THE OBSERVATIONS OF DI SPUTE RESOLUTION PANEL AND ACCORDINGLY WE REJECT THE GROUND RAISED BY THE ASSE SSEE ON THIS ISSUE. 5. THE REMAINING ISSUE RELATES TO THE NATURE/TAXAB ILITY OF THE CONSIDERATIONS RECEIVED BY THE ASSESSEE HEREIN. THE CONTENTION OF THE ASSESSEE AS STATED EARLIER IS THAT THE TECHNICAL DOCUMENTS SUPPLIED BY IT TO M/S HSL IS ONLY A SALE OF ASSET SINCE THEY WERE SUPPLIED IN THE FORM OF BOUND MANUALS. IT WAS SUBMITTED THAT THE REPAIR T ECHNICAL DOCUMENTS SUPPLIED DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 CONSISTED OF 2651 VOLUMES WEIGHING ABOUT 2876 KGS. SIMILARLY THE DETAILED PROJECT REPORT SUPPLIED DURING THE YEAR RE LEVANT TO THE ASSESSMENT YEAR 2006-07 WAS WEIGHING ABOUT 37 KGS. IN SUPPORT OF ITS PLEA THAT THE IMPUGNED TECHNICAL DOCUMENTS CAN ONLY BE TREATED AS GOODS OUR ATTENTION WAS INVITED TO THE FOLLOWING DOCUMENTS AL SO. (A) COPY OF PHOTOGRAPH OF BOUND VOLUMES OF THE TECH NICAL DOCUMENTS. (B) INVOICE COPIES (C) CUSTOMS CLEARANCE DOCUMENTS. IT WAS FURTHER SUBMITTED THAT THE DELIVERY OF THESE GOODS HAVE TAKEN PLACE OUTSIDE THE TERRITORIES OF INDIA AND ACCORDINGLY IT WAS CONTENDED THAT THE INCOME TAX LIABILITY CANNOT BE FASTENED ON A TRANSA CTION WHICH HAS TAKEN PLACE OUTSIDE THE INDIAN TERRITORIES. IN THIS REGA RD RELIANCE WAS PLACED ON THE FOLLOWING DOCUMENTS. (A) COPIES OF INSURANCE DOCUMENTS SHOWING THAT THE INSU RANCE WAS TAKEN AT RUSSIA WHEREIN THE BENEFICIARY IS SHOWN A S M/S HSL. (B) CLAUSE 2.6 OF THE AGREEMENT WHICH STATES THAT THE T RANSFER OF DOCUMENTS TO M/S HSL WILL BE EXERCISED ON THE TERMS CIP- AIRPORT VISAKHAPATNAM IN ACCORDANCE WITH INCOTERM S-2000. AS PER THE INCOTERMS-2000 (INTERNATIONAL COMMERCIAL TERMS) CIP MEANS CARRIAGE AND INSURANCE PAID TO- TITLE AN D RISK PASS TO BUYER WHEN DELIVERED TO CARRIED BY SELLER WHO PA YS ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 7 OF 18 TRANSPORTATION AND INSURANCE COST TO DESTINATION WH ICH IS USED FOR ANY MODE OF TRANSPORTATION. HE FURTHER SUBMITTED THAT GOODS ARE TANGIBLE COMM ODITIES WHICH IS TRANSFERABLE TO OTHER WHERE AS SERVICE IS AN INT ANGIBLE ONE WHICH IS NOT CAPABLE OF SUCH TRANSFER TO OTHERS. LD. A.R FURTHER SUBMITTED THAT THE REPAIR TECHNICAL DOCUMENTS ARE REQUIRED TO BE HAN DED OVER TO INDIAN NAVY AS PER THE AGREEMENT ENTERED BETWEEN M/S HSL A ND INDIAN NAVY WHICH FACT REINFORCES THE CONTENTION OF THE ASSESS EE THAT THESE DOCUMENTS CAN ONLY BE CATEGORIZED AS GOODS. HOWEVER HE FA IRLY CONCEDED THAT THERE IS NO SUCH AGREEMENT FOR TRANSFER OF DETAILE D REPORT PROJECT REFERRED SUPRA. 5.1 IN SUPPORT OF VARIOUS SUBMISSIONS MADE ABOV E LD A.R RELIED UPON THE FOLLOWING CASE LAW: (A) NISHO IWAI CORPORATION RE. BY RINL VS. ACIT O RDER DATED 22.06.2010 PASSED BY ITAT VISAKHAPATNAM. (B) SCIENTIFIC ENGINEERING HOUSE (P) LTD VS. CIT (1 57 ITR 86)(SC) (B) JOINT STOCK COMPANY FOREIGN ECONOMIC ASSOCIATIO N TECHNOPROMEXPORT (2010) (322 ITR 409) (C) PARSONS BRINCKERHOFF INDIA (P) LTD VS. ADIT (20 08)(118 TTJ (DEL) 0214) (D) CIT VS. MAGGRONIC DEVICES (P) LTD (2010)(228 C TR (HP) 241) (F) TATA CONSULTANCY SERVICES VS. STATE OF AP (20 05)(1 SCC 308) (G) DIRECTOR OF INCOME TAX VS. LG CABLE LTD (2011)( 237 CTR (DEL) 438) (H) GRASIM INDUSTRIES LTD & ORS VS. CIT (2011)(58 DTR (BOM) 47). 6. THE LD D.R SUBMITTED THAT THE REPAIR TECHNIC AL DOCUMENTS AND THE DETAILED PROJECT REPORT SHALL SQUARELY FALL IN TH E CATEGORY OF TECHNICAL SERVICES AS THEY ARE IN SUBSTANCE TECHNICAL ADVIC E REDUCED IN THE FORM OF BOOKLETS. HENCE IT CAN ONLY BE CONSTRUED THAT T HE ASSESSEE HAS ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 8 OF 18 RENDERED TECHNICAL SERVICES TO M/S HSL.. VIZ. (A) EXPLAINING THE TECHNICALITIES OF CARRYING OUT REPAIRS OF SUBMARINE S AND (B) ADVISING ON AUGMENTATION AND MODERNIZATION OF INFRASTRUCTURAL F ACILITIES IN ORDER TO EQUIP M/S HSL FOR CARRYING OUT THE SAID REPAIR WORK S OF SUBMARINES. HE FURTHER SUBMITTED THAT IT IS A WELL SETTLED PRINCIP LE THAT THE SUBSTANCE SHALL PREVAIL OVER THE FORM AND IN THE INSTANT CASES THO UGH THE FORM OF DOCUMENTS APPEAR TO BE MERE BOOKLETS BUT IN SUBSTA NCE THEY ARE RELATED TO THE TECHNICAL SERVICES RENDERED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE VARIOUS CASE LAW RELIED UPON BY THE ASSESS EE HAVE BEEN RENDERED IN DIFFERENT CONTEXTS AND THEY WERE RIGHTLY DISTING UISHED BY DRP. HENCE THEY HAVE NO APPLICATION ON THE ISSUE UNDER CONSIDE RATION. THE LD D.R RELIED UPON FOLLOWING CASE LAW IN SUPPORT OF HIS CO NTENTION THAT THE IMPUGNED RECEIPTS ARE ONLY FEE FOR TECHNICAL SERVI CES. (A) D.C.I.T VS. ALL RUSSIA SCIENTIFIC RESEARCH IN STITUTE OF CABLE INDUSTRY MOSCOW (2006)(98 ITD 69)(MUM). (B) M/S SKODA EXPORT FOREIGN TRADE CORPORATION REP BY RINL IN ITA NO. 1263/HYD/89 AND 22/HYD/92 EXTRACTED BY THE AO IN THE ASSESSMENT ORDER. (C) SOUTH WEST MINING LTD. IN RE (2005)(278 ITR 32) (AAR) (D) ELKEM TECHNOLOGY VS. D.C.I.T (2001)( 250 ITR 164)(AP) 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. SINCE M/S ROE IS THE RECIPIENT OF THE IMPUGNED AMOU NTS THERE CANNOT BE ANY DISPUTE THAT THE TAXABILITY OF THE SAME SHOULD BE VERIFIED FROM THE ANGLE OF M/S ROE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE RESIDENTIAL STATUS OF M/S ROE IS NON RESIDENT. U NDER SEC. 5(2) OF THE INCOME TAX ACT THE INCOME OF A NON-RESIDENT SHALL INCLUDE INCOME FROM WHATEVER SOURCE DERIVED WHICH:- (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDI A IN SUCH YEAR BY OR ON BEHALF OF NON-RESIDENT; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE T O HIM IN INDIA DURING SUCH YEAR. ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 9 OF 18 THUS IN THE CASE OF A NON-RESIDENT ANY INCOME WHIC H ACCRUES OR ARISES OUTSIDE INDIA IS NOT TAXABLE UNDER INDIAN INCOME TA X ACT. HOWEVER UNDER SEC. 9 OF THE ACT CERTAIN TYPES OF INCOME WHICH MI GHT HAVE ACCRUED OR AROSE OUTSIDE INDIA ARE DEEMED TO ACCRUE OR ARISE IN INDIA. THE CLAUSE (VII) OF SUB-SECTION (1) OF SEC. 9 IS RELEVANT TO T HE ISSUE UNDER CONSIDERATION AND FOR THE SAKE OF CONVENIENCE WE EXTRACT THE SAM E BELOW:- (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY (A) THE GOVERNMENT; OR (B) A PERSON WHO IS A RESIDENT EXCEPT WHERE THE FE ES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINE SS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM A NY SOURCE OUTSIDE INDIA; OR (C) A PERSON WHO IS A NON-RESIDENT WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINE SS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FO R THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA; [ PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY IN RELATION TO ANY INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE THE 1 ST DAY OF APRIL 1976 AND APPROVED BY THE CENTRAL GOVERNMENT] [EXPLANATION 1 FOR THE PURPOSES OF THE FOREGOING PROVISO AN AGREEMENT MADE ON OR AFTER THE 1 ST DAY OF APRIL 1976 SHALL BE DEEMED TO HAVE BEEN MADE BEFORE THAT DATE IF THE AGREEMENT IS MADE IN ACCORDANCE WITH PROPOSALS APPROVED BY THE CENTRAL GOVERNMENT BEFORE THAT DATE.] EXPLANATION [2] FOR THE PURPOSES OF THIS CLAUSE FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (IN CLUDING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MA NAGERIAL TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION ASSEMBLY MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATIO N WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER T HE HEAD SALARIES. ] ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 10 OF 18 8. THE STATUS OF M/S HSL WHICH HAS PAID THE IMPUG NED AMOUNTS TO M/S ROE IS RESIDENT UNDER THE INCOME TAX ACT. HENCE AS PER CLAUSE (B) OF SEC. 9(1)(VII) EXTRACTED ABOVE ANY INCOME BY WAY O F FEE FOR TECHNICAL SERVICES PAYABLE BY M/S HSL SHALL BE DEEMED TO ACCR UE OR ARISE IN INDIA IF THE SAID FEE WAS PAID IN RESPECT OF SERVICES UTILIZ ED IN A BUSINESS OR PROFESSION CARRIED ON BY IT IN INDIA. IN THE INSTA NT CASE M/S HSL HAS PAID CONSIDERATIONS TO M/S ROE TOWARDS SUPPLY OF REPAIR TECHNICAL DOCUMENTS AND DETAILED PROJECT REPORT WHICH WERE UTILIZED FOR THE BUSINESS CARRIED ON BY M/S HSL IN INDIA. 9. IN THE BACK GROUND OF THE LEGAL POSITION DIS CUSSED ABOVE NOW THE QUESTION UNDERLYING THE ISSUE UNDER CONSIDERATION I S WHETHER THE AMOUNTS RECEIVED BY M/S ROE BEING THE ASSESSEE HEREIN IS IN THE NATURE OF INCOME THAT ACCRUES OR ARISES IN INDIA OR NOT (FOR THE SAK E OF CONVENIENCE INDIAN INCOME). IF THE TECHNICAL DOCUMENTS THAT WERE SUP PLIED BY THE ASSESSEE TO M/S HSL ARE TREATED AS GOODS THEN THE INCOME FROM THE AMOUNTS RECEIVED FROM M/S HSL IN THAT REGARD CANNOT BE TREA TED AS INDIAN INCOME AS THE TRANSACTIONS OF PURCHASE AND SALE HAVE TAKEN PLACE OUTSIDE THE INDIAN TERRITORIES. THE STAND OF THE ASSESSEE IS T HAT IT HAS ONLY SUPPLIED GOODS AND HENCE NO INCOME FROM THE SAID TRANSACTI ONS IS TAXABLE UNDER INDIAN INCOME TAX. IN SUPPORT OF THIS CONTENTION ON LY THE LEARNED A.R HAS DRAWN OUR ATTENTION TO VARIOUS DOCUMENTS THAT ARE P LACED IN THE PAPER BOOK. ON THE CONTRARY IF THE SAID RECEIPTS ARE TA KEN AS FEE RECEIVED FOR TECHNICAL SERVICES THEN THEY SHALL BE DEEMED TO AC CRUE OR ARISE IN INDIA IN VIEW OF THE DEEMING PROVISIONS PRESCRIBED IN CLAUSE (B) OF SEC. 9(1)(VII) OF THE ACT. THE DEPARTMENTS STAND IS THAT THE IMPUGN ED AMOUNTS ARE FEE FOR TECHNICAL SERVICES ONLY. IT IS PERTINENT TO NO TE THAT THE TERRITORIAL JURISDICTION TO BE SEEN IN RESPECT OF NON-RESIDENT SHALL NOT BE APPLICABLE IN RESPECT OF FEE FOR TECHNICAL SERVICES AS PER THE EXPLANATION TO SEC. 9(2) OF THE ACT WHICH READS AS UNDER. THIS EXPLANATION WAS SUBSTITUTED BY FINANCE ACT 2010 W.R.E.F 01-06-1976 IN THE PLACE OF OLD EXPLANATION. ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 11 OF 18 [EXPLANATION FOR THE REMOVAL OF DOUBTS IT IS HER EBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION INC OME OF A NON- RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDI A UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB-SE CTION (1) AND SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NON-RE SIDENT WHETHER OR NOT -- (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BU SINESS OR BUSINESS CONNECTION IN INDIA; OR (II) THE NON-RESIDENT HAS RENDERED SERVICES IN IND IA.] 10. THE LEARNED A.R TOOK SUPPORT OF THE DECISION RENDERED BY HON'BLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVI CES VS. STATE OF A.P. REPORTED IN (2005) 1 SCC 308 IN SUPPORT OF HIS CONT ENTION THAT THE TECHNICAL DOCUMENTS SUPPLIED BY THE ASSESSEE TO M/S HSL IN TH E FORM BOUND BOOK MANUALS FALL INTO THE CATEGORY OF GOODS. IT IS PERTINENT TO NOTE THAT THE SAID DECISION WAS RENDERED BY HONBLE APEX COURT UN DER A.P. GENERAL SALES TAX ACT. IN THAT CASE M/S. TATA CONSULTANCY SERVI CES DEVELOPED CUSTOM MADE SOFTWARE FOR THEIR CUSTOMERS (UNCANNED SOFTWA RE) AND ALSO SOLD COMPUTER SOFTWARE PACKAGES OFF THE SHELF (CANNED S OFTWARE). THE QUESTION RAISED IN THAT APPEAL WAS WHETHER THE CAN NED SOFTWARE SOLD BY THE APPELLANTS COULD BE TERMED AS GOODS EXIGIBLE TO TAX UNDER ANDHRA PRADESH GENERAL SALES TAX ACT. THE HON'BLE SUPREME COURT HELD THAT THE INTELLECTUAL PROPERTY ONCE IT IS PUT ON TO A MEDIU M WHETHER IT BE IN THE FORM OF BOOKS OR CANVAS (IN CASE OF PAINTING) OR CO MPUTER DISCS OR CASSETTES AND MARKETED WOULD BECOME GOODS. 11. BEFORE THE DRP ALSO THE ASSESSEE DREW SUPPO RT OF HONBLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVICES REFE RRED SUPRA. HOWEVER THE DRP REJECTED THE SAME WITH THE FOLLOWING OBSERV ATIONS: 5.6 IN THE CASE TATA CONSULTANCY SERVICES VS. STAT E OF A.P. (2005) 1 SCC 308 THE SUPREME COURT HELD THAT WHENE VER INTELLECTUAL PROPERTY IS PUT ON A MEDIUM SUCH AS I N THE FORM OF BOOK OR CANVASS IT WOULD BECOME `GOODS AND ACCORD INGLY LIABLE TO SALES TAX. SUPREME COURT HELD THAT ONCE TECHNICAL KNOWLEDGE IS CONVERTED INTO A MEDIUM IT ASSUMES THE NATURE OF A `GOOD AND ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 12 OF 18 HENCE SALE OF SUCH GOODS WILL BE LIABLE TO SALES T AX. HOWEVER THIS JUDGEMENT WAS WITH REFERENCE TO SALES TAX ACT. IT IS NOWHERE HELD IN THIS CASE THAT THE SALE OF SUCH TECHNICAL INFORM ATION CANNOT BE REGARDED AS CONSIDERATION PAID AS FEE FOR TECHNICAL SERVICES UNDER THE INCOME-TAX ACT 1961. A JUDGEMENT IS TO BE REA D WITH REFERENCE TO THE CONTEXT AND THE FACTS OBTAINED IN THAT CASE. IN THE CASE OF M/S. SUN ENGINEERING WORKS PVT. LTD. (198 ITR 320) (SUPREME COURT) HELD AS FOLLOWS: IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK O UT A WORD OR A SENTENCE FROM THE JUDGEMENT OF THIS COURT DIVORCED FROM THE CONTEXT OF THE QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE LAW DECLARED BY THIS COURT. THE JUDGEMENT MUST BE READ AS A WHOLE AND THE OBSERVATIONS FROM THE JUDGEMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH W ERE BEFORE THIS COURT. A DECISION OF THIS COURT TAKES ITS COLOUR FORM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND WHILE APPLYING THE DECISION TO A LATE R CASE THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION OF THIS COURT AND NOT TO PICK OUT WORDS OR SENTENCES FROM THE JUDGEMENT DIVORCED FRO M THE CONTEXT OF THE QUESTIONS UNDER CONSIDERATION BY THIS COURT TO SUPPORT THEIR REASONINGS. IN MADHAV RAO JIVAJI RAO SCHINDIA BAHADUR VS. UNION OF INDIA (1971) 3 SC R 9; AIR 1971 SC 530 THIS COURT CAUTIONED (AT PAGE 578 OF AIR 1971 SC): IT IS NOT PROPER TO REGARD A WORD A CLAUSE OR A SENTENCE OCCURRING IN A JUDGEMENT OF THE SUPREME COURT DIVORCED FROM ITS CONTEXT AS CONTAINING A F ULL EXPOSITION OF THE LAW ON A QUESTION WHEN THE QUESTI ON DID NOT EVEN FALL TO BE ANSWERED IN THAT JUDGEMENT. 5.7 HENCE THE RELIANCE PLACED BY THE LR. AR ON THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF M/S. TATA CONSULTANCY SERVICES LTD. DOES NOT PRECLUDE THE DE PARTMENT FROM BRINGING TO TAX THE CONSIDERATION PAID SIMULTA NEOUSLY AS A PAYMENT TOWARDS FEE FOR TECHNICAL SERVICES. WE HAVE ALSO CAREFULLY GONE THROUGH THE ABOVE SAID DECISION OF HONBLE SUPREME COURT. WE FEEL THAT THE FOLLOWING OBSERVAT IONS MADE BY HON'BLE SUPREME COURT ARE PERTINENT HERE. ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 13 OF 18 THE EXPRESSION GOODS IS NOT A TERM OF ART. ITS MEANING VARIES FROM STATUTE TO STATUTE. THE TERM GOODS HAD BEEN DEFINED IN THE ACT AS ALSO IN ARTICLE 366(12) OF TH E CONSTITUTION TO INCLUDE ALL MATERIALS COMMODITIES AND ARTICLES. C OMMODITY IS AN EXPRESSION OF WIDE CONNOTATION AND INCLUDES EVERYTHING OF USE OR VALUE WHICH CAN BE AN OBJECT OF TRADE AND COMMERCE. . INDIAN LAW DOES NOT MAKE ANY DISTINCTION BETWEEN T ANGIBLE PROPERTY AND INTANGIBLE PROPERTY. GOODS MAY BE T ANGIBLE OR INTANGIBLE PROPERTY. A PROGRAM WOULD BECOME GOODS PROVIDED IT HAS THE ATTRIBUTES THEREOF HAVING REGARD TO (A) ITS UTI LITY; (B) CAPABLE OF BEING BOUGHT AND SOLD; AND (C) CAPABLE OF BEING TRA NSMITTED TRANSFERRED DELIVERED STORED AND POSSESSED. IF A SOFTWARE WHETHER CUSTOMIZED OR NON-CUSTOMISED SATISFIES THESE ATTRIB UTES THE SAME WOULD BE GOODS. UNLIKE THE AMERICAN COURTS THE SU PREME COURT OF INDIA HAS ALSO NOT GONE INTO THE QUESTION OF SEVERA BILITY. WHAT IS ESSENTIAL FOR AN ARTICLE TO BECOME GOODS IS ITS MAR KETABILITY. THUS IT IS VERY MUCH CLEAR THAT THE MEANING OF GO ODS VARIES FROM STATUTE TO STATUTE. THE ABOVE SAID DECISION WAS RE NDERED UNDER A.P. GENERAL SALES TAX ACT FOR THE PURPOSE OF DETERMININ G WHETHER THE INTELLECTUAL PROPERTY REDUCED INTO A MEDIUM WOULD F ALL IN THE CATEGORY OF GOODS. HENCE WE ARE IN AGREEMENT WITH THE VIEW O F DRP THAT THE SAID DECISION WHICH WAS RENDERED IN A DIFFERENT CO NTEXT CAN NOT BE TAKEN SUPPORT OF BY THE ASSESSEE ON THE ISSUE UNDER CONSIDERATION. 12. NOW LET US EXAMINE WHETHER A TECHNICAL SERV ICE WOULD LOSE THE CHARACTERISTICS OF TECHNICAL SERVICE IF THE SAME IS REDUCED IN WRITING IN THE FORM OF BOUND MANUALS. LET US CONSIDER CERTAIN ILLUSTRATIONS. IF AN ARCHITECT PREPARES A BUILDING PLAN ALONG WITH STRUC TURAL DESIGNS AND OTHER TECHNICAL DETAILS AND FURNISHES THE SAME IN T HE FORM OF BOUND MANUAL WILL HIS SERVICES LOSE THE CHARACTER OF TEC HNICAL SERVICES?. IF AN ADVOCATE GIVES A LEGAL OPINION ALONG WITH THE CASE LAWS FROM WHICH HE TOOK SUPPORT IN THE FORM OF BOUND MANUAL WILL HIS SERVICES LOSE THE CHARACTER OF PROFESSIONAL SERVICE?. THE ANSWER SHO ULD OBVIOUSLY BE NO ONLY. IN BOTH THE ABOVE CITED ILLUSTRATIONS IT IS QUITE POSSIBLE THAT THE CONCERNED ARCHITECT/LAWYER MAY NOT VISIT THE PR EMISES OF HIS CLIENT ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 14 OF 18 ALSO. STILL IN OUR VIEW THE TECHNICAL MATERIALS SUPPLIED BY THEM WOULD NOT LOSE THE CHARACTERISTICS OF SERVICE SIMPLY B ECAUSE THEY WERE SUPPLIED IN THE FORM OF BOUND MANUALS MORE PARTICU LARLY WHEN IT IS TAILOR MADE FOR THE SPECIFIC REQUIREMENTS OF A PERS ON. THE LD A.R DREW OUR ATTENTION TO THE INSURANCE DOCUMENTS CUSTOMS A CT DOCUMENTS IN SUPPORT OF HIS CONTENTIONS THAT THE IMPUGNED TECHNI CAL MATERIALS ARE GOODS. HOWEVER ON THESE DOCUMENTS WE ARE INCLI NED TO AGREE WITH THE VIEW OF THE DRP THAT THEY ARE NOT DECISIVE FACT ORS. SINCE THESE TECHNICAL DOCUMENTS INVOLVE PAYMENT OF HUGE AMOUNT IT IS QUIET NATURAL FOR A PERSON (HERE M/S HSL) TO INSURE THE SAME AGAI NST ANY POSSIBLE DAMAGES. SIMILARLY NO MATERIAL COULD ENTER THE IND IAN TERRITORIES WITHOUT CLEARANCE FROM THE CUSTOMS AUTHORITIES. 13. NOW WE SHALL EXAMINE THE VARIOUS CASE LAW R ELIED UPON BY THE LD A.R. IN THE CASE OF SCIENTIFIC ENGINEERING HOUSE ( P) LTD SUPRA THE HONBLE SUPREME COURT HAS RENDERED ITS DECISION IN THE CONTEXT OF ALLOWABILITY OF DEPRECIATION ON TECHNICAL DOCUMENTS . IN THE CASE OF NISHO IWAI CORPORATION REP. BY RINL SUPRA THE SAI D COMPANY HAD SUPPLIED MACHINERY ALSO ALONG WITH DESIGNS AND ENGI NEERING DRAWINGS AND HENCE THE TRIBUNAL HAD HELD THAT THE SAID DESIG N AND ENGINEERING DRAWINGS ARE ALSO IN THE NATURE OF PLANT. SIMILAR WAS THE CASE IN THE CASE OF JOINT STOCK COMPANY FOREIGN ECONOMIC ASSOCI ATION TECHNOPROMEXPORT IN RE. AND L.G CABLE LTD SUPR A WHEREIN PLANT AND EQUIPMENT WERE SUPPLIED OFFSHORE. IN THE CASE OF PARSONS BRINCKERHOFF INDIA (P) LTD AND ALSO IN THE CASE OF MAGGRONIC DEVICES (P) LTD SUPRA THE ISSUE WAS WHETHER THE DESIGNS AND D RAWINGS WOULD FALL IN THE DEFINITION OF ROYALTY WHICH IS NOT RELEVA NT TO THE ISSUE UNDER CONSIDERATION. THE HON'BLE BOMBAY HIGH COURT HAS R ENDERED THE DECISION IN THE CASE OF GRASIM INDUSTRIES LTD. (SU PRA) BEFORE THE AMENDMENT BROUGHT IN BY FINANCE ACT 2010 IN THE EXP LANATION TO SEC. ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 15 OF 18 9(2) OF THE ACT AFTER WHICH THE TERRITORIAL RESTRI CTIONS SHALL NOT APPLY TO FEE FOR TECHNICAL SERVICES. 14. IN THE INSTANT CASES THERE IS NO DISPUTE T HAT THE DETAILED PROJECT REPORT AND THE REPAIR TECHNICAL DOCUMENTS WERE T AILOR MADE DOCUMENTS AND SPECIFIC DOCUMENTS PREPARED SPECIALLY FOR THE PURPOSES OF M/S HSL. 15. AS STATED EARLIER THE DETAILED PROJECT REP ORT INVOLVED THE STUDY OF EXISTING INFRASTRUCTURAL FACILITIES AVAILABLE WI TH M/S HSL AND MAKING OF APPROPRIATE SUGGESTION FOR AUGMENTATION AND IMPROVE MENT OF THE INFRASTRUCTURAL FACILITIES IN ORDER TO ENABLE M/S H SL TO UNDERTAKE THE REPAIR WORKS OF A SPECIFIC TYPE OF SUBMARINES. FOR THE PURPOSE OF PREPARING THE SAID REPORT THE ASSESSEE M/S ROE H AS OBTAINED NECESSARY DATA FROM M/S HSL. THERE CANNOT BE ANY D OUBT THAT THE PREPARATION OF THE DETAILED PROJECT REPORT REQUIRES DOMAIN EXPERTISE. IN THE INSTANT CASE M/S HSL HAS SUBMITTED ALL THE DET AILS ON AVAILABLE INFRASTRUCTURAL FACILITIES TO M/S ROE IN ORDER TO E NABLE IT TO IDENTIFY THE SHORT FALL/INADEQUACIES/GAP IN THE SAID FACILITIES. ACCORDINGLY M/S ROE HAS PREPARED THE DETAILED PROJECT REPORT ELABORATIN G THE REQUIREMENTS FOR AUGMENTATION AND IMPROVEMENT OF FACILITIES IN O RDER TO ENABLE M/S HSL TO CONDUCT MEDIUM REPAIR CUM MODERNIZATION OF O RDERS OF 877 EKM TYPE OF SUBMARINES. THERE IS NO DISPUTE THAT THE S AID ASSIGNMENT UNDERTAKEN BY M/S ROE FROM M/S HSL IS A TECHNICAL A SSIGNMENT AND HENCE THE AMOUNT RECEIVED IN THAT REGARD WOULD NOT IN OUR VIEW LOSE THE CHARACTER OF FEE FOR TECHNICAL SERVICES SIMPL Y BECAUSE OF THE FACT THAT THE SAID DETAILED PROJECT REPORT WERE RECEIVED IN THE FORM BOUND VOLUMES. WE ACCORDINGLY CONFIRM THE ORDER OF ASSES SING OFFICER IN RESPECT OF DETAILED PROJECT REPORT IN ASST. YEAR 2006-07. ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 16 OF 18 16 IN THE CASE OF REPAIR TECHNICAL DOCUMENTS THE AGREEMENT ENTERED BETWEEN THE ASSESSEE M/S ROE AND M/S HSL D ESCRIBES THE ASSIGNMENT AS TECHNICAL ASSIGNMENT ON DEVELOPMENT OF REPAIR TECHNICAL DOCUMENTATION FOR MEDIUM REPAIR AND MODER NIZATION OF ORDER 877EKM. THE LD A.R SUBMITTED THAT THE IMPUGNED T ECHNICAL DOCUMENTS ARE TRANSFERABLE WHICH IS ONE OF THE CHA RACTERISTICS ATTACHED TO GOODS. IN THIS REGARD HE ALSO INVITED OUR AT TENTION TO CLAUSE NO.2.3.1 ENTERED BETWEEN M/S HSL AND INDIAN NAVY A CCORDING TO WHICH THE IMPUGNED REPAIR TECHNICAL DOCUMENTS ARE CONSI DERED TO BE THE PROPERTY OF INDIAN NAVY. HOWEVER AS OBSERVED EARL IER WE ARE REQUIRED TO EXAMINE ABOUT THE TAXABILITY OF THE IMPUGNED REC EIPTS FROM THE POINT OF VIEW OF M/S ROE WHO HAS SUPPLIED THESE DOCUMENT S. ACCORDINGLY IN OUR VIEW THE CONTRACT ENTERED BETWEEN M/S HSL AND THE INDIAN NAVY MAY NOT BE RELEVANT FOR DETERMINING THE ISSUE UNDER CONSIDERATION. FOR A MOMENT IF WE ASSUME THAT THE IMPUGNED REPAIR TE CHNICAL DOCUMENTS ARE PROCURED BY INDIAN NAVY DIRECTLY FRO M M/S ROE WILL IT CHANGE THE SCENARIO ABOUT THE TAX IMPLICATIONS IN T HE HANDS OF M/S ROE. IN OUR VIEW THE NATURE AND SUBSTANCE OF THE TRANSA CTION SHALL REMAIN THE SAME IN THE INSTANT CASE WHETHER THE ASSIGNMENT WAS GIVEN EITHER BY INDIAN NAVY OR BY M/S HSL. FURTHER ON A CAREFUL PERUSAL OF THE AGREEMENT ENTERED BETWEEN M/S ROE AND M/S HSL WOULD SHOW THAT THE IMPUGNED REPAIR TECHNICAL DOCUMENTS ARE NOT FREEL Y TRANSFERABLE AS REPRESENTED BEFORE US IF ONE LOOK AT THE PROTECTI VE CLAUSES WHICH ARE EXTRACTED BELOW:- 5.1 NEITHER OF THE SIDES IS ALLOWED WITHOUT CON SENT OF THE OTHER SIDE IN WRITING TO TRANSFER ITS RIGHTS AND O BLIGATIONS UNDER THE PRESENT CONTRACT TO THE THIRD PARTY. 5.2 THE CUSTOMER TAKES OBLIGATION TO USE THE DOCU MENTATION UNDER THE PRESENT CONTRACT ONLY FOR DECLARED PURPOS ES AND NOT RE-EXPORT OR TRANSFER WITHOUT THE CONSENT OF RF FOR MALLY OR IN FACT THE DOCUMENTATION DELIVERED UNDER THE PRESENT CONTR ACT OR INFORMATION CONCERNING DOCUMENTATION TO THE THIRD C OUNTRIES OR ALLOW USAGE OF IT TO ANY PHYSICAL OR JUDICIAL PERSO NS EXCEPT ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 17 OF 18 AUTHORISED PERSONNEL OF CITIZENS OF THE CUSTOMERS COUNTRY IN GOVERNMENT SERVICE OF THE CUSTOMERS COUNTRY. THE CUSTOMER COULD RE-EXPORT OR FORMALLY OR PHYSIC ALLY TRANSFER THE DOCUMENTATION DELIVERED UNDER THE PRES ENT CONTRACT OR INFORMATION ON IT TO THE THIRD PARTY OR ANY PHY SICAL OR JUDICIAL PERSON ONLY AFTER RECEIVING OF APPROPRIATE OFFICIAL REQUEST OF THE CUSTOMER AFTER RECEIVING OF CONSENT OF THE RUSSIAN FEDERATION WHICH IS MADE BY THE SUPPLIER IN COMPLIANCE WITH TH E LAW OF THE RUSSIAN FEDERATION. 5.3 THE CUSTOMER WILL NOT COPY OR REPRODUCE THE DOCUMENTATION DELIVERED UNDER THE PRESENT CONTRACT AS WELL AS UTILIZE RUSSIAN INVENTIONS KNOW-HOW AND OTHER S CIENTIFIC- TECHNICAL ACHIEVEMENTS USED DURING ELABORATION OF THE DOCUMENTATION WITHOUT PREVIOUS WRITTEN CONSENT OF T HE SUPPLIER ONLY UPTO RECEIPT OF APPROPRIATE OFFICIAL REQUEST F ROM THE CUSTOMER. 17 THE FOLLOWING FINDINGS GIVEN BY DRP IN PARA 5 .2 AND 5.3 OF ITS ORDER ARE ALSO RELEVANT HERE: 5.2. AS PER THE TERMS OF THIS CONTRACT HSL HAS TO COMPLETE THE PROJECT IN COLLABORATION WITH ROE WITH WHOM IT HAS TO ENTER INTO SEPARATE CONTRACT. PURSUANT TO THIS HS L (NOW REPRESENTING ROE RUSSIA) ENTERED INTO DIFFERENT CON TRACTS SUCH AS GENERAL CONTRACT: P/23561222012 DATED 27-1 1- 2003; P/435612223404 FOR THE PREPARATION OF REPAIR TECHNICAL DOCUMENTRATION (RTD); P/335612313124 FOR DEPUTATION OF RUSSIAN SPECIALISTS TO THE PREMISES O F HSL; ETC. FROM THESE CONTRACTS IT CAN BE CLEARLY SEEN THAT TE CHNICAL INFORMATION RELATING TO UNDERTAKING OF REPAIRS WAS PASSED ON THROUGH BOOKS AND THROUGH ANOTHER CONTRACT ENGINEERS/PERSONNEL VISITED VIZAG AND ASSISTED IN C ARRYING OUT THE REPAIR WORKS ON THE SUB-MARINE. THE AR ALSO ADM ITTED THAT APPROXIMATELY $ 52 MILLION WAS PAID FOR THE RT DS AND APPROXIMATELY $2 MILLION WAS PAID FOR THE SERVICES. WITH REGARD TO THE SERVICE CONTRACT AND THE SUM PAID FOR THE SAME IT IS CLAIMED THAT INCOME TAX IS PAID TREATING THE SAME AS TECHNICAL FEES. 5.3. HOWEVER A PERUSAL OF THE MATERIAL SUBMITT ED SHOWS THAT DRAWINGS AND DESIGNS WERE PASSED ON ALONG WITH OTHER TECHNICAL INFORMATION WHICH ARE ESSENTIAL FOR CARRY ING OUT REPAIR WORKS ON THE SUBMARINE. THE SERVICES WERE R ENDERED SEPARATELY BY DEPUTING PERSONNEL. THERE IS NO REAS ON TO SPILT ITA NOS.204&205/VIZAG/2011 M/S. FSUE ROSOBORONEXPOR T REP. BY HSL VIZAG PAGE 18 OF 18 THE TRANSACTION EXCEPT FOR THE PURPOSE OF TAX. THE PERSONNEL COULD NOT HAVE CARRIED OUT THE REPAIR WORKS WITHOUT THE RTDS. IN SO FAR AS THE TECHNICAL INFORMATION SUPPLIED IS UTILIZED IN THE CONTRACTING STATE THERE IS NECESSITY TO TAX THE SA ME. THE SEPARATE CONTRACTS REFERRED BY DRP FOR DEPUTATI ON OF RUSSIAN SPECIALISTS ALSO INDICATE THAT IT IS NOT A CASE OF A SIMPLE PURCHASE OF BOOKS AS CLAIMED BY THE ASSESSEE. 18. FROM THE FOREGOING DISCUSSIONS WE ARE OF T HE VIEW THAT THE CONSIDERATIONS RECEIVED BY M/S ROE FROM M/S HSL FOR SUPPLYING THE REPAIR TECHNICAL DOCUMENTS ARE ALSO IN THE NATURE OF FEE FOR TECHNICAL SERVICES ONLY. ACCORDINGLY WE CONFIRM THE ORDER OF THE ASSE SSING OFFICER IN RESPECT OF REPAIR TECHNICAL DOCUMENTS ALSO IN THE ASSESSM ENT YEAR 2007-08. 19. IN THE RESULT BOTH THE APPEALS OF THE ASSE SSEE ARE DISMISSED . PRONOUNCED ON 17.12.2011. SD/- SD/- (D MANMOHAN) (B R BASKARAN) VICE PRESIDENT ACCOUNTANT M EMBER VG/SPS VISAKHAPATNAM DATE: 17 TH DECEMBER 2011 COPY TO 1 M/S. FSUE ROSOBORONEXPORT MOSCOW REP. BY HINDUS THAN SHIPYARD LTD. VISAKHAPATNAM. 2 THE ITO (INTERNATIONAL TAXATION) VISAKHAPATNAM 3 4. THE ADDL. CIT (INTERNATIONAL TAXATION) HYDERABAD THE DISPUTE RESOLUTION PANEL HYDERABAD 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. FIT FOR PUBLICATION: (D MANMOHAN) (B R BASKARAN) VICE PRESIDENT ACCO UNTANT MEMBER BY ORDER