Saturday, February 18, 2017

Payment made to Polish Co. for dismantling machinery couldn't be held as 'FTS'

Facts:

a) The assessee-company made payment to foreign company with out deducting tax at source for work of dismantling and sea-worthy packing of paper mill machinery. 

b) Assessing Officer (AO)treated assessee as assessee-in-default as he was of view that payments were made for' fees for technical services' which were liable to tax in India as per section 9.

c) Commissioner (Appeals) reversed the order of AO. Aggrieved by the order of CIT, revenue filed the instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1. There is a difference between 'Contract of work' and 'Contract of service'. The two words convey different ideas.

2. In the 'Contract of work', the activity is predominantly physical; it is tangible. In the activity referred as 'Contract of service', the dominant feature of the activity is intellectual, or at least, mental. In contrast, in the case of rendering any kind of 'service', intellectual aspect plays the dominant role.

3. In the instant case, the scope of work mentioned in the agreement entered by the assessee with the foreign company clearly explained that it was 'contract of work' to dismantle the machinery, therefore, it was not a 'contract of service'. 

4. Since dismantling of machinery did not require any technical services, therefore, payment by the assessee did not fall in the ambit of fees for technical services. - [2017] 78 taxmann.com 49 (Kolkata - Trib.)
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