TMI Blog2004 (3) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... 1753/Del/1999, the Revenue has taken the following grounds of appeal: "1. The CIT(A) has erred in law and on facts in deleting the addition made by the AO in bringing to tax income arising to the assessee in respect of payments shown as outsideIndiareceipts. The CIT(A) erred in accepting the assessee s contention that outsideIndiaactivities were not attributable to permanent establishment inIndia. 2. The CIT(A) has erred in law and on facts in following the order of CIT(A) in this case for asst. yr. 1992-93 while ignoring that the facts of the case in the year under consideration were at variance from the facts in asst. yr. 1992-93. Due to substantial progress of contractual activities, P.E. certainly existed during the year under consideration. 3. The CIT(A) erred in law and on facts in not following the spirit of CBDT s Instruction No. 1767, which lays down that the payments in respect of outside India activities for turnkey contract are also taxable at the deemed profit rate of 1 per cent." 4. The facts concerning this matter are that the assessee-company was incorporated under the corporate laws ofSouth Korea. Certain contracts were executed between the assessee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hstanding the preceding provisions of this article, the term permanent establishment shall be deemed not to include: (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or for collecting information, for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of advertising, the supply of information, scientific research, or any other activity, if it has a preparatory or auxiliary character in the trade or business of the enterprise; (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paras (a) to (e) of this paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the ostensible outsideIndiagenerated income attributable to the PE apply mutatis mutandis from past years into this year because of the similarity of facts relating thereto. Hence, the payments ostensibly shown in the contract on mile-stone formula for the outsideIndiaoperations are taken at 10 per cent for want of books and records to determine the actual income therefrom as are attributable to the PE. In this respect, it need be mentioned that any work performed outsideIndiaeven for execution of such works as fabrication, designing, transportation, etc. relating to even Indian contracts shown to be carried outsideIndiaare not included in the project accounts of the various contracts to be executed inIndia. For want of the same, the above procedure is employed in keeping with the practice of earlier years, as also the basis which are employed in the case of other similarly placed non-resident companies." 6. The assessee filed appeal against the taxable income worked out by the AO. Before the CIT(A), written submissions dt.30th July, 1996and13th Sept., 1996were filed. The specific plea of the assessee before the CIT(A) was that the agreements were for designing, engineering, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributable to the PE. 10. Against the comments of the AO, the assessee filed written rejoinder dt.3rd Sept., 1998. This written rejoinder has been quoted by the CIT(A) in para 2.7 of his order. For the sake of brevity, we do not consider it proper to reproduce the same here. 11. On the above written rejoinder, again the AO submitted comments dt.10th Sept., 1998and thereafter, the assessee also filed written rejoinder dt.15th Oct., 1998, which have also been reproduced in para 2.9 of the order of the CIT(A). 12. The CIT(A) after considering the written submissions and arguments of the assessee, found force in the stand of the assessee and held that the claim of the assessee deserves to be allowed. The relevant observations of the CIT(A) are contained in para 2.11 of his order, which are being reproduced below: "The written submissions and arguments of the appellant and comments of the AO have been considered. The facts this year are similar to the facts of immediately preceding asst. yr. 1992-93 and the AO has relied on assessment order of asst. yr. 1992-93 for bringing to tax the payments pertaining to outsideIndiaoperations of the appellant. Both the AO as well as the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to contracts were conducted in India and since such activities were part of total contract, the total receipts in relation to such contract should have been considered and included in the income of the assessee. 14. Learned counsel, on the other hand, placed reliance on the order of the CIT(A). He submitted that the issue relating to work carried out by the assessee outsideIndiaarose in asst. yr. 1986-87 and the Tribunal has decided the issue in those assessment years in favour of the assessee. Learned counsel for the assessee further pointed that in subsequent years also the issue has been decided by the Tribunal in favour of the assessee. In this regard, he has invited our attention to the copy of the order dt.17th Feb., 2000for asst. yr. 1989-90, copy of the consolidated order of the Tribunal order dt.30th Aug., 1999for the asst. yrs. 1986-87 to 1988-89 in the case of the assessee and copy of order dt.8th Nov., 1998for asst. yr. 1995-96 in the case of BKI/HAM. 15. Learned counsel further pointed out that the CIT(A) has placed reliance on the order of his predecessor for asst. yr. 1992-93 and since the Department has not preferred any appeal against that order, the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nform as to whether any appeal was filed by the Department against the order of CIT(A) for asst. yr. 1992-93 or not. She informed that no appeal was filed against the order of the CIT(A) for asst. yr. 1992-93. 17. On going through the relevant material and the order of the Departmental authorities in relation to the grounds taken before us, it is found that one of the issues to be decided is as to whether the assessee had any permanent establishment in India for carrying out the works outside India. The specific contention of the learned counsel is that even though the assessee may be having office establishment at Bombay or elsewhere in India, for carrying out various works in relation to various projects, but since every project is a separate project, it has to be seen as to whether there was a permanent establishment in relation to such project/work/contract or not. It was further pleaded that work relating to designing, engineering, fabrication, transportation, loading, etc. carried out outsideterritoryofIndia, are to be taxed as per rule given in Art. 7 of the Convention, i.e., in the State in which the company is resident, i.e., inSouth Koreain the present case. This conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. (d) The appellant hereby specifically denies to have got done such surveys from a fixed place inIndiaand the AO has been incorrect in assuming to the contrary. As submitted above, such surveys had been done through sub-contractors and not by the appellant. (e) It is merely a presumption on the part of the AO to observe in his comments that M/s HHI is also maintaining a fixed base in India in respect of its other contracts form which the works under this contract must have also been looked after or performed and that having such PE in India has also never been denied by M/s HHI as it maintained the project office in India right from 1983 till date." Thus, the certificate of ONGC, the written submission of the assessee and the certificate of the Korean tax authorities had been considered and referred to by the CIT(A) for coming to the conclusion that the assessee did not have PE inIndiaand that the outsideIndiaworks were mostly carried out fromKoreaitself. The Department has not been able to controvert this factual finding. In fact, no material has been placed before us by the Revenue in support of the grounds of appeal. The learned Departmental Representative has simp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. in terms of its various contracts with ONGC is taxable in Korea as per Korean domestic tax laws. In view of aforementioned documentary evidence and the fact that all communications during the bidding stage of the project and thereafter were always addressed to the appellant at its head office inSouth Korea a fact duly mentioned in the aforementioned certificate dt.22nd Dec., 1995of the ONGC. I hold that this payment had no relation whatsoever to any operations done by the appellant inIndiain connection with the Heera Process Complex. It is hereby further held that this payment was not in the nature of advance but was based on satisfactory completion of the contractual work, as stated in the aforementioned certificate. This being so, therefore, I hold that the income of US $ 1874.48 which have been valued in the Indian currency in the assessment order at Rs. 32,128 was not taxable in the hands of the appellant and hence the same is hereby deleted. The AO is directed accordingly." In the case of the assessee in asst. yrs. 1986-87 to 1988-89, also similar issue came before the Tribunal and one of the ground taken by the appellant before the Tribunal was as under: "The CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided in favour of the assessee by observing as under: "On the aforesaid facts, we hold that no income accrued to the assessee inIndiain respect of the activities admittedly carried on inKoreavis-a-vis the project under consideration. It may not be out of place to mention that the payment for the entire contract was to be made in US $ and that also outsideIndia. The CIT(A), as already noted above, had invoked Instruction No. 1767, to tax the assessee and we invoke the same instruction to hold otherwise." 23. In the case of DKI/HAM v.o.f. vs. Addl. CIT for asst. yr. 1995-96 also, the issue was considered by D Bench of Tribunal in ITA No. 849/Del/1999 and vide order dt.8th Nov., 1999, the Tribunal has decided the issue in favour of the assessee. Regarding the permanent establishment, the Tribunal has made the following observations: "11.1 A permanent establishment begins to exist when the enterprise commences to carry on its business through a fixed place of business. This is the case once the enterprise prepares the activity for which the facility is permanently to be used. The same principles apply when determining the points of time at which a permanent establishment ceas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of PE has been shown or proved nor it has been demonstrated that a part of income of the assessee was attributable to such PE. Hence, this ground taken by the Revenue cannot be allowed. 26. So far as ground No. 2 is concerned, although it is pleaded in this ground that the facts for asst. yr. 1992-93 are not similar, but the Department has not pointed out any difference or dissimilarities. It may be pointed out that some payments relating to Heera Process Projects were received in asst. yr. 1992-93 and have also been received during this assessment year. The nature of these receipts has been duly considered by the CIT(A) in asst. yr. 1992-93 and held to be non-taxable. Since the payments received during this assessment year related the same contracts and further since orders of CIT(A) for asst. yr. 1992-93 has become final on the same basis we have to confirm the view of CIT(A) taken in this assessment year on these receipts. Thus, in absence of any material to prove otherwise, we have to accept the contention of the assessee that facts of this assessment year are similar to asst. yr. 1993-94. The CIT(A) has also observed that the facts relating to asst. yr. 1992-93 are similar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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