TMI Blog2011 (9) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... to an inference that if an assembly project lasts for less than nine months or nine months, there would be no inference of PE. It is held accordingly. - Matter restored to file of AO for limited purpose to ascertain the period of the existence of the assessee in India and thereafter decide the existence of PE. - IT APPEAL NO. 5686 (DELHI) OF 2010 - - - Dated:- 16-9-2011 - C.L. SETHI, K.G. BANSAL, JJ. Percy Pardiwalla, Prashant Shah and Manoneet Dalal for the Appellant. Ashwani Kumar Mahajan for the Respondent. ORDER K.G. Bansal, Accountant Member. The assessee has taken up six grounds in this appeal. In the course of hearing before us, the ld. counsel for the assessee explained that three questions need to be decided for disposal of the appeal. These questions are - (i) whether, the assessee has a Permanent Establishment ('PE' for short) in India; (ii) if yes, whether the income ought to be computed under the provision contained in section 44BB of the Income-tax Act, 1961 ('the Act' for short); and (iii) whether, the assessee is liable to pay interest u/s 234B of the Act? 1.1 The Assessing Officer had prepared a draft order on 31-12-2009, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s being necessary for completion of the work. The following work is to be carried out under the agreement from the Marine Vessel Spread:- l "One new 20 inch MTA to TCPP infield pipeline 21,897 m long including stalk on risers l Post burial of the MTA to TCPP pipeline from KP 0.205 to KP 21.629. There is no other pipe burial requirement. l One new 4.5 inch instrument Air pipeline line piggybacked to MTA-TCPP pipeline including tie-in to the pre-installed Risers and stabilization, if any of short section of the platform approach Pipeline resting on the seabed near platform locations before riser tie-in. l Pre-sweep existing sand waves along the export pipeline route at two sections totaling approximately 5 km in export pipeline route. l Executing the post trench and pre sweep work with ROTECH or suitable alternative equipment. Soil vane shear strength shall not exceed 50 Kpa, along the proposed Pipeline routes. l One new 20 inch TCPP export pipeline 75,729 m long including stalk on riser. l One Subsea check valve in the vicinity of TCPP. l Two piled PLEM(s) (one each for two trunk-lines), with associated piping and valves, and sub-sea s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterface Matrix, Appendix 3 to this Exhibit, to the Company and the Company's other contractors. The Contractor shall further notify the Company of all overdue, incomplete or missing interface information. l Co-ordination and interface with the Company and the Company's other contractors and suppliers as directed by the Company, including: Co-ordination with the Marine Warranty Surveyor regarding verification and approval of all sea transports and pipelay activities including all items relating to systems, equipment and vessels. Co-ordination, interface and cooperation with Company's other marine contractors performing ongoing marine operations, e.g. deck and jacket (facilities) installation, drilling etc. l Preparation and co-ordination of all documentation required by the Company to obtain the necessary approvals by the Authorities relevant to the Work. l Procurement of all items required including provision of all necessary materials, systems, equipment, services, personnel and facilities relevant to the Work except where specified as being provided by the Company. l All relevant pre-commissioning, inspection, testing and surveys on his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are carried on; i. a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more than nine months." 4.1 The ld. counsel submits that the assessee has its assets and personnel in India for laying pipe lines of about 21 kms. length so as to connect them with the existing pipe lines. Therefore, if we look to the provision contained in paragraph 1 only, it may possibly be inferred that the assessee has a PE in India. However, it may be considered at this stage whether a moving ship could be said to be a fixed place of business even under this paragraph. Nevertheless, the work carried out by the assessee is a construction or assembly project, under which pipe lines are assembled, laid and connected with the existing pipe lines. Therefore, the provision contained in paragraph 5(2)(i) of the DTAA is applicable. Under this provision, the PE comes into existence only if the construction or assembly project continues for a period of more than nine months. The construction or assembly project of the assessee had actually been carried out for less than nine month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are that the assessee is a non-resident company, incorporated under the laws of Netherland. The assessee earned revenue amounting to Rs. 7,52,08,201 from three parties, ONGC, Cairn Energy and Ganesh Benzo Plast. It carried out geo-technical investigation at drilling locations, which included drilling and sampling for the ONGC. It carried out geo-physical and geo-technical site investigation for Cairn Energy. It also provided skilled facilities and capacity to perform work for Ganesh Benzo Plast. The work in respect of ONGC involved drilling and sampling of two bore holes, on-board laboratory testing and specialized analysis through risk assessment technique. The work continued for a period of 13 days in financial year 2000-01. The work in respect of Cairn Energy was taken up at eight sites in the Gulf of Khambat, involving investigational approach. It mobilized its own rig and vessel from Singapore for this purpose. The work continued for a period of 41 days. The work in respect of Ganesh Benzo Plast also involved geo-technical investigation and geo-technical services on-board "Samundra Sarveshak" vessel. This work continued for 37 days. It is mentioned that the assessee has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nary, it is mentioned that the word contains in itself the indication of a time limit for the existence of a place of business. This is quite independent of the specification of a time limit under paragraph no. 5(2)(i) and 5(3). The meaning of this word has also been considered in Fugro Engineering BV, in which it has been held that if a place made available for sufficient time to carry on the work in which it can be completed, the place will be the fixed place of business. The Authority ruled that paragraph no. 1 sets out a general definition and paragraph no. 2 furnishes an inclusive definition of the PE. Some of the items mentioned in paragraph no. 2 do not make a reference to the time period but paragraph no. 5(3) of the U S Model in regarding to a building site, construction, installation project etc. contains time limit of more than 12 months for constituting the PE. Such a project cannot be treated as a PE unless the time criterion is satisfied even though it may fulfil the condition mentioned in paragraph no. 1. It may be mentioned here that in the case of Brown Root Inc. v. CIT [1999] 237 ITR 156/103 Taxman 515 (AAR - New Delhi), the ld. AAR ruled that the element of per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcavating and dredging. Coming to the interplay of paragraph nos. 5(1) and 5(2)(i), it was argued that the inclusive definition will only expand rather than restrict the meaning and amplitude of the preceding general expression or term. In other words, paragraph no. 1 cannot be down sized by referring to paragraph no. 2. However, having regard to the contextual setting of the two paragraphs, it has been held that too much emphasis cannot be placed on the fact that definition in paragraph no. 2 is inclusive in nature. Therefore, this inclusiveness of the definition in paragraph no. 2 should not come in the way of harmonious construction and contextual interpretation of the two paragraphs. Accordingly, it has been further held that the ingredient of fixed place of business in paragraph no. 1 runs through the entire gamut of paragraph no. 2 while the particular instances of such fixed places are set out in the inclusive definition with a view to dispel any doubt as well as to make it more comprehensive in scope. Therefore, if the fixed place is in the nature of a building site or a place connected with construction or assembly project, the minimum duration was advisedly prescribed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 that when an enterprise sets up a PE in another country, it brings itself within the fiscal jurisdiction of that country to such a degree that such other country can tax all profits that the enterprise derived from the source country. It is the act of setting up a PE which triggers the taxability of a transaction in the source State. It is also mentioned that not all profits of the enterprise would be taxable in India, but only so much of profits having economic nexus with the PE in India would be taxable in India. The decision was rendered in a different context of taxation of profit from a turn-key project, yet we think it fit to reproduce the portion of the judgment relied upon by the ld. DR:- "12. There is one more aspect to be discussed. The attraction rule implies that when an enterprise (GE) sets up a PE in another country, it brings itself within the fiscal jurisdiction of that another country to such a degree that such another country can tax all profits that the GE derives from the sources country-whether through a PE or not. It is the act of setting out a PE which triggers the taxability of transactions in the source State. Therefore, unless the PE is set up, the que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding but not limited to lay-barge, riser installation vessel, diving support vessels, pipeline tie-in vessels, survey vessels, tugs, cargo barges, supply boats, testing spread including drying equipment, and personnel. The assessee has completed the work in less than 9 months. The question before us is-whether, the assessee has a PE in India. 8.1 In the case of Fugro Engineers B.V. (supra) the assessee was carrying on the business of testing the material obtained from the site for examining the possibility of having hydrocarbons. It had inter alia to dig bores for the purpose of obtaining the material for testing. The same was later on tested on-board the ship. The work did not involve any construction or assembly project. The project was in the nature of carrying out chemical analysis to determine the extent of hydrocarbons available in the material obtained for testing. Obviously, paragraph no. 5(2)(i) or similar provision was not applicable to the facts of the case. The Tribunal, however, recorded a finding that the ship was a fixed place of business. It was available to the assessee for carrying on the business of chemical analysis without let or hindrance. Therefore, irr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nued for sufficient length of time, but statedly not exceeding nine months. Therefore, if the ratio of the decision in the case of Fugro Engineers B.V. (supra) only is taken into account, this will be a fixed place of business under paragraph no. (1). This is the view expressed by the ld. CIT, DR. His further case is that once the test of "fixed place of business" is satisfied under paragraph no. (1), there is no need to go to paragraph no. 2(i). The decision of the ld. AAR is in contradiction of the aforesaid view. It has been held that the two paragraphs have to be read together. Paragraph no. 2(i) specifically deals with construction or assembly project or supervisory activities in connection therewith. If the matter is concluded under paragraph no. (1), this paragraph becomes otiose for the reason that all construction or assembly projects will have a fixed place of business. Therefore, it would be difficult to read any residuary meaning in this paragraph. The ld. DR has also distinguished the decision in the case of Subsea Offshore Ltd. (supra) as the word used in the treaty at that point was "in" and not "through", therefore, it was held that a moving ship operating along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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