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2009 (5) TMI 609 - AT - Income TaxDouble taxation relief - DTAA between India and South Korea - Period of actual contract for less than 9 months in india - Mere assumption that assessee project office in India being the assessee’s PE in India - Whether case of the assessee falls under Article 5(3) as claimed by the assessee and as accepted by the ld. CIT(A) or under Articles 5(1) and 5(2), as held by the AO - Meaning of ''Permanent establishment'' - assessee is a non-resident foreign company incorporated in South Korea - HELD THAT:- As per Articles 5(1) and 5(2), a permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried out. According to Article 5(3), a permanent establishment encompasses a building site, a construction assembly or an installation project or supervisory activity in connection therewith but only where such site, project or activities continued for a period of more than 9 months. The Tribunal, it is seen, has decided this issue in favour of the assessee and this lis has since attained finality, not resting at the Tribunal stage but culminating before the Hon’ble Supreme Court in Hyundai Heavy Industries Co. Ltd. [2007 (5) TMI 196 - SUPREME COURT]. Therein the Hon’ble Supreme Court held, inter alia, that where the permanent establishment of the assessee came to exist in India after fabrication but before installation, the profits relating to fabrication in South Korea were not taxable. The Assessing Officer in the present case has not been able to show otherwise. A project office cannot be treated as a PE, as has been held in favour of the assessee. For AY 1995-96, the Tribunal held that PE begins to exist when the enterprise commences its business through a fixed place of business. Obviously, PE is attached to the situs of the business place in accordance with Article 5(3) of the DTAA. That being so, the provisions of Article 5(3) of the DTAA are more specific as compared to those of Articles 5(1) and 5(2) and so, the provisions of Article 5(3) take precedence over those of Articles 5(1) and 5(2). No PE of the assessee could be held to be in existing in India until the assessee began its project of "installation activities connected therewith", as per Article 5(3). All the designated work of the assessee outside India was carried much before the dates of arrivals of structure in India. Pertinently, the duration of each of the projects was of less than 10 months, in keeping with Article 5(3) of the DTAA. The assessee duly furnished certificates in this regard. The actual contractual period was of less than 9 months. Therefore, mere correspondence from the assessee’s Mumbai office is of no consequence in holding office of the assessee PE in India. It also does not make any difference if this office, i.e., the project office remained in existence for a number of years and it was manned by senior officers of the assessee. Limitations set by RBI, while granting permission for opening Project office in India - Pertinently and as has rightly been taken into consideration for deciding in favour of the assessee, for each fresh contract, permission has to be sought from the RBI for opening a project office. Such permission is granted subject to limitations. These limitations are stringent. These limitations include the limitation that the office in India shall not enter into any new contract, nor shall it engage itself in any activity of a trading, commercial or industrial nature other than what may be necessary for the execution of the contract, without prior permission of the RBI. The project office is to restrict its operation exclusively to execution of the contract as approved by the Government of India. It is to meet all the expenses in India only from out of the inward remittances received from the head office through normal banking channels or the rupee amounts to be received under the contract. It is not to borrow or lend any money from/to any person in India without prior permission of the RBI. The project office, thus, undisputedly did not carry out any such activity as prohibited by the RBI from being carried out without its prior permission. Therefore, order passed by the ld. CIT(A) is well versed inasmuch as it has followed the earlier years orders in assessee’s case passed by the CIT(A) and the Tribunal. Besides, it is a detailed order. Finding no error therein, we uphold the same. Our above observations shall, mutatis mutandis, apply to the rest of the appeals also, the facts therein remaining the same, as noted at the beginning of this order. all the appeals of the department are dismissed.
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