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2008 (10) TMI 258 - AT - Income TaxGeneration of revenue from Indian Operation - Reimbursement of expenses on cost to cost basis - DTAA between India and USA - Non-resident - Whether the assessee has earned any profit out of services rendered by it to EOGIL as per PSC - activities in connection with oil and gas exploration drilling - DR contended that assessee company is having a PE in India as per cls. (j), (k) and (l) of art. 5(2) of DTAA between India and USA. HELD THAT:- As per clauses of art. 5(2) of DTAA between India and USA, it cannot be said that assessee is having a PE in India. Nothing brought on record to show that the assessee was having an installation or structure which was used for exploration or exploitation of natural resources and hence. cl. (j) cannot be applied in the present case. As per art. 7, we find that the business profits of an enterprise of a Contracting State shall be taxable only in that State, unless, the enterprise carries on business in the other Contracting State i.e., India in the present case through a PE situated therein. We have noted that there is no PE of the assessee in India, business profits of the assessee, even if any, is taxable only in USA and not in India. Hence, even if it is held that the assessee company was having PE in India, there is no taxable profit of the assessee in India because the assessee has incurred expenses of equal amount for rendering the services. With regard to 1 per cent of the expenses charged by the assessee company as production overhead charges, it may have some element of profit but the same cannot be brought to tax because income does not accrue or arise in India. As per s. 90(2), where there is a DTAA between India and any other country, in relation to the assessee to whom such agreement applies, the provisions of IT Act of India shall apply to the extent that they are more beneficial to that assessee. In the present case, the provisions of DTAA between India and USA are more beneficial to the assessee and hence, provisions of s. 44BB cannot be thrusted upon the assessee. We are of the considered opinion that no interference is called for in the order of ld CIT(A) because we have noted that there is no profit element in the receipts of the assessee company from EOGIL because payments were made by EOGIL as per PSC which have been approved by both Houses of Parliament and as per this PSC, the payment made by a party to the PSC to any of its affiliated concern is to be without profit. This is an admitted position that the assessee company is an affiliated concern of EOGIL and payment made by EOGIL to the assessee company are in line with PSC and hence, it has to be accepted that such payments were made by the EOGIL to the assessee without any profit and hence, it has to be accepted that no profit has been earned by the assessee company on this account. The claim of the Revenue is that the assessee had not maintained books of account and could not produce evidence for its claim that the services provided by it were on a cost to cost basis and without any profit. This claim of the Revenue is meaningless once it is shown by the assessee that the payments received by the assessee company are in line with PSC as per which no payment can be made by a party to PSC to its affiliate concern after including any profit element therein. Under this factual position, we uphold the order of ld CIT(A) on this issue and this ground of the Revenue is rejected. Appeal of the Revenue is dismissed.
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