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2016 (6) TMI 137 - DELHI HIGH COURT'Royalty' receipt - assessment under Section 9(1) (vi) of the Act or under Article 12 of the DTAA - existence of PE in India - Re-characterization of contract - Held that:- The clauses of the contract make it clear that at all times during the execution of the contract the control over the equipment brought by the Petitioner was to remain with the Petitioner. While the SPM system was supplied by IOCL, the task of installation, testing and pre-commissioning was the work of Petitioner. The system was to be capable of satisfactorily functioning as a complete terminal for discharge of crude oil from vessels to the onshore tankfarm. Clause 3.1.2 made it clear that it was the Petitioner which had to supply “all marine spread specialized manpower and equipments, installation tools and tackles, consumables, labour, logistic supplies, planning, engineering, documentation etc”. Further under Clause 3.1.3 the Petitioner was made responsible for taking over all the IOCL supplied project materials from the place designated by the IOCL which was required for installation of complete CALM SPM system including their sub systems. In the circumstances, the Court is unable to appreciate how the AAR could conclude that the de facto control of the equipment was with IOCL. This Court is unable to concur with the finding of the AAR that in the instant case the consideration received for mobilisation/demobilisation should be considered as royalty paid by IOCL to the Petitioner. The Petitioner is right in contending that the services rendered by it to IOCL under the contract fell under the exclusionary portion of Explanation 2 viz., “consideration for any construction, assembly, mining or like project undertaken by the recipient” This has been unable to be denied by the Revenue. Therefore, on two counts the finding of the AAR on FTS cannot be sustained. The first being that the installation services are not incidental to the mobilisation/demobilisation service. The contract was in fact for installation, erection of equipment. Mobilisation/demobilisation constituted an integral part of the contract. Secondly, the AAR has proceeded on a factual misconception that the dominion and control of the equipment was with IOCL. It was erroneously concluded that the payment for such mobilisation/demobilisation constitutes royalty. In that view of the matter, the consideration for installation cannot not be characterized as FTS and brought within the ambit of Article 12.4(a) of the DTAA. Revenue was not able to show that the Petitioner had a PE in India, the income earned by the Petitioner from the contract with IOCL cannot be brought to tax in India in terms of Article 7 of the DTAA. - Decided in favour of assessee.
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