TMI Blog1999 (11) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... ed it as non-taxable and had filed Nil income. 5.1. The AO completed the assessment under s. 143(3) and issued an assessment order, raising a demand of Rs. 57,320,631 (including interest under s. 234B) on the payments received by the appellant during the year. The AO in his order held that the payments received by the appellant are taxable inIndiasince it maintained a Permanent Establishment (PE) inIndiabased on the provisions of art. 5, sub-art (2) of the treaty. According to him since the appellant had a project office inBombay, it had a P.E. inIndia. Further, the AO held that the provisions of art. 5(3) would be applicable only if the provisions of art. 5, sub-art. (2) are not applicable. Based on this reasoning, the AO has held that the appellant had a PE inIndiaon the basis of the provisions of art. 5(2) of the treaty. 5.2. The AO further held that even under the provisions of sub-art. (3) of art. 5, the appellant has a P.E. inIndiasince the activities carried on exceeded a period of six months as evident from the contract between the appellant and HHI and other related correspondences. 6. Being aggrieved by the order of the AO, the assessee appellant filed an appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim as per law. 7.3. The appellant's contention in support of ground No. 4 was rejected by the learned CIT(A) confirming the AO's order that s. 234B does not exclude an assessee whose income is subject to tax deduction at source and that s. 234B provides for the method of calculation of interest on the amount of advance tax remaining unpaid. 7.4. As for ground No. 5, it was found to be of a consequential nature wherein the appellant had objected to initiation of penalty proceedings under s. 271(1)(c) of the Act, and hence, the learned CIT(A) held that no interference is called for. 8. Aggrieved by the order of the learned CIT(A), the appeal is filed before the Tribunal by the assessee-appellant under s. 250 of the IT Act on the following grounds that the learned CIT(A) erred: (1) In taxing the revenues earned inIndiaby the appellant in connection with its contract with HHI. (2) In holding that the appellant maintained a PE inIndiain accordance with the provisions of the India Netherlands DTAA. (3) In levying interest under s. 234B of the IT Act. 9. We have gone through the record, the written submissions made by the assessee and the arguments advanced by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urces; (g) a warehouse in relation to a person providing storage facility for others; (h) a premises used as a sales outlet; (i) an installation or structure used for the exploration of natural resources provided that the activities continue for more than 183 days. (3) A building site or construction, installation or assembly project constitutes a PE only where such site or project continues for a period of more than six months. (4) Notwithstanding 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 or display 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 or display; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing any another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information for the enterprise; (e) the maintenance of a fixed place of business solely for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Feb., 1994itself stipulates the commencement and completion of the contract vide cl. 9 thereof. Appendix 'A' stipulates that the trench back filling will have to be completed before the monsoon season 1994. Under cl. 9(1)(iii) a separate rate is provided if the trench back filling is to be carried on after the monsoon season. Clause 4.3.3. provides for severability. In case where, any provision or condition of the sub-contract is prohibited or rendered invalid or non-enforceable, the sub-contract will not be rendered invalid. 10.7. As per AO, the period of six months is to be counted from arrival of the first Dredger on16 Dec, 1993. Even then, as per documents on record, the plant and machinery was completely demobilised bythe 12th June, 1994. In such an event, the period of six months is not completed. The project not having continued for a period of more than six months, there is no PE inIndia. Even if the period is taken till13th June, 1994, six months do not expire. Counted from16th Dec, 1993, the six months expire on15th June, 1994. 10.8. Independent evidence is on record in the form of certificates issued by Hyundai, supporting the averment that no work was carried on bey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter is excluded from the general provision". 10.12. Similarly, in Meteor Satellite Ltd. vs. ITO (1979) 12 CTR (Guj) 206 : (1979) 121 ITR 311 (Guj), this principle was followed. Again, inUnionof India Anr. vs. Indian Fisheries (P) Ltd. (1965) 57 ITR 331 (SC) it was held at p. 334: "The effect of these statutory provisions is, inter alia, that an unsecured creditor, must prove his debts and all unsecured debts are to be paid pari passu. Therefore, once the claim of the Department has to be proved and is proved in the liquidation proceedings, the Department cannot by exercising the right under s. 49E of the IT Act get priority over the other unsecured creditors. If we were to read s. 49E in the way suggested by the learned Addl. Solicitor-General, it would be defeating the very object underlying ss. 228 and 229 of the Companies Act, 1913. If there is an apparent conflict between two independent provisions of law, the special provision must prevail. Sec. 49E is a general provision applicable to all assessees and in all circumstances; ss. 228 and 229 deal with the proof of debts and their payment in liquidation. In our opinion s. 49E can be reconciled with ss. 228 and 229 by hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the contract; (iv) The office inIndiashall not borrow or lend any money from/to any person inIndiawithout prior permission of the RBI; (v) The office in India shall not acquire, hold (otherwise than by way of lease for a period not exceeding five years), transfer or dispose of any immovable property in India, without obtaining prior permission of the RBI under s. 31 of the Foreign Exchange Regulation Act, 1973; (vi) The office inIndiawill submit to us annual audited accounts of its income and expenditure inIndiaalong with bank certificates evidencing receipt of funds from the head office. Now looking at the conditions imposed by RBI, the office atBombayis only a support office for facilitating the performance of the contract. 10.15. Looking at it from another angle, the basic ingredients of the terms "permanent establishment" under art. 5 are: -the existence of an enterprise; -its carrying on a business; -for the latter, the existence of a place of business which is fixed; and -through which the business is carried on. In the present case, the second ingredient is completely missing as the office atBombayis clearly a support office existing solely for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence in support of completion of contract by showing demobilisation of dredging equipment and completion of dredging work only. No mention is being made of completion of back filling works, which as narrated above always follows the dredging activity, and back filling activity had not been completed till 8th June, 1994, as mentioned above. It, therefore, appears that the Department has been misled by not presenting the fact of completion of back filling works and demobilisation of equipment involved in back filling, at any stage. Time Schedule of back filling activities clearly indicates that a minimum period of 9.5 weeks is involved in completing back filling work. Completion of both the activities under the contract must have therefore, gone well past six months. Condition in para 3 of art. 5 is of no help, as well, to the assessee-firm." 11.4. To this, the assessee's reply has been noted by the learned CIT(A) in the impugned order page 3 para 2.3: "Regarding "back filling" activities the appellant has stated that the dredgers were demobilised and as such back filling activities were partially completed upto8th June, 1994, after which the operations were wound up and no othe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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