TMI Blog2006 (8) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... was claimed that the payment to the Principal Contractor amounted to the payment of fees for technical services under article 12 of the Indo-German Agreement for Avoidance of Double Taxation (hereinafter called 'the DTAA'). The Assessing Officer referred to the provisions contained in para 2 of article 5 with a view to find out whether the assessee had any Permanent Establishment (PE) in India. In particular, he referred to clause (i) of this para, dealing with a building site or construction, installation or assembly projects or supervisory activities in connection therewith where such site, project or activities continue for a period of more than six months. It was found on the basis of agreement that the assessee has rendered services for a period of more than 6 months at the installation site of the Steel Authority of India Ltd. (SAIL), where installation work was carried out by the Indian Contractors. In view of the provisions contained in the aforesaid clause (i), he came to the conclusion that the assessee has a PE in India. The scope of the work of the assessee and Indian Contractors included design and manufacture of plant and equipment, installation thereof, supervision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate of 48 per cent. 4. Aggrieved by this order, the assessee is in appeal before us. It has taken up 6 substantive grounds of appeal. However, these grounds can be summarized under two heads as under: (i) the Ld. CIT(A) erred in holding that exclusionary provision contained in para 5 of article 12 of the DTAA is applicable. (ii) without prejudice to the above, the Ld. CIT(A) erred in holding that the provisions of sections 44D and 115A are applicable. 5.1 Before us, the ld. counsel referred to the provisions contained in section 195 of the Income-tax Act, dealing with tax deduction at source from payments made to a non-resident person or a foreign company. It was pointed out that under this section, the SAIL is liable to deduct tax at source from any payment made to the assessee. He referred to the Tripartite Agreement dated 15-8-1992 between SAIL, the assessee and the Siemens. In pursuance of this contract, the assessee has been providing technical supervision services for erection of machinery by Indian Contractors at the factory sites of the SAIL. The job of construction is not undertaken by the assessee, but it is done by the Indian Contractors. The assessee provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 months. It was pointed out that the installation or the assembly project etc. does not belong to the assessee. The same belongs to SAIL or the Indian Contractors. The assessee is merely providing supervisory service at the installation site albeit in connection with installation carried out at the site by the Indian Contractors. In other words, the case of the ld. counsel was that for the site to become the PE of the assessee, the installation or assembly project should have been carried out by the assessee and supervisory activities should have been rendered in connection with the such installation. Merely providing supervisory services does not constitute the PE irrespective of the fact that such services were rendered for a period exceeding 6 months. In the alternative, it was argued that if it is held that merely providing supervisory services for more than 6 months constitute assessee's PE, then, the profits are to be computed as per article 7 of the DTAA. Para 3 of the article 7 provides that in determination of profits of a permanent establishment, there shall be allowed as deductions, expenses which are incurred for the purposes of the business of the PE including execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limitation on reduction of expenses under section 44D does not come into play. It was also held that sections 44D and 115D of the Act on one hand and article 12 of the Indo-Singapore Treaty on the other are similar in nature and constitute alternative but similar models for taxation of income from royalties and fees for technical services. Once it is clear that these are competing models of taxation, it has to follow that the provisions of Income-tax Act cannot come into play unless these are more beneficial to the assessee. Based upon aforesaid cases, the counsel argued that the payments in question were in the nature of payment of fees for technical services. The provisions of DTAA were more beneficial to the assessee and, thus, these provisions ought to have been applied by the Assessing Officer and the Ld. CIT(A). 6. As against the aforesaid, the ld. DR pointed out that SAIL applied to the Assessing Officer for making certain remittances to the assessee after deducting 10 per cent of the amount as tax. The Assessing Officer and the Ld. CIT(A) were of the view that the tax ought to have been deducted at the rate of 30 per cent. He referred to the Tripartite Agreement between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn after 31-3-1976 but before 1-4-2003. It was pointed out that the agreement was entered into on 15-8-1992 and, therefore, this date falls between those dates. Thus, provision contained in section 44D(b) becomes applicable in terms of para 3 of article 7. Accordingly, no expenditure is allowable in computing income by way of fees from technical services. The rate of tax is provided in section 115A at 30 per cent. Therefore, it was strongly argued that the assessee was required to deduct tax at the rate of 30 per cent of the fees received by it from SAIL. 7.1 We have considered the facts of the case and rival submissions. We are of the view that the interpretation of provision contained in clause (i) of para 2 of article 5 is of paramount importance for settling the controversy at hand. This para contains inclusive definition of the PE. It consists places such as a place of management, a branch, an office, a factory, a workshop, a warehouse or sales outlet etc. apart from building site, etc. We may also examine the provision contained in para 1 of article 5, which defines PE to mean a fixed place of business through which the business of an enterprise is wholly or partly carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he installation or assembly project does not belong to the assessee, it is a fact that he has been providing supervisory services for installation purposes as and such services have been provided for a period exceeding six months. To our mind, supervisory activities by themselves, in such a situation, constitute PE. Consequently, we are of the view that the provision contained in para 5 of article 12 is applicable. Therefore, we will have to examine the issue of computation of profit of the PE under article 7 of the DTAA. 7.2 Having decided the issue of PE against the assessee, we now turn to the issue of computation of profit of the PE. The ld. counsel relied on the decision in the case of Elekrim Warsaw and Boston Consulting Group Pte Ltd. The case of Elekrim involved the estimation of profit, which is not the case here. The case of Boston Consulting Group Pte Ltd. proceeded on the footing that consultancy services do not constitute technical services and, therefore, the profit has to be computed after allowing various expenditure. In the instant case, it is an admitted position that the services rendered by the assessee constitute technical services. Therefore, the ratio of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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