TMI Blog2009 (5) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. - A.D. JAIN AND P.M. JAGTAP, JJ. L.M. Pandey for the Appellant. O.P. Sapra and Jeeten Nagpal for the Respondent. ORDER A.D. Jain, Judicial Member. - These are eight department appeals for assessment years 1997-98 to 2002-03 respectively. Since common issues have been raised in all these appeals, these appeals have been taken up together and are being decided by this common order for the sake of convenience, the facts are being taken from ITA No. 265/Delhi/07. The issue as to whether the learned CIT(A) has erred in directing the Assessing Officer to re-compute the total income of the assessee after excluding revenues from outside India operation, is the issue common in the following appeals : 1. ITA No. 265/Delhi/07 for assessment year 1997-98 2. ITA No. 264/Delhi/07 for assessment year 2000-01 3. ITA No. 2824/Delhi/07 for assessment year 2001-02 4. ITA No. 2530/Delhi/06 for assessment year 2003-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee had furnished certificates from the MDL only in respect of the B-121 Well Platform Project, which project as per the said certificate, commences on 20-10-1996 and was completed on 3-1-1997; that no evidence had been filed regarding the determination of the completion period of the other two projects; that the assessee had been maintaining an office at World Trade Centre, Cuffe Parade, Bombay right from 1983; that this was a full-fledged office manned by senior officers of assessee NRC; that it had executed several projects in India during the said period i.e., from the date of its opening office till date; that several projects were still in hand, that so, the assessee s case would fall under Para 2 of Article 5 of DTAA and not under Para 3 thereof as claimed; that the assessee s case was also covered under Para 1 since that office might be taken as a fixed place of business; that it could not be ruled out that the assessee had conducted some business from the said office; that the assertion on behalf of the assessee that Para 3 of Article 5 of the DTAA was more specific than paras 1 2 thereof and that so para 3 had an overriding effect over paras 1 2, was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was resident i.e., in South Korea; that only income is taxable in India that is attributable to a PE situated in India; that in the assessee s case all the designated outside India work took place much before the dates of arrival of structures in India unless PE taken its project of cutting installation activities; that the Assessing Officer had gone wrong in observing that the project office of the assessee in Mumbai was the assessee s PE; and that, therefore, the revenues relating to the three projects could not be brought to tax and the Assessing Officer had erred in doing so. The assessee placed reliance on the first appellate order in the assessee s case for assessment year 2003-04, in which, the assessee s claim of no PE in respect of CRMP project were not taxable in India. Reliance was also placed on the ITAT decision in assessee s own case for assessment years 1986-87 to 1988-89. 4. By virtue of the impugned order, holding in favour of the assessee, the CIT(A) observed that the issue had been considered by the ITAT in assessee s own case for assessment years 1986-87 to 1988-89 and it had been held that Article 5(3) of the DTAA, being a more specific provision would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, it was open to supervise and watch the progress of all the activities of the contracts from the PE itself; that the learned CIT(A) wrongly overlooked the correspondence with the income-tax authorities for obtaining withholding orders under section 195(2) of the Act etc., and the correspondence with the ONGC in this regard; that this correspondence was from the said Mumbai office of the assessee; that in fact it was this office which was the executing brain behind all the three contracts in question; that it was, therefore, that the Assessing Officer concluded and rightly so, that this Mumbai office of the assessee constitute the assessee s PE in India in terms of Para 2( c ) of Article 5 of the DTAA between India and South Korea; that the ld. CIT(A) has erred in basing his order on the earlier year s order of the ITAT and that of the CIT(A) in assessee s own case since the facts therein are not in pari materia with those doing the rounds for the year under consideration; that the ld. CIT(A) has erroneously held Para 3 of Article 5 of the DTAA to override paras 1 2 thereof, even though the case of the assessee fell in paras 1 2 rather than in para 3; and that looking at fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment years 1992-93 and 1996-97; that moreover, the Assessing Officer himself would not controvert the said legal position that it was activities falling clearly within the territorial jurisdiction of India comprising its taxable territories, which could be brought to tax under the Income-tax Act and he merely went by his assumption of the assessee project office in Mumbai being the assessee s PE in India; that the actual factual position, on the contrary, was entirely different inasmuch as for other three contracts, the assessee-company had to seek permission from the RBI for opening a project office, the grant of which permission was subject to limitations imposed by the RBI, which included the limitation that the operation of the office in India would be restricted exclusively to execution of the contract as approved by the Government of India and that the office shall not enter into any new contract nor engaged itself in any activity of a trading, commercial or industrial nature other than what might be necessary for the execution of the contract without prior permission of the RBI; that even the Hon ble Supreme Court has confirmed this issue in favour of the assessee in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olly or partly carried out. The factual position that the assessee did not have any such fixed place of business other than its Mumbai office, remains uncontroverted. According to Article 5(2), "permanent establishment" shall include, especially, inter alia, office. The Assessing Officer was of the opinion that the Mumbai office of the assessee was the situs of its operation comprising its permanent establishment in India. For arriving at this conclusion, the Assessing Officer relied on the fact that it was unacceptable that the activities of work performed by the assessee under its three projects were totally inter-connected with this office. It was observed that this office of the assessee comprised its PE in India. It was observed that the assessee was, as of a necessity, bound to supervise and watch the progress of all the activities of its three projects from this PE itself. The Assessing Officer noted that there were numerous instances of correspondence by the assessee with the income-tax authorities in India for obtaining withholding orders under section 195(2) of the Act and the correspondence with ONGC. It was also taken note of that the Mumbai office of the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-10-1996 and was completed on 3-1-1997. The HX-HY Well Platform Project commenced on 12-1-1997 and was completed on 14-5-1997. 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. 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 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there being no PE, since these projects had been completed within a period of less than 9 months. Again, the department preferred not to file any appeal before the Tribunal. Similarly, for assessment year 2001-02, the CIT(A) held that there was no PE for the CRMP and BHN projects of the assessee and so, the balance receipts received during that year were held as not taxable. Once more, the department allowed the matter to rest at that stage, accepting the CIT(A) s order, is not in dispute that the CRMP project of the assessee was also completed within a period of 9 months, in assessment year 2000-01. The receipts of this project were deleted by the CIT(A), which action of the CIT(A) was not appealed against by the department. This also remained the position for assessment year 2001-02. 14. For the above discussion, the Assessing Officer to our minds, merely clutched at straws in observing that this office was the assessee s PE in India. In fact, there was no reason to hold so. 15. In view of the detailed discussion above, we are unable to persuade ourselves to concur with the grievance raised by the department. The order passed by the ld. CIT(A) is well versed inasmuch as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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