TMI Blog2010 (9) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... cided in the favour of the assessee - ITA NOS. 605 & 606/HYD/2010 - - - Dated:- 17-9-2010 - ORDER N.R.S. Ganesan, J.M. Both the appeals of the Revenue are directed against the common order passed by the CIT(A)-VI, Hyderabad, dt. 29th Jan., 2010 for the asst. yrs. 2006-07 and 2007-08. Since common issue arises for consideration in both the appeals, the same is disposed of by this common order. 2. Shri K.E. Sunil Babu, the learned Departmental Representative submitted that the assessees company is engaged in the business of marine dredging and port construction. There was a survey in the premises of the assessee on 8th Feb., 2008. During the course of survey operation, it was found that the assessee made certain payments to M/s Macon Asia B.V. Netherlands, a foreign company without deducting tax at source under s. 195 of the IT Act, 1961. The learned Departmental Representative further pointed out that the assessee company was awarded a contract for dredging and removal of rock strata at outer Harbour Turning Circle in front of LFG Jetty, Inner Harbour Channel and Turning Circle at Visakhapatnam Port Trust. In order to undertake the dredging work given by the Visakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression, that tax need not be deducted at source, they cannot now claim that they are not liable to deduct tax at source. 5. The learned Departmental Representative further referred to the order of the CIT(A) more particularly at para 14 of the CIT(A) s order and submitted that the CIT(A) agreed with the AO that the payments made by the assessee constitutes a business income in the hands of the Netherlands company. Once it is a business income, according to the Departmental Representative, the payment received by the foreign company is liable to be taxed in India, therefore the assessee has to necessarily deduct tax under s. 195 of the Act. 6. The learned Departmental Representative again submitted that the dredger Ave Caesar originally belongs to Macon Asia BV, Netherlands. Subsequently, the dipper dredger Ave Caesar was transferred to M/s Shipyard de Donge, a Netherlands company. Even after transfer of the ownership to M/s Shipyard de Donge, the very same dredger Ave Caesar continued to remain in India for the purpose of doing dredging work to the assessee. Therefore, the CIT(A) is not correct in bifurcating the period of the ownership of the dredger Ave Caesar in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee before the customs authorities for clearance of the dredger. 8. The learned counsel further pointed out that after taking the dredger from M/s Macon Asia BV, Netherlands, the assessee used the dipper dredger for carrying out the contract work at the Inner Harbour Channel and Turning Circle at Visakhapatnam Port Trust on 7th April, 2006. No doubt, the dredger was hired by the assessee with two operators and charter co-ordinator. According to the learned counsel, merely because the dipper dredger was hired along with the coordinator and two operators, it does not mean that M/s Macon Asia BV, Netherlands did the contract work. According to the learned counsel, the contract work at Inner Harbour Channel at Visakhapatnam Port Trust was executed by the assessee by utilizing the dipper dredger Ave Caesar hired by the assessee from M/s Macon Asia BV, Netherlands. According to the learned counsel, what was paid by the assessee to M/s Macon Asia BV is only hire charges of dipper dredger and nothing more than that. The learned counsel further submitted that the ownership of the dipper dredger Ave Caesar was transferred to Shipyard de Donge, Netherlands from 25th Sept., 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of payment made to Netherlands company. 11. The learned counsel placed reliance on the decision of the Chennai Bench of this Tribunal in the case of Asstt. CIT v. Van Oord ACZ Equipment BV in ITA No. 1894/Mad/2005, dt. 29th March, 2007 and submitted that on identical circumstances this Tribunal found that after referring to the DTAA between the Government of India and the Netherlands that there is no PE in India therefore, tax need not be deducted. A similar view was also taken by the Mumbai Bench of this Tribunal in Dy. Director of IT v. Netherlandssche Overzee Baggermaetsahoppij BV in ITA No. 8352/Mum/2004 and submitted that mere dry lease of an equipment does not result in a PE. 12. The learned counsel again placed reliance on the decision of the Chennai Bench in ITO v. Prasad Production Ltd. (2010) 129 TTJ (Chennai)(SB) 641 : (2010) 37 DTR (Chennai) (SB)(Trib) 418 and submitted that the Special Bench held that when the payment made to foreign company is not liable to be taxed in India, tax need not be deducted. The learned counsel is fair enough in bringing to the notice of the Bench about the judgment of the Karnataka High Court in the case of CIT v. Samsung El ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee at Singapore. After execution of the work, the assessee has to redeliver the hired equipment Ave Caesar either at Singapore/Colombo at the owners option. In other words, at the option of the Netherlands company, the assessee has to deliver the dipper dredger Ave Caesar either at Singapore or Colombo. In pursuance of this agreement the assessee took delivery of the dipper dredger Ave Caesar at Singapore and it was brought into India which is evident by the bill of entry filed by the assessee before the customs authority for clearance of the dipper dredger Ave Caesar . The copy of the bill of entry is available at p. 9 of the paper book. In view of the above materials available on record it is obvious that the assessee took the dipper dredger Ave Caesar on hire and taken delivery from the Netherlands company at Singapore and brought the same into India. 16. On further reading of the agreement it is obvious that the hire charges will be E 34,500.00 per week for double shift and for single shift E 29.950.00 per week. The agreement further provides that the cost of insurance shall be paid by the assessee for insuring the hired equipment namely dipper dredg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s working for a longer period in the territory of India. In our opinion, equipment hired by Indian national from foreign company cannot be construed as PE since the equipment is only used for the purpose of execution of the work. The contention of the learned Departmental Representative is that the dredger was hired along with co-ordinator, operator, and crew. Therefore, the Netherlands company has a PE in India. Hiring a dipper dredger for dredging in the territory of India on the direction, control and supervision of the Indian company cannot be construed as a PE of a foreign company. For the purpose of PE of a foreign company, the foreign company should have a permanent place in order to control its business activity. Merely because the dipper dredger was equipped with place for residence of its crew and operator and installed with the latest communication facilities, it does not mean that it is a PE. When the dipper dredger is designed to work in the sea it has to necessarily provide a place of residence for crew members and it should have a communication facility. Otherwise the dipper dredger cannot be used effectively. In our opinion, the provision for residence and latest co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Netherlands found that mere dry lease of equipment does not result in a PE. 19. We have also carefully gone through the provisions of DTAA between the Government of India and Netherlands. Article 5 of the DTAA defines PE. For the purpose of convenience, we reproduce the same which reads as follows : Article 5 Permanent Establishment 1. For the purpose of this convention, the term PE means a fixed place of business through which the business of the enterprise is wholly or partly carried on. 2. The term PE includes especially (a) a place of management (b) a branch (c) an office (d) a factory (e) a workshop (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources (g) a warehouse in relation to a person providing storage facilities 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. Notw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of this para if it is shown that the transactions between the agent and the enterprise were not made under arm s length conditions. 7. The fact that a company which is a resident of one of the States controls or is controlled by a company which is a resident of the other State, or which carries on business in that other State (whether through a PE or otherwise), shall not of itself constitutes either company a PE of the other. 20. The AO appears to have been influenced that the installation or structure used for exploration of the natural resources continuously for more than 183 days would constitute PE. An installation or structure may be construed as PE provided the foreign company installed its equipment or structure for the purpose of carrying out the contract work in India. In the case before us, the dipper dredger was used by the assessee and not by the Netherlands company. Therefore, we cannot say that the Netherlands company installed any machinery or structure to be used for exploration of natural resources. As observed earlier, in this case, the structure namely dipper dredger was used by the assessee for the purpose of dredging the Inner Harbour Channel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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