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TMI Blog2010 (9) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... , Inner Harbour Channel and Turning Circle at Visakhapatnam Port Trust. In order to undertake the dredging work given by the Visakhapatnam Port Trust, the assessee engaged the services of M/s Macon Asia BV/Shipyard de Donge, Netherlands. As per the agreement entered into between the assessee and the Netherlands company on 31st Aug., 2005, the dipper dredger "Ave Caesar" was supplied to the assessee with two charter co-ordinator and two operators for its dredging work at Visakhapatnam Port Trust. According to the learned Departmental Representative, the Netherlands company deployed its personnel to work as charter co-ordinator and operators on board during dredging activity at Visakhapatnam Port Trust. To this activity, the assessee has paid payments to M/s Macon Asia BV a Netherlands company without deducting tax as required under s. 195 of the IT Act. Therefore, according to the learned representative, the AO passed an order under s. 201 of the Act levying tax and interest. 3. The learned Departmental Representative further pointed out that the assessee has no role to play in the dredging activity. M/s Macon Asia BV/Shipyard de Donge, the Netherlands company has to do all activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. Therefore, the CIT(A) is not correct in bifurcating the period of the ownership of the dredger "Ave Caesar" in order to decide the permanent residential status of the foreign company in India. According to the Departmental Representative 'Ave Caesar' continued to remain in India along with its co-ordinator and crew therefore the period from the entry of the 'Ave Caesar' in the territorial waters of India has to be taken into account for the purpose of considering the PE of the foreign company in India. The Departmental Representative further submitted that the dredger 'Ave Caesar' continued to do dredging activity in India for more than six months continuously therefore, the CIT(A) is not correct in concluding that the dredger does not remain in India for more than the required period. The learned Departmental Representative further pointed out that the AO after considering the agreement entered into between the assessee and the Netherlands company, found that the dredger 'Ave Caesar' would constitute a PE and permanent base of business for the Netherlands company in India. Therefore the assessee has to deduct tax while making payment as required under s. 195 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the ownership of the dipper dredger "Ave Caesar" was transferred to Shipyard de Donge, Netherlands from 25th Sept., 2006. Therefore, the assessee hired the very same dipper dredger 'Ave Caesar' again from M/s Shipyard de Donge on 26th Oct., 2006 for the subsequent period from 26th Oct., 2006. The assessee paid the hire charges to M/s Shipyard de Donge, Netherlands. The learned counsel again referred to the agreement entered into between the assessee and M/s Macon Asia BV, a copy of which is available at pp. 1-8 of the paper book and submitted that it is only a hire of dredging equipment and the contract work was not given to M/s Macon Asia BV or any other foreign company. Referring to art. 2(3) of the agreement, the learned counsel submitted that after dredging work is completed, the dipper dredger 'Ave Caesar' has to be delivered at Singapore to the owner. 9. Therefore, according to the learned counsel, the assessee took the dipper dredger "Ave Caesar" only on hire and the assessee has paid only the Netherlands company's hire charges. Therefore, it is not correct to say that the payment made to the Netherlands company is not business income in the hands of Netherlands compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh in bringing to the notice of the Bench about the judgment of the Karnataka High Court in the case of CIT v. Samsung Electronics Co. Ltd. & Ors. (2009) 227 CTR (Kar.) 335 : (2009) 31 DTR (Kar.) 257 : (2010) 320 ITR 209 (Kar.) and submitted that the Delhi High Court on identical circumstances in the case of Van Oord ACZ India (P) Ltd. v. CIT (2010) 230 CTR (Del) 365 : (2010) 36 DTR (Del) 425 : (2010) 323 ITR 130 (Del) has decided the issue in favour of the assessee. Therefore, there is a conflicting judicial opinion between the Karnataka High Court and Delhi High Court. When two conflicting opinions of different High Courts are in existence and no judgment of the jurisdictional High Court is available on the subject, the decision which favours the assessee has to be taken in view of the judgment of the apex Court in CIT v. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC). 13. Alternatively, the learned counsel submitted that the AO has taken 10 per cent of the gross amount paid/credited without considering the depreciation. According to the learned counsel, the profit estimated by the AO is highly excessive. 14. We have considered the rival submissions on eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides that the cost of insurance shall be paid by the assessee for insuring the hired equipment namely dipper dredger 'Ave Caesar'. The owner of the dipper dredger shall also provide operators, co-ordinators. However, the cost of providing such operator and co-ordinator including salary, food, residence etc. shall be borne by the assessee. The agreement further clearly says that the crew will work under the management of the hirer as per the direction and instructions and responsibility of the hirer. Article 10B of the agreement between the assessee and the Netherlands company clearly shows that the work has to be executed by the assessee under its responsibility and the assessee has to pay hire charges for the dipper dredger on the basis of its utility for single shift or double shift besides the payment for co-ordinator, operator and the crew. The operator, co-ordinator and crew shall work under the direction and control of the assessee. Therefore, it is clear that dredging at Inner Harbour Channel at Visakhapatnam Port Trust was executed by the assessee by hiring the dipper dredger which belongs to Netherlands company. No part of the work was given to Netherlands company for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Otherwise the dipper dredger cannot be used effectively. In our opinion, the provision for residence and latest communication facility are for the purpose of effective usage of the dipper dredger. By any stretch of imagination, it cannot be construed as PE. 18. Let us examine a hypothetical situation of hiring a vehicle for transport of goods by an Indian company. Let us assume that the Indian company was awarded a contract for transporting material from one place to another. The company which was awarded contract for transport of material hired transport lorries from transport owners along with drivers and labourers and paid hire charges. In such a situation can we say that the transport owner from whom the lorry was hired, was executing the contract works ? The answer would be in negative. The transport owner is just handing over the transport lorry for hire charges and he is not responsible for transport of the material. Responsibility of the company is to transport the material either by utilizing the lorry hired from the transport owner or through some other means. As far as the transport owner is concerned, he is entitled for lorry charges. Similarly, in this case also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 PE 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 processing by another enterprise; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise; (e) the maintenance of fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research, or for other activities which had preparatory or auxiliary character, for the enterprise; (f) the maintenance of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 and not by the Netherlands company. The activity of the Netherlands company is only to lease out the dipper dredger in pursuance to an agreement. As soon as the dipper 'Ave Caesar' was handed over to the assessee at Singapore, the activity of the company came to an end except to receive the hire charges and receive back the dipper dredger after the lease period is over. The entire exploration of the natural resources namely dredging of the Inner Harbour Channel at Visakhapatnam Port Trust is the responsibility of the assessee and not of the Netherlands company. Therefore, merely because the equipment hired by the assessee from the Netherlands company was used for dredging at Visakhapatnam Port Trust it does not mean that the dipper dredger would constitute a PE. In view of the above discussion, in our opinion, the Netherlands company has no PE in India. Therefore, the payment made to Netherlands company is not subjected to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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