TMI Blog2012 (10) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee fabricated the platform in Abu Dhabi and after fabrication the said platform was brought to India with the help of its barges and then the possession is handed over to ONGC. In this regard, it is worth noting that before sailing the platform after fabrication, the same is certified by ONGC through it's approved surveyor. Furthermore, as per the insurance policy though to be taken by the assessee, but ONGC is the joint beneficiary. Further, insurance policy also exhibits that, in case there is a loss suffered in the course of transportation the payee of the insured amount would be ONGC. Thus, under the contract there are different phases of execution of contract. The first phase was completed when it was fabricated, erected and brought to India through its barges, to be physically supplied. Thus, agreeing with the contention of the assessee that income attributed to PE in India could not extend to the activities carried outside India and had to be therefore confined to incomes from activities carried out from the PE.- All the activities prior to installation and commissioning are carried out in UAE and thus having regard to Article 7 of the DTAA, no income can be attributed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 and in the absence of any liability, Sec. 234B and 234C could not be applied. - IT APPEAL NO. 5168 (DELHI) OF 2010 - - - Dated:- 5-10-2012 - A. D. Jain And Shamim Yahya , JJ. ORDER Shamim Yahya, Accountant Member This appeal by the Assessee is directed against the order of the Assessing Officer dated 26.10.2010 pertaining to assessment year 2007-08 passed under section 143(3)/144 of the I.T. Act, 1961. 2. The grounds raised read as under:- 1. That the learned ('Ld') Assessing Officer ('AO') has grossly erred both on facts and in law, in computing the income of the appellant company at ₹ 164,52,67,897/- against the declared income of ₹ 10,77,98,1661/-. 2. That in framing the assessment, the Ld. AO has erred in holding that the appellant had entered into a turnkey project, and as such is to be assessed on the gross turnover and the net taxable income is estimated by him @ 25% of such gross turnover. In doing so, he has failed to appreciate that, the income of the appellant, a Tax Resident of the United Arab Emirate ('UAE'), is to be computed in accordance with the provisions of the Double Taxatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia in the form of project office in India, and it can only have an installation PE as per the specific provisions of Article 5(2)(h) which override the general provisions of Article 5(1) of the treaty, subject to fulfillment of the duration test of 9 months which is not satisfied in appellant's case. 8. That the authorities below erred in holding that the appellant has a dependent agent PE in India in the form of M/s Arcadia Shipping limited ('Arcadia') without appreciating the fact that Arcadia was an independent consultant, and not an agent of the appellant, and also that contract awarded by ONGC was under the International competitive biddings, awarded to lowest bidder which cannot be negotiated, secured, concluded by any person. 9. That in framing the impugned assessment the learned AO has arbitrarily ignored the provisions of Article 7(1), 7(2), 7(3) and 7(6) of the treaty and also the principles laid down in the judgments of the Apex Court in the case CIT v. Hyundai Heavy Industries Co. Ltd. reported in 291 ITR 482 and also in the case of Ishikawajima Harima Heavy Industries v. DIT reported in 288 ITR 408, so as to conclude that any further income, more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997-98 (being the first assessment year), the appellant was being assessed to tax under presumptive regime of taxation i.e. 10% of the net value of receipt for work done in India (after claiming TDS verifiable expense) and 1 % of gross receipt of work done outside India and as such there could be no justification to hold that the appellant is liable to be assessed @ 25% gross receipt in India in the instant year, more particularly when issuing a certificate under section 197 of the Act, it was directed that the income of the appellant be estimated at a rate much lower than 25%. 15. That the Ld. AO has grossly erred in framing the assessment on the basis that the appellant had handed over the platform in India and as such the entire income accrued in India, overlooking the factual substratum and the provisions of the treaty and the provisions of the contract entered by the appellant with ONGC. The Ld. AO has grossly erred in reading the contract as a whole and went wrong in construing a part of the contract and that too wrongly. 16. The Ld. A.O. has further erred in holding that the contract entered into by the appellant was a turnkey project, and as such, the entire incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment made is highly arbitrary and untenable. 22. That further the learned Dispute Resolution Panel CORP') while approving such a rate of profit has further erred in supporting the rate of profit adopted without confronting to the appellant for its rebuttal any material and otherwise too without prejudice, the comparables or the basis stated by DRP in its order of approval which is highly arbitrary and is wholly perverse. The comparables stated by the learned DRP in its 'directions' are entirely and wholly inapplicable and projects the mindset and perverseness of the Ld. DRP. Besides, in fact, no attempt whatsoever had been made to determine profit attributable to the purported PE on the basis of functions, assets and risk analysis and further the data furnished by the appellant in the form of 'PE Attribution Study' before the learned DRP has also been arbitrarily brushed aside and ignored. 23. That the Assessing Officer has erred in holding that the consideration towards design and engineering is covered as 'fee for technical services' without appreciating the fact that the provisions of the treaty treats fee for technical services as busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant either under section 143(1) or 143(3) of the Act. 31. That the Ld. AO has failed to appreciate that, having granted a certificate to ONGC to deduct tax at lower rate, i.e. 0.84% for outside India revenues and 4.39% for inside India revenues, it could not have applied a rate of profit of 25% and levy interest under section 2348 of the Act or any other provision of the Act. 32. That the appellant could not have been fastened with a liability of interest as the deductor had been granted the certificate to deduct at the lower rate of tax i.e. @ 4.39% based upon the 10.50% of the gross revenue for work done inside India and 0.84% based upon the 1 % of the gross revenues for work done outside India and as such the interest levied of ₹ 31,55,74,162 is entirely unwarranted in law. Prayer: It is therefore prayed that: I. The assessment made on the directions by the learned ORP is not in accordance with law but is arbitrary also. II. In the alternative and without prejudice, no income could be said to have been accrued or was taxable in India, in respect of supplies made of platform erected and constructed by the appellant outside India. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the ITAT for earlier years in the case of M/s Hundai Heavy Industries. Assessing Officer further noted that assessee company opened its office in India in 1990's and since then they are regularly undertaking the execution of various projects in India most of which have been related to the projects of ONGC on seas. The office of NPCC is located in India and is approved only as a project office. The assessee has an agent in India by the name of M/s Arcadia Shipping Co. with whom they have a contract since Dec. 26, 1994. As per the assessee M/s Arcadia was an independent agent that does not fit into the parameters of dependent agent PE. Assessing Officer further opined that the decision of Hyndai Heavy Industries Ltd. relied upon by the assessee was not applicable on the facts of the present case. In the background, the Assessing Officer opined that following issues arises for consideration:- (i) Whether the Mumbai office of NPCC constitutes a PE? (ii) Whether Arcadia Shipping Ltd. is a Dependent Agent PE; (iii) Whether the Project P.E. lasted for less than 9 months and not during fabrication and procurement of material? (iv) Whether the fabricat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee is that it was not having any PE in India before the work of fabrication got completed and the fabricated material was imported in India. The installation PE was having the limited task of installation and commissioning of the project. Thus, the assessee's claim was that no part of profits in respect of off shore supplies can be brought to tax in India. Assessing Officer noted that the contention of the assessee was that it has a project office in Mumbai since 1990, but it has been opened at the instructions of ONGC because it was a mandatory requirement for the execution of the contract. Assessing Officer opined that the crucial fact is that the assessee has an office in India which is a project office and therefore, clearly as per the Treaty between India and UAE, the assessee has a P.E. in India. Assessing Officer further observed that it was for the assessee to prove that the activities of the Project Office are ancillary and auxiliary so that the same can be taken in the exception clause of the Treaty. Assessing Officer opined that by no stretch of imagination, a Project Office can be involved in ancillary and auxiliary activity. Assessing Officer further ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company undertook a business operation of carrying out certain work for ONGC on turnkey basis which included pre engineering surveys, designing, fabrication, procurement, installation and commissioning etc. as defined in the scope of work incorporated in the terms of the contract. The project office was involved in installation and commissioning but that was only a part of the business operation. Assessing Officer opined that the other items of work were also executed by the assessee in India through one agency or the other. The pre engineering surveys and designing etc. were also done by the Project office which operated through fixed place of business in India. The surveys and designing were also done by persons located in India. The assessee has undertaken detailed pre-engineering surveys which was the first step after the contract was awarded and the Project Manager had requested for N.E.D. passes for their employees to execute that work. Assessing Officer observed that the monitoring by ONGC was so strong that the assessee company had to submit the periodical progress reports to the ONGC and their officials approved every stage of survey and designing. Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the completion of the work which was also in India. The deployment of men and material was in India. The import was made by the assessee on its own account and the customs duty was also paid by them on their own account. The entire transportation was done at their own risk. Assessing Officer further observed that assessee has not produced any evidence of transfer of ownership to ONGC outside India. From the above Assessing Officer observed that it is evident from the above that the work relating to fabrication and procurement of material was very much a part of the contract for execution of work assigned by ONGC. The work was wholly executed by PE in India and it would be absurd to suggest that PE in India was not associated with the designing or fabrication of materials. In fact designing is completely covered as Fees for Technical Services. But since the assessee has undertaken it through PE and it is part of consolidated contract, no separate treatment is done and the same is taxed as one consolidated contract under the head 'business income'. Assessing Officer further observed that company has undertaken contract in India on turnkey basis and has executed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods passed in India and PE in India utilized the material on its own account and on its own behalf. Thus, the entire profits from the work under the contracts arise in India and are liable to tax as such. Assessing Officer further observed that it will not be out of place to mention that business of the assessee was not covered by the provisions of section 44BB of the Income Tax Act, 1961. Sec. 44BB is applicable where the services are rendered in connection with prospecting for or extraction and exploration of mineral oil. The project is neither for prospecting of mineral oil nor the assessee is rendering any service in the exploration of mineral oil. What the assessee is doing is constructing a platform which may be used by the contractee for exploration of oil but as far as the assessee is concerned they are not rendering service in connection with the exploration of mineral oil. Thus the provisions of section 44BB are clearly inapplicable and the profit is to be computed in accordance with the accounts maintained for India operations and keeping in view the applicable provisions of the Income Tax Act. Thereafter, Assessing Officer concluded as under:- Various notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 5(4) DTAA? (ii) If it is held that, appellant has a PE in India as aforesaid i.e. either under Article 5(2)(c), 5(2)(h) or 5(4) of the DTAA, then what would be the income attributable to PE to the assessed in India (since appellant company is permanently domiciled in UAE and is a tax resident of UAE? In other words, even if appellant is held to have PE in India, how much income could be held to be attributable under the terms of DTAA to be assessed in the hands of the appellant under Article 7(1) and 7(2) of the DTAA? (iii) Whether the tender floated and executed by the assessee company was a turnkey contract despite the fact that it cannot be regarded as a turnkey project and even if it was a turnkey contract, whether the entire income as estimated by the Revenue could be assessed to tax in India and not only as much income as is attributable to its alleged permanent establishment. (iv) Whether without prejudice to the aforesaid, computation of tax by the learned Assessing Officer is correct and, in accordance with law? (v) Whether any interest u/s. 234B of the Act is leviable on the appellant company especially where the revenue had granted lower withholdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 4WPP contract at pages 1063 to 1081. Furthermore, there is a complete bifurcation of the activities to be carried out under the contract with consideration for each specific activity (i.e. designing, procurement, fabrication supply, installation and commissioning) assigned by ONGC which is an independent party (and even a Government of India undertaking). It is thus submitted that, for the purpose of attribution of income, the contract cannot be regarded as a composite contract leading to attribution of entire contract revenues. Not a Turnkey Contract At the outset, it is submitted that the taxability of the contract revenues depends upon the activities carried out in India and not whether the contract is a turnkey or other contract, yet the appellant submits that the relevant contract with ONGC, though fashioned as turnkey but not a turnkey contract in spirit and substance. It is respectfully submitted that on a study of the 4WPP contract, it would be appreciated that ONGC may terminate the contract as per clause 8.2, 7.5.5 and or 7.4, and in the event of termination of the contract under clause 8.3.1, it may be seen that the appellant shall be eligible for the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company i.e. ONGC. Likewise, in case the appellant contractor abandons the contract suo motto or otherwise, it would be liable to refund the amount received by it from the company i.e. ONGC. It is submitted here that there is a difference between a project on turnkey basis. Though in the submission of the appellant, it would have no effect when an income is to be attributed having regard to Article 7(2) of DTAA which reads as under: .... where an enterprise of an contracting state carries on business in other contracting state through a permanent establishment situated therein, there shall in each contracting state be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. The Hon'ble Apex Court in Ishikawajma-Harima Heavy Industries Ltd. v. DIT reported in 288 ITR 408 has also held that: Clause 1 of Article 7, thus, provides that if an income arises in Japan (Contracting State), it shall be taxable i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed through barges, but the same is completed in and is constructively handed over to ONGC in Abu Dhabi and as such the mere physical handing over cannot be stated to be one where an income could be attributed to the PE as alleged i.e. even if there is a PE. The submissions of the appellant therefore is that ONGC became defacto owner since the appellant company erected the platform only to be delivered to ONGC in respect of which it is also entitled to receive separate consideration from ONGC, as is otherwise supported by Annexure C of the contract. It is thus submitted that under the contract, there are different phases of execution of contract. The first phase was completed when it was fabricated, erected and brought to India through its barges to be physically supplied. The same was physically supplied although the same was constructively supplied by it in Abu Dhabi as is evident that the insurance premium was to be borne by ONGC, who was the principal under the terms of the Insurance policy. It is also submitted that, since in the instant case, the contract was not terminated when the fabricated platform was ready to sail to India, same was installed by the appellant in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a permanent establishment by reason of the mere purchase by the permanent establishment of goods or merchandise for the enterprise. 6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. In nutshell the revenue's case is only that contract is completed when installed platform is delivered at site in India; assuming that to be so, it is submitted that all activities prior to installation and commissioning of the platform are carried out in UAE and thus having regard to Article 7 of the DTAA, no income can be attributed to the alleged PE in India. In other words, income attributable to the alleged PE in India could not extend to the activities carried outside India and had to be therefore confined to incomes from activities carried out from the alleged PE. It is reiterated that, even assuming that, the appellant has a PE, the same cannot be in respect of erecting and fabricating the platform in Abu Dhabi but could only be in respect of installation and commissioning activities, which even otherwise ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue that P E was in existence through out these two years, we are of the considered opinion that as per this judgement of Hon'ble Apex Court in the case of the assessee itself for the assessment year 1987-88 and 1988-89, no profit is taxable on account of Korean operation (designing and fabrication) because profits, if any, from the Korean operations arose outside India. In the present two years also, the only dispute is with regard to payments made to non resident company outside India for the work done outside India, as per composite contract for designing, fabrication, installation and commissioning of installation on a turn key basis. As per above discussion, after considering clause (a) of para-15 of the judgement of Hon'ble Apex Court per directions of Hon'ble Uttrakhand High Court, we hold that in the facts and circumstances of the case, profit, if any, from the Korean operations (designing and fabrication) is not taxable in India because the same has been arisen outside India. Regarding clause (b) of para 15 of the judgement of Hon'ble Apex Court, we find that in the previous two years, there is no dispute regarding quantum of profit embedded in the Indian o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract is a pointer to show that the liability of the assessee there under would also be different. The contract indisputably was executed in India. By entering into a contact in India, although parts thereof will have to be carried out outside India would not make the entire income derived by the contractor to be taxable in India (Emphasis supplied) Further the facts of cases before the Apex Court and in the case of the appellant are identical and therefore, the ratio of these judgements squarely applies to appellant's case as well. It is humbly submitted that despite the fact that under the law, the appellant's income cannot be taxed in India in view of the beneficial provisions of the DT AA as it has no PE in India due to aforesaid reasons, the appellant, however, keeping in mind the past trend where presumptive rate of profit was applied and accepted by the appellant and the revenue, the appellant, in the interest of revenue, agreed to be taxed for the relevant assessment year as in the past. It is submitted that the facts and circumstances as prevalent in preceding years have remain unchanged and, therefore applying the rule of consistency, the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... better as it has no PE in India, whereas in the case of Hyundai a PE was established in India. It is respectfully submitted that the Hon'ble Bench would appreciate that the aforesaid Hyundai Heavy case involved similar issues where Hyundai had similar contract with ONGC for fabrication of platform in Korea and installation thereof in India on a turnkey basis. Under such contract, Hyundai was offering inside India revenues under presumptive income regime by reducing TDS verifiable expenses and applying 10% presumptive income rate to the balance inside India receipts. The assessment under section 143(3) was also been completed by accepting this consistent method of attribution and computation. The Director of Income tax, however, invoked power under section 263 by holding that the assessment was erroneous and prejudicial to the interest of revenues because the contract under consideration was a turnkey contract and the presumptive method has no legal basis. The Hon'ble ITAT keeping in view the facts of the case (similar to the appellant) and observing the consistent method of presumptive regime of taxation, held that the power exercised by the DIT under section 263 are b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying of pipelines etc. The assessee has entered into a contract with ONGC dated 28.12.2005. In return of income filed on 31.10.2007, the assessee has declared its income at ₹ 10,77,98,165/-, wherein receipts from contract have been bifurcated into two components, relating to (i) outside India activity and (ii) inside India activity. The assessee has declared income @ 1% of outside India revenue and 10% of inside India revenue after claiming expenses on which TDS has been made. The assessee has claimed that this formula of declaring income was adopted by the AO in A.Y. 1997-98. Subsequent to AY 1999-00, the assessee did not file audited accounts but simply declared the taxable income on the basis of above referred formula. The assessee has given a chart of status of income declared and assessed from A.Y. 1997-98 onward on page 6 of its synopsis. The AO has rejected bifurcation of income into two categories and has worked out taxable income @ 25% of total receipts. My submissions on various issues involved are as under: Rule of consistency: It is seen that the assessee has declared its taxable income with reference to scheme of taxation envisaged u/s 44BB b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-construction, pre-installation and post installation), designs, engineering, procurement, fabrication, anti-corrosion and weight quoting and load out, tie down, sea fastening, tow out, sale out, transportation, installation, sub-marine cabling hook up of sub-marine cable, modification of existing facilities, testing pre-commissioning, commissioning of entire facilities as described in bidding document. (d) 2.2.3 says that prior to taking up fabrication/installation of any major component of work, the contractor shall submit to company his proposed construction sequence and procedures and obtain company's approval in writing. (e) Clause 2.3.4:1 is regarding programme of work and says that within 21 days after the award of work under this contract or prior to kick of meeting whichever is earlier, the contractor shall submit to the company for its approval a detailed programme showing the sequence procedure and method in which he proposes to carry out the works. (f) Clause 2.3.5.1 says that the contractor shall supply to the company an organization chart showing proposed organization to be established by him for execution of the work. (g) Clause 3.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (t) Clause 7.3.1 says that contractor will be responsible and liable to take insurance policies against all the risks. (u) Clause 11.1 says that contractor shall provide detailed planning package, live project data for continuous monitoring by the company. (v) Clause 11.2 is regarding progress reports to be furnished by the contractor for monitoring by the company. From the various clauses of the contract it can be reasonably inferred that the contract is composite turnkey contract wherein ONGC wants a fully installed offshore platform. ONGC does not want the assessee to supply various components and equipments independently. The contract is not for sale of goods. This contract is for a work which is installation of offshore platform. The assessee has argued that fabrication and supply of platform is separate from installation of the platform and hence the contract can be split into two components, i.e., outside India activity comprising designing, engineering fabrication of platform and inside India activity comprising installation of such fabricated platform. The assessee has emphasized that price of each and every component has been mentioned and pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f artistic drafting. Applying the ratio of this decision, it can be reasonably said that the property in platform passed to ONGC only after its successful installation subject to satisfaction of ONGC and provisional payments made under milestone formula are in the nature of advance payments only. Further, Hon'ble Delhi ITAT in the case of Samsung Heavy Industry Co. ltd. v. AOIT has held on similar facts that contract is of composite nature. The terms of contract in Samsung Heavy Industry case and in the present case are essentially similar. The finding of Hon'ble ITAT is given in para 60 to 65 wherein various clauses of the contract have been examined and ultimately in para 65, Hon'ble ITAT has given a finding that contract obtained by assessee from ONGC is a composite contract. Further, AAR in a recent decision, namely, Roxor Maximum Reservoir Performance WLL has, following the ratio given by Hon'ble Apex court in Vodafone case, held that contract has to be read as a whole and purpose for which the contract is entered into by the parties is to ascertain from the term of the contract. A similar look at rather than look through approach has been ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia is not correct. Fixed Place PE: The AO has dealt with this issue in para 20 of his order. Vide letter dated 24.01.2006, the assessee has intimated RBI about the address of their project office and nature of project undertaken. This letter talks about contract agreement dated 29.12.2005 with ONGC for carrying work of service, design, engineering, procurement, fabrication and anti-corrosion, weight quoting, lead out, tied down, toe out, transportation, installation, hook-up installation, sub-marine pipelines, installation of sub-marine cables, modification on existing platform, testing, pre-commissioning, commissioning. The work under the above contract is due to be completed by April 19.02.2007. Further, the said letter gave address of project office as 07.01.2006, 7th Floor, Midas Sahar Plaza, Kondivila, M.V. Road, Andheri East, Mumbai-110059. The assessee has contended that this project office existed since 1990's and it has been opened at the instruction of ONGC only. The above referred letter clearly shows that the assessee company has a project office in Mumbai for the purpose of present contract with ONGC and it is immaterial whether it was a requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustry and ONGC. Hon'ble ITAT in para 7 has held that the nature of activities done through project office are vital and essential for carrying out of a contract and they are not in nature of ancillary and auxiliary activities. Installation PE: The AO has discussed the existence of installation PE in para 24 of his order. The main contention of the assessee is that since the installation activity continued for a period of less than 9 months, therefore, there is no installation PE in India. The assessee has calculated the period starting from date of entry into India of barges. The article 5 of relevant DTAA has been reproduced on para 30 of synopsis of the assessee. Paragraph 2 of article 5 says that PE includes (h) a building site or construction or assembly project or supervisory activities in connection therewith but only where such site project or activity continues for a period of more than nine months. Here, it is pertinent to note that paragraph 2 gives inclusive definition which means that it gives certain examples which could be treated as PE. This paragraph is not 'notwithstanding' paragraph 1 of article 5 which means that the examples quoted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d working for the contract with establishment of project office and pre-engineering/pre-construction surveys, it has been demonstrated supra that the contract is for installation of off-shore platform only and for nothing else. Therefore, it can be concluded that duration of installation PE has to be counted since the establishment of office itself in India which exceeds more than 9 months period prescribed under the article of DTAA. The assessee has argued that provisions of article 5 relating to installation PE overrides the provisions relating to fixed place PE and has relied upon various case laws. In BKI Ham case, Hon'ble Uttrakhand High Court has held that for installation PE, a minimum prescribed period under article has to be satisfied. However, in that case the issue before Hon'ble High Court was an office under article 5(2) v. installation PE under article 5(3). In that case, there was no fixed place PE involved. In any case, Hon'ble court has never said that fixed place PE and installation PE cannot co-exist. In GIL Mauritius case, Hon'ble ITAT has held that for installation PE to exist, duration test has to be satisfied. Even in this case, there did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or production of, mineral oils. The assessee is not in the business of providing services, neither any plant or machinery has been supplied on hire basis. The assessee is under the contract engaged in successful installation of off-shore platform. Even in this case, activity cannot be characterized as facility provided by the assessee. For providing facility, it is pre-requisite that facility should exist, because unless a facility exists, it can not be provided. The assessee is required to install platform as per requirement of ONGC. It is not a case of standard pre-existing platform being provided by the assessee. Therefore, business activity of the assessee does not fall within the purview of section 44BB. Further, the assessee has argued that section 44BB is applicable to inside India activity. Here, it is submitted that section 44BB does not distinguish between inside India activity and outside India activity and it prescribes taxation on gross basis. Section does not provide for any deduction of expenses even if TDS has been made thereon but interestingly the assessee has claimed deduction of such expenses and offered 10% of income on the balance receipt which is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, yet profits have to be attributed to PE which arise out of sale made in India. Hon'ble Supreme Court in case of Anglo French Textile Co. Ltd. that profits have to apportioned where manufacturing and sale take place in different tax jurisdictions. Applicability of Hon'ble C-Bench of ITAT Delhi' decision in case of Hyundai Heavy Industries Co. ltd. ITA. No. 5231/Del/2010: During last hearing, the assessee's counsel has furnished copy of Hon'ble C-Bench of ITAT Delhi' decision in case of Hyundai Heavy Industries Co. Ltd. and contended that ratio of that decision should be applied in present case. In this regard, it is submitted that in case of Hyundai Heavy Industries Ltd., section 44BB was applicable. Even this has been admitted by assessee as per para 23.10 of synopsis wherein relevant para from Supreme Court's order in case of Hyundai heavy Industries Ltd. has been reproduced. Further, in para 33, Hon'ble ITAT has held that contract is divisible in Hyundai case. In present case, it has been demonstrated that contract is single, indivisible and turnkey. When Hyundai case was heard by Hon'ble ITAT C-bench, benefit of Vodafone c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence even prior to the signing of the contract with ONGC and after signing of the contract, the assessee intimated RBI that it has a Project Office for the execution of this contract. Assessing Officer has also referred to his enquiry with ONGC and certain documents were collected from them. Referring to these documents, Assessing Officer observed that it transpired that the assessee's Mumbai office and M/s Arcadia the dependent agent Permanent Establishment has also participated in biding process and was involved in negotiation and finalization of the contract. Further, Assessing Officer observed that these documents are not mere correspondence but these indicate definite involvement of the Mumbai Office and Arcadia Shipping Ltd. in the process of negotiation of the contract. Further, Assessing Officer observed that right from the stage of submission of tender document to the date of kick off meeting when the technical work commences, Mumbai office and Arcadia were actively involved in the process. These can not be held to be a mere preparatory and auxiliary activities as contended by assessee. Marketing is a core business function and it can not be termed as auxiliary a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tallation and commissioning of a fabricated platform in India and if, in respect of a project the period of installation activity exceeds beyond nine months, it would be regarded as an Installation or Construction PE. However, since the activity of the assessee in India in respect of 4WPP project lasted only for four and a half months, it cannot be said to have even an Installation PE in India within the meaning of Article 5(2)(h) of the DTAA. Furthermore, the assessee claimed that assessee cannot be said to have dependent agent PE in the shape of consultant appointed by the assessee in India, M/s Arcadia Shipping Limited. It has been claimed that even if it is assumed that M/s Arcadia is an agent, it is an agent of independent nature, as per Article 5(5) of the DTAA. It has been further submitted that M/s Arcadia is independent from the assessee legally and economically because Arcadia was acting in the normal course of its business and receiving an arm's length remuneration directly from ONGC. Hence, it has been claimed that M/s Arcadia cannot be held to be a dependent agent as per Article 5(4) of the DTAA. In fact, neither it has authority to conclude or negotiate contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its work for this period of time. Thus, from the above, it is clear that the project office in India was assessee's PE. 11.2 The assessee has denied that M/s Arcadia Shipping is an agent of NPCC. It has laid emphasis that Arcadia is a consultant. It has been claimed by the assessee that M/s Arcadia Shipping was involved in gathering the information and assisting the assessee in representations, obtaining works, promotion support and services and facilities. In this regard we find considerable cogency in the Assessing Officer's finding that M/s Arcadia is also a PE of assessee as it was actively involved in the project since pre-bidding meetings, hard core marketing and business development and till finalization of the contract. Assessing Officer as well as DRP have given a finding that letters and correspondence indicate M/s Arcadia is an agent. It is further noted from the documents obtained by the Assessing Officer that in the application to the ministry of Home Affairs the address of employees of NPCC was given as ARCADIA Shipping. From the perusal of the documents related to pre-bid meeting gathered by the AO from ONCG, it is noted that the employees of ARCADIA w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract executed by outside India. It has further been submitted that assessee has constructively delivered the platforms outside India and physically delivered the same in India through its own barges by its employees. Assessee has further contended that even if the assessee carried out installation activities in India, yet to hold an installation PE, the condition that the installation period exceeded 9 months need to be satisfied. It has been submitted that the Assessing Officer overlooked the fact that installation activity could only have begun when the erected platform was physically delivered in India and the same was commissioned. Thus, the period to determine whether it was beyond 9 months, would be form the date of physical receipt of platform in India till the same is commissioned and thus the authorities had grossly erred when it had been observed by them that the contract was entered in November, 2005 and completed in April, 2007 and further, the project site was as its disposal from the very beginning since the contract was awarded and the assessee undertook the survey activity. The assessee has claimed that activities of the assessee in India in respect of the proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the existence of PE in India. The terms of contract with ONGC do not stipulate any sale of material to them. The preamble to the agreement as also the scope of work stipulate manufacturing of platforms on a turnkey basis. There may be various stages in executing the work like survey, designing, fabrication procurement, and installation and commissioning but these are mere stages of the total project. Assessing Officer opined that the ONGC does not purchase any material from the assessee. ONGC takes over the completed platform when all parts of the work are executed. In this regard, Assessing Officer referred to the clarification given by the ONGC. Referring to the same, the Assessing Officer observed that the documents bring out in unequivocal terms that the ownership of the fabricated material remains with the assessee contractor till the completed project is handed over to the ONGC. Assessing Officer noted that the assessee has been mainly relying upon the schedule of milestone payments stipulated in the agreement where value of each item of work is indicated, the currency in which the payment is to be made is also indicated and the rate of payment is equally stipulated. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clauses of the contract. Referring to these clauses, the Ld. Departmental Representative submitted that it can be reasonably inferred that the contract is composite turnkey contract wherein ONGC wants a fully installed offshore platform. ONGC does not want the assessee to supply various components and equipments independently. Further, the Ld. Departmental Representative referred to the decision of the ITAT in the case of Samsung Heavy Industry Co. Ltd. v. ADIT. He claimed that similar contract was entered into in this case and the ITAT has held that contract obtained by the assessee from ONGC is a composite contract right from the surveys of pre-engineering, preconstruction, pre-installation, designs, engineering, procurement etc. Further Ld. Departmental Representative submitted that from the ratio emanating from the Hon'ble Apex Court decision in the case of Vodafone, contract has to be read as a whole and purpose for which the contract is entered into by the parties is to be ascertained from the term of the contract. 15. The assessee in this regard has submitted that the subject contract may be construed as an umbrella contract, yet it is a divisible contract, since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from ONGC in respect of the work already executed by it. In fact, had it been a case of turnkey project, the assessee contractor would be entitled to the entire value of contract, whether executed or remains to be executed, if there was any termination on the volition of the company i.e. ONGC. Likewise, in case the assessee contractor abandons the contract suo motto or otherwise, it would be liable to refund the amount received by it from the company. Further, in this regard assessee has referred the Hon'ble Apex Court decision in the case of Ishikawajma-Harima Heavy Industries Ltd. v. DIT reported in 288 ITR 408. Assessee has further submitted that assessee fabricated the platform in Abu Dhabi and after fabrication, said platform is brought to India with the help of its barges and then the possession is handed over to ONGC. In this regard, it has been submitted that it is significant to note that before sailing the platform after fabrication, the same is certified by ONGC through it's approved surveyor. Furthermore, as per the insurance policy though to be taken by the assessee but ONGC is the joint beneficiary in the policy. Furthermore, insurance policy also exhibits tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the enterprise of which it is a permanent establishment. 16. In this regard, assessee has placed strong reliance on the decisions of the Hyundai Heavy Industries Company Limited reported in 291 ITR 482 (SC) (supra). Furthermore, it has been submitted that the proposition laid down in the aforesaid case has been followed by the Mumbai, Tribunal in Roxonoy v. DCIT (103 TTJ 891 (Mum). It has further been submitted that the Hon'ble Apex Court had also affirmed the above proposition in the case of Ishikawajma-Harima Heavy Industries Ltd. v. DIT reported in 288 ITR 408. Assessee has further submitted that though the assessee's income cannot be taxed in India in view of the beneficial provisions of the DTAA as it has no PE in India due to aforesaid reasons, the assessee, however, keeping in mind the past trend where presumptive rate of profit was applied and accepted by the appellant and the revenue, the assessee, in the interest of revenue, agreed to be taxed for the relevant assessment year as in the past. It has further been submitted that the facts and circumstances as prevalent in preceding years have remain unchanged and, therefore applying the rule of consistency, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioning. The contract provides separate payments to the assessee on the basis of work of design, engineering, procurement and fabrication. All these operations have been carried out and completed outside India. Every progress under the contract is inspected and finally accepted by ONGC or its authorized agents outside India, and only then, the assessee received the payments as per specified milestones from ONGC outside India. 17.2 Furthermore, we agree that the bifurcation of revenues as inside India revenues and outside India revenues is also evident from the following:- (i) Consideration for various activities has been mentioned separately in the 4WPP contract as inside India and outside India as is evident from the Annexure-C (Contract price scheduled and rental rates schedule) of the contract. (ii) The scope of work as mentioned in the contract has been clearly bifurcated into the activity carried out in Abu Dhabi and India. (iii) The invoices issued by the appellant to ONGC specifically mention the consideration for outside India activity and inside India activity in accordance with the pricing schedule. Such invoices have been duly accepted/confirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India and had to be therefore confined to incomes from activities carried out from the PE. Thus we opine that assessee did not have a PE in respect of erection and fabricating the platform in Abu Dhabi. The assessee had a PE in respect of installation and commissioning. In this context, the Apex Court decision in the case of Hyundai Heavy Industries Co. Ltd. 291 ITR 482 (SC) is relevant. The same is reproduced hereunder:- The installation permanent establishment came into existence only on conclusion of the transaction giving rise to the supplies of the fabricated platforms. The installation permanent establishment emerged only after the contract with the ONGC stood concluded. It emerged only after the fabricated platform was delivered in Korea to the agents of the ONGC. Therefore, the profits on such supplies of fabricated platforms cannot be said to be attributable to the permanent establishment. In cases such as this, where different severable parts of the composite contract is performed in different places, the principle of apportionment can be applied, to determine which jurisdiction can tax that particular transaction. This principle helps determine, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on resident company outside India for the work done outside India, as per composite contract for designing, fabrication, installation and commissioning of installation on a turn key basis. As per above discussion, after considering clause (a) of para-15 of the judgement of Hon'ble Apex Court per directions of Hon'ble Uttrakhand High Court, we hold that in the facts and circumstances of the case, profit, if any, from the Korean operations (designing and fabrication) is not taxable in India because the same has been arisen outside India. Regarding clause (b) of para 15 of the judgement of Hon'ble Apex Court, we find that in the previous two years, there is no dispute regarding quantum of profit embedded in the Indian operation attributable to Indian PE of the assessee and hence this clause of para 15 is not applicable in the present two years which are before us. We, therefore find no reason to interfere in the order of Ld CIT(A) in both these years. The aforesaid proposition has also been followed by the Mumbai Tribunal Roxon OY v. DCIT (103 TTJ 891 (Mum). As far as art. 7(1)(a) is concerned, the profits attributable to the supplies under the turnkey contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. We hold that erection and fabrication cannot said to be attributable to PE in India. All the activities prior to installation and commissioning are carried out in UAE and thus having regard to Article 7 of the DTAA, no income can be attributed to the PE in India. Thus, in the background of the aforesaid discussions, we hold that the profits can be attributed to the PE in India only in respect of installation and commissioning activities. The profits attributable to the supplies i.e. erection and fabrication of the platforms cannot be brought to tax in India. 17.6 We find that assessee has contended that taxability of the assessee should be the same as in preceding years. Earlier assessee has declared income @1% of outside India revenue 10% of inside India revenue after claiming expenses on which TDS has been made. Assessee has claimed that this formula of declaring income was adopted by the Assessing Officer in A.Y. 1997-98. Subsequent to A.Y. 1999-2000, the assessee did not file audited accounts but simply declared the taxable income on the basis of above referred formula. 17.7 It has been submitted that the facts and circumstances, as prevalent in the preceding ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allation of off-shore platform. This activity cannot be characterized as facility provided by the assessee. Thus, we hold that business activity of the assessee does not fall within the meaning of section 44BB. 20. Interest u/s. 234B, 234C 234D. 21. Assessee has pleaded that no interest under the provision of section 234B of the Act is leviable. On this issue DRP has held the Hon'ble Apex Court has held that levy of interest u/s. 234B of the Act was mandatory in the case of C.I.T. v. Anjuman G. Ghaswala 252 ITR 1. In this regard assessee has submitted that NPCC is a non-resident foreign company and accordingly, its entire income is liable for tax deduction under section 195 of the Act. Thus, ONGC, payer/deductor, had made payments to NPCC after deducting taxes in pursuyance of withholding tax certificate issued by the income tax authorities. In this background, it has been submitted that NPCC was not liable to pay advance tax and could not have committed any default in paying advance tax. Hence, it has been argued that NPCC cannot be made liable to pay tax u/s. 234B of the Act. In this regard, assessee has also placed reliance upon the several case laws: - D.I. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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