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2015 (7) TMI 113 - ITAT MUMBAI

2015 (7) TMI 113 - ITAT MUMBAI - [2015] 42 ITR (Trib) 11 (ITAT [Mum]) - Service PE in India - India Singapore DTAA - whether in the case of the assessee, the Service PE can be said to be established/constituted within the scope of Article 5(3) or Article 5(6)? - Held that:- The threshold period under this para is 90 days and more; or if such activities are performed for a related enterprise, then period of more than 30 days. The Article 5(6) explicitly provides that it applies to “services” othe .....

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e read into para 6 of Article 5. There cannot be a overlapping of activities carried out within the ambit of Article 5(3) and furnishing of services as stated in Article 5(6). Both should be read independent of each other, or else there was no requirement of enshrining separate provisions. If the activities relating to construction or installation are specifically covered under Article 5(3), then one need not to go in Article 5(6). Thus, the activity of the assessee which is purely installation .....

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s that, the assessee constitute a service PE within Article 5(6) which prescribed for 90 days and 30 days. Thus, so far as contract with Allseas, the same do not constitute a service PE as period of stay in India is less than 183 days. So far as contract with Swiber GB Gaslift Project also, the number of days as per the finding of DRP itself is much less than 183 days and therefore, this project also do not constitute Service PE in India.

Contract with Swiber BG Hydra Project - Held t .....

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or the installation purpose had yet started. The date of signing of contract merely signifies that the parties have agreed to terms and conditions for carrying out the work. The actual date should be reckoned from the preparatory activities letting to the performance of the contract of the core business activity i.e. the installation activity in the present case. In support of this proposition, the reliance placed by the learned senior counsel in the case of Cal Dive Marine Construction (2009 (6 .....

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ia.

The installation activity carried out by the assessee in terms of various contracts in India separately do not constitute PE in India under Article 5(3) as the threshold time limit of 183 days for each project is much less. Accordingly, the revenue from assessee’s contract for installation activity in India is not taxable in India, either under Article 7 or under the Act, as the assessee does not have PE in India.

Levy of interest u/s 234B - Held that:- This ground as a .....

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has been filed by the Assessee, against final assessment order dated 22.01.2014, passed by DDIT [International Taxation] 3(1) Mumbai, in pursuance of direction given by the Dispute Resolution Panel [DRP] u/s 144C(5) for the quantum of assessment passed u/s 143(3) r.w.s. 144C (13) for the A.Y. 2010-11. The assessee is mainly aggrieved by assessment of total income at ₹ 9,63,55,119/- on the ground that the assessee has Service Permanent Establishment ( PE ) in India. The effective ground in .....

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sessee did not have PE in India under Article 5(3) as duration of each of its project in India was less than the threshold of 183 days, during the relevant fiscal year. 2. Briefly stated, the facts of the case qua the issue raised are that, assessee is a company incorporated in and is a tax resident of Singapore. It is mainly engaged in the business of integrated subsea installation service providing company. It has also filed tax residency certificate before the AO to claim benefit under the In .....

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der:- Entity Project duration For the year ending 2010 Revenues for the year (USD) Swiber-BG Hydra Project 56 days (1 April 2009 to 26 May 2009) 3,945,331 Swiber-BG Gas Lift Project 109 days (27 October 2009 to 12 February 2010) 8,230,587 Allseas 102 days (1 April to 11 July 2009) 11,603,766 Total 23,779,684 The project completion certificate was also submitted by the assessee before the AO. The case of assessee before the Assessing Officer was that, the total duration of the assessee s contract .....

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In the draft assessment order, the Assessing Officer observed that in so far as the contract with M/s. Swiber BG Hydra Project, the contract was signed on 01.08.2009 and was completed on 12.02.2010 and therefore, the duration of the said project was more than 183 days. The reason given by him was that, the contracts are proceeded by certain activities like estimation of work, reconnaissance of place feasibility study etc., which requires personnel from assessee to physically come down to the pl .....

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emed as not to let the PE trigger, even though the natural course of such prolonged and specialized activity, PE gets established. Accordingly, he held that assessee had PE in India during the year Under Article 5(3) and accordingly the 10% of the gross Revenue of ₹ 128,92,53,378/- should be taxed. Against the said draft assessment order, the assessee filed objections before the DRP. 4. The DRP, examined the project wise details and the days of presence of the assessee in India and noted t .....

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e stay of employees of the personnel of the assessee is more than 90 days the same would constitute a Service PE in India and thus the income of the assessee would become taxable in India. The DRP examined all the 3 contracts vis-à-vis the provision of Article 5(6) and came to the conclusion that all the projects constitute a Service PE in India. One of the other argument of the assessee before the DRP was that, these projects are geographically not coherent therefore; these projects shou .....

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Service PE within the scope of Article 5(6). 5. Before us, learned senior counsel, Shri Percy Pardiwala after explaining the entire facts submitted that, assessee was purely into installation and construction activity, the details of which was given to the AO vide letter dated 25.03.2013. Assessee s activities clearly falls within Article 5(3) which provides that construction, installation or assembly project can constitute PE, only if it continues for a period of more than 183 days in any fisc .....

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y into installation and construction for which specific provision has been separately enshrined in the treaty i.e. Article 5(3). Article 5(6) has no application in the present case. Further separate days have to be calculated for the separate projects, firstly, there is no geographic coherence between the projects and secondly, in the case of the Service PE in connection with construction, installation or assembly, project wise activities has to be seen on standalone basis. Therefore, for the pu .....

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e installation activity had commenced. At the time of signing of the contract, the parties have only agreed to carry out the work. The date from when actual work has commenced, is the date which should be considered for counting the days. In support of this contention, he relied upon following decisions:- i) Sumitomo Corporation Vs DCIT reported in (2008) 114 ITD 61 and ADIT Vs. Valentine Maritime (Mauritius) Ltd. Reported in (2011) 45 SOT 34 ii) Cal Dive Marine Construction (Mauritius) Ltd. (20 .....

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then it clearly falls Under Article 5(6) in the case of the assessee. 7. We have heard the rival submissions, perused the relevant finding given in the impugned order and the material placed on record. The assessee is into the business of integrated Subsea installation services. It has undertaken 3 projects for installation and construction activity with Allseas Marine Contractors and Swiber Offshore Construction Pte. Ltd. for BH Hydra Project and BJ Gaslift Project. As per the terms of the cont .....

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tallation of subsea spool tie-in, concrete mattress and any subsea related activities v) Carrying out associated free span and pipeline crossing installations and riser remedial etc. b) Contract with Swiber-BG Hydra A- Scope of works for installation services from Swiber Supporter Execution of construction and installation of riser clamps, risers and spools from barge Swiber Supporter (work vessel), free issued by Swiber. Subsea installation Scope of work shall include: i) Installation of Risers .....

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e connector between piggy back pipe and chemical injection line inside of I-tube. B-Scope of works for installation services from HD-2500 Execution of construction and installation for subsea installation of SWP and PK Jackets (structures) shall be undertaken by Kreuz from barge HD-2500 (work vessel), chartered by Swiber. Subsea Installation Scope of Work shall include. i) Sea bed Surveys and installation of transponders on sea bed ii) Jacket mud mat survey with respect to sea bed post installat .....

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and risers for the Panna Gas Lift Project. Execution of construction and installation of riser clamps, risers and spools shall be undertaken by Subcontractor from barge Swiber Supporter (work vessel), free issued by Contractor. Subsea Installation Scope of work shall include: i) Installation of Risers ii) Installation of Grout Bag or Mattress Crossings iii) Installation of Riser Clamps iv) Installation of spool spice connectors From perusal of the aforesaid activities, it is apparent that essen .....

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be reckoned from the date of the signing of the contract. 8. The first and foremost controversy which needs to be adjudicated here is, whether in the case of the assessee, the Service PE can be said to be established/constituted within the scope of Article 5(3) or Article 5(6). The AO in the draft assessment order had held that Article 5(3) is applicable and since the number of days of the employees working in India has exceeded 183 days, therefore, it constitutes Service PE in India. However, n .....

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e and to carry on business through that permanent establishment if it carries on supervisory activities in that Contracting State for a period of more than 183 days in any fiscal year in connection with a building site or construction, installation or assembly project which is being undertaken in that Contracting State. 5. Notwithstanding the provisions of paragraphs 3 and 4, and enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through .....

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tracting State through employees or other personnel, but only if: (a) activities of that nature continue within that Contracting State for a period or periods aggregating more than 90 days in any fiscal year; or (b) activities are performed for a related enterprise (within the meaning of Article 9 of this Agreement) for a period or periods aggregating more than 30 days in any fiscal year. Article 5(3) is a specific provision dealing with Service PE , on account of construction, installation or a .....

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es referred to in para 4 and 5. The threshold period under this para is 90 days and more; or if such activities are performed for a related enterprise, then period of more than 30 days. The Article 5(6) explicitly provides that it applies to services other than those covered by Article 5(4) and 5(5), however, the said article is silent as regards its relationship with Article 5(3). Thus, Article 5(6) cover various services which are not covered by para 4 and 5 of Article 5 and technical services .....

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equirement of enshrining separate provisions. If the activities relating to construction or installation are specifically covered under Article 5(3), then one need not to go in Article 5(6). Thus, the activity of the assessee which is purely installation services has to be scrutinized under Article 5(3) only and not within Article 5(6). 9. Now we have to see, whether the threshold the period of more than 183 days in the fiscal year has crossed or not in this case. So far as project relating to c .....

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tract with Allseas, the same do not constitute a service PE as period of stay in India is less than 183 days. So far as contract with Swiber GB Gaslift Project also, the number of days as per the finding of DRP itself is much less than 183 days and therefore, this project also do not constitute Service PE in India. 10. Now coming to the contract with Swiber BG Hydra Project, though the finding of the DRP in page 6 and 7 is that it is less than 183 days, but the AO in the final assessment order h .....

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ave agreed to terms and conditions for carrying out the work. The actual date should be reckoned from the preparatory activities letting to the performance of the contract of the core business activity i.e. the installation activity in the present case. In support of this proposition, the reliance placed by the learned senior counsel in the case of Cal Dive Marine Construction (supra) is clearly applicable wherein, the Authority had held that date of signing of contract cannot be treated as the .....

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ly and in such a case, the aggregate working days of all the projects has far exceeded the threshold time period of 183 days. Before us, Mr. Pardiwala in support of this proposition, had relied upon the decision of Sumitomo Corporation Vs. DCIT (supra) and ADIT Vs. Valentine Maritime(supra). From the ratio of the above decisions, it emerges that the test of 183 days, that is, threshold time limit applies to each site or the project independently except where such sites or project is for a cohere .....

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ity performed in that State, i.e. for each individual place of business, existing there as well. In this connection, the place where the individual activity is performed may very well be relocated, for instance, where a road is being constructed in stages. If, in contrast, all building sites maintained in one State were treated as one single PE, this would in effect be tantamount to applying the force of attraction principle. Moreover, this would violate the principle that various business activ .....

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