TMI Blog1997 (9) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... y drilling works of all sorts as well as the laying of pipes, cables, and underground pipelines, making available equipment and personnel concerning the said works, the manufacture of drilling equipment, training of personnel to use the said equipment and in general to carry out all commercial, industrial, financial, movable property or real property transactions whatsoever, that may be necessary or useful for carrying out and developing the Company s business. 2. The applicant was awarded a contract by the Gas Authority of India Ltd. (GAIL), for installation of gas pipelines crossing under Yamuna River with optic fibre cable using horizontal drilling technique near Agra for a lump sum consideration of US $ 9,60,000. The contract is dated 25-10-1996 but was effective from 15-10-1996 and the work thereunder was to be completed by 14-1-1997. The works commenced with the import of the drilling rig on 20-1-1997 and its installation was completed on 14-2-1997. On the installation of the rig, 10 per cent of the contracted amount has to be paid to the applicant. According to the completion certificate of 8-5-1997 produced by the applicant as clarified by a subsequent letter dated 13- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of pipeline and optical fibre cable conduit below the river bed by horizontal directional drilling and pulling pipeline and optical fibre cable conduit bundle together through the drilled hole or separately by two independent drilling operations, installation to the correct profile as per approved drawings. 9.7 Inspection of corrosion coating of drilled pipe and repair of defects 9.8 Optic Fibre Cable : 9.8-1 Design and detail engineering 9.8-2 Procurement/manufacture and supply of the optic fibre cable 9.8-3 Supply of suitable jointing pits at both ends of cable 9.8-4 Pulling of the fibre optic cable through the conduit 9.8-5 Testing of the optical fibre cable 9.9 Restoration and clean-up etc. 9.10 Preparation of as-built drawings and other records, etc. 9.11 All other works not specifically listed herein, but required as per specifications, drawings, provisions of Contract Document, calculation and construction method statements leading to successful completion of works. 5. GAIL moved an application dated 27-7-1996 under section 195 of the Act before the ITO, Ward 23(10) New Delhi, seeking a No Objection Certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire contract executed by GAIL for the applicant which was in the nature of a turnkey project. He points out that the Company has great expertise in the field of horizontal drilling. This was a very sophisticated type of work which involved the use of special equipment and technical knowledge. He draws attention to the letter of award and the scope of the work as set out in the annexure to the said letter and the detailed specifications which are attached to the contract. He points out that the applicant had to import equipments and particularly units of drilling rig for the purpose of executing this contract. It had to provide the optical fibre pipe, other assessories for installation, corrosion coating, protection of underground utilities, bending, hydrostatic testing, fencing and the like. Though the drilling rig and some of the equipments are taken back by the applicant, the optical fibre pipe and spare parts utilised for executing the contract became the property of GAIL. The contract provided stiff penalties for any failure on its part to execute and complete the contract within the time specified therefor. The applicant had also to indemnify the owner against claims that ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant which could be brought to tax only if the applicant has a PE in India and that not being the case here, because of the duration for a PE set out in paragraph 3 of article 5, the profits received by the applicant are not taxable. 8. On the other hand, Smt. Anuradha Bhatia, appearing for the Department contrasts the definition in section 9(1)(vii) with that contained in article 13(4) and submits that the latter does not exclude services rendered in a project of the type referred to in section 9(1)(vii). She also submits that nature of the work done in this case is not analogous to a contract of construction, assembly, installation or mining or like project , whatever that expression may mean, and urges that the payment in this case would be fees for technical services within the meaning of the Act. In any event, it is submitted that whatever may be the position under the Act, so far as the DTAA is concerned, this should be treated as a payment made in consideration of services rendered by the applicant to GAIL. GAIL supplies the pipelines; it does not have the expertise to lay these pipelines underground particularly below the waterline of a river and it has sought th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this definition merely because any transaction, in finer analysis, can be broken down into a number of items of services rendered by one party to the other. For instance, where a party pays to another the price of an article, say, a ship, it cannot be reasonably be said that the payment is fees for technical services and has been made in consideration of the services of constructing a ship and making it available to the vendee. Extending the analogy, it is said that the consideration paid for a project involving installation assembly or the like would be the price paid for such project and cannot be termed a fee for technical services . 10. It seems indeed difficult to formulate precisely the line of distinction which the applicant seeks to draw for excluding some types of payments, as those in the present case, from the definition of article 13. But, after deep consideration, the authority agrees with applicant s counsel that a limitation of some kind or the other has to be read into the terms of what otherwise would be a very wide definition. In coming to this conclusion, the authority would like to draw some guidance from the terms of paragraph 6 of article 13 which exclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capable of that interpretation but the authority is of the view that it is not the proper way to harmonise the provisions of articles 7 and 13. Paragraph 6 of article 13 intends to take out of its purview items that would be normally and more appropriately assessable under other specific articles such as article 7 or article 15. It seems to the authority that it would not be correct to charge such profits under article 13 in cases like the present where there is an establishment of the nature envisaged in article 5, only chargeability under article 7 fails because the duration of such establishment does not extend beyond the period stipulated in article 5(3). To read the clauses thus would result in an anomaly that the business profits of a non-resident which are intended to be chargeable only where the non-resident has a PE in India would become chargeable to tax even where it has no PE, merely by labelling them as consideration for technical services. There will also be the anomaly that such receipts would become taxable on their gross amount without any deductions for expenses laid out for earning them (such as the sum of $2,10,000 paid by the applicant to L.T. in this case), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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