TMI Blog2016 (6) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... eaty. Thus, we do not find any force in the ground raised by the Revenue and uphold the factual findings of Ld. CIT(A), respectfully following the order of the Tribunal for assessment year 1997-98. Thus, grounds raised by the Revenue are dismissed. - Decided in favour of assessee Indian liaison office of M/s McDermott ETPM East Inc., Dubai - whether a separate legal entity, constituted a permanent establishment of the assessee in India? - Held that:- PE of the assessee should be determined, keeping in view work carried out at its project sites. We have already held that on the basis of facts before us the work duration was less than 9 months. Thus, in our view, since the project of the assessee did not have work duration of more than 9 months during the year as per the facts brought before us as discussed in detail in earlier part of the order, an activity of the maintenance of back-up cum support office ‘simpliciter’ shall not constitute ‘PE’ of the assessee. - Decided in favour of the assessee Insurance receipts taxable u/s 44BB - Held that:- In view of the aforesaid legal position, we hold that the said amount can be brought to tax only if the assessee has a PE in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the invoice raised to M/s Engineers India Ltd., which was not accepted by the said company - Held that:- It is an accepted proposition that under mercantile system of accounting any income or expenses is taken into consideration on the basis of its accrual irrespective of its actual receipt or payment, as a case may be. But, what is important is that income/expense must first be accrued. If an income does not even get accrued, the same cannot be brought to tax merely on unilateral action taken by the assessee by mere issuing of an invoice. It is noted from the facts before us that invoice raised by the assessee has not been even accepted by the said party. There is nothing to show that whether the work for which invoice was raised has been accomplished or not and was accepted as such by the said company. Under such circumstances, there are serious doubts if at all if accrual of the income has taken place. The law in this regard is well settled law that mere making of a claim of income which does not give rise to any enforceable right does not result into any income. Though the position of law in this regard is clear, but in absence of complete facts before us we are not able to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 5 of the DTAA between India and Mauritius and that the actual technical operations and that preliminary commercial preparations and subsequent legal discussions were not to be included in the calculation of the duration period without appreciating the fact that the period without appreciating the fact that the periods spent in India on pre-job inspection on site, mobilization of personnel and vessels before the execution of the contract, demobilization of the personnel and vessels after the execution of the contracts, winding up activities, etc form the integral part of the contracts executed by the assessee in India and therefore, the same cannot be excluded for considering the duration period of the assessee's activities in India. 3. On the facts and circumstances of the case and in law, the CIT(A) erred in directing the Assessing Officer to delete the interest charged u/s. 234B of the I.T. Act, 1961. 4. The appellant prays that the order of the CIT(A) on the above grounds be set-aside and that of the AO restored. 5. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 3. Ground Nos. 1 2: The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly number of days for execution of all the projects were aggregated to determine the period of 9 months (inadvertently mentioned in the assessment order as 90 days). The AO also included the number of days estimated to have been spent for supervisory activities before the actual commencement of construction work. Accordingly, by treating all of the contracts executed in India as one, it was held that the assessee had a PE in India. 3.3. Being aggrieved, the assessee filed an appeal before Ld. CIT(A) wherein detailed submissions were filed by the Ld. Counsel. It was submitted that the assessee being resident of Mauritius is liable for tax in Mauritius and possessed the Tax Residency Certificate issued by the income tax authority of Mauritius. Accordingly, taxation of the assessee is governed by Double Taxation Avoidance Agreement (DTAA) between India and Mauritius. It was further submitted that the assessee has executed following contracts: Contract No. Contract with Duration of work in India Gross Revenue US$ Annexure D4507 ENRON Oil and Gas India Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case in detail in this regard, it was held by the Tribunal that for the purpose of computation of number days for examining threshold limit of 9 months, each of the building site or construction, or assembly project or supervisory activities in connection therewith is to be viewed independently on stand-alone basis and thus, no aggregation is required to be done for computing number of days. The relevant para of the ITAT s order is reproduced below: In view of the above treaty provisions, it is unambiguous that a PE refers to a fixed place of business through which business of the enterprise is wholly or par tly carried on, and includes, inter al ia, a building si te or construction or assembly project, or supervisory activities connected therewith, where such site, project or supervisory activity continue for a period of more than nine months. . In a way, thus, the permanence test for existence of a PE stands substituted, to this limi ted extent, by a duration test for certain types of business activi ties, i.e. building construction, construction or assembly project, or supervisory activity connected therewith. There is also a valid, and more holistic view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding site or construction, installation or assembly project, or supervisory activities in connection with such a site or project, where that site or project exists or those activi ties are carried on (whether separately or together wi th other sites, projects or activities) for more than six months. (emphasis supplied by us by underlining). In the case of India Thailand tax treaty, the definition for this type of permanent establishment, which finds place in Article 5 (2)(h) of the said treaty, is worded as a building site or construction or assembly project, or supervisory activities in connection therewith, where such site, project or activity continues for the same or a connected project for a period of periods aggregating to more than 183 days (emphasis supplied by us by underlining). Similar are the provisions in India's tax treaties with Austria, Belgium, Bulgaria, Canada, China, Denmark, Italy, New Zealand, Norway, Spain, Turkey and USA. In all these cases, the relevant PE clauses are so worded that there is a specific mention for application of aggregation principle on all, or even connected, sites projects or activities for computation of threshold duration test. Ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act Indo-Mauritius treaty. Thus, we do not find any force in the ground raised by the Revenue and uphold the factual findings of Ld. CIT(A), respectfully following the order of the Tribunal for assessment year 1997-98. Thus, grounds raised by the Revenue are dismissed. 3.11. In the result appeal of the revenue is dismissed. Now we shall take up assessee s appeal in ITA No.4434/Mum/2002 for A.Y. 1998-99: The assessee has raised following grounds of appeal: 1.1. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) [CIT(A)] erred in upholding the action of the Assessing Officer (AO) that the India liaison office of McDermott ETPM East Inc., a separate legal entity, constituted a permanent establishment of your appellant in India. On the facts and circumstance of the case, the CIT(A) ought to have held that your appellants have no permanent establishment in India. 1.2 Without prejudice to the above, the learned CIT(A) ought to have held that no income could be attributed to that permanent establishment, i.e. the Indian liaison office. 2. On the facts and circumstance of the case and in law, the CIT(A) err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) that the said office was exclusively used for the projects undertaken by the assessee company. It was further held that Mauritius address was only on paper as the assessee company did not have functional office in Mauritius. Thus, Ld. CIT(A) upheld the findings of Ld. CIT(A) and confirmed his action by holding that assessee had a PE in India during the year, and also upheld the action of the AO in assessing the income of the assessee u/s 44BB of the Act, 1961. 4.3. Being aggrieved, the assessee filed an appeal before the Tribunal. 4.4. Before us, Mr. Kanchan Kaushal (Ld. Counsel of the assessee) made detailed submissions on this issue. It has been submitted that Dubai Company is a separate legal entity and does have a PE in India and therefore it is assessed in India accordingly, and there is no dispute on that. It was submitted that the lower authorities have misread the documents collected during the course of survey and have misunderstood the facts of the case. It was further submitted that even after the invasive action of survey, the income tax department could not find any document or any other material which could show that any employee/person in the said offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation India Liaison Office (supra) on facts and submitted that the documents impounded during the course of survey do not prove at all carrying out of any substantive business, and at the most, said office can be said to be a place for supply of information and doing similar activities which have preparatory or auxiliary character for the enterprise. It has been further submitted by him before concluding his arguments that the admitted case of the AO was that the assessee s case falls under Article 5(2)(i), thereby, constituting PE on the basis of carrying out of work at building site or construction project etc., and therefore, since the assessee s case specifically falls in the said article, it excludes the case of the assessee from being included under any other article, and therefore, the case of the assessee can not fall under article 5(2)(c) which determines the PE on the basis of existence of office. In support of his arguments, Ld. Counsel relied upon the judgment of DCIT v. Stock Engineering and Contractors BV 32 SOT 249 (ITAT Mumbai) wherein it was held that if two clauses of the Article are applicable upon the assessee in two factual situations, then the one whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT-DR. It is noted that at page no.3 of the Departmental Paper Book (DPB), there is an item no.46 described as faxing of Daily Progress Report of DB-6. Similarly, there is item no. 51 described as an information regarding movement of persons from Mumbai to project site and vice-versa. We find that these documents were prepared for the purpose of facilitating work at project site. Similarly, at page no.6 of DPB, there are items nos. 20 to 22 described as correspondence between Mr. Arun Tarkar, and Mr. D. Anjaih, of Narmada Offshore, by Fax No. 4033055 regarding octroi duty payment. We have gone through various other documents also, on the basis of which the impression gathered by us is that these documents have been maintained in routine while providing back office support services or coordination/facilitating point or services of auxiliary nature. 4.10. The Revenue has emphasized upon the statement of the persons recorded by the survey team who were available at the said office premises. Before we deal with their statements, we find it appropriate to describe hereunder the qualifications of these persons and roles performed by them, as narrated before us: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... East, Inc. but the same is being used to for the projects of J Ray Mc Dermott Middle East (Indian Ocean) Ltd. Reply; Yes, the co-ordination and liasioning is being done through this office. (emphasis supplied) 4.12. We have gone through submissions of all other persons also. What we have been able to gather from the documents impounded during the course of survey and the information gathered 133(6) and 131 is that impugned premises were used as project office of the assessee company for providing requisite auxiliary services in the nature of back office support services. It is noted that despite carrying out an invasive action of survey, nothing could brought on record by the department to show that whether any contracts were negotiated and concluded by the aforesaid team of employees in India nor any such documents could be brought on record to show that the said office in India was in the decision making process or involved in doing substantive business in any other manner. In this regard, we find that Article 5(3) of the Indo- Mauritius treaty clearly lays down the situations where a set up shall not constitute permanent establishment. The said para is rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable as the said MSAS would be performing in India only back office operations. Therefore to the extent of the above back off ice functions the second part of Article 5(1) is not attracted. 4.14. Similar view has been expressed by the Hon ble Delhi High Court in the case of U.A.E. EXCHANGE CENTRE LTD. vs UNION OF INDIA (supra), relevant portion of the judgment is reproduced below: the liability to tax under the DTAA between the UAE and India is governed by article 7. Paragraph (1) of article 7 of the DTAA provides that profits of an enterprise of a Contracting State shall be taxable only in that State, unless the enterprise carries on business, in the other State, through a permanent establishment situated therein. Under article 5 read with article 7, profits of all are liable to tax in India if an enterprise were to carry oil through permanent establishment, meaning thereby fixed place of business through which business of an enterprise is wholly or partly carried on. Under article 5(2)(c), amongst others, permanent establishment includes an office. However, article 5(3) which opens with a non obstante clause, is illustrative of instances where under the DTAA variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore than nine months . 4.17. It has been already held in the own case of the assessee by the Tribunal in A.Y. 2007-08 and by the AO as well as Ld. CIT(A) in impugned year that case of the assessee has to be examined in article 5(2)(i). In earlier years also, wherever the duration of the project has exceeded a period of 9 months, the same has been treated as permanent establishment in India and its corresponding income has been offered to tax and accepted by the AO also. Thus, there is no doubt that the case of the assessee falls in article 5(2)(i). Now, the next question that arises here for our consideration is that whether the case of the assessee can be examined in any other clause of article 5(2). The AO has suggested that assessee s case may also fall simultaneously under article 5(2)(c) described as office . 4.18. In our considered opinion, so long as the assessee is engaged in India in the business of aforesaid construction project only, it s case can be examined only under Article 5(2)(i); because that happens to be the most proximate clause under which it could be examined and has been rightly done so all along in all preceding years by the Revenue also. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not determine PE of the said company in India; relevant observations of the high court are reproduced below: 24. It is the Assessee's case that its office at Mumbai was opened only to comply with contractual requirements and the exchange control regulations and was used only as a communication channel and not for the execution of the Contracts. The Project Office was only used for the purposes of correspondence and as a communication channel; apart from that, the Project Office had no role to play in the execution of the activities under the Contracts and no other business of the Assessee was carried on through the Project Office. The Project Office was manned by three employees; (i) Ravi K. Prabhakar; (ii) Pavithran; (iii) Vijayan. While Ravi K. Prabhakar was designated as a Logistics Coordinator, Pavithran and Vijayan were employed as Office Assistants. The said persons were only engaged in collecting information from ONGC or ASL and transmitting the same to the Assessee's office in Abu Dhabi and similarly transmitting communications from Assessee's office in Abu Dhabi to ONGC and ASL. It is claimed that the abovenamed three employees were simple graduat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess solely for the purpose of advertising or for the supply of information or for scientific research or for the servicing of a patent or a know-how contract, if such activities have a preparatory or auxiliary character . 27. A Division Bench of this Court in UAE Exchange Centre Limited (supra) considered a case where a UAE based enterprise maintained a liaison office in India and the only activity of that office was to download information contained in the main servers located in UAE on the basis of which cheques were drawn on banks in India. The said cheques were couriered or dispatched tothe beneficiaries in India keeping in mind the instructions of the remitters. This Court held that the said activity was only in aid and support of the main activity of the Assessee in that case and, thus, such activity was auxiliary in character. In DIT (International Taxation) v. Morgan Stanley Company Inc.: (2007) 292 ITR 416 (SC), the Supreme Court held that the back office operations carried on at an office would fall within the exclusionary clause of Article 5(3)(e) of the Treaty between India and United States which is also identically worded as Article 5(3)(e) of the DTAA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract, per se at page _____ of the paper book, do not result into any generation of income and, therefore, the activities of the assessee have to be definitely considered to be proprietary and auxiliary in nature. The ld. AR has brought to our notice RBI approval, at page 10 of the paper book, which has been received by the assessee, for the purposes of undertaking liaison activities and to act as a communication channel between the parties in India and the Israeli company. 8.3. Moreover, the AO has relied upon the judgment of the authorities of advance ruling in the case of UAE Exchange Centre Limited reported in (2004) 268 ITR 9 AAR which has been reversed by the jurisdictional High Court in the case of UAE Exchange Centre Limited (supra). 8.4. In view of the foregoing discussion, we conclude that the assessee does amount to a PE in India, and are of the considered opinion that the assessee is a liaison office and are providing services which are proprietary or auxiliary in nature. We, therefore, do not find any infirmity with the findings of the ld. CIT(A). 4.21. In the case Cal Dive Marine Construction (Mauritius) Ltd. v. Director of Income-tax (Internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as defined in Article 12. What kind of services have been contemplated in para 6 of Article 5 have not been elaborated in the treaty or elsewhere. In contradistinction, para 3 of Article 5 is very specific and therefore, such specific activities cannot be 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 services has to be scrutinized under Article 5(3) only and not within Article 5(6). 4.23. In the case of CIT vs. M/s. BKI/HAM (in ITA No.34 of 2007 order dated 14.10.2011), a similar issue arose before Hon ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to constitute a PE. Since a categorical finding of fact has been given by the appellate authority that the contract was for less than six months, it becomes absolutely clear that the assessee did not have a PE in India as per art. 5(3) of the treaty. The Court is of the opinion that art. 5(3) provides a specific provision which covers the provision of art. 5(2) of the treaty. The Court is of the opinion that the specific provision would prevail over the general provision. Consequently, the Court is of the opinion that no PE was constituted by the assessee in India during the assessment year in question. 4.24. In view of the facts of this case and judgments discussed by us above it can be held that PE of the assessee should be determined, keeping in view work carried out at its project sites. We have already held that on the basis of facts before us the work duration was less than 9 months. Thus, in our view, since the project of the assessee did not have work duration of more than 9 months during the year as per the facts brought before us as discussed in detail in earlier part of the order, an activity of the maintenance of back-up cum support office simpliciter shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A), assessee made detailed submissions reiterating its stand as was taken before AO. It was submitted that complete details were given to the AO. The said amount was received outside India and it was received on account of loss suffered by the assessee pertaining to Tapti Field located beyond 12 nautical miles from the coastal line. The amount was received under the insurance policy by way of reimbursement of cost incurred in the said project. After considering the submissions of the assessee Ld. CIT(A) held that the said amount was business income as per article 7 of the Treaty, and could be taxed only u/s 44BB. The insurance claim receipt was connected with the business of the assessee company in India and was reimbursement of the damage/loss/cost incurred by the assessee company, and therefore, it should be taxed u/s 44BB. 6.3. Being aggrieved, the assessee filed appeal before the tribunal contending that Ld. CIT(A) ought to have held impugned receipts as not taxable in India. It is noted by us that the revenue is not aggrieved with the action of Ld. CIT(A). During the course of hearing before us Ld. Counsel of the assessee submitted that the impugned receipts are part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any deductions, like freight and transportation charges. Section 44BB taxes the income on deemed basis. It has nowhere been held in the said judgment that miscellaneous receipts shall be taxable u/s 44BB whether the assessee has PE or no PE in India. Thus, the said judgment is having altogether different facts and appears to have been misread by the Ld. DR and does not lay down any such issue as was canvassed by the Ld. DR before us. 6.7. Thus, in view of the aforesaid legal position, we hold that the said amount can be brought to tax only if the assessee has a PE in India for the concerned project. But the facts brought before us were not complete and clear. Further, there is no clarity as to the fact whether impugned receipts were with regard to which project and pertain to which period and whether the said project constituted a PE in the impugned period or not. The assessee has admitted the legal position that in case work duration of a project exceeds 9 months, then income from the said project would be liable to be taxed u/s 44BB. Therefore, we remit this issue back to the file of the AO to examine complete and correct facts. If these receipts pertain to project which did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) ought to have held that only the proportion of income attributable to that permanent establishment may be taxed in India. 4. The CIT(A) erred in upholding the action of the AO in taxing the miscellaneous and other income amounting to US$ 15,915. 8. Ground Nos. 1, 2 and 3: It is noted that Ld. CIT(A) has followed his own order for A.Y. 1998-99 while disposing these grounds, therefore, we direct the AO to follow our order for A.Y. 1998-99 and verify number of days of work duration and other requisite facts with regard to the project carried out by the assessee during the impugned financial year for determination of its PE in India. Accordingly, these grounds may be treated as allowed in terms of our directions and decisions given in A.Y. 1998-99. 9. Ground No.4: In this ground the assessee has challenged the action of lower authorities in bringing to tax amount received by the assessee primarily on account of discount earned, exchange gain and miscellaneous income 9.1. In our considered view, these receipts are part and parcel of the operations carried out by the assessee on its projectd and therefore, these should be treated as part of business profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds: Ground No. 1: 1.1. On the facts and circumstances of the case and in law, the Deputy Director of Income-tax (International Taxation) - 3(1), Mumbai ('the DDIT') erred in issuance of notice under section 148 of the Income-tax Act, 1961 ('the Act') and completing the assessment at an income of ₹ 14,88,60,060. 1.2 The Appellant prays that the reassessment proceedings be held to be bad-in-law and therefore liable to be quashed. Ground No. 2 2.1. On the facts and circumstances of the case, the DDIT erred in holding that ₹ 5,16,72,024 under the contract D5073 and ₹ 1,32,01,471 under the contract D5094 is taxable as income of the Appellant by holding that the Appellant has a Permanent Establishment ( PE ) in India. 2.2 On the facts and circumstances of the case, the DDIT erred in not appreciating that duration of each contract D5073 and D5094 did not exceed nine months in accordance with Article 5(2)(1) of the Double-Tax Avoidance Agreement between India and Mauritius ( DTAA ) and erred in holding that the aggregate duration of all the contracts would be considered for constituting PE in India. The Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of the above Grounds of Appeal 13. Ground Nos. 2, 3, 4 5: It is noted that while deciding these issues in the assessment order, the AO has referred to and relied upon the assessment orders for A.Ys. 1998-99, 1999-00 2002-03. The DRP did not bring anything new while upholding the assessment order. 13.1. These grounds are identical to the grounds disposed by us in our order for A.Y. 1998-99, therefore, decisions and directions contended in our order for A.Y. 1998-99 shall apply mutatis mutandis on this year also, and the AO is directed to verify requisite facts and follow our order for A.Y. 1998-99, accordingly, these grounds may be treated as allowed in terms of our directions as contained in our order for A.Y. 1998-99. 14. Ground No.6: In this ground, the assessee is aggrieved with the action of lower authorities in bringing to tax amount of the invoice raised to M/s Engineers India Ltd., which was not accepted by the said company. 14.1. During the course of hearing it was submitted by the Ld. Counsel that the said amount was brought to tax by the AO without discussing and brining complete facts on record and without giving adequate opportunity of hearing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r authorities had dealt with this issue in highly surreptious and non-speaking manner. Under these circumstances, we find it appropriate to send this issue back to the file of the AO who shall take guidance from the observations given by us in this order as well as other judgments as may be placed by the assessee before the AO. The assessee shall also bring on record complete facts with regard to the subsequent developments that might have taken place with regard to realization of the amount of the invoices from the said party, for which AO shall grant adequate opportunity of hearing. The AO shall decide this issue afresh after taking into account all the facts and circumstances. The assessee is free to raise all legal and factual issues pertaining to this ground before the AO. This ground may be treated as partly allowed for statistical purposes. 15. Ground No.7: This ground deals with levy of interest; the same is dismissed being consequential. 16. Ground No.8 is with regard to initiation of proceedings and the same is dismissed being premature. 17. Ground No.9: This ground is general and does not require any adjudication and therefore dismissed. 18. Ground N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 5(1) of the DTAA. Ground No. 4 4.1. On the facts and circumstances of the case and in law, the DDIT erred in holding that the Liaison Office (LO) of another group company J. Ray McDermott Middle East, Inc. (JRMMEI ) constitutes PE of the Appellant and accordingly erred in including ₹ 13,89,21,358 as income of the Appellant. 4.2 The Appellant prays that it be held that LO of JRMMEI cannot constitute PE of the Appellant. Ground No. 5 5.1. Without prejudice to Ground No.4 above, on the facts and circumstances of the case, the DDIT erred in attributing the total contractual revenues from contracts D5094, D5094 D5097 amounting to ₹ 13,89,21,358 as the profits attributable to the PE in India. 5.2 Without prejudice to Ground no.2 and 3 above, on the facts and circumstances of the case, DDIT has erred in holding that revenues of US$67,20,000/- and US$ 14,02,830 from contracts D5095 and D5097 respectively pertaining to the work carried outside India are related to the work carried out in India and accordingly chargeable to tax in India. 5.3 The appellant prays that it be held that only the profits attributable to the operations car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether, the receipts of work done outside India, even though it is connected with the major part of the contract, is taxable in India or not. 5. The preparation of designs in this case is done by Jebel Ali, Dubai and the documents were transmitted to EIL from outside the country. The distance from Jebel Ali to India is 1050 nautical miles and the travel within India is about 100 nautical miles, which means 10% of the total transportation is within the country. The assessee in this case followed the project completion method to recognize contract revenues. The revenues pertaining to work carried on within India and works carried on outside India has been determined based on actual activities carried out, and as already stated there is no dispute on this fact. 6. In such a situation, in our considered opinion the first appellate authority has rightly observed that section 9(1)(i) Explanation 1 provides that the income from business deemed under this clause to accrue or arise in India, shall be only such part of the income, as is reasonably attributable to the operations carried out in India. We also agree with the finding that the income in question should be first taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of any person any income, which otherwise falls within the broad framework of his total income as laid down in s. 5 such section would prevail. To emphasis, the provisions of s. 44AB vis- -vis the legislative intent only mean that thee replace the system of computation of income earlier envisaged by application of the provisions of ss. 28 to 41 and ss. 43 and 43A, but the provisions of s. 5, which is the charging section would remain intact and these by no maxim of interpretation would be superseded by the provisions of s. 44BB. As per Circular No. 495, dt. 22nd Sept., 1987, s. 44BB was no doubt described as a special provision for computing profits and gains in connection with the business of exploration of mineral oil but these were a measure of simplification providing for determination of income of such taxpayers at 10 per cent of the aggregate of a certain amount Jindal Drilling Leasing (ITA No. 6452/Bom/1991 dt. 30th April, 1998) and Dy. CIT vs. Sonal Offshore Drilling Inc. (ITA No. 7414/B/1994, dt. 29th Oct., 2002) approved; Nippon Kokan KK Ors. (ITA No. 3413/Del/1988, dt. 20th June, 1990), Sedco Forex International Drilling Inc. (ITA Nos. 1426 to 1430/D/1995, dt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 508 of 2007) vide order dated 16th Sept., 2008. 3. Transocean Offshore Inc Vs. DCIT ITA No. 05/Del/2002 4. ACIT vs. Enron Global Exploration Production Ltd. 5. R B Falcon Drilling Co. vs. ACIT. 9. In view of the above discussion, we uphold the order 20.3. The revenue filed an appeal before the Hon ble High Court wherein the appeal of the revenue was dismissed by the Hon ble Bombay High Court vide order dated 18th March 2014 in ITA No. 1328/Mum/2011 by observing as under: 4. The department as also the assessee proceeded on the undisputed position that the assessee is a non-resident based in Mauritius. It has a permanent establishment in India. The income from the permanent establishment is assessable as business income. It is in such circumstances that we do not find that any substantial question of law with regard to status of the assessee or having a permanent establishment or not will arise for consideration. 5. The appeal is clearly devoid of any merits and therefore, it is dismissed. 6. It is dismissed even with regard to the question framed for paragraph no. 14(b). we find that the consistent understanding and approach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the DDIT erred in not appreciating that durations of each contracts D5680 did not exceed nine months in accordance with Article 5(2)(i) of the DTAA and erred in holding that the aggregate duration of all the contract would be considered for constituting PE in India. 1.3. The Appellant prays that it be held that the Appellant does not have a PE in India and therefore the income of ₹ 1,85,41,153 under the contract D5680 is not chargeable to tax in India. II Ground No.2 2.1 On facts and circumstances of the case, the Dispute Resolution Panel-1 ( DRP ) erred in holding that the Appellant has a PE in India under Article 5(1) of the DTAA ignoring the provisions of Article 5(2) of the DTAA. 2.2 The Appellant prays that it be held that Article 5(1) is not applicable to the Appellant and without prejudice, the Appellant does not have a PE in India under Article 5(1) of the DTAA. III. Ground No.3 3.1 On the facts and circumstances of the case and in law, the DDIT erred in holding that the LO of another group company J. Ray McDermott Middle East, Inc. ( JRMMEI ) constitutes PE of the Appellant and accordingly erred in including ₹ 9,64,54, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is attributable to its PE in India. 2. The Appellant prays that the order of the Ld. CIT (Appeal) on the above grounds be set aside and that of the Assessing Officer restored. 3. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 24. It is noted that the grounds raised by the revenue is identical to ground no.5 of A.Y. 2005-06. Since we have already decide this issue in favour of the assessee by relying upon the order of the Tribunal and High Court for A.Y. 2003- 04, therefore, in this year also we do not find any force in the grounds raised by the revenue, as not distinction has been made by the either party on law or on facts. Thus, we dismiss the grounds raised by the revenue. 25. As a result appeal of the revenue is dismissed. Now we shall take up assessee s appeal in ITA No.7855/Mum/2011 for A.Y. 2008-09 involving following grounds: Ground No. 1: 1.1. On the facts and circumstances of the case and in law, the Deputy Director of Income-tax (International Taxation) - 3(1), Mumbai ('the DDIT') erred in holding that ₹ 1,85,41,153 under the contract D5680 taxable as income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al revenues from contract D5680 of ₹ 1,85,41,153 and from contract D5725 of Rs. 7,79,13,240 as the profits attributable to the LO as RE in India. 4.2 The Appellant prays that it be held that only the profits attributable to the LO as being RE should be taxed in India. V Ground No. 5 5.1 On the facts and circumstances of the case and in law, the DDIT erred in not following the Appellant's own order of the Hon'ble Mumbai Tribunal for AY 1997- 98 and of the Commissioner of Income-tax (Appeals) for AY 2006-07 wherein it has been held that the duration of each contract should be considered separately for constituting RE in accordance with Article 5(2)(i) of the DTAA. 5.2 The Appellant prays that the DDIT be directed to follow the Appellant's own Orders for AY 1997-98 and AY 2006-07. VI Ground No. 6 6.1 On the facts and in the circumstances of the case, the DDIT has erred in initiating penalty under section 271(1)(c) of the Act and in holding that the Appellant has concealed particulars of its income and has furnished inaccurate particulars of its income which led to penalty under the said section. VII Ground No.7 7.1 The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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