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ADIT (IT) 1 (2) , Mumbai Versus M/s. J. Ray Mc Dermott Eastern Hemisphere Ltd. and Vica-Versa and M/s. J. Ray Mc Dermott Eastern Hemisphere Ltd. Versus JCIT S. Range-12, Mumbai and DDIT (IT) -3 (1) , Mumbai and another

2016 (6) TMI 522 - ITAT MUMBAI

Determination of ‘Permanent Establishment’ (PE) - whether the computation of period of stay of the different projects carried out by the assessee at different sites of the assessee company is to be combined together for determining the period of stay and aggregate duration of period is to be seen or duration of execution of each of the projects is to be examined separately to test the time limit of 9 months, as stipulated in Article 5 - Para 2(i) of Indo-Mauritius Double Taxation Avoidance Agree .....

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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 o .....

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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 projec .....

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impugned insurance claim) were claimed as expenses or not. In case no claim was made of the expenses, then recovery thereof cannot be brought to tax at this stage - Taxing amount received by the assessee primarily on account of discount earned, exchange gain and miscellaneous income - Held that:- We have decided an identical issue in ground no 2 of A.Y. 1998-99 ( in the assessee’s appeal) wherein the issue was sent back to the file of the AO for verification of facts for determination of PE .....

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n sent back to the file of the AO for verification of requisite facts. Thus, penalty is deleted on those additions which have been deleted in the quantum appeal. For the remaining issues which have been sent back to the file of AO, the penalty order does not survive as on date, and therefore, the same is set aside. The AO is free to initiate and levy the penalty as per law, if and as and when any addition is made in the fresh assessment order as may be passed by the AO, in pursuance to our direc .....

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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 ma .....

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he observations given by us in this order. 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 - ITA NO.4028, 4434/Mum/2002, ITA NOs.5302/Mum/2004, ITA NOs.2226 & 2227/Mum/2009, ITA NO.2309/Mum/2006, ITA NOs.8720, 8718 & 8717/Mum/2010, ITA NO.7083/Mum/2010, ITA NO.7855/Mum/2011 - Dated:- 6- .....

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ere made by Shri Kanchun Kaushal, Authorised Representative (AR) on behalf of the Assessee and by Shri Jasbir Chauhan, Departmental Representative (CIT-DR) on behalf of the Revenue. First we shall take up Revenue s appeal in ITA No.4028/Mum/2002 for A.Y. 1998-99: The grounds raised by the Revenue in its appeal are reproduced below: 1.On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that for the computation of period of stay, both the contracts should be .....

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IT(A) erred in holding that there is no P.E. in India in view of the 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 executio .....

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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 issue involved before us is whether for the purpose of determination of Permanent Establishment (PE), the computation of period of stay of the different projects carried out by the assessee at different sites of the assessee company is to be combined tog .....

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ssee company is a company incorporated in Mauritius, and belongs to Mc Dermott Group of companies. The assessee company was engaged in India in transportation, installation and construction of off-shore platforms for the purpose of mineral oil exploration. In the return of income filed by the assessee for the impugned year following note was given: Note: The company is incorporated in Mauritius and is a resident in Mauritius under the Income Tax Act of Mauritius and as defined in Article 4 of th .....

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with Enron Oil and Gas India which commenced on February 05,1997 was completed on May 19, 1997 as evidenced by completion certificate (Annexure B). In view of the aforesaid, income under all the contracts is not taxable in India as stipulated in Article 7 of the Treaty. 3.2. During the course of assessment proceedings, Ld. AO analysed the various contracts executed by the assessee company with M/s. Enron Oil and Gas India with different aspects and relying upon and following the assessment order .....

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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 s .....

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(Permanent Establishment) in India during the year under consideration. After hearing the detailed submissions and perusing factual material placed on record, Ld. CIT(A) accepted the stand of the assessee and reversed that of the AO and held that in view of Article 5 (2)(i), the assessee did not have a PE in India during the year under consideration for any of its projects. 3.4. Being aggrieved, the Revenue has filed an appeal before the Tribunal, wherein it has been inter-alia contended in the .....

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year i.e. contract No.D4522. It was further brought to our notice that similar issue had came up before the Tribunal in immediate proceeding year i.e. A.Y. 1997-98 wherein this issue has been decided in favour of the assessee by the Tribunal. He therefore, requested that appeal of the revenue should be dismissed. In reply, Ld. DR fairly submitted that the issue involved in the appeal filed by the department was covered by the judgment of the Tribunal in assessee s own case for A.Y. 1997-98. 3.6. .....

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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 .....

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tion or assembly project, or supervisory activity connected therewith. There is also a valid, and more holistic view of the matter, that this duration test does not really substitute permanence test but only limits the application of general principle of permanence test in as much as unless the activities of the specified nature cross the threshold time limit of nine months, even if there exists a PE under the general rule of Article 5(1), it will be outside the ambit of definition of PE by the .....

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lar, and there is no specific mention about aggregating the number of days spent on various sites, projects or activities, in other words, each of the building site, construction project, assembly project or supervisory activities in connection therewith is to be viewed on standalone basis. Broadly, the underlying rationale of this approach is that var ious business activi ties performed by one and same enterprise, none of which constitutes a PE, cannot lead to a PE, if combined. In our humble u .....

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s practice. The unambiguous pr inciple, underlying this approach, seems to be to view these business activities at different locations on standalone basis. It is also interesting to note that in certain treaties entered into by India, there is a specific departure from this rule as evident from the wordings used in def inition clauses of corresponding PEs. Take for example, Article 5(2) (k) of India Austral ia tax treaty, which states that "The term 'permanent establishment' shall e .....

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ticle 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 .....

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bsurdity in as much as when work is carried on five sites together for one hundred days each, such a computation will lead to five hundred days in a year which is an impossibil i ty. Therefore, when def inition clause specif ically provides for aggregation of time spent on various sites, projects or activities, the sum total of the time spent on such sites, projects or activities, except for parallel counting of days, is to be taken into account for applying the threshold time limit. However, wh .....

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(A) decided the matter afresh vide his order dated 27.01.2011, wherein he held that if all the projects of the assessee are examined independently, each of them had work duration of less than 9 months and accordingly it was held that assessee did not have a PE in India. 3.9. The revenue filed an appeal against the order of Ld. CIT(A). The tribunal vide order dated 12.10.2012 in ITA No.2089/Mum/2011 for A.Y. 1997-98 upheld the order of the Ld. CIT(A), on facts also. Thus, the clear position emerg .....

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efore us, we find that the assessee had no PE in India in the year under consideration in terms of Article 5(2)(i) of 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.443 .....

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nts 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) erred in holding that insurance receipts were connected with the business of your appellant in India. and hence taxable under Section 44BB of the Income-tax Act. 3. On the facts and circumstance of the case and i .....

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mbai) at the office of Dubai, company on 10th August 2000, located at 412-413, Midas, Sahar, Plaza, Andheri (E), Mumbai. It was concluded by the AO on the basis of survey report that Liaison Office of the Dubai Company was kept by the assessee company for its business. The facts of the AO were based upon the basis of survey report claimed to be prepared on the basis of documents found during the course of survey. According to the AO, at the time of survey, no paper/evidence of activity of Dubai .....

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at various sites. The survey team recorded the statement inter-alia of Mr. Arunabha Sen (Country Manager), Arun Tarkar (Areas logistic Manager), Mr. Lawrence Rodrigues (Accountant). On the basis of these statements and papers found during the course of survey in the form of invoices, correspondence, lease of employees etc., it was concluded by the AO that it was Liaison Office of the Company which was involved in the full-fledge business activities, and therefore it constituted PE of the assess .....

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ee 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. .....

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f Dubai Company would show that none of them was qualified or competent enough to make independent decisions for negotiations and concluding the contracts on behalf of the assessee company. He took us through the each and every document found during the course of survey which has been considered by the AO to hold that the said premises were used as fully functional office of the assessee company, and submitted that the AO as well as Ld. CIT(A) have not properly gone through these documents. It w .....

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/s 133A which is distinct from the action done u/s 132(4) in terms of evidentiary value of the documents found during these operations. It was submitted that in case of survey, if any material is found, unless and until the said material is substantiated by the AO, it cannot be used against the assessee, unlike the material found during the course of search carried out u/s 132(4). In support of his arguments, he further placed reliance upon the judgments of Hon ble Madras High Court in the case .....

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usiness operations from the said office premises. He relied upon the judgment of Hon ble Karnataka High Court in the case of Jebon Corporation India Liaison Office vs. CIT 245 CTR 300. 4.6. In rejoinder, the assessee has distinguished the judgment of Jebon 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 s .....

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ee 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 which is more beneficial to the assessee would be .....

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7. We have gone through the submissions made by both the sides. We have also gone through the documents impounded during the course of survey. Before we deal with the alternative legal argument of the Ld. Counsel that whether the assessee s case can simultaneously fall in Article 5(2)(c), when assessee s case has already been held to be falling under Article 5(2)(i), we shall like to deal with and discuss hereunder the documents found during the course of survey. 4.8. It is noted that the AO him .....

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book. According to our opinion, perusal of these papers suggests, that these were miscellaneous documents which were exchanged by persons who were coordinating the activities carried out at the site. There was a list of messages which were received and passed on further which included fax messages or other radio messages. There is also a list of the employees who were working in the project office. According to the AO, it shows that this office was used for the appointment and recruitment of emp .....

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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 .....

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s narrated before us: Name Competence Role performed Arun Tarkar Certificate of proficiency in communication He was a logistic manager and his work involved obtaining clearance, coordination with principal in connection with logistic requirement and coordination with shipping agents Lawrence Rodrigues Administration His work involved arranging for meetings, hotel arrangements, air ticket booking, payment of electrical maintenance and telephone bills etc. Ravi Kumar Clerk He was a radio room cler .....

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e operations and support services. Nothing has been brought before us to show that services provided by these persons were in any manner of a substantive nature which could be described as part of decision making process. 4.11. Now, we shall deal with the statements recorded by the survey team which has been vehemently relied upon by the Ld. DR before us. We have gone through all the statements and various questions and replies given by the aforesaid persons. The collective reading of various re .....

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i office i.e. 412-413, Midas, Sahar Plaza Complex, belong to/are employee of J Ray Mc Dermott Middle East Inc. previously known as Mc Dermott ETPM, 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 cou .....

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rd 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 reproduced hereunder: 3. Notwithstanding the preceding provisions of this article, the term "permanent establishment" shall be deemed not to include: (a) the use of fac .....

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ormation for the enterprise ; (e) the maintenance of a fixed place of business solely- (i) for the purpose of advertising, (ii) for the supply of information, (iii) for scientific research, or (iv) for similar activities, which have a preparatory or auxiliary character for the enterprise. 4.13. The perusal of the above Para shows that it clearly lays down that any fixed place maintained by the assessee for the purpose of supply of information or for similar activities which has a preparatory or .....

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ts ruling. It is clear from reading of the above Agreement/application that MSAS in India would be engaged in supporting the front of f ice functions of MSCo in fixed income and equity research and in providing IT enabled services such as data processing support centre and technical services as also reconciliation of accounts. In order to decide whether a P.E. stood consti tuted, one has to under take what is cal led as a functional and factual analysis of each of the activities to be undertaken .....

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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 carr .....

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nary clause is found in article 5(3)(e) which is: maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character. The only activity of the petitioner's liaison offices in India was to download information which was contained in the main servers located in the UAE based on which cheques were drawn in India whereupon the cheques were couriered or dispatched to the beneficiaries in India, keeping in .....

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to provide back up support and other auxiliary services for the purpose of maintaining coordination and aid to the functioning of the project and therefore it does not constitute a PE. 4.16. The assessee has also raised another preliminary legal objection in this regard i.e. once the case of the assessee has been included in a particular clause i.e. Article 5(2)(i), then it shall not be included and cannot be considered in any other clause of the said Article for the purpose of determination of .....

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ject needs to be considered primarily under Article 5(2)(i), which read as under: (i) a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more 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 a .....

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s 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, the issue of determination of it .....

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rd nor any such pleading has been raised by the AO or Ld. CIT(A) or even by Ld. DR before us. The office found to be existed in the aid of the project(s) of the assessee. Thus, the determination of the projects being PE or otherwise could be examined only Article 5(2)(i) and nowhere else. 4.19. We find support from another judgment in the case of National Petroleum Construction Co. v. DIT (International Taxation) in ITA No.143/2013 and others, order dated 29.01.2016, wherein Hon ble High Delhi C .....

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id company was rejected by the Revenue interalia on the ground that the said company had a project office in India which was not any ancillary or auxiliary activity. It was inter-alia contended by the revenue that pre-bid survey was conducted through the project office which was directly connected with the contract in question and thus it amounted to doing substantive business. Therefore, in the context of these facts Hon ble High Court analysed provisions of Article 5 of Indo-UAE treaty to find .....

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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. .....

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ovenamed three employees were simple graduates and were not capable for participating in the execution of the work undertaken. The DRP had observed that Sh. M.N. Shah, Sh. M. Karkera, Sh. C.G. Pillai, Sh. P.K.G. Nair and Sh. R.L. Kulkarni, who were employees of the Project Office of the Assessee, had attended the kick-off meeting with ONGC on 16th December, 2005 and had also signed the minutes of that meeting. The DRP had proceeded on the basis that this fact was not disputed. The ITAT had also .....

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annot be sustained. Similarly, there is also no material that the employees of the Project Office had participated in review of the engineering documents done in Mumbai or had participated in the discussions or approval of the designs submitted to ONGC. In absence of any material evidence to controvert the Assessee's claim that its Project Office was only used as a communication channel, the same has to be accepted. Thus, the next aspect to be considered is whether acting as a communication .....

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plained by Professor Dr. Klaus Vogel. In his commentary on "Double Taxation Conventions, Third Edition", he states that "It is recognised that such a place of business may well contribute to the productivity of the enterprise, but the services it performs are so remote from the actual realisation of profits that it is difficult to allocate any profit to the fixed place of business in question. Examples are fixed places of business solely for the purpose of advertising or for the s .....

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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 exclusi .....

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itional help and support". In the context of Article 5(3)(e) of the DTAA, the expression would necessarily mean carrying on activities, other than the main business functions, that aid and support the Assessee. In the context of the contracts in question, where the main business is fabrication and installation of platforms, acting as a communication channel would clearly qualify as an activity of auxiliary character - an activity which aids and supports the Assessee in carrying on its main .....

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e of UAE Exchange Centre Limited (supra) covers the issue which needs to be considered in the present appeal. We have observed from the findings of the ld. CIT(A) that the assessee has been involved in supplying the literature relating to marketing and sales without any participation in actual sales activity. The Israeli company is selling the products to the distributors as per the requirements directly from Israel, and also makes efforts to services and maintain products used within the territ .....

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ors and the Israeli company. The distribution 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 Ind .....

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s 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 (International Taxation), Chennai 182 taxmann.com 124 it was observed by the Authority for Advance Ruling, New Delhi while addressing an identical issue in the context of Indo-Mauritius tax treaty that: Once clause (i) is attracted, the minimum period test will have to be necessarily .....

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stablished as a part of or incidental to the execution of a construction or assembly project, it is clause (i) alone that comes into play. That is the only way to reconcile and avoid conflict between overlapping items/expressions contained in para 2 of article 5. 4.22. In the case of Kreuz Subsea Pte. Ltd.vs Deputy Director of Income-tax (International Taxation) 58 taxmann.com 371, Mumbai Bench of the ITAT decided the identical issue on similar lines wherein the issue before the Bench was that i .....

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ting and commissioning of such machines and equipments. Installation also relates to a construction of a project. Article 5(6) whereas envisages that, if an enterprise is "furnishing services" in the contracting state through its employees for a period of 90 days or more, then it is deemed to have Service PE, except for the services 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 p .....

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. 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( .....

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etermining the PE of the said assessee in India, keeping in view the precedence of specific provision viza- viz general provision of Article 5. After analyzing the provisions of the treaty, Hon ble High Court held as under: A perusal of Article 5(1) of the treaty indicates that a "PE" means a fixed place of business through which the business of the enterprise is wholly or partly carried on. Article 5(2) of the treaty includes a place of management, a branch, an office, a factory, a wo .....

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a period of more than six months. In the light of the aforesaid provisions, the learned counsel for the assessee (sic appellant-Revenue) submitted that the assessee had a PE under the provision of art. 5(2) and had an office at Bombay and, consequently, had a PE which has not been considered by the appellate authority as well as by the Tribunal. The learned counsel for the appellant(Revenue) submitted that in view of the fact that the assessee had an office at Bombay, the provision of art. 5(3) .....

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n six months. Such site or project, in our opinion, is provided under art. 5(2) of the treaty and, therefore, the site or project provided under art. 5(2) should continue for a period of more than six months in order 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 .....

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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. Ground No.1.1. is allowed. 5. Ground No.1.2: In this ground, .....

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the Income Tax Act 1961. 6.1. During the course of assessment proceedings, it was noted by the AO that assessee had shown income under the head other income at US$ 2,793,063/- equivalent to ₹ 10,98,79,098/- being the amount of insurance claim received. The details of the said receipts as mentioned in the assessment order by the AO are that the insurance claim was received outside India in respect of loss suffered by assessee when the leg pile of TPP Jacket located in Tapti Field offshore I .....

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ian operations. It was further held by him that since the assessee company had a PE in India, thus, amount was taxable in India. It was also held by AO that as per Article 21(2) of Indo-Mauritius Treaty, items of income which are not expressly dealt with in any of the articles of the Treaty, then the provisions of Article 7 would apply for such a case. It was further noted by AO that since insurance claim receipts have not been dealt with in any of the Articles of the Treaty, therefore, article .....

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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 .....

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pts and its taxability can be examined u/s 44BB read with Article 7 of Indo-Mauritius Treaty, it is further submitted that since it is part of business receipts it can be brought to tax only subject to the provisions of Article 7, which are in turn subject to Article 5 of the treaty and provide for existence of PE as a mandatory condition for taxing any amount in India under Article 7. In other words, it was submitted by the Ld. Counsel that since assessee had no PE in India during the year unde .....

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E in India, the impugned amount shall be taxable u/s 44BB in view of the judgment of Hon ble Uttrakhand High Court in the case of CIT Vs. M/s Halliburton Offshore Service Inc. 6.5. We have gone through the judgment relied upon by the Ld. DR, arguments made by the Ld. Counsel, facts of the case as well as orders passed by the lower authorities. The facts brought before us clearly suggest that impugned amount is recovery of the expenses/cost incurred by the assessee with respect to the operations .....

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dents of Mauritius in India. 6.6. We have also gone through the judgment of Hon ble Uttarkhand High Court relied upon by the Ld. DR in the case of CIT Vs. M/s Halliburton Offshore Service Inc.(supra). In the said judgment, it has been held by the Hon ble High Court that aggregate amount received by a non-resident assessee is chargeable to tax u/s 44BB @ of 10% without any deductions, like freight and transportation charges. Section 44BB taxes the income on deemed basis. It has nowhere been held .....

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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 .....

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her words, if the impugned expenses were originally an item of balance and were not debited in the profit and loss account, then their recovery shall not give rise to any income much less a taxable income. Thus, with these directions and observations, we send this issue back to the file of the AO who shall give adequate opportunity of hearing to the assessee and shall decide this issue afresh after considering all the facts and circumstances of the case. The assessee is free to raise all the leg .....

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BB the receipts from all the contracts on the ground that the appellant had a permanent establishment in India ignoring the fact that the duration of work performed in India under each of the contract did not exceed 9 months. The learned CIT(A) erred in holding that the appellant had a permanent establishment in India following the CIT(A)'s order for assessment year 1997- 1998 ignoring the fact that the order was pending for disposal on the date of passing the order for the subject year. 2. .....

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me 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 .....

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rations carried out by the assessee on its projectd and therefore, these should be treated as part of business profits liable to be taxed u/s 44BB subject to provisions of Article 7 and Article 5 of Indo-Mauritius Treaty. 9.2. We have decided an identical issue in ground no 2 of A.Y. 1998-99 ( in the assessee s appeal) wherein the issue was sent back to the file of the AO for verification of facts for determination of PE of the related projects. We find it appropriate to send this issue also bac .....

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in the quantum appeal have either been allowed in the quantum appeal or these have been sent back to the file of the AO for verification of requisite facts. Thus, penalty is deleted on those additions which have been deleted in the quantum appeal. For the remaining issues which have been sent back to the file of AO, the penalty order does not survive as on date, and therefore, the same is set aside. The AO is free to initiate and levy the penalty as per law, if and as and when any addition is m .....

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tistical purposes. 11.1. The grounds with regard to levy of interest u/s 234D are consequential and dismissed. We shall now take up assessee s appeal in ITA No.2227/Mum/2009 (Penalty appeal) 12. This penalty appeal is identical to penalty appeal of A.Y. 2000-01 and accordingly, AO is directed to follow our order for A.Y. 2000-01 in ITA No.2226/Mum/09 Now, we shall take up assessee s appeal in ITA No.8720/Mum/2010 for A.Y. 2004-05 The assessee has raised following grounds: Ground No. 1: 1.1. On t .....

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red 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 (&q .....

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n India under Article 5(1) of the DTAA ignoring the provisions of Article 5(2) of the DTAA. 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. Ground No. 4 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 Ap .....

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the case, the DDIT erred in considering disputed amount of ₹ 2,03,94,702 pertaining to the contract with Engineers India Ltd. - the Contractor as income of the Appellant. The Appellant prays that the aforesaid addition be deleted. Ground No. 7: On the facts and circumstances of the case and in law, the DDIT erred in levying interest under section 234A and 234B of the Act. The Appellant prays that the aforesaid levy be deleted. Ground No. 8: On the facts and in the circumstances of the cas .....

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mp; 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 ve .....

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ught to tax by the AO without discussing and brining complete facts on record and without giving adequate opportunity of hearing to the assessee. Before the Ld. DRP also the action of Ld. AO was endorsed and upheld without discussing the facts properly. It was submitted that law was applied in a blind-folded manner without examining the issue properly. Further, the reliance was placed on the judgment of Hon ble Bombay Bench in the case of Deep Drilling (I) Pte. Ltd. v. ADIT 21 taxmann.com 486 (M .....

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702/-. This amount was not included in the income by the assessee since the invoice was neither been accepted by the said company and nor the same has been paid. The AO included this amount in the income of the assessee on the ground that assessee was following mercantile system of accounting. 14.3. We have carefully examined the stands taken by both the parties. It is an accepted proposition that under mercantile system of accounting any income or expenses is taken into consideration on the bas .....

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d 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 conclude this issue at this stage. We find .....

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tion 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 i .....

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hall take up assessee s appeal in ITA No.8717/Mum/2010 for A.Y. 2005-06 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 issuance of notice under section 148 of the Income-tax Act, 1961 ('the Act') and completing the assessment at an income of ₹ 14,04,70,150. 1.2 The Appellant prays that the reassessment proceedings be held to .....

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the case, the DDIT erred in not appreciating that duration of each contract D5095 and D5094 & D5097 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. 2.3. The Appellant prays that it be held that the Appellant does not have a PE in India and therefore the income of ₹ 7,35, .....

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e, the Appellant does not have a PE in India under Article 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 .....

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ng 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 carried out in India should be taxed in India. Ground No. 6 6.1. On the facts and circumstances of the case, the DDIT erred in considering disputed amount of ₹ 28,63,192 pertaining to the Change orders in the contract with Larsen & Tubro- the Contractor as income of the .....

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ts income and has furnished inaccurate particulars of its income which led to penalty under the said section. 8.2 The Appellant prays to direct the DDIT to drop the penalty proceeding under section 271(1)(c) of the Act. Ground No. 9 The Appellant craves leave to add to, alter, and / or amend all or any of the above Grounds of Appeal 20. It is noted that grounds raised by the assessee in this appeal are identical to the grounds raised in A.Y. 2004-05 except ground no.5. Thus, AO is directed to fo .....

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. 2003-04. The Tribunal in its order for A.Y. 2003-04 dated 30.04.2010 in ITA NO.1557/Mum/2007 decided this issue in favour of the assessee and held as under: 4. The undisputed facts in this case are that the assessee had carried out certain portion of the work under the contract outside India. The CIT (Appeals) has extracted the work at para 3.11 pages 7 to 10 of his order and the bifurcation of the work done outside India and the work done within country are not disputed. As pointed out by the .....

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untry. 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 t .....

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ld as follows : Sec. 44BB is no doubt described as a Special provision for computing profits and gains in connection with the business of exploration, etc. of mineral oils but the terms Notwithstanding anything to the contrary refer to ss. 28 to 41 and as ss. 43 to 43A. In other words, s. 44BB is no doubt a special provision but only with reference to the system of computation of the taxable income, which was earlier being done by ss. 28 to 41, etc. It cannot replace, supersede or lean in favour .....

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be computed and at this stage s. 44BB steps in and the said section having replaced the earlier system of computing the income which was by resort to provisions of ss. 28 to 41, etc. The decision taken by the AM renders otiose/redundant the provisions of s. 5 inasmuch as all assessees engaged in the business of exploration of mineral oils would have their income computed for taxation purposes only with reference to s.44BB and the entire exercise of deciding the question of accrual of income or .....

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subject to other provisions of the Act in s. 5 would mean that if any other section operates to exclude from the total 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- à-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, .....

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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. 27th Nov., 2001 and Sedco Forex International Drilling Inc. v. Dy. CIT (2000) 67 TTJ (Del) 670; (2000) 72 ITD 415 (Del) overruled; CIT vs. Ajax Products Ltd. (1965) 55 .....

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rted in 92 ITD 385 (Mumbai) held as follows : That the assessee can be charged only in accordance with s. 9, is undisputed, and as per Expln. (a) to s. 9(1)(i), where part of the operations of business are carried out outside India, only part of the income reasonably attributable to operations carried on in India shall be deemed to accrue or arise in India. The use of the word shall in the said Explanation is unequivocally indicative of the legislative mandate contained therein. The Explanation, .....

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e income in question cannot even be construed to be deemed income of the assessee, there is no taxable income to be computed and so s. 44BB is inapplicable. Only a part of mobilisation/demobilisation work, which is attributable to the operations carried out by the assessee in India, is taxable in India. The services rendered by the assessee are not covered by the notification bearing No. GSR-304 (E), dt. 31st March, 1983 - Saipem SPA vs. Dy. CIT (2004) 86 TTJ (Del) ™ 1 followed. 8. Similar .....

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n 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 fin .....

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Vs. Hyundai Heavy Industries Co. Ltd, (2007) 291 ITR 482 that it is only the income of the business as is reasonably at tr ibuted to the operation carried out in India which as is reasonably attr ibuted to the operation carried out in India which can be said to be covered by sub-section(1) of section 9 the Income Tax Act, 1961. In the present case, as a finding it has been concurrently held that the receipts in US dollars mentioned in paragraph 4.2 of the Commissioner of Income Tax (Appeals) are .....

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devoid of any merits and is dismissed. Thus, respectfully following the order of the Tribunal and Hon ble High Court for A.Y. 2003-04, we decide this issue in favour of the assessee and accordingly ground no.5 is allowed. If income of the assessee is required to be brought to tax here in India with respect to any project, then the same can be done so in accordance with the aforesaid orders of the tribunal as well as high court. Therefore, without prejudice to our decision on other grounds, the A .....

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me of the appellant by holding that the appellant has a Permanent Establishment in India under Article 5(2)(i) of the Double Tax Avoidance Agreement between India and Mauritius(DTAA). 1.2.On the facts and circumstances of the 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 .....

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s 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 ₹ 9,64,54,393 as income of the Appellant. 3.2 The Appellant prays that it be held that LO of JRMMEI c .....

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arried outside India is related to the work carried out in India and accordingly chargeable to tax in India. 4.2 The Appellant prays that it be held that only the profits attributable to the operations carried out in India 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 levying interest under section 234D of the Act. 5.2. The appellant prays that the aforesaid levy be deleted VI Ground No. 6 6.1 On the facts and in the circums .....

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22. It is noted that grounds raised in this appeal are identical to grounds raised by the assessee for A.Ys. 2004-05 & 2005- 06. Thus, our order for these years applies mutatis mutandis to the grounds raised in this year and accordingly AO is directed to follow the same. 23. As a result the assessee s appeal may be treated as partly allowed. Now we shall take up Revenue s appeal in ITA No. 7083/Mum/2010 For A.Y. 2006-07 The revenue has filed this appeal on following grounds: "1. On the .....

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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 .....

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of the Double Tax Avoidance Agreement between India and Mauritius(DTAA). 1.2.On the facts and circumstances of the case, the DDIT erred in not appreciating that durations of each contracts D5680 and D5725 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 with respect t .....

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pplicable to the Appellant and without prejudice, the Appellant does not have a PE in India under Article 5(1) of the DTAA. 2.3. Without prejudice to the above, on the facts and in the circumstances of the case, the DRP has erred in considering the applicability of Article 5(1) of the DTAA in the Appellant's case, which was not an item proposed by the draft order passed under section 144C. 2.4 The Appellant prays that it be held that the powers of the DRIP are restricted to confirm, reduce o .....

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2 The Appellant prays that it be held that LO of JRMMEI cannot constitute PE of the Appellant. Ground no.4 4.1 Without prejudice to Ground No.3 above, on the facts and circumstances of the case, the DDIT erred in attributing the total contractual 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 .....

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