TMI Blog2018 (4) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... :- 28-3-2018 - Mr. R.S. Shukla, In-charge Chairman And Mr. Ashutosh Chandra, Member (Revenue) For the Applicant : Mr. Deepak Chopra, Advocate Mr.Harpreet Singh Ajmani, Adv. Mr. Ramandeep Singh, CA Mr. RohanKhare, Advocate For the Department : Ms. Kavita Pandey, CIT (DR), AAR Mr. S.K. Chatterjee, JCIT (IT) RULING ( By Ashutosh Chandra ) SeaBird Exploration FZ LLC, UAE (the Applicant)filed the present application under section 245Q of the Income tax Act,1961, and the same was admitted on 29.06.2016. The Applicant is a company incorporated under the laws of UAE, and is its tax resident. It is engaged in the business of rendering geophysical services to the oil and gas exploration industry. Its core business activity involves 4C-3D seismic data acquisition and processing, which are aimed at increasing the exploration success of its oil and gas clients and maximizing their production. In India, it is providing these services to Oil and Natural Gas Corporation Ltd ( ONGC ) and other oil companies operating in India. It had entered into a contract with ONGC on 15.09.2011 vide contract No.9010014830 for 4C-3D seismic data acquisition, processing and interpretation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with ONGC be computed in accordance with provisions of section 44BB of the Act. 4. In its report dated 9.2.2017 and during the course of these proceedings, with reference to Questions No. (i), (ii) and (v) the Revenue accepts that considering the nature of activities carried out by the Applicant and decision of Hon ble Supreme Court in Oil Natural Gas Corporation Ltd. vs CIT [2015] 376 ITR 306 (SC), the revenue from such activity would not be taxable as Fees for Technical Services within the meaning of section 9(1)(vii) of the Income Tax Act, 1961. Further, since ONGC does not use or obtain the right to use the vessel/equipment of the Applicant, receipts from ONGC would not be taxable as Royalty, both under India UAE DTAA and the provisions of the Act. It is also accepted by the Revenue that the activities of the Applicant come within the purview of the term in connection with exploration of mineral oils, as stipulated undersection 44BB of the Act. 4.1 As far as Questions No. (iii) and (iv) are concerned, the Revenue strongly contended that the Applicant has a permanent establishment in India in the form of the vessels, and revenue from the said contract with ONGC is li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various business activities, in the case of equipment, a fixed place can be found to exist even though the equipment by the nature of business may be relocated from one site to another for a single customer under one integrated contract. A movable place of business is thus treated as fixed place of business and most of the equipment is used at fixed points within a proximate area on a repetitive continuous basis for sufficient period of time as required by the business. 4.4 The Revenue has also cited the case of Fugro Engineers B.V. vs. Assistant Commissioner of Income-tax [2009] 122 TTJ 655 (Delhi), where against the argument of number of days, it was held that the vessel and the rig constituted the fixed place PE within the meaning of Article-5(1) of India-Netherland DTAA. Reference in this decision was made to the Commentary on OECD Model Tax Convention, to say that there has to be a link between the place of business and a geographical point, and it is immaterial how long an enterprise operates in other Contracting State, and it does not mean that the equipment constituting the place of business has to be actually fixed to the soil. 5. The Applicant disputes the above p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the term 'Permanent Establishment' ..Read in the context of the other provisions of Article 5, paragraph 2 clearly indicates that it has been used as an explanatory provision to specifically include the species of places of business that would constitute a PE of an enterprise. In this view, paragraph 1 and 2 of Article 5 of the DTAA complement each other. Thus, all classes of PEs as specified in various sub-paras of paragraph 2 of Article 5 of the DTAA would be construed as a PE subject to the essential conditions of paragraph 1 of Article 5 being met. Insofar as sub-paras (h) and (i) of paragraph 2 of Article 5 are concerned, the test of permanence as required under paragraph 1 of Article 5 is substituted by a specified minimum period of nine months. Thus, places of business as specified under sub-paras (h) and (i) of paragraph 2 of Article 5, cannot be construed as a PE of an enterprise unless they exist for a period of at least nine months. 5.2 Reliance was also placed by the Applicant on the decision of this Authority in Cal Dive Marine Construction (Mauritius) Ltd. vs. DIT [2009] 315 ITR 334 (AAR), wherein similar view regarding interpretation of Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered ineffectual and perhaps otiose Thus clause (i) of Article 5(2) ought to be treated as a provision complementary to para 1 of Article 5. 5.3 The Applicant further submitted that reliance placed by the Revenue on the decisions in the case of M/s Poompuhar Shipping Corp. Ltd. (Supra) and Fugro Engineers B.V. (Supra) is misplaced. It was submitted that decision of Delhi Tribunal in Fugro Engineers (supra) is distinguishable on facts, as the issue before Delhi Tribunal was regarding interpretation of Article 5(2)(i) of the India-Netherlands DTAA which read as follows an installation or structure used for the exploration of natural resources provided that the activities continue for more than 183 days . The decision of Hon ble High Court of Madras in Poompuhar Shipping Corp. Ltd. (supra) is distinguishable as the larger issue before the Madras High Court was whether the payment made for taking a ship on time charter basis would constitute royalty and the duration test vis- -vis existence of a PE with respect to interpretation of Article 5(1) read with Article 5(2)(i) of the DTAA was not a subject matter of interpretation. 5.4 The Applicant submitted that it is well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 and 2008-09 in different survey areas of Western and Eastern Indian Offshore. It took an admitted position that its services of seismic data acquisition and processing were in connection with oil and mineral exploration, and on account of which it was eligible for computing its business income u/s 44BB of the IT Act 1961, which was a special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. The activities at that time were the same as at present, yet in that application, the Applicant had not taken the position that it did not have a PE in India, or that it was covered by any of the provisions in para 2 of Article 5 of the DTAA. This Authority had agreed with the Applicant s contention. 6.2 Coming to the issues raised before us, as far as question nos. 1 and 2are concerned, that is whether the consideration received by the Applicant from ONGC can be categorized as Fees for Technical Services or Royalty respectively, the Revenue accepts that considering the nature of activities and decision of Hon ble Supreme Court in Oil Natural Gas Corporation Ltd. (Supra), the consideration cannot be considered to be Fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in spite of the above it cannot be considered as having a PE since it is covered by the specific clause as contained in para (2)(i) of Article 5 of the India UAE DTAA requiring its period of operation to be more than 9 months to qualify it as a PE, and that a specific or special clause, as in Article 5(2)(i) will take precedence over a general provision as in Article 5(1). In the cases cited by it, it was finally held that in so far as sub-paras (h) and (i) of para 2 of Article 5 of the DTAA are concerned, the test of permanence as required under para 1 of Article 5 is substituted by a specific minimum period of nine months. 6.3.3 However, the applicability of the above dictum would depend on the facts of the case, as also submitted by the Applicant, that the ratio of a case must be understood having regard to the fact situation obtaining therein. In National Petroleum case, a case was made out that the activities of the appellant were covered by the provisions of Article 5(2)(h) of the India UAE DTAA, being a building site or construction or assembly project , as the appellant was engaged in installation of petroleum platforms. The issue was decided in favour of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not carried on mainly by employees/personnel but primarily by the vessels and equipments mounted thereon and deployed in the ocean. Such are not the services contemplated under para 5(2)(i) of the India UAE DTAA. 6.3.6 If the States signing the Treaty intended to include in Article 5(2)(i) the activities in connection with exploration, exploitation or extraction of mineral oil etc., the sub para would have said so. DTAAs are not to be interpreted like laws passed by Parliament that encompass a wide range of situations, and require one to examine and debate the legislative intent, as against the literal interpretation. DTAAs are entered into between executives of two States after consciously considering the business reality specific to the two States. 6.3.7 Klaus Vogel in his Commentary on Double Taxation Conventions, Third Edition(para 44, pg 294)states with regard to Article 5(2),while referring to exploration of natural resources as mentioned at subparagraph (f), that since this sub para does not include exploration and only refers to extraction of natural resources, and since it has not been possible to arrive at a common view on the basic questions of attribution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more than 183 days ; and India Japan DTAA, Article-5(2)(j): An installation or structure used for the exploration of natural resources, but only if so used for a period of more than six months , India UK DTAA, Article 5(2)(i), which mentions An installation or structure used for the exploration or extraction of natural resources; and so on. 6.3.9 In contrast to the above provisions in different DTAAs, in the case of the India UAE DTAA, which concerns us in this case, no such mention has been made with regard to activities in connection with exploration or connected activities. It is therefore clear that as far as the services and activities of the applicant are concerned, there is no specific provision in paragraph 2 of Article 5 of the India UAE DTAA, either mentioned or intended, that could cover the services carried out by the Applicant in connection with exploration of mineral oil on the high seas, as in para (5) of Article 5 of the India Singapore DTAA cited above. Hence, we get no assistance from the cases cited by the Applicant as the facts and the impacted provisions in the instant case are either different or are absent in the India UAE DTAA. In these circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X
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