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TMI Blog2018 (4) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the Mumbai High Field. 2. The Applicant has sought a Ruling from this Authority for the determination of its tax liability in respect of the revenue received under the above said contract with ONGC, on the following questions: 1. Whether on the facts and in law, can the consideration, for services provided by the Applicant to Oil and Natural Gas Corporation Ltd ('ONGC') be construed to be in the nature of 'Fees for Technical Services' ('FTS') under section 9(1)(vii) of the Act? 2. Whether on the facts and in law, can the consideration for services provided by the Applicant be construed to be in the nature of 'Royalty' under section 9(1)(vi) of the Act and/ or under Article 12 of the Double Taxation Avoidance Agreement between India and UAE ('Tax Treaty')? 3. Whether on the facts and in law, can the Applicant be considered as having a Permanent Establishment ('PE') in India under Article 5 of the Tax Treaty in respect of its contract with ONGC? 4. If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. (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 liable to be taxed in India. The Revenue argued that the seismic vessel itself constitutes the "Fixed Place Permanent Establishment" within the meaning of Article5(1) of India UAE DTAA, as for the purpose of this contract the vessel performs its activities within India and the place is also at the disposal of the enterprise. No length of period is provided under Article 5(1) of the India UAE DTAA for constituting a fixed placed permanent establishment. 4.2 As against the Applicant's arguments that its case is covered by Article 5 (2)(i) of the DTAA as it provides services, it is submitted by the Revenue that as per Article 5(1), there has to be a fixed place of business to fall within the ambit of PE, and which is there in this case. As per normal understanding, there has to be a link between the place of business and a specific geographical point but this does not mean that the equipment constituting the place of business has to be actually fixed to the soil on which it stands. The wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise 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 position to clarify that indisputably the activities carried out by the Applicant fall under Article 5(2)(i) of the India-UAE DTAA, being a service contract, which reads as -"the furnishing of services including consultancy services by an enterprise of a Contracting State through employees or other personnel in the other Contracting State, provided that such activities continue for the same project or connected project for a period or periods aggregating more than 9 months within any twelve-month period". It isargued that for constituting a service PE, the duration of nine months within any twelve months period provided under Article 5(2)(i)has to be read in Article 5(1) of the India-UAE DTAA. It was submitted that the special provision has always to prevail over or to be given preference and priority as against a general provision as expressed in the legal maxim that "generaliaspecialibus non derogant". Hence, the contract being a service contract, Article 5(2)(i) of the DTAA would apply, sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 5(1)read with Article 5(2)of the DTAA was given. It was held at para 5.1 that: "Having given a broad definition of PE in the first para, the instances of PE are enumerated in para 2 by means of an inclusive clause. Broadly speaking, para 2 of Article 5 is complementary to the general concept of PE embodied in the opening paragraph of Article 5...." At para 5.2 reference was made to another Ruling of this Authority in P. No. 24 of 1996, In re (1999) 237 ITR 798, where, in the context of the India Netherlands DTAA it was explained that: ". . . In order to decide whether a foreign enterprise has a permanent establishment or not, the paragraphs of Article 5 which define that expression have to be read together........ Paragraph 1 sets out a general definition; paragraph 2 gives an inclusive definition; paragraph 3 prescribes a limitation; paragraph 4 outlines a number of exclusions and paragraphs 5 to 7 deal with special cases where the foreign enterprise functions not direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te "royalty" and the duration test vis-à-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 settled that a decision is an authority for what it decides and not what can logically be deduced therefrom. It is also well settled that the ratio of a case must be understood having regard to the fact situation obtaining therein. Various cases have been cited in support. 5.5 It was thus contended that in view of the service contract not exceeding the period prescribed in Article 5(2)(i) of the DTAA, the Applicant could not be said to have a PE in India and hence, taxability was not triggered. Accordingly, it prays that Question No. (iii) and (iv) of the application should be decided in favour of the Applicant. 6. We have considered the questions raised before us seeking a Ruling, the interpretation and contentions of the Applicant, and the arguments of the Revenue. The Applicant 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 acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical 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 for Technical Services within the meaning of section 9(1)(vii) of the Act. Further, since ONGC does not use or obtain the right to use the vessels/equipment of the Applicant, receipts from ONGC cannot be termed as Royalty either. We agree with this view. We would not delve deep into this issue as both the Applicant as well the Revenue agree on this position. Looking into the nature of activities, the consideration is neither in the nature of Fees for Technical Services, as analysed and held on identical facts in our Ruling in AAR/815/2009 in the Applicant's own case referred to earlier; nor Royalty, since ONGC has not paid the consideration for any rights of survey or exploration transferred to it by the Applicant. Hence, the consideration received cannot be brought to tax under these heads. 6.3 We now come to the main issueas contained in questions 3 and 4, namely whether the Applicant could be said to have a PE in India, and if so, whether its in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions 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 appellant as it was found that its activities indeed fell within this sub para of the DTAA. Similarly in the case of Cal Dive Marine Construction (Mauritius) Ltd. (AAR), which analysed the provisions of the India Mauritius DTAA, and also drew parallel between different paras of the India Mauritius and India Netherlands DTAAs, laying of pipelines and constructing the structures inclusive of pre-commissioning of the pipelines were found to be covered by Article 5 (2)(i) of the India Mauritius DTAA, which talks of "a building site or construction or assembly or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more than nine months". Thus in both the cases, the nature of activities referred to in the different paras and sub paras of Article 5 were found to be similar to those of the Applicant / Appellant in those cases. It was only thereafter that the findings were given that these specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 taxation rights and of the qualification of the income from exploration activities, the contracting States may agree upon the insertion of specific provisions. They may agree, for instance, that an enterprise of a contracting State, as regards activities of exploration of natural resources: (a) shall be deemed not to have a permanent establishment in that State; or (b) shall be deemed to carry on such activities through a permanent establishment in that other state; or (c) shall be deemed to carry on such activities through a permanent establishment in that other State if such activities last longer than a specified period of time. 6.3.8 Thus it is clear that whenever two States wanted clarity with regard to taxability of income arising from activities in connection with exploration of mineral oil, subject to a duration clause,would incorporate a specific clause to that effect. For example in the India Singapore DTAA, at subpara(j) of para2 of Article 5, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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, we do not find any scope for getting into the debate of interplay between paras 1 and 2 of Article 5 of the India UAE DTAA, or to resolve any conflict therein, as made out by the Applicant, since the services rendered by the Applicant are not covered by any of the sub paras of para 2 of Article 5or any other para. If at all, and if a broad view is taken, namely that the activities undertaken by the Applicant are considered as being in connection with extraction of mineral oil, then the closest provision in the India UAE DTAA would be Article 5(2)(f), wherein there is no mention of any duration, and hence does not come to the help of the Applicant. 6.3.10 In this view of the matter, we have no option but to go back to paragraph 1 of Article 5, which provides an overarching definition of "permanent establishment". As we have seen above, in this para all the ingredients necessary to constitute a permanent establishment find place in the nature of services undertaken b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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