TMI Blog2019 (4) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the same to follow the view taken therein, however we fail to do so in view of the fact that existence of a fixed place PE has been decided in that case holding that equipment cannot be held as fixed place of business. This observation of the Coordinate bench in assessee s own case is not in accordance with decision of Hon ble Supreme Court in case of Formula One World Championship Ltd vs CIT (International Taxation) [ 2017 (4) TMI 1109 - SUPREME COURT OF INDIA] We therefore, hold that assessee has PE in the form of equipment as fixed place of business in India as per Article 5(1) of India-UAE Treaty and income earned by assessee from contracts are taxable in India. Addition made by AO towards offshore supplies as chargeable to tax in India - deduction u/s 44BB - HELD THAT:- We have already held here in above that assessee has PE in India, offshore supplies are to be directly attributable to activities of PE in India through business connection in India in terms of section 9 (1) (i) of the Act. The alternate plea raised by assessee regarding applicability of special provision of section 44 BB. From the records placed before us, we do not see this issue has neith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Assessing Officer erred in contending that ULO has adopted completely non-cooperative approach. 3. Ground 3 Based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in holding that the appellant has a fixed place of business in India, which constitutes its P.E. in India. 4. Ground 4 4.1. Based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in holding that the offshore supplies made by assessee outside India are chargeable to tax in India. 4.2. Without prejudice to above, based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in making arbitrary estimate of taxable income at 10 per cent of offshore supplies. 4.3. Without prejudice to above, the arbitrary estimate of taxable income at 10 per cent of gross revenues made by the Ld.AO is unreasonable, excessive and ought to be reduced substantially. 5. Ground 5 5.1. Without prejudice to above, based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in making arbitrary est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. 2.2. Based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in holding that the credit notes issued by the appellant are not eligible for deduction while computing the income of the appellant. 2.3. Without prejudice to the above, based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in making arbitrary estimate of taxable income at 10 percent of offshore supplies. 2.4. Without Prejudice to the above, the arbitrary estimate of taxable income at 10 percent of offshore supplies made by the learned Assessing Officer is unreasonable, excessive and ought to be reduced substantially. 3. Ground 3 3.1. Based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in making arbitrary estimate of taxable income at 10 percent in respect of services rendered in India. 3.2. Without Prejudice to the above, the arbitrary estimate of taxable income at 10 percent in respect of services rendered in India made by the learned Assessing Officer is unreasonable, excessive and ought to be reduced substantially. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced substantially. 3. Ground 3 3.1. Based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in making arbitrary estimate of taxable income at 10 percent in respect of services rendered in India. 3.2. Without Prejudice to the above, the arbitrary estimate of taxable income at 10 percent in respect of services rendered in India made by the learned Assessing Officer is unreasonable, excessive and ought to be reduced substantially. 3.3. Without prejudice to the above ground, the learned Assessing Officer erred in not taxing income from services rendered in India as per the provisions of section 44BB of the Act. 4. Ground 4 Based on the facts and circumstances of the case, the learned Assessing Officer erred in taxing interest income from income-tax refund of ₹ 146,570. 5. Ground 5 Based on the facts and circumstances of the case, the learned Assessing Officer erred in initiating penalty proceedings under section 271 (1)(c) of the Act for concealing the particulars of income by not disclosing the true receipts from supplies and by furnishing inaccurate particulars of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntially. c. Without prejudice to the above ground, the learned Assessing Officer erred in not taxing income from services rendered in India as per the provisions of section 44BB of the Act. 4. Ground 4 Based on the facts and circumstances of the case, the learned Assessing Officer erred in initiating penalty proceedings under section 271 (1)(c) of the Act for concealing the particulars of income by not disclosing the true receipts from supplies and by furnishing inaccurate particulars of income. 5. Ground 5 Based on the facts and circumstances of the case, the learned Assessing Officer erred in initiating penalty proceedings under section 271B of the Act. Each of the above grounds is without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable the Honorable Members to decide this appeal according to law. ITA 317/Del/16 AY: 2012-13 Based on the facts and circumstances of the case, ULO Systems LLC (hereinafter referred to as the Appellant ) respectfully craves to prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 3,054,742 only as against TDS credit of ₹ 4,485,601 as claimed in the return of income. 7. Ground 7: Levy of interest under section 234B of the Act erred in levying interest u/s 234B of the Act disregarding the fact that appellant is a non-resident and interest u/s 234B of the Act is not leviable to a non-resident assessee. 8. Ground 8: erred in initiating penalty proceedings under section 271 (1)(c) of the Act without appreciating that the appellant has neither concealed nor furnished any inaccurate particulars of income. 9. Ground 9: initiation of penalty proceedings u/s 271B of the Act erred in initiating penalty proceedings under section 271 B of the Act without appreciating that the appellant is not required to maintain books of accounts in India/get the accounts audited. The above grounds is without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable the Honorable Members to decide this appeal according to law. 2. Brief facts of the case are as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aggrieved by final order of Ld. AO, assessee is in appeal before us in respect of all assessment years under consideration. Ground No. 1 is general in nature and therefore do not require any adjudication. Ground No. 2-3 has been raised against the view of Ld. AO regarding existence of PE in India 3.1. At the outset Ld.Counsel placed reliance upon order dated 21/12/2018 of this Tribunal in assessee s own case for assessment year 2007-08 in ITA No. 5968/Del/2010. He submitted that Ld. AO as well as DRP followed assessment year 2007-08 which attained finality. It has been further submitted that issue stands squarely covered by this order. Ld.Counsel submitted that all contentions raised by Ld. CIT DR in written submissions are identical and have been considered by this Tribunal in that order. 3.2. Ld.Counsel submits that assessee do not have fixed place of PE in India available for its disposal for carrying on business in India and does not constitute a PE under Article 5 (1) of India UAE DTAA. He also submitted that, assessee do not have office/project office in India for executing contracts and accordingly does not have a PE in India as per provisions of Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Article 5 (2) (h) of the treaty. He submitted that equipment used by assessee constitutes its place of business , and therefore there is existence of Equipment PE of assessee in India. He submitted that assessee therefore qualifies for PE in terms of article 5 (1) of the treaty. 4.1. Ld.CIT DR further submitted that, projects undertaken by assessee during years under consideration, were ongoing project and they were in continuance. Referring to page 58 and 73 of paper book, Ld.CIT DR submitted that, vessels are provided by contractors and equipments along with personnel are provided by assessee. He submitted that there is no evidence to support handover of contract when work is being completed. It has been submitted that whenever there is a demobilisation of equipment one phase of project ends, and personnel along with equipment are demobilised to another site. He submitted that action of grouting took place in phases and no books of accounts are maintained by assessee. He thus submitted that continuance of project in such phased manner constitutes PE in terms of Article 5 (2) of India UAE DTAA, and therefore amounts to PE in terms of Article 5 (1) of DTAA. 4.2. Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar relevant to assessment years under consideration. Admittedly, assessee entered into contracts with following parties during preceding assessment year and assessment years under consideration, the details tabulated by Ld.DR are as under. 5.2. Revenue is derived by assessee in relation to activities carried out under various contracts executed by assessee with parties in India, is in the nature of business profits, and amounts received thereunder would have to be examined under Article 7 of India UAE DTAA. Article 7 of the treaty provides that business profits earned by a resident of UAE shall be taxable in India, only if, such resident carries on business in India through a PE, as defined under Article 5 of the treaty, situated in India. 5.3. The issue that arises in all these appeals filed by assessee is, whether there is a PE in India from grouting activities carried on by assessee and alternatively, applicability of section 44 BB of the Act, to the income earned by assessee from grouting activities. Assessee has also earned receipts in connection with offshore supplies made to Indian customers and attribution of such income provided existence of PE is establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d duration test. Thus whereas, India UAE DTAA uses Cingular expressions building, site or construction or assembly project and, therefore, in our understanding, aggregation of different projects is not allowed by conscious legislative scheme. 18. Before us, the Ld. DR referred to records of several assessment years and on that basis, alleged that in the absence of reliable and authentic details regarding number of days spent in India article 5 (1) will apply instead of article 5 (2) (h). We would like to mention here that the DRP has concluded that 264 days were spent in India during assessment year 2007-08. In our considered opinion, the Ld. DR, at this stage, cannot improve the findings of the DRP. 19. Another objection of the Ld. DR was that the assessee indulged in ongoing projects and, therefore, it cannot be said that the state is less than 9 months. We are of the opinion that the establishment of PE in India is in respect of each assessment year only. Moreover there is no bar in carrying on the activities year after year. The determination of existence of PE in India is to be made by reference to provision in DTAA. In our considered opinion the Ld. DR was tryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by a resident of UAE shall be taxable in India only if such resident carries on business in India through a permanent establishment as defined under Article 5 of the treaty situated in India. 5.9. From these arguments advanced by Ld.Counsel, he admits before us that there is Construction PE of assessee in India. 6. We shall analyse Article 5 (2) (h) of the treaty, to the specific activity carried out by assessee, in case of assessee for Assessment Years under consideration in light of observations made by Coordinate bench of this Tribunal for assessment year 2007-08 (supra). Article- 5(2)(h) (2) The term permanent establishment includes especially: (h) a building site or construction or assembly project or supervisory activities in connection therewith, but only where such site, project or activity continues for a period of more than 9 months; Article 5(2) uses the word 'include', which means, only the places specified therein are to be treated as PE, the list of such PEs is not exhaustive. According to Klaus Vogel in his book on Double Taxation Conventions, A Commentary to OECD-UN and US Model Convention for Avoidance of Double ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed not be for Enterprises exclusive use; and generally, human element is not relevant. In other words, such a place of business may comprise of an equipment (for instance, a computer server) and need not be manned with the Enterprises personnel. 6.3. In the book, Klaus Vogel on Double Taxation Conventions A Commentary to OECD-UN-and US model Convention for Avoidance of Double Taxation on Income and Capital defines at page 285, a place of business has been held as under: A place, though normally a particular portion of space, must be read in the light of its being used to define establishment . A place of business , therefore means all the tangible assets used for carrying on the business 6.4. Before us, Ld.Counsel did not argue, on as to whether equipments through which, assessee carried out its business activity, constituted fixed place PE under Article 5 (1) of India UAE treaty for assessment years under consideration. Instead, he placed reliance upon observations of this Tribunal for assessment year 2007-08 in assessee s own case regarding applicability of Article 5 (2) (h) of treaty, and that activities carried out by assessee amounts to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Coordinate bench in its own case for assessment year 2007-08. We very carefully perused the same to follow the view taken therein, however we fail to do so in view of the fact that existence of a fixed place PE has been decided in that case holding that equipment cannot be held as fixed place of business. This observation of the Coordinate bench in assessee s own case is not in accordance with decision of Hon ble Supreme Court in case of Formula One World Championship Ltd vs CIT (International Taxation)-3, Delhi (supra) wherein, Hon ble Supreme Court observed as under: 25. Some of the examples of fixed place of business given by Baker are the following: The place of business must be fixed and permanent. Thus, a shed which had been rented for thirteen years for storing and preparing hides was held to constitute a PE [Transvaal Associated Hide Skin Merchants (Pty.) Ltd. v. Collector Tax Botswana [1967] 29 SATC 97]. Similarly, a writer's study has been held to constitute a PE [Georges Simenon v. Commissioner of Interval Revenue [1965] 44 TC (US) 20]. A stand at a trade fair, occupied regularly for three weeks a year, through which the enterprise obtained contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Canadian company, which he was only allowed to enter at normal office hours. He was allowed to use the client's telephone only on client's business. He spent 300 days in one tax year and 40 in the subsequent year at the premises. The Tax Court of Canada and the Federal Court of Appeal confirmed that he had no fixed base which was treated as having the same meaning as PE at the premises since he had no right to use the premises as the base for the operation of his own business. (ii) In a case generally referred to as Hotel Manager4, the Bundesfinanzhof held that a UK hotel management company had a PE in Germany when it entered into a 20 year contract with a limited partnership which owned a hotel. The agreement required the UK company to supply a general manager: the general manager's office constituted the PE (and not the entire hotel) since the UK company had a secured right to use this office for the purposes of the agreement. (iii) A Swiss company was held not to have a PE when it contracted with a German company to produce salad dressings in the name of and in accordance with the recipe of the Swiss company. No employees of the Swiss company were p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soil or on the soil. This understanding of place as a three-dimensional zone rather than a single point on the earth can be derived from the French Version ('installation fixe') as well as the term 'establishment'. As a rule, this zone is based on a certain area in, on, or above the surface of the earth. Rooms or technical equipment above the soil may quality as a PE only if they are fixed on the soil. This requirement, however, stems from the term 'fixed' rather than the term 'place', given that a place (or space) does not necessarily consist of a piece of land. On the contrary, the term 'establishment' makes clear that it is not the soil as such which is the PE but that the PE is constituted by a tangible facility as distinct from the soil. This is particularly evident from the French version of Article 5(1) OECD MC which uses the term 'installation' instead of 'place'. The term 'place' is used to define the term 'establishment'. Therefore, 'place' includes all tangible assets used for carrying on the business, but one such tangible asset can be sufficient. The characterization of such assets un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resentatives, the mere space needed for the physical presence of these individuals is not sufficient (if it were sufficient, Article 5(5) OECD MC and Article 5(5)(a) UN MC and the notion of agent PEs were superfluous). This can be illustrated by the example of a salesman who regularly visits a major customer to take orders, and conducts meetings in the purchasing director's office. The OECD MC Comm. has convincingly denied the existence of a PE, based on the implicit understanding that the relevant geographical unit is not just the chair where the salesman sits, but the entire office of the customer, and the office is not at the disposal of the enterprise for which the salesman is working. 32. Taking cue from the word 'through' in the Article, Vogel has also emphasised that the place of business qualifies only if the place is 'at the disposal' of the enterprise. According to him, the enterprise will not be able to use the place of business as an instrument for carrying on its business unless it controls the place of business to a considerable extent. He hastens to add that there are no absolute standards for the modalities and intensity of control. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 24(3) OECD and UN MC), and that facilities of a subsidiary would rarely been unusable outside the office hours of one of its customers (i.e. a third person), the view of the two courts is still more convincing. Along these lines, a POB will usually exist only where the taxpayer is free to use the POB: - at any time of his own choice; - for work relating to more than one customer; and - for his internal administrative and bureaucratic work. In all, the taxpayer will usually be regarded as controlling the POB only where he can employ it at his discretion. This does not imply that the standards of the control test should not be flexible and adaptive. Generally, the less invasive the activities are, and the more they allow a parallel use of the same POB by other persons, the lower are the requirements under the control test. There are, however, a number of traditional PEs which by their nature require an exclusive use of the POB by only one taxpayer and/or his personnel. A small workshop (cf. Article 5(2)(e) OECD and UN MC) of 10 or 12 square meters can hardly be used by more than one person. The same holds true for a room where the taxpayer runs a no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not necessarily mean that the location is at the disposal of that enterprise. 35. The OECD commentary gives as many as four examples where location will not be treated at the disposal of the enterprise. These are: (a) The first example is that of a salesman who regularly visits a major customer to take orders and meets the purchasing director in his office to do so. In that case, the customer's premises are not at the disposal of the enterprise for which the salesman is working and therefore do not constitute a fixed place of business through which the business of that enterprise is carried on (depending on the circumstances, however, paragraph 5 could apply to deem a permanent establishment to exist). (b) Second example is that of an employee of a company who, for a long period of time, is allowed to use an office in the headquarters of another company (e.g. a newly acquired subsidiary) in order to ensure that the latter company complies with its obligations under contracts concluded with the former company. In that case, the employee is carrying on activities related to the business of the former company and the office that is at his disposal at the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 3 for assessment year 2012-13, are in respect of issue of whether there exist fixed place of business of assessee in India which would constitute permanent establishment under article 5 (1) in India. We have already held hereinabove while deciding ground No. 2-3 for assessment year 2008-09 that the vessel in which the equipments were placed and personnel was stationed forms a fixed place of business through which the business activity has been carried on by assessee thereby constituting PE in India and its income is taxable as per Article 5 (1) of DTAA. 6.13. Accordingly Ground No. 1-2 for assessment year 2009- 10, Ground No. 1-2 for assessment year 2010-11, assessment year 11-12 and Ground No-2-3 for assessment year 2012-13 stands dismissed. 7. Ground No. 4-5 for assessment year 2008-09, is raised by assessee against addition made by Ld.AO towards offshore supplies as chargeable to tax in India. 7.1. We have already held hereinabove that assessee has PE in India, offshore supplies are to be directly attributable to activities of PE in India through business connection in India in terms of section 9 (1) (i) of the Act. The alternate plea raised by assessee reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ismic surveys for exploratory drilling. 2. 740 Drilling, furnishing personnel for manning, maintenance and operation of drilling rig and training of personnel. 3. 731 Drilling, furnishing personnel for manning, maintenance and operation of drilling rig and training of personnel. 4. 1722 Furnishing supervisory staff with expertise in operation and management of Drilling unit. 5. 729 Capping including subduing of well, fire fighting. 6. 738 Capping including subduing of well, fire fighting. 7. 1528 Analysis of data to prepare job design, procedure for execution and details regarding monitoring. 8. 1532 Study for selection of enhanced Oil Recovery processes and conceptual design of Pilot Tests. 9. 1520 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir, inspection and overhauling of turbines. 26. 736 Inspection, engine performance evaluation, instrument calibration and inspection of far turbines. 27. 1522 Replacement of choke and kill consoles on drilling rigs. 28. 1521 Inspection of gas generators. 29. 1515 Inspection of rigs. 30. 2012 Inspection of generator. 31. 1240 Inspection of existing control system and deputing engineer to attend to any problem arising in the machines. 32. 1529 Inspection of drilling rig and verification of reliability of control systems in the drilling rig. 33. 2008 Expert advice on the device to clean insides of a pipeline. 34. 2795 Feasibility study o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2008-09 raised by assessee stands allowed for statistical purposes. 8. It has been submitted by both sides that facts and circumstances of case are identical and similar in all assessment years under consideration. 8.1. Accordingly Ground 3 for assessment year 2009-10, 2010- 11, 2011-12 and Ground No. 4 for assessment year 2012-13 raised by assessee stands allowed for statistical purposes. 9. Ground No.6 for assessment year 2008-09 has been raised by assessee on levying interest under section 234B of the Act. 9.1. It is observed that assessee is an overseas entity and in the appeal filed by it for the assessment years under consideration the ground has been raised to delete interest levied under section 234B of the Act. 9.2. We find force in submissions of assessee as Hon ble Delhi High Court in case of Sedco Forex International Drilling Co. Ltd vs. DCIT, reported in (2003) 134 Taxman 109, held that, when duty is cast on the payer to pay tax at source, on failure, no interest can be imposed on the payee-assessee. 9.3. Respectfully following the decision of Hon ble Delhi High Court in case of Sedco Forex International Drilling Co. Ltd vs. D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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