TMI Blog2017 (4) TMI 1635X X X X Extracts X X X X X X X X Extracts X X X X ..... income as the indebtedness is closely connected with the funds of the PE. However, the same cannot be said in respect of interest on income tax refund. Such interest is not effectively connected with PE either on the basis of asset test or activity test. Accordingly, it is held that this part of interest is taxable under paragraph No. 2 of Article XI - Decided in favour of assessee. Addition in respect of the Hazira project - HELD THAT:- It is a settled position that PE has to be reckoned project wise. As decided in Ishikama Heavy Industries Ltd [ 2007 (1) TMI 91 - SUPREME COURT] to attract the taxing provisions of I.T. Act, there has to be some activities conducted to permanent establishment (PE). There would be no tax liability with regard to overseas services even under the DTAA. From the invoices, it is clear that engineering services were sub contracted to a Singapore-based company and services were performed in Singapore only. As the work in respect of Hazira project was performed outside India, the AO was not right in treating 2% of the receipts as income. Reliance is also placed on the decision of Supreme Court in the case of CIT versus Hyundai Industries Co Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Project for Niko Resources Ltd. He therefore took at 2% of the receipt as income and did not allow beneficial treatment to the assessee in terms of the provisions of section 90(2) of the Income Tax Act, 1961 which provide that the provisions of the Income Tax Act that are more beneficial to the assessee have to be applied where DTAA exists with the native country of a non-resident assessee. It was the assessee s contention before the Assessing Officer that since the assessee was engaged in the business in connection with exploration and production of mineral oils, the provisions of section 44BB were applicable and, therefore, the income should have been worked out u/s 44BB of the Act. It was the assessee s contention that no work had been done in India in respect of the contract for Niko Resources Ltd. and all the work in respect of which invoices had been raised and amounts have been received, has been carried out totally outside India. However, the Assessing Officer did not agree with the contentions of the assessee and held that the assessee was assessable under Article VII of DTAA between India and Australia and accordingly, the amount of Rs. 1,46,73,467/- was added to the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Project by holding that the work in respect of this project was performed outside India without appreciating the fact that the assessee had a PE in India and the contract is for composite work and only part portion of contract was carried outside India by sub contracting that part to sub contractor. 2. That the ld.CIT (Appeals) has erred in law and on facts in relying upon the decision of Hon ble Supreme Court in the case of Hyundai Heavy Industries the work was carried out before the PE was created with is not the case in the case of the assessee company. 3. That the ld.CIT(Appeals) has erred in law and on facts in allowing set of loss for A.Y. 2001-02 on the basis that the order u/s 263 passed by CIT has been cancelled by the 1TAT, a decision which has not been accepted by the department. 4. That the Ld. CIT (Appeals) has erred in law and on facts in cancelling the interest charged u/s 234B. 2.3 A Special Bench was constituted on 7.10.2010 to decide ground no. 1 of the assessee s appeal. The question was as under:- Whether, on the facts and in the circumstances of the case, interest on income tax refund and fixed deposits with the bank is liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partly allowed. The Division Bench shall dispose off the appeal in conformity with this order. 2.5 Subsequent to the order of the Special Bench, a division Bench of the ITAT Delhi disposed of both the appeals vide order dated 29/02/2012 partly allowing both the appeals for statistical purposes. 2.6 However, the assessee moved Miscellaneous Applications against the order dated 29/02/2012 passed by the ITAT which were allowed and the order was recalled vide order dated 31/12/2013 in MA Nos. 88 and 89/Del/2012. 2.7 Now these appeals have come up for hearing before this Bench. 2.8 At the outset, Ld. DR submitted that it has been the Department s contention during earlier hearings that the revenue has already filed an appeal before the Hon'ble High Court of Uttarakhand against the order of the Special Bench and the same stood admitted and, therefore, the said appeal should be referred to a larger Bench. The Ld. AR opposed the department s plea. We have heard the rival submissions and carefully perused the relevant material placed on record. It is our considered opinion that a larger Bench could be constituted in some other case but it may not be open to constitute a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AAR in its decision in Geofizyka Torun Sp.zo.o, In re, [2010] 186 TAXMAN 213 (AAR), relevant portion of which is reproduced below: 6.1 The expression in connection with is important and has to be construed to have expansive meaning. While explaining the meaning of similar and interchangeable expressions viz. pertaining to and in relation to , the Supreme Court observed in the case of Doypack Systems (P.) Ltd. v. Union of India 1988 (36) ELT201 48. The expression in relation to (so also pertaining to ), is a very broad expression which presupposes another subject-matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context, see State Wakf Board v. Abdul Aziz AIR 1968 Mad. 79, 81 paragraphs 8 and 10, following and approving Nitai Charan Bagchi v. Suresh Chandra Paul 66 C.W.N. 767, Shyam Lai v. M. Shayamlal AIR 1933 All. 649 and 76 Corpus Juris Secundum 621. Assuming that the investments in shares and in lands do not form part of the undertakings but are different subject-matters, even then these would be brought within the purview of the vesting by reason of the above e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that from the invoices, it was clear that the engineering services were sub-contracted to a Singapore based company and that the services were provided in Singapore only. Ld. AR submitted that the Ld. CIT (A) has given the finding that as per the contract, the work in respect of the Hazira project was performed outside India, the Assessing Officer was not right in treating 2% of the receipts as income. 3.6 Ld. AR further submitted that the assessee was in the business of setting up infrastructure for exploration of oil which consisted of only laying through the pipelines and therefore, the assessee s case would not fall within the ambit of the phrase in connection with . Ld. AR also submitted that Explanation (1) to section 9 provided that profit attributable only to activities in India has to be taxed in India and since there was no activity in India with regard to the said project in the year under consideration, no income/profit can be attributable to the said project for the said year. Ld. AR also referred to Article VII of the DTAA to emphasise his contention. 3.7 On the issue of set off of losses, the Ld. AR submitted that the assessee had no objection in the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the specifications. It is an admitted fact that all the activities with reference to Niko contract were carried out by the appellant completely outside India. Even the inside India activities did not commence before 2004 and the appellant had not established any office/place of business in India in relation to Niko contract in FY 2002 03. It is a settled position that PE has to be reckoned project wise. During the previous year ending on 31.03.2003, appellant has undertaken only a part of the activity relating to designing and this work was carried out entirely outside India. The Supreme Court judgement in the case of Ishikama Heavy Industries Ltd 271 ITR 193 has held that in order to attract the taxing provisions of I.T. Act, there has to be some activities conducted to permanent establishment (PE). There would be no tax liability with regard to overseas services even under the DTAA. From the invoices, it is clear that engineering services were sub contracted to a Singapore-based company and services were performed in Singapore only. As the work in respect of Hazira project was performed outside India, the AO was not right in treating 2% of the receipts as income. R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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