TMI Blog1997 (10) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... hicles (hereinafter referred to as 'ROV'), which performed the submarine work. Relying upon article 7(1), read with article 5(2)(h) and (i) of the Double Taxation agreement, the Assessing Officer held that the profit arising from these receipts is taxable in India, The profit was estimated at the rate of 10 per cent of the receipts and was brought to tax. 3. In appeal before the CIT(A), the assessee referred to article 5 of the Double Taxation Agreement, (hereinafter referred to as 'DTA') which defined 'Permanent Establishment' as under: "Article 5. Permanent Establishment- (1) for the purpose of this convention the term 'permanent establishment' means a fixed place of business in which the business of the enterprise is wholly or partly carried on." On the basis of the above, the assessee pointed out that a ship cannot be considered a fixed place of business. The assessee stated that it was in the Indian shore for only 21/2 months and the only job was to undertake the repairs of pipelines. It was also pointed out that since the assessee was engaged in extraction, exploration of natural resources, it could not be treated to have a permanent establishment in India, both phy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by ONGC as per its tender No. BOP/SP/SCON-OPS/IPL/83-84 cited above and had its offers for the same in response to MDL's letter/telexes from time to time. 'Operation' is defined in clause 2.3 of the agreement to mean rendering the services at MDL's/ONGC discretion as mentioned in scope of work in clause 3.0 to be read in conjunction with Annexure I. 'Site' is defined in the agreement as the location where the services are to be carried out, approved by MDL/ONGC for the purpose of the contract together with any other places designated in the contract as forming part of the site. Clause 2.7 defines 'Mobilisation of the Contractor' as performance by the Contractor of all those things necessary to be full ready to begin work at the site after successful completion or performance test as per Scope of Work. Mobilisation of the Contractor shall not be limited to the providing of all transport from point of origin to the place of work, all equipment and materials, all personnel, satisfaction of Government requirements, logistrical support and the setting up at site in a condition of full readiness to commence the work, but shall include performance test as per clause 3.1.14 'Demobilisatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of inspection work which constitutes the total inspection programme may be divided into three categories: (i) Inspection of trunkline before shore approach. (ii) Inspection of trunkline in the shore approach area. (iii) Inspection of flowlines in the Bombay High North and South. The total trunkline length which are included in categories (i) and (ii) is 342 Km and pipe length included under category (iii) i.e. flowlines is around 100 Km. The expected number of pipe crossings are around eleven out of which three are on trunkline and eight on flowlines. Details of pipelines are given in Annexure-I. MDL reserves the tight to increase or decrease the volume of work. 3.1.14 Performance Acceptance Test The contractor will be required to give a performance test of the spread to satisfy MDL/ONGC with the capability of the spread to perform the scope of work. For this, the contractor will be required to carry out inspection/survey of 5 Km of buried pipeline at a mutually agreed location and to provide the complete data as specified in the scope of work. Subject to performance of this inspection/survey to the satisfaction of MDL/ONGC further job will be carried out. In case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted imposes a restriction on the amount of the executive and general administrative expenses which may be allowed, and that restriction is relaxed or over-ridden by any convention between that Contracting State and a third State which enters into force after the date of entry into force of this Convention, the competent authority of that Contracting State shall notify the competent authority of the other Contracting State of the terms of the corresponding paragraph in the congention with that third State immediately after entry into force of that convention and, if the competent authority of the other Contracting State so requests, the provisions of this sub-paragraph shall be amended by protocol to reflect such terms. (b) However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise, or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anent establishment are to be taxed in India. Therefore, one can conclude that unless the assessee has a permanent establishment, its profits from business are taxable only in the U.K. and not in India. What is permanent establishment is defined in article 5 of the DTA. It means a fixed place of business wherein the assessee's business is carried on wholly or partly. Certain places are specifically included in the term 'permanent establishment', and they have been reproduced earlier. On a bare reading of the same it seems to be evident that permanent establishment denotes some place of fixed nature with permanency, and it does not include in its ambit a moving vessel which operates near a fixed place and which does not belong to the assessee. The Andhra Pradesh High Court in CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146/15 Taxman 72 has held the permanent establishment to connote a projection of the foreign enterprise itself into the territory of the taxing State in a substantial and enduring form: (vide F.E. Koch's Book on the Double Taxation Conventions published by Stevens Sons, London, 1947, Vol. I, at p. 51, quoting Mitchell B. Caroll before the subcommittee of the comm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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