TMI Blog2008 (12) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract was that of assessee. Even the AO has accepted this fact. Further, the personnel supplied by the Malaysian company worked under the control and direction of the assessee company. This finding of the CIT(A) remains uncontroverted. The role of the Malaysian company came to an end on the supply of the personnel to the assessee. Thus, in our opinion, it cannot be said that the Malaysian company had any obligation to supervise the work at Haldia. Therefore, the reasons given by the AO do not survive. At this stage, it may be mentioned that such issue came up before the Authority for Advance Ruling in the case of Tekniskil (Sendirian) Berhard [ 1996 (4) TMI 491 - AUTHORITY FOR ADVANCE RULINGS] held that if all that the applicant has done is to recruit foreign labour abroad and made them available to HHI in India, both of the applicants can be said to have no relation to a PE in India . It would be appropriate to mention that the AAR had given its opinion considering the DTAA between India and Malaysia with which we are concerned. Therefore, the view taken by us is fortified by the aforesaid decision. In view of the above discussion we do not find any infirmity in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have no application to the present case. As far as the proviso is concerned, it is applicable only when the services are rendered in connection with the prospecting for or extracting or production of mineral oil in the Contracting State. The learned counsel for the assessee has specifically asserted that no supervisory activity related to prospecting for or extracting or production of mineral oils was carried out. Even the ld DR has not brought any material on record to justify the applicability of the proviso. Merely because the supervisory activities related to the construction of a part of the refinery, it cannot be said that such supervisory activity was rendered in connection with the prospecting for or extracting or production of mineral oil. Therefore, we do not find any infirmity in the order of the CIT(A). The order of the CIT(A) is, therefore, upheld on this issue. Disallowance u/s. 40(a)(i) - payment to Dumul Technology Services B.V. in connection with the engineering services for the project at Haldia - contention of the ld DR is that the CIT(A) has wrongly applied the amended provisions of art. 12 of the DTAA between India and Netherlands since the amendment was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and, therefore, it could not be said that any service had been rendered by the Malaysian company. It was further submitted that the Malaysian company did not have any office or any presence in India and, therefore, no part of such receipt was chargeable to tax in India and consequently, the assessee was not required to deduct tax at source. Reliance was placed on the decision of the Authority for Advance Ruling in the case of Tekniskil (Sendirian) Berhard, In re (1996) 135 CTR (AAR) 292 : (1996) 222 ITR 551 (AAR). 3. After going through the agreement between the assessee and the Malaysian company, it was found by the AO that-(i) personnel supplied by the Malaysian company were highly technical personnel; (ii) these personnel were sent on deputation and therefore continued to be employees of the Malaysian company even after the completion of the work in India; (iii) they were deputed in India for supervising the project work of the assessee; (iv) such personnel stayed in India for more than six months and (v) overall responsibility for completion of the project was only with the assessee company. The contention of the assessee that such personnel worked under the supervisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Malaysian company would be governed by art. 7 dealing with the business profits. It was also observed by him that art. 7 permitted the Indian State to levy tax only where the foreign enterprise has a PE in India. It was further observed by him that the AO had not controverted the submission of the assessee that the Malaysian company does not have any office in India. It was further observed by him that as per the agreement, the Malaysian company was required to supply personnel and such personnel had worked under the control and supervision of the assessee. Therefore, it could not be said that the Malaysian company had rendered supervisory activities in India and consequently the Malaysian company could not be said to have a PE in India. Accordingly, it was held that income of Malaysian company was not chargeable to tax in India and therefore the assessee was not required to deduct the tax at source. Consequently, the provisions of s. 40(a)(i) did not apply to the present case. He also drew support from the decision of the Authority for Advance Ruling in the case of Tekniskil (Sendirian) Berhard. Aggrieved by the same, the Revenue is in appeal before the Tribunal. 6. After heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btain the requisite personnel from Malaysian company. Clause 4 of the agreement provides that the role of the Malaysian company would end on supply of personnel to the assessee and the assessee shall be responsible for imparting or conducting training for the personnel in order to make such personnel to carry out the necessary work in execution of its Haldia project. It is further provided that such personnel shall perform the duties and exercise the powers which the assessee may assign to him from time to time and shall function under the directions, control and supervision of the assessee who alone shall be responsible for execution and supervision of the project. Thus, it is clear that the supervisory work was assigned to the assessee and the Malaysian company had no role in supervision of the work at Haldia. Admittedly, the entire responsibility to execute the contract was that of assessee. Even the AO has accepted this fact. Further, the personnel supplied by the Malaysian company worked under the control and direction of the assessee company. This finding of the CIT(A) remains uncontroverted. The role of the Malaysian company came to an end on the supply of the personnel to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... butable to Indian project but debited in the books of head office. In the course of assessment proceedings it was noticed by the AO that the assessee had debited a sum of Rs. 42,09,874 as salary expenses payable to its own staff at head office. The explanation of the assessee was that the aforesaid sum represented the payment of salary to the employees working in head office for Indian PE. It was further submitted that these expenses had been allocated on the basis of the total number of hours used by these employees for Indian project. Since these expenses were directly attributable to the projects in India, the same could not be considered as head office expenses under s. 44C of the Act. However, in response to the query made by the AO, it was clarified by the assessee that none of the employees ever visited India for the project work. The AO noted that as per art. 7(3) (b) of the India-Netherland treaty no expenses are to be allowed while computing the income of PE except the reimbursement of the actual expenses. Consequently, such expenses being head office expenses would be governed by the provisions of s. 44C of the Act, since such expenses are in the nature of executive and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of s. 44C does not apply to the facts of the case was accepted by the CIT(A). However, it was found by him that a sum of Rs. 4,18,420 related to non-technical staff and, therefore, the same amounted to general administrative expenditure. Consequently, the disallowance was restricted to Rs. 4,18,420 only. Aggrieved by the same, the Revenue is in appeal before the Tribunal. 13. After hearing both the parties, we do not find merit in the appeal of the Revenue on this issue for the reasons given hereafter. The question for adjudication is whether the sum of Rs. 42,09,874 representing the payment of salary to the engineers at head office in respect of the work done by them vis-a-vis the Halida project in India can be considered as head office expenses for the purpose of s. 44C of the Act. The stand of the learned Departmental Representative is that the provisions of s. 44C would apply wherever there is allocation of expenses incurred by the head office vis-a-vis project in India. He also drew our attention to Expln. (iv) to s. 44C of the Act which defines the expression "head office expenses". According to him, such expenses would include payment of salary by the head office to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as such expenses stand related to their business or profession in India having, regard to the fact that foreign companies operating through branches in India sometimes try to reduce incidence of tax in India by inflating their claims in respect of the head office expenses. In other words, s. 44C seeks to impose a ceiling/restriction on head office expenses. However, s. 44C contemplates allocation of expenses amongst various entities. That, the expenditure which is covered by s. 44C is of a common nature, which is incurred for the various branches or which is incurred for the head office and the branch. However, in this case, we are concerned with the expenditure exclusively incurred for the branch. In this case, there is a concurrent finding of fact recorded by the CIT(A) as well as the Tribunal stating that the officers came from the head office at Abu Dhabi to Bombay to attend to the work of the Bombay branch and, in connection with that work, the expense was incurred. That, the expense was initially incurred by the head office which was recovered by the head office from the branch in India by raising a debit note. Therefore, the expense was incurred for the branch office in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary paid for technical job done by the engineers for Indian project. Accordingly, it has been held by him that such expenditure could not be treated as head office expenses. The question for our consideration is whether expenses incurred in relation to technical job done by the engineers can be described as head office expenses. As already noted, head office expenses are restricted to executive and general administration expenses. It is admitted by the learned Departmental Representative that such expenses cannot be said to general administration expenses. However, it is pleaded that such expenditure can be said to be in the nature of executive expenses. We are unable to accept such contention. The word "executive" has been defined in the various dictionaries as under: As per Webster's Unabridged Dictionary: 'Executive'-1. A person or group of persons having administrative or supervisory authority in a company. 2. The person or persons in whom the supreme executive power of a post is vested. 3. Pertaining to or suited for carrying out plans, duties, etc. Oxford Dictionary: 'Executive'-A person or body with managerial or administrative responsibility in a business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the proposition that a specific provision will override a general, provision. In view of the above discussion, he deleted the disallowance made by the AO. 19. The learned Departmental Representative has challenged the order of the CIT(A) on this issue by raising two contentions. The first contention is that the case of the assessee falls within the provisions of art. 5 (2)(k) of Indo-UK treaty and, therefore, the non-resident company can be said to have a PE in India inasmuch as the personnel sent by the non-resident worked at the Indian project for more than 90 days. The second contention is that the case of the assessee also falls within the proviso to art. 5(2) of the said treaty inasmuch as the services were rendered in connection with the oil refinery at Haldia. On the other hand, the learned counsel for the assessee has relied on the order of the CIT(A) by submitting that the case of the assessee falls within the ambit of art. 5(2)(j) which is a specific one and therefore, the assessee is entitled to invoke a provision which is more beneficial to the assessee. Regarding the proviso to art. 5(2), it is submitted by him that the services were not rendered in connection wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) activities of that nature continue within that State for a period or periods aggregating to more than 90 days within any twelve-month period; (ii) services are performed within that State for an enterprise within the meaning of para 1 of art. 10 (AE) and continue for a period or periods aggregating to more than 30 days within any twelve-month period. Provided that for the purposes of this para an enterprise shall be deemed to have a PE in a Contracting State and to carry on business through that PE if it provides services or facilities in connection with, or supplies plant and machinery on hire used or to be used in, the prospecting for, or extraction or production of, mineral oils in that State. As already stated in the earlier part of the order the assessee was required to construct a sulphur block at Haldia. The services rendered by the personnel supplied by the non-resident company would therefore fall under both the clauses, namely (j) and (k) of art. 5(2). It is the settled legal position that if the two provisions are applicable to a fact situation then the one which is beneficial to the assessee would be applicable. Reliance can be placed on the decision of the Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the treaty could not be applied. According Lo the CIT(A), the payment was covered by art. 7 of the said treaty. Since, there was no PE in India, the said amount was not chargeable to tax in India. Hence, the tax was not required to be deducted at source and consequently no disallowance could be made. The disallowance made by the AO was, therefore deleted. Aggrieved by the same, the Revenue is in appeal before the Tribunal. 23. The only contention of the learned Departmental Representative is that the CIT(A) has wrongly applied the amended provisions of art. 12 of the DTAA between India and Netherlands since the amendment was made by Notification No. S.O. 693(E), dt. 30th Aug., 1999. According to him, the amended provisions of art. 12 can be applied only in respect of the asst. yr. 2001-02 while the present case relates to the asst. yr. 2000-01. On the other hand, the learned counsel for the assessee has submitted before us that art. 12 has been substituted retrospectively w.e.f. 1st April, 1997 and, therefore, the contention of the learned Departmental Representative is without any force. 24. After considering the rival submissions, we do not find force in the contention of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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