TMI Blog2009 (1) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... ocated at different places. Hence, the lower authorities were not justified in considering the various sites together while computing the minimum period of six months prescribed in art. 5(2)(i) of the DTAA. Whether on the facts of the case, it can be said that the minimum period of six months commences from the date when the project or building site itself commenced? - HELD THAT:- The minimum period would commence from the date of supply of the plant and machinery itself. Even in such case, the period of construction of building cannot be taken into consideration since contract of construction of building is separate and independent contract. Thus, the date of commencement of the threshold limit of six months would depend on the facts of each case considering the terms of contract. It is held that if the supervisory activity is carried out under a separate and independent contract then the minimum period of six months would commence only when such activity itself had commenced and not from the date of the project. Whether the intervening period caused on account of various factors should be excluded while computing the minimum period of six months? - HELD THAT:- It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------------------------------------------------------- 18,65,41,620 ----------------------------------------------------------- In addition to the above income, the assessee had also received interest from IT Department amounting to Rs. 11,22,973. Thus, the total receipts were declared at Rs. 18,76,64,590 which were offered to tax @ 10 per cent as per art. 12 and art. 11 of the DTAA. 4. In the course of assessment proceedings, it was noticed by the AO that liability to pay tax @ 10 per cent under art. 12(2) of the DTAA would arise only if the assessee has no PE in India. On the other hand, if the assessee has a PE in India then, the rate of tax would be 30 per cent as per the provisions of s. 115A of the IT Act, 1961 (the Act). Accordingly, he proceeded to examine this aspect with reference to the material on record. It was noted by him that the term PE was defined in art. 5 of the DTAA. It was noted by him that 'a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities continue for a period exceeding six months' would be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard. 7. Regarding the supervisory activities, it was contended by the assessee before the learned CIT(A) that-(i) the assessee does not maintain any place of business in India; (ii) it is not engaged in construction, installation or assembly of the project; (iii) the erection and installation of the project was carried out by the Indian concern and the assessee had rendered only the supervisory services to the Indian concern; (iv) the activity of supervision of erection, commissioning, assembly does not fall within the purview of art. 5(2)(i) of the DTAA. In view of the above, it was submitted that mere rendering of supervisory activities would not result in establishment of PE under art. 5(2)(i) of the DTAA. Reference was also made to the observations in the model of OECD Commentary. It was also contended that activities incidental to supply of equipment are specifically covered, under various treaties between India and other countries. Therefore, in the absence of such provisions, in Indo-German treaty, it cannot be said that the assessee had a PE in terms of art. 5(2)(i). The reliance was placed on the decision of the Tribunal in the case of Mannesmann Demag AG (ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of machinery or equipment where such activity continues for a period of less than six months and the charges payable for the supervisory activity exceed 10 per cent of sale price of machinery and equipment. Now if we compare this position with the Indo-German treaty, it will be seen that Indo-German treaty covers only first situation (serial No. 'a' above) and does not provide for second situation. But this does not mean that supervisory activities of the type of first situation will not constitute PE in a given situation because the treaty is not covering the second situation. As already discussed by me, it is an admitted position that the appellant carried out supervisory activities in connection with certain installation/construction/assembly projects in India. Therefore, it is squarely covered by cl. 5(2)(i) of the treaty and comes within the purview of PE." 10. Proceeding further, he examined contention of the assessee that the minimum period of six months is to be determined with reference to each individual site/construction as well as the contention that period of six months should be calculated with reference to each financial year. This contention was also rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf in the source State and ends when the project is tested and formally handed over. Thus it includes seasonal, intended and temporary interruptions also. Therefore, the appellant's contention that supervisory activities should be carried out on, a continuous basis for a period of 6 months and deputation of personnel on a sporadic basis should not be considered as resulting in PE, is misconceived and not acceptable. Similarly the argument that 6 months period has to be counted in each financial year and placing reliance on some other DTAAs (like Singapore, Spain, Canada) to bring home this proposition by the Authorised Representative is also misconstrued. As I have already stated the period provided for in a construction PE in OECD Model is 12 months. If the contention of the Authorised Representative is to be accepted, it will amount that for a construction site, assembly project etc. to constitute a PE the presence required in source country will be full 365 days in the year i.e., 12 months in each financial year and absence of even one day in each year will take away the right of source country to tax that entity, which otherwise virtually has its presence in the source country ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out of supervisory activities. 3. That the learned CIT(A) has erred in holding that the assessee was engaged in carrying out supervisory activities in connection with construction, installation or assembly project. 4. That the learned CIT(A) has erred in holding that in respect of certain projects, the prescribed period of six months was exceeded and thus in relation to the same 'PE' came into existence. The learned CIT(A) has erred in not considering Ground N(2) in coming to the conclusion. 5. Without prejudice that the learned CIT(A) has erred In holding that receipts from such projects were liable to income-tax @ 30 per cent on the gross amount." 14. In asst. yr. 1999-2000, the assessee declared gross receipts of Rs. 10,80,49,00 on account of fees for technical services which included the sum of Rs. 1,54,51,060 in respect of supervision of erection and commissioning of the plant. In the course of assessment proceedings, it was explained that the stay of assessee's personnel in India under various contracts was below 180 days and therefore, it could not be said that the assessee had any PE in India. The details of stay under various projects furnished before the AO ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details it is clear that the overall supervisory activities of the assessee company in India exceeded six months. The assessee has taken a plea that there should be continuous supervisory activities for more than six months and 6 months test is to be applied in respect of each contract separately. Such interpretation is not acceptable, since the assessee is under obligation to supervise the installation of the projects till the project is complete. In this case, the aggregate of the assessee's presence in India to be considered while deciding the issue. If all the days are taken together, the assessee's presence in India through its technicians/employees is more than 6 months. Moreover, in the case of the assessee, the existence of the project for more than 6 months is also to be considered for deciding whether the assessee's stay in India constitutes PE or not. The projects in India last more than 6 months. It is, therefore, immaterial whether the technicians/employees of the assessee stay in India for more than 6 months or not. The presence of projects lasting more than 6 months will constitute PE in India." 16. In view of the above observations, it was held that there was sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other sites could not be taken into consideration by the lower authorities while determining the existence of PE in India. 18. The second contention of the assessee's counsel is that the commencement of the period of PE qua the supervisory activity should have been taken from the date when the supervisory activity itself commenced and not from the date when the project was started by the Indian concern. It has been contended that there may be different independent contracts awarded by an Indian company to various persons or even to the same persons and in such cases, there would be different PE's under each contract as held by the Tribunal in the case of Sumitomo Corporation vs. Dy. CIT (2007) 110 TTJ (Del) 302. 19. The third contention of the assessee is that in determining the scope of PE, one should look into the actual stay of the foreign technicians and consequently the intervening period should be excluded. 20. On the other hand, the learned Departmental Representative has supported the orders of the lower authorities. It has been contended by him that the activity of the assessee is not restricted to supervisory activities since it is also engaged in the business of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee was asked to file an affidavit. In response to the same, an affidavit of Shri C.S. Mathur, holding power of attorney of the assessee, has been filed and the same would be discussed at the appropriate place if required. 22. Rival submissions of the parties have been considered carefully. The first question for our determination is whether the overall view should be taken into consideration in determining the existence of PE. The stand of the Revenue is that all the sites under different contracts should be taken together while determining the existence of PE while the stand of the assessee is that each contract should be considered separately and independently. The scope of the PE is defined in art. 5 of the DTAA which reads as under: "Article 5: Permanent establishment 1. For the purposes of this agreement, the term 'PE' means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term 'PE' includes especially- (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aty. Therefore, it appears to us that contracting parties deliberately deviated from such provisions by not including the words 'together with other such sites, projects or activities'. Accordingly, it cannot be said that other sites can also be taken together for determining the scope of PE in India. 25. We have also gone through the Commentary (Third Edition) by Klause Vogel At p. 308, it is said 'the rules is that a minimum period should be determined for each building, site or construction or installation project concerned (Cour d' Appel Anvers 25 ET 224, 225 (1985) : DTR Belgium/Netherlands). The question whether there is PE in a specific Contracting State or not should be considered separately for each business activity performed in that State i.e. for each individual place of business existing there as well (Hoge Road, Rol No. 16305, BNB 1970/71 : DTC Germany/Netherlands). 26. In this connection, it would also be useful to refer to para 31.4 at p.1l5 of the book 'Principles of International Taxation' which is reproduced as under: "31.4 The time test applies to each individual site or project. No account should be taken of the time spent by the contractor concerned on o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building, supply of plant and machinery, installation of plant and machinery, commissioning of such plant and supervision work in connection with the above work may be awarded to various independent parties. It would be absured if all the contracts are considered together. A project may start, for instance, in May, 1993 with construction of building which may be completed in June, 1994, then installation of plant and machinery may take another two years and commissioning of the same may be done in August, 1996. In such case, a person may be awarded the supervisory work for commissioning of the project which may commence in August, 1996 Le., after installation of the plant. The supervisory work in connection with commissioning of the project may only take three months. In such case, can it be said that the person carrying out the supervisory activity alone had a PE in India on the ground that minimum period of six months commenced from 1993. In our opinion, the answer is no. In our opinion, it would be absured to hold that the period unconnected with the contract should be taken into consideration. This view is also supported by the decision of the Co-ordinate Bench in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Sumitomo Corporation. 31. In view of the above discussion, it is held that if the supervisory activity is carried out under a separate and independent contract then the minimum period of six months would commence only when such activity itself had commenced and not from the date of the project. 32. The next question for our consideration is whether the intervening period caused on account of various factors should be excluded while computing the minimum period of six months. The contention of the assessee that intervening period should be excluded is without force since it is not supported either by any commentary on international law of taxation or by any case law. On the other hand, para 31.2 of the book on 'Principles of International Taxation' states as under: "31.2 The relevant time span begins on the day on which the foreign enterprise starts working on site, including any preparatory work, and it continues until the work is completed or permanently abandoned. It does not cease when work is temporarily discontinued. Seasonal or other temporary interruptions should be included in determining the life of a project. Such interruptions include interruptions due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara (c) it is stated as under: "(c) ............... It makes no difference to the time test whether the activities in question extend over more than one calendar year or one assessment period. If part of the period were to be in one year, and the remainder in the next, this would not prevent a PE from coming into existence. For the calculation of the time-limit when applying a DTC in the New German Lander (former GDR), see FinMin Sachsen-Anhalt of 12th Feb., 1992, St. Ed. 157 (1992)." In view of the above discussion, it is held that the minimum period of six months is to be counted from the date when activity starts till the date when the contract is completed irrespective of the year/years to which such period relates. It is surprising to note that the learned CIT(A) has taken contradictory stand in this regard. On one hand, at pp. 17 and 18 of the order for the asst. yr. 1998-99, it is observed by him. "Similarly, the argument that six months period has to be counted in each financial year and placing reliance on some other DTAA's (like Singapore, Spain, Canada) to bring home this proposition by the Authorised Representative is also misconstrued" while on the other hand, he c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-99. However, there is no material on record to determine as to when the supervisory activities commenced in respect of such contract. Accordingly, it is not possible to determine the minimum period of six months in respect of this contract also. 36. The contract with Gujarat Alkalies and Chemicals Ltd. is only for supervisory activity. Further perusal of this contract shows that it was entered into somewhere in the calendar year 1993 which is apparent from art. 9 of the contract. The date of signing the contract is not available. Article 3 of the contract provides for compensation which is relevant in the sense that payment for supervisory activities was to be made in calendar years 1994 to 1996. If this contract is taken into consideration, then certainly the threshold limit of six months would exceed in respect of this contract. However, it is not clear whether fees for technical services shown by the assessee in the years under consideration were received under the above contract or a different contract. This requires verification. 37. As far as contracts with other parties are concerned, no material is placed before us. Therefore, it is not possible to determine the minim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned CIT(A) has directed the AO to charge 10 per cent rate of tax where there is no PE in India. In our opinion, there is no infirmity in the order of the learned CIT(A) on this issue. The additional ground raised by the assessee, therefore, has to be dismissed. 40. The next issue arises from ground Nos. 6 and 7 in assessee's appeal which reads as under: "6. That the learned CIT(A) has erred in holding that amounts received by the assessee towards reimbursement of expenses were liable to tax as 'fees for technical services'. 7. That the learned CIT(A) has erred in holding that amounts received towards inspection fees were liable to tax as 'fees for technical services'." 41. Briefly stated the facts are that the assessee entered into a contract with EID Perry Ltd. on 29th April, 1994 for supply of imported equipments. Pursuant to the said contract, the compressor for ammonia storage tank was sent by the assessee to EID Perry. The said compressor was initially lost in transit but subsequently. found in a damaged condition. In order to inspect the damaged compressor, the assessee deputed its two technicians to EID Perry for which EID Perry remitted the sum of DM 1,70,70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round No. 7 is dismissed. 43. Ground No. 8 has not been seriously argued by the learned counsel for the assessee and, therefore, the same is dismissed. Ground Nos. 1 and 9 are general in nature. 44. The last issue arises from ground No. 2 of the Revenue's appeal which is common to both the appeals is whether the learned CIT(A) was justified in deleting the interest under s. 234B of the Act. After hearing both the parties, we find that this issue is covered by the decision of the Special Bench in the case of Motorola Inc. vs. Dy. CIT (2005) 96 TTJ (Del)(SB) 1 : (2005) 95 ITD 269 (Del)(SB) as well as the decision of Uttaranchal High Court in the case of CIT vs. Halliburton Offshore Services Inc. (2004) 192 CTR (Uttaranchal) 507 : (2004) 271 ITR 395 (Uttaranchal) wherein it has been held that interest under ss. 234B and 234C cannot be charged where the tax is deductible at source. Admittedly, the income of the assessee was chargeable to tax under the provisions of IT Act, 1961 and therefore, the tax was deductible at source under s. 195 of the Act. Hence, the assessee was not required to pay advance tax in view of the aforesaid decisions. Respectfully following the same, the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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