Foreign Companies Not Taxable in India Due to Lack of Permanent Establishment

The authority ruled that neither H nor B had a permanent establishment in India, and therefore, their respective incomes and revenues are not taxable in India. The cases were disposed of accordingly.

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Issues Involved:
1. Taxability of income derived by H from its contract with the Indian company.
2. Taxability of revenues earned by B from the contract with the Korean company in terms of Article 5 of the DTAA between India and the Netherlands.

Summary:

Issue 1: Taxability of Income Derived by H
The primary question was whether the income derived by H from its contract dated February 22, 1995, with the Indian company is taxable in India. H was responsible for various physical activities related to the pipeline project, including lift analysis, installation procedures, and hyperbaric welding. The applicants argued that their income should not be taxed in India due to the provisions of the DTAA read with section 90(2) of the Income-tax Act, 1961. They contended that their profits are not taxable as they have no "permanent establishment" in India.

The authority examined the definition of "permanent establishment" u/s Article 5 of the DTAA, which includes a fixed place of business through which the business of the enterprise is carried on. The authority concluded that the diving support vessel used by H could be considered a fixed place of business. However, since the duration of H's contract did not exceed 183 days, it did not constitute a permanent establishment u/s Article 5(3) of the DTAA. Therefore, the income derived by H is not taxable in India.

Issue 2: Taxability of Revenues Earned by B
The question was whether the revenues earned by B, a tax resident of the Netherlands, from the contract with the Korean company are taxable in India. B was responsible for mobilizing a vessel equipped with diving plant and other necessary equipment to undertake remedial construction works at the laterals. The applicants argued that their income should not be taxed in India due to the provisions of the DTAA read with section 90(2) of the Income-tax Act, 1961. They contended that their profits are not taxable as they have no "permanent establishment" in India.

The authority examined the definition of "permanent establishment" u/s Article 5 of the DTAA, which includes a fixed place of business through which the business of the enterprise is carried on. The authority concluded that the diving support vessel used by B could be considered a fixed place of business. However, since the duration of B's contract did not exceed 183 days, it did not constitute a permanent establishment u/s Article 5(3) of the DTAA. Therefore, the revenues earned by B are not taxable in India.

Conclusion:
In both cases, the authority ruled that neither H nor B had a permanent establishment in India, and hence, their respective incomes and revenues are not taxable in India. The cases were disposed of accordingly.

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