2010 (4) TMI 884 - AT - Income Tax

Assessee's Business Profits Not Taxable in India; Barge Hire Tax Upheld

The Tribunal held that the assessee did not have a Permanent Establishment (PE) in India, thus its business profits could not be taxed. However, the ... Taxability - receipt of barge hire charges - permanent establishment – Assessee was a tax resident of UAE - The test of ‘commercial and geographical coherence’ - assessee carried out two projects in India - Assessing Officer was of view that these two contracts were executed in same geographical area, for same party and were, therefore, required to be viewed as geographically and commercially coherent - He, further, held that since period of two contracts, taken together, worked out to 294 days which was in excess of threshold limit of nine months, assessee could be said to have a permanent establishment in India as per provisions of article 5(2)(i) of India-UAE tax treaty – Held that:- There is no finding that there is any interdependence and interconnection between the two contracts, or that these contracts are such that they can only be viewed as a coherent whole and not in isolation with each other - aggregation of time spent on different projects can only arise for connected projects. On the contrary, these two contracts are of different nature inasmuch as while one contract is for barge hire, the other one is for installation work - assessee did not have a ‘permanent establishment’ in India - amount received by the assessee as barge hire was rightly brought to tax by the Assessing Officer - any receipt for services rendered outside India’s continental shelf and economic zone are not taxable in India Issues Involved:1. Taxation of earnings from two projects in India.2. Existence of a permanent establishment (PE) in India.3. Sustaining income at the rate of 10% of gross contract receipts.4. Allowance of reimbursement of expenses not forming part of contract receipts.5. Computation of mobilization/demobilization charges for taxation.6. Deletion of interest charged under section 44B.Issue-wise Detailed Analysis:1. Taxation of Earnings from Two Projects in IndiaThe assessee, a tax resident of Abu Dhabi, UAE, carried out two projects in India. The CIT(A) taxed the earnings from these projects. The projects were for installation work and accommodation support at the Jamnagar Refinery Complex. The period for these contracts was 8 months and 4 days, and 8 months and 24 days respectively. When overlapping days were excluded, the total period was 294 days, exceeding the threshold limit of nine months under the India UAE tax treaty.2. Existence of a Permanent Establishment (PE) in IndiaThe CIT(A) and the Assessing Officer (AO) held that the assessee had a PE in India since the projects were geographically and commercially coherent, executed for the same party, and in the same area. However, the Tribunal referenced the case of Valentine Maritime (Mauritius) Ltd. and concluded that the projects were not interconnected or interdependent enough to be considered a coherent whole. Thus, the Tribunal held that the assessee did not have a PE in India.3. Sustaining Income at the Rate of 10% of Gross Contract ReceiptsThe CIT(A) sustained the income at 10% of the gross contract receipts. The Tribunal did not specifically address this issue in detail within the judgment, focusing instead on the broader question of the existence of a PE and the taxability of specific receipts.4. Allowance of Reimbursement of Expenses Not Forming Part of Contract ReceiptsThe assessee's grievance regarding the non-allowance of part of the reimbursement of expenses was not pressed before the Tribunal and was dismissed as such.5. Computation of Mobilization/Demobilization Charges for TaxationThe AO's appeal involved the computation of mobilization/demobilization charges. The CIT(A) directed the AO to compute these charges only for transportation within the Indian continental shelf and EEZ. The Tribunal upheld this direction, referencing the Third Member decision in Saipem S.P.A. v. Dy. CIT, which stated that services rendered beyond the continental shelf and EEZ are not taxable in India.6. Deletion of Interest Charged Under Section 44BThe CIT(A) deleted the interest charged under section 44B. The Tribunal upheld this deletion, agreeing with the CIT(A) that the interest charges were not applicable in this case.ConclusionThe Tribunal concluded that the assessee did not have a PE in India, thus its business profits could not be taxed. However, the taxability of barge hire under section 44BB was upheld. The directions of the CIT(A) regarding the non-taxability of receipts for services rendered outside India's continental shelf and EEZ were confirmed. Consequently, the appeal of the assessee was partly allowed, and the appeal of the AO was dismissed.