Permanent establishment analysis for vessel hire: charter-hire receipts were not taxable in India absent fixed place, control, or managerial presence.

A hired anchor handling tug cum supply vessel used for offshore operations was analysed under the relevant DTAA and section 44BB of the Income-tax Act. The vessel was treated as a charter-hire arrangement only, not a fixed place of business, place of management, or installation/structure for exploration of natural resources. Because the crew and master were under the control of the Indian operator rather than the non-resident owner, and no managerial participation by the owner was shown, no permanent establishment arose in India. On that basis, the charter-hire receipts were not taxable in India under Article 7, and the section 44BB route did not apply.

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Issues: Whether the hire of the anchor handling tug cum supply vessel to ONGC constituted a permanent establishment in India under the relevant DTAA, and whether the receipts were therefore taxable in India by application of the treaty and section 44BB of the Income-tax Act, 1961.

Analysis: The vessel was supplied under a charter-hire arrangement for ONGC's offshore operations, but the Court found that it was only a hired vessel and not a fixed place of business or a place of management of the non-resident assessee. The crew and master did not belong to the assessee and, in any event, were under the direction and control of ONGC rather than under the assessee's control. The reasoning based on the UN Model commentary was held to be inapplicable, because mere leasing of equipment or a vessel does not create a permanent establishment unless the lessor maintains a fixed place of business and personnel have wider responsibilities amounting to managerial participation. The vessel also could not be treated as an installation or structure used for exploration of natural resources within the treaty provision.

Conclusion: No permanent establishment existed in India, and the charter-hire receipts were not taxable in India under Article 7 of the DTAA. The application of section 44BB consequently did not survive.

Final Conclusion: The assessee was held not liable to Indian tax on the vessel hire receipts, and the assessments based on the existence of a permanent establishment were set aside.

Ratio Decidendi: A hired vessel, without a fixed place of business in India and without personnel under the non-resident's control with managerial responsibility, does not constitute a permanent establishment under the treaty.

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