Fixed place Permanent Establishment drove Indian taxability of offshore supplies, while section 234B interest was deleted.

Specialised equipment and personnel stationed on a contractor's vessel in India were treated as a fixed place Permanent Establishment under Article 5(1) of the India-UAE DTAA because the place was at the enterprise's disposal with sufficient permanence. On that basis, offshore supplies were held taxable in India as attributable to the Indian business connection. The Tribunal left section 44BB applicability open for limited verification, directing relief only if the contracts were found inextricably connected with prospecting or production of mineral oil. Following binding precedent, interest under section 234B was deleted for the non-resident assessee where tax was deductible at source.

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Issues: (i) Whether the assessee had a fixed place of business in India constituting a Permanent Establishment under Article 5(1) of the India-UAE DTAA. (ii) Whether the offshore supplies and grouting receipts were taxable in India, including the assessee's claim for application of section 44BB of the Income-tax Act, 1961. (iii) Whether interest under section 234B of the Income-tax Act, 1961 was leviable on the non-resident assessee.

Issue (i): Whether the assessee had a fixed place of business in India constituting a Permanent Establishment under Article 5(1) of the India-UAE DTAA.

Analysis: The assessee carried on grouting operations in India using specialised equipment and personnel stationed on the contractor's vessel. The activities were found not to fall under the construction-project limb of Article 5(2)(h), but the equipment and personnel together constituted a place of business at the assessee's disposal. Applying the treaty concept of fixed place PE and the control/disposal principle, the presence was held to have sufficient permanence for the relevant assessment years.

Conclusion: The assessee had a fixed place Permanent Establishment in India under Article 5(1), and this issue was decided against the assessee.

Issue (ii): Whether the offshore supplies and grouting receipts were taxable in India, including the assessee's claim for application of section 44BB of the Income-tax Act, 1961.

Analysis: Once the Permanent Establishment was held to exist, the offshore supplies were treated as attributable to the Indian business connection and therefore taxable. As regards the assessee's alternative plea under section 44BB, the Tribunal noted that the nature of the contracts had not been examined below with reference to the Supreme Court's test of proximity and pith and substance for mineral-oil related contracts. The matter was therefore sent back for limited examination of section 44BB applicability, with relief directed only if the contracts were found to be inextricably connected with prospecting or production of mineral oil.

Conclusion: The offshore supplies were held taxable in India, while the section 44BB claim was restored for limited verification and statistical relief was granted to the assessee on that aspect.

Issue (iii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable on the non-resident assessee.

Analysis: Following binding precedent that no interest under section 234B is leviable where tax was deductible at source from a non-resident's receipts, the Tribunal deleted the interest levy.

Conclusion: Interest under section 234B was not leviable and this issue was decided in favour of the assessee.

Final Conclusion: The appeals were partly allowed. The Tribunal sustained taxation on the Permanent Establishment basis, granted only limited statistical relief on the section 44BB question, and deleted the interest charged under section 234B.

Ratio Decidendi: Where specialised equipment and personnel of a foreign enterprise are stationed in India on a contractor's vessel and are used to carry on the enterprise's business with sufficient permanence and disposal/control over the place, the arrangement constitutes a fixed place Permanent Establishment under Article 5(1) of the applicable treaty.

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