2023 (5) TMI 962 - AT - Income Tax

Non-resident entity from Malaysia not taxable in India under tax treaty

Sime Darby Engineering Sdn Bhd, C/o Price Waterhouse Coopers Pvt. Ltd. Versus DCIT (International Taxation), Circle-2, Dehradun.

Sime Darby Engineering Sdn Bhd, C/o Price Waterhouse Coopers Pvt. Ltd. Versus DCIT (International Taxation), Circle-2, Dehradun. - TMI Issues Involved:1. Existence of Permanent Establishment (PE) in India under Article 5 of India-Malaysia DTAA.2. Attribution of Revenue to PE.3. Taxability of Offshore Supplies.4. Consequential Issues related to the existence of PE.Summary of Judgment:1. Existence of Permanent Establishment (PE):The core issue was whether the assessee had a Permanent Establishment (PE) in India under Article 5 of the India-Malaysia Double Taxation Avoidance Agreement (DTAA). The assessee, a non-resident corporate entity from Malaysia, formed a consortium with a Singapore-based company and entered into contracts with ONGC. The Assessing Officer (AO) held that the assessee had an installation PE in India as it had a presence exceeding nine months. The Commissioner (Appeals) upheld this view, attributing revenue to the PE. However, the Tribunal found that the Revenue did not establish the existence of a fixed place PE, as the project office was of the consortium partner, not the assessee. Therefore, the Tribunal held that the assessee had no fixed place PE in India under Article 5(1).2. Attribution of Revenue to PE:The AO attributed 25% of gross revenue to the PE for the assessment year 2011-12 and 18.54% of revenue from offshore supply of equipment and 10% from onshore activities for the assessment year 2012-13. The Commissioner (Appeals) supported this bifurcation. However, the Tribunal noted that the duration test of nine months for installation PE under Article 5(3)(a) was not satisfied, as the actual work duration, excluding monsoon periods, did not exceed nine months. The Tribunal remanded the issue to the AO for factual verification of the work stoppage and demobilization during the monsoon period.3. Taxability of Offshore Supplies:The taxability of offshore supplies was contingent on the existence of installation PE. Since the Tribunal remanded the issue of installation PE to the AO for fresh adjudication, the issue of offshore supplies was also restored to the AO for reconsideration after verifying the facts.4. Consequential Issues:All other residual issues, being consequential to the existence or otherwise of PE in India, were also restored back to the AO for fresh decision based on the determination of the PE issue.Conclusion:The Tribunal admitted additional evidence and remanded the issues related to the existence of installation PE and taxability of offshore supplies back to the AO for de novo adjudication, ensuring a fair opportunity for the assessee to present its case. Appeals were allowed for statistical purposes.