2023 (5) TMI 962 - AT - Income Tax

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

The Tribunal held that the non-resident corporate entity from Malaysia did not have a fixed place Permanent Establishment (PE) in India under the ... PE India - determine the duration test of nine months to construe installation PE in terms of Article 5(3)(a) of the Tax Treaty - whether the assessee had a fixed place PE in India in terms of Article 5(1) of the Tax Treat? - HELD THAT:- Assessee has no such place or establishment in India in terms of Article 5(2). Departmental authorities have alleged that the assessee had a project office in India, which has to be construed as PE. Whereas, the assessee has contested the aforesaid conclusion of the departmental authorities by contending that the project office is of other consortium partner, who is entrusted with onshore activity. The aforesaid claim of the assessee has not been controverted by the Revenue by bringing on record any cogent material. It is trite law, the burden is entirely on the Revenue to establish existence of fixed place PE. Revenue has failed to discharge such burden. We hold that Revenue’s stand that the assessee had a fixed place PE in India is not borne out on record. Accordingly, we hold that the assessee had no fixed place PE in India in terms of Article 5(1). Determine the duration test of nine months to construe installation PE in terms of Article 5(3)(a) of the Tax Treaty - AO must be given a fair opportunity to go through such additional evidences and conduct factual verification to ascertain assessee’s claim of stoppage of work and demobilisation of personnel and equipments during monsoon period. Only when complete set of facts are brought on record, the legal proposition as laid down in the judicial precedents cited before us by the assessee can be applied. Though, we admit the additional evidences furnished by the assessee before us, however, considering the fact that they were not furnished before the departmental authorities, we deem it appropriate to restore the issue relating to existence of installation PE to the file of Assessing Officer for de novo adjudication after verifying all facts and materials brought on record or to be brought on record by the assessee including the additional evidences. While doing so, the Assessing Officer must apply duration test of nine months strictly abiding by the ratio laid down by Hon’ble jurisdictional High court in the case of National Petroleum Construction Company (supra) and other decisions, which may be brought to his notice by the assessee. Taxability of offshore supplies, it is fully dependent on the outcome of the existence or otherwise of installation PE. Therefore, this issue is also restored back to the Assessing Officer for adjudicating afresh after providing due opportunity of being heard to the assessee. All other residuary issues, being consequential to the issue of existence or otherwise of PE in India, are also restored back to the AO for deciding afresh depending upon the decision to be taken in respect of existence or otherwise of PE. Accordingly, grounds are allowed for statistical purposes. 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.