Project PE aggregation rejected; barge-hire receipts taxed as royalty and under special computation rules, with interest denied.

For a construction or project PE, durations of separate contracts cannot be aggregated unless the Revenue shows artificial splitting or that the activities are commercially or geographically interdependent and form one coherent whole; absent such proof, each project is tested separately, and no PE was found. Barge-hire receipts were treated as royalty and also fell within the domestic computation regime under section 44BB, so that part of the assessment was sustained. Interest under sections 234B and 234C was held not leviable on the facts.

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Issues: (i) Whether the assessee had a permanent establishment in India by aggregating the duration of three separate contracts; (ii) whether the receipts from time charter or barge hire were taxable as royalty under the Act and the treaty; (iii) whether section 44BB applied to the barge-hire receipts; and (iv) whether interest under sections 234B and 234C was leviable.

Issue (i): Whether the assessee had a permanent establishment in India by aggregating the duration of three separate contracts.

Analysis: The treaty provision for a construction or project PE turned on whether a site, project, or supervisory activity continued for more than nine months. The relevant inquiry was therefore contract- or project-specific unless the activities were artificially split or were so interconnected as to form one coherent whole. The Court held that neither same principal, nor geographical proximity, nor the existence of multiple contracts by itself justified aggregation. In the absence of any finding that the three contracts were interdependent, commercially or geographically coherent, or otherwise required to be viewed as one unit, the durations could not be clubbed together.

Conclusion: The assessee did not have a permanent establishment in India; this issue was decided in favour of the assessee and against the Revenue.

Issue (ii): Whether the receipts from time charter or barge hire were taxable as royalty under the Act and the treaty.

Analysis: The character of the receipts was examined in light of the distinction between bare boat charter and time or voyage charter. The receipts for barge-hire were treated as consideration for use of equipment and, on the facts, the assessee fairly accepted that the issue on royalty was covered against it by existing precedent. The earlier view of the first appellate authority on non-taxability as royalty was not sustained in full.

Conclusion: The receipts from barge hire were liable to be treated as royalty to the extent upheld by the Court; this issue was decided in favour of the Revenue.

Issue (iii): Whether section 44BB applied to the barge-hire receipts.

Analysis: Although the assessee succeeded on the permanent establishment issue, the Court upheld the domestic law taxability of the barge-hire receipts under section 44BB. The receipts connected with hire of barges were held to fall within the special computation regime applied by the Revenue, and that part of the assessment order was restored.

Conclusion: Section 44BB applied to the barge-hire receipts; this issue was decided in favour of the Revenue.

Issue (iv): Whether interest under sections 234B and 234C was leviable.

Analysis: The issue was treated as covered by binding precedent holding that such interest was not chargeable in the manner sought by the Revenue in the facts of the case.

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

Final Conclusion: The assessment was sustained only to the limited extent of the barge-hire receipts being brought to tax under the domestic computation provision, while the finding that no permanent establishment existed in India was upheld and the levy of interest was disapproved.

Ratio Decidendi: For a construction or project PE, duration cannot be aggregated across separate contracts unless the Revenue establishes artificial splitting or that the activities are so interdependent that they form one coherent whole; absent such proof, each project is to be tested separately for the treaty threshold.

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