TaxTMI 
TaxTMI 
TaxTMI 
2008 (8) TMI 396
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....evised in the course of assessment proceedings, in which total income was declared at Rs. 1,00,62,250. The revision was made on account of the revenue received from Ganesh Benzo Plast Ltd. It was found during scrutiny that the assessee earned revenues of Rs. 7,52,08,201 in this year from three parties, namely, ONGC, Cairn Energy and Ganesh Benzo Plast. The Assessing Officer examined the scope of works in the contract and the services rendered by the assessee to these parties. It was found that the assessee carried out geo-technical investigation at drilling locations, which included drilling and sampling, for the ONGC. Further, the assessee carried out geo-physical and geo-technical site investigation for Cairn Energy. The assessee also provided skilled facilities and capacity to perform works for Ganesh Benzo Plast. The Assessing Officer came to the conclusion that these revenues were liable to be taxed under section 44BB of the Act at presumptive rate of 10 per cent of the revenue. 2.2 The matter was agitated in appeal. It was submitted before the learned CIT (Appeals) that the scope of work with the ONGC involved soil investigation for two jack-up exploration drilling locations....
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....zed and brought into the territorial waters of a jurisdiction to carry out business in that jurisdiction, such a vessel would constitute fixed place of business. Therefore, it was held that in respect of all the three contracts, the assessee had a PE in India, the profits of which were taxable on presumptive basis under section 44BB of the Act. Aggrieved by this order, the assessee is in appeal before us. 3. Before us, the learned counsel mentioned that the assessee is a non-resident company based in Netherlands. It had taken up three contracts in this year. The question was whether, the assessee had a business connection in India? The lower authorities decided this matter against the assessee and held that it had a business connection in India. Thereafter, the question was whether, the assessee had a PE in India? This question was also decided against the assessee. 3.1 A reference was made to Article 5 of the DTAA and in particular to paragraph 2(i), under which the PE includes an installation or structure used for exploration of natural resources provided that the activities continue for more than 183 days. Further, a reference was made to paragraph 3 under which a building sit....
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....to provisions of paragraph 3" indicate that while industrial or commercial income of the foreign enterprise is not taxable in India, the rents, royalties, interest, dividends etc., derived by the foreign enterprise from sources in India are taxable. Obviously, paragraph 3 cannot be construed as excluding these items from taxable income of the PE and, therefore, paragraph 3 has relevance only to paragraph 1. Thereafter, the Court pointed out that the work of construction, installation or assembly was done by the Port Trust and not by the German engineer. Therefore, rendering of supervisory services did not amount to PE of the German company in India. Since the interest was paid on unpaid purchase price, its source was in the agreement and it constituted business profits. Accordingly, it was held that the German company was not liable to be assessed in India. In this context, the Hon'ble Court opined that the words "Permanent Establishment" postulate the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business in that country. It should be of such a nature that it would am....
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....oviding services related to burial of pipelines offshore India. The job executed by the applicant was in the nature of a turn-key sub-contract because the main contract by the ONGC was awarded to XYZ. The contracts of the applicant being in the nature of turn-key sub-contract, all marine vessels, personnel and equipment was provided by it. The duration of the contracts was 7 days and 39 days respectively. The applicant sought an advance ruling as to whether the profits earned by it from the contracts were taxable in India? The AAR referred to article 5 of the DTAA with Singapore and mentioned that the PE meant a fixed place of business through which the business of the enterprise is wholly or partly carried on. Clause (f) of paragraph 2 laid down that a PE would include a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. Under paragraph 3, a building site or construction, installation or assembly project constitutes a PE only if continues for a period of more than 183 days in any year. The scope of work carried on by the applicant showed that it was engaged in an installation and assembly project which pertained to burial of pipelines in the ....
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....that the activities continue for more than 183 days. It was pointed out that clauses (a) to (h) contain the requirement of a place, but clause (i) does not contain such requirement as it speaks about an installation or structure used for exploration of natural resources. Since this clause dispenses with the requirement of the place, it was his argument that it stands on different footing from other clauses and that is why continuous activity of more than 183 days is required under this clause for constituting a PE. Further, it was his case that insofar as the contract with ONGC is concerned, there was a fixed place of business in which two bore holes were made and the soil obtained was tested and analyzed in the laboratory. Since, there was a fixed place of business, there was no requirement of the presence of the assessee in India for any particular length of time. It was also his case that the length of time has to be seen in the context of nature of the work. In this case, the work was completed in 13 days and in view thereof, it could be said that the business of the assessee was directly carried on from a place in Godavari Delta Region. Since it was neither an installation or ....
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.... business in that country. His case was that enduring or permanent nature should be read in the context of the agreement and if a particular work can be completed in a particular length of time, that particular length of time ought to be taken of enduring or permanent nature. Coming to the case of Subsea Offshore Ltd. (supra), it was pointed out that the work was carried on a moving ship, belonging to the foreign enterprise. The scope of work was to inspect and lay pipelines in the sea-bed. Therefore, it was held that there was no fixed place of business of enduring or permanent nature. The assessee mentioned by the AAR in Advance Ruling A No. P-11 of 1995 was a sub-contractor, carrying on turn-key sub-contract with the help of its vessels, personnel and equipments. The facts of this case were similar to the facts of the case of Subsea Offshore Ltd. (supra) as the business was carried on-board a moving ship. Thus, it was contended that the learned counsel ignored the provisions contained in paragraph 1 and clauses (a) to (h) of paragraph 2 and jumped to clause (i) of paragraph 2, which deals with installation or structure and not with the fixed place of business. 3.7 In the rejoin....
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....raph 1, but that cannot be said about paragraph 2. 4. We have considered the facts of the case and rival submissions. The facts of the case are that the assessee is a company incorporated under the laws of Netherlands.In the year under consideration, it carried out three works for the ONGC, Cairn Energy and Ganesh Benzo Plast. The work in respect of ONGC involved drilling two bores in Godavari Delta Region and testing the material obtained on board laboratory. This work lasted for 13 days. The work with Cairn Energy also involved geo-physical and geo-technical investigation in the Gulf of Khambat at eight sites for which the assessee mobilized its own equipment. This work lasted 41 days. The work with Ganesh Benzo Plast was executed on ONGC vessel and involved geo-technical investigation. This work lasted 37 days. Thus, each of the work was of less than 183 days duration and the duration of all the three works was also less than 183 days. Basically, the case of the assessee is that clause (i) of paragraph 2 of Article 5 is applicable. Under this clause, there cannot be a PE as the works activities continued for less than 183 days. As against the aforesaid, the case of the learned ....
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....es were suitable for exploration of mineral oil or gas. As we shall see subsequently, the assessee had been conducting investigations in past in India and, thus, it has been carrying on such activities on on-going basis, as and when any contract fructifies. [Paragraph 5.2 (infra) 4.2] 4.2 We have now to examine whether the provision contained in paragraph 1 is applicable to the facts of the case. The facts of the case of Subsea Offshore Ltd. (supra) are not applicable at least to contracts with ONGC and Cairn Energy, as in that case the English company had brought its own vessel in the territorial waters of India for inspection of oil pipelines etc., which stayed in Indian territorial waters for 2 and ½ months. The English company carried out the services at the locations mentioned in the agreement. The Tribunal came to the conclusion that the assessee's vessel remained in India for 2 and ½ months, which could not be said to be the virtual projection of the business of the assessee into the soil of India. We have already mentioned that in the case at hand, the works were performed on Indian soil for testing of soil or water. For all the three works, the assessee ....
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.... or construction, installation or assembly project, etc., wherein there is a requirement of a particular length of time. Paragraph 4 contains a non obstante clause, which overrides the provisions contained in paragraphs 1, 2 and 3. Looking to the wording of paragraph 4, it cannot be said that paragraph 3 or clause (i) of paragraph 2 can override paragraph 1. We find that the cases cited by the learned counsel in this behalf relate to classification of an income under one or the other head and it was held that if an income falls under one head, it cannot be brought to tax under any other head. We do not have the question regarding the head of income before us. It is equally true that strict rules of interpretation of statutes are not applicable to take interpretation of agreements between two countries, as these are handy works of administrators and not legal experts. Commentary on OECD model tax convention, referred to by the ld. DR. mentions that the place of business has to be a fixed one. Thus, there has to be a link between the place of business and a geographical point. It is immaterial how long an enterprise operates in the other Contracting State if it does not do so at a di....
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....h respect to that business." On consideration of various case laws and the commentary above, it is clear that no length of time is prescribed in respect of paragraph 1. To our mind, in such a situation if the place of business is available to the assessee for the period in which its independent work can be completed, it shall constitute a PE and it is accordingly held. 5. In the alternative and without prejudice to the arguments in respect of paragraph 1, the case of the learned DR was that payments in respect of the works carried out by the assessee constitute fees for technical services as understood in clause (b) of paragraph 5 or article 12, under which "fees for technical services" mean payment of any kind for rendering any technical or consultancy service if such service makes available technical knowledge, experience, skill, know-how or process, or consists of development and transfer of a technical plan or technical design. However, as per paragraph 7, such fees are to be considered under article 7 if the enterprise carries on the business through a permanent establishment in the other Contracting State. It was his case that since the assessee has PE in India, the fees fo....
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.... into different kinds of treaties with different countries in respect of the same matter. It was also pointed out that the question regarding production and transfer of technical design or plan was not considered. The case of De Beers India Minerals (P.) Ltd. (supra) was in respect of air borne geographical services, which is not the case here. 5.4 We have considered the facts of the case and rival submissions. We find that the issue has been considered in all its aspects in the case of De Beers India Minerals (P.) Ltd. (supra). The difference in facts is only that in that case, services were performed from helicopter hired by that assessee, while the services are performed in this case on the vessel owned by the ONGC and in Godavari Delta Region. This difference does not make any difference to the conclusion for the reason that there is no transfer of knowledge or skill or expertise in this case as was in that case. The assessee has provided results of its investigations and not the technical knowledge or skill etc. The assessee has also not provided any technical plan or design as it has merely supplied the data, which will be used subsequently by the principals for locating sui....
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.... to be used, in the prospecting for, or extraction or production of mineral oils in or outside India. The section is a complete code in itself. Thus, the reliance placed by Sri Porus Kaka, learned counsel for the assessee, is misplaced, as we have observed that the amount referred in sub-section (2) of section 44BB are four types of amounts and all the four types of amounts are mutually inclusive and has to be taken into account either all of them or any of them and its clauses themselves provide that whether the payment is made inside India or outside India." 7.1 He also relied on the decision of the jurisdictional High Court in the case of CIT v. Halliburton Offshore Services Inc. [2008] 300 ITR 265 (Uttarakhand), in which it was specifically held that all amounts either paid or payable (whether in India or outside India) or received or deemed to be received (whether in India or outside India) are mutually inclusive, which have to be included in the receipts specified in sub-section (2) of section 44BB. The relevant portion of the judgment at page 269 is reproduced below :- "Thus, it is clear from the perusal of section 44BB that all the amounts either paid or payable (whether....