TaxTMI 
TaxTMI 
2009 (5) TMI 609
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....ssessment year 2000-01 3. ITA No. 2824/Delhi/07 for assessment year 2001-02 4. ITA No. 2530/Delhi/06 for assessment year 2003-04 5. ITA No. 2975/Delhi/2007 for assessment year 2004-05 The question as to whether the learned CIT(A) erred in directing the Assessing Officer to exclude revenues in respect of the assessee's projects, holding that the assessee did not have a PE in India concerning these projects, has been raised in the following appeals :- 1. ITA No. 105/Delhi/08 for assessment year 1998-99 2. ITA No. 4692/Delhi/07 for assessment year 1999-2000 3. ITA No. 1407/Delhi/2008 for assessment year 2002-03 4. ITA No. 2530/Delhi/2006 for assessment year 2003-04 5. ITA No. 2975/Delhi/07 for assessment year 2004-05 2. The assessee is a non-resident foreign company incorporated in South Korea. During the year under consideration, the assessee executed contracts with M/s. ONGC, M/s. Mazagaon Dock Ltd., M/s. Command Petroleum and M/s. Indian Oil Corporation Ltd. While working out the taxable income, the Assessing Officer took into account the total inside India revenue of the assessee at Rs. 1,84,50,32,018 and after reducing sub- contractors cost and salar....
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....rticle 5 of the DTAA was more specific than paras 1 & 2 thereof and that so para 3 had an overriding effect over paras 1 & 2, was also not tenable; that so as to establish the existence or otherwise of a PE, para 1 was to be referred to first, as it can gave the definition of PE as a fixed place of business; that Para 2 gave an inclusive definition and envisaged a certain location which might also constitute a PE irrespective of as to whether a fixed place of business was in existence or not; that similarly, Para 3 further widened the scope of PE to encompass a building site, a construction assembly or installation project or supervisory activity in connection, therewith but only if such project due for more than a specified period, the correct interpretation would be to consider as to whether there was any fixed place of business or, alternatively, whether there was a place of management, branch or an office etc.; that further, if the case did not fall in paras 1 & 2 of Article 5 of DTAA, even the building site, a construction assembly etc., might constitute a PE provided they existed for a specified number of days; that the assessee's case being covered under paras 1 & 2 of Artic....
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....assessment years 1986-87 to 1988-89 and it had been held that Article 5(3) of the DTAA, being a more specific provision would override Article 5(2) thereof. It was observed that these observations of the Tribunal had been confirmed by the Uttaranchal High Court. Regarding the Mumbai office of the assessee, the CIT(A) observed that the RBI had granted it project specific approval and it was to render coordination activity; that as per Article 5 of the DTAA, the basic requirement for a PE was the existence of an enterprise being a fixed place of business through which business of the enterprise was carried out; that the Assessing Officer had not brought anything on record to establish that the assessee's Mumbai office was its fixed place of business through which the assessee was carrying out business; that, therefore, it was clear that the Mumbai office of the assessee was not carrying out business of the assessee and it was only a preparatory or auxiliary office, which could not be termed as a PE in India as per Article 5(4)(e) of the DTAA. The learned CIT(A) further took into consideration the first appellate order dated 20-7-2006 in the assessee's case for assessment year 2003-04....
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....1 & 2 thereof, even though the case of the assessee fell in paras 1 & 2 rather than in para 3; and that looking at from any angle, the order of learned CIT(A) is unsustainable in the eye of law which be ordered to be cancelled and that of the Assessing Officer be revived on accepting the appeal filed by the department. 7. The learned counsel for the assessee, on the other hand, has, relying strongly on the order under appeal, observed that no fault whatsoever can be found with the well reasoned and detailed order passed by the ld. CIT(A); that as explained before the authorities below, all the three projects of the assessee lasted for periods less than 9 months each; that this being so, the revenues relating to all the three projects were assessable in India in keeping with Para 3 of Article 5 of DTAA between India and South Korea; that it was rightly held by the ld. CIT(A) that the assessee did not have any permanent establishment in India; that the Mumbai office of the assessee cannot, in any manner, be termed as the assessee's PE in India; that as per Article 5(3) of the DTAA, the term "permanent establishment" encompass a building site, a construction, assembly or an install....
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....mission of the RBI; that even the Hon'ble Supreme Court has confirmed this issue in favour of the assessee in the assessee's own case for assessment years 1987-88 and 1988-89 in CIT v. Hyundai Heavy Industries Co. Ltd. [2007] 291 ITR 482 (SC); that moreover, the Assessing Officer himself repeated his aforesaid action for assessment years 2005-06 and 2006-07; that the CIT(A)'s order for assessment year 1992-93 pertinently has attained finality since it was not taken up in appeal before the Tribunal; that as such the appeal filed by the department carry no force and same be dismissed outright. 8. We have heard the parties and have perused the material placed before us. The facts are not in dispute. The issue is as to whether the ld. CIT(A) was right in annulling the action of the Assessing Officer in taxing the outside India receipts of the assessee with regard to the three projects in question and directing the Assessing Officer to re-compute the total income of the assessee, but to exclude revenues from outside India operation. 9. The assessee is a non-resident foreign company incorporated in South Korea. There is a DTAA between India and South Korea. Article 5 thereof ....
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....ct and the correspondence with ONGC. It was also taken note of that the Mumbai office of the assessee was headed by senior officers of the assessee and that it had been functional for a number of years; and that it was this office which was the brain behind the execution of the contract entered into by the assessee. 11. For our purposes, it is to be seen as to whether the provisions of Article 5(3) are indeed specific as compared to those of Articles 5(1) and 5(2), so as to override the provisions contained in Articles 5(1) and 5(2). According to Article 5(3), a permanent establishment encompasses a building site, a construction assembly or an installation project or supervisory activity in connection therewith but only where such site, project or activities continued for a period of more than 9 months. The Tribunal, it is seen, has decided this issue in favour of the assessee and this lis has since attained finality, not resting at the Tribunal stage but culminating before the Hon'ble Supreme Court in Hyundai Heavy Industries Co. Ltd. (supra). Therein the Hon'ble Supreme Court held, inter alia, that where the permanent establishment of the assessee came to exist in India after ....
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....ict its operation exclusively to execution of the contract as approved by the Government of India. It is to meet all the expenses in India only from out of the inward remittances received from the head office through normal banking channels or the rupee amounts to be received under the contract. It is not to borrow or lend any money from/to any person in India without prior permission of the RBI. It is not to acquire or hold, transfer or dispose of any immovable property in India without prior RBI permission, i.e., it cannot deal in immovable Indian property. It is to submit to the RBI annual audited accounts of its income and expenditure in India along with bank certificates evidencing receipt of funds from the head office. The project office, thus, undisputedly did not carry out any such activity as prohibited by the RBI from being carried out without its prior permission. 12. The issue of exclusion of revenues from outside India operation is covered by not only Supreme Court judgment in assessee's own case for assessment years 1987-88 and 1988-89 (supra), but also the Tribunal order for assessment year 1989-90 and the CIT(A)'s order for assessment year 1992-93. For assessment....