TaxTMI 
TaxTMI 
2010 (9) TMI 741
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....commencement of business operation cannot be included in determining the aforesaid question. It is further mentioned that under the treaty, an installation which has not carried out any operation cannot be considered to have been used for the purpose of business. Ground Nos. 3, 4, 5 and 6 are in respect of the computation of total income made by the lower authorities under section 44BB of the Act. It is mentioned that the entire mobilization revenue in respect of mobilization activities carried outside India cannot be included in the revenue for the purpose of computing the total income under section 44BB. It is further mentioned that the aforesaid provision cannot override section 4 of the Act and, thus, when an income does not accrue under section 4, it cannot be computed under section 44BB. It is also mentioned that the ld. CIT(A) failed to take into account the decision of Income-tax Appellate Tribunal in the case of Saipem S.p.A. v. Dy. CIT [2004] 88 ITD 213 (Delhi)(TM). It is also mentioned that the ld. CIT(A) erred in taxing the entire amount of mobilization revenue rather than such part which is attributable to the transportation of the rig in India. The grounds are decided....
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....grievance. After all, Article 265 of the Constitution of India provides that no tax shall be levied and collected except by authority of law. If ultimately the assessee is found to be liable to tax, he compensates the Revenue in the form of interest. Therefore, the Tribunal can even think of a remand of the case for a finding on facts or can adjudicate on facts itself. (b) On the other hand, the revenue has other options open to it under the Act. If the order of an Assessing Officer is erroneous and prejudicial to the interests of the Revenue the same can be revised by the CIT under section 263 of the Act. If income chargeable to tax escapes assessment, proceedings under section 147 can be initiated to bring to tax such escaped income. In an appeal by an assessee against the order of the Assessing Officer, the CIT(A) has power of enhancement under section 251(1) of the Act. (c) The Revenue does not have a right of appeal against the order of the Assessing Officer. Therefore, if Assessing Officer does not invoke section 93, and if the same was erroneous and prejudicial to the interest of the revenue, the same could be revised by the CIT under section 263. (d)&nb....
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....st income is separate and independent of contract receipts. Apart from that interest income, by no stretch of imagination can be considered as contract receipts for estimation of income by applying net profit rate to the contract receipts. Therefore, we are of the view that the net profit percentage has to be applied only on the gross receipts from the business of civil construction to estimate income from the said business, and interest on FDRs cannot be said to be a part of the receipts from civil construction works. In this regard we also notice that the Jabalpur Bench of the Tribunal in the case of Tahir Ali (supra) has taken a view that if the bank interest was directly relatable to contract business, the same would be deemed to have been considered while applying net profit rate and no separate addition could be made. We are of the view that this decision of the Jabalpur Bench runs contrary to the principles as laid down in the decision of the Hon'ble Madras High Court in the case of South India Shipping Corpn. Ltd. (supra) and the decision of the Privy Council in the case of CIT v. Raja Bahadur Kamakhaya Narayan Singh & Ors. (supra) and the Hon'ble Supreme Court in the cases....
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....nd 246 is reproduced below :- "That judgment holds that the position of an appeal under section 33 of the Income-tax Act and an appeal under the Code of Civil Procedure is identical. A Full Bench of the Madras High Court has in Venkata Rao v. Satyanarayana-murthy held that it was open to a respondent in appeal who had not filed cross-objection with regard to the portion of the decree which had gone against him to urge in opposition to the appeal of the plaintiff a contention which if accepted by the trial court would have necessitated the total dismissal of the suit, but the decree insofar as it was against him would stand. The judgment of the Tribunal in our case clearly shows that, although the assessee wanted to raise a new point as a ground of defence in the appeal, he specifically stated that he wanted to rely upon it only for the purpose of having the appeal by the department for enhancement in income-tax dismissed. But even if the assessee had not made such a statement, the above judgment shows that the assessee would be entitled to raise a new ground, provided it is a ground of law and does not necessitate any other evidence to be recorded, the nature of which would not ....
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....cult to see what the Tribunal was referring to in the concluding sentence in their order, namely, "In the view that we have taken we are not considering what income was received in British India." In the statement of the case itself the Tribunal says that this sentence is not clear, and it is difficult to say what the members of the Tribunal had in mind at that time. In this state of the record, where it is necessary to determine whether or not the question was raised before the Tribunal, we would have found it somewhat difficult to do so. But fortunately, in the view that we take of the matter, whether or not it was raised before the Tribunal, it was not open to the Department to raise it before the Tribunal, and, therefore, the second question must be answered in the affirmative." 4.4 In this very connection, reliance has been placed on the decision of Special Bench of Mumbai Tribunal in the case of Sumit Bhattacharya v. Asstt. CIT [2008] 112 ITD 1. Our attention has been drawn towards paragraph No. 47 at page 49 of the report, in which it has been held that the Tribunal is competent to change the head of income even at the instance of the respondent when all the relevant fact....
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.... on 27-11-1978, duly signed by the Managing Director. The Hon'ble Court held that the return would relate to the date when the return signed by the secretary was filed. We, however, find that the revenue has not filed any appeal in this case. 4.7 Reliance has also been placed on the decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383, in which it has been held that the Tribunal has discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from the facts which are on record in the assessment proceedings, we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of the assessee. 4.8 It has also been submitted that all the facts are available in the agreement, which has been placed on record by the assessee. Therefore, hyper-technicalities should be avoided in coming to the legal conclusion so as to sub-serve the ends of justice. It was abundantly clarified that the revenue is not seeking enhancement of income but was pressing the additi....
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.... shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal; but the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule : Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground.' Rule 27 states: 'The respondent, though he may not have appealed, may support the order of the Appellate Assistant Commissioner on any of the grounds decided against him.' Rule 28 is to the following effect: 'Where the Tribunal is of opinion that the case should be remanded, it may remand it to the Appellate Assistant Commissioner or the Income-tax Officer, with such directions as the Tribunal may think fit.' In the present case, the subject-matter of the appeal before the Tribunal was the question as to what should be the proper written down value of the buildings, machinery, etc. of the assessee for calculating the depreciation allowance under section 10(2)(vi) of the Act. It was certain....
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.... "mobilization" has been defined to mean any and all work to be performed and services rendered by the assessee prior to start date to enable the unit to commence the work at site. "Work" has been defined to mean any and all work to be performed and services to be rendered by the assessee under and in accordance with the terms and conditions of this agreement. 6.2 Article 2 deals with scope of the agreement, start and termination. It is mentioned that the assessee shall be ready to commence the work on the date as agreed in the agreement or as communicated by the Petrom SA in writing to the assessee. However, if for any reason, the work could not commence on the date advised by Petrom SA, without any fault on its part by the assessee, the assessee would allow five days time for commencement of work without any cost to Petrom SA. This date shall be referred to at the "start date". 6.3 Article 3 deals with "the work". It is mentioned that the assessee shall carry out all the required technical analysis in relation to the work to be performed prior to the start date. Necessary equipments and tests for fixing the optimum instruments and field parameters shall be performed as per ....
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.... Petrom's equipment and Petrom's third party equipment have been off-loaded from the rig and it has released the rig under the terms of the agreement. It is further mentioned that the assessee will not be paid demobilization charges until such time as customs and immigration formalities have been completed and the rig is ready for export out of India. 6.6 Scope of work, in pursuance of article 8, and described by, but not necessarily limited to, any or all of the following, based on the geo-technical order attached to the agreement. It includes mobilization. towing and positioning, drilling services, completion date, and demobilization of Petrom and third party equipments and personnel. 7. We may also reproduce paragraph Nos. 1 and 2 of Article 5 of the DTAA between the USA and India, which read as under :- "1. Permanent establishment: For the purpose of this Convention, the term permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term 'permanent establishment' includes especially: (a) a place of management; (b) a branch; (c) an office; (d) a fact....
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....permanent establishment are terminated (winding up current business transactions, maintenance and repair of facilities). A temporary interruption of operations, however, cannot be regarded as a closure. If the fixed place of business is leased to another enterprise, it will normally only serve the activities of that enterprise instead of the lessor's; in general, the lessor's permanent establishment ceases to exist, except where he continues carrying on a business activity of his own through the fixed place of business. 12. This paragraph contains a list, by no means exhaustive, of examples, each of which can be regarded, prima facie, as constituting a permanent establishment. As these examples are to be seen against the background of the general definition given in paragraph 1, it is assumed that the Contracting States interpret the terms listed, "a place of management", "a branch", "an office" etc. in such a way that such places of business constitute permanent establishments only if they meet the requirements of paragraph 1. ** ** ** 36. The beginning and end of a permanent establishment's existence: A permanent establishment begins to exist when the enterprise co....
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....the ld. counsel is that the new case of the revenue will necessarily require finding of further facts. Invocation of provisions contained in paragraphs (1) and (2) will also change the complexion of the case. This may also enhance the liability of the assessee. On consideration of various cases cited by the opposite parties, we find that the decision of Hon'ble Bombay High Court in the case of B.R. Bamsi, based upon the provision contained in the CPC, does not distinguish between situations where the assessee is the defendant or the revenue is the defendant. Therefore, on the basis of this judgment, it appears that any defendant can raise a new plea to defend the order of the CIT(Appeals) before the Tribunal provided that all the facts are there on record. The ld. DR submits that all the facts are there and, in fact, no application has been moved for admission of any additional evidence. In view thereof, the argument of the ld. counsel that fresh facts will have to be found seems to be merely in the nature of an apprehension. The decision in the case of T.M. Bhumraddi (supra) proceeds on the footing that the plea was not taken before the Tribunal or at least that it is not clear wh....
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....lly stated so by the ld. DR before us. The decision in the case of National Thermal Power Co. Ltd. (supra) holds that where the assessee wants to raise a new ground which does not require finding of any fresh fact, there is no reason as to why such a ground should not be allowed to be raised. Therefore, to us it appears that the assessee-appellant and the revenue-defendant stand more or less in the same position insofar as taking up a new ground or a new plea is concerned, which does not require finding of fresh facts. Accordingly, it is held that the revenue is entitled to raise this plea before us. 9. Then, there is a question-whether, the assessee had PE under any provision other than Article 5(2)(j). The case of the ld. DR is based solely on the Mumbai address of the assessee mentioned in agreement with Petrom SA. It has been mentioned earlier that the assessee has been described as a "contractor", a body corporate established under the laws of USA, having its office at 1101, Phil Tower Building, City of Tulsa, Oklahoma, USA, and also having its India office at 501, Balaram, Bandra-Kurla Complex, Bandra (East), Mumbai-400051. It is submitted that the agreement had been concl....
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....ned in the agreement. That by itself does not lead to inference of PE under these provisions. Therefore the matter is decided accordingly. 10. The third and the last question is whether, the period of repairs and mobilization has to be taken into account under article 5(2)(j) to decide that the assessee had a PE? The case of the ld. DR is that the assessee has received revenue from Saipem SA in consideration of repairs and mobilization. These activities were carried out in pursuance of the agreement. Therefore, the time taken for repairs and mobilization has to be taken into account for interpreting the contents of article 5(2)(j). It is also her case that the word "used" has not been defined in the DTAA and, therefore, in interpreting this word, the case law in the matter under the Act has to be taken into account. The word has been interpreted broadly to include in its ambit the words "ready to use" also. The rig was in India at the time of repairs and revenues were received for repairs. Therefore, it was not only used but also ready for use right from the date of start of repairs. 10.1 On the other hand, the case of the ld. counsel is based upon definitions given in the ag....
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.... presumptive scheme of taxation under section 44BB of the Act. This section provides for computation of business income on a presumptive basis at 10 per cent of the aggregate amount paid or payable to the assessee. This machinery provision will admittedly come into operation only when the income is liable to be computed under the Act. That can be done only if the assessee has a PE in India. We have already decided the matter of PE against the revenue and in favour of the assessee. Therefore, there is no question of computation of business income in this case. ITA No. 4752(Del.)/2005 - Assessment year 2003-04 - Appeal of the revenue 12. The revenue has taken up three grounds in the appeal to the effect that on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that - (i) the assessee does not have a PE under article 5(2)(j); (ii) the revenues on account of demobilization of the rig are not taxable in the hands of the assessee; and (iii) the interest income is taxable @ 15 per cent as per article 11 of the DTAA while the same was earned in connection with the business of the assessee. 13. In the course of hearing before us, the r....