TaxTMI 
TaxTMI 
2011 (9) TMI 240
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....14. Directions were given to charge interest under sections 234B and 234C of the Act. The assessee objected to the draft order, therefore, she forwarded the order and the objections to the Dispute Resolution Panel, New Delhi ('DRP' for short). The ld. DRP passed the order u/s 144C on 31.08.2010, in which the draft order was approved. It has inter alia been mentioned that the assessee has a PE in India in view of the decision of the Tribunal in the case of Fugro Engineers B.V. v. Asstt. CIT [2008] 26 SOT 78 (Delhi). It has further been mentioned that in absence of any profit and loss account, the AO has rightly estimated the income at 25% of the total revenue. It has also been mentioned that it is premature at this stage to consider directions regarding the levy of interest. Consequently, the AO has passed the order u/s 143(3) determining the total income as per draft order at Rs. 33,69,92,014. Directions have also been issued to charge interest under sections 234B and 234C of the Act. Aggrieved by this order, the assessee has raised aforesaid three questions for determination. 2. The facts of the case are that the assessee-company is a tax resident of Mauritius. The assessee com....
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....e each for two trunk-lines), with associated piping and valves, and sub-sea spool pieces in the vicinity of the tie-ins. l One 20 inch spur line 3,756 m long from PLEM for 36 inch ONGC truck-line sub-sea tie-in to PLEM for 42 inch ONGC trunk-line sub-sea tie-in. l All the final sub-sea tie ins between new final spool and existing 36 inch ONGC SBHT trunk line and the sub-sea tie in between new final spool and existing 42 inch ONGC SBHT trunk-line, including the interface and operability of existing valves on the ONGC facility shall be on day rate basis. l Elevation of 36" and 42" sub sea tie in valves is higher than the elevation of all piping at 36" and 42" PLEM respectively. l Based on Company performed dive assisted survey there is no leakage through the existing 36" and 42" sub sea tie in valves and these existing valve flanges at tie in points are in good order. However, in case of leakage, Company will be advised at the earliest for extent of resources to be deployed at site to meet any contingencies. Contractor shall deploy agreed resources at cost plus fee basis. Contractor will be compen....
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....cumentation required by the Company to obtain the necessary approvals by the Authorities relevant to the Work. l Procurement of all items required including provision of all necessary materials, systems, equipment, services, personnel and facilities relevant to the Work except where specified as being provided by the Company. l All relevant pre-commissioning, inspection, testing and surveys on his own equipment and vessels and allowing surveys by the Company or its authorized representatives of Contractor's equipment, vessels etc., at any reasonable time. l Participation with experienced operations personnel for acceptance of relevant systems and equipment during pre-commissioning and inspections of the Company provided items at the Company nominated fabrication sites and at any relevant suppliers' premises. l Supply pipeline marine spread including pipelay barge/riser installation, cargo barges, diving support vessels, supply boats, anchor handling tugs, survey vessels, dredging/pre-sweeping spread, etc." 3. According to the AO, the assessee has a PE in India in terms of paragraph no. 1 of a....
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.... a PE in India. However, it may be considered at this stage whether a moving ship could be said to be a fixed place of business even under this paragraph. Nevertheless, the work carried out by the assessee is a construction or assembly project, under which pipe lines are assembled, laid and connected with the existing pipe lines. Therefore, the provision contained in paragraph 5(2)(i) of the DTAA is applicable. Under this provision, the PE comes into existence only if the construction or assembly project continues for a period of more than nine months. The construction or assembly project of the assessee had actually been carried out for less than nine months. Therefore, the assessee does not have a PE in India. 5. In reply, the ld. CIT, DR submits that the provisions contained in Article 5 have to be read chronologically. Under paragraph no. 1, the PE has been defined to mean in an exhaustive manner to be a fixed place of business through which the business of the enterprise is wholly or partly carried on. Admittedly, the assessee has carried out the work of laying pipe lines from the vessel, which houses the personnel, machines and material. The ship is a fixed place of busine....
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.... involved drilling and sampling of two bore holes, on-board laboratory testing and specialized analysis through risk assessment technique. The work continued for a period of 13 days in financial year 2000-01. The work in respect of Cairn Energy was taken up at eight sites in the Gulf of Khambat, involving investigational approach. It mobilized its own rig and vessel from Singapore for this purpose. The work continued for a period of 41 days. The work in respect of Ganesh Benzo Plast also involved geo-technical investigation and geo-technical services on-board "Samundra Sarveshak" vessel. This work continued for 37 days. It is mentioned that the assessee has been undertaking these activities on an on-going basis and not as isolated works. It is further mentioned that no length of time is prescribed under paragraph no. 1. It has been held that in such a situation if the place of business is available to the assessee for the period in which the work can be completed, it shall constitute the PE. The case of the ld. counsel is that the work carried by Fugro Engineering BV was not regarding construction or assembly project. The work involved taking samples from various places and testing....
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....a general definition and paragraph no. 2 furnishes an inclusive definition of the PE. Some of the items mentioned in paragraph no. 2 do not make a reference to the time period but paragraph no. 5(3) of the U S Model in regarding to a building site, construction, installation project etc. contains time limit of more than 12 months for constituting the PE. Such a project cannot be treated as a PE unless the time criterion is satisfied even though it may fulfil the condition mentioned in paragraph no. 1. It may be mentioned here that in the case of Brown & Root Inc. v. CIT [1999] 237 ITR 156/103 Taxman 515 (AAR - New Delhi), the ld. AAR ruled that the element of permanence in relation to an establishment, if any, would be attracted under article 5(2)(k) of the Indo-USA treaty only if the installation project continues for a period of 120 days. 7.3 Reliance has been placed on the case of Cal Dive Marine Construction (Mauritius) Ltd. v. DIT (International Taxation) [2009] 182 Taxman 124 (AAR - New Delhi). The assessee had entered into an agreement with Hindustan Oil Exploration Co. Ltd. ('Hindustan Oil' for short) for laying pipe lines under the sea and constructing the structures in....
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....fore, this inclusiveness of the definition in paragraph no. 2 should not come in the way of harmonious construction and contextual interpretation of the two paragraphs. Accordingly, it has been further held that the ingredient of fixed place of business in paragraph no. 1 runs through the entire gamut of paragraph no. 2 while the particular instances of such fixed places are set out in the inclusive definition with a view to dispel any doubt as well as to make it more comprehensive in scope. Therefore, if the fixed place is in the nature of a building site or a place connected with construction or assembly project, the minimum duration was advisedly prescribed by the signatories to the treaty. The case of the ld. counsel is that the facts of this case are in pari-materia with the facts in the case of the assessee. 7.4 Reliance has also been placed on the decision of Mumbai Bench of the ITAT in the case of Poompuhar Shipping Corpn. Ltd. v. ITO [2007] 109 ITD 226 (Chennai). The assessee is a company incorporated in, and the tax resident of, Mauritius. It is engaged in the business of marine and general engineering and construction. During the year, it executed three projects for A....
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.... decision was rendered in a different context of taxation of profit from a turn-key project, yet we think it fit to reproduce the portion of the judgment relied upon by the ld. DR:- "12. There is one more aspect to be discussed. The attraction rule implies that when an enterprise (GE) sets up a PE in another country, it brings itself within the fiscal jurisdiction of that another country to such a degree that such another country can tax all profits that the GE derives from the sources country-whether through a PE or not. It is the act of setting out a PE which triggers the taxability of transactions in the source State. Therefore, unless the PE is set up, the question of taxability does not arise-Whether the transactions are direct or they are through the PE. In the case of a Turnkey Project, the PE is set up at the installation stage while the entire Turnkey Project, including the sale of equipment, is finalized before the installation stage. The setting up of PE, in such a case, is a stage subsequent to the conclusion of the contract. It is as a result of the sale of equipment that the installation PE comes into existence. However, this is not an absolute rule. In the present....
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....ving hydrocarbons. It had inter alia to dig bores for the purpose of obtaining the material for testing. The same was later on tested on-board the ship. The work did not involve any construction or assembly project. The project was in the nature of carrying out chemical analysis to determine the extent of hydrocarbons available in the material obtained for testing. Obviously, paragraph no. 5(2)(i) or similar provision was not applicable to the facts of the case. The Tribunal, however, recorded a finding that the ship was a fixed place of business. It was available to the assessee for carrying on the business of chemical analysis without let or hindrance. Therefore, irrespective of time of presence in India, it constituted the PE. Accordingly, the profit attributed to the PE was held to be taxable in India. The case did not involve interpretation of paragraph no. 5(2)(i). Thus, on a prima facie basis, one can come to the conclusion that since the assessee had to carry out its work through the ship which could be done without let or hindrance, therefore, the ship is a fixed place of business. However, the case at hand involves construction of the treaty provisions contained in paragr....
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.... It has been held that the two paragraphs have to be read together. Paragraph no. 2(i) specifically deals with construction or assembly project or supervisory activities in connection therewith. If the matter is concluded under paragraph no. (1), this paragraph becomes otiose for the reason that all construction or assembly projects will have a fixed place of business. Therefore, it would be difficult to read any residuary meaning in this paragraph. The ld. DR has also distinguished the decision in the case of Subsea Offshore Ltd. (supra) as the word used in the treaty at that point was "in" and not "through", therefore, it was held that a moving ship operating along with the fixed place of business did not constitute PE. In this connection, we are of the view that the words "fixed place" do not represent a point in space but an area in space, which is available to the assessee for assembling the pipe lines. Nonetheless, the work done by the assessee is of assembling the pipe lines and the issue is regarding harmonious interpretation of paragraph nos. (1) and (2). In this situation, we tend to agree with the ld. AAR that if we stop at paragraph no. (1), paragraph 2(i) of the DTAA b....