TaxTMI 
TaxTMI 
2011 (8) TMI 552
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....to the appellant to cross examine the officer of Oil and Natural Gas Corporation Limited ("ONGC") on the basis of whose opinion adverse inferences against the appellant have been drawn and without confronting the data relied upon for arriving at the estimated profit from offshore operations. 2. That on the facts and circumstances of the case and in law, the ld. AO erred in completing the assessment at an income Rs. 28,12,60,801 as against loss of Rs. 23,50,939 returned by the appellant holding that the appellant was liable to tax in India, in respect of the activity performed in India and outside India during the relevant previous year. 3. That on the facts and circumstances of the case and in law, the ld. AO erred in holding that the appellant had a fixed place 'Permanent Establishment' ("PE") in India under Article 5 of the Double Tax Avoidance Agreement between India and Korea ('the Treaty'), in the form of project office in India. 3.1 That on the facts and circumstances of the case and in law, the ld. AO erred in alleging that the profit office was involved in marketing and negotiating tender bids, not appreciating that the profit office name into exist....
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.... 288 ITR 408 (SC) in respect of taxability of turnkey contract where different parts of the contract are to be carried out in different tax jurisdictions. 5. Without prejudice even if it is assumed that the contract was not divisble and the appellant had a PE in India, no income on account of offshore activities, i.e., the operations carried out outside India (viz., designing, engineering and material procurement activities) was attributable to the alleged PE, as the offshore activity was carried out outside India and the alleged PE had no role to play in such activity. 5.1 That the ld. AO erred in holding that revenue from operation of design, engineering and material procurement outside India was taxable, even though there was no allegation that the price at which billing was done was not at arm's length. 6. On the facts and circumstances of the case the ld. A O erred in not appreciating that even if the appellant is assumed to have PE in India, since the appellant incurred overall loss on the aforesaid project, both in respect of operations in India and outside India, there was, in any case, no income liable to tax in India in relation to the said project. 7. Wit....
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....g of these objections." 2. Though, in the present appeal various issues are raised, but, during the course of hearing of this appeal the issue relating to existence of Permanent Establishment (PE) was argued by both the parties on the basis of which the claim of the assessee is depending. According to the assessee, for its activity relating to outside India operation PE does not exist. Therefore, it is the case of the assessee that no part of the revenue received by it with regard to the activities carried on outside India is taxable. As against that, it is the case of the revenue that on its outside India operations, the assessee is liable for taxation as there is an existence of PE of the assessee in India. To understand the controversy, it will be relevant to mention the following facts. 3. Vide agreement dated 28-2-2006, the assessee company along with M/s Larsen & Toubro Ltd. (L&T) had entered into an agreement with Oil and Natural Gas Corporation (ONGC) to carry the work of "Surveys (pre-engineering, pre-construction/pre-installation and post-construction), design, engineering, procurement, fabrication, anti corrosion and weight coating, load out, tie down/sea fastening....
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....e of convenience the said clause is reproduced as under:- "AND WHEREAS Pursuant to the above and the discussions conducted with the Contractor, the company has awarded to the Contractor the Contract for the said Work at a total lump sum Contract price of USD 381,459,881 + INR 346,08,97,000 (United States Dollars Three Hundred Eighty One Million Four Hundred Fifty Nine Thousand Eight Hundred Eighty One plus Indian Rupees Three Hundred Forty Six Crores Eight Lakhs Ninety Seven Thousand only) by its NOA MR/OW/MM/VED/03/2005, dated 24-1-2006 which is the effective date of commencement of this contract) and on the terms and conditions as agreed to by the two parties as of the said date of NOA and as outlined in this Agreement (hereinafter also referred to as "the Contract") 8. Annexure A to the aforementioned agreement dated 28th February, 2006 describe the general conditions of the contract and Annexure B comprise of bidding documents, etc. There are other annexures also, Annexures C, D, E, F and G. Annexure C prescribe the contract price schedule and rental rate schedule and Annexure D prescribe the construction schedule/project key dates. Annexure E prescribe milestone payment ....
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....ling and erection of equipment, machines, tools and instruments; storage and fabrication facility; personnel housing, mess and transportation; and all services necessary to perform the work for the complete installation as described in Part IV of bidding document. (h) Comply with all Central, State and Local Government Regulations applicable to the work. (i) Observe all applicable Company's and accepted industry safety practices and, in addition, all Governmental regulations as appropriate for this Work. (j) Comply with applicable codes and standards as per Contract, of engineering, fabrication, construction and safety. (k) Provide necessary documents and drawings for the scrutiny of the appointed Third Party Inspection and Certifying Agency. (l) Provide all as-built drawings, documents and manuals (m) Provide Third Party Inspection and Certificate of approval for all the facilities under the scope of work. (n) Provide all statutory approvals, insurance, guarantee. Further details on Scope of Work have been provided in Part-IV of bidding document." 11. The existing facilities have been described as under:- ....
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....upees Three Hundred Forty Six Crores Eight Lakhs Ninety Seven Thousand only) as per the details and break-up of prices given in schedule of prices. The contract price is a firm price and the Contractor shall be bound to keep the same firm and without escalation on any ground whatsoever until completion of entire works against this contract. Unless otherwise specified in the Contract, cost of execution of Works on turnkey basis and tests etc. as specified in Contract and all expenses, duties, taxes, fees charges in relation to or in connection therewith including insurance risk of weather, Constructional Plant and Equipment breakdown and Site conditions etc. as per provisions of the Contract, shall be deemed to be included in the Contract Price. Payment shall be made in the currency or currencies given in the schedule of prices for the work executed as per the procedure set forth in Clause 3.2. Adjustment to Contract Price, if any, shall be made in accordance with provisions of Contract." 15. Under the head 'Payment procedure' in clause 3.2, provisional progressive payments for part of the work executed by the contractor are stated to be made on the basis of completion of....
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....ed cost. The provision is made for foreseeable losses when current estimate of total contract cost and revenues indicate a loss. The assessee is governed by the provisions of Article 7 of the DTAA and as per the said article all expenses incurred in earning income are fully deductible based on the commercial accounting principle in computing the said business profits chargeable to Indian income-tax. The Assessing Officer observed that Profit & Loss Account of the Mumbai Project office as showing the gross income of Rs. 23,73,93,083 against which the assessee had claimed the expenses of Rs. 24,34,70,741. The contract revenue of Rs. 23,73,45,563 was 14.56% of the total revenue of the contract for inside India work which was Rs. 162.97 crore. The invoices raised by the assessee for inside India activity were to the tune of Rs. 3,25,82,569 which have been listed at para 5 of the assessment order. It was further noticed that out of total expenses incurred at Rs. 24,34,70,741, which was debited to Profit & Loss Account, the assessee had incurred expenses on account of cost of revenues, selling, general and administrative expenses and depreciation on total amount of Rs. 24,34,70,741. It w....
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....espect of 'offshore supply' and 'offshore services' by the assessee outside India, the sale is completed outside India and the same is not attributable to the permanent establishment. No part of the income for the 'offshore supply' or 'offshore services' is received in India. The property in goods, which were the subject matter of offshore supply, passed on to ONGC outside the territory of India. According to section 5(2) of the Income-tax Act, the assessee being non-resident, will be chargeable to tax in India only in the event when income accrue or arise to it in India or is deemed to accrue or arise in India or income is received or deemed to be received in India and not otherwise. All the operations in connections with offshore supply are carried out outside India, therefore, the question of any portion of the consideration to be regarded as deemed to accrue or arise in India would not arise. The requirement of the assessee to perform certain services in India such as unloading, port clearance, transportation of the equipments supplied would not render the assessee eligible to tax as the consideration thereof is embedded in the consideration for ....
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.... It is the act of setting out a PE which triggers the taxability of transactions in the source state and it was submitted that unless the PE is set up, the question of taxability does not arise irrespective of the fact that whether the transactions are direct or they are through the PE. In the case of turnkey projects, 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 the PE in such a case, is a stage subsequent to the conclusion of the contract. It is a result of sale of equipment that the installation PE came into existence. It was submitted that the contract in the present case was concluded on 28th February, 2006 as against that assessee's installation PE came into existence on 24-5-2006 and if the law laid down in aforementioned decision of Apex Court is taken into consideration, then, revenue for sale of equipment finalized before the setting up of installation PE cannot be attributed to PE which was not even in existence at the time of the said sale. Hence, no part of outside India revenue could be attributed to the revenue. 21. Reference was also ma....
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....tion mentioned in the contract is for the full contract to be executed in India and, therefore, income earned by the assessee in respect of outside India activity is liable to be taxed in India as per the provisions of section 5 of the Act and also Article 7 of DTAA read with Article 5 as the assessee was having PE in India. 23. As against the above view of the Assessing Officer, the assessee denied to have its liability to be assessed on the revenue relating to activity carried on outside India based on the aforementioned decisions of Hon'ble Supreme Court in the case of Ishikawajima - Harima Heavy Industries Co. Ltd. (supra) and Hyundai Heavy Industries Ltd. (supra). It was submitted that the payments were to be received by the assessee as per milestone payment formula which was duly supported by the achievement certificates. So as it relates to insurance premium, it was submitted that insurance expenses were incurred by the assessee purely for and on behalf of ONGC and the same have been reimbursed to the assessee in full. It was submitted that the assessee did not have any project office in India prior to 24th May, 2006 as the project office of the assessee had come into....
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....rt in para 9 of the judgment the assessee places reliance on article 7 of CADT and submitted that on completion of the work of fabrication of platforms, the same were handed over to the agents of ONGC in Korea and, therefore, the assessee was not liable to be taxed.......... and further observations in para 11 "we find that the profits earned by Korean GE of supplies of fabricated platform cannot be made attributable to its Indian PE as the installation PE came into existence only after the transaction stage materialize. The installation PE came into existence only on completion of transaction giving rise to the supply of fabricated platform. The installation PE emerged only after the contract with the ONGC stood concluded. It emerged only after the fabricated platform was delivered in Korea to the agents of ONGC. Therefore, the profit on such supplies cannot be said to be attributable to PE". Further he referred to the observations of their lordships in para 12 "in the case of turnkey projects, the PE is said to be at the installation stages while the entire turnkey project, including the sale of equipment is finalized before the installation stage. The setting up of PE, in such a....
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....se also stipulates that the provisional payments would be made as per the agreed milestone formula. The invoices would be raised every month on the basis of work completed for such provisional payments. Thus, referring to this clause, the Assessing Officer found that the milestone payments are only provisional payments and it clearly shows that contract is not divisible. He also referred to clause relating to obligation of the contractor for payment of customs duty. He also referred to the clause 5.4.2 which provides that contractor may have to dismantle or modify any existing facility or equipment and if it is so done that will be at contractor's own cost and responsibility. Under clause 5.5.1 contractor was under an obligation to provide office space and secretarial service, etc. during the time of engineering and design review and, in this manner, he has mentioned various clauses of the agreement and after analyzing all these clauses, the AO concluded that the main thrust of the arguments of the assessee was that it was not having any PE in India before the work of fabrication got completed and the fabricated material was imported in India. The installation PE was having lim....
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.... observed that the clarification given by him was put to the assessee to comply with the requirements of principles of natural justice and assessee has not given any cogent reason to find any infirmity in the said clarification. The completion of work was in India, the handing over of completed work was also in India. The deployment of men and material was in India. The insurance cover was taken by the assessee in India. The import was made by the assessee on its own account and custom duty was also paid by them. The entire transportation was done on the contractor's risk. Therefore, it is not comprehensible that how the assessee can take the plea that the title of the goods passed outside India. The fact that ONGC kept a close watch on the quality of material and did approve design and quality from time to time by making periodical inspection and approving vendors etc., does not mean that the title in goods, under any circumstances, had passed outside India. The work of fabrication and procurement of material was very much a part of the contract for execution of work assigned by ONGC. The work was wholly executed by the PE in India and it will be absurd to suggest that PE in I....
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....itial part and later the operational part was executed by the project office at a different location. The title in the goods passed in India and PE in India utilized the material on its own account and on its own behalf. Thus, the entire profits from the work under the contract arise in India and are liable to tax as such. He rejected the alternative contention of the assessee that even if the receipts on account of outside India revenues are held liable to be taxed, the income cannot be computed at more than 10% of such revenues under section 44BB of the Act and the AO observed that such contention of the assessee is totally misconceived. The assessee has maintained accounts for its India operations. The provisions of section 44BB are applicable in a case where services are rendered in connection with prospecting for or extraction and exploration of mineral oil. The project is neither for prospecting of mineral oil nor is the assessee rendering any service in the exploration of mineral oil. The work of the assessee is installing a pipeline which may be used by the contractee for exploration of oil but as far as the assessee is concerned, they are not rendering service in connectio....
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....in juxtaposition with the general definition under para 1 of Article 7, then, here existence of 'place of management' or 'a branch' or 'an office' is not sufficient to conclude that there exists permanent establishment of the non-resident in India and it has to be demonstrated with the evidence that the business of the non-resident is wholly or partly carried on through such place of management, office or branch. Reference in this regard was made to the following commentary given with regard to para 2:- "Paragraph 2 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 constitute permanent establishments only if they meet the requirements of paragraph 1. ** ** ** 11. A permanent establishment begins to exist when the enterprise commences to carry on its business through ....
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....e further submitted that the activities like pre-engineering survey, etc. were carried out through contractors, viz. Fugro Geonics (P.) Ltd., and Offshore Hook-up and Construction Services India (P.) Ltd., who were awarded contracts by the Korean head office. The said activities were carried out for a period of 1-3 days and that too to facilitate the design, engineering and fabrication activities being carried out outside India. There is no evidence on record to prove that the said activities were carried on through project office of the assessee and no such finding have been recorded either in the assessment order or in the order passed by the DRP that such activities are either conducted through the project office or the project office had any role in facilitating such activity. These activities were for unsubstantial period of time during the relevant previous year and no other activity was carried out. If insurance cost of 22.66 crore is excluded from the total expenditure of 23.9 crore incurred during the relevant previous year, the expenditure incurred in India in relation to the project was only Rs. 1.3 crore which is less than 1% of the revenue relatable to the activity to ....
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....at installation activities should have commenced and that such activity carries for more than the threshold period prescribed in the applicable DTAA in order to constitute a PE in the source of jurisdiction. The relevant extract from the said commentary was referred to as below:- "16. This paragraph provides expressly that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months. Any of those items which does not meet this condition does not itself constitute a permanent establishment, even if there is within it an installation, for instance an office or a workshop within the meaning of paragraph 2, associates with the construction activity. Where, however, such an office or workshop is used for a number of construction projects and the activities performed therein go beyond those mentioned in paragraph 4, it will be considered a permanent establishment if the conditions of the Article are otherwise met even if none of the projects involve building site or construction or installation project that lasts more than 12 months." 39. Ld. AR further referred to the decision of the Delhi Tribunal in the ca....
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....act that the assessee had filed its return of income is sufficient to establish that the assessee was conscious of the fact that its PE is in existence in India. He submitted that as per Article 7 of the DTAA a non-resident enterprise is taxable in India only if there exist a PE in India. He submitted that learned counsel of the assessee made a statement that in its return of income only income from inside India activity has been declared and, therefore, it cannot be said that the assessee was conscious of existence of PE. He submitted that the said statement of ld. Counsel is legally incorrect as it is against the very first principle contained in Article 7 of DTAA which states that non-resident enterprise can be taxed in India only if PE exist in India. He submitted that this is true for any kind of business income whether from inside India activity or outside India activity. According to Article 7 even income from inside India activity is not taxable if there is no PE in India. The very fact that the assessee has furnished income-tax return declaring income from inside India activity indicates that the assessee has no doubt in its mind about the existence of PE in India particul....
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.... AR of the assessee has contended that no activity was done through project office in relation to contract and in fact project office was opened at the insistence of ONGC; the letter from board of director of the company is just a formality and the project office was never intended to be used for co-ordination and execution of the contract; the project office was manned by only skeletal staff and it was used for exchange of communication between ONGC and assessee company in Korea. He further submitted that ld. AR has explained that documents like approval for mile stone payments were routed through the project office and he has further contended that whatever activities were done through project office are in nature of auxiliary or preparatory in nature and hence project office does not constitute PE; the project office was used for arranging security pass for visiting officials of the company which does not amount to carrying on of business of contract; that the Assessing Officer has not put up any positive evidence to prove that some commercial activities were done in the project office. Ld. DR submitted that in this manner, Ld. AR has tried to compare liaison office with project....
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....efore, obviously, these activities are not auxiliary or preparatory in nature as these are vital part of contract itself and without these, contract cannot be executed. He submitted that ld. Counsel for assessee has accepted that certain documentation like approval of mile stone payments etc. were exchanged through project office and, according to him, some degree of co-ordination was affected through project office. He submitted that as per the requirement of Article 5(1) of DTAA the business should be wholly or partly carried on through fixed place so as to make it a PE. He submitted that in view of acceptance by the ld. AR that some co-ordinating activities were carried out through project office, it amounts to carrying on of assessee' business through project office though those may or may not be significant enough from the point of view of attribution of income. He submitted that project office cannot be compared with liaison office and such argument of ld. AR is misplaced because under rules, LO is invariably permitted to be opened for only for liaison purpose and no commercial activity is permitted through it, whereas the project office is permitted to be opened for exec....
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....oning of a platform. The agreement was in two parts, one for fabrication of structure in Korea and other for its installation and commissioning. After fabrication, platform was handed over to ONGC in Korea. In these circumstances, it was held by Hon'ble Supreme Court that the activities up to fabrication of platform have occurred outside India and hence these cannot be attributed to Installation PE which came into existence after fabrication was completed. He submitted that in that case, the department did not allege that there was a PE before handing over of platform in Korea and in such a situation, Hon'ble Supreme Court has held that since installation PE came into existence after fabricated platform was handed over to ONGC in Korea, activities prior to handing over of platform cannot be attributed to such installation PE. After installation PE came into existence, income has been held to be attributable to it. He submitted that Hon'ble Supreme Court has nowhere held that there cannot exist any PE before start of installation stage. The crucial fact in that case was that the department did not allege that there was any PE before start of installation stage. He drew o....
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....deration. He submitted that admittedly, there were no installation activities during the year under consideration, therefore the contention of the assessee that only installation PE can exist in such cases and no other kind of PE can exist should not be accepted. He submitted that the project office is a fixed place of business and unlike in the case of Hyundai Heavy Industries Ltd. (supra), in the case of the assessee, there is no sale of fabricated platform outside India, and, rather in the present case, the sale occurred in India only after successful installation of platform as is evident from clause 7.1.1 of contract which stipulates that the ownership of material shall be transferred to ONGC upon the date of issuance of certificate and it is at the completion or completion and acceptance of works. Therefore, he contended that unlike the case of Hyundai Heavy Industries Ltd. (supra) the contract is not divisible in assessee's case and it has been demonstrated in earlier arguments that the fixed place PE of project office is in existence since start of the contract and it has been used by the assessee for co-ordination and execution of contract with ONGC. Thus, he submitted....
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....losed, outside India revenues were not offered for taxation on the ground that PE in India did not come into existence during the relevant year. He submitted that without prejudice to the above, there is no estoppel in law in resiling from a position incorrectly taken in the return of income and considered in that light, even if the assessee had filed a tax return on the presumption that there was PE in India, such position mistakenly taken could be resiled in the proceedings before the assessing authority or the appellate authorities and, in this regard, he placed reliance on the decision in the case of CIT v. Bharat General Reinsurance Co. Ltd.: 81 ITR 303 (Delhi) and also the decision of the Special Bench of the Tribunal in the case of Indo Java & Co. v. IAC, 30 ITD 161 (SB)(Delhi). He submitted that the question whether the assessee has a PE in India or not has to be determined with reference to the fact of the case and the position in law and not on the basis of filing of return of income by the assessee, more so where the assessee has resiled from the position taken in the return. 52. He further submitted that the Board Resolution, in fact, only authorized the project offi....
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.... submitted that the burden to prove otherwise was on the Revenue to bring some evidence on record to establish that some activity had, indeed, been carried on through the project office before concluding that the project office of the assessee constituted PE in India. He referred to the decision of the Tribunal in the case of R&B Falcon Offshore Ltd. dated 28-2-2011 in which the Tribunal did not entertain the argument submitted by the Revenue to similar effect on the ground that there was absence of any evidence being brought on record by the Revenue. He submitted that the assessee could not be asked to prove that the project office did not carry out any profit generating activity as that would amount to asking the assessee to prove the negative. He submitted that perusal of audited accounts filed by the assessee along with the milestone certificates issued by ONGC would lead to an inescapable conclusion that during the relevant previous year no substantial activity was carried out In India. The expenditure mainly are incurred in respect of insurance premium. Assuming for the sake of argument that the project office was involved in the execution of the contract, since the duration ....
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....ties, it was held by the Apex Court that the PE of Hyundai came into existence only after the fabricated platforms were delivered to the agents of ONGC in Korea and he drew our attention towards the following observations of the Hon'ble Supreme Court in the said decision:- "The installation PE came into existence only on conclusion of the transaction giving rise to the supplies of the fabricated platforms. The Installation PE emerged only after the contract with ONGC stood concluded. It emerged only after the fabricated platform was delivered in Korea to the Agents of ONGC. Therefore, the profits on such supplies of fabricated platforms cannot be said to be attributable to the PE. There is one more reason for coming to the aforestated conclusion. In terms of para (1) of Article 7, the profits to be taxed in the source country were not the real profits but hypothetical profits which the PE would have earned if it was wholly independent of the GE. Therefore, even if we assume that the supplies were necessary for the purposes of installation (activity of the PE in India) and even if we assume that the supplies were an integral part, still no part of profits on such supplies can....
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.... core business activities on the basis of which the assessee can be taxed in India on the activities carried on by it outside India; the contract of the assessee is divisible in two parts and before fabricated platform was deported from Malaysia, where it has been fabricated, installation PE cannot be said to have come into existence, therefore, prior to that point of time no part of outside India activity can be taxed in India in the absence of the installation PE; the revenue received by the assessee mainly constituted insurance cost and if the same is ignored, then, negligible work has been carried out by the assessee which is less than 1% of the revenue relatable to the activities to be performed in India. 59. On the other hand, it is the case of the department that the PE of the assessee came into existence upon the event of opening of Mumbai Project Office; the submission of the return of income by the assessee itself will show that the PE of the assessee had existed in India as in the absence of PE no part of income of the assessee can be taxed in India; the documents in the shape of minutes of Board of Directors Meeting, the letter issued by the RBI allowing the assessee....
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....lation and post construction and it include design, engineering, procurement, fabrication, anti-corrosion and weight coating, load out, tie down/sea fastening, tow out/sail out, transportation, installation, modifications at existing facilities, hook up testing, etc. Though earlier the work of modification to existing facility was agreed to be carried out by L & T in the MoU arrived at between the assessee and the L & T, but, later on, by amendment in MoU, modification to existing facility was assigned to the assessee. 61. The price which was to be received by the assessee in respect of work to be carried on by it in pursuance of the contract has been stated in para 7 of this order. The scope of the work has been described in para 10 of this order and the existing facilities have been described in para 11 of this order. The effective date of commencement of the contract is 24th January, 2006 and the completion date is 2nd April, 2008. The assessee was under an obligation to supply to ONGC within 21 days of the effective date of commencement of work and prior to kick off meeting, whichever is earlier, an organization chart showing the proposed organization to be established by th....
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....fice in India. Such stipulation is in clause 3.2, the relevant portion of which is described in para 15 of this order and these terms will clearly reveal that the nature of the contract is indivisible. Any payment made in pursuance of contract will become due only on the fulfilment of the condition of submission of performance guarantee, certificate of insurance policy/policies for the project and a copy of permission from Reserve Bank of India for opening project office in India. Thus, for the contract it was a condition precedent to obtain permission from the Reserve Bank of India for opening Project Office in India. There is no dispute to the effect that the assessee had opened its project office in India on 24th May, 2006 and the said fact has been described in para 17 of this order. The revenue which has been recognised by the assessee is also described in para 17 of this order which is relating to hook up and commissioning, insurance and pre-engineering and surveys. 65. Thus, it can be seen from the above discussion that the contract obtained by the assessee from ONGC is a composite contract starting right from surveys of pre-engineering, pre-construction/pre-installation,....
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....ake the above documents on record. Please take on record our clients Project office and register the same. If you require any clarification, please let us know. Thanking you, 66. It will also be relevant to reproduce copy of power attorney given by the assessee company to Mr. S.S. Park through Jing Wan Kim, President and CEO of the assessee company, a copy of which is placed at page 318 of the paper book. To Whom It May Concern: I, the undersigned hereby duly certify that Mr. SangSoon Park, General Manager of Samsung Heavy Industries Co. Ltd., has been appointed as our representative to sign the documents for opening of a project office and bank account in India and look after the operations of project office in respect of our contract with ONGC for Vasai East Development Project at Mumbai, India. This power of Attorney shall remain in full force until our further notice. I confer onto Mr. SangSoon Park of Samsung Heavy Industries Co. Ltd., whose signature is described as Sd/- the power to represent our company, Samsung Heavy Industries Co. Ltd., in overall decisions of activities to be required in the India relating to opening of a Project Office and bank a....
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....f the Company, as the Company's true and lawful representative with full power and authority for the purpose of establishing a project office and coordinating and executing delivery documents in connection with construction of offshore platform modification of existing facilities for ONGC above. IN WITNESS WHEREOF, the President and Directors present at the meeting have hereunto affixed their names and seals on this 3rd day of April, 2006. Sd/- Samsung Heavy Industries Co. Ltd. President and CEO Jing Wan Kim [Emphasis supplied] 69. Copy of approval given by RBI is placed at page 322 which read as under: FEO, Mumbai CAD/080/4-2-2001/05-06, 24th May, 2006 M/s Davesh K. Shah & Co., Chartered Accountants, 106, Banaji House, 361, Dr. D.N. Road, Flora Fountain, Mumbai 400 001. Dear Sirs, Registration of Project Office - M/s Samsung Heavy Industries Co. Ltd. - (SHI) Please refer to your letter dated 24th April, 2006 on the captioned subject. In this connection, we advise having noted a Project Office in India in terms of prevision contained in AP (DIR Series) Circular No. 37, dated 15th November, 2003. Yours faithfully, Sd/- ....
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....s been the case of assessee that the assessee having installation contract was engaged in a fabrication of platform and unless fabricated platform is delivered from the country, where it has been fabricated, the installation PE cannot said to have come into existence. This argument of the assessee is not acceptable for the reason that the facts in that case, as observed by Hon'ble SC, were that the contract was divisible into two parts, one was for fabrication of the platform and the other was installation and commissioning of the said platform. On these facts, it was the case of the assessee that before the fabrication work was completed no PE can be said to have come into existence as its Mumbai office cannot be termed to be PE as it was only a liaison office as per permission given by RBI. In that case Mumbai office was not considered as PE as it was not permitted by RBI to carry on any business activity in India. The assessee in that case was having no other place of business in India prior to fabrication work was completed outside India. Therefore, it was held that installation PE came into existence at the point of time when fabrication work was completed and fabricated m....
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....lay or delivery; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or for collecting information, for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of advertising, the supply of information, scientific research or any other activity, if it has a preparatory or auxiliary character in the trade or business of the enterprise; (f) the maintenance of a fixed place if business solely for any combination of activities mentioned in sub-paragraphs (a) to (e) of this paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. 5. Notwithstanding the provisions of paragraphs (1) and (2) if a person - other than an agent of independent status to whom paragraph (6) applies - is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts in the name of the e....
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....2. It has already been pointed out that Article 5.3 only extends the scope of PE and it cannot be read in isolation. Otherwise also, if the PE of a non-resident entity exists under Article 5.1 & 5.2 than it is not necessary that it should also fall within the scope of Article 5.3 to make it liable to be taxed in the source country. In the present case, it has already been held that the PE of the assessee came into existence on the opening of project office in Mumbai. Similarly reliance on the decision of Tribunal in the case of Dy. CIT v. Hyundai Heavy Idnsutries Co. Ltd. 31 SOT 482 (Delhi) is misplaced as in that case assessee's Mumbai Office was not considered as PE for the reason that it was not allowed to carry out any business activity by the RBI and it was to work only as liaison office. 76. Article 5.4 is an exclusionary clause which describes that in specified circumstances "permanent establishment" will not be considered to be "permanent establishment". Article 5.4 starts with the words "notwithstanding preceding of this article" and exclusions are: (a) use of the facilities solely for the purposes of storage, display or delivery of goods, mercantile belonging to....
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....by the assessee in India have demonstrated that Mumbai project office did not incur any expenditure relating to project and the employees deployed there have no technical qualification or skill to enable them to carry out the activity of the project. We have carefully considered these arguments of ld. AR. It has already been discussed that in absence of any restriction put by RBI on the activities of Mumbai project office, the said office is in the character of "permanent establishment" in view of Article 5.1 and 5.2. If it is so, then material is available on record according to which it can be said that "permanent establishment" of the assessee has come into existence on the opening of Mumbai project office. There is no force in the arguments of ld. AR that, in any case, its Mumbai project office falls under exclusions described under Article 5.4, as the activities carried on by the Mumbai project office are in the nature of preparatory of auxiliary in nature. The way the terms of the contract are described and the way the work on contract has to proceed clearly describe that in all the activities of contract there will be the role of Mumbai project office as the same has to work....
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....attributed 25% of its outside India activity as income related to PE of the assessee to India. But we find no material on record to support such attribution particularly in absence of any reasoning or basis given for that. Necessary material in this respect has to be brought on record to arrive at a proper conclusion that what percentage will be appropriate to be attributed to the PE of the assessee in India during the year under consideration. Therefore, we consider it just and proper to restore this issue to the file of AO for proper determination thereof after ascertaining the necessary facts and after bringing the proper material or record to support that conclusion. We direct accordingly. Needless to mention that AO will give proper opportunity of hearing to the assessee. 79. So far as it relates to levy of interest under section 234B, it is the case of the assessee that it being non-resident, section 195 of the Act puts an obligation on the payer i.e. any person responsible for paying to the non-resident, to deduct income-tax source at the rates in force from such payments excluding those incomes which are chargeable under the head "Salaries". Therefore, the entire tax whi....