TaxTMI 
TaxTMI 
2012 (10) TMI 257
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....ant, a Tax Resident of the United Arab Emirate ('UAE'), is to be computed in accordance with the provisions of the Double Taxation Avoidance Agreement ('Treaty') entered between India and UAE and only so much of the income, as is attributable to the purported construction Permanent Establishment ('PE') could alone be taxed in India. 3. That the Authorities below have failed to appreciate that, the appellant could not be held to have any PE in India within the meaning of Article 5(1) of the treaty. 4. That learned A.O. has failed to comprehend that in fact, in the preceding assessment years too since A Y 1997-98, there had been no finding that the appellant had any PE when it had entered into a similar contract with ONGC, and as such in the absence of surfacing any fresh evidence or material the learned A.O. exceeded in his jurisdiction in holding that the appellant has a P.E. in India and the entire receipts even for the activities undertaken and completed outside India could be taxed in India and that too by arbitrarily estimating such an income @25% of the gross value of supplies made from outside India. 5. The findings recorded ....
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.... reported in 291 ITR 482 and also in the case of Ishikawajima Harima Heavy Industries v. DIT reported in 288 ITR 408, so as to conclude that any further income, more than what the appellant has disclosed in the return of income, accrued to it. 10. That the Ld. AO had no valid justification on relying on the purported statement (where in fact there was no statement recorded) of Shri S.K. Sachdeva, DGM (E) - PC 4WPP-11 and that too without producing him for the appellant's cross examination, in the absence of which the purported statements cannot be a basis for recording adverse finding to conclude that the contract is not a divisible contract and the revenues pertaining to outside India operation are taxable in India. 11. That without prejudice and in the alternative, the Ld. AO has failed to comprehend that even assuming that the appellant had delivered the platform in India (but constructed by it outside India) the same could not be made the basis to hold that any income accrued to it in India by mere fact that the platform was supplied in India and for the work done outside India. 12. That the Ld. AO has erred in holding that since the appellant had....
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....of the contract and that too wrongly. 16. The Ld. A.O. has further erred in holding that the contract entered into by the appellant was a turnkey project, and as such, the entire income accrued to the appellant in India. The aforesaid concept is contrary to the provisions of Treaty which provide only as much income as is attributable to PE in India could be brought to tax, even on an assumption which is without prejudice, that the appellant had a P.E. in India. 17. That the authorities below grossly erred in ignoring the principles of taxation laid down by the Hon'ble Apex Court in the case of Ishikawajrna Harirna's : 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. 18. That the Ld. AO has failed to appreciate that (having regard to the facts and circumstances that it could not be disputed, indeed it has not been disputed that the entire work of fabrication of platform supplied was completed outside India) no such income in respect of work of fabrication of platform which was completed outside India, could be brought to tax as provided in Artic....
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....holding that the consideration towards design and engineering is covered as 'fee for technical services' without appreciating the fact that the provisions of the treaty treats fee for technical services as business profits taxable under Article 7 of the Treaty. 24. Without prejudice and not admitting the existence of PE in the alternative, the Ld. Assessing Officer /DRP ought to have applied section 44AB in respect of the activities towards inside India activities i.e. installation of platform in India, as held in the judgement of Hyndai Heavy Industries Co. Ltd. reported in 291 ITR 482. 25. That the directions of the Ld. DRP to the proposed order of assessment is not only arbitrary but is also erroneous both on facts and in law. The DRP has completely glossed over and has erred in disregarding the proposed written submission and the written arguments, and thus gave directions to assess the income at Rs. 164,52,67,897/- against the income declared of Rs. 10,77,98,165/- without application of mind. 26. That in any case and without prejudice, it is being undisputed that it was ONGC who was the payee under the contract and was liable to deduct tax at....
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....e with law but is arbitrary also. II. In the alternative and without prejudice, no income could be said to have been accrued or was taxable in India, in respect of supplies made of platform erected and constructed by the appellant outside India. III. That the application of net rate of profit @ 25% is highly arbitrary. IV. That it was not a case of turnkey project and even assuming the same no income arose, such value of contract which had been undertaken outside India. V. That no interest under any provision of section 234B, 234C or 234D of the Act was leviable. The above grounds of appeals are without prejudice to each other. That the appellant craves leave to add, alter, amend or withdraw all or any grounds or add any further grounds as may be considered necessary either before or during the hearing of these grounds." 3. The brief facts of the case are stated as under:- In this case return of income was filed on 31-l0-2007 for A.Y. 2007-08 declaring total income at Rs. 10,77,98,165/-. The nature of business is shown in the return as "Fabrication and Installation of Onshore and Off-shore Oil facilities and Sub-marine pip....
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....) Whether the Mumbai office of NPCC constitutes a PE? (ii) Whether Arcadia Shipping Ltd. is a Dependent Agent PE; (iii) Whether the Project P.E. lasted for less than 9 months and not during fabrication and procurement of material? (iv) Whether the fabricated material was sold to ONGC in Abu Dhabi before the PE in India came into existence? (v) Whether the contract was divisible into two parts, one for supply of material and the other for installation and commissioning? Assessing Officer further referred to the agreement in this regard in detail. Assessing Officer opined that the scope of work detailed above clearly shows that the National Petroleum Construction Company work under the contract begins not with installation but pre-engineering and pre construction surveys. Assessing Officer further noted that in the said contract there is no stipulation of any sale or supply of material to ONGC. The design, engineering, procurement and fabrication etc. are part of the overall project. Assessing Officer further referred the clauses of the contract which provide that the assessee contractor would seek approval of the Company before start of every w....
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....ies of the Project Office are ancillary and auxiliary so that the same can be taken in the exception clause of the Treaty. Assessing Officer opined that by no stretch of imagination, a Project Office can be involved in ancillary and auxiliary activity. Assessing Officer further observed that in this case the project was in existence even prior to the signing of the contract with ONGC and after signing of the contract, the assessee intimated RBI that it has a Project Office for the execution of this contract. Assessing Officer further referred to his enquiry with ONGC and certain documents were collected from them. Referring to these documents, Assessing Officer observed that it indicated that the assessee's Mumbai office and M/s Arcadia the dependent agent Permanent Establishment has also participated in biding process and was involved in negotiation and finalization of the contract. Further, Assessing Officer observed that these documents are not mere correspondence but these indicate definite involvement of the Mumbai Office and Arcadia Shipping Ltd. in the process of negotiation of the contract. Further, Assessing Officer observed that right from the stage of submission of t....
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....r their employees to execute that work. Assessing Officer observed that the monitoring by ONGC was so strong that the assessee company had to submit the periodical progress reports to the ONGC and their officials approved every stage of survey and designing. Assessing Officer further observed that the PE of assessee by way of project office for the project also lasted for more than 9 months. Assessing Officer further referred to the date of contract and the completion /hand over of the project and observed that project lasted for more than the period stipulated in the DTAA. Therefore, the assessee had a PE within the meaning of treaty. Assessing Officer further observed that the procurement and fabrication of material took place during the existence of the PE in India. The terms of contract with ONGC do not stipulate any sale of material to them. The preamble to the agreement as also the scope of work stipulate manufacturing of platforms on a turnkey basis. There may be various stages in executing the work like survey, designing, fabrication procurement, and installation and commissioning but these are mere stages of the total project. The ONGC does not purchase any material ....
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....consolidated contract, no separate treatment is done and the same is taxed as one consolidated contract under the head 'business income'. Assessing Officer further observed that company has undertaken contract in India on turnkey basis and has executed the contract in India. The title in goods as well as the constructed platform is transferred once the Indian company accepts the project as complete. This case has no comparison to a case of an isolated supply contract which has been done outside India. This is a clear cut case of a works contract executed in India where the assessee has also obligation of fabricating and procuring certain material to be used in the works. This is not a case of ONGC purchasing material from the assessee but it is a turnkey project where procurement of material is a part of the Contract which has been done by the assessee who has brought it to India and used it in the project where the material has been used is handed over to ONGC after the completion of the project. Assessing Officer further observed that there is absolutely no basis for the suggestion that the works contract could be divided into two parts, one for the supply of the ma....
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....are clearly inapplicable and the profit is to be computed in accordance with the accounts maintained for India operations and keeping in view the applicable provisions of the Income Tax Act. Thereafter, Assessing Officer concluded as under:- "Various notices were issued to the assessee to give the details of expenses incurred for the Project undertaken by the assessee in India. The assessee has neither got its accounts audited nor has furnished any audited account. Therefore, penalty proceedings under Sec. 271B are hereby initiated. It has also not furnished the details of any expenses. It 'has created its own method of computation of income where it has bifurcated its revenues into two parts one is for inside India and another for outside India. From the inside India revenue, sub-contractor cost has been deducted and then, a 10% deeming profit rate has been arrived. This method has no legal basis and therefore, is hereby rejected. For work outside India, they have taken 1% as the profits attributable to India. This also has no legal basis and therefore, is rejected. During the course of assessment proceedings, time and again, the assessee was asked to come forward with the ....
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....r without prejudice to the aforesaid, computation of tax by the learned Assessing Officer is correct and, in accordance with law? (v) Whether any interest u/s. 234B of the Act is leviable on the appellant company especially where the revenue had granted lower withholding tax order directing ONGC to withhold tax at lower rate, i.e. 0.84% for outside India revenues and 4.39% for inside India revenues? 7. Further submissions of the Ld. Counsel of the assessee are as under:- "It is submitted that the appellant company has a project office since 1997 in India. It is further submitted that, it is an undisputed fact that this project office was stated to be a PE for assessment years 1997-98 to 2007-08. However, it is respectfully submitted that this office was only used as a communication channel and, is thus not a PE as defined in Article 5 (2) read with Article 5(1) of the DTAA. It is submitted that, it is not denied that, appellant is involved in installation and commissioning of a fabricated platform in India and if, in respect of a project the period of installation activity exceeds beyond nine months, it would be regarded as an Installation or Construct....
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..... It is respectfully submitted that on a study of the 4WPP contract, it would be appreciated that ONGC may terminate the contract as per clause 8.2, 7.5.5 and or 7.4, and in the event of termination of the contract under clause 8.3.1, it may be seen that the appellant shall be eligible for the following amounts as per clause 8.3.2. "8.3.2 In the event of termination of the contract under clause 8.3.1, the company (i.e. ONGC) shall pay to the contractor (i.e. appellant) the following amount: (a) The Contract price properly attributable to the parts of the Works executed by the Contractor in accordance with the Contract as at the date of Termination. (b) The costs incurred by the Contractor in protecting the Works pursuant to paragraph (a) of clause 8.3.1 above as mutually agreed. (c) Reasonable demobilization charges as may be ascertained by the Company if contractor has Constructional Plant and Equipment at offshore site at the time the termination becomes effective. (d) Cost of any materials or equipment already purchased and/or ordered by the Contractor, the delivery of which the Contractor must accept, such materials or equip....
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....independently with the enterprise of which it is a permanent establishment." The Hon'ble Apex Court in Ishikawajma-Harima Heavy Industries Ltd. v. DIT reported in 288 ITR 408 has also held that: "Clause 1 of Article 7, thus, provides that if an income arises in Japan (Contracting State), it shall be taxable in that country unless the enterprise carries on business in the other Contracting State (India) through a permanent establishment situated therein. What is to be taxed is profit of the enterprise in India, but only so much of them as is directly or indirectly attributable to that permanent establishment. All income arising out of the turnkey project would not, therefore, be assessable in India, only because the assessee has a permanent establishment." "In cases such as this, where different severable parts of the composite contract is performed in different places, the principle of apportionment can be applied, to determine which jurisdiction can tax that particular transaction. This principle helps determine, where the territorial jurisdiction of a particular State lies, to determine its capacity to tax an event. Applying it to composite transact....
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....y it in Abu Dhabi as is evident that the insurance premium was to be borne by ONGC, who was the principal under the terms of the Insurance policy. It is also submitted that, since in the instant case, the contract was not terminated when the fabricated platform was ready to sail to India, same was installed by the appellant in India. Thus in view of Article 7(1) and 7(2) of the India UAE DTAA, only such income as is attributable to PE (i.e. income pertaining to work executed by the PE in India) could be brought to tax in India and no more. Article 7 reads as under: "1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, th....
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....ed outside India and had to be therefore confined to incomes from activities carried out from the alleged PE. It is reiterated that, even assuming that, the appellant has a PE, the same cannot be in respect of erecting and fabricating the platform in Abu Dhabi but could only be in respect of installation and commissioning activities, which even otherwise cannot be the case, since the period of installation activities is less than 9 months in India. The appellant in this context places strong reliance on the following decisions Hyundai Heavy Industries Company Limited reported in 291 ITR 482 (SC): "The installation permanent establishment came into existence only on conclusion of the transaction giving rise to the supplies of the fabricated platforms. The installation permanent establishment 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 the ONGC Therefore, the profits on such supplies of fabricated platforms cannot be said to be attributable to the permanent establishment." Hyundai Heavy Industries Company Limited (ITA No 2290 & 2291 of DEL/2002 (ITAT) re....
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....the facts and circumstances of the case, profit, if any, from the Korean operations (designing and fabrication) is not taxable in India because the same has been arisen outside India. Regarding clause (b) of para 15 of the judgement of Hon'ble Apex Court, we find that in the previous two years, there is no dispute regarding quantum of profit embedded in the Indian operation attributable to Indian P E of the assessee and hence this clause of para 15 is not applicable in the present two years which are before us. We, therefore find no reason to interfere in the order of Ld CIT(A) in both these years.". The aforesaid proposition has also been followed by the Mumbai Tribunal Roxon OY v. DCIT (103 TTJ 891 (Mum). "As far as art. 7(1)(a) is concerned, the profits attributable to the supplies under the turnkey contract can be brought to tax in India only when we are to hold that the profits attributable to P E will include the profits on supplies under the turnkey contract. In our humble understanding, such an interpretation will be incorrect, for several reasons. Firstly, a profit earned by an enterprise on supplies which are to be used in a construction or installat....
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....eeping in mind the past trend where presumptive rate of profit was applied and accepted by the appellant and the revenue, the appellant, in the interest of revenue, agreed to be taxed for the relevant assessment year as in the past. It is submitted that the facts and circumstances as prevalent in preceding years have remain unchanged and, therefore applying the rule of consistency, the income declared may be assessed and, no more. Reliance in support of the aforesaid proposition is placed on the judgement of Hon'ble Apex Court in the case of Radha Saomi Satsang v CIT reported at 193 ITR 321. This view has also been expressed in the following cases: - State of Andhra Pradesh v A.P. Jaiswal [2001] 1 SCC 748 - CIT v Berger Paints 266 ITR 99 (SC) - Dhansi Ram Aggarwalla v CIT 217 ITR 4 (Gau.) - CIT v. Shree Ram Memorial Foundation 158 ITR 3 (Del) - CIT v Neo poly Pack 245 ITR 492 (Del) - VOl v Kuomidini Narayan Dalal and Another 249 ITR 219 (SC) - VOl v Satish Panna Lal Shah 249 ITR 221 (SC) - CIT v Godavari Corporation Ltd 156 ITR 835 (MP) - CIT v. Girish Mohan Ganeriwalia 260 ITR 417 (P&H) -....
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....voked power under section 263 by holding that the assessment was erroneous and prejudicial to the interest of revenues because the contract under consideration was a turnkey contract and the presumptive method has no legal basis. The Hon'ble ITAT keeping in view the facts of the case (similar to the appellant) and observing the consistent method of presumptive regime of taxation, held that the power exercised by the DIT under section 263 are bad in law because as per Article 7(5) of India-Korea treaty the profits attributable to PE shall be determined by the same method followed from year by year i.e. on consistent basis. It is submitted that the appellant has also filed its return of income by following the presumptive method of taxation as applied by the revenue authorities consistently from the very beginning. Therefore, even if it is assumed (without admitting) that the appellant has PE in India, only its inside India revenues can be said to be attributable to PE in India by applying the consistent presumptive method as per Article 7(6) (synonymous to Article 7(5) of the India-Korea DTAA) which is being used by the revenue (and accepted by the appellant) from year ....
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....e assessee has given a chart of status of income declared and assessed from A.Y. 1997-98 onward on page 6 of its synopsis. The AO has rejected bifurcation of income into two categories and has worked out taxable income @ 25% of total receipts. My submissions on various issues involved are as under: Rule of consistency: It is seen that the assessee has declared its taxable income with reference to scheme of taxation envisaged u/s 44BB by declaring 10% of receipts after claiming deduction for expenses in respect of which TDS has been made. It is submitted that this approach of assessee is not in accordance with provisions' contained in section 44BB which is presumptive taxation scheme wherein 10% of gross receipts is deemed as taxable income and no deduction for any expense is allowable out of gross receipts. The assessee claims that provisions of section 44BB are applicable to it and income has been declared as per presumptive taxation scheme contained in section 44BB. But this claim of assessee is incorrect. If at all, section 44BB is applicable to assessee's case then no deduction of expenses is allowable even if tax has been deducted at source i....
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.... within 21 days after the award of work under this contract or prior to kick of meeting whichever is earlier, the contractor shall submit to the company for its approval a detailed programme showing the sequence procedure and method in which he proposes to carry out the works. (f) Clause 2.3.5.1 says that the contractor shall supply to the company an organization chart showing proposed organization to be established by him for execution of the work. (g) Clause 3.1 says the company shall pay to the contractor in consideration of satisfactory completion of works covered by scope of work under the contract. Contract price of US$ 189409310. (h) Clause 3.2.1 says pending completion of whole works, provisional progressive payment for part of the works executed by the contractor shall be made by the company on basis of said work completed and certified by the company's representative as per agreed milestone formula. This clause also says that the contractor shall open a project office in India with permission of RBI. (i) Clause 3.4.1.1 says custom duty for imported material shall be paid and borne by the contractor. (j) Clause 5.1.7.2 says ....
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....for sale of goods. This contract is for a work which is installation of offshore platform. The assessee has argued that fabrication and supply of platform is separate from installation of the platform and hence the contract can be split into two components, i.e., outside India activity comprising designing, engineering & fabrication of platform and inside India activity comprising installation of such fabricated platform. The assessee has emphasized that price of each and every component has been mentioned and paid as per milestone formula and delivery and ownership of fabricated platform was transferred to ONGC outside India. The assessee has further argued that the fact that it was responsible for paying custom duty and taking insurance policy does not mean that risk did not pass to ONGC. These contentions of the assessee are incorrect. Firstly, the payments made under milestone formula are just provisional progressive payments as mentioned in clause 3.2.1 of the contract and these are not the final price of the items concerned. Such interim payments are made to finance the big contracts so that the contractor does not have financial constraint. For this, the reliance is....
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....imately in para 65, Hon'ble ITAT has given a finding that contract obtained by assessee from ONGC is a composite contract. Further, AAR in a recent decision, namely, Roxor Maximum Reservoir Performance WLL has, following the ratio given by Hon'ble Apex court in Vodafone case, held that contract has to be read as a whole and purpose for which the contract is entered into by the parties is to ascertain from the term of the contract. A similar "look at" rather than "look through" approach has been adopted by the AAR in a subsequent decision in case of Alstom Transport SA. The principle of 'look at' and not 'look through' has been applied by Hon'ble ITAT Kolkata in case of Dongfang Electric Corporation v. DDIT ITA No. 833/Kol/2011 wherein Hon'ble ITAT has gone a step further by saying in para 11 of its order that principle of 'look at' is to be applied in a situation where there are two separate contracts; one for offshore supply of goods and second for onshore services where value assigned to onshore services is unreasonable as compared to value assigned to offshore supplies. In present case, there is only one contract and ironically as....
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....e contract is due to be completed by April 19.02.2007. Further, the said letter gave address of project office as 07.01.2006, 7th Floor, Midas Sahar Plaza, Kondivila, M.V. Road, Andheri East, Mumbai-110059. The assessee has contended that this project office existed since 1990's and it has been opened at the instruction of ONGC only. The above referred letter clearly shows that the assessee company has a project office in Mumbai for the purpose of present contract with ONGC and it is immaterial whether it was a requirement under the contract to open a project office or not. The taxability of assessee is triggered when there is a fixed place PE in India. It is pertinent to note that contract is dated 28.12.2005 so the first AY was 2006-07 wherein the assessee has accepted the existence of PE and filed its return of income. The assessment year under consideration, i.e., 2007-08 is a second year of the said contract. In this assessment year also, the assessee has accepted in its return of income that there exist a PE in India. Perusal of the chart given by the assessee on page 6 of synopsis indicates that assessee has been filing its return of income accepting that there ....
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....ra 30 of synopsis of the assessee. Paragraph 2 of article 5 says that PE includes (h) a building site or construction or assembly project or supervisory activities in connection therewith but only where such site project or activity continues for a period of more than nine months. Here, it is pertinent to note that paragraph 2 gives inclusive definition which means that it gives certain examples which could be treated as PE. This paragraph is not 'notwithstanding' paragraph 1 of article 5 which means that the examples quoted in paragraph 2 have to satisfy the criteria of PE contained in paragraph 1, otherwise it will be absurd to interpret that an office under (c) will be PE without satisfying the parameters of paragraph of article 5. So according to paragraph 2, anything mentioned from (a) to (i) will be fixed place PE if they fulfill conditions mentioned in paragraph 1. In the present case, project office falls in entry (c) which fulfills the parameters of paragraph 1. Further, according to (h) installation site will be PE if it fulfills activity parameter of duration of 9 months. Here, duration test supplements the test provided in paragraph 1. Therefore, it is clear tha....
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....ourt has held that for installation PE, a minimum prescribed period under article has to be satisfied. However, in that case the issue before Hon'ble High Court was an office under article 5(2) v. installation PE under article 5(3). In that case, there was no fixed place PE involved. In any case, Hon'ble court has never said that fixed place PE and installation PE cannot co-exist. In GIL Mauritius case, Hon'ble ITAT has held that for installation PE to exist, duration test has to be satisfied. Even in this case, there did not exist fixed place PE as the assessee was working on moving ship which did not satisfy permanence test. Regarding sub-contracting part of the job, the assessee has relied on Pintsch Bamag case. However, in this case, vital facts were that whole of the work was sub-contracted and the main contractor did not do anything and on the basis of these facts AAR held that activities of sub-contractor cannot be counted in the hands of main contractor. In the present case, the facts are totally different as only pre-engineering/pre-construction survey were sub-contracted and rest of the project was undertaken by the assessee itself. To this situation, commenta....
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....ore, business activity of the assessee does not fall within the purview of section 44BB. Further, the assessee has argued that section 44BB is applicable to inside India activity. Here, it is submitted that section 44BB does not distinguish between inside India activity and outside India activity and it prescribes taxation on gross basis. Section does not provide for any deduction of expenses even if TDS has been made thereon but interestingly the assessee has claimed deduction of such expenses and offered 10% of income on the balance receipt which is not as per provisions of section 44BB. Therefore, even assessee has not followed the provisions contained in section 44BB itself. Attribution of profits to the PE AO has determined 25% of the total receipts as profits attributable to PE. DRP has considered the profitability of various comparables and came to the conclusion that 25% rate is applied by the AO is reasonable. The contention of the assessee is that contract is divisible into two parts and has offered 1% of revenue pertaining to outside India activity and 10% of revenue pertaining to inside India activity (after claiming expenses w.r.t. which the TDS has b....
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.... in present case. In this regard, it is submitted that in case of Hyundai Heavy Industries Ltd., section 44BB was applicable. Even this has been admitted by assessee as per para 23.10 of synopsis wherein relevant para from Supreme Court's order in case of Hyundai heavy Industries Ltd. has been reproduced. Further, in para 33, Hon'ble ITAT has held that contract is divisible in Hyundai case. In present case, it has been demonstrated that contract is single, indivisible and turnkey. When Hyundai case was heard by Hon'ble ITAT C-bench, benefit of Vodafone case of Supreme Court and other cases of AAR and ITAT Kolkata was not available. Now, in view of Hon'ble Supreme Court's decision in case of Vodafone, it can not be said that present contract is divisible. Further, in para 36, Hon'ble ITAT in Hyundai case has said that during the year under consideration, the contract has been completed and receipts during the year are just carried over payments. It has been held that since 90% of payments have been taxed earlier as per agreed formula, AO can not assess 10% by adopting a different method. This is not the situation in present case. In present case, major paymen....
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....ts are not mere correspondence but these indicate definite involvement of the Mumbai Office and Arcadia Shipping Ltd. in the process of negotiation of the contract. Further, Assessing Officer observed that right from the stage of submission of tender document to the date of kick off meeting when the technical work commences, Mumbai office and Arcadia were actively involved in the process. These can not be held to be a mere preparatory and auxiliary activities as contended by assessee. Marketing is a core business function and it can not be termed as auxiliary activity. The contract between the a ssessee and Arcadia Shipping Ltd. itself says that Arcadia will provide assistance in obtaining works and active representation, promotion and support of the principal's activities in India and assistance in obtaining services and facilities in India. Thus, Assessing Officer held that it cannot be said that assessee has no P.E. in existence other than the Project Office. The Assessing Officer opined that assessee has a project office for its project in India and also the dependent agent M/s Arcadia. Further, assessee was found to be having a PE in terms of article 5(2)(h) of Indo UAE Tr....
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....as been claimed that even if it is assumed that M/s Arcadia is an agent, it is an agent of independent nature, as per Article 5(5) of the DTAA. It has been further submitted that M/s Arcadia is independent from the assessee legally and economically because Arcadia was acting in the normal course of its business and receiving an arm's length remuneration directly from ONGC. Hence, it has been claimed that M/s Arcadia cannot be held to be a dependent agent as per Article 5(4) of the DTAA. In fact, neither it has authority to conclude or negotiate contracts on behalf of the appellant, nor, it habitually secures orders for appellant because appellant is dealing with ONGC which is a public sector undertaking awarding contracts under the International Competitive Bids only and not based on negotiations. 11.1 Upon careful consideration, we find that The assessee itself had shown the Project Office as its PE in India in earlier years as well as in the year under consideration. The assessee has changed its stand that it has no PE in the form of Mumbai Project office during the course of assessment proceedings. Further, assessee has in its letter to RBI stated that the Mumbai Office i....
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....t since pre-bidding meetings, hard core marketing and business development and till finalization of the contract. Assessing Officer as well as DRP have given a finding that letters and correspondence indicate M/s Arcadia is an agent. It is further noted from the documents obtained by the Assessing Officer that in the application to the ministry of Home Affairs the address of employees of NPCC was given as ARCADIA Shipping. From the perusal of the documents related to pre-bid meeting gathered by the AO from ONCG, it is noted that the employees of ARCADIA were attending pre-bid conferences and other meetings on behalf of NPCC. We further find considerable cogency in the Assessing Officer's arguments that M/s Arcadia Shipping is wholly and exclusively for work of NPCC, which is a precondition for dependent agent permanent establishment. The AO has supported his argument with some documentary evidence. The Assessing Officer and DRP have also referred to para of the contract between NPCC and ARCADIA. In these documents assessee has categorically been referred to as the principal which automatically implies a principal agent relationship with the person who is authorized to act wholl....
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....as commissioned. Thus, the period to determine whether it was beyond 9 months, would be form the date of physical receipt of platform in India till the same is commissioned and thus the authorities had grossly erred when it had been observed by them that the contract was entered in November, 2005 and completed in April, 2007 and further, the project site was as its disposal from the very beginning since the contract was awarded and the assessee undertook the survey activity. The assessee has claimed that activities of the assessee in India in respect of the project lasted only 4½ months. 11.5 Ld. Departmental Representative submitted that it is the claim of the assessee that installation activity continued for a period of less than 9 months, therefore, there is no installation PE in India. In this regard, assessee has calculated the period starting from date of entry into India of barges. As per Article 5 of the relevant DTAA, it has been mentioned that PE includes (h) a building site or construction or assembly project or supervisory activities in connection therewith but only where such site project or activity continues for a period of more than nine months. Ld. Depart....
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....arification given by the ONGC. Referring to the same, the Assessing Officer observed that the documents bring out in unequivocal terms that the ownership of the fabricated material remains with the assessee contractor till the completed project is handed over to the ONGC. Assessing Officer noted that the assessee has been mainly relying upon the schedule of milestone payments stipulated in the agreement where value of each item of work is indicated, the currency in which the payment is to be made is also indicated and the rate of payment is equally stipulated. Assessing Officer found that as clarified by ONGC these milestone payments are in the nature of 'provisional progressive payments' pending completion of the whole work. Assessing Officer further observed that the clause relating to insurance, payment of custom duty, re-import in the case of loss/damage etc. only reinforce the view. Assessing Officer further observed that there is no sale of any material. The ownership of the material got transferred only on the completion of the work which was also in India. The deployment of men and material was in India. The import was made by the assessee on its own account and the....
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....rom the surveys of pre-engineering, preconstruction, pre-installation, designs, engineering, procurement etc. Further Ld. Departmental Representative submitted that from the ratio emanating from the Hon'ble Apex Court decision in the case of Vodafone, contract has to be read as a whole and purpose for which the contract is entered into by the parties is to be ascertained from the term of the contract. 15. The assessee in this regard has submitted that the subject contract may be construed as an umbrella contract, yet it is a divisible contract, since under the same contract, the consideration for various activities have been stated separately. Furthermore, there is a complete bifurcation of the activities to be carried out under the contract with consideration for each specific activity. Assessee submitted that though the relevant contract with ONGC, though fashioned as turnkey but not a turnkey contract in spirit and substance. It has been further submitted that on study of the said contract, it would be appreciated that ONGC may terminate the contract, as per clause 8.2, 7.5.5 and or 7.4, and in the event of termination of the contract, assessee shall be eligible for the f....
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....88 ITR 408. Assessee has further submitted that assessee fabricated the platform in Abu Dhabi and after fabrication, said platform is brought to India with the help of its barges and then the possession is handed over to ONGC. In this regard, it has been submitted that it is significant to note that before sailing the platform after fabrication, the same is certified by ONGC through it's approved surveyor. Furthermore, as per the insurance policy though to be taken by the assessee but ONGC is the joint beneficiary in the policy. Furthermore, insurance policy also exhibits that, in case there is a loss suffered in the course of transportation the payee of the insured amount would be ONGC. Hence, it was submitted that so far as the activities of construction of plat forms is concerned, though physically the same is sailed through barges, but the same is completed in and is constructively handed over to ONGC in Abu Dhabi. The submissions of the assessee therefore is that ONGC became defacto owner since the assessee company erected the platform only to be delivered to ONGC in respect of which it is also entitled to receive separate consideration from ONGC. It is thus submitted that....
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.... that though the assessee's income cannot be taxed in India in view of the beneficial provisions of the DTAA as it has no PE in India due to aforesaid reasons, the assessee, however, keeping in mind the past trend where presumptive rate of profit was applied and accepted by the appellant and the revenue, the assessee, in the interest of revenue, agreed to be taxed for the relevant assessment year as in the past. It has further been submitted that the facts and circumstances as prevalent in preceding years have remain unchanged and, therefore applying the rule of consistency, the income declared may be assessed and, no more. It has further been submitted that a decision rendered by the ITAT, Delhi on 31st May, 2011 in respect of the Hyundai Heavy Industries Company Limited [ITA No, 2086 & 2087/Del/2009] also supports the assessee's submissions that even if it is assumed that without admitting that the assessee has PE in India, it could only be held to be taxable only to the extent profits attributable to PE in India. 17. Upon careful consideration, we are of the considered opinion that the contract may be construed as an umbrella contract yet is a divisible contract since....
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....various activities has been mentioned separately in the 4WPP contract as inside India and outside India as is evident from the Annexure-C (Contract price scheduled and rental rates schedule) of the contract. (ii) The scope of work as mentioned in the contract has been clearly bifurcated into the activity carried out in Abu Dhabi and India. (iii) The invoices issued by the appellant to ONGC specifically mention the consideration for outside India activity and inside India activity in accordance with the pricing schedule. Such invoices have been duly accepted/confirmed by ONGC and payment made thereon. (iv) The Annexure-E of the contracts provides milestone payment formula based on which ONGC has made payment to NPCC from time to time. (v) Insurance cover taken by NPCC on the fabricated platform. The insurance cover explicitly shows that material procurement and fabrication work has been carried out in Abu Dhabi. (vi) The Surveyors report issued at the time of load out of fabricated platform at Abu Dhabi port. These reports amply demonstrate that NPCC had fabricated the platforms in its Abu Dhabi yard. 17.3 We further find that turnkey ....
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....nstallation permanent establishment 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 the ONGC. Therefore, the profits on such supplies of fabricated platforms cannot be said to be attributable to the permanent establishment." "In cases such as this, where different severable parts of the composite contract is performed in different places, the principle of apportionment can be applied, to determine which jurisdiction can tax that particular transaction. This principle helps determine, where the territorial jurisdiction of a particular State lies, to determine its capacity to tax an event. Applying it to composite transactions which have some operations in one territory and some in others, is essential to determine the taxability of various operations" In Hyundai Heavy Industries Company Limited (ITA No 2290 & 2291 of DEL/2002 (ITAT) read with ITA No 42 of 2007 (Utt. HC) following the Supreme Court judgement reported in 291 ITR 482 following was held:- "It has been noted by the Hon'ble Apex Court that the installation PE emerged only after the contract with th....
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....t of Hon'ble Apex Court, we find that in the previous two years, there is no dispute regarding quantum of profit embedded in the Indian operation attributable to Indian PE of the assessee and hence this clause of para 15 is not applicable in the present two years which are before us. We, therefore find no reason to interfere in the order of Ld CIT(A) in both these years." The aforesaid proposition has also been followed by the Mumbai Tribunal Roxon OY v. DCIT (103 TTJ 891 (Mum). "As far as art. 7(1)(a) is concerned, the profits attributable to the supplies under the turnkey contract can be brought to tax in India only when we are to hold that the profits attributable to PE will include the profits on supplies under the turnkey contract. In our humble understanding, such an interpretation will be incorrect, for several reasons. Firstly, a profit earned by an enterprise on supplies which are to be used in a construction or installation PE for such supplies, cannot be said to be attributable to the PE because PE comes into existence after the transaction giving rise to supplies materialized. The installation or construction PE, in such a case, is a stage posterior to t....
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....sessee has contended that taxability of the assessee should be the same as in preceding years. Earlier assessee has declared income @1% of outside India revenue & 10% of inside India revenue after claiming expenses on which TDS has been made. Assessee has claimed that this formula of declaring income was adopted by the Assessing Officer in A.Y. 1997-98. Subsequent to A.Y. 1999-2000, the assessee did not file audited accounts but simply declared the taxable income on the basis of above referred formula. 17.7 It has been submitted that the facts and circumstances, as prevalent in the preceding years, have remained unchanged and therefore, applying the rule of consistency, the income declared may be assessed and no more. In this regard, assessee has placed reliance upon catena of case laws. We find that the above said contention is not sustainable. 17.8 We agree with the contention of the Ld. Departmental Representative that any formula or any agreement whatsoever arrived at between the assessee and department which is against the provision of law is not enforceable under the law. The Revenue is not bound to follow and perpetuate the mistake which has been committed in the past.....
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....ent foreign company and accordingly, its entire income is liable for tax deduction under section 195 of the Act. Thus, ONGC, payer/deductor, had made payments to NPCC after deducting taxes in pursuyance of withholding tax certificate issued by the income tax authorities. In this background, it has been submitted that NPCC was not liable to pay advance tax and could not have committed any default in paying advance tax. Hence, it has been argued that NPCC cannot be made liable to pay tax u/s. 234B of the Act. In this regard, assessee has also placed reliance upon the several case laws: - D.I.T. v. General Electric International Inc. 323 ITR st 46 (SC) - National Petroleum Construction Company v. JCIT, Spl. Range Dehradun in I.T.A. No. 1772/Del/2001 - C.I.T. v. Sedco Forex International Drilling Co. Ltd. 264 ITR 320 (Uttaranchal) - Judgement of Delhi High Court in the case of D.I.T. v. Jacabs Civil Inc. in I.T.A. No. 491 of 2008. - D.I.T. v. NGC Network Asia LLC 313 ITR 187 (Bom). - Motorola Inc. v. DCIT 95 ITD 269 (Del.) - D.I.T. v. NGC Network Asia LLC 32 ITR 46. - Xelo Pty Ltd. v. DDIT 32 SOT 338 (Mum). 22. ....