TaxTMI 
TaxTMI 
2017 (10) TMI 307
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....e authorities below in all the other years have followed their respective orders of this year. In the grounds of appeal the assessee has raised following grounds:- "1. The Commissioner of Income-tax (Appeals)-II, Dehradun CIT(A)) erred in confirming the Assessing Officer (AO)'s action of holding that the Anchor Handling cum Tug Supply Vessel provided to the Oil and Natural Gas Corporation Limited (ONGC) would constitute a Permanent Establishment (PE) of your appellants under Article 5(2) of the Double Taxation Avoidance Agreement between India and Denmark (DTAA). Your appellants pray that the finding be deleted and the assessment be set aside. 2. Your appellants submit that the CIT (A) ought to have appreciated that the illustrative examples given in Article 5 (2)of the DTAA constitute a PE only if they meet the requirements of Article 5(1) thereof, i.e., the place of management /. office, etc. must itself be fixed before it can be held to constitute a PE. Your appellants pray that the assessment be deleted. 3. The CIT(A) erred in upholding the AO's action of determining your appellant's income by applying a deemed profit rate of 10% under sec....
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....nt (PE) in India in terms of Article 5 of DTAA. During the course of the assessment proceedings the assessee submitted that it neither has any fixed place in the form of 'place of management'; branch; office; factory; workshop; etc., nor there is any installation of structure used for the exploration and exploitation of the natural resources as ship cannot be held to be an installation or structure; or in terms of any of the clauses (a) to (j) of para 2 of Article 5 of DTAA. When the assessee does not have any PE in India, then no income can be said to be attributable to be taxed in India in terms of Article 7. 4. The ld. Assessing Officer did not accept the assessee's contention, and held that the assessee company has a PE under Article 5(2)(a) being a 'place of management' under the Indo- Denmark DTAA and Indo-UKDTAA and therefore, its receipts from ONGC is taxable in India. His entire conclusion was based on commentary on 'UN model' which according to his understanding states that 'place of management' may also exist where no premises is available or required for carrying on business and it is sufficient if it simply has certain amount of s....
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....lant. The counsel of the appellant has argued that the place of management cannot be a ship because within such premises, the control and. management of the brain of the corporation is not situated and the decisions are taken elsewhere for the operations of the equipments. The test for consideration of the place of management is that the important and significant decisions are taken from, the said premises and the activities have a managerial character. Further, it has been argued that as per the OECD Model Convention Commentary, in paragraph 12 to Article 5, place of management must itself be fixed before it can constitute a PB. Thus, in nutshell, it has been submitted that AHTS is a ship having no fixed location or place of business. In absence of any PB in India, the income received by the appellant cannot be charged to tax. In support of the same reliance been placed on the decision of ITAT, Delhi Bench in the case of ACIT v. Interocean Shipping (India) (P) Ltd.,, reported in 51 ITD 582. The ship is undoubtedly not a place of management, as no managerial decisions of the appellant have been carried out within its premises. Thus, under Article 7 of the DTAA, the income, if any, ....
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.... NRC was having a PE within the meaning of Article 5 of the DTAA and, therefore, the revenue of the appellant has been conectly held to be taxable in India by application of deemed profit rate of 10% u/s 44BB of IT Act and no interference is called for in this respect. 6. Before us, the Id. Sr. counsel, Mr. Porus Kaka, submitted that the entire thrust of the Assessing Officer as well as the Id. CIT (Appeals) is that, there is a 'place of management' in terms of Article 5(2)(a) of Indo Denmark DTAA and Indo UK DTAA. Heavy reliance has been placed on UN commentary by both the authorities, which at the face of it has been grossly misinterpreted by them. He first of all, drew our attention to relevant clauses of the 'agreement' and also the scope of work included in AHTS and pointed out that the entire work is for a supply of vessel which cannot be contemplated as fixed place'. He also pointed out that the vessel which has been supplied to ONGC is under supervision, control and direction of the charterer i.e. ONGC and the owner (assessee) has to ensure that the vessel is available for the operation as per the direction of the charterers. Thus, the assessee despit....
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....agement' much less for carrying on business in India. The management of the assessee company is in Denmark and UK where the decisions relating to the business etc. are taken and not on the vessels. The control and management means controlling and directive power and here in this case, definitely it cannot be said that such controlling and directive power was operated from ship/vessel. He also made reference to commentary of Mr. Arvid A. Skaar on the concept of 'place of management'. Regarding reliance placed on commentaries of UN Model, he pointed out that both the authorities have only referred to certain phrases from the para 8 of the commentary and have not considered the entire paragraph, wherein it has been emphasized that the 'place of business' is a fixed place and if an enterprise of a state lets out or leases facilities or equipment etc., then it will not constitute a PE of a lessor, if the contract is limited to lease of equipments etc. Hence, even under the UN Model it cannot be held that the PE of assessee exists in India. Thus, hire of vessel and its operation cannot qualify for a 'place of management'. Finally, in support of his contention,....
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....he goods or not, it would be difficult to say that the amount was payable on account of the carriage of goods. Under the terms of the charter-party, the owners of the ship received the amount as charges for the use and hire of the ship. The character of the payment cannot change according to the use to which the charterers put the ship or according as to whether the ship is loaded with goods in a port in India. What is payable as hire charges for the use of the ship cannot transform itself into an amount payable on account of the carriage of goods, by reason of the circumstance that the ship was loaded with goods in India. Therefore, it was held that the income is in the nature of hire charges of vessel and are not taxable in India. In the present case also if we apply the same ratio here in this case, then the hiring is for fixed period irrespective of whether services are, performed or the personnel are used. The remuneration is not dependent on services but is like a time charter being essentially a hiring of the vessel. Therefore, the agreement to provide the vessel on hire, on the basis of daily charges with crew not being employees of the appellant and operating under the con....
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....in the off shore areas of operation in India. The contractor/owner, i.e., the assessee company is the owner of the AHTS vessel, that is, the assessee company has agreed to provide to supply the vessel along with crew and master and operate and maintain the AHTS on the terms and conditions mentioned in the agreement. The relevant terms enumerated in various clauses are briefly discussed as under:- ♦ Clause 1.3 deals with the definition the term "Charterer's operations" and sets the various assignments/ services to be undertaken by the vessel along with master & crew, as per scope of the work has been set out in Schedule B. ♦ The scope of work includes anchor handling operations, supply operations between base and offshore, towing operations etc This being a supply vessel hence it cannot be a fixed place as contemplated for it under Treaty to be a PE. ♦ Clause 1.11 describes the 'Charterer' to means ONGC. Clause 1.12 describes the "Owner" to mean, the Contractor with whom the Charterer has entered into agreement for charter hire of the vessel. ♦ Clause 1.13 describes 'On hire' to mean, the duration when t....
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....ligations of the charterer (i.e. ONGC) ♦ Clause 12.1 requires to provide free of cost following to the Owner; supply of all lubricants, greases. However, in the event of non-availability of any lubricants/grease, the Owner could procure the same on reimbursable basis at actual cost; and supply of fuels and water required by the vessel. However the Charterer will recover towards cost of fuel, lubricants, greases and water when the vessel is under repair beyond the permissible downtime. Further the following clauses relating to warranty and indemnity also are relevant to substantiate that the agreement is for hire of a vessel as against a service agreement:- ♦ Warranty clause as set out in clause 3.2 wherein the assessee shall at the date of commencement date (delivery of the vessel) and thereafter throughout the terms of the agreement shall provide the vessel that fulfill the description, particulars and capabilities. This suggests that the contract is for hire of vessel and equipment on board and does not relate to services as the services are performed per the direction of the charterer. ♦ Similarly the indemnity clause 21.6 al....
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....nts of the Id. DR that employees belong to the assessee stands negated by the Tribunal in assessee's own case and also affirmed by the Hon'ble High Court. Whence the employees do not belong to the assessee; nor are they within the direction and control of the assessee, then it cannot be reckoned that these employees constitute a PE in terms of either 'Service PE' or the assessee is rendering its activities through its employees in India for a period of 183 days or more. 14. Now, coming to the main contention of the revenue that vessel operated under the agreement forms a "place of management" in terms of Article 5(2)(a) and therefore, the business profit of the assessee should be taxed under Article 7. Here in this cannot be disputed that the management of the Assessee Companies is either in Denmark or in UK where the decisions relating to the. business arc taken. The concept of control and management of the business alludes to a concept of a place where controlling and directive power rests, that is, where the head and brains of the enterprise is situated and where the decisions are being taken. The 'place of management' must have power to make significa....
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....aintenance of the ICS equipment under the direction, responsibility and control of lessee. If the personnel have wider responsibilities, for example participation in the decisions regarding the work for which the equipment is used, or if they operate, service, inspect and maintain the equipment under the responsibility and control of the lessor, the property, the activity of the lessor, the activity of the lessor may go beyond the mere leasing of ICS equipment and may constitute an entrepreneurial activity. In such a case a permanent establishment could be deemed to exist if the criterion of permanency is met ........" 16. Thus, if any facility, equipment or building or any intangible property is leased out to a third party through a fixed place of business maintained by an enterprise of contracting state in other state, then it will constitute a permanent establishment. However, if a contract is limited to mere leasing out of such facility equipments etc., then it will not constitute a PE if the contract is limited to mere leasing of equipment. Here in this case also vessel given on hire by the assessee company to ONGC, for ONGC's operation will not qualify for a 'place....