TaxTMI 
TaxTMI 
2018 (8) TMI 438
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....the activities of the Appellant constitutes a Permanent Establishment ('PE') under Article S(2)(g) of the Double Taxation Avoidance Agreement between India and Cyprus ('Tax Treaty') and thereby computing taxable income of Rs. 5,84,96,79S (being 10% of gross receipts of Rs. 58,49,67,946) by applying provisions of Section 44BB of the Income-tax Act, 1961 ('IT Act'). 2. On the facts and in the circumstances of the case and in law, the learned ADIT has erred in proposing and the DRP has further erred in upholding / confirming that the Appellant (who was a subcontractor) was responsible for multifarious functions under the contract and not mere rock placement functions by incorrectly referring to scope of work of the main Contractor (Allseas Marine Contractors SA). 3. 0n the facts and circumstances of the case and in law, the learned ADIT has erred in proposing and the DRP has further erred in upholding / confirming the date (i.e. September 2007) of visit of the employee for collection of data and information for tendering of the contract as the date of commencement for computing the threshold period of the PE instead of April 2008 when the project execution st....
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....re of the vessels in India. The assessee's submission before the AO in this regard has been dealt at pages 2 and 3 of the impugned assessment order. Ld. AO after examining the scope of work, deduced that assessee was carrying various functions as per the contract which has been enumerated at page 4 of the assessment order which for the sake of ready reference is reproduced herein below:- "5.2 Upon examination of scope of work of the assessee the following functions to be performed by the assessee are noted- -Detailed engineering, design and analysis -Procurement of bulk items and material and equipment -Manufacture, fabrication and testing -QA/QC -Project planning -Interface management - Transportation -Pre-engineering and pre-construction surveys -Sea-bed preparation - Pre- Trenching - Post trenching -Installation of offshore and onshore facilities -Burial/Engineered Backfill - Post -installation and as built survey -Pigging and hydro-testing of all pipelines and subsea flow-line and chemical jumpers - Pre commissioning of the subsidiary-sea production system. * Mechanical completion, testing and pre-commissioning of all subsidiary....
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.... out by the assessee has to be seen, as to what are the activities carried out by the assessee in India under the terms of the contract. Drawing our attention to various clauses of the contract, he first of all submitted that assessee has given its 'intent' to AMC to undertake all the works concerned with rock dumping and spreading and it has represented for construction, installation, rock dumping etc. The scope of function and work as incorporated by the AO in the impugned order was in fact outline and scope of work which AMC has to undertake for its contract with its principal. The assessee was given responsibility of only part of the work which has been given in section 3 of the "Scope of work" which is appearing at pages 335 to 337 of the contract. Under the said scope of work the assessee was required to carry out rock transport and delivery which included transportation and safety measures; scope of supply and construction, installation of the temporary facilities and site restoration. All the activities which have been noted by the AO and also endorsed by the DRP in fact pertained to AMC and not to the assessee. This fact is clearly borne out from the contract and is also e....
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....hat assembly project or installation PE can only be construed as a fixed place of business only when an enterprise commences its activity at the project site. An activity which may be related or incidental to the project but which is not carried out at the site in the source company would not constitute as PE. Here in the present case, the ratio laid down by the Hon'ble High Court if applied, then under no circumstances it can be held that there is any kind of PE of assessee in India. 5. On the other hand Ld. CIT (DR), first of all emphatically relied upon the assessment order and directions of the DRP. He further submitted that the 'contract' itself indicates that the assessee's personnel were required to visit India and assessee's employee did visit India in the month of September, 2007 and the activity continued much beyond September 2008. That is, the assessee was involved in the installation project much before the effective date of contract (4th Jan, 2008) for the purpose of carrying out the activities in relation to the contract. The date of arriving of vessel/barge should not be taken as a date of commencement of the activities for the purpose of computing the duration in ....
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....nd consequently stay near, the site much before the effective date. This is what the AO has emphasized and for this the details of the visit and stay of the project manager Mr. H. Beljaars (PB page 279) was called for. Unfortunately, although Mr. Beljaars had been to India since as early as September 2007, (Refer DRP page- 4, para-3.2.2), the assessee has not provided the relevant details (stay, passport / visa stampings). 6. PB page 295 - 295: The Schedule 13 'Responsibility Matrix' of the assessee (contractor) as well as that of the 'company'. The Responsibility of the assessee includes: a) Transportation Engineering and Construction Engineering (points 1.5 and 1.7). This goes to show that the work is much more intricate than mere dumping / filling of rocks. The site is under water or at least offshore. These would have required the assessee to be at the site to study and prepare for even accepting / signing the contract. b) Fabrication (point 3): This requires onshore activities. c) Surveys (point 5.10): Also includes pre-installation survey. This indicates that the work was not as simple as made out to be. d) Point 7.3: Establishing onshore sto....
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....ntractor has provided the As-Built Drawings........ C. .......... D. The contractor is in compliance with all of its other obligations......(Emphasis provided) Seen against the above backdrop, the date of completion of activities is not the date of completion or the date of issuance of a certificate of completion as per Clause 17(2) or Clause 17(3) of the contract, but rather the Final Completion Certificate issued under Clause-17(8) (PB page-223) of the contract. The Completion Certificate produced by the assessee (page-49 of PB-1) is issued under Clauses 17.2 and 17.3 only and not under Clause 17.8 as provided in the Contract and hence cannot be taken as the date of the completion of the activities for the purpose of computation of the duration of activities within the meaning of Art. 5(2) (g) of DTAA." 6. Thus, he submitted that the date of commencement and the date of completion cannot be taken from the 4th January, 2008 to 25/30th September, 2008, because for the reasons stated above by him. Accordingly, he concluded that here in this case the threshold period of 12 months had crossed and therefore, there is PE in terms of (5)(2)(g). 7. We have heard the rival subm....
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....k dumping work scope. Attend other HAZOP and QRA workshops as required by Company. 3.2 Scope of Supply Company will provide FIM via its other contractors, as detailed in Section 16. With the exception of FIM, Contractor shall procure all materials including temporary, permanent and consumable materials required for execution of the work. These shall include; Temporary installation aids Consumables and spares for installation All equipment and marine spread as required Contingency equipments All first aid and safety supplies Sea fastening materials Complete survey and positioning equipment Any other equipment, material, supplies, services not specifically mentioned herewith but required to carry out the scope of work. Contractor shall carry out expediting, inspection, surveillance of vendor works whenever required to ensure that the purchased equipment and items will meet all quality requirements and will be delivered to meet the project schedule. 3.3 Construction and Installation of the Temporary Facilities Contractor shall arrange and install all the temporary facilities to enable the works. All the temporary facilities shall be removed and the ....
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....should be treated as extension/continuation of the installation activity; thirdly, there was pre-engineering survey and soil investigation studies under the scope of work for which assessee has made surveys much before the effective date which is 4th January,2008; fourthly, the assessee has not provided any relevant details of arrivals and stay etc., of the employees visiting India prior to the date of contract; fifthly, the responsibility matrix as appearing in Schedule 13 shows that assessee was required to carry out other various activities which required pre installation activities and also to obtain various permits and authorisations which has also been taken as part of installation activity itself; and lastly, the completion certificate as given by the assessee does not reflect the final completion, because there was a condition that final completion certificate would be given once various conditions have been satisfied and till the final completion certificate is issued the activity of the project has to be construed as continuing. 10. From the material placed on record, we find that prior to the entering of the contract, one of the employees of the assessee company, Mr Har....
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....ding site or construction or assembly project or supervisory activities in connection therewith" would also constitute a PE of an enterprise subject to that site, project or activity continuing for a period of at least nine months. Clearly, the purpose of the said clause is also to include a building site or a construction or an assembly project as a PE by itself. On a plain reading, a PE constituted by a building site or a construction or an assembly project, would commence on the commencement of activities relating to the project or site. The said clause is also to be read harmoniously with paragraph 1 of Article 5 of the DT AA which necessarily entails a fixed place of business from which the business of an enterprise is carried on. Thus, a building site or an assembly project could be construed as a fixed place of business only when an enterprise commences its activity at the project site. An activity which may be related or incidental to the project but which is not carried out at the site in the source country would clearly not be construed as a PE as it would not comply with the essential conditions as stated in paragraph 1 of Article 5 of the DTAA. It is necessary to unders....
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....th the building site or assembly project. 36. The activities at site carried on by any contractor through a sub-contractor would not count towards the duration of the contractor's PE, as in that case, the construction site or project cannot be construed as a fixed place of business of the contractor and would fail one of the essential tests of paragraph I of Article 5 of the DTAA. This, of course, would not hold good if the contractor's office or establishment- in the source country (i.e. where the site/project is located) is also involved along with the sub-contractor. 37. In the present case, the Assessee claims that the survey was conducted by an independent third party engaged by the Assessee and that too for a period of 9 days in one instance and 27 days in another (from 27.02.2006 to 07.03.2006 and 25.04.2006 to 21.05.2006). The Assessee commenced its activities at site when the barges entered into the Indian Territory on 19.11.2006 and such activities relating to the installation, testing and commissioning of the platforms continued till 27.04.2007. Thus, the Assessee's activity at site would indisputably commence on 19.11.2006 and continue till 20.04.2007,....