TaxTMI 
TaxTMI 
2018 (11) TMI 200
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....is a company incorporated under the laws of Mauritius filed its return of income on 28/11/2006 declaring total income of Rs. nil. As per the computation of total income it was stated that assessee company was found to be incorporated under the laws of Mauritius and is a tax resident of Mauritius. It was claimed that it is eligible to claim the benefit of Double Taxation Avoidance Agreement between India and Mauritius (the DTAA). During the year, the assessee has rendered the services under the subcontract with HHI and VMGL in connection with prospecting for extraction or production of mineral oil in India. Therefore in view of section 90 (2) of the act the revenue earned by the assessee would be taxable in accordance with the provisions of article 7 of the DTAA. According to article 7 of DTAA provides that the business profit earned by a resident of state of Mauritius shall be taxable in India, only if the resident of Mauritius carries on business in India through a permanent establishment situated in India. It was further provided that only so much of the profit as are attributable to the permanent establishment shall be taxable in India and in view of article 5, the assessee does....
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....trong case for the said permanent establishment to assume the character as described in article 5 (2) (g) of the DTAA. He further held that there is no time limit prescribed in that clause as in clause (i) of the article. Therefore he held that where relevant details are not available, assessee would not be able to take a shelter under one case of GIL Mauritius wherein it has been presumed that case would fall under article 5 (2) (i) of the DTAA. He further held that this presumption is further fortified by the fact that appellant has not been able to lead any evidence to show the nature and location of his permanent establishment. He further held that there is a strong case appears to be made for considering the permanent establishment under article 5 (2) (g) of the DTAA. He further held that appellant's case does not fall under section 44BB of the act even though the work is connected with the oil industry, he therefore held that since the permanent establishment of the appellant cannot be understood as having the characters as mentioned in clause (a) to (i) of article 5 (2) of the DTAA, the case of the assessee would fall in either article 5 (1) as in the form of case or in arti....
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....ned Commissioner of income tax appeals has distinguished the above decision. He further stated that it is for the Department to show that income is chargeable to tax according to the Indian income tax act and under double taxation avoidance agreement. For this he relied upon the decision of 95 ITR 269. He further stated that permanent establishment is required to be proved by the revenue and for this; he referred to the decision of the coordinate bench in case of the Right florist. He further referred to the article 5 (2) (g) of the double taxation avoidance agreement and stated that clause applies only when assessee must have exploration and mining or an oil well or gas well or any other place of extraction of natural resources as an ‗owner'. He submitted that assessee is merely providing services on such places and therefore the permanent establishment cannot fall under article 5 (2) (g) of the double taxation avoidance agreement. He further referred to the decision of coordinate bench in ITA number 2546/MUM/2009 for assessment year 2005 - 06 in case of cloud projects international Ltd wherein in para number 2 the services were provided on such places and it was held that a....
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....ract has commenced with effect from 15/9/2004 whereas the assessee is saying that that such contract has commenced with effect from 1/12/2004. In view of this, he submitted that the duration of the stay of vessel in India is not determinative of the commencement of contract. He further submitted that if the correct details are not provided to the assessing officer then on what basis the learned assessing officer would decide the issue. He further stated that the learned Commissioner appeals directed the assessing officer to conduct enquiry as per page number 9 of the appellate order. He further stated that based on that , the assessing officer issued letter to the assessee vide page number 129 of the paper book for producing certain details , they were neither produced before the assessing officer nor before the learned CIT appeal. He further referred to para number 11 of the order of the Commissioner appeals where there is no compliance by assessee, so he submitted that therefore under what circumstances the assessing officer can be asked to prove the duration of the existence of the permanent establishment. He further referred to page number 13 of the Commissioner Appeals order w....
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....the assessing officer to show what is the duration of the contract executed by the assessee. He therefore vehemently stated that duration is not ascertainable on the basis of record submitted by the assessee. They are also contrary to what been stated before the lower authorities. He further referred to page number 129 - 130 of paper book where assessee itself has listed 7 contracts which were under progress during the period for which return for FY 2004 - 05 been filed. He submitted that this was part of a reply submitted by the assessee before the assessing officer. He further stated that out of the seven contracts, only two contracts were provided before the assessing officer and it is not known when these contracts commenced and what is date of completion of those contracts. He further referred to para number 10.1 of appellate order in case of assessee for assessment year 2007 - 08 in ITA number 5686/del/2010, where on the basis of the data furnished by the assessee, duration falls short only by about 20 days, therefore the matter was set aside. He submitted that in the impugned appeal, assessee has not submitted the details either at assessment stage or at appellate stage and ....
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....he AO has any doubt about the contract then the AO should have enquired about those contracts which was not done. Now at this stage it cannot be stated that these certificates were not in order. With respect to the order of the ITAT for assessment year 2007 - 08, he submitted that in that year the shortfall was just 20 days however in this year it is not at all so and therefore there is no reason for setting aside this issue back to the file of the learned assessing officer. With respect to schedule 3 of the contract where the learned CIT DR has stated that there is no time schedule appended and is blank, he submitted that it does not have any time schedule and therefore it is blank. In view of this, he submitted that the revenue authorities have incorrectly taxed the income of the assessee holding that it constitutes a permanent establishment in India. 10. We have carefully considered the rival contentions and the orders of the lower authorities. The assessee has entered into two contracts. The 1st contract was entered into between Hyundai heavy industries Co Ltd and the assessee for riser lamp and crossing installation work in respect of ONGC Mutt pipeline project. This contra....
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....hich were no longer required therein. The appendix - 2 is schedule of price and payment. Such prizes and payment includes project management fees on lump-sum basis, engineering and procurement fees on lump-sum basis and further mobilization of the vessel and equipment including personnel. The further payments are with respect to the demobilization of the vessels equipments and personnel etc. Therefore it is apparent that the commencement of the work cannot be taken from the date of entering of the vessel into India because only not the vessel is required to be mobilized by the assessee sub contractor into India but much more than the vessel , several key persons were also required to be mobilized in India. Further, the assessee has also not given exact date of the commencement of the work but has stated that such details are not available. The reliance is also placed on an undated certificate issued by the HHI which even does not mention the date on which the work commenced and on which the work was completed. It is also not the certificate, which has been used for making the final payment to the assessee because it does not have any approval in terms of the contracts. No documenta....
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....or work according to the specification, the assessee shall formally request for the issuance of the provisional acceptance certificate in respect thereof, which will show that all such works have been properly undertaken and completed. On the basis of the request of the subcontractor, assessee, which shall be supported with the on-site work completion certificate for each unit or face of the subcontractor work signed on behalf of both the parties. On receipt of such request of the assessee, the contract consortium shall deliver to the assessee the related provisional acceptance certificate. Therefore, on the reading of the contract it is apparent that when the provisional acceptance certificate is issued by the main contractor to the assessee the contract gets completed. The scope of subcontract work is listed in appendix 1 of the contract. According to the scope of the work, it is similar to the contract number 1 stated above where the assessee is required to establish a dedicated project team headed by subcontractors project manager for the purpose of proper execution of the subcontract work. The personnel of the assessee are also required to be dedicated on a full-time basis. It....
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....y in Mauritius and not in India. Article 5 of the DTAA agreement between India and Mauritius provides as under :- MAURITIUS ARTICLE 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of the enterprise is wholly or partly carried on. 2. The term "permanent establishment" shall include- (a) a place of management ; (b) a branch ; (c) an office ; (d) a factory ; (e) a workshop ; (f) a warehouse, in relation to a person providing storage facilities for others ; (g) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources ; (h) a firm, plantation or other place where agricultural, forestry, plantation or related activities are carried on ; (i) a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more than nine months. 1 [ (j) the furnishing of services, including consultancy services, by an enterprise through ....
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....acting in the ordinary course of their business. However, when the activities of such an agent are devoted exclusively or almost exclusively on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph. 6. The fact that a company, which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other Contracting State (whether through a permanent establishment or otherwise) shall not, of itself, constitute either company a permanent establishment of the other. 13. For considering the permanent establishment in Article 5(2) (i) the threshold duration is 9 months. Contract duration of contract one and two both are less than the above threshold and therefore assessee does not have a permanent establishment as per that article. 14. The ld CIT (A) has also held that assessee has permanent establishment under Article 5 (2) (g) of the DTAA. The main reason for holding so is that the work of the assessee is connected with oil industry. He held that on the facts of the case appellant does not have PE as per....
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....le supreme court in 2017-TII-17-SC38 INTL in FORMULA ONE WORLD CHAMPIONSHIP LTD Vs COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION-3 DELHI & ANR has held that:- "27) The principal test, in order to ascertain as to whether an establishment has a fixed place of business or not, is that such physically located premises have to be 'at the disposal' of the enterprise. For this purpose, it is not necessary that the premises are owned or even rented by the enterprise. It will be sufficient if the premises are put at the disposal of the enterprise. However, merely giving access to such a place to the enterprise for the purposes of the project would not suffice. The place would be treated as 'at the disposal' of the enterprise when the enterprise has right to use the said place and has control thereupon. 28) Some of the illustrative cases decided by courts of different jurisdictions given by Baker in his commentary are contained in the following passages from that book: (i) In the Canadian case of William Dudney v. R (1999) 99 DTC 147, the taxpayer was a resident of the United States who was contracted to supply training to employees of a Canadia....
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....les had a PE in Belgium (Cour de Cassation of February 15, 1980 (1980) J1. De Droit Fiscal 321). The taxpayer had an office 3m by 6m at his disposal on the premises of his principal supplier in Belgium, together with telephone and telex, where the taxpayer and four of his staff worked. 29) According to Philip Baker, the aforesaid illustrations confirm that the fixed place of business need not be owned or leased by the foreign enterprise, provided that is at the disposal of the enterprise in the sense of having some right to use the premises for the purposes of its business and not solely for the purposes of the project undertaken on behalf of the owner of the premises." Hence the argument of the ld AR that oil well is not owned by the assessee and therefore there is no PE under that clause does not hold any water and hence rejected. 16. Now coming to the facts of the case, the assessee was acting as a sub contractor with HHI and valentine Consortium for certain specialized job on ONGC Mumbai Uran terminal water projects. The ld CIT (A) has hled that work of the assessee is of transporting the already mined product to the uran plant for further processing. While decid....