TaxTMI 
TaxTMI 
TaxTMI 
2017 (11) TMI 2023
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....ocurement and Construction (EPC) basis. A complete specification and scope of work of each of the two joint ventures was described in the Detailed Letter of Acceptance (DLOA), dated/08/2006, that the DLOA also specified the total lump sum contract value for the work to be carried out under the contract, that based on the contract agreements, a sub contract agreement was entered into between the JV and the assessee on 03/10/206, that the assessee received the total sum of Rs. 16.69 crores for the work completed during the year under appeal as per the terms and conditions of the contract, that it had bifurcated its receipts into three parts namely Engineering and Offshore Services (services rendered in UK Rs.15.07 crores), offshore services and commissioning (services rendered in India-Rs. 24.85 crores) and offshore procurements (Rs. 27.74 crores), that it treated the offshore procurements for spare machine parts equipments as income not taxable in India, that it offered the balance income for taxation under the provisions of section 44BBB of the Act. He directed the assessee to explain as to why the gross amount, including the amount earned for offshore procurements, should not be b....
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.... in Indian rupees was taken as an exercise in procurement conducted wholly outside India, that RP PGL did not intend to procure material independent of construction contract, as per the terms of the contract RP PGL did not be at the risk on the change in the procurement value of the materials/equipment, that procurement of material was inextricably linked with the performance of the entire contract and could not be subdivided, that the stand taken by the assessee between dealing with India and dealing with India was not acceptable, that it was not the case that the procurement of equipment/spares was done for purposes unrelated to EPC contract, that exercise of civil construction and its subsequent testing and commissioning with respect to turnkey project required a complex mix of material and skill, that it could not be reduced to two separate contracts-one for supply of material and the other for application of skill, that the assessee had permanent establishment at the site of the jetty in Indian waters, that the purchase order had originated from the site of the construction, that it was immaterial whether technically sale was completed on high seas or not, that the establishme....
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....re contractual revenue on account of offshore procurement could not be brought to tax under section 44BBB of the Act, that the consideration received by the assessee for offshore supply of equipment was not chargeable to tax in India, that the AO was not justified in making addition of Rs. 27.74 crores on account of offshore procurement. 4. During the course of hearing before us, the Departmental Representative (DR) argued that that the contract agreement was a composite contract, that the total consideration received for the assignment could not be broken into watertight and independent compartments as attempted by the assessee, that the breakup of lump sum value was merely indicative of the factors that would govern the total contract value, that the assessee was trying to colour an arrangement for operation and maintenance as a contract for procurement of goods, that the contract was a single event to achieve a specific purpose, that it was impossible to separate consumption of material and civil construction from the DLOA, that the supply of material for the overall scope of work was not a contract independent of the contract for completion of balance work on jetty, that the i....
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....egasifi cation facility in Gujarat. The contract specified the role and responsibility of each member of the consortium and the consideration to be paid separately for the respective work of each member. The appellant was to develop, design, engineer, procure equipment, materials and supplies to erect and construct storage tanks including marine facility (jetty and island breakwater) for transmission and supply of LNG to purchasers, to test and commission the facilities, etc. The contract involved : (i) offshore supply, (ii) offshore services, (iii) onshore supply, (iv) onshore services and (v) construction and erection. The price for offshore supply and offshore services was payable in US dollars, that for onshore supply and onshore services and construction and erection partly in US dollars and partly in Indian rupees. The payment for offshore supply of equipment and materials supplied from outside India was received by the appellant by credit to a bank account in Tokyo and the property in the goods passed to Petronet on the high seas outside India. Though the appellant unloaded the goods, cleared them from Customs and transported them to the site, it was for and on behalf of Pet....
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....a. (ii) That having regard to article 7(1) of the Convention for Avoidance of Double Taxation and Fiscal Evasion with respect to Taxes on Income between India and Japan read with paragraph 6 of the Protocol supply of equipment or machinery (sale of which was completed abroad, the order having been placed directly by the overseas office of the enterprise) would be within the meaning of the phrase "directly or indirectly attributable to that permanent establishment" and, therefore, so much of the amount received or receivable by the appellant as was directly or indirectly attributable to the permanent establishment as postulated in paragraph 6 of the Protocol would be taxable in India. The price of the offshore services would be deemed to accrue or arise u/s. 9(1) (vii)of the Act. And inasmuch as fees for technical services were specifically provided in article 12 of the Convention, they would not fall under article 7. Therefore, the price of the offshore services was taxable in India under the Act as well as the Convention. (iii) That, however, in view of section 115A(1)(b)(B) of the Act and article 12(2) of the Convention, tax was payable at the fixed rate of 20% of the gross amoun....
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.... permanent establishment. If income arose without any activity of the permanent establishment, even under the Convention the taxation liability in respect of overseas services would not arise in India. Section 9 spelled out the extent to which the income of a non-resident would be liable to tax in India. Section 9 had a direct territorial nexus. Relief under a Double Taxation Avoidance Treaty, having regard to the provisions contained in section 90(2), would arise only in the event taxable income of the assessee arose in one Contracting State on the basis of accrual of income in another Contracting State on the basis of residence. So far as accrual of income in India was concerned taxability must be read in terms of section 4(2) read with section 9, where-upon the question of seeking assessment of such income in India on the basis of the Double Taxation Treaty would arise. Paragraph 6 of the Protocol to the Convention was not applicable, because, for the profits to be "attributable directly or indirectly", the permanent establishment must be involved in the activity giving rise to the profits. (v) That the fact that the contract was signed in India was of no material consequence....
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....le 7 of the Convention would be applicable, as services rendered outside India would have nothing to do with the permanent establishment in India. Thus, if any services had been rendered by the head office of the appellant outside India, only because they were connected with the permanent establishment, even in relation thereto the principle of apportionment would apply. (xi) There exists a distinction between a business connection and a permanent establishment. The permanent establishment cannot be equated to a business connection, since the former is for the purpose of assessment of income of a non-resident under a Double Taxation Avoidance Agreement, and the latter is for the application of section 9 of the Income-tax Act. Clause (a) of Explanation 1 to section 9(1)(i) states that only such part of the income as is attributable to the operations carried out in India, are taxable in India. The existence of a permanent establishment would not constitute sufficient "business connection", and the permanent establishment would be the taxable entity. The fiscal jurisdiction of a country would not extend to taxing the entire income attributable to the permanent establishment. ....