2017 (4) TMI 1635

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....onshore work at Hazira. The assessee received Rs. 73,36,73,348/- for the work executed outside India but pertaining to this contract. The AO treated 2% of such receipts as income and assessment was completed at an income of Rs.15,26,89,530/- without allowing the carry forward of the losses. The Assessing Officer held that the assessee had a Permanent Establishment (PE) in India with respect to its Hazira Offshore Development Project for Niko Resources Ltd. He therefore took at 2% of the receipt as income and did not allow beneficial treatment to the assessee in terms of the provisions of section 90(2) of the Income Tax Act, 1961 which provide that the provisions of the Income Tax Act that are more beneficial to the assessee have to be applied where DTAA exists with the native country of a non-resident assessee. It was the assessee's contention before the Assessing Officer that since the assessee was engaged in the business in connection with exploration and production of mineral oils, the provisions of section 44BB were applicable and, therefore, the income should have been worked out u/s 44BB of the Act. It was the assessee's contention that no work had been done in India in respe....

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.... department and withdrawn in subsequent year, should not be taxed in granting of interest. 3. That on the facts and the circumstances of the case and in law, the CIT (A) has erred in upholding the levy of interest under section 234D of the Act." ITA No. 4771/Del/2007 - filed by the revenue: "1. The learned CIT (Appeals) has erred in law and on facts in deleting the addition of Rs. l,46,73,467/- in respect of Hazira Project by holding that the work in respect of this project was performed outside India without appreciating the fact that the assessee had a PE in India and the contract is for composite work and only part portion of contract was carried outside India by sub contracting that part to sub contractor. 2. That the ld.CIT (Appeals) has erred in law and on facts in relying upon the decision of Hon'ble Supreme Court in the case of Hyundai Heavy Industries the work was carried out before the PE was created with is not the case in the case of the assessee company. 3. That the ld.CIT(Appeals) has erred in law and on facts in allowing set of loss for A.Y. 2001-02 on the basis that the order u/s 263 passed by CIT has been cancelled by the 1TAT....

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....example of effective connection between the PE and the income as the indebtedness is closely connected with the funds of the PE. However, the same cannot be said in respect of interest on income-tax refund. Such interest is not effectively connected with PE either on the basis of asset test or activity test. Accordingly, it is held that this part of interest is taxable under paragraph no. 2 of Article XL Thus, the ground referred to the Special Bench is partly allowed. The Division Bench shall dispose off the appeal in conformity with this order." 2.5 Subsequent to the order of the Special Bench, a division Bench of the ITAT Delhi disposed of both the appeals vide order dated 29/02/2012 partly allowing both the appeals for statistical purposes. 2.6 However, the assessee moved Miscellaneous Applications against the order dated 29/02/2012 passed by the ITAT which were allowed and the order was recalled vide order dated 31/12/2013 in MA Nos. 88 and 89/Del/2012. 2.7 Now these appeals have come up for hearing before this Bench. 2.8 At the outset, Ld. DR submitted that it has been the Department's contention during earlier hearings that the revenue has already filed an appeal....

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....tural resources in that State; or" The phrase 'in connection with' has an expansive meaning and is same as 'having to do with' or 'in relation to'. In other words, a slightly remote connection may suffice for being covered under relevant provisions. 2. This needs to be contrasted with the phrase 'used, or to be used' which emphasizes that there has to be a direct or close nexus. 3. The scope and ambit of the words 'in connection with' has been explained by the AAR in its decision in Geofizyka Torun Sp.zo.o, In re, [2010] 186 TAXMAN 213 (AAR), relevant portion of which is reproduced below: "6.1 The expression 'in connection with' is important and has to be construed to have expansive meaning. While explaining the meaning of similar and interchangeable expressions viz. "pertaining to" and "in relation to", the Supreme Court observed in the case of Doypack Systems (P.) Ltd. v. Union of India 1988 (36) ELT201 "48. The expression 'in relation to' (so also 'pertaining to'), is a very broad expression which presupposes another subject-matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect....

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....view of these judicial precedents on the scope of the words 'in connection with', the assessee's claim regarding the applicability of provisions of IndoAustralia DTAA was not acceptable. Ld. CIT DR also submitted that the department's ground regarding set off of losses may be restored to the file of the Assessing Officer for due verification and examination.  3.5 In response, the Ld. AR placed reliance on the order of the Ld. CIT(A) and submitted that the Ld. CIT(A) has given a concrete finding that from the invoices, it was clear that the engineering services were sub-contracted to a Singapore based company and that the services were provided in Singapore only. Ld. AR submitted that the Ld. CIT (A) has given the finding that as per the contract, the work in respect of the Hazira project was performed outside India, the Assessing Officer was not right in treating 2% of the receipts as income. 3.6 Ld. AR further submitted that the assessee was in the business of setting up infrastructure for exploration of oil which consisted of only laying through the pipelines and therefore, the assessee's case would not fall within the ambit of the phrase 'in connection with'. Ld. AR a....

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....ct. A perusal of the impugned order shows that the Ld. CIT appeals has given the relevant finding in paragraph 3.2 of the impugned order which reads as under: "I have gone through the order of the AO and the submissions of the AR very carefully. The appellant is a contractor with reference to the contract entered with M/s Niko Resources. The technical requirements in the form of design, engineering specification etc have been provided by M/s Niko Resources to the appellant who has to execute the contract as per the specifications. It is an admitted fact that all the activities with reference to Niko contract were carried out by the appellant completely outside India. Even the inside India activities did not commence before 2004 and the appellant had not established any office/place of business in India in relation to Niko contract in FY 2002 - 03. It is a settled position that PE has to be reckoned project wise. During the previous year ending on 31.03.2003, appellant has undertaken only a part of the activity relating to designing and this work was carried out entirely outside India. The Supreme Court judgement in the case of Ishikama Heavy Industries Ltd 271 ITR 193 has ....