TaxTMI 
TaxTMI 
2009 (1) TMI 302
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....me from certain Indian parties in respect of the above services, details of which is given below: ----------------------------------------------------------- Particulars Amount (Rs.) ----------------------------------------------------------- Licensing to know-how 1,11,69,990 ----------------------------------------------------------- Consideration for basic engineering services 1,99,55,124 ----------------------------------------------------------- Consideration for supervisory services 5,50,76,506 -----------------------------------------------------------  ....
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....cians had not visited India individually for more than six months still it could be said that supervisory activities continued for a period exceeding six months because the assessee was under obligation to supervise the installation of the project till the project was completed. According to him, the projects took years for completion and, therefore, it could not be said that the supervisory activities did not continue for more than six months. Accordingly, it was held by him that assessee had PE in India and, therefore, the fees for technical services received by it were taxable @ 30 per cent. 6. The matter was carried in appeal before the learned CIT(A) before whom it was claimed that fees for technical know-how and basic engineering services could not be taxed @ 30 per cent since both these services were rendered from Germany and, therefore, the question of any PE in India did not arise in respect of such services. The learned CIT(A) accepted this contention. The Department is not in appeal before the Tribunal against such finding of the learned CIT(A) and therefore, we have not narrated the relevant arguments of the parties and the detailed reasons given by the learned CIT(A....
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....Germany. - Carrying out supervisory activities in connection with certain installation/construction/assembly projects in India.' Insofar as the decisions of the Tribunal relied upon by the appellant are concerned, it would suffice to say that both these decisions relate to asst. yr. 1990-91, when the old Indo-German treaty was in existence, which did not include supervisory activities within the concept of PE in art. 5 of the treaty. Therefore, in view of the above position this contention of the Authorised Representative cannot be accepted." 9. Proceeding further, he examined the other contention of the assessee in the light of the other treaties between India and Spain as well as India and UK and then held as under: "A reading of the above provision will show that the contention of the Authorised Representative is misplaced. Both Indo-Spain and Indo-UK DTAAs provide for constitution of PE vis-a-vis supervisory activities in the following circumstances: (a) Supervisory activities in connection with a building site or construction, installation or assembly project where such activities continue for a period of more than six months; or (b) Supervisory activity bein....
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....ary interruptions are included. Time spent by subcontractors is counted as time spent by the general contractor; however, their work may form their on separate PEs, if it lasts for more than 12 months. The 12 months test includes the time spent at the site by the partners and the employees in case of a partnership. Each partner is considered to have a PE, regardless of the time spent by the partner himself. The time frame normally applies to each individual site or project. Where several contracts are factually interrelated, the 12 months period is aggregated. Thus, several geographically and commercially connected sites within a State may be treated as a single installation, even if based on different contracts. The projects for the same client, concurrently or consecutively, as part of the same constructional entity or on the same site may be identified as one project. A building site may form a single unit even if the orders are placed by several persons (e.g., for a row of houses). The nature of the same project may require continuous or frequent relocation as the project progresses.' Thus it is evident from the above that the counting of period for a construction PE s....
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....ect of fees for technical services received from the above three Indian concerns. As far as the other projects are concerned, it, was held that fees for technical services was liable to be taxed @ 10 per cent as per art. 12(2). 12. Aggrieved by the aforesaid findings of the learned CIT(A), the Revenue has preferred the appeal to the Tribunal by raising the following grounds: "On the facts and circumstances of the case and in law, the CIT(A) erred in treating the income from supervisory fees, project-wise, applying the 6 months period to each project separately, although the entire supervisory income was attributable to the PE of the assessee in India, as per art. 5 (2)(i) of the new double taxation treaty with the Federal Republic of Germany notified on 25th Nov., 1996 and applicable from asst. yr. 1998-99. And thus erroneously taxed part of the supervisory fees at the concessional rate of 10 per cent under art. 12(2) of DTAA between India and Germany as against s. 115A of the IT Act." 13. On the other hand, the assessee has challenged the findings of the learned CIT(A) by raising the following grounds: "2. That the learned CIT(A) has erred in holding that the assessee ....
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....sp; assessee's personnel in India ----------------------------------------------------------- 1. Indian Petrochemicals Corpn. Ltd. 03-1180 80 days ----------------------------------------------------------- 2. Indian Petrochemicals Corpn. Ltd. 03-1180 63 days ----------------------------------------------------------- 3. Coromandel Fertilizers Ltd. 18-1198 15 days ----------------------------------------------------------- 4. PACL 05-1200&....
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....----------------------------------- 2. Indian Petrochemicals Corpn. Ltd. 03-1180 73 days ----------------------------------------------------------- 3. Punjab Alkalies & Chems. Ltd. 05-1200 6 days ----------------------------------------------------------- 15. However, the AO was of the view that overall supervisory activity should be taken into consideration in determining whether there is a PE in India or not. The AO rejected the claim of the assessee by observing as under: "6.3 From the above details it is clear that the overall supervisory activities of the assessee company in India exceeded six months. The assessee has taken a plea that there should be continuous supervisory activities for more than six months and 6 months test is to be applied in respect of each contract separately. Such interpretation is not acceptable, since the assessee is under obligation to supervise the installation of the projects till the project is complete. In this case, the aggregate of the assessee's presence in India to be considered while deciding the issue. If all the days are taken toget....
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....ther while determining the scope of PE they had specifically provided as such. For example, treaty between India and Denmark has specifically provided that all sites should be taken together. Similar provisions are made in the treaties entered into with China, Australia, USA, Canada, etc. In view of the same, it has been submitted that the Contracting States, while drafting the DTAA between India and Germany, were aware of such provisions in other treaties and despite that they did not make similar provisions under art. 5 in the DTAA between India and Germany. Therefore, the period of stay in respect of other sites could not be taken into consideration by the lower authorities while determining the existence of PE in India. 18. The second contention of the assessee's counsel is that the commencement of the period of PE qua the supervisory activity should have been taken from the date when the supervisory activity itself commenced and not from the date when the project was started by the Indian concern. It has been contended that there may be different independent contracts awarded by an Indian company to various persons or even to the same persons and in such cases, there would ....
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....n of the Commentary by Klause Vogel quoted by the learned CIT(A) in his order. Reliance was also placed on the decision of the Tribunal in the case of Steel Authority of India Ltd. vs. Asstt. CIT (2007) 110 TTJ (Del) 265 : (2007) 105 ITD 679 (Del). 21. In reply, it has been submitted by the learned counsel for the assessee that the assessee is not engaged in the business of supply of plant and machinery and the activity is restricted to activities for providing the basic engineering services, technical know-how and supervisory activities in connection of the establishment of the plant. In this connection, the assessee was asked to file an affidavit. In response to the same, an affidavit of Shri C.S. Mathur, holding power of attorney of the assessee, has been filed and the same would be discussed at the appropriate place if required. 22. Rival submissions of the parties have been considered carefully. The first question for our determination is whether the overall view should be taken into consideration in determining the existence of PE. The stand of the Revenue is that all the sites under different contracts should be taken together while determining the existence of PE whil....
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....together with other such sites, projects or activities, if any) continue for a period of 183 days or more. (Since sub-cls. (a) to (j) are not relevant, the same are not reproduced above)." Similar provisions have been made in art. 5 of the various treaties entered into by India with China, USA, Canada, Italy, etc. It is pertinent to note that Indo-German treaty came into existence vide Notification dt. 29th Nov., 1996 while the other treaties mentioned above (except Canada) were in existence prior to 29th Nov., 1996. Hence, it is clear beyond doubt that India was aware of such provisions while drafting Indo-German treaty. Therefore, it appears to us that contracting parties deliberately deviated from such provisions by not including the words 'together with other such sites, projects or activities'. Accordingly, it cannot be said that other sites can also be taken together for determining the scope of PE in India. 25. We have also gone through the Commentary (Third Edition) by Klause Vogel At p. 308, it is said 'the rules is that a minimum period should be determined for each building, site or construction or installation project concerned (Cour d' Appel Anvers 25 ET 224, ....
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....the entire project is commissioned successfully. Therefore, the date of commencement of the project can be considered as the date of commencement of the PE. On the other hand, the case of the assessee is that it was concerned only with the supervisory activity since other work was done by the Indian party. Therefore, the date of commencement of the PE would be the date when the activity of supervision commenced. In our opinion, the contention of the Revenue is too extreme to be accepted. There may be different contracts for carrying out the different works even at the same place. For example, the contracts for the construction of building, supply of plant and machinery, installation of plant and machinery, commissioning of such plant and supervision work in connection with the above work may be awarded to various independent parties. It would be absured if all the contracts are considered together. A project may start, for instance, in May, 1993 with construction of building which may be completed in June, 1994, then installation of plant and machinery may take another two years and commissioning of the same may be done in August, 1996. In such case, a person may be awarded the sup....
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.... part of the sentence in art. 5(2)(i) of the DTAA. As already observed in the preceding para. the period can be counted from the date of commencement of the project only where there is one single indivisible contract for various activities undertaken by the non-resident. Whether the contract is one single indivisible or not would depend on the facts of each case. Where different contracts are awarded which are not inter-dependent on each other then the period of six months would be counted separately in respect of each activity since there is no effective connection between the various contracts as held by the Co-ordinate Bench in the case of Sumitomo Corporation. 31. In view of the above discussion, it is held that if the supervisory activity is carried out under a separate and independent contract then the minimum period of six months would commence only when such activity itself had commenced and not from the date of the project. 32. The next question for our consideration is whether the intervening period caused on account of various factors should be excluded while computing the minimum period of six months. The contention of the assessee that intervening period should b....
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....sidering the rule that period commences when the activity commence and ends on the completion of the contract, we are of the view that the minimum period of six months has to be counted irrespective of the years involved. An activity may start in January and may end in July. In such case the total period is more than 6 months but fails under two financial years. If the period of each year is to be counted then in each year period would be less than 6 months. Such construction, in our opinion, would defeat the object behind such provisions. In this connection, we may also usefully refer to p. 307 of Commentary by Klause Vogal wherein in para (c) it is stated as under: "(c) ............... It makes no difference to the time test whether the activities in question extend over more than one calendar year or one assessment period. If part of the period were to be in one year, and the remainder in the next, this would not prevent a PE from coming into existence. For the calculation of the time-limit when applying a DTC in the New German Lander (former GDR), see FinMin Sachsen-Anhalt of 12th Feb., 1992, St. Ed. 157 (1992)." In view of the above discussion, it is held that the minimu....
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....upply of the equipment. Further, it is seen that the contract with CAL was executed on 6th Sept., 1996 while the period of activity shown in asst. yr. 1998-99 is 21 days but it is not clear as to when such activity commenced. Therefore, it is not possible to ascertain the minimum period of six months under art. 5(2)(i). 35. As far as contract with KSCL is concerned, it is not clear as to when this agreement was executed. However, on the first page, the date of 23rd Feb., 1995 is mentioned at the bottom of the page while on the top of the page there is stamp dt. 16th March, 1995. In the present case, we are concerned with the asst. yr. 1998-99. However, there is no material on record to determine as to when the supervisory activities commenced in respect of such contract. Accordingly, it is not possible to determine the minimum period of six months in respect of this contract also. 36. The contract with Gujarat Alkalies and Chemicals Ltd. is only for supervisory activity. Further perusal of this contract shows that it was entered into somewhere in the calendar year 1993 which is apparent from art. 9 of the contract. The date of signing the contract is not available. Article 3 ....
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....sessee is the beneficial owner of the same then rate of tax shall not exceed 10 per cent. Hence, the contention of the assessee's counsel that no tax shall be levied is without force. Further, art. 7 would apply only if the case of the assessee falls under art. 12(5). Article 12(5) applies only where the assessee has a PE in India. However, the grounds of appeal states that art. 7 would apply in the absence of PE in India. The ground raised is therefore, misconceived. On the other hand, if art. 7 applies then the rate of tax applicable would be that which is provided under art. 115A of the Act which is 30 per cent in the year under consideration. The learned CIT(A) has directed the AO to charge 10 per cent rate of tax where there is no PE in India. In our opinion, there is no infirmity in the order of the learned CIT(A) on this issue. The additional ground raised by the assessee, therefore, has to be dismissed. 40. The next issue arises from ground Nos. 6 and 7 in assessee's appeal which reads as under: "6. That the learned CIT(A) has erred in holding that amounts received by the assessee towards reimbursement of expenses were liable to tax as 'fees for technical services'. ....