BELLSEA LTD.,GURGAON vs. DDIT (INTERNATIONAL TAXATION), NEW DELHI

Brief facts of the case are that the assessee is a company incorporated and a tax resident of Cyprus. During the financial year 2007- 08, assessee was awarded a contract by Allseas Marine Contractors, S.A.(AMC) in relation to the development of the Dhirubhai 1 and Dhirubhai 3 gas fieldslocated offshore in the Krishna Godavari Basinof the East Coast of India. The work on the contract commenced in April 2008 and was completed in September, 2008 i.e. the activity of assessee continued for a period of six months. In the draft assessment order for AY 2008-09, Ld. AO held that the assessee had a PE in India. During the course of hearing, assessee was asked to explain as to why it should not be regarded to constitute a Permanent Establishment (PE) in India as per Article 5(2)(g) of India-Cyprus Tax Treaty following the assessment order for AY 2008-09. Assessee submitted that as per the provisions of Article 5(2)(g) of the DTAA, a non-resident engaged in construction activities in India would be considered as having a PE in India only if the construction activity continues for a period exceeding twelve months; that the assessee does not constitute a PE as the activities under the contract lasted for less than 12 months.

Ld. AO passed the order dated 30.1.2012 u/s 143(3)/144C observing that for the reasons recorded in the assessment order for the AY 2008-09, the assessee is held to have PE in India in terms of the duration of assessee’s operation in India. While holding that conclusion, ld. AO stated that the assessee has been doing installation and assembly and its role is not confined to mere rock placement in the river section for protection of pipelines and that the assessee’s case is squarely covered by Article 13 of the DTAA since the assessee was providing services which are of a technical, managerial consultancy in nature. On that premise, ld.AO made an addition of Rs.9,99,34,354/- being 10% of the gross receipts of the assessee at Rs.99,93,43,540/-. Aggrieved by such an addition, assessee preferred an appeal. Ld. CIT(A) dismissed the appeal and confirmed the addition made by the AO.

Assessee is, therefore, in this appeal before us contending that as per the contract with AMC, the role of the assessee was confined only to mere rock placement in river section and the assessee has been doing mere construction activity. They further submitted that the activity under the contract lasted for the period of less than 10 months and, therefore, under Article 5(2)(g) of Indo Cyprus DTAA, there exist no PE in India. Ld. AR submitted that the Ld. AO had taken the date of commencement of the activity of the assessee for the purpose of determining the existence of PE from the date of the visit of one of the employees, namely, Mr. HarryBeljaars in September, 2007 but such visit of Mr. Harry was only to collect data and information to bid for the contract with AMC and, therefore, cannot be reckoned for the purpose of determination of duration u/s 5(2)(g) of the DTAA.

According to the ld. AR, the assessee was awarded contract only on 4.1.2008 by AMC and for discharging all contractual obligations, the assessee mobilized its first vessel to India on 23.2.2008 and, therefore, it cannot be said that the activities of the assessee under the contract ends at any time earlier to 23.2.2008. He has further submitted that contract work was complete by 30.9.2008 and, therefore, the period to be reckoned for the purpose of determination of PE under Article 5(2)(g) does not satisfy the threshold period of 12 months.

He further submitted for the AY 2008-09 in assessee’s own case, a coordinate bench of this Tribunal dealt with this issue at length and reached a conclusion that the threshold period of 12 months was not exceeded in the case of the assessee and consequently, no PE was established under Article 5(2)(g) of the DTAA. He submitted that the facts being identical and the period of six months is distributed in two assessment orders, finding of the Tribunal in assessee’s own case for the AY 2008-09 is relevant for this assessment year also and clinches the issue.

Learned DR vehemently relied upon the orders of the authorities below and submitted that for all practical purposes under Article 5(2)(g) of the DTAA, the duration of assessee’s operation in India have to be counted from the visit of its employee in September 2007 and they have lasted well beyond the period of 12 months as contemplated in Artice 5(2)(g) of the DTAA.

In so far as the date of completion, the Contract provides the completion date of 1st August, 2008, whereas as per the material placed on record and also the payment schedule etc., points out that all the activities connected with the project including the receiving of the payments was before 30th September 2008 and even the completion certificate mentions 30th September 2008. Though certain formalities for final completion certificate may have exceeded one or two months but still it will not make the continuity of the activity where it has been brought on record that the last barge sailed out or was decommissioned from India on 25th September, 2008 and the entire payments were received on or before that date. The activity qua the project comes to an end when the work gets completed and the responsibility of the contractor with respect to that activity comes to end. Here activity of the assessee qua the project as per the terms of contract had come to an end on or before 30th September, 2008 for the reason that; firstly, last sail out of barge/vessel was 25th September 2008 and Customs authorities have also certified the demobilization by this date; secondly, all the payments relating to contract work were received by the assessee much before the closing of September, 2008; thirdly, the completion certificate too mentions the date of completion as 30th September, 2008, though the formalities of final completion certificate may had exceed until November 2008, but the date mention for completion in the certificate is 30th September 2008 only; and lastly, there is nothing on record to suggest that any activity post completion has been carried out beyond 31st December, 2008 or the project of the assessee was not completely abandoned before the period of 12 months. The contentions raised by the Ld. CIT DR in his submissions, both for the starting period and final end date of the installation project is without any factual material to support. His inference are based on presumptions that for carrying out such a work and to comply with the certain conditions of Contract there must have been substantive activity before the effective date; and after the date of decommissioning of the project/ demobilisation certain formalities must have been carried out. Such a contention sans any corroborative material cannot be accepted, because the onus is heavily upon the revenue to establish that that assessee’s activity had crossed the threshold period of 12 months and hence constitutes PE in India in terms of Article 5(2)(g) so as to tax the receipts in India as per Article 7.

Thus, on the facts and material on record and in view of our reasoning given above which is in consonance and in line with the principle laid down in the Hon’ble Jurisdictional High Court, we hold that threshold period of 12 months have not exceeded in the present case and consequently no PE can be said to have been established in Article 5(2)(g) . Accordingly, we hold that no income of the assessee on the Contract executed by assessee in India can be held to be taxable in terms of Article 7. Thus ground raised

In the result, appeal of the assessee is allowed. Order pronounced in the open court on 18th November, 2019.